G.R. No.

191225 October 13, 2014

ZARSONA MEDICAL CLINIC, Petitioner,

vs.
PHILIPPINE HEALTH INSURANCE CORPORATION, Respondent.

DECISION

PEREZ, J.:

Before the Court is a petition for review on certiorari under Ruic 45 of the Rules of Court, questioning
the 28 January 20091 and 7 December 20092 Resolutions of the Court of Appeals in CA-G.R. SP No.
02489-MIN.

A complaint was filed against petitioner Zarsona Medical Clinic (ZMC) for violation of Section 149 of
the Revised Implementing Rules and Regulations of Republic Act No. 7875 or the National Health
Insurance Act of 1995. Section 149 penalizes any health care provider that increases the period of
actual confinement of any patient with revocation of accreditation.

ZMC filed a claim withthe Philippine Health Insurance Corporation (Philhealth) on the confinement of
National Health Insurance Program (NHIP) member Lorna M. Alestre (Alestre) on 10-12 August
2003. Said claim was denied on the ground of "extended confinement." It was stated on the claim
form that Alestre was admitted to ZMC on 6 August 2003 and was discharged on 12 August 2003.
Itwas also revealed in her Salaysay3 dated 12 January 2004 that Alestre’s actual confinement at
ZMC was on 10-11 August 2003. Alestre, who is a teacher at Rizal Elementary School, was found to
have reported for work on 12 August 2003.

In defense of ZMC, Dr. Sylvia Bragat (Dr. Bragat), its Medical Director, stated that ZMC’s
Midwife/Clerk Jennifer R. Acuram (Acuram) committed an honest mistake when she wrote 6-12
August 2003 as the confinement period in the claim form. Dr. Bragat asserted that the hospital had
in fact claimed only for two (2) days. Acuram acknowledged her mistake in her Affidavit of
Explanation.4

ZMC also presented an Affidavit of Explanation5 dated 21 January 2005 from Alestre recanting her
previous Salaysay. Alestre explained that the previous statement she gave does not reflect the truth
because she was protecting herself when she logged-in at the school’s time record on 12 August
2003 when she was supposedly still confined at ZMC. Alestre narrated that she and her son were
admitted at ZMC on 10 August 2003 at around 1:30 p.m. and was discharged on 12 August 2003. In
the morning of 12 August 2003, after her attending physician went to check on her, she managed to
slip out of the hospital. She proceeded to the school, which was a mere ten minute drive away from
ZMC.She reported for work and came back to the hospital at noon to take her medicines and look
after her child. Thereafter, she again wentback to the school and at about 1:30 p.m., she asked
permission from the school principal that she needed to go back to the hospital. She then went back
to ZMC to attend to her child and process her discharge papers. At around 2:00 p.m., she finally
came back to the school.

Dr. Ariel dela Cruz, attending physician of Alestre, confirmed that he ordered Alestre’s discharge
inthe morning of 12 August 2003.6

On 12 December 2007, ZMC was found liable for the charge of "Extending Period of Confinement" in
violation of Section 149 of the Revised Rules and Regulations of Republic Act No. 7875 and was
meted the penalty of suspension from participating in the NHIP for a period of three (3) months and
a fine of ₱10,000.00.

While Health Insurance Arbiter Michael Troy Polintan considered the admission date of 6 August
2003 reflected in Alestre’s clinical record as a mere clerical error, he refused to believe Alestre’s
claim that she was discharged only on 12 August 2003 but onthat day, she was travelling back and
forth from hospital tothe school where she teaches. The Philhealth Arbiter gave more evidentiary
weight to the signature ofAlestre in the school’s attendance logbook which established the fact that
she reported for work on 12 August 2003.

ZMC appealed but on 24 July 2008, the Philhealth Board of Directors (the Board) issued Philhealth
Board Resolution No. 1151, Series of 2008 dismissing the appeal and affirming the 12 December
2007 Decision of the Philhealth Arbiter.

The Board ruled that the contentsof the Affidavit of Explanation dated 3 May 2005executed by
Alestre is "too good to be true" because "in the first place, she has stated in detail all her acts from
7:17 a.m. to 8:15 [a.m.], 9:30 [a.m.], 9:50 [a.m.], 12:00 [noon]; 12:55 p.m., 1:30 p.m., 1:50 p.m., 2:15
p.m. and 2:30 p.m. The recollection of all these times after 22 months is not only fantastic but
likewise incredible."7 Moreover, the Board also noted that Alestre could not possibly be in ZMC and
in the school at the same time on 12 August 2003 while her son was still confined at the hospital.

ZMC filed a petition for review withthe Court of Appeals putting in the forefront of its arguments
Alestre’s Affidavit of Explanation. ZMC admitted to Alestre’s recantation but inits defense, ZMC
emphasized that the Affidavit, being notarized and executed under oath, should weigh more than the
Salaysay, which was not so. ZMC added that Alestre’s retraction rang true because she was willing
to incriminate herself in exchange for telling the truth.

Acting on the petition, the Court of Appeals issued the 4 September 2008 Resolution, which reads:

In the greater interest of substantial justice, petitioner is directed to RECTIFY within five (5) days
from notice, the following deficiencies in its petition: (1) failure to attach the Special Power of
Attorney executed by the petitioner Zarsona Medical Clinicin favor of Ma. Irene M. Hao, authorizing
the latter to execute the verification and certification of nonforum shopping; (2) failure of the
petitioner to attach the certified true copy of the assailed decision of the Board of Directors of the
Philippine Health Insurance Corporation as required under Rule 43, Section 6(c) of the Revised
Rules of Court; (3) failure of the petitioner’s counsel, Atty. John Tracy F. Cagas, to indicate the dates
and places of issuance of his IBP and PTR Receipts as well as his Roll of Attorneys Number.

Further action on the petition isheld in abeyance pending the petitioner’s compliance on these
matters.8

On 30 October 2008, ZMC filed its Compliance, attaching thereto the plain copies of the Official
Receipts of Atty. John Tracy F. Cagas’ Integrated Bar of the Philippines dues and Professional Tax
Receipts showing the dates and places of issuance thereof, his roll number, a certified true copy of
the assailed Decision dated 24 July 2008, and a Special Power of Attorney (SPA) dated 5 February
2001 executed by Dr. Leandro Zarsona, Jr. (Dr. Zarsona) in favor of Dr. Bragat and William Bragat.

On 28 January 2009, the Court of Appeals dismissed the petition for failure on the part of ZMC to
attach a valid SPA. The appellate court found the SPA defective on the ground that it does not
explicitly authorize Dr. Bragat to sign and execute the required verification and certification of
nonforum shopping in this case. The appellate court noted that the powers granted to Dr. Bragat
pertain only to her administrative functions as Medical Director of ZMC.
ZMC moved for reconsideration but itwas denied for lack of merit on 7 December 2009. In his
Dissent, Court of Appeals Associate Justice Ruben Ayson believed that ZMC should be given the
opportunity to rectify any defect or infirmity in the petition pursuant to the preference on liberal
construction of the Rules of Court over strict construction.9

Hence, this petition for review with the following assignment of errors:

1. THE COURT OF APPEALS ERRED IN RULING THAT THE SPECIAL POWER OF

ATTORNEY (SPA) EXECUTED IN FAVOR OF DR. SYLVIA P. BRAGAT WAS
INSUFFICIENT TO COVER THE AUTHORITY GRANTED UPON HER TO SIGN THE
VERIFICATION AND CERTIFICATION OF NON-FORUM SHOPPING OF THIS INSTANT
CASE.

2. THE COURT OF APPEALS ERRED IN DISMISSING THIS INSTANT CASE BY

DISREGARDING THE MERITS THEREOF.10

ZMC insists that the SPA provided that the Attorney-in-fact can make, execute and sign any
contract, documents or all other writing of whatever kind and nature which are necessary to the
power granted to it which is to represent, process, follow-up, transact and facilitate claims in
Philhealth. This also covers the execution of verification and certification of non-forum shopping.
ZMC then asserts that it will not gain anything in extending the period of confinement and reiterates
that its clerk committed a mistake in entering the exact period of confinement.

At the outset, the issues revolve on the sufficiency of the SPA authorizing Dr. Bragat to sign the
verification and certification of non-forum shopping in the petition filed before the Court of Appeals.

Verification of a pleading is a formal, not jurisdictional, requirement intended to secure the assurance
that the matters alleged in a pleading are true and correct. Thus, the court may simply order the
correction of unverified pleadings or act on them and waive strict compliance with the rules. It is
deemed substantially complied with when one who has ample knowledge to swear to the truth of the
allegations in the complaint or petition signs the verification, and whenmatters alleged inthe petition
have been made in good faith orare true and correct.11

As to certification against forum shopping, non-compliance therewith or a defect therein, unlike in

verification, is generally not curable by its subsequent submission or correction thereof, unless there
is a need to relax the Rule on the ground of "substantial compliance" or presence of "special
circumstances or compelling reasons."12 Rule 7, Section 5 of the Rules of the Court, requires that the
certification should be signed by the "petitioner or principal party" himself. The rationalebehind this is
"because only the petitioner himself has actual knowledge of whether or not he has initiated similar
actions or proceedings indifferent courts or agencies."13

In Lim v. The Court of Appeals, Mindanao Station,14 we reiterated that the requirements of verification
and certification against forum shopping are not jurisdictional. Verification is required to secure an
assurance that the allegations in the petition have been made in good faith or are true and correct,
and not merely speculative. Non-compliance with the verification requirement does not necessarily
render the pleading fatally defective, and is substantially complied with when signed by one who has
ample knowledge of the truth of the allegations in the complaint or petition, and when matters
alleged in the petition have been made in good faith orare true and correct. On the other hand, the
certification against forum shopping is required based on the principle that a party-litigantshould not
be allowed to pursue simultaneous remedies in different fora. While the certification requirement is
obligatory, non-compliance or a defect in the certificate could be cured by its subsequent correction
or submission under special circumstances or compelling reasons, or on the ground of "substantial
compliance."15

In both cases, the submission of an SPA authorizing an attorney-infact to sign the verification and
certification against forum-shopping in behalf of the principal party is considered as substantial
compliance with the Rules.

