CIVIL PROCEDURE

DISMISS
1. DABUCO v. CA, [G.R. No. 133775. January 20, 2000]

MOTION TO

Before this Court is a Petition for Review on Certiorari under Rule 45, with a prayer for issuance of a Restraining Order or Writ of Preliminary Injunction. The Petition assails the Decision[1], dated October 6, 1997 and the Order, dated April 30, 1998, both of the Court of Appeals. The issue raised in the petition before the Court of Appeals was whether the dismissal of Civil Case No. CEB-16217 by the Regional Trial Court of Cebu City, Branch 15, was proper. LEX The case in the trial court, Civil Case No. CEB-16217, was an action for quieting of title, accion publiciana and damages involving agricultural lands located in Gabi, Sudlon, Cebu City. Private respondent GABI Multi Purpose Cooperative (GABI, for brevity) was the plaintiff in the case below, while petitioners were the defendants. As an incident to the instant petition, petitioners filed an Urgent Motion, dated June 10, 1998, for the issuance of a Restraining Order or Writ of Preliminary Injunction, wherein they alleged that GABI had commenced to enter the disputed lands. On July 17, 1998, an Opposition by GABI to petitioners' Urgent Motion was received by the Court. Petitioners filed a Reply to the Opposition on July 28, 1998, and a Rejoinder, dated August 28, 1998 was filed by GABI. GABI filed a 2-page Comment,[2] wherein GABI dismissed petitioners' contentions as a mere rehash of its arguments in the appellate court. The Solicitor General also filed a Comment[3] in behalf of the respondent Court of Appeals. On February 18, 1999, the Court received petitioners' Reply to the Comment of the Solicitor General. Sc jj The antecedent facts are summarized in the assailed Decision of the Court of Appeals. We quote the pertinent portions below: The Lazarrabal [sic] family were the registered owners of the properties, subject matter of this case. In 1991, on different occasions, the subject properties were sold to Ruben Baculi, Editha Belocura, Lira Puno, Rafael Lapuz, Ladrioro Montealto, Joel Masecampo, Delsa N. Manay, Ilderim Castaares, Maria Theresa Puno, [and] Jill Mendoza. On June 27, 1994, plaintiff [herein private respondent GABI MultiPurpose Cooperative], a registered non-stock, non-profit cooperative filed a civil complaint against defendants [herein petitioners] who were found residing and/or tilling the subject properties. Plaintiff alleged therein that it is the owner in fee simple of the subject properties; that defendants without any authority, resided, tilled, sow [sic] in the subject properties; that defendants refused to vacate inspite [sic] notice. Sj cj Plaintiff prays for the issuance of preliminary mandatory injunction to require defendants to remove the barricade constructed by them and for the issuance of a writ of injunction to restrain defendants from preventing plaintiff in developing the subject properties. On July 20, 1997, the trial court issued a Temporary Restraining Order, enjoining defendants to desist from further stopping plaintiff's development of the properties. The trial court further required defendants to show cause why no writ of preliminary or mandatory injunction be issued against them. On July 27, 1997, after hearing, the trial court lifted and dissolved the temporary restraining order it earlier issued upon failure of the plaintiff to prove its title over the subject properties. Supreme On July 29, 1994, defendants filed their answer alleging that plaintiff has no personality to file this case since plaintiff does not appear to be the buyer of the properties neither were the properties titled in its name; that the subject properties are part of the forest reserve which cannot be privately acquired. On August 3, 1994, defendants filed a Motion to Dismiss the complaint on the ground of lack of cause of action, plaintiff has no personality to sue; and lack of jurisdiction. Plaintiff moved for the striking out of defendants' motion to dismiss, alleging that at this stage defendants could no longer file the said motion. On August 18, 1994, the assailed order dismissing the complaint on the ground that plaintiff has no real interest in the case, was rendered. Court Plaintiff filed a motion for reconsideration of the said order, but the trial court denied the same. The dispositive portion of the order dated January 9, 1995, of the trial court denying plaintiff's motion for

reconsideration reads: WHEREFORE, finding the Motion for Reconsideration to be without merit, the same is hereby denied. Notify counsel accordingly. IT IS SO ORDERED.[4] GABI appealed to the Court of Appeals. Thereafter, the respondent court issued its assailed decision, the dispositive portion of which reads: WHEREFORE, foregoing considered, the appealed order is hereby REVERSED and SET-ASIDE. A new one is hereby issued ordering the trial court to reinstate the complaint and to proceed with deliberate speed with the trial of the case.[5] Petitioners' Motion for Reconsideration was denied by the appellate court in its assailed Order, dated April 30, 1998. They then filed the instant petition praying that the dismissal of Civil Case No. CEB-16217 by the trial court be affirmed, and the decision by the appellate court reversing such dismissal be set aside. J lexj The success of this petition rests on the validity of the dismissal by the trial court. Petitioners assert that there was sufficient reason to dismiss the action below on the ground that GABI had no cause of action against petitioners. They also aver in the alternative that the Complaint by GABI was properly dismissed on the ground that it failed to state a cause of action. As a preliminary matter, we wish to stress the distinction between the two grounds for dismissal of an action: failure to state a cause of action, on the one hand, and lack of cause of action, on the other hand. The former refers to the insufficiency of allegation in the pleading, the latter to the insufficiency of factual basis for the action. Failure to state a cause may be raised in a Motion to Dismiss under Rule 16,[6] while lack of cause may be raised any time.[7] Dismissal for failure to state a cause can be made at the earliest stages of an action. Dismissal for lack of cause is usually made after questions of fact have been resolved on the basis of stipulations, admissions or evidence presented.[8] We find no merit in petitioners' first contention that dismissal was proper on the ground of lack of cause of action. We note that the issue of sufficiency of GABI's cause of action does not appear to have been passed upon by the appellate court in its assailed decision. However, inasmuch as this issue was raised in the trial court as an affirmative defense by petitioners and is now assigned in error, we resolve the same. Juri smis The pertinent portions of the trial court Order dismissing the action are reproduced below: The court was confronted with plaintiffs Motion to Strike Out defendants' pleading entitled: Motion to Dismiss, after the court allowed the same to be filed on the ground alleged in the affirmative defenses, that the plaintiff has no real interest in the property in question. Inasmuch as the action in this case was instituted by the Gabi Multi-Purpose Cooperative which is not the titled owner, nor the holder of the title to the property in question, therefore, it has no legal capacity to sue in this case for lack of interest, not being the real party in interest of the property involved in this litigation. Plaintiffs motion to strike out defendants' motion to dismiss is therefore denied for lack of merit, on the ground that the court has already resolved in the July 27, 1994 Order that if until today the plaintiff cannot produce and to show to this court the title in the name of Gabi Multi-Purpose Cooperative, the court will proceed to dismiss this case. Jjj uris xxx WHEREFORE, in view of all the foregoing arguments and considerations, this court hereby resolves to dismiss this case as it is hereby disrnissed.[9] It appears that the trial court dismissed the case on the ground that GABI was not the owner of the lands or one entitled to the possession thereof, and thus had no cause of action. In dismissal for lack of cause of action, the court in effect declared that plaintiff is not entitled to a favorable judgment inasmuch as one or more elements of his cause of action do not exist in fact. Because questions of fact are involved, courts hesitate to declare a plaintiff as lacking in cause of action. Such declaration is postponed until the insufficiency of cause is apparent from a preponderance of evidence. Usually, this is done only after the parties have been given the opportunity to present all relevant evidence on such questions of fact. lex We do not here rule on whether GABI has a cause of action against petitioners. What we are saying is that the trial court's ruling, to the effect that GABI had no title to the lands and thus had no cause of action,

