January 30, 2017 Li Vi Ju, Catalino M.
Silangil, Raymundo Santos, Peter Sy, and Wilson
G.R. No. 206617
PHILIPPINE NUMISMATIC AD ANTIQUARIAN SOCIETY, Petitioner
vs.
GENESIS AQUINO, ANGELO BERNARDO, JR., EDUARDO M.
CHUA, FERNANDO FRANCISCO, JR., FERMIN S. CARINO,
PERCIVAL M. MANUEL, FERNANDO M. GAITE, JR., JOSE CHOA,
TOMAS DE GUZMAN, JR., LI VI JU, CATALINO M. SILANGIL,
RAMUNDO SANTOS, PETER SY, and WILSON YULOQUE,
Respondents
DECISION
PERALTA, J.:
Before us is a Petition for Review on Certiorari1 under Rule 45 of the
Rules of Court which seeks the reversal of the Decision 2 dated
September 6, 2012, and Resolution3 dated March 19, 2013 of the
Court of Appeals (CA) in CA-G.R. SP No. 113864, which affirmed the
dismissal of Civil Case No. 09- 122709 entitled Philippine Numismatic
and Antiquarian Society. Inc. v. Genesis Aquino, et al. by the Regional
Trial Court (RTC), Branch 24, Manila.
The factual antecedents are as follows:
Petitioner Philippine Numismatic and Antiquarian Society, Inc. (PNAS)
is a non-stock, non-profit domestic corporation duly organized in
accordance with Philippine Laws. 4 On October 29, 2009, petitioner
filed a complaint with the RTC, Branch 24, Manila docketed as Civil
Case No. 09- 122388 5 praying for the issuance of a writ of a
preliminary injunction against respondent Angelo Bernardo, Jr. The
complaint was verified by respondents Eduardo M. Chua, Catalino M.
Silangil and Percival M. Manuel who claimed to be the attorneys-in-
fact of petitioner as per Secretary's Certificate attached to the
complaint. Petitioner was represented by Atty. Faustino S. Tugade as
counsel. 6
On December 22, 2009, another complaint 7 was filed by petitioner
against respondents Genesis Aquino, Angelo Bernardo, Jr., Eduardo
M. Chua, Fernando Francisco, Jr., Fermin S. Carino, Percival M.
Manuel, Fernando M. Gaite, Jr., Jose Choa, Tomas De Guzman, Jr.,
Yuloque docketed as Civil Case No. 09-122709 praying that the
Membership Meeting conducted by defendants on November 25,
2008 be declared null and void. It is, likewise prayed that a temporary
restraining order or a writ of preliminary injunction be issued for the
defendants to desist from acting as the true members, officers and
directors of petitioner. The verification was signed by Atty. William L.
Villareal. 8 The petitioner was represented by Siguion Reyna
Montecillo and Ongsiako Law Office. 9
On January 26, 2010, considering that there were two different paiiies
claiming to be the representative of petitioner, the RTC issued a Joint
Order directing the parties to submit within fifteen (15) days from
notice the appropriate pleadings as to who are the true officers of
PNAS and to submit all the documentary exhibits in support of their
respective positions. 10
Only respondents Eduardo M. Chua, Tomas De Guzman, Jr., Catalino
M. Silangil, Peter Sy, Fernando Francisco, Jr., and Percival M.
Manuel in Civil Case No. 09-122709 complied with the aforesaid Joint
Order. In their Memorandum, they alleged that Atty. William F.
Villareal who signed the verification in the complaint was not
authorized by the Board of Directors of PNAS to institute the
complaint in behalf of petitioner corporation, and that his action in
filing the complaint is an ultra vires act and was in violation of Section
23 of the Corporation Code. 11 The aforesaid respondents also filed
their Answer dated January 29, 2010.
On the part of respondents Genesis Aquino, Angelo Bernardo, Jr., Li
Vi Ju, and Raymundo Santos, they filed a Special Entry of
Appearance to Question the Issue of Improper Service of Summons
and Notices and Motion to Defer the Proceedings Until All the Said
Issues Have Been Resolved. Petitioner then filed a Motion to Declare
Defendants in Default and for Judgment Based on the Complaint
dated February 10, 2010. Petitioner likewise filed a Request for
Admission 12 dated February 17, 2010.
Subsequently, on March 15, 2010, the RTC issued a Joint
Order 13 dismissing the complaint, thus:
1
The failure of plaintiff represented by Atty. William F. Villareal who
alleged in the complaint that he is the President of Philippine
Numismatic and Antiquarian Society, Inc. and its duly-authorized
representative to file the appropriate pleadings and submit
documentary exhibits relative to his authority to file the instant
complaint for and in behalf of plaintiff Philippine Numismatic and
Antiquarian Society, Inc. as mandated by the order of this Court
during the hearing on January 26, 2010 lends credence to the
assertion of defendants that he has no authority to represent plaintiff
and to file the complaint in Civil Case No. 09- 122709. Consequently,
the court has no other recourse but to order the dismissal of Civil
Case No. 09-122709
Accordingly, Civil Case No. 09-122709 entitled Philippine Numismatic
and Antiquarian Society, Inc. versus Genesis Aquino, Angelo
Bernardo, Jr., Eduardo M. Chua, Fernando Francisco, Jr., Fermin S.
Carino, Percival M. Manuel, Fernando M. Gaite, Jr., Jose Choa,
Tomas De Guzman, Jr., Li Vi Ju, Catalino M. Silangil, Raymundo
Santos, Peter Sy, and Wilson Yuloque is hereby ordered DISMISSED.
This Order likewise renders moot and academic the Motion to Declare
Defendants in Default and For Judgment Based on the Complaint filed
by plaintiff in Civil Case No. 09-122709.
SO ORDERED. 14
Petitioner then filed a Petition for Review15 dated May 12, 2010 with
the CA under Rule 43 of the Rules of Court, in relation to A.M. No. 04-
09- 07 dated September 14, 2004. In a Decision dated September 6,
2012, the CA dismissed the petition.
Petitioner filed a motion for reconsideration, 16 but the same was
denied by the CA on March 19, 2013.
Hence, this petition, raising the following issues:
I stands to be benefited or injured by the judgment in the suit, or the
THE COURT OF APPEALS COMMITTED A GRAVE ERROR WHEN
IT UPHELD THE DISMISSAL OF THE INTRA-CORPORATE CASE
FOR PURPORTEDLY BEING A NUISANCE SUIT;
II
THE COURT OF APPEALS COMMITTED A GRAVE ERROR WHEN
IT REFUSED TO CONSIDER, CONTRARY TO ESTABLISHED
JURISPRUDENCE, A BOARD RESOLUTION/SECRETARY'S
CERTIFICATE AS PROOF OF AUTHORITY TO FILE INITIATORY
PLEADINGS FOR AND ON A COMPANY'S BEHALF;
III
THE COURT OF APPEALS DEPARTED FROM THE USUAL
COURSE OF PROCEDURE WHEN IT DISMISSED THE CASE ON
PROCEDURAL GROUNDS RATHER THAN ON THE MERITS AND
THUS PRECLUDING PETITIONER FROM A JUST AND PROPER
DETERMINATION OF ITS CASE. 17
We deny the petition.
There is no question that a litigation should be disallowed immediately
if it involves a person without any interest at stake, for it would be
futile and meaningless to still proceed and render a judgment where
there is no actual controversy to be thereby determined. Courts of law
in our judicial system are not allowed to delve on academic issues or
to render advisory opinions. They only resolve actual controversies
involving rights that are legally demandable and enforceable.18
The Rules of Court, specifically Section 2 of Rule 3 thereof, requires
that unless otherwise authorized by law or the Rules of Court, every
action must be prosecuted or defended in the name of the name of
the real party-in-interest, thus:
Sec. 2. Parties-in-interest. - A real party-in-interest is the party who
party entitled to the avails of the suit. Unless otherwise authorized by
2
law or these Rules, every action must be prosecuted or defended in
the name of the real party-in-interest.
This provision has two requirements: (1) to institute an action, the
plaintiff must be the real party-in-interest; and (2) the action must be
prosecuted in the name of the real party-in-interest. Interest within the
meaning of the Rules of Court means material interest or an interest
in issue to be affected by the decree or judgment of the case, as
distinguished from mere curiosity about the question involved. One
having no material interest to protect cannot invoke the jurisdiction of
the court as the plaintiff in an action.19 The Interim Rules of Procedure
for Intra-Corporate Controversies under Republic Act No. 8799 in
A.M. No. 01-2-04-SC, effective on April 1, 2001 considers the
suppletory application of the Rules of Court under Section 2, Rule 1,
thus:
Section 2. Suppletory application of the Rules of Court. - The Rules of
Court, in so far as they may be applicable and are not inconsistent
with these Rules, are hereby adopted to form an integral part of these
Rules.
Moreover, We consider the summary nature of the proceedings
governed by the Interim Rules which is premised on one objective
which is the expeditious disposition of cases.20
The purposes of the requirement for the real party in interest
prosecuting or defending an action at law are: (a) to prevent the
prosecution of actions by persons without any right, title or interest in
the case; (b) to require that the actual party entitled to legal relief be
the one to prosecute the action; (c) to avoid a multiplicity of suits; and
(d) to discourage litigation and keep it within certain bounds, pursuant
to sound public policy. 21
The rule on real party-in-interest ensures, therefore, that the party with
the legal right to sue brings the action, and this interest ends when a
judgment involving the nominal plaintiff will protect the defendant from
a subsequent identical action. Such a rule is intended to bring before
the court the party rightfully interested in the litigation so that only real
controversies will be presented and the judgment, when entered, will
be binding and conclusive and the defendant will be saved from
further harassment and vexation at the hands of other claimants to the
same demand. 22
In the case at bar, PNAS, as a corporation, is the real party-in-interest
because its personality is distinct and separate from the personalities
of its stockholders.1âwphi1 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 tum, 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 tum, 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. 23 It necessarily
follows that "an individual corporate officer cannot solely exercise any
corporate power pertaining to the corporation without authority from
the board of directors".24
Section 23, in relation to Sec. 25 of the Corporation Code, clearly
enunciates that all corporate powers are exercised, all business
conducted, and all properties controlled by the board of directors. A
corporation has a separate and distinct personality from its directors
and officers and can only exercise its corporate powers through the
board of directors. Thus, it is clear that an individual corporate officer
cannot solely exercise any corporate power pertaining to the
corporation without authority from the board of directors. 25 Absent the
said board resolution, a petition may not be given due course. The
application of the rules must be the general rule, and the suspension
or even mere relaxation of its application, is the exception. This Court
may go beyond the strict application of the rules only on exceptional
cases when there is truly substantial compliance with the rule.26
Hence, since petitioner is a corporation, the certification attached to its
complaint filed with the RTC 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. 27 Courts are not, after all, expected to take
judicial notice of corporate board resolutions or a corporate officers'
authority to represent a corporation.28 Petitioner's failure to submit
3
proof that Atty. William L. Villareal has been authorized by PNAS to
file the complaint is a sufficient ground for the dismissal thereof.
In Tamondong v. Court of Appeals,29 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. 30
In the present case, the real issue is whether Atty. William L. Villareal
who claimed to be the President of PNAS in 2009, was indeed
authorized through a Board Resolution to represent PNAS in filing
Civil Case No. 09- 122709.
Respondents Genesis Aquino, Angelo Bernardo, Jr., Li Vi Ju, and
Raymundo Santos aver that Atty. Villareal was President in 2007 and
was never reelected from then on. They presented the notarized
Certificate of Elections dated November 25, 2008 which shows that
respondent Angelo Bernardo, Jr. was the one elected as President,
while respondent Francisco Fernando, Jr. was elected as Secretary
for the year 2009 during the election 31 . held on November 25, 2008.
Though the election of officers on November 25, 2008 was the subject
of the complaint that was dismissed, Atty. Villareal did not present any
proof that indeed he was President in 2009 when he filed the
complaint.
As correctly ruled by the CA, Atty. Villareal was given the opportunity
to prove his authority to institute the complaint considering that there
were two different parties representing the petitioner in two cases filed
before the RTC, Branch 24, Manila. If indeed Atty. Villareal was
authorized to file the complaint, he could have simply presented a
Board Resolution to prove that he was authorized. Neither did he file
the appropriate pleadings and submit documentary exhibits relative to
his authority to file the complaint for and in behalf of petitioner as
mandated by the Joint Order of the RTC during its hearing on January
26, 2010. As correctly stated by the RTC, such failure on the part of
Atty. Villareal gave credence to the assertion of respondents herein
that he has no authority to represent petitioner and to file the
complaint in Civil Case No. 09-122709.
Moreover, the records would show that Atty. Villareal ceased to be a
director in 2009, not in 2008 as erroneously found by the CA. But
what is material is that he was not anymore a director in 2009 at the
time he filed the complaint. This is evidenced by the notarized
Certificate of Elections32 dated November 23, 2008 which shows that
he was not among the eleven(11) Directors elected for 2009. The
Board of Directors elected were respondents Fernando Gaite, Angelo
Bernardo, Jr., Fermin S. Carifio, Eduardo M. Chua, Catalino M.
Silangil, Peter Sy, Fernando Francisco, Jr., Tomas De Guzman, Jr., Li
Vi Ju, Jose Choa and Percival M. Manuel. Also the General
Information Sheet (GJS) 33 filed on November 27, 2008 shows that
respondent Angelo Bernardo, Jr. 34 was the one elected as President
for the year 2009, while respondent Francisco Fernando, Jr. was
elected as Secretary.
Assuming the officers for 2009 were illegally elected as claimed by
Atty. Villareal, We note that Atty. Villareal could not even be President
in a hold-over capacity because he was not the one elected as
President in 2008. From his own evidence attached to the petition as
Annex "A", the GIS filed on July 10, 200835 shows that it was
respondent Tomas Z. De Guzman who was elected as President and
respondent Eduardo M. Chua as Secretary for the year 2008.
The said fact was also stated by the respondents Eduardo M. Chua,
Fernando Francisco, Jr., Fermin S. Carifio, Percival M. Manuel,
Tomas De Guzman, Jr., Catalino M. Silangil and Peter Sy in their
comment to the instant petition. They aven-ed that Atty. William
Villareal was 2007 President of PNAS. In the year 2008, he was still
elected as one of the eleven (11) members of the Board of Directors
during the election on November 25, 2007 held at the Manila Yacht
Club at Roxas Boulevard, Manila. But, he was not anymore elected
president. It was respondent Tomas Z. De Guzman who was elected
by a vote of six directors36 as against five votes for Atty. William
Villareal.37 The other officers elected were respondents Catalino M.
Silangil (Vice President), Eduardo M. Chua (Secretary), Genesis
Aquino (Treasurer) and Angelo Bernardo, Jr. (Auditor).
The aforesaid respondents further averred that Atty. William Villareal
and his minority group of directors, namely, Antonio Carinan, Edward
Nocom, Rufino Fermin and Albert Dealino, refused to honor the new
4
set of officers.38 Also, Atty. William Villareal allegedly refused to tum-
over and submit an accounting of all the records. Thus, respondents
Catalino M. Silangil, Eduardo M. Chua, Angelo Bernardo, Jr. and
Fernando M. Gaite, Jr. filed a Complaint for Annulment of Corporate
Acts, Accounting, Inventory, Recovery of Corporate Items, Funds and
Properties and for Damages with Prayer for TRO and Preliminary
Injunction before RTC, Branch 46, Manila docketed as Civil Case No.
08-120341.39
Furthermore, it was alleged in the instant petition that Atty. Villareal is
a member of the Board of Directors since 2001 to present. The
General Information Sheet (GIS) for the years 2008 to 201140 were
attached to the petition to prove the allegation. We wonder, however,
why these documents were not presented in the RTC nor attached to
the petition filed with the CA. We also observe that there were no
elected officers for the year 2008 as appearing on the GIS which was
accomplished and filed only in May 18, 2011.41 Likewise, the GIS for
the years 2009 to 2011 where it was stated that Atty. Villaruel was the
President appears no indication that it was filed with the SEC. As
stated in the instructions on the GIS, a GIS Form is required to be
filed within thirty (30) days following the date of the annual or a special
meeting, and must be certified and sworn to by the corporate
secretary, or by the president, or any duly authorized officer of the
corporation. 42
Indeed, there was no proof submitted that Atty. Villareal was duly
authorized by petitioner to file the complaint and sign the verification
and certification against forum shopping 43 dated December 21, 2009.
Where the plaintiff is not the real party-in-interest, the ground for the
motion to dismiss is lack of cause of action. The reason for this is that
the courts ought not to pass upon questions not derived from any
actual controversy. Truly, a person having no material interest to
protect cannot invoke the jurisdiction of the court as the plaintiff in an
action. Nor does a court acquire jurisdiction over a case where the
real party- in- interest is not present or imp leaded. 44
Under our procedural rules, "a case is dismissible for lack of
personality to sue upon proof that the plaintiff is not the real party-
ininterest, hence, grounded on failure to state a cause of
action." 45 Indeed, considering that all civil actions must be based on a
cause of action, definedas the act or omission by which a party
violates the right of another, the former as the defendant must be
allowed to insist upon being opposed by the real party-in-interest so
that he is protected from further suits regarding the same claim. Under
this rationale, the requirement benefits the defendant because "the
defendant can insist upon a plaintiff who will afford him a setup
providing good res judicata protection if the struggle is carried through
on the merits to the end.46
Procedural rules are not to be disdained as mere technicalities that
may be ignored at will to suit the convenience of a party. Adjective law
is important in ensuring the effective enforcement of substantive rights
through the orderly and speedy administration of justice. These rules
are not intended to hamper litigants or complicate litigation but, indeed
to provide for a system under which a suitor may be heard in the
correct form and manner and at the prescribed time in a peaceful
confrontation before a judge whose authority they acknowledge. 47
WHEREFORE, the petition is DENIED. The Decision of Court
Appeals dated September 6, 2012, and its Resolution dated March19,
2013 in CA-G.R. SP No. 113864 are hereby AFFIRMED.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
JOSE CATRAL MENDOZA MARVIC M.V.F. LEONEN
Associate Justice Associate Justice
FRANCIS H. JARDELEZA*
Associate Justice
5
 ATTESTATION The petition at bar stemmed from the following antecedents:

I attest that the conclusions in the above Decision had been reached When Abelardo Escueta died intestate on December 3, 1994, he was
in consultation before the case was assigned to the writer of the survived by his widow Remedios Escueta and their six children,
opinion of the Court’s Division. including Ma. Teresa O. Escueta and her brother Herman O. Escueta.
Part of his estate was a parcel of land located at No. 14 Sierra Madre
ANTONIO T. CARPIO corner Kanlaon Streets, Barangay Highway Hills, Mandaluyong City,
Associate Justice covered by Transfer Certificate of Title (TCT) No. (77083) - 27568,
Chairperson, Second Division and the house thereon. The property was leased to Rainier Llanera,
who sublet the same to 25 persons. The heirs executed an extra-
CERTIFICATION judicial settlement of estate over the property. They also executed a
special power of attorney authorizing Ma. Teresa Escueta to sell the
Pursuant to the Section 13, Article VIII of the Constitution and the said property.4cräläwvirtualibräry
Division Chairperson’s Attestation, I certify that the conclusions in the
above Decision had been reached in consultation before the case was Sometime in 1999, Ma. Teresa Escueta, as a co-owner of the
assigned to the writer of the opinion of the Court’s Division. property, filed an ejectment case against Llanera and the sub-lessees
before the Lupon of Barangay Highway Hills, docketed as Barangay
MARIA LOURDES P.A. SERENO Case No. 99-09.5cräläwvirtualibräry
Chief Justice
In the meantime, on April 15, 1999, the heirs of Abelardo Escueta
EN BANC executed a deed of conditional sale6 over the property including the
house thereon, to Mary Liza Santos for P13,300,000.00 payable as
G.R. No. 156228 : December 10, 2003 follows:

MA. TERESA VIDAL, LULU MARQUEZ, and CARLOS Down payment ONE MILLION FIVE HUNDRED THOUSAND
SOBREMONTE, petitioners, vs. MA. TERESA O. ESCUETA, (P1,500,000.00) which the HEIRS-SELLERS acknowledged receipt
represented by HERMAN O. ESCUETA, respondent. thereof with complete and full satisfaction;

