Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 200191 August 20, 2014

LOURDES C. FERNANDEZ, Petitioner,

vs.
NORMA VILLEGAS and any person acting in her behalf including her family, Respondents.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari are the Resolutions dated June 22, 2011 and
1 2

December 28, 2011 of the Court of Appeals (CA) in CA-G.R. SP No. 116143 which dismissed the
3

petition for review under Rule 42 of the Rules of Court (CA petition) due to defective verification and
4

certification against forum shopping.

The Facts

On August 21, 2008, petitioner Lourdes C. Fernandez (Lourdes) and her sister, Cecilia Siapno
(Cecilia), represented by her attorney-in-fact, Imelda S. Slater (Imelda), filed a Complaint for
Ejectment before the Municipal Trial Court in Cities, Branch 1, Dagupan City(MTCC), docketed as
5

Civil Case No. 15980, against respondent Norma Villegas (Norma) and any person acting in her
behalf including her family (respondents), seeking to recover possession of a parcel of land situated
in Guilig Street, Dagupan City covered by Transfer Certificate of Title (TCT) No. 19170 (subject
6

property).

In their complaint, Lourdes and Cecilia(plaintiffs) averred that they are the registered owners of the
subject property on which both Lourdes and respondents previously lived under oneroof. However,
when their house was destroyed by typhoon "Cosme," Lourdes transferred to a nipahut on the same
lot, while Norma, Cecilia’s daughter-in-law, and her family were advised to relocate but, in the
meantime, allowed to use a portion thereof. Instead, respondents erecteda house thereon over
7

plaintiffs’ objections and, despite demands, refused to vacate and surrender possession of the
subject property. The dispute was referred to the Barangay Office of Pugo Chico and the Public
8 9

Attorney’s Office, both of Dagupan City, but no settlement was reached. 10

For their part, respondents, in their Answer, averred that the complaint stated no cause of
11

action,considering that Lourdes has no standing to question their possession ofthe subject property
as she had already donated her portion in favor of Cecilia, adding too that the latter is bound by her
12

declaration that"the house and lot belong[s] to Eddie," who is Norma’s late husband. Respondents
13

further asserted that there was no compliance with the required conciliation and mediation under the
Katarungang Pambarangay Law as no Certificate to File Action was attached to the
14

complaint, thereby rendering the complaint dismissible.

15

The MTCC Ruling

In a Decision dated September 30, 2009,the MTCC found that respondents failed to impugn the
16

validity of plaintiffs’ ownership over the subject property. As owners, plaintiffs therefore have the right
to enjoy the use and receive the fruits from the saidproperty, as well as to exclude one from its
enjoyment pursuant to Articles 428 and 429 of the Civil Code. Accordingly, the MTCC ordered
17

respondents to: (a) vacate the subject property and pay plaintiffs the amount of P1,000.00 per month
as reasonable compensation for the use and occupation of the portion of the lot occupied by them,
reckoned from the filing of the complaint; (b) pay plaintiffs P10,000.00 as attorney’s fees; and (c) pay
the cost of suit. 18

Dissatisfied with the MTCC’s ruling, respondents filed an appeal before the Regional Trial Court
19

ofDagupan City (RTC), Branch 40, docketed as Civil Case No. 2009-0224-D.

The RTC Ruling

In a Decision dated March 16, 2010, the RTC, Branch 40 granted respondents’ appeal and ordered
20

the dismissal of plaintiffs’ complaint based on the following grounds: (a) there was no substantial
compliance with the mandatory conciliation and mediation process before the barangay, especially
considering that the parties are very close relatives; and (b) respondents are builders in good faith
21

and cannot be summarily ejected from the subject property without compliance with the provisions of
Articles 448, 546, and 548 of the Civil Code. 22

The RTC, Branch 40 further ordered plaintiffs to jointly and severally pay respondents the amount
of P50,000.00 as attorney’s fees. 23

Aggrieved, plaintiffs filed a motion for reconsideration which was denied by the RTC, Branch 44 in
24 25

a Resolution dated August 18, 2010, prompting the filing of the CA petition.
26

The CA Proceedings

In response to plaintiffs’ CA petition, respondents filed a Motion to Dismiss Appeal on the grounds
that: (a) Cecilia failed to personally verify the petition; and (b) the appeal is dilatory. In their
27

comment, plaintiffs maintained that Lourdes, as co-owner of the subject property, has the right tofile
an ejectment case by herself, without joining her co-owner, Cecilia, as provided under Article 487 of
the Civil Code. Moreover, Lourdes was specially authorized by Imelda to file the CA petition. 28

In a Resolution dated June 22, 2011, the CA granted respondents’ Motion to Dismiss Appeal,
29

holding that the verification and certification against forum shopping attached to the CA petition was
30

defective since it was signed only by Lourdes, one of the plaintiffs in the case, in violation of Section
5, Rule 7 of the Rules of Court which requires all the plaintiffs to sign the same. There was also no
31 32

showing that Lourdes was authorized by her co-plaintiff, Cecilia, to represent the latter and to sign
the said certification, and neither did the submission of the special powers of attorney of Cecilia and
Imelda to that effect constitute substantial compliance with the rules. The CA further noted that
33

plaintiffs failed to comply with its prior Resolution dated October 11, 2010 requiring the submission of
an amended verification/certification against forum shopping within five (5) days from notice,
warranting the dismissal of the CA petition on this score. 34

At odds with the CA’s resolution, plaintiffs sought reconsideration but the same was denied in a
35

Resolution dated December 28, 2011, hence, the instant petition filed by Lourdes alone.
36

The Issue Before the Court

The primordial issue in this case is whether or not the CA erred in dismissing outright the CA petition
due to a defective verification and certification against forum shopping attached to the CA petition.

The Court’s Ruling

The present petition has merit.

The Court laid down the following guidelines with respect to noncompliance with the requirements on
or submission of a defective verification and certification against forum shopping, viz.:

1) A distinction must be madebetween non-compliance with the requirement on or

submission of defective verification, and noncompliance with the requirement on or
submission of defective certification against forum shopping.

2) As to verification, non-compliance therewith or a defect therein does not necessarily

render the pleading fatally defective. The court may order its submission or correction or act
on the pleading if the attending circumstances are such that strictcompliance with the Rule
may be dispensed with in order that the endsof justice may be served thereby.

3) Verification is deemed substantially compliedwith when one who has ample knowledge to
swear tothe truth of the allegations in the complaint or petition signs the verification, and
when matters alleged in the petition have been made in goodfaith or are true and correct.

4) As to certification against forum shopping, non-compliance therewith or a defect therein,

unlike in verification, is generally not curable by its subsequent submission orcorrection
thereof, unless there is a need to relax the Rule on the ground of "substantial compliance" or
presence of "special circumstances or compelling reasons."

5) The certification against forum shopping must be signed by all the plaintiffs or petitioners
in a case; otherwise, those who did not sign will be dropped as parties to the case. Under
reasonable or justifiable circumstances, however, as when all the plaintiffs or petitioners
share a common interestand invoke a common cause of action or defense, the signature of
only one of them in the certification against forum shopping substantially complies with the
Rule.

6) Finally, the certification against forum shopping must be executed by the party-pleader,
not by his counsel. If, however, for reasonable or justifiable reasons, the party-pleader is
unable to sign, he must execute a Special Power of Attorney designating his counsel of
record to sign on his behalf. (Emphases supplied)
37

Applying these guidelines to the caseat bar, particularly, those stated in paragraphs 3 and 5
highlighted above, the Court finds that the CA committed reversible error in dismissing the CA
petition due to a defective verification and certification against forum shopping.

A. Substantial Compliance with the Verification Requirement.

It is undisputed that Lourdes is not only a resident of the subject property but is a co-owner thereof
together with her co-plaintiff/sister, Cecilia. As such, she is "one who has ample knowledge to swear
to the truth of the allegations in the x x x [CA] petition" and is therefore qualified to "sign x x x the
verification" attached thereto in view of paragraph 3 of the above-said guidelines. 1âwphi1
In fact, Article 487 of the Civil Code explicitly provides that any of the co-owners may bring an action
for ejectment, without the necessity of joining all the other co-owners as co-plaintiffs because the suit
is deemed to be instituted for the benefit of all. To reiterate, both Lourdes and Cecilia are co-
38

plaintiffs in the ejectment suit. Thus, they share a commonality of interest and cause of action as
against respondents. Notably, even the petition for review filed before the CA indicated that they are
the petitioners therein and that the same was filed on their behalf. Hence, the lone signature of
Lourdes on the verification attached to the CA petition constituted substantial compliance with the
rules. As held in the case of Medado v. Heirs of the Late Antonio Consing:
39 40

[W]here the petitioners are immediate relatives, who share a common interestin the property subject
of the action, the fact that only one of the petitioners executed the verification or certification of forum
shopping will not deter the court from proceeding with the action. (Emphases and underscoring
41

supplied)

Besides, it is settled that the verification of a pleading is only a formal, not a jurisdictional
requirement intended to secure the assurance that the matters alleged in a pleading are true and
correct. Therefore, the courts may simply order the correction of the pleadings oract on them and
waive strict compliance with the rules, as in this case.
42

B. Substantial Compliance with the Certification Against Forum Shopping Requirement.

Following paragraph 5 of the guidelinesas aforestated, there was also substantial compliance with
the certification against forum shopping requirement, notwithstanding the fact that only Lourdes
signed the same.

It has been held that under reasonable or justifiable circumstances - as in this case where the
plaintiffs or petitioners share a common interest and invoke a common cause of action or defense -
the rule requiring all such plaintiffs or petitioners to sign the certification against forum shopping may
be relaxed. Consequently, the CA erred in dismissing the petition on this score.
43

Similar to the rules on verification, the rules on forum shopping are designed to promote and
facilitate the orderly administration of justice; hence, it should not be interpreted with such absolute
literalness as to subvert its own ultimate and legitimate objectives. The requirement of strict
compliance with the provisions on certification against forum shopping merely underscores its
mandatory nature to the effect that the certification cannot altogether be dispensed with or its
requirements completely disregarded. It does not prohibit substantial compliance with the rules
under justifiable circumstances, as also in this case.
44

As there was substantial compliance with the above-discussed procedural requirements at the
onset, plaintiffs' subsequent failure to file an amended verification and certification, as directed by
the October 11, 2010 CA Resolution, should not have warranted the dismissal of the CA petition.

WHEREFORE, the petition is GRANTED. The Resolutions dated January 22, 2011 and December
28, 2011 of the Court of Appeals (CA) in CA-G.R. SP No. 116143 are hereby REVERSED and SET
ASIDE. Accordingly, the case is REINSTATED and REMANDED to the CA for proper and immediate
disposition.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 189532 June 11, 2014

VIRGINIA S. DIO and H.S. EQUITIES, LTD., Petitioners,

vs.
SUBIC BAY MARINE EXPLORATORIUM, INC., represented by its Chairman and Chief
Executive Officer, TIMOTHY DESMOND, Respondents.

DECISION

PEREZ, J.:

This is a Petition for Review on Certiorari pursuant to Rule 45 of the Revised Rules of Court,
1

assailing the 3 April 2009 Order of the Regional Trial Court (RTC) of Balanga City, Bataan, on pure
2

question of law. In its assailed Order, the RTC denied the motion filed by petitioners to set their
counterclaims for hearing on the ground that the main case was already dismissed with finality by
the Court of Appeals in CA-G.R. CV No. 87117.

In an Order dated 26 August 2009, the RTC refused to reconsider its earlier disposition.
3

The Facts

Petitioner H.S. Equities, Ltd., (HSE) is a foreign corporation duly organized and existing under the
laws of the British Virgin Islands, with registered address at Akara Building, 24 De Castro Street,
Wickhams Cay I, Road Town, Tortola, British Virgin Islands. It entered into an isolated transaction
subject of the instant case. It is represented in this action by petitioner Virginia S. Dio (Dio).

Respondent Subic Bay Marine Exploratorium, Inc. (SBME) is a domestic corporation, duly organized
and existing under the Philippine laws and is represented in this action by its Chief Executive Officer,
respondent Timothy Desmond (Desmond).

In 2002, SBME decided to expand its business by operating a beach resort inside the property
administered by the Subic Bay Metropolitan Authority (SBMA). For the business venture to take off,
SBME needed to solicit investors who are willing to infuse funds for the construction and operation of
the beach resort project. HSE (formerly known as Westdale Assets Limited) thru its authorized
director, Dio, agreed to invest the amount of US$2,500,000.00 with SBME by purchasing 750,000
common shares with a par value of P100 per share from the increase in its authorized capital stock.
The agreement was reduced into writing wherein HSE, in order to protect its interest in the company,
was afforded minority protection rights such as the right to appoint a member of the board of
directors and the right to veto certain board resolutions. After HSE initially paid US$200,000.00 for its
subscription, it refused to further lay out money for the expansion project of the SBME due to the
alleged mismanagement in the handling of corporate funds.

Consequently, SBME initiated an intra-corporate dispute before the RTC of Balanga City, Bataan
against petitioners HSE and Dio. Before petitioners could file their answer to the complaint,
4

respondents impleaded its Corporate Secretary, Atty. Winston Ginez, as additional defendant. In
their Amended Complaint docketed as Civil Case No. 7572, SBME essentially alleged that HSE
5

unjustly refused to pay the balance of its unpaid subscription effectively jeopardizing the company’s
expansion project. Apart from their refusal to honor their obligation under the subscription contract, it
was further alleged by SBME that Dio tried to dissuade local investors and financial institutions from
putting in capital to SBME by imputing defamatory acts against Desmond. To protect the interest of
the corporation and its stockholders, SBME sought that petitioners be enjoined from committing acts
inimical to the interest of the company.