In this case, Philhealth found the SPA defective.

The SPA granted by Dr. Zarsona tohis attorneys-in-fact, Dr. Bragat and William Bragat, authorizes
the latter to do the following:

A) To represent(,) process, follow up, transact and facilitate all claims, benefits and privileges
belonging to or owing to Zarsona Medical Clinic in the Philippine Health Insurance
Corporation, Department of Health and in other agencies, may it be private or government;

B) To receive, withdraw, and encash any check or checks belonging to or in the name of
Zarsona Medical Clinic;

C) To make, execute, and sign any contract, documents or all other writings of whatever kind
and nature which are necessary to the foregoing powers.16

Indeed, a reading of the SPA reveals that the powers conferred by Dr. Zarsona to his attorneys-in-
fact pertain to administrative matters. The phrase "claims, benefits and privileges belonging to or
owing to Zarsona Medical Clinic" clearly does not include the filing of cases before the courts or any
quasi-judicial agencies. The term"claims" in particular refers to those claims for payment of services
rendered by the hospital during a Philhealth member’s confinement. These claims are filed by the
hospital with Philhealth. Furthermore, the SPA makes no mention of any court, judicial or quasi-
judicial bodies. The enumeration of agencies in the first paragraph of the SPA, such as Philhealth
and Department of Health, refers to those agencies which are health-related. There is no explicit
authorization for Dr. Bragat to sign and execute the requirement verification and certification in this
case. At the very least, the SPA should have granted the attorneys-in-fact the power and authority to
institute civil and criminal actions which would necessarily include the signing of the verification and
certification against forum-shopping.

The defects in the SPA notwithstanding, we rule in favor of ZMC. We agree with the Dissent
registeredby Associate Justice Ruben Ayson when he suggested that ZMC should begiven the
opportunity to rectify the defects in the petition. We are aware that the Court of Appeals in its
Resolution dated 28 January 2009 had directed ZMC to submit an SPA. ZMC had in good faith
complied by submitting an SPA which it thought was sufficient and encompasses the filing of the
instant suit. Time and again, we had espoused the doctrine that provisions of the Rules of Court
should be liberally construed in order to promote their objective of securing a just, speedy and
inexpensive disposition of every action and proceeding. Otherwise put, the rule requiring a
certification of forum shopping to accompany every initiatory pleading, or the verification for that
matter "should not be interpreted with such absolute literalness as to subvert its own ultimate and
legitimate objective or the goal of all rules of procedure – which is to achieve substantial justice as
expeditiously as possible."17 While it is true that the rules of procedure are intended to promote rather
than frustrate the ends of justice, and the swift unclogging of court docket is a laudable objective, it
nevertheless mustnot be met at the expense of substantial justice. This Court has time and again
reiterated the doctrine that the rules of procedure are mere tools aimed at facilitating the attainment
of justice, rather than its frustration. A strict and rigid application of the rules must always be
eschewed when it would subvert the primary objective of the rules, that is, to enhance fair trialsand
expedite justice. Technicalities should never be used to defeat the substantive rights of the other
party. Every party-litigant must be affordedthe amplest opportunity for the proper and just
determination of his cause, free from the constraints of technicalities.18

We choose to apply liberality becauseof the substantial merit of the petition.

The petition was dismissed by the Court of Appeals purely on a procedural ground. Ordinarily,
procedure dictates that the Court of Appeals should be tasked with properly disposing the petition, a
second time around, on the merits. However, when there is enough basis on which a proper
evaluation of the merits of petitioner’s case may be had, the Court may dispense with the time-
consuming procedure of remand in order to prevent further delays in the disposition of the case.
Clearly, a remand of the instant case to the Court of Appeals would only unnecessarily prolong its
resolution which had been pending for a decade. It is already an accepted rule of procedure for us to
strive to settlethe entire controversy in a single proceeding, leaving no root or branch tobear the
seeds of future litigation. If, based on the records, the pleadings, and other evidence, the dispute can
be resolved by us, we will do so to serve the ends of justice instead of remanding the case to the
lower court for further proceedings.19

Thus, we find the petition meritorious.

ZMC was charged with extending the period of confinement punishable under Section 149 of the
Revised Implementing Rules and Regulations of Republic Act No. 7875, which provides:

Section 149. Extending Period of Confinement. — This is

committed by any health care provider who, for the purpose of claiming payment from the NHIP, files
a claim with extended period of confinement by:

a. Increasing the actual confinement of any patient;

b. Continuously charting entries in the Doctor's Order, Nurse's Notes and Observation
despite actual discharge or absence of the patients;

c. Using such other machinations that would result in the unnecessary extension of
confinement.

The foregoing offenses shall be penalized by revocation of accreditation. In addition, a

recommendation shall be submitted to the DOH for cancellation of its license, oraccreditation,
orclearance to operate, as appropriate.

The Philhealth Arbiter and the Board did not give weight to the Affidavit of Explanation submitted by
the patient herself recanting her previous statement and categorically stating that she was
discharged only on 12 August 2003.

It is an oft-repeated rule that findings of administrative agencies are generally accorded not only
respect but also finality when the decision and order are not tainted with unfairness or arbitrariness
that would amount to abuse of discretion or lack of jurisdiction. The findings of facts must be
respected, so long as they are supported by substantial evidence even if not overwhelming or
preponderant.20

After an exhaustive review of the records, we find that this case warrants a departure from said rule. 1âw phi 1
We are inclined to give more credence to Alestre’s Affidavit, which is essentially a recantation of her
previous Salaysay, for the following reasons: First, Alestre has fully explained toour satisfaction why
she initially misdeclared her dates of confinement in ZMC. In her desire to report and be
compensated for one day of work, Alestre hied back and forth between school and the hospital. It is
difficultto believe that she would risk her reputation as a public schoolteacher, as well as prosecution
for violation of civil service rules, to be an abettor ofZMC. Second, Alestre truly cannot be in two
places at the same time. But her narration clearly accounts for her whereabouts on 12 August 2003.
She travelled at least 3 times to and from the hospital and school. She admitted that the school was
a mere ten-minute drive away from the hospital so she can easily traverse between the two
locations. Third, ZMC had in fact admitted to its error in indicating the dates of Alestre’s confinement
so there is no reason for ZMC to further conceal the actual days of Alestre’s confinement. Fourth,
the Salaysayis not notarized. While recantation is frowned upon and hardly given much weight in the
determination of a case, the affidavit is still a notarized document which carries in its favor the
presumption of regularity with respect to its due execution, and thatthere must be clear, convincing
and more than merely preponderant evidence to contradict the same.21

Based on the foregoing, we reverse the finding of Philhealth and hold that ZMC is not guilty of
extending the period of confinement.

WHEREFORE, the petition is GRANTED. The Resolution of the Court or Appeals in CA-G.R. SP No.
02489-MIN dismissing the petition is REVERSED and SET ASIDE. Philhcalth Board Resolution No.
1151, Series or 2008 is SET ASIDE.

SO ORDERED.

JOSE PORTUGAL PEREZ

SECOND DIVISION

METROPOLITAN BANK & TRUST COMPANY, G.R. No. 157867

Petitioner,

Present:

CARPIO, J., Chairperson,

LEONARDO-DE CASTRO,

BRION,

- versus - DEL CASTILLO, and

ABAD, JJ.
 Promulgated:

HON. SALVADOR ABAD SANTOS, Presiding

Judge, RTC, Br. 65, Makati City and MANFRED
December 15, 2009
JACOB DE KONING,

Respondents.

x--------------------------------------------------------------------------------------x

DECISION

BRION, J.:

This petition for review on certiorari,[1] seeks to reverse and set aside the decision dated November 21,
2002 and subsequent ruling on motion for reconsideration of the Court of Appeals (CA) in CA-G.R. SP No.
62325.[2] The CA decision affirmed the order of the Regional Trial Court (RTC) of Makati City, Branch
65,[3] dismissing the petition filed by Metropolitan Bank & Trust Company (Metrobank) for the issuance
of a writ of possession of a condominium unit it had previously foreclosed. This dismissal was based on
the finding that the petition contained a false certification against forum shopping.

FACTUAL ANTECEDENTS

Respondent Manfred Jacob De Koning (De Koning) obtained a loan from Metrobank in the principal
amount of Two Million, Nineteen Thousand Pesos (P2,019,000.00), evidenced by promissory note No.
TLS/97-039/382599 dated July 24, 1997. To secure the payment of this loan, De Koning executed a real
estate mortgage (REM) in favor of Metrobank dated July 22, 1996 over a condominium unit and all its
improvements. The unit is located at Unit 1703 Cityland 10 Tower 1, H.V. Dela Costa Street, Makati City,
and is covered by Condominium Certificate of Title No. 10681.

When De Koning failed to pay his loan despite demand, Metrobank instituted extrajudicial foreclosure
proceedings against the REM. Metrobank was the highest bidder at the public auction of the
condominium unit held on November 24, 1998 and a Certificate of Sale was issued in the bank's favor.
Metrobank duly registered this Certificate of Sale with the Registry of Deeds for Makati City on January
18, 2000.
The redemption period lapsed without De Koning redeeming the property. Thus, Metrobank demanded
that he turn over possession of the condominium unit. When De Koning refused, Metrobank filed on
July 28, 2000 with the RTC Makati, Branch 65, an ex parte petition for a writ of possession over the
foreclosed property, pursuant to Act No. 3135, as amended.

On August 1, 2000, the lower court issued an order setting the ex parte hearing of Metrobanks petition
and directing that a copy of the order be given to De Koning to inform him of the existence of the
proceedings.