DECISION Second payment - TEN MILLION EIGHT HUNDRED THOUSAND

(P10,800,000.00) after publication of the Extra-Judicial Settlement of
the Estate of the late Abelardo Escueta and payment of the taxes with
CALLEJO, SR., J.:
the Bureau of Internal Revenue by the Attorney-in-Fact; and
This is a petition for review of the Decision1 dated July 23, 2002 of the
The balance of ONE MILLION (P1,000,000.00) upon vacation of all
Court of Appeals in CA-G.R. SP NO. 68895 which affirmed the
the occupants of the subject property within SIX (6) months from date
decision2 of the Regional Trial Court (RTC) of Mandaluyong City,
hereof.7cräläwvirtualibräry
Branch 208, which reversed and set aside the decision3 of the
Metropolitan Trial Court of Mandaluyong City (MTC), Branch 60; and
granted the motion for execution filed by private respondent Ma. The parties further agreed that:
Teresa O. Escueta in Civil Case No. 17520.
6
Ms. Maria Teresa Escueta shall deliver unto the BUYER the Owners
Duplicate Copy of the title upon receipt of the down payment while the
original copies of the Special Power of Attorney shall be delivered
upon payment of the Second Payment stated above.
The ATTORNEY-IN-FACT-SELLER shall be responsible for the
ejectment of all the tenants in the said subject property.
The ATTORNEY-IN-FACT-SELLER shall pay the estate tax, capital
gains tax and documentary stamp tax including the telephone, water
and Meralco bills and the publication for the Extra-Judicial Settlement
of the estate of the late ABELARDO ESCUETA while the registration
and transfer fees shall be shouldered by the
BUYER.8cräläwvirtualibräry
On May 5, 1999, Escueta and Llanera, and the sub-lessees, executed
an Amicable Settlement,9 where they agreed that (a) the owners of
the property would no longer collect the rentals due from the
respondents therein (lessee and sub-lessees) starting May 1999, with
the concomitant obligation of the respondents to vacate the property
on or before December 1999; (b) time was the essence of the
agreement, and that consequently, if the lessee and sub-lessees fail
or refuse to vacate the property on or before December 1999, the
barangay chairman was authorized without any court order to cause
the eviction and removal of all the respondents on the property.10 The
amicable settlement was attested by Pangkat Chairman Jose Acong.
The parties did not repudiate the amicable settlement within ten days
from the execution thereof. Neither did any of the parties file any
petition to repudiate the settlement.
The vendees having paid the down payment and second installment
of the price of the property, the vendors caused the cancellation on
December 17, 1999, of TCT No. 27568 and the issuance of TCT No.
15324 to and under the names of the vendees Mary Liza Santos,
Susana Lim and Johnny Lim.11 However, Escueta and the other
vendors had yet to receive the balance of the purchase price of
P1,000,000.00 because the respondents were still in the property.
Llanera vacated the leased premises. Later, twenty of the sub-lessees
also vacated the property. By January 2000, five sub-lessees, namely,
Ma. Teresa Vidal, Lulu Marquez, Marcelo Trinidad, Carlos
Sobremonte,12 and Jingkee Ang remained in the property, and
requested Escueta for extensions to vacate the property. Escueta
agreed, but despite the lapse of the extensions granted them, the five
sub-lessees refused to vacate the property.
Escueta opted not to have the sub-lessees evicted through
the Punong Barangay as provided for in the amicable settlement.
Neither did she file a motion with the Punong Barangay for the
enforcement of the settlement. Instead, she filed on May 12, 2000, a
verified Motion for Execution against the recalcitrant sub-lessees with
the MTC for the enforcement of the amicable settlement and the
issuance of a writ of execution. The pleading was docketed as Civil
Case No. 17520, with Teresa Escueta as plaintiff, and the sub-
lessees as defendants.13cräläwvirtualibräry
The defendants opposed the motion14 alleging that they were
enveigled into executing the amicable settlement despite the fact that
they had not violated any of the terms and conditions of the verbal
lease of the property; they were coerced and forced to enter into such
amicable settlement as it was the only way of prolonging their stay in
the leased premises; and that they had been paying faithfully and
religiously the monthly rentals in advance.
They also contended that the plaintiff came to court with unclean
hands, as the property had been sold by the co-owners thereof
on June 8, 1999, without notifying them. The real parties-in-interest as
plaintiffs, would be the new owners of the property, and not the
Escuetas. The defendants further asserted that the amicable
settlement was not elevated to or approved by the MTC as required
by Section 419 of the Local Government Code (LGC), nor approved
by a competent court; hence, there was no judgment to enforce by a
new motion for a writ of execution. As such, the plaintiffs motion was
premature and procedurally improper. The defendants asserted that
the plaintiff must first secure a certification to file action from the
barangay and thereafter, file an action for ejectment against them as
required by Section 417 of the LGC. The amicable settlement of the
parties before the Lupon cannot be a substitute for an action for
ejectment. Finally, they averred that they had been sub-lessees for
more than ten years already; hence, had the right of first refusal under
7
Section 6 of the Urban Land Reform Law (P.D. No. 1517). For her
part, the plaintiff asserted that there having been no execution of the
amicable settlement on or before November 6, 1999 by the Lupon, the
settlement may now be enforced by action in the proper city or
municipal court.
On February 22, 2001, the court issued an Order15 denying the Motion
for Execution. The court held that the plaintiff was not the real party-
in-interest as the subject property had already been sold and titled to
Susana Lim, Johnny Lim and Mary Liza Santos. Only the vendees
had the right to demand the ejectment of the defendants from the said
property. The court further ruled that the defendants had the right of
first refusal to purchase the property under Presidential Decree No.
1517. The MTC, however, did not rule on the issue of whether or not
the plaintiffs motion for execution was premature.
Aggrieved, the plaintiff, now the appellant, appealed the order to the
RTC where she contended that:
THE METROPOLITAN TRIAL COURT COMMITTED THE
REVERSIBLE ERROR IN FINDING AND IN CONCLUDING THAT
PLAINTIFF IS NO LONGER THE REAL PARTY-IN-INTEREST.
THE METROPOLITAN TRIAL COURT COMMITTED THE
REVERSIBLE ERROR IN FINDING AND IN CONCLUDING THAT
DEFENDANTS CANNOT BE EJECTED AND CAN EXERCISE THE
RIGHT OF FIRST REFUSAL.
THE METROPOLITAN TRIAL COURT COMMITTED THE
REVERSIBLE ERROR IN NOT FINDING AND IN NOT MAKING THE
CONCLUSION THAT DEFENDANTS HAVE VIOLATED THE FINAL
AND EXECUTORY THE WRITTEN AMICABLE SETTLEMENT
BETWEEN PARTIES EXECUTED IN THEIR BARANGAY
CONFRONTATION.
THE METROPOLITAN TRIAL COURT COMMITTED THE
REVERSIBLE ERROR IN NOT ORDERING THE EJECTMENT OF
THE DEFENDANTS AND IN NOT ORDERING SAID DEFENDANTS
TO PAY THEIR ARREARAGES IN RENTAL PAYMENTS FROM MAY
1999 UP TO THE DAY THEY ACTUALLY LEAVE THE PREMISES
AS WELL AS ATTORNEYS FEES AND
DAMAGES.16cräläwvirtualibräry
On August 31, 2001, the RTC rendered a decision holding that the
plaintiff-appellant was still the owner of the property when the
ejectment case was filed in the office of the barangay captain, and, as
such, was the real party-in-interest as the plaintiff in the MTC.
Moreover, under the deed of conditional sale between her and the
buyers, it was stipulated therein that the purchase price
of P1,000,000.00 would be delivered to the vendors only upon the
vacation of all the occupants of the subject property within six (6)
months from date hereof. She was duty-bound to cause the eviction of
the defendant from the property; hence, the appellant, as a co-owner,
had a substantial interest in the property. The MTC further held that
the sale, having been executed while the appellants complaint was
pending with the Lupon, the action in the MTC may be continued by
the plaintiff-appellant.
As to the right of first refusal being asserted by the appellees, the
court ruled that there was no showing that the land leased had been
proclaimed to be within a specific Urban Land Reform Zone. In fact,
the Housing and Land Use Regulatory Board had certified that the
subject property was outside the area for priority development; thus,
the appellees may not claim that they had been deprived of their
preemptive right when no such right existed in the first place. The
court did not rule on the third and fourth issues on the ground that the
said issues were never raised by the parties. The decretal portion of
the RTC decision reads as follows:
PREMISES CONSIDERED, the appeal is GRANTED. The Order
dated February 2, 2001 issued by the Metropolitan Trial Court of
Mandaluyong City, Branch 60, in Civil Case No. 17520 is hereby
REVERSED and SET ASIDE, and a new one is entered granting the
Motion for Execution.
Let the Record of this case be remanded to the court a quo for proper
disposition.
SO ORDERED.17cräläwvirtualibräry
8
A petition for review under Rule 42 was filed with the Court of Appeals
by three of the appellees, now petitioners Ma. Teresa Vidal, Lulu
Marquez and Carlos Sobremonte. The court, however, dismissed the
petition on (1) procedural grounds, and (2) for lack of
merit. 18cräläwvirtualibräry
On procedural grounds, the CA ruled that the petitioners failed to
indicate the specific material dates, showing that their petition was
filed on time as required by the rules, and in declaring that they failed
to justify their failure to do so.
On the merits of the petition, the appellate court upheld the ruling of
the RTC. The decretal portion of the decision of the CA reads:
WHEREFORE, the instant petition is hereby DISMISSED. The
assailed Decision of the Regional Trial Court of Mandaluyong City,
Branch 208, rendered in Civil Case No. MC01-333-A, dated August
31, 2001 is hereby AFFIRMED.
SO ORDERED.19cräläwvirtualibräry
In their petition at bar, the petitioners assert that the CA erred as
follows: (1) in not applying the rules of procedure liberally; (2) in
declaring that there was no need for the respondents to file an
ejectment case for the eviction of the petitioners; (3) that the real
parties-in-interest as plaintiffs in the MTC were the new owners of the
property, Susana Lim, Johnny Lim and Mary Liza Santos; (4) in not
finding that the Amicable Settlement was obtained through deceit and
fraud; and (5) in ruling that the petitioners had no right of first refusal
in the purchase and sale of the subject property under Presidential
Decree No. 1517.
The petition is bereft of merit.
On the procedural issue, the CA dismissed the petition before it for
the petitioners failure to comply with Section 2, par. 1, Rule 42 of the
1997 Rules of Civil Procedure.20 The CA ratiocinated that there was
no justification for a relaxation of the Rules, thus:
Petitioners cited decisions of the Supreme Court where a relaxation of
procedural rules was allowed. However, a reading of those cases
shows that they are not exactly similar with the present case. In the
case of Mactan Cebu International Airport Authority vs. Francisco
Cuizon Mangubat, the Supreme Court allowed the late payment of
docket fee by the Solicitor General on the ground that the 1997 Rules
of Civil Procedure regarding payment of docket fees was still new at
that time. The same cannot be said in the present case. The petition
was filed on February 28, 2002, almost five years from the issuance of
the 1997 Rules of Civil Procedure. The circumstances of typhoon and
holiday for failure to obtain a certified true copy of the DOJs Decision,
in the case of Hagonoy Market Vendor Association vs. Municipality of
Hagonoy, Bulacan, were present in the instant petition. The case of
Salazar vs. Court of Appeals is also not similar with the present
case.21cräläwvirtualibräry
The petitioners aver in this case that the failure of their counsel to
include the material dates in their petition with the CA was, as stated
in their Amended Manifestation, because the said counsel was
suffering from a slight heart attack. The Court finds the petitioners
pretext flimsy. If the petitioners counsel was able to prepare their
petition despite her condition, there was no valid reason why she
failed to include the material dates required under the Rules of Court.
Besides, the petitioners stated in their petition that they had appended
a copy of their Amended Manifestation, but failed to do so. If the rules
were to be applied strictly, the CA could not be faulted for dismissing
the petition.
However, in order to promote their objective of securing a just, speedy
and inexpensive dispensation of every action and proceedings, the
Rules are to be liberally construed.22 Rules of procedure are intended
to promote, not to defeat substantial justice and, therefore, should not
be applied in a very rigid and technical sense. This Court ruled
in Buenaflor vs. Court of Appeals, et al.23 that appeal is an essential
part of our judicial system and trial courts and the Court of Appeals
are advised to proceed with caution so as not to deprive a party of the
right to appeal and that every party litigant should be afforded the
amplest opportunity for the proper and just disposition of his cause,
free from the constraints of technicalities. The Court has given due
course to petitions where to do so would serve the demands of
9
substantial justice and in the exercise of its equity jurisdiction. 24 In this
case, the Court opts to apply the rules liberally to enable it to delve
into and resolve the cogent substantial issues posed by the
petitioners.
We agree with the contention of the petitioners that under Section 416
of the LGC, the amicable settlement executed by the parties before
the Lupon on the arbitration award has the force and effect of a final
judgment of a court upon the expiration of ten (10) days from the date
thereof, unless the settlement is repudiated within the period therefor,
where the consent is vitiated by force, violence or intimidation, or a
petition to nullify the award is filed before the proper city or municipal
court.25 The repudiation of the settlement shall be sufficient basis for
the issuance of a certification to file a complaint.26cräläwvirtualibräry
We also agree that the Secretary of the Lupon is mandated to
transmit the settlement to the appropriate city or municipal court within
the time frame under Section 418 of the LGC and to furnish the
parties and the Lupon Chairman with copies thereof.27 The amicable
settlement which is not repudiated within the period therefor may be
enforced by execution by the Lupon through the Punong
Barangay within a time line of six months, and if the settlement is not
so enforced by the Lupon after the lapse of the said period, it may be
enforced only by an action in the proper city or municipal court as
provided for in Section 417 of the LGC of 1991, as amended, which
reads:
SEC. 417. Execution. The amicable settlement or arbitration award
may be enforced by execution by the Lupon within six (6) months from
the date of the settlement. After the lapse of such time, the settlement
may be enforced by action in the proper city or municipal court.
(Underlining supplied).
Section 417 of the Local Government Code provides a mechanism for
the enforcement of a settlement of the parties before the Lupon. It
provides for a two-tiered mode of enforcement of an amicable
settlement executed by the parties before the Lupon, namely, (a) by
execution of the Punong Barangay which is quasi-judicial and
summary in nature on mere motion of the party/parties entitled
thereto;28 and (b) by an action in regular form, which remedy is
judicial. Under the first remedy, the proceedings are covered by the
LGC and the Katarungang Pambarangay Implementing Rules and
Regulations. The Punong Barangay is called upon during the hearing
to determine solely the fact of non-compliance of the terms of the
settlement and to give the defaulting party another chance at
voluntarily complying with his obligation under the settlement. Under
the second remedy, the proceedings are governed by the Rules of
Court, as amended. The cause of action is the amicable settlement
itself, which, by operation of law, has the force and effect of a final
judgment.
Section 417 of the LGC grants a party a period of six months to
enforce the amicable settlement by the Lupon through the Punong
Barangay before such party may resort to filing an action with the
MTC to enforce the settlement. The raison d etre of the law is to afford
the parties during the six-month time line, a simple, speedy and less
expensive enforcement of their settlement before the Lupon.
The time line of six months is for the benefit not only of the
complainant, but also of the respondent. Going by the plain words of
Section 417 of the LGC, the time line of six months should be
computed from the date of settlement. However, if applied to a
particular case because of its peculiar circumstance, the computation
of the time line from the date of the settlement may be arbitrary and
unjust and contrary to the intent of the law. To illustrate: Under an
amicable settlement made by the parties before the Lupon dated
January 15, 2003, the respondents were obliged to vacate the subject
property on or before September 15, 2003. If the time line of six
months under Section 417 were to be strictly and literally followed, the
complainant may enforce the settlement through the Lupon only up
to July 15, 2003. But under the settlement, the respondent was not
obliged to vacate the property on or before July 15, 2003; hence, the
settlement cannot as yet be enforced. The settlement could be
enforced only after September 15, 2003, when the respondent was
obliged to vacate the property. By then, the six months under Section
417 shall have already elapsed. The complainant can no longer
enforce the settlement through the Lupon, but had to enforce the
same through an action in the MTC, in derogation of the objective of
Section 417 of the LGC. The law should be construed and applied in
such a way as to reflect the will of the legislature and attain its
10
objective, and not to cause an injustice. As Justice Oliver Wendell
Holmes aptly said, courts are apt to err by sticking too closely to the
words of the law where these words support a policy that goes
beyond them. The Court should not defer to the latter that killeth but to
the spirit that vivifieth.29cräläwvirtualibräry
In light of the foregoing considerations, the time line in Section 417
should be construed to mean that if the obligation in the settlement to
be enforced is due and demandable on the date of the settlement, the
six-month period should be counted from the date of the settlement;
otherwise, if the obligation to be enforced is due and demandable on
a date other than the date of the settlement, the six-month period
should be counted from the date the obligation becomes due and
demandable.
Parenthetically, the Katarungang Pambarangay Implementing Rules
and Regulations, Rule VII, Section 2 provides:
SECTION 2. Modes of Execution. - The amicable settlement or
arbitration award may be enforced by execution by the Lupon within
six [6] months from date of the settlement or date of receipt of the
award or from the date the obligation stipulated in the settlement or
adjudged in the arbitration award becomes due and
demandable. After the lapse of such time, the settlement or award
may be enforced by the appropriate local trial court pursuant to the
applicable provisions of the Rules of Court . An amicable settlement
reached in a case referred by the Court having jurisdiction over the
case to the Lupon shall be enforced by execution by the said court.
(Underlining supplied).
By express provision of Section 417 of the LGC, an action for the
enforcement of the settlement should be instituted in the proper
municipal or city court. This is regardless of the nature of the
complaint before the Lupon, and the relief prayed for therein. The
venue for such actions is governed by Rule 4, Section 1 of the 1997
Rules of Civil Procedure, as amended. An action for the enforcement
of a settlement is not one of those covered by the Rules on Summary
Procedure in civil cases;30 hence, the rules on regular procedure shall
apply, as provided for in Section 1, Rule 5 of the Rules of Civil
Procedure, as amended.31cräläwvirtualibräry
As to the requisite legal fees for the filing of an action in the first level
court under Section 417 of the Local Government Code, indigents-
litigants (a) whose gross income and that of their immediate family do
not exceed ten thousand (P10,000.00) pesos a month if residing in
Metro Manila, and five thousand (P5,000.00) pesos a month if
residing outside Metro Manila, and (b) who do not own real property
with an assessed value of more than fifty thousand (P50,000.00)
pesos shall be exempt from the payment of legal fees. Section 18,
Rule 141 of the Revised Rules of Court, as amended by A.M. No. 00-
2-01-SC, is hereby further amended accordingly.
In this case, the parties executed their Amicable Settlement on May 5,
1999. However, the petitioners were obliged to vacate the property
only in January 2000, or seven months after the date of the
settlement; hence, the respondent may enforce the settlement
through the Punong Barangay within six months from January 2000 or
until June 2000, when the obligation of the petitioners to vacate the
property became due. The respondent was precluded from enforcing
the settlement via an action with the MTC before June 2000.
However, the respondent filed on May 12, 2000 a motion for
execution with the MTC and not with the Punong Barangay. Clearly,
the respondent adopted the wrong remedy. Although the MTC denied
the respondents motion for a writ of execution, it was for a reason
other than the impropriety of the remedy resorted to by the
respondent. The RTC erred in granting the respondents motion for a
writ of execution, and the CA erred in denying the petitioners petition
for review.
Normally, the Court would remand the case to the Punong
Barangay for further proceedings. However, the Court may resolve
the issues posed by the petitioners, based on the pleadings of the
parties to serve the ends of justice. It is an accepted rule of procedure
for the Court to strive to settle the existing controversy in a single
proceeding, leaving no root or branch to bear the seeds of future
litigation.32cräläwvirtualibräry
In this case, there is no question that the petitioners were obliged
under the settlement to vacate the premises in January 2000. They
refused, despite the extensions granted by the respondent, to allow
their stay in the property. For the court to remand the case to
11
the Lupon and require the respondent to refile her motion for
execution with the Lupon would be an idle ceremony. It would only
unduly prolong the petitioners unlawful retention of the
premises.33cräläwvirtualibräry
The RTC and the CA correctly ruled that the respondent is the real
party-in-interest to enforce amicable settlement. Rule 3, Section 2 of
the Rules of Court, as amended, reads:
SEC. 2. Parties in interest. - A real party in interest is the party who
stands to be benefited or injured by the judgment in the suit, or the
party entitled to the avails of the suit. Unless otherwise authorized by
law or these Rules, every action must be prosecuted or defended in
the name of the real party in interest.
The party-in-interest applies not only to the plaintiff but also to the
defendant. Interest within the meaning of the rules means material
interest, an interest in issue and to be affected by the decree as
distinguished from mere interest in the question involved, or a mere
incidental interest.34 A real party in interest is one who has a legal
right.35 Since a contract may be violated only by the parties thereto as
against each other, in an action upon that contract, the real parties-in-
interest, either as plaintiff or as defendant, must be parties to the said
contract.36 The action must be brought by the person who, by
substantive law, possesses the right sought to be enforced.37 In this
case, the respondent was the party in the amicable settlement. She is
the real party-in-interest to enforce the terms of the settlement
because unless the petitioners vacate the property, the respondent
and the other vendors should not be paid the balance of
P1,000,000.00 of the purchase price of the property under the Deed
of Conditional Sale.
The petitioners are estopped from assailing the amicable settlement
on the ground of deceit and fraud. First. The petitioners failed to
repudiate the settlement within the period therefor. Second. The
petitioners were benefited by the amicable settlement. They were
allowed to remain in the property without any rentals therefor until
December 1998. They were even granted extensions to continue in
possession of the property. It was only when the respondent filed the
motion for execution that the petitioners alleged for the first time that
the respondents deceived them into executing the amicable
settlement.38cräläwvirtualibräry
On the petitioners claim that they were entitled to the right of first
refusal under P.D. No. 1517, we agree with the disquisition of the trial
court, as quoted by the Court of Appeals:
We likewise find no reversible error on the part of [the] RTC in
rejecting that the petitioners have a right of first refusal in the
purchase and sale of the subject property. As ratiocinated by the
court:
xxx. Presidential Decree No. 1517 (The Urban Land Reform Law)
does not apply where there is no showing that the land leased has
been proclaimed to be within a specific Urban Land Reform Zone. In
the instant case, the annex attached to the Proclamation 1967
creating the areas declared as priority development and urban land
reform zone ... does not indicate that the barangay where the subject
property is located is included therein. This is bolstered by the
certification issued by the Housing and Land Regulatory Board to the
effect that the location of the property is outside the area of Priority
Development. It is therefore a reversible error for the lower court to
conclude that defendants-appellees were deprived of their preemptive
right when no right exists in the first place.
Indeed, before a preemptive right under PD 1517 can be exercised,
the disputed land should be situated in an area declared to be both an
APD (Areas for Priority Development) and a ULRZ (Urban Land
Reform Zones). Records show, and as not disputed by the petitioners,
the disputed property is not covered by the aforementioned areas and
zones.39cräläwvirtualibräry
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The
petitioners and all those acting for and in their behalf are directed to
vacate, at their own expense, the property covered by Transfer
Certificate of Title No. 15324 of the Register of Deeds of Muntinlupa
City and deliver possession of the property to the vendees Mary Liza
Santos, Susana Lim and Johnny Lim. This is without prejudice to the
right of the vendees to recover from the petitioners reasonable
compensation for their possession of the property from January 2000
12
until such time that they vacate the property. Costs against the
petitioners.
SO ORDERED.
Davide, Jr., C.J., Puno, Vitug, Panganiban, Quisumbing, Ynares-
Santiago, Sandoval-Gutierrez, Carpio, Austria-Martinez, Corona,
Carpio-Morales, Azcuna, and Tinga, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
 