was premature. Indeed, hearings were conducted. And the view of the Court of Appeals was that such hearings were sufficient. In its assailed decision, the appellate court stated the following: Records show that plaintiff-appellant was afforded the preliminary hearing required by law before the dismissal of the complaint based on the ground raised in the affirmative defenses. xxx Procedurally, therefore, the complaint was properly dismissed.[10] The Court disagrees with the appellate court's ruling. The hearing of July 27, 1994 was on the propriety of lifting the restraining order. At such preliminary hearing, the trial court required GABI to produce Certificates of Title to the lands in its name. GABI admitted that it did not have such Certificates, only Deeds of Sale from the registered owners. The order of the trial court dated July 27, 1994, reads in part: Jksm To begin with, the discussions started with the court asking whether the parties are present, and asked the defendants whether they have evidence to show why the temporary restraining order should not be continued, and not ripen into a preliminary injunction and they answered that the plaintiff, Gabi Multi Purpose Cooperative has "no locus standi" with Col.Solomon Dalid, to appear and litigate in this case, not being the actual registered owner of the property in question and therefore not the real party in interest. In view thereof, the court asked the plaintiffs counsel to show to the court titles to prove that they are really the owners of the properties in question. And they could [not] show any, inasmuch as from the records before this court, only Deeds of Sale from the original owners of the properties in favor of individual persons appear. Chief WHEREFORE, as this hearing was called for the purpose of determining whether the temporary restraining order should ripen into a permanent injunction or in the alternative be lifted this afternoon, for failure of the plaintiffs to show titles to the properties in their names, and they have miserably failed the court hereby resolves to lift and dissolve the temporary restraining order it has issued. However, the defendants are hereby allowed, upon their own request, to file a motion to dismiss questioning the legal personality of Gabi Multi Purpose Cooperative within 15 days from today.[11] Instead, GABI offered to present evidence to prove its title in the ordinary course of trial. The pertinent portions of the Transcript of Stenographic Notes quoted by petitioners in their Manifestation and Motion, dated September 29, 1998, are reproduced below: Esmsc
COURT: What we are saying, because it has been raised by counsel for the defendants[,] is: what personality has Gabi to sue in this case[.] They are saying that you have no locus standing[sic] in court. You need the proper party in interest. You are not the owners according to the titles. And you are suing, claiming that you are the owners and you have been in possession and that you have been molested by the defendants because you are the owner. But where does it show these? Of course, you alleged that. But where is the proof? We want the proof that you are really the owner. (TSN, 27 July 1994, at 9) We are asking a question of how does Gabi become the owner of this property such that Gabi is now trying to claim this property against the defendants. Such as [to] exclude the defendants from cultivating or tilting [sic] this property. There is no question about it. We are not questioning your existence as a corporation[,] as a corporate entity. We are asking the question, where lies the right of the ownership of Gabi? How can you prove that you own the property, adverse or against these defendants? And you did not show it to this court. I am afraid you have no cause of action. (TSN, id., at 9-10). Esmmis ATTY. P. FLORES: ..in due time, we are going to present the document. COURT: But you have to present that now. Otherwise, I lift the injunction. I lift the temporary restraining order. And I have said and do [sic] it. ATTY. P. FLORES: Your Honor, please, the incident this afternoon is for the defendants to show cause why the injunction cannot be issued. COURT: When the court made a mistake in giving you this petition, the court cannot order another procedure. If the court commit[s] an error, it is the inherent power of this court to see to it that no injustice is committed. I am not bound by my own error. Only the dead and fools don't change their minds. (TSN, id., at 10) Es-mso ATTY. FLORES First of all, your Honor, it is not [sic] an error to say that the Gabi Cooperative is not the owner because as a matter of fact, it is the owner. It is just bad enough that [they] were not able to bring with them the documents.[12]

On August 18, 1994, another hearing was conducted wherein GABI was again required to show Certificates of Title to the property in its name. On the basis of GABI's failure to show such Certificates at this second preliminary hearing, the trial court concluded that GABI had no title and thereafter dismissed

the case.[13] Such action by the trial court was premature inasmuch as the issues of fact pertaining to GABI's title had not yet been adequately ventilated at that preliminary stage. Ms-esm Anent petitioners' thesis that dismissal of the complaint by the trial court was proper for failure to state a cause of action, we, likewise, find no valid basis to sustain the same. Dismissal of a Complaint for failure to state a cause of action is provided for by the Rules of Court.[14] In dismissal for failure to state a cause, the inquiry is into the sufficiency, not the veracity, of the material allegations.[15] The test is whether the material allegations, assuming these to be true, state ultimate facts which constitute plaintiff's cause of action, such that plaintiff is entitled to a favorable judgment as a matter of law.[16] The general rule is that inquiry is confined to the four corners of the complaint, and no other.[17] E-xsm This general rule was applied by the Court of Appeals. Said court stated: It is a well-settled rule that in determining the sufficiency of the cause of action, ONLY the facts alleged in the complaint and no others, should be considered. In determining the existence of a cause of action, only the statements in the complaint may properly be considered. If the complaint furnish sufficient basis by which the complaint may be maintained, the same should not be dismissed regardless of the defenses that may be assessed [sic] by defendants-appellees.[18] The appellate court, relying on the general rule, made the following conclusion: A reading of the above-quoted complaint would readily show that plaintiff-appellant has sufficient cause of action as against defendants-appellees. Ky-le In the complaint, it is alleged that plaintiff-appellant is the owner of the subject properties, thus, entitled to be respected in its possession and ownership. This is the first element. Defendants-appellees are mere squatters of the subject properties who should vacate the premises upon demand by plaintiff-appellant. This is the second element. Defendants-appellees unjustly refused to vacate the subject premises, thus, depriving plaintiff-appellant possession of the same. This is the third element. Ky-calr In this case therefore, plaintiff-appellant has sufficient cause of action.[19] There are well-recognized exceptions to the rule that the allegations are hypothetically admitted as true and inquiry is confined to the face of the complaint. There is no hypothetical admission of the veracity of allegations if their falsity is subject to judicial notice,[20] or if such allegations are legally impossible, or if these refer to facts which are inadmissible in evidence, or if by the record or document included in the pleading these allegations appear unfounded.[21] Also, inquiry is not confined to the complaint if there is evidence which has been presented to the court by stipulation of the parties,[22] or in the course of hearings related to the case.[23] Calr-ky Petitioners invoke these exceptions to justify the dismissal by the RTC. They particularly rely on the ruling of this Court in Tan vs. Director of Forestry.[24] As in this case, Tan involved the issue of whether the dismissal for failure to state a cause of action was proper. A hearing was conducted on Tan's prayer for preliminary injunction, wherein evidence was submitted by the parties and extensive discussion held. The trial court then resolved the Motion to Dismiss and dismissed Tan's petition for failure to state a cause of action. The trial court held that, on the basis of the evidence presented in the hearings, the timber license relied upon by Tan was null and void. Such license being void, Tan's allegation that his right had been violated was false. On appeal, this Court ruled that the trial court was correct in considering the evidence already presented and in not confining itself to the allegations in Tan's petition. The theory behind Tan is that the trial court must not rigidly apply the device of hypothetical admission of allegations when, on the basis of evidence already presented, such allegations are found to be false. Thus, findings of fact are not postponed until after trial, but are made at the preliminary stage because there is sufficient evidence available. We find, however, that Tan is not applicable in this case. Unlike in Tan where the parties were given ample opportunity in the preliminary hearing to present evidence on their contentions, GABI did not have sufficient chance to prove its allegation of ownership. Thus, the conclusion that GABI's allegation of ownership is false and that its complaint stated no cause of action, appears to be without basis. Me-sm Petitioners also invoke Drilon vs. Court of Appeals.[25] Yet, a close reading of Drilon reveals that petitioners' contention is weakened rather than strengthened by said case. Drilon also involved the issue of whether the dismissal for failure to state a cause of action was proper. However, the Court applied the

