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[G.R. No. 140954.

April 12, 2005]


On September 22, 1998, Atty. Petalcorin filed a motion to expunge the complaint from the
HEIRS OF BERTULDO[1] HINOG: Bertuldo Hinog II, Bertuldo Hinog III, Bertuldo Hinog, Jr., record and nullify all court proceedings on the ground that private respondents failed to
Jocelyn Hinog, Bertoldo Hinog IV, Bertoldo Hinog V, Edgardo Hinog, Milagros H. Pabatao, specify in the complaint the amount of damages claimed so as to pay the correct docket fees;
Lilian H. King, Victoria H. Engracia, Terisita C. Hinog, Paz H. Besana, Roberto C. Hinog, Vicente and that under Manchester Development Corporation vs. Court of Appeals,[5] non-payment
C. Hinog, Roel C. Hinog, Marilyn C. Hinog, Bebot C. Hinog, lordes C. Hinog, Pablo Chiong, of the correct docket fee is jurisdictional.[6]
Arlene Lanasang (All respresented by Bertuldo Hinog III), petitioners, vs. HON. ACHILLES
MELICOR, in his capacity as Presiding Judge, RTC, Branch 4, 7th Judicial Region, Tagbiliran In an amended motion, filed on October 2, 1998, Atty. Petalcorin further alleged that the
City, Bohol, and CUSTODIO BALANE, RUFO BALANE, HONORIO BALANE, and TOMAS BALANE, private respondents failed to pay the correct docket fee since the main subject matter of the
respondents. case cannot be estimated as it is for recovery of ownership, possession and removal of
construction.[7]
DECISION
Private respondents opposed the motion to expunge on the following grounds: (a) said
AUSTRIA-MARTINEZ, J.: motion was filed more than seven years from the institution of the case; (b) Atty. Petalcorin
has not complied with Section 16, Rule 3 of the Rules of Court which provides that the death
Before us is a petition for certiorari and prohibition under Rule 65 of the Rules of Court which of the original defendant requires a substitution of parties before a lawyer can have legal
assails the Orders dated March 22, 1999, August 13, 1999 and October 15, 1999 of the personality to represent a litigant and the motion to expunge does not mention of any
Regional Trial Court, Branch 4, of Tagbilaran City, Bohol in Civil Case No. 4923. specific party whom he is representing; (c) collectible fees due the court can be charged as
lien on the judgment; and (d) considering the lapse of time, the motion is merely a dilatory
The factual background of the case is as follows: scheme employed by petitioners.[8]

On May 21, 1991, private respondents Custodio, Rufo, Tomas and Honorio, all surnamed In their Rejoinder, petitioners manifested that the lapse of time does not vest the court with
Balane, filed a complaint for Recovery of Ownership and Possession, Removal of Construction jurisdiction over the case due to failure to pay the correct docket fees. As to the contention
and Damages against Bertuldo Hinog (Bertuldo for brevity). They alleged that: they own a that deficiency in payment of docket fees can be made as a lien on the judgment, petitioners
1,399- square meter parcel of land situated in Malayo Norte, Cortes, Bohol, designated as Lot argued that the payment of filing fees cannot be made dependent on the result of the action
No. 1714; sometime in March 1980, they allowed Bertuldo to use a portion of the said taken.[9]
property for a period of ten years and construct thereon a small house of light materials at a
nominal annual rental of P100.00 only, considering the close relations of the parties; after On January 21, 1999, the trial court, while ordering the complaint to be expunged from the
the expiration of the ten-year period, they demanded the return of the occupied portion and records and the nullification of all court proceedings taken for failure to pay the correct
removal of the house constructed thereon but Bertuldo refused and instead claimed docket fees, nonetheless, held:
ownership of the entire property.
The Court can acquire jurisdiction over this case only upon the payment of the exact
Accordingly, private respondents sought to oust Bertuldo from the premises of the subject prescribed docket/filing fees for the main cause of action, plus additional docket fee for the
property and restore upon themselves the ownership and possession thereof, as well as the amount of damages being prayed for in the complaint, which amount should be specified so
payment of moral and exemplary damages, attorneys fees and litigation expenses in that the same can be considered in assessing the amount of the filing fees. Upon the
amounts justified by the evidence. [2] complete payment of such fees, the Court may take appropriate action in the light of the
ruling in the case of Manchester Development Corporation vs. Court of Appeals, supra.[10]
On July 2, 1991, Bertuldo filed his Answer. He alleged ownership of the disputed property by
virtue of a Deed of Absolute Sale dated July 2, 1980, executed by one Tomas Pahac with the Accordingly, on January 28, 1999, upon payment of deficiency docket fee, private
knowledge and conformity of private respondents.[3] respondents filed a manifestation with prayer to reinstate the case.[11] Petitioners opposed
the reinstatement[12] but on March 22, 1999, the trial court issued the first assailed Order
After the pre-trial, trial on the merits ensued. On November 18, 1997, private respondents reinstating the case.[13]
rested their case. Thereupon, Bertuldo started his direct examination. However, on June 24,
1998, Bertuldo died without completing his evidence. On May 24, 1999, petitioners, upon prior leave of court,[14] filed their supplemental
pleading, appending therein a Deed of Sale dated November 15, 1982.[15] Following the
On August 4, 1998, Atty. Sulpicio A. Tinampay withdrew as counsel for Bertuldo as his submission of private respondents opposition thereto,[16] the trial court, in its Order dated
services were terminated by petitioner Bertuldo Hinog III. Atty. Veronico G. Petalcorin then July 7, 1999, denied the supplemental pleading on the ground that the Deed of Absolute Sale
entered his appearance as new counsel for Bertuldo.[4] is a new matter which was never mentioned in the original answer dated July 2, 1991,

1
prepared by Bertuldos original counsel and which Bertuldo verified; and that such new
document is deemed waived in the light of Section 1, Rule 9[17] of the Rules of Court. The At the outset, we note the procedural error committed by petitioners in directly filing the
trial court also noted that no formal substitution of the parties was made because of the instant petition before this Court for it violates the established policy of strict observance of
failure of defendants counsel to give the names and addresses of the legal representatives of the judicial hierarchy of courts.
Bertuldo, so much so that the supposed heirs of Bertuldo are not specified in any pleading in
the case. [18] Although the Supreme Court, Court of Appeals and the Regional Trial Courts have concurrent
jurisdiction to issue writs of certiorari, prohibition, mandamus, quo warranto, habeas corpus
On July 14, 1999, petitioners manifested that the trial court having expunged the complaint and injunction, such concurrence does not give the petitioner unrestricted freedom of choice
and nullified all court proceedings, there is no valid case and the complaint should not be of court forum.[29] As we stated in People vs. Cuaresma:[30]
admitted for failure to pay the correct docket fees; that there should be no case to be
reinstated and no case to proceed as there is no complaint filed.[19] This Court's original jurisdiction to issue writs of certiorari is not exclusive. It is shared by this
Court with Regional Trial Courts and with the Court of Appeals. This concurrence of
After the submission of private respondents opposition[20] and petitioners rejoinder,[21] the jurisdiction is not, however, to be taken as according to parties seeking any of the writs an
trial court issued the second assailed Order on August 13, 1999, essentially denying absolute, unrestrained freedom of choice of the court to which application therefor will be
petitioners manifestation/rejoinder. The trial court held that the issues raised in such directed. There is after all a hierarchy of courts. That hierarchy is determinative of the venue
manifestation/rejoinder are practically the same as those raised in the amended motion to of appeals, and also serves as a general determinant of the appropriate forum for petitions
expunge which had already been passed upon in the Order dated January 21, 1999. for the extraordinary writs. A becoming regard for that judicial hierarchy most certainly
Moreover, the trial court observed that the Order dated March 22, 1999 which reinstated indicates that petitions for the issuance of extraordinary writs against first level (inferior)
the case was not objected to by petitioners within the reglementary period or even courts should be filed with the Regional Trial Court, and those against the latter, with the
thereafter via a motion for reconsideration despite receipt thereof on March 26, 1999.[22] Court of Appeals. A direct invocation of the Supreme Courts original jurisdiction to issue
these writs should be allowed only when there are special and important reasons therefor,
On August 25, 1999, petitioners filed a motion for reconsideration[23] but the same was clearly and specifically set out in the petition. This is [an] established policy. It is a policy
denied by the trial court in its third assailed Order dated October 15, 1999. The trial court necessary to prevent inordinate demands upon the Courts time and attention which are
held that the Manchester rule was relaxed in Sun Insurance Office, Ltd. vs. Asuncion.[24] better devoted to those matters within its exclusive jurisdiction, and to prevent further over-
Noting that there has been no substitution of parties following the death of Bertuldo, the crowding of the Courts docket.[31]
trial court directed Atty. Petalcorin to comply with the provisions of Section 16, Rule 3 of the
Rules of Court. The trial court also reiterated that the Order dated March 22, 1999 The rationale for this rule is two-fold: (a) it would be an imposition upon the precious time of
reinstating the case was not assailed by petitioners within the reglementary period, despite this Court; and (b) it would cause an inevitable and resultant delay, intended or otherwise, in
receipt thereof on March 26, 1999.[25] the adjudication of cases, which in some instances had to be remanded or referred to the
lower court as the proper forum under the rules of procedure, or as better equipped to
On November 19, 1999, Atty. Petalcorin complied with the directive of the trial court to resolve the issues because this Court is not a trier of facts.[32]
submit the names and addresses of the heirs of Bertuldo.[26]
Thus, this Court will not entertain direct resort to it unless the redress desired cannot be
On November 24, 1999, petitioners filed before us the present petition for certiorari and obtained in the appropriate courts, and exceptional and compelling circumstances, such as
prohibition.[27] They allege that the public respondent committed grave abuse of discretion cases of national interest and of serious implications, justify the availment of the
in allowing the case to be reinstated after private respondents paid the docket fee deficiency extraordinary remedy of writ of certiorari, calling for the exercise of its primary jurisdiction.
since the trial court had earlier expunged the complaint from the record and nullified all Exceptional and compelling circumstances were held present in the following cases: (a)
proceedings of the case and such ruling was not contested by the private respondents. Chavez vs. Romulo[33] on citizens right to bear arms; (b) Government of the United States of
Moreover, they argue that the public respondent committed grave abuse of discretion in America vs. Purganan[34] on bail in extradition proceedings; (c) Commission on Elections vs.
allowing the case to be filed and denying the manifestation with motion to dismiss, despite Quijano-Padilla[35] on government contract involving modernization and computerization of
the defect in the complaint which prayed for damages without specifying the amounts, in voters registration list; (d) Buklod ng Kawaning EIIB vs. Zamora[36] on status and existence of
violation of SC Circular No. 7, dated March 24, 1988. a public office; and (e) Fortich vs. Corona[37] on the so-called Win-Win Resolution of the
Office of the President which modified the approval of the conversion to agro-industrial area.
In their Comment, private respondents aver that no grave abuse of discretion was committed
by the trial court in reinstating the complaint upon the payment of deficiency docket fees In this case, no special and important reason or exceptional and compelling circumstance
because petitioners did not object thereto within the reglementary period. Besides, Atty. analogous to any of the above cases has been adduced by the petitioners so as to justify
Petalcorin possessed no legal personality to appear as counsel for the heirs of Bertuldo until direct recourse to this Court. The present petition should have been initially filed in the Court
he complies with Section 16, Rule 3 of the Rules of Court.[28]

2
of Appeals in strict observance of the doctrine on the hierarchy of courts. Failure to do so is 1. It is not simply the filing of the complaint or appropriate initiatory pleading, but the
sufficient cause for the dismissal of the petition at bar. payment of the prescribed docket fee, that vests a trial court with jurisdiction over the
subject-matter or nature of the action. Where the filing of the initiatory pleading is not
In any event, even if the Court disregards such procedural flaw, the petitioners contentions accompanied by payment of the docket fee, the court may allow payment of the fees within
on the substantive aspect of the case fail to invite judgment in their favor. a reasonable time but in no case beyond the applicable prescriptive or reglementary period.

The unavailability of the writ of certiorari and prohibition in this case is borne out of the fact 2. The same rule applies to permissive counterclaims, third-party claims and similar
that petitioners principally assail the Order dated March 22, 1999 which they never sought pleadings, which shall not be considered filed until and unless the filing fee prescribed
reconsideration of, in due time, despite receipt thereof on March 26, 1999. Instead, therefor is paid. The court may also allow payment of said fee within a reasonable time but
petitioners went through the motion of filing a supplemental pleading and only when the also in no case beyond its applicable prescriptive or reglementary period.
latter was denied, or after more than three months have passed, did they raise the issue that
the complaint should not have been reinstated in the first place because the trial court had 3. Where the trial court acquires jurisdiction over a claim by the filing of the appropriate
no jurisdiction to do so, having already ruled that the complaint shall be expunged. pleading and payment of the prescribed filing fee but, subsequently, the judgment awards a
claim not specified in the pleading, or if specified the same has been left for determination
After recognizing the jurisdiction of the trial court by seeking affirmative relief in their motion by the court, the additional filing fee therefor shall constitute a lien on the judgment. It shall
to serve supplemental pleading upon private respondents, petitioners are effectively barred be the responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien
by estoppel from challenging the trial courts jurisdiction.[38] If a party invokes the and assess and collect the additional fee.
jurisdiction of a court, he cannot thereafter challenge the courts jurisdiction in the same
case.[39] To rule otherwise would amount to speculating on the fortune of litigation, which is Plainly, while the payment of the prescribed docket fee is a jurisdictional requirement, even
against the policy of the Court.[40] its non-payment at the time of filing does not automatically cause the dismissal of the case,
as long as the fee is paid within the applicable prescriptive or reglementary period, more so
Nevertheless, there is a need to correct the erroneous impression of the trial court as well as when the party involved demonstrates a willingness to abide by the rules prescribing such
the private respondents that petitioners are barred from assailing the Order dated March 22, payment.[46] Thus, when insufficient filing fees were initially paid by the plaintiffs and there
1999 which reinstated the case because it was not objected to within the reglementary was no intention to defraud the government, the Manchester rule does not apply.[47]
period or even thereafter via a motion for reconsideration despite receipt thereof on March
26, 1999. Under the peculiar circumstances of this case, the reinstatement of the complaint was just
and proper considering that the cause of action of private respondents, being a real action,
It must be clarified that the said order is but a resolution on an incidental matter which does prescribes in thirty years,[48] and private respondents did not really intend to evade the
not touch on the merits of the case or put an end to the proceedings.[41] It is an payment of the prescribed docket fee but simply contend that they could not be faulted for
interlocutory order since there leaves something else to be done by the trial court with inadequate assessment because the clerk of court made no notice of demand or
respect to the merits of the case.[42] As such, it is not subject to a reglementary period. reassessment.[49] They were in good faith and simply relied on the assessment of the clerk
Reglementary period refers to the period set by the rules for appeal or further review of a of court.
final judgment or order, i.e., one that ends the litigation in the trial court.
Furthermore, the fact that private respondents prayed for payment of damages in amounts
Moreover, the remedy against an interlocutory order is generally not to resort forthwith to justified by the evidence does not call for the dismissal of the complaint for violation of SC
certiorari, but to continue with the case in due course and, when an unfavorable verdict is Circular No. 7, dated March 24, 1988 which required that all complaints must specify the
handed down, to take an appeal in the manner authorized by law.[43] Only when the court amount of damages sought not only in the body of the pleadings but also in the prayer in
issued such order without or in excess of jurisdiction or with grave abuse of discretion and order to be accepted and admitted for filing. Sun Insurance effectively modified SC Circular
when the assailed interlocutory order is patently erroneous and the remedy of appeal would No. 7 by providing that filing fees for damages and awards that cannot be estimated
not afford adequate and expeditious relief will certiorari be considered an appropriate constitute liens on the awards finally granted by the trial court.[50]
remedy to assail an interlocutory order.[44] Such special circumstances are absolutely
wanting in the present case. Thus, while the docket fees were based only on the real property valuation, the trial court
acquired jurisdiction over the action, and judgment awards which were left for
Time and again, the Court has held that the Manchester rule has been modified in Sun determination by the court or as may be proven during trial would still be subject to
Insurance Office, Ltd. (SIOL) vs. Asuncion[45] which defined the following guidelines involving additional filing fees which shall constitute a lien on the judgment. It would then be the
the payment of docket fees: responsibility of the Clerk of Court of the trial court or his duly authorized deputy to enforce
said lien and assess and collect the additional fees.[51]

3
It is worth noting that when Bertuldo filed his Answer on July 2, 1991, he did not raise the WHEREFORE, the instant petition for certiorari is DISMISSED for lack of merit.
issue of lack of jurisdiction for non-payment of correct docket fees. Instead, he based his
defense on a claim of ownership and participated in the proceedings before the trial court. It No costs.
was only in September 22, 1998 or more than seven years after filing the answer, and under
the auspices of a new counsel, that the issue of jurisdiction was raised for the first time in the SO ORDERED.
motion to expunge by Bertuldos heirs.

After Bertuldo vigorously participated in all stages of the case before the trial court and even
invoked the trial courts authority in order to ask for affirmative relief, petitioners,
considering that they merely stepped into the shoes of their predecessor, are effectively
barred by estoppel from challenging the trial courts jurisdiction. Although the issue of
jurisdiction may be raised at any stage of the proceedings as the same is conferred by law, it
is nonetheless settled that a party may be barred from raising it on ground of laches or
estoppel.[52]

Moreover, no formal substitution of the parties was effected within thirty days from date of
death of Bertuldo, as required by Section 16, Rule 3[53] of the Rules of Court. Needless to
stress, the purpose behind the rule on substitution is the protection of the right of every
party to due process. It is to ensure that the deceased party would continue to be properly
represented in the suit through the duly appointed legal representative of his estate.[54]
Non-compliance with the rule on substitution would render the proceedings and judgment of
the trial court infirm because the court acquires no jurisdiction over the persons of the legal
representatives or of the heirs on whom the trial and the judgment would be binding.[55]
Thus, proper substitution of heirs must be effected for the trial court to acquire jurisdiction
over their persons and to obviate any future claim by any heir that he was not apprised of
the litigation against Bertuldo or that he did not authorize Atty. Petalcorin to represent him.

The list of names and addresses of the heirs was submitted sixteen months after the death of
Bertuldo and only when the trial court directed Atty. Petalcorin to comply with the provisions
of Section 16, Rule 3 of the Rules of Court. Strictly speaking therefore, before said
compliance, Atty. Petalcorin had no standing in the court a quo when he filed his pleadings.
Be that as it may, the matter has been duly corrected by the Order of the trial court dated
October 15, 1999.

To be sure, certiorari under Rule 65[56] is a remedy narrow in scope and inflexible in
character. It is not a general utility tool in the legal workshop.[57] It offers only a limited form
of review. Its principal function is to keep an inferior tribunal within its jurisdiction.[58] It can
be invoked only for an error of jurisdiction, that is, one where the act complained of was
issued by the court, officer or a quasi-judicial body without or in excess of jurisdiction, or
with grave abuse of discretion which is tantamount to lack or in excess of jurisdiction,[59] not
to be used for any other purpose,[60] such as to cure errors in proceedings or to correct
erroneous conclusions of law or fact.[61] A contrary rule would lead to confusion, and
seriously hamper the administration of justice.

Petitioners utterly failed to show that the trial court gravely abused its discretion in issuing
the assailed resolutions. On the contrary, it acted prudently, in accordance with law and
jurisprudence.

4
[G.R. No. 162788. July 28, 2005] The case originated from a Complaint for the recovery of possession and ownership, the
cancellation of title, and damages, filed by Pedro Joaquin against petitioners in the Regional
Spouses JULITA DE LA CRUZ and FELIPE DE LA CRUZ, petitioners, vs. PEDRO JOAQUIN, Trial Court of Baloc, Sto. Domingo, Nueva Ecija.[6] Respondent alleged that he had obtained
respondent. a loan from them in the amount of P9,000 on June 29, 1974, payable after five (5) years; that
is, on June 29, 1979. To secure the payment of the obligation, he supposedly executed a
DECISION Deed of Sale in favor of petitioners. The Deed was for a parcel of land in Pinagpanaan,
Talavera, Nueva Ecija, covered by TCT No. T-111802. The parties also executed another
PANGANIBAN, J.: document entitled Kasunduan. [7]

The Rules require the legal representatives of a dead litigant to be substituted as parties to a Respondent claimed that the Kasunduan showed the Deed of Sale to be actually an equitable
litigation. This requirement is necessitated by due process. Thus, when the rights of the legal mortgage.[8] Spouses De la Cruz contended that this document was merely an
representatives of a decedent are actually recognized and protected, noncompliance or accommodation to allow the repurchase of the property until June 29, 1979, a right that he
belated formal compliance with the Rules cannot affect the validity of the promulgated failed to exercise.[9]
decision. After all, due process had thereby been satisfied.
On April 23, 1990, the RTC issued a Decision in his favor. The trial court declared that the
The Case parties had entered into a sale with a right of repurchase.[10] It further held that respondent
had made a valid tender of payment on two separate occasions to exercise his right of
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the August repurchase.[11] Accordingly, petitioners were required to reconvey the property upon his
26, 2003 Decision[2] and the March 9, 2004 Resolution[3] of the Court of Appeals (CA) in CA- payment.[12]
GR CV No. 34702. The challenged Decision disposed as follows:
Ruling of the Court of Appeals
WHEREFORE, the foregoing considered, the appeal is DISMISSED and the assailed decision
accordingly AFFIRMED in toto. No costs.[4] Sustaining the trial court, the CA noted that petitioners had given respondent the right to
repurchase the property within five (5) years from the date of the sale or until June 29, 1979.
On the other hand, the trial courts affirmed Decision disposed as follows: Accordingly, the parties executed the Kasunduan to express the terms and conditions of their
actual agreement.[13] The appellate court also found no reason to overturn the finding that
WHEREFORE, judgment is hereby rendered: respondent had validly exercised his right to repurchase the land.[14]

a) declaring the Deed of Absolute Sale (Exh. D) and Kasunduan (Exhibit B), to be a sale with In the March 9, 2004 Resolution, the CA denied reconsideration and ordered a substitution
right of repurchase; by legal representatives, in view of respondents death on December 24, 1988.[15]

b) ordering the plaintiff to pay the defendants the sum of P9,000.00 by way of repurchasing Hence, this Petition.[16]
the land in question;
The Issues
c) ordering the defendants to execute a deed of reconveyance of said land in favor of the
plaintiff after the latter has paid them the amount of P9,000.00 to repurchase the land in Petitioners assign the following errors for our consideration:
question;
I. Public Respondent Twelfth Division of the Honorable Court of Appeals seriously erred in
d) ordering the defendants to yield possession of the subject land to the plaintiff after the dismissing the appeal and affirming in toto the Decision of the trial court in Civil Case No. SD-
latter has paid them the amount of P9,000.00 to repurchase the property from them; and 838;

e) ordering the defendants to pay the plaintiff the amount of P10,000.00 as actual and II. Public Respondent Twelfth Division of the Honorable Court of Appeals likewise erred in
compensatory damages; the amount of P5,000[.00] as exemplary damages; the amount of denying [petitioners] Motion for Reconsideration given the facts and the law therein
P5,000.00 as expenses of litigation and the amount of P5,000.00 by way of attorneys fees.[5] presented.[17]

The Facts Succinctly, the issues are whether the trial court lost jurisdiction over the case upon the
death of Pedro Joaquin, and whether respondent was guilty of forum shopping.[18]

5
The Courts Ruling
This general rule notwithstanding, a formal substitution by heirs is not necessary when they
The Petition has no merit. themselves voluntarily appear, participate in the case, and present evidence in defense of
the deceased.[27] These actions negate any claim that the right to due process was violated.
First Issue:
The Court is not unaware of Chittick v. Court of Appeals,[28] in which the failure of the heirs
Jurisdiction to substitute for the original plaintiff upon her death led to the nullification of the trial courts
Decision. The latter had sought to recover support in arrears and her share in the conjugal
Petitioners assert that the RTCs Decision was invalid for lack of jurisdiction.[19] They claim partnership. The children who allegedly substituted for her refused to continue the case
that respondent died during the pendency of the case. There being no substitution by the against their father and vehemently objected to their inclusion as parties.[29] Moreover,
heirs, the trial court allegedly lacked jurisdiction over the litigation.[20] because he died during the pendency of the case, they were bound to substitute for the
defendant also. The substitution effectively merged the persons of the plaintiff and the
Rule on Substitution defendant and thus extinguished the obligation being sued upon.[30]

When a party to a pending action dies and the claim is not extinguished,[21] the Rules of Clearly, the present case is not similar, much less identical, to the factual milieu of Chittick.
Court require a substitution of the deceased. The procedure is specifically governed by
Section 16 of Rule 3, which reads thus: Strictly speaking, the rule on the substitution by heirs is not a matter of jurisdiction, but a
requirement of due process. Thus, when due process is not violated, as when the right of the
Section 16. Death of a party; duty of counsel. Whenever a party to a pending action dies, and representative or heir is recognized and protected, noncompliance or belated formal
the claim is not thereby extinguished, it shall be the duty of his counsel to inform the court compliance with the Rules cannot affect the validity of a promulgated decision.[31] Mere
within thirty (30) days after such death of the fact thereof, and to give the name and address failure to substitute for a deceased plaintiff is not a sufficient ground to nullify a trial courts
of his legal representative or representatives. Failure of counsel to comply with this duty decision. The alleging party must prove that there was an undeniable violation of due
shall be a ground for disciplinary action. process.

The heirs of the deceased may be allowed to be substituted for the deceased, without Substitution in
requiring the appointment of an executor or administrator and the court may appoint a
guardian ad litem for the minor heirs. the Instant Case

The court shall forthwith order said legal representative or representatives to appear and be The records of the present case contain a Motion for Substitution of Party Plaintiff dated
substituted within a period of thirty (30) days from notice. February 15, 2002, filed before the CA. The prayer states as follows:

If no legal representative is named by the counsel for the deceased party, or if the one so WHEREFORE, it is respectfully prayed that the Heirs of the deceased plaintiff-appellee as
named shall fail to appear within the specified period, the court may order the opposing represented by his daughter Lourdes dela Cruz be substituted as party-plaintiff for the said
party, within a specified time, to procure the appointment of an executor or administrator Pedro Joaquin.
for the estate of the deceased, and the latter shall immediately appear for and on behalf of
the deceased. The court charges in procuring such appointment, if defrayed by the opposing It is further prayed that henceforth the undersigned counsel[32] for the heirs of Pedro
party, may be recovered as costs. Joaquin be furnished with copies of notices, orders, resolutions and other pleadings at its
address below.
The rule on the substitution of parties was crafted to protect every partys right to due
process.[22] The estate of the deceased party will continue to be properly represented in the Evidently, the heirs of Pedro Joaquin voluntary appeared and participated in the case. We
suit through the duly appointed legal representative.[23] Moreover, no adjudication can be stress that the appellate court had ordered[33] his legal representatives to appear and
made against the successor of the deceased if the fundamental right to a day in court is substitute for him. The substitution even on appeal had been ordered correctly. In all
denied.[24] proceedings, the legal representatives must appear to protect the interests of the
deceased.[34] After the rendition of judgment, further proceedings may be held, such as a
The Court has nullified not only trial proceedings conducted without the appearance of the motion for reconsideration or a new trial, an appeal, or an execution.[35]
legal representatives of the deceased, but also the resulting judgments.[25] In those
instances, the courts acquired no jurisdiction over the persons of the legal representatives or Considering the foregoing circumstances, the Motion for Substitution may be deemed to
the heirs upon whom no judgment was binding.[26] have been granted; and the heirs, to have substituted for the deceased, Pedro Joaquin. There

6
being no violation of due process, the issue of substitution cannot be upheld as a ground to Failure to Support Allegation
nullify the trial courts Decision.
The onus of proving allegations rests upon the party raising them.[46] As to the matter of
Second Issue: forum shopping and res judicata, petitioners have failed to provide this Court with relevant
and clear specifications that would show the presence of an identity of parties, subject
Forum Shopping matter, and cause of action between the present and the earlier suits. They have also failed
to show whether the other case was decided on the merits. Instead, they have made only
Petitioners also claim that respondents were guilty of forum shopping, a fact that should bare assertions involving its existence without reference to its facts. In other words, they
have compelled the trial court to dismiss the Complaint.[36] They claim that prior to the have alleged conclusions of law without stating any factual or legal basis. Mere mention of
commencement of the present suit on July 7, 1981, respondent had filed a civil case against other civil cases without showing the identity of rights asserted and reliefs sought is not
petitioners on June 25, 1979. Docketed as Civil Case No. SD-742 for the recovery of enough basis to claim that respondent is guilty of forum shopping, or that res judicata
possession and for damages, it was allegedly dismissed by the Court of First Instance of exists.[47]
Nueva Ecija for lack of interest to prosecute.
WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution are AFFIRMED.
Forum Shopping Defined Costs against petitioners.

Forum shopping is the institution of two or more actions or proceedings involving the same SO ORDERED.
parties for the same cause of action, either simultaneously or successively, on the
supposition that one or the other court would make a favorable disposition.[37] Forum
shopping may be resorted to by a party against whom an adverse judgment or order has
been issued in one forum, in an attempt to seek a favorable opinion in another, other than
by an appeal or a special civil action for certiorari.[38]

Forum shopping trifles with the courts, abuses their processes, degrades the administration
of justice, and congests court dockets.[39] Willful and deliberate violation of the rule against
it is a ground for the summary dismissal of the case; it may also constitute direct contempt of
court.[40]

The test for determining the existence of forum shopping is whether the elements of litis
pendentia are present, or whether a final judgment in one case amounts to res judicata in
another.[41] We note, however, petitioners claim that the subject matter of the present case
has already been litigated and decided. Therefore, the applicable doctrine is res judicata.[42]

Applicability of Res Judicata

Under res judicata, a final judgment or decree on the merits by a court of competent
jurisdiction is conclusive of the rights of the parties or their privies, in all later suits and on all
points and matters determined in the previous suit.[43] The term literally means a matter
adjudged, judicially acted upon, or settled by judgment.[44] The principle bars a subsequent
suit involving the same parties, subject matter, and cause of action. Public policy requires
that controversies must be settled with finality at a given point in time.

The elements of res judicata are as follows: (1) the former judgment or order must be final;
(2) it must have been rendered on the merits of the controversy; (3) the court that rendered
it must have had jurisdiction over the subject matter and the parties; and (4) there must have
been -- between the first and the second actions -- an identity of parties, subject matter and
cause of action.[45]

7
G.R. No. 106847. March 5, 1993.
VENUE in the instant civil action for damages arising from libel was improperly laid;
PATRICIO P. DIAZ, petitioner, vs. JUDGE SANTOS B. ADIONG, RTC, Br. 8, Marawi City, SULTAN nonetheless, the trial court refused to dismiss the complaint. Hence, this Petition for
MACORRO L. MACUMBAL, SULTAN LINOG M. INDOL, MACABANGKIT LANTO and Certiorari, with prayer for the issuance of a temporary restraining order, assailing that order
MOHAMADALI ABEDIN, respondents. of denial 1 as well as the order denying reconsideration. 2

Rex J.M.A. Fernandez for petitioner. The facts: On 16 July 1991, the Mindanao Kris, a newspaper of general circulation in Cotabato
City, published in its front page the news article captioned "6-Point Complaint Filed vs.
Mangurun B. Batuampar for respondents. Macumbal," and in its Publisher's Notes the editorial, "Toll of Corruption," which exposed
alleged anomalies by key officials in the Regional Office of the Department of Environment
SYLLABUS and Natural Resources. 3

1. REMEDIAL LAW; ACTIONS; VENUE OF LIBEL CASE WHERE OFFENDED PARTY IS AN On 22 July 1991, the public officers alluded to, namely, private respondents Sultan Macorro
PUBLIC OFFICIAL. — From the provision of Article 360, third paragraph of the Revised Penal L. Macumbal, Sultan Linog M. Indol, Atty. Macabangkit M. Lanto and Atty. Mohamadali
Code as amended by R.A. 4363, it is clear that an offended party who is at the same time a Abedin, instituted separate criminal and civil complaints arising from the libel before the City
public official can only institute an action arising from libel in two (2) venues: the place where Prosecutor's Office and the Regional Trial Court in Marawi City. The publisher-editor of the
he holds office, and the place where the alleged libelous articles were printed and first Mindanao Kris, petitioner Patricio P. Diaz, and Mamala B. Pagandaman, who executed a
published. sworn statement attesting to the alleged corruption, were named respondents in both
complaints. 4
2. ID.; ID.; IMPROPER VENUE; MUST BE RAISED IN A NOTION TO DISMISS PRIOR TO A
RESPONSIVE PLEADING. — Unless and until the defendant objects to the venue in a motion On 2 September 1991, the City Prosecutor's Office dismissed the criminal case thus 5 —
to dismiss prior to a responsive pleading, the venue cannot truly be said to have been
improperly laid since, for all practical intents and purposes, the venue though technically "WHEREFORE . . . this investigation in the light of Agbayani vs. Sayo case finds that it has no
wrong may yet be considered acceptable to the parties for whose convenience the rules on jurisdiction to handle this case and that the same be filed or instituted in Cotabato City
venue had been devised. where complainant is officially holding office at the time respondents caused the publication
of the complained news item in the Mindanao Kris in Cotabato City, for which reason it is
3. ID.; ID.; ID.; WAIVED IN CASE AT BAR BY FILING ANSWER. — Petitioner Diaz then, as recommended that this charge be dropped for lack of jurisdiction."
defendant in the court below, should have timely challenged the venue laid in Marawi City in
a motion to dismiss, pursuant to Sec. 4, Rule 4, of the Rules of Court. Unfortunately, In the interim, the civil complaint for damages, docketed as Civil Case No. 385-91 and raffled
petitioner had already submitted himself to the jurisdiction of the trial court when he filed to Branch 10 of the Regional Trial Court in Marawi City, was set for Pre-Trial Conference. The
his Answer to the Complaint with Counterclaim. His motion to dismiss was therefore defendants therein had already filed their respective Answers with Counterclaim.
belatedly filed and could no longer deprive the trial court of jurisdiction to hear and decide
the instant civil action for damages. Well-settled is the rule that improper venue may be On 18 November 1991, petitioner Diaz moved for the dismissal of the action for damages on
waived and such waiver may occur by laches. Sec. 1 of Rule 16 provides that objections to the ground that the trial court did not have jurisdiction over the subject matter. He
improper venue must be made in a motion to dismiss before any responsive pleading is filed. vehemently argued that the complaint should have been filed in Cotabato City and not in
Responsive pleadings are those which seek affirmative relief and set up defenses. Marawi City. 6
Consequently, having already submitted his person to the jurisdiction of the trial court,
petitioner may no longer object to the venue which, although mandatory in the instant case, Pending action on the motion, the presiding judge of Branch 10 inhibited himself from the
is nevertheless waivable. As such, improper venue must be seasonably raised, otherwise, it case which was thereafter reraffled to the sala of respondent judge.
may be deemed waived.
On 15 June 1991, respondent judge denied petitioner's Motion to Dismiss for lack of merit.
4. ID.; ID.; ID.; RELATES TO TRIAL AND NOT TO JURISDICTION. — Indeed, the laying of Diaz thereafter moved for reconsideration of the order of denial. The motion was also denied
venue is procedural rather than substantive, relating as it does to jurisdiction of the court in the Order of 27 August 1991, prompting petitioner to seek relief therefrom.
over the person rather than the subject matter. Venue relates to trial and not to jurisdiction.
Petitioner Diaz contends that the civil action for damages could not be rightfully filed in
DECISION Marawi City as none of the private respondents, who are all public officers, held office in
Marawi City; neither were the alleged libelous news items published in that city.
BELLOSILLO, J p:

8
Consequently, it is petitioner's view that the Regional Trial Court in Marawi City has no From the foregoing provision, it is clear that an offended party who is at the same time a
jurisdiction to entertain the civil action for damages. public official can only institute an action arising from libel in two (2) venues: the place where
he holds office, and the place where the alleged libelous articles were printed and first
The petitioner is correct. Not one of the respondents then held office in Marawi City: published.
respondent Macumbal was the Regional Director for Region XII of the DENR and held office
in Cotabato City; respondent Indol was the Provincial Environment and Natural Resources Private respondents thus appear to have misread the provisions of Art. 360 of the Revised
Officer of Lanao del Norte and held office in that province; respondent Lanto was a Penal Code, as amended, when they filed their criminal and civil complaints in Marawi City.
consultant of the Secretary of the DENR and, as averred in the complaint, was temporarily They deemed as sufficient to vest jurisdiction upon the Regional Trial Court of Marawi City
residing in Quezon City; and, respondent Abedin was the Chief of the Legal Division of the the allegation that "plaintiffs are all of legal age, all married, Government officials by
DENR Regional Office in Cotabato City. 7 Indeed, private respondents do not deny that their occupation and residents of Marawi City." 8 But they are wrong.
main place of work was not in Marawi City, although they had sub-offices therein.
Consequently, it is indubitable that venue was improperly laid. However, unless and until the
Apparently, the claim of private respondents that they maintained sub-offices in Marawi City defendant objects to the venue in a motion to dismiss prior to a responsive pleading, the
is a mere afterthought, considering that it was made following the dismissal of their criminal venue cannot truly be said to have been improperly laid since, for all practical intents and
complaint by the City Prosecutor of Marawi City. Significantly, in their complaint in civil Case purposes, the venue though technically wrong may yet be considered acceptable to the
No. 385-91 respondents simply alleged that they were residents of Marawi City, except for parties for whose convenience the rules on venue had been devised. 9
respondent Lanto who was then temporarily residing in Quezon City, and that they were
public officers, nothing more. This averment is not enough to vest jurisdiction upon the Petitioner Diaz then, as defendant in the court below, should have timely challenged the
Regional Trial Court of Marawi City and may be properly assailed in a motion to dismiss. venue laid in Marawi City in a motion to dismiss, pursuant to Sec. 4, Rule 4, of the Rules of
Court. Unfortunately, petitioner had already submitted himself to the jurisdiction of the trial
The Comment of private respondents that Lanto was at the time of the commission of the court when he filed his Answer to the Complaint with Counterclaim. 10
offense actually holding office in Marawi City as consultant of LASURECO can neither be
given credence because this is inconsistent with their allegation in their complaint that His motion to dismiss was therefore belatedly filed and could no longer deprive the trial
respondent Lanto, as consultant of the Secretary of the DENR, was temporarily residing in court of jurisdiction to hear and decide the instant civil action for damages. Well-settled is
Quezon City. the rule that improper venue may be waived and such waiver may occur by laches. 11

Moreover, it is admitted that the libelous articles were published and printed in Cotabato Petitioner was obviously aware of this rule when he anchored his motion to dismiss on lack
City. Thus, respondents were limited in their choice of venue for their action for damages of cause of action over the subject matter, relying on this Court's ruling in Time, Inc. v. Reyes.
only to Cotabato City where Macumbal, Lanto and Abedin had their office and Lanao del 12 Therein, We declared that the Court of First Instance of Rizal was without jurisdiction to
Norte where Indol worked. Marawi City is not among those where venue can be laid. take cognizance of Civil Case No. 10403 because the complainants held office in Manila, not
in Rizal, while the alleged libelous articles were published abroad.
The third paragraph of Art. 360 of the Revised Penal Code, as amended by R.A. No. 4363,
specifically requires that — It may be noted that in Time, Inc. v. Reyes, the defendant therein moved to dismiss the case
without first submitting to the jurisdiction of the lower court, which is not the case before
"The criminal and civil action for damages in cases of written defamations as provided for in Us. More, venue in an action arising from libel is only mandatory if it is not waived by
this chapter, shall be filed simultaneously or separately with the Court of First Instance (now defendant. Thus —
Regional Trial Court) of the province or city where the libelous article is printed and first
published or where any of the offended parties actually resides at the time of the "The rule is that where a statute creates a right and provides a remedy for its enforcement,
commission of the offense: Provided, however, that where one of the offended parties is a the remedy is exclusive; and where it confers jurisdiction upon a particular court, that
public officer . . . (who) does not hold office in the City of Manila, the action shall be filed in jurisdiction is likewise exclusive, unless otherwise provided. Hence, the venue provisions of
the Court of First Instance (Regional Trial Court) of the province or city where he held office Republic Act No. 4363 should be deemed mandatory for the party bringing the action, unless
at the time of the commission of the offense or where the libelous article is printed and first the question of venue should be waived by the defendant . . . . " 13
published and in case one of the the offended parties is a private individual, the action shall
be filed in the Court of First Instance of the province or city where he actually resides at the Withal, objections to venue in civil actions arising from libel may be waived; it does not, after
time of the commission of the offense or where the libelous matter is printed and first all, involve a question of jurisdiction. Indeed, the laying of venue is procedural rather than
published . . . . " (emphasis supplied) substantive, relating as it does to jurisdiction of the court over the person rather than the
subject matter. 14 Venue relates to trial and not to jurisdiction.

9
Finally, Sec. 1 of Rule 16 provides that objections to improper venue must be made in a
motion to dismiss before any responsive pleading is filed. Responsive pleadings are those
which seek affirmative relief and set up defenses. Consequently, having already submitted
his person to the jurisdiction of the trial court, petitioner may no longer object to the venue
which, although mandatory in the instant case, is nevertheless waivable. As such, improper
venue must be seasonably raised, otherwise, it may be deemed waived.

WHEREFORE, for lack of merit, the Petition for Certiorari is DISMISSED and the Temporary
Restraining Order heretofore issued is LIFTED.

This case is remanded to the court of origin for further proceedings.

SO ORDERED.

10
ARMAND NOCUM and THE PHILIPPINE DAILY INQUIRER, INC.,
INQUIRER and NOCUM filed their joint answer, dated October 27, 1998, wherein they alleged
P e t i t i o n e r s, that: (1) the complaint failed to state a cause of action; (2) the defamatory statements
alleged in the complaint were general conclusions without factual premises; (3) the
questioned news report constituted fair and true report on the matters of public interest
- versus - concerning a public figure and therefore, was privileged in nature; and (4) malice on their
part was negated by the publication in the same article of plaintiffs or PALs side of the
dispute with the pilots union.
LUCIO TAN,

R e s p o n d e n t.
ALPAP and UMALI likewise filed their joint answer, dated October 31, 1998, and alleged
therein that: (1) the complaint stated no cause of action; (2) venue was improperly laid; and
(3) plaintiff Lucio Tan was not a real party in interest. It appeared that the complaint failed to
G.R. No. 145022 state the residence of the complainant at the time of the alleged commission of the offense
and the place where the libelous article was printed and first published.

September 23, 2005

X--------------------------------------------------X Thus, the Regional Trial Court of Makati issued an Order dated February 10, 1999, dismissing
the complaint without prejudice on the ground of improper venue.

CHICO-NAZARIO, J.:
Aggrieved by the dismissal of the complaint, respondent Lucio Tan filed an Omnibus Motion
dated February 24, 1999, seeking reconsideration of the dismissal and admission of the
amended complaint. In par. 2.01.1 of the amended complaint, it is alleged that This article
was printed and first published in the City of Makati (p. 53, Rollo, CA-G.R. SP No. 55192), and
Assailed in a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil in par. 2.04.1, that This caricature was printed and first published in the City of Makati (p. 55,
Procedure are the decision[1] of the Court of Appeals dated 19 April 2000 that affirmed the id.).
order of the Regional Trial Court (RTC) of Makati City, Branch 56, in Civil Case No. 98-2288,
dated 19 April 1999, admitting respondent Lucio Tans Amended Complaint for Damages for The lower court, after having the case dismissed for improper venue, admitted the amended
the alleged malicious and defamatory imputations against him in two (2) articles of the complaint and deemed set aside the previous order of dismissal, supra, stating, inter alia,
Philippine Daily Inquirer, and its Resolution[2] dated 15 September 2000 denying petitioners that:
Armand Nocum and The Philippine Daily Inquirer, Inc.s motion for reconsideration.

The mistake or deficiency in the original complaint appears now to have been cured in the
The antecedents are summarized by the Court of Appeals. Amended Complaint which can still be properly admitted, pursuant to Rule 10 of the 1997
Rules of Civil Procedure, inasmuch as the Order of dismissal is not yet final. Besides, there is
no substantial amendment in the Amended Complaint which would affect the defendants
defenses and their Answers. The Amendment is merely formal, contrary to the contention of
On September 27, 1998, Lucio Tan filed a complaint against reporter Armand Nocum, Capt. the defendants that it is substantial.
Florendo Umali, ALPAP and Inquirer with the Regional Trial Court of Makati, docketed as Civil
Case No. 98-2288, seeking moral and exemplary damages for the alleged malicious and
defamatory imputations contained in a news article.

11
On 20 August 2003, the Court resolved to give due course to the petition and required the
parties to submit their respective memoranda within thirty (30) days from notice.[8] Both
petitioners and respondent complied.[9]
Dissatisfied, petitioners, together with defendants Capt. Florendo Umali and the Airline Pilots
Association of the Philippines, Inc. (ALPAP), appealed the RTC decision to the Court of
Appeals. Two petitions for certiorari were filed, one filed by petitioners which was docketed
as CA-G.R. SP No. 55192, and the other by defendants Umali and ALPAP which was docketed Petitioners assigned the following as errors:
as CA-G.R. SP No. 54894. The two petitions were consolidated.

A. THE COURT OF APPEALS ERRED IN RULING (1) THAT THE LOWER COURT HAD
On 19 April 2000, the Court of Appeals rendered its decision the dispositive portion of which JURISDICTION OVER THE CASE (ON THE BASIS OF THE ORIGINAL COMPLAINT)
reads: NOTWITHSTANDING THE FACT THAT THE LOWER COURT HAD EARLIER DISMISSED THE
ORIGINAL COMPLAINT FOR ITS FAILURE TO CONFER JURISDICTION UPON THJE COURT; AND
(2) THAT THE AMENDED COMPLAINT WAS PROPERLY ALLOWED OR ADMITTED BECAUSE THE
LOWER COURT WAS NEVER DIVESTED OF JURISDICTION OVER THE CASE;
WHEREFORE, premises considered, the petition is hereby DENIED DUE COURSE and
DISMISSED for lack of merit. The Order of the court a quo is hereby AFFIRMED.