G.R. No. 102900 October 2, 1997
MARCELINO ARCELONA, TOMASA ARCELONA-CHIANG and
RUTH ARCELONA, represented by their attorney-in-fact,
ERLINDA PILE, petitioners,
vs.
COURT OF APPEALS, REGIONAL TRIAL COURT OF DAGUPAN
CITY, Branch XL, and MOISES FARNACIO, respondents.
PANGANIBAN, J.:
What are the remedies and the grounds therefor to invalidate a final
and executory judgment? May extraneous matters, not found in the
records of the original case, be used to void such final judgment?
Procedurally, may an independent action for annulment of a decision
filed in the Court of Appeals prosper in the face of a claim that the
remedy of intervention could have been availed of in the regional trial
court during the original proceedings? Are all the co-owners pro
indiviso of a real property indispensable parties? Does the non-
inclusion of some of such co-owners in a suit involving tenancy over
said property constitute sufficient ground to nullify the final decision
rendered in such case?
The Case
These are the main questions raised in this petition for review of the
Decision1 in CA G.R. SP No. 24846 promulgated on July 16, 1991 by
the Court of Appeals2 denying petitioners' plea for annulment of a final
and executory judgment rendered by the Regional Trial Court of
Dagupan City, Branch 40, in Civil Case No. D-7240, and the
Resolution3 promulgated on November 21, 1991 by the appellate
court denying their motion for reconsideration.
The Facts
Petitioners Marcelino Arcelona, Tomasa Arcelona-Chiang and Ruth
Arcelona are natural-born Filipinos who are now naturalized
Americans residing in California, U.S.A. Petitioner Ruth Arcelona is
the surviving spouse and legal heir of the deceased Benedicto
Arcelona, brother of Marcelino and Tomasa. Together with their three
sisters — Pacita Arcelona-Olanday, Maria Arcelona-Arellano and
Natividad Arcelona-Cruz (hereinafter collectively referred to as
Olanday, et al.) — petitioners are co-owners pro-indiviso of a fishpond
which they inherited from their deceased parents.4 The six Arcelonas
(two brothers and four sisters) are named as co-owners in Transfer
Certificate of Title No. 34341 which evidences ownership over the
fishpond.
On March 4, 1978, a contract of lease over the fishpond was executed
between Cipriano Tandoc and Olanday, et al. The lease contract was
for a period of three (3) years but was renewed up to February 2,
1984.5
Private Respondent Moises Farnacio was appointed in turn by
Tandoc as caretaker-tenant of the same fishpond, effective on the
13
date the contract of lease was executed. After the termination of the
lease contract, the lessee (Tandoc) surrendered possession of the
leased premises to the lessors, Olanday, et al.
Three days thereafter, on February 7, 1984, Private Respondent
Farnacio instituted Civil Case D-7240 for "peaceful possession,
maintenance of security of tenure plus damages, with motion for the
issuance of an interlocutory order" against Olanday, et al., before
Respondent Regional Trial Court of Dagupan City, Branch 40. The
case was intended to maintain private respondent as tenant of the
fishpond.6
On October 31, 1984, the trial court rendered a decision in favor of
private respondent, the dispositive portion of which reads:7
WHEREFORE, in the light of the foregoing considerations, this Court
hereby renders judgment as follows; to wit:
1. Declaring and recognizing Moises Farnacio as tenant-caretaker
over the fishpond in question located at Lomboy District, Dagupan
City;
2. Ordering the defendants to maintain plaintiff in the peaceful
possession and cultivation of said fishpond, with all the rights
accorded and obligations imposed upon him by law;
3. Ordering the Branch Clerk of Court to withdraw and deliver to the
plaintiff all the amounts deposited with this Court; and
4. All others claims of the parties are hereby denied for lack of merit.
Olanday, et al. elevated the decision to the then Intermediate
Appellate Court (IAC)8 which affirmed with slight modification the
decision of the trial court on May 31, 1985. On appeal, this
Court9 sustained the IAC decision in G.R. No. 71217. On May 25,
1991, after remand of the case to the court of origin, private
respondent was placed in possession of the entire property covered
by TCT 34341.
Petitioners then filed with Respondent Court of Appeals a petition for
annulment of the aforesaid judgment against private respondent and
the implementing sheriff.10 The case was docketed as CA GR SP No.
24846. On May 8, 1991, Respondent Court issued a resolution
directing petitioners "to implead as party defendant the Regional Trial
Court of Dagupan City, Branch 50, Dagupan City."11 Respondent
Court promulgated in due course the assailed Decision and
Resolution.
Dissatisfied, petitioners lodged this petition for review before us on
May 10, 1992. On August 24, 1992, due course was granted to the
petition, and the parties filed their respective memoranda.
The Issues
In their Memorandum dated November 7, 1992, petitioners allege that
Respondent Court of Appeals has committed the following errors:12
I. The Respondent Court of Appeals erred in ruling that the sole and
only ground for annulment of judgment is extrinsic fraud.
II. The Respondent Court of Appeals erred when it failed to consider
that lack of due process and jurisdiction over the persons of the
petitioners are also valid grounds for annulment of judgment.
III. In annulment of judgment the grounds should be based solely on
the records of the case. It is then an error for the Respondent Court of
Appeals to consider matters extraneous to the records of the case.
IV. The Respondent Court of Appeals erred in ruling that petitioners
should have intervened in the proceedings for issuance of writ of
execution before the lower court.
V. The Respondent Court of Appeals erred in ruling that the
petitioners are estopped or are guilty of laches in questioning the
decision of the lower court.
The Court believes that these five assigned errors may be condensed
into three issues:
14
(1) May a final judgment be annulled on the ground of lack of
jurisdiction (over the subject matter and/or over the person of
indispensable parties) and denial of due process, aside from extrinsic
fraud?
(2) May extraneous matters, not found in the records of the original
case, be used in voiding or defending the validity of such final
judgment?
(3) Procedurally, will an independent action for annulment of the
decision of the regional trial court (which was affirmed both by the
Court of Appeals and the Supreme Court) filed before the Court of
Appeals prosper, or is intervention before the court of origin the only
remedy?
The Court's Ruling
The petition is meritorious.
First Issue: Grounds for Annulment of Final Judgment
Petitioners contend that Respondent Court of Appeals erred in
decreeing "the all-sweeping and categorical pronouncement that the
sole and only ground for annulment of judgment is extrinsic fraud,"
and in thereby ignoring various Supreme Court rulings that a final
judgment may also be annulled for "a) lack of jurisdiction over the
subject matter; b) lack of jurisdiction over the persons of necessary or
indispensable parties; and c) lack of due process."13 Petitioners argue
that, being co-owners of the subject property, they are "indispensable
parties."14 Inasmuch as they were not impleaded in Civil Case D-7240,
"the questioned judgment of the lower court is void insofar as the
petitioners are concerned for want of jurisdiction over their persons
and [for] lack of due process."15 Petitioners "do not see any reason
why a person who was not made a party at all could not assail the
same proceedings involving his property and affecting his rights and
interests."16
Petitioners further maintain that since "the case involves the personal
status of the private respondent, or relates to, or the subject of which
is property within the Philippines, then the petitioners as non-
residents" are entitled to extra-territorial service,17 which is a "due
process requirement." As they were never served with summons, to
"bar them [from] questioning the proceedings of the lower court will be
compounding injustice . . . . If a party to a case can assail the
proceedings for defective service of summons," the same right should
be afforded to a person who was not made a party at all.18
Public respondent disposed of petitioners' above contention in this
wise:19
First. Annulment of judgment, as the Supreme Court had occasion to
rule, rests on a single ground: extrinsic fraud (Canlas vs. Court of
Appeals, 170 [sic] SCRA 160, 170). Islamic Da' Wah Council of the
Phils. vs. Court of Appeals, 178, 186, citing Anuran vs. Aquino, 38
Phil. 29, emphatically announced that there can be no question as to
the right of any person adversely affected by a judgment to maintain
an action to enjoin its enforcement and to have it declared a nullity on
the ground of fraud and collusion practiced in obtaining the judgment
when such fraud is extrinsic or collateral to the matters involved in the
issues raised at the trial which resulted in such judgment.
xxx xxx xxx
Clearly, there is nothing in the petition that extrinsic fraud, as
Macabingkil defines it, indeed vitiated the proceedings during the trial
of Civil Case No. D-7240.
The essence of the instant petition is worded by the petitioners as
follows:
The common property involved in this case is covered by a Torrens
Title, specifically mentioning the co-owners thereof. To bind the entire
property and the owners thereof, all the registered owners must be
impleaded. The private respondent ONLY IMPLEADED the three co-
owners, excluding the petitioners herein. For the petitioners to be
bound by the questioned decision, such would really be a derogation
of their constitutional right to due process. The questioned decision,
too, suffers the fatal defect of utter want of jurisdiction.
15
Accordingly, since the petition for annulment of judgment is not based
on the ground of extrinsic fraud, the petition suffers from a basic and
fundamental infirmity that deprives petitioners of a valid cause of
action against respondents herein.
We hold that the Court of Appeals erred in limiting the ground(s) for
annulment of judgment to only one, namely, extrinsic fraud. While it is
true that in the cited cases of Canlas vs. CA20 and Islamic Da' Wah
Council of the Philippines vs. Court of Appeals,21 this Court said that a
judgment "may be annulled on the ground of extrinsic or collateral
fraud,"22 we should hasten to add that in Macabingkil vs. People's
Homesite and Housing Corporation,23 where the above ruling on
annulment of judgment was based, we held that there are really three
ways by which a final judgment may be attacked: 24
Under existing rules, there are three (3) ways by which a final and
executory judgment may be set aside. The first is by petition for relief
from judgment under Rule 38 of the Revised Rules of Court, when
judgment has been taken against the party through fraud, accident,
mistake or excusable negligence, in which case the petition must be
filed within sixty (60) days after the petitioner learns of the judgment,
but not more than six (6) months after such judgment was entered.
The second is by direct action to annul and enjoin the enforcement of
the judgment. This remedy presupposes that the challenged judgment
is not void upon its face, but is entirely regular in form, and the alleged
defect is one which is not apparent upon its face or from the recitals
contained in the judgment.[fn: Abbain v. Chua, 22 SCRA 798; Cadano
v. Cadano, 49 SCRA 33; Anuran v. Aquino, 38 Phil. 329] As explained
in Banco Español-Filipino v. Palanca, [fn: 37 Phil. 291, 949] "under
accepted principles of law and practice, long recognized in American
courts, the proper remedy in such case, after the time for appeal or
review has passed, is for the aggrieved party to bring an action
enjoining the judgment, if not already carried into effect; or if the
property has already been disposed of, he may institute suit to
recover it." The third is either a direct action, as certiorari, or by a
collateral attack against the challenged judgment (which is) is void
upon its face, or that the nullity of the judgment is apparent by virtue
of its own recitals. As aptly explained by Justice Malcolm in his
dissent in Banco Español-Filipino v. Palanca, supra, "A judgment
which is void upon its face, and which requires only an inspection of
the judgment roll to demonstrate its want of vitality is a dead limb
upon the judicial tree, which should be lopped off, if the power so to
do exists."
Since the aforementioned decision in Civil Case No. Q-5866 is not
void upon its face, it may only be annulled by direct action on the
ground of fraud.
It is only extrinsic or collateral fraud, as distinguished from intrinsic
fraud, however, that can serve as a basis for the annulment of
judgment. [Aring v. Original, 6 SCRA 1021, 1025; Velasco v. Velasco,
2 SCRA 736] Fraud has been regarded as extrinsic or collateral,
within the meaning of the rule, "where it is one the effect of which
prevents a party from having a trial, or real contest, or from presenting
all of his case to the court, or where it operates upon matters
pertaining, not to the judgment itself, but to the manner in which it was
procured so that there is not a fair submission of the controversy." [46
Am. Jur. 913] . . . .
It is clear then that to set aside a final and executory judgment, there
are three remedies available to a litigant: first, a petition for relief from
judgment under Rule 38 of the Rules of Court25 on grounds of fraud,
accident, mistake and excusable negligence filed within sixty (60)
days from the time petitioner learns of the judgment but not more than
six (6) months from the entry thereof; second, a direct action to annul
the judgment on the ground of extrinsic fraud; and third, a direct action
for certiorari or collateral attack to annul a judgment that is void upon
its face or void by virtue of its own recitals. Thus, Macabingkil did not
preclude the setting aside of a decision that is patently void where
mere inspection of the judgment is enough to demonstrate its nullity
on grounds of want of jurisdiction or non-compliance with due process
of law. This doctrine is recognized in other cases: 26
. . . . There is no question that a final judgment may be annulled.
There are, however, certain requisites which must be established
before a judgment can be the subject of an action for annulment.
"Under the present procedure, aside from the reliefs provided in these
two sections (Secs. 1 & 2, Rule 38), there is no other means whereby
the defeated party may procure final and executory judgment to be a
set aside with a view to the renewal of the litigation, unless (a) the
16
judgment is void for want of jurisdiction or for lack of due process of
law, or (b) it has been obtained by fraud." (I Moran's Rule of Court
1950 Ed., 697, citing Anuran v. Aquino, 38 Phil. 29; Banco Español-
Filipino v. Palanca, 37 Phil. 921). Reason of public policy which favors
the stability of judicial decisions are (sic) mute in the presence of fraud
which the law abhors (Garchitorena vs. Sotelo, 74 Phil. 25).
On the one hand, extrinsic fraud is the ground to annul a voidable final
judgment; the declaration of nullity of a patently void final judgment,
on the other, is based on grounds other than extrinsic fraud. To say,
then, that petitioners can avail themselves only of the ground of
extrinsic fraud and no other is to fail to appreciate the true meaning
and ramifications of annulment/nullity.
Jurisdiction is conferred by law. Its exercise must strictly comply with
the legal requisites; otherwise, a challenge on the ground of lack of
jurisdiction may be brought up anytime. Such jurisdiction normally
refers to jurisdiction over the subject. As an example, in a case
involving the issuance of a new owner's duplicate certificate of title,
the original of which was lost, stolen or destroyed, the court must
strictly comply with the requisites of Section 109 of P.D. 1529;
otherwise, its jurisdiction may be attacked anytime. Thus, we ruled
in New Durawood Co. Inc. vs. Court of Appeals:27
In Demetriou vs. Court of Appeals, et al., [238 SCRA 158, at 162
(November 14, 1994)] this Court ruled:
In Serra Serra v. Court of Appeals (195 SCRA 482 [1991]), on facts
analogous to those involved in this case, this Court already held that if
a certificate of title has not been lost but is in fact in the possession of
another person, the reconstituted title is void and the court rendering
the decision has not acquired jurisdiction. Consequently the decision
may be attacked any time.
In the instant case, the owner's duplicate certificates of title were in
the possession of Dy Quim Pong, the petitioner's chairman of the
board and whose family controls the petitioner corporation. Since said
certificates were not in fact "lost or destroyed," there was no necessity
for the petition filed in the trial court for the "Issuance of New Owner's
Duplicate Certificates of Title . . . ," In fact, the said court never
acquired jurisdiction to order the issuance of new certificates. Hence,
the newly issued duplicates are themselves null and void.
It is obvious that this lapse happened because private respondents
and respondent judge failed to follow the procedure set forth in P.D.
No. 1529 which, as already stated, governs the issuance of new
owner's duplicate certificates of title.
Section 109 of the said law provides, inter alia, that "due notice under
oath" of the loss or theft of the owner's duplicate certificate "shall be
sent by the owner or by someone in his behalf to the Register of
Deeds . . ." (emphasis supplied). In this case, while an affidavit of loss
was attached to the petition in the lower court, no such notice was
sent to the Register of Deeds.
Private respondents tried to convince the Court that by their failure to
locate Francis Dytiongsee, they had no other recourse but to file a
petition for reconstitution. Sec. 107 of the P.D. 1529, however, states
that the remedy, in case of the refusal or failure of the holder — in this
case, the petitioner — to surrender the owner's duplicate certificate of
title, is a "petition in court to compel surrender of the same to the
Register of Deeds," and not a petition for reconstitution.
Ineluctably, a judgment rendered without jurisdiction over the subject
matter is void. As we elucidated in Leonor vs. CA:28
Clearly and unequivocally, the summary procedure under Rule 108,
and for that matter under Art. 412 of the Civil Code, cannot be used
by Mauricio to change his and Virginia's civil status from married to
single and of their three children from legitimate to illegitimate. Neither
does the trial court, under said Rule, have any jurisdiction to declare
their marriage null and void and as a result thereof, to order the local
civil registrar to cancel the marriage entry in the civil registry. Further,
the respondent trial judge gravely and seriously abused his discretion
in unceremoniously expanding his very limited jurisdiction under such
rule to hear evidence on such a controversial matter as nullity of a
marriage under the Civil Code and/or Family Code, a process that is
proper only in ordinary adversarial proceedings under the Rules.
17
Jurisdiction over the Persons of Indispensable Parties
True, the above dispositions refer to jurisdiction over the subject
matter. Basic considerations of due process, however, impel a similar
holding in cases involving jurisdiction over the persons of
indispensable parties which a court must acquire before it can validly
pronounce judgments personal to said defendants. Courts acquire
jurisdiction over a party plaintiff upon the filing of the complaint. On
the other hand, jurisdiction over the person of a party defendant is
assured upon the service of summons in the manner required by law
or otherwise by his voluntary appearance. As a rule, if a defendant
has not been summoned, the court acquires no jurisdiction over his
person, and a personal judgment rendered against such defendant is
null and void.29 A decision that is null and void for want of jurisdiction
on the part of the trial court is not a decision in the contemplation of
law and, hence, it can never become final and executory.30
Rule 3, Section 7 of the Rules of Court, defines indispensable parties
as parties-in-interest without whom there can be no final
determination of an action. As such, they must be joined either as
plaintiffs or as defendants. The general rule with reference to the
making of parties in a civil action requires, of course, the joinder of all
necessary parties where possible, and the joinder of all indispensable
parties under any and all conditions, their presence being a sine qua
non for the exercise of judicial power.31 It is precisely "when an
indispensable party is not before the court (that) the action should be
dismissed."32 The absence of an indispensable party renders all
subsequent actions of the court null and void for want of authority to
act, not only as to the absent parties but even as to those present.33
Petitioners are co-owners of a fishpond. Private respondent does not
deny this fact, and the Court of Appeals did not make any contrary
finding. The fishpond is undivided; it is impossible to pinpoint which
specific portion of the property is owned by Olanday, et al. and which
portion belongs to petitioners. Thus, it is not possible to show over
which portion the tenancy relation of private respondent has been
established and ruled upon in Civil Case D-7240. Indeed, petitioners
should have been properly impleaded as indispensable
parties. Servicewide Specialists, Incorporated vs. Court of
Appeals34 held that no final determination of a case could be made if
an indispensable party is not impleaded:
. . . . An indispensable party is one whose interest will be affected by
the court's action in the litigation, and without whom no final
determination of the case can be had. The party's interest in the
subject matter of the suit and in the relief sought are so inextricably
intertwined with the other parties that his legal presence as a party to
the proceeding is an absolute necessity. In his absence there cannot
be a resolution of the dispute of the parties before the court which is
effective, complete, or equitable.
Formerly, Article 487 of the old Civil Code provided that "any one of
the co-owners may bring an action in ejectment." It was subsequently
held that a co-owner could not maintain an action in ejectment without
joining all the other co-owners. Former Chief Justice Moran, an
eminent authority on remedial law, explains:35
. . . . As held by the Supreme Court, were the courts to permit an
action in ejectment to be maintained by a person having merely an
undivided interest in any given tract of land, a judgment in favor of the
defendants would not be conclusive as against the other co-owners
not parties to the suit, and thus the defendant in possession of the
property might be harassed by as many succeeding actions of
ejectment, as there might be co-owners of the title asserted against
him. The purpose of this provision was to prevent multiplicity of suits
by requiring the person asserting a right against the defendant to
include with him, either as co-plaintiffs or as co-defendants, all
persons standing in the same position, so that the whole matter in
dispute may be determined once and for all in one litigation.
Contrariwise, it is logical that a tenant, in an action to establish his
status as such, must implead all the pro-indiviso co-owners; in failing
to do so, there can be no final determination of the action. In other
words, a tenant who fails to implead all the co-owners cannot
establish with finality his tenancy over the entire co-owned land.
Co-owners in an action for the security of tenure of a tenant are
encompassed within the definition of indispensable parties; thus, all of
them must be impleaded. As defined:36
18
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.
A person is not an indispensable party, however, if his interest in the
controversy or subject matter is separable from the interest of the
other parties, so that it will not necessarily be directly or injuriously
affected by a decree which does complete justice between them.
Also, a person is not an indispensable party if his presence would
merely permit complete relief between him and those already parties
to the action, or if he has no interest in the subject matter of the
action. It is not a sufficient reason to declare a person to be an
indispensable party that his presence will avoid multiple litigation.
Clearly, the decision in Civil Case D-7240 cannot bind petitioners and
cannot adjudicate the entire co-owned property, not even that portion
belonging to Olanday et al., ownership of the property being still pro-
indiviso. Obviously, the failure to implead petitioners barred the lower
court from making a final adjudication. Without the presence of
indispensable parties to a suit or proceeding, a judgment therein
cannot attain finality.37
Ergo, res inter alios judicatae nullum aliis praejudicarium
faciunt.38 Thus, the Court, through former Chief Justice Marcelo B.
Fernan, held that a person who was not impleaded in the complaint
cannot be bound by the decision rendered therein, for no man shall be
affected by a proceeding in which he is a stranger.39
Admittedly, in this case, the want of jurisdiction of the trial court in
rendering its decision in Civil Case No. D-7240 is not patent on the
face of said judgment. However, there were glaring documentary and
testimonial pieces of evidence referred to by the trial court in its
decision which should have prompted it to inquire further whether
there were other indispensable parties who were not impleaded.
These facts and circumstances should have forewarned the trial court
that it had not acquired jurisdiction over a number of indispensable
parties. In American jurisprudence, the nullity of a decision arising
from lack of jurisdiction may be determined from the record of the
case, not necessarily from the face of the judgment only.40 We believe
that this rule should be applied to this case, considering that in the
assailed trial court's decision, referrals were made to crucial evidence
which if scrutinized would readily reveal that there were indispensable
parties omitted.
First, the decision referred to the subject property "as Lot No. 3312 of
the Cadastral Survey."41 This lot was particularly described in private
respondent's Complaint dated February 6, 1984 filed in Civil Case D-
7240.42 Obviously such description was copied by private respondent
from the transfer certificate of title over the subject fishpond issued on
August 12, 1975 naming all the co-owners, including the herein
petitioners and the fact of their foreign residences, thus:43
IT IS HEREBY CERTIFIED that certain land situated in the City of
Dagupan, formerly in the Province of Pangasinan bounded and
described as follows:
A parcel of land (Lot 3312 of the Cadastral Survey of Dagupan),
situated in the City of Dagupan . . . .
is registered in accordance with the provisions of the Land
Registration Act in the name of PACITA ARCELONA, married to
Miguel Ulanday; TOMASA ARCELONA, married to Tung Ming
Chiang; MARCELINO V. ARCELONA, married to Soledad Tiongco;
MARIA V. ARCELONA, married to Oreste Arellano; BENEDICTO
V. ARCELONA, married to Ruth Suget; and NATIVIDAD ARCELONA,
married to Agrimero Cruz; all of legal age, Filipinos, the second and
fifth named residents of Los Angeles, California, U.S.A., third & fourth
of Manila; first of Villasis, Pangasinan & the last named of Lingayen,
Pangasinan as owner thereof in fee simple, subject to such of the
19
incumbrances mentioned in Section 39 of said Act as may be
subsisting, and to
x x x           x x x          x x x
Entered at the City of Dagupan Philippines, on the 12th day
of August in the year nineteen hundred and seventy five at 4:00 p m.
(Emphasis supplied).
Considering that private respondent was suing to establish his status
as a tenant over the subject fishpond, the responsibility for impleading
all the indispensable parties undeniably rested on him as provided
under Rule 3 of the Rules of Court. Section 2 of Rule 3 requires that
"every action must be prosecuted and defended in the name of the
real party in interest. All persons having an interest in the subject of
the action and in obtaining the relief demanded shall be joined as
plaintiffs." Further, Section 7 of the same rule states that "(p)arties in
interest without whom no final determination can be had of an action
shall be joined either as plaintiffs or defendants."
Second, Respondent Court of Appeals ruled that private respondent
"in his motion to dismiss (before said Court) alleged that petitioners
knew of the lessee as revealed by the testimony of Pacita Olanday,
one of the defendants in Civil Case No. D-7240 and a sister of
petitioners. (TSN, pp. 15-16, hearing of October 2, 1984, Civil Case
No. D-7240)." That being so, why did private respondent fail to include
petitioners as defendants in the case below? It should be noted that
the lease contract was between Cipriano Tandoc and Olanday, et al.
Private respondent, a caretaker-tenant of Tandoc, knew or should
have known that there were co-owners other than Olanlday, et al. And
even conceding arguendo that petitioners had authorized Olanday, et
al. to enter into a lease contract with Tandoc, this fact did not
authorize the latter to represent petitioners in the civil case he
brought. Under Rule 9, Section 9 of the Rules of Court, the pleader is
required to set forth the names, if known to him, of persons who ought
to be parties, if complete relief is to be accorded to those who are
already parties but who are not joined; and to state why they have
been omitted. Surely, he brought suit to establish his status as a
tenant. It is thus his responsibility to state the names of all the persons
against whom he wants to establish his status as tenant.
Third, both the private respondent and the trial court knew of the
obvious omission of petitioners as party defendants. Telling is the fact
that, by reciting part of the transcript of stenographic notes, private
respondent himself provided clear evidence in his memorandum that
he knew of the existence of other co-owners who were not impleaded
in his case against Olanday et al.:44
As admitted by Pacita Olanday, one of the defendants in Civil Case
No. D-7240, the petitioners know of the lease with Cipriano Tandoc;
they were authorized to lease the shares of the petitioners. Here is the
testimony of Pacita Olanday:
ATTY. VINLUAN:
Q. You made mentioned that you were authorized by your brothers
and sister who are (sic) residing in the United States to enter into a
contract. Did these brothers and sister of yours make any special
power of attorney authorizing you to that effect?
x x x           x x x          x x x
A. I talked with my brothers when they "balik-bayan", they said I will
make an agreement. (tsn. October 2, 1984 pp. 15 and 16 — CV# D-
7240).
He also knew that in executing the lease, Pacita Olanday represented
only her sisters (Maria and Natividad) who were residing in the
Philippines. Definitely, at the time of the execution of the contract, she
had no brother residing in the Philippines because her only brothers,
Marcelino and Benedicto Arcelona, (the latter now deceased and
represented in this case by Petitioner Ruth Arcelona) were living in
California. This fact can be deduced from the recitals of the RTC
decision:45
It is undisputed in the records that the defendants (referring to
Olanday, et al.) are co-owners and civil law lessors of a fishpond
otherwise known as Lot No. 3312 of the Cadastral Survey of Dagupan
City; that as owners, they entered into a Contract of Lease (Exh. "1")
with one Cipriano Tandoc dated March 4, 1978 for a term of three (3)
20
years from February 2, 1982, which contract was renewed for another