To refute the claims of respondents, petitioners maintained in their Answer with Compulsory
Counterclaim that it would be highly preposterous for them to dissuade investors and banks from
6

putting in money to SBME considering that HSE and Dio are stakeholders of the company with
substantial investments therein. In turn, petitioners countered that their reputation and good name in
the business community were tarnished as a result of the filing of the instant complaint, and thus
prayed that they be indemnified in the amount of US$2,000,000.00 as moral damages. Constrained
to litigate to protect their rights, petitioners asked that they be indemnified in the amount
ofP1,000,000.00 in litigation expenses. Petitioners likewise sought to recover their investment of
US$1,500,000.00 since they were purportedly inveigled by Desmond into putting in money to SBME
under the pretext that they will be accorded with minority protection rights. It was alleged that after
the filing of the instant complaint, Desmond, in collusion with other Board of Directors of SBME,
managed to unjustly deny HSE and Dio their rights under the Subscription Agreement. To curb
similar socially abhorrent actions, petitioners prayed that SBME and its Board of Directors, namely,
Desmond, John Corcoran, Gaile Laule and Gregorio Magdaraog, be jointly and severally held liable
to pay exemplary damages in the amount of US$2,000,000.00.

After petitioners filed their Answer with Compulsory Counterclaim, the RTC, instead of setting the
case for pre-trial, issued an Order dated 15 August 2005 motu proprio dismissing Civil Case No.
7

7572. The dismissal was grounded on the defective certificate of non-forum shopping which was
signed by Desmond without specific authority from the Board of Directors of SBME.

Armed with a board resolution specifically authorizing Desmond to sign the certificate of non-forum
shopping on behalf of SBME, respondents moved that Civil Case No. 7572 be reinstated and further
proceedings thereon be conducted. A copy of such authority was attached by respondents to their
Motion for Reconsideration.

For lack of merit, RTC denied respondents’ motion and affirmed the dismissal in an Order dated 22
8

September 2005. In refusing to reinstate respondents’ complaint, the court a quo ruled that the
belated submission of a board resolution evidencing Desmond’s authority to bind the corporation did
not cure the initial defect in the complaint and declared that strict compliance with procedural rules is
enjoined for the orderly administration of justice.

Aggrieved by the lower court’s refusal to reinstate their complaint, respondents elevated the matter
before the Court of Appeals assailing the propriety of the 15 August 2005 and 22 September 2005
RTC Orders via Petition for Review which was docketed as CA-G.R. CV No. 87117.

For failure of the respondents to file their appellants’ brief, the appellate court proceeded to dismiss
CA-G.R.CV No. 87117 and considered the case closed and terminated in its Resolution dated 2 9

January 2007.

After respondents failed to seasonably move for the reconsideration of the aforementioned
Resolution, the dismissal of CA-G.R. CV No. 87117 became final and executory, as shown in the
Entry of Judgment dated 3 May 2007.
10
The procedural incidents before the appellate court having been resolved with finality, petitioners
went back to the RTC to file a motion to set their counterclaims for hearing which was opposed by
11

the respondents on the ground that the filing of the compulsory counterclaims was not accompanied
by payment of the required docket fees precluding the court from acquiring jurisdiction over the
case.12

Acting on the motions filed by the opposing parties, the RTC, in an Order dated 3 April 2009
13

granted the motion of the respondents, thereby directing the dismissal of petitioners’ counterclaims
but not on the ground of non-payment of docket fees. In disallowing petitioners’ counterclaims to
proceed independently of respondents’ complaint, the lower court pointed out that in view of the
dismissal of the main case, which has already been affirmed with finality by the appellate court, it
has already lost its jurisdiction to act on petitioners’ counterclaim, the compulsory counterclaim being
merely ancillary to the principal controversy.

In an Order dated 26 August 2009, the RTC refused to reconsider its earlier disposition. Petitioners
14

filed this instant Petition for Review on Certiorari on pure question of law seeking the reversal of the
15

3 April 2009 and 26 August 2009 RTC Orders on the ground that:

THE TRIAL COURT COMMITTED AN ERROR OF LAW WHEN IT REFUSED TO SET

[PETITIONERS’] COUNTERCLAIMS FOR HEARING ON THE GROUND THATTHE CASE WAS
DEEMED "CLOSED AND TERMINATED" BYTHE COURT OF APPEALS AFTER THE LATTER
DISMISSED RESPONDENTS’ APPEAL BECAUSE OF THEIR FAILURE TOFILE THEIR
APPELLANTS’ BRIEF. 16

The Court’s Ruling

Petitioners argue that despite the dismissal of the main case, the counterclaim may still remain for
independent adjudication under Section 6, Rule 16 of the Revised Rules of Court. Petitioners 17

pointed out that while the dismissal of respondents’ complaint is a confirmation of Desmonds’ lack of
legal personality to file the case, this does not, however, mean that they also do not have the
qualification to pursue their counterclaim. To fault petitioners for the fatal infirmity in the respondents’
complaint would not only work injustice to the former but would result to an absurd situation where
the fate of their counterclaims is placed entirely in the hands of the respondents.

For their part, respondents posit that, in directly assailing the adverse RTC Orders before the Court,
petitioners erroneously availed themselves of an erroneous remedy arguing that this petition should
have been initially filed with the appellate court. By seeking relief directly from the Court, petitioners
ignored the judicial hierarchy warranting the peremptory dismissal of their petition. Unless special
and important reasons were clearly and specifically set out in the petition, and in this case it was not,
a direct invocation of this Court’s original jurisdiction may not be allowed.

The established policy of strict observance of the judicial hierarchy of courts, as a rule, requires that
recourse must first be made to the lower ranked court exercising concurrent jurisdiction with a higher
court. A regard for judicial hierarchy clearly indicates that petitions for the issuance of extraordinary
writs against first level courts should be filed in the RTC and those against the latter should be filed
in the Court of Appeals. The rule is not iron-clad, however, as it admits of certain exceptions. 18

Thus, a strict application of the rule is unnecessary when cases brought before the appellate courts
do not involve factual but purely legal questions. In fact, Rule 41, Section 2(c) of the Revised Rules
19 20

of Court provides that a decision or order of the RTC may as it was done in the instant case, be
appealed to the Supreme Court by petition for review on certiorari under Rule 45, provided that such
petition raises only questions of law.
A question of law exists when the doubt or controversy concerns the correct application of law or
jurisprudence to a certain set of facts; or when the issue does not call for the examination of the
probative value of the evidence presented, the truth or falsehood of facts being admitted. A question
of fact exists when the doubt or difference arises as to the truth or falsehood of facts or when the
query invites calibration of the whole evidence considering mainly the credibility of the witnesses, the
existence and relevancy of specific surrounding circumstances, as well as their relation to each other
and to the whole, and the probability of the whole situation. Thus, the test of whether a question is
21

one of law or of fact is not the appellation given to such question by the party raising the same;
rather, it is whether the appellate court can determine the issue raised without reviewing or
evaluating the evidence, in which case, it is a question of law; otherwise it is a question of fact.22

Petitioners here raise the solitary issue of the propriety of the dismissal of their counterclaim on the
basis of the reasoning of the lower court that the counterclaim derives its jurisdictional support from
the complaint which has already been dismissed. Petitioners maintain that the court a quo erred in
arriving at the legal conclusion that the counterclaim can no longer stand for independent
adjudication after the main case was already dismissed with finality. In order to resolve this issue, the
Court need only to look into the pleadings, depositions, admissions, and affidavits submitted by the
respective parties without going into the truth or falsity of such documents. Consequently, the
petitioners’ remedy for assailing the correctness of the dismissal of their counterclaims, involving as
it does a pure question of law, indeed lies with this Court. Now to the issue of the propriety of the
dismissal of the counterclaim.

The dismissal of the complaint resulted from respondents’ failure to append to the complaint a copy
of the board resolution authorizing Desmond to sign the certificate of non-forum shopping on behalf
of SBME. The subsequent dismissal of the counterclaim, in turn, erroneously proceeded from the
ratio that since the main action has already been dismissed with finality by the appellate court, the
lower court has lost its jurisdiction to grant any relief under the counterclaim.

In the significant case of Pinga v. Heirs of German Santiago, this Court speaking through Justice
23

Dante Tinga, resolved the nagging question as to whether or not the dismissal of the complaint
carries with it the dismissal of the counterclaim. Putting to rest the remaining confusion occasioned
by Metals Engineering Resources Corp. v. Court of Appeals and BA Finance Corporation v. Co, the
24 25

Court articulated that, in light of the effectivity of the 1997 Rules of Civil Procedure, the correct and
prevailing doctrine is as follows:

To be certain, when the Court promulgated the 1997 Rules of Civil Procedure, including the
amended Rule17, those previous jural doctrines that were inconsistent with the new rules
incorporated in the 1997 Rules of Civil Procedure were implicitly abandoned insofar as incidents
arising after the effectivity of the new procedural rules on 1 July 1997. BA Finance, or even the
doctrine that a counterclaim may be necessarily dismissed along with the complaint, clearly conflicts
with the 1997 Rules of Civil Procedure. The abandonment of BA Finance as doctrine extends as far
back as 1997, when the Court adopted the new Rules of Civil Procedure. If, since then, such
abandonment has not been affirmed in jurisprudence, it is only because no proper case has arisen
that would warrant express confirmation of the new rule. That opportunity is here and now, and we
thus rule that the dismissal of a complaint due to fault of the plaintiff is without prejudice to the right
of the defendant to prosecute any pending counterclaims of whatever nature in the same or separate
action. We confirm that BA Finance and all previous rulings of the Court that are inconsistent with
this present holding are now abandoned.

xxxx
Thus, the present rule embodied in Sections 2 and 3 of Rule 17 ordains a more equitable disposition
of the counterclaims by ensuring that any judgment thereon is based on the merit of the
counterclaim itself and not on the survival of the main complaint. Certainly, if the counterclaim is
palpably without merit or suffers jurisdictional flaws which stand independent of the complaint, the
trial court is not precluded from dismissing it under the amended rules, provided that the judgment or
order dismissing the counterclaim is premised on those defects. At the same time, if the
counterclaim is justified, the amended rules now unequivocally protect such counterclaim from
peremptory dismissal by reason of the dismissal of the complaint. Reviewing the vacated position,
26

in Metals Engineering Resources Corp., severance of causes of action was not be permitted in order
to prevent circuity of suits and to avert the possibility of inconsistent rulings based on the same set of
facts, viz:

For all intents and purposes, such proposition runs counter to the nature of a compulsory
counterclaim in that it cannot remain pending for independent adjudication by the court. This is
because a compulsory counterclaim is auxiliary to the proceeding in the original suit and derives its
jurisdictional support therefrom, inasmuch as it arises out of or is necessarily connected with the
transaction or occurrence that is the subject matter of the complaint. It follows that if the court does
not have jurisdiction to entertain the main action of the case and dismisses the same, then the
compulsory counterclaim, being ancillary to the principal controversy, must likewise be dismissed
since no jurisdiction remained for any grant of relief under the counterclaim.

The aforementioned doctrine is in consonance with the primary objective of a counterclaim which is
to avoid and prevent circuity of action by allowing the entire controversy between the parties to be
litigated and finally determined in one action, wherever this can be done with entire justice to all
parties before the court. The philosophy of the rule is to discourage multiplicity of suits. It will be
1âwphi1

observed that the order of the trial court allowing herein private respondent to proceed with the
presentation of his evidence in support of the latter's counterclaim is repugnant to the very purpose
and intent of the rule on counterclaims. 27

In BA Finance Corporation, we likewise refused to entertain the compulsory counterclaim after the
trial court lost its jurisdiction in the main case, thus:

The rule is that a compulsory counterclaim cannot "remain pending for independent adjudication by
the court." This is because a compulsory counterclaim is auxiliary to the proceeding in the original
suit and merely derives its jurisdictional support therefrom.

Thus, it necessarily follows that if the trial court no longer possesses jurisdiction to entertain the main
action of the case, as when it dismisses the same, then the compulsory counterclaim being ancillary
to the principal controversy, must likewise be similarly dismissed since no jurisdiction remains for the
grant of any relief under the counterclaim. 28

As the rule now stands, the nature of the counterclaim notwithstanding, the dismissal of the
complaint does not ipso jure result in the dismissal of the counterclaim, and the latter may remain for
independent adjudication of the court, provided that such counterclaim, states a sufficient cause of
action and does not labor under any infirmity that may warrant its outright dismissal. Stated
differently, the jurisdiction of the court over the counterclaim that appears to be valid on its face,
including the grant of any relief thereunder, is not abated by the dismissal of the main action. The
court’s authority to proceed with the disposition of the counterclaim independent of the main action is
premised on the fact that the counterclaim, on its own, raises a novel question which may be aptly
adjudicated by the court based on its own merits and evidentiary support.
In Perkin Elmer Singapore Pte Ltd. v. Dakila Trading Corporartion, a case on all fours with the
29

present one, we expounded our ruling in Pinga and pointed out that the dismissal of the
counterclaim due to the fault of the plaintiff is without prejudice to the right of the defendant to
prosecute any pending counterclaims of whatever nature in the same or separate action, thus:
Based on the aforequoted ruling of the Court, if the dismissal of the complaint somehow eliminates
the cause of the counterclaim, then the counterclaim cannot survive. Conversely, if the counterclaim
itself states sufficient cause of action then it should stand independently of and survive the dismissal
of the complaint. Now, having been directly confronted with the problem of whether the compulsory
counterclaim by reason of the unfounded suit may prosper even if the main complaint had been
dismissed, we rule in the affirmative.