B. THE COURT OF APPEALS ERRED IN NOT RULING THAT THE ORIGINAL COMPLAINT OF
RESPONDENT WAS AMENDED PURPOSELY TO CONFER UPON THE LOWER COURT
The motions for reconsideration filed by petitioners and by defendants Umali and ALPAP JURISDICTION OVER THE CASE.[10]
were likewise denied in a resolution dated 15 September 2000.

Petitioners state that Article 360 of the Revised Penal Code vests jurisdiction over all civil and
Both petitioners and defendants Umali and ALPAP appealed to this Court. Under criminal complaints for libel on the RTC of the place: (1) where the libelous article was
consideration is the petition for review filed by petitioners. printed and first published; or (2) where the complainant, if a private person, resides; or (3)
where the complainant, if a public official, holds office. They argue that since the original
complaint only contained the office address of respondent and not the latters actual
residence or the place where the allegedly offending news reports were printed and first
On 11 December 2000, the Court required respondent Tan to comment on the petition filed published, the original complaint, by reason of the deficiencies in its allegations, failed to
by petitioners.[3] confer jurisdiction on the lower court.

Respondent filed his comment on 22 January 2001[4] to which petitioners filed a reply on 26 The question to be resolved is: Did the lower court acquire jurisdiction over the civil case
April 2001.[5] upon the filing of the original complaint for damages?

In a Manifestation filed on 19 February 2001, respondent stated that the petition[6] filed by We rule in the affirmative.
defendants Umali and ALPAP has already been denied by the Court in a resolution dated 17
January 2001.[7]

It is settled that jurisdiction is conferred by law based on the facts alleged in the complaint
since the latter comprises a concise statement of the ultimate facts constituting the plaintiff's
causes of action.[11] In the case at bar, after examining the original complaint, we find that

12
the RTC acquired jurisdiction over the case when the case was filed before it. From the
allegations thereof, respondents cause of action is for damages arising from libel, the
jurisdiction of which is vested with the RTC. Article 360 of the Revised Penal Code provides 3. Where an offended party is a public official with office outside of Manila, the venue is the
that it is a Court of First Instance[12] that is specifically designated to try a libel case.[13] province or the city where he held office at the time of the commission of the offense or
where the libelous article is printed and first published.

Petitioners are confusing jurisdiction with venue. A former colleague, the Hon. Florenz D.
Regalado,[14] differentiated jurisdiction and venue as follows: (a) Jurisdiction is the authority 4. If an offended party is a private person, the venue is his place of residence at the time of
to hear and determine a case; venue is the place where the case is to be heard or tried; (b) the commission of the offense or where the libelous article is printed and first published.
Jurisdiction is a matter of substantive law; venue, of procedural law; (c) Jurisdiction
establishes a relation between the court and the subject matter; venue, a relation between
plaintiff and defendant, or petitioner and respondent; and, (d) Jurisdiction is fixed by law and
cannot be conferred by the parties; venue may be conferred by the act or agreement of the The common feature of the foregoing rules is that whether the offended party is a public
parties. officer or a private person, he has always the option to file the action in the Court of First
Instance of the province or city where the libelous article is printed or first published.

In the case at bar, the additional allegations in the Amended Complaint that the article and
the caricature were printed and first published in the City of Makati referred only to the
question of venue and not jurisdiction. These additional allegations would neither confer We further restated[18] the rules on venue in Article 360 as follows:
jurisdiction on the RTC nor would respondents failure to include the same in the original
complaint divest the lower court of its jurisdiction over the case. Respondents failure to
allege these allegations gave the lower court the power, upon motion by a party, to dismiss
the complaint on the ground that venue was not properly laid. 1. Whether the offended party is a public official or a private person, the criminal action may
be filed in the Court of First Instance of the province or city where the libelous article is
printed and first published.

In Laquian v. Baltazar,[15] this Court construed the term jurisdiction in Article 360 of the
Revised Penal Code as referring to the place where actions for libel shall be filed or venue.
2. If the offended party is a private individual, the criminal action may also be filed in the
Court of First Instance of the province where he actually resided at the time of the
commission of the offense.
In Escribano v. Avila,[16] pursuant to Republic Act No. 4363,[17] we laid down the following
rules on the venue of the criminal and civil actions in written defamations.

3. If the offended party is a public officer whose office is in Manila at the time of the
commission of the offense, the action may be filed in the Court of First Instance of Manila.
1. General rule: The action may be filed in the Court of First Instance of the province or city
where the libelous article is printed and first published or where any of the offended parties
actually resides at the time of the commission of the offense.
4. If the offended party is a public officer holding office outside of Manila, the action may be
filed in the Court of First Instance of the province or city where he held office at the time of
the commission of the offense.
2. If the offended party is a public officer with office in Manila at the time the offense was
committed, the venue is Manila or the city or province where the libelous article is printed
and first published.

13
issue of venue which goes into the territorial jurisdiction of the court. This is not to be
because the case before us is a civil action where venue is not jurisdictional.
We fully agree with the Court of Appeals when it ruled:

The cases[24] cited by petitioners are not applicable here. These cases involve amendments
We note that the amended complaint or amendment to the complaint was not intended to on complaints that confer jurisdiction on courts over which they originally had none. This is
vest jurisdiction to the lower court, where originally it had none. The amendment was merely not true in the case at bar. As discussed above, the RTC acquired jurisdiction over the subject
to establish the proper venue for the action. It is a well-established rule that venue has matter upon the filing of the original complaint. It did not lose jurisdiction over the same
nothing to do with jurisdiction, except in criminal actions. Assuming that venue were when it dismissed it on the ground of improper venue. The amendment merely laid down the
properly laid in the court where the action was instituted, that would be procedural, not a proper venue of the case.
jurisdictional impediment. In fact, in civil cases, venue may be waived.

WHEREFORE, the foregoing considered, the decision of the Court of Appeals dated 19 April
Consequently, by dismissing the case on the ground of improper venue, the lower court had 2000 is AFFIRMED in toto. No costs.
jurisdiction over the case. Apparently, the herein petitioners recognized this jurisdiction by
filing their answers to the complaint, albeit, questioning the propriety of venue, instead of a
motion to dismiss.
... SO ORDERED.

We so hold that dismissal of the complaint by the lower court was proper considering that
the complaint, indeed, on its face, failed to allege neither the residence of the complainant
nor the place where the libelous article was printed and first published. Nevertheless, before
the finality of the dismissal, the same may still be amended as in fact the amended complaint
was admitted, in view of the court a quos jurisdiction, of which it was never divested. In so
doing, the court acted properly and without any grave abuse of discretion.[19]

It is elementary that objections to venue in CIVIL ACTIONS arising from libel may be waived
since they do not involve a question of jurisdiction. The laying of venue is procedural rather
than substantive, relating as it does to jurisdiction of the court over the person rather than
the subject matter. Venue relates to trial and not to jurisdiction.[20] It is a procedural, not a
jurisdictional, matter. It relates to the place of trial or geographical location in which an
action or proceeding should be brought and not to the jurisdiction of the court.[21] It is
meant to provide convenience to the parties, rather than restrict their access to the courts as
it relates to the place of trial.[22] In contrast, in CRIMINAL ACTIONS, it is fundamental that
venue is jurisdictional it being an essential element of jurisdiction.[23]

Petitioners argument that the lower court has no jurisdiction over the case because
respondent failed to allege the place where the libelous articles were printed and first
published would have been tenable if the case filed were a criminal case. The failure of the
original complaint to contain such information would be fatal because this fact involves the

14
G.R. No. 106920 December 10, 1993 Petitioner moved for issuance of a writ of preliminary attachment, alleging that respondent
Circle had become insolvent and had been placed under receivership by the Central Bank.
PHILIPPINE BANKING CORPORATION, petitioner, The trial judge granted the motion and issued a writ of preliminary attachment. The sheriff's
vs. return indicated, however, that no properties belonging to the respondent Circle and the
HON. SALVADOR S. TENSUAN, Judge of Regional Trial Court of Makati, National Capital individual obligors could be found. Per sheriff's return, summons was served upon Domingo
Judicial Region, Branch 146; CIRCLE FINANCIAL CORPORATION, AVELINO E. DEATO, JR., Santiago, 1 Hilario P. Lopez, 2 Avelino Deato, 3 Benjamin P. Santiago, 4 and Socorro Gomez. 5
MIGUEL F. VIOLAGO, BENJAMIN F. SANTIAGO, SOCORRO R. GOMEZ, NERISSA T. GLORIA, The sheriff failed to serve summons on (a) Miguel Violago, who had died; (b) Nerissa T. Gloria
FILEMON C. MARQUEZ, DOMINGO SANTIAGO AND HILARIO P. LOPEZ, respondents. 6 and Filemon Marquez, 7 whose whereabouts were unknown; and (c) Circle, which had
ceased to engage in business at the address given by petitioner and could not be located.
Tomargo, Luzano & Associates for petitioner.
A motion to dismiss was filed by the respondents (Circle and the five [5] individual sureties
Edgardo V. Cruz for private respondents. served with summons) and averred that the venue of the action was improperly laid since an
agreement had fixed the venue of actions arising from the promissory notes in Valenzuela,
Metro Manila, only. Respondents called the trial court's attention to the stipulation
FELICIANO, J.: contained in the promissory note, quoted in limine.

In this Petition for Review on Certiorari, petitioner asks us to review and set aside the Order Acting upon respondent's motion, respondent Judge Tensuan issued the challenged Order
of Judge Salvador A. Tensuan dated 3 August 1992, dismissing petitioner's complaint in Civil which read as follows:
Case No. 91-2220 entitled "Philippine Banking Corporation vs. Circle Financial Corporation, et
al." Acting on defendant's motion to dismiss on grounds of improper venue in relation with
actionable promissory notes which stipulate that the parties "expressly submit to the
Petitioner Philippine Banking Corporation (hereafter "Bank") is a commercial banking jurisdiction of the Courts of Valenzuela, Metro Manila any legal action which may arise", and,
corporation with principal office at Makati, Metro Manila. Petitioner Bank instituted a
complaint for collection of a sum of money, with a prayer for preliminary attachment, at the Finding said motion to be impressed with merit consistent with
Regional Trial Court of Makati. It appears from the allegations of the Bank's complaint that Sec. 13, Rule 14 of the Rules of Court as well as in line with the doctrinal rule in Bautista vs.
respondent Circle Financial Co. (hereafter "Circle"), sometime in 1983 and 1984, through its Hon. Juan de Borja, et al. (18 SCRA 474) that the proper venue for an action is that stipulated
representatives, obtained several loans aggregating P1,000,000.00 from petitioner. in a document "in case of any litigation herefrom or in connection herewith" upon a rationale
Respondent Circle, for value received, delivered to petitioner Bank four (4) promissory notes, that had the parties intended to reserve the right to choose venue under Section 2 (b), Rule 4
each of which contained the stipulation that: of the Rules of Court, such reservation should have been reflected in the document as
against the rationale in Polytrade Corporation vs. Blanco (30 SCRA 187) which should allow
I/We hereby expressly submit to the jurisdiction of the courts of Valenzuela any legal action choice of venue where an actionable document does not set forth qualifying or restrictive
which may arise out of this promissory note. words in point, and

As security for the re-payment by respondent Circle of the sums loaned by petitioner Bank, In order to more clearly define the parameters of the rule on proper venue vis-a-vis a clear
eight (8) individuals, who were impleaded as defendants in the complaint — namely, Avelino perception that a stipulation to "expressly submit to the jurisdiction of the Courts of
Deato, Miguel Violago, Benjamin Santiago, Socorro Gomez, Nerissa Gloria, Filemon Marquez, Valenzuela, Metro Manila" amount to unequivocal agreement to sue and be sued in
Domingo Santiago and Hilario Lopez — executed a Continuing Surety Agreement and Valenzuela, Metro Manila.
undertook to
pay jointly and severally respondent Circle's obligations. Only five (5) out of eight (8) WHEREFORE, premises considered and finding the motion to be meritorious, same is hereby
individual obligors are respondents in present case, namely: Domingo Santiago, Hilario Lopez, granted and the above-entitled case is accordingly dismissed. Without pronouncement as to
Avelino Deato, Benjamin P. Santiago and Socorro Gomez. costs.

On their due dates, Circle failed to pay its obligations under the promissory notes. SO ORDERED.8
Thereupon, petitioner Bank demanded payment from the eight (8) individual sureties
conformably with their promises contained in the Continuing Surety Agreement; the Petitioner moved for reconsideration of the above Order of the trial court, without success.
individual obligors, however, also failed to pay.
Hence, this Petition.

15
We consider that the Petition is meritorious. specific venue to the exclusion of any other court also competent and accessible to the
parties under the ordinary rules on the venue of actions. Stipulations of this exclusionary
It is settled in this jurisdiction that the parties, by written agreement, may change or transfer nature may, under certain circumstances, be characterized as unreasonable or as contrary to
the venue of an action from one province to another. 9 We have many times sustained the public policy 12 and, accordingly, not judicially enforceable.
validity and enforceability of contractual stipulations concerning venue, it is, of course, the
tenor of their agreement which is of critical relevance. The relevant task, in other words, is In practice, the task, as noted earlier, of this Court when confronted with issues of this kind is
determining the intent of the parties as manifested in the words employed by them and, always basically that of contract interpretation. In the case at bar, neither qualifying nor
where such words are less than clear, in other recognized indicators of the will of the restrictive words (e.g., "must," "only" or "exclusively") were employed which could yield an
contracting parties. intent on the part of the parties mandatorily to restrict the venue of actions arising out of the
promissory notes to the courts of Valenzuela only. Private respondents suggest that the use
Petitioner Bank contends that the stipulation contained in the promissory notes is merely an of words "any legal action" expressed a supposed agreement to bar actions before any court
agreement to add the courts of Valenzuela to the tribunals to which the parties may resort. other than a Valenzuela court. We do not agree, for we see no necessary or customary
Petitioner thus insists that the venue stipulation set out in the notes did not restrict or limit connection between the words "any legal action" and an intent strictly to limit permissible
the permissible venue of actions arising out of those notes to the courts of Valenzuela, to the venue to the Valenzuela courts. Intent so to establish an inflexible restriction of otherwise
exclusion of all the other courts recourse to any one of which is authorized or permitted permissible venue to one single place is not lightly to be presumed or inferred from
under the Rules of Court. Thus, venue was properly laid by petitioner Bank in the place stipulations which, like that here before us, include no qualifying or exclusionary terms.
where its principal offices are located: i.e., Makati, Metropolitan Manila. Express reservation of the right to elect venue under the ordinary rules was, accordingly,
unnecessary in the case at bar.
Private respondents, in opposition, aver that the words used in the stipulation here involved
are clear and unambiguous. A promise to submit to the jurisdiction of a specific court, Such is the thrust of the great bulk of the caselaw of this Court where this issue was directly
without an express reservation of the right to resort to one or more of the tribunals raised and discussed.
otherwise accessible under the Rules of Court, is an agreement definitely fixing the
permissible venue in only one place, i.e., Valenzuela, to the exclusion of other competent In Polytrade Corporation v. Blanco, 13 the stipulation on venue there involved read:
courts.
The parties agree to sue and be sued in the courts of Manila
A careful reading of the terms of the stipulation — "I/We hereby expressly submit to the
jurisdiction of the courts of Valenzuela any legal action which may arise out of this The Court, in upholding that stipulation and ruling that venue had been properly laid in the
promissory note" — shows that the stipulation does not require the laying of venue in then Court of First Instance of Bulacan (the place of defendant's residence), speaking through
Valenzuela exclusively or mandatorily. The plain or ordinary import of the stipulation is the Mr. Justice Sanchez, said:
authorizing of, or permission to bring, suit in Valenzuela; there is not the slightest indication
of an intent to bar suit in other competent courts. . . . An accurate reading, however, of the stipulation, "The parties agree to sue and be sued in
the Courts of Manila," does not preclude the filing of suits in the residence of plaintiff or
Permissive stipulations like the one here considered have invariably received judicial defendant. The plain meaning is that the parties merely consented to be sued in Manila.
approval and we have declared that either of the parties is authorized to lay venue of an Qualifying or restrictive words which would indicate that Manila and Manila alone is the
action in the court named in the stipulation. The stipulation her does not purport to deprive venue are totally absent therefrom. We cannot read into that clause that plaintiff and
either party of it right to elect, or option to have resort to, another competent court as defendant bound themselves to file suits with respect to the last two transactions in question
expressly permitted by Section 2(b) of Rule 4 of the Rules of Court, should such party choose only or exclusively in Manila. For, that agreement did not change or transfer venue. It simply
to initiate a suit. The stipulation here merely operated to confer or confirm a right upon a is permissive. The parties solely agreed to add the courts of Manila as tribunals to which they
party to elect recourse to the courts of Valenzuela or, alternatively, to go before any of the may resort. They did not waive their right to pursue remedy in the courts specifically
tribunals envisaged by the rules on venue, i.e., the courts of Makati, Quezon City and mentioned in Section 2 (b) of Rule 4. Renuntiatio non praesumitir. 14 (Emphasis supplied)
Bulacan. 10
In Nicolas v. Reparations Commission, 15 the stipulation on venue provided that:
In principle, the stipulation on venue here involved must be distinguished from stipulations
which purport to require or compel the parties to lay venue of an action in a specified place, All legal actions arising out of this contract . . . may be brought in and submitted to the
and in that particular place only. The latter jurisdiction of the proper courts in the City of Manila. 16
type of venue stipulation must clearly indicate, through qualifying and restrictive words, that
the parties deliberately intended to exclude causes or actions from the operation of the This Court read the above stipulation as merely permissive, relying upon and reinforcing
ordinary permissive rules on venue, 11 and that they intended contractually to designate a Polytrade:

16
. . . the venue in personal actions is fixed for the convenience of the plaintiff and his It is not necessary top pretend that the decisions of the Supreme Court have been absolutely
witnesses and to promote the ends of justice. We cannot conceive how the interests of consistent in this regard. There have been a few decisions — notably Bautista v. de Borja 23
justice may be served by confining the situs of the action to Manila, considering that the and Hoechst Philippines v. Torres 24 — which are not easy to reconcile with the line of cases
residences or offices of all the parties, including the situs of the acts sought to be restrained beginning with Polytrade discussed above. It is useful therefore to make clear that to the
or required to be done, are all within the territorial jurisdiction of Rizal. extent Bautista and Hoechst Philippines are inconsistent with Polytrade (an en banc decision
later in time than Bautista) and subsequent cases reiterating Polytrade, Bautista and Hoechst
While the parties have agreed to submit their dispute to the jurisdiction of the Manila courts, Philippines have been rendered obsolete by the Polytrade line of cases.
there is nothing in the language used . . . which clearly shows that the intention of the parties
was to limit the venue of the action to the City of Manila only. Such agreements should be We note, finally, that no one of the private respondents has claimed to have been put to
construed reasonably and should not be applied in such a manner that it would work more to undue hardship or inconvenience as a result of the institution of the action in Makati. Venue
the inconvenience of the parties without promoting the ends of justice. 17 (Emphasis relates to the trial and touches more upon the convenience of the parties rather than upon
supplied) the substance or merits of the
case. 25
In Lamis Enterprises v. Lagamon, 18 the promissory note sued on had the following
stipulation: WHEREFORE, the Petition for Review on Certiorari is hereby GRANTED DUE COURSE and the
Orders dated 3 August 1992 and 28 August 1992 of public respondent Judge Salvador S.
In case of litigation, jurisdiction shall be vested in the courts of Davao City. 19 Tensuan are hereby REVERSED and SET ASIDE. The case is hereby REMANDED to the court of
origin for resolution on the merits, with all deliberate dispatch. No pronouncements as to
The collection suit was instituted in the then Court of First Instance of Tagum, Davao. The costs.
Supreme Court rejected the defense of improper venue and held:
SO ORDERED.
. . . it is alleged that the proper venue for Civil Case No. 1395 should be Davao City where the
plaintiff resides and as stipulated in the promissory note dated February 26, 1979 and in the
chattel mortgage dated February 27, 1979. However, the respondent judge found that
Maningo has not only legal residence but also physical and actual residence in Busaon,
Tagum, Davao and we are not inclined to disturb this finding. Anent the claim that Davao City
had been stipulated as the venue, suffice it to say that a stipulation as to venue does not
preclude the filing of suits in the residence of plaintiff or defendant under Section 2(b), Rule
4, Rules of Court, in the absence of qualifying or restrictive words in the agreement which
would indicate that the place named is the only venue agreed upon by the parties. The
stipulation did not deprive Maningo of his right to pursue remedy in the court specifically
mentioned in Section 2(b) of Rule 4, Rules of Courts, Renuntiatio non praesumitir. . . . 20
(Emphasis supplied)

In Western Minolco v. Court of Appeals, 21 the clause on venue read:

The parties stipulate that the venue of the actions referred to in Section 12.01 [Article XII of
the Agreement] shall be in the City of Manila.

The initial action was commenced in the Court of First Instance of Baguio and Benguet. This
Court took the occasion to reiterate once more the Polytrade doctrine:

. . . In any event, it is not entirely amiss to restate the doctrine that stipulations in a contract,
which specify a definite place for the institution of an action arising in connection therewith,
do not, as a rule, supersede the general rules on the matter set out in Rule 4 of the Rules of
Court, but should be construed merely as an agreement on an additional forum, not as
limiting venue to the specified place. 22 (Emphasis supplied)

17
G.R. No. 74854 April 2, 1991 "every court of justice before whom a civil case is lodged is not even obliged to wait for the
defendant to raise that venue was improperly laid. The court can take judicial notice and
JESUS DACOYCOY, petitioner, motu proprio dismiss a suit clearly denominated as real action and improperly filed before it.
vs. . . . the location of the subject parcel of land is controlling pursuant to Sec. 2, par. (a), Rule 4
HON. INTERMEDIATE APPELLATE COURT, HON. ANTONIO V. BENEDICTO, Executive Judge, of the New Rules of Court . . .3
Regional Trial Court, Branch LXXI, Antipolo, Rizal, and RUFINO DE GUZMAN, respondents.
We grant the petition.
Ramon V. Sison for petitioner.
Public Attorney's Office for private respondent. The motu proprio dismissal of petitioner's complaint by respondent trial court on the ground
of improper venue is plain error, obviously attributable to its inability to distinguish between
jurisdiction and venue.
FERNAN, C.J.:
Questions or issues relating to venue of actions are basically governed by Rule 4 of the
May the trial court motu proprio dismiss a complaint on the ground of improper venue? This Revised Rules of Court. It is said that the laying of venue is procedural rather than
is the issue confronting the Court in the case at bar. substantive. It relates to the jurisdiction of the court over the person rather than the subject
matter. Provisions relating to venue establish a relation between the plaintiff and the
On March 22, 1983, petitioner Jesus Dacoycoy, a resident of Balanti, Cainta, Rizal, filed defendant and not between the court and the subject matter. Venue relates to trial not to
before the Regional Trial Court, Branch LXXI, Antipolo, Rizal, a complaint against private jurisdiction, touches more of the convenience of the parties rather than the substance of the
respondent Rufino de Guzman praying for the annulment of two (2) deeds of sale involving a case.4
parcel of riceland situated in Barrio Estanza, Lingayen, Pangasinan, the surrender of the
produce thereof and damages for private respondent's refusal to have said deeds of sale set Jurisdiction treats of the power of the court to decide a case on the merits; while venue deals
aside upon petitioner's demand. on the locality, the place where the suit may be had.5

On May 25, 1983, before summons could be served on private respondent as defendant In Luna vs. Carandang,6 involving an action instituted before the then Court of First Instance
therein, the RTC Executive Judge issued an order requiring counsel for petitioner to confer of Batangas for rescission of a lease contract over a parcel of agricultural land located in
with respondent trial judge on the matter of venue. After said conference, the trial court Calapan, Oriental Mindoro, which complaint said trial court dismissed for lack of jurisdiction
dismissed the complaint on the ground of improper venue. It found, based on the allegations over the leased land, we emphasized:
of the complaint, that petitioner's action is a real action as it sought not only the annulment
of the aforestated deeds of sale but also the recovery of ownership of the subject parcel of (1) A Court of First Instance has jurisdiction over suits involving title to, or possession
riceland located in Estanza, Lingayen, Pangasinan, which is outside the territorial jurisdiction of, real estate wherever situated in the Philippines, subject to the rules on venue of actions
of the trial court. (Manila Railroad Company vs. Attorney General, etc., et al., 20 Phil. 523; Central Azucarera
de Tarlac vs. De Leon, et al., 56 Phil. 169; Navarro vs. Aguila, et al., 66 Phil. 604; Lim Cay, et al.
Petitioner appealed to the Intermediate Appellate Court, now Court of Appeals, which in its vs. Del Rosario, etc., et al., 55 Phil. 692);
decision of April 11, 1986,1 affirmed the order of dismissal of his complaint.
(2) Rule 4, Section 2, of the Rules of Court requiring that an action involving real
In this petition for review, petitioner faults the appellate court in affirming what he calls an property shall be brought in the Court of First Instance of the province where the land lies is
equally erroneous finding of the trial court that the venue was improperly laid when the a rule on venue of actions, which may be waived expressly or by implication.
defendant, now private respondent, has not even answered the complaint nor waived the
venue.2 In the instant case, even granting for a moment that the action of petitioner is a real action,
respondent trial court would still have jurisdiction over the case, it being a regional trial court
Petitioner claims that the right to question the venue of an action belongs solely to the vested with the exclusive original jurisdiction over "all civil actions which involve the title to,
defendant and that the court or its magistrate does not possess the authority to confront the or possession of, real property, or any interest therein . . ." in accordance with Section 19 (2)
plaintiff and tell him that the venue was improperly laid, as venue is waivable. In other of Batas Pambansa Blg. 129. With respect to the parties, there is no dispute that it acquired
words, petitioner asserts, without the defendant objecting that the venue was improperly jurisdiction over the plaintiff Jesus Dacoycoy, now petitioner, the moment he filed his
laid, the trial court is powerless to dismiss the case motu proprio. complaint for annulment and damages. Respondent trial court could have acquired
jurisdiction over the defendant, now private respondent, either by his voluntary appearance
Private respondent, on the other hand, maintains that the dismissal of petitioner's complaint in court and his submission to its authority, or by the coercive power of legal process
is proper because the same can "readily be assessed as (a) real action." He asserts that exercised over his person.7

18
Although petitioner contends that on April 28, 1963, he requested the City Sheriff of
Olongapo City or his deputy to serve the summons on defendant Rufino de Guzman at his
residence at 117 Irving St., Tapinac, Olongapo City,8 it does not appear that said service had
been properly effected or that private respondent had appeared voluntarily in court9 or filed
his answer to the complaint.10 At this stage, respondent trial court should have required
petitioner to exhaust the various alternative modes of service of summons under Rule 14 of
the Rules of Court, i.e., personal service under Section 7, substituted service under Section 8,
or service by publication under Section 16 when the address of the defendant is unknown
and cannot be ascertained by diligent inquiry.

Dismissing the complaint on the ground of improper venue is certainly not the appropriate
course of action at this stage of the proceeding, particularly as venue, in inferior courts as
well as in the courts of first instance (now RTC), may be waived expressly or impliedly. Where
defendant fails to challenge timely the venue in a motion to dismiss as provided by Section 4
of Rule 4 of the Rules of Court, and allows the trial to be held and a decision to be rendered,
he cannot on appeal or in a special action be permitted to challenge belatedly the wrong
venue, which is deemed waived.11

Thus, unless and until the defendant objects to the venue in a motion to dismiss, the venue
cannot be truly said to have been improperly laid, as for all practical intents and purposes,
the venue, though technically wrong, may be acceptable to the parties for whose
convenience the rules on venue had been devised. The trial court cannot pre-empt the
defendant's prerogative to object to the improper laying of the venue by motu proprio
dismissing the case.

Indeed, it was grossly erroneous for the trial court to have taken a procedural short-cut by
dismissing motu proprio the complaint on the ground of improper venue without first
allowing the procedure outlined in the Rules of Court to take its proper course. Although we
are for the speedy and expeditious resolution of cases, justice and fairness take primary
importance. The ends of justice require that respondent trial court faithfully adhere to the
rules of procedure to afford not only the defendant, but the plaintiff as well, the right to be
heard on his cause.

WHEREFORE, in view of the foregoing, the decision of the Intermediate Appellate Court, now
Court of Appeals, dated April 11, 1986, is hereby nullified and set aside. The complaint filed
by petitioner before the Regional Trial Court of Antipolo, Branch LXXI is revived and
reinstated. Respondent court is enjoined to proceed therein in accordance with law.

SO ORDERED.

19
G.R. No. L-23136 August 26, 1974 circular letters with "Pre-Incorporation Agreement to Subscribe" forms that provided that
the payment of the subscription should be made in cash from time to time or by the
ISMAEL MATHAY, JOSEFINA MATHAY, DIOGRACIAS T. REYES and S. ADOR DIONISIO, plaintiffs- application of the special dividend declared by the CMI, and that the subscription must be
appellants, made within the period from December 4, 1962 to January 15, 1963, "otherwise such
vs. subscription right shall be deemed to have been thereby ipso facto waived and released in
THE CONSOLIDATED BANK AND TRUST COMPANY, JOSE MARINO OLONDRIZ, WILFRIDO C. favor of the Board of Organizers of the Defendant Bank and their assignees"; that the
TECSON, SIMON R. PATERNO, FERMIN Z. CARAM, JR., ANTONIO P. MADRIGAL, JOSE P. plaintiffs-appellants accomplished and filed their respective "Pre-Incorporation Agreement to
MADRIGAL, CLAUDIO TEEHANKEE, and ALFONSO JUAN OLONDRIZ, defendants-appellees. Subscribe" and paid in full their subscriptions; that plaintiffs-appellants and the other CMI
CIPRIANO AZADA, MARIA CRISTINA OLONDRIZ PERTIERRA jointly with her husband ARTURO subscribing stockholders in whose behalf the action was brought also subscribed to a very
PERTIERRA, and MARIA DEL PUY OLONDRIZ DE STEVENS, movants-intervenors-appellants. substantial amount of shares; that on June 25, 1963, the Board of Organizers caused the
execution of the Articles or Incorporation of the proposed Bank indicating an original
Deogracias T. Reyes & Associates for appellants. subscription of 50,000 shares worth P5,000,000 subscribed and paid only by six of the
individuals-defendants-appellees, namely, Antonio P. Madrigal, Jose P. Madrigal Simon R.
Tañada, Teehankee & Carreon for appellees. Paterno, Fermin Z. Caram, Jr., Claudio Teehankee, and Wilfredo C. Tecson, thereby excluding
the plaintiffs-appellants and the other CMI subscribing stockholders who had already
Paterno Pedrena for appellee Fermin Z. Caram, Jr. subscribed; that the execution of said Articles of Incorporation was "in violation of law and in
breach of trust and contractual agreement as a means to gain control of Defendant Bank by
Defendant Individuals and persons or entities chosen by them and for their personal profit or
ZALDIVAR, J.:p gain in disregard of the rights of Plaintiffs and other CMI Subscribing Stockholders;" that the
paid-in capital stock was raised, as required by the Monetary Board, to P8,000,000.00, and
In this appeal, appellants-plaintiffs and movants-intervenors seek the reversal of the order individuals-defendants-appellees caused to be issued from the unissued shares 30,000 shares
dated March 21, 1964 of the Court of First Instance of Manila dismissing the complaint amounting to P3,000,000.00, all of which were again subscribed and paid for entirely by
together with all other pending incidents in Civil Case No. 55810. individuals-defendants-appellees or entities chosen by them "to the exclusion of Plaintiffs
and other CMI subscribing stockholders" "in violation of law and breach of trust and of the
The complaint in this case, filed on December 24, 1963 as a class suit, under Section 12, Rule contractual agreement embodied in the contractual agreement of March 28, 1962"; that the
3, of the Rules of Court, contained six causes of action. Under the first cause of action, Articles were filed with the Securities and Exchange Commission which issued the Certificate
plaintiffs-appellants alleged that they were, on or before March 28, 1962, stockholders in the of Incorporation on June 25, 1963; that as of the date of the Complaint, the plaintiffs-
Consolidated Mines, Inc. (hereinafter referred to as CMI), a corporation duly organized and appellants and other CMI subscribing stockholders had been denied, through the unlawful
existing under Philippine laws; that the stockholders of the CMI, including the plaintiffs- acts and manipulation of the defendant Bank and Individuals-defendants-appellees, the right
appellants, passed, at a regular stockholders' meeting, a Resolution providing: (a) that the to subscribe at par value, in proportion to their equities established under their respective
Consolidated Bank & Trust Co. (hereinafter referred to as Bank) be organized with an "Pre-Incorporation Agreements to Subscribe" to the capital stock, i.e., (a) to the original issue
authorized capital of P20,000,000.00; (b) that the organization be undertaken by a Board of of 50,000 shares and/or (b) to the additional issue of 30,000 shares, and/or (c) in that portion
Organizers composed of the President and Members of the Board of Directors of the CMI; (c) of said original or additional issue which was unsubscribed; that the individuals-defendants-
that all stockholders of the CMI, who were legally qualified to become stockholders, would appellees and the persons chosen by them had unlawfully acquired stockholdings in the
be entitled to subscribe to the capital stock of the proposed Bank "at par value to the same defendant-appellee Bank in excess of what they were lawfully entitled and held such shares
extent and in the same amount as said stockholders' respective share holdings in the CMI," "in trust" for the plaintiffs-appellants and the other CMI stockholders; that it would have
as shown in its stock books on a date to be fixed by the Board of Directors [which date was been vain and futile to resort to intra corporate remedies under the facts and circumstances
subsequently fixed as January 15, 1963], provided that the right to subscribe should be alleged above. As relief on the first cause of action, plaintiffs-appellants prayed that the
exercised within thirty days from the date so fixed, and "that if such right to subscription be subscriptions and share holdings acquired by the individuals-defendants- appellees and the
not so exercised then the stockholders concerned shall be deemed to have thereby waived persons chosen by them, to the extent that plaintiffs-appellants and the other CMI
and released ipso facto their right to such subscription in favor of the Interim Board of stockholders had been deprived of their right to subscribe, be annulled and transferred to
Organizers of the Defendant Bank or their assignees;" and (d) that the Board of Directors of plaintiffs-appellants and other CMI subscribing stockholders.
the CMI be authorized to declare a "special dividend" in an amount it would fix, which the
subscribing stockholders might authorize to be paid directly to the treasurer of the proposed Besides reproducing all the above allegations in the other causes of action, plaintiffs-
Bank in payment of the subscriptions; that the President and members of the Board of appellants further alleged under the second cause of action that on or about August 28,
Directors of the CMI, who are the individuals-defendants-appellees in the instant case, 1963, defendants-appellees Antonio P. Madrigal, Jose P. Madrigal: Fermin Z. Caram, Jr., and
constituted themselves as the Interim Board of Organizers; that said Board sent out, on or Wilfredo C. Tecson "falsely certified to the calling of a special stockholders' meeting allegedly
about November 20, 1962, to the CMI stockholders, including the plaintiffs-appellants, pursuant to due notice and call of Defendant Bank" although plaintiffs-appellants and other

20
CMI stockholders were not notified thereof, and amended the Articles of Incorporation 1. In holding that plaintiffs-appellants could not maintain the present class suit
increasing the number of Directors from 6 to 7, and had the illegally created Position of because of the absence of a showing in the complaint that they were sufficiently numerous
Director filled up by defendant-appellee Alfonso Juan Olondriz, who was not competent or and representative;
qualified to hold such position. In the third cause of action, plaintiffs-appellants claimed
actual damages in an amount equivalent to the difference between the par value of the II. In holding that the instant action could not be maintained as a class suit because
shares they were entitled, but failed, to acquire and the higher market value of the same plaintiffs-appellants did not have a common legal interest in the subject matter of the suit;
shares. In the fourth cause of action, Plaintiffs-appellants claimed moral damages; in the
fifth, exemplary damages; and in the sixth, attorney's fees. III. In dismissing the present class suit on the ground that it did not meet the
requirements of Rule 3, section 12 of the Rules of Court;
In his manifestation to the court on January 4, 1964, Francisco Sevilla, who was one of the
original plaintiffs, withdrew. On January 15, 1964 Cipriano Azada, Maria Cristina Olondriz IV. In holding that the complaint was fatally defective in that it failed to state with
Pertierra, Maria del Puy Olondriz de Stevens (who later withdrew as intervenors-appellants) particularity that plaintiffs-appellants had resorted to, and exhausted, intra-corporate
and Carmen Sievert de Amoyo, filed a motion to intervene, and to join the plaintiffs- remedies;
appellants on record, to which motion defendants-appellees, except Fermin Z. Caram, Jr.,
filed, on January 17, 1964 their opposition. V. In resolving defendants-appellees' motion on the basis of facts not alleged in the
complaint;
On February 7, 1964 defendants-appellees, except Fermin Z. Caram, Jr., filed a motion to
dismiss on the grounds that (a) plaintiffs-appellants had no legal standing or capacity to VI. In holding that plaintiffs-appellants' complaint stated no valid cause of action
institute the alleged class suit; (b) that the complaint did not state a sufficient and valid cause against defendants-appellees;
of action; and (c) that plaintiffs-appellants' complaint against the increase of the number of
directors did not likewise state a cause of action. Plaintiffs-appellants filed their opposition VII. In not holding that a trust relationship existed between the Interim Board of
thereto on February 21, 1964. Organizers of defendant-appellee Bank and the CMI subscribing stockholders and in not
holding that the waiver was in favor of the Board of Trustees for the CMI subscribing
On March 4, 1964 appellants, plaintiffs and intervenors, filed a verified petition for a writ of stockholders;
preliminary injunction to enjoin defendants-appellees from considering or ratifying by
resolution, at the meeting of the stockholders of defendant-appellee Bank to be held the VIII. In holding that the failure of plaintiffs-appellants to allege that they had paid or had
following day, the unlawful apportionment of the shares of the defendant-appellee Bank and offered to pay for the shares allegedly pertaining to them constituted another ground for
the illegal amendment to its Articles of Incorporation increasing the number of Directors, The dismissal;
Court, after hearing, granted the writ, but subsequently set it aside upon the appellees' filing
a counter bond. XI. In holding that the allegations under the second cause of action stated no valid
cause of action due to a fatal omission to allege that plaintiffs-appellants were stockholders
Some subscribers to the capital stock of the Bank like Concepcion Zuluaga, et al., and Carlos of record at the time of the holding of the special stockholders' meeting;
Moran Sison, et al., filed separate manifestations that they were opposing and disauthorizing
the suit of plaintiffs-appellants. X. In holding that plaintiffs-appellants' complaint stated no cause of action against
defendant-appellee Bank; and
On March 7, 1964 defendants-appellees, except Fermin Z. Caram, Jr., filed a supplemental
ground for their motion to dismiss, to wit, that the stockholders, except Fermin Z. Caram, Jr., XI. In considering the resolution of ratification and confirmation and in holding that
who abstained, had unanimously, at their regular annual meeting held on March 5, 1964, the resolution rendered the issues in this case moot.
ratified and confirmed all the actuations of the organizers-directors in the incorporation,
organization and establishment of the Bank. The assigned error revolve around two questions namely: (1) whether the instant action
could be maintained as a class suit, and (2) whether the complaint stated a cause of action.
In its order, dated March 21, 1964, the trial court granted the motion to dismiss, holding, These issues alone will be discussed.
among other things, that the class suit could not be maintained because of the absence of a
showing in the complaint that the plaintiffs-appellants were sufficiently numerous and 1. Appellants contended in the first three assigned errors that the trial court erred in
representative, and that the complaint failed to state a cause of action. From said order, holding that the present suit could not be maintained as a class suit, and in support thereof
appellants, plaintiffs and intervenors, interposed this appeal to this Court on questions of law argued that the propriety of a class suit should be determined by the common interest in the
and fact, contending that the lower court erred as follows: subject matter of the controversy; that in the instant case there existed such common
interest which consisted not only in the recovery of the shares of which the appellants were

21
unlawfully deprived, but also in divesting the individuals-defendants-appellees and the
person or entities chosen by them of control of the appellee Bank.1 ; that the complaint Sec. 12. Class suit — When the subject matter of the controversy is one of common or
showed that besides the four plaintiff-appellants of record, and the four movant-intervenors- general interest to many persons, and the parties are so numerous that it is impracticable to
appellants there were in the appellee Bank many other stockholders who, tough similarly bring them all before the court, one or more may sue or defend for the benefit of -ill. But in
situated as the appellants, did not formally include themselves as parties on record in view of such case the court shall make sure that the parties actually before it are sufficiently
the representative character of the suit; that the test, in order to determine the legal numerous and representative so that all interests concerned are fully protected. Any party in
standing of a party to institute a class suit, was not one, of number, but whether or not the interest shall have a right to intervene in protection of his individual interest.
interest of said party was representative of the persons in whose behalf the class suit was
instituted; that granting arguendo, that the plaintiffs-appellants were not sufficiently The necessary elements for the maintenance of a class suit are accordingly: (1) that the
numerous and representative, the court should not have dismissed the action, for subject matter of the controversy be one of common or general interest to many persons,
insufficiency of number in a class suit was not a ground for a motion to dismiss, and the court and (2) that such persons be so numerous as to make it impracticable to bring them all to the
should have treated the suit as an action under Rule 3, section 6, of the Rules of Court which court. An action does not become a class suit merely because it is designated as such in the
permits a joinder of parties. pleadings. Whether the suit is or is not a class quit depends upon the attending facts, and the
complaint, or other pleading initiating the class action should allege the existence of the
Defendants-appellees, on the contrary, stressed that the instant suit was instituted as a class necessary facts, to wit, the existence of a subject matter of common interest, and the
suit and the plaintiffs-appellants did not sue in their individual capacities for the protection of existence of a class and the number of persons in the alleged class,3 in order that the court
their individual interests; that the plaintiffs appellants of record could not be considered might be enabled to determine whether the members of the class are so numerous as to
numerous and representative, as said plaintiffs-appellants were only four out of 1,500 make it impracticable to bring them all before the court, to contrast the number appearing
stockholders, and owned only 8 shares out of the 80,000 shares of stock of the appellee on the record with the number in the class and to determine whether claimants on record
Bank; that even if to the four plaintiffs-appellants were added the four movants-intervenors- adequately represent the class and the subject matter of general or common interest.4
appellants the situation would be the same as two of the intervenors, to wit, Ma. Cristina
Olondriz Pertierra and Ma. del Puy Olondriz de Stevens, could not sue as they did not have The complaint in the instant case explicitly declared that the plaintiffs- appellants instituted
their husbands' consent; that it was necessary that in a class suit the complaint itself should the "present class suit under Section 12, Rule 3, of the Rules of Court in. behalf of CMI
allege facts showing that the plaintiffs were sufficiently numerous and representative, and subscribing stockholders"5 but did not state the number of said CMI subscribing stockholders
this did not obtain in the instant case, as the complaint did not. even allege how many other so that the trial court could not infer, much less make sure as explicitly required by the
CMI stockholders were "similarly situated"; that the withdrawal of one plaintiff, Francisco sufficiently numerous and representative in order that all statutory provision, that the parties
Sevilla, the subsequent disclaimers of any interest in the suit made in two separate pleadings actually before it were interests concerned might be fully protected, and that it was
by other CMI stockholders and the disauthorization of their being represented by plaintiffs- impracticable to bring such a large number of parties before the court.
appellants by the 986 (out of 1,663) stockholders who attended the annual meeting of bank
stockholders on March 5, 1964, completely negated plaintiffs-appellants' pretension that The statute also requires, as a prerequisite to a class suit, that the subject-matter of the
they were sufficiently numerous and representative or that there were many other controversy be of common or general interest to numerous persons. Although it has been
stockholders similarly situated whom the plaintiffs-appellants allegedly represented; that remarked that the "innocent 'common or general interest' requirement is not very helpful in
plaintiffs-appellants did not have that common or general interest required by the Rules of determining whether or not the suit is proper",6 the decided cases in our jurisdiction have
Court in the subject matter of the suit.2 more incisively certified the matter when there is such common or general interest in the
subject matter of the controversy. By the phrase "subject matter of the action" is meant "the
In their Reply Brief, appellants insisted that non-compliance with Section 12, Rule 3, not physical facts, the things real or personal, the money, lands, chattels, and the like, in relation
being one enumerated in Rules 16 and 17, was not a ground for dismissal; that the to which the suit is prosecuted, and not the delict or wrong committed by the defendant."7
requirements for a class had been complied with; that the required common interest existed
even if the interests were several for there was a common question of law or fact and a This Court has ruled that a class suit did not lie in an action for recovery of real property
common relief was sought; that the common or general interest could be in the object of the where separate portions of the same parcel were occupied and claimed individually by
action, in the result of the proceedings, or in the question involved in the action, as long as different parties to the exclusion of each other, such that the different parties had
there was a common right based on the same essential facts; that plaintiffs-appellants determinable, though undivided interests, in the property in question.8 It his likewise held
adequately represented the aggrieved group of bank stockholders, inasmuch as appellants' that a class suit would not lie against 319 defendants individually occupying different
interests were not antagonistic to those of the latter, and appellants were in the same portions of a big parcel of land, where each defendant had an interest only in the particular
position as the group in whose behalf the complaint was filed. portion he was occupying, which portion was completely different from the other portions
individually occupied by other defendants, for the applicable section 118 of the Code of Civil
The governing statutory provision for the maintenance of a class suit is Section 12 of Rule 3 Procedure relates to a common and general interest in single specific things and not to
of the Rules of Court, which reads as follows: distinct ones.9 In an action for the recovery of amounts that represented surcharges

22
allegedly collected by the city from some 30,000 customers of four movie houses, it was held Appellants, however, insisted, citing American authorities, 13 that a class suit might be
that a class suit did not lie, as no one plaintiff had any right to, or any share in the amounts brought even if the interests of plaintiffs-appellants might be several as long as there was a
individually claimed by the others, as each of them was entitled, if at all, only to the return of common question of law or fact affecting them and a common relief was sought. We have no
what he had personally paid. 10 conflict with the authorities cited; those were rulings under the Federal Rules of Civil
Procedure, pursuant to Rule 23 of which, there were three types of class suits, namely: the
The interest, subject matter of the class suits in the above cited cases, is analogous to the true, the hybrid, and the spurious, and these three had only one feature in common, that is,
interest claimed by appellants in the instant case. The interest that appellants, plaintiffs and in each the persons constituting the class must be so numerous as to make it impracticable
intervenors, and the CMI stockholders had in the subject matter of this suit — the portion of to bring them all before the court. The authorities cited by plaintiffs-appellants refer to the
stocks offering of the Bank left unsubscribed by CMI stockholders who failed to exercise their spurious class action (Rule 23 (a) (3) which involves a right sought to be enforced, which is
right to subscribe on or before January 15, 1963 — was several, not common or general in several, and there is a common question of law or fact affecting the several rights and a
the sense required by the statute. Each one of the appellants and the CMI stockholders had common relief is sought. 14 The spurious class action is merely a permissive joinder device;
determinable interest; each one had a right, if any, only to his respective portion of the between the members of the class there is no jural relationship, and the right or liability of
stocks. No one of them had any right to, or any interest in, the stock to which another was each is distinct, the class being formed solely by the presence of a common question of law
entitled. Anent this point, the trial court correctly remarked: or fact. 15 This permissive joinder is provided in Section 6 of Rule 3, of our Rules of Court.
Such joinder is not and cannot be regarded as a class suit, which this action purported and
It appears to be the theory of the plaintiffs borne out by the prayer, that each subscribing was intended to be as per averment of the complaint.
CMI stockholder is entitled to further subscribe to a certain Proportion depending upon his
stockholding in the CMI, of the P8 million capital stock of the defendant bank open to It may be granted that the claims of all the appellants involved the same question of law. But
subscription (out of the 20 million authorized capital stock) as well as the unsubscribed this alone, as said above, did not constitute the common interest over the subject matter
portion of the P8 million stock offering which were left unsubscribed by those CMI indispensable in a class suit. The right to purchase or subscribe to the shares of the proposed
stockholders who for one reason or another had failed to exercise their subscription rights on Bank, claimed by appellants herein, is analogous to the right of preemption that stockholders
or before January 15, 1963. Under the plaintiffs' theory therefore, each subscribing CMI have when their corporation increases its capital. The right to preemption, it has been said, is
stockholder was entitled to subscribe to a definite number of shares both in the original personal to each stockholder, 16 and while a stockholder may maintain a suit to compel the
offering of P8 million and in that part thereof not subscribed on or before the deadline issuance of his proportionate share of stock, it has been ruled, nevertheless, that he may not
mentioned, so that one subscribing CMI stockholder may be entitled to subscribe to one maintain a representative action on behalf of other stockholders who are similarly situated.
share, another to 3 shares and a third to 11 shares, and so on, depending upon the amount 17 By analogy, the right of each of the appellants to subscribe to the waived stocks was
and extent of CMI stockholding. But except for the fact that a question of law — the proper personal, and no one of them could maintain on behalf of others similarly situated a
interpretation of the waiver provisions of the CMI stockholders' resolution of March 28, 1962 representative suit.
— is common to all, each CMI subscribing stock holder has a legal interest in, and a claim to,
only his respective proportion of shares in the defendant bank, and none with regard to any Straining to make it appear that appellants and the CMI subscribing stockholders had a
of the shares to which another stockholder is entitled. Thus plaintiff Ismael Mathay has no common or general interest in the subject matter of the suit, appellants stressed in their
legal interest in, or claim to, any share claimed by any or all of his co-plaintiffs from the brief that one of the reliefs sought in the instant action was "to divest defendant individuality
defendant individuals. Hence, no CMI subscribing stockholder or, for that matter, not any and the persons or entities chosen by them of control of the defendant bank." 18 This relief
number of CMI stockholders can maintain a class suit in behalf of others,... 11 allegedly sought by appellants did not, however, appear either in the text or in the prayer of
the complaint.
Even if it be assumed, for the sake of argument, that the appellants and the CMI stockholders
suffered wrongs that had been committed by similar means and even pursuant to a single Appellants, furthermore, insisted that insufficiency of number in a class suit was not a ground
plan of the Interim Board of Organizers of the Bank, the wrong suffered by each of them for dismissal of one action. This Court has, however, said that where it appeared that no
would constitute a wrong separate from those suffered by the other stockholders, and those sufficient representative parties had been joined, the dismissal by the trial court of the
wrongs alone would not create that common or general interest in the subject matter of the action, despite the contention by plaintiffs that it was a class suit, was correct. 19 Moreover,
controversy as would entitle any one of them to bring a class suit on behalf of the others. insofar as the instant case is concerned, even if it be granted for the sake of argument, that
Anent this point it has been said that: the suit could not be dismissed on that ground, it could have been dismissed, nevertheless,
on the ground of lack of cause of action which will be presently discussed. .
Separate wrongs to separate persons, although committed by similar means and even
pursuant to a single plan, do not alone create a 'common' or 'general' interest in those who 2. Appellants supported their assigned error that the court erred in holding that the
are wronged so as to entitle them to maintain a representative action. 12 complaint stated no valid cause of action, by claiming that paragraph 15 together with the
other allegations of the complaint to the effect that defendants-appellees had unlawfully
acquired stockholdings in the capital stock of defendant-appellee Bank in excess of what they

23
were lawfully entitled to, in violation of law and in breach of trust and the contractual dismiss based on lack of cause of action is not whether the facts alleged in the complaint are
agreement, constituted a valid and sufficient cause of action; 20 and that only the allegations true, for these are hypothetically admitted, but whether the facts alleged are sufficient to
in the complaint should have been considered by the trial court in determining whether the constitute a cause of action such that the court may render a valid judgment upon the facts
complaint stated a cause of action or not. alleged therein.