two (2) years up to February 2, 1984. On the 31st of January, 1984,
Exhibit "3", an "Affidavit of Surrender of Rights and Possession of
Lessee over a Fishpond" was executed between Cipriano Tandoc and
Pacita Olanday who signed for herself and in behalf of her two (2)
sisters. Plaintiff Moises Farnacio was however, instituted as
caretaker-tenant over the same fishpond by Cipriano Tandoc on the
date of the Contract of Lease was entered into between the owners-
lessors and Cipriano Tandoc. The private agreement (Exh. "D")
signed by Cipriano Tandoc and Moises Farnacio is, however, assailed
in a criminal case for falsification in the Fiscal's Office." (Emphasis
supplied).
In fact, only these co-owners who are residing in the Philippines were
joined as defendants in Civil Case D-7240. But the mention of Pacita's
relatives who were residing abroad should have made the trial court
aware of the existence of indispensable parties who were not yet
impleaded.
Despite this knowledge of the apparent defect in the complaint and in
its jurisdiction, the trial court did not take the initiative to implead
petitioners as defendants or to order private respondent to do so,
contrary to the clear mandate of Rule 3, Sec. 11 of the Rules of
Court46 which provides:
Sec. 11. Misjoinder and non-joinder of parties. — Misjoinder of parties
is not ground for dismissal of an action. Parties may be dropped or
added by order of the court on motion of any party or on its own
initiative at any stage of the action and on such terms as are just. Any
claim against a party may be severed and proceeded with separately.
The foregoing testimony on the existence of other co-owners was a
clear signal that indispensable parties had not yet been impleaded.
Indeed, this knowledge should have put the private respondent and
the trial court on guard. The burden to implead or to order the
impleading of indispensable parties is placed on private respondent
and on the trial court, respectively. Since no evidence was presented
to prove that petitioners were aware of the civil case filed against
Olanday et al., they cannot be faulted for not intervening therein.
In sum, we hold that the nullity of a judgment grounded on lack of
jurisdiction may be shown not only by what patently appears on the
face of such decision but also by documentary and testimonial
evidence found in the records of the case and upon which such
judgment is based.
Before ending our discussion on the first issue, we must stress that
the then Intermediate Appellate Court and this Court, in affirming the
RTC decision in Civil Case No. D-7240 which we here nullify, had not
been given the occasion to rule on the issue of the trial court's
jurisdiction over the persons of indispensable parties; verily, this
question had not been raised before the two appellate courts. The
review of civil cases by appellate courts is confined only to the issues
raised by the parties. Hence, appellate courts do not have the
privilege or the opportunity afforded the trial courts to consider matters
beyond the specifically contested issues, e.g., jurisdiction over
indispensable parties, as in this case. Such lack of jurisdiction could
not have been known by the appellate courts, including this Court, as
it was not patent from the documents or submissions filed before
them. The issue raised before the then Intermediate Appellate Court
and this Court was formulated in this wise: "(t)he validity of private
respondent's claim that he is a tenant of the petitioners' fishpond, with
security of tenure as such assured under the law, is the basic
question presented in this appeal."47 We underscore the fact that the
issue of whether all the indispensable parties had been validly
impleaded, if at all, had not been raised at that time. In any event,
whether the indispensable parties were actually impleaded and
jurisdiction over them was acquired was a factual question for the trial
court to determine. Consistent with the basic doctrine that factual
findings of lower courts are binding on appellate courts unless
covered by the recognized exceptions,48 appellate courts must be able
to rely on the implied affirmation of the trial court that jurisdiction had
been acquired over indispensable parties, especially when this was
not raised as an issue on appeal. The responsibility for impleading
indispensable parties for the exhaustive trial of a case cannot rest on
this forum or on the then Intermediate Appellate Court. Indeed, the
Decision of this Court affirming the said trial court's decision is
captioned only as "Pacita A. Olanday, Maria A. Arellano and Natividad
A. Cruz, petitioners, vs. Intermediate Appellate Court and Moises
Farnacio, respondents", clearly indicating that petitioners herein had
21
been omitted as indispensable parties in the proceedings before the
trial court and before the appellate tribunals. Substantial justice
requires that this error be now rectified.
Second Issue: Estoppel and Laches
Apart from holding that there was only one ground to annul a
judgment, namely, extrinsic fraud, the appellate court — using
extraneous evidence — also found that estoppel and laches had set
in against petitioners, thereby barring them from asserting lack of
jurisdiction over their persons. These "extraneous matters" are stated
by the Respondent Court in this wise:
. . . True, indeed, that petitioners were not original parties to the action
and that the decision embraces half of the property in dispute
belonging to petitioners as co-owners thereof. But they cannot now
complain they were denied due process. It will be recalled that the
contract of lease was entered with one Cipriano Tandoc on March 4,
1978 for a term of three years, which contract was renewed for
another two years up to February 2, 1984. During all the years of the
existence of the lease contract, it would be incredulous for petitioners
to assert that they never knew of such lease agreement from their
three sisters, the defendants herein. Petitioners raised no overt
protest against the lease contract executed by their sisters with
Cipriano Tandoc in 1978 and renewed in 1982. Petitioners took no
direct action to promptly disavow or disaffirm the action taken by their
sisters to lease the entire property to Tandoc.
It is likewise unbelievable that during all the years that the subject
property (fishpond) is under litigation in Civil Case No. D-7240 from
1984 to 1991, petitioners were not aware that their property is subject
of the controversy. By their continued silence, they have permitted the
acts of their sisters in leasing the property and they cannot now be
heard, after a prolonged period of time, to denounce such acts as
done without their knowledge and consent. The rule of acquiescence
by silence has estopped petitioners to deny the reality of the state of
things which they made to appear to exist and upon which others
have been led to reply. Parties must take the consequences of the
position they assume. Sound ethics require that the apparent in its
effects and consequences should be as if it were real, and the law
properly so regards. (Metro Manila Transit Corporation vs. Morales,
173 SCRA 629, 633).
In Santiago Syjuco, Inc. vs. Castro, 175 SCRA 171, 192, it was
held, inter alia:
xxx xxx xxx
. . . . Likewise, in Criminal Case No. 16866 for falsification against
respondent Farnacio before Branch 3 of the Municipal Trial Court of
Dagupan City, witness Juan Bernal testified that the petitioners herein
Tomasa Arcelona, Marcelino Arcelona and Ben Arcelona authorized
their sisters Natividad Cruz, Corazon Arcelona, Pacita Olanday to
lease the fishpond to Cipriano Tandoc. (TSN, pp. 5-6, hearing of
August 10, 1987 in Criminal Case No. 16866).49
Petitioners balk at these pronouncements, arguing that in annulment
of judgments, "the grounds thereof must be based solely on the
records of the case." They contend that "to permit the court's record to
be contradicted or varied by evidence dehors would render such
records of no avail." Petitioners contend that Respondent Court of
Appeals erred in taking into account "the proceedings in Criminal
Case No. 16866 to show alleged knowledge of the petitioners herein
of the lease of the property to Cipriano Tandoc."50 Petitioners submit
that the bone of contention in this case is not knowledge of the
petitioners of the Lease Contract executed by Pacita Olanday et al.
and Cipriano Tandoc, but whether the petitioners knew of the case
filed by private respondent against Pacita Olanday et al. involving
their common property.
Petitioners stress that Private Respondent Farnacio is "a total
stranger" and has absolutely no privity of interest with them because it
was Tandoc, not Farnacio, who entered into a lease contract with
Olanday, et al.51
Petitioners deny any concealment or deception on their part that
would constitute estoppel. They contend that in the transfer certificate
of title, their names "were specifically mentioned as co-owners of the
property on which the private respondent sought to be installed in
22
physical possession as tenant."52 They aver that Respondent Court of
Appeals' finding that they had knowledge of the lease contract "is
based on presumption not on clear and convincing evidence."
Assuming, according to petitioners, that they can be held in estoppel,
it can only be as against Cipriano Tandoc, not private respondent who
"was never a party to the lease contract."53
Since the judgment is void "insofar as the petitioner are concerned for
lack of jurisdiction [over] their persons and for want of due process,"
and since they "were never given the opportunity to institute any
action to protect their interest," petitioners contend that to bar them
now by laches and estoppel "will create an unfair and unjust situation."
For as petitioners candidly state, they "do not question the
pronouncement that private respondent is the tenant of Pacita
Olanday et al."; however, they submit that the issue in this case is
whether private respondent "is also the tenant of herein petitioners
entitled to be placed in physical possession and cultivation of their
undetermined share in the property without [petitioners] being made
parties in the case."54
Private respondent counters that "Pacita Olanday . . . testified that she
was authorized to lease the share of . . . petitioners." According to
private respondent, while petitioners were in the Philippines, they
were informed of the appointment of private respondent as caretaker-
tenant of the entire fishpond, and they did not object to such
appointment.55 Further, private respondent contends that petitioners
failed to intervene in the case before the writ of execution was granted
on "May 5, 1991" despite the "appearance . . . of their counsel, Atty.
Marina Cruz, when the motion for issuance of said writ was heard."
Private respondent adds that he was "impliedly recognized" as a
tenant when petitioners "received their corresponding shares [i]n the
lease rental of the property from the private respondent, through
Olanday, et al. and their counsel, Atty. Marina Cruz."56
As correctly put by petitioners, we hold that Respondent Court of
Appeals, in deciding the petition to declare the judgment void, cannot
consider extraneous matters to vary what the records bear. In other
words, the Court of Appeals cannot annul or declare null the assailed
decision with such extraneous matters. The validity or nullity of the
said decision must stand or fall on its own face and the evidence on
record.
In an action to declare a judgment void because of lack of jurisdiction
over the parties or subject matter, only evidence found in the records
of the case can justify the annulment of the said judgment.
Contrariwise, the nullity of the judgment due to lack of jurisdiction may
be proved at most by the evidence on record but never by extraneous
evidence. Sen. Vicente J. Francisco aptly explains this in his treatise
on the Rules of Court:57
The validity of a final judgment may be attacked on the ground that
the judgment or order is null and void, because the court had no
power or authority to grant the relief or no jurisdiction over the subject
matter or over the parties or both. The aggrieved party may attack the
validity of the final judgment by a direct action or proceeding in order
to annul the same, as certiorari, which is not incidental to, but is the
main object of the proceeding. The validity of a final judgment may
also be attacked collaterally as when a party files a motion for the
execution of the judgment and the adverse party resists the motion by
claiming that the court has no authority to pronounce the judgment
and that the same is null and void for lack of jurisdiction over the
subject matter or over the parties.
In cases of collateral attack, the principles that apply have been stated
as follows: "The legitimate province of collateral impeachment is void
judgments. There and there alone can it meet with any measure of
success. Decision after decision bears this import: "In every case the
field of collateral inquiry is narrowed down to the single issue
concerning the void character of the judgment and the assailant is
called upon to satisfy the court that such is the fact. To compass his
purpose of overthrowing the judgment, it is not enough that he shows
a mistaken or erroneous decision or a record disclosing non-
jurisdictional irregularities in the proceedings leading up to the
judgment. He must go beyond this and show to the court, generally
from the fact of the record itself, and not by extraneous evidence that
the judgment complained of is utterly void. If he can do that his attack
will succeed for the cases leave no doubt respecting the right of a
litigant to collaterally impeach a judgment that he can prove to be
void.
23
The reason for the rule of exclusion of extraneous proof to show that
the judgment complained of is utterly void for lack of jurisdiction has
been expressed in the following words: "The doctrine that the question
of jurisdiction is to be determined by the record alone, thereby
excluding extraneous proof seems to be the natural unavoidable
result of that stamp of authenticity which, from the earliest times, was
placed upon the "record," and which gave it such "uncontrollable
credit and verity that no plea, proof, or averment could be heard to the
contrary." . . . Any rule, . . . would be disastrous in its results, since to
permit the court's record to be contradicted or varied by evidence
dehors would render such records of no avail and definite sentences
would afford but slight protection to the rights of parties once solemnly
adjudicated.
We should add, however, that where an action for annulment of
judgment is grounded on extrinsic fraud, extraneous evidence is
admitted. We have held that, although a person need not be a party to
the judgment sought to be annulled by reason of extrinsic fraud, he
must prove his allegation that the judgment was obtained by the use
of fraud and collusion and that he would be adversely affected
thereby.58 Fraud must be extraneous, otherwise, there would be no
end to litigation. Extrinsic fraud refers to any fraudulent act committed
by a prevailing party outside the trial of the case, whereby the
defeated party has been prevented from fully exhibiting his side of the
case, because of fraud or deception practiced on him by his
opponent.59 As distinctly defined in Cosmic Lumber Corporation
vs. Court of Appeals, et al.:60
There is extrinsic fraud within the meaning of Sec. 9, par. (2), of B.P.
Blg. 129, where it is one the effect of which prevents a party from
hearing a trial, or real contest, or from presenting all of his case to the
court, or where it operates upon matters, not pertaining to the
judgment itself, but to the manner in which it was procured so that
there is not a fair submission of the controversy. In other words,
extrinsic fraud refers to any fraudulent act of the prevailing party in the
litigation which is committed outside of the trial of the case, whereby
the defeated party has been prevented from exhibiting fully his side of
the case by fraud or deception practiced on him by his opponent. (fn:
Makabingkil v. PHHC, No. L-29080, 17 August 1976, 72 SCRA 326,
343-344) Fraud is extrinsic where the unsuccessful party has been
prevented from exhibiting fully his case, by fraud or deception
practiced on him by his opponent, as keeping him away from court, a
false promise of a compromise; or where the defendant never had
knowledge of the suit, being kept in ignorance by the acts of the
plaintiff; or where an attorney fraudulently or without authority
connives at his defeat; these and similar cases which show that there
has never been a real contest in the trial or hearing of the case are
reasons for which a new suit may be sustained to set aside and annul
the former judgment and open the case for a new and fair hearing.
(fn: Id., p. 344 citing U.S. v. Throckmorton, 25 L. Ed. 93, 95)
In deciding the "petition for annulment of judgment" — which should
be a "petition to declare judgment void" — Respondent Court of
Appeals should not have considered the following matters which find
no support from the records and are thus considered "extraneous": (1)
the assumption that petitioners knew of the five-year lease contract
with private respondent and the pendency of Civil Case No. D-7240
from 1984 to 1991; and (2) the testimony of Juan Bernal in a separate
criminal case before another court concerning the authority granted to
Olanday et al. and where petitioners were not parties. The rule is that
the nullity of the decision arising from want of jurisdiction and/or due
process should appear from the records of the case. And the validity
of the judgment cannot be anchored on mere suppositions or
speculations, as Respondent Court did.
Equally important, the finding of estoppel and laches by Respondent
Court is not supported by the evidence on record. The silence of
petitioners can easily be explained by the fact that they were not in
the country during the pendency of the subject civil case. Such
absence from the country was never rebutted by private respondent.
Even in the proceedings antecedent to this case before us now,
petitioners were merely represented by their attorney-in-
fact.61 Moreover, they were not at all impleaded as parties in the
judgment sought to be voided. Neither were they properly served
summons. The indelible fact is that they were completely ignored.
In any event, we ruled in Alabang Development Corporation
vs. Valenzuela62 that no laches attach when the judgment is null and
void for want of jurisdiction:
24
The herein respondents attribute laches to the petitioners for not
appealing from the order of the lower court denying their motion to
intervene and motion for new trial hence allowing the said
order/decision to become final. There is no laches nor finality of any
decision to speak of since the decision under question is herein
pronounced null and void for having been rendered without
jurisdiction. Prescinding therefrom, as admitted by themselves in their
comment, the judgment of reconstitution is "ineffective" against the
owners of lands covered thereby who were not joined as parties in the
proceeding. As the Court ruled in Bernal case on the matter of
intervention [fn: 93 SCRA at pp. 247, 248] "a valid judgment cannot
even be rendered where there is want of indispensable parties' such
as petitioners who hold subsisting Torrens Title to the properties in
question and "this aspect of the case commands the joinder of
indispensable parties to allow them to uphold their interests based
upon the Torrens titles they hold overrides any question of later
intervention." Petitioners have precisely availed of the proper, speedy
and adequate remedy of the present special civil action
of certiorari and prohibition to annul and set aside for want of
jurisdiction the decision and all proceedings of respondent judge.
On the other hand, the doctrine of estoppel is predicated on and finds
its roots in equity which, broadly defined, is justice according to
natural law and right. It is a principle intended to prevent a clear case
of injustice. The term is hardly separable from a waiver of right.
Estoppel, like laches, must be intentional and unequivocal, for when
misapplied, it can easily become a most convenient and effective
means of injustice. Estoppel is a principle that, as a rule, can be
invoked only in highly exceptional and legitimate cases.63 In Cruz
vs. Court of Appeals,64 we reiterated the requisites of estoppel:
In Kalalo vs. Luz, [fn: 34 SCRA 337] We held that the essential
elements of estoppel in respect to the party claiming it are: (a) lack of
knowledge and of the means of knowledge of the truth as the facts in
question; (b) reliance, in good faith, upon the conduct or statements of
the party to be estopped; and (c) action or inaction based thereon of
such character as to change the position or status of the party
claiming the estoppel, to his injury, detriment, or prejudice.
The herein facts ineluctably show the absence of the first element in
this case. Inasmuch as there is no proof that petitioners had
knowledge of the pending tenancy case filed by private respondent, it
is only fair that they should not be held in estoppel for failing to
intervene in and to question the jurisdiction of the trial court in Civil
Case No. D-7240. Thus, private respondent may not say that he was
misled into believing that petitioners knew of the lease contract and of
the litigation of Civil Case No. D-7240. Undisputedly, from the
evidence on record, petitioners had no such knowledge.
Petitioners' receipt of lease rentals cannot be used as proof of
recognition of private respondent as a caretaker-tenant. This issue
was not raised in the lower court and is being alleged for the first time
before us. Well-settled is the doctrine that questions not raised in the
lower courts cannot be raised for the first time on appeal.65
Third Issue: Intervention as a Remedy of Petitioners
Petitioners contend that Respondent Court of Appeals erred when it
ruled that their only remedy was intervention during the execution
stage of Civil Case No. D-7240. Inasmuch as "annulment of judgment
could be made either collaterally or directly," petitioners insist that
their resort to "direct action in annulling the Decision of the lower court
should not be taken against them."66 Moreover, petitioners argue that
"in proceedings for execution of a final decision or judgment, it is the
ministerial duty of the court of origin to issue the writ."67 Petitioners
add that because their action would result in the "modification,
alteration, and annulment of the judgment, the specific provision of
law that annulment of judgment of the Regional Trial Court is within
the exclusive jurisdiction of the Court of Appeals should prevail."68
Private respondent counters that petitioners deliberately did not
intervene "to afford them opportunity to question, as they now
question, the validity of any decision to be rendered in said case, . . .
in the event of an adverse decision."69
We hold that intervention is not the only remedy to assail a void final
judgment. There is no procedural rule prescribing that petitioners'
intervention in the hearing for the issuance of a writ is the only way to
question a void final judgment. As already stated, petitioners were not
25
aware of such hearing. Besides, as already discussed, a direct action
is available in assailing final judgments grounded on extrinsic fraud,
while a direct or a collateral action may be used to show lack of
jurisdiction.
The assailed Decision of Respondent Court of Appeals cites certain
cases allowing intervention as follows:70
A case in which an execution has been issued is regarded as still
pending so that all proceedings in the execution are proceedings in
the suit. There is no question that the court which rendered the
judgment has a general supervisory control over its process of
execution and this power carries with it the right to determine every
question of fact and law which may be involved in the execution.
(Suson vs. Court of Appeals, 172 SCRA 70, 75, citing Paman vs.
Severis, 115 SCRA 709; Seavan Carrier vs. GTI Sportswear, 137
SCRA 580)
These cases, which require intervention of parties who may be
adversely affected by the decision, are not applicable. In the
cited Suson vs. Court of Appeals,71 the parties, though not impleaded,
knew of the case and were in fact directed by the trial court to
intervene, but they refused to do so. These particular facts are absent
in the instant case where, to repeat, petitioners were abroad when
Civil Case D-7240 was prosecuted.
In any event, as earlier pointed out, jurisprudence upholds the
soundness of an independent action to declare as null and void a
judgment rendered without jurisdiction as in this case. In Leonor
vs. Court of Appeals,72 Petitioner Virginia A. Leonor, through a
"petition for certiorari, prohibition and mandamus . . . sought the
nullification of both the decision dated December 14, 1992 and the
order dated February 24, 1993 of the trial court for having been issued
in excess of jurisdiction and/or with grave abuse of discretion."73 We
held in that case that:74
A void judgment for want of jurisdiction is no judgment at all. It cannot
be the source of any right nor the creator of any obligation. All acts
performed pursuant to it and all claims emanating from it have no
legal effect. Hence, it can never become final and any writ of
execution based on it is void: ". . . it may be said to be a lawless thing
which can be treated as an outlaw and slain at sight, or ignored
wherever and whenever it exhibits its head."
WHEREFORE, the petition for certiorari is GRANTED. The Decision
of Respondent Court of Appeals is hereby REVERSED and SET
ASIDE. The decisions in Civil Case No. D-7240, AC-G.R. SP-05237-
CAR and G.R. No. L-71217 are ANNULLED and SET ASIDE for lack
of jurisdiction. No costs.
SO ORDERED.
Narvasa, C.J., Romero, Melo and Francisco, JJ., concur.
FIRST DIVISION
G.R. No. 174353, September 10, 2014
NESTOR CHING AND ANDREW
WELLINGTON, Petitioners, v. 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 Decision1 dated October 27, 2005
of the Court of Appeals in CA-G.R. CV No. 81441, which affirmed the
Order2 dated July 8, 2003 of the Regional Trial Court (RTC), Branch
72 of Olongapo 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 Complaint3 with the 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
26
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)
its President, 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 course and clubhouse component thereof was
assigned to the Club, the shareholders shall not have proprietary
rights or interests over the properties of the Club.5  x x x.
(Emphasis supplied.)
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 right of 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
P235,584,000.00 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 P26.18 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 P1,600.00 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.
27
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, (P200,000.00) Philippine Currency. 
The shareholders [have] lost in terms of investment 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 more than five
(5) years from the time the stocks were offered for sale to the public. 
The cause of the decrease in value of the shares of 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:ChanRoblesVirtualawlibrary
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.  (g) Any unpaid rentals are the obligation of UIGDC with SBMA and
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
P100,000.00 as legal expense and attorney’s fees, as well as
appearance fee of P4,000.00 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;8cralawred
(b) Contrary to the allegations in the Complaint, said subscriptions
were reflected in SBGCCI’s balance sheets for the fiscal years 1998
and 1999;9cralawred
(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;10cralawred
(d) Shareholders’ meetings had been held and the corporate acts
complained of were approved at shareholders’ meetings;11cralawred
(e) Financial statements of SBGCCI had always been presented to
shareholders justifiably requesting copies;12cralawred
(f) Green fees collected were reported in SBGCCI’s audited financial
statements;13cralawred
SBGCCI continued to operate under a valid contract with the
SBMA;14 and
(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 of defense 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
28
prayer for injunctive relief since the Complaint may be considered a
nuisance or harassment suit under Section 1(b), Rule 1 of the Interim
Rules of Procedure for Intra-Corporate Controversies.16 Thus, they
prayed 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 apparent from 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, oral or 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 file the
Complaint, and therefore had no personality to file the same on behalf
of the 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.18cralawred
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 Decree No. 902-A,
which provides:
Sec. 5. In addition to the 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
29
RTC’s dismissal thereof on the ground of failure to exhaust remedies
within the corporation.  Petitioners cite Republic Bank v.
Cuaderno19 wherein the Court allowed the derivative suit even without
the exhaustion of said remedies as it was futile to do so since the
Board of Directors were all members of the same family.  Petitioners
also point out that in Cuaderno this 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 or nuisance 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 that the 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, is determined 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.21cralawred
In Cua, Jr. v. Tan,22 the Court previously elaborated on the distinctions
among a derivative suit, an individual 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 into
individual 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 suit will 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 not the 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
30
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 or are 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 failure of 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 direct action [is one] filed by the shareholder individually
(or on behalf of a class of shareholders to which he or she belongs)
for injury to his or her interest as 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 went on 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 shares of
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
lack of qualification to manage a golf course.  Contrary to 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 actions already authorized by law or jurisprudence. It is settled
that a stockholder’s right to institute a derivative suit is not based on
any express provision of 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.23cralawred
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 seek to avail of their
appraisal rights.  Instead, they ask that defendants be enjoined from
31
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.24cralawred
Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-
Corporate 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.25cralawred
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. Yukayguan26:ChanRoblesVirtualawlibrary
The wordings of Section 1, Rule 8 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
available under 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 particularity in 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.
Velasco, Jr.,* Bersamin, Perez, and Perlas-Bernabe, JJ., concur.
Leonardo-De Castro,** (Acting Chairperson).
32