It bears to emphasize that petitioner's counterclaim against respondent is for damages and
attorney's fees arising from the unfounded suit. While respondent's Complaint against petitioner is
already dismissed, petitioner may have very well already incurred damages and litigation expenses
such as attorney's fees since it was forced to engage legal representation in the Philippines to
protect its rights and to assert lack of jurisdiction of the courts over its person by virtue of the
improper service of summons upon it. Hence, the cause of action of petitioner's counterclaim is not
eliminated by the mere dismissal of respondent's complaint. (Emphasis theirs).
30

Once more, we allow the counterclaim of the petitioners to proceed independently of the complaint
of the respondents.

WHEREFORE, premises considered, the petition is GRANTED. The assailed R TC Orders dated 3
April 2009 and 26 August 2009 are hereby REVERSED and SET ASIDE. The case is REMANDED
to the Regional Trial Court of Balanga City, Bataan for further proceedings, on the matter of
petitioners Virginia S. Dio and H.S. Equities, Ltd. 's counterclaims. No pronouncement as to costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 206653 February 25, 2015

YUK LING ONG, Petitioner,

vs.
BENJAMIN T. CO, Respondent.

DECISION

MENDOZA, J.:

In court proceedings, there is no right more cherished than the right of every litigant to be given an
opportunity to be heard. This right begins at the very moment that summons is served on the
defendant. The Rules of Court places utmost importance in ensuring that the defendant personally
grasp the weight of responsibility that will befall him. Thus, it is only in exceptional circumstances
that constructive notification, or substituted service of summons, is allowed. If the server falls short of
the rigorous requirements for substituted service of summons, then the Court has no other option but
to strike down a void judgment, regardless of the consequences. This is a petition for review on
certiorari seeking to reverse and set aside the June 27, 2012 Decision and the March 26, 2013
1

Resolution of the Court of Appeals (CA)in CA-G.R. SP No. 106271, which denied the petition for
2

annulment of judgment.

The Facts

Petitioner Yuk Ling Ong (petitioner), a British-Hong Kong national, and respondent Benjamin Co
(respondent), a Filipino citizen, were married on October 3, 1982 at Ellinwood-Malate Church. 3

Sometime in November 2008, petitioner received a subpoena from the Bureau of Immigration and
Deportation (BID)directing her to appear before the said agency because her permanent residence
visa was being subjected to cancellation proceedings. Reportedly, her marriage with respondent was
nullified by the court.

When petitioner appeared before the BID, she was furnished with the copies of the following
documents: (1) petition for declaration of nullity of marriage filed as Civil Case No. CV-01-0177; (2)
petition for declaration of nullity of marriage docketed as Civil Case No. 02-0306; (3) Decision, dated
4

December 11, 2002, in Civil Case No. 02-0306 of the Regional Trial Court, Branch 260 (RTC),
Parañaque City, declaring the marriage between petitioner and respondent as void ab initio; and (4)
their marriage contract with the subject decision annotated thereon. Petitioner was perplexed that
5

her marriage with respondent had been declared void ab initio. The above documents showed that
on April 26, 2001, respondent filed a petition for declaration of nullity on the ground of psychological
6

incapacity before the RTC, which was docketed as Civil Case No. CV-01-0177. Respondent stated
that petitioner’s address was 600 Elcano St., Binondo, Manila. There was no showing of its status,
whether pending, withdrawn or terminated. On July 19, 2002, respondent filed another petition for
declaration of Nullity on the ground of psychological incapacity before the RTC, docketed as Civil
7

Case No. 02-0306. Respondent indicated that petitioner’s address was 23 Sta. Rosa Street, Unit B-2
Manresa Garden Homes, Quezon City. On July 29, 2002, the RTC issued summons. In his Server’s
8
Return, process server Rodolfo Torres, Jr. stated that, on August 1, 2002, substituted service of
9

summons with the copy of the petition was effected after several futile attempts to serve the same
personally on petitioner. The said documents were received by Mr. Roly Espinosa, a security officer.

On December 11, 2002, the RTC rendered a decision in Civil Case No. 02-0306 finding
10

respondent’s marriage with petitioner as void ab initio on the ground of psychological incapacity
under Article 36 of the Family Code. It stated that summons was served on petitioner on August 1,
2002, but she failed to file her responsive pleading within the reglementary period. The public
prosecutor also stated that there were no indicative facts to manifest collusion. Thus, the RTC
concluded that petitioner was psychologically incapacitated to perform her essential marital
obligations.

Consequently, petitioner filed a petition for annulment of judgment under Rule 47 of the Rules of
11

Court before the CA on November 24, 2008, claiming that she was never notified of the cases filed
against her. She prayed that the RTC decision, dated December 11, 2002, in Civil Case No. 02-
0306, be nullified on the grounds of extrinsic fraud and lack of jurisdiction. Petitioner alleged that
first, respondent committed extrinsic fraud because, as seen in Civil Case No. CV-01-0177, he
deliberately indicated a wrong address to prevent her from participating in the trial; second,
jurisdiction over her person was not acquired in Civil Case No. 02-0306 because of an invalid
substituted service of summons as no sufficient explanation, showing impossibility of personal
service, was stated before resorting to substituted service of summons; third, the alleged substituted
service was made on a security guard of their townhouse and not on a member of her household;
and fourth, she was not psychologically incapacitated to perform her marital obligations. 12

Ruling of the Court of Appeals

On June 27, 2012, the CA rendered the assailed decision finding the petition for annulment of
judgment to be devoid of merit. It held that there was no sufficient proof to establish that respondent
employed fraud to insure petitioner’s non-participation in the trial of Civil Case No. CV-01-0177.

Relying on Robinson v. Miralles, the CA further ruled that the substituted service of summons in
13

Civil Case No. 02-0306 was valid. It found that there was a customary practice in petitioner’s
townhouse that the security guard would first entertain any visitors and receive any communication
in behalf of the homeowners. With this set-up, it was obviously impossible for the process server to
personally serve the summons upon petitioner. It also declared that the process server’s return
carries with it the presumption of regularity in the discharge of a public officer’s duties and functions.

Petitioner moved for reconsideration, but her motion was denied by the CA in its Resolution, dated14

March 26, 2013.

Hence, this petition, anchored on the following

ISSUES

1. Whether or not the Trial Court in Civil Case No. 02-0306 validly acquired jurisdiction over
the person of the petitioner.

2. Whether or not the facts proven by the petitioner constitute extrinsic fraud within the
purview of Rule 47 of the Rules of Court. 15
Petitioner argues that there was an invalid substituted service of summons. The process server’s
1âwphi1

return only contained a general statement that substituted service was resorted to "after several
futile attempts to serve the same personally," without stating the dates and reasons of the failed
16

attempts. Petitioner also reiterates her argument that extrinsic fraud was employed.

In his Comment, filed on July 9, 2014, respondent contended that the server’s return satisfactorily
17

stated the reason for the resort to a substituted service of summons on August 1, 2002; and it was
improbable that petitioner failed to receive the summons because it was sent to the same address
which she declared in this present petition.

Petitioner filed her Reply on October 8, 2014 reiterating her previous arguments.
18

The Court’s Ruling

The Court finds merit in the petition.

Annulment of judgment is a recourse equitable in character, allowed only in exceptional cases as

where there is no available or other adequate remedy. Rule 47 of the 1997 Rules of Civil Procedure,
as amended, governs actions for annulment of judgments or final orders and resolutions, and
Section 2 thereof explicitly provides only two grounds for annulment of judgment, that is, extrinsic
fraud and lack of jurisdiction. Annulment of judgment is an equitable principle not because it allows
19

a party-litigant another opportunity to reopen a judgment that has long lapsed into finality but
because it enables him to be discharged from the burden of being bound to a judgment that is an
absolute nullity to begin with.20

Petitioner raises two grounds to support her claim for annulment of judgment: (1) extrinsic fraud and
(2) lack of jurisdiction. Her contention on the existence of extrinsic fraud, however, is too
unsubstantial to warrant consideration. The discussion shall then focus on the ground of lack of
jurisdiction.

Lack of jurisdiction on the part of the trial court in rendering the judgment or final order is either lack
of jurisdiction over the subject matter or nature of the action, or lack of jurisdiction over the person of
the petitioner. The former is a matter of substantive law because statutory law defines the jurisdiction
of the courts over the subject matter or nature of the action. The latter is a matter of procedural law,
for it involves the service of summons or other processes on the petitioner. 21

In the present case, petitioner contends that there was lack of jurisdiction over her person because
there was an invalid substituted service of summons. Jurisdiction over the defendant is acquired
either upon a valid service of summons or the defendant's voluntary appearance in court. If the 22

defendant does not voluntarily appear in court, jurisdiction can be acquired by personal or
substituted service of summons as laid out under Sections 6 and 7 of Rule 14 of the Rules of Court,
which state:

Sec. 6. Service in person on defendant. - Whenever practicable, the summons shall be served by
handing a copy thereof to the defendant in person, or, if he refuses to receive and sign for it, by
tendering it to him.

Sec. 7. Substituted Service. - If, for justifiable causes, the defendant cannot be served within a
reasonable time as provided in the preceding section, service may be effected (a) by leaving copies
of the summons at the defendant's residence with some person of suitable age and discretion then
residing therein, or (b) by leaving the copies at defendant's office or regular place of business with
some competent person in charge thereof.

The landmark case of Manotoc v. CA (Manotoc) thoroughly discussed the rigorous requirements of
23

a substituted service of summons, to wit: xxx

(1) Impossibility of Prompt Personal Service

xxx

For substituted service of summons to be available, there must be several attempts by the sheriff to
personally serve the summons within a reasonable period of one month which eventually resulted in
failure to prove impossibility of prompt service. "Several attempts" means at least three (3) tries,
preferably on at least two different dates. In addition, the sheriff must cite why such efforts were
unsuccessful. It is only then that impossibility of service can be confirmed or accepted.

(2) Specific Details in the Return

The sheriff must describe in the Return of Summons the facts and circumstances surrounding the
attempted personal service. The efforts made to find the defendant and the reasons behind the
failure must be clearly narrated in detail in the Return. The date and time of the attempts on personal
service, the inquiries made to locate the defendant, the name/s of the occupants of the alleged
residence or house of defendant and all other acts done, though futile, to serve the summons on
defendant must be specified in the Return to justify substituted service.

(3) A Person of Suitable Age and Discretion

xxx

The sheriff must therefore determine if the person found in the alleged dwelling or residence of
defendant is of legal age, what the recipient's relationship with the defendant is, and whether said
person comprehends the significance of the receipt of the summons and his duty to immediately
deliver it to the defendant or at least notify the defendant of said receipt of summons. These matters
must be clearly and specifically described in the Return of Summons. (Emphases and underscoring
supplied)

The pronouncements of the Court in Manotoc have been applied to several succeeding cases. In
Pascual v. Pascual, the return of summons did not show or indicate the actual exertion or positive
24

steps taken by the officer or process server in serving the summons personally to the defendant.
Similarly, in Spouses Afdal v. Carlos, the process server’s indorsements therein failed to state that
25

the personal service on the defendants was rendered impossible and that efforts were made to find
them personally. In both those cases, the Court ruled that the meticulous requirements for
substituted service of summons were not met.

There are cases, however, in which Manotoc was applied, but, nevertheless, it was ruled that there
was no lack of jurisdiction over the person of the defendant. In Sagana v. Francisco, the diligent
26

efforts exerted by the sheriff to locate the respondent were determined, not only based on the
sheriff's return, but also on the process server's notation and case records. In the case of Wong v.
Factor-Koyama, on the other hand, even if the sheriff performed an invalid substituted service of
27

summons, jurisdiction over the person of defendant was obtained because the latter had actively
participated in trial, amounting to a voluntary appearance under Section 20 of Rule 14. 28
In the case at bench, the summons in Civil Case No. 02-0306 was issued on July 29, 2002. In his
29

server’s return, the process server resorted to substituted service of summons on August 1, 2002.
30

Surprisingly, the process server immediately opted for substituted service of summons after only two
(2) days from the issuance of the summons. The server’s return stated the following:

SERVER’S RETURN

THIS IS TO CERTIFY THAT on August 1, 2002, substituted service of summons with copy of
petition, were effected to respondent, Yuk Ling H. Ong, at the Unit B-2, No. 23 Sta. Rosa St.,
Manresa Garden Homes, Manresa Garden City, Quezon City, after several futile attempts to serve
the same personally. The said documents were received by Mr. Roly Espinosa of sufficient age and
discretion, the Security Officer thereat.

Therefore, respectfully returning to Court, original copy of summons, Duly Served, this 2nd day of
August, 2002.

RODOLFO P. TORRES, JR.