Defendants-appellees, on the contrary, maintained that the allegations of the complaint A cause of action is an act or omission of one party in violation of the legal right of the other.
should not be the only ones to be considered in determining whether there is a cause of Its essential elements are, namely: (1) the existence of a legal right in the plaintiff, (2) a
action; that even if the ultimate facts alleged in the first cause of action of the complaint be correlative legal duty in the defendant, and (3) an act or omission of the defendant in
the only ones considered the complaint would still fail to state a valid cause of action on the violation of plaintiff's right with consequential injury or damage to the plaintiff for which he
following grounds: first, there was no allegation regarding appellants' qualification to may maintain an action for the recovery of damages or other appropriate relief. 27 On the
subscribe to the capital stock of the appellee Bank, for under the CMI stockholders' other hand, Section 3 of Rule 6 of the Rules of Court provides that the complaint must state
resolution of March 28, 1962, only those qualified under the law were entitled to subscribe, the ultimate facts constituting the plaintiff's cause of action. Hence, where the complaint
and under the regulations of the Monetary Board, only natural-born Filipino citizens could be states ultimate facts that constitute the three essential elements of a cause of action, the
stockholders of a banking corporation organized under the laws of the Philippines, and complaint states a cause of action; 28 otherwise, the complaint must succumb to a motion to
nowhere did the complaint alleged that plaintiffs-appellants were natural born Filipino dismiss on that ground.
citizens. 21 Second, appellants' averment in paragraph 8 that they "subscribed," and their
averment in paragraph 15 that they were "denied the right to subscribe ... to the capital The legal principles having been premised, let us now analyze and discuss appellant's various
stock of the defendant Bank", were inconsistent, and hence neutralized each other, thereby causes of action.
leaving in shambles the first cause of action. Third, there was no allegation that appellants
had not yet received or had not been issued the corresponding certificates of stock covering Appellants' first cause of action, pursuant to what has been premised above, should have
the shares they had subscribed and paid for. Fourth, the allegations failed to show the consisted of: (1) the right of appellants as well as of the other CMI stockholders to subscribe,
existence of the supposed trust; and fifth, the complaint failed to allege that plaintiffs- in proportion to their equities established under their respective "Pre-Incorporation
appellants had paid or offered to pay for the shares allegedly pertaining to them. 22 Agreements to Subscribe", to that portion of the capital stock which was unsubscribed
because of failure of the CMI stockholders to exercise their right to subscribe thereto; (2) the
Let us premise the legal principles governing the motion to dismiss on the ground of lack of legal duty of the appellant to have said portion of the capital stock to be subscribed by
cause of action. appellants and other CMI stockholders; and (3) the violation or breach of said right of
appellants and other CMI stockholders by the appellees.
Section 1, Rule 16 of the Rules of Court providing in part that: .
Did the complaint state the important and substantial facts directly forming the basis of the
Within the time for pleading a motion to dismiss may be made on any of the following primary right claimed by plaintiffs? Before proceeding to elucidate this question, it should be
grounds: .... noted that a bare allegation that one is entitled to something is an allegation of a conclusion.
Such allegations adds nothing to the pleading, it being necessary to plead specifically the
(g) That the complaint states no cause of action. ..1. facts upon which such conclusion is founded. 29 The complaint alleged that appellants were
stockholders of the CMI; that as such stockholders, they were entitled; by virtue of the
explicitly requires that the sufficiency of the complaint must be tested exclusively on the resolution of March 28, 1962, to subscribe to the capital stock of the proposed Consolidated
basis of the complaint itself and no other should be considered when the ground for motion Bank and Trust Co., at par value to the same extent and in the same amount as said
to dismiss is that the complaint states no cause of action. Pursuant thereto this Court has stockholders' respective share holdings in the CMI as shown in the latter's stock book as of
ruled that: January 15, 1963, the right to subscribe to be exercised until January 15, 1963, provided said
stockholders of the CMI were qualified under the law to become stockholders of the
As a rule the sufficiency of the complaint, when Challenged in a motion to dismiss, must be proposed Bank; 30 that appellants accomplished and filed their respective "Pre-Incorporation
determined exclusively on the basis of the facts alleged therein. 23 Agreements to Subscribe" and fully paid the subscription. 31

It has been likewise held that a motion to dismiss based on lack of cause of action These alleged specific facts did not even show that appellants were entitled to subscribe to
hypothetically admits the truth of the allegations of fact made in the complaint. 24 It is to be the capital stock of the proposed Bank, for said right depended on a condition precedent,
noted that only the facts well pleaded in the complaint, and likewise, any inferences fairly which was, that they were qualified under the law to become stockholders of the Bank, and
deducible therefrom, are deemed admitted by a motion to dismiss. Neither allegations of there was no direct averment in the complaint of the facts that qualified them to become
conclusions 25 nor allegations of facts the falsity of which the court may take judicial notice stockholders of the Bank. The allegation of the fact that they subscribed to the stock did not,
are deemed admitted. 26 The question, therefore, submitted to the Court in a motion to

24
by necessary implication, show that they were possessed of the necessary qualifications to Incorporation prepared by the Board of Organizers, the individuals-defendants-appellees
become stockholders of the proposed Bank. alone appeared to have subscribe to the 50, shares; 39 and that individuals-defendants-
appellees again subscribe to all the additional 30,000 shares. 40 From these facts, appellants
Assuming arguendo that appellants were qualified to become stockholders of the Bank, they concluded that they were denied their right to subscribe in proportion to their equities; 41
could subscribe, pursuant to the explicit terms of the resolution of March 28, 1962, "to the that the individuals-defendants-appellees unlawfully acquired stockholdings far in excess of
same extent and in the same amount as said stockholders' respective stockholdings in the what they were lawfully entitled in violation of law and in breach of trust and of contractual
CMI" as of January 15, 1963. 32 This was the measure of the right they could claim to agreement; 42 and that, because of matters already alleged, the individuals-defendants-
subscribe to waived stocks. Appellants did not even aver that the stocks waived to the appellees "hold their shares in the defendant bank in trust for plaintiffs." 43
subscription of which they claimed the right to subscribe, were comprised in "the extent and
amount" of their respective share holdings in the CMI. It is not surprising that they did not The allegation in the complaint that the individuals-defendants-appellees held their shares
make such an averment for they did not even allege the amount of shares of stock to which "in trust" for plaintiffs-appellants without averment of the facts from which the court could
they claimed they were entitled to subscribe. The failure of the complaint to plead conclude the existence of the alleged trust, was not deemed admitted by the motion to
specifically the above facts rendered it impossible for the court to conclude by natural dismiss for that was a conclusion of law. Express averments "that a party was the beneficial
reasoning that the appellants and other CMI stockholders had a right to subscribe to the owner of certain property; ... that property or money was received or held in trust, or for the
waived shares of stock, and made any allegation to that effect a conclusion of the pleader, use of another; that particular funds were trust funds; that a particular transaction created
not an ultimate fact, in accordance with the test suggested by the California Supreme Court, an irrevocable trust; that a person held Property as constructive trustee; that on the transfer
to wit: of certain property a trust resulted" have been considered as mere conclusions of law. 44
The facts alleged in the complaint did not, by logical reasoning, necessarily lead to the
If from the facts in evidence, the result can be reached by that process of natural reasoning conclusion that defendants-appellees were trustees in favor of appellants of the shares of
adopted in the investigation of truth, it becomes an ultimate fact, to be found as such. If, on stock waived by the CMI stockholders who failed to exercise their right to subscribe. In this
the other hand, resort must be had to the artificial processes of the law, in order to reach a connection, it has been likewise said that:
final determination, the result is a conclusion of law. 33
"The general rule is that an allegation of duty in terms unaccompanied by a statement of the
Let us now pass to the second and third elements that would have constituted the first cause facts showing the existence of the duty, is a mere conclusion of law, unless there is a relation
of action. Did the complaint allege as ultimate facts the legal duty of defendants-appellees to set forth from which the law raises the duty." 45
have a portion of the capital stock subscribed to by appellants? Did the complaint allege as
ultimate facts that defendants appellees had violated appellants' right? In like manner, the allegation that individuals-defendants-appellees held said shares in trust
was no more than an interpretation by appellants of the effect of the waiver clause of the
Even if it be assumed arguendo that defendants-appellees had the duty to have the waived Resolution and as such it was again a mere conclusion of law. It has been said that:
stocks subscribed to by the CMI stockholders, this duty was not owed to all the CMI
stockholders, but only to such CMI stockholders as were qualified to become stockholders of The following are also conclusions of law: ... an allegation characterizing an instrument or
the proposed Bank. Inasmuch as it has been shown that the complaint did not contain purporting to interpret it and state its effects, ... 46
ultimate facts to show that plaintiffs-appellants were qualified to become stockholders of the
Bank, it follows that the complaint did not show that defendants-appellees were under duty Allegations in petition in the nature of conclusions about the meaning of contract,
to have plaintiffs-appellants subscribe to the stocks of the proposed Bank. It inevitably inconsistent with stated terms of the contract, cannot be considered. 47
follows also that the complaint did not contain ultimate facts to show that the right of the
plaintiffs-appellants to subscribe to the shares of the proposed Bank had been violated by The allegation that the defendants-appellee acquired stockholdings far in excess of what they
defendants-appellees. How could a non-existent right be violated? were lawfully entitled, in violation of law and in breach of trust and of contractual
agreement, is also mere conclusion of law.
Let us continue the discussion further. The complaint alleged that by virtue of the resolution
of March 28, 1962, the President and Members of the Board of Directors of the CMI would Of course, the allegation that there was a violation of trust duty was plainly a conclusion of
be constituted as a Board of Organizers to undertake and carry out the organization of the law, for "a mere allegation that it was the duty of a party to do this or that, or that he was
Bank; 34 that the Board of Organizers was constituted and proceeded with the establishment guilty of a breach of duty, is a statement of a conclusion not of fact." 48
of the Bank, 35 that the persons composing the Board of Organizers were the individuals-
defendants-appellees; 36 that the Board of Organizers sent our circular letters with "Pre- An averment ... that an act was 'unlawful' or 'wrongful' is a mere legal conclusion or opinion
Incorporation Agreement to Subscribe" forms 37 which specified, among others, "such of the pleader. 49
subscription right shall be deemed ipso facto waived and released in favor of the Board of
Organizers of the defendant Bank and their assignees"; 38 that in the Articles of

25
Moreover, plaintiffs-appellants did not state in the complaint the amount of subscription the
individual defendant-appellee were entitled to; hence there was no basis for the court to
determine what amount subscribed to by them was excessive.

From what has been said, it is clear that the ultimate facts stated under the first cause of
action are not sufficient to constitute a cause of action.

The further allegations in the second cause of action that the calling of a special meeting was
"falsely certified", that the seventh position of Director was "illegally created" and that
defendant Alfonso Juan Olondriz was "not competent or qualified" to be a director are mere
conclusions of law, the same not being necessarily inferable from the ultimate facts stated in
the first and second causes of action. It has been held in this connection that:

An averment that ... an act was 'unlawful' or 'wrongful' is a mere legal conclusion or opinion
of the pleader. The same is true of allegations that an instrument was 'illegally' certified or ...
that an act was arbitrarily done ..." 50

A pleader states a mere conclusion when he makes any of the following allegations: that a
party was incapacitated to enter into a contract or convey
property ... 51

The third, fourth, fifth and sixth causes of action depended on the first cause of action,
which, as has been shown, did not state ultimate facts sufficient to constitute a cause of
action. It stands to reason, therefore, that said causes of action would also be fatally
defective.

It having been shown that the complaint failed to state ultimate facts to constitute a cause of
action, it becomes unnecessary to discuss the other assignments of errors.

WHEREFORE, the instant appeal is dismissed, and the order dated March 21, 1964 of the
Court of First Instance of Manila dismissing the complaint in Civil Case No. 55810 is affirmed,
with costs in this instance against appellants. It is so ordered.

26
G.R. No. 87434 August 5, 1992 Of the cargo covered by Bill of Lading No. 25 or (2)6, supposed to contain 6,400 bags of Low
Density Polyethylene 647 originally inside 160 pallets, there were delivered to the consignee
PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC. and TAGUM PLASTICS, INC., 5,413 bags in good order condition. The survey shows shortages, damages and losses to be as
petitioners, follows:
vs.
SWEET LINES, INC., DAVAO VETERANS ARRASTRE AND PORT SERVICES, INC. and HON. COURT Undelivered/Damaged bags as tallied during discharge from vessel-173 bags; undelivered
OF APPEALS, respondents. and damaged as noted and observed whilst stored at the pier-699 bags; and shortlanded-110
bags (Exhs. P and P-1).
De Lara, De Lunas & Rosales for petitioners.
Of the 600 bags of Low Density Polyethylene 631, the survey conducted on the same day
Carlo L. Aquino for Sweet Lines, Inc. shows an actual delivery to the consignee of only 507 bags in good order condition. Likewise
noted were the following losses, damages and shortages, to wit:

REGALADO, J.: Undelivered/damaged bags and tally sheets during discharge from vessel-17 bags.

A maritime suit 1 was commenced on May 12, 1978 by herein Petitioner Philippine American Undelivered and damaged as noted and observed whilst stored at the pier-66 bags;
General Insurance Co., Inc. (Philamgen) and Tagum Plastics, Inc. (TPI) against private Shortlanded-10 bags.
respondents Sweet Lines, Inc. (SLI) and Davao Veterans Arrastre and Port Services, Inc.
(DVAPSI), along with S.C.I. Line (The Shipping Corporation of India Limited) and F.E. Zuellig, Therefore, of said shipment totalling 7,000 bags, originally contained in 175 pallets, only a
Inc., as co-defendants in the court a quo, seeking recovery of the cost of lost or damaged total of 5,820 bags were delivered to the consignee in good order condition, leaving a
shipment plus exemplary damages, attorney's fees and costs allegedly due to defendants' balance of 1,080 bags. Such loss from this particular shipment is what any or all defendants
negligence, with the following factual backdrop yielded by the findings of the court below may be answerable to (sic).
and adopted by respondent court:
As already stated, some bags were either shortlanded or were missing, and some of the
It would appear that in or about March 1977, the vessel SS "VISHVA YASH" belonging to or 1,080 bags were torn, the contents thereof partly spilled or were fully/partially emptied, but,
operated by the foreign common carrier, took on board at Baton Rouge, LA, two (2) worse, the contents thereof contaminated with foreign matters and therefore could no
consignments of cargoes for shipment to Manila and later for transhipment to Davao City, longer serve their intended purpose. The position taken by the consignee was that even
consisting of 600 bags Low Density Polyethylene 631 and another 6,400 bags Low Density those bags which still had some contents were considered as total losses as the remaining
Polyethylene 647, both consigned to the order of Far East Bank and Trust Company of contents were contaminated with foreign matters and therefore did not (sic) longer serve
Manila, with arrival notice to Tagum Plastics, Inc., Madaum, Tagum, Davao City. Said cargoes the intended purpose of the material. Each bag was valued, taking into account the customs
were covered, respectively, by Bills of Lading Nos. 6 and 7 issued by the foreign common duties and other taxes paid as well as charges and the conversion value then of a dollar to
carrier (Exhs. E and F). The necessary packing or Weight List (Exhs. A and B), as well as the the peso, at P110.28 per bag (see Exhs. L and L-1 M and O). 2
Commercial Invoices (Exhs. C and D) accompanied the shipment. The cargoes were likewise
insured by the Tagum Plastics Inc. with plaintiff Philippine American General Insurance Co., Before trial, a compromise agreement was entered into between petitioners, as plaintiffs,
Inc., (Exh. G). and defendants S.C.I. Line and F.E. Zuellig, upon the latter's payment of P532.65 in
settlement of the claim against them. Whereupon, the trial court in its order of August 12,
In the course of time, the said vessel arrived at Manila and discharged its cargoes in the Port 1981 3 granted plaintiffs' motion to dismiss grounded on said amicable settlement and the
of Manila for transhipment to Davao City. For this purpose, the foreign carrier awaited and case as to S.C.I. Line and F.E. Zuellig was consequently "dismissed with prejudice and without
made use of the services of the vessel called M/V "Sweet Love" owned and operated by pronouncement as to costs."
defendant interisland carrier.
The trial court thereafter rendered judgment in favor of herein petitioners on this dispositive
Subject cargoes were loaded in Holds Nos. 2 and 3 of the interisland carrier. These were portion:
commingled with similar cargoes belonging to Evergreen Plantation and also Standfilco.
WHEREFORE, judgment is hereby rendered in favor of the plaintiff Philippine General
On May 15, 1977, the shipment(s) were discharged from the interisland carrier into the American Insurance Company Inc. and against the remaining defendants, Sweet Lines Inc.
custody of the consignee. A later survey conducted on July 8, 1977, upon the instance of the and Davao Veterans Arrastre Inc. as follows:
plaintiff, shows the following:

27
Defendant Sweet Lines, Inc. is ordered to pay said plaintiff the sum of P34,902.00, with legal fact issued bills of lading numbered MD-25 and MD-26 therefor with proof of their existence
interest thereon from date of extrajudicial demand on April 28, 1978 (Exh. M) until fully paid; manifest in the records of the case. 13 For its part, DVAPSI insists on the propriety of the
dismissal of the complaint as to it due to petitioners' failure to prove its direct responsibility
Defendant Sweet Lines Inc. and Davao Veterans Arrastre and (Port) Services Inc. are directed for the loss of and/or damage to the cargo. 14
to pay jointly and severally, the plaintiff the sum of P49,747.55, with legal interest thereon
from April 28, 1978 until fully paid; On this point, in denying petitioner's motion for reconsideration, the Court of Appeals
resolved that although the bills of lading were not offered in evidence, the litigation
Each of said defendants are ordered to pay the plaintiffs the additional sum of P5,000 is obviously revolves on such bills of lading which are practically the documents or contracts
reimbursable attorney's fees and other litigation expenses; sued upon, hence, they are inevitably involved and their provisions cannot be disregarded in
the determination of the relative rights of the parties thereto. 15
Each of said defendants shall pay one-fourth (1/4) costs. 4
Respondent court correctly passed upon the matter of prescription, since that defense was
Due to the reversal on appeal by respondent court of the trial court's decision on the ground so considered and controverted by the parties. This issue may accordingly be taken
of prescription, 5 in effect dismissing the complaint of herein petitioners, and the denial of cognizance of by the court even if not inceptively raised as a defense so long as its existence
their motion for reconsideration, 6 petitioners filed the instant petition for review on is plainly apparent on the face of relevant pleadings. 16 In the case at bar, prescription as an
certiorari, faulting respondent appellate court with the following errors: (1) in upholding, affirmative defense was seasonably raised by SLI in its answer, 17 except that the bills of
without proof, the existence of the so-called prescriptive period; (2) granting arguendo that lading embodying the same were not formally offered in evidence, thus reducing the bone of
the said prescriptive period does exist, in not finding the same to be null and void; and (3) contention to whether or not prescription can be maintained as such defense and, as in this
assuming arguendo that the said prescriptive period is valid and legal, in failing to conclude case, consequently upheld on the strength of mere references thereto.
that petitioners substantially complied therewith. 7
As petitioners are suing upon SLI's contractual obligation under the contract of carriage as
Parenthetically, we observe that herein petitioners are jointly pursuing this case, considering contained in the bills of lading, such bills of lading can be categorized as actionable
their common interest in the shipment subject of the present controversy, to obviate any documents which under the Rules must be properly pleaded either as causes of action or
question as to who the real party in interest is and to protect their respective rights as defenses, 18 and the genuineness and due execution of which are deemed admitted unless
insurer and insured. In any case, there is no impediment to the legal standing of Petitioner specifically denied under oath by the adverse party. 19 The rules on actionable documents
Philamgen, even if it alone were to sue herein private respondents in its own capacity as cover and apply to both a cause of action or defense based on said documents. 20
insurer, it having been subrogated to all rights of recovery for loss of or damage to the
shipment insured under its Marine Risk Note No. 438734 dated March 31, 1977 8 in view of In the present case and under the aforestated assumption that the time limit involved is a
the full settlement of the claim thereunder as evidenced by the subrogation receipt 9 issued prescriptive period, respondent carrier duly raised prescription as an affirmative defense in
in its favor by Far East Bank and Trust Co., Davao Branch, for the account of petitioner TPI. its answer setting forth paragraph 5 of the pertinent bills of lading which comprised the
stipulation thereon by parties, to wit:
Upon payment of the loss covered by the policy, the insurer's entitlement to subrogation pro
tanto, being of the highest equity, equips it with a cause of action against a third party in case 5. Claims for shortage, damage, must be made at the time of delivery to consignee or
of contractual breach. 10 Further, the insurer's subrogatory right to sue for recovery under agent, if container shows exterior signs of damage or shortage. Claims for non-delivery,
the bill of lading in case of loss of or damage to the cargo is jurisprudentially upheld. 11 misdelivery, loss or damage must be filed within 30 days from accrual. Suits arising from
However, if an insurer, in the exercise of its subrogatory right, may proceed against the shortage, damage or loss, non-delivery or misdelivery shall be instituted within 60 days from
erring carrier and for all intents and purposes stands in the place and in substitution of the date of accrual of right of action. Failure to file claims or institute judicial proceedings as
consignee, a fortiori such insurer is presumed to know and is just as bound by the contractual herein provided constitutes waiver of claim or right of action. In no case shall carrier be liable
terms under the bill of lading as the insured. for any delay, non-delivery, misdelivery, loss of damage to cargo while cargo is not in actual
custody of carrier. 21
On the first issue, petitioners contend that it was error for the Court of Appeals to reverse
the appealed decision on the supposed ground of prescription when SLI failed to adduce any In their reply thereto, herein petitioners, by their own assertions that —
evidence in support thereof and that the bills of lading said to contain the shortened periods
for filing a claim and for instituting a court action against the carrier were never offered in 2. In connection with Pars. 14 and 15 of defendant Sweet Lines, Inc.'s Answer,
evidence. Considering that the existence and tenor of this stipulation on the aforesaid plaintiffs state that such agreements are what the Supreme Court considers as contracts of
periods have allegedly not been established, petitioners maintain that it is inconceivable how adhesion (see Sweet Lines, Inc. vs. Hon. Bernardo Teves, et al., G.R. No. L-37750, May 19,
they can possibly comply therewith. 12 In refutation, SLI avers that it is standard practice in 1978) and, consequently, the provisions therein which are contrary to law and public policy
its operations to issue bills of lading for shipments entrusted to it for carriage and that it in cannot be availed of by answering defendant as valid defenses. 22

28
On the issue of the validity of the controverted paragraph 5 of the bills of lading above
thereby failed to controvert the existence of the bills of lading and the aforequoted quoted which unequivocally prescribes a time frame of thirty (30) days for filing a claim with
provisions therein, hence they impliedly admitted the same when they merely assailed the the carrier in case of loss of or damage to the cargo and sixty (60) days from accrual of the
validity of subject stipulations. right of action for instituting an action in court, which periods must concur, petitioners posit
that the alleged shorter prescriptive period which is in the nature of a limitation on
Petitioners' failure to specifically deny the existence, much less the genuineness and due petitioners' right of recovery is unreasonable and that SLI has the burden of proving
execution, of the instruments in question amounts to an admission. Judicial admissions, otherwise, citing the earlier case of Southern Lines, Inc. vs. Court of Appeals, et al. 28 They
verbal or written, made by the parties in the pleadings or in the course of the trial or other postulate this on the theory that the bills of lading containing the same constitute contracts
proceedings in the same case are conclusive, no evidence being required to prove the same, of adhesion and are, therefore, void for being contrary to public policy, supposedly pursuant
and cannot be contradicted unless shown to have been made through palpable mistake or to the dictum in Sweet Lines, Inc. vs. Teves, et al. 29
that no such admission was made. 23 Moreover, when the due execution and genuineness of
an instrument are deemed admitted because of the adverse party's failure to make a specific Furthermore, they contend, since the liability of private respondents has been clearly
verified denial thereof, the instrument need not be presented formally in evidence for it may established, to bar petitioners' right of recovery on a mere technicality will pave the way for
be considered an admitted fact. 24 unjust enrichment. 30 Contrarily, SLI asserts and defends the reasonableness of the time
limitation within which claims should be filed with the carrier; the necessity for the same, as
Even granting that petitioners' averment in their reply amounts to a denial, it has the this condition for the carrier's liability is uniformly adopted by nearly all shipping companies
procedural earmarks of what in the law on pleadings is called a negative pregnant, that is, a if they are to survive the concomitant rigors and risks of the shipping industry; and the
denial pregnant with the admission of the substantial facts in the pleading responded to countervailing balance afforded by such stipulation to the legal presumption of negligence
which are not squarely denied. It is in effect an admission of the averment it is directed to. 25 under which the carrier labors in the event of loss of or damage to the cargo. 31
Thus, while petitioners objected to the validity of such agreement for being contrary to
public policy, the existence of the bills of lading and said stipulations were nevertheless It has long been held that Article 366 of the Code of Commerce applies not only to overland
impliedly admitted by them. and river transportation but also to maritime
transportation. 32 Moreover, we agree that in this jurisdiction, as viewed from another
We find merit in respondent court's comments that petitioners failed to touch on the matter angle, it is more accurate to state that the filing of a claim with the carrier within the time
of the non-presentation of the bills of lading in their brief and earlier on in the appellate limitation therefor under Article 366 actually constitutes a condition precedent to the accrual
proceedings in this case, hence it is too late in the day to now allow the litigation to be of a right of action against a carrier for damages caused to the merchandise. The shipper or
overturned on that score, for to do so would mean an over-indulgence in technicalities. the consignee must allege and prove the fulfillment of the condition and if he omits such
Hence, for the reasons already advanced, the non-inclusion of the controverted bills of lading allegations and proof, no right of action against the carrier can accrue in his favor. As the
in the formal offer of evidence cannot, under the facts of this particular case, be considered a requirements in Article 366, restated with a slight modification in the assailed paragraph 5 of
fatal procedural lapse as would bar respondent carrier from raising the defense of the bills of lading, are reasonable conditions precedent, they are not limitations of action. 33
prescription. Petitioners' feigned ignorance of the provisions of the bills of lading, particularly Being conditions precedent, their performance must precede a suit for enforcement 34 and
on the time limitations for filing a claim and for commencing a suit in court, as their excuse the vesting of the right to file spit does not take place until the happening of these
for non-compliance therewith does not deserve serious attention. conditions. 35

It is to be noted that the carriage of the cargo involved was effected pursuant to an Now, before an action can properly be commenced all the essential elements of the cause of
"Application for Delivery of Cargoes without Original Bill of Lading" issued on May 20, 1977 in action must be in existence, that is, the cause of action must be complete. All valid conditions
Davao City 26 with the notation therein that said application corresponds to and is subject to precedent to the institution of the particular action, whether prescribed by statute, fixed by
the terms of bills of lading MD-25 and MD-26. It would be a safe assessment to interpret this agreement of the parties or implied by law must be performed or complied with before
to mean that, sight unseen, petitioners acknowledged the existence of said bills of lading. By commencing the action, unless the conduct of the adverse party has been such as to prevent
having the cargo shipped on respondent carrier's vessel and later making a claim for loss on or waive performance or excuse non-performance of the condition. 36
the basis of the bills of lading, petitioners for all intents and purposes accepted said bills.
Having done so they are bound by all stipulations contained therein. 27 Verily, as petitioners It bears restating that a right of action is the right to presently enforce a cause of action,
are suing for recovery on the contract, and in fact even went as far as assailing its validity by while a cause of action consists of the operative facts which give rise to such right of action.
categorizing it as a contract of adhesion, then they necessarily admit that there is such a The right of action does not arise until the performance of all conditions precedent to the
contract, their knowledge of the existence of which with its attendant stipulations they action and may be taken away by the running of the statute of limitations, through estoppel,
cannot now be allowed to deny. or by other circumstances which do not affect the cause of action. 37 Performance or
fulfillment of all conditions precedent upon which a right of action depends must be

29
sufficiently alleged, 38 considering that the burden of proof to show that a party has a right complaint on May 12, 1978 is of no remedial or practical consequence, since the time limits
of action is upon the person initiating the suit. 39 for the filing thereof, whether viewed as a condition precedent or as a prescriptive period,
would in this case be productive of the same result, that is, that petitioners had no right of
More particularly, where the contract of shipment contains a reasonable requirement of action to begin with or, at any rate, their claim was time-barred.
giving notice of loss of or injury to the goods, the giving of such notice is a condition
precedent to the action for loss or injury or the right to enforce the carrier's liability. Such What the court finds rather odd is the fact that petitioner TPI filed a provisional claim with
requirement is not an empty formalism. The fundamental reason or purpose of such a DVAPSI as early as June 14, 1977 46 and, as found by the trial court, a survey fixing the extent
stipulation is not to relieve the carrier from just liability, but reasonably to inform it that the of loss of and/or damage to the cargo was conducted on July 8, 1977 at the instance of
shipment has been damaged and that it is charged with liability therefor, and to give it an petitioners. 47 If petitioners had the opportunity and awareness to file such provisional claim
opportunity to examine the nature and extent of the injury. This protects the carrier by and to cause a survey to be conducted soon after the discharge of the cargo, then they could
affording it an opportunity to make an investigation of a claim while the matter is fresh and very easily have filed the necessary formal, or even a provisional, claim with SLI itself 48
easily investigated so as to safeguard itself from false and fraudulent claims. 40 within the stipulated period therefor, instead of doing so only on April 28, 1978 despite the
vessel's arrival at the port of destination on May 15, 1977. Their failure to timely act brings us
Stipulations in bills of lading or other contracts of shipment which require notice of claim for to no inference other than the fact that petitioners slept on their rights and they must now
loss of or damage to goods shipped in order to impose liability on the carrier operate to face the consequences of such inaction.
prevent the enforcement of the contract when not complied with, that is, notice is a
condition precedent and the carrier is not liable if notice is not given in accordance with the The ratiocination of the Court of Appeals on this aspect is worth reproducing:
stipulation, 41 as the failure to comply with such a stipulation in a contract of carriage with
respect to notice of loss or claim for damage bars recovery for the loss or damage suffered. xxx xxx xxx
42
It must be noted, at this juncture, that the aforestated time limitation in the presentation of
On the other hand, the validity of a contractual limitation of time for filing the suit itself claim for loss or damage, is but a restatement of the rule prescribed under Art. 366 of the
against a carrier shorter than the statutory period therefor has generally been upheld as such Code of Commerce which reads as follows:
stipulation merely affects the shipper's remedy and does not affect the liability of the carrier.
In the absence of any statutory limitation and subject only to the requirement on the Art. 366. Within the twenty-four hours following the receipt of the merchandise, the claim
reasonableness of the stipulated limitation period, the parties to a contract of carriage may against the carrier for damage or average which may be found therein upon opening the
fix by agreement a shorter time for the bringing of suit on a claim for the loss of or damage to packages, may be made, provided that the indications of the damage or average which gives
the shipment than that provided by the statute of limitations. Such limitation is not contrary rise to the claim cannot be ascertained from the outside part of the packages, in which case
to public policy for it does not in any way defeat the complete vestiture of the right to the claims shall be admitted only at the time of the receipt.
recover, but merely requires the assertion of that right by action at an earlier period than
would be necessary to defeat it through the operation of the ordinary statute of limitations. After the periods mentioned have elapsed, or the transportation charges have been paid, no
43 claim shall be admitted against the carrier with regard to the condition in which the goods
transported were delivered.
In the case at bar, there is neither any showing of compliance by petitioners with the
requirement for the filing of a notice of claim within the prescribed period nor any allegation Gleanable therefrom is the fact that subject stipulation even lengthened the period for
to that effect. It may then be said that while petitioners may possibly have a cause of action, presentation of claims thereunder. Such modification has been sanctioned by the Supreme
for failure to comply with the above condition precedent they lost whatever right of action Court. In the case of Ong Yet (M)ua Hardware Co., Inc. vs. Mitsui Steamship Co., Ltd., et al.,
they may have in their favor or, token in another sense, that remedial right or right to relief 59 O.G. No. 17, p. 2764, it ruled that Art. 366 of the Code of Commerce can be modified by a
had prescribed.44 bill of lading prescribing the period of 90 days after arrival of the ship, for filing of written
claim with the carrier or agent, instead of the 24-hour time limit after delivery provided in
The shipment in question was discharged into the custody of the consignee on May 15, 1977, the aforecited legal provision.
and it was from this date that petitioners' cause of action accrued, with thirty (30) days
therefrom within which to file a claim with the carrier for any loss or damage which may Tested, too, under paragraph 5 of said Bill of Lading, it is crystal clear that the
have been suffered by the cargo and thereby perfect their right of action. The findings of commencement of the instant suit on May 12, 1978 was indeed fatally late. In view of the
respondent court as supported by petitioners' formal offer of evidence in the court below express provision that "suits arising from
show that the claim was filed with SLI only on April 28, 1978, way beyond the period . . . damage or loss shall be instituted within 60 days from date of accrual of right of action,"
provided in the bills of lading 45 and violative of the contractual provision, the inevitable the present action necessarily fails on ground of prescription.
consequence of which is the loss of petitioners' remedy or right to sue. Even the filing of the

30
In the absence of constitutional or statutory prohibition, it is usually held or recognized that as an explanation for the cause of loss of and/or damage to the cargo, together with an
it is competent for the parties to a contract of shipment to agree on a limitation of time iterative note stating that "(t)his Copy should be submitted together with your claim invoice
shorter than the statutory period, within which action for breach of the contract shall be or receipt within 30 days from date of issue otherwise your claim will not be honored."
brought, and such limitation will be enforced if reasonable . . . (13 C.J.S. 496-497)
Moreover, knowledge on the part of the carrier of the loss of or damage to the goods
A perusal of the pertinent provisions of law on the matter would disclose that there is no deducible from the issuance of said report is not equivalent to nor does it approximate the
constitutional or statutory prohibition infirming paragraph 5 of subject Bill of Lading. The legal purpose served by the filing of the requisite claim, that is, to promptly apprise the
stipulated period of 60 days is reasonable enough for appellees to ascertain the facts and carrier about a consignee's intention to file a claim and thus cause the prompt investigation
thereafter to sue, if need be, and the 60-day period agreed upon by the parties which of the veracity and merit thereof for its protection. It would be an unfair imposition to
shortened the statutory period within which to bring action for breach of contract is valid require the carrier, upon discovery in the process of preparing the report on losses or
and binding. . . . (Emphasis in the original text.) 49 damages of any and all such loss or damage, to presume the existence of a claim against it
when at that time the carrier is expectedly concerned merely with accounting for each and
As explained above, the shortened period for filing suit is not unreasonable and has in fact every shipment and assessing its condition. Unless and until a notice of claim is therewith
been generally recognized to be a valid business practice in the shipping industry. Petitioners' timely filed, the carrier cannot be expected to presume that for every loss or damage tallied,
advertence to the Court's holding in the Southern Lines case, supra, is futile as what was a corresponding claim therefor has been filed or is already in existence as would alert it to
involved was a claim for refund of excess payment. We ruled therein that non-compliance the urgency for an immediate investigation of the soundness of the claim. The report on
with the requirement of filing a notice of claim under Article 366 of the Code of Commerce losses and damages is not the claim referred to and required by the bills of lading for it does
does not affect the consignee's right of action against the carrier because said requirement not fix responsibility for the loss or damage, but merely states the condition of the goods
applies only to cases for recovery of damages on account of loss of or damage to cargo, not shipped. The claim contemplated herein, in whatever form, must be something more than a
to an action for refund of overpayment, and on the further consideration that neither the notice that the goods have been lost or damaged; it must contain a claim for compensation
Code of Commerce nor the bills of lading therein provided any time limitation for suing for or indicate an intent to claim. 53
refund of money paid in excess, except only that it be filed within a reasonable time.
Thus, to put the legal effect of respondent carrier's report on losses or damages, the
The ruling in Sweet Lines categorizing the stipulated limitation on venue of action provided in preparation of which is standard procedure upon unloading of cargo at the port of
the subject bill of lading as a contract of adhesion and, under the circumstances therein, void destination, on the same level as that of a notice of claim by imploring substantial
for being contrary to public policy is evidently likewise unavailing in view of the discrete compliance is definitely farfetched. Besides, the cited notation on the carrier's report itself
environmental facts involved and the fact that the restriction therein was unreasonable. In makes it clear that the filing of a notice of claim in any case is imperative if carrier is to be
any case, Ong Yiu vs. Court of Appeals, et al., 50 instructs us that "contracts of adhesion held liable at all for the loss of or damage to cargo.
wherein one party imposes a ready-made form of contract on the other . . . are contracts not
entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; Turning now to respondent DVAPSI and considering that whatever right of action petitioners
if he adheres he gives his consent." In the present case, not even an allegation of ignorance may have against respondent carrier was lost due to their failure to seasonably file the
of a party excuses non-compliance with the contractual stipulations since the responsibility requisite claim, it would be awkward, to say the least, that by some convenient process of
for ensuring full comprehension of the provisions of a contract of carriage devolves not on elimination DVAPSI should proverbially be left holding the bag, and it would be pure
the carrier but on the owner, shipper, or consignee as the case may be. speculation to assume that DVAPSI is probably responsible for the loss of or damage to
cargo. Unlike a common carrier, an arrastre operator does not labor under a presumption of
While it is true that substantial compliance with provisions on filing of claim for loss of or negligence in case of loss, destruction or deterioration of goods discharged into its custody.
damage to cargo may sometimes suffice, the invocation of such an assumption must be In other words, to hold an arrastre operator liable for loss of and/or damage to goods
viewed vis-a-vis the object or purpose which such a provision seeks to attain and that is to entrusted to it there must be preponderant evidence that it did not exercise due diligence in
afford the carrier a reasonable opportunity to determine the merits and validity of the claim the handling and care of the goods.
and to protect itself against unfounded impositions. 51 Petitioners' would nevertheless adopt
an adamant posture hinged on the issuance by SLI of a "Report on Losses and Damages," Petitioners failed to pinpoint liability on any of the original defendants and in this seemingly
dated May 15, 1977, 52 from which petitioners theorize that this charges private wild goose-chase, they cannot quite put their finger down on when, where, how and under
respondents with actual knowledge of the loss and damage involved in the present case as whose responsibility the loss or damage probably occurred, or as stated in paragraph 8 of
would obviate the need for or render superfluous the filing of a claim within the stipulated their basic complaint filed in the court below, whether "(u)pon discharge of the cargoes from
period. the original carrying vessel, the SS VISHVA YASH," and/or upon discharge of the cargoes from
the interisland vessel the MV "SWEET LOVE," in Davao City and later while in the custody of
Withal, it has merely to be pointed out that the aforementioned report bears this notation at defendant arrastre operator. 54
the lower part thereof: "Damaged by Mla. labor upon unloading; B/L noted at port of origin,"

31
The testimony of petitioners' own witness, Roberto Cabato, Jr., Marine and Aviation Claims
Manager of petitioner Philamgen, was definitely inconclusive and the responsibility for the ACCORDINGLY, on the foregoing premises, the instant petition is DENIED and the dismissal of
loss or damage could still not be ascertained therefrom: the complaint in the court a quo as decreed by respondent Court of Appeals in its challenged
judgment is hereby AFFIRMED.
Q In other words, Mr. Cabato, you only computed the loss on the basis of the figures
submitted to you and based on the documents like the survey certificate and the certificate SO ORDERED.
of the arrastre?

A Yes, sir.

Q Therefore, Mr. Cabato, you have no idea how or where these losses were incurred?