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. Nos. L-42699 to L-42709 May 26, 1981
THE HEIRS OF THE LATE FLORENTINA NUGUID VDA. DE
HABERER, petitioner,
vs.
COURT OF APPEALS, ** FEDERICO MARTINEZ, BALDOMERO
MANALO, FAUSTINO BAGALAWIS, FEDERICO STA. TERESA,
ANGELITO KING, GREGORIO DEL ROSARIO, LEODOVICO
TORRES, LEON SORIANO, SANTIAGO TUMANG, LUIS PASTOR
and CRISTINO LIBRAMANTE, respondents.
TEEHANKEE, J.:
The Court grants the petition for review by way of appeal from the
Resolutions of respondent Court of Appeals dated November 24,
1975 and January 15, 1976 dismissing the appeal of the late
Florentino Nuguid Vda. de Haberer in CA-G. R. No. 53680—90-R and
ordering all pleadings filed in said cases after the death of said
appellant stricken off the records, for having been issued with grave
error of law if not with grave abuse of discretion and remands the
case for proper proceedings and determination of the appeal on the
merits.
This case originated from the Court of First Instance of Rizal where
the late Florentina Nuguid Vda. de Haberer as the duly registered
owner filed in 1964 and 1965 (11) complaints for recovery of
possession of the parcel of land evidenced by Transfer Certificate of
Title No. 15043 of the Register of Deeds of Rizal issued in her name,
situated at Mandaluyong, Rizal, alleging that private respondents had
surreptitiously entered the land and built their houses thereon.
The lower court, after trial on the merits, rendered a consolidated
decision, dated May 26, 197 l, dismissing all the complaints. On
motion of the late Florentina Nuguid Vda. de Haberer the cases were
reopened and retried on grounds of newly discovered evidence. On
September 15, 1972, the lower court issued an order reviving its
decision of May 26, 1971. The decision was thus appealed to the
Court of Appeals.
In the Court of Appeals, the cases were erroneously dismissed once
before, on the ground that the appeal was allegedly filed out of time.
The issue was brought to this Court in Cases Nos. L-39366 and L-
39620-29, entitled "Florentina Nuguid Vda. de Haberer vs. Federico
Martinez, et al., 1 On January 29, 1975, this Court rendered its
judgment setting aside the appellate court's dismissal of the appeal
and ordering the reinstatement of the same for proper disposition on
the merits, having found "that contrary to respondent court's
erroneous premises and computation, petitioner duly and timely
perfected her appeal within the reglementary period and in
compliance with the material data rule requiring that the Record on
Appeal state such data as will show that the appeal was perfected on
time. "
The cases were remanded to the Court of Appeals where appellant
was required to file printed brief within forty-five days from her receipt
of notice. Three days before the period was to expire, or on June 18,
1975, appellant's counsel requested for an extension of time within
which to file appellant's brief. Respondent court in a resolution dated
June 23, 1975 granted the request and gave appellant a 90-day
extension (with warning of no further extension) from receipt on June
33
27, 1975 or up to September 25, 1975 within which to file the
appellant's printed brief. On June 23, 1975, private respondent
opposed the extension by filing a "Motion to Set Aside Order Granting
Extension of Time to File Brief." Appellant was directed by respondent
court to comment on the said opposition and appellant's counsel
complied by submitting its comments on July 15, 1975.
In the meantime, appellant Florentina Nuguid Vda. de Haberer had
died on May 26, 1975. Appellant's counsel Attorneys Bausa, Ampil
and Suarez accordingly gave respondent court notice of the death of
their client in their motion of June 28, 1975 and asked for the
suspension of the running of the period within which to file the
appellant's brief pending the appointment of an executor of the estate
left by their client in the Court of First Instance of Quezon City (Sp.
Proc. No. Q-2026) where a petition for the probate of the alleged will
of the deceased had been filed by another lawyer, Atty. Sergio
Amante. Respondents in turn contended that the lawyers of he
deceased had "no longer any legal standing and her atorneys could
no longer act for and in her behalf for the reason that their client-
attorney relationship had been automatically erminated or severed"
and asked that the appeal be dismissed for failure to prosecute." 2
Since their motion of June 28, 1975 remained unacted upon and the
original extension granted by the respondent court for the deceased
appellant to file her printed brief was about to expire, her counsel filed
on September 18, 1975 a manifestation and/or motion asking either
for an extension of sixty (60) days and/or resolution suspending the
running of the period within which to submit appellant's printed brief.
Still, respondent, court remained silent.
Not certain whether their services would still be retained by the heirs
of the deceased, counsel for the late Florentina Nuguid Vda. de
Haberer reiterated their request in a motion dated November 14, 1975
either for an extension of time to file appellant's brief or for the
issuance of a resolution suspending the running of the period for filing
the same, pending the appointment of an administrator or executor of
the estate of the deceased appellant.
Finally, acting on counsel's motion of November 14, 1975, respondent
court denied the request for extension and at the same time
dismissed the appeal, ruling in its resolution dated November 24,
1975 as follows:
Upon consideration of the manifestation and/or for another extension
to file appellant's brief dated November 14, 1975, filed by counsel for
the appellant on the grounds therein stated, and considering that
appellant has already been given a total of one hundred ninety-five
(195) days within which to file brief, the Court Resolved to deny the
motion for another extension to file brief and to dismiss the appeal.
Counsel for the deceased appellant forthwith filed their urgent motion
for reconsideration of December 8, 1975 explaining their predicament
that the requests for extension/suspension of period to file brief was
due to the uncertainty that their services may no longer be retained by
the heirs or legal representatives of their deceased client but they felt
obligated to preserve the right of such heirs/successors to continue
the appeal pursuant to Rule 3, Section 17 of the Rules of Court,
pending the settlement of the question of who among them should be
the executor of the deceased's estate and presented therewith, for
admission, the printed "brief for the appellant" the printing of which
they had deferred "for professional ethical considerations," pending
respondent court's action on their request for suspension of the
period. They further submitted therewith copies of 2 separate orders
of September 3, 1975 and August 26, 1975 issued by the Court of
Agrarian Relations and the Court of First Instance both at Guimba,
Nueva Ecija, respectively, wherein the deceased Florentina Nuguid
Vda. de Haberer was party-defendant, granting the deceased's
counsel's prayer to hold in abeyance further proceedings therein
pending the appointment of an administrator for the estate of the
deceased.
Respondent court, however, denied reconsideration, per its
Resolution of January 15, 1976 citing the general principle that
"litigants have no right to assume that such extensions will be granted
as a matter of course." But respondent court erred in applying this
general principle and summarily denying reconsideration and denying
admission of the appellant's brief conditioned upon the administrator
of the deceased's estate making his appearance upon his
appointment and being granted leave to file his supplemental
brief/memorandum, 3 in view of the intervening event of appellant's
34
death and the interposition of the equally established principle that the
relation of attorney and client is terminated by the death of the client,
as acknowledged by respondent court itself as well as respondents. ln
the absence of a retainer from the heirs or authorized representatives
of his deceased client, the attorney would thereafter have no further
power or authority to appear or take any further action in the case,
save to inform the court of the client's death and take the necessary
steps to safeguard the deceased's rights in the case.
This is what the deceased's counsel did in the case at bar. They
properly informed respondent court of the death of the appellant and
sought suspension of the proceedings and of the period for filing
appeliant's brief pending the appointment of the executor of the
deceased's estate in the proper probate proceedings filed with the
Court of First Instance of Quezon City. Section 17, Rule 3 of the Rules
of Court 4 sets the rule on substitution of parties in case of death of
any of the parties. Under the Rule, it is the court that is called upon,
after notice of a party's death and the claim is not thereby
extinguished, to order upon proper notice the legal representative of
the deceased to appear within a period of 30 days or such tlnie as it
may grant. Since no administrator of the estate of the deceased
appellant had yet been appointed as the same was still pending
determination in the Court of First Instance of Quezon City, the motion
of the deceased's counsel for the suspension of the running of the
period within which to file appellant's brief was well-taken. More,
under the Rule, it should have set a period for the substitution of the
deceased party with her legal representative or heirs, failing which,
the court is called upon to order the opposing party to procure the
appointment of a legal representative of the deceased at the cost of
the deceased's estate, and such representative shall then
"immediately appear for and on behalf of the interest of the
deceased."
Respondent court gravely erred in not following the Rule and requiring
the appearance of the legal representative of the deceased and
instead dismissing the appeal of the deceased who yet had to be
substituted in the pending appeal. Thus, it has been held that when a
party dies in an action that survives, and no order is issued by the
court for the appearance of the legal representative or of the heirs of
the deceased in substitution of the deceased, and as a matter of fact
no such substitution has ever been effected, the trial held by the court
without such legal representatives or heirs and the judgment rendered
after such trial are null and void because the court acquired no
jurisdiction over the persons of the legal representatives or of the
heirs upon whom the trial and the judgment would be binding. 5
Respondent court therefore erred in ruling that since upon the demise
of the party-appellant, the attorney-client relationship between her and
her counsels "was automatically severed and terminated," whatever
pleadings filed by said counsel with it after the death of said appellant
"are mere scraps of paper." 6 If at all, due to said death on May 25,
1975 and severance of the attorney-client relationship, further
proceedings and specifically the running of the original 45-day period
for filing the appellnt's brief should be legally deemed as having been
automatically suspended, until the proper substitution of the deceased
appellant by her executor or administrator or her heirs shall have been
effected within the time set by respondent court pursuant to the cited
Rule.
Respondent court likewise gravely erred in dismissing the appeal on
"(its) belief that the supervening death of the appellant Florentina
Nuguid Vda. de Haberer rendered the continuance of the appeal
unnecessary" on the basis of a totally inapplicable citation of a ruling
in Velasco vs. Rosenberg, 29 Phil. 212, 214 that "If pending appeal,
an event occurs which renders it impossible for the appellate court to
grant any relief, the appeal will be dismissed." Manifestly, the
appenant's death in no way impedes that the deceased's appeal to
recover the parcel of land registered in her name be continued and
determined for the benefit of her estate and heirs.
Prescinding from the foregoing, justice and equity dictate under the
circumstances of the case at bar that the rules, while necessary for
the speedy and orderly administration of justice, should not be applied
with the rigidity and inflexibility of respondent court's
resolutions. 7 What should guide judicial action is the principle that a
party litigant is to be given the fullest opportunity to establish the
merits of his complaint or defense rather than for him to lose life,
liberty, honor or property on technicalities. 8 A liberal, rather than a
strict and inflexible adherence to the Rules, is justified not only
because appellant (in this case, her estate and/or heirs) should be
35
given every opportunity to be heard but also because no substantial
injury or prejudice can well be caused to the adverse parties
principally, since they are in actual possession of the disputed
land. 9 The better and certainly the more prudent course of action in
every judicial proceeding is to hear both sides and decide on the
merits rather than dispose of a case on technicalities, 10 especially
where no substantial prejudice is caused to the adverse party. 11
The dismissal of an appeal based on the appellant's failure to file brief
is based on a power granted to respondent Court of Appeals and not
on a specific and mandatory duty imposed upon it by the
Rules. 12 Since the power or authority is not mandatory but merely
directory, the exercise thereof requires a great deal of circumspection,
considering all the attendant circumstances. 13 The failure of an
appellant to file his brief within the time prescribed does not have the
effect of dismissing the appeal automatically. 14 Rather, the Court of
Appeals has the discretion to dismiss or not to dismiss appellant's
appeal, which discretion must be a sound one to be exercised in
accordance with the tenets of justice and fair play having in mind the
circumstances obtaining in each case. l5
Paraphrasing what the Court stressed in the leading case
of Berkenkotter vs. Court of Appeals, 16 a reading of the appellant's
brief discloses that petitioners-appellants have a prima
facie meritorious case which should be properly determined on the
merits and "the element of rigidity should not be affixed to procedural
concepts and made to cover the matter," 17 for to dismiss the appeal
would not serve the ends of justice.
A final note: On March 19, 1976, counsels submitted with their
Manifestation the written authority dated January 20, 1976 individually
signed by instituted heirs and/or legal representatives of the testate
estate of the deceased Florentina Nuguid Vda. de Haberer granting
said counsels full authority to file and prosecute the case and any
other incidental cases for and in their behalf, 18 which was duly noted
in the Court's Resolution of March 26, 1976. Such manifestation and
authority may be deemed the formal substitution of the deceased by
her heirs, as in fact they appear as petitioners in the title of the case at
bar. Hence, the proper determination of the pending appeal may now
proceed, as herein directed.
ACCORDINGLY, the petition is granted and respondent court's
resolutions of November 24, 1975 and January 15, 1976 are set
aside. The appellant's brief filed with respondent court in the pending
appeal in CA-G.R. Nos. 53680-90-R is ordered admitted and the
cases are remanded to respondent, Court of Appeals for further
proceedings and proper determination of the appeal on the merits.
With costs against private respondents.
The Court has noted that upon recommendation of the Solicitor
General in Adm. Case No. 2148 entitled "Francisco Ortigas, Jr., et al.
vs. Atty. Felipe C. Navarro" that counsel for respondents Felipe C.
Navarro be disbarred for "gross misconduct and/or malpractice," he
has been suspended from the practice of law during the pendency of
said proceedings. The Court, however, directs that copy of this
decision be served on said counsel for the sole purpose of apprising
private respondents through him of the promulgation of this judgment
and to require respondents (1) to inform the Court of their new
counsel, if any, and to direct him to enter his appearance or (2) if they
have no new or other counsel, to inform the Court of their respective
addresses for purposes of service of the Court's processes, within ten
(10) days from notice hereof.
Makasiar, Guerrero, De Castro **and Melencio-Herrera, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-11567             July 17, 1958
ARSENIO FERRERIA, ET AL., petitioners-appellees,
vs.
MANUELA IBARRA VDA. DE GONZALES, ET AL., respondents-
appellants.
F. M. Ejercito for respondents.
Pedro R. Manago for petitioner.
MONTEMAYOR, J.:
This is quite an old case, about a landlord and some of her tenants,
which had its origin in a complaint filed by some of said tenants was
36
back on February 3, 1947. The thing involved is about twenty cavans
of palay. But under the present law, the appeal from a resolution of
the Court of Agrarian Relations had to come directly to this Tribunal.
Manuela Ibarra Vda. de Gonzales presumably owned a parcel of land
in Umingan, Pangasinan, cultivated by tenants. After the sharing of
the crop for the agricultural year 1946-47 by her overseer, Luis
Tecson, a number of the tenants, dissatisfied with their share on the
basis of 60-40, claiming that they were entitled to 70% of said crop,
filed complaints with the Tenancy Division of the Department of
Justice. It would appear, however, that only tenant Arsenio Ferreria
continued with his complaint, his co-complainants having withdrawn
theirs. Ferreria's complaint was filed not only against Manuela Ibarra,
but also against the overseer, Luis Tecson. During the pendency of
the case, Manuela died on November 27, 1948. Counsel for Ferreria
filed a petition for substitution which was granted by order of the
Department of Justice, dated December 9, 1948, which also set the
case for hearing on January 6, 1949.
The said order of December 9, 1948, at the bottom thereof, made
mention of Manolita Gonzales as residing at 272 Buendia St., Rizal
City. The return of service of said order supposedly by the Sheriff
(Annex C), shows that a copy of the same was left with one Aurora
Gonzales, niece of Manolita Gonzales, apparently living in said
address. It may be stated in passing that Manolita Gonzales claims
that she did not own the land in question; that her only right and
interest in it was as an heir, being one of the five surviving children of
Manuel.
The scheduled hearing was held in the absence of Manolita
Gonzales. Decision was finally rendered in the case on May 18, 1951.
On May 23, 1952, the Court of Industrial Relations, then in charge of
tenancy cases, issued a writ of execution of the judgment, the
dispositive part of said decision in part reading as follows:
IN VIEW OF ALL THE FOREGOING, the respondent landlord and/or
her duly authorized representative is/are hereby ordered to deliver to
the petitioner-tenant Arsenio C. Ferreria the balance of 20.6 cavanes
of palay equivalent to 10% of his share to complete his 70%
participation in the crop harvested for the agricultural year 1946-1947,
or its money value at the Naric price of palay in the locality, within 15
days from receipt of this decision.
Another portion of the dispositive part reproduced, states that the
complaints of the other complainants were dismissed.
On receipt of a copy of this writ of execution, Luis Tecson and
Manolita Gonzales each filed a petition to set aside said writ. Luis
claimed that it was true that he was an overseer of Manuela Ibarra,
but that upon her death on November 27, 1948, the possession that
he held of the land as overseer passed on to the administrator of the
estate; that thereafter, he no longer had anything to do with said
property, and that in the distribution of the crop for 1946-1947, the
share of Manuela was duly delivered by him to her, and that any claim
by Ferreria should be filed with and against her estate. On her part,
Manolita claimed that she was surprised to receive a copy of the writ
of execution because she was never made a party to the case and
had never been served any process or notice of hearing therein, and
that an examination of the record of the case would show that from
the inception of the case up to the rendering of the decision, her name
was never mentioned by any of the parties, and that it was a surprise
to find her name included in the title of the decision as one of the
defendants, although the body of said decision never mentioned her
name; that although she was one of the five heirs of Manuel Ibarra,
she, Manolita, was not the actual owner of the estate which was then
under probate proceedings in the Court of First Instance of Rizal; and
that if Ferreria had any claim against the estate, he should file the
same to be passed upon by the probate court. Both Luis and Manolita
asked that the writ of execution be set aside.
It would seem that nothing was done about the petitions, and after the
creation of the Court of Agrarian Relations, Judge Tomas P.
Panganiban finally took action on the same, and by order of August
23, 1956, overruled the same, holding that under the law creating the
Court of Agrarian Relations, said court had exclusive and original
jurisdiction to try, investigate, and settle all cases, matters and
disputes arising between landlord and tenant, and that the case at bar
was purely a dispute between landlord and tenant. Both petitioners
Luis and Manolita asked for reconsideration of the order, Manolita
emphasizing her contention that she was deprived of her day in court
37
due to the failure of plaintiff Ferreria to make the proper substitution,
citing Rule 3, Section 17, above-reproduced. In a resolution dated
October 29, 1956, the Agrarian Court held that Manuela Ibarra had
been duly substituted by Manolita Gonzales, and that service of the
order of substitution was duly served upon her. We reproduce the
pertinent portion of the resolution:
Anent the first ground, it appears that respondent Manuela Ibarra Vda.
de Gonzales was duly substituted upon her death by Manolita
Gonzales Vda. de Carungcong in a petition filed by counsel for the
petitioners on December 9, 1948, and granted by the representative
of the former Tenancy Division, now Court of Agrarian Relations, on
the same date. A copy of the order granting the petition for
substitution was sent to Manolita Gonzales Vda. de Carungcong,
through the Chief of Police of Rizal City, by registered mail on
December 9, 1948. Therefore, respondent Manolita was duly notified
of the hearing set on January 6, January 26, March 26, April 21, May
7, June 7, and July 1, all in the year 1949, but these hearings had to
be cancelled due to the absence of the respondents on January 6,
1949 and their several motions for postponement on the subsequent
dates. On July 2, 1949, the hearing proceeded in the absence of the
respondents during which petitioners presented their evidence.
Notwithstanding several chances given to the respondents to present
their evidence on August 5, 1949 and September 20, 1949,
respondents persistently failed to appear. However, on February 3,
1950, counsel for the respondents cross examined one witness of the
petitioners and finally, on March 4, 1950 respondents presented their
evidence, with the exception of Manolita Gonzales de Carungcong
(who) never appeared.
The Agrarian Court further said that if Manolita did not care to appear
before the former Tenancy Division, she cannot now complain that
she was deprived of her day in court; and that as to Luis Tecson,
since the decision orders "the respondent landlord and/or her duly
authorized representative" to deliver to the petitioner Ferreria the
balance of 20.6 cavans of palay, Luis Tecson, as overseer and duly
authorized representative of the landlord, must comply with the
decision of the court, and that his counsel's contention that the
property involved was within the jurisdiction of the probate court was
incorrect, for the reason that the palay ordered to be delivered,
properly belonged to Ferreria as his share in the crop and, therefore, it
was not part of the estate under administration, neither was it a claim
against the estate.
Both Manolita and Luis have filed the present petition to review the
order of August 23, 1956, denying the petitions to lift the writ of
execution and the order of October 29, 1956, denying the petition for
reconsideration. The petition was given due course and appellee
Ferreria was required to answer, which he did. Thereafter, both
parties filed memoranda in support of their contentions.
The first question to be determined is whether or not there was a valid
notification or service of the order granting the petition for substitution
on Manolita Gonzales. It will be remembered that a copy of the order
was never served on Manolita personally, but upon her niece, Aurora
Gonzales. In other words it was substituted service. Section 8, Rule 7,
regarding the service of summons, provides as follows:
SEC. 8. Substituted service. — If the defendant cannot be promptly
served as required in the preceding, service may be effected by
leaving copies of the summons at the defendant's dwelling house or
usual place of abode with some person of suitable age and discretion
then residing there or by leaving the copies at defendant's office or
regular place of business with some competent person in charge
thereof or upon the defendant by registered mail.
As to the service of court orders, we have Sections 3 and 4 of Rule
27, which read as follows:
SEC. 3. Modes of service. — Service of pleadings, motions, notices,
orders, judgments and other papers, shall be made either personally
or by mail.
38
SEC. 4. Personal service. — Service of the papers may be made by
delivering personally a copy to the party or his attorney, or by leaving
it in his office with his clerk or with a person having charge thereof. If
no person is found in his office, or his office is not known, then by
leaving the copy, between the hours of eight in the morning and six in
the evening, at the party's or attorney's residence, if known, with a
person of sufficient discretion to receive the same.
We find that under none of these above-quoted provisions of the
Rules of Court had Manolita been duly served with the order of
substitution. According to her, at the time, she was not living at 272
Buendia St., where copy of the order was left with Aurora who lived in
that place. The rules require that the copy should be left at the
residence or office of the one served, or with someone living therein.
Furthermore, Manolita claims that she never received the copy left
with her niece and that they were not living together.
The other question is whether or not there had been a valid
substitution. Rule 3, Section 17, of the Rule of Court provides as
follows:
SEC. 17. Death of party. — After a party die and the claim in 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 decease 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 litem for the minor heirs.
In the present case, there is no question that there had been no court
order for the legal representative of Manuela Ibarra to appear, nor had
any such legal representative ever appeared in court to be substituted
for the deceased; neither had complainant Ferreria ever procured the
appointment of such legal representative of the deceased, nor had the
heirs of the deceased, including Manolita ever asked to be allowed to
be substituted for the deceased Manuela. As a result, the hearings
were held without the presence of Manolita Gonzales. True, Atty.
Emilio Fernandez, it seems, originally represented Manuela and
apparently, Luis Tecson, and continued within their representation,
but Manolita now argues that with the death of Manuela Ibarra, his
relationship as counsel for Manuela ceased, and what is more, he
was never authorized to appear for Manolita Gonzales. Inasmuch as
Manolita Gonzales was never validly served a copy of the order
granting the substitution and that, furthermore, a valid substitution was
never effected, consequently, the court never acquired jurisdiction
over Manolita Gonzales for the purpose of making her a party to the
case and making the decision binding upon her, either personally or
as legal representative of the estate of her mother Manuela.
However, we agree with the Agrarian Court in so far as it holds that it
has exclusive jurisdiction over cases involving tenancy. The fact that
the landlord dies not mean that the relation of landlord and tenant
ends, because the estate continues to be the landlord and if, as in this
case, it is found that during the lifetime of Manuela Ibarra, the sharing
of crop for the agricultural year 1946-1947 should have been on the
basis of 70-30, instead of 60-40, and therefore, the owed Ferreria
10% of said crop, then said obligation remained a charge on her
estate after she died and there was no necessity for the tenant to file
a claim for this 10% with the probate court in charge of the estate.
As to Luis Tecson, we agree with him in his contention that in the
sharing of the crop for the agricultural year 1946-1947, he acted
merely as an overseer and that he gave the share corresponding to
the owner to Manuela, and that since then, specially after her death,
he had nothing more to do with the land. It is clear that the obligation
to deliver to tenant Ferreria 10% of that crop of the agricultural year,
should it be later found that the basis should have been 70-30,
instead of 60-40, rests with the estate of Manuela through the
administrator and not with Luis Tecson, whose relation as overseer
had long ceased.
In connection with the basis of sharing of the crop for the agricultural
year 1946-1947, Manolita in her pleadings claims that her mother
39
furnished the work animals, seeds, and other facilities used in the
cultivation and that consequently, the share should have been on the
50-50 basis. Ferreria claims the contrary. These conflicting claims
should be finally determined by the Agrarian Court.
In view of the foregoing, we hereby set aside not only the writ of
execution, the resolution of the Agrarian Court and its order denying
the motion for reconsideration of the same, now sought to be
reviewed, but also the original decision of the Tenancy Division for
lack of jurisdiction. The case is hereby ordered remanded to the Court
of Agrarian Relations for further proceedings, in which proceedings,
the Agrarian Court may bear in mind and consider the rulings and
holdings contained in this decision, specially with regards to
substitution of parties and the liability of Luis Tecson in relation to any
palay which Ferreria may be found to be entitled to. No costs.
Paras, C. J., Bengzon, Reyes, A., Bautista Angelo, Concepcion,
Reyes, J. B. L., Endencia and Felix, JJ., concur.
G.R. No. 160347             November 29, 2006
ARCADIO and MARIA LUISA CARANDANG, Petitioners,
vs.
HEIRS OF QUIRINO A. DE GUZMAN, namely: MILAGROS DE
GUZMAN, VICTOR DE GUZMAN, REYNALDO DE GUZMAN,
CYNTHIA G. RAGASA and QUIRINO DE GUZMAN,
JR., Respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari assailing the Court of
Appeals Decision1 and Resolution affirming the Regional Trial Court
(RTC) Decision rendering herein petitioners Arcadio and Luisa
Carandang [hereinafter referred to as spouses Carandang] jointly and
severally liable for their loan to Quirino A. de Guzman.
The Court of Appeals summarized the facts as follows:
[Quirino de Guzman] and [the Spouses Carandang] are stockholders
as well as corporate officers of Mabuhay Broadcasting System (MBS
for brevity), with equities at fifty four percent (54%) and forty six
percent (46%) respectively.
On November 26, 1983, the capital stock of MBS was increased, from
₱500,000 to P1.5 million and ₱345,000 of this increase was
subscribed by [the spouses Carandang]. Thereafter, on March 3,
1989, MBS again increased its capital stock, from ₱1.5 million to ₱3
million, [the spouses Carandang] yet again subscribed to the
increase. They subscribed to ₱93,750 worth of newly issued capital
stock.
[De Guzman] claims that, part of the payment for these subscriptions
were paid by him, ₱293,250 for the November 26, 1983 capital stock
increase and ₱43,125 for the March 3, 1989 Capital Stock increase or
a total of ₱336,375. Thus, on March 31, 1992, [de Guzman] sent a
demand letter to [the spouses Carandang] for the payment of said
total amount.
40
[The spouses Carandang] refused to pay the amount, contending that
a pre-incorporation agreement was executed between [Arcadio
Carandang] and [de Guzman], whereby the latter promised to pay for
the stock subscriptions of the former without cost, in consideration for
[Arcadio Carandang’s] technical expertise, his newly purchased
equipment, and his skill in repairing and upgrading
radio/communication equipment therefore, there is no indebtedness
on their part [sic].
On June 5, 1992, [de Guzman] filed his complaint, seeking to recover
the ₱336,375 together with damages. After trial on the merits, the trial
court disposed of the case in this wise:
"WHEREFORE, premises considered, judgment is hereby rendered in
favor of [de Guzman]. Accordingly, [the spouses Carandang] are
ordered to jointly and severally pay [de Guzman], to wit:
(1) ₱336,375.00 representing [the spouses Carandang’s] loan to de
Guzman;
(2) interest on the preceding amount at the rate of twelve percent
(12%) per annum from June 5, 1992 when this complaint was filed
until the principal amount shall have been fully paid;
(3) ₱20,000.00 as attorney’s fees;
(4) Costs of suit.
The spouses Carandang appealed the RTC Decision to the Court of
Appeals, which affirmed the same in the 22 April 2003 assailed
Decision:
WHEREFORE, in view of all the foregoing the assailed Decision is
hereby AFFIRMED. No costs.2
The Motion for Reconsideration filed by the spouses Carandang was
similarly denied by the Court of Appeals in the 6 October 2003
assailed Resolution:
WHEREFORE, in view thereof, the motion for reconsideration is
hereby DENIED and our Decision of April 22, 2003, which is based on
applicable law and jurisprudence on the matter is hereby AFFIRMED
and REITERATED.3
The spouses Carandang then filed before this Court the instant
Petition for Review on Certiorari, bringing forth the following issues:
I.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
COMMITTED MANIFEST ERROR IN FAILING TO STRICTLY
COMPLY WITH SECTION 16, RULE 3 OF THE 1997 RULES OF
CIVIL PROCEDURE.
II.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
SERIOUSLY ERRED IN ITS FINDING THAT THERE IS AN
ALLEGED LOAN FOR WHICH PETITIONERS ARE LIABLE,
CONTRARY TO EXPRESS PROVISIONS OF BOOK IV, TITLE XI,
OF THE NEW CIVIL CODE PERTAINING TO LOANS.
III.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
SERIOUSLY ERRED IN FINDING THAT THE RESPONDENTS
WERE ABLE TO DISCHARGE THEIR BURDEN OF PROOF, IN
COMPLETE DISREGARD OF THE REVISED RULES ON
EVIDENCE.
IV.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
COMMITTED REVERSIBLE ERROR WHEN IT FAILED TO APPLY
SECTIONS 2 AND 7, RULE 3 OF THE 1997 RULES OF CIVIL
PROCEDURE.
41