Process Server

(Emphasis supplied)

The server’s return utterly lacks sufficient detail of the attempts undertaken by the process server to
personally serve the summons on petitioner. The server simply made a general statement that
summons was effected after several futile attempts to serve the same personally. The server did not
state the specific number of attempts made to perform the personal service of summons; the dates
and the corresponding time the attempts were made; and the underlying reason for each
unsuccessful service. He did not explain either if there were inquiries made to locate the petitioner,
who was the defendant in the case. These important acts to serve the summons on petitioner,
though futile, must be specified in the return to justify substituted service.

The server’s return did not describe in detail the person who received the summons, on behalf of
petitioner. It simply stated that the summons was received "by Mr. Roly Espinosa of sufficient age
and discretion, the Security Officer thereat." It did not expound on the competence of the security
officer to receive the summons.

Also, aside from the server’s return, respondent failed to indicate any portion of the records which
would describe the specific attempts to personally serve the summons. Respondent did not even
claim that petitioner made any voluntary appearance and actively participated in Civil Case No. 02-
0306.

The case of Robinson v. Miralles, cited by the CA, is not applicable. In that case, the return
described in thorough detail how the security guard refused the sheriff’s entry despite several
attempts. The defendant in the said case specifically instructed the guard to prevent anybody to
proceed to her residence. In the present case, the attempts made by the process server were stated
in a broad and ambiguous statement.

The CA likewise erred in ruling that the presumption of regularity in the performance of official duty
could be applied in the case at bench. This p resumption of regularity, however, was never intended
to be applied even in cases where there are no showing of substantial compliance with the
requirements of the rules of procedure. Such presumption does not apply where it is patent that the
sheriff's or server's return is defective. As earlier explained, the server's return did not comply with
31

the stringent requirements of substituted service of summons.

Given that the meticulous requirements in Manotoc were not met, the Court is not inclined to uphold
the CA's denial of the petition for annulment of judgment for lack of jurisdiction over the person of
petitioner because there was an invalid substituted service of summons. Accordingly, the decision in
Civil Case No. 02-0306 must be declared null and void.

The stricter rule in substituted service of summons was meant to address "[t]he numerous claims of
irregularities in substituted service which have spawned the filing of a great number of unnecessary
special civil actions of certiorari and appeals to higher courts, resulting in prolonged litigation and
wasteful legal expenses." 32

Although the decision in Civil Case No. 02-0306 was promulgated as early as December 11, 2002,
the Court must strike it down for lack of jurisdiction over the person of petitioner. The favorable
judgment enjoyed by respondent cannot be categorized as a genuine victory because it was fought
against an adversary, who was ignorant of the existing dispute. Whatever prize bestowed upon the
victor in such a void decision must also be undone. Respondent, if he wishes to pursue, must start
from scratch and institute his action for declaration of nullity again; this time with petitioner fully
aware and ready for litigation.

WHEREFORE, the petition is GRANTED. The June 27, 2012 Decision and the March 26, 2013
Resolution of the Court of Appeals in CAG.R. SP No. 106271 are hereby REVERSED and SET
ASIDE. The December 11, 2002 Decision of the Regional Trial Court, Branch 260, Parañaque City is
hereby declared VOID.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 205800 September 10, 2014

MICROSOFT CORPORATION and ADOBE SYSTEMS INCORPORATED, Petitioners,

vs.
SAMIR FARAJALLAH, VIRGILIO D.C. HERCE, RACHEL P. FOLLOSCO, JESUSITO G.
MORALLOS, and MA. GERALDINE S. GARCIA (directors and officers of NEW FIELDS (ASIA
PACIFIC), INC.), Respondents.

DECISION

CARPIO, Acting C.J.:

The Case

Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court which
seeks to reverse and set aside the Decision of the Court of Appeals (CA) dated 28 June 2012 in CA-
1

G.R. SP No. 116771 and the Resolution of the CA dated 30 January 2013. The Decision and
2

Resolution sustained the orders of the Regional Trial Court of Manila, Branch 21 (RTC) quashing
Search Warrant Nos. 10-15912 and 10-15913.

The Facts

Microsoft Corporation and Adobe Systems Incorporated (petitioners) are corporations organized and
existing under the laws of the United States. Microsoft Corporation is the owner of all rights including
copyright relating to all versions and editions of Microsoft software and the corresponding user’s
3

manuals, and the registeredowner of the "Microsoft" "MS DOS" trademarks in the Philippines. Adobe
Systems Incorporatedis the owner of all rights including copyright relating to all versions and editions
of Adobe Software. 4

Samir Farajallah, Virgilio D.C. Herce, Rachel P. Follosco, Jesusito G. Morallos and Ma. Geraldine S.
Garcia (respondents) are the directors and officers of New Fields (Asia Pacific), Inc., a domestic
corporation with principal office at Unit 1603, East Tower, PhilippineStock Exchange Center,
Exchange Road, Ortigas Center, Pasig City.

Petitioners claim that in September 2009, they were informed that New Fields was unlawfully
reproducing and using unlicensed versions of their software. Orion Support, Inc.(OSI) was engaged
by petitioners to assist in the verification of this information. Two OSI Market Researchers, Norma L.
Serrano (Serrano) and Michael A. Moradoz (Moradoz) were assigned to confirm the informant's tip.
Serrano and Moradoz were trained to detect unauthorized copies of Adobe and Microsoft software. 5

On 17 March 2010, counsel for petitioners filed a letter-complaint with the Chief of the Philippine
National Police Criminal Investigation and Detection Group. The case was assigned to Police Senior
Inspector Ernesto V. Padilla (Padilla).
6
On 26 March 2010, Padilla, Serrano, and Moradoz went to the office of respondents. Using a
legitimate business pretext, they were able to use two computers owned by New Fields and obtained
the following information regarding the installed Microsoft and Adobe software:

First computer

Installed Software Product I.D./Serial Number

Microsoft Windows XP Pro V2002 SP2 55274-640-1582543-23775
Microsoft Office Word 2007 Enterprise 89388-707-0358973-65509

Edition 2007

Adobe Acrobat 8 Pro (1) 1118-1061-0904-4874-2027

Second computer

Installed Software Product I.D./Serial Number

Microsoft Windows XP Pro V2002 SP2 55274-640-1582543-23442
Microsoft Office Word 2007 Enterprise 89388-707-0358973-65709

Edition 2007

Adobe Acrobat 8 Pro (1) 1118-1061-0904-4874-2027

Padilla was trained to distinguish original from counterfeit software, and he saw the screens of the
7

computers used by the OSI staff, including the product I.D. Nos. of the installed software.

In their Joint Affidavit, Serrano and Moradoz stated that:

There are at least two (2) computers using common product identification and/or serial numbers of
MICROSOFT and ADOBE software. This is one indication that the software being used is unlicensed
or was illegally reproduced or copied. Based on the training we attended, all ADOBE and
MICROSOFTsoftware should only be installed in one computer, unless they avail of an Open Licese
Agreement from the software developer, which is not the case in NEW FIELDS. In this case, the first
three sets of numbers of the Product I.D. Nos. of the MICROSOFT Windows XP Pro operating
System software program installed in the two (2) computerunits we used, i.e., "55274-640-1582543-
xxxxx", were the same. We also observed that the first three sets of numbers of the Product I.D Nos.
of the MICROSOFT Office 2007 (Word) software in the two (2) computers we used, i.e., "89388-707-
0358973-xxxxx", were also the same. Ostensibly, this means that NEW FIELDS only used one (1)
installer of the MICROSOFT Windows XP operating system software and one (1) installer of the
MICROSOFT Office software program on two (2) computers. Based on our training, if the first three
sets of numbers of the Product I.D. Nos. of the MICROSOFT software installed are the same, it
signifies that it came from one installer. It does not matter [if] the last 5 digits of the Product I.D. Nos.
are different because this is computer-generated and therefore varies with every installation. Apart
from the MICROSOFT software, the serial numbers of the ADOBE software installed in the computer
units we used were also the same, signifying that NEW FIELDS only used one (1) installer of the
ADOBE software program on two (2) computers. (Emphasis supplied)
8

They also observed that New Fields had 90 computers in their office with Microsoft software, none of
which had the Certificate of Authenticity issued by Microsoft.

After being informed of the resultsof the investigation, petitioners then issued certifications that they
have not authorized New Fields to "copy, print, reproduce and/or publish unauthorized copies of
Microsoft and Adobe software products." 9

An application for search warrants was filed by Padilla on 20 May 2010, before Judge Amor Reyes in
her capacity as Executive Judge of the RTC. Search Warrant Nos. 10-15912 and 10-15913 were
issued on the same date. 10

The warrants were served on respondents on 24 May 2010. New Fields employees witnessed the
search conducted by the authorities. Several items were seized, including 17 CD installers and 83
computers containing unauthorized copies of Microsoft and/or Adobe software.

On 6 June 2010, New Fields filed a motion seeking to quash one of the two warrants served (Search
Warrant No. 10-15912). The motion was received by petitioners on 10 June 2010 and was set for
11

hearing on 11 June 2010. During the hearing on the motion, petitioners were allowed by the RTC to
file their Comment/Opposition on or before 21 June 2010. 12

In their Comment/Opposition dated 21 June 2010, petitioners alleged that:

13

The Motion [to Quash] failed to comply with the mandatory 3-day notice rule under the Rules of
Court. Hence it is nothing but a worthless piece of paper.

xxxx

In this case, the Motion of Respondents was scheduled for hearing on 11 June 2010. However,
Respondents only furnished [petitioners] a copy of the Motion on 10 June 2010, or just1 day before
the scheduled hearing, which was in clear violation of the 3-day notice rule. 14

On 29 June 2010, the RTC issued an Order quashing both warrants and directing that "allthe items
seized from the respondents be returned x x x." According to the RTC, petitionersshould have
15

identified which specific computer had the pirated software. The RTC added that no criminal charge
16

has been filed yet, despite the fact that the seized items have been in petitioners’ possession for
several weeks since the warrants were issued. Lastly, the RTC dismissed the petitioners’ contention
that the threeday notice rule was not complied withbecause petitioners were already notified of the
motion personally. 17

On 8 July 2010, petitioners receiveda copy of the Order, and Deputy Sheriff Edgardo Reyes of the
RTC alsoeffected the return of the seized items, in compliance with the RTC’s Order. Petitioners
18

filed an Urgent Manifestation and Motion for the Issuance of a Status Quo Order on 8 July 2010
wherein they alleged that: (1) they intend to file a Motion for Reconsideration of the Order; and (2)
the Order was not immediately executory. Respondents received a copy of the motion the day it was
19

filed.
On 9 July 2010, respondents moved to expunge petitioners’ motion for reconsideration, saying that
petitioners failed to comply with the threeday notice rule. The hearing on the motion was set on 13
20

July 2010. A copy of the motion was received by petitioners on 20 July 2010. 21

On 15 July 2010, petitioners filed a motion for reconsideration of the Order. Respondents filed their
22

Comment/Opposition to the motion, which was received by petitioners on 12 August 2010.

23 24

The RTC denied petitioners’ motion for reconsideration in its Order dated 27 August
2010. Petitioners filed a petition for certiorari under Rule 65 on 8 November 2010 before the Court
25 26

of Appeals. Petitioners alleged that the RTC committed grave abuse of discretion in granting the
Motion to Quash despite: (1) respondents’ failure to comply with the three-day notice requirement;
and (2) the existence of probable cause, and personal knowledge of the warrant applicant.

The Ruling of the CA

The CA denied the petition for certiorari. The appellate court held that:

In the instant case, when the court a quoordered petitioners to submit their comment on the motion
toquash, it was, in effect, giving petitioners their day in court. Thus, while the [three]-day notice rule
was not strictly observed, its purpose was still satisfied when respondent judge did not immediately
rule on the motion giving petitioners x x x the opportunity to study and oppose the arguments stated
in the motion.27

Hence, this petition.

The Issue

The instant petition raisedonly one issue, to wit:

The Honorable Court of Appeals erred in ruling that Judge Amor Reyes of Branch 21, Regional Trial
Court of Manila did not commit grave abuse of discretion amounting to lack or excess of jurisdiction
in issuing its Orders dated 29 June2010 and 27 August 2010, quashing Search Warrant Nos. 10-
[1]5912 and 10-[1]5913 and directing the immediate release of the items seized pursuant to the said
warrants, despite the pendency of appellate proceedings. 28

The Ruling of the Court

We rule that strict compliance with the three-day notice rule may be relaxed in this case. However,
we sustain petitioners’ contention that there was probable cause for issuance of a warrant, and the
RTC and CA should have upheld the validity of both warrants.

Compliance with the three-day notice rule

In Anama v. Court of Appeals, we ruled that the three-day notice rule is not absolute. The purpose
29

of the ruleis to safeguard the adverse party’s right to due process. Thus, if the adverse party was
given a reasonable opportunity to study the motion and oppose it, then strict compliance with the
three-day notice rule may be dispensed with.