During the scheduled ex parte hearing on August 18, 2000, De Konings counsel appeared and
manifested that he filed a motion to dismiss on the ground that Metrobanks petition violated Section 5,
Rule 7 of the Rules of Court (Rules)[4] which requires the attachment of a certification against forum
shopping to a complaint or other initiatory pleading. According to De Koning, Metrobanks petition for
the issuance of a writ of possession involved the same parties, the same issues and the same subject
matter as the case he had filed on October 30, 1998 with the RTC of Makati,[5] to question Metrobanks
right to foreclose the mortgage. De Koning also had a pending petition for certiorari with the CA,[6] which
arose from the RTC case he filed. When Metrobank failed to disclose the existence of these two pending
cases in the certification attached to its petition, it failed to comply with the mandatory requirements of
the Rules so that its petition should be dismissed.

The RTC agreed with De Koning and dismissed Metrobanks petition in its September 18, 2000 order on
the ground De Koning cited, i.e.,for having a false certification of non-forum shopping. The lower court
denied Metrobanks motion for reconsideration. Metrobank thus elevated the matter to the CA on a
petition for certiorari on January 5, 2001.

The CA affirmed the dismissal of Metrobanks petition. It explained that Section 5, Rule 7 of the Rules is
not limited to actions, but covers any initiatory pleading that asserts a claim for relief. Since Metrobanks
petition for writ of possession is an initiatory pleading, it must perforce be covered by this rule. Thus,
Metrobanks failure to disclosein the verification and certification the existence of the two cases filed by
De Koning, involving the issue of Metrobanks right to foreclose on the property, rendered the petition
dismissible.

The CA denied Metrobanks subsequent motion for reconsideration. Hence, this petition for review
on certiorari, raising the following issues:

ISSUES
I.

THE COURT OF APPEALS AND THE LOWER COURT, CONTRARY TO THE APPLICABLE DECISIONS OF THIS
HONORABLE COURT, RULED THAT THE EX PARTE PETITION FOR THE ISSUANCE OF A WRIT OF
POSSESSION IS AN INITIATORY PLEADING ASSERTING A CLAIM.

II.

THE COURT OF APPEALS, IN UPHOLDING THE RULING OF THE LOWER COURT, DELIBERATELY IGNORED
THE FACT THAT THE PETITION FOR THE ISSUANCE OF A WRIT OF POSSESSION IS EX PARTE IN NATURE.

III.

THE COURT OF APPEALS COMMITTED A MISAPPREHENSION OF FACTS.

Metrobank claims that an ex parte petition for the issuance of a writ of possession is not an initiatory
pleading asserting a claim. Rather, it is a mere incident in the transfer of title over the real property
which was acquired by Metrobank through an extrajudicial foreclosure sale, in accordance with Section
7 of Act No. 3135, as amended. Thus, the petition is not covered by Section 5, Rule 7 of the Rules and a
certification against forum shopping is not required.

Metrobank further argues that considering the ex parte nature of the proceedings, De Koning was not
even entitled to be notified of the resulting proceedings, and the lower court and the CA should have
disregarded De Konings motion to dismiss.

Lastly, Metrobank posits that the CA misapprehended the facts of the case when it affirmed the lower
courts finding that Metrobanks petition and the two cases filed by De Koning involved the same parties.
There could be no identity of parties in these cases for the simple reason that, unlike the two cases filed
by De Koning, Metrobanks petition is a proceeding ex parte which did not involve De Koning as a party.
Nor could there be an identity in issues or subject matter since the only issue involved in Metrobanks
petition is its entitlement to possess the property foreclosed, whereas De Konings civil case involved the
validity of the terms and conditions of the loan documents. Furthermore, the extra-judicial foreclosure
of the mortgaged property and De Konings petition for certiorari with the CA involved the issue of
whether the presiding judge in the civil case acted with grave abuse of discretion when he denied De
Konings motion to set for hearing the application for preliminary injunction.
De Koning, in opposition, maintains that Metrobanks petition was fatally defective for violating the strict
requirements of Section 5, Rule 7 of the Rules. As noted by both the lower court and the CA's ruling that
Metrobank failed to disclose the two pending cases he previously filed before the RTC and the CA, which
both involved the banks right to foreclose and, ultimately, the banks right to a writ of possession by
virtue of foreclosure.

De Koning also asserts that Metrobank should have appealed the lower courts decision and not filed a
special civil action for certiorari since the order being questioned is one of dismissal and not an
interlocutory order. According to De Koning, since the filing of a petition for certiorari cannot be a
substitute for a lost appeal and does not stop the running of the period of appeal, the questioned RTC
order has now become final and executory and the present petition is moot and academic.

THE COURTS RULING

We find Metrobanks petition meritorious.

Procedural Issue

Section 1, Rule 65 of the Rules, clearly provides that a petition for certiorari is available only when there
is no appeal, or any plain, speedy and adequate remedy in the ordinary course of law. A petition
for certiorari cannot coexist with an appeal or any other adequate remedy. The existence and the
availability of the right to appeal are antithetical to the availment of the special civil action for certiorari.
As we have long held, these two remedies are mutually exclusive.[7]

Admittedly, Metrobanks petition for certiorari before the CA assails the dismissal order of the RTC and,
under normal circumstances, Metrobank should have filed an appeal.

However, where the exigencies of the case are such that the ordinary methods of appeal may not prove
adequate -- either in point of promptness or completeness, so that a partial if not a total failure of
justice could result - a writ of certiorari may still be issued.[8] Other exceptions, Justice Florenz D.
Regalado listed are as follows:

(1) where the appeal does not constitute a speedy and adequate remedy (Salvadades vs. Pajarillo, et
al., 78 Phil. 77), as where 33 appeals were involved from orders issued in a single proceeding which will
inevitably result in a proliferation of more appeals (PCIB vs. Escolin, et al., L-27860 and 27896, Mar. 29,
1974); (2) where the orders were also issued either in excess of or without jurisdiction (Aguilar vs. Tan,
L-23600, Jun 30, 1970, Cf. Bautista, et al. vs. Sarmiento, et al., L-45137, Sept. 231985); (3) for certain
special consideration, as public welfare or public policy (See Jose vs. Zulueta, et al. -16598, May 31,
1961 and the cases cited therein); (4) where in criminal actions, the court rejects rebuttal evidence for
the prosecution as, in case of acquittal, there could be no remedy (People vs. Abalos, L029039, Nov. 28,
1968); (5) where the order is a patent nullity (Marcelo vs. De Guzman, et al., L-29077, June 29,
1982); and (6) where the decision in the certiorari case will avoid future litigations (St. Peter Memorial
Park, Inc. vs. Campos, et al., L-38280, Mar. 21, 1975).[9] [Emphasis supplied.]

Grave abuse of discretion may arise when a lower court or tribunal violates or contravenes the
Constitution, the law or existing jurisprudence.[10] As will be discussed in greater detail below, the RTC
decision dismissing Metrobanks petition was patently erroneous and clearly contravened existing
jurisprudence. For this reason, we cannot fault Metrobank for resorting to the filing of a petition
for certiorari with the CA to remedy a patent legal error in the hope of obtaining a speedy and adequate
remedy.

Nature of a petition for a writ of possession

A writ of possession is defined as "a writ of execution employed to enforce a judgment to recover the
possession of land. It commands the sheriff to enter the land and give its possession to the person
entitled under the judgment."[11]

There are three instances when a writ of possession may be issued: (a) in land registration proceedings
under Section 17 of Act No. 496; (b) in judicial foreclosure, provided the debtor is in possession of the
mortgaged realty and no third person, not a party to the foreclosure suit, had intervened; and (c) in
extrajudicial foreclosure of a real estate mortgage under Section 7 of Act No. 3135, as amended by Act
No. 4118.[12] The present case falls under the third instance.

The procedure for obtaining a writ of possession in extrajudicial foreclosure cases is found in Section 7
of Act No. 3135, as amended by Act No. 4118, which states:

Section 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of
First Instance of the province or place where the property or any part thereof is situated, to give him
possession thereof during the redemption period, furnishing bond in an amount equivalent to the use of
the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale
was made without violating the mortgage or without complying with the requirements of this Act. Such
petition shall be made under oath and filed in form of an ex parte motion in the registration or
cadastral proceedings if the property is registered, or in special proceedings in the case of property
registered under the Mortgage Law or under section one hundred and ninety-four of the Administrative
Code, or of any other real property encumbered with a mortgage duly registered in the office of any
register of deeds in accordance with any existing law, and in each case the clerk of the court shall, upon
the filing of such petition, collect the fees specified in paragraph eleven of section one hundred and
fourteen of Act Numbered Four hundred and ninety-six, as amended by Act Numbered Twenty-eight
hundred and sixty-six, and the court shall, upon approval of the bond, order that a writ of possession
issue, addressed to the sheriff of the province in which the property is situated, who shall execute said
order immediately.

Based on this provision, a writ of possession may issue either (1) within the one year redemption period,
upon the filing of a bond, or (2) after the lapse of the redemption period, without need of a bond.[13] In
order to obtain a writ of possession, the purchaser in a foreclosure sale must file a petition, in the
form of an ex parte motion, in the registration or cadastral proceedings of the registered
property. The reason why this pleading, although denominated as a petition, is actually considered a
motion is best explained in Sps. Arquiza v. CA,[14] where we said:

The certification against forum shopping is required only in a complaint or other initiatory
pleading. The ex parte petition for the issuance of a writ of possession filed by the respondent is not
an initiatory pleading. Although the private respondent denominated its pleading as a petition, it is,
nonetheless, a motion. What distinguishes a motion from a petition or other pleading is not its form or
the title given by the party executing it, but rather its purpose. The office of a motion is not to initiate
new litigation, but to bring a material but incidental matter arising in the progress of the case in which
the motion is filed. A motion is not an independent right or remedy, but is confined to incidental
matters in the progress of a cause. It relates to some question that is collateral to the main object of
the action and is connected with and dependent upon the principal remedy. An application for a writ
of possession is a mere incident in the registration proceeding. Hence, although it was denominated as
a petition, it was in substance merely a motion. Thus, the CA correctly made the following observations:

Such petition for the issuance of a writ of possession is filed in the form of an ex parte motion, inter alia,
in the registration or cadastral proceedings if the property is registered. Apropos, as an incident or
consequence of the original registration or cadastral proceedings, the motion or petition for the
issuance of a writ of possession, not being an initiatory pleading, dispels the requirement of a forum-
shopping certification. Axiomatic is that the petitioner need not file a certification of non-forum
shopping since his claims are not initiatory in character (Ponciano vs. Parentela, Jr., 331 SCRA 605
[2000]) [Emphasis supplied.]