V.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
SERIOUSLY ERRED IN FINDING THAT THE PURPORTED
LIABILITY OF PETITIONERS ARE JOINT AND SOLIDARY, IN
VIOLATION OF ARTICLE 1207 OF THE NEW CIVIL CODE.4
Whether or not the RTC Decision is void for failing to comply with
Section 16, Rule 3 of the Rules of Court
The spouses Carandang claims that the Decision of the RTC, having
been rendered after the death of Quirino de Guzman, is void for failing
to comply with Section 16, Rule 3 of the Rules of Court, which
provides:
SEC. 16. Death of party; duty of counsel. – Whenever a party to a
pending action dies, and the claim is not thereby extinguished, it shall
be the duty of his counsel to inform the court within thirty (30) days
after such death of the fact thereof, and to give the name and address
of his legal representative or representatives. Failure of counsel to
comply with this duty shall be a ground for disciplinary action.
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 a guardian ad litem for the
minor heirs.
The court shall forthwith order the legal representative or
representatives to appear and be substituted within a period of thirty
(30) days from notice.
If no legal representative is named by the counsel for the deceased
party, or if the one so named shall fail to appear within the specified
period, the court may order the opposing party, within a specified
time, to procure the appointment of an executor or administrator for
the estate of the deceased and the latter shall immediately appear for
and on behalf of the deceased. The court charges in procuring such
appointment, if defrayed by the opposing party, may be recovered as
costs.
The spouses Carandang posits that such failure to comply with the
above rule renders void the decision of the RTC, in adherence to the
following pronouncements in Vda. de Haberer v. Court of
Appeals5 and Ferreria v. Vda. de Gonzales6 :
Thus, it has been held that when a party dies in an action that
survives and no order is issued by the court for the appearance of the
legal representative or of the heirs of the deceased in substitution of
the deceased, and as a matter of fact no substitution has ever been
effected, the trial held by the court without such legal representatives
or heirs and the judgment rendered after such trial are null and void
because the court acquired no jurisdiction over the persons of the
legal representatives or of the heirs upon whom the trial and judgment
would be binding.7
In the present case, there had been no court order for the legal
representative of the deceased to appear, nor had any such legal
representative appeared in court to be substituted for the deceased;
neither had the complainant ever procured the appointment of such
legal representative of the deceased, including appellant, ever asked
to be substituted for the deceased. As a result, no valid substitution
was effected, consequently, the court never acquired jurisdiction over
appellant for the purpose of making her a party to the case and
making the decision binding upon her, either personally or as a
representative of the estate of her deceased mother.8
However, unlike jurisdiction over the subject matter which is conferred
by law and is not subject to the discretion of the parties, 9 jurisdiction
over the person of the parties to the case may be waived either
expressly or impliedly.10 Implied waiver comes in the form of either
voluntary appearance or a failure to object.11
In the cases cited by the spouses Carandang, we held that there had
been no valid substitution by the heirs of the deceased party, and
therefore the judgment cannot be made binding upon them. In the
case at bar, not only do the heirs of de Guzman interpose no
objection to the jurisdiction of the court over their persons; they are
42
actually claiming and embracing such jurisdiction. In doing so, their
waiver is not even merely implied (by their participation in the appeal
of said Decision), but express (by their explicit espousal of such view
in both the Court of Appeals and in this Court). The heirs of de
Guzman had no objection to being bound by the Decision of the RTC.
Thus, lack of jurisdiction over the person, being subject to waiver, is a
personal defense which can only be asserted by the party who can
thereby waive it by silence.
It also pays to look into the spirit behind the general rule requiring a
formal substitution of heirs. The underlying principle therefor is not
really because substitution of heirs is a jurisdictional requirement, but
because non-compliance therewith results in the undeniable violation
of the right to due process of those who, though not duly notified of
the proceedings, are substantially affected by the decision rendered
therein.12 Such violation of due process can only be asserted by the
persons whose rights are claimed to have been violated, namely the
heirs to whom the adverse judgment is sought to be enforced.
Care should, however, be taken in applying the foregoing conclusions.
In People v. Florendo,13 where we likewise held that the proceedings
that took place after the death of the party are void, we gave another
reason for such nullity: "the attorneys for the offended party ceased to
be the attorneys for the deceased upon the death of the latter, the
principal x x x." Nevertheless, the case at bar had already been
submitted for decision before the RTC on 4 June 1998, several
months before the passing away of de Guzman on 19 February 1999.
Hence, no further proceedings requiring the appearance of de
Guzman’s counsel were conducted before the promulgation of the
RTC Decision. Consequently, de Guzman’s counsel cannot be said to
have no authority to appear in trial, as trial had already ceased upon
the death of de Guzman.
In sum, the RTC Decision is valid despite the failure to comply with
Section 16, Rule 3 of the Rules of Court, because of the express
waiver of the heirs to the jurisdiction over their persons, and because
there had been, before the promulgation of the RTC Decision, no
further proceedings requiring the appearance of de Guzman’s
counsel.
Before proceeding with the substantive aspects of the case, however,
there is still one more procedural issue to tackle, the fourth issue
presented by the spouses Carandang on the non-inclusion in the
complaint of an indispensable party.
Whether or not the RTC should have dismissed the case for failure to
state a cause of action, considering that Milagros de Guzman,
allegedly an indispensable party, was not included as a party-plaintiff
The spouses Carandang claim that, since three of the four checks
used to pay their stock subscriptions were issued in the name of
Milagros de Guzman, the latter should be considered an
indispensable party. Being such, the spouses Carandang claim, the
failure to join Mrs. de Guzman as a party-plaintiff should cause the
dismissal of the action because "(i)f a suit is not brought in the name
of or against the real party in interest, a motion to dismiss may be filed
on the ground that the complaint states no cause of action."14
The Court of Appeals held:
We disagree. The joint account of spouses Quirino A de Guzman and
Milagros de Guzman from which the four (4) checks were drawn is
part of their conjugal property and under both the Civil Code and the
Family Code the husband alone may institute an action for the
recovery or protection of the spouses’ conjugal property.
Thus, in Docena v. Lapesura [355 SCRA 658], the Supreme Court
held that "x x x Under the New Civil Code, the husband is the
administrator of the conjugal partnership. In fact, he is the sole
administrator, and the wife is not entitled as a matter of right to join
him in this endeavor. The husband may defend the conjugal
partnership in a suit or action without being joined by the wife. x x x
Under the Family Code, the administration of the conjugal property
belongs to the husband and the wife jointly. However, unlike an act of
alienation or encumbrance where the consent of both spouses is
required, joint management or administration does not require that the
husband and wife always act together. Each spouse may validly
exercise full power of management alone, subject to the intervention
of the court in proper cases as provided under Article 124 of the
Family Code. x x x."
43
The Court of Appeals is correct. Petitioners erroneously interchange
the terms "real party in interest" and "indispensable party." A real
party in interest is the party who stands to be benefited or injured by
the judgment of the suit, or the party entitled to the avails of the
suit.15 On the other hand, an indispensable party is a party in interest
without whom no final determination can be had of an action,16 in
contrast to a necessary party, which is one who is not indispensable
but who ought to be joined as a party if complete relief is to be
accorded as to those already parties, or for a complete determination
or settlement of the claim subject of the action.17
The spouses Carandang are indeed correct that "(i)f a suit is not
brought in the name of or against the real party in interest, a motion to
dismiss may be filed on the ground that the complaint states no cause
of action."18 However, what dismissal on this ground entails is an
examination of whether the parties presently pleaded are interested in
the outcome of the litigation, and not whether all persons interested in
such outcome are actually pleaded. The latter query is relevant in
discussions concerning indispensable and necessary parties,
but not in discussions concerning real parties in interest. Both
indispensable and necessary parties are considered as real parties in
interest, since both classes of parties stand to be benefited or injured
by the judgment of the suit.
Quirino and Milagros de Guzman were married before the effectivity
of the Family Code on 3 August 1988. As they did not execute any
marriage settlement, the regime of conjugal partnership of gains
govern their property relations.19
All property acquired during the marriage, whether the acquisition
appears to have been made, contracted or registered in the name of
one or both spouses, is presumed to be conjugal unless the contrary
is proved.20 Credits are personal properties,21 acquired during the time
the loan or other credit transaction was executed. Therefore, credits
loaned during the time of the marriage are presumed to be conjugal
property.
Consequently, assuming that the four checks created a debt for which
the spouses Carandang are liable, such credits are presumed to be
conjugal property. There being no evidence to the contrary, such
presumption subsists. As such, Quirino de Guzman, being a co-owner
of specific partnership property,22 is certainly a real party in interest.
Dismissal on the ground of failure to state a cause of action, by
reason that the suit was allegedly not brought by a real party in
interest, is therefore unwarranted.
So now we come to the discussion concerning indispensable and
necessary parties. When an indispensable party is not before the
court, the action should likewise be dismissed.23 The absence of an
indispensable party renders all subsequent actuations of the court
void, for want of authority to act, not only as to the absent parties but
even as to those present.24 On the other hand, the non-joinder of
necessary parties do not result in the dismissal of the case. Instead,
Section 9, Rule 3 of the Rules of Court provides for the consequences
of such non-joinder:
Sec. 9. Non-joinder of necessary parties to be pleaded. – Whenever
in any pleading in which a claim is asserted a necessary party is not
joined, the pleader shall set forth his name, if known, and shall state
why he is omitted. Should the court find the reason for the omission
unmeritorious, it may order the inclusion of the omitted necessary
party if jurisdiction over his person may be obtained.
The failure to comply with the order for his inclusion, without justifiable
cause, shall be deemed a waiver of the claim against such party.
The non-inclusion of a necessary party does not prevent the court
from proceeding in the action, and the judgment rendered therein
shall be without prejudice to the rights of such necessary party.
Non-compliance with the order for the inclusion of a necessary party
would not warrant the dismissal of the complaint. This is an exception
to Section 3, Rule 17 which allows the dismissal of the complaint for
failure to comply with an order of the court, as Section 9, Rule 3
specifically provides for the effect of such non-inclusion: it shall not
prevent the court from proceeding in the action, and the judgment
rendered therein shall be without prejudice to the rights of such
necessary party. Section 11, Rule 3 likewise provides that the non-
joinder of parties is not a ground for the dismissal of the action.
44
Other than the indispensable and necessary parties, there is a third
set of parties: the pro-forma parties, which are those who are required
to be joined as co-parties in suits by or against another party as may
be provided by the applicable substantive law or procedural rule.25 An
example is provided by Section 4, Rule 3 of the Rules of Court:
Sec. 4. Spouses as parties. – Husband and wife shall sue or be sued
jointly, except as provided by law.
Pro-forma parties can either be indispensable, necessary or neither
indispensable nor necessary. The third case occurs if, for example, a
husband files an action to recover a property which he claims to be
part of his exclusive property. The wife may have no legal interest in
such property, but the rules nevertheless require that she be joined as
a party.
In cases of pro-forma parties who are neither indispensable nor
necessary, the general rule under Section 11, Rule 3 must be
followed: such non-joinder is not a ground for dismissal. Hence, in a
case concerning an action to recover a sum of money, we held that
the failure to join the spouse in that case was not a jurisdictional
defect.26 The non-joinder of a spouse does not warrant dismissal as it
is merely a formal requirement which may be cured by amendment.27
Conversely, in the instances that the pro-forma parties are also
indispensable or necessary parties, the rules concerning
indispensable or necessary parties, as the case may be, should be
applied. Thus, dismissal is warranted only if the pro-forma party not
joined in the complaint is an indispensable party.
Milagros de Guzman, being presumed to be a co-owner of the credits
allegedly extended to the spouses Carandang, seems to be either an
indispensable or a necessary party. If she is an indispensable party,
dismissal would be proper. If she is merely a necessary party,
dismissal is not warranted, whether or not there was an order for her
inclusion in the complaint pursuant to Section 9, Rule 3.
Article 108 of the Family Code provides:
Art. 108. The conjugal partnership shall be governed by the rules on
the contract of partnership in all that is not in conflict with what is
expressly determined in this Chapter or by the spouses in their
marriage settlements.
This provision is practically the same as the Civil Code provision it
superceded:
Art. 147. The conjugal partnership shall be governed by the rules on
the contract of partnership in all that is not in conflict with what is
expressly determined in this Chapter.
In this connection, Article 1811 of the Civil Code provides that "[a]
partner is a co-owner with the other partners of specific partnership
property." Taken with the presumption of the conjugal nature of the
funds used to finance the four checks used to pay for petitioners’
stock subscriptions, and with the presumption that the credits
themselves are part of conjugal funds, Article 1811 makes Quirino
and Milagros de Guzman co-owners of the alleged credit.
Being co-owners of the alleged credit, Quirino and Milagros de
Guzman may separately bring an action for the recovery thereof. In
the fairly recent cases of Baloloy v. Hular28 and Adlawan v.
Adlawan,29 we held that, in a co-ownership, co-owners may bring
actions for the recovery of co-owned property without the necessity of
joining all the other co-owners as co-plaintiffs because the suit is
presumed to have been filed for the benefit of his co-owners. In the
latter case and in that of De Guia v. Court of Appeals,30 we also held
that Article 487 of the Civil Code, which provides that any of the co-
owners may bring an action for ejectment, covers all kinds of action
for the recovery of possession.31
In sum, in suits to recover properties, all co-owners are real parties in
interest. However, pursuant to Article 487 of the Civil Code and
relevant jurisprudence, any one of them may bring an action, any kind
of action, for the recovery of co-owned properties. Therefore, only one
of the co-owners, namely the co-owner who filed the suit for the
recovery of the co-owned property, is an indispensable party thereto.
The other co-owners are not indispensable parties. They are not even
necessary parties, for a complete relief can be accorded in the suit
45
even without their participation, since the suit is presumed to have
been filed for the benefit of all co-owners.32
We therefore hold that Milagros de Guzman is not an indispensable
party in the action for the recovery of the allegedly loaned money to
the spouses Carandang. As such, she need not have been impleaded
in said suit, and dismissal of the suit is not warranted by her not being
a party thereto.
Whether or not respondents were able to prove the loan sought to be
collected from petitioners
In the second and third issues presented by the spouses Carandang,
they claim that the de Guzmans failed to prove the alleged loan for
which the spouses Carandang were held liable. As previously stated,
spouses Quirino and Milagros de Guzman paid for the stock
subscriptions of the spouses Carandang, amounting to ₱336,375.00.
The de Guzmans claim that these payments were in the form of loans
and/or advances and it was agreed upon between the late Quirino de
Guzman, Sr. and the spouses Carandang that the latter would repay
him. Petitioners, on the other hand, argue that there was an oral pre-
incorporation agreement wherein it was agreed that Arcardio
Carandang would always maintain his 46% equity participation in the
corporation even if the capital structures were increased, and that
Quirino de Guzman would personally pay the equity shares/stock
subscriptions of Arcardio Carandang with no cost to the latter.
On this main issue, the Court of Appeals held:
[The spouses Carandang] aver in its ninth assigned error that [the de
Guzmans] failed to prove by preponderance of evidence, either the
existence of the purported loan or the non-payment thereof.
Simply put, preponderance of evidence means that the evidence as a
whole adduced by one side is superior to that of the other. The
concept of preponderance of evidence refers to evidence that is of
greater weight, or more convincing, than that which is offered in
opposition to it; it means probability of truth.
[The spouses Carandang] admitted that it was indeed [the de
Guzmans] who paid their stock subscriptions and their reason for not
reimbursing the latter is the alleged pre-incorporation agreement, to
which they offer no clear proof as to its existence.
It is a basic rule in evidence that each party must prove his affirmative
allegation. Thus, the plaintiff or complainant has to prove his
affirmative allegations in the complaints and the defendant or
respondent has to prove the affirmative allegations in his affirmative
defenses and counterclaims.33
The spouses Carandang, however, insist that the de Guzmans have
not proven the loan itself, having presented evidence only of the
payment in favor of the Carandangs. They claim:
It is an undeniable fact that payment is not equivalent to a loan. For
instance, if Mr. "A" decides to pay for Mr. "B’s" obligation, that
payment by Mr. "A" cannot, by any stretch of imagination, possibly
mean that there is now a loan by Mr. "B" to Mr. "A". There is a
possibility that such payment by Mr. "A" is purely out of generosity or
that there is a mutual agreement between them. As applied to the
instant case, that mutual agreement is the pre-incorporation
agreement (supra) existing between Mr. de Guzman and the
petitioners --- to the effect that the former shall be responsible for
paying stock subscriptions of the latter. Thus, when Mr. de Guzman
paid for the stock subscriptions of the petitioners, there was no loan to
speak of, but only a compliance with the pre-incorporation
agreement.34
The spouses Carandang are mistaken. If indeed a Mr. "A" decides to
pay for a Mr. "B’s" obligation, the presumption is that Mr. "B" is
indebted to Mr. "A" for such amount that has been paid. This is
pursuant to Articles 1236 and 1237 of the Civil Code, which provide:
Art. 1236. The creditor is not bound to accept payment or
performance by a third person who has no interest in the fulfillment of
the obligation, unless there is a stipulation to the contrary.
46
Whoever pays for another may demand from the debtor what he
has paid, except that if he paid without the knowledge or against the
will of the debtor, he can recover only insofar as the payment has
been beneficial to the debtor.
Art. 1237. Whoever pays on behalf of the debtor without the
knowledge or against the will of the latter, cannot compel the creditor
to subrogate him in his rights, such as those arising from a mortgage,
guarantee, or penalty.
Articles 1236 and 1237 are clear that, even in cases where the debtor
has no knowledge of payment by a third person, and even in cases
where the third person paid against the will of the debtor, such
payment would produce a debt in favor of the paying third person. In
fact, the only consequences for the failure to inform or get the consent
of the debtor are the following: (1) the third person can recover only
insofar as the payment has been beneficial to the debtor; and (2) the
third person is not subrogated to the rights of the creditor, such as
those arising from a mortgage, guarantee or penalty.35
We say, however, that this is merely a presumption. By virtue of the
parties’ freedom to contract, the parties could stipulate otherwise and
thus, as suggested by the spouses Carandang, there is indeed a
possibility that such payment by Mr. "A" was purely out of generosity
or that there was a mutual agreement between them. But such mutual
agreement, being an exception to presumed course of events as laid
down by Articles 1236 and 1237, must be adequately proven.
The de Guzmans have successfully proven their payment of the
spouses Carandang’s stock subscriptions. These payments were, in
fact, admitted by the spouses Carandang. Consequently, it is now up
to the spouses Carandang to prove the existence of the pre-
incorporation agreement that was their defense to the purported loan.
Unfortunately for the spouses Carandang, the only testimony which
touched on the existence and substance of the pre-incorporation
agreement, that of petitioner Arcardio Carandang, was stricken off the
record because he did not submit himself to a cross-examination of
the opposing party. On the other hand, the testimonies of Romeo
Saavedra,36 Roberto S. Carandang,37 Gertrudes Z.
Esteban,38 Ceferino Basilio,39 and Ma. Luisa Carandang40 touched on
matters other than the existence and substance of the pre-
incorporation agreement. So aside from the fact that these witnesses
had no personal knowledge as to the alleged existence of the pre-
incorporation agreement, the testimonies of these witnesses did not
even mention the existence of a pre-incorporation agreement.
Worse, the testimonies of petitioners Arcadio Carandang and Ma.
Luisa Carandang even contradicted the existence of a pre-
incorporation agreement because when they were asked by their
counsel regarding the matter of the check payments made by the late
Quirino A. de Guzman, Sr. in their behalf, they said that they had
already paid for it thereby negating their own defense that there was a
pre-incorporation agreement excusing themselves from paying Mr. de
Guzman the amounts he advanced or loaned to them. This basic and
irrefutable fact can be gleaned from their testimonies which the private
respondents are quoting for easy reference:
a. With respect to the testimony of Ma. Luisa Carandang
Q: Now, can you tell this Honorable Court how do you feel with
respect to the Complaint of the plaintiff in this case charging you that
you paid for this year and asking enough to paid (sic) your tax?
A: We have paid already, so, we are not liable for anything payment
(sic).41
b. With respect to the testimony of Arcadio Carandang
"Q: How much?
A: ₱40,000.00 to ₱50,000.00 per month.
Q: The plaintiff also claimed thru witness Edgar Ragasa, that there
were receipts issued for the payment of your shares; which receipts
were marked as Exhibits "G" to "L" (Plaintiff).
I’m showing to you these receipts so marked by the plaintiff as their
exhibits which were issued in the name of Ma. Luisa Carandang, your
47
wife; and also, Arcadio M. Carandang. Will you please go over this
Official Receipt and state for the records, who made for the payment
stated in these receipts in your name?
A: I paid for those shares."42
There being no testimony or documentary evidence proving the
existence of the pre-incorporation agreement, the spouses Carandang
are forced to rely upon an alleged admission by the original plaintiff of
the existence of the pre-incorporation agreement.
Petitioners claim that the late Quirino A. de Guzman, Sr. had admitted
the existence of the pre-incorporation agreement by virtue of
paragraphs 13 and 14 of their Answer and paragraph 4 of private
respondents’ Reply.
Paragraphs 13 and 14 of petitioners’ Answer dated 7 July 1992 state
in full:
13. Sometime in November, 1973 or thereabout, herein plaintiff invited
defendant Arcadio M. Carandang to a joint venture by pooling
together their technical expertise, equipments, financial resources and
franchise. Plaintiff proposed to defendant and mutually agreed on the
following:
1. That they would organize a corporation known as Mabuhay
Broadcasting Systems, Inc.
2. Considering the technical expertise and talent of defendant Arcadio
M. Carandang and his new equipments he bought, and his skill in
repairing and modifying radio/communication equipments into high
proficiency, said defendant would have an equity participation in the
corporation of 46%, and plaintiff 54% because of his financial
resources and franchise.
3. That defendant would always maintain his 46% equity participation
in the corporation even if the capital structures are increased, and that
plaintiff would personally pay the equity shares/stock subscriptions of
defendant with no cost to the latter.
4. That because of defendant’s expertise in the trade including the
marketing aspects, he would be the President and General Manager,
and plaintiff the Chairman of the Board.
5. That considering their past and trustworthy relations, they would
maintain such relations in the joint venture without any mental
reservation for their common benefit and success of the business.
14. Having mutually agreed on the above arrangements, the single
proprietorship of plaintiff was immediately spun-off into a corporation
now known as Mabuhay Broadcasting System, Inc. The incorporators
are plaintiff and his family members/nominees controlling jointly 54%
of the stocks and defendant Arcadio M. Carandang controlling singly
46% as previously agreed.43
Meanwhile, paragraphs 3 and 4 of private respondents’ Reply dated
29 July 1992 state in full:
3. Plaintiffs admits the allegation in paragraph 13.1 of the Answer only
insofar the plaintiff and defendant Arcadio M. Carandang organized a
corporation known as Mabuhay Broadcasting Systems, Inc. Plaintiff
specifically denies the other allegations in paragraph 13 of the
Answer, the same being devoid of any legal or factual bases. The
truth of the matter is that defendant Arcadio M. Carandang was not
able to pay plaintiff the agreed amount of the lease for a number of
months forcing the plaintiff to terminate lease. Additionally, the
records would show that it was the defendant Arcadio M. Carandang
who proposed a joint venture with the plaintiff.
It appears that plaintiff agreed to the formation of the corporation
principally because of a directive of then President Marcos indicating
the need to broaden the ownership of radio broadcasting stations. The
plaintiff owned the franchise, the radio transmitter, the antenna tower,
the building containing the radio transmitter and other equipment.
Verily, he would be placed in a great disadvantage if he would still
have to personally pay for the shares of defendant Arcadio M.
Carandang.
4. Plaintiff admits the allegations in paragraph 14 of the Answer.44
48
In effect, the spouses Carandang are relying on the fact that Quirino
de Guzman stated that he admitted paragraph 14 of the Answer,
which incidentally contained the opening clause "(h)aving mutually
agreed on the above arrangements, x x x."
Admissions, however, should be clear and unambiguous. This
purported admission by Quirino de Guzman reeks of ambiguity, as the
clause "(h)aving mutually agreed on the above arrangements," seems
to be a mere introduction to the statement that the single
proprietorship of Quirino de Guzman had been converted into a
corporation. If Quirino de Guzman had meant to admit paragraph
13.3, he could have easily said so, as he did the other paragraphs he
categorically admitted. Instead, Quirino de Guzman expressly stated
the opposite: that "(p)laintiff specifically denies the other allegations of
paragraph 13 of the Answer."45 The Reply furthermore states that the
only portion of paragraph 13 which Quirino de Guzman had admitted
is paragraph 13.1, and only insofar as it said that Quirino de Guzman
and Arcardio Carandang organized Mabuhay Broadcasting Systems,
Inc.46
All the foregoing considered, we hold that Quirino de Guzman had not
admitted the alleged pre-incorporation agreement. As there was no
admission, and as the testimony of Arcardio Carandang was stricken
off the record, we are constrained to rule that there was no pre-
incorporation agreement rendering Quirino de Guzman liable for the
spouses Carandang’s stock subscription. The payment by the
spouses de Guzman of the stock subscriptions of the spouses
Carandang are therefore by way of loan which the spouses
Carandang are liable to pay.1âwphi1
Whether or not the liability of the spouses Carandang is joint and
solidary
Finally, the Court of Appeals also upheld the RTC Decision insofar as
it decreed a solidary liability. According to the Court of Appeals:
With regards (sic) the tenth assigned error, [the spouses Carandang]
contend that:
"There is absolutely no evidence, testimonial or documentary,
showing that the purported obligation of [the spouses Carandang] is
joint and solidary. x x x
"Furthermore, the purported obligation of [the spouses Carandang]
does not at all qualify as one of the obligations required by law to be
solidary x x x."
It is apparent from the facts of the case that [the spouses Carandang]
were married way before the effectivity of the Family Code hence;
their property regime is conjugal partnership under the Civil Code.
It must be noted that for marriages governed by the rules of conjugal
partnership of gains, an obligation entered into by the husband and
wife is chargeable against their conjugal partnership and it is the
partnership, which is primarily bound for its repayment. Thus, when
the spouses are sued for the enforcement of the obligation entered
into by them, they are being impleaded in their capacity as
representatives of the conjugal partnership and not as independent
debtors, such that the concept of joint and solidary liability, as
between them, does not apply.47
The Court of Appeals is correct insofar as it held that when the
spouses are sued for the enforcement of the obligation entered into by
them, they are being impleaded in their capacity as representatives of
the conjugal partnership and not as independent debtors. Hence,
either of them may be sued for the whole amount, similar to that of a
solidary liability, although the amount is chargeable against their
conjugal partnership property. Thus, in the case cited by the Court of
Appeals, Alipio v. Court of Appeals, 48 the two sets of defendant-
spouses therein were held liable for ₱25,300.00 each, chargeable to
their respective conjugal partnerships.
WHEREFORE, the Decision of the Court of Appeals, affirming the
judgment rendered against the spouses Carandang, is hereby
AFFIRMED with the following MODIFICATION: The spouses
Carandang are ORDERED to pay the following amounts from their
conjugal partnership properties:
49
 (1) ₱336,375.00 representing the spouses Carandang’s loan
to Quirino de Guzman; and
(2) Interest on the preceding amount at the rate of twelve
percent (12%) per annum from 5 June 1992 when the
complaint was filed until the principal amount can be fully paid;
and
G.R. No. 150135             October 30, 2006
SPOUSES ANTONIO F. ALGURA and LORENCITA S.J.
ALGURA, petitioners,
vs.
THE LOCAL GOVERNMENT UNIT OF THE CITY OF NAGA, ATTY.
MANUEL TEOXON, ENGR. LEON PALMIANO, NATHAN SERGIO
and BENJAMIN NAVARRO, SR., respondents.