As correctly pointed out by the CA:

In the instant case, when the court a quoordered petitioners to submit their comment on the motion
toquash, it was, in effect, giving petitioners their day in court. Thus, while the [three]-day notice rule
was not strictly observed, its purpose was still satisfied when respondent judge did not immediately
rule on the motion giving petitioners x x x the opportunity to study and oppose the arguments stated
in the motion. 30

Existence of probable cause

Under Section 1 of Rule 45 of the Rules of Court, petitions for review by certiorari "shall raise only
questions of law." A question of fact exists when there is a doubt as to the truth of certain facts, and it
can only be resolved through a reexamination of the body of evidence. 31

In Microsoft Corporation v. Maxicorp, Inc., we ruled that the existence of probable cause is a
32

question of fact. In the same case, we also stated that:

33

Probable cause is dependent largely on the opinion and findings of the judge who conducted the
examination and who had the opportunity to question the applicant and his witnesses. For this
reason, the findings of the judge deserve great weight. The reviewing court should overturn such
findings only upon proof that the judge disregarded the facts before him or ignored the clear dictates
of reason.34

This Court is not a trier of facts. As a general rule, we defer to the lower courts’ appreciation and
evaluation of evidence. This general rule, however, is not absolute. We will review the factual
35

findings of the CA in any of the following instances:

(1) when the factual findings of the Court of Appeals and the trial court are contradictory;

(2) when the conclusion is a finding grounded entirely on speculation, surmises, or

conjectures; (3) when the inference made by the Court of Appeals from its findings of fact is
manifestly mistaken, absurd, or impossible;

(4) when there is a grave abuse of discretion in the appreciation of facts;

(5) when the Appellate Court, in making its findings, went beyond the issues of the case and
such findings are contrary to the admissions of both appellant and appellee;

(6) when the judgment of the Court of Appeals is premised on a misapprehension of facts;

(7) when the Court of Appeals failed to notice certain relevant facts which, if properly
considered, would justify a different conclusion;

(8) when the findings of fact are themselves conflicting;

(9) when the findings of fact are conclusions without citation of the specific evidence on
which they are based; and

(10) when the findings of fact of the Court of Appeals are premised on the absence of
evidence but such findings are contradicted by the evidence on record. 36

In this case, we find reason to overturn the rulings of the RTC and CA, since there was grave abuse
of discretion in the appreciation of facts. The CA sustained the quashal of the warrant because the
witnesses had "no personal knowledge of the facts upon which the issuance of the warrants may be
justified," and the applicants and the witnesses merely relied on the screen shots acquired from the
37

confidential informant.
38

We disagree with the conclusions of the CA. The assailed CA Decision itself stated:

Initial hearsay information or tips from confidential informants could very well serve as basis for the
issuance of a search warrant, if followed up personally by the recipient and validated. Looking at
39

the records, it is clear that Padilla and his companions were able to personally verify the tipof their
informant. In his Affidavit submitted to Judge Amor Reyes prior to the issuance of the warrant, Padilla
stated that:

At the time that I was inside the office premises of the NEW FIELDS, I saw the Product Keys or
Product Identification Numbers of the ADOBE and MICROSOFT computer software programs
installed in some of the computer units. Ms. Serrano and Mr. Moradoz were able to pull up these
data since they were allowed to use some of the computers of the target companies in line with the
pretext that we used to gain entry into NEW FIELDS. I actively read and attentively observed the
information reflected from the monitor display unit of the computers that Ms. Serrano and Mr.
Moradoz were able to use. x x x. 40

As mentioned earlier, Padilla has been trained to distinguish illegally reproduced Adobe and
Microsoft software. Thus, in his Affidavit, he stated that:

xxxx

6. I suspect that the ADOBE and MICROSOFT computer software programs that are being used in
the premises of NEW FIELDS are unauthorized, illegal or unlicensed copies because of the following
reasons:

6.1. At least two (2) computer units are using a common Product Identification Number of
MICROSOFT and ADOBE software. This is one indication that the software being used is
1âwphi1

unlicensed or was illegally reproduced or copied. All ADOBE and MICROSOFT computer software
programs should only be used in one computer unit, unless they avail of an Open License
Agreement from the computer software developer, which [was not obtained by] NEW FIELDS. x x x. 41

The evidence on record clearly shows that the applicant and witnesses were able to verify the
information obtained from their confidential source. The evidence likewise shows that there was
probable cause for the issuance of a search warrant. Thus, the requirement of personal knowledge
of the applicant and witnesses was clearly satisfied in this case.

WHEREFORE, the petition is GRANTED. The Decision dated 28 June 2012 and the Resolution
dated 30 January 2013 of the Court of Appeals, uph0lding the 29 June 2010 and 27 August 2010
Orders of the Regional Trial Court, are hereby REVERSED and SET ASIDE. Search Warrant Nos.
10-15912 and 10-15913 are declared valid.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 175151 September 21, 2011

TOBIAS SELGA and CEFERINA GARANCHO SELGA, Petitioners,

vs.
SONY ENTIERRO BRAR, represented by her Attorney-in-Fact MARINA T.
ENTIERRO, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

Before Us is a Petition for Review under Rule 45 of the Rules of Court of the Decision 1 dated May
31, 2006 and Resolution2 dated September 28, 2006 of the Court Appeals in CA-G.R. CV No. 72987,
which reversed the Decision3 dated July 27, 2001 of Branch 56, Regional Trial Court (RTC) of
Himamaylan City, Negros Occidental (RTC-Branch 56), in Civil Case No. 573 for Legal Redemption
with Damages.

The following facts are not disputed:

Francisco Entierro (Francisco) died intestate on March 7, 1979, and left behind a parcel of land,
identified as Lot 1138-A, located in Himamaylan City, Negros Occidental, with an area of 39,577
square meters, and covered by Transfer Certificate of Title (TCT) No. T-10273 in his name (subject
property).

On May 15, 1985, Francisco’s spouse, Basilia Tabile (Basilia), and legitimate children, Esteban,
Herminia, Elma, Percival, and Gilda, all surnamed Entierro (collectively referred to as Basilia, et al.),
executed a Deed of Sale with Declaration of Heirship. In said Deed, Basilia, et al., declared
themselves to be Francisco’s only heirs who inherited the subject property; and at the same time,
sold the subject property to petitioners, spouses Tobias Selga and Ceferina Garancho Selga,
for P120,000.00. By reason of said sale, TCT No. T-10273 in Francisco’s name was cancelled and
replaced by TCT No. T-134408 in petitioners’ names.

Seven years later, on July 10, 1992, respondent Sony Entierro Brar, represented by her sister-in-law
and attorney-in-fact, Marina T. Entierro, filed before Branch 55 of the RTC of Himamaylan City,
Negros Occidental (RTC-Branch 55) a Complaint for Annulment of Sale with Damages against
petitioners, which was docketed as Civil Case No. 276. Respondent claimed that she was one of the
legitimate children of Francisco and Basilia, and that she had been preterited and illegally deprived
of her rightful share and interests in the subject property as one of Francisco’s legal heirs. Among
respondent’s allegations in her Complaint was:

10. That as one of the co-heirs of the undivided portion of the questioned lot 1138-A, [herein
respondent] is legally entitled to redeem the said property from the [herein petitioners] for the price
the said [petitioners] have paid her co-heirs as appearing in the Deed of Sale with Declaration of
Heirship, Annex "B."4
Respondent prayed that RTC-Branch 55 render judgment:

1. Declaring the [herein respondent] as one of the legitimate children and legal heirs of the
late Francisco Entierro and is legally entitled to inherit and share in Lot No. 1138-A of
Himamaylan, which the latter had left behind upon his demise on March 7, 1979;

2. Declaring the annulment of the Deed of Sale with Declaration of Heirship, Annex "B",
because [respondent] was unduly preterited therein, as one of the children and heirs of the
late Francisco Entierro and consequently, the said document should be ordered cancelled
insofar as [respondent’s] legal share and participation over the said Lot 1138-A is concerned;

3. Ordering the [respondent] legally entitled to redeem from the [herein petitioners] the
subject Lot 1138-A for the redemption price of P52,000.00 as one of the co-heirs and co-
owners proindiviso of the said property at the time, the same was sold and conveyed in favor
of the [petitioners] on May 15, 1985, as shown in Annex "B" hereof;

4. Ordering the [petitioners] to account to the [respondent] her share in the produce of the
land in question with respect to her legal share on said property is concerned from May 15,
1985, up to the time, that [respondent’s] legal share and participation therefrom, shall have
been ordered delivered to her;

5. Ordering the [petitioners] to pay the [respondent] the sum of P50,000.00 by way of
attorney’s fee and to pay the costs of this suit;

6. [Respondent] further prays for such other reliefs as may be deemed just and equitable in
the premises.5

After trial on the merits, RTC-Branch 55 rendered a Decision dated May 8, 1996.

According to RTC-Branch 55, it was duly proven that respondent is a legitimate daughter of
Francisco and Basilia; a fact admitted by petitioner Tobias Selga himself during his cross-
examination. Upon Francisco’s death, half of the subject property was inherited by his spouse,
Basilia; while the other half was inherited by his children, pro-indiviso. The property relation of
Francisco’s heirs as regards the subject property was governed by the provisions on co-ownership.
Basilia, et al., validly sold all their rights and interests over the subject property to petitioners,
excluding the rights and interests over the same pertaining to respondent, who did not participate in
the execution of the Deed of Sale. RTC-Branch 55 summed up its findings, thus:

The other heirs have no right to sell the share belonging to the [herein respondent]. Although this
fact is known to the [herein petitioners], the [respondent’s] share was included in the Deed of Sale by
selling the entire Lot No. 1138-A. The [petitioners], knowing that [respondent] Sony Entierro Brar was
preterited during the settlement and disposition of the subject Lot No. 1138-A, was in bad faith when
he caused for the registration of the entire lot in his name. Knowing that there was a flaw in his title,
an implied trust was created with respect to that of the share belonging to respondent Sony Entierro
Brar.6

RTC-Branch 55 finally disposed:

WHEREFORE, based on the foregoing premises and considerations, the Court hereby renders
judgment declaring the annulment of the Deed of Sale with Declaration of heirship dated May 15,
1985 adjudicating ownership of Lot No. 1138-A in the name of [herein respondent] Sony Entierro
Brar being one of the legitimate heirs of spouses Francisco Entierro and Basilia Tabile one eleventh
(1/11) share and ten eleventh (10/11) share in the name of [herein petitioner] Tobias Selga married to
Ceferina Garancho and further orders the following:

1. For the relocation survey of Lot No. 1138-A to establish the definite location of the
respective share of the parties, the expenses to be borne by them proportionately to their
share;

2. The Register of Deeds of the Province of Negros Occidental is hereby directed to cancel
Transfer Certificate of Title No. T-134408 and in lieu thereof issue a new transfer certificate of
title in the name of Tobias Selga consisting of an area of Thirty[-]Seven Thousand Seven
Hundred Seventy[-]Eight (37,778) square meters and another new transfer certificate of title
in the name of Sony Entierro Brar consisting of an area of One Thousand Seven Hundred
Ninety[-]Nine (1,799) square meters upon submission of an approved subdivision plan;

3. For the [petitioners] to account to [respondent] her share in the produce of the land from
May 15, 1985 up to the time that [respondent’s] possession of her share of Lot No. 1138-A is
restored to her; and, finally,

4. For the [petitioners] to pay [respondent] the sum of P50,000.00 as attorney’s fee and to
pay the costs of suit.7

Unsatisfied, respondent filed an appeal of the aforequoted judgment of RTC-Branch 55 before the
Court of Appeals, where it was docketed as CA-G.R. CV No. 9520A UDK. However, respondent
subsequently moved to withdraw her appeal, which the Court of Appeals granted in a Resolution
dated June 13, 1997. The Decision dated May 8, 1996 of RTC-Branch 55 eventually attained finality.

In a Letter dated August 11, 1997, respondent informed petitioners that she was exercising her right
to redeem petitioners’ ten-eleventh (10/11) share in the subject property, in accordance with the final
and executory Decision dated May 8, 1996 of RTC-Branch 55 in Civil Case No. 276. In their Reply-
Letter dated August 20, 1997, petitioners’ counsel rejected respondent’s demand for the following
reasons:

Please be informed that your claim re redemption is devoid of complete merit.

It must be remembered that in your complaint, you pleaded redemption as one of your causes of
action and even specifically sought the same as a prayer in your complaint. However, on the basis of
the decision of the Regional Trial Court, dated May 8, 1996, the court did not see fit to grant you the
right of redemption.

It is the considered view of the undersigned that in line with established jurisprudence, you cannot
now or in the future, exercise this right.8

This prompted respondent to institute on January 21, 1998 a Complaint for Legal Redemption with
Damages, which was docketed as Civil Case No. 573 before RTC-Branch 56.

In their Answer with Counterclaim9 in Civil Case No. 576, petitioners invoked the defenses of res
judicata and/or forum shopping, arguing that the cause of action pleaded by respondent was among
those that had already been litigated in Civil Case No. 276 before RTC-Branch 55.
In its Decision dated July 27, 2001, RTC-Branch 56 agreed with petitioners and dismissed Civil Case
No. 573, ratiocinating that:

The primary issue to be resolved in this case is whether or not the present action is barred by res
judicata in view of the finality of the decision in Civil Case No. 276 involving the same parties herein.
Although the prior case was entitled annulment of sale with damages, yet, the averments in the
complaint and the reliefs sought for included the legal redemption of Lot 1138-A, which is the subject
of the present action, particularly paragraph 10 of the complaint and paragraph 3 of the prayer
therein which were earlier quoted. The elements of res judicata are (1) the judgment bring sought to
bar the new action must be final; (2) the decision must have been rendered by a court having
jurisdiction over the subject matter and the parties; (3) the disposition of the case must be based on
a judgment or order on the merits; and (4) there must be identity of parties, subject matter and
causes of action as between the prior and the subsequent actions. Clearly, these elements are
present. It is an elementary rule that the nature of a cause of action is determined by the facts
alleged in the complaint as constituting a cause of action. There is, therefore, identity of parties,
subject matter and cause of action between the two (2) cases.