general rule that inquiry is confined to the face of the complaint and no other.[26] In sum, as appears from the available records, the Court of Appeals was correct in ruling that the dismissal by the trial court of GABI's complaint was incorrect. The case should, therefore, proceed to trial where the parties may adduce evidence to support their claims and defenses. IN VIEW OF THE FOREGOING, the Court resolved to DENY the Petition. SO ORDERED. S-l-x

2. SAN LORENZO VILLAGE ASSOCIATION, INC. vs. CA, [G.R. No. 116825. March 26, 1998]a
This petition for review on certiorari assails the decision[1]J. Francisco; Barcelona and Hofilea, J.J. concurring.1 of the Court of Appeals denying the petition for certiorari filed by the San Lorenzo Village Association, Inc. which sought the reversal of the orders dated March 31 and October 15, 1992, of the Regional Trial Court of Makati, Branch 62.[2] The lower court had denied the motion to dismiss the petition for cancellation of the restrictions annotated in Transfer Certificate of Title No. 47348 of the Registry of Deeds of Makati, Metro Manila. Petitioner San Lorenzo Village Association, Inc. (SLVAI) and San Lorenzo Company, Inc. were the respondents in the aforesaid petition filed on December 13, 1991 before the lower court by private respondent Almeda Development and Equipment Corporation (ADEC). For clarity, the pertinent portions of that petition in Civil Case No. 91-3450 are hereby quoted as follows: 3. The petitioner is the owner of that parcel of land with building and other improvements situated at Pasay Road, San Lorenzo Village, Makati, Metro Manila, embraced in Transfer Certificate of Title No. 47348 of the Registry of Deeds of Makati, Metro Manila, more particularly described as follows: x x x x x x x x x x x x. The petitioners ownership thereto is evidenced by the Deed of Sale executed by Ponciano L. Almeda, married to Eufemia Perez-Almeda, and the petitioner on September 15, 1991, entered as Doc. No. 218; Page No. 45; Book No. VIII; Series of 1991, evidenced by its copy hereto attached as Annex `A. 4. As the owner of the said parcel of land together with the building and other improvements thereon, the petitioner has the right to enjoy and dispose of said property without limitation except those established by law (Art. 428, Civil Code). x x x x x x x x x x x x. 5. In Transfer Certificate of Title No. 47448 (sic), there appears Entry No. 59599, reading in part as follows: `The owner of this lot or his successor in interest is required to be and is automatically a member of the San Lorenzo Village Association. The lot may not be subdivided. The lot shall only be used for residential purposes. Only one single storey or one (duplex) house may be constructed on a single lot, although separate servants quarter or garage may be built. The property is subject to an easement of two meters within the lot and adjacent to the rear and sides thereof not fronting a street for the purpose of drainage, sewage, water and other public facilities as may be necessary and desirable. All buildings on the lot must be of strong materials. Building shall not be higher than 5 meters above the ground directly beneath the point in question. All building plans must be approved by the Association before construction begins. All buildings including garage, servants quarter (porte cocheres) must be constructed x x x not less than 3 meters from boundary bordering a wall, not including pedestrian paths, and not less than 2 meters from the other boundaries of this lot. Sewage disposal must be by means of septic tank or into a sewage system. Walls on the perimeter of this property shall not exceed 2 meters in height, except that no restriction as to height applies to walls made of live vegetation. Evidenced by TCT No. 47348 and Entry NO. 59599 (Memorandum of Encumbrances) thereof marked as Annexes `B and `B-1, respectively. 6. The condition prevailing along Pasay Road (San Lorenzo Village) on July 10, 1958, the date when the restrictions were imposed by the San Lorenzo Company, Inc. to lot and house owners in San Lorenzo Village and on July 11, 1958, when the Deed of Restrictions was annotated on TCT No. 60143/T-577 (the certificate of title from where TCT No. 47448 originated), is no longer the same compared today. At that

time, houses located along Pasay Road (San Lorenzo Village) were used purely for residential purposes. Today, what are found along Pasay Road (San Lorenzo Village) are commercial/industrial buildings such as the matter of security and garage (sic) collections are taken care of by their buyers. Accordingly, the San Lorenzo Village Association, Inc. is no longer relevant in so far as the building and lot owners along Pasay Road (San Lorenzo Village) are concerned. 7. The aforementioned annotation in TCT No. 47348 in (sic) an unlawful limitation to the rights of the petitioner protected by the Constitution and prescribed in Art. 428 of the Civil Code. 7.1 The petitioner does not intend to be a member of the San Lorenzo Village Association, Inc. 7.2 The petitioner has its own security guards and garbage trucks. 7.3 The petitioner can effectively protect its ownership and possession without the assistance and intervention of the San Lorenzo Village Association, Inc. 7.4 8. The petitioner intends to construct a taller building on the lot. While in Sec. 30, Presidential Decree No. 957, it is provided that -

`SEC. 30. Organization of Homeowners Association. - The owner or developer of a subdivision project or condominium project shall initiate the organization of a homeowners association among the buyers and residents of the projects for the purpose of promoting and protecting their mutual interest and assist in their community development. there is no law compelling lot and house buyers to be a member of the San Lorenzo Company, Inc. and restricting the petitioner to construct a taller building on its lot. 9. As stated above, there is compelling reason for the cancellation of the restrictions imposed at the back of TCT No. 47348. 10. If there is no vested right in existing law which can be repealed or judicial interpretation which can be changed, there is no reason why a Deed of Restrictions annotated in a certificate of title cannot be cancelled. 11. To cancel the aforementioned annotation in TCT No. 47348 and to enforce its right, the petitioner was compelled to engage the services of a lawyer for a fee and to institute this action incurring and will incur litigation expenses.[3] ADEC prayed for the issuance of a temporary restraining order directing the San Lorenzo Company, Inc. and its agents to cease and desist from making the petitioner a member of the San Lorenzo Village Association, Inc. and prohibiting the petitioner from constructing a taller building on its lot and the San Lorenzo Village Association, Inc. from collecting membership fee and monthly dues and other assessments. It likewise prayed that the Register of Deeds of Makati be ordered to cancel Entry No. 59599 in TCT No. 47348 and that respondents pay actual damages of P30,000.00, attorneys fees of P30,000.00 plus P500 allowance per attendance in court hearings and the costs of suit. Therein private respondent SLVAI filed a motion to dismiss the petition on the grounds of lack of cause of action and lack of ADECs personality to sue. It alleged that ADEC was not a registered owner of the parcel of land covered by TCT No. 47348; that the sale of the property by Ponciano L. Almeda to ADEC could not bind third parties; that ADEC had no reason to pray for the cancellation of Entry No. 59599 not being the owner of the land nor a member of SLVAI but simply a stranger that had no demandable right against the SLVAI.[4] ADEC opposed the motion to dismiss contending that it had a cause of action against SLVAI because as the (new) owner of the lot involved, it cannot be compelled to become a member of the SLVAI for to do so would unduly limit its use of the property. Citing Philippine Suburban Development Corporation v. Auditor General,[5] it asserted that it had the capacity and personality to sue because actual notice of the sale was equivalent to registration.[6] On March 31, 1992, the lower court issued an Order denying the motion to dismiss, holding as follows: This Court agrees with the plaintiff that it has the capacity and legal personality to file this case. Plaintiff has shown its interest in the subject property, basing its claims on a Deed of Sale dated September 11, 1990. As successor in interest of the original registered owner, plaintiff step (sic) into the shoes of the