A No, sir.

xxx xxx xxx

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

xxx xxx xxx

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

xxx xxx xxx

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

A No, sir. (Emphasis ours.) 55

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

32
[G.R. Nos. 142286-87. April 15, 2005] On September 13, 1996, the KEB filed a Motion to Dismiss[6] the complaint on the ground,[7]
among others, that the case was within the exclusive jurisdiction of the Securities and
KOREA EXCHANGE BANK, petitioner, vs. HON. ROGELIO C. GONZALES, in his capacity as Exchange Commission (SEC). On December 5, 1996, the trial court issued an Order denying
Presiding Judge of Branch 50 of the Regional Trial Court of Pampanga, PHI-HAN the motion. The KEB filed a motion for reconsideration of the courts decision which was,
DEVELOPMENT, INC., LOURDES DE MESA MENDOZA, MENELEO MENDOZA, ANTUSA DE however, denied.
MESA MAGNO, FRANCISCO MAGNO, TEODORO DE MESA, FIRMO DE MESA and MERCEDES
DE MESA, respondents. The KEB filed a petition for certiorari and prohibition with the CA for the nullification of the
orders of the RTC. The case was docketed as CA-G.R. SP No. 43363.[8] On March 17, 1999,
DECISION the CA dismissed the petition. The KEB filed a motion for reconsideration, which was denied
by the appellate court on July 22, 1999. It then filed a petition for review on certiorari in this
CALLEJO, SR., J.: Court, docketed as G.R. No. 139460.[9]

For review in these consolidated petitions is the Joint Decision[1] of the Court of Appeals (CA) Meanwhile, on April 2, 1997, the KEB filed a Complaint[10] against Lourdes Mendoza,
in CA-G.R. SP Nos. 46194 and 46436, as well as its Order[2] dated February 28, 2000 denying Meneleo Mendoza, Antusa Magno, Francisco Magno, Teodoro de Mesa, Firmo de Mesa,
the motion for reconsideration thereof. Mercedes de Mesa Magno and the PHDI (PHDI, et al.) before the RTC of Guagua, Pampanga,
for sum of money and reformation of real estate mortgage executed by PHDI in its favor. The
The Antecedents case was docketed as Civil Case No. G-3119 and was raffled to Branch 50 of the court.

The Phi-Han Development, Inc. (PHDI) is a domestic corporation organized primarily for the The KEB alleged therein that on January 15, 1996, it extended a loan to the PHDI in the sum
purpose of engaging in the real estate business.[3] Teodoro de Mesa and his siblings, namely, of US$500,000.00, payable within one year, with interest at 3 months London Interbank
Antusa de Mesa Magno and Lourdes de Mesa Mendoza, were among its original Offering Rate (LIBOR) + 2% per annum, evidenced by a promissory note executed by Jae Il
incorporators and members of its board of directors. Jae Il Aum, a Korean national, was the Aum and Lourdes Mendoza, president and treasurer, respectively, for and in behalf of the
president of the corporation, while Lourdes Mendoza served as its corporate secretary and PHDI, with Antusa Magno and Teodoro de Mesa acting as witnesses. Jae Il Aum and Lourdes
treasurer.[4] Mendoza were authorized by resolution of the Board of Directors of PHDI to sign documents
and other papers and mortgage corporate assets. To secure the payment of the said loan,
On September 5, 1996, or barely a year after its operations began, the PHDI, together with Lourdes Mendoza and her siblings, Antusa de Mesa Magno, Firmo de Mesa, Meneleo
Teodoro de Mesa, Antusa Magno and Lourdes Mendoza, filed a complaint in the Regional Mendoza and Mercedes de Mesa, executed a real estate mortgage over 14 parcels of land
Trial Court (RTC) of Guagua, Pampanga, against Jae Il Aum and the Korea Exchange Bank they owned in common, under a Special Power of Attorney executed by them in favor of
(KEB), a foreign banking corporation licensed to do business in the Philippines. Teodoro, Lourdes and Antusa. However, the real estate mortgage failed to express the true
intent and agreement of the parties therein because the debtors appearing therein were
The plaintiffs alleged therein that through the machination of Jae Il Aum, KEB granted a loan Lourdes de Mesa Mendoza, Antusa de Mesa Magno, Mercedes de Mesa and Firmo de Mesa,
to the PHDI in the amount of US$500,000.00, with the condition that the said loan be whereas the true agreement was to bind only PHDI as the debtor. It was further alleged that
deposited with the KEB in the name of PHDI. Thereafter, the plaintiffs executed a real estate PHDI, et al. had not paid the loan of US$500,000.00 and the increment thereof despite
mortgage over their properties located in Lubao, Pampanga. As security for the said loan, demands therefor.
PHDI deposited the said amount under its name with the KEB in two accounts, namely, Dollar
Account No. 5311000486 and Peso Account No. 5311000487. Per Resolution No. 12-10-95 of The KEB prayed that, after due proceedings, judgment be rendered in its favor, ordering the
the PHDI Board of Directors, the only authorized signatories to all applications for reformation of the said real estate mortgage by designating the PHDI as the debtor; ordering
withdrawals from the said accounts were Jae Il Aum and Lourdes Mendoza. Jae Il Aum PHDI, et al., jointly and severally, to pay US$500,000.00, with interest thereon at the rate of
withdrew US$160,000.00 from the said account on February 15, 1996 by forging the the LIBOR for a three-month loan plus 2%, compounded monthly; 10% of the total amount
signature of Lourdes Mendoza. He was again able to withdraw from the separate accounts, due as interest as withholding tax on the interest; 20% of the total amount due as attorneys
leaving US$163,000.00 as the balance thereof. It was further alleged that Jae Il Aum could fees; and costs of suit. The KEB, likewise, prayed that the properties mortgaged be foreclosed
not have withdrawn the said deposits without the connivance of the KEB. Moreover, the and sold in case of failure to pay the said loan and its increment within 90 days from notice of
defendants failure to heed demands for an accounting of the said withdrawals and for the the judgment.[11] The KEB appended to its complaint a copy of the real estate mortgage and
restitution of the said amounts constituted large scale estafa for which they are liable for the secretarys certificate containing the resolution of the Board of Directors.
exemplary and moral damages.[5] The case was docketed as Civil Case No. G-3012 and
raffled to Branch 49 of the court. The PHDI, et al. filed a motion to dismiss[12] the complaint on the ground of forum shopping,
asserting that the KEB should have filed its counterclaim for the reformation of the real
estate mortgage and the collection of US$500,000.00, including increment and damages in

33
Civil Case No. G-3012. They averred that since the KEB sought the collection of the
US$500,000.00 loan which was referred to in paragraphs 2 and 3 of their complaint in Civil In its motion to dismiss the counterclaims in Civil Case No. G-3119, the KEB alleged that the
Case No. G-3012, the essential elements of litis pendentia were present; hence, the trial causes of action of the PHDI, et al. as plaintiffs in Civil Case No. G-3012 for the collection of
court should dismiss the complaint. US$160,000.00 and damages, and their claim in Civil Case No. G-3119 for the set-off of the
said amount against its claim of US$500,000.00 were identical; hence, their counterclaims
The KEB opposed[13] the motion, contending that the complaint in Civil Case No. G-3012 should be dismissed for forum shopping and, consequently, their complaint in Civil Case No.
involved corporate fraud; hence, the RTC had no jurisdiction over the action in the said case, G-3012 should likewise be dismissed.
and as such, could not interpose any counterclaims therein. The KEB, likewise, averred that
litis pendentia may be involved only when the RTC had jurisdiction over the action in Civil The PHDI, et al. opposed the motion to dismiss their complaint in Civil Case No. G-3012
Case No. G-3012. Moreover, the actions in Civil Case Nos. G-3012 and G-3119 were alleging that the KEB failed to include forum shopping as a ground in its motion to dismiss
unrelated. their complaint; hence, is bound by the omnibus motion rule. They further alleged that their
complaint could not be dismissed on the ground of forum shopping based on their
On July 23, 1997, the RTC issued an Order[14] denying the motion to dismiss, holding that counterclaims in their answer to the complaint, since they filed their answer and
the essential requirements of litis pendentia were not present, and that the grounds invoked counterclaim after filing their complaint in Civil Case No. G-3012.[20] Besides, the trial court
therein were not indubitable. had already denied their motion to dismiss the complaint in Civil Case No. G-3119 on its
finding that there was no litis pendentia.
Thereafter, PHDI, et al. filed, in due course, their answer[15] with counterclaims in Civil Case
No. G-3119 where they denied being indebted to the KEB. By way of special and affirmative The PHDI, et al. also opposed the motion to dismiss[21] their counterclaims in Civil Case No.
defenses, they alleged that they were deceived by Jae Il Aum, in connivance with the KEB, G-3119, on the ground that the causes of action in Civil Case No. G-3012 and their
into agreeing to secure a loan of US$500,000.00 from the latter with their properties as counterclaims in Civil Case No. G-3119 were unrelated. They asserted that the subject
security therefor to be used for the development of their properties into a housing project; matter, causes of action and the issues in the two cases were different.
the US$500,000.00 loan of the PHDI was deposited in Account No. 5311000487 and Account
No. 5311000486 with the KEB. Jae Il Aum was able to withdraw the amount of On October 14, 1997, the trial court issued an Order[22] in Civil Case No. G-3012 denying the
US$160,000.00 from the dollar account of PHDI based on an application for withdrawal KEBs motion to dismiss the complaint, on its finding that the causes of action of the PHDI in
bearing the forged signature of Lourdes Mendoza. Believing that Jae Il Aum could not validly Civil Case No. G-3012 were different from those in their counterclaim in Civil Case No. G-
withdraw from the said account without her presence, Lourdes de Mesa Mendoza signed 3119. The trial court also denied the motion (in Civil Case No. G-3119) to dismiss the
applications for the withdrawals from the said accounts, authorizing Jae Il Aum to make the counterclaims of the PHDI, et al., on its finding that the reliefs prayed for by the latter did not
said withdrawals. Jae Il Aum was then able to withdraw the rest of the deposits of the PHDI. include the collection of US$160,000.00 from the KEB; hence, there was no forum shopping.
It was thus alleged that the acts of the plaintiff and Jae Il Aum constituted large scale estafa, The KEBs respective motions for reconsideration of the orders of dismissal in Civil Case Nos.
and that he had been charged with large scale estafa in Criminal Case Nos. 4085 and 4092 in G-3119 and G-3012 were denied by the trial courts, per the Orders dated October 24,
the RTC of Pampanga. The aforementioned unauthorized withdrawals could not have been 1997[23] and November 14, 1997.[24]
made possible without the indispensable cooperation of the authorized and/or responsible
officer/s of the KEB.[16] Moreover, the loan of the PHDI should be extinguished under the The KEB filed a petition for certiorari, prohibition and mandamus against the PHDI, et al., in
principle of set-off or compensation. By way of counterclaims, PHDI, et al., repleaded by the CA, assailing the October 13 and 24, 1997 Orders of the trial court in Civil Case No. G-
reference all the allegations in their special and affirmative defenses as part thereof, and 3119. The case was docketed as CA-G.R. SP No. 46194.
alleged that by reason of the foregoing acts of the KEB and Jae Il Aum, they suffered shame
and humiliation. The KEB also filed a petition for certiorari, prohibition and mandamus with the CA on January
6, 1998, assailing the RTCs Orders dated October 24 and November 14, 1997 in Civil Case No.
The PHDI, et al., prayed that the complaint be dismissed and, by way of counterclaim, that G-3012. The case was docketed as CA-G.R. SP No. 46436. The two petitions were
the KEB be ordered to pay P500,000.00 as moral damages, P500,000.00 as exemplary consolidated.
damages to deter like-minded foreigners from victimizing Filipinos, and P100,000.00 as
attorneys fees, plus the cost of suit.[17] Meanwhile, the KEB filed its answer to the counterclaims of the PHDI, et al., in Civil Case No.
G-3119 for moral and exemplary damages.[25] It alleged, inter alia, that only the consent of
On September 12, 1997, the KEB filed two motions: (1) a motion in Civil Case No. G-3119 to the PHDI, through its signatories, was required for any withdrawal, and that all such
dismiss the counterclaims of the PHDI, et al. for their failure to attach in their answer with withdrawals were made with the knowledge and consent of Lourdes de Mesa Mendoza, with
counterclaims a certification of non-forum shopping as mandated by Supreme Court her genuine signatures;[26] that the trial court had no jurisdiction over the counterclaims for
Administrative Circular No. 04-94 (now Section 5, Rule 7 of the Rules of Court);[18] and (2) a moral and exemplary damages since the controversy involved corporate fraud which, under
motion in Civil Case No. G-3012 to dismiss the complaint for forum shopping.[19] Subsection (a), Section 5 of Presidential Decree No. 902-A, was within the exclusive

34
jurisdiction of the SEC; and that the counterclaims for moral and exemplary damages should exemplary damages and attorneys fees; hence, the claim of set-off or compensation of the
be dismissed because of the pendency of Civil Case No. G-3012 which involved the same respondents was a counterclaim. The respondents were, thus, mandated to append a
parties, the same rights, the same reliefs, the same issues, and the same causes of action, certificate of non-forum shopping to their counterclaims as mandated by Section 5, Rule 7 of
insofar as the complaint in Civil Case No. G-3012 and the counterclaim in this case were the Rules of Court, but failed to do so. The petitioner avers that there is identity of causes of
concerned. Moreover, there was no certification against forum shopping as required by action, issues and reliefs prayed for in the complaint of the respondents in Civil Case No. G-
Section 3, Rule 7 of the Rules of Court. They further insisted that all the withdrawals were 3012, and their counterclaims for set-off or compensation of the US$160,000.00, moral
authorized and made on the basis of genuine signatures; that PHDI, being a corporation and damages of P500,000.00 and P500,000.00 as exemplary damages in Civil Case No. G-3119. As
an artificial person, had no feelings, and, as such, moral damages could not be recovered such, the petitioner insists that the respondents were guilty of forum shopping, for which
from it; that it had all along acted in good faith; and that if PHDI, et al., hired the services of reason their complaint in Civil Case No. G-3012 should be dismissed.
counsel, the attorneys fees should be for their own account, since they unjustifiably refused
to pay.[27] The respondents, for their part, refute the contentions of the petitioner and maintain that
their claim for set-off or compensation[33] in Civil Case No. G-3119 is a counterclaim but is
On January 27, 2000, the CA rendered a Joint Decision[28] in CA-G.R. SP Nos. 46194 and compulsory in nature; hence, there was no need for them to append a certificate of non-
46436. The CA affirmed the assailed orders of the RTC in Civil Case No. G-3012, dismissing the forum shopping. The respondents also allege that the petitioner itself is guilty of forum
petition in CA-G.R. SP No. 46436 but partially giving due course to and granting the petition shopping because instead of filing counterclaims against them in Civil Case No. G-3012, it
in CA-G.R. SP No. 46194, by dismissing the counterclaims of the respondents for moral and filed a complaint for reformation of the real estate mortgage and for the collection of
exemplary damages in Civil Case No. G-3119 on the ground of forum shopping. The CA US$500,000.00 and, in case of refusal or failure of the respondents to pay the said amount of
declared that the counterclaims of the PHDI, et al., for moral and exemplary damages in Civil US$500,000.00 for the judicial foreclosure of the real estate mortgage, docketed as Civil Case
Case No. G-3119, were merely permissive; hence, they were mandated to append thereto a No. G-3119. The respondents assert that, by praying for the dismissal of their complaint in
certification of non-forum shopping. Civil Case No. G-3012 and their counterclaims in Civil Case No. G-3119, the petitioner could
win in both instances without due process of law.
The CA anchored its decision on the rulings of this Court in Santo Tomas University Hospital
v. Surla[29] and Valencia v. Court of Appeals.[30] However, the CA did not order the dismissal The Courts Ruling
of the complaint in Civil Case No. G-3012, on its finding that the RTC did not commit grave
abuse of its discretion in not ordering the dismissal of the same. Besides, the trial court had A counterclaim, as now used and understood, includes both set-off and recoupment and is
already dismissed the counterclaims of the PHDI, et al., for moral and exemplary damages in broader than both; it includes equitable demands and secures to the defendant full relief
Civil Case No. G-3119.[31] which is a separate action at law and would have secured him on the same state of facts
being substantially a cross-action by the defendant against the plaintiff.[34]
Following the denial of its motion for reconsideration, the KEB, now the petitioner, filed with
this Court, a consolidated petition for review on certiorari against PHDI, et al., the A set-off (compensacion) is a money demand by the defendant against the plaintiff arising
respondents, alleging that the CA erred (a) in not ordering the dismissal of the counterclaim upon contract and constituting a debt independent of and unconnected with the cause of
of the latter in Civil Case No. G-3119 for their failure to append a certificate of non-forum actions set forth in the complaint, and may be used to offset a plaintiffs claim but not to
shopping, and (b) in not dismissing the complaint in Civil Case No. G-3012 for forum recover affirmatively. As in the case with recoupment, set-off may be used to offset a
shopping.[32] plaintiffs claim but not to recover affirmatively. This is similar to the English rule which was
first authorized by an English statute in 1729.
As the issues in this case are interrelated, the Court shall delve into and resolve them
simultaneously. A recoupment (reconvencion) differs from a counterclaim (contrarreclamacion) in that,
under a counterclaim, the defendant may have an affirmative judgment where he is able to
The petitioner avers that the respondents are guilty of forum shopping because they sought prove a demand in excess of the plaintiffs demand, whereas in the case of recoupment,
to recover US$160,000.00 by way of set-off in their counterclaims in Civil Case No. G-3119, whatever the damages proved by the defendant, they can go only to reduce or extinguish the
pending in Branch 50 of the RTC of Guagua, Pampanga, the same amount they sought to claim against him. Recoupment must arise out of the contract or transaction upon which the
recover in their complaint in Civil Case No. G-3012 pending in Branch 49 of the said court. plaintiffs claim is founded. Recoupment is of French origin and means the cutting back of the
The petitioner asserts that the respondents also sought to recover P500,000.00 in moral plaintiffs claim by the defendant. It thus implies an admission of the plaintiffs claim.
damages, and P500,000.00 as exemplary damages in Civil Case No. G-3012, which are the
same amounts the respondents sought to collect from the petitioner in their counterclaims In Lopez v. Gloria and Sheriff of Leyte,[35] the Court ruled that for set-off or recoupment to
in Civil Case No. G-3119. The petitioner notes that although the respondents alleged set-off be considered as a counterclaim, the following must concur: (1) the same be essentially a
of the US$160,000.00 in their special and affirmative defenses, they, however, repleaded and genuine action of the defendant against the plaintiff; (2) the same should have as its object
incorporated, by way of reference, the said allegations in their counterclaims for moral and to neutralize, wholly or partially, that which the plaintiff is trying to obtain; (3) the same does

35
not have for its object to destroy directly the action of the plaintiff; and (4) the same ought separate action but should be asserted in the same suit involving the same transaction or
not to pray for a positive remedy distinct from the payment of money. occurrence giving rise to it.

The Court explained that under the first requisite, independent of any other consideration, a The criteria or tests by which the compulsory or permissive nature of specific counterclaims
genuine action is constituted by the defendant which could be employed separately against can be determined are as follows:
the plaintiff. On the second requisite, the Court declared that the defendant admits the facts
upon which the action of the plaintiff is based. The second requisite is absent if the (1) Are the issues of fact and law raised by the claim and counterclaim largely the same?
defendant bases his claim on facts which directly destroy the action or cause of action of the
plaintiff. In such a case, the claim of the defendant would only be a special defense.[36] On (2) Would res judicata bar a subsequent suit on defendants claim absent the compulsory
the third requisite, set-off or recoupment may be merely a defense and not a counterclaim if counterclaim rule?
it only tends to oppose or to destroy the action of the plaintiff.
(3) Will substantially the same evidence support or refute plaintiffs claim as well as
After consideration of the material allegations of the answer of the respondents in Civil Case defendants counterclaim?
No. G-3119, we believe that the respondents claim of set-off or compensation of the
US$160,000.00 against the claim of US$500,000.00 of the petitioner against the respondents (4) Is there any logical relation between the claim and the counterclaim?[38]
is a counterclaim. The respondents admit in their complaint in Civil Case No. G-3012 and in
their answer in Civil Case No. G-3119 that they secured a loan from the petitioner in the In the present case, the issues of fact and law raised by the petitioner in its complaint in Civil
amount of US$500,000.00, but maintain that they are not liable for the payment of the said Case No. G-3119, and in the counterclaims of the respondents for the set-off of not only the
loan because the petitioner, in connivance with Jae Il Aum, had withdrawn not only US$160,000.00 but the entirety of the deposits of the respondent PHDI of US$500,000.00,
US$160,000.00 but the entire deposit of US$500,000.00 from the peso and dollar accounts of and for moral and exemplary damages, are not identical or even largely the same. In the
respondent PHDI without the consent of the respondents. The latter did not seek to recover complaint of the petitioner in Civil Case No. G-3119, the issue is whether the loan of
affirmatively from the petitioner. US$500,000.00 was secured by respondent PHDI from the petitioner, and whether the
respondents failed to pay the same and its increment despite the petitioners demands. On
However, we do not agree with the contention of the respondents that their counterclaims the other hand, the issues in the respondents counterclaims for set-off of the amount of
are compulsory in nature. Section 7, Rule 5 of the Rules of Court reads: US$160,000.00 are the following: whether the signature of respondent Lourdes Mendoza
appearing on the said withdrawal application was forged; whether the petitioner connived
Sec. 7. Compulsory counterclaim. A compulsory counterclaim is one which, being cognizable with Jae Il Aum when the latter withdrew the said amount from the accounts of respondent
by the regular courts of justice, arises out of or is connected with the transaction or PHDI; whether the petitioner and Jae Il Aum are obliged to pay the said amount to the
occurrence constituting the subject matter of the opposing partys claim and does not require respondent PHDI; and whether the obligations of the respondent to pay their loan of
for its adjudication the presence of third parties of whom the court cannot acquire US$500,000.00 is extrajudicial pro tanto. Any judgment of the court on the complaint of the
jurisdiction. Such a counterclaim must be within the jurisdiction of the court both as to the petitioner in Civil Case No. G-3119 would not bar any suit on the respondents counterclaim.
amount and the nature thereof, except that in an original action before the Regional Trial The evidence of the petitioner on its claim in its complaint, and that of the respondents on
Court, the counterclaim may be considered compulsory regardless of the amount. their counterclaims are thus different. There is, likewise, no logical relation between the
claim of the petitioner and the counterclaim of the respondents. Hence, the counterclaim of
As correctly held by the CA, the counterclaim of the respondents for moral and exemplary the respondents is an initiatory pleading, which requires the respondents to append thereto
damages against the petitioner is permissive. So is the respondents claim of a set-off or a certificate of non-forum shopping. Their failure to do so results to the dismissal of their
compensation of the US$160,000.00 which they sought in Civil Case No. G-3012 against the counterclaim without prejudice.[39]
US$500,000.00 claimed by the petitioner against the respondents in Civil Case No. G-3119.
The general rule is that compliance with the certificate of forum shopping is separate from
As the Court held in Yulienco v. Court of Appeals:[37] and independent of the avoidance of the act of forum shopping itself. Forum shopping is a
ground for summary dismissal of both initiatory pleadings without prejudice to the taking of
A counterclaim is defined as any claim for money or other relief which a defending party may appropriate action against the counsel or party concerned.[40]
have against an opposing party. A counterclaim is compulsory if (a) it arises out of, or is
necessarily connected with, the transaction or occurrence which is the subject matter of the Case law has it that there is forum shopping when, between an action pending before the
opposing partys claim; (b) it does not require for its adjudication the presence of third parties court and another one, there exist:
of whom the court cannot acquire jurisdiction; and (c) the court has jurisdiction to entertain
the claim. In other words, a compulsory counterclaim cannot be made the subject of a (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

36
facts; and (c) the identity of the two preceding particulars is such that any judgment set-off in Civil Case No. G-3119 are whether the signature of respondent Lourdes Mendoza
rendered in the other action will, regardless of which party is successful, amount to res on the application for withdrawal of US$160,000.00 was forged, and whether the petitioner
judicata in the action under consideration. [41] connived with Jae Il Aum in the alleged fraudulent withdrawal of the said amount. The
evidence of the respondents as plaintiffs in Civil Case No. G-3012 is the same evidence that
Otherwise stated, there is forum shopping where a litigant sues the same party against they will have to adduce as plaintiffs on their counterclaim for set-off in Civil Case No. G-
whom another action or actions for the alleged violation of the same right and the 3119. Any judgment of the RTC of Guagua, Pampanga, Branch 49, in Civil Case No. G-3012
enforcement of the same relief is/are still pending. The defense of litis pendentia in one case will, likewise, resolve the threshold issue in the respondents counterclaim for set-off in Civil
is a bar to the other/others; and, a final judgment is one that would constitute res judicata Case No. G-3119. That Jae Il Aum is not a party in Civil Case No. G-3119 is not important; that
and thus would cause the dismissal of the rest. Absolute identity of parties is not required. It the respondents did not pray in their counterclaim that the petitioner pay to them the
is enough that there is substantial identity of parties.[42] It is enough that the party against US$160,000.00 withdrawn by Jae Il Aum is, likewise, not a bar to the application of the
whom the estoppel is set up is actually a party to the former case.[43] There is identity of principle of litis pendentia.
causes of action if the same evidence will sustain the second action. The principle applies
even if the relief sought in the two cases may be different.[44] Forum shopping consists of It must be stressed, however, that the dismissal of the complaint of the respondents against
filing multiple suits involving the same parties for the same cause of action, either the petitioner in Civil Case No. G-3012 is without prejudice to the continuation of the case
simultaneously or successively, for the purpose of obtaining a favorable judgment.[45] against Jae Il Aum.

What is truly important to consider, the Court ruled in Golangco v. Court of Appeals,[46] is IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The complaint of the
the vexation caused the courts and parties-litigants who ask different courts and/or respondents against the petitioner in Civil Case No. G-3012 is DISMISSED without prejudice
administrative agencies to rule on the same or restated causes and/or grant the same or to the continuation thereof against the defendant Jae Il Aum. No costs.
substantially the same reliefs, in the process creating the possibility of conflicting decisions
being rendered by the different courts upon the same issues. In Yupangco Cotton Mills, Inc. SO ORDERED.
v. Court of Appeals,[47] the Court ruled that for forum shopping to exist, both actions must
involve the same transactions, the same circumstances; and the actions must also raise
identical causes of actions, subject matter and issues. Forum shopping is an act of
malpractice that is prohibited and considered as trifling with the court. It is an improper
conduct which tends to degrade the administration of justice. But there is no forum shopping
where two different orders or questions, two different causes of action and issues are raised,
and two objectives are sought.[48]

In this case, in interposing their counterclaim for set-off of the US$160,000.00 against their
loan of US$500,000.00 in Civil Case No. G-3119, as well as the counterclaims for P500,000.00
as moral damages, and P500,000.00 as exemplary damages, the respondents thereby
engaged in forum shopping. As gleaned from the material averments of their complaint in
Civil Case No. G-3012, the respondents, who are the plaintiffs therein, claimed that Jae Il
Aum, who was the president of respondent PHDI, withdrew US$160,000.00 from the deposit
accounts of the said respondent with the petitioner; that such withdrawal application bore
the forged signature of respondent Lourdes Mendoza; and that the authorized office/officers
of the petitioner connived with Jae Il Aum in consummating the withdrawal. The respondents
prayed that the petitioner and Jae Il Aum be ordered to pay, jointly and severally, the said
amount, plus P500,000.00 as moral damages and P500,000.00 as exemplary damages based
on their claim that the petitioner, a corporation incorporated in Korea, and Jae Il Aum, a
Korean national, victimized the respondents, who are Filipinos. The respondents merely
restated and repleaded the same allegations in their counterclaims in Civil Case No. G-3119,
and prayed that the aforesaid amount of US$160,000.00 be set-off against their loan of
US$500,000.00 which was being claimed by the petitioner in the said case, in addition to
awards for P500,000.00 as moral damages, and P500,000.00 as exemplary damages against
the petitioner for allegedly victimizing Filipinos in their country. The threshold issues
common to and decisive of the complaint in Civil Case No. G-3012 and the counterclaim for

37
G.R. No. 105751 June 30, 1993 The counterclaim of private respondents is not merely permissive but compulsory in nature:
it arises out of, or is necessarily connected with, the transaction or occurrence that is the
BA FINANCE CORPORATION, petitioner, subject matter of the opposing party's claim; it does not require the presence of third parties
vs. of whom the court cannot acquire the presence of third parties of whom the court cannot
RUFINO CO, HIGHLINE MERCANTILE, INC., LUCITA VELOSO YAP, CLOVERLEAF SUPERMARKET, acquire jurisdiction; and, the trial court has jurisdiction to entertain the claim.1 The
INC., SAN ANDRES COMMERCIAL and COURT OF APPEALS, respondents. counterclaim of private respondents is denominated "compulsory" and consists of claims for
alleged overpayments and damages. They assert that they are no longer indebted to
Agbayani, Leal, Ebarle & Venturanza Law Office for petitioner. petitioner and are in fact entitled to reimbursement for overpayments. They ask for damages
for expenses incurred and inconveniences suffered by them as a result of the filing of the
Angara, Abello, Concepcion, Regala & Cruz Law Office for respondent. present action.2

Clearly, the same evidence needed to sustain the counterclaim of private respondents would
BELLOSILLO, J.: also refute the cause of action in petitioner's complaint. For, if private respondents could
successfully show that they actually made overpayments on the credit accommodations
Does the dismissal of the complaint for nonappearance of plaintiff at the pre-trial, upon extended by petitioner, then the complaint must fail. The counterclaim is therefore
motion of defendants, carry with it the dismissal of their compulsory counterclaim? compulsory.

Petitioner BA Finance Corporation brought this action as plaintiff in the court below to The rule is that a compulsory counterclaim cannot "remain pending for independent
recover a sum of money arising from a credit accommodation in the form of a discounting adjudication by the court."3 This is because a compulsory counterclaim is auxiliary to the
line which it granted to defendant Rufino Co, and from certain suretyship agreements proceeding in the original suit and merely derives its jurisdictional support therefrom.4
executed in its favor by his co-defendants Highline Mercantile, Inc., Lucita Veloso Yap,
Cloverleaf Supermarket, Inc., and San Andres Commercial. Thus, it necessarily follows that if the trial court no longer possesses jurisdiction to entertain
the main action of the case, an when it dismisses the same, then the compulsory
After defendants' Amended Answer to Complaint with Compulsory Counterclaim was counterclaim being ancillary to the principal controversy, must likewise be similarly dismissed
admitted, the case was set for Pre-Trial Conference. For various reasons, however, the since no jurisdiction remains for the grant of any relief under the counterclaim.5 Indeed, as
conference was repeatedly reset. On 19 December 1989, counsel for plaintiff, petitioner Justice Vicente Abad Santos succinctly puts it —
herein, failed to attend the Pre-Trial Conference. Consequently, defendants moved for
dismissal of the case without prejudice. The motion was granted thus — . . . . The petitioner does not object to the dismissal of the civil case but nonetheless wants
her counterclaim therein to subsist. Impossible. A person cannot eat his cake and have it at
The plaintiff's representative and counsel having failed to appear for today's setting, Atty. the same time. If the civil case is dismissed, so also in the counterclaim filed therein.6
Luis Vera Cruz, Jr., for the defendants moved that the above-entitled case be dismissed,
without prejudice. Finding merit in said motion, the same is hereby granted. More recently, this Court ruled that the dismissal of the complaint on defendant's own
motion operated likewise to dismiss the counterclaim questioning the complaint. 7
On 22 January 1990, private respondents moved to set the reception of their evidence in
support of their counterclaim. Petitioner opposed the motion. The Rules of Court provides a remedy to recover on defendant's counterclaim if plaintiff
moves to dismiss the case. Under Sec. 2, Rule 17, defendant may raise objection to the
On 2 April 1990, the trial court denied the motion of private respondents, prompting them to dismissal of the complaint; in such case, the trial curt may not dismiss the main action.
elevate the order of denial to the Court of Appeals which, on 18 December 1991, reversed
the questioned order and directed the trial court to set the reception of their evidence on In the instant petition, private respondents themselves moved for the dismissal of the
their counterclaim. Its motion for reconsideration having on 2 June 1992 been denied, complaint, They could have simply asked the trial court to declare petitioners to be "non-
petitioner instituted the instant petition. suited" on their complaint, and "as in default" on their compulsory counterclaim, for their
failure to appear at the pre-trial despite due notice. But private respondents did not. Neither
Petitioner contends that the dismissal of the complaint carries with it the dismissal of the did they reserve their right to maintain their counterclaim. Consequently, the dismissal of the
counterclaim. Private respondents, on the other hand, claim that their compulsory complaint carried with it the dismissal of the compulsory counterclaim.
counterclaim should not have been included in the dismissal.
It may also be stressed that private respondents moved to set for hearing the reception of
There is merit in the petition. evidence to support their counterclaim more than a month after the case was dismissed, i.e.,
they filed their motion after the lapse of thirty-three (33) days. By then, the order of

38
dismissal had already become final. Thereafter, it was error for the appellate court to set it
aside, there being no ground to warrant it. Only error of judgment, not error of jurisdiction,
was involved.
REGALADO, J., concurring:
However, we are not unaware of the seeming unfairness, if not harshness, of the application
of the Rule herein enunciated — that dismissal of the complaint for failure to prosecute I concur in the result, whereby the ponencia sustains the order of the trial court dismissing
automatically carries with it dismissal of the compulsory counterclaim — to a defendant who herein petitioner's complaint and consequently barring private respondents from introducing
may be compelled to hire counsel to protect him in a frivolous complaint. Equity and justice evidence on their compulsory counterclaim by reason of such dismissal, but only for this
dictate that he be accorded adequate relief under the circumstances. reason stated therein, to wit:

Henceforth, for the guidance of Bench and Bar, if any of the grounds to dismiss under Sec. 3, It may also be stressed that private respondents moved to set for hearing the reception of
Rule 17, of the Rules of Court arises, 8 the proper recourse for a defendant who desires to evidence to support their counterclaim more than a month after the case was dismissed, i.e.,
pursue his compulsory counterclaim in the same proceeding is not to move for the dismissal they filed their motion after the lapse of thirty-three (33) days. By then the order of dismissal
of the complaint; instead, he should only move to have plaintiff declared non-suited on the had already become final. Thereafter, it was error for the appellate court to set it aside, there
complaint so that the latter can no longer present his evidence thereon, and simultaneously being no ground to warrant it. Only error of judgment, not error of jurisdiction was involved.
move that he be declared as in default on the compulsory counterclaim, and reserve the
right to present evidence ex parte on his counterclaim. This will enable defendant who was I take exception, however, to so much of the ratiocinations therein, although supportive of
unjustly haled to court to prove his compulsory counterclaim, which is intertwined with the the same disposition, insofar as they are at variance with the observations in this separate
complaint, because the trial court retains jurisdiction over the complaint and of the whole opinion which I hope may yield some clarifications applicable to the present controversy.
case. The non-dismissal of the complaint, the non-suit notwithstanding, provides the basis
for the compulsory counterclaim to remain active and subsisting. Involved in this case are the issues on the propriety and effects of the application of Sections
2 and 3, Rule 17 of the Rules of Court to Section 2, Rule 20 which provides that "(a) party
But the procedure above stated, unfortunately, was not adopted by private respondents who fails to appear at a pre-trial conference may be non-suited or considered as in default."
herein in the court below, hence, we reverse the Court of Appeals and sustain the trial court. We have heretofore held that the provisions of Section 3 of Rule 17, whereby a plaintiff may
be nonsuited and the dismissal of the complaint has the effect of an adjudication upon the
WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals of 18 merits unless otherwise provided by the trial court, shall have the same equivalent effect on
December 1991 in CA- G.R. No. CV-28420 is REVERSED and SET ASIDE. a plaintiff who fails to appear at a pre-trial conference.1 We have perforce to now resolve
whether Section 2 of Rule 17 is likewise applicable to that plaintiff who is nonsuited for non-
The Order of the Regional Trial Court of Manila, Branch 40, of 19 December 1989 dismissing appearance at such pre-trial conference.
Civil Case No. 84-26040 is REINSTATED and REITERATED.
For referential facility, the aforesaid provisions of Rule 17 are hereunder reproduced, with
SO ORDERED. pertinent emphases supplied:

Cruz, Bidin, Griño-Aquino, Romero, Nocon and Melo, JJ., concur. Sec. 2. Dismissal by order of the court. — Except as provided in the preceding section, an
action shall not be dismissed at the plaintiff's instance save upon order of the court and upon
Feliciano and Davide, Jr., concurs in the result. such terms and conditions as the court deems proper. If a counterclaim has been pleaded by
a defendant prior to the service upon him of the plaintiff's motion to dismiss, the action shall
Padilla, J., is on leave. not be dismissed against the defendant's objection unless the counterclaim can remain
pending for independent adjudication by the court. Unless otherwise specified in the order, a
Quiason, J., took no part. dismissal under this paragraph shall be without prejudice.

Sec. 3. Failure to prosecute. — If plaintiff fails to appear at the time of the trial, or to
prosecute his action for an unreasonable length of time, or to comply with these rules or any
order of the court, the action may be dismissed upon motion of the defendant or upon the
court's own motion. This dismissal shall have the effect of an adjudication upon the merits,
unless otherwise provided by the court.

Separate Opinions

39
Also, the concept of nonsuit which we have adopted from American procedural law2 is that it reached this Court which, speaking through Justice J.B.L. Reyes, disposed of plaintiffs'
is a term broadly applied to a variety of terminations of an action which do not adjudicate contentions in this wise:
issues on the merits.3 More specifically, it is the name of a judgment given against plaintiff
when he is unable to prove a case, or when he refuses or neglects to proceed to trial and Also pointed out as error is the hearing of the counterclaim after the plaintiffs were non-
leaves the issue undetermined.4 In our jurisdiction, a declaration of nonsuit necessarily suited, the argument being that the issues in the counterclaim are so inseparable with those
involves the rendition of a final order or judgment which terminates plaintiff's cause of action in the complaint that the former may not be heard unless the latter is also heard. Petitioners
or right of recovery under his complaint which is thereby dismissed. misapply the doctrine; first, because in the instant case, the adjudication of the counterclaim
does not depend upon the adjudication of the claims made in the complaint, since they were
Turning back to Rule 17, it is readily apparent that Sections 2 and 3 thereof envisage different virtually abandoned by the non-appearance the plaintiffs themselves; and, second, the
factual and adjective situations. The dismissal of the complaint under Section 2 is at the doctrine invoked is not available to plaintiffs like the petitioners, who prevent or delay the
instance of plaintiff, for whatever reason he is minded to move for such dismissal, and, as a hearing of their own claims and allegations.
matter of procedure, is without prejudice unless otherwise stated in the order of the court
or, for that matter, in plaintiff's motion to dismiss his own complaint.5 By reason thereof, to The doctrine that the complaint may not be dismissed if the counterclaim cannot be
curb any dubious or frivolous strategy of plaintiff for his benefit or to obviate possible independently adjudicated is not available to, and was not intended for the benefit of, a
prejudice to defendant, the former may not dismiss his complaint over the defendant's plaintiff who prevents or delays the prosecution or hearing of his own complaint. Otherwise,
objection if the latter has a compulsory counterclaim since said counterclaim would the trial of counterclaims would be made to depend upon the maneuvers of the plaintiff, and
necessarily be divested of juridical basis and defendant would be deprived of possible the rule would offer a premium to vexing or delaying tactics to the prejudice of the
recovery thereon in that same judicial proceeding. counterclaimants. It is in the same spirit that we have ruled that a complaint may not be
withdrawn over the opposition of the defendant where the counterclaim is one that arises
Section 3, on the other hand, contemplates a dismissal not procured by plaintiff, albeit from, or is necessarily connected with, the plaintiff's action and cannot remain pending for
justified by causes imputable to him and which, in the present case, was petitioner's failure independent adjudication [Ynotorio vs. Lira, L-16677, 27 November 1964]. (Emphasis
to appear at the pre-trial. This situation is also covered by section 3, as extended by judicial supplied.)
interpretation, and is ordered upon motion of defendant or motu proprio by the court. Here,
the issue of whether defendant has a pending counterclaim, permissive or compulsory, is not The cases of Dalman vs. The City Court of Dipolog, etc., et al.7 and International Container
of determinative significance. The dismissal of plaintiff's complaint is evidently a Terminal Services, Inc. vs. Court of Appeals, et al.,8 relied upon in the main opinion, both
confirmation of the failure of evidence to prove his cause of action outlined therein, hence involved the application of the rule in Section 2, not Section 3, of Rule 17. In Dalman, the
the dismissal is considered, as a matter of evidence, an adjudication on the merits. This does dismissal of the complaint was at the instance of therein plaintiff, which dismissal was
not, however, mean that there is likewise such absence of evidence to prove defendant's ordered by the trial court despite defendant's compulsory counterclaim therein since, as
counterclaim although the same arises out of the subject matter of the complaint which was noted by this Court on appeal, defendant did not object to such dismissal hence her
merely terminated for lack of proof. To hold otherwise would not only work injustice to counterclaim was also dismissed. In International Container Terminal Services, Inc., the
defendant but would be reading a further provision into Section 3 and wresting a meaning complaint of private respondent Sharp, Inc. in the court a quo was dismissed and petitioner
therefrom although neither exists even by mere implication. Thus understood, the complaint itself, as defendant therein, joined in moving for such dismissal which likewise resulted in the
can accordingly be dismissed, but relief can nevertheless be granted as a matter of course to dismissal of its compulsory counterclaim. In effect, petitioner consented to or, at least, did
defendant on his counterclaim as alleged and proved, with or without any reservation not object to the dismissal of its counterclaim for, as stated by the Court, "(i)f it wanted the
therefor on his part, unless from his conduct, express or implied, he has virtually consented counterclaim to subsist, it should have objected to the dismissal of the complaint or at least
to the concomitant dismissal of his counterclaim. reserved its right to prosecute it, . . ." which it could have done by invoking the provisions of
Section 2, Rule 17. As earlier explained, a different procedure obtains under Section 3 of said
Thus, in Sta. Maria, Jr., et al. vs. Court of Appeals, et al.,6 plaintiff having been declared Rule which is the provision applicable to the case at bar.
nonsuited for his failure to appear at the pre-trial, his complaint was dismissed without
prejudice and the deputy clerk of court was commissioned to receive defendant's evidence All told, my concurrence in the dispositive portion of the judgment in this case is founded
on their compulsory counterclaim. This action of the trial court was later reconsidered and only upon the fact that the assailed order of the trial court was already final and executory,
the case was reset for hearing but since neither plaintiffs nor their counsel appeared despite hence petitioner's present recourse is indisputably time-barred. However, it is my respectful
due notice, they were again nonsuited, the case was dismissed without prejudice, and submission that in determining whether or not the dismissal of a complaint ipso jure results
plaintiffs were declared in default on the counterclaim. Defendants adopted the evidence in the dismissal likewise of a compulsory counterclaim thereto, the distinctions between the
they had earlier presented and the trial court rendered judgment on their counterclaim. situations contemplated in and provided for by Sections 2 and 3 of Rule 17 should be
observed, with the difference in effects as explained in the foregoing disquisition. Otherwise,
Plaintiffs therein raised virtually the same objections and arguments as those which herein we may be indulging in judicial legislation although, ironically, it is within the power of the
petitioner now relies upon to impugn the order of the trial court. That case eventually

40
Court itself to change or revise the aforesaid provisions should the same be considered court's own motion. This dismissal shall have the effect of an adjudication upon the merits,
inadequate to meet its normative perceptions of what the rules should be. unless otherwise provided by the court.