Since the decision in Civil Case No. 276 was silent on the issue of legal redemption, it can be
inferred therefrom that the court did not see it fit to grant the same. Plaintiff should have moved for
the reconsideration thereof or should have appealed to the Court of Appeals raising this particular
issue. It did not do so. Thus, the decision had become final and executory.

The filing of the present action constitutes forum shopping. "The filing of multiple suits involving the
same parties for the same cause of action, either simultaneously or successively, for the purpose of
obtaining a favorable judgment amounts to forum shopping. Only when the successive filing of the
suits as part of an appeal, or a special civil action, will there be no forum shopping because the party
no longer availed of different fora but, rather, through a review of a lower tribunal’s decision or order."
(Quinsay v. CA, et al., G.R. No. 127058, Aug. 31, 2000.) 10

Respondent’s appeal of the aforementioned judgment of RTC-Branch 56 was docketed as CA-G.R.

CV No. 72987 before the Court of Appeals.

On May 31, 2006, the Court of Appeals promulgated its Decision in CA-G.R. CV No. 72987, which
reversed and set aside the assailed July 27, 2001 Decision of RTC-Branch 56 in Civil Case No. 573.

The Court of Appeals held that respondent had validly exercised her right to redemption of the
subject property:

As a rule, co-heir/s or co-owner/s of undivided property are required to notify in writing the other co-
heir/s or co-owner/s of the actual sale of the former’s share in the co-ownership. And, within one (1)
month or 30 days from the said notice, a co-heir or co-owner who wish to redeem such property
must make a claim for the reconveyance of the same by either consignation in court or offer to
repurchase by tendering the vendor payment of the redemption money. 1âwphi1

A thorough perusal of the records as well as the documentary evidences presented by both parties
reveal that no written notice was given by the heirs of Francisco Entierro to [herein respondent]
regarding the sale of Lot No. 1138-A, because, [respondent] was preterited or omitted in the
inheritance during the settlement and disposition of the subject lot. She was initially not considered
nor included as heir of Francisco Entierro not until she was judicially declared one. However, despite
the absence of a written notice, [respondent], in her complaint in Civil Case No. 276, impleaded
therein her claim to redeem Lot No. 1138-A sold by her co-heirs to [herein petitioners]. Hence, by
such act, [respondent] had effectively enforced her right. 11
The appellate court further ruled that Civil Case No. 573 before RTC-Branch 56 was not barred by
the final judgment in Civil Case No. 276 of RTC-Branch 55:

What had became final and conclusive in Civil Case No. 276 is only with respect to the filiation of
[herein respondent] and [her] right to inherit, but not as to [respondent’s] right to redeem the property
sold by her co-heirs.

We disagree with the court a quo’s holding which provides, to wit: "Since the decision in Civil Case
No. 276 was silent on the issue of legal redemption, it can be inferred therefrom that the court did
not see it fit to grant the same."

Right of legal redemption is a statutory right provided by law – as long as the redemptioner
possesses all the essential requisites and comply with the requirements, such right need not be
judicially declared in order for it to be enforced. The role of the court is only to ascertain whether the
essential requisites and requirements are properly complied with. As the right of redemption is
inherent to every co-heir or co-owner, denial of the said right must be explicitly and expressly
provided and justified by the court and not by mere silence only. Silence of the decision in Civil Case
No. 276 on the issue of [respondent’s] right of redemption does not mean that the same was denied.
Only the issues of filiation and the validity of the Deed of Sale with Declaration of Heirship were
judicially determined by the lower court on the said case. Hence, in the instant case, this Court may
rule upon the issue of redemption.12

The Court of Appeals decreed in the end:

WHEREFORE, premises considered, the assailed Decision of the Regional Trial Court of
Himamaylan City, Negros Occidental, Branch 56 dated July 27, 2001 is hereby REVERSED and
SET ASIDE and a new one is hereby ENTERED by recognizing [herein respondent’s] legal right to
redeem Lot No. 1138-A of Himamaylan Cadastre, Negros Occidental from [herein petitioners].

[Respondent] is hereby given thirty (30) days from the finality of this Decision within which to
exercise his right of redemption over Lot No. 1138-A by reimbursing [petitioners] the price of the sale
in the amount of P120,000.00 plus the total value of the improvements, if any, on the subject lot
based on the current fair market value.

Failure of [respondent] to redeem the property within the period herein provided shall vest
[petitioners] absolute right over subject property.13

Petitioners now come before this Court via the instant Petition for Review, insisting that respondent’s
right to redemption of the subject property from petitioners was among the causes of action already
litigated in Civil Case No. 276 before RTC-Branch 55; and the very same cause of action between
the same parties involving the same subject matter was merely duplicated in Civil Case No. 573
before RTC-Branch 56. Thus, the prior final judgment rendered in Civil Case No. 276 already barred
Civil Case No. 573.

Respondent counters that Civil Case No. 573 before RTC-Branch 56 involving her legal right to
redeem the subject property from petitioners cannot be deemed barred by the final judgment in Civil
Case No. 276 rendered by RTC-Branch 55 because said issue was not explicitly ruled upon in the
latter case.

We find merit in the instant Petition.

Res judicata means "a matter adjudged; a thing judicially acted upon or decided; a thing or matter
settled by judgment." It lays the rule that an existing final judgment or decree rendered on the merits,
without fraud or collusion, by a court of competent jurisdiction, upon any matter within its jurisdiction,
is conclusive of the rights of the parties or their privies, in all other actions or suits in the same or any
other judicial tribunal of concurrent jurisdiction on the points and matters in issue in the first suit. 14

It must be remembered that it is to the interest of the public that there should be an end to litigation
by the parties over a subject fully and fairly adjudicated. The doctrine of res judicata is a rule that
pervades every well-regulated system of jurisprudence and is founded upon two grounds embodied
in various maxims of the common law, namely: (1) public policy and necessity, which dictates that it
would be in the interest of the State that there should be an end to litigation — republicae ut sit
litium; and (2) the hardship on the individual that he should be vexed twice for the same cause —
nemo debet bis vexari pro una et eadem causa. A contrary doctrine would subject public peace and
quiet to the will and neglect of individuals and prefer the gratification of the litigious disposition on the
part of suitors to the preservation of public tranquility and happiness. 15

Res judicata has two concepts. The first is bar by prior judgment under Rule 39, Section 47(b), and
the second is conclusiveness of judgment under Rule 39, Section 47(c). 16 These concepts differ as to
the extent of the effect of a judgment or final order as follows:

SEC. 47. Effect of judgments or final orders. – The effect of a judgment or final order rendered by a
court of the Philippines, having jurisdiction to pronounce the judgment or final order, may be as
follows:

xxxx

(b) In other cases, the judgment or final order is, with respect to the matter directly adjudged
or as to any other matter that could have been raised in relation thereto, conclusive between
the parties and their successors in interest by title subsequent to the commencement of the
action or special proceeding, litigating for the same thing and under the same title and in the
same capacity; and

(c) In any other litigation between the same parties or their successors in interest, that only is
deemed to have been adjudged in a former judgment or final order which appears upon its
face to have been so adjudged, or which was actually and necessarily included therein or
necessary thereto.

Jurisprudence taught us well that res judicata under the first concept or as a bar against the
prosecution of a second action exists when there is identity of parties, subject matter and cause of
action in the first and second actions. The judgment in the first action is final as to the claim or
demand in controversy, including the parties and those in privity with them, not only as to every
matter which was offered and received to sustain or defeat the claim or demand, but as to any other
admissible matter which might have been offered for that purpose and of all matters that could have
been adjudged in that case. In contrast, res judicata under the second concept or estoppel by
judgment exists when there is identity of parties and subject matter but the causes of action are
completely distinct. The first judgment is conclusive only as to those matters actually and directly
controverted and determined and not as to matters merely involved herein. 17

The case at bar satisfies the four essential requisites of res judicata under the first concept, bar by
prior judgment, viz:

(a) finality of the former judgment;

 (b) the court which rendered it had jurisdiction over the subject matter and the parties;

(c) it must be a judgment on the merits; and

(d) there must be, between the first and second actions, identity of parties, subject matter
and causes of action.18

It is not disputed that the Decision dated May 8, 1996 of RTC-Branch 55 in Civil Case No. 276 had
become final and executory. Petitioners no longer appealed the said decision, while respondent
withdrew her appeal of the same before the Court of Appeals.

There is also no question that RTC-Branch 55 had jurisdiction over the subject matter and parties in
Civil Case No. 276, and that its Decision dated May 8, 1996 was a judgment on the merits, i.e., one
rendered after a consideration of the evidence or stipulations submitted by the parties at the trial of
the case.19

Controversy herein arises from the fourth requirement: the identity of parties, subject matter and,
particularly, the causes of action between Civil Case No. 276 and Civil Case No. 573.

There is identity of parties. Civil Case No. 276 and Civil Case No. 573 were both instituted by
respondent against petitioners.

There is also identity of subject matter. Civil Case No. 276 and Civil Case No. 573 both involved
respondent’s rights and interests over the subject property as Francisco’s legitimate child and
compulsory heir.

Finally, there is identity of causes of action.

Section 2, Rule 2 of the Rules of Court defines a cause of action as "the act or omission by which a
party violates a right of another." The cause of action in Civil Case No. 273 and Civil Case No. 576 is
the sale of the entire subject property by Basilia, et al., to petitioners without respondent’s knowledge
and consent, hence, depriving respondent of her rights and interests over her pro-indiviso share in
the subject property as a co-heir and co-owner. The annulment of the sale of respondent’s share in
the subject property, the legal redemption by respondent of her co-heirs’ share sold to petitioners,
and the claim for damages should not be mistaken to be the causes of action, but they were the
remedies and reliefs prayed for by the respondent to redress the wrong allegedly committed against
her.

The allegations in respondent’s Complaint in Civil Case No. 573 initially give the impression that the
cause of action therein was petitioners’ refusal to heed respondent’s demand to redeem petitioners’
ten-eleventh (10/11) share in the subject property. But a closer study of said Complaint, as well as
the trial proceedings before RTC-Branch 56, reveal that respondent’s right to redeem petitioners’
ten-eleventh (10/11) share in the subject property also arose from the sale of the said subject
property to petitioners by respondent’s co-heirs and co-owners, alleged to be without respondent’s
knowledge or consent – the very same cause of action at the crux of Civil Case No. 276.

In their Memorandum20 filed on September 3, 2007 before this Court, respondent invoked Articles
1088 and 1620 of the Civil Code of the Philippines in support of their right to redeem the subject
property. The said provisions state:
Art. 1088. Should any of the heirs sell his hereditary rights to a stranger before the partition, any or
all of the co-heirs may be subrogated to the rights of the purchaser by reimbursing him for the price
of the sale, provided they do so within the period of one month from the time they were notified in
writing of the sale by the vendor.

xxxx

Art. 1620. A co-owner of a thing may exercise the right of redemption in case the shares of all the
other co-owners or of any of them, are sold to a third person. If the price of the alienation is grossly
excessive, the redemptioner shall pay only a reasonable one.

Should two or more co-owners desire to exercise the right of redemption, they may only do so in
proportion to the share they may respectively have in the thing owned in common.

In her Complaint in Civil Case No. 276, respondent already alleged her right to redemption and
prayed, among others, the RTC-Branch 55 to order respondent legally entitled to redeem the subject
property for the price ofP52,000.00. The Decision dated May 8, 1996 of the RTC-Branch 55 neither
discussed respondent’s right to redemption nor ordered in its decretal portion for petitioners to
accept respondent’s offer to redeem the subject property. In consonance with the provisions of Rule
39, Section 47 of the Rules of Court cited above, we hold that all the matters within the issues raised
in Civil Case No. 276 were laid before RTC-Branch 55 and passed upon by it. Resultantly, the
silence of the Decision dated May 8, 1996 in Civil Case No. 276 on respondent’s right to redemption
invoked by the latter does not mean that RTC-Branch 55 did not take cognizance of the same, but
rather, that RTC-Branch 55 did not deem respondent entitled to said right.

Regardless of whether or not RTC-Branch 55 erred in not ordering the redemption by respondent of
the subject property in the Decision dated May 8, 1996 in Civil Case No. 276, said judgment can no
longer be reviewed or corrected by RTC-Branch 56 in Civil Case No. 573. Any error committed by
RTC-Branch 55 in the Decision dated May 8, 1996 in Civil Case No. 276 could only be reviewed or
corrected on appeal. Although respondent initially filed an appeal of said judgment before the Court
of Appeals, she eventually filed a motion to withdraw the same, which was granted by the appellate
court. Hence, the Decision dated May 8, 1996 attained finality.

As we held in Ram’s Studio and Photographic Equipment, Inc. v. Court of Appeals, 21 a judgment
which has acquired finality becomes immutable and unalterable, hence, may no longer be modified
in any respect except to correct clerical errors or mistakes, all the issues between the parties being
deemed resolved and laid to rest. We added in Manila Electric Company v. Philippine Consumers
Foundation, Inc.22 that a final and executory judgment or order can no longer be disturbed or
reopened no matter how erroneous it may be. Although judicial determinations are not infallible,
judicial error should be corrected through appeals, not through repeated suits on the same claim.