(3) ₱20,000.00 as attorney’s fees. DECISION

No costs. VELASCO, JR., J.:

SO ORDERED. Anyone who has ever struggled with poverty

knows how extremely expensive it is to be poor.
MINITA V. CHICO-NAZARIO –– James Baldwin
Associate Justice
The Constitution affords litigants—moneyed or poor—equal access to
WE CONCUR: the courts; moreover, it specifically provides that poverty shall not bar
any person from having access to the courts.1 Accordingly, laws and
rules must be formulated, interpreted, and implemented pursuant to
ARTEMIO V. PANGANIBAN
the intent and spirit of this constitutional provision. As such, filing fees,
Chief Justice
though one of the essential elements in court procedures, should not
Chairperson
be an obstacle to poor litigants' opportunity to seek redress for their
grievances before the courts.
CONSUELO YNARES- MA. ALICIA AUSTRIA-
SANTIAGO MARTINEZ The Case
Associate Justice Associate Justice
This Petition for Review on Certiorari seeks the annulment of the
ROMEO J. CALLEJO, SR. September 11, 2001 Order of the Regional Trial Court (RTC) of Naga
Associate Justice City, Branch 27, in Civil Case No. 99-4403 entitled Spouses Antonio
F. Algura and Lorencita S.J. Algura v. The Local Government Unit of
CERTIFICATION the City of Naga, et al., dismissing the case for failure of petitioners
Algura spouses to pay the required filing fees.2 Since the instant
Pursuant to Article VIII, Section 13 of the Constitution, it is hereby petition involves only a question of law based on facts established
certified that the conclusions in the above Decision were reached in from the pleadings and documents submitted by the parties, 3 the
consultation before the case was assigned to the writer of the opinion Court gives due course to the instant petition sanctioned under
of the Court’s Division. Section 2(c) of Rule 41 on Appeal from the RTCs, and governed by
Rule 45 of the 1997 Rules of Civil Procedure.
ARTEMIO V. PANGANIBAN
Chief Justice
50
The Facts
On September 1, 1999, spouses Antonio F. Algura and Lorencita S.J.
Algura filed a Verified Complaint dated August 30, 19994 for damages
against the Naga City Government and its officers, arising from the
alleged illegal demolition of their residence and boarding house and
for payment of lost income derived from fees paid by their boarders
amounting to PhP 7,000.00 monthly.
Simultaneously, petitioners filed an Ex-Parte Motion to Litigate as
Indigent Litigants,5 to which petitioner Antonio Algura's Pay Slip No.
2457360 (Annex "A" of motion) was appended, showing a gross
monthly income of Ten Thousand Four Hundred Seventy Four Pesos
(PhP 10,474.00) and a net pay of Three Thousand Six Hundred
Sixteen Pesos and Ninety Nine Centavos (PhP 3,616.99) for [the
month of] July 1999.6 Also attached as Annex "B" to the motion was a
July 14, 1999 Certification7 issued by the Office of the City Assessor
of Naga City, which stated that petitioners had no property declared in
their name for taxation purposes.
Finding that petitioners' motion to litigate as indigent litigants was
meritorious, Executive Judge Jose T. Atienza of the Naga City RTC,
in the September 1, 1999 Order,8 granted petitioners' plea for
exemption from filing fees.
Meanwhile, as a result of respondent Naga City Government's
demolition of a portion of petitioners' house, the Alguras allegedly lost
a monthly income of PhP 7,000.00 from their boarders' rentals. With
the loss of the rentals, the meager income from Lorencita
Algura's sari-sari store and Antonio Algura's small take home pay
became insufficient for the expenses of the Algura spouses and their
six (6) children for their basic needs including food, bills, clothes, and
schooling, among others.
On October 13, 1999, respondents filed an Answer with Counterclaim
dated October 10, 1999,9 arguing that the defenses of the petitioners
in the complaint had no cause of action, the spouses' boarding house
blocked the road right of way, and said structure was a nuisance per
se.
Praying that the counterclaim of defendants (respondents) be
dismissed, petitioners then filed their Reply with Ex-Parte Request for
a Pre-Trial Setting10 before the Naga City RTC on October 19, 1999.
On February 3, 2000, a pre-trial was held wherein respondents asked
for five (5) days within which to file a Motion to Disqualify Petitioners
as Indigent Litigants.
On March 13, 2000, respondents filed a Motion to Disqualify the
Plaintiffs for Non-Payment of Filing Fees dated March 10,
2000.11 They asserted that in addition to the more than PhP 3,000.00
net income of petitioner Antonio Algura, who is a member of the
Philippine National Police, spouse Lorencita Algura also had a mini-
store and a computer shop on the ground floor of their residence
along Bayawas St., Sta. Cruz, Naga City. Also, respondents claimed
that petitioners' second floor was used as their residence and as a
boarding house, from which they earned more than PhP 3,000.00 a
month. In addition, it was claimed that petitioners derived additional
income from their computer shop patronized by students and from
several boarders who paid rentals to them. Hence, respondents
concluded that petitioners were not indigent litigants.
On March 28, 2000, petitioners subsequently interposed their
Opposition to the Motion12 to respondents' motion to disqualify them
for non-payment of filing fees.
On April 14, 2000, the Naga City RTC issued an Order disqualifying
petitioners as indigent litigants on the ground that they failed to
substantiate their claim for exemption from payment of legal fees and
to comply with the third paragraph of Rule 141, Section 18 of the
Revised Rules of Court—directing them to pay the requisite filing
fees.13
On April 28, 2000, petitioners filed a Motion for Reconsideration of the
April 14, 2000 Order. On May 8, 2000, respondents then filed their
Comment/Objections to petitioner's Motion for Reconsideration.
On May 5, 2000, the trial court issued an Order 14 giving petitioners the
opportunity to comply with the requisites laid down in Section 18, Rule
141, for them to qualify as indigent litigants.
51
On May 13, 2000, petitioners submitted their Compliance15 attaching
the affidavits of petitioner Lorencita Algura16 and Erlinda Bangate,17 to
comply with the requirements of then Rule 141, Section 18 of the
Rules of Court and in support of their claim to be declared as indigent
litigants.
In her May 13, 2000 Affidavit, petitioner Lorencita Algura claimed that
the demolition of their small dwelling deprived her of a monthly
income amounting to PhP 7,000.00. She, her husband, and their six
(6) minor children had to rely mainly on her husband's salary as a
policeman which provided them a monthly amount of PhP 3,500.00,
more or less. Also, they did not own any real property as certified by
the assessor's office of Naga City. More so, according to her, the
meager net income from her small sari-sari store and the rentals of
some boarders, plus the salary of her husband, were not enough to
pay the family's basic necessities.
To buttress their position as qualified indigent litigants, petitioners also
submitted the affidavit of Erlinda Bangate, who attested under oath,
that she personally knew spouses Antonio Algura and Lorencita
Algura, who were her neighbors; that they derived substantial income
from their boarders; that they lost said income from their boarders'
rentals when the Local Government Unit of the City of Naga, through
its officers, demolished part of their house because from that time,
only a few boarders could be accommodated; that the income from
the small store, the boarders, and the meager salary of Antonio
Algura were insufficient for their basic necessities like food and
clothing, considering that the Algura spouses had six (6) children; and
that she knew that petitioners did not own any real property.
Thereafter, Naga City RTC Acting Presiding Judge Andres B.
Barsaga, Jr. issued his July 17, 200018 Order denying the petitioners'
Motion for Reconsideration.
Judge Barsaga ratiocinated that the pay slip of Antonio F. Algura
showed that the "GROSS INCOME or TOTAL EARNINGS of plaintiff
Algura [was] ₧10,474.00 which amount [was] over and above the
amount mentioned in the first paragraph of Rule 141, Section 18 for
pauper litigants residing outside Metro Manila."19 Said rule provides
that the gross income of the litigant should not exceed PhP 3,000.00 a
month and shall not own real estate with an assessed value of PhP
50,000.00. The trial court found that, in Lorencita S.J. Algura's May
13, 2000 Affidavit, nowhere was it stated that she and her immediate
family did not earn a gross income of PhP 3,000.00.
The Issue
Unconvinced of the said ruling, the Alguras instituted the instant
petition raising a solitary issue for the consideration of the Court:
whether petitioners should be considered as indigent litigants who
qualify for exemption from paying filing fees.
The Ruling of the Court
The petition is meritorious.
A review of the history of the Rules of Court on suits in forma
pauperis (pauper litigant) is necessary before the Court rules on the
issue of the Algura spouses' claim to exemption from paying filing
fees.
When the Rules of Court took effect on January 1, 1964, the rule on
pauper litigants was found in Rule 3, Section 22 which provided that:
Section 22. Pauper litigant.—Any court may authorize a litigant to
prosecute his action or defense as a pauper upon a proper showing
that he has no means to that effect by affidavits, certificate of the
corresponding provincial, city or municipal treasurer, or otherwise.
Such authority[,] once given[,] shall include an exemption from
payment of legal fees and from filing appeal bond, printed record and
printed brief. The legal fees shall be a lien to any judgment rendered
in the case [favorable] to the pauper, unless the court otherwise
provides.
From the same Rules of Court, Rule 141 on Legal Fees, on the other
hand, did not contain any provision on pauper litigants.
On July 19, 1984, the Court, in Administrative Matter No. 83-6-389-0
(formerly G.R. No. 64274), approved the recommendation of the
52
Committee on the Revision of Rates and Charges of Court Fees,
through its Chairman, then Justice Felix V. Makasiar, to revise the
fees in Rule 141 of the Rules of Court to generate funds to effectively
cover administrative costs for services rendered by the courts.20 A
provision on pauper litigants was inserted which reads:
Section 16. Pauper-litigants exempt from payment of court fees.—
Pauper-litigants include wage earners whose gross income do not
exceed P2,000.00 a month or P24,000.00 a year for those residing in
Metro Manila, and P1,500.00 a month or P18,000.00 a year for those
residing outside Metro Manila, or those who do not own real property
with an assessed value of not more than P24,000.00, or not more
than P18,000.00 as the case may be.
Such exemption shall include exemption from payment of fees for
filing appeal bond, printed record and printed brief.
The legal fees shall be a lien on the monetary or property judgment
rendered in favor of the pauper-litigant.
To be entitled to the exemption herein provided, the pauper-litigant
shall execute an affidavit that he does not earn the gross income
abovementioned, nor own any real property with the assessed value
afore-mentioned [sic], supported by a certification to that effect by the
provincial, city or town assessor or treasurer.
When the Rules of Court on Civil Procedure were amended by the
1997 Rules of Civil Procedure (inclusive of Rules 1 to 71) in Supreme
Court Resolution in Bar Matter No. 803 dated April 8, 1997, which
became effective on July 1, 1997, Rule 3, Section 22 of the Revised
Rules of Court was superseded by Rule 3, Section 21 of said 1997
Rules of Civil Procedure, as follows:
Section 21. Indigent party.—A party may be authorized to litigate his
action, claim or defense as an indigent if the court, upon an ex parte
application and hearing, is satisfied that the party is one who has no
money or property sufficient and available for food, shelter and basic
necessities for himself and his family.
Such authority shall include an exemption from payment of docket
and other lawful fees, and of transcripts of stenographic notes which
the court may order to be furnished him. The amount of the docket
and other lawful fees which the indigent was exempted from paying
shall be a lien on any judgment rendered in the case favorable to the
indigent, unless the court otherwise provides.
Any adverse party may contest the grant of such authority at any time
before judgment is rendered by the trial court. If the court should
determine after hearing that the party declared as an indigent is in fact
a person with sufficient income or property, the proper docket and
other lawful fees shall be assessed and collected by the clerk of court.
If payment is not made within the time fixed by the court, execution
shall issue for the payment thereof, without prejudice to such other
sanctions as the court may impose.
At the time the Rules on Civil Procedure were amended by the Court
in Bar Matter No. 803, however, there was no amendment made on
Rule 141, Section 16 on pauper litigants.
On March 1, 2000, Rule 141 on Legal Fees was amended by the
Court in A.M. No. 00-2-01-SC, whereby certain fees were increased
or adjusted. In this Resolution, the Court amended Section 16 of Rule
141, making it Section 18, which now reads:
Section 18. Pauper-litigants exempt from payment of legal fees.—
Pauper litigants (a) whose gross income and that of their immediate
family do not exceed four thousand (P4,000.00) pesos a month if
residing in Metro Manila, and three thousand (P3,000.00) pesos a
month if residing outside Metro Manila, and (b) who do not own real
property with an assessed value of more than fifty thousand
(P50,000.00) pesos shall be exempt from the payment of legal fees.
The legal fees shall be a lien on any judgment rendered in the case
favorably to the pauper litigant, unless the court otherwise provides.
To be entitled to the exemption herein provided, the litigant shall
execute an affidavit that he and his immediate family do not earn the
gross income abovementioned, nor do they own any real property
53
with the assessed value aforementioned, supported by an affidavit of
a disinterested person attesting to the truth of the litigant's affidavit.
Any falsity in the affidavit of a litigant or disinterested person shall be
sufficient cause to strike out the pleading of that party, without
prejudice to whatever criminal liability may have been incurred.
It can be readily seen that the rule on pauper litigants was inserted in
Rule 141 without revoking or amending Section 21 of Rule 3, which
provides for the exemption of pauper litigants from payment of filing
fees. Thus, on March 1, 2000, there were two existing rules on
pauper litigants; namely, Rule 3, Section 21 and Rule 141, Section
18.
On August 16, 2004, Section 18 of Rule 141 was further amended in
Administrative Matter No. 04-2-04-SC, which became effective on the
same date. It then became Section 19 of Rule 141, to wit:
Sec. 19. Indigent litigants exempt from payment of legal fees.–
INDIGENT LITIGANTS (A) WHOSE GROSS INCOME AND THAT OF
THEIR IMMEDIATE FAMILY DO NOT EXCEED AN AMOUNT
DOUBLE THE MONTHLY MINIMUM WAGE OF AN
EMPLOYEE AND (B) WHO DO NOT OWN REAL PROPERTY WITH
A FAIR MARKET VALUE AS STATED IN THE CURRENT TAX
DECLARATION OF MORE THAN THREE HUNDRED THOUSAND
(P300,000.00) PESOS SHALL BE EXEMPT FROM PAYMENT OF
LEGAL FEES.
The legal fees shall be a lien on any judgment rendered in the case
favorable to the indigent litigant unless the court otherwise provides.
To be entitled to the exemption herein provided, the litigant shall
execute an affidavit that he and his immediate family do not earn
a gross income abovementioned, and they do not own any real
property with the fair value aforementioned, supported by an
affidavit of a disinterested person attesting to the truth of the
litigant's affidavit. The current tax declaration, if any, shall be
attached to the litigant's affidavit.
Any falsity in the affidavit of litigant or disinterested person shall be
sufficient cause to dismiss the complaint or action or to strike out the
pleading of that party, without prejudice to whatever criminal liability
may have been incurred. (Emphasis supplied.)
Amendments to Rule 141 (including the amendment to Rule 141,
Section 18) were made to implement RA 9227 which brought about
new increases in filing fees. Specifically, in the August 16, 2004
amendment, the ceiling for the gross income of litigants applying for
exemption and that of their immediate family was increased from PhP
4,000.00 a month in Metro Manila and PhP 3,000.00 a month outside
Metro Manila, to double the monthly minimum wage of an employee;
and the maximum value of the property owned by the applicant was
increased from an assessed value of PhP 50,000.00 to a maximum
market value of PhP 300,000.00, to be able to accommodate more
indigent litigants and promote easier access to justice by the poor and
the marginalized in the wake of these new increases in filing fees.
Even if there was an amendment to Rule 141 on August 16, 2004,
there was still no amendment or recall of Rule 3, Section 21 on
indigent litigants.
With this historical backdrop, let us now move on to the sole issue—
whether petitioners are exempt from the payment of filing fees.
It is undisputed that the Complaint (Civil Case No. 99-4403) was filed
on September 1, 1999. However, the Naga City RTC, in its April 14,
2000 and July 17, 2000 Orders, incorrectly applied Rule 141,
Section 18 on Legal Fees when the applicable rules at that time
were Rule 3, Section 21 on Indigent Party which took effect on July
1, 1997 and Rule 141, Section 16 on Pauper Litigants which
became effective on July 19, 1984 up to February 28, 2000.
The old Section 16, Rule 141 requires applicants to file an ex-
parte motion to litigate as a pauper litigant by submitting an affidavit
that they do not have a gross income of PhP 2,000.00 a month or PhP
24,000.00 a year for those residing in Metro Manila and PhP 1,500.00
a month or PhP 18,000.00 a year for those residing outside Metro
Manila or those who do not own real property with an assessed value
of not more than PhP 24,000.00 or not more than PhP 18,000.00 as
54
the case may be. Thus, there are two requirements: a) income
requirement—the applicants should not have a gross monthly income
of more than PhP 1,500.00, and b) property requirement––they
should not own property with an assessed value of not more than PhP
18,000.00.
In the case at bar, petitioners Alguras submitted the Affidavits of
petitioner Lorencita Algura and neighbor Erlinda Bangate, the pay slip
of petitioner Antonio F. Algura showing a gross monthly income of
PhP 10,474.00,21 and a Certification of the Naga City assessor stating
that petitioners do not have property declared in their names for
taxation.22 Undoubtedly, petitioners do not own real property as shown
by the Certification of the Naga City assessor and so the property
requirement is met. However with respect to the income requirement,
it is clear that the gross monthly income of PhP 10,474.00 of petitioner
Antonio F. Algura and the PhP 3,000.00 income of Lorencita Algura
when combined, were above the PhP 1,500.00 monthly income
threshold prescribed by then Rule 141, Section 16 and therefore, the
income requirement was not satisfied. The trial court was therefore
correct in disqualifying petitioners Alguras as indigent litigants
although the court should have applied Rule 141, Section 16 which
was in effect at the time of the filing of the application on September
1, 1999. Even if Rule 141, Section 18 (which superseded Rule 141,
Section 16 on March 1, 2000) were applied, still the application could
not have been granted as the combined PhP 13,474.00 income of
petitioners was beyond the PhP 3,000.00 monthly income threshold.
Unrelenting, petitioners however argue in their Motion for
Reconsideration of the April 14, 2000 Order disqualifying them as
indigent litigants23 that the rules have been relaxed by relying on Rule
3, Section 21 of the 1997 Rules of Civil procedure which authorizes
parties to litigate their action as indigents if the court is satisfied that
the party is "one who has no money or property sufficient and
available for food, shelter and basic necessities for himself and his
family." The trial court did not give credence to this view of petitioners
and simply applied Rule 141 but ignored Rule 3, Section 21 on
Indigent Party.
The position of petitioners on the need to use Rule 3, Section 21 on
their application to litigate as indigent litigants brings to the fore the
issue on whether a trial court has to apply both Rule 141, Section 16
and Rule 3, Section 21 on such applications or should the court apply
only Rule 141, Section 16 and discard Rule 3, Section 21 as having
been superseded by Rule 141, Section 16 on Legal Fees.
The Court rules that Rule 3, Section 21 and Rule 141, Section 16
(later amended as Rule 141, Section 18 on March 1, 2000 and
subsequently amended by Rule 141, Section 19 on August 16, 2003,
which is now the present rule) are still valid and enforceable rules on
indigent litigants.
For one, the history of the two seemingly conflicting rules readily
reveals that it was not the intent of the Court to consider the old
Section 22 of Rule 3, which took effect on January 1, 1994 to have
been amended and superseded by Rule 141, Section 16, which took
effect on July 19, 1984 through A.M. No. 83-6-389-0. If that is the
case, then the Supreme Court, upon the recommendation of the
Committee on the Revision on Rules, could have already deleted
Section 22 from Rule 3 when it amended Rules 1 to 71 and approved
the 1997 Rules of Civil Procedure, which took effect on July 1, 1997.
The fact that Section 22 which became Rule 3, Section 21 on indigent
litigant was retained in the rules of procedure, even elaborating on the
meaning of an indigent party, and was also strengthened by the
addition of a third paragraph on the right to contest the grant of
authority to litigate only goes to show that there was no intent at all to
consider said rule as expunged from the 1997 Rules of Civil
Procedure.
Furthermore, Rule 141 on indigent litigants was amended
twice: first on March 1, 2000 and the second on August 16, 2004; and
yet, despite these two amendments, there was no attempt to delete
Section 21 from said Rule 3. This clearly evinces the desire of the
Court to maintain the two (2) rules on indigent litigants to cover
applications to litigate as an indigent litigant.
It may be argued that Rule 3, Section 21 has been impliedly repealed
by the recent 2000 and 2004 amendments to Rule 141 on legal fees.
This position is bereft of merit. Implied repeals are frowned upon
unless the intent of the framers of the rules is unequivocal. It has been
consistently ruled that:
55
(r)epeals by implication are not favored, and will not be decreed,
unless it is manifest that the legislature so intended. As laws are
presumed to be passed with deliberation and with full knowledge of all
existing ones on the subject, it is but reasonable to conclude that in
passing a statute[,] it was not intended to interfere with or abrogate
any former law relating to same matter, unless the repugnancy
between the two is not only irreconcilable, but also clear and
convincing, and flowing necessarily from the language used, unless
the later act fully embraces the subject matter of the earlier, or unless
the reason for the earlier act is beyond peradventure
removed. Hence, every effort must be used to make all acts stand and
if, by any reasonable construction they can be reconciled, the later act
will not operate as a repeal of the earlier.24 (Emphasis supplied).
Instead of declaring that Rule 3, Section 21 has been superseded and
impliedly amended by Section 18 and later Section 19 of Rule 141,
the Court finds that the two rules can and should be harmonized.
The Court opts to reconcile Rule 3, Section 21 and Rule 141, Section
19 because it is a settled principle that when conflicts are seen
between two provisions, all efforts must be made to harmonize them.
Hence, "every statute [or rule] must be so construed and harmonized
with other statutes [or rules] as to form a uniform system of
jurisprudence."25
In Manila Jockey Club, Inc. v. Court of Appeals, this Court enunciated
that in the interpretation of seemingly conflicting laws, efforts must be
made to first harmonize them. This Court thus ruled:
Consequently, every statute should be construed in such a way that
will harmonize it with existing laws. This principle is expressed in the
legal maxim 'interpretare et concordare leges legibus est optimus
interpretandi,' that is, to interpret and to do it in such a way as to
harmonize laws with laws is the best method of interpretation.26
In the light of the foregoing considerations, therefore, the two (2) rules
can stand together and are compatible with each other. When an
application to litigate as an indigent litigant is filed, the court shall
scrutinize the affidavits and supporting documents submitted by the
applicant to determine if the applicant complies with the income and
property standards prescribed in the present Section 19 of Rule 141—
that is, the applicant's gross income and that of the applicant's
immediate family do not exceed an amount double the monthly
minimum wage of an employee; and the applicant does not own real
property with a fair market value of more than Three Hundred
Thousand Pesos (PhP 300,000.00). If the trial court finds that the
applicant meets the income and property requirements, the authority
to litigate as indigent litigant is automatically granted and the grant is a
matter of right.
However, if the trial court finds that one or both requirements have not
been met, then it would set a hearing to enable the applicant to prove
that the applicant has "no money or property sufficient and available
for food, shelter and basic necessities for himself and his family." In
that hearing, the adverse party may adduce countervailing evidence
to disprove the evidence presented by the applicant; after which the
trial court will rule on the application depending on the evidence
adduced. In addition, Section 21 of Rule 3 also provides that the
adverse party may later still contest the grant of such authority at any
time before judgment is rendered by the trial court, possibly based on
newly discovered evidence not obtained at the time the application
was heard. If the court determines after hearing, that the party
declared as an indigent is in fact a person with sufficient income or
property, the proper docket and other lawful fees shall be assessed
and collected by the clerk of court. If payment is not made within the
time fixed by the court, execution shall issue or the payment of
prescribed fees shall be made, without prejudice to such other
sanctions as the court may impose.
The Court concedes that Rule 141, Section 19 provides specific
standards while Rule 3, Section 21 does not clearly draw the limits of
the entitlement to the exemption. Knowing that the litigants may abuse
the grant of authority, the trial court must use sound discretion and
scrutinize evidence strictly in granting exemptions, aware that the
applicant has not hurdled the precise standards under Rule 141. The
trial court must also guard against abuse and misuse of the privilege
to litigate as an indigent litigant to prevent the filing of exorbitant
claims which would otherwise be regulated by a legal fee requirement.
56
Thus, the trial court should have applied Rule 3, Section 21 to the denying petitioners' Motion for Reconsideration, and the September
application of the Alguras after their affidavits and supporting 11, 2001 Order dismissing the case in Civil Case No. RTC-99-4403
documents showed that petitioners did not satisfy the twin before the Naga City RTC, Branch 27 are ANNULLED and SET
requirements on gross monthly income and ownership of real property ASIDE. Furthermore, the Naga City RTC is ordered to set the "Ex-
under Rule 141. Instead of disqualifying the Alguras as indigent Parte Motion to Litigate as Indigent Litigants" for hearing and apply
litigants, the trial court should have called a hearing as required by Rule 3, Section 21 of the 1997 Rules of Civil Procedure to determine
Rule 3, Section 21 to enable the petitioners to adduce evidence to whether petitioners can qualify as indigent litigants.
show that they didn't have property and money sufficient and available
for food, shelter, and basic necessities for them and their family. 27 In No costs.
that hearing, the respondents would have had the right to also present
evidence to refute the allegations and evidence in support of the SO ORDERED.
application of the petitioners to litigate as indigent litigants. Since this
Court is not a trier of facts, it will have to remand the case to the trial Quisumbing, J., Chairperson, Carpio, Carpio Morales, and Tinga,
court to determine whether petitioners can be considered as indigent JJ., concur.
litigants using the standards set in Rule 3, Section 21.
Republic of the Philippines
Recapitulating the rules on indigent litigants, therefore, if the applicant SUPREME COURT
for exemption meets the salary and property requirements under Manila
Section 19 of Rule 141, then the grant of the application is mandatory.
On the other hand, when the application does not satisfy one or both SECOND DIVISION
requirements, then the application should not be denied outright;
instead, the court should apply the "indigency test" under Section 21
G.R. No. 192877               March 23, 2011
of Rule 3 and use its sound discretion in determining the merits of the
prayer for exemption.
SPOUSES HERMES P. OCHOA and ARACELI D.
OCHOA, Petitioners,
Access to justice by the impoverished is held sacrosanct under Article
vs.
III, Section 11 of the 1987 Constitution. The Action Program for
CHINA BANKING CORPORATION, Respondent.
Judicial Reforms (APJR) itself, initiated by former Chief Justice Hilario
G. Davide, Jr., placed prime importance on 'easy access to justice by
the poor' as one of its six major components. Likewise, the judicial RESOLUTION
philosophy of Liberty and Prosperity of Chief Justice Artemio V.
Panganiban makes it imperative that the courts shall not only NACHURA, J.:
safeguard but also enhance the rights of individuals—which are
considered sacred under the 1987 Constitution. Without doubt, one of For resolution is petitioners’ motion for reconsideration1 of our January
the most precious rights which must be shielded and secured is the 17, 2011 Resolution2 denying their petition for review on certiorari3 for
unhampered access to the justice system by the poor, the failing to sufficiently show any reversible error in the assailed
underprivileged, and the marginalized. judgment4 of the Court of Appeals (CA).