The right to possess a property merely follows the right of ownership. Thus, after the consolidation of
title in the buyers name for failure of the mortgagor to redeem, the writ of possession becomes a
matter of right and its issuance to a purchaser in an extrajudicial foreclosure is merely a ministerial
function.[15] Sps. Arquiza v. CA further tells us:[16]
Indeed, it is well-settled that an ordinary action to acquire possession in favor of the purchaser at an
extrajudicial foreclosure of real property is not necessary. There is no law in this jurisdiction whereby
the purchaser at a sheriffs sale of real property is obliged to bring a separate and independent suit for
possession after the one-year period for redemption has expired and after he has obtained the sheriffs
final certificate of sale. The basis of this right to possession is the purchasers ownership of the
property. The mere filing of an ex parte motion for the issuance of the writ of possession would suffice,
and no bond is required. [Emphasis supplied.]

Since a petition for a writ of possession under Section 7 of Act No. 3135, as amended, is neither a
complaint nor an initiatory pleading, a certificate against non-forum shopping is not required. The
certificate that Metrobank attached to its petition is thus a superfluity that the lower court should have
disregarded.

No intervention allowed in ex parte proceedings

We also find merit in Metrobanks contention that the lower court should not have allowed De Koning to
intervene in the proceedings.

A judicial proceeding, order, injunction, etc., is ex parte when it is taken or granted at the instance and
for the benefit of one party only, and without notice to, or contestation by, any person adversely
interested.[17]

Given that the proceeding for a writ of possession, by the terms of Section 7 of Act No. 3135, is
undoubtedly ex parte in nature, the lower court clearly erred not only when it notified De Koning of
Metrobanks ex parte petition for the writ of possession, but also when it allowed De Koning to
participate in the proceedings and when it took cognizance and upheld De Konings motion to dismiss.

As we held in Ancheta v. Metropolitan Bank and Trust Company, Inc.:[18]

In GSIS v. Court of Appeals, this Court discussed the inappropriateness of intervening in a summary
proceeding under Section 7 of Act No. 3135:

The proceedings in which respondent Knecht sought to intervene is an ex parte proceeding pursuant to
Sec. 7 of Act No. 3135, and, as pointed out by petitioner, is a judicial proceeding brought for the benefit
of one party only, and without notice to, or consent by any person adversely interested (Stella vs.
Mosele, 19 N.E., 2d. 433, 435, 299 III App. 53; Imbrought v. Parker, 83 N.E. 2d 42, 43, 336 III App. 124;
City Nat. Bank & Trust Co. v. Aavis Hotel Corporation, 280 III App. 247), x x x or a proceeding wherein
relief is granted without an opportunity for the person against whom the relief is sought to be heard
(Restatement, Torts, S 674, p. 365, Rollo).

xxx

Intervention is defined as a proceeding in a suit or action by which a third person is permitted by the
court to make himself a party, either joining plaintiff in claiming what is 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 person becomes a party in a suit pending between others;
the admission, by leave of court, 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
affected by such proceedings (33 C.J., 477, cited in Eulalio Garcia, et al. vs. Sinforoso David, et al., 67
Phil. 279, at p. 282).

Action, under Rule 2, Sec. 1, is defined as an ordinary suit in a court of justice, by which one
party prosecutes another for the enforcement or protection of a right, or the prevention or redress of a
wrong.

From the aforesaid definitions, it is clear that intervention contemplates a suit, and is therefore
exercisable during a trial and, as pointed out by petitioner is one which envisions the introduction of
evidence by the parties, leading to the rendition of the decision in the case (p. 363, Rollo). Very
clearly, this concept is not that contemplated by Sec. 7 of Act No. 3135, whereby, under settled
jurisprudence, the Judge has to order the immediate issuance of a writ of possession 1) upon the filing
of the proper motion and 2) the approval of the corresponding bond. The rationale for the mandate is
to allow the purchaser to have possession of the foreclosed property without delay, such possession
being founded on his right of ownership. A trial which entails delay is obviously out of the question.
[Emphasis supplied.]

WHEREFORE, premises considered, we GRANT the petition. The Decision of the Court of Appeals in CA-
G.R. SP No. 62325 dated November 21, 2002, as well as the orders of the Regional Trial Court of Makati
City, Branch 65 in LRC Case No. M-4068 dated September 18, 2000 and October 23, 2000,
is REVERSED and SET ASIDE. LRC Case No. M-4068 is ordered remanded to the Regional Trial Court of
Makati City, Branch 65, for further proceedings and proper disposition. Costs against respondent
Manfred Jacob De Koning.

SO ORDERED.
G.R. No. 189532 June 11, 2014

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

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

DECISION

PEREZ, J.:

This is a Petition for Review on Certiorari1 pursuant to Rule 45 of the Revised Rules of Court,
assailing the 3 April 2009 Order2 of the Regional Trial Court (RTC) of Balanga City, Bataan, on pure
question of law. In its assailed Order, the RTC denied the motion filed by petitioners to set their
counterclaims for hearing on the ground that the main case was already dismissed with finality by
the Court of Appeals in CA-G.R. CV No. 87117.

In an Order3 dated 26 August 2009, the RTC refused to reconsider its earlier disposition.

The Facts

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

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

In 2002, SBME decided to expand its business by operating a beach resort inside the property
administered by the Subic Bay Metropolitan Authority (SBMA). For the business venture to take off,
SBME needed to solicit investors who are willing to infuse funds for the construction and operation of
the beach resort project. HSE (formerly known as Westdale Assets Limited) thru its authorized
director, Dio, agreed to invest the amount of US$2,500,000.00 with SBME by purchasing 750,000
common shares with a par value of ₱100 per share from the increase in its authorized capital stock.
The agreement was reduced into writing wherein HSE, in order to protect its interest in the company,
was afforded minority protection rights such as the right to appoint a member of the board of
directors and the right to veto certain board resolutions. After HSE initially paid US$200,000.00 for
its subscription, it refused to further lay out money for the expansion project of the SBME due to the
alleged mismanagement in the handling of corporate funds.

Consequently, SBME initiated an intra-corporate dispute before the RTC of Balanga City, Bataan
against petitioners HSE and Dio.4 Before petitioners could file their answer to the complaint,
respondents impleaded its Corporate Secretary, Atty. Winston Ginez, as additional defendant. In
their Amended Complaint5 docketed as Civil Case No. 7572, SBME essentially alleged that HSE
unjustly refused to pay the balance of its unpaid subscription effectively jeopardizing the company’s
expansion project. Apart from their refusal to honor their obligation under the subscription contract, it
was further alleged by SBME that Dio tried to dissuade local investors and financial institutions from
putting in capital to SBME by imputing defamatory acts against Desmond. To protect the interest of
the corporation and its stockholders, SBME sought that petitioners be enjoined from committing acts
inimical to the interest of the company.
To refute the claims of respondents, petitioners maintained in their Answer with Compulsory
Counterclaim6 that it would be highly preposterous for them to dissuade investors and banks from
putting in money to SBME considering that HSE and Dio are stakeholders of the company with
substantial investments therein. In turn, petitioners countered that their reputation and good name in
the business community were tarnished as a result of the filing of the instant complaint, and thus
prayed that they be indemnified in the amount of US$2,000,000.00 as moral damages. Constrained
to litigate to protect their rights, petitioners asked that they be indemnified in the amount
of₱1,000,000.00 in litigation expenses. Petitioners likewise sought to recover their investment of
US$1,500,000.00 since they were purportedly inveigled by Desmond into putting in money to SBME
under the pretext that they will be accorded with minority protection rights. It was alleged that after
the filing of the instant complaint, Desmond, in collusion with other Board of Directors of SBME,
managed to unjustly deny HSE and Dio their rights under the Subscription Agreement. To curb
similar socially abhorrent actions, petitioners prayed that SBME and its Board of Directors, namely,
Desmond, John Corcoran, Gaile Laule and Gregorio Magdaraog, be jointly and severally held liable
to pay exemplary damages in the amount of US$2,000,000.00.

After petitioners filed their Answer with Compulsory Counterclaim, the RTC, instead of setting the
case for pre-trial, issued an Order7 dated 15 August 2005 motu proprio dismissing Civil Case No.
7572. The dismissal was grounded on the defective certificate of non-forum shopping which was
signed by Desmond without specific authority from the Board of Directors of SBME.

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

For lack of merit, RTC denied respondents’ motion and affirmed the dismissal in an Order8 dated 22
September 2005. In refusing to reinstate respondents’ complaint, the court a quo ruled that the
belated submission of a board resolution evidencing Desmond’s authority to bind the corporation did
not cure the initial defect in the complaint and declared that strict compliance with procedural rules is
enjoined for the orderly administration of justice.

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

For failure of the respondents to file their appellants’ brief, the appellate court proceeded to dismiss
CA-G.R.CV No. 87117 and considered the case closed and terminated in its Resolution9 dated 2
January 2007.

After respondents failed to seasonably move for the reconsideration of the aforementioned
Resolution, the dismissal of CA-G.R. CV No. 87117 became final and executory, as shown in the
Entry of Judgment10 dated 3 May 2007.