latter, consequently it can sue and be sued. SLVAI filed a motion for the reconsideration of that Order[7] alleging that third persons were not bound by the deed of sale of the property entered into between ADEC and Ponciano Almeda, as said deed of sale was not registered. As such, ADEC had no cause of action against it. Furthermore, Almeda, not having paid the association dues and garbage fees, he was sued before the Regional Trial Court of Pasig, Branch 151, where the same deed of sale was presented to prevent the scheduled auction sale through a third-party claim. In quashing the third-party claim, then Judge Eutropio Migrio ruled that the title to the property being still in the name of defendant Almeda, whatever transaction he had entered into would not be binding upon the plaintiff. In its opposition to the motion for reconsideration, ADEC contended that said motion was pro forma as it merely reiterated the arguments in the motion to dismiss. Citing Article 709 of the Civil Code which states that (t)he titles of ownership, or other rights over immovable property, which are not duly inscribed or annotated in the Registry of Property shall not prejudice third persons, ADEC averred that within the context of that law, the SLVAI was not a third person because it merely caused the annotation on the title of a property of certain restraints or impositions on the exercise of ownership by the registered owner. It added that SLVAI had no interest in the property in question except to compel the owner thereof to be automatically a member of the San Lorenzo Village Association and to pay the consequential dues or fees and other expenses therefor. As such, SLVAI and San Lorenzo Village Company, Inc., were included in the case only as parties who had caused the annotation or inscription of the entry in question which limits or restricts the exercise of ownership over the aforesaid land, and who may be affected thereby, directly or indirectly, by its cancellation, in the same manner that the Register of Deeds of Makati has also been impleaded as the public official who is charged with the duty of registering or canceling the subject annotation or inscription.[8] In its reply to the opposition, SLVAI countered that the motion for reconsideration was not pro forma as the lower court failed to consider the provisions of Article 709 of the Civil Code and Section 50 of the Land Registration Act. It alleged that the term third persons in Article 709 was broad enough to cover everybody who did not participate in the disputed act, contract or deed. It asserted that, while it had a lien over unpaid association dues and garbage fees, ADEC was not the real party in interest in the suit for cancellation of restrictions on the title that was still in the name of Almeda and therefore the case should have been dismissed outright for lack of cause of action. Moreover, while ADEC claimed to be the owner of the property, it had not explained why it had not registered the deed of sale and secured a separate title to the property.[9] On October 15, 1992, the lower court issued the Order denying the motion for reconsideration as follows: Article 709 of the New Civil Code x x x as the basis of this Motion for Reconsideration finds no application in this case. As correctly pointed out by petitioner the `third persons mentioned in Article 709, are those persons who may have adverse interests in the property itself either in the concept of an owner, or a vendee or a mortgagee, or otherwise, but definitely not that of one who has merely caused the annotation on the title of the property of certain restraints or impositions on the exercise of ownership by the registered owner. Moreover, when respondent San Lorenzo Village Association, Inc. convey (sic) the property to Ponciano Almeda, the original owner, the latter has all the rights as an owner, including the right to sell, which he did in favor of the petitioner. As successor in interest, petitioner can validly exercise the right to sue which the original owner could lawfully do for the protection of the right as an attribute of ownership.[10] SLVAI questioned the lower courts Orders before the Court of Appeals through a petition for certiorari with prayer for the issuance of a temporary restraining order. It presented before said appellate court the issue of whether or not the petition filed below by ADEC stated a cause of action or that ADEC was the real party in interest.[11] On June 22, 1994, the Court of Appeals promulgated a Decision denying the petition for certiorari. The Court of Appeals noted that the petition sought to discredit the material allegation of ADEC that it is the owner of the property covered by the subject transfer certificate of title. It asserts that such allegation is merely a conclusion or inference of ADEC and does not grant to the latter the

personality to sue the petitioner nor does such become the source of the right to institute proceedings in the court below. It held that: We resolve to deny the petition, reiterating the ruling made by the Supreme Court in Galeon versus Galeon, 49 SCRA 516, 520: `It is well settled that in a motion to dismiss a complaint based on lack of cause of action, the question submitted to the court for determination is the sufficiency of the allegations of fact made in the complaint to constitute a cause of action, and not whether these allegations of fact are true, for said motion must hypothetically admit the truth of the facts alleged in the complaint; x x x The test of the sufficiency of the facts is whether or not, accepting the veracity of the facts alleged, the court could render a valid judgment upon the same in accordance with the prayer of the complaint. As such, the allegation of ADEC that it is the owner of the property on the strength of the deed of sale should be deemed hypothetically admitted, giving it capacity to file the proceedings below. The trial court was correct in saying that `[p]laintiff has shown its interest in the subject property, . . . As successor in interest of the registered owner, plaintiff step (sic) into the shoes of the latter, consequently, it can sue and be sued. (Order, March 31, 1992; Rollo, page 36). The arguments advanced by petitioner as to whether or not ADEC validly acquired title to the property is one which is a matter more by way of defense and which may be properly threshed out during the trial. What the Supreme Court likewise espoused in the Galeon case, page 520 is apropos on this issue: `The uniform ruling of this Court is that the trial court may not inquire into the truth of the allegations, and find them to be false before a hearing is had on the merits of the cause. If the court finds the allegations to be sufficient but doubts their veracity, it is incumbent upon said court to deny the motion to dismiss and require the defendant to answer. The veracity of the assertions could be asserted at the trial on the merits.[12] SLVAI filed a motion for the reconsideration of that Decision but it was denied on August 26, 1994. Hence, it is now before this Court on a petition for review on certiorari raising the following issues: 1. THE COURT OF APPEALS ERRED IN FINDING THAT THE ALLEGATION IN THE COMPLAINT OF PRIVATE RESPONDENT THAT IT IS THE `OWNER OF THE SUBJECT PROPERTY ON THE BASIS OF A DEED OF ABSOLUTE SALE `IS DEEMED HYPOTHETICALLY ADMITTED GIVING IT CAPACITY TO FILE THE PROCEEDINGS BELOW, CITING GALEON VS. GALEON, 49 SCRA 516, BECAUSE HYPOTHETICAL ADMISSION OF FACT DOES NOT EXTEND TO INFERENCES OR CONCLUSIONS DRAWN FROM SUCH FACT EVEN ALLEGED IN THE COMPLAINT AS HELD IN DE DIOS V. BRISTOL, L-25530, JANUARY 12, 1974. 2. ASSUMING ARGUENDO THAT PRIVATE RESPONDENT IS THE `OWNER OF THE SUBJECT PROPERTY, THE SAME IS STILL INSUFFICIENT TO MAKE OUT A CAUSE OF ACTION BECAUSE THE DEED OF RESTRICTIONS SOUGHT TO BE CANCELLED BY PRIVATE RESPONDENT REQUIRES THAT THE CANCELLATION THEREOF BE INITIATED BY `MEMBERS WHO ARE THE REGISTERED OWNERS OF THE LOTS IN THE VILLAGE AND BY THEIR TWO THIRDS VOTE. 3. THE COURT OF APPEALS ERRED IN NOT FINDING THAT PRIVATE RESPONDENT IS NOT THE REAL PARTY-IN-INTEREST. These contentions boil down to the sole issue of whether or not the petition below alleges a cause of action against petitioner that the lower court may be deemed to have correctly denied the motion to dismiss the same petition. The Rules of Court requires that the complaint must make a concise statement of the ultimate facts or the essential facts constituting the plaintiffs cause of action. A fact is essential if it cannot be stricken out without leaving the statement of the cause of action insufficient.[13] A complaint states a cause of action where it contains the three (3) essential elements of a cause of action, namely: (1) the legal right of the plaintiff, (2) the correlative obligation of the defendant, and (3) the act or omission of the defendant in violation of said legal right. If these elements are absent, the complaint becomes vulnerable to a motion to dismiss on the ground of failure to state a cause of action. If the allegations are vague, indefinite, or in the form of conclusions, the defendants recourse is not a motion to dismiss but a bill of particulars.[14] A motion to dismiss on the ground of failure to state a cause of action in the complaint hypothetically