Also, the concept of nonsuit which we have adopted from American procedural law2 is that it
is a term broadly applied to a variety of terminations of an action which do not adjudicate
# Separate Opinions issues on the merits.3 More specifically, it is the name of a judgment given against plaintiff
when he is unable to prove a case, or when he refuses or neglects to proceed to trial and
REGALADO, J., concurring: leaves the issue undetermined.4 In our jurisdiction, a declaration of nonsuit necessarily
involves the rendition of a final order or judgment which terminates plaintiff's cause of action
I concur in the result, whereby the ponencia sustains the order of the trial court dismissing or right of recovery under his complaint which is thereby dismissed.
herein petitioner's complaint and consequently barring private respondents from introducing
evidence on their compulsory counterclaim by reason of such dismissal, but only for this Turning back to Rule 17, it is readily apparent that Sections 2 and 3 thereof envisage different
reason stated therein, to wit: factual and adjective situations. The dismissal of the complaint under Section 2 is at the
instance of plaintiff, for whatever reason he is minded to move for such dismissal, and, as a
It may also be stressed that private respondents moved to set for hearing the reception of matter of procedure, is without prejudice unless otherwise stated in the order of the court
evidence to support their counterclaim more than a month after the case was dismissed, i.e., or, for that matter, in plaintiff's motion to dismiss his own complaint.5 By reason thereof, to
they filed their motion after the lapse of thirty-three (33) days. By then the order of dismissal curb any dubious or frivolous strategy of plaintiff for his benefit or to obviate possible
had already become final. Thereafter, it was error for the appellate court to set it aside, there prejudice to defendant, the former may not dismiss his complaint over the defendant's
being no ground to warrant it. Only error of judgment, not error of jurisdiction was involved. objection if the latter has a compulsory counterclaim since said counterclaim would
necessarily be divested of juridical basis and defendant would be deprived of possible
I take exception, however, to so much of the ratiocinations therein, although supportive of recovery thereon in that same judicial proceeding.
the same disposition, insofar as they are at variance with the observations in this separate
opinion which I hope may yield some clarifications applicable to the present controversy. Section 3, on the other hand, contemplates a dismissal not procured by plaintiff, albeit
justified by causes imputable to him and which, in the present case, was petitioner's failure
Involved in this case are the issues on the propriety and effects of the application of Sections to appear at the pre-trial. This situation is also covered by section 3, as extended by judicial
2 and 3, Rule 17 of the Rules of Court to Section 2, Rule 20 which provides that "(a) party interpretation, and is ordered upon motion of defendant or motu proprio by the court. Here,
who fails to appear at a pre-trial conference may be non-suited or considered as in default." the issue of whether defendant has a pending counterclaim, permissive or compulsory, is not
We have heretofore held that the provisions of Section 3 of Rule 17, whereby a plaintiff may of determinative significance. The dismissal of plaintiff's complaint is evidently a
be nonsuited and the dismissal of the complaint has the effect of an adjudication upon the confirmation of the failure of evidence to prove his cause of action outlined therein, hence
merits unless otherwise provided by the trial court, shall have the same equivalent effect on the dismissal is considered, as a matter of evidence, an adjudication on the merits. This does
a plaintiff who fails to appear at a pre-trial conference.1 We have perforce to now resolve not, however, mean that there is likewise such absence of evidence to prove defendant's
whether Section 2 of Rule 17 is likewise applicable to that plaintiff who is nonsuited for non- counterclaim although the same arises out of the subject matter of the complaint which was
appearance at such pre-trial conference. merely terminated for lack of proof. To hold otherwise would not only work injustice to
defendant but would be reading a further provision into Section 3 and wresting a meaning
For referential facility, the aforesaid provisions of Rule 17 are hereunder reproduced, with therefrom although neither exists even by mere implication. Thus understood, the complaint
pertinent emphases supplied: can accordingly be dismissed, but relief can nevertheless be granted as a matter of course to
defendant on his counterclaim as alleged and proved, with or without any reservation
Sec. 2. Dismissal by order of the court. — Except as provided in the preceding section, an therefor on his part, unless from his conduct, express or implied, he has virtually consented
action shall not be dismissed at the plaintiff's instance save upon order of the court and upon to the concomitant dismissal of his counterclaim.
such terms and conditions as the court deems proper. If a counterclaim has been pleaded by
a defendant prior to the service upon him of the plaintiff's motion to dismiss, the action shall Thus, in Sta. Maria, Jr., et al. vs. Court of Appeals, et al.,6 plaintiff having been declared
not be dismissed against the defendant's objection unless the counterclaim can remain nonsuited for his failure to appear at the pre-trial, his complaint was dismissed without
pending for independent adjudication by the court. Unless otherwise specified in the order, a prejudice and the deputy clerk of court was commissioned to receive defendant's evidence
dismissal under this paragraph shall be without prejudice. on their compulsory counterclaim. This action of the trial court was later reconsidered and
the case was reset for hearing but since neither plaintiffs nor their counsel appeared despite
Sec. 3. Failure to prosecute. — If plaintiff fails to appear at the time of the trial, or to due notice, they were again nonsuited, the case was dismissed without prejudice, and
prosecute his action for an unreasonable length of time, or to comply with these rules or any plaintiffs were declared in default on the counterclaim. Defendants adopted the evidence
order of the court, the action may be dismissed upon motion of the defendant or upon the they had earlier presented and the trial court rendered judgment on their counterclaim.

41
observed, with the difference in effects as explained in the foregoing disquisition. Otherwise,
Plaintiffs therein raised virtually the same objections and arguments as those which herein we may be indulging in judicial legislation although, ironically, it is within the power of the
petitioner now relies upon to impugn the order of the trial court. That case eventually Court itself to change or revise the aforesaid provisions should the same be considered
reached this Court which, speaking through Justice J.B.L. Reyes, disposed of plaintiffs' inadequate to meet its normative perceptions of what the rules should be.
contentions in this wise:

Also pointed out as error is the hearing of the counterclaim after the plaintiffs were non-
suited, the argument being that the issues in the counterclaim are so inseparable with those
in the complaint that the former may not be heard unless the latter is also heard. Petitioners
misapply the doctrine; first, because in the instant case, the adjudication of the counterclaim
does not depend upon the adjudication of the claims made in the complaint, since they were
virtually abandoned by the non-appearance the plaintiffs themselves; and, second, the
doctrine invoked is not available to plaintiffs like the petitioners, who prevent or delay the
hearing of their own claims and allegations.

The doctrine that the complaint may not be dismissed if the counterclaim cannot be
independently adjudicated is not available to, and was not intended for the benefit of, a
plaintiff who prevents or delays the prosecution or hearing of his own complaint. Otherwise,
the trial of counterclaims would be made to depend upon the maneuvers of the plaintiff, and
the rule would offer a premium to vexing or delaying tactics to the prejudice of the
counterclaimants. It is in the same spirit that we have ruled that a complaint may not be
withdrawn over the opposition of the defendant where the counterclaim is one that arises
from, or is necessarily connected with, the plaintiff's action and cannot remain pending for
independent adjudication [Ynotorio vs. Lira, L-16677, 27 November 1964]. (Emphasis
supplied.)

The cases of Dalman vs. The City Court of Dipolog, etc., et al.7 and International Container
Terminal Services, Inc. vs. Court of Appeals, et al.,8 relied upon in the main opinion, both
involved the application of the rule in Section 2, not Section 3, of Rule 17. In Dalman, the
dismissal of the complaint was at the instance of therein plaintiff, which dismissal was
ordered by the trial court despite defendant's compulsory counterclaim therein since, as
noted by this Court on appeal, defendant did not object to such dismissal hence her
counterclaim was also dismissed. In International Container Terminal Services, Inc., the
complaint of private respondent Sharp, Inc. in the court a quo was dismissed and petitioner
itself, as defendant therein, joined in moving for such dismissal which likewise resulted in the
dismissal of its compulsory counterclaim. In effect, petitioner consented to or, at least, did
not object to the dismissal of its counterclaim for, as stated by the Court, "(i)f it wanted the
counterclaim to subsist, it should have objected to the dismissal of the complaint or at least
reserved its right to prosecute it, . . ." which it could have done by invoking the provisions of
Section 2, Rule 17. As earlier explained, a different procedure obtains under Section 3 of said
Rule which is the provision applicable to the case at bar.

All told, my concurrence in the dispositive portion of the judgment in this case is founded
only upon the fact that the assailed order of the trial court was already final and executory,
hence petitioner's present recourse is indisputably time-barred. However, it is my respectful
submission that in determining whether or not the dismissal of a complaint ipso jure results
in the dismissal likewise of a compulsory counterclaim thereto, the distinctions between the
situations contemplated in and provided for by Sections 2 and 3 of Rule 17 should be

42
G.R. No. 128464 June 20, 2006 resolutions of the Board terminating the services of the LCP business manager and corporate
treasurer since 1979, Mr. Eclesio Hipe.
REV. LUIS AO-AS, REV. JOSE LAKING, EUSQUICIO GALANG, REV. ISABELO MONONGGIT, REV.
EDWINO MERCADO, REV. DANIEL PONDEVIDA, REV. TEODORICO TARAN and DR. BENJAMIN The termination of Mr. Hipe sparked a series of intracorporate complaints lodged before the
GALAPIA, Petitioners, Securities and Exchange Commission (SEC). For the first time, the legality of the eleven (11)
vs. member Board was put in issue as being in excess of the number of directors provided in the
HON. COURT OF APPEALS, THOMAS P. BATONG, JUANITO BASALONG, AUGUSTO CATANGI, Articles of Incorporation since no amendments were made thereto to reflect the increase.
PAUL GARCIA, QUIDO RIVERA, VICTORIO Y. SAQUILAYAN and DANILO ZAMORA,
Respondents. Aside from the present case, SEC-SICD Case no. 3556 entitled "Excelsio Hipe, et. al. vs.
Thomas Batong, et. al." and SEC-SICD Case No. 3524, "Domingo Shambu, et. al. vs. Thomas
DECISION Batong, et. al." respectively, sought to declare null and void Board Resolution Nos. LCP-BD-6-
89 and LCP-BD-7-89; and SEC-SICD Case No. 3550 entitled "The Lutheran Church in the
CHICO-NAZARIO, J.: Philippines vs. Exclesio Hipe" which sought to recover the corporate records still in the
possession of Mr. Hipe.
This is a Petition for Certiorari under Rule 45 of the Rules of Court to seek the reversal of the
Court of Appeals’ Decision1 dated 10 October 1996 in favor of respondents [hereinafter [The members of the Batong group] are the duly elected board of directors of the LCP at the
referred to as the Batong group] and Resolution2 dated 3 March 1997 denying the Motion time of the filing of SEC-SICD Case No. 3857. On the other hand, [the Ao-As group] have
for Reconsideration of the herein petitioners [hereinafter referred to as the Ao-As group]. served in various capacities as directors or officers of the LCP.

The Court of Appeals found the facts to be as follows: On August 17, 1990, [the Ao-As group] filed SEC-SICD Case No. 3857 for accounting and
damages with prayer for preliminary injunction and appointment of a management
The Lutheran Church in the Philippines (hereinafter referred to as the LCP) is a religious committee asserting the following causes of action:
organization duly registered with the Securities and Exchange Commission on May 8, 1967.
Its members are comprised of the Lutheran clergymen and the local Lutheran congregations "First, the alleged non-liquidation and/or non-accounting of a part of the proceeds of the La
in the Philippines which, at the time of its incorporation, was divided into three districts, Trinidad land transaction in the amount of P64,000.00 by petitioner Thomas Batong;
namely: the North Luzon District (hereinafter referred to as the NLD); the South Luzon
District (hereinafter referred to as the SLD); [and] the Mindanao district (hereinafter referred Second, the alleged non-liquidation and/or unaccounting of cash advances in the aggregate
to as the MDD). amount of P323,750.00 by petitioner Thomas Batong;

The governing body of the LCP is its national board of directors (hereinafter referred to as the Third, the alleged dissipation and/or unaccounting of the LCP general fund in the amount of
LCP Board) which was originally composed of seven (7) members serving a term of two years. 4.8 million;
Six members of the LCP Board are elected separately in district conferences held in each
district, with two members representing each district – the elected district president Fourth, the non-registration of the Leyte land purchased with LCP funds by petitioner
becomes the clergy representative to the LCP Board and the other is a lay representative to Victorio Saquilayan;
the LCP Board. The seventh member of the Board is the National President of the LCP who is
elected at large in a national convention held in October of every even-numbered year. Fifth, severance of church-partnership relationship with Lutheran Church-Missouri Synod
(LCMS); and
During the 1976 LCP national convention, a resolution was passed dividing the North Luzon
district (NLD) into two districts: the NLD Highland District (NLHD) and the NLD Lowland Sixth, the transfer of LCP corporate books from the Sta. Mesa office to the Caloocan office."
District (NLLD) -- thereby increasing the number of directors from seven (7) to nine (9). Again
in the 1984 LCP national convention, a resolution was passed creating another district, During the hearings on the application for creation of a management committee, [the Batong
namely, the Visayan Islands District (VID) thereby increasing further the number of directors group] filed an Urgent Motion to Suspend the Proceedings of the Case in view of an amicable
to eleven (11). Both resolutions were passed pursuant to Section 2 of Article 7 of the LCP By- settlement agreed upon by the parties entitled "A FORMULA FOR CONCORD". However,
Laws which provides that: "LCP in convention may form additional districts as it sees fit". notwithstanding the FORMULA FOR CONCORD, the SEC-SICD denied [the Batong group’s]
motion to suspend proceedings.
Since the addition of two or more districts, an eleven (11) member board of directors
representing the five (5) districts managed the LCP without any challenge from the On January 23, 1992, petitioners filed a Motion to Dismiss alleging again the FORMULA OF
membership until several years later when certain controversies arose involving the CONCORD. Again, the SEC-SICD denied [the Batong group’s] motion.

43
The [the Batong group] allege that the SEC-SIDC management committee used the Order
Subsequently, on September 3, 1992, the SEC-SICD Hearing Officer after the presentation of dated October 16, 1992 to carry out ultra vires acts, more specifically: (i) to take control of
the parties respective evidence, issued an Order creating a management committee. Said and closing down church buildings; (ii) to evict LCP clergymen from their church parsonages;
Order reads, in part: (iii) to ordain and appoint new clergymen to replace incumbent members of the church
hierarchy. In at least one case which has reached this Court, CA-G.R. No. 34504, it was found
" x x x All board resolutions and/or management actions or decisions passed and approved by that:
them are deemed null and void ab initio for they were passed, and approved by an illegally
constituted Board of Directors. . . And worse, several resolutions or Board’s actions are not "On August 13, 1993, [members of the Ao-As group] Oscar Almazan, James Cerdenola, Edgar
only (deemed) null and void but have caused irreparable damage to the corporation such as Balunsat and Edwino Mercado, together with armed security guards, acting in behalf of LCP,
the termination of all LCP staff and employee (LCP-BD-29-90); dissolution of LCP Business forcibly took possession of the houses occupied by [the Batong group]. In view of the latter’s
Office (LCP-BD-37-90); termination of the partner-church relationship between the LCP and refusal to leave the premises, they permanently padlocked the main gate of the compound
the Lutheran Church Missouri Synod which is the major benefactor and source of funds of confining [the Batong group] and their families therein and prevented the ingress and egress
LCP (LCP-BD-28-90); forcible taking of almost all official records and equipment of LCP by thereto. Later the [Batong group] left their houses due to the alleged intimidation and
respondent Thomas B. Batong and transferring the (same) from the LCP business office; threats employed by the [Ao-As group]. Thereafter, the latter entered the dwelling and took
acquisition of some lands using the corporate funds were in the name of some person other possession of the same."
than the LCP; and various cash advances of corporate funds by the respondents are not
liquidated up to the present. However, even before the creation of the management committee, the LCP national
convention had already been called in a Board meeting held on September 26, 1991 at the
WHEREFORE, premises considered, A MANAGEMENT COMMITTEE is hereby created to Lutheran Hospice, Quezon City. Hence, by the time the writ of preliminary injunction was
undertake the management of the Lutheran Church in the Philippines until such time that issued, all notices had already been received by all local congregations and convention
new members of the LCP Board of Directors shall have been elected and qualified in the delegates had likewise already been chosen to attend the national convention.
election to be called and conducted by the Management Committee in accordance with the
LCP’s Articles of Incorporation and By-Laws preferably in October 1992." Thus, the 17th LCP National Convention was held on October 26 to 30, 1992 as earlier
scheduled at the Immanuel Lutheran Church and School, Tugatong, Malabon, Metro-Manila.
On September 14, 1992, [the Batong group] filed their Motion for Reconsideration which was The list of official delegates to the Convention is shown in pages 32 to 33 of the Convention
subsequently denied in an Order dated September 23, 1992. Records.

On September 23, 1992, [the Batong group] filed with the SEC En Banc a Petition for During the 17th LCP National Convention, the delegates representing the majority of the
Certiorari with prayer for a temporary restraining order alleging that the SEC-SIDC acted with members which comprised the three districts (North Luzon, South Luzon and Mindanao)
grave abuse of discretion in creating the management committee. issued a "Manifesto" to initiate by themselves the election for a new set of church leaders
because the incumbent directors were enjoined to act as a board. In the election, the
Shortly thereafter, on September 29, 1992, the following were appointed to the following were elected as LCP officers, namely:
management committee: Atty. Puno as Chairman; and private respondents Jose Laking,
Eduardo Ladlad, Romeo Celiz as members. However, Atty. Puno later resigned and was President -- Rev. Victorino Saquilayan
replaced by Atty. Oscar Almazan who was appointed as Chairman. After the death of Romeo
Celiz, he was replaced by private respondent Luis Ao-As. Vice-President -- Rev. Juanito Basalong

On October 6, 1992, [the Ao-As group] filed a motion for issuance of a writ of preliminary Secretary -- Rev. Charlito Mercado
injunction seeking to enjoin [the Batong group] not only from continuing to act as LCP board
of directors but also from calling a national convention to elect new set of officers and Treasurer -- Rev. Benjamin Lasegan
members of the Board as provided in the LCP Constitution and By-Laws.
Similarly, prior to the issuance of the writ of preliminary injunction and the appointment of
On October 16, 1992, the SEC-SIDC ordered the issuance of a writ of preliminary injunction the management committee, the SLD (South Luzon District) of LCP already held its district
prohibiting [the Batong group] from "acting as a board of directors or officers of Lutheran conference on august 26 to 28, 1992 which elected, among other of its officers, the SLD Lay
Church in the Philippines, Inc. (LCP) and from holding any convention or general or special Representative pursuant to the LCP Constitution and By Laws. The following were elected:
membership meeting as well as election of the members of the LCP board of directors, until
further orders". SLD President and
Clergy Representative : Rev. Elmer Banes

44
LCP’s property in Cavite with an area of 7,218 square meters at a price of P1,000 per square
SLD Lay Representative: Roman Moscoso meter or a total of P7,218,000 with a down payment of P1,000,000.

The district conference for NLD was likewise held before the issuance of the writ of (c) Upon application of the [Ao-As group], the SEC-SIDC issued an Order dated June 1, 1994
preliminary injunction on October 7 to 9, 1992. In said convention, the local congregations ex parte and on June 14, 1994 at around 7 p.m., a certain Rev. Laking, using the Order of the
and clergymen executed a manifesto expressing their own opposition to the appointment of SEC-SIDC dated June 1, 1994 and October 16, 1992 writ of preliminary injunction, entered
a management committee. the premises of the Abatan Hospital located in Baguias, Benguet Province, took over the
management and control of the Abatan Hospital and forced the pastor previously assigned
[The Batong group] then filed with the SEC En Banc a Supplemental Petition dated November therein – Pastor Laapniten – to leave his post simply because Pastor Lapniten is identified
13, 1992 alleging the supervening events in the case which took place after the filing of the with the Saquilayan Group.4
original petition on September 23, 1992.
On 30 June 1994, the Batong group filed with the Court of Appeals a motion for the issuance
Subsequent to the 17th LCP national convention of October 1992, a special convention was of a Temporary Restraining Order and/or Preliminary Injunction. On 12 July 1994, the Court
called by the SEC Management Committee on January 25 to 29, 1993 at Cagayan de Oro City of Appeals issued a Temporary Restraining Order to enjoin the Ao-As group "from
to elect a different set of officers for LCP. [The Batong group] allege that the required notices implementing the contract to sell between the Lutheran church in the Philippines (LCP) and
were not sent to several local congregations and even fewer LCP members were permitted Solid Gold Realty Corporation and from selling, transferring, assigning and/or disposing of
by [the Ao-As group] to attend the special convention as evidenced by the list of official any other property of the LCP; to enjoin the Ao-As group and/or those officers elected in
delegates contained in the minutes of the special convention. their convention from enforcing or implementing the Order dated October 16, 1992 and the
writ of preliminary injunction issued in SEC Case 3857."
On July 21, 1993, [the Batong Group] filed a Second Supplement to its petition for certiorari
in the SEC En Banc alleging the supervening events and seeking the review of an Order of the On 22 September 1994, the Batong group filed a Motion/ Manifestation to cite Eduardo
Hearing Officer dated June 9, 1993 which enlisted the aid of the Secretary of the Department Ladlad, Harry Roa, James Cerdenola and Luis Ao-As in contempt of court, alleging that the
of Interior and Local Government and the PNP Director General to enforce the writ of latter, on 15 September 1994, entered the Olongapo Lutheran Church with six armed men
preliminary injunction. and there and then padlocked the main gate of the church. Consequently, Rev. Elmer Bañes,
the assigned overseer at said church, was barred from entering the premises on 17
Pending the resolution of the above-mentioned petitions, the management committee took September 1994.
control of several church properties, replaced clergymen from their parsonages and froze all
bank accounts in the name of LCP. On 10 October 1996, the Court of Appeals ruled in favor of the Batong group, disposing the
petition as follows:
[The Batong group] then filed a Petition for Mandamus and Damages with Prayer for
Preliminary Mandatory Injunction on August 19, 1993 seeking to unfreeze the bank accounts WHEREFORE, the petition is hereby granted. The Decision dated August 25, 1993 of the SEC
and recover the seized buildings. En Banc is hereby RECONSIDERED and SET-ASIDE and the Orders of the SEC-SIDC dated
September 3, 1992 and October 16, 1992 are hereby ANNULLED and SET ASIDE. The SEC is
All of the aforementioned petitioners (sic) were denied by the SEC En Banc. A motion for hereby directed to conduct a new election of the directors of the LCP consistent with the
reconsideration was filed but the same was likewise denied.3 provisions of the Corporation Code.5

The Batong group then filed a Petition for Review with the Court of Appeals seeking to annul Hence, this petition, where the Ao-As group brings forth the following issues to be resolved
the Decision of the Securities and Exchange Commission En Banc. In said Petition, the Batong by this Court:
group alleged that the Ao-As group persisted in carrying out ultra vires and illegal acts, to wit:
I.
(a) Private respondent Luis L. Ao-As, purportedly on the strength of a board action held at
Baguio on February 22-24, 1994 and of the assailed Order dated October 16, 1992, closed the Whether or not the Court of Appeals gravely erred in utterly ignoring and disregarding all the
premises of the Gloria Dei School after school year 1993-1994 in an attempt to take-over the evidence adduced by [the Ao-As group], and in making findings of facts contradicted by the
management and operations of the said school. The closure of the Gloria Dei School is the evidence on record and not supported by any evidence whatsoever.
subject of SEC Case No. 05-93-4463.
II.
(b) On February 1, 1994, Rev. Eduardo Ladlad, acting as President of the LCP, executed a
Contract to Sell with Solid Gold Realty Corporation whereby he agreed to sell a portion of

45
Whether or not the Court of Appeals reversibly erred in ruling that SEC-SICD Case No. 3857 is – was the subject of NLRC CASE NOS. 03-01935-90 and 04-01979-90 pending before the
a case of forum shopping. National Labor Relations Commission.

III. The board resolution denominated as LCP-BD-28-90 authorizing the transfer of the LCP
corporate records from the Sta. Mesa Office to the Caloocan Office – was the subject of Civil
Whether or not the Court of Appeals committed reversible error in declaring as invalid the Case No. 133394-CV and 131879-CV pending before the Metropolitan Trial Court of Manila,
manner of elections of the Board of Directors of the Lutheran Church in the Philippines as Branches 20 and 21 and subsequently dismissed in view of the FORMULA OF CONCORD
provided for in its By-Laws. entered into between the parties.

IV. On the other hand, the legality of the composition of the eleven-member LCP Board was
already the subject matter of SICD Case No. 3524 which was appealed to the SEC En Banc and
Whether or not the Court of Appeals committed reversible error in ruling that the SEC-SICD docketed as SEC Case No. 352.
had no jurisdiction to call for a special election of the Board of Directors of the Lutheran
Church in the Philippines.6 SEC Case No. 3857 is not the first case where the [Ao-As group], or those with similar
interests, have asked for the appointment of a management committee. In SEC Case 3556
In addition to the prayer to reverse the 10 October 1996 Decision and 3 March 1997 entitled "Exclesio Hipe and Lutheran Church of the Philippines v. Thomas Batong, et al.", in a
Resolution of the Court of Appeals, and the revival of Resolution of the SEC En Banc in SEC-EB motion dated June 18, 1991, private respondent Exclesio Hipe prayed for the appointment of
Case No. 330 and the Order of the SEC-SIDC in Case No. 3857, the Ao-As group prays for the a management committee for LCP. In an Order dated August 15, 1991, the SEC-SICD ruled
following: that the Motion for the Appointment of a Management Committee and Accounting filed by
the petitioners cannot be given due course considering that the same is one of the incidents
1. x x x x in SEC Case No. 3857 entitled Rev. Luis Ao-As, et al. vs. Thomas Batong now pending in the
sala of Hon. Elpidio Salgado". Petitioners knew that similar petitions have been previously
2. Declaring the Board of Directors elected at the National Convention called by the commenced because Atty. Oscar Almazan who is also a co-counsel in the case was the
Management Committee on January 25-27, 1993 in Cagayan de Oro as the legitimate counsel of record in SEC Case No. 3556 and the other cases.
members of the Board of LCP;
Clearly, the act of the [Ao-as group] in filing multiple petitions involving the same issues
3. Declaring all acts and resolutions passed by the Batong group invalid and of no legal effect; constitutes forum shopping and should be sanctioned with dismissal. x x x8
and
SEC-SICD Case No. 3857 is a petition for accounting with prayer for the appointment of a
4. Ordering the Batong group to return all the properties seized from the LCP and to refrain management committee and the issuance of a writ of injunction. The Ao-As group claims that
from the representing the LCP.7 the issue involved in the case is whether the Ao-As group is entitled to an accounting and to
the creation of a management committee due to the Batong group’s alleged dissipation and
The Ao-As group did not commit willful and deliberate forum shopping in the filing of SEC- waste of the assets of the LCP, and the subject matter is the act of dissipation and waste
SIDC Case No. 3857. committed by the Batong group. On the other hand:

Since a ruling upholding the Court of Appeals on the issue of forum shopping would render 1. NLRC Cases No. 03-01935-90 and 04-01979-90 pending before the National Labor
all the other issues in this petition moot, we resolve to pass upon the same at the onset. Relations Commission, is a case for illegal termination, which allegedly "obviously involves a
different cause of action";
The Ao-As group claims that the Court of Appeals reversibly erred in ruling that SEC-SICD
Case No. 3857 is a case of forum shopping. The Court of Appeals had ruled: 2. The cases pending before Branches 20 and 21 of the Municipal Trial Court of Manila,
docketed as Civil Cases No. 133394-CV and 131879-CV, respectively, are actions for forcible
Finally, SEC-SICD Case No. 3857 is a clear case of forum shopping. The acts of [the Batong entry and unlawful detainer; and
group], as embodied in several board resolutions, have already been raised and passed upon
in other cases pending at the time the [Ao-As group] instituted the present controversy. 3. SEC-SICD Case No. 3556 puts in issue the validity of LCP Board resolutions LCP-BD-6-89 and
LCP-BD-7-89, where what are involved are the incidents resulting from the issuance of the
The board resolutions denominated as LCP-BD-29-90 and LCP-BD-37-90 – authorizing the resolutions – the unjust termination of Mr. Exclesio Hipe as LCP Business Manager and
dissolution of the LCP business office and termination of the employees connected therewith treasurer and the illegal appointment of one Hildelberto Espejo in his place. SEC-SIDC Case
No. 3524 puts in issue the legality of the composition of the eleven-member LCP Board.

46
These are allegedly different issues from that of SEC-SIDC Case No. 3857 where the acts of deliberate, the subsequent cases shall be dismissed without prejudice on one of the two
respondents are claimed to the basis of a prayer for accounting and appointment of a grounds mentioned above. However, if the forum shopping is willful and deliberate, both (or
management committee. all, if there are more than two) actions shall be dismissed with prejudice.12lavvphi1.net

As elucidated above, the causes of action under SEC-SIDC Case No. 3857 are the following: The six grounds originally relied upon by the Ao-As group in SEC-SICD Case No. 3857 are
entirely different from the causes of action in NLRC Cases No. 03-01935-90 and 04-01979-90,
First, the alleged non-liquidation and/or non-accounting of a part of the proceeds of the La Civil Cases No. 133394-CV and 131879-CV, and SEC-SICD Cases No. 3556 and 3524. It is true
Trinidad land transaction in the amount of P64,000.00 by petitioner Thomas Batong; that the causes of action in the latter cases were included as additional grounds in SEC-SICD
Case No. 3857 for the appointment of the management committee and for accounting "of all
Second, the alleged non-liquidation and/or unaccounting of cash advances in the aggregate funds, properties and assets of LCP which may have come into their possession during their
amount of P323,750.00 by petitioner Thomas Batong; incumbency as officers and/or directors of LCP."13 However, the creation of a management
committee and the prayer for accounting could not have been asked for in the labor (NLRC
Third, the alleged dissipation and/or unaccounting of the LCP general fund in the amount of Cases No. 03-01935-90 and 04-01979-90) and forcible entry (Civil Cases No. 133394-CV and
4.8 million; 131879-CV) cases.

Fourth, the non-registration of the Leyte land purchased with LCP funds by petitioner As regards the other SEC Cases, though, the Ao-As group could have indeed prayed for the
Victorio Saquilayan; creation of the management committee and the accounting of the funds of the LCP. In fact,
as stated by the Court of Appeals, the petitioner in SEC-SICD Case No. 3556 had prayed for
Fifth, severance of church-partnership relationship with Lutheran Church-Missouri Synod the appointment of a management committee in a motion dated 18 June 1991. This motion,
(LCMS); and however, was subsequent to the filing of SEC-SICD Case No. 3857 on 17 August 1990, for
which reason the SEC-SICD ruled that such motion cannot be given due course considering
Sixth, the transfer of LCP corporate books from the Sta. Mesa office to the Caloocan office. that it was one of the incidents of SEC-SIDC Case No. 3857. In effect, the SEC-SIDC had denied
the subsequent motion on the ground of litis pendentia. But should SEC-SICD Case No. 3857,
The elements of forum shopping are: (a) identity of parties, or at least such parties as which contains the earlier prayer to create a management committee, be likewise dismissed?
represent the same interests in both actions; (b) identity of rights asserted and the relief Following the rules set forth in the preceding paragraphs, it would depend on whether the
prayed for, the relief being founded on the same facts; and (c) the identity of the two different SEC cases constitute willful and deliberate forum shopping on the part of Ao-As
preceding particulars, such that any judgment rendered in the other action will, regardless of group.
which party is successful, amount to res judicata in the action under consideration.9
We hold that this is not a case of willful and deliberate forum shopping and, hence, the SEC-
Otherwise stated, there is forum shopping where a litigant sues the same party against SICD Case No. 3857, which contains the earlier prayer to create a management committee,
whom another action or actions for the alleged violation of the same right and the should not be dismissed. The reason for this is the strict evidentiary requirement needed to
enforcement of the same relief is/are still pending. The defense of litis pendentia in one case grant a prayer to create a management committee. The power of the SEC14 to create a
is a bar to the other/others; and, a final judgment is one that would constitute res judicata management committee is found in Section 6(d) of Presidential Decree No. 902-A, as
and thus would cause the dismissal of the rest. Absolute identity of the parties is not amended, which provides:
required. It is enough that there is substantial identity of the parties. It is enough that the
party against whom the estoppel is set up is actually a party to the former case. There is Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the
identity of causes of action if the same evidence will sustain the second action. The principle following powers:
applies even if the relief sought in the two cases may be different. Forum shopping consists
of filing multiple suits involving the same parties for the same cause of action, either d) To create and appoint a management committee, board or body upon petition or motu
simultaneously or successively, for the purpose of obtaining a favorable judgment.10 propio to undertake the management of corporations, partnerships or other associations not
supervised or regulated by other government agencies in appropriate cases when there is
As the present jurisprudence now stands, forum shopping can be committed in three ways: imminent danger of dissipation, loss, wastage or destruction of assets or other properties or
(1) filing multiple cases based on the same cause of action and with the same prayer, the paralization of business operations of such corporations or entities which may be prejudicial
previous case not having been resolved yet (litis pendentia); (2) filing multiple cases based on to the interest of the minority stockholders, parties-litigants or the general public.
the same cause of action and the same prayer, the previous case having been finally resolved
(res judicata); and (3) filing multiple cases based on the same cause of action but with Evidently, it should be difficult to deduce the "imminent danger of dissipation, loss, wastage
different prayers (splitting of causes of action, where the ground for dismissal is also either or destruction of assets or other properties" from an allegation of a single act of previous
litis pendentia or res judicata11 ). If the forum shopping is not considered willful and misappropriation or dissipation on the part of the Batong group. It is often only when the

47
previous misappropriations and dissipations have become extensive and out of control that it Nothing in [Ao-As group’s] evidence presented in support for their application for a
can be candidly said that there is an imminent danger of further dissipation. The Ao-As group management committee showed an impending or imminent danger of dissipation of funds.
cannot be faulted therefore for not praying for the creation of a management committee in In the assailed SEC-SICD Order dated September 3, 1992, the appointment of a management
the first couple of cases it filed with the SEC, and neither can they be faulted for using the committee was justified because of "acquisition of some lands using the corporate funds . . .
causes of action in previously filed cases to prove their allegation of imminent dissipation. in the name of some person other than the LCP, and various cash advances of corporate
We cannot rule out the possibility that the danger of imminent dissipation of the corporate funds by the respondents not liquidated up to the present".
assets became apparent only in the acts of the respondents subsequent to the filing of the
first two SEC cases. The SEC-SICD Order refers to the La Trinidad and Leyte land transactions and the alleged non-
liquidation or unaccountability of cash advances and other funds – which constitutes the four
The creation of a management committee is not warranted by the facts of the case. causes of action alleged in the petition.

The Ao-As group claims that the Court of Appeals "unceremoniously disregarded all the [The Ao-As group] admit[s] that the La Trinidad Land transactions [were] consummated in
undisputed testimonial and documentary evidence presented before the SEC,"15 and 1984 while the Leyte transaction was made in 1989. Both occurred prior to the
strongly pointed to their evidence which "clearly show the dissipation, wastage and loss of Commencement (sic) of the present petition in 1990. Similarly, the alleged unliquidated cash
LCP funds and assets."16 These pieces of evidence supposedly proved the following: advances referred to accumulated funds long withdrawn in the past by Dr. Thomas Batong
"(in varying amounts) for personal, travel and other miscellaneous purposes, all in the
1. The alleged anomaly concerning the sale of the land and the purchase of another land, aggregate amount of not less than P 323,750.00". And the alleged unaccounted funds
both located in La Trinidad. The La Trinidad Land Transaction, the proceeds whereof were referred to the "trial balance of LCP as of September 15, 1989".
allegedly unliquidated, was testified to by petitioner Ao-As and Mr. Excelsio Hipe before the
SEC-SICD in a hearing conducted on 11 September 1990. Notably, the remaining two causes of action in the aforementioned petition do not involve
dissipation of funds, namely: (i) the severance of partner-church relationship between LCP
2. Unliquidated cash advances and unaccounted funds. Petitioners presented evidence to and Lutheran Church-Missouri Synod; and (ii) the transfer of corporate books from the Sta.
prove the failure of respondent Batong to liquidate cash advances and account for Mesa Office to Caloocan City.
P4,000,000 of LCP funds.
All of the grounds relied upon by [the Ao-As group] pertain to past delinquencies for which
3. Purchase of Leyte Land in the name of respondent Saquilayan with LCP funds. Respondent there are other available remedies such as accounting and reconveyance. The [Ao-As group]
LCP Vice-President Victorio Y. Saquilayan allegedly purchased a parcel of land in Albuera, did not allege, much less prove, any present or imminent loss or destruction of LCP
Leyte in his name, using LCP funds. Respondent Saquilayan subsequently donated to the LCP, properties and assets. At best, it expresses merely a general apprehension for possible
and explained that the purchase in his name was upon advice of LCP’s lawyers to comply mismanagement by respondent on the basis of the aforementioned past transactions.
with the rulings in Republic of the Philippines v. Hon. Arsenio M. Gonong17 and Republic of
the Philippines v. Iglesia Ni Cristo.18 It must be stressed that the appointment of a management committee inevitably results in
the drastic summary removal of all directors and officers of LCP. Clearly, the appointment of
4. Severance of partner-church relationship between the LCP and the LCMS. Respondents a management committee is not justified due to the failure of only two (2) of the LCP Board
issued LCP Board Resolution No. LCP-BD-28-90 severing all relations with the Lutheran members to liquidate past cash advances and other transactions involving corporate
Church-Missouri Synod (LCMS), allegedly in violation of LCP Board Resolution No. LCP-BD-33- property and funds.
70 which stated that "all actions taken by LCP in convention can only be amended, modified
and changed by LCP in convention." Where the corporation is solvent, a receiver will not be appointed because of past
misconduct and a subsequent mere apprehension of a future misdoing, where the present
5. Taking of LCP Books of Account. Respondent Batong, accompanied by members of the LCP situation and the prospects for the future are not such as to warrant a receivership. x x x"
Board and about 15 armed security guards allegedly barged into the premises of the LCP in
Old Sta. Mesa, Manila, and removed all of the official records and documents of the LCP Significantly, the SEC En Banc even pointed out that: "the question of whether or not the
(including the books of account, official receipts, check and journal vouchers, official papers [Batong group] have to account for all funds, properties and assets of LCP which may come
and titles to property) and had the same relocated to his residence in Caloocan City and to into their possession as directors and/or officers of LCP is still to be resolved by the hearing
the offices of Immanuel Lutheran Church in Malabon. officer after trial on the merits."

The Court of Appeals had ruled: Under prevailing law, the SEC-SICD should have refused the appointment of a management
committee.

48
"It is the general rule that a receiver (or a management committee) will not be appointed xxx xxx xxx
unless it appears that the appointment is necessary either to prevent fraud, or to save the
property from fraud or threatened destruction, or at least in case of solvent corporation x x b. The President together with two other members of the LCP Board of Directors, may
x. The burden of proof is a heavy one which requires a clear showing that an emergency authorize the release of surplus funds in emergencies or in cases of sudden need.
exists.
Section 2. The Board of Directors of the LCP
"x x x Similarly, a receiver (or a management committee) should not be appointed in an
action by a minority stockholder against corporate officers for an accounting where the xxx xxx xxx
corporation is solvent and going concern and a receiver is not necessary to preserve the
corporate property pending the accounting". c. The Board of Directors shall prepare the annual budget of the LCP.

Furthermore, a management committee should not be created when there was an adequate d. The Board of Directors shall be responsible for the annual auditing of all the LCP Properties
remedy available to private respondents for the liquidation of unaccounted funds.19 and may initiate special auditing at any time."

The Court of Appeals went on to rule that the members of the Ao-As group "have not 22. From the foregoing, it is clear that respondent Batong did not act alone, but in concert
positively shown that the said funds are unaccounted for,"20 and analyzed the evidence with the other members of the LCP Board. The creation of the management committee was
presented by the Ao-As group to illustrate that the unaccounted funds were only P1,572.43, therefore justified.
"which may be attributable to adjustment errors but certainly not a case of misappropriation
or misuse."21 23. The CA Decision also noted that since there were other remedies available to the
petitioners to correct these anomalies, the creation of the management committee was
The Ao-As group maintains that the unaccounted funds amount to around P4.8 million, and unjustified. [The Ao-As group] again humbly submit again (sic) that respondent Court of
claim that if the Court of Appeals "had only given the [the Ao-As group] a chance to prove Appeals erred when it made this statement. The LCP management committee was created
their allegations (concerning acts committed by respondents subsequent to the creation of precisely because of the extreme urgency that [mere] caused by the continued dissipation,
the management committee), then it would have confirmed the earlier determination made loss and wastage of LCP funds and assets by the Batong group. If [the Ao-As group] were to
by the SEC-SICD regarding the necessity for the creation of the management committee."22 avail of these so-called available remedies then by the time a decision is to be rendered in
It further asseverates: these "available remedies" the assets and funds of the LCP would have indubitably been lost
forever since the dissipation, loss and wastage were then, and still is, an on going process.
20. The acts constituting [the Ao-As group’s] six causes of action in the petition filed with the Consequently, it is clearly unreasonable for respondent Court of Appeals to declare that the
SEC-SICD (the La Trinidad land transaction, the unliquidated cash advances, the unaccounted [Ao-As group] should have first availed of these so-called remedies.23
funds amounting to P4.8 million, the Leyte land transaction, the severance of the sister-
church relationship and forcible removal of the LCP books of account) could not be Even without delving into the analysis of the prosecution evidence concerning the six causes
characterized merely as "past delinquencies". The six causes of action and the subsequent of action and the alleged acts subsequent to these six causes of action, it is already
acts of the [Batong group], after the filing of the petition with the SEC-SICD, clearly show a appropriate for us to rule that the facts as they appear to us now do not warrant the creation
continuing and deliberate scheme of the dissipation and wastage of LCP properties and of a management committee.
assets, which if unrestricted would cause further destruction of LCP assets and paralyzation
of its operations, as it had already done. The creation of the Management Committee was, Refusal to allow stockholders (or members of a non-stock corporation) to examine books of
therefore, perfectly legal and justified. And the ruling of respondent Court of Appeals that the company is not a ground for appointing a receiver (or creating a management
these acts do not justify its appointment is, [the Ao-As group] humbly submit, reversible committee) since there are other adequate remedies, such as a writ of mandamus.24
error. Misconduct of corporate directors or other officers is not a ground for the appointment of a
receiver where there are one or more adequate legal action against the officers, where they
21. In addition, the CA Decision also declared that "in any event, the past anomalies were are solvent, or other remedies.25
only done by some of the Batong group." This is erroneous. Under the By-Laws of the LCP,
the Board of Directors is in charge of the disbursement of funds. Sections 1 and 2 of Article 6 The appointment of a receiver for a going corporation is a last resort remedy, and should not
of the LCP By-Laws state: be employed when another remedy is available. Relief by receivership is an extraordinary
remedy and is never exercised if there is an adequate remedy at law or if the harm can be
"Section 1. The President of the LCP shall be given the following executive powers and prevented by an injunction or a restraining order. Bad judgment by directors, or even
supervisory duties: unauthorized use and misapplication of the company’s funds, will not justify the
appointment of a receiver for the corporation if appropriate relief can otherwise be had.26

49
As argued by the Ao-As group, however, the validity of the LCP By-Laws providing for a
The fact that the President of the LCP needs the concurrence of only two other directors to special procedure in the election of the LCP Board of Directors was never put in issue, either
authorize the release of surplus funds plainly contradicts the conclusion of conspiracy among by the Ao-As group or the Batong group. The Court of Appeals, therefore, should have
the presently 11-man board. Neither does the fact that the Board of Directors of the LCP refrained from passing upon such issue, motu propio. According to Rule 51, Section 8 of the
prepares the annual budget and the annual auditing of properties of the LCP justify the Rules of Court, which pertains to matters which may be decided on appeal:
conclusion that the alleged acts of respondent Batong was done in concert with the other
directors. There should have been evidence that such dissipation took place with the Sec. 8. Questions that may be decided. – No error which does not affect the jurisdiction over
knowledge and express or implied consent of most or the entire board. Good faith is always the subject matter or the validity of the judgment appealed from or the proceedings therein
presumed.27 As it is the obligation of one who alleges bad faith to prove it, so should he will be considered unless stated in the assignment of errors, or closely related to or
prove that such bad faith was shared by all persons to whom he attributes the same. The last dependent on an assigned error and properly argued in the brief, save as the court may pass
resort remedy of replacing the entire board, therefore, with a management committee, is upon plain errors and clerical errors.
uncalled for.
The ruling of the SEC En Banc setting aside the SEC-SICD determination that LCP Board of
The Court of Appeals erred in declaring as invalid the manner of elections of the Board of Directors was illegally constituted has therefore become final and executory, subject to the
Directors of the LCP as provided in its By-Laws. determination by the SEC-SICD of the seven members that should comprise the Board, as
likewise provided in said Decision.29
The Ao-As group stresses that the Court of Appeals committed reversible error in declaring as
invalid the manner of elections of the Board of Directors of the Lutheran Church in the Even the Batong group agrees with the Ao-As group on the validity of the by-laws provision
Philippines as provided in its By-Laws. The Court of Appeals ruled: concerning the election of the directors by districts:

The Court notes that the LCP By-Laws provide for a special procedure for the election of its [The Batong group] respectfully submit[s] that the matter of how the directors or other
directors. This was the procedure followed by both the [Batong group] and the [Ao-As leaders of a church shall be chosen is a matter of ecclesiastical law or custom which is
group]. outside the jurisdiction of civil courts. Hence, even assuming arguendo, that the mode of
election of the LCP is not strictly in accordance with the Corporation Code, it was improper
"Section 2. Composition of the Board of Directors of LCP. for the Securities and Exchange Commission to apply the provisions of the said Code to the
LCP.30
a. The Board of Directors shall be composed of the President of LCP and the President and lay
representative of each District. In any case, the stipulation in the By-Laws is not contrary to the Corporation Code. Section 89
of the Corporation Code pertaining to non-stock corporations provides that "(t)he right of the
b. Newly elected members of the LCP Board of Directors shall assume their positions members of any class or classes (of a non-stock corporation) to vote may be limited,
immediately after LCP conventions or the October LCP Board of Directors’ meeting in the broadened or denied to the extent specified in the articles of incorporation or the by-
year in which they are elected." laws."31 This is an exception to Section 6 of the same code where it is provided that "no
share may be deprived of voting rights except those classified and issued as ‘preferred’ or
However, Section 24 of the Corporation Code provides that "[a]t all elections of directors or ‘redeemable’ shares, unless otherwise provided in this Code."32 The stipulation in the By-
trustees, there must be present, either in person or by representative to act by written Laws providing for the election of the Board of Directors by districts is a form of limitation on
proxy, x x x if there be no capital stock, a majority of the members entitled to vote." the voting rights of the members of a non-stock corporation as recognized under the
aforesaid Section 89. Section 24, which requires the presence of a majority of the members
It is clear from Section 24 that in the election of the trustees of a non-stock corporation, it is entitled to vote in the election of the board of directors, applies only when the directors are
necessary that at least "a majority of the members entitled to vote" must be present at the elected by the members at large, such as is always the case in stock corporations by virtue of
meeting held for the purpose. It follows that trustees cannot be elected by zones or regions, Section 6.
each zone or region electing independently and separately a member of the board of
trustees of the corporation, such method being violative of Section 24. (SEC Opinions, Jan. WHEREFORE, the Decision of the Court of Appeals annulling and setting aside the order to
30, 1969, April 1, 1981). The election of the directors by district or regions as provided in the create a management committee is thereby AFFIRMED, with the MODIFICATION that every
LCP By-Laws where a majority of the members are not present is inconsistent with the subsequent election of the directors of Lutheran Church in the Philippines shall henceforth
Corporation [Code] and must be struck down as invalid. Consequently, the directors elected be in accordance with the By-Laws and Articles of Incorporation of the same. Costs against
by district cannot be considered as bona fide directors. Even the election of LCP officers in petitioners.
the SEC-SICD sponsored national convention of the LCP must be considered as invalid.28

50
PHILIPPINE AIRLINES, INC., G.R. No. 143088 Petitioners Philippine Airlines, Inc. (PAL) and Manolo Aquino, Jorge Ma. Cui, Jr. and Patricia
Chiong, in their capacity as Executive Vice-President Administration and Services, Manager
MANOLO AQUINO, JORGE International Cabin Crew and Assistant Vice-President Cabin Services, respectively, are
before the Court seeking the reversal of the resolution of the Court of Appeals in C.A. G.R.
MA. CUI, JR. and PATRICIA Present: No. SP-56850, dated January 31, 2000, dismissing their appeal and the resolution of May 11,
2000, denying the motion for reconsideration.
CHIONG,

Petitioners, PUNO, J., Chairperson,


The facts on the conflict between PAL and respondents Flight Attendants and Stewards
SANDOVAL-GUTIERREZ, Association of the Philippines (FASAP) and Leonardo Bhagwani are not necessary for the
Courts resolution of the petition. It is enough to state that on May 14, 1997 FASAP and
CORONA, Leonardo Bhagwani filed a complaint for unfair labor practice, illegal suspension and illegal
dismissal against petitioners before the Labor Arbiter of the National Labor Relations
-versus- AZCUNA, and Commission (NLRC). The Labor Arbiter rendered a decision holding that PAL committed
unfair labor practice and illegal dismissal of Bhagwani and, consequently, ordered the
GARCIA, JJ. payment of damages. The NLRC later modified the decision by setting aside the finding that
PAL was guilty of unfair labor practice, but affirming the rest of the decision.