The procedural incidents before the appellate court having been resolved with finality, petitioners
went back to the RTC to file a motion to set their counterclaims for hearing11 which was opposed by
the respondents on the ground that the filing of the compulsory counterclaims was not accompanied
by payment of the required docket fees precluding the court from acquiring jurisdiction over the
case.12

Acting on the motions filed by the opposing parties, the RTC, in an Order13 dated 3 April 2009
granted the motion of the respondents, thereby directing the dismissal of petitioners’ counterclaims
but not on the ground of non-payment of docket fees. In disallowing petitioners’ counterclaims to
proceed independently of respondents’ complaint, the lower court pointed out that in view of the
dismissal of the main case, which has already been affirmed with finality by the appellate court, it
has already lost its jurisdiction to act on petitioners’ counterclaim, the compulsory counterclaim being
merely ancillary to the principal controversy.

In an Order14 dated 26 August 2009, the RTC refused to reconsider its earlier disposition. Petitioners
filed this instant Petition for Review on Certiorari15 on pure question of law seeking the reversal of the
3 April 2009 and 26 August 2009 RTC Orders on the ground that:

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

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

The Court’s Ruling

Petitioners argue that despite the dismissal of the main case, the counterclaim may still remain for
independent adjudication under Section 6, Rule 16 of the Revised Rules of Court.17 Petitioners
pointed out that while the dismissal of respondents’ complaint is a confirmation of Desmonds’ lack of
legal personality to file the case, this does not, however, mean that they also do not have the
qualification to pursue their counterclaim. To fault petitioners for the fatal infirmity in the respondents’
complaint would not only work injustice to the former but would result to an absurd situation where
the fate of their counterclaims is placed entirely in the hands of the respondents.

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

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

Thus, a strict application of the rule is unnecessary when cases brought before the appellate courts
do not involve factual but purely legal questions.19 In fact, Rule 41, Section 2(c)20 of the Revised
Rules of Court provides that a decision or order of the RTC may as it was done in the instant case,
be appealed to the Supreme Court by petition for review on certiorari under Rule 45, provided that
such petition raises only questions of law.

A question of law exists when the doubt or controversy concerns the correct application of law or
jurisprudence to a certain set of facts; or when the issue does not call for the examination of the
probative value of the evidence presented, the truth or falsehood of facts being admitted. A question
of fact exists when the doubt or difference arises as to the truth or falsehood of facts or when the
query invites calibration of the whole evidence considering mainly the credibility of the witnesses, the
existence and relevancy of specific surrounding circumstances, as well as their relation to each other
and to the whole, and the probability of the whole situation.21 Thus, the test of whether a question is
one of law or of fact is not the appellation given to such question by the party raising the same;
rather, it is whether the appellate court can determine the issue raised without reviewing or
evaluating the evidence, in which case, it is a question of law; otherwise it is a question of fact.22

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

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

In the significant case of Pinga v. Heirs of German Santiago,23 this Court speaking through Justice
Dante Tinga, resolved the nagging question as to whether or not the dismissal of the complaint
carries with it the dismissal of the counterclaim. Putting to rest the remaining confusion occasioned
by Metals Engineering Resources Corp. v. Court of Appeals24 and BA Finance Corporation v.
Co,25 the Court articulated that, in light of the effectivity of the 1997 Rules of Civil Procedure, the
correct and prevailing doctrine is as follows:

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

xxxx

Thus, the present rule embodied in Sections 2 and 3 of Rule 17 ordains a more equitable disposition
of the counterclaims by ensuring that any judgment thereon is based on the merit of the
counterclaim itself and not on the survival of the main complaint. Certainly, if the counterclaim is
palpably without merit or suffers jurisdictional flaws which stand independent of the complaint, the
trial court is not precluded from dismissing it under the amended rules, provided that the judgment or
order dismissing the counterclaim is premised on those defects. At the same time, if the
counterclaim is justified, the amended rules now unequivocally protect such counterclaim from
peremptory dismissal by reason of the dismissal of the complaint.26 Reviewing the vacated position,
in Metals Engineering Resources Corp., severance of causes of action was not be permitted in order
to prevent circuity of suits and to avert the possibility of inconsistent rulings based on the same set of
facts, viz:

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

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

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

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

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

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

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

In Perkin Elmer Singapore Pte Ltd. v. Dakila Trading Corporartion,29 a case on all fours with the
present one, we expounded our ruling in Pinga and pointed out that the dismissal of the
counterclaim due to the fault of the plaintiff is without prejudice to the right of the defendant to
prosecute any pending counterclaims of whatever nature in the same or separate action, thus:
Based on the aforequoted ruling of the Court, if the dismissal of the complaint somehow eliminates
the cause of the counterclaim, then the counterclaim cannot survive. Conversely, if the counterclaim
itself states sufficient cause of action then it should stand independently of and survive the dismissal
of the complaint. Now, having been directly confronted with the problem of whether the compulsory
counterclaim by reason of the unfounded suit may prosper even if the main complaint had been
dismissed, we rule in the affirmative.

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

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

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

SO ORDERED.

JOSE PORTUGAL PEREZ

Associate Justice

G.R. No. 207376 August 6, 2014

AIDA PADILLA, Petitioner,

vs.
GLOBE ASIATIQUE REALTY HOLDINGS CORPORATION, FILMAL REALTY CORPORATION,
DELFIN S. LEE and DEXTER L. LEE, Respondents.

DECISION

VILLARAMA, JR., J.:

Assailed in this petition for review under Rule 45 are the Orders1 dated November 12, 2012 denying
the motion to set the counterclaim for pre-trial and May 8, 2013 denying petitioner's motion for
reconsideration, issued by the Regional Trial Court (RTC) of Pasig City, Branch 155 in Civil Case
No. 73132.

Factual Antecedents

From the years 2005 to 2008, Philippine National Bank (PNB) entered into several Contracts to Sell
(CTS) Facility Agreements2 with respondents Globe Asiatique Realty Holdings Corporation (Globe
Asiatique) and Filmal Realty Corporation (Filmal) represented by Delfin S. Lee and Dexter L. Lee,
President and Vice-President, respectively, of the two corporations. PNB thereby agreed to make
available toGlobe Asiatique and Filmal CTS Facility in the amount not exceeding Two Hundred
Million Pesos (₱200,000,000.00) to finance the purchase of certain Accounts Receivables or the in-
house installment receivables of respondents arising from the sale of subdivision houses in their real
estate/housing projects as evidenced by contracts to sell. These availments werelater increased to a
total amount of One Billion Two Hundred Million Pesos (₱1,200,000,000.00).3

Pursuant to and as a condition for the CTS Facility availments, respondents executed in favor of
PNB several Deeds of Assignment4 covering accounts receivables in the aggregate amount of One
Billion One Hundred Ninety-Five Million Nine Hundred Twenty-Six Thousand Three Hundred Ninety
Pesos and Seventy-two centavos (₱1,195,926,390.72). In the said instruments, respondents
acknowledged the total amount of One Billion Three Hundred Ninety FiveMillion Six Hundred Sixty-
Five Thousand Five Hundred Sixty-FourPesos and Sixty-nine centavos (₱1,395,665,564.69)
released to themby PNB in consideration of the aforesaid accounts receivables.5

Sometime in the first quarter of 2010, respondents defaulted in the payment of their outstanding
balance and delivery to PNB of transfer certificates of title corresponding to the assigned accounts
receivables, for which PNB declared them in default under the CTS Facility Agreements.
Subsequently, respondents made partial payments and made proposals for paying in full its
obligation to PNB as shown in the exchange of correspondence between respondents and PNB.

In a letter dated August 5, 2010,6 PNB made a formal and final demand upon respondents to
pay/settle the total amount of ₱974,377,159.10 representing their outstanding obligation.In the
course of credit monitoring and verification, PNB claimed it discovered 231 out of 240 Contracts to
Sell to have either inexistent addresses ofbuyers or the names of the buyers are non-existent or
both.

Thereafter, PNB instituted Civil Case No. R-PSY-10-04228-CV (Philippine National Bank v. Globe
Asiatique Realty Holdings Corporation, Filmal Realty Corporation, Delfin S. Lee and Dexter L. Lee)
for recovery of sum of money and damages with prayerfor writ of preliminary attachment before the
RTC of Pasay City.

In their complaint, PNB alleged in detail the fraudulent acts and misrepresentations committed by
respondents in obtaining PNB’s conformity to the CTS Facility Agreements and the release of
various sums to respondents in the total amountof ₱974,377,159.10. PNB accused respondents of
falsely representing that they have valid and subsisting contracts to sell, which evidently showed
they had no intention to pay their loan obligations. The Verification and Certification of Non-Forum
Shopping attached to the complaint was signed byPNB’s Senior Vice-president of the Remedial
Management Group, Aida Padilla, who likewise executed an "Affidavit in Support of the Application
for the Issuance of the Writ of Preliminary Attachment."

Proceedings in the Pasay

City RTC (Civil Case No.
R-PSY-10-04228-CV)

On August 25, 2010, the Pasay City RTC issued an Order7 granting PNB’s application for issuance
of preliminary attachment after finding that defendants Globe Asiatique and Filmal "through the
active participation or connivance/conspiracy of defendants Delfin and Dexter Lee from the revealing
evidence presented by plaintiff are guilty of fraud in contracting their outstanding loan applications to
plaintiff Philippine National Bank (PNB)."8 The writ of preliminary attachment was accordingly issued
on August 27, 2010 after PNB complied withthe posting of attachment bond as ordered by the court.9

Defendants Delfin Lee and DexterLee filed their Answer with Counterclaim with motion to
dismiss,arguing that PNB has no cause of action against them as there is nothing in the CTS Facility
Agreements that suggest they are personally liable or serve as guarantors for Globe Asiatique and
Filmal, and that they were just sued as signatories of the CTS Facility Agreements. They likewise
filed a motion to discharge preliminary attachment.10

Defendants Globe Asiatique and Filmalalso filed their Answer with Counterclaim denying PNB’s
allegationsof fraud and misrepresentation particularly after PNB had accepted payments from the
corporations. In their motion to discharge preliminary attachment, Globe Asiatique and Filmal
asserted that the allegations of fraud in the complaint are without basis and no proof was presented
by plaintiff on the existence of preconceived fraud and lack of intention to pay their obligations, citing
their timely payments made to PNB. They further assailed the affidavit executed by Aida Padilla who
they claimed has no personal knowledge of the subject transactions and there being no allegation of
threat or possibility that defendant corporations will dispose oftheir properties in fraud of their
creditors.11

In its Order12 dated April 29, 2011, the Pasay City RTC denied defendants’ motion to dismiss,
motions to discharge preliminary attachment and to expunge or suspend proceedings, as well as
PNB’s motion to expunge.