We rationalized in Navarro v. Metropolitan Bank & Trust Company 23 the doctrine of immutability of a
final judgment as follows:

No other procedural law principle is indeed more settled than that once a judgment becomes final, it
is no longer subject to change, revision, amendment or reversal, except only for correction of clerical
errors, or the making of nunc pro tunc entries which cause no prejudice to any party, or where the
judgment itself is void. The underlying reason for the rule is two-fold: (1) to avoid delay in the
administration of justice and thus make orderly the discharge of judicial business, and (2) to put
judicial controversies to an end, at the risk of occasional errors, inasmuch as controversies cannot
be allowed to drag on indefinitely and the rights and obligation of every litigant must not hang in
suspense for an indefinite period of time. As the Court declared in Yau v. Silverio:
Litigation must end and terminate sometime and somewhere, and it is essential to an effective and
efficient administration of justice that, once a judgment has become final, the winning party be, not
through a mere subterfuge, deprived of the fruits of the verdict. Courts must therefore guard against
any scheme calculated to bring about that result. Constituted as they are to put an end to
controversies, courts should frown upon any attempt to prolong them.

Indeed, just as a losing party has the right to file an appeal within the prescribed period, the winning
party also has the correlative right to enjoy the finality of the resolution of his case by the execution
and satisfaction of the judgment. Any attempt to thwart this rigid rule and deny the prevailing litigant
his right to savor the fruit of his victory must immediately be struck down. Thus, in Heirs of
Wenceslao Samper v. Reciproco-Noble, we had occasion to emphasize the significance of this rule,
to wit:

It is an important fundamental principle in our Judicial system that every litigation must come to an
end x x x Access to the courts is guaranteed. But there must be a limit thereto. Once a litigant's
rights have been adjudicated in a valid final judgment of a competent court, he should not be granted
an unbridled license to come back for another try. The prevailing party should not be harassed by
subsequent suits. For, if endless litigations were to be encouraged, then unscrupulous litigants will
multiply in number to the detriment of the administration of justice.24

Exceptions to the immutability of final judgment are allowed only under the most extraordinary of
circumstances. The instant case cannot be considered an exception especially when respondent
had the opportunity to appeal the Decision dated May 8, 1996 of RTC-Branch 55 in Civil Case No.
276, but by her own action, desisted from pursuing the same.

Therefore, Civil Case No. 573 before RTC-Branch 56 should be dismissed, being barred by res
judicata, given the final and executory Decision dated May 8, 1996 of RTC-Branch 55 in Civil Case
No. 276. We stress that res judicata, in the concept of bar by prior judgment, renders the judgment
or final order conclusive between the parties and their privies, not just with respect to a matter
directly adjudged, but also any other matter that could have been raised in relation thereto.

WHEREFORE, the instant Petition is hereby GRANTED. The Decision dated May 31, 2006 and
Resolution dated September 28, 2006 of the Court Appeals in CA-G.R. CV No. 72987 are SET
ASIDE. The Decision dated July 27, 2001 of Branch 56 of the Regional Trial Court of Himamaylan
City, Negros Occidental, dismissing Civil Case No. 573, is REINSTATED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 181485 February 15, 2012

PHILIPPINE NATIONAL BANK, Petitioner,

vs.
GATEWAY PROPERTY HOLDINGS, INC., Respondent.

DECISION

LEONARDO – DE CASTRO, J.:

Submitted for our consideration is a Petition for Review on Certiorari 1 under Rule 45 of the Rules of
Court, which seeks the reversal of the Decision 2 dated September 28, 2007 and the
Resolution3 dated January 24, 2008 of the Court of Appeals in CA-G.R. CV No. 75108. The appellate
court’s decision set aside the Order 4 dated December 20, 2001 of the Regional Trial Court (RTC) of
Trece Martires City, Branch 23, in Civil Case No. TM-1108; while the appellate court’s resolution
denied the motion for reconsideration of said court’s September 28, 2007 decision.

The antecedents of the case are as follows:

Civil Case No. TM-1022 (Annulment of the Real Estate Mortgage)

On July 27, 2000, herein respondent Gateway Property Holdings, Inc. (GPHI) filed a Complaint with
Application for the Issuance of a Writ of Preliminary Injunction 5 against herein petitioner Philippine
National Bank (PNB). The case was docketed as Civil Case No. TM-1022 in the RTC of Trece
Martires City, Branch 23.

According to the complaint, GPHI was a subsidiary company of Gateway Electronics Company
(GEC). In 1995 and 1996, GEC obtained long term loans from the Land Bank of the Philippines
(LBP) in the amount ofP600,000,000.00. The loans were secured by mortgages executed by GEC
over its various properties. Subsequently, LBP offered to provide additional funds to GEC by inviting
other banking institutions to lend money therefor. LBP allegedly agreed to submit the properties
mortgaged to it by GEC as part of the latter’s assets that will be covered by a Mortgage Trust
Indenture (MTI), ensuring that "all participating banks in the loan syndicate will have equal security
position."6 Before the formal execution of an MTI, LBP and a consortium of banks entered into a
Memorandum of Understanding (MOU), whereby LBP agreed to release the mortgaged properties to
the consortium of banks on the basis of an MTI. Relying on the said undertaking, the participating
banks released funds in favor of GEC. PNB later became part of this consortium of creditor banks. 7

Thereafter, GEC allegedly encountered difficulties in paying its obligations to the banks, including
those owed to PNB. GEC then requested PNB to convert its long-term loans into a Convertible
Omnibus Credit Line. In a letter 8dated August 13, 1997 addressed to Israel F. Maducdoc, the Senior
Vice President of GEC, PNB approved such a conversion subject to certain conditions. As part of the
requirements of PNB, GPHI was made a co-borrower in the agreement and was obligated to
execute in favor of PNB a real estate mortgage over two parcels of land covered by Transfer
Certificates of Title (TCT) Nos. T-636816 and T-636817. 9 The letter likewise provided that PNB shall
hold physical possession of the said titles until GPHI shall have made the assignment of the sales
proceeds of the aforementioned real properties, up to a minimum of P112 million, to be applied
towards the repayment of GEC’s outstanding obligations with PNB. Furthermore, the letter stated
that the real estate mortgage "shall be registered with the Registry of Deeds in an event of default." 10

In March 1998, LBP allegedly refused to abide by its undertaking to share the mortgaged properties
of GEC with the consortium of creditor banks. GEC, thus, filed a complaint for specific performance
against LBP, which was docketed as Civil Case No. 98-782.

On or about June 19, 2000, PNB purportedly demanded from GEC the full payment of the latter’s
obligations. Thereafter, GPHI learned of PNB’s supposedly underhanded registration of the real
estate mortgage with intent to foreclose the same.

GPHI principally alleged in its complaint that "[t]he understanding between GEC and PNB is that the
GPHI properties would stand merely as a ‘temporary security’ pending the outcome of Civil Case No.
98-782 which was filed by GEC against LBP. The GPHI Property was never contemplated at any
time as a collateral for GEC’s loan obligations to PNB." 11 Also, GPHI argued that "[t]he execution of a
Real Estate Mortgage in favor of [PNB] over the GPHI Property did not reflect the true intention of
the parties thereto, GEC and PNB. The documents attached as Annexes to [the complaint] clearly
show the interim or temporary nature of the mortgage arrangement." 12GPHI contended that PNB had
no legal right to effect the foreclosure of the mortgaged properties.

GPHI, thus, prayed that upon receipt of the complaint by the trial court, a temporary restraining order
(TRO) be issued to enjoin PNB from foreclosing on the properties of GPHI covered by TCT Nos. T-
636816 and T-636817, as well as from registering the fact of foreclosure or performing any act that
would deprive GPHI of its ownership of the said properties. GPHI likewise prayed that, after trial on
the merits, judgment be issued declaring that: (1) the real estate mortgage involving the properties of
GPHI and executed in favor of PNB is null and void; (2) PNB be enjoined from foreclosing on the
aforementioned properties of GPHI and from registering the same; and (3) PNB be ordered to pay to
GPHI the amount of P500,000.00 as attorney’s fees and litigation expenses.13

It appears that the RTC did not issue a TRO in favor of GPHI in the above case such that, on May 3,
2001, PNB initiated extrajudicial foreclosure proceedings on the properties covered by TCT Nos. T-
636816 and T-636817.14The properties were sold at a public auction on June 20, 2001. According to
the Minutes of Public Auction Sale15executed by the RTC Deputy Sheriff of Cavite, PNB was the sole
bidder and it thereby acquired the properties for a sale bid price of P168,000,000.00.

Civil Case No. TM-1108 (Annulment of the Foreclosure Sale)

On August 14, 2001, GPHI filed a Petition for Annulment of Foreclosure of Mortgage with Application
for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction. 16 Docketed
as Civil Case No. TM-1108, the petition was also raffled in Branch 23 of the RTC of Trece Martires
City.

GPHI argued that, in conducting the foreclosure proceedings, the sheriff failed to observe the
requirement of Section 4 of Act No. 3135 that the "sale shall be made at public auction." The entries
in the minutes of the foreclosure sale allegedly did not indicate that a valid public auction was carried
out in keeping with the requirements of the law. More importantly, among its causes of action, GPHI
contended that:

17. [PNB] should not have proceeded in registering as well as in foreclosing [GPHI’s] mortgaged
assets since the latter cannot yet be considered in default in accordance with the Amendment to
Credit Agreement executed by [GEC], petitioner GPHI and respondent PNB on November 28, 1997.
Moreover, [PNB] knows all along that the subject real properties was never intended to be used as
permanent collateral for GEC, but one which was simply used as an unregistered security until
[GPHI] incurs in default if sold and the proceeds of which should be used in payment for the
obligation of GEC.

Section 5.(5.01) of said Amendment to Credit Agreement states that:

"5.01. Undertaking to Sell and Assignment. The borrowers hereby undertake to sell the Mortgaged
Properties to third parties and apply the proceeds thereof to the payment of the Seven-Year Term
Loan up to the extent of PESOS: ONE HUNDRED TWELVE MILLION (P112,000,000.00). Any
shortfall in such amount shall be funded by GEC. For this purpose, the Borrowers hereby assign,
transfer and convey unto and in favor of the Bank the said amount of P112,000,000.00 out of the
proceeds of the sale of the Mortgaged Properties.

The Borrowers’ failure to remit to the Bank the amount of P112,000,000.00 within three (3) banking
days reckoned from the sale of the Mortgaged Properties shall be considered an Event of Default
(as such term is hereinafter defined) and shall be subject to the consequences herein provided."

xxxx

19. Moreover, it was clearly provided in [PNB’s] letter dated August 13, 1997 that the [real estate
mortgage] shall be unregistered and will be registered with the Registry of Deeds only "in an event of
default." It is also clear in the said letter that [PNB] shall only hold physical possession of said TCT
Nos. 636817 and 636816 x x x until the condition of assigning the sales proceeds of the mentioned
real properties up to a minimum of US$ equivalent of PhP112,000,000.00 to [PNB] is complied with. 17

GPHI, thereafter, sought for a judgment: (1) perpetually prohibiting PNB from divesting GPHI of its
possession and ownership of the mortgaged properties, as well as taking possession, administration
and ownership thereof; (2) declaring the foreclosure sale conducted on June 20, 2001 as null and
void; (3) ordering PNB to pay GPHIP2,000,000.00 as moral damages, P1,000,000.00 as exemplary
damages, P500,000.00 as attorney’s fees and costs of suit.

On September 11, 2001, PNB filed a Motion to Dismiss 18 the above petition, and contended that
there was another action pending between the same parties for the same cause of action.
Essentially, PNB argued that GPHI resorted to a splitting of a cause of action by first filing a
complaint for the annulment of the contract of real estate mortgage and then filing a petition for the
annulment of the subsequent foreclosure of the mortgage. PNB further alleged that the subsequent
petition of GPHI failed to state a cause of action.

On December 20, 2001, the RTC ordered the dismissal of Civil Case No. TM-1108. The trial court
elucidated thus:

Prior to the filing of the above-entitled case, [GPHI] filed against [PNB] an action for annulment of
Mortgage with Application for Temporary Restraining Order and Writ of Preliminary Injunction
docketed as Civil Case No. TM-1022. While the first action was filed on July 27, 2001, above-entitled
case was filed on August 14, 2001 because there was no Temporary Restraining Order or Writ of
Preliminary Injunction issued in the first case, the foreclosure sale of the [mortgage] sought to be
enjoined by [GPHI] as against [PNB] from this Court, proceeded in the ordinary course of law and a
certificate of sale was issued in favor of the bank. Not obtaining the relief desired, [GPHI]
endeavored the remedy of filing this case; Annulment of Foreclosure of Mortgage with Application for
the issuance of a Temporary Restraining Order [and/or] writ of Preliminary Injunction thinking it to be
the right resources instead of pursuing to attack [PNB] in the first case thus filed.

Both cases, Civil Case No. TM-1022 and TM-1108 practically involved the same parties,
substantially identical causes of action and reliefs prayed for, the reliefs being founded on
the same facts. Ironically, these cases are now both filed in this Court.

Considering the foregoing circumstances where a single cause of action has been split and pursuant
to Rule 16, Section 1(e) of the 1997 Rules on Civil Procedure, the Motion to Dismiss filed by [PNB]
through counsel, on the ground that there is another action pending between the same parties for
the same cause, or [litis pendentia], is proper.

Suffice to state that the Court deemed no longer necessary to discuss the second ground relied
upon in [PNB’s] pleading.