Promulgated:

FLIGHT ATTENDANTS AND What is relevant to the case is the subsequent appeal to the Court of Appeals. When
petitioners filed a petition for certiorari against the decision with the Court of Appeals, it was
STEWARDS ASSOCIATION OF accompanied by a Certification of Non-Forum Shopping executed by Cesar R. Lamberte and
Susan Del Carmen, Vice-President Human Resources and Assistant Vice-President Cabin
THE PHILIPPINES (FASAP) and January 24, 2006 Services of PAL, respectively, who are not parties to the case. The certification, however, was
without proof that the two affiants had authority to sign in behalf of petitioners. As a result,
LEONARDO BHAGWANI, the Court of Appeals dismissed the case for failure to show the authority of affiants to sign
for PAL and for failure of the other petitioners to join in the execution of the certification. A
Respondents. motion for reconsideration was filed with a Secretarys Certificate attached evidencing that
affiants Cesar R. Lamberte and Susan Del Carmen have been authorized by Board Resolution
x----------------------------------------------------------------------------------------x No. 00-02-03 to initiate and/or cause to be filed on behalf of PAL petitions and pleadings in
all labor-related cases. As to the other petitioners, it was argued that they are mere nominal
parties so that their failure to execute the certification does not justify dismissal of the
petition. Despite this submission, the Court of Appeals denied the motion for
reconsideration. Hence, the case is now before this Court.

DECISION

AZCUNA, J.: The petition is without merit.

This petition for review on certiorari under Rule 45 of the Rules of Court presents a recurring The necessity for a certification of non-forum shopping in filing petitions for certiorari is
question regarding the Courts requirement of a certification of non-forum shopping. found in Rule 65, Section 1, in relation to Rule 46, Section 3 of the Rules of Court. These
provisions require it to be executed by the corresponding petitioner or petitioners. As no
distinction is made as to which party must execute the certificate, this requirement is made

51
to apply to both natural and juridical entities.[1] When the petitioner is a corporation, the the Court of Appeals on January 31, 2000. This means that at the time the certification was
certification should be executed by a natural person. Furthermore, not just any person can signed, Cesar R. Lamberte and Susan Del Carmen were not duly authorized by the Board of
be called upon to execute the certification, although such a person may have personal Directors of PAL and, consequently, their signing and attestations were not in representation
knowledge of the facts to be attested to.[2] of PAL. This effectively translates to a petition that was filed without a certification at all as
none was issued by PAL, the principal party to the case.

This Court has explained that a corporation has no power except those conferred on it by the
Corporation Code and those that are implied or incidental to its existence. The exercise of The required certification of non-forum shopping must be valid at the time of filing of the
these powers is done through the board of directors and/or duly authorized officers and petition. An invalid certificate cannot be remedied by the subsequent submission of a
agents. Given these corporate features, the power of a corporation to sue in any court is Secretarys Certificate that vests authority only after the petition had been filed.
generally lodged with the board of directors. The board, in turn, can delegate the physical
acts needed to sue, which may be performed only by natural persons, to its attorneys-in-fact
by a board resolution, if not already authorized under the corporate by-laws.[3]
WHEREFORE, the petition is DENIED. No costs.

Thus, only individuals vested with authority by a valid board resolution may sign the
certificate of non-forum shopping in behalf of a corporation. In addition, the Court has SO ORDERED.
required that proof of said authority must be attached. Failure to provide a certificate of non-
forum shopping is sufficient ground to dismiss the petition. Likewise, the petition is subject
to dismissal if a certification was submitted unaccompanied by proof of the signatorys
authority.[4]

The petition filed with the Court of Appeals had a certification of non-forum shopping
executed by Cesar R. Lamberte and Susan Del Carmen. The certification, however, was
without proof of authority to sign. When a motion for reconsideration was filed, a Secretarys
Certificate was submitted as proof that the board of directors of PAL had authorized the two
to execute the certificate. Nonetheless, the Court finds that this belated submission is an
insufficient compliance with the certification requirement.

This Court has allowed the reinstatement of petitions that were dismissed due to lack of
proof of authority to sign the certification upon its subsequent submission, saying that this
amounted to

substantial compliance. The rationale was that the signatories, at the time of execution of
the certification, were in fact authorized to sign, although proof of their authority was
lacking.[5]

This is not what happened in this case. A perusal of the Secretarys Certificate submitted
reveals that the authority to cause the filing of the petition was granted on February 15,
2000.[6] The petition, on the other hand, was filed on January 24, 2000 and was dismissed by

52
G.R. No. 98177 June 8, 1993 7. Informed of this discovery defendant Victor S. Barrios advised plaintiff that the
second mortgage obligation is or has been reduced to only P54,000.00 and gave assurance
BARFEL DEVELOPMENT CORPORATION AND SPOUSES VICTOR AND AIDA BARRIOS, petitioner, that he will submit the necessary documents to support the same so that a legal valid and
vs. acceptable arrangement could be worked out with the Central Bank for the release of said
COURT OF APPEALS, REGINAS INDUSTRIES AND DEVELOPMENT CORPORATION AND second mortgage;
TEODORICO E. ZARAGOZA, respondents.
8. . . . under date of June 29, 2987, the Philippine Savings Bank (PSB), gave a notice
Sycip, Salazar, Hernandez & Gatmaitan for petitioners. that it has approved plaintiff corporation's application for the loan with which to pay subject
properties under the Agreement to Buy/Sell (Annex A), subject to certain terms and
Ermitanio, Asuncio, Manzano & Associates for private respondents. conditions, principal of which is a security of real estate mortgage upon the subject
properties in favor of PSB. . . .;

PADILLA, J.: 9. In this connection, the PSB also sent separate letters of undertaking/commitment
to the defendants and the BPI detailing a workable arrangement to consummate the
This is a petition for review under Rule 45 of the Rules of Court seeking a reversal of the transaction whereby new titles to the subject properties would first be transferred to the
decision * of the Court of Appeals, dated 31 January 1991, and its resolution of 2 April 1991, plaintiff corporation and the mortgage in favor of PSB are to be annotated thereon. Once
denying the petition for certiorari and prohibition, thereby upholding the order of the done, the PSB, by virtue of authority already given by the plaintiff corporation, would directly
Regional Trial Court of Makati, Branch 134 ** dated 30 April 1990 (Civil Case No. 17875) pay BPI from the proceeds of the loan granted to plaintiff corporation the mortgage
admitting party-plaintiffs' amended complaint impleading as additional party-defendant obligation due to it in the amount of P857,539.36, and also pay the defendants the balance
(PISO Bank, a second mortgagee) after the former had concluded presenting their evidence of the purchase price in the amount of P3,642,460.64 net of what has been paid to BPI. . . .;
and while the original defendants (herein petitioners) were in the process of presenting their
witnesses. 10. The defendants expressed their conformity to the aforementioned arrangement as
shown in their letter to the BPI dated July 8, 1987, . . .;
In the Makati, RTC, the following relevant facts were established:
11. In view of the assurances of defendants, plaintiffs, in a letter dated July 9, 1987
Private respondents filed a complaint for specific performance and damages against the sent to defendants to further ensure the consummation of the transaction, manifested its
petitioners, the material allegations of which are as follows: willingness to pay the sum of P2,000,000.00 ahead of the PSB loan proceeds upon release of
the second mortgage by the Central Bank which was to be worked out by the defendants.
3. On June 19, 1987, the defendants, as sellers, and plaintiff corporation, as buyer, Defendants conformed to the arrangement by affirming their signatures to the said letter
and represented by its President, plaintiff Zaragoza, concluded an Agreement to But/Sell two were (sic) they also agreed to the release of the certificates of title to PSB, free and clear of
(2) parcels of land with two (2) houses erected thereon located at 209 Bulusan St., Ayala- any liens, upon payment of P2,000,000.00, . . .
Alabang, Muntinlupa, Metro Manila, covered by Transfer Certificates of Title (TCT) No. T-
132671 and 132651, both of the Register of Deeds for Makati, Metro Manila. Said Agreement 12. Notwithstanding the contractual obligations, terms and conditions agreed upon by,
bears the expressed stipulation, among others, that "The seller will apply the payment of the between and among the parties and those involved in the transaction, plaintiffs
cash portion of the purchase price to the removal of any and all liens on the properties. . . .; consequently received information that defendants have been negotiating with other parties
for the sale of the properties in question, although defendants denied such fact;
4. Plaintiff paid the amount of P100,000 as down payment upon signing of the
aforesaid Agreement; 13. Be that as it may, the undisputed fact is that defendants, in gross and evident bad
faith and in malicious breach of contract, deliberately failed and/or refused and to date
5. During the time the Agreement was under negotiation and even at the conclusion continued to fail and refused to comply with their contractual of securing the release of the
thereof, the defendants repeatedly warranted that except for a mortgage in favor of the second mortgage on the subject properties thereby effectively preventing the consummation
Bank of the Philippine Islands (BPI) and the Deed of Restrictions annotated at the back of the of the sale to the damage and prejudice of the plaintiffs;
titles mentioned above, the subject properties are "free from any liens and encumbrances";
14. The malice, fraud and the gross and evident bad faith on the part of the defendants
6. Sometime on June 24, 1987, plaintiffs found out that defendants made a blatant is further demonstrated by the fact that subsequently, BPI advised that it was disauthorized
misrepresentation it was discovered that the subject properties have a second mortgage by defendants to consummate the transaction despite ]previous arrangements to the
with the PISO/Central Bank in the amount of P2,571,400.00; contrary as per BPI's letter to plaintiff's bank dated July 31, 19871 . . .;

53
Petitioners (as defendants) filed an answer with the following affirmative allegations: During defendants' (herein petitioners') presentation of evidence, private respondents filed
on 13 March 1990, a motion for a leave to file an amended complaint and motion to admit
5. Before Reginas signed Annex A, it was aware of all liens and encumbrances on the the same. The amendment consisted of impleading PISO bank as additional party defendant
Property, including the mortgage in favor of PISO Bank ("PISO Mortgage"). and compel it to accept payment of the existing second mortgage from private respondent
Reginas, since allegedly no complete relief can be had unless the second mortgage in favor of
6. ... said PISO bank is released.

c. The parties agreed that if full payment could not be affected, of if the PISO Despite petitioners' opposition, an order was issued by the trial court on 30 April 1990
Mortgage is not released, within 30 days from July 9, 1987, they will each have the option to admitting the amended complaint. After denial of their motion for reconsideration on 1 June
terminate the agreement. 1990, petitioners proceeded to the Court of Appeals on a petition for certiorari and
prohibition (CA-G.R. Sp. No. 23153) raising the issue of whether an amendment to the
xxx xxx xxx complaint pleading a cause of action against a new or additional party can be allowed after
the private respondents (as plaintiffs) had rested their case and petitioners (as defendants)
8. In the documentation, Barfel and Reginas did not make reference to the PISO had commenced the presentation of their evidence.
Mortgage because: (1) Barfel and Reginas believed that since Barfel's balance to PISO was
only about P54,000, release of the PISO Mortgage could be obtained within 30 days; and (ii) Sustaining private respondents' contentions, the Court of Appeals' decision held in effect, as
Reginas wanted to be able to present to PSB a "clean document" to expedite the approval of follows:
its loan.
The change in language from the former to the present rule (Section 3, Rule 10 of the
9. Regarding the release of the PISO Mortgage, plaintiffs undertook to make direct Revised Rules of Court), does not stop the court from allowing substantial amendments, after
and active representations with the proper officers of the Central Bank (because PISO is in the trial has begun, there being nothing in the rule as changed, which limits the court's
the custody of a Central Bank officer as receiver/liquidator) and agreed that the authority to allow substantial amendments to the pleading just because trial has already
responsibility of the defendants was solely to provide the documentation to support the begun.
position that Barfel's remaining balance under the PISO Mortgage was only about P54,000.
The amendment of the complaint was made without intent to delay the action. The essence
10. In accordance with that commitment, defendants gave and/or made available to of the liberal interpretation accorded by the courts on the filing of an amended complaint is
Reginas all documents they had in their possession necessary to show that the balance of the the avoidance of multiplicity of suits. And also, private respondents' cause of action has not
PISO Mortgage was only P54,000. With these documents, plaintiffs made direct been substantially altered.
representations with the proper officers of the Central Bank.
PISO Bank is a proper party under Section 8 of Rule 3 of the Revised Rules of Court. For the
11. The failure to obtain a release of the PISO Mortgage within the 30-day period was defendants Barfel Development Corporation and the spouses Barrios to be able to comply
accepted by the parties as a possibility and therefore could not be imputed on the with its obligation under the Agreement to Buy/Sell dated 19 June 1987 and the letter-
defendants. agreement dated 9 July 1987 and the related Deed of Sale, there had to be a determination
of the amount really due Piso Bank and corresponding order for said bank to accept the
12. Release of the BPI Mortgage could not be worked out because PSB, as a condition payment of plaintiff corporation to extinguish the obligation secured by the mortgage,
for the disbursement of the loan, wanted the title to the Property to be transferred first to before the consummation of said transaction can be effected.3
Reginas and the mortagage to secure Reginas' loan to be annotated on the title. The
mechanics for payment was unacceptable to BPI. With the denial by the appellate court of petitioners' motion for reconsideration,4 the same
legal issue earlier brought before the Court of Appeals is now before us for resolution, with
13. The refusal of BPI to agree to PSB's terms of payment was based solely on its own the following supportive arguments:5
evaluation of the acceptability of the mechanics for payment suggested by PSB. And the
failure to obtain a release on the BPI Mortgage is solely on account of PSB's, therefore In resolving the issue in favor of allowance of the amended complaint, the Court of Appeals
plaintiffs', insistence on an unacceptable mechanics for payment.2 has decided it in a way not in accord with Rule 10, Section 3, which we quote for the
convenience of the Court:
Pre-trial was concluded by the trial court. Plaintiffs therein (herein private respondents)
presented evidence and rested their case. Section 3. Amendments by leave of court. — After the case is set for hearing, substantial
amendments may be made only upon leave of court. But such leave may be refused if it

54
appears to the court that the motion was made with intent to delay the action or that the
cause of action or defense is substantially altered . . . . (emphasis is supplied) 1. foreclose the second mortgage for non-payment.

The amendment was made with the intent to delay the action and substantially alters private 2. pay off the first mortgagee (BPI in this instance) and be subrogated to its rights
respondents' cause of action and petitioners' defense. thereby becoming the sole lien holder.

xxx xxx xxx 3. collect on the loan without foreclosing on the mortgage.

The following circumstances, according to petitioners, show intent to delay; Under the facts alleged in the amended complaint, there is no statement that the mortgage
debt in favor of PISO is due and demandable; neither is PISO foreclosing on the mortgage.
A. The pretext given is that PISO has to joined as a co-defendant so that it can be And in an unexpected act of liberality, PISO can even write off the debt (of course an
compelled to accept the payment of whatever would be determined as the correct balance improbability). In any event private respondents (as plaintiffs below) cannot compel PISO to
of the PISO mortgage. The amendment will bring into the case the controversy or dispute accept payment as it is not even a party to the mortgage contract (with PISO); the latter
between PISO and the petitioners as to how much is still due under the mortgage. cannot be impleaded as a party defendant, and the former only has an inchoate right to the
property. Besides, if the principal mortgagee, BPI, is not even impleaded why should the
B. But why is the dispute brought out only now? It was not as if the private second mortgagee PISO be so impleaded, when it is a stranger to the transaction between
respondents learned of the dispute only at the time they sought the amendment. As earlier petitioners and private respondents? Even the mortgage document purportedly sued upon is
pointed out when they filed the Complaint, they already knew about it. not attached to the amended complaint.

We rule for the petitioners, and reverse the appellate court's decision. In Marimperio Compania Naviera, S.A. v. CA, G.R. 40234, December 14, 19877, the Court
held:
Petitioners' assertion — which is not refuted by private respondents — is that the subject
matter of the original complaint sought to be amended was well known to private According to Article 1311 of the Civil Code a contract takes effect between the parties who
respondents from the start. The reason for the amendment impleading PISO is to compel the made it, and also their assigns and heirs, except in cases where the rights and obligations
latter to accept herein respondents' payment and release the second mortgage thereby arising from the contract are not transmissible by their nature, or by stipulation or by
enabling petitioners to deliver to respondents the titles free from all liens and provision of law. Since a contract may be violated only by the parties, thereto as against each
encumbrances. But PISO bank is not a party to the three (3) contracts which are the subject other, in an action upon that contract, the real parties in interest, either as plaintiff or as
of the action for specific performance and damages between the private respondents and defendant, must be parties to said contract. Therefore, a party who has not taken part in it
petitioners. The bank which is not a party to the transaction is not an indispensable party.6 cannot sue or be sued for performance or for cancellation thereof, unless he shows that he
Neither is there an acceptable explanation from private respondents why PISO Bank was not has a real interest affected thereby.
impleaded in the original complaint filed before the RTC of Makati. PISO is a second
mortgagee, whatever the outcome of the litigation between the petitioners and the private A "real interest" has been defined as "a present substantial interest, as distinguished from a
respondents would be. Its second mortgage lien attaches to the property. The action for mere expectancy or a future, contingent, subordinate or consequential interest." (Moreno,
specific performance by private respondents against petitioners is not the proper venue for Federico B. Philippine Law Dictionary, Third Edition)
releasing al liens and encumbrances on the subject property. Perhaps, herein private
respondents have confused the possible liability of petitioner Barrios for allegedly Complete relief by private respondents against petitioners may be had even if PISO/Central
withholding information on the said second mortgage as another cause of action against him Bank were not impleaded as party defendant in the original case. PISO is not an
arising from the executed contracts. But title to the disputed properties can still be delivered indispensable or necessary party without whom no final determination can be had of the
by petitioners to herein respondents, by way of specific performance with damages, action for specific performance with damages. (Sec. 7, Rule 3, Rules of Court). Private
encumbered of course by the second mortgage in favor of PISO but the release of such respondents maintain that PISO is a proper party under sec. 8, Rule 3 of the Revised Rules of
encumbrance can be obtained independently of this case. To include it as another cause of Court. The provision invoked reads:
action in the case at bar against an additional defendant, would indeed change the theory of
the case, let alone delay the proceedings on the original case of action founded on specific Section 8. Joinder of proper parties. — When persons who are not indispensable but who
performance with damages. ought to be parties if complete reliefs is to be accorded as between those already parties,
have not been made parties and are subject to the jurisdiction of the court as to both service
To compel PISO to accept payment cannot be allowed in an action for specific performance of process and venue, the court shall order them summoned to appear in the action. But the
with damages between other parties. These are two (2) different causes. A second court may, in its discretion, proceed in the action without making such persons parties, and
mortgagee like PISO has several options. It may neither: the judgment rendered therein shall be without prejudice to the rights of such persons.

55
From the above, it is clear that joinder of admittedly proper properties is permissive, that
judgment will be decreed even if all the parties are not present if the court will be able to
proceed to a decree and do justice to the parties already before it, without injury to those
who are absent but equally interested in the litigation and who cannot conveniently be made
parties to the suit.8 Wherever a case will be completely decided as between the party
litigants, an interest existing in some other persons whom the process of the court cannot
reach will not prevent a decree upon merits.9 In short, as far as the complaint for specific
performance and damages is concerned, complete relief maybe accorded between private
respondents and petitioners (as original parties) without the presence of the second
mortgagee (PISO bank). If complete relief to herein private respondents is the ultimate aim
of the RTC ruling, why did it not include BPI as (proper) party defendant, since after all, there
is an allegation in the original complaint that BPI refused to go along with the transaction
because of petitioner's representations.

Moreover, the amendment sought by private respondents, which is to include a new party
defendant at a late stage in the proceeding is not a formal but a substantial one. Private
respondents will have to present additional evidence on the PISO second mortgage. The
effect would be to start trial anew with the parties recasting their theories of the case. The
correct amount of the second mortgage owed by petitioners to PISO bank (apparently a
controverted point), would have to be litigated and this could be time consuming.

As a general policy, liberality in allowing amendments is greatest in the early stages of a law
suit, decreases as it progresses and changes at times to a strictness amounting to a
prohibition. 10 This is further restricted by the condition that the amendment should not
prejudice the adverse party or place him at a disadvantage. 11

WHEREFORE, the petition for review is GRANTED. The decision appealed from is REVERSED
and SET ASIDE. Let this case be remanded to the court of origin for continuation of the
presentation of evidence by herein petitioners (as defendants) in Civil Case No. 17875.

56
[G.R. No. 161135. April 8, 2005] that Christian be ordered to pay P1 million as moral damages; P500,000 as exemplary
damages; and P100,000 as attorneys fees.[4]
SWAGMAN HOTELS AND TRAVEL, INC., petitioner, vs. HON. COURT OF APPEALS, and NEAL B.
CHRISTIAN, respondents. In due course and after hearing, the trial court rendered a decision[5] on 5 May 2000
declaring the first two promissory notes dated 7 August 1996 and 14 March 1997 as already
DECISION due and demandable and that the interest on the loans had been reduced by the parties
from 15% to 6% per annum. It then ordered the petitioner corporation to pay Christian the
DAVIDE, JR., C.J.: amount of $100,000 representing the principal obligation covered by the promissory notes
dated 7 August 1996 and 14 March 1997, plus interest of 6% per month thereon until fully
May a complaint that lacks a cause of action at the time it was filed be cured by the accrual paid, with all interest payments already paid by the defendant to the plaintiff to be deducted
of a cause of action during the pendency of the case? This is the basic issue raised in this therefrom.
petition for the Courts consideration.
The trial court ratiocinated in this wise:
Sometime in 1996 and 1997, petitioner Swagman Hotels and Travel, Inc., through Atty.
Leonor L. Infante and Rodney David Hegerty, its president and vice-president, respectively, (1) There was no novation of defendants obligation to the plaintiff. Under Article 1292 of the
obtained from private respondent Neal B. Christian loans evidenced by three promissory Civil Code, there is an implied novation only if the old and the new obligation be on every
notes dated 7 August 1996, 14 March 1997, and 14 July 1997. Each of the promissory notes is point incompatible with one another.
in the amount of US$50,000 payable after three years from its date with an interest of 15%
per annum payable every three months.[1] In a letter dated 16 December 1998, Christian The test of incompatibility between the two obligations or contracts, according to an
informed the petitioner corporation that he was terminating the loans and demanded from imminent author, is whether they can stand together, each one having an independent
the latter payment in the total amount of US$150,000 plus unpaid interests in the total existence. If they cannot, they are incompatible, and the subsequent obligation novates the
amount of US$13,500.[2] first (Tolentino, Civil Code of the Philippines, Vol. IV, 1991 ed., p. 384). Otherwise, the old
obligation will continue to subsist subject to the modifications agreed upon by the parties.
On 2 February 1999, private respondent Christian filed with the Regional Trial Court of Thus, it has been written that accidental modifications in an existing obligation do not
Baguio City, Branch 59, a complaint for a sum of money and damages against the petitioner extinguish it by novation. Mere modifications of the debt agreed upon between the parties
corporation, Hegerty, and Atty. Infante. The complaint alleged as follows: On 7 August 1996, do not constitute novation. When the changes refer to secondary agreement and not to the
14 March 1997, and 14 July 1997, the petitioner, as well as its president and vice-president object or principal conditions of the contract, there is no novation; such changes will produce
obtained loans from him in the total amount of US$150,000 payable after three years, with modifications of incidental facts, but will not extinguish the original obligation. Thus, the
an interest of 15% per annum payable quarterly or every three months. For a while, they acceptance of partial payments or a partial remission does not involve novation (id., p. 387).
paid an interest of 15% per annum every three months in accordance with the three Neither does the reduction of the amount of an obligation amount to a novation because it
promissory notes. However, starting January 1998 until December 1998, they paid him only only means a partial remission or condonation of the same debt.
an interest of 6% per annum, instead of 15% per annum, in violation of the terms of the
three promissory notes. Thus, Christian prayed that the trial court order them to pay him In the instant case, the Court is of the view that the parties merely intended to change the
jointly and solidarily the amount of US$150,000 representing the total amount of the loans; rate of interest from 15% per annum to 6% per annum when the defendant started paying
US$13,500 representing unpaid interests from January 1998 until December 1998; P100,000 $750 per month which payments were all accepted by the plaintiff from January 1998
for moral damages; P50,000 for attorneys fees; and the cost of the suit.[3] onward. The payment of the principal obligation, however, remains unaffected which means
that the defendant should still pay the plaintiff $50,000 on August 9, 1999, March 14, 2000
The petitioner corporation, together with its president and vice-president, filed an Answer and July 14, 2000.
raising as defenses lack of cause of action and novation of the principal obligations.
According to them, Christian had no cause of action because the three promissory notes (2) When the instant case was filed on February 2, 1999, none of the promissory notes was
were not yet due and demandable. In December 1997, since the petitioner corporation was due and demandable. As of this date however, the first and the second promissory notes
experiencing huge losses due to the Asian financial crisis, Christian agreed (a) to waive the have already matured. Hence, payment is already due.
interest of 15% per annum, and (b) accept payments of the principal loans in installment
basis, the amount and period of which would depend on the state of business of the Under Section 5 of Rule 10 of the 1997 Rules of Civil Procedure, a complaint which states no
petitioner corporation. Thus, the petitioner paid Christian capital repayment in the amount cause of action may be cured by evidence presented without objection. Thus, even if the
of US$750 per month from January 1998 until the time the complaint was filed in February plaintiff had no cause of action at the time he filed the instant complaint, as defendants
1999. The petitioner and its co-defendants then prayed that the complaint be dismissed and obligation are not yet due and demandable then, he may nevertheless recover on the first

57
two promissory notes in view of the introduction of evidence showing that the obligations Its motion for reconsideration having been denied by the Court of Appeals in its Resolution of
covered by the two promissory notes are now due and demandable. 4 December 2003,[9] the petitioner came to this Court raising the following issues:

(3) Individual defendants Rodney Hegerty and Atty. Leonor L. Infante can not be held I. WHERE THE DECISION OF THE TRIAL COURT DROPPING TWO DEFENDANTS HAS BECOME
personally liable for the obligations contracted by the defendant corporation it being clear FINAL AND EXECUTORY, MAY THE RESPONDENT COURT OF APPEALS STILL STUBBORNLY
that they merely acted in representation of the defendant corporation in their capacity as CONSIDER THEM AS APPELLANTS WHEN THEY DID NOT APPEAL?
General Manager and President, respectively, when they signed the promissory notes as
evidenced by Board Resolution No. 1(94) passed by the Board of Directors of the defendant II. WHERE THERE IS NO CAUSE OF ACTION, IS THE DECISION OF THE LOWER COURT VALID?
corporation (Exhibit 4).[6]
III. MAY THE RESPONDENT COURT OF APPEALS VALIDLY AFFIRM A DECISION OF THE LOWER
In its decision[7] of 5 September 2003, the Court of Appeals denied petitioners appeal and COURT WHICH IS INVALID DUE TO LACK OF CAUSE OF ACTION?
affirmed in toto the decision of the trial court, holding as follows:
IV. WHERE THERE IS A VALID NOVATION, MAY THE ORIGINAL TERMS OF CONTRACT WHICH
In the case at bench, there is no incompatibility because the changes referred to by appellant HAS BEEN NOVATED STILL PREVAIL?[10]
Swagman consist only in the manner of payment. . . .
The petitioner harps on the absence of a cause of action at the time the private respondents
Appellant Swagmans interpretation that the three (3) promissory notes have been novated complaint was filed with the trial court. In connection with this, the petitioner raises the
by reason of appellee Christians acceptance of the monthly payments of US$750.00 as capital issue of novation by arguing that its obligations under the three promissory notes were
repayments continuously even after the filing of the instant case is a little bit strained novated by the renegotiation that happened in December 1997 wherein the private
considering the stiff requirements of the law on novation that the intention to novate must respondent agreed to waive the interest in each of the three promissory notes and to accept
appear by express agreement of the parties, or by their acts that are too clear and US$750 per month as installment payment for the principal loans in the total amount of
unequivocal to be mistaken. Under the circumstances, the more reasonable interpretation of US$150,000. Lastly, the petitioner questions the act of the Court of Appeals in considering
the act of the appellee Christian in receiving the monthly payments of US$750.00 is that Hegerty and Infante as appellants when they no longer appealed because the trial court had
appellee Christian merely allowed appellant Swagman to pay whatever amount the latter is already absolved them of the liability of the petitioner corporation.
capable of. This interpretation is supported by the letter of demand dated December 16,
1998 wherein appellee Christian demanded from appellant Swagman to return the principal On the other hand, the private respondent asserts that this petition is a mere ploy to
loan in the amount of US$150,000 plus unpaid interest in the amount of US$13,500.00 continue delaying the payment of a just obligation. Anent the fact that Hegerty and Atty.
Infante were considered by the Court of Appeals as appellants, the private respondent finds
... it immaterial because they are not affected by the assailed decision anyway.

Appellant Swagman, likewise, contends that, at the time of the filing of the complaint, Cause of action, as defined in Section 2, Rule 2 of the 1997 Rules of Civil Procedure, is the act
appellee Christian ha[d] no cause of action because none of the promissory notes was due or omission by which a party violates the right of another. Its essential elements are as
and demandable. follows:

Again, We are not persuaded. 1. A right in favor of the plaintiff by whatever means and under whatever law it arises or is
created;
...
2. An obligation on the part of the named defendant to respect or not to violate such right;
In the case at bench, while it is true that appellant Swagman raised in its Answer the issue of and
prematurity in the filing of the complaint, appellant Swagman nonetheless failed to object to
appellee Christians presentation of evidence to the effect that the promissory notes have 3. Act or omission on the part of such defendant in violation of the right of the plaintiff or
become due and demandable. constituting a breach of the obligation of the defendant to the plaintiff for which the latter
may maintain an action for recovery of damages or other appropriate relief.[11]
The afore-quoted rule allows a complaint which states no cause of action to be cured either
by evidence presented without objection or, in the event of an objection sustained by the It is, thus, only upon the occurrence of the last element that a cause of action arises, giving
court, by an amendment of the complaint with leave of court (Herrera, Remedial Law, Vol. the plaintiff the right to maintain an action in court for recovery of damages or other
VII, 1997 ed., p. 108).[8] appropriate relief.

58
It is undisputed that the three promissory notes were for the amount of P50,000 each and Such interpretation of Section 5, Rule 10 of the 1997 Rules of Civil Procedure is erroneous.
uniformly provided for (1) a term of three years; (2) an interest of 15 % per annum, payable
quarterly; and (3) the repayment of the principal loans after three years from their respective Amendments of pleadings are allowed under Rule 10 of the 1997 Rules of Civil Procedure in
dates. However, both the Court of Appeals and the trial court found that a renegotiation of order that the actual merits of a case may be determined in the most expeditious and
the three promissory notes indeed happened in December 1997 between the private inexpensive manner without regard to technicalities, and that all other matters included in
respondent and the petitioner resulting in the reduction not waiver of the interest from 15% the case may be determined in a single proceeding, thereby avoiding multiplicity of suits.[12]
to 6% per annum, which from then on was payable monthly, instead of quarterly. The term Section 5 thereof applies to situations wherein evidence not within the issues raised in the
of the principal loans remained unchanged in that they were still due three years from the pleadings is presented by the parties during the trial, and to conform to such evidence the
respective dates of the promissory notes. Thus, at the time the complaint was filed with the pleadings are subsequently amended on motion of a party. Thus, a complaint which fails to
trial court on 2 February 1999, none of the three promissory notes was due yet; although, state a cause of action may be cured by evidence presented during the trial.
two of the promissory notes with the due dates of 7 August 1999 and 14 March 2000
matured during the pendency of the case with the trial court. Both courts also found that the However, the curing effect under Section 5 is applicable only if a cause of action in fact exists
petitioner had been religiously paying the private respondent US$750 per month from at the time the complaint is filed, but the complaint is defective for failure to allege the
January 1998 and even during the pendency of the case before the trial court and that the essential facts. For example, if a complaint failed to allege the fulfillment of a condition
private respondent had accepted all these monthly payments. precedent upon which the cause of action depends, evidence showing that such condition
had already been fulfilled when the complaint was filed may be presented during the trial,
With these findings of facts, it has become glaringly obvious that when the complaint for a and the complaint may accordingly be amended thereafter.[13] Thus, in Roces v.
sum of money and damages was filed with the trial court on 2 February 1999, no cause of Jalandoni,[14] this Court upheld the trial court in taking cognizance of an otherwise defective
action has as yet existed because the petitioner had not committed any act in violation of the complaint which was later cured by the testimony of the plaintiff during the trial. In that
terms of the three promissory notes as modified by the renegotiation in December 1997. case, there was in fact a cause of action and the only problem was the insufficiency of the
Without a cause of action, the private respondent had no right to maintain an action in court, allegations in the complaint. This ruling was reiterated in Pascua v. Court of Appeals.[15]
and the trial court should have therefore dismissed his complaint.
It thus follows that a complaint whose cause of action has not yet accrued cannot be cured
Despite its finding that the petitioner corporation did not violate the modified terms of the or remedied by an amended or supplemental pleading alleging the existence or accrual of a
three promissory notes and that the payment of the principal loans were not yet due when cause of action while the case is pending.[16] Such an action is prematurely brought and is,
the complaint was filed, the trial court did not dismiss the complaint, citing Section 5, Rule 10 therefore, a groundless suit, which should be dismissed by the court upon proper motion
of the 1997 Rules of Civil Procedure, which reads: seasonably filed by the defendant. The underlying reason for this rule is that a person should
not be summoned before the public tribunals to answer for complaints which are immature.
Section 5. Amendment to conform to or authorize presentation of evidence. When issues not As this Court eloquently said in Surigao Mine Exploration Co., Inc. v. Harris:[17]
raised by the pleadings are tried with the express or implied consent of the parties, they shall
be treated in all respects as if they had been raised in the pleadings. Such amendment of the It is a rule of law to which there is, perhaps, no exception, either at law or in equity, that to
pleadings as may be necessary to cause them to conform to the evidence and to raise these recover at all there must be some cause of action at the commencement of the suit. As
issues may be made upon motion of any party at any time, even after judgment; but failure observed by counsel for appellees, there are reasons of public policy why there should be no
to amend does not affect the result of the trial of these issues. If evidence is objected to at needless haste in bringing up litigation, and why people who are in no default and against
the trial on the ground that it is not within the issues made by the pleadings, the court may whom there is yet no cause of action should not be summoned before the public tribunals to
allow the pleadings to be amended and shall do so with liberality if the presentation of the answer complaints which are groundless. We say groundless because if the action is
merits of the action and the ends of substantial justice will be subserved thereby. The court immature, it should not be entertained, and an action prematurely brought is a groundless
may grant a continuance to enable the amendment to be made. suit.

According to the trial court, and sustained by the Court of Appeals, this Section allows a It is true that an amended complaint and the answer thereto take the place of the originals
complaint that does not state a cause of action to be cured by evidence presented without which are thereby regarded as abandoned (Reynes vs. Compaa General de Tabacos [1912],
objection during the trial. Thus, it ruled that even if the private respondent had no cause of 21 Phil. 416; Ruyman and Farris vs. Director of Lands [1916], 34 Phil., 428) and that the
action when he filed the complaint for a sum of money and damages because none of the complaint and answer having been superseded by the amended complaint and answer
three promissory notes was due yet, he could nevertheless recover on the first two thereto, and the answer to the original complaint not having been presented in evidence as
promissory notes dated 7 August 1996 and 14 March 1997, which became due during the an exhibit, the trial court was not authorized to take it into account. (Bastida vs. Menzi & Co.
pendency of the case in view of the introduction of evidence of their maturity during the [1933], 58 Phil., 188.) But in none of these cases or in any other case have we held that if a
trial. right of action did not exist when the original complaint was filed, one could be created by
filing an amended complaint. In some jurisdictions in the United States what was termed an

59
imperfect cause of action could be perfected by suitable amendment (Brown vs. Galena Under Article 1253 of the Civil Code, if the debt produces interest, payment of the principal
Mining & Smelting Co., 32 Kan., 528; Hooper vs. City of Atlanta, 26 Ga. App., 221) and this is shall not be deemed to have been made until the interest has been covered. In this case, the
virtually permitted in Banzon and Rosauro vs. Sellner ([1933], 58 Phil., 453); Asiatic private respondent would not have signed the receipts describing the payments made by the
Potroleum [sic] Co. vs. Veloso ([1935], 62 Phil., 683); and recently in Ramos vs. Gibbon (38 petitioner as capital repayment if the obligation to pay the interest was still subsisting. The
Off. Gaz., 241). That, however, which is no cause of action whatsoever cannot by amendment receipts, as well as private respondents summary of payments, lend credence to petitioners
or supplemental pleading be converted into a cause of action: Nihil de re accrescit ei qui nihil claim that the payments were for the principal loans and that the interests on the three
in re quando jus accresceret habet. consolidated loans were waived by the private respondent during the undisputed
renegotiation of the loans on account of the business reverses suffered by the petitioner at
We are therefore of the opinion, and so hold, that unless the plaintiff has a valid and the time.
subsisting cause of action at the time his action is commenced, the defect cannot be cured or
remedied by the acquisition or accrual of one while the action is pending, and a There was therefore a novation of the terms of the three promissory notes in that the
supplemental complaint or an amendment setting up such after-accrued cause of action is interest was waived and the principal was payable in monthly installments of US$750.
not permissible. (Emphasis ours). Alterations of the terms and conditions of the obligation would generally result only in
modificatory novation unless such terms and conditions are considered to be the essence of
Hence, contrary to the holding of the trial court and the Court of Appeals, the defect of lack the obligation itself.[25] The resulting novation in this case was, therefore, of the
of cause of action at the commencement of this suit cannot be cured by the accrual of a modificatory type, not the extinctive type, since the obligation to pay a sum of money
cause of action during the pendency of this case arising from the alleged maturity of two of remains in force.
the promissory notes on 7 August 1999 and 14 March 2000.
Thus, since the petitioner did not renege on its obligation to pay the monthly installments
Anent the issue of novation, this Court observes that the petitioner corporation argues the conformably with their new agreement and even continued paying during the pendency of
existence of novation based on its own version of what transpired during the renegotiation the case, the private respondent had no cause of action to file the complaint. It is only upon
of the three promissory notes in December 1997. By using its own version of facts, the petitioners default in the payment of the monthly amortizations that a cause of action would
petitioner is, in a way, questioning the findings of facts of the trial court and the Court of arise and give the private respondent a right to maintain an action against the petitioner.
Appeals.
Lastly, the petitioner contends that the Court of Appeals obstinately included its President
As a rule, the findings of fact of the trial court and the Court of Appeals are final and Infante and Vice-President Hegerty as appellants even if they did not appeal the trial courts
conclusive and cannot be reviewed on appeal to the Supreme Court[18] as long as they are decision since they were found to be not personally liable for the obligation of the petitioner.
borne out by the record or are based on substantial evidence.[19] The Supreme Court is not a Indeed, the Court of Appeals erred in referring to them as defendants-appellants;
trier of facts, its jurisdiction being limited to reviewing only errors of law that may have been nevertheless, that error is no cause for alarm because its ruling was clear that the petitioner
committed by the lower courts. Among the exceptions is when the finding of fact of the trial corporation was the one solely liable for its obligation. In fact, the Court of Appeals affirmed
court or the Court of Appeals is not supported by the evidence on record or is based on a in toto the decision of the trial court, which means that it also upheld the latters ruling that
misapprehension of facts. Such exception obtains in the present case.[20] Hegerty and Infante were not personally liable for the pecuniary obligations of the petitioner
to the private respondent.
This Court finds to be contrary to the evidence on record the finding of both the trial court
and the Court of Appeals that the renegotiation in December 1997 resulted in the reduction In sum, based on our disquisition on the lack of cause of action when the complaint for sum
of the interest from 15% to 6% per annum and that the monthly payments of US$750 made of money and damages was filed by the private respondent, the petition in the case at bar is
by the petitioner were for the reduced interests. impressed with merit.

It is worthy to note that the cash voucher dated January 1998[21] states that the payment of WHEREFORE, the petition is hereby GRANTED. The Decision of 5 September 2003 of the
US$750 represents INVESTMENT PAYMENT. All the succeeding cash vouchers describe the Court of Appeals in CA-G.R. CV No. 68109, which affirmed the Decision of 5 May 2000 of the
payments from February 1998 to September 1999 as CAPITAL REPAYMENT.[22] All these Regional Trial Court of Baguio, Branch 59, granting in part private respondents complaint for
cash vouchers served as receipts evidencing private respondents acknowledgment of the sum of money and damages, and its Resolution of 4 December 2003, which denied
payments made by the petitioner: two of which were signed by the private respondent petitioners motion for reconsideration are hereby REVERSED and SET ASIDE. The complaint
himself and all the others were signed by his representatives. The private respondent even docketed as Civil Case No. 4282-R is hereby DISMISSED for lack of cause of action.
identified and confirmed the existence of these receipts during the hearing. [23] Significantly,
cognizant of these receipts, the private respondent applied these payments to the three No costs.
consolidated principal loans in the summary of payments he submitted to the court.[24]
SO ORDERED.

60
G.R. No. 86956 October 1, 1990 sustained the Court of First Instance and finally in the Supreme Court where the matter was
laid to rest with the High Court giving the final imprimatur to the admission.
SHOEMART, INC., petitioner,
vs In its answer to the supplemental complaint, Anson raised the defenses that Shoemart's
THE HONORABLE COURT OF APPEALS and ANSON EMPORIUM CORPORATION, respondents. claim for increased rentals has been barred by estoppel, novation, statute of
frauds/limitations condonation, release and/or laches and in any event, the increase was
Ismael M. Estella for petitioner. inequitable, unconscionable and arbitrary.