In succession, the parties in Civil Case No. R-PSY-10-04228-CV filed the following motions:

1) Defendants’ Motion for Reconsideration of the Order dated April 29, 2011 filed on May 27,
2011;

2) Plaintiff’s Motion to Set Case for Pre-trial Conference filed on June 8, 2011;

3) Plaintiff’s Motion for Summary Judgment filed on June 28, 2011;

4) Defendants’ Motion for Leave to Admit Attached Amended Answer with Compulsory
Counterclaim filed on July 12, 2011;

5) Defendants’ Omnibus Motion (a) to discharge the writ of attachment on the ground of
newly discovered evidence; (b) set preliminary hearing on affirmative defenses pleaded in
the amended answer; (c) issue preliminary attachment against plaintiff on account of fraud in
incurring the obligation as alleged in the amended answer; and (d) render partial summary
judgment on the compulsory counterclaim, filed on July 26, 2011;

6) Defendants’ Motion for Reconsideration of the Order dated July 29, 2011, with Motion to
Continue with the Proceedings Involving Defendants’ Omnibus Motion, filed on August 31,
2011; 7) Defendants’ Motion to Set for Hearing their earlier motion to discharge the writ of
attachment filed on January 24, 2012; and

8) Plaintiff’s Motion to Expunge defendants’ Reply (on defendants’ motion to set hearing)
filed on April 30, 2012.

Meanwhile, and before the Pasay City RTC could act upon the foregoing motions, defendants Globe
Asiatique, Filmal, Delfin S. Lee and Dexter L. Lee filed on August 10, 2011 a complaint13 for
Damages in the RTC of Pasig City, Branch 155 docketed as Civil Case No. 73132.

On May 18, 2012, the Pasay City RTC issued an Order14 resolving the pending motions, as follows:
WHEREFORE, the motion for reconsideration of the Order dated 27 May 2011 is denied insofar as
the prayer to reconsider denial of the motion to dismiss. However, the prayer to expunge the
Manifestation filed on 26 November 2010 is granted thus, the Manifestation is expunged.

The motion for leave and to admit amended answer is denied. The motion for reconsideration of the
Order dated 29 July 2011 is likewise denied. The other prayers in the omnibus motion to set
preliminary hearing of affirmative defenses in the amended answer, issuance of preliminary
attachment based thereon and for partial summary judgment on the compulsory counterclaims in the
amended answer are denied. Plaintiff’s motion to expunge defendants’ reply is likewise denied.

Hearing on plaintiff’s motion for summary judgment is set on 19 June 2012 at 8:30 a.m., while
hearing on defendants’ motion to discharge the writ of preliminary attachmentis set on 26 June 2012
at 8:30 a.m.

Action on plaintiff’s motion to set the case for pre-trial is deferred until after resolution of the motion
for summary judgment.

SO ORDERED.15

Pasig City RTC Case

(Civil Case No. 73132)

In their Complaint against Judge Pedro De Leon Gutierrez and Aida Padilla (both sued in their
personal capacity), respondents claimed that Globe Asiatique and Filmal are well-known and
successful real estate developers whose projects were "being continuously supported by various
banks and other financial institutions prior to the malicious and devastating unfounded civil action"
filed by AidaPadilla (petitioner) which wrought havoc to their businesses and lives. As to the CTS
Facility Agreements with PNB, respondents alleged that these were already novated by the parties
who agreed upon a term loan starting May 31, 2010 and to expire on April 30, 2012. But despite her
knowledge of such novation and that the obligation was not yet due and demandable, petitioner with
malice and evident bad faith still executed a "perjured" Affidavit in support of the application for writ
of preliminary attachment before the Pasay City RTC. Respondents likewise sought to hold Judge
Gutierrez personally liable for issuing the writ of preliminary attachment in favor of PNB
notwithstanding that the obligation subject of PNB’s complaint was sufficiently secured by the value
of realproperties sold to it by virtue of the CTS Facility Agreements and deeds ofassignment of
accounts receivables.

They further contended that Judge Gutierrez blindly approved the attachment bond offered by PNB’s
sister company, PNB General Insurers Company, Inc. despite the fact that from its submitted
documents, said insurer’s authorized capital stock isonly ₱400 million while its paid-up capital is only
₱312.6 million, which is way below the ₱974,377,159.10 attachment bond it issued.

Respondents thus prayed for a judgment ordering petitioner and Judge Gutierrez to pay moral
damages, exemplary damages, litigation expenses, attorney’s fees and cost of suit.

Judge Gutierrez moved to dismiss16 the complaint against him on the following grounds: (1)
respondents haveno cause of action against him; and (2) the Pasig City court has no jurisdiction
over the case and his person, movant being of co-equal and concurrent jurisdiction.

Petitioner filed her Answer With Compulsory Counterclaims,17 praying for the dismissal of
respondents’ complaint on the following grounds: (1) submission of a false certification of non-forum
shopping by respondents and their blatant commission of willful, deliberate and contumacious forum
shopping (respondents failed to disclose a criminal complaint entitled "Tbram Cuyugan v. Aida
Padilla and Members of the Board of Directors of PNB", docketed as I.S. No. XV-13-INV-11-H-01208
pending before the office of the CityProsecutor of Pasay City); (2) litis pendentia; (3) respondents’
failure to attach the alleged actionable document, i.e.the supposed "new term loan", inviolation of
Section 7, Rule 8 of the Rules of Court; (4) failure to state a cause of action against petitioner; and
(5) petitioner cannot be held personally liable for her official acts done for and in behalf of PNB.

On January 5, 2012, petitioner filed a motion for preliminary hearing on affirmative defenses,
contending that respondents are parroting the very same arguments raised and relying on the same
evidence they presented before the Pasay City RTC to establish the alleged novation and purported
insufficiency of the attachment bond,which issues are still pending in the said court. It was thus
stressed that respondents are evidently guilty of forum shopping.18

Respondents filed their Comment/Opposition,19 arguing that there is nothing in their complaint that
would slightly suggest they are asking the Pasig City RTC to issue any injunction or otherwise issue
an order setting aside the writ of preliminary attachmentissued by the Pasay City RTC, and neither
did they ask for a ruling on whether said writ is illegal or whether Judge Gutierrez committed a grave
abuse of discretion.They asserted that what they seek from the Pasig City RTC is to allow them to
recover damages from Judge De Leon for his tortious action in approving PNB’s attachment bond.
They also insisted that forum shopping and litis pendentiaare absent in this case, contrary to
petitioner’s claims. Respondents likewise opposed20 the motion to dismiss filed by Judge Gutierrez,
citing this Court’s ruling in J. King & Sons Company, Inc. v. JudgeAgapito L. Hontanosas, Jr.21 in
support of their position that the separate complaint before another forum against the judge for his
actionable wrong in a pending case before him can proceed independently without necessarily
interfering with the court’s jurisdiction, as what happened in the said case where the judge was
merely penalized for gross misconduct and gross ignorance of the law without actually invalidating
the judge’s order approving the counter-bond without reviewing the documents presented.

In her Reply,22 petitioner reiterated her previous arguments and additionally contended that in any
event, there is no basis for respondents’ claim for damages arising from the issuance of the writ of
preliminary attachment before the Pasay City RTC considering that PNBGEN Bond No. SU-JC14-
HO-10-0000001-00 is valid and sufficient to secure and answer for whatever damages respondents
may have suffered by reason of such issuance should it be finally decided that PNB was not entitled
to the said bond.

On April 2, 2012, the RTC of Pasig City issued an Order23 dismissing Civil Case No. 73132 for lack of
jurisdiction.

On May 7, 2012, petitioner filed a Motion to Set Counterclaims for Pre-Trial Conference.24

On October 22, 2012, the Pasig CityRTC denied respondents’ motion for reconsideration of the April
2, 2012 Order dismissing their complaint.25 Respondents filed a Notice of Appeal26 under Section
1(a), Rule 41 of the Rules of Court.

On November 12, 2012, the Pasig City RTC issued the first questioned Order, which reads:

xxxx

Records show that this Court, through then Acting Presiding Judge Amorfina Cerrado-Cezar, issued
an Order dated April 2, 2012, dismissing the case on the ground that issues involved in this case
already impinge upon the validity of the Order dated August 25, 2010 and Writ of Attachment dated
August 27, 2010 issued by the Regional Trial Court, Branch 119, Pasay City, a court of concurrent
and coordinate jurisdiction, in Civil Case No. R-PSY-10-04228 entitled "Philippine National Bank vs.
Globe Asiatique Realty Holdings Corp. et al." The ruling in said Order dated April 2, 2012, was
affirmed by this Court per its Order dated October 22, 2012, whereby it reiterated that acting on the
plaintiffs’ Complaint is a brazen violation of the principle of judicial stability, which essentially states
that the judgment or order of a court of competent jurisdiction may not be interfered with by any court
of concurrent jurisdiction for the simple reason that the power to open, modify or vacate the said
order is not only possessed but is restricted to the court in which the judgment or order is rendered
or issued. (Cojuangco vs. Villegas, 184 SCRA 374)

The foregoing principles are equally applicable to the counterclaims of Aida Padilla. Indeed, to hear
the counterclaims of defendant Aida Padilla will open the door, so to speak, for the plaintiffs to
interpose as ostensibledefenses its claims regarding the alleged illegality of the aforesaid orders and
writ of attachment issued by the RTC of Pasay City. In effect this Court will be forced to dwell upon
issues involving the pending civil case in the RTC Branch 199, Pasay City, thereby interfering, albeit
indirectly, with said issues.This is precisely the very evil which the Court sought to avoid when it
dismissed the plaintiffs’ complaint. Therefore, upholding once more the principle of judicial stability,
this Court is impelled to refuse to hear the counterclaims of defendant Padilla.