ACCORDINGLY, this case is DISMISSED. 19

(Emphasis ours.)

GPHI filed a Motion for Reconsideration 20 of the above ruling, but the trial court denied the motion in
an Order21dated March 14, 2002. GPHI, thus, filed a Notice of Appeal, 22 which was given due course
by the trial court.23

In the interregnum, after the parties presented their respective evidence in Civil Case No. TM-1022
(Annulment of the Real Estate Mortgage), GPHI filed a Motion for Leave to Amend Complaint to
Conform to the Evidence24 on November 24, 2006. In the Amended Complaint 25 attached therein,
GPHI made mention of the foreclosure sale conducted on June 20, 2001 and the fact that the
mortgaged properties were sold to PNB for P168 million. Since GPHI’s liability was allegedly limited
only to P112 million in accordance with the letter of PNB dated August 13, 1997 and the Amendment
to the Credit Agreement between GEC, GPHI and PNB, GPHI claimed that it should be refunded the
amount of P56 million. GPHI then prayed for a judgment declaring the real estate mortgage, the
foreclosure and the sale of the mortgaged properties null and void; or, alternatively, for a judgment
ordering PNB to return to GPHI the amount of P56 million, plus interest.26

The Judgment of the Court of Appeals

GPHI’s appeal in Civil Case No. TM-1108 (Annulment of the Foreclosure Sale) was docketed in the
Court of Appeals as CA-G.R. CV No. 75108. GPHI primarily argued that the causes of action in the
two cases filed before the RTC were separate and distinct such that a decision in one case would
not necessarily be determinative of the issue in the other case.

On September 28, 2007, the Court of Appeals rendered the assailed decision granting the appeal of
GPHI. The relevant portions of the appellate court’s ruling stated:

For litis pendentia to be a ground for the dismissal of an action, the following requisites must concur:
(a) identity of parties; (b) identity of rights asserted and relief prayed for, the relief being founded on
the same facts; and (c) the identity in the two cases should be such that the judgment that may be
rendered in one would, regardless of which party is successful, amount to res adjudicata to the
other.

While it is true that there is an identity of parties and subject matter, the third requisite of litis
pendentia is not present. x x x x
The former suit is for the annulment of the real estate mortgage while the present case is one for the
annulment of the foreclosure of the mortgage. It may be conceded that if the final judgment in the
former action is for the annulment of the mortgage, such an adjudication will deny the right of the
bank to foreclose on the properties. Following the above doctrine, the immediate question would
thus be: Will a decree holding the mortgage contract valid prevent a party from challenging the
propriety of the foreclosure and the conduct of its proceedings?

Verily, an adjudication holding the real estate mortgage valid does not preclude an action
predicated on or involving an issue questioning the validity of the foreclosure. In this
respect, the test of identity fails. The answer being in the negative, the judgment in Civil Case
No. TM-1022 would not be a bar to the prosecution of the present action.

WHEREFORE, the appeal is GRANTED and the assailed order is hereby REVERSED and SET
ASIDE. The case is ordered REMANDED to the court a quo for further proceedings.27 (Emphases
ours.)

PNB moved for the reconsideration 28 of the above decision but the Court of Appeals denied the same
in the assailed Resolution dated January 24, 2008.

PNB, thus, instituted the instant petition.

The Ruling of the Court

In its Memorandum before this Court, PNB averred that "[t]he central issue in this case is whether or
not the requisites of litis pendentia exist to warrant the dismissal of Civil Case No. TM-1108
[Annulment of the Foreclosure Sale]. Stated otherwise, the primary issue is whether or not there is
an identity of parties and causes of action in the two subject cases, such that judgment that may be
rendered in one would amount to res judicata to the other."29

PNB asserts that the validity of the extra-judicial foreclosure proceedings and the incidents thereto
were primary issues tried in Civil Case No. TM-1022 (Annulment of the Real Estate Mortgage). PNB
points out that GPHI even filed a Motion for Leave to Amend Complaint to Conform to the
Evidence30 dated November 23, 2006 to incorporate the issue of the validity of the foreclosure
proceedings. Also, one of the reliefs prayed for in the amended complaint of GPHI in Civil Case No.
TM-1022 (Annulment of the Real Estate Mortgage) is for the declaration of the nullity of the
foreclosure sale. PNB insists that the validity of the foreclosure sale was squarely put in issue during
the trial of Civil Case No. TM-1022 (Annulment of the Real Estate Mortgage) wherein GPHI prayed
for the nullity of both the real estate mortgage and the subsequent foreclosure sale and the
certificate of sale issued in favor of PNB.

For its part, GPHI counters that the causes of action in the two cases filed before the court a quo are
not the same. GPHI explains that it filed Civil Case No. TM-1022 (Annulment of the Real Estate
Mortgage) inasmuch as the real estate mortgage executed in favor of PNB did not reflect the true
intention of the parties thereto. GPHI reiterates that the properties covered by TCT Nos. T-636816
and T-636817 merely served as temporary securities for the loan of GEC from PNB. On the other
hand, GPHI maintains that it filed Civil Case No. TM-1108 (Annulment of the Foreclosure Sale) in
view of the failure of the sheriff to comply with the requirement of Section 4 of Act No. 3135 that
foreclosure proceedings shall be conducted through a public auction.

GPHI further elaborates that should the RTC grant the prayer in Civil Case No. TM-1022 (Annulment
of the Real Estate Mortgage), it would follow that the subsequent foreclosure proceedings involving
the mortgaged properties will likewise be rendered null and void. Even so, GPHI opines that if the
trial court declares the validity of the real estate mortgage in Civil Case No. TM-1022 (Annulment of
the Real Estate Mortgage), the same will not automatically render valid the ensuing foreclosure
proceedings.

We grant the petition of PNB.

As a ground for a motion to dismiss a complaint or any other pleading asserting a claim, litis
pendentia is provided for under Section 1(e), Rule 16 of the Rules of Court, which reads:

Section 1. Grounds. - Within the time for but before filing the answer to the complaint or pleading
asserting a claim, a motion to dismiss may be made on any of the following grounds:

xxxx

(e) That there is another action pending between the same parties for the same cause.

As we held in Dotmatrix Trading v. Legaspi,31 "[l]itis pendentia is a Latin term, which literally means ‘a
pending suit’ and is variously referred to in some decisions as lis pendens and auter action pendant.
As a ground for the dismissal of a civil action, it refers to the situation where two actions are pending
between the same parties for the same cause of action, so that one of them becomes unnecessary
and vexatious."32

We further emphasized in Guevara v. BPI Securities Corporation 33 that "[t]here is litis pendentia or
another actionpendente lite if the following requisites are present: (a) identity of parties, or at least
such parties as represent the same interests in both actions; (b) identity of rights asserted and relief
prayed for, the relief being founded on the same facts; and (c) the identity of the two preceding
particulars is such that any judgment rendered in the other action, will, regardless of which party is
successful, amount to res judicata in the action under consideration." 34

With respect to the first requirement of litis pendentia, the same is undisputedly present in this case.
GPHI is the plaintiff in both Civil Case Nos. TM-1022 and TM-1108, while PNB is the party against
whom GPHI is asserting a claim. That the Registry of Deeds for the Province of Cavite was named
as an additional respondent in Civil Case No. TM-1108 (Annulment of the Foreclosure Sale) bears
little significance. The Court has clarified in Villarica Pawnshop, Inc. v. Gernale 35 that "identity of
parties does not mean total identity of parties in both cases. It is enough that there is substantial
identity of parties. The inclusion of new parties in the second action does not remove the case from
the operation of the rule of litis pendentia."36

The crux of the controversy in the instant case is whether there is an identity of causes of action in
Civil Case Nos. TM-1022 and TM-1108.

Section 2, Rule 2 of the Rules of Court defines a cause of action as "the act or omission by which a
party violates a right of another." Section 3 of Rule 2 provides that "[a] party may not institute more
than one suit for a single cause of action." Anent the act of splitting a single cause of action, Section
4 of Rule 2 explicitly states that "[i]f two or more suits are instituted on the basis of the same cause
of action, the filing of one or a judgment upon the merits in any one is available as a ground for the
dismissal of the others."

Apropos, Carlet v. Court of Appeals37 states that:

As regards identity of causes of action, the test often used in determining whether causes of action
are identical is to ascertain whether the same evidence which is necessary to sustain the second
action would have been sufficient to authorize a recovery in the first, even if the forms or nature of
the two actions be different. If the same facts or evidence would sustain both actions, the two actions
are considered the same within the rule that the judgment in the former is a bar to the subsequent
action; otherwise, it is not.38

In the case at bar, a perusal of the allegations in Civil Case Nos. TM-1022 (Annulment of the Real
Estate Mortgage) and TM-1108 (Annulment of the Foreclosure Sale) reveal that the said cases
invoke the same fundamental issue, i.e., the temporary nature of the security that was to be provided
by the mortgaged properties of GPHI.

To repeat, in the original complaint in Civil Case No. TM-1022 (Annulment of the Real Estate
Mortgage), GPHI’s main argument was that the agreement between GEC and PNB was that the
mortgaged properties of GPHI would merely stand as temporary securities pending the outcome of
Civil Case No. 98-782, the case filed by GEC against LBP. The mortgaged properties were never
contemplated to stand as bona fide collateral for the loan obligations of GEC to PNB. Also, GPHI
claimed that the execution of the real estate mortgage over the properties of GPHI did not reflect the
true intention of GEC and PNB. As such, GPHI concluded that PNB had no legal right to pursue the
remedy of foreclosure of the mortgaged properties in light of the inability of GEC to pay its loan
obligations to PNB.

On the other hand, in its petition in Civil Case No. TM-1108 (Annulment of the Foreclosure Sale),
GPHI asserted that PNB knew that the mortgaged properties were "never intended to be used as
permanent collateral for GEC, but one which was simply used as an unregistered security until
[GPHI] incurs in default if sold and the proceeds of which should be used in payment for the
obligation of GEC."39 In addition, GPHI argued that the letter of PNB dated August 13, 1997 was
clear in that the real estate mortgage was to remain unregistered until an "event of default" occurs
and PNB shall possess the titles covering the properties "until the condition of assigning the sales
proceeds of the mentioned real properties up to a minimum of US$ equivalent of PhP112,000,000.00
to [PNB] is complied with."40

Therefore, in essence, the cause of action of GPHI in both cases is the alleged act of PNB of
reneging on a prior agreement or understanding with GEC and GPHI vis-à-vis the constitution,
purpose and consequences of the real estate mortgage over the properties of GPHI. While the
reliefs sought in Civil Case Nos. TM-1022 (Annulment of the Real Estate Mortgage) and TM-1108
(Annulment of the Foreclosure Sale) are seemingly different, the ultimate question that the trial court
would have to resolve in both cases is whether the real estate mortgage over the properties of GPHI
was actually intended to secure the loan obligations of GEC to PNB so much so that PNB can legally
foreclose on the mortgaged properties should GEC fail to settle its loan obligations. In this regard,
GPHI made reference to the letter of PNB dated August 13, 1997 and the Amendment to the Credit
Agreement between GEC, GPHI and PNB as the primary documents upon which GPHI based its
arguments regarding the supposed intention of the parties in both Civil Case Nos. TM-1022
(Annulment of the Real Estate Mortgage) and TM-1108 (Annulment of the Foreclosure Sale). 41 Thus,
the same documentary evidence would necessarily sustain both cases. 1âwphi1

That GPHI put forward additional grounds in Civil Case No. TM-1108 (Annulment of the Foreclosure
Sale), i.e., that the auction sale was not conducted at a public place in contravention of the
requirement of Section 4 of Act No. 3135 and that the foreclosure was prematurely resorted to given
that GPHI cannot yet be considered in default, does not alter the fact that there exists an identity of
causes of action in the two cases. In Asia United Bank v. Goodland Company, Inc., 42 the Court held
that "[t]he well-entrenched rule is that ‘a party cannot, by varying the form of action, or adopting a
different method of presenting his case, escape the operation of the principle that one and the same
cause of action shall not be twice litigated.’"43

Be that as it may, while the appeal of the dismissal of Civil Case No. TM-1108 (Annulment of the
Foreclosure Sale) was still pending with the Court of Appeals, GPHI filed on November 23, 2006 a
Motion for Leave to Amend Complaint to Conform to the Evidence in Civil Case No. TM-1022
(Annulment of the Real Estate Mortgage). GPHI stated therein that after the parties presented their
evidence, the fact of foreclosure and the acquisition of the mortgaged properties by PNB were duly
established.44 In the accompanying Amended Complaint in Civil Case No. TM-1022 (Annulment of
the Real Estate Mortgage), GPHI prayed, inter alia, for the declaration of the nullity of the foreclosure
and auction sale of the mortgaged properties. As a consequence of such an action, the two cases
that GPHI filed before the court a quo henceforth contained an identity of rights asserted and reliefs
prayed for, the relief being founded on the same factual allegations. Thus, any doubt as to the act of
GPHI of splitting its cause of action has since been removed.

WHEREFORE, the petition is GRANTED. The Decision dated September 28, 2007 and the
Resolution dated January 24, 2008 of the Court of Appeals in CA-G.R. CV No. 75108 are
hereby REVERSED and SET ASIDE. The Order dated December 20, 2001 of the Regional Trial
Court of Trece Martires City, Branch 23, in Civil Case No. TM-1108 is hereby REINSTATED. No
costs.

SO ORDERED.