Cesar C. Cruz & Partners for private respondent. The trial court ruled for Anson and dismissed the complaint in a decision dated January 2,
1987. The decision was appealed to the Regional Trial Court of Makati as Civil Case No.
16530, where respondent Judge entered a judgment of reversal (dated October 2, 1987) with
BIDIN, J.: this dispositive tenor —

This is a petition for review on certiorari of the decision ** of the Court of Appeals "WHEREFORE, premises above considered, the decision of the Metropolitan Trial Court of
promulgated on November 2, 1988 in CA-GR SP No. 13346, reinstating with modification the January 2, 1987 dismissing the case is hereby REVERSED AND SET ASIDE in this appeal and a
decision *** of the Regional Trial Court of Makati, Branch 61, in Civil Case No. 14163 entitled new judgment in its stead is hereby rendered for plaintiff/appellant SHOEMART as against
Shoemart, Inc. v. Anson Emporium Corporation. defendant/appellee ANSON, which is hereby ORDERED, as follows:

The facts, as found by respondent court, are as follows: "1. To vacate the premises situated at the 1st and 2nd Floors (Store No. 12, 13, 14 and
15) MAKATI ARCADE, Makati, Metro Manila together with all persons claiming rights under it
On August 1, 1971, Anson Emporium Corporation (Anson) leased from Shoemart, Inc. and to turn over its possession to plaintiff/appellant SHOEMART;
(Shoemart) a portion of the building known as the Makati Arcade consisting of 374 square
meters of store area at its ground floor and 678 square meters at its second floor, for a "2. To pay SHOEMART damages in the form of reasonable compensation for the use
period of two (2) years starting said date at a monthly rental of P18,842.00. It was stipulated and occupation of the subject premises during the period of unlawful detainer in the amount
in the lease that — of P34,622.00 a month from September 1, 1977 up to and including December 31, 1978; and
then the amount of P45,142.00 a month from January 1, 1979 until defendant/ appellee
after termination of the lease for any reason whatsoever, if the Owner shall permit the ANSON finally vacates the subject premises and turn over its possession to plaintiff/appellant
tenant to remain in possession of the leased premises, it is expressly understood and agreed SHOEMART; the amount of damages shall bear interest at the rate of one (1%) a month
that the lease shall be on a month to month basis in the absence of a written agreement to starting October 1, 1977 until fully paid.
the contrary.
"3. To reimburse to SHOEMART the amount of P313,493.25 representing cost of
Anson remained in possession after the two year period but on an increased rental of electricity as of March 1986 and such amount representing electricity consumed by ANSON
P34,622.00. Four years later, or on August 1, 1977, Shoemart terminated the month to computed monthly as based on electrical billings from April 1986 and every month thereafter
month lease and gave notice to Anson to vacate not later than August 31, 1977. up to the time ANSON finally vacates the subject premises;
Notwithstanding the notice and demand, Anson continued to stay on, thus the complaint for
ejectment filed with the then Municipal Court of Makati, Civil Case No. 16896. "4. To pay the amount of P5,000.00 for and as attorney's fees; and

In its answer, Anson raised the defenses that (1) the lease did not express the true intention "5. To pay the costs of the proceedings." (Rollo, pp. 35-37)
and real agreement of the parties, the true one being that its stay was guaranteed by
Shoemart for a maximum period of twenty-four (24) years and (2) assuming that the lease Petitioner filed a motion for reconsideration on the ground that the amount of damages
had expired, it still cannot be ejected until a longer term is fixed in accordance with Article awarded in the form of reasonable compensation for the use and occupation of the subject
1673 in relation to Article 1687 of the Civil Code. premises is less than what is really due. Private respondent likewise filed its motion for
reconsideration seeking the affirmance of the court a quo's appealed decision.
After proceedings (sic) were on their way, Shoemart asked for and was granted leave to file
supplemental complaint which alleged that the rental of all the tenants of the premises had On November 10, 1987, the Regional Trial Court issued an Order denying private
been increased effective January 1, 1979 to P45,142.00 which Anson refused to pay. The respondent's motion for reconsideration but petitioner's motion was granted and the
supplemental complaint became an issue in a petition for certiorari in the Court of First decision dated October 2, 1987 was amended to read as follows:
Instance of Rizal which upheld the admission, then in the Intermediate Appellate Court which

61
xxx xxx xxx court. Petitioner's motion for reconsideration seeking the reinstatement of the Regional Trial
Court's decision dated November 10, 1987 was denied. Hence, this instant petition.
the award of damages in No. 2 of the dispositive portion of the Decision of October 2, 1987 is
hereby adjusted accordingly to include the computation of increases from 1980 to 1985 and Petitioner assigns the following errors:
should read as follows:
1. THE HONORABLE COURT OF APPEALS ERRED AS A MATTER OF LAW IN LIMITING
"2. To pay SHOEMART damages in the form of reasonable compensation for the use ANSON TO PAY ONLY THE SUM OF P45,142.00 MONTHLY STARTING JANUARY 1, 1979 UNTIL
and occupation of the subject premises during the period of unlawful detainer, minus IT VACATES THE PREMISES DESPITE THE FACT THAT THERE WERE FOUR (4) RENTAL
payments made by ANSON, as follows: INCREASES EFFECTED ON THE SUBJECT PREMISES DURING THE UNLAWFUL DETAINER PERIOD
AND DURING PENDENCY OF THE INSTANT CASE WHICH INCREASES WERE PROVEN DURING
"For the period from September 1, 1977 to December 1978 covering 16 months at the rate of THE TRIAL.
P34,622.00 per month;
2. THE HONORABLE COURT OF APPEALS ERRED IN AS A MATTER OF LAW IN
"For the period from January, 1979 to September, 1980 covering 11 months at the rate of ELIMINATING THE ONE (1%) PERCENT INTEREST ON THE UNPAID DAMAGES EFFECTIVE
P45,142.00 per month; OCTOBER 1, 1977.

"For the period from October, 1980 to February 15, 1983 covering 18 months and 15 days at 3. THE HONORABLE COURT OF APPEALS ERRED AS A MATTER OF LAW IN
the rate of P59,402 per month; ELIMINATING THE AWARD FOR REIMBURSEMENT FOR COST OF ELECTRICITY CONSUMED BY
ANSON ON THE SUBJECT PREMISES. (Rollo, pp. 14-15).
"For the period from February 16, 1983 to February 28, 1985 covering 24 months and 15
days at the rate of P74,340.00 per month; In support of its first assignment of error, petitioner contends that there were four rental
increases effected during the period of unlawful detainer and during the pendency of the
"For the period from March, 1985 to present — November, 1987 covering 33 months at the case, which increases were duly proven during the trial. However, according to respondent
rate of P99,120 per month court, petitioner failed to present evidence on other approved and accepted rental increases
and since the supplemental complaint limited itself only to P45,142.00, the award of
and the sum of P99,120 a month starting December, 1987 until defendant fully vacates the damages cannot go beyond the said amount.
premises.
We note, however, that respondent court conceded the existence of other evidence showing
It is understood that the above amount shall bear interest at the rate of one (1%) percent a that other tenants of petitioner occupying the Makati Arcade paid rentals over and above the
month starting October 1, 1977 until fully paid. (Rollo, pp. 134-135) last figure or rental increase subject of the supplemental complaint. Nevertheless, it held
that the imposition of higher damages cannot be made because of the limit set by
On appeal, respondent court issued the assailed judgment dated November 2, 1988, which petitioner's supplemental complaint and the absence of evidence regarding the rental
while affirming the ejectment of private respondent from the premises, reduced the amount increases approved by its board of directors and their acceptance by private respondent
of damages awarded as reasonable compensation for the use and occupation of the (Rollo, p. 48).
premises. The decretal portion of the said decision reads:
Contrary to the conclusion of respondent court, petitioner's recovery is not limited by the
IN VIEW OF THE FOREGOING CONSIDERATIONS, the decision dated October 2, 1987 is amount of P45,142.00 prayed for in the supplemental complaint as increased rental effective
reinstated except for the portion (1) awarding SHOEMART interests of one (1%) percent a January 1, 1979. This is not a case of a complaint subsequently amended, the effect of which
month starting October 1, 1987 and (2) awarding SHOEMART for reimbursement for cost of is to render the original complaint abandoned or inexistent and let the amendment take
electricity, REVERSING and SETTING ASIDE in the process the order dated November 10, 1987 form as the sole substitute upon which the case stands for trial. On the other hand, a
insofar as it increased the award for reasonable compensation for the use and occupation of supplemental complaint or pleading supplies deficiencies in aid of an original pleading, not to
the premises, insofar as it awarded interest and insofar as items therein that are inconsistent entirely substitute the latter. A perusal of the original complaint shows that it prayed, among
with this decision. (Rollo, p. 46) others, that the defendant (private respondent) be ordered to pay plaintiff (petitioner) the
monthly rental of P34,622.00 "and all other rentals and charges that may be due until such
Both parties filed their respective motions for reconsideration. Private respondent sought time that defendant . . . shall have vacated the premises" (Rollo, p. 52). Petitioner, therefore,
the correction of the clerical error regarding date of the effectivity of the one (1%) percent did not foreclose its right to demand increased rentals that may be recovered expressed in
interest from October 1, 1987, to October 1, 1977. Said motion was granted by respondent terms of the fair rental value or the reasonable compensation for the use and occupation of
the real property (Felisilda v. Villanueva, 139 SCRA 431 [1985]; citing Sparrevohn v. Fisher, 2

62
Phil. 676; Castuares v. Bayona, 106 Phil. 340). This is so because, unlike in an amended 2, Rule 9). But this is not all. As found by the Regional Trial Court, private respondent did not
complaint, the original complaint exists side by side with the supplemental complaint. In the controvert the evidence submitted by petitioner in determining the fair rental value of the
case at bar, the supplemental pleading merely served to aver supervening facts which were premises including those imposed on all other tenants of petitioner occupying the Makati
then not ripe for judicial relief when the original pleading was filed. As aforesaid, Arcade (Rollo, p. 133). It is only when the rental demanded is clearly exorbitant would the
supplemental pleadings are meant to supply deficiencies in aid of the original pleading, and courts interfere as a matter of equity. If, indeed, the rental increases were unconscionable,
not to dispense with the latter (Pasay City Government v. CFI of Manila, Br. X, 132 SCRA 156 respondent should have at least presented evidence to substantiate its claim. This is because
[1984]; British Traders' Insurance Co., Ltd. v. Commissioner of Internal Revenue, 13 SCRA 719 the burden of proof to show that the rental demanded is unconscionable or exorbitant rests
(1965]). upon private respondent as the lessee (Vda. de Roxas v. CA, 63 SCRA 302 [1975]). Private
respondent failed to discharge its burden when it omitted to present any evidence at all on
Furthermore, failure of petitioner in the case at bar to amend its complaint or file additional what it considers is the fair rental value other than what were submitted by petitioner. As a
supplemental pleadings to allege subsequent rental increases is of no moment. Records matter of fact, all the other tenants of petitioner in the Makati Arcade did not question the
indicate that during the trial, petitioner presented evidence, without objection of private reasonableness of the rental increases and paid the same.
respondent, showing that during the pendency of this case, there were four (4) rental
increases effected on the subject premises as follows: As regards the imposition of one (1%) percent interest on unpaid rentals, respondent court
committed no error in eliminating the same not only because it was not prayed for in the
1. The sum of P45,142.00 a month from January 1979 to September 1980 (Exh. "F-1"); complaint but also because Art. 1956 (Civil Code) so provides — "(n)o interest shall be due
unless it has been expressly stipulated in writing". While the one (1%) percent interest on
2. The sum of P59,402.00 a month from October 1980 to February 15, 1983 (Exh. "F- delayed payment of rentals may have been provided in the original written contract of lease,
2"); it must be noted that said contract has already been terminated as of August 1, 1973. By the
time petitioner filed its complaint for ejectment in 1977, there was no longer any written
3. The sum of P74,340.00 a month from February 16, 1983 to February 28,1985 (Exh. contract to speak of, much less a written stipulation on payment of interest.
"F-3"); and
Finally, petitioner Shoemart assails the decision of the Court of Appeals excluding the award
4. The sum of P99,040.00 a month from March, 1985 to the present (Exh. "F-4"); of cost of electricity consumed in the premises on the ground that the claim for
Actually, up to January 31, 1989 when private respondent vacated vacated the leased reimbursement may be filed in another action before the proper forum. In Felisilda vs.
premises. Villanueva (139 SCRA 431 [1985]), we have repeatedly held that the only damage that can be
recovered in an ejectment suit is the fair rental value or the reasonable compensation for the
In view of the failure of private respondent to object to the presentation of evidence showing use and occupation of the real property. Other damages must be claimed in an ordinary
that there were four (4) rental increases on the subject premises although three (3) of said action.
increases are not alleged in the pleadings, judgment may be rendered validly as regards the
said increases or issues which shall be considered as if they have been raised in the pleadings WHEREFORE, the decision of the Court of Appeals dated November 2, 1988 is REVERSED and
(I Moran, p. 377, 1979 ed.). Thus, section 5, Rule 10 provides: SET ASIDE. The decision of the Regional Trial Court dated November 10, 1987 is Reinstated
with the modification that the award of 1% interest starting October 1, 1977 and the
When issues not raised by the pleadings are tried by express or implied consent of the reimbursement of cost of electrical consumption is excluded without prejudice to the
parties, they shall be treated in all respects, as if they had been raised in the pleadings. Such institution of the proper collection case to enforce recovery and/or reimbursement of such
amendment of the pleadings as may be necessary to cause them to conform to the evidence cost for electrical consumption.
and to raise these issues may be made upon motion of any party at any time, even after
judgment; but failure to so amend does not affect the result of the trial of these issues. . . . SO ORDERED.

Private respondent contends, however, that since petitioner failed to present any resolution
of its board of directors authorizing the imposition of higher rentals over the premises and
their acceptance by private respondent, the award of damages was properly limited by
respondent court to P45,142.00 monthly rental.

The argument is untenable. An examination of respondent's answer to the complaint made


no reference to the alleged board resolution which is now being insisted upon to escape the
payment of the increased rentals. Having failed to raise the board resolution as a defense
before the trial court, private respondent is deemed likewise to have waived the same (Sec.

63
2. ID.; PROPRIETY OF THE MOTION FOR A BILL OF PARTICULARS UNDER SEC. 1, RULE
CESAR E.A. VIRATA, Petitioner, v. THE HONORABLE SANDIGANBAYAN and THE PEOPLE OF 12 OF THE REVISED RULES OF COURT IS BEYOND DISPUTE IN CASE AT BAR; REASON. — We
THE PHILIPPINES, Respondents. have carefully, scrutinized the paragraphs of the expanded Second Amended Complaint
subject of the petitioner’s motion for a bill of particulars and find the same to be couched in
Angara, Abello, Concepcion, Regala & Cruz for Petitioner. general terms and wanting in definiteness or particularity. It is precisely for this reason that
We indirectly suggested in the said decision that the petitioner’s remedy is to file a motion
The Solicitor General for Respondents. for a bill of particulars and not a motion to dismiss. Thus, the basis of the distinction made by
the respondent Sandiganbayan between the allegations in support of the first three (3)
"actionable wrongs" and those in support of the fourth is as imperceptible as it is
SYLLABUS insignificant in the light of its admission that the ruling in Tantuico possesses "a semblance of
relevance to the factual setting of the instant incident." As We see it, there exists not only a
semblance but a striking similarity in the crafting of the allegations between the causes of
1. REMEDIAL LAW; BILL OF PARTICULARS; PURPOSE. — As this Court enunciated in action against Tantuico and those against the petitioner. And, as already stated, such
Tan v. Sandiganbayan: "It is the office or function, as well as the object or purpose, of a bill of allegations are general and suffer from a lack of definiteness and particularity. As a matter of
particulars to amplify or limit a pleading, specify more minutely and particularly a claim or fact, paragraphs 2, 7, 9 and 17 — four of the five paragraphs of the complaint in Civil Case
defense set up and pleaded in general terms, give information, not contained in the pleading, No. 0035 which was resolved in Tantuico — are likewise involved in the instant case.
to the opposite party and the court as to the precise nature, character, scope, and extent of Tantuico’s applicability to the instant case is thus ineluctable and the propriety of the motion
the cause of action or defense relied on by the pleader, and apprise the opposite party of the for a bill of particulars under Section 1, Rule 12 of the Revised Rules of Court is beyond
case which he has to meet, to the end that the proof at the trial may be limited to the dispute. We also find the Sandiganbayan’s conclusion that "the matters which defendant-
matters specified, and in order that surprise at, and needless preparation for, the trial may movant seeks are evidentiary in nature and, being within his intimate or personal knowledge,
be avoided, and that the opposite party may be aided in framing his answering pleading and may be denied of admitted by him or if deemed necessary, be the subject of other forms of
preparing for trial. It has also been stated that it is the function or purpose of a bill of discovery," to be without basis as to the first aspect and gratuitous as to the second. The
particulars to define, clarify, particularize, and limit or circumscribe the issues in the case, to above disquisition’s indubitably reveal that the matters sought to be averred with
expedite the trial, and assist the court. A general function or purpose of a bill of particulars is particularity are not evidentiary in nature. Since the issues have not as yet been joined and
to prevent injustice or do justice in the case when that cannot be accomplished without the no evidence has so far been adduced by the parties the Sandiganbayan was in no position to
aid of such a bill. It is not the office of a bill of particulars to supply material allegations conclude that the matters which the. petitioner seeks are "within his intimate or personal
necessary to the validity of a pleading, or to change a cause of action or defense stated in the knowledge."
pleading, or to state a cause of action or defense other than the one stated. Also it is not the
office or function, or a proper object, of a bill of particulars to set forth the pleader’s theory
of his cause of action or a rule of evidence on which he intends to rely, or to furnish DECISION
evidential information whether such information consists of evidence which the pleader
proposes to introduce or of facts which constitute a defense or offset for the other party or
which will enable the opposite party to establish an affirmative defense not yet pleaded." DAVIDE, JR., J.:
The phrase "to enable him properly to prepare his responsive pleading . . ." in Section 1 of
Rule 12 implies not just the opportunity to properly prepare a responsive pleading but also,
and more importantly, to prepare an intelligent answer. Thus, in Tan v. Sandiganbayan, this This petition is a sequel to Virata v. Sandiganbayan 1 and Mapa v. Sandiganbayan 2 which
Court also said: The complaint for which a bill for a more definite statement is sought, need were jointly decided by this Court on 15 October 1991. 3
only inform the defendant of the essential (or ultimate) facts to enable him, the defendant to
prepare an intelligent answer . . . ." The proper preparation of an intelligent answer requires Petitioner is among the forty-four (44) co-defendants of Benjamin (Kokoy) Romualdez in a
information as to the precise nature, character, scope and extent of the cause of action in complaint filed by the Republic of the Philippines with the respondent Sandiganbayan on 31
order that the pleader may be able to squarely meet the issues raised, thereby July 1987. 4 The complaint was amended thrice, the last amendment thereto is denominated
circumscribing them within determined confines and, preventing surprises during the trial, as the Second Amended Complaint, as expanded per the Court-Approved
and in order that he may set forth his defenses which may not be so readily availed of if the Manifestation/Motion dated 8 December 1987. 5
allegations controverted are vague, indefinite, uncertain or are mere general conclusions.
The latter task assumes added significance because defenses not pleaded (save those Petitioner moved to dismiss the said case, insofar as he is concerned, on various grounds
excepted in Section 2, Rule 9 of the Revised Rules of Court and, whenever appropriate, the including the failure of the expanded Second Amended Complaint to state a cause of action.
defense of prescription) 27 in a motion to dismiss or in the answer are deemed waived. The motion was denied and so was his bid to have such denial reconsidered. He then came to
this Court via a special civil action for certiorari imputing upon the respondent

64
Sandiganbayan the commission of grave abuse ‘of discretion in, inter alia, finding that the CESAR E. A. VIRATA
complaint sufficiently states a cause of action against him. In Our aforementioned Decision of
15 October 1991, We overruled the said contention and upheld the ruling of the x x x
Sandiganbayan. However, We stated: 6

"No doubt is left in Our minds that the questioned expanded Second Amended Complaint is (par 7, at pp. 5-7).
crafted to conform to a well-planned outline that forthwith focuses one’s attention to the
asserted right of the State, expressly recognized and affirmed by the 1987 Constitution c.’From the early years of his presidency, Defendant Ferdinand E. Marcos took undue
(Section 15, Art XI), and its corresponding duty, (Bataan Shipyard & Engineering Co., Inc. v. advantage of his powers as President. All throughout the period from September 21, 1972 to
PCGG, 150 SCRA 181, 207) to recover ill-gotten wealth from the defendants named therein; February 26, 1986, he gravely abused his powers under martial law and ruled as Dictator
the alleged schemes and devises used and the manipulations made by them to amass such under the 1973 Marcos promulgated Constitution Defendant Ferdinand E. Marcos, together
ill-gotten wealth, which are averred first generally and then specifically; and the extent of the with other Defendants, acting singly or collectively, and/or in unlawful concert with one
reliefs demanded and prayed for. However, as shown above, the maze of unnecessary another, in flagrant breach of public trust and of their fiduciary obligation as public officers,
literary embellishments may indeed raise some doubts on the sufficiency of the statement of with gross and scandalous abuse of right and power and in brazen violation of the
material operative facts to flesh out the causes of action. Be that as it may, We are, Constitution and laws of the Philippines, embarked upon a systematic plan to accumulate ill-
nevertheless, convinced that the questioned pleading has sufficiently shown viable causes of gotten wealth:’ (par 9 (a) in the section of the Complaint styled ‘General Averments of
action.chanrobles.com:cralaw:red Defendants’ Illegal Acts.’ at pp. 12-13).

x x x d.’Defendants, acting singly or collectively, and/or in unlawful concert with one another, for
the purpose of preventing disclosure and avoiding discovery of their unmitigated plunder of
the National Treasury and of their other illegal acts, and employing the services of prominent
If petitioners perceive some ambiguity or vagueness therein, the remedy is not a motion to lawyers, accountants, financial experts, businessmen and other persons, deposited, kept and
dismiss. An action should not be dismissed upon a mere ambiguity, indefiniteness or invested funds, securities and other assets estimated at billions of US dollars in various
uncertainty, for these are not grounds for a motion to dismiss, but rather for a bill of banks, financial institutions, trust or investment companies and with persons here and
particulars . . . (Amaro v. Sumanguit, 5 SCRA 707) . . ."cralaw virtua1aw library abroad.’ (par. 12, in the same section ‘General Averments of Defendants’ Illegal Acts’ at p.
18)." 10
Petitioner was thus compelled to go back to the Sandiganbayan. However, insisting that he
"could not prepare an intelligent and adequate pleading in view of the general and sweeping which were attempted to be "fully describe[d]" in that "section of the complaint, styled
allegations against him in the Second Amended Complaint as expanded," 7 while at the same ‘Specific Averments of the Defendant’s Illegal Acts," 11 as follows:jgc:chanrobles.com.ph
time remaining "steadfast in his position maintaining his posture of innocence," 8 petitioner
filed on 30 January 1992 a Motion For a Bill of Particulars. 9 He alleges therein that on the "a.’Defendants Benjamin (Kokoy) Romualdez and Juliette Gomez Romualdez, acting by
basis of the general and sweeping allegations in the Second Amended Complaint, to themselves and/or unlawful (sic) concert with Defendants Ferdinand E. Marcos and Imelda R.
wit:jgc:chanrobles.com.ph Marcos, and taking undue advantage of their relationship, influence and connection with the
latter Defendant spouses, engaged in devices, schemes and strategies to unjustly enrich
"a.’The wrongs committed by Defendants, acting singly or collectively and in unlawful themselves at the expense of Plaintiff and the Filipino people, among others: (par. 14, at p.
concert with one another, include the misappropriation and theft of public funds, plunder of 19).
the nation’s wealth, extortion, blackmail, bribery, embezzlement and other acts of
corruption, betrayal of public trust end brazen abuse of power, as more fully described x x x
below, all at the expense and to the grave and irreparable damage of Plaintiff and the Filipino
people.’ (par. 2, at p. 3).
(i) Gave MERALCO undue advantage . . . (ii) with the active collaboration of Defendant
b.’The following Defendants acted as dummies, nominees or agents, by allowing themselves Cesar E. A. Virata be (sic) reducing the electric franchise tax from 5% to 2% of gross receipts
to be (sic) incorporators, directors, board members and/or stockholders of corporations and the tariff duty on fuel oil imports by public utilities from 20% to 10%, resulting in
beneficially held and/or controlled by Defendants Benjamin (Kokoy) Romualdez, Ferdinand E. substantial savings for MERALCO but without any significant benefit to the consumers of
Marcos and Imelda R. Marcos electric power and loss of million (sic) of pesos in much needed revenues to the
government;’ (par 14(b), at pp 22 and 23)
x x x’

65
(ii) ‘Secured, in a veiled attempt to justify MERALCO’s anomalous acquisition of the electric concessions, orders and/or policies prejudicial to Plaintiff’ or (ii) to be an incorporator,
cooperatives, with the active collaboration of Defendants Cesar E. A. Virata, . . . and the rest director, or member of corporations beneficially held and/or controlled by defendants
of the Defendants, the approval by Defendant Ferdinand E. Marcos and his cabinet of the so- Ferdinand Marcos, Imelda Marcos, Benjamin Romualdez and Juliette Romualdez’ in order ‘to
called ‘Three-Year Program for the Extension of MERALCO’s Services of Areas within the 60 conceal and prevent recovery of assets illegally obtained.’" 13
kilometer Radius of Manila,’ which required government capital investment amounting to
millions of pesos; (par. 14(g), at p. 25) Petitioner claims, however, that insofar as he is concerned, the "foregoing allegations . . . and
the purported illegal acts imputed to them as well as the alleged causes of actions are vague
(iii) ‘Manipulated with the support, assistance and collaboration Philguarantee officials led by and ambiguous. They are not averred with sufficient definiteness or particularity as would
Chairman Cesar E. A. Virata and the senior managers of EMMC,/PNI Holdings, Inc. led by Jose enable defendant Virata to properly prepare his answer or responsive pleading." 14 He
S. Sandejas, J. Jose M. Mantecon and Kurt S. Bachmann, Jr., among others, the formation of therefore prays that "in accordance with Rule 12 of the Rules of Court, plaintiff be directed to
Erectors Holdings, Inc., without infusing additional capital solely for the purpose of making it submit a more definite statement or a bill of particulars on the matters mentioned above
assume the obligation of Erectors, Inc. with Philguarantee in the amount of P527,387.440.71 which are not averred with sufficient definiteness or particularity." 15
with insufficient securities/collaterals just to enable Erectors, Inc. to appear viable and to
borrow more capitals (sic), so much so that its obligation with Philguarantee has reached a In its Comment, the plaintiff Republic of the Philippines opposed the motion. Replying to the
total of more than P Billion as of June 30, 1987. (par. 14(m) p. 29) opposition, petitioner cited Tantuico v. Republic 16 which this Court decided on 2 December
1991.chanrobles virtual lawlibrary
(iv) ‘The following Defendants acted as dummies, nominees and/or agents by allowing
themselves (i) to be used as instruments in accumulating ill-gotten wealth through In its Resolution promulgated on 4 August 1992, 17 the respondent Sandiganbayan (Second
government concessions, orders and/or policies prejudicial to Plaintiff, or (ii) to be Division) partially granted the Motion for a Bill of Particulars. The dispositive portion thereof
incorporators, directors or members of corporations beneficially held and/or controlled by provides:jgc:chanrobles.com.ph
Defendants Ferdinand E. Marcos, Imelda R. Marcos, Benjamin (Kokoy) Romualdez and
Juliette Gomez Romualdez in order to conceal and prevent recovery of assets illegally "WHEREFORE, premises considered, the instant ‘Motion For Bill of Particulars’, dated January
obtained: . . . Cesar E.A. Virata . . .’ (par. 17, at pp. 36-37). 30, 1992, is hereby partially granted. Accordingly, plaintiff is hereby ordered to submit to the
Court and furnish defendant-movant with a bill of particulars of the facts prayed for by the
b.’The acts of Defendants, singly or collectively, and/or in unlawful concert with one another, latter, pertaining to paragraph 17 (sic) and 18 of the Expanded Complaint, within fifteen (15)
constitute gross abuse of official and fiduciary obligations, acquisition of unexplained wealth, days from receipt hereof. Failure of plaintiff to do so would mean automatic deletion and/or
brazen abuse of right and power, unjust enrichment, violation of the Constitution and laws of exclusion of defendant-movant’s name from the said paragraphs of the complaint, without
the Republic the (sic) Philippines, to the grave and irreparable damage of Plaintiff and the, prejudice to the standing valid effect of the other specific allegations against him." 18
Filipino people’ (par. 18, at p. 40)." 12
In granting the motion with respect to paragraphs 17 and 18 of the expanded Second
the plaintiff, Republic of the Philippines, asserts four (4) alleged "actionable wrongs" against Amended Complaint — which it erroneously referred to as the Expanded Complaint — the
the herein petitioner, to wit:jgc:chanrobles.com.ph Sandiganbayan stated:jgc:chanrobles.com.ph

"a. His alleged ‘active collaboration’ in the reduction of the electric franchise tax from "In deference to the pronouncement made by the Highest Tribunal in Tantuico. We rule and
5% to 2% of gross receipts and the tariff duty of fuel oil imports by all public utilities from so hold that the foregoing allegations need further amplifications and specifications insofar
20% to 10%, which — as this Honorable Court will take judicial notice of — was effected as defendant-movant is concerned in order for him to be able to properly meet the issue
through the enactment, of Presidential Decree 551. therein . . ." 19

b. His alleged ‘active collaboration’ in securing the approval by defendant Marcos and However, in denying amplification as to the rest of the allegations, the Sandiganbayan
his Cabinet of the ‘Three-Year Program for the Extension of MERALCO’s Services to Areas declared that:jgc:chanrobles.com.ph
Within the 60-Kilometer Radius of Manila’ which — as this Honorable Court will likewise take
judicial notice of — the present government continuously sanctions to date. "Albeit We are fully cognizant of the import and effect of the Supreme Court ruling in
Tantuico, Jr. v. Republic, Et Al., supra, however, We are not prepared to rule that the said
c. His alleged ‘support, assistance and collaboration’ in the formation of Erectors case applies squarely to the case at bar to warrant an absolute ruling in defendant-movant’s
Holdings, Inc. favor. The thrust of the ruling in said case, although possessing a semblance of relevance to
the factual setting of the instant incident, does not absolutely support defendant-movant’s
d. His alleged acting as ‘dummy, nominee, and/or agent by allowing’ himself ‘(i) to be stance. As implicitly admitted by defendant-movant, there are certain specific charges
used as instrument(s) (sic) in accumulating ill-gotten wealth through government against him in the Expanded Complaint which are conspicuously absent in Tantuico, to wit: (i)

66
his alleged ‘active collaboration’ in the reduction of the electric franchise tax from 5% to 2% Sandiganbayan and forthwith directed the respondents therein to prepare and file a Bill of
of gross receipts and the tariff duty on fuel oil imports by all public utilities from 20% to 10%, Particulars embodying the facts prayed for by Tantuico; this was based on Our finding that
which was effected through the enactment of Presidential Decree 551; (ii) his ‘alleged the questioned allegations in the complaint pertaining to Tantuico "are deficient because the
collaboration’ in securing the approval by defendant Marcos and his Cabinet of the ‘Three- averments therein are mere conclusions of law or presumptions, unsupported by factual
Year Program for the Extension of Meralco’s Services to Areas Within the 60-Kilometer premises." 24
Radius of Manila’; and (iii) his alleged ‘support, assistance and collaboration’ in the formation
of Erectors Holdings, Inc. (EHI). As in the earlier case of Virata v. Sandiganbayan, We have carefully, scrutinized the
paragraphs of the expanded Second Amended Complaint subject of the petitioner’s motion
We are of the considered opinion that the foregoing charges in the Expanded Complaint are for a bill of particulars and find the same to be couched in general terms and wanting in
clear, definite and specific enough to allow defendant-movant to prepare an intelligent definiteness or particularity. It is precisely for this reason that We indirectly suggested in the
responsive pleading or to prepare for trial. Considering the tenor of the Supreme Court ruling said decision that the petitioner’s remedy is to file a motion for a bill of particulars and not a
in Tantuico, the nature and composition of the foregoing factual allegations are, to Us, more motion to dismiss. Thus, the basis of the distinction made by the respondent Sandiganbayan
than enough to meet the standards set forth therein in determining the sufficiency or between the allegations in support of the first three (3) "actionable wrongs" and those in
relevancy of a bill of particulars. Alleging the specific nature, character, time and extent of support of the fourth is as imperceptible as it is insignificant in the light of its admission that
the phrase ‘active collaboration’ would be a mere surplus age and would not serve any useful the ruling in Tantuico possesses "a semblance of relevance to the factual setting of the
purpose, except to further delay the proceedings in the case. Corollarily, any question as to instant incident." As We see it, there exists not only a semblance but a striking similarity in
the validity or legality of the transactions involved in the charges against defendant-movant the crafting of the allegations between the causes of action against Tantuico and those
is irrelevant and immaterial in the resolution of the instant incident, inasmuch as the same is against the petitioner. And, as already stated, such allegations are general and suffer from a
a matter of defense which shall have its proper place during the trial on the merits, and on lack of definiteness and particularity. As a matter of fact, paragraphs 2, 7, 9 and 17 — four of
the determination of the liability of defendant-movant after the trial proper. Furthermore, the five paragraphs of the complaint in Civil Case No. 0035 which was resolved in Tantuico —
the matters which defendant-movant seeks are evidentiary in nature and, being within his are likewise involved in the instant case. Tantuico’s applicability to the instant case is thus
intimate or personal knowledge, may be denied or admitted by him or if deemed necessary ineluctable and the propriety of the motion for a bill of particulars under Section 1, Rule 12 of
be the subject of other forms of discovery." 20 the Revised Rules of Court is beyond dispute Said section reads:jgc:chanrobles.com.ph

In short, of the four (4) actionable wrongs enumerated in the Motion for a Bill of Particulars, "SEC. 1. Motion for bill of particulars. — Before responding to a pleading or, if no
the Sandiganbayan favorably acted only with respect to the fourth. 21 responsive pleading is permitted by these rules, within ten (10) days after service of the
pleading upon him, a party may move for a more definite statement or for a bill of particulars
Not satisfied with the partial grant of the motion, petitioner filed the instant petition under of any matter which is not averred with sufficient definiteness or particularity to enable him
Rule 65 of the Revised Rules of Court contending that the Sandiganbayan acted with grave properly to prepare his responsive pleading or to prepare for trial. Such motion shall point
abuse of its discretion amounting to lack or excess of jurisdiction in not totally granting his out the defects complained of and the details, desired."cralaw virtua1aw library
Motion for a Bill of Particulars.chanrobles lawlibrary : rednad
As this Court enunciated in Tan v. Sandiganbayan:25cralaw:red
After thorough deliberations on the issues raised, this Court finds the petition to be
impressed with merit. We therefore rule for the petitioner. "It is the office or function, as well as the object or purpose, of a bill of particulars to amplify
or limit a pleading, specify more minutely and particularly a claim or defense set up and
The Sandiganbayan’s favorable application of Tantuico v. Republic of the Philippines 22 with pleaded in general terms, give information, not contained in the pleading, to the opposite
respect to the fourth "actionable wrong," or more particularly to paragraphs 17 and 13 of the party and the court as to the precise nature, character, scope, and extent of the cause of
expanded Second Amended Complaint in Civil Case No. 0035, and its refusal to apply the action or defense relied on by the pleader, and apprise the opposite party of the case which
same to the first three (3) "actionable wrongs" simply because it is "not prepared to rule that he has to meet, to the end that the proof at the trial may be limited to the matters specified,
the said case (Tantuico) applies squarely to the case at bar to warrant an absolute ruling in and in order that surprise at, and needless preparation for, the trial may be avoided, and that
defendant-movant’s favor," is quite contrived; the ratiocination: offered in support of the the opposite party may be aided in framing his answering pleading and preparing for trial. It
rejection defeats the very purpose of a bill of particulars. has also been stated that it is the function or purpose of a bill of particulars to define, clarify,
particularize, and limit or circumscribe the issues in the case, to expedite the trial, and assist
It is to be observed that Tantuico v. Republic of the Philippines also originated from Civil Case the court. A general function or purpose of a bill of particulars is to prevent injustice or do
No. 0035. Tantuico, herein petitioner’s co-defendant in the said civil case, filed a motion for a justice in the case when that cannot be accomplished without the aid of such a bill.
bill of particulars to seek the amplification of the averments in paragraphs 2, 7, 9(a), 15 and
17 of the Second Amended Complaint. The Sandiganbayan denied the motion on the ground It is not the office of a bill of particulars to supply material allegations necessary to the
that the particulars sought are evidentiary in nature. 23 This Court eventually overruled the validity of a pleading, or to change a cause of action or defense stated in the pleading, or to

67
state a cause of action or defense other than the one stated. Also it is not the office or particularity are not evidentiary in nature. Since the issues have not as yet been joined and
function, or a proper object, of a bill of particulars to set forth the pleader’s theory of his no evidence has so far been adduced by the parties the Sandiganbayan was in no position to
cause of action or a rule of evidence on which he intends to rely, or to furnish evidential conclude that the matters which the. petitioner seeks are "within his intimate or personal
information whether such information consists of evidence which the pleader proposes to knowledge."cralaw virtua1aw library
introduce or of facts which constitute a defense or offset for the other party or which will
enable the opposite party to establish an affirmative defense not yet pleaded."cralaw WHEREFORE, the instant petition is GRANTED. The Resolution of respondent Sandiganbayan
virtua1aw library of 4 August 1992, to the extent that it denied the motion for a bill of particulars with respect
to the so-called first three (3) "actionable wrongs," is SET ASIDE but affirmed as to the rest.
The phrase "to enable him properly to prepare his responsive pleading . . ." in Section 1 of Accordingly, in addition to the specific bill of particulars therein granted, respondent
Rule 12 implies not just the opportunity to properly prepare a responsive pleading but also, Republic of the Philippines, as plaintiff in Civil Case No. 0035 before the Sandiganbayan, is
and more importantly, to prepare an intelligent answer. Thus, in Tan v. Sandiganbayan, this hereby ordered to submit to the defendant (herein petitioner) in the said case, within thirty
Court also said:jgc:chanrobles.com.ph (30) days from receipt of a copy of this Decision, a bill of particulars containing the facts
prayed for by the latter insofar as the first three (3) "actionable wrongs" are concerned.
"The complaint for which a bill for a more definite statement is sought, need only inform the
defendant of the essential (or ultimate) facts to enable him, the defendant to prepare an No pronouncement as to costs.
intelligent answer . . ." 26 (Emphasis supplied).
SO ORDERED.
The proper preparation of an intelligent answer requires information as to the precise
nature, character, scope and extent of the cause of action in order that the pleader may be
able to squarely meet the issues raised, thereby circumscribing them within determined
confines and, preventing surprises during the trial, and in order that he may set forth his
defenses which may not be so readily availed of if the allegations controverted are vague,
indefinite, uncertain or are mere general conclusions. The latter task assumes added
significance because defenses not pleaded (save those excepted in Section 2, Rule 9 of the
Revised Rules of Court and, whenever appropriate, the defense of prescription) 27 in a
motion to dismiss or in the answer are deemed waived. It was, therefore, grave error for the
Sandiganbayan to state that" [a]lleging the specific nature, character, time and extent of the
phrase ‘active collaboration’ would be a mere surplus age and would not serve any useful
purpose" 28 for precisely, without any amplification or particularization thereof, the
petitioner would be hard put in meeting the charges squarely and in pleading appropriate
defenses. Nor can We accept the public respondent’s postulation that "any question as to
the validity or legality of the transactions involved in the charges against defendant-movant
is irrelevant and immaterial in the resolution of the instant incident, inasmuch as the same is
a matter of defense which shall have its proper place during the trial on the merits, and on
the determination of the liability of defendant-movant after the trial proper." 29 This is
absurd, for how may the petitioner set up a defense at the time of trial if in his own answer
he was not able to plead such a defense precisely because of the vagueness or indefiniteness
of the allegations in the complaint? Unless he pleads the defense in his answer, he may be
deprived of the right to present the same during the trial because of his waiver thereof; of
course, he may still do so if the adverse party fails to object thereto or if he is permitted to
amend his answer pursuant to Section 3, Rule 10 of the Revised Rules of Court, but that is
another thing.chanrobles.com:cralaw:red

We also find the Sandiganbayan’s conclusion that "the matters which defendant-movant
seeks are evidentiary in nature and, being within his intimate or personal knowledge, may be
denied of admitted by him or if deemed necessary, be the subject of other forms of
discovery," 30 to be without basis as to the first aspect and gratuitous as to the second. The
above disquisition’s indubitably reveal that the matters sought to be averred with

68
G.R. No. 84195 December 11, 1989 a) Actual Damages in such amount as are proven during the trial;

LUCIO C. TAN, CARMEN KHAO TAN, FLORENCIO T. SANTOS, NATIVIDAD P. SANTOS, b) Moral Damages in the amount of FIFTY BILLION (P 50,000,000,000.00) PESOS;
DOMINGO CHUA, TAN HUI NEE, MARIANO TAN ENG LIAN, ESTATE OF BENITO TAN KEE HION,
(Represented by TARCIANA C. TAN), FLORENCIO N. SANTOS, JR., HARRY C. TAN, TAN ENG c) Temperate Damages in such amount as may be determined by the Honorable Court in the
CHAN, CHUNG POE KEE, MARIANO KHAO, MANUEL KHOO, MIGUEL KHOO, JAIME KHOO, exercise of its sound discretion;
ELIZABETH KHOO, CELSO C. RANOLA, WILLIAM T. WONG, ERNESTO B. LIM, BENJAMIN T.
ALBACITA AND WILLY CO, petitioners, d) Nominal Damages in such amount as may be determined by the Honorable Court in the
vs. exercise of its sound discretion;
SANDIGANBAYAN (Second Division), and the REPUBLIC OF THE PHILIPPINES, (Represented by
the Presidential Commission on Good Government), respondents. e) Exemplary Damages in the amount of ONE BILLION (P l,000,000,000.00) PESOS;

Ocampo, Quiroz, Mina & Associates for petitioners. f) Attorney's Fees in such amount to be proven during the trial;

g) Litigation expenses in such amount as may be proven during the trial;


SARMIENTO, J.:
h) Treble judicial costs.
We give DUE COURSE to this petition filed by the petitioners . We also consider the comment
filed by the Solicitor General as the Government's answer. Plaintiff further prays for such further relief as may appear to the Honorable Court to be just
and equitable under the premises. 1
The petitioners, twenty-two in number, assail the action of the Sandiganbayan, denying their
"Motion for a More Definite Statement or a Bill of Particulars" directed against the Complaint Subsequently, the PCGG filed a "Complaint Expanded per Court-Approved Plaintiff's
filed by the Presidential Commission on Good Government (PCGG). Manifestation/Motion dated December 8,1987." That notwithstanding, the twenty-two
petitioners (the Marcoses never joined them, neither did Don Ferry nor Federico Moreno)
The Complaint, dated July 17, 1987, was filed in July, 1987, by the PCGG against the twenty- moved, as indicated above, for a bill of particulars.
two petitioners, together with the late Ferdinand Marcos, Mrs. Imelda Marcos, Don Ferry,
and Federico Moreno. The same prayed for judgment as follows: The pertinent portions of the Complaint for which a bill of particulars is sought, and insofar
as material to this petition, are hereinbelow reproduced as follows:
WHEREFORE, it is respectfully prayed that this Honorable Court render judgment adjudging
and ordering Defendants as follows: VI

29. AS TO THE FIRST, SECOND AND THIRD CAUSES OF ACTION -To return and reconvey to CAUSES OF ACTION
Plaintiff all funds and other property impressed with constructive trust in favor of Plaintiff
and the Filipino people, as well as funds and other property acquired by Defendants by abuse 16. First Cause of Action: ABUSE OF RIGHT AND POWER. - (a) Defendants, in
of right and power and through unjust enrichment; or alternatively to jointly and severally perpetrating the unlawful acts described above, committed abuse of right and power which
pay Plaintiff the value thereof with interest thereon from the date of unlawful acquisition caused untold misery, sufferings and damages to Plaintiff. Defendants violated, among
until full payment. others, Articles 19, 20, and 21 of the Civil Code of the Philippines ;

30. AS TO THE FOURTH CAUSE OF ACTION- To show to the satisfaction of this (b) As a result of the foregoing acts, Defendants acquired title to and beneficial
Honorable Court that they have lawfully acquired all such funds, assets and property which interest in funds and other property and concealed such title, funds and interest through the
are in excess of their legal net income, and for this Honorable Court to decree that the use of relatives, business associates, nominees, agents, or dummies. Defendants are,
Defendants are under obligation to account to Plaintiff with respect to all legal or beneficial therefore, jointly and severally liable to Plaintiff to return and reconvey all such funds and
interests in funds, properties and assets of whatever kind and wherever located in excess of other property unlawfully acquired by them or alternatively, to pay Plaintiff, jointly and
the lawful earnings or lawful income from legitimately acquired property. severally by way of indemnity, the damage caused to Plaintiff equivalent to the amount of
such funds or the value of other property not returned or restored to Plaintiff, plus interest
31. AS TO THE FIRST, SECOND, THIRD, FOURTH, AND FIFTH CAUSES OF ACTION TO solidarily thereon from the date of unlawful acquisition until full payment thereof.
pay Plaintiff:

69
17. Second Cause of Action: UNJUST ENRICHMENT Defendants illegally accumulated (c) In addition, Plaintiff and the Filipino people are entitled to temperate damages for their
funds and other property in violation of the laws of the Philippines and in breach of their sufferings which, by their very nature, are incapable of pecuniary estimation but which this
official functions and fiduciary obligations. Defendants, therefore, have unjustly enriched Honorable Court may determine in the exercise of its sound discretion;
themselves to the grave and irreparable damage and prejudice of Plaintiff. Defendants have
an obligation at law, independently of breach of trust and abuse of right and power and, as (d) Defendants, by reason of the above described unlawful acts, have violated and invaded
an alternative, are jointly and severally liable to return to Plaintiff such funds and other the inalienable right of Plaintiff and the Filipino people to a fair and decent way of life
property with which Defendants, in gross evident bad faith, have unjustly enriched befitting a Nation with rich natural and human resources. This basic and fundamental right of
themselves or, in default thereof, restore to Plaintiff the amount of such funds and the value Plaintiff and the Filipino people should be recognized and vindicated by awarding nominal
of the other property including those which may have been wasted, and/or lost with interest damages in an amount to be determined by the Honorable Court in the exercise of its sound
thereon from the date of unlawful acquisition until full payment thereof. discretion.