WHEREFORE, premises considered, the instant Motion filed by defendant Aida Padilla is DENIED
without prejudice to the re-filing of defendant Aida Padilla’s causes of action against herein plaintiffs
after final resolution of Civil Case No. R-PSY-10-04228 entitled "Philippine National Bank vs. Globe
Asiatique Realty Holdings Corp, et al."

SO ORDERED. (Emphasis supplied.)

Petitioner’s motion for reconsideration was likewise denied under the second assailed Order27 dated
May 8, 2013, as follows:

xxxx

Defendant Padilla argues that this Court has jurisdictional competence and authority to resolve her
counterclaims notwithstanding the dismissal of the Complaint dated August 10, 2011 for violation of
the principle of judicial stability. The resolution of her compulsory counterclaims will not require this
Court to look into or pass upon the validity of the acts of the Regional Trial Court of Pasay City,
Branch 119 in issuing the Writ of Attachment dated August 27, 2010. Defendant Padilla’s
counterclaims arose directly from the malicious filing by the plaintiffs of the Complaint and are
compulsory counterclaims which must be raised and resolved in the same action as the Complaint.

The Court remains unpersuaded of the propriety of proceeding to hear defendant Padilla’s
counterclaims.

As movant herself stated, the grant of her counterclaim calls for the determination of the issue of
whether or not herein plaintiffs had maliciously filed the above-entitled Complaint against
defendants. Necessarily, the Court in threshing out such issue would be constrained to rule on
whether the plaintiffs filed their complaint with a sinister design knowing fully wellthat their cause of
action was baseless. Thus, the Court would have to pass upon the veracity or genuineness of
plaintiffs’ claims thatthey were unjustly injured by the orders and processes issued by RTC Branch
119, Pasay City, in Civil Case No. R-PSY-10-04228entitled "Philippine National Bank vs. Globe
Asiatique Realty Holdings Corp. et al." Hence, whatever ruling this Court may arrive at on said
issues would inevitably impinge upon matters already pending before the RTC Branch 119, Pasay
City.
Once more, under the principle of juridical stability, the Court is constrained to refuse to hear
defendant Padilla’s counterclaims. Verily, this Court cannot allow itself to interfere – either directly,
as desired by plaintiff, or indirectly, as defendant Padilla would have it – with the acts of a co-equal
court.

WHEREFORE, premises considered, the instant Motion for Reconsideration filed by defendant Aida
Padilla is hereby DENIED without prejudice to the re-filing of defendant Aida Padilla’s causes of
action against herein plaintiffs after resolution of Civil Case No. R-PSY-10-04228 entitled "Philippine
National Bank vs. Globe Asiatique Realty Holdings Corp. et al."

SO ORDERED. (Emphasis supplied.)

The Petition

Petitioner came directly to this Court raising the primordial legal issue of whether or not a court can
take cognizance of a compulsory counterclaim despite the fact that the corresponding complaint was
dismissed for lack of jurisdiction.

The present petition was de-consolidated from seven other petitions involving respondents and their
transactions with Home Development Mutual Fund, as well as the pending criminal complaints
arising therefrom.28

The Court’s Ruling

Before we resolve the legal question presented, we first address the issue of propriety of petitioner’s
resort to Rule 45.

Respondents are incorrect in arguing that petitioner adopted the wrong mode of appeal, stating that
the remedy from the dismissal of her counterclaims without prejudice is a petition for certiorari under
Rule 65 and not an appeal under Rule 45.

There is no dispute with respect to the fact that when an appeal raises only pure questions of law,
this Court has jurisdiction to entertain the same.29 Section 1, Rule 45 of the 1997 Rules of Civil
Procedure, as amended, provides:

SECTION 1. Filing of petition with Supreme Court. – A party desiring to appeal by certiorari from a
judgment or final order or resolution of the Court of Appeals,the Sandiganbayan, the Regional Trial
Court or other courts whenever authorized by law, may file with the Supreme Court a verified petition
for review on certiorari. The petition shall raise only questions of law which must be distinctly set
forth.

In Republic v. Sunvar Realty Development Corporation,30 this Court held:

Respondent Sunvar argued that petitioners’ resort to a Rule 45 Petition for Review on
Certioraribefore this Court is an improper mode of review of the assailed RTC Decision. Allegedly,
petitioners should have availed themselves of a Rule 65 Petition instead, since the RTC Decision
was an order of dismissal of the Complaint, from which no appeal can be taken except by a certiorari
petition.

The Court is unconvinced of the arguments of respondent Sunvar and holds that the resortby
petitioners to the present Rule 45 Petition is perfectly within the bounds of our procedural rules.
As respondent Sunvar explained, noappeal may be taken from an order of the RTC dismissing an
action without prejudice, but the aggrieved party may file a certiorari petition under Rule 65.
Nevertheless, the Rules do not prohibit any of the parties fromfiling a Rule 45 Petition with this
Court, in case only questions of law are raised or involved. This latter situation was one that
petitioners found themselves in when they filed the instant Petition to raise only questions of law. In
Republic v. Malabanan, the Court clarified the three modes of appeal from decisions of the RTC, to
wit: (1) by ordinary appeal or appeal by writ of error under Rule 41, whereby judgment was rendered
in a civil or criminal action by the RTC in the exercise of its original jurisdiction; (2) by a petition for
review under Rule 42, whereby judgment was rendered by the RTC in the exercise of its appellate
jurisdiction; and (3) by a petition for review on certioraribefore the Supreme Court under Rule 45.
"The first mode of appeal istaken to the [Court of Appeals] on questions of fact or mixed questions of
fact and law. The second mode of appeal is brought to the CA on questions of fact, of law, or mixed
questions of fact and law. The third mode of appeal is elevated to the Supreme Court only on
questions of law." (Emphasis supplied.)

There is a question of law when the issue does not call for an examination of the probative value of
the evidence presented or of the truth or falsehood of the facts being admitted, and the doubt
concerns the correct application of law and jurisprudence on the matter. The resolution of the issue
must rest solely on what the law provides on the given set of circumstances.

In the instant case, petitioners raise only questions of law with respect to the jurisdiction of the RTC
to entertain a certioraripetition filed against the interlocutory order of the MeTC in an unlawful
detainer suit. At issue in the present case is the correct application of the Rules on Summary
Procedure; or, more specifically, whether the RTC violated the Rules when it took cognizance and
granted the certioraripetition against the denial by the MeTC of the Motion to Dismiss filed by
respondent Sunvar. This is clearly a question of law that involves the proper interpretation of the
Rules on Summary Procedure. Therefore, the instant Rule 45 Petition has been properly lodged with
this Court.

In this case, petitioner raises the lone issue of whether the Pasig City RTC was correct in refusing to
hear her counterclaims after the dismissal of respondents’ complaint for lack of jurisdiction. Said
issue involves the proper interpretation of the 1997 Rules of Civil Procedure, as amended,
specifically on whether the dismissal of the complaint automatically results in the dismissal of
counterclaims pleaded by the defendant. Since this is clearly a question of law, petitioner
appropriately filed in thisCourt a Rule 45 petition.

On the lone issue raised in the petition, we rule for the petitioner.

A counterclaim is any claim which a defending party may have against an opposing party.31 It is in
the nature of a cross-complaint; a distinct and independent cause of action which, though alleged in
the answer, is not part of the answer.32

Counterclaims may be either compulsory or permissive. Section 7, Rule 6 of the 1997 Rules of Civil
Procedure provides:

SEC. 7. Compulsory counterclaim.– A compulsory counterclaim is one which, being cognizable by

the regular courts of justice, arises out of or is connected with the transaction or occurrence
constituting the subject matter of the opposing party’s claim and does not require for its adjudication
the presence of third parties of whom the court cannot acquire jurisdiction. Such a counterclaim must
be within the jurisdiction of the court both as to the amount and the nature thereof, except that in an
original action before the Regional Trial Court, the counterclaim may be considered compulsory
regardless of the amount.
In this case, petitioner’s counterclaim for damages raised in her answer before the Pasig City RTC
iscompulsory, alleging suffering and injury caused to her as a consequence of the unwarranted filing
of the baseless complaint filed byrespondents. Said court, however, dismissed her counterclaim
upon the same ground of lackof jurisdiction as its resolution supposedly would entail passing upon
the validity of orders and processes still pending before the Pasay City RTC. In Metals Engineering
Resources Corp. v. Court of Appeals,33 we reversed the trial court’s order allowing private
respondent to proceed with the presentation of his evidence in support of his counterclaim after the
complaint was dismissed for not paying the correct docket fee and hence the trial court did not
acquire jurisdiction over the case. We held that if the court does not have jurisdiction to entertain the
main action of the case and dismisses the same, then the compulsorycounterclaim, being ancillary
to the principal controversy, must likewise be dismissed since no jurisdiction remained for any grant
of relief under the counterclaim.34

Under the 1997 Rules of Civil Procedure, it is now explicitly provided that the dismissal of the
complaint due tofailure of the plaintiff to prosecute his case is "without prejudice to the rightof the
defendant to prosecute his counterclaim in the same or in a separate action."35 The effect of this
amendment on previous rulings on whether the dismissal of a complaint carries with it the dismissal
of the counterclaims as well, was discussed in the case of Pinga v. The Heirs of German
Santiago,36 thus:

Similarly, Justice Feria notes that "the present rule reaffirms the right of the defendant to move for
the dismissal of the complaint and to prosecute his counterclaim, as stated in the separate opinion
[of Justice Regalado in BA Finance.] Retired Court of Appeals Justice Herrera pronounces that the
amendment to Section 3, Rule 17 settles that "nagging question" whether the dismissal of the
complaint carries with it the dismissal of the counterclaim, and opines that by reason of the
amendments, the rulings in Metals Engineering, International Container, and BA Finance"may be
deemed abandoned." On the effect of amendment to Section 3, Rule 17, the commentators are in
general agreement, although there is less unanimity of views insofar as Section 2, Rule 17 is
concerned.