admits the truth of the facts alleged therein. However, the hypothetical admission is limited to the relevant and material facts well pleaded in the complaint and inferences fairly deductible therefrom. The admission does not extend to conclusions or interpretations of law; nor does it cover allegations of fact the falsity of which is subject to judicial notice.[15] As this Court held in De Dios v. Bristol Laboratories (Phils.), Inc.: x x x. For the purpose, the motion to dismiss must hypothetically admit the truth of the facts alleged in the complaint. The admission, however, is limited only to all material and relevant facts which are well pleaded in the complaint. Thus, it has been ruled that a demurrer admits only such matters of fact as are sufficiently pleaded; that the demurrer does not admit the truth of mere epithets charging fraud; nor allegations of legal conclusions; nor an erroneous statement of law. The admission of the truth of material and relevant facts well pleaded does not extend to render a demurrer an admission of inferences or conclusions drawn therefrom, even if alleged in the pleading; nor mere inferences or conclusions from facts not stated; nor conclusions of law; nor matters of evidence; nor surplusage and irrelevant matter. x x x.[16] However, it should be pointed out at the outset that it is not lack or absence of cause of action that is a ground for dismissal of the complaint, but rather, that the complaint states no cause of action.[17] De Dios did indeed hold that a movant to dismiss on the ground of failure of the complaint to state a cause of action is burdened with the implied admission of the truth of all material and relevant facts which are well pleaded in the complaint, but not of mere epithets charging fraud, or legal conclusions, or mere inferences, or matters of evidence. Said case gave examples of allegations not within the hypothetical-admission rule, to wit: malicious and unjustified institution of an action; acting maliciously and for the purpose of political persecution and vengeance, with intent of circumventing a constitutional provision; usurping the office of Senator of the Philippines; that the master had breached the contract, or discharged an employee in a wrongful, illegal, unlawful, unjust manner, etc. The above ruling, however, does not apply to the case at bar. In the instant case, the complaint asserts that plaintiff purchased the property in question from the person admittedly holding title thereto. It then infers that by this mode, it became the successor-in-interest of the vendor, if not indeed the owner of the property. Hence, the restrictions in the title should be nullified not only because it is contrary to law but also because the conditions under which they were imposed had ceased to exist. In fact, the averments in the complaint like the title of ADECs vendor, the execution of the sale by said vendor to ADEC, the latters status as the vendors successor-in-interest, and the altered physical environment along Pasay Road, are allegations well within the hypothetical-admission principle. These averments satisfy the three (3) elements of a cause of action. In other words, the complaint did state a cause of action. In view of such, SLVAI cannot successfully invoke the ground that the complaint fails to state a cause of action in its motion to dismiss. Putting it differently, what SLVAI essentially puts at issue is whether substantively, ADEC, as plaintiff in the case below, possesses a tenable right of action. As discussed, said issue is not a ground for a motion to dismiss. As a matter of law, neither are the efficacy of the sale to pass title to the property, and consequently, ADECs acquisition of the status of successor-in-interest, specific mandatory modes to challenge the restrictions in question, or the change in the physical environment along Pasay Road, grounds for a motion to dismiss under Rule 16 of the Rules of Court. Instead, the aforementioned issues may be properly raised in the Answer. Regarding the third issue of whether ADEC is a real party in interest, said issue is likewise not a proper ground for a motion to dismiss. Certainly, as successor-in-interest of the original vendor, who is the unquestioned title holder, ADEC has the prerogative to assert all the latters rights, including the impugnation of the restrictions on the title. The tenability of the grounds for that impugnation, while proper under the pleadings, should be threshed out at the trial on the merits. The only other issue raised is that even assuming ADEC became owner of the property, it cannot seek cancellation because, under SLVAIs rules, the cancellation process can only be initiated by members of

the SLVAI who are the registered owners of the lots in the village and by their two-thirds vote. However, those rules were not dealt with in the complaint at all. They may thus be raised only by way of defense in the Answer, but not as ground for a motion to dismiss available as cause for dismissal of the action at this early stage. Finally, even assuming that the allegation of the facts constituting ADECs cause of action is not as clear and categorical as would otherwise be desired, any uncertainty thereby arising should be so resolved as to enable a full inquiry into the merits of the action. Such a course would preclude that multiplicity of suits which the law abhors, and conduce to the definitive determination and termination of the dispute. On the other hand, the abortion of the action on account of the alleged fatal flaws of the complaint would obviously be indecisive; it would not end the controversy, since the institution of another action upon a revised complaint would not be foreclosed. WHEREFORE, the petition should be DISMISSED and the challenged decision of the Court of Appeals should be AFFIRMED. SO ORDERED.