WHEREFORE, the petition is GRANTED and the April 14, 2000 Order Petitioners insist that it was error for the CA to rule that the stipulated
granting the disqualification of petitioners, the July 17, 2000 Order exclusive venue of Makati City is binding only on petitioners’
57
complaint for Annulment of Foreclosure, Sale, and Damages filed
before the Regional Trial Court of Parañaque City, but not on
respondent bank’s Petition for Extrajudicial Foreclosure of Mortgage,
which was filed with the same court.
We disagree.
The extrajudicial foreclosure sale of a real estate mortgage is
governed by Act No. 3135, as amended by Act No. 4118, otherwise
known as "An Act to Regulate the Sale of Property Under Special
Powers Inserted In or Annexed to Real-Estate Mortgages." Sections 1
and 2 thereof clearly state:
Section 1. When a sale is made under a special power inserted in or
attached to any real-estate mortgage hereafter made as security for
the payment of money or the fulfillment of any other obligation, the
provisions of the following sections shall govern as to the manner in
which the sale and redemption shall be effected, whether or not
provision for the same is made in the power.
Sec. 2. Said sale cannot be made legally outside of the province in
which the property sold is situated; and in case the place within said
province in which the sale is to be made is the subject of stipulation,
such sale shall be made in said place or in the municipal building of
the municipality in which the property or part thereof is situated.5
The case at bar involves petitioners’ mortgaged real property located
in Parañaque City over which respondent bank was granted a special
power to foreclose extra-judicially. Thus, by express provision of
Section 2, the sale can only be made in Parañaque City.
The exclusive venue of Makati City, as stipulated by the parties 6 and
sanctioned by Section 4, Rule 4 of the Rules of Court, 7 cannot be
made to apply to the Petition for Extrajudicial Foreclosure filed by
respondent bank because the provisions of Rule 4 pertain to venue of
actions, which an extrajudicial foreclosure is not.
Pertinent are the following disquisitions in Supena v. De la Rosa:8
Section 1, Rule 2 [of the Rules of Court] defines an action in this wise:
"Action means an ordinary suit in a court of justice, by which one party
prosecutes another for the enforcement or protection of a right, or the
prevention or redress of a wrong."
Hagans v. Wislizenus does not depart from this definition when it
states that "[A]n action is a formal demand of one's legal rights in a
court of justice in the manner prescribed by the court or by the law. x x
x." It is clear that the determinative or operative fact which converts a
claim into an "action or suit" is the filing of the same with a "court of
justice." Filed elsewhere, as with some other body or office not a court
of justice, the claim may not be categorized under either term. Unlike
an action, an extrajudicial foreclosure of real estate mortgage is
initiated by filing a petition not with any court of justice but with the
office of the sheriff of the province where the sale is to be
made.1avvphi1 By no stretch of the imagination can the office of the
sheriff come under the category of a court of justice. And as aptly
observed by the complainant, if ever the executive judge comes into
the picture, it is only because he exercises administrative supervision
over the sheriff. But this administrative supervision, however, does not
change the fact that extrajudicial foreclosures are not judicial
proceedings, actions or suits.9
These pronouncements were confirmed on August 7, 2001 through
A.M. No. 99-10-05-0, entitled "Procedure in Extra-Judicial Foreclosure
of Mortgage," the significant portions of which provide:
In line with the responsibility of an Executive Judge under
Administrative Order No. 6, date[d] June 30, 1975, for the
management of courts within his administrative area, included in
which is the task of supervising directly the work of the Clerk of Court,
who is also the Ex-Office Sheriff, and his staff, and the issuance of
commissions to notaries public and enforcement of their duties under
the law, the following procedures are hereby prescribed in extra-
judicial foreclosure of mortgages:
1. All applications for extrajudicial foreclosure of mortgage whether
under the direction of the sheriff or a notary public, pursuant to Act
3135, as amended by Act 4118, and Act 1508, as amended, shall be
58
filed with the Executive Judge, through the Clerk of Court who is also ATTESTATION
the Ex-Officio Sheriff.
I attest that the conclusions in the above Resolution had been
Verily then, with respect to the venue of extrajudicial foreclosure reached in consultation before the case was assigned to the writer of
sales, Act No. 3135, as amended, applies, it being a special law the opinion of the Court’s Division.
dealing particularly with extrajudicial foreclosure sales of real estate
mortgages, and not the general provisions of the Rules of Court on ANTONIO T. CARPIO
Venue of Actions. Associate Justice
Chairperson, Second Division
Consequently, the stipulated exclusive venue of Makati City is
relevant only to actions arising from or related to the mortgage, such CERTIFICATION
as petitioners’ complaint for Annulment of Foreclosure, Sale, and
Damages. Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairperson's Attestation, I certify that the conclusions in the above
The other arguments raised in the motion are a mere reiteration of Resolution had been reached in consultation before the case was
those already raised in the petition for review. As declared in this assigned to the writer of the opinion of the Court’s Division.
Court’s Resolution on January 17, 2011, the same failed to show any
sufficient ground to warrant the exercise of our appellate jurisdiction. RENATO C. CORONA
Chief Justice
WHEREFORE, premises considered, the motion for reconsideration is
hereby DENIED. Republic of the Philippines
SUPREME COURT
SO ORDERED. Manila

ANTONIO EDUARDO B. NACHURA SECOND DIVISION

Associate Justice
G.R. No. 190071               August 15, 2012
WE CONCUR:
UNION BANK OF THE PHILIPPINES, Petitioner,
ANTONIO T. CARPIO vs.
Associate Justice MAUNLAD HOMES, INC. and all other persons or entities
Chairperson claiming rights under it, Respondents.

ARTURO D. BRION DIOSDADO M. PERALTA VILLARAMA, JR.,*

Associate Justice Associate Justice
DECISION
ROBERTO A. ABAD
Associate Justice BRION, J.:

59
Before the Court is the petition for review on certiorari1 under Rule 45
of the Rules of Court filed by petitioner Union Bank of the Philippines
(Union Bank), assailing the decision dated October 28, 20092 of the
Court of Appeals (CA) in CA-G.R. SP No. 107772.
THE FACTS
Union Bank is the owner of a commercial complex located in Malolos,
Bulacan, known as the Maunlad Shopping Mall.
Sometime in August 2002, Union Bank, as seller, and respondent
Maunlad Homes, Inc. (Maunlad Homes), as buyer, entered into a
contract to sell3 involving the Maunlad Shopping Mall. The contract set
the purchase price at ₱ 151 million, ₱ 2.4 million of which was to be
paid by Maunlad Homes as down payment payable on or before July
5, 2002, with the balance to be amortized over the succeeding 180-
month period.4 Under the contract, Union Bank authorized Maunlad
Homes to take possession of the property and to build or introduce
improvements thereon. The parties also agreed that if Maunlad
Homes violates any of the provisions of the contract, all payments
made will be applied as rentals for the use and possession of the
property, and all improvements introduced on the land will accrue in
favor of Union Bank.5 In the event of rescission due to failure to pay or
to comply with the terms of the contract, Maunlad Homes will be
required to immediately vacate the property and must voluntarily turn
possession over to Union Bank.6
When Maunlad Homes failed to pay the monthly amortization, Union
Bank sent the former a Notice of Rescission of Contract 7 dated
February 5, 2003, demanding payment of the installments due within
30 days from receipt; otherwise, it shall consider the contract
automatically rescinded. Maunlad Homes failed to comply. Hence, on
November 19, 2003, Union Bank sent Maunlad Homes a letter
demanding payment of the rentals due and requiring that the subject
property be vacated and its possession turned over to the bank. When
Maunlad Homes continued to refuse, Union Bank instituted an
ejectment suit before the Metropolitan Trial Court (MeTC) of Makati
City, Branch 64, on February 19, 2004. Maunlad Homes resisted the
suit by claiming, among others, that it is the owner of the property as
Union Bank did not reserve ownership of the property under the terms
of the contract.8 By virtue of its ownership, Maunlad Homes claimed
that it has the right to possess the property.
On May 18, 2005, the MeTC dismissed Union Bank’s ejectment
complaint.9 It found that Union Bank’s cause of action was based on a
breach of contract and that both parties are claiming a better right to
possess the property based on their respective claims of ownership of
the property.
The MeTC ruled that the appropriate action to resolve these
conflicting claims was an accion reivindicatoria, over which it had no
jurisdiction.
On appeal, the Regional Trial Court (RTC) of Makati City, Branch 139,
affirmed the MeTC in its decision dated July 17, 2008;10 it agreed with
the MeTC that the issues raised in the complaint extend beyond those
commonly involved in an unlawful detainer suit. The RTC declared
that the case involved a determination of the rights of the parties
under the contract. Additionally, the RTC noted that the property is
located in Malolos, Bulacan, but the ejectment suit was filed by Union
Bank in Makati City, based on the contract stipulation that "the venue
of all suits and actions arising out or in connection with the Contract to
Sell shall be in Makati City."11 The RTC ruled that the proper venue for
the ejectment action is in Malolos, Bulacan, pursuant to the second
paragraph of Section 1, Rule 4 of the Rules of Court, which states:
Section 1. Venue of real actions. - Actions affecting title to or
possession of real property, or interest therein, shall be commenced
and tried in the proper court which has jurisdiction over the area
wherein the real property involved, or a portion thereof, is situated.
Forcible entry and detainer actions shall be commenced and tried in
the municipal trial court of the municipality or city wherein the real
property involved, or a portion thereof, is situated. [emphasis ours]
The RTC declared that Union Bank cannot rely on the waiver of venue
provision in the contract because ejectment is not an action arising
out of or connected with the contract.
60
Union Bank appealed the RTC decision to the CA through a petition
for review under Rule 42 of the Rules of Court. The CA affirmed the
RTC decision in its October 28, 2009 decision, 12 ruling that Union
Bank’s claim of possession is based on its claim of ownership which
in turn is based on its interpretation of the terms and conditions of the
contract, particularly, the provision on the consequences of Maunlad
Homes’ breach of contract. The CA determined that Union Bank’s
cause of action is premised on the interpretation and enforcement of
the contract and the determination of the validity of the rescission,
both of which are matters beyond the jurisdiction of the MeTC.
Therefore, it ruled that the dismissal of the ejectment suit was proper.
The CA, however, made no further ruling on the issue of venue of the
action.
From the CA’s judgment, Union Bank appealed to the Court by filing
the present petition for review on certiorari under Rule 45 of the Rules
of Court.
THE PARTIES’ ARGUMENTS
Union Bank disagreed with the CA’s finding that it is claiming
ownership over the property through the ejectment action. It claimed
that it never lost ownership over the property despite the execution of
the contract, since only the right to possess was conceded to Maunlad
Homes under the contract; Union Bank never transferred ownership of
the property to Maunlad Homes. Because of Maunlad Homes’ failure
to comply with the terms of the contract, Union Bank believes that it
rightfully rescinded the sale, which rescission terminated Maunlad
Homes’ right to possess the subject property. Since Maunlad Homes
failed to turn over the possession of the subject property, Union Bank
believes that it correctly instituted the ejectment suit.
The Court initially denied Union Bank’s petition in its Resolution dated
March 17, 2010.13 Upon motion for reconsideration filed by Union
Bank, the Court set aside its Resolution of March 17, 2010 (in a
Resolution dated May 30, 201114 ) and required Maunlad Homes to
comment on the petition.
Maunlad Homes contested Union Bank’s arguments, invoking the
rulings of the lower courts. It considered Union Bank’s action as
based on the propriety of the rescission of the contract, which, in turn,
is based on a determination of whether Maunlad Homes indeed failed
to comply with the terms of the contract; the propriety of the
rescission, however, is a question that is within the RTC’s jurisdiction.
Hence, Maunlad Homes contended that the dismissal of the ejectment
action was proper.
THE COURT’S RULING
We find the petition meritorious.
The authority of the MeTC to interpret contracts in an unlawful
detainer action
In any case involving the question of jurisdiction, the Court is guided
by the settled doctrine that the jurisdiction of a court is determined by
the nature of the action pleaded by the litigant through the allegations
in his complaint.15
Unlawful detainer is an action to recover possession of real property
from one who unlawfully withholds possession after the expiration or
termination of his right to hold possession under any contract, express
or implied. The possession of the defendant in unlawful detainer is
originally legal but became illegal due to expiration or termination of
the right to possess.16 Under Section 1, Rule 70 of the Rules of Court,
the action must be filed "within one (1) year after the unlawful
deprivation or withholding of possession." Thus, to fall within the
jurisdiction of the MeTC, the complaint must allege that –
1. the defendant originally had lawful possession of the property,
either by virtue of a contract or by tolerance of the plaintiff; 2.
eventually, the defendant’s possession of the property becameillegal
or unlawful upon notice by the plaintiff to defendant of the expiration
or the termination of the defendant’s right of possession;
3. thereafter, the defendant remained in possession of the property
and deprived the plaintiff the enjoyment thereof; and
61
4. within one year from the unlawful deprivation or withholding of
possession, the plaintiff instituted the complaint for ejectment.17
Contrary to the findings of the lower courts, all four requirements were
alleged in Union Bank’s Complaint. Union Bank alleged that Maunlad
Homes "maintained possession of the subject properties" pursuant to
the Contract to Sell.18 Maunlad Homes, however, "failed to faithfully
comply with the terms of payment," prompting Union Bank to "rescind
the Contract to Sell in a Notice of Rescission dated February 5,
2003."19 When Maunlad Homes "refused to turn over and vacate the
subject premises,"20 Union Bank sent another Demand Letter on
November 19, 2003 to Maunlad Homes requiring it (1) "[t]o pay the
equivalent rentals-in-arrears as of October 2003 in the amount of ₱
15,554,777.01 and monthly thereafter until the premises are fully
vacated and turned over" to Union Bank, and (2) to vacate the
property peacefully and turn over possession to Union Bank.21 As the
demand went unheeded, Union Bank instituted an action for unlawful
detainer before the MeTC on February 19, 2004, within one year from
the date of the last demand. These allegations clearly demonstrate a
cause of action for unlawful detainer and vested the MeTC jurisdiction
over Union Bank’s action.
Maunlad Homes denied Union Bank’s claim that its possession of the
property had become unlawful. It argued that its failure to make
payments did not terminate its right to possess the property because it
already acquired ownership when Union Bank failed to reserve
ownership of the property under the contract. Despite Maunlad
Homes’ claim of ownership of the property, the Court rules that the
MeTC retained its jurisdiction over the action; a defendant may not
divest the MeTC of its jurisdiction by merely claiming ownership of the
property.22 Under Section 16, Rule 70 of the Rules of Court, "when the
defendant raises the defense of ownership in his pleadings and the
question of possession cannot be resolved without deciding the issue
of ownership, the issue of ownership shall be resolved only to
determine the issue of possession." Section 18, Rule 70 of the Rules
of Court, however, states that "the judgment x x x shall be conclusive
with respect to the possession only and shall in no wise bind the title
or affect the ownership of the land or building."
The authority granted to the MeTC to preliminarily resolve the issue of
ownership to determine the issue of possession ultimately allows it to
interpret and enforce the contract or agreement between the plaintiff
and the defendant. To deny the MeTC jurisdiction over a complaint
merely because the issue of possession requires the interpretation of
a contract will effectively rule out unlawful detainer as a remedy. As
stated, in an action for unlawful detainer, the defendant’s right to
possess the property may be by virtue of a contract, express or
implied; corollarily, the termination of the defendant’s right to possess
would be governed by the terms of the same contract. Interpretation
of the contract between the plaintiff and the defendant is inevitable
because it is the contract that initially granted the defendant the right
to possess the property; it is this same contract that the plaintiff
subsequently claims was violated or extinguished, terminating the
defendant’s right to possess. We ruled in Sps. Refugia v. CA23 that –
where the resolution of the issue of possession hinges on a
determination of the validity and interpretation of the document of title
or any other contract on which the claim of possession is premised,
the inferior court may likewise pass upon these issues.
The MeTC’s ruling on the rights of the parties based on its
interpretation of their contract is, of course, not conclusive, but is
merely provisional and is binding only with respect to the issue of
possession.
Thus, despite the CA’s opinion that Union Bank’s "case involves a
determination of the rights of the parties under the Contract to
Sell,"24 it is not precluded from resolving this issue. Having acquired
jurisdiction over Union Bank’s action, the MeTC can resolve the
conflicting claims of the parties based on the facts presented and
proved.
The right to possess the property was extinguished when the
contract to sell failed to materialize
Maunlad Homes acquired possession of the property based on its
contract with Union Bank. While admitting that it suspended payment
of the installments,25 Maunlad Homes contended that the suspension
of payment did not affect its right to possess the property because its
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contract with Union Bank was one of sale and not to sell; hence,
ownership of the property has been transferred to it, allowing it to
retain possession notwithstanding nonpayment of installments. The
terms of the contract, however, do not support this conclusion.
Section 11 of the contract between Union Bank and Maunlad Homes
provides that "upon payment in full of the Purchase Price of the
Property x x x, the SELLER shall execute and deliver a Deed of
Absolute Sale conveying the Property to the
BUYER."26 "Jurisprudence has established that where the seller
promises to execute a deed of absolute sale upon the completion by
the buyer of the payment of the price, the contract is only a contract to
sell."27 The presence of this provision generally identifies the contract
as being a mere contract to sell.28 After reviewing the terms of the
contract between Union Bank and Maunlad Homes, we find no
reasonable ground to exempt the present case from the general rule;
the contract between Union Bank and Maunlad Homes is a contract to
sell.
In a contract to sell, the full payment of the purchase price is a
positive suspensive condition whose non-fulfillment is not a breach of
contract, but merely an event that prevents the seller from conveying
title to the purchaser. "The non-payment of the purchase price renders
the contract to sell ineffective and without force and effect."29 Maunlad
Homes’ act of withholding the installment payments rendered the
contract ineffective and without force and effect, and ultimately
deprived itself of the right to continue possessing Maunlad Shopping
Mall.
The propriety of filing the unlawful detainer action in Makati City
pursuant to the venue stipulation in the contract
Maunlad Homes questioned the venue of Union Bank’s unlawful
detainer action which was filed in Makati City while the contested
property is located in Malolos, Bulacan. Citing Section 1, Rule 4 of the
Rules of Court, Maunlad Homes claimed that the unlawful detainer
action should have been filed with the municipal trial court of the
municipality or city where the real property involved is situated. Union
Bank, on the other hand, justified the filing of the complaint with the
MeTC of Makati City on the venue stipulation in the contract which
states that "the venue of all suits and actions arising out of or in
connection with this Contract to Sell shall be at Makati City."30
While Section 1, Rule 4 of the Rules of Court states that ejectment
actions shall be filed in "the municipal trial court of the municipality or
city wherein the real property involved x x x is situated," Section 4 of
the same Rule provides that the rule shall not apply "where the parties
have validly agreed in writing before the filing of the action on the
exclusive venue thereof." Precisely, in this case, the parties provided
for a different venue. In Villanueva v. Judge Mosqueda, etc., et
al.,31 the Court upheld the validity of a stipulation in a contract
providing for a venue for ejectment actions other than that stated in
the Rules of Court. Since the unlawful detainer action is connected
with the contract, Union Bank rightfully filed the complaint with the
MeTC of Makati City.
WHEREFORE, we hereby GRANT the petition and SET ASIDE the
decision dated October 28, 2009 of the Court of Appeals in CA-G.R.
SP No. 107772. Respondent Maunlad Homes, Inc. is ORDERED TO
VACATE the Maunlad Shopping Mall, the property subject of the
case, immediately upon the finality of this Decision. Respondent
Maunlad Homes, Inc. is further ORDERED TO PAY the rentals-in-
arrears, as well as rentals accruing in the interim until it vacates the
property.
The case is REMANDED to the Metropolitan Trial Court of Makati
City, Branch 64, to determine the amount of rentals due. In addition to
the amount determined as unpaid rent, respondent Maunlad Homes,
Inc. is ORDERED TO PAY legal interest of six percent (6o/o) per
annum, from November 19, 2003, when the demand to pay and to
vacate was made, up to the finality of this Decision. Thereafter, an
interest of twelve percent ( 12%) per annum shall be imposed on the
total amount due until full payment is made.
SO ORDERED.
ARTURO D. BRION
Associate Justice
WE CONCUR:
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 ANTONIO T. CARPIO
Senior Associate Justice
Chairperson
MARTIN S. VILLARAMA, JR. JOSE PORTUGAL PEREZ
Associate Justice Associate Justice
BIENVENIDO L. REYES
Associate Justice

CERTIFICATION
I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of
the Court's Division.

ANTONIO T. CARPIO
Senior Associate Justice
(Per Section 12, R.A. 296,
The Judiciary Act of 1948, as amended)

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