18. Third cause of Action: BREACH OF PUBLIC TRUST A public office is a public trust. By (e) By way of example and correction for the public good and in order to ensure that
committing all the acts described above. Defendants, repeatedly breached public trust and Defendants' unlawful, malicious, immoral and wanton acts are not repeated, said Defendants
the law, making them liable jointly and severally to Plaintiff. The funds and other property are solidarily liable to Plaintiff for exemplary damages .2
acquired by Defendants following, or as a result of, their breach of public trust, are deemed
to have been acquired for the benefit of Plaintiff and are, therefore, impressed with On April 14, 1988, the respondent Court promulgated a Resolution denying the petitioners'
constructive trust in favor of Plaintiff and the Filipino people. Consequently, Defendants are motion. On July 13, 1988, it issued a second one denying reconsideration.
solidarity liable to restore or reconvey to Plaintiff all such funds and property thus impressed
with constructive trust for the benefit of Plaintiff and the Filipino people. The petitioners submit, in a nutshell, that the PCGG's averments are made up of bare
generalizations, presumptuous conclusions of fact and law, and plain speculations, for which
19. Fourth Cause of action: ACCOUNTING the Commission, acting pursuant to the provisions a motion for a more definite statement or for a bill of particulars allegedly lies.
of applicable law, respectfully maintain that Defendants, acting singly or collectively, in
unlawful concert with one another, acquired funds, assets and property during the The Sandiganbayan's dispositions are as follows:
incumbency of Defendant public officers, or while acting in unlawful concert with public
officers, manifestly out of proportion to their salaries, to their other lawful income and From the foregoing it can readily be seen that We have set out fully and in detail the
income from legitimately acquired property. Consequently, they are required to show to the particulars and specifications being sought by defendants- movants in order to show in a
satisfaction of this Honorable Court that they have lawfully acquired all such funds, assets much broader perspective the factual basis relied upon to justify the relief sought in their
and property which are in excess of their legal net income, and for this Honorable Court to motion. A careful and meticulous examination thereof, as well as the pertinent portions of
decree that the Defendants are under obligation to account to Plaintiff with respect to all the Expanded Complaint (Pp. 673-692, Ibid.) readily shows that Paragraphs 1 to 9, inclusive,
legal or beneficial interests in funds, properties and assets of whatever kind and wherever fall under the headings "Nature Of The Action," "The Parties" and "Averments Common To
located in excess of the lawful earnings of lawful income from legitimately acquired property. All Causes of Action" hence, they do not constitute an inherent or integral part of the causes
of action, similarly as in Paragraphs 10 to 13 inclusive, which fall under the heading "IV.
20. Fifth Cause of Action: LIABILITY FOR DAMAGES (a) By reason of the unlawful acts set forth General Averments Of Defendants' Illegal Acts". Hence, as aptly pointed out by plaintiff, they
above, Plaintiff and the Filipino people have suffered actual damages in an amount serve merely to present the factual backdrop or scenario leading to Paragraphs 14 to 15,
representing the pecuniary loss sustained by the latter as a result of Defendants' unlawful inclusive which set out iii detail the "Specific Averments Of Defendants' Illegal Acts" and to
acts, plus expenses which Plaintiff has been compelled to incur and shall continue to incur in which latter paragraphs the motion may, therefore, be properly addressed.
its effort to recover Defendants' ill-gotten wealth all over the world, Defendants are,
therefore, jointly and severally liable to Plaintiff for actual damages and to reimburse Correlating the specific averments in Paragraphs 14 to 15, inclusive, to the five (5) Causes of
expenses for recovery of Defendants' ill-gotten wealth all over the world in such amounts as Action described in Paragraphs 16 to 20, inclusive, We are of the considered opinion that
are proven during the trial. Paragraphs 14 to 15, inclusive, of the Expanded Complaint had already supplied or provided
the specifications and particulars theretofore lacking in the original Complaint. Therein,
(b) As a result of Defendants' unlawful, malicious, immoral and wanton acts described defendants-movants herein, particularly defendants Lucio C. Tan, Willy Co, Florencio T.
above, Plaintiff and the Filipino people had, for more than twenty long years, painfully Santos, Mariano Tan Eng Lian, Domingo Chua and Mariano Khoo, together with their co-
endured and suffered and continue to endure and suffer anguish, fright, sleepless nights, defendants-movants, are alleged to have actively collaborated and willingly participated in
serious anxiety, wounded feelings and moral shock, as well as besmirched reputation and multi-varied and inter-related business/corporate/individual acts and practices involving the
social humiliation before the international community, for which Defendants are jointly and General Bank and Trust Company (now Allied Banking Corporation), the Central Bank of the
severally liable to Plaintiff and the Filipino people for moral damages; Philippines, the Asia Brewery, Inc., Fortune Tobacco Co., Shareholdings, Inc., Foremost
Farms, Inc., Himmel Industries, Inc., Grandspan Development Corporation, Silangan, Inc.,

70
Maranaw Hotel and Resorts, Corp., Sipalay Trading Corporation, The Development A motion for a bill of particulars, not a motion to dismiss, is the proper remedy against a
Corporation of the Philippines, Northern Redrying Co., Inc. and the Virginia Tobacco deficient pleading.9 In one case, 10 it was held that in that event, a motion to dismiss for
Administration. The nature, scope and consequences of such acts and practices, insofar as failure to state a cause of action should be treated as a motion for a bill of particulars. 11
they involve or affect the operations of the above-named firms, entities or corporations,
again insofar as they constitute alleged violations of plaintiffs rights and interests, are In a recent case, 12 it was held that a motion for a bill of particulars may be granted where
outlined in vivid detail, complete with names, dates, facts and figures in Paragraph 14 (a) (1- the complaint fails to state in what capacity the plaintiffs sue.
3), (b), (c), (d), (e) (1-5), (f), (g) and (h). The specific roles and participation of defendants-
movants are likewise averred in the particular sub-paragraphs which relate to the firms, The proper office of a bill of particulars is "to inform the opposite party and the court of the
entities and corporations affected. In short, each and every defendant-movant can clearly precise nature and character of the cause of action . . . the pleader has attempted to set
see where, how and why he or she is being held liable or responsible for the particular act or forth, and thereby to guide his adversary in his preparations for trial and reasonably protect
acts attributed to them, singly or collectively. 3 him against surprise at the trial." 13 It complements the rule on pleadings in general, that is,
that the complaint should consist of a "concise statement of the ultimate facts ." 14 Its
We sustain the respondent, the Sandiganbayan. admission, finally, is subject to the sound discretion of the judge, unless discretion has been
exercised with palpable abuse. 15
Under section 1, of Rule 12, of the Rules of Court, supra, thus:
It has also been held that:
SECTION 1. Motion for bill of particulars before responding to a pleading or, if no responsive
pleading is permitted by these rules, within ten (10) days after service of the pleading upon xxx xxx xxx
him, a party may move for a more definite statement or for a bill of particulars of any matter
which is not averred with sufficient definiteness or particularity to enable him properly to It is the office or function, as well as the object or purpose, of a bill of particulars to amplify
prepare his responsive pleading or to prepare for trial. Such motion shall point out the or limit a pleading, specify more minutely and particularly a claim or defense set up and
defects complained of and the details desired. pleaded in general terms, give information, not contained in the pleading, to the opposite
party and the court as to the precise nature, character, scope, and extent of the cause of
A bill of particulars becomes part of the pleadings once accepted, thus: action or defense relied on by the pleader, and apprise the opposite party of the case which
he has to meet, to the end that the proof at the trial may be limited to the matters specified,
(a) Bill a part of pleading. A bill of particulars becomes a part of the pleading which it and in order that surprise at, and needless preparation for, the trial may be avoided, and that
supplements. It shall be governed by the rules of pleading and the original shall be filed with the opposite party may be aided in framing his answering pleading and preparing for trial. It
the clerk of the court. 4 has also been stated that it is the function or purpose of a bill of particulars to define, clarify,
particularize, and limit or circumscribe the issues in the case, to expedite the trial, and assist
A seasonable motion therefor interrupts the period within which to answer: the court. A general function or purpose of a bill of particulars is to prevent injustice or do
justice in the case when that cannot be accomplished without the aid of such a bill.
(b) Stay of period to file responsive pleading- After service of the bill of particulars or of a
more definite pleading, or after notice of denial of his motion, the moving party shall have It is not the office of a bill of particulars to supply material allegations necessary to the
the same time to serve his responsive pleading, if any is permitted by these rules, as that to validity of a pleading, or to change a cause of action or defense stated in the pleading, or to
which he was entitled at the time of serving his motion, but not less than five (5) days in any state a cause of action or defense other than the one stated. Also it is not the office or
event.5 function, or a proper object, of a bill of particulars to set forth the pleader's theory of his
cause of action or a rule of evidence on which he intends to rely, or to furnish evidential
If the motion is filed beyond that period, it should rightly be denied . 6 Where it is, however, information whether such information consists of evidence which the pleader proposes to
filed on time, whether or not the movant succeeds in his motion, he, the movant, has, as introduce or of facts which constitute a defense or offset for the other party or which will
above-indicated, "the same time to serve his responsive pleading . . . as that to which he was enable the opposite party to establish an affirmative defense not yet pleaded. 16
entitled ... but not less than five (5) days in any event. 7
The complaint for which a bill for a more definite statement is sought, need only inform the
Pending the resolution of these questions, the issues of the case can not be said to have been defendant of the essential (or ultimate) facts to enable him, the defendant, to prepare an
joined, and a party's failure to attend subsequent hearings does not amount to failure to intelligent answer. 17 As we indicated, its primary objective is to apprise the adverse party of
prosecute.8 what the plaintiff wants to preclude the latter from springing a surprise attack later. Any
more "particulars", in that event, would be evidentiary in character, which must be adduced
at the trial proper.

71
It is noteworthy that in Bataan Shipyard & Engineering Co., Inc. v. Presidential Commission on of the PCGG's asseverations, the remedy, so we hold, is to deny the same in their answer for
Good Government,18 we upheld the sequestration of the Bataan Shipyard & Engineering Co., lack of "knowledge or information sufficient to form a belief as to the truth of 20 the said
Inc., upon a prima facie showing that the PCGG had a good case against the shipping firm, or averments. They can not, however, demand for any more particulars without actually making
otherwise, that: the PCGG expose its evidence unnecessarily before the trial stage.

xxx xxx xxx A reading, indeed, of paragraphs four through six, and paragraph fourteen, of the PCGG's
Complaint illustrates enough semblance of logic, as to what the Republic wants from the
1) that "(i) ill-gotten properties (were) amassed by the leaders and supporters of the petitioners. We quote:
previous regime;"
xxx xxx xxx
a) more particularly, that "(i) ill-gotten wealth (was) accumulated by former President
Ferdinand E. Marcos, his immediate family, relatives, subordinates and close associates, ... 4. Defendant LUCIO C. TAN was a business partner of Defendant Ferdinand E. Marcos.
located in the Philippines or abroad, ... (and) business enterprises and entities (came to be) Defendants Ferdinand E. Marcos and Lucio C. Tan had agreed that the former would own
owned or controlled by them, during ... (the Marcos) administration, directly or through 60% of Shareholdings, Inc., which in turn, beneficially held and/or controlled substantial
nominees, by taking undue advantage of their public office and/or using their powers, shares of Fortune Tobacco, Asia Beer Brewery, Allied Banking Corporation and Foremost
authority, influence, connections or relationship; Farms. Apart from said 60% beneficial interest of Defendant Ferdinand E. Marcos, Defendant
Lucio Tan yearly paid the former sums of money from 1980 to 1986, in exchange for
b) otherwise stated, that "there are assets and properties purportedly pertaining to former privileges and concessions which said Defendant Ferdinand E. Marcos gave Defendant Lucio
President Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their close C. Tan, as more particularly described in paragraph 13 of this Complaint. The latter,
relatives, subordinates, business associates, dummies, agents or nominees which had been Defendant Lucio C. Tan, is a resident of Quezon City and may be served with summons and
or were acquired by them directly or indirectly, through or as a result of the improper or other court processes at 30 Biak-na-Bato St., Sta. Mesa Heights, Quezon City.
illegal use of funds or properties owned by the Government of the Philippines or any of its
branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue 5. Defendants FERDINAND E. MARCOS and IMELDA R. MARCOS are spouses. They
advantage of their office, authority, influence, connections or relationship, resulting in their may be served with summons and other court processes either (i) at their last known address
unjust enrichment and causing grave damage and prejudice to the Filipino people and the at Don Mariano Marcos St., Cor. P. Guevarra Street, San Juan, Metro Manila; (ii) at 6577
Republic of the Philippines;" Kalanianaole Highway, Honolulu, Hawaii, United States of America, at which two Hawaii
addresses they now temporarily reside, even as they remain residents and citizens of the
c) that "said assets and properties are in the form of bank accounts, deposits, trust Philippines.
accounts, shares of stocks, buildings, shopping centers, condominiums, mansions,
residences, estates, and other kinds of real and personal properties in the Philippines and in 6. The following Defendants acted as dummies, nominees, or agents, by allowing themselves
various countries of the world;" and to be incorporators, directors, board members and/or stockholders of corporations held
and/or controlled by Defendants Lucio C. Tan, Ferdinand E. Marcos and Imelda R. Marcos.
2) that certain "business enterprises and properties (were) taken over by the Said Defendants enumerated below may be served with summons and other court processes
government of the Marcos Administration or by entities or persons close to former President at the respective addresses appearing opposite their names:
Marcos."19
xxx xxx xxx
It must be stressed, however, that the above conclusions are but prima facie demonstrations,
which must be proved at the trial. 14. Defendant Lucio C. Tan, by himself and/or in unlawful concert with Defendants
Ferdinand E. Marcos and Imelda R. Marcos, and taking undue advantage of his relationship
We are satisfied in this case that the PCGG has made out a sufficient complaint against the and influence with Defendant Spouses, among others:
petitioners. It was filed pursuant to Executive Order No. 1 as amended, and is to be tried on
the theory that the petitioners are guilty of accumulating ill-gotten wealth. But as we put it in (a) without sufficient collateral and for a nominal consideration, with the active
the COCOFED case, supra, and as we stated above, the sufficiency of the complaint is one collaboration, knowledge and willing participation of Defendant Willy Co, arbitrarily and
thing and the merits thereof are another. The latter is not the question before us. fraudulently acquired control of the General Bank and Trust Company which eventually
became Allied Banking Corporation, through then Central Bank Governor Gregorio Licaros, as
We also sustain the Sandiganbayan because the PCGG's complaint (as amended); from our shown by, but not limited to, the following circumstances:
vantage point, does set out allegations, however confusingly put in print, which, interrelated
to one another, are enough to support a formal civil charge. If the petitioners are not aware

72
(1) In 1976, the General Bank and Trust Company (GBTC, for short) got into financial Foremost Farms, Inc., Himmel Industries, Inc., Grandspan Development Corporation,
difficulties. The Central Bank then extended an emergency loan of P350 million to GBTC. In Silangan, Inc., and Allied Banking Corporation, with the active collaboration, knowledge and
extending this loan, the CB however took control of GBTC when the latter executed an willing participation of Defendants Carmen Khao Tan, Florencio T. Santos, Natividad N.
Irrevocable Proxy of 2/3 of GBTC's outstanding shares in favor of the CB and when 7 of the 11 Santos, Domingo Chua, Tan Hui Nee, Mariano Tan Eng Lian, Estate of Benito Tan Kee Hiong
member Board of Directors were CB nominees. Subsequently, on March 25, 1977, the (represented by Tarciana C. Tan), Florencio N. Santos, Jr., Harry C. Tan, Tan Eng Chan, Chung
Monetary Board of CB issued a Resolution declaring GBTC insolvent, forbidding it to do Poe Kee, Mariano Khoo, Manuel Khoo, Miguel Khoo, Jaime Khoo and Elizabeth Khoo, who are
business and placing it under receivership. or acted as dummy-shareholders of the Shareholdings, Inc., as well as directors in the case of
Harry Tan and Manuel Khoo, in order to prevent disclosure and recovery of illegally obtained
(2) In the meantime, a public bidding for the sale of GBTC assets and liabilities was assets. Moreover, for the same purpose, in December, 1980, said Defendants transferred to
scheduled at 7:00 P.M. on March 28, 1977. Among the conditions of the bidding were: (a) Shareholdings, Inc. their purported shares of stocks in Foremost Farms, Inc., Fortune Tobacco
submission by the bidder of Letter of Credit issued by a bank acceptable to CB to guaranty Corporation, Asia Brewery, Inc., Himmel Industries, Inc., Grandspan Development Corp., and
payment or as collateral of the CB emergency loan; and (b) a 2-year period to repay the said Silangan Holdings, Inc.
CB emergency loan. On March 29, 1977, CB thru a Monetary Board Resolution, approved the
bid of the group of Lucio Tan and Willy Co. This bid, among other things, offered to pay only P (f) caused losses in millions of pesos to the Development Bank of the Philippines
500,000.00 for GBTC assets estimated at P 688,201,301.45; Capital Accounts of P (DBP), a government lending institution, by unlawfully selling DBP's controlling interest in
103,984,477.55; Cash of P 25,698,473.00; and the takeover of the GBTC Head Office and Century Park Sheraton Hotel (Manila), owned by Maranaw Hotel and Resorts Corp., a grossly
branch offices. The required Letter of Credit was not also attached to the bid. undercapitalized company beneficially held and controlled by Lucio C. Tan, said transaction
having been facilitated with the active collaboration, knowledge and willing participation of
(3) As already stated, GBTC eventually became the Allied Banking Corporation in April, defendants Harry Tan and Don Ferry while the latter was then serving as Vice-Chairman of
1977. The defendants Lucio Tan, Willy S. Co and Florencio T. Santos are not only DBP, as shown by, but not limited to, the following facts and circumstances:
incorporators and directors but they are also the major shareholders of this new bank.
(i) Sometime in 1984, Lucio C. Tan wrote defendant Ferdinand E. Marcos informing him
(b) delivered to Defendant Spouses Ferdinand and Imelda Marcos, sometime in July, 1979 or among other things that 'new business prospect to buy out from DBP Holding" includes the
thereafter, substantial beneficial interests in shares of stock worth about P 50 million pesos Century Park Sheraton Hotel (Sheraton, for short). Apparently receiving favorable reaction
in the Asia Brewery, Inc. through dummies, nominees or agents, with the active from Marcos, Lucio Tan organized and established on October 5, 1984 the Sipalay Trading
collaboration, knowledge and willing participation of Defendants Florencio T. Santos as then Corporation (Sipalay, for short), with a capitalization of P5 million. Defendant Harry C. Tan
President, Mariano Tan Eng Lian as then Treasurer, and Domingo Chua and Mariano Khoo as became Chairman and President of the corporation.
then Directors, of the Asia Brewery, Inc. in consideration of substantial concessions which
their varied business ventures were unduly privileged to enjoy, such as but not limited to, the (2) Sipalay in a letter dated January 29, 1985 wrote defendant Don Ferry, as then Vice-
grant of dollar allocation amounting to about U.S. $ 6,934,500.00. Chairman of the DBP, offering to buy for U.S. $8.7 million 79% of the voting shares of the
Maranaw Hotel and Resorts Corp. (MHRC, for short), owned by DBP. On January 30, 1985,
(c) gave improper payments such as gifts, bribes, commissions, and/or guaranteed the DBP Board approved "in principle" the above proposal to buy.
"dividends" to said Defendant spouses in various sums, such as P 10 M in 1980, P 10 M in
1981, P 20 M in 1982, P 40 M in 1983, P 40 M in 1984, P 50 M in 1985, P 50 M in 1986, in (3) On February 26, 1985, Sipalay requested DBP to waive its requirement "to provide
consideration of Defendant Spouses continued support of Defendant Lucio Tan's diversified a comptroller pending full payment of the purchase price". Defendant Ferry agreed to this
business ventures and/or Defendant Spouses ownership or interest in said diversified waiver.
business ventures, such as Allied Banking Corporation, Asia Brewery, Inc., Fortune Tobacco
Co., Shareholdings, Inc., among others. Even earlier, Tan gave the amounts of P 11 million in (4) On March 1, 1985, DBP represented by defendant Ferry and Sipalay represented by
1975, about P 2 million in 1977, and P 44 million in 1979, among other amounts. defendant Harry C. Tan, executed an Agreement to buy and sell-DBP to sell 78.3% of its
controlling interest in MHRC to Sipalay for a consideration of U.S. $ 8.5 million with 20% of
(d) sometime in May, 1979, applied for and was granted by the Central Bank "free the purchase price as downpayment. At the same time, DBP and Sipalay also executed an
dollar allocation" in millions of US Dollars for the use and benefit of Asia Brewery Inc., such as escrow agreement which stipulated that the interest earned by the escrow account would be
for the importation of the whole machinery set up for the proposed brewery and glass for the benefit of Sipalay (rather than DBP). Defendants Ferry and Harry Tan again signed for
manufacturing plants. Defendants were major stockholders and/or in which they held their respective agency and corporation.
substantial beneficial interest;
(5) On April 22, 1985, the corresponding Deed of Sale was executed by the parties,
(e) established Shareholdings, Inc., a holding company, which in turn beneficially held and/or defendant Ferry again signing for DBP, and defendant Harry C. Tan for Sipalay. A Pledge
controlled substantial shares of stocks in Fortune Tobacco Corporation, Asia Brewery, Inc., Agreement was likewise signed on the same date, the subject shares being pledged by

73
Sipalay to DBP, and the pledge to remain in full force until the full payment of the purchase acts described above", "the foregoing acts", "all of the acts described above", "the unlawful
price or until Sipalay may have substituted as collateral a stand-by letter of credit to secure acts set forth above", and "defendants' unlawful, malicious, immoral and wanton acts
the unpaid balance. Sipalay however did not turn over the subject shares to DBP. described above".

(g) printed in or about 1981, without legal authority, BIR strips (sic) stamps worth about P7 9. What the complaint does is to compel petitioners to determine which allegations in the
billion pesos and affixed them on packs of cigarettes produced by Fortune Tobacco first fifteen paragraphs pertain to each cause of action. Petitioners are made to guess and
Corporation, in violation of Section 180 of the Internal Revenue Code of 1977, thereby speculate which allegations in the first fifteen paragraphs pertain to the "first cause of action
defrauding the Plaintiff and the Filipino people of billions of pesos in tax receipts. the "second cause of action the "third cause of action the "fourth cause of action" and the
Fifth cause of action
(h) established in May, 1985 the Northern Redrying Co., Inc. (NRCI) a Virginia Tobacco
Company, which on several instances in 1986 made importations and purchases of about 10. It is petitioners' submission that due process requires that before a defendant is required
9,607,482.9 net kilos, in excess of the ceiling set by law, with the active collaboration of to answer a complaint, a common understanding must exist among the plaintiff, the
Defendant Celso C. Ranola, William T. Wong, Ernesto B. Lim, Benjamin T. Albacita who are all defendant, and the court as to the ultimate facts comprising each cause of action. What
Directors of NRCI, and at the time of the establishment of NRCI, were employees of respondent court has done, in denying petitioners' "Motion for a More Definite Statement or
defendant Lucio Tan. Defendant Federico Moreno, as Chairman of the Virginia Tobacco a Bill of Particulars' (of the statement of the Causes of Action), is to allow a situation whereby
Administration, supervised, approved and /or permitted such importations and purchases, the plaintiff may have one understanding of the ultimate facts comprising each cause of
action, the defendants, possibly another understanding, and the court another view. Not
15. The acts of Defendants, singly or collectively, and in unlawful concert with one another, only would it be grossly unfair to compel a defendant to answer and to go to trial in such a
constitute gross abuse of official position and authority, flagrant breach of public trust and situation but would likely invite protracted, and perhaps, endless controversy on what the
fiduciary obligations, brazen abuse of right and power, unjust enrichment, violation of the issues really are. 22
Constitution and laws of the Republic of the Philippines, to the grave and irreparable damage
of Plaintiff and the Filipino people.21 We agree that the PCGG's Complaint/Expanded Complaint is garbled in many respects, but
this is no excuse for sloth on the part of the petitioners. The Sandiganbayan, furthermore,
In essence, these are what the PCGG says: has taken pains on the behest of the petitioners to interconnect, paragraph by paragraph,
the allegations of the Complaint/ Expanded Complaint in question. They, the petitioners, can
1. The petitioner Lucio Tan was Mr. Marcos' business partner; not any more be heard to insist that they are still left at a loss and in the dark. The
Complaint/Expanded Complaint is complete enough to perish fears of the PCGG pulling a
2. Through undue influence, coercion, and abuse of light they acquired shareholdings surprise subsequently.
from various firms, and built a business empire therefrom;
We therefore order the remand of the case against the twenty-two petitioners and heard
3. The remaining petitioners acted as their "dummies, nominees, or agents"; without any further delay.

4. Together with the Marcoses, they maneuvered their way into these firms and WHEREFORE, the petition is DISMISSED. Costs against the petitioners.
acquired control thereof;
SO ORDERED.
5. The same were accomplished through unacceptable machinations such as insider
trading and similar acts, in violation of existing laws;

6. They also unjustly enriched the petitioners at the expense of the Republic of the
Philippines and the Filipino people.

The foregoing, so we find, are actionable wrongs that are proper for a complaint. We can not
accept the petitioners' pleadings that:

xxx xxx xxx

8. As will be noted from the above, the ultimate facts upon which each cause of action is
based are not alleged directly and particularly. Instead, they are described as "the unlawful

74
G.R. No. 90580 April 8, 1991
2. The Honorable Court of Appeals erred in holding that the appeal of the petitioners
RUBEN SAW, DIONISIO SAW, LINA S. CHUA, LUCILA S. RUSTE AND EVELYN SAW, petitioners, in said Civil Case No. 88-44404 was confined only to the order denying their motion to
vs. intervene and did not divest the trial court of its jurisdiction over the whole case.
HON. COURT OF APPEALS, HON. BERNARDO P. PARDO, Presiding Judge of Branch 43,
(Regional Trial Court of Manila), FREEMAN MANAGEMENT AND DEVELOPMENT The petitioners base their right to intervene for the protection of their interests as
CORPORATION, EQUITABLE BANKING CORPORATION, FREEMAN INCORPORATED, SAW stockholders on Everett v. Asia Banking Corp.2 where it was held:
CHIAO LIAN, THE REGISTER OF DEEDS OF CALOOCAN CITY, and DEPUTY SHERIFF ROSALIO G.
SIGUA, respondents. The well-known rule that shareholders cannot ordinarily sue in equity to redress wrongs
done to the corporation, but that the action must be brought by the Board of Directors, . . .
Benito O. Ching, Jr. for petitioners. has its exceptions. (If the corporation [were] under the complete control of the principal
William R. Vetor for Equitable Banking Corp. defendants, . . . it is obvious that a demand upon the Board of Directors to institute action
Pineda, Uy & Janolo for Freeman, Inc. and Saw Chiao. and prosecute the same effectively would have been useless, and the law does not require
litigants to perform useless acts.

CRUZ, J.: Equitable demurs, contending that the collection suit against Freeman, Inc, and Saw Chiao
Lian is essentially in personam and, as an action against defendants in their personal
A collection suit with preliminary attachment was filed by Equitable Banking Corporation capacities, will not prejudice the petitioners as stockholders of the corporation. The Everett
against Freeman, Inc. and Saw Chiao Lian, its President and General Manager. The petitioners case is not applicable because it involved an action filed by the minority stockholders where
moved to intervene, alleging that (1) the loan transactions between Saw Chiao Lian and the board of directors refused to bring an action in behalf of the corporation. In the case at
Equitable Banking Corp. were not approved by the stockholders representing at least 2/3 of bar, it was Freeman, Inc. that was being sued by the creditor bank.
corporate capital; (2) Saw Chiao Lian had no authority to contract such loans; and (3) there
was collusion between the officials of Freeman, Inc. and Equitable Banking Corp. in securing Equitable also argues that the subject matter of the intervention falls properly within the
the loans. The motion to intervene was denied, and the petitioners appealed to the Court of original and exclusive jurisdiction of the Securities and Exchange Commission under P.D. No.
Appeals. 902-A. In fact, at the time the motion for intervention was filed, there was pending between
Freeman, Inc. and the petitioners SEC Case No. 03577 entitled "Dissolution, Accounting,
Meanwhile, Equitable and Saw Chiao Lian entered into a compromise agreement which they Cancellation of Certificate of Registration with Restraining Order or Preliminary Injunction
submitted to and was approved by the lower court. But because it was not complied with, and Appointment of Receiver." It also avers in its Comment that the intervention of the
Equitable secured a writ of execution, and two lots owned by Freeman, Inc. were levied upon petitioners could have only caused delay and prejudice to the principal parties.
and sold at public auction to Freeman Management and Development Corp.
On the second assignment of error, Equitable maintains that the petitioners' appeal could
The Court of Appeals1 sustained the denial of the petitioners' motion for intervention, only apply to the denial of their motion for intervention and not to the main case because
holding that "the compromise agreement between Freeman, Inc., through its President, and their personality as party litigants had not been recognized by the trial court.
Equitable Banking Corp. will not necessarily prejudice petitioners whose rights to corporate
assets are at most inchoate, prior to the dissolution of Freeman, Inc. . . . And intervention After examining the issues and arguments of the parties, the Court finds that the respondent
under Sec. 2, Rule 12 of the Revised Rules of Court is proper only when one's right is actual, court committed no reversible error in sustaining the denial by the trial court of the
material, direct and immediate and not simply contingent or expectant." petitioners' motion for intervention.

It also ruled against the petitioners' argument that because they had already filed a notice of In the case of Magsaysay-Labrador v. Court of Appeals,3 we ruled as follows:
appeal, the trial judge had lost jurisdiction over the case and could no longer issue the writ of
execution. Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, this Court affirms the
respondent court's holding that petitioners herein have no legal interest in the subject
The petitioners are now before this Court, contending that: matter in litigation so as to entitle them to intervene in the proceedings below. In the case of
Batama Farmers' Cooperative Marketing Association, Inc. v. Rosal, we held: "As clearly stated
1. The Honorable Court of Appeals erred in holding that the petitioners cannot in Section 2 of Rule 12 of the Rules of Court, to be permitted to intervene in a pending action,
intervene in Civil Case No. 88-44404 because their rights as stockholders of Freeman are the party must have a legal interest in the matter in litigation, or in the success of either of
merely inchoate and not actual, material, direct and immediate prior to the dissolution of the the parties or an interest against both, or he must be so situated as to be adversely affected
corporation;

75
by a distribution or other disposition of the property in the custody of the court or an officer subordination to the main proceeding.5 It may be laid down as a general rule that an
thereof." intervenor is limited to the field of litigation open to the original parties.6

To allow intervention, [a] it must be shown that the movant has legal interest in the matter In the case at bar, there is no more principal action to be resolved as a writ of execution had
in litigation, or otherwise qualified; and [b] consideration must be given as to whether the already been issued by the lower court and the claim of Equitable had already been satisfied.
adjudication of the rights of the original parties may be delayed or prejudiced, or whether The decision of the lower court had already become final and in fact had already been
the intervenor's rights may be protected in a separate proceeding or not. Both requirements enforced. There is therefore no more principal proceeding in which the petitioners may
must concur as the first is not more important than the second. intervene.

The interest which entitles a person to intervene in a suit between other parties must be in As we held in the case of Barangay Matictic v. Elbinias:7
the matter in litigation and of such direct and immediate character that the intervenor will
either gain or lose by the direct legal operation and effect of the judgment. Otherwise, if An intervention has been regarded, as merely "collateral or accessory or ancillary to the
persons not parties of the action could be allowed to intervene, proceedings will become principal action and not an independent proceedings; and interlocutory proceeding
unnecessarily complicated, expensive and interminable. And this is not the policy of the law. dependent on and subsidiary to, the case between the original parties." (Fransisco, Rules of
Court, Vol. 1, p. 721). With the final dismissal of the original action, the complaint in
The words "an interest in the subject" mean a direct interest in the cause of action as intervention can no longer be acted upon. In the case of Clareza v. Resales, 2 SCRA 455, 457-
pleaded, and which would put the intervenor in a legal position to litigate a fact alleged in 458, it was stated that:
the complaint, without the establishment of which plaintiff could not recover.
That right of the intervenor should merely be in aid of the right of the original party, like the
Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote, plaintiffs in this case. As this right of the plaintiffs had ceased to exist, there is nothing to aid
conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or fight for. So the right of intervention has ceased to exist.
or in sheer expectancy of a right in the management of the corporation and to share in the
profits thereof and in the properties and assets thereof on dissolution, after payment of the Consequently, it will be illogical and of no useful purpose to grant or even consider further
corporate debts and obligations. herein petitioner's prayer for the issuance of a writ of mandamus to compel the lower court
to allow and admit the petitioner's complaint in intervention. The dismissal of the
While a share of stock represents a proportionate or aliquot interest in the property of the expropriation case has no less the inherent effect of also dismissing the motion for
corporation, it does not vest the owner thereof with any legal right or title to any of the intervention which is but the unavoidable consequence.
property, his interest in the corporate property being equitable or beneficial in nature.
Shareholders are in no legal sense the owners of corporate property, which is owned by the The Court observes that even with the denial of the petitioners' motion to intervene, nothing
corporation as a distinct legal person. is really lost to them.1âwphi1 The denial did not necessarily prejudice them as their rights
are being litigated in the case now before the Securities and Exchange Commission and may
On the second assignment of error, the respondent court correctly noted that the notice of be fully asserted and protected in that separate proceeding.
appeal was filed by the petitioners on October 24, 1988, upon the denial of their motion to
intervene, and the writ of execution was issued by the lower court on January 30, 1989. The WHEREFORE, the petition is DENIED, with costs against the petitioners. It is so ordered.
petitioners' appeal could not have concerned the "whole" case (referring to the decision)
because the petitioners "did not appeal the decision as indeed they cannot because they are
not parties to the case despite their being stockholders of respondent Freeman, Inc." They
could only appeal the denial of their motion for intervention as they were never recognized
by the trial court as party litigants in the main case.

Intervention is "an act or proceeding by which a third person is permitted to become a party
to an action or proceeding between other persons, and which results merely in the addition
of a new party or parties to an original action, for the purpose of hearing and determining at
the same time all conflicting claims which may be made to the subject matter in litigation.4

It is not an independent proceeding, but an ancillary and supplemental one which, in the
nature of things, unless otherwise provided for by the statute or Rules of Court, must be in

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G.R. No. 89909 September 21, 1990
On July 17, 1986, Raycor Air Control Systems, Inc. filed a motion for leave to intervene
METROPOLITAN BANK AND TRUST COMPANY, petitioner, alleging' it has a direct and immediate interest on the subject matter of the litigation such
vs. that it will either gain or lose by the direct legal operation and effect of the judgment' and
THE PRESIDING JUDGE, REGIONAL TRIAL COURT, Manila Branch 39, RAYCOR AIRCONTROL attached the 'Intervention Complaint'(Annex D, Petition, Id., pp. 49-52). There was no
SYSTEM, INC. and COURT OF APPEALS,* respondent. opposition to the motion and the intervention complaint was admitted by the lower court
per its order dated August 8, 1986. Metrobank on November 19, 1986, filed its Answer To
Balane, Barican, Cruz, Alampay Law Office for petitioner. The Intervention Complaint (Annex E, Petition, Id., pp. 53-59).

Bito, Lozada, Ortega & Castillo for private respondent. On August 3, 1987, the lower court set the case for trial on the merits on September 15, 1987
but before the date of the trial, on September 7, 1987, plaintiff Metrobank and the
defendants Uniwide and BPI Consortium, filed a motion for postponement of the scheduled
REGALADO, J.: hearing on September 15, 1987 and asked for thirty (30) days from September 15 within
which to submit a compromise agreement. On March 15, 1988, plaintiff Metrobank and
Before the Court for review on certiorari is the decision of respondent Court of Appeals in defendants BPI Consortium filed a joint motion to dismiss the complaint and on March 18,
CA-G.R. SP No. 17341, dated July 19, 1989, 1 dismissing petitioner's original action for 1988, the lower court issued the order dismissing the complaint with prejudice (Annex D to
certiorari and mandamus which seeks to set aside the order of the trial court dated June 2, Comment of Raycor Air Control System, Inc., Rollo, p. 108).
1988, allowing the intervention suit therein to proceed, and its order of January 11, 1989,
admitting the amended complaint in intervention. On April 19, 1988, private respondent filed a motion for reconsideration of the order
dismissing the complaint with prejudice, claiming it was not furnished with copy of the joint
The proceedings in the court below from which this appeal arose, as found by respondent motion for dismissal and that it received the order of dismissal only on April 4, 1988. On June
Court of Appeals, are as follows: 2, 1988, the respondent court issued the order granting the motion for reconsideration filed
by the intervenor (Annex I, Petition, Id., p. 67) which order is now subject of present petition
Petitioner Metropolitan Bank and Trust Co. (Metropolitan) in whose favor a deed of chattel for certiorari.
mortgage was executed by Good Earth Emporium, Inc. (GEE) over certain air conditioning
units installed in the GEE building, filed a complaint for replevin against Uniwide Sales, Inc. On August 2, 1988, private respondent filed a motion to admit amended complaint (Annex F,
(Uniwide, for brevity) and the BPI Investment Corporation and several other banks Intervenor's Comment, Id., p. 110) and attached the Amended Intervention Complaint
collectively called BPI-Consortium, for the recovery of the possession of the air-conditioning (Annex J, Petition, Id., pp. 68-73) to the motion. To this motion, plaintiff Metrobank filed an
units or in the event they may not be recovered, for the defendants which acquired the GEE opposition (Annex K, Petition, Id., pp. 71-76) and after the intervenor had filed their Reply
building in an auction sale, (to) be required, jointly and severally, to pay the plaintiff the (Annex L, Petition, Id., pp. 77-81) and the plaintiff a Rejoinder (Annex M, Petition, Id., pp. 82-
unpaid obligations on the units. 87), on January 11, 1989, the respondent court issued the order admitting the amended
complaint in intervention (Annex N, Petition, Id., p. 88). This is the other order which is
Per paragraph 3.11.3 of its complaint, plaintiff Metrobank alleged that the air-conditioning subject of the petition for certiorari.
units were installed on a loan of P4,900,000.00 it extended to Good Earth Emporium &
Supermarket, Inc. in its building located at Rizal Avenue, Sta. Cruz, Manila, after the land and On February 9, 1989, plaintiff Metrobank filed a motion for extension for 15 days or until
building had been foreclosed and purchased on June 3, 1983 at public auction by the February 24, 1988 within which to file its answer to the amended complaint in intervention
defendants, except Uniwide, and in order to secure repayment of the loan, a deed of chattel and the intervenor on February 17, 1989 filed an opposition to Metrobank's motion and at
mortgage was constituted over the personal properties listed in the deed which included the the same time moved that Metrobank be declared in default on the amended complaint in
airconditioning units. intervention. The respondent court granted Metrobank's motion and on February 18, 1989,
Metrobank filed its Answer to the Amended Complaint in Intervention with Counterclaim. 2
It also alleged in par. 3.11.2 of the complaint, that '(T)he loan proceeds were used by GEE to
finance the acquisition of airconditioning equipment from Reycor (sic) Air Control System, On April 14, 1989, petitioner filed a petition for certiorari and mandamus with respondent
Inc. (amounting to P4,250,000.00 and installation costs of P650,000.00) under an Agreement Court of Appeals contending that the lower court committed a grave abuse of discretion
of Sale dated 29 June 1984' (Annex A, Petition, Id., pp. 23-24). amounting to lack of jurisdiction in allowing, per its order of June 2, 1988, the intervention
suit to survive despite the dismissal of the main action and also in admitting, per its order of
The defendants filed their Answer, Uniwide on July 25, 1986 (Annex B, Petition, Id., pp. 32- January 11, 1989, the amended complaint in intervention. 3
48) and the defendants (presumably the rest of the defendants), on July 14, 1986 (Annex C,
Petition, Id., pp. 3949).

77
As earlier stated, the Court of Appeals found no merit in the petition and dismissed the same intervening petition has been filed, a plaintiff may not dismiss the action in any respect to the
on July 19, 1989. Petitioner is now before us raising the same issues and arguments. We prejudice of the intervenor.9
agree with the Court of Appeals that the lower court was innocent of any grave abuse of
discretion in issuing the orders complained of. It has even been held that the simple fact that the trial court properly dismissed plaintiff s
action does not require dismissal of the action of the intervenor. 10 An intervenor has the
The contention of petitioner that the order of the lower court, dated June 2, 1988, has the right to claim the benefit of the original suit and to prosecute it to judgment. The right
effect of allowing the intervention suit to prosper despite the dismissal of the main action cannot be defeated by dismissal of the suit by the plaintiff after the filing of the petition and
obviously cannot be upheld. notice thereof to the other parties. A person who has an interest in the subject matter of the
action has the right, on his own motion, to intervene and become a party to the suit, and
There is here no final dismissal of the main case. The aforementioned order of the lower even after the complaint has been dismissed, may proceed to have any actual controversy
court has the effect not only of allowing the intervention suit to proceed but also of vacating established by the pleadings determined in such action. The trial court's dismissal of plaintiffs
its previous order of dismissal. The reinstatement of the case in order to try and determine action does not require dismissal of the action of the intervenor. 11
the claims and rights of the intervenor is proper. The joint motion of therein plaintiff and the
original defendants to dismiss the case, without notice to and consent of the intervenor, has The intervenor in a pending case is entitled to be heard like any other party. 12 A claim in
the effect of putting to rest only the respective claims of the said original parties inter se but intervention that seeks affirmative relief prevents a plaintiff from taking a voluntary dismissal
the same cannot in any way affect the claim of private respondent which was allowed by the of the main action. 13 Where a complaint in intervention was filed before plaintiff's action
court to intervene without opposition from the original parties. A resume of pertinent rulings had been expressly dismissed, the intervenor's complaint was not subject to dismissal on the
on the matter would be in order. ground that no action was pending, since dismissal of plaintiffs action did not affect the
rights of the intervenor or affect the dismissal of intervenor's complaint. 14 An intervenor's
Intervention is defined as "a proceeding in a suit or action by which a third person is petition showing it to be entitled to affirmative relief will be preserved and heard regardless
permitted by the court to make himself a party, either joining plaintiff in claiming what is of the disposition of the principal action. 15
sought by the complaint, or uniting with defendant in resisting the claims of plaintiff, or
demanding something adversely to both of them; the act or proceeding by which a third As we ruled in Camacho vs. Hon. Court of Appeals, et al., 16 the rationale whereof is clearly
person becomes a party in a suit pending between others; the admission, by leave of court, applicable to the present controversy-
of a person not an original party to pending legal proceedings, by which such person
becomes a party thereto for the protection of some right of interest alleged by him to be There is no question that intervention is only collateral or ancillary to the main action. Hence,
affected by such proceedings." 4 it was previously ruled that the final dismissal of the principal action results in the dismissal
of said ancillary action. The main action having ceased to exist, there is no pending
Any person who has or claims an interest in the matter in litigation, in the success of either of proceeding whereon the intervention may be based. In the case at bar, however, there was
the parties to an action, or against both, may intervene in such action, and when he has no such final or complete dismissal but rather an approval of a compromise agreement which
become a party thereto it is error for the court to dismiss the action, including the was embodied in what was specifically designated as a 'Partial Decision' affecting only the
intervention suit on the basis of an agreement between the original parties to the action. Any interests of herein petitioner and the defendant in said case but not those of her co-plaintiff
settlement made by the plaintiff and the defendant is necessarily ineffective unless the municipality and the intervenor. The clear intent of the court below in making the partial
intervenor is a party to it. 5 decision is to make a reservation to determine the rights of the intervenor and, presumably,
the plaintiff municipality. There may be nothing much left to be done with respect to the
By the very definition of "intervention," the intervenor is a party to the action as the original main case but as far as the proceedings in the trial court are concerned, the controversy
parties and to make his right effectual he must necessarily have the same power as the therein has not been fully settled and the disposition of the case is definitely incomplete.
original parties, subject to the authority of the court reasonably to control the proceedings in
the case.6 Moreover, to require private respondent to refile another case for the settlement of its claim
will result in unnecessary delay and expenses and will entail multiplicity of suits and,
Having been permitted to become a party in order to better protect his interests, an therefore, defeat the very purpose of intervention which is to hear and determine at the
intervenor is entitled to have the issues raised between him and the original parties tried and same time all conflicting claims which may be made on the subject matter in litigation, and to
determined.7 He had submitted himself and his cause of action to the jurisdiction of the expedite litigation and settle in one action and by a single judgment the whole controversy
court and was entitled to relief as though he were himself a party in the action.8 among the persons involved. 17

After the intervenor has appeared in the action, the plaintiff has no absolute right to put the On the propriety of the order dated January 11, 1988, admitting private respondent's
intervenor out of court by the dismissal of the action. The parties to the original suit have no amended complaint in intervention, we sustain respondent Court of Appeals in upholding the
power to waive or otherwise annul the substantial rights of the intervenor. When an same. Incidentally, it will be recalled that petitioner was granted the opportunity to file, as it

78
did file, its answer to the amended complaint in intervention and it even interposed a WHEREFORE, finding no reversible error, the petition is DENIED and the judgment of
counterclaim in the process. respondent Court of Appeals is hereby AFFIRMED.

Now, the granting of leave to file an amended pleading is a matter particularly addressed to SO ORDERED.
the sound discretion of the trial court and that discretion is broad, subject only to the
limitations that the amendments should not substantially change the cause of action or alter
the theory of the case or that it was made to delay the action. 18 Once exercised, that
discretion will not be disturbed on appeal, except in case of abuse thereof. 19

In the case at bar, a reading of the amended complaint in intervention shows that it merely
supplements an incomplete allegation of the cause of action stated in the original complaint
so as to submit the real matter in dispute. Contrary to petitioner's contention, it does not
substantially change intervenor's cause of action or alter the theory of the case, hence its
allowance is in order.

As aptly stated by the Court of Appeals:

In both the Intervention Complaint and the Amended Complaint in Intervention, the private
respondent seeks the payment to it of the amount of P150,000.00 which should have been
paid to it from out of the P650,000.00 which the petitioner as plaintiff in CC 86-3618 had
referred to in pars. 3.11.2 and 3.11.3 of its complaint as cost of installation of the
airconditioning units under the agreement of sale (between plaintiff Metrobank and GEE
Inc). dated June 29, 1984 and so basically, the Amended Complaint In Intervention did not
really detract or depart from that basic claim. 20

In determining whether a different cause of action is introduced by amendments to the


complaint, what is to be ascertained is whether the defendant shall be required to answer
for a liability or legal obligation wholly different from that which was stated in the original
complaint. An amendment will not be considered as stating a new cause of action if the facts
alleged in the amended complaint show substantially the same wrong with respect to the
same transaction, or if what are alleged refer to the same matter but are more fully and
differently stated, or where averments which were implied are made in expressed terms, and
the subject of the controversy or the liability sought to be enforced remains the same. 21

The courts should be liberal in allowing amendments to pleadings to avoid multiplicity of


suits and in order that the real controversies between the parties are presented, their rights
determined and the case decided on the merits without unnecessary delay. 22 This liberality
is greatest in the early stages of a lawsuit, 23 especially in this case where the amendment to
the complaint in intervention was made before trial of the case thereby giving petitioner all
the time allowed by law to answer and to prepare for trial.

On the issue regarding the propriety of the intervention, suffice it to state that petitioner's
failure to interpose a timely objection when the motion for leave to intervene was filed by
private respondent bars the former from belatedly questioning the validity of the same on
appeal. In any event, the trial court duly considered the circumstances and granted the
motion, which order was not seasonably questioned by petitioner thus evincing its approval
of the court's action.

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