3. LA NAVAL DRUG CORPORATION vs.CA & WILSON C. YAO, G.R. No.

103200 August 31, 1994

In an effort to declog the courts of an increasing volume of work load and, most importantly, in order to accord contending parties with expenditious alternatives for settling disputes, the law authorities, indeed encourages, out of court settlements or adjudications. Compromises and arbitration are widely known and used as such acceptable methods of resolving adversarial claims. Arbitrations, in particular, is governed by a special law, Republic Act 876, suppletory to which are laws and rules of general application. This case before us concerns the jurisdiction of courts, in relation to the provisions of Section 6 of Republic Act No. 876, and, in that respect, the applicability of the doctrine of estoppel. The law (R.A. 876), specifically Section 6 thereof, provides: Sec. 6. Hearing by court. A party aggrieved by the failure, neglect or refusal of another to perform under an agreement in writing providing for arbitration may petition the court for an order directing that such arbitration proceed in the manner provided for in such agreement. Five days notice in writing of the hearing of such application shall be served either personally or by registered mail upon the party in default. The court shall hear the parties, and upon being satisfied that the making of the agreement or such failure to comply therewith is not in issue, shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. If the making of the agreement or default be in issue the court shall proceed to summarily hear such issue. If the finding be that no agreement in writing providing for arbitration was made, or that there is no default in the proceeding thereunder, the proceeding shall be dismissed. If the finding be that a written provision for arbitration was made and there is a default in proceeding thereunder, an order shall be made summarily directing the parties to proceed with the arbitration in accordance with the terms thereof. The court shall decide all motions, petitions or application filed under the provisions of this Act, within ten days after such motions, petitions, or applications have been heard by it. In chronology, the events that have led to the case at bench are detailed in the appealed decision of respondent appellate court, which we here reproduce in toto. Original action for Certiorari and Prohibition for Annulment of the Orders, dated April 26, 1990 and June 22, 1990, respectively, of Branch LXI, Regional Trial Court, Angeles City, in Special Case No. 6024 for Enforcement of ARBITRATION Agreement with Damages. Petitioner assails that portion of subject Order of April 26, 1990, stating as follows: (1) Petitioner's claim for damages predicated on alleged tortuous acts of respondents La Naval Drug corporation such as their alleged interference and dilatory tactics, etc. in the implementation of the Arbitration Agreement in the Contract of Lease, thereby compelling among others the petitioner to go to Court for redress; and respondent La Naval Drug Corporation's counterclaim for damages may be entertained by this Court in a hearing not summary for the purpose, under the Rules of Court. (2) A preliminary hearing of the special and affirmative defense to show that

Petitioner has not cause of action against respondent's claim for damages is denied; a resolution on this issue is deferred after the trial of the case on the merits. And challenges the Order of June 22, 1990 denying its motion for reconsideration of the said earlier Order. From the petition below of respondent Yao, it appears that he is the present owner of a commercial building a portion of which is leased to petitioner under a contract of lease executed on December 23, 1993 with the former owner thereof, La Proveedora, Inc., which contract expired on April 30, 1989. However, petitioner exercised its option to lease the same building for another five years. But petitioner and respondent Yao disagreed on the rental rate, and to resolve the controversy, the latter, thru written notices to the former, expressed his intention to submit their disagreement to arbitration, in accordance with Republic Act 876, otherwise known as the Arbitration Law, and paragraph 7 of their lease contract, providing that: 7. . . . Should the parties fail to agree on the rate of rentals, the same shall be submitted to a group of Arbitrators composed of three (3) members, one to be appointed by LESSOR, another by LESSEE and the third one to be agreed upon by the two arbitrators previously chosen and the parties hereto shall submit to the decision of the arbitrators. Thus, on May 6, 1989, respondent Yao appointed Domingo Alamarez, Jr. as his arbitrator, while on June 5, 1989, petitioner chose Atty. Casiano Sabile as its arbitrator. The confirmation of the appointment of Aurelio Tupang, as third arbitrator, was held in abeyance because petitioner instructed Atty. Sabile to defer the same until its Board of Directors could convene and approve Tupang's appointment. Respondent Yao theorizes that this was petitioner's design to delay the arbitration proceedings, in violation of the Arbitration Law, and the governing stipulation of their contract of lease. On the basis of the aforesaid allegations, respondent Yao prayed that after summary hearing pursuant to Section 6 of the Arbitration Law, Atty. Casiano Sabile and Domingo Alamarez be directed to proceed with the arbitration in accordance with Section 7 of subject Contract of Lease and the applicable provisions of the Arbitration law, by appointing and confirming the appointment of the Third Arbitrator; and that the Board of Three Arbitrators be ordered to immediately convene and resolve the controversy before it, pursuant to Section 12 and the succeeding sections of the Arbitration Law. (Annex "A," Petition.) In its Answer with Counterclaim (Annex "C," Petition), petitioner here specifically denied the averments of the petition below; theorizing that such petition is premature since respondent Yao has not yet formally required arbitrators Alamarez and Sabile to agree on the third arbitrator, within ten (10) days from notice, and that the delay in the arbitration was due to respondent Yao's failure to perform what is incumbent upon him, of notifying and thereafter, requiring both arbitrators to appoint the third member of the Board of Arbitrators. According to petitioner, it actually gave arbitrators Sabile and Alamarez a free hand in choosing the third arbitrator; and, therefore, respondent Yao has no cause of action against it (petitioner). By way of Counterclaim, petitioner alleged that it suffered actual damages of P100,000.00; and incurred attorney's fees of P50,000.00, plus P500.00 for every court appearance of its counsel. On October 20, 1989, respondent Yao filed an amended petition for "Enforcement of Arbitration Agreement with Damages;" praying that petitioner be ordered to pay interest on the unpaid rents, at the prevailing rate of interest in commercial banks, and exemplary damages of at least P250,000.00. On October 24, 1989, despite petitioner's opposition to the motion to admit the amended petition, the respondent court admitted the same. On October 31, 1989, petitioner answered the amended petition; contending, among others, that the amended petition should be dismissed on the ground of non-payment of the requisite filing fees therefor; and it being in the nature of an ordinary civil action, a full blown and regular trial, is necessary; so that respondent Yao's proposition for a summary hearing of the arbitration issue and separate trial for his claim for damages is procedurally untenable and implausible.

Invoking Section 5, Rule 16 of the Rules of Court, petitioner presented a "Motion to Set Case for Preliminary Hearing" of its special and affirmative defenses, which are grounds fro a motion to dismiss. In its Order of November 14, 1989, the respondent court announced that the two arbitrators chose Mrs. Eloisa R. Narciso as the third arbitrator. And on November 21, 1989, it ordered the parties to submit their position papers on the issue as to whether or not respondent Yao's claim for damages may be litigated upon in the summary proceeding for enforcement of arbitration agreement. It likewise informed the parties that petitioner's Motion to Set Case for Preliminary Hearing" of Special and Affirmative Defenses would be resolved together with the question of damages. On April 26, 1990, the aforequoted assailed Order issued. In moving for reconsideration of the said Order, petitioner argued that in Special Case No. 6024, the respondent court sits as a special court exercising limited jurisdiction and is not competent to act on respondent Yao's claim for damages, which poses an issue litigable in an ordinary civil action. But the respondent court was not persuaded by petitioner's submission. On June 22, 1990, it denied the motion for reconsideration. (Rollo, pp. 89-93). While the appellate court has agreed with petitioner that, under Section 6 of Republic Act No. 876, a court, acting within the limits of its special jurisdiction, may in this case solely determine the issue of whether the litigants should proceed or not to arbitration, it, however, considered petitioner in estoppel from questioning the competence of the court to additionally hear and decide in the summary proceedings private respondent's claim for damages, it (petitioner) having itself filed similarly its own counterclaim with the court a quo. It is hardly disputable that when a court is called upon to exercise limited and special jurisdiction, that court cannot stray to matters outside the area of its declared authority or beyond what has been expressly invested by law (Elumbaring vs. Elumbaring, 12 Phil. 384, 387), particularly, such as in this instance, where the proceedings are summary in nature. Prefatorily, recalling the distinctions, pertinent to the case, between the court's lack of jurisdiction over the personof the defendant, on the one hand, and its lack of jurisdiction over the subject matter or the nature of the action, upon the other hand, should be useful. The lack of jurisdiction over the person of the defendant may be waived either expressly or impliedly. When a defendant voluntarily appears, he is deemed to have submitted himself to the jurisdiction of the court. If he so wishes not to waive this defense, he must do so seasonably by motion for the purpose of objecting to the jurisdiction of the court; otherwise, he shall be deemed to have submitted himself to that jurisdiction. The decisions promulgated heretofore by this Court would likewise seemingly apply estoppel to bar the defendant from pursuing that defense by alleging in his answer any other issue for dismissing the action. A citation of a few of our decisions might be apropos. In Wang Laboratories, Inc., vs. Mendoza (156 SCRA 44), this Court has ruled that if the defendant, besides setting up in a motion to dismiss his objection to the jurisdiction of the court, alleges at the same time any other ground for dismissing the action, he is deemed to have submitted himself to the jurisdiction of the court. In the process, it has equated the matter to a situation where, such as in Immaculata vs. Judge Navarro, et al. (146 SCRA 5), the defendant invokes an affirmative relief against his opponent. In De Midgely vs. Judge Ferandos (64 SCRA 23, 31), the Court elaborated thusly: We are of the opinion that the lower court has acquired jurisdiction over the person of Mrs. Midgely by reason of her voluntary appearance. The reservation in her motion to dismiss that she was making a special appearance to contest the court's jurisdiction over her person may be disregarded. It may be disregarded because it was nullified by the fact that in her motion to dismiss she relied not only on the ground of lack of jurisdiction over her person but also on the ground that there was no showing that earnest efforts were exerted to compromise the case and because she prayed "for such other relief as" may be deemed "appropriate and proper." xxx xxx xxx When the appearance is by motion for the purpose of objecting to the jurisdiction of the court over the person, it must be for the sole and separate purpose of objecting to the

jurisdiction of the court. If his motion is for any other purpose than to object to the jurisdiction of the court over his person, he thereby submits himself to the jurisdiction of the court. A special appearance by motion made for the purpose of objecting to the jurisdiction of the court over the person will be held to be a general appearance, if the party in said motion should, for example, ask for a dismissal of the action upon the further ground that the court had no jurisdiction over the subject matter. (Syllabus, Flores vs. Zurbito,supra, at page 751. That rule was followed in Ocampo vs. Mina and Arejola, 41 Phil. 308). The justification for the rule was expressed in Republic vs. Ker and Companry, Ltd. (18 SCRA 207, 213214), in this wise: We observed that the motion to dismiss filed on April 14, 1962, aside from disputing the lower court's jurisdiction over defendant's person, prayed for dismissal of the complaint on the ground that plaintiff's cause of action had prescribed. By interposing such second ground in its motion to dismiss, Ker & Co., Ltd. availed of an affirmative defense on the basis of which it prayed the court to resolve controversy in its favor. For the court to validly decide the said plea of defendant Ker & Co., Ltd., it necessarily had to acquire jurisdiction upon the latter's person, who, being the proponent of the affirmative defense, should be deemed to have abandoned its special appearance and voluntarily submitted itself to the jurisdiction of the court. Voluntary appearance cures defects of summons, if any, Such defect, if any, was further cured when defendant filed its answer to the complaint. A defendant can not be permitted to speculate upon the judgment of the court by objecting to the court's jurisdiction over its person if the judgment is adverse to it, and acceding to jurisdiction over its person if and when the judgment sustains its defenses. The doctrine of estoppel is predicated on, and has its origin in, equity which, broadly defined, is justice according to natural law and right. It is a principle intended to avoid a clear case of injustice. The term is hardly distinguishable from a waiver of right. Estoppel, like its said counterpart, must be unequivocal and intentional for, when misapplied, it can easily become a most convenient and effective means of injustice. Estoppel is not understood to be a principle that, as a rule, should prevalently apply but, such as it concededly is, as a mere exception from the standard legal norms of general application that can be invoked only in highly exceptional and justifiable cases. Tested by the above criteria, the Court sees it propitious to re-examine specifically the question of whether or not the submission of other issues in a motion to dismiss, or of an affirmative defense (as distinguished from an affirmative relief) in an answer, would necessarily foreclose, and have the effect of a waiver of, the right of a defendant to set up the court's lack of jurisdiction over the person of the defendant. Not inevitably. Section 1, Rule 16, of the Rules of Court, provides that a motion to dismiss may be made on the following grounds: (a) That the court has no jurisdiction over the person of the defendant or over the subject of the action or suit; (b) That the court has no jurisdiction over the nature of the action or suit; (c) The venue is improperly laid; (d) That the plaintiff has no legal capacity to sue; (e) That there is another action pending between the same parties for the same cause; (f) That the cause of action is barred by a prior judgment or by statute of limitations; (g) That the complaint states no cause of action; (h) That the claim or demand set forth in the plaintiff's pleading has been paid, waived, abandoned, or otherwise extinguished; ( i ) That the claim on which the action or suit is founded is unenforceable under the provisions of the statute of frauds; ( j ) That the suit is between members of the same family and no earnest efforts towards a compromise have been made.

Any ground for dismissal in a motion to dismiss, except improper venue, may, as further set forth in Section 5 of the same rule, be pleaded as an affirmative defense and a preliminary hearing may be had thereon as if a motion to dismiss had been filed. An answer itself contains the negative, as well as affirmative, defenses upon which the defendant may rely (Section 4, Rule 6, Rules of Court). A negative defense denies the material facts averred in the complaint essential to establish the plaintiff's cause of action, while an affirmative defense in an allegation of a new matter which, while admitting the material allegations of the complaint, would, nevertheless, prevent or bar recovery by the plaintiff. Inclusive of these defenses are those mentioned in Rule 16 of the Rules of Court which would permit the filing of a motion to dismiss. In the same manner that the plaintiff may assert two or more causes of action in a court suit, a defendant is likewise expressly allowed, under Section 2, Rule 8, of the Rules of Court, to put up his own defenses alternatively or even hypothetically. Indeed, under Section 2, Rule 9, of the Rules of Court, defenses and objections not pleaded either in a motion to dismiss or in an answer, except for the failure to state a cause of action, are deemed waived. We take this to mean that a defendant may, in fact, feel enjoined to set up, along with his objection to the court's jurisdiction over his person, all other possible defenses. It thus appears that it is not the invocation of any of such defenses, but the failure to so raise them, that can result in waiver or estoppel. By defenses, of course, we refer to the grounds provided for in Rule 16 of the Rules of Court that must be asserted in a motion to dismiss or by way of affirmative defenses in an answer. Mindful of the foregoing, in Signetics Corporation vs. Court of Appeals and Freuhauf Electronics Phils., Inc. (225 SCRA 737, 738), we lately ruled: This is not to say, however, that the petitioner's right to question the jurisdiction of the court over its person is now to be deemed a foreclosed matter. If it is true, as Signetics claims, that its only involvement in the Philippines was through a passive investment in Sigfil, which it even later disposed of, and that TEAM Pacific is not its agent, then it cannot really be said to be doing business in the Philippines. It is a defense, however, that requires the contravention of the allegations of the complaint, as well as full ventilation, in effect, of the main merits of the case, which should not thus be within the province of a mere motion to dismiss. So, also, the issue posed by the petitioner as to whether a foreign corporation which has done business in the country, but which has ceased to do business at the time of the filing of a complaint, can still be made to answer for a cause of action which accrued while it was doing business, is another matter that would yet have to await the reception and admission of evidence. Since these points have seasonably been raised by the petitioner, there should be no real cause for what may understandably be its apprehension, i.e., that by its participation during the trial on the merits, it may, absent an invocation of separate or independent reliefs of its own, be considered to have voluntarily submitted itself to the court's jurisdiction. Lack of jurisdiction over the subject matter of the suit is yet another matter. Whenever it appears that the court has no jurisdiction over the subject matter, the action shall be dismissed (Section 2, Rule 9, Rules of Court). This defense may be interposed at any time, during appeal (Roxas vs. Rafferty, 37 Phil. 957) or even after final judgment (Cruzcosa vs. Judge Concepcion, et al., 101 Phil. 146). Such is understandable, as this kind of jurisdiction is conferred by law and not within the courts, let alone the parties, to themselves determine or conveniently set aside. In People vs. Casiano (111 Phil. 73 93-94), this Court, on the issue of estoppel, held: The operation of the principle of estoppel on the question of jurisdiction seemingly depends upon whether the lower court actually had jurisdiction or not. If it had no jurisdiction, but the case was tried and decided upon the theory that it had jurisdiction, the parties are not barred, on appeal, from assailing such jurisdiction, for the same "must exist as a matter of law, and may not be conferred by consent of the parties or by estoppel" (5 C.J.S., 861-863). However, if the lower court had jurisdiction, and the case was heard and decided upon a given theory, such, for instance, as that the court had no jurisdiction, the party who induced it to adopt such theory will not be permitted, on appeal, to assume an inconsistent position that the lower court had jurisdiction. Here, the principle of estoppel applies. The rule that jurisdiction is conferred by law, and does not depend upon the will of the parties, has not bearing thereon. The rule was reiterated in Calimlim vs. Ramirez (118 SCRA 399, 406), and quite recently, in Southeast Asian Fisheries Development Center-Aquaculture Department vs. National Labor Relations

Commission (206 SCRA 283). Jurisdiction over the nature of the action, in concept, differs from jurisdiction over the subject matter. Illustrated, lack of jurisdiction over the nature of the action is the situation that arises when a court, which ordinarily would have the authority and competence to take a case, is rendered without it either because a special law has limited the exercise of its normal jurisdiction on a particular matter or because the type of action has been reposed by law in certain other courts or quasi-judicial agencies for determination. Nevertheless, it can hardly be questioned that the rules relating to the effects of want of jurisdiction over the subject matter should apply with equal vigor to cases where the court is similarly bereft of jurisdiction over the nature of the action. In summary, that it is our considered view, as we now so hereby express,

(1) Jurisdiction over the person must be seasonably raised, i.e., that it is pleaded in a motion to dismiss or by way of an affirmative defense in an answer. Voluntary appearance shall be deemed a waiver of this defense. The assertion, however, of affirmative defenses shall not be constructed as an estoppel or as a waiver of such defense. (2) Where the court itself clearly has no jurisdiction over the subject matter or the nature of the action, the invocation of this defense may be done at any time. It is neither for the courts nor the parties to violate or disregard that rule, let alone to confer that jurisdiction, this matter being legislative in character. Barring highly meritorious and exceptional circumstances, such as hereinbefore exemplified, neither estoppel nor waiver shall apply. In the case at bench, the want of jurisdiction by the court is indisputable, given the nature of the controversy. The arbitration law explicitly confines the court's authority only to pass upon the issue of whether there is or there is no agreement in writing providing for arbitration. In the affirmative, the statute ordains that the court shall issue an order "summarily directing the parties to proceed with the arbitration in accordance with the terms thereof." If the court, upon the other hand, finds that no such agreement exists, "the proceeding shall be dismissed." The proceedings are summary in nature. All considered, the court a quo must then refrain from taking up the claims of the contending parties for damages, which, upon the other hand, may be ventilated in separate regular proceedings at an opportune time and venue. The circumstances obtaining in this case are far, we hold, from justifying the application of estoppel against either party. WHEREFORE, the decision of the Court of Appeals and the orders of the trial court in question are SET ASIDE. The court a quo, in the instant proceedings, is ordered to DESIST from further hearing private respondent's claim, as well as petitioner's counterclaim, for damages. No costs. SO ORDERED.

FACTS: Respondent Yao was the owner of a commercial building, a portion of which isleased to herein petitioner. However, during the renewal of the contract of lease, the twodisagreed on the rental rate, and to resolve the controversy, they submitted their disagreement to arbitration. Two arbitrators (Alamarez and Sabile) has been appointed by the parties while the appointment of the third arbitrator (Tupang) was held in abeyance because La Naval Drug instructed its arbitrator to defer the same until its Board of Directors could convene and approved Tupangs appointment. This was theorized by the respondentas dilatory tactics, hence, he prayed that a summary hearing be conducted and direct the 2arbitrators to proceed with the arbitration in accordance with Contract of Lease and the applicable provisions of the Arbitration law, by appointing and confirming the appointmentof the Third Arbitrator; and that the Board of Three Arbitrators be ordered to immediatelyconvene and resolve the controversy before it. The respondent court announced that thetwo arbitrators chose Mrs. Eloisa R. Narciso as the third arbitrator and ordered the parties to submit their position papers on the issue as to whether or not respondent Yao's claim for damages may be litigated upon in the summary proceeding for enforcement of arbitration agreement. In moving for reconsideration of the said Order, petitioner argued that in SpecialCase No. 6024, the respondent court sits as a special court exercising limited jurisdiction and is not competent to act on respondent Yao's claim for damages, which poses an issue litigable in an ordinary civil action. However, respondent court was not persuaded by petitioner's submission, hence, it denied the motion for reconsideration. While the appellate court has agreed with petitioner that, under Section 6 of Republic Act No. 876, acourt, acting within the limits of its special jurisdiction, may in this case solely determine theissue of whether the litigants should proceed or not to arbitration, it, however, considered petitioner in estoppel from questioning the competence of the court to additionally hear and decide in the summary proceedings private respondent's claim for damages, it(petitioner) having

itself filed similarly its own counterclaim with the court a quo. ISSUES: 1. WON THE COURT HAS JURISDICTION OVER THE PERSON. As to the first issue, it was held that jurisdiction over the person must be seasonablyraised, i.e., that it is pleaded in a motion to dismiss or by way of an affirmative defense inan answer. Voluntary appearance shall be deemed a waiver of this defense. The assertion,however, of affirmative defenses shall not be constructed as an estoppel or as a waiverof such defense. 2. WON THE COURT A QUO HAS JURISDICTION OVER THE SUBJECT MATTER.HELD: With regard to the second issue, it was held that where the court itself clearly has no jurisdiction over the subject matter or the nature of the action, the invocationof this defense may be done at any time. It is neither for the courts nor the parties toviolate oar disregard that rule, let alone to confer that jurisdiction, this matter beinglegislative in character. Barring highly meritorious and exceptional circumstances, such asherein before exemplified, neither estoppel nor waiver shall apply. The court must then refrain from taking up the claims of the contending parties for damages, which, upon theother hand, may be ventilated in separate regular proceedings at an opportune time.