To be certain, when the Court promulgated the 1997 Rules of Civil Procedure, including the
amended Rule 17, those previous jural doctrines that were inconsistent with the new rules
incorporated in the 1997 Rules of Civil Procedure were implicitly abandoned insofar as incidents
arising after the effectivity of the new procedural rules on 1 July 1997. BA Finance, or even the
doctrine that a counterclaim may be necessarily dismissed along with the complaint, clearly conflicts
with the 1997 Rules of Civil Procedure. The abandonment of BA Financeas doctrine extends as far
back as 1997, when the Court adopted the new Rules of Civil Procedure. … we thus rule that the
dismissal of a complaint due to fault of the plaintiff is without prejudice to the right of the defendant to
prosecute any pending counterclaims ofwhatever nature in the same or separate action. We confirm
that BA Financeand all previous rulings of the Court that are inconsistent with this present holding
are now abandoned. (Emphasis supplied.)

Subsequently, in Perkin Elmer Singapore Pte Ltd. v. Dakila Trading Corporation37 this Court held that
while the declaration in Pinga refers to instances covered by Section 3, Rule 17 on dismissal of
complaints due to the fault of plaintiff, it does not preclude the application of the same rule when the
dismissal was upon the instance of defendant who correctly argued lack of jurisdiction over its
person.Further, in stark departure from Metals Engineering, we declared that the court’s jurisdiction
over respondent’s complaint is not to be confusedwith jurisdiction over petitioner’s counterclaim, viz:

….Petitioner seeks to recover damages and attorney’s fees as a consequence of the unfounded
suitfiled by respondent against it. Thus, petitioner’s compulsory counterclaim isonly consistent with
its position that the respondent wrongfully filed a case against it and the RTC erroneously exercised
jurisdiction over its person.

Distinction must be made in Civil Case No. MC99-605 as to the jurisdiction of the RTC over
respondent’s complaint and over petitioner’s counterclaim – while it may have no jurisdiction over
the former, it may exercise jurisdiction over the latter. The compulsory counterclaim attached to
petitioner’s Answer ad cautelamcan be treated as a separate action, wherein petitioner is the plaintiff
while respondent is the defendant. Petitioner could have instituted a separate action for the very
same claims but, for the sake of expediency and to avoid multiplicity of suits, it chose to demand the
samein Civil Case No. MC99-605. Jurisdiction of the RTC over the subject matter and the parties in
the counterclaim must thus be determined separately and independently from the jurisdiction of the
samecourt in the same case over the subject matter and the parties in respondent’s
complaint.38 (Emphasis supplied.)

Still anchored on the pronouncement in Pinga, we then categorically ruled that a counterclaim
arising from the unfounded suit may proceed despite the dismissal of the complaint for lack of
jurisdiction over the person of defendant-counterclaimant, thus:

Also in the case of Pinga v. Heirs of German Santiago, the Court discussed the situation wherein the
very filing of the complaint by the plaintiff against the defendant caused the violation of the latter’s
rights. As to whether the dismissal of such a complaint should also include the dismissal of the
counterclaim, the Court acknowledged that said matter is still debatable, viz:

Whatever the nature of the counterclaim, it bears the same integral characteristics as a complaint;
namely a cause (or causes) of action constituting an act or omission by which a party violates the
right of another. The main difference lies in that the cause of action in the counterclaim is maintained
bythe defendant against the plaintiff, while the converse holds true with the complaint. Yet, as with a
complaint, a counterclaim without a cause of action cannot survive.

x x x if the dismissal of the complaint somehow eliminates the cause(s) of the counterclaim, then the
counterclaim cannot survive. Yet that hardly is the case, especially as a general rule. More often
than not, the allegations that form the counterclaim are rooted in an act or omission of the plaintiff
other than the plaintiff’s very act of filing the complaint. Moreover, such acts or omissions imputed to
the plaintiff are often claimed to have occurred prior to the filing of the complaint itself.The only
apparent exception to thiscircumstance is if it is alleged in the counterclaim that the very act of the
plaintiff in filing the complaint precisely causes the violation of the defendant’s rights. Yet even in
such an instance, it remains debatable whether the dismissal or withdrawal of the complaint is
sufficient to obviate the pending cause of action maintained by the defendant against the plaintiff.

Based on the aforequoted ruling of the Court, if the dismissal of the complaint somehow eliminates
the cause of the counterclaim, then the counterclaim cannot survive. Conversely, if the counterclaim
itself states sufficient cause of action then it should stand independently of and survive the dismissal
of the complaint. Now, having been directly confronted with the problem of whether the compulsory
counterclaim by reason of the unfounded suit may prosper even if the maincomplaint had been
dismissed, we rule in the affirmative.

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

It may also do well to rememberthat it is this Court which mandated that claims for damages and
attorney’s fees based on unfounded suit constitute compulsory counterclaim which must be pleaded
in the same action or, otherwise, it shall be barred. It will then be iniquitous and the height of
injustice to require the petitioner to make the counterclaim in the present action, under threat of
losing his right to claim the same ever again in any other court, yet make his right totally dependent
on the fate of the respondent’s complaint.

If indeed the Court dismisses petitioner’s counterclaim solely on the basis of the dismissal of
respondent’s Complaint, then what remedy is left for the petitioner? It can be said that he can still file
a separate action to recover the damages and attorney’s fees based on the unfounded suit for he
cannot be barred from doing so since he did file the compulsory counterclaim in the present action,
only that it was dismissed when respondent’s Complaint was dismissed. However, this reasoning is
highly flawed and irrational considering that petitioner, already burdened by the damages and
attorney’s fees itmay have incurred in the present case, must again incur more damages and
attorney’s fees in pursuing a separate action, when, in the first place, it should not have been
involved in any case at all.

Since petitioner’s counterclaim iscompulsory in nature and its cause of action survives that of the
dismissal of respondent’s complaint, then it should be resolved based on its own merits and
evidentiary support.39 (Additional emphasis supplied.)

The above ruling was applied in Rizal Commercial Banking Corporation v. Royal Cargo
Corporation40 where we granted petitioner’s prayer for attorney’s fees under its Compulsory
Counterclaim notwithstanding the dismissal of the complaint.

In the present case, the RTC of Pasig City should have allowed petitioner’s counterclaim to proceed
notwithstanding the dismissal of respondents’ complaint, the same being compulsory in nature and
with its cause not eliminated by such dismissal.It bears stressing that petitioner was hailed to a
separate court (Pasig City RTC) even while the dispute between PNB and respondents was still
being litigated, and she already incurred expenses defending herself, having beensued by
respondents in her personal capacity. The accusations hurled against her were serious (perjury and
misrepresentation in executing the affidavit in support of the application for writ of attachment before
the Pasay City RTC) – with hints at possible criminal prosecution apart from that criminal complaint
already lodged in the Pasig City Prosecutor’s Office. The Pasig City RTC clearly erred in refusing to
hear the counterclaims upon the same ground for dismissal of the complaint, i.e.,lack of jurisdiction
in strictobservance of the policy against interference with the proceedings of a co-equal court.

Respondents contend that if petitioner is allowed to prove her counterclaims before the Pasay City
RTC, they have no choice but to justify their action in filing their case beforethe Pasig City RTC by
going back to the allegations in their complaint that they are merely vindicating themselves against
the perjured affidavit executed by petitioner which led to the issuance of the illegal orders of the
Pasay City RTC that resulted to the damage and injury sustained by respondents. Obviously,
respondents are invoking the same principle of judicialstability which we find inapplicable insofar as
petitioner’s counterclaim arising from respondents’ unfounded suit. As petitioner set forth in her
Compulsory Counterclaim, there is actually no necessity for the Pasig City RTC, in ruling on the
merits of the counterclaim, to pass upon the validity ofthe writ of attachment and related orders
issued by the Pasay City RTC. Precisely, petitioner faulted the respondents in prematurely, and in a
contumacious act of forum shopping, filing a separate damage suit when there is no final judicial
determination yet of any irregularity in the attachment proceedings before the Pasay City RTC.
5.95. In this regard, it must be noted that in filing the present suit, plaintiffs’ goal is to have the
Honorable Court reexamine and review the pronouncements made by defendant JudgeGutierrez in
the Pasay case.

With all due respect, the Honorable Court certainly has no such power over the Pasay Court which is
a co-equal court. While the power to determine whether or not a judgment or order is unjust is a
judicial function, the hierarchy of courts should be respected:

"To belabor the obvious, the determination of whether or not a judgment or order is unjust – or was
(or was not) rendered within the scope of the issuing judge’s authority, or that the judge had
exceeded his jurisdiction and powers or maliciously delayed the disposition of a case – is an
essentially judicial function, lodged by existing law and immemorial practice in a hierarchy of courts
and ultimately in the highest court of the land. To repeat, no other entity or official of the
Government, not the prosecution or investigation service or any other branch, nor any functionary
thereof, has competence to review a judicial order or decision – whether final and executory or not –
and pronounce it erroneous soas to lay the basis for a criminal or administrative complaint for
rendering an unjust judgment or order. That prerogative belongs to the courts alone." [Emphasis
supplied]

5.96. Accordingly, since there is no "final judicial pronouncement" yet on whether the filing of the
PNB Complaintand the issuance of the writ of preliminary attachment violate any law, neither is there
any basis for defendant Padilla to be held liable for damages on account of her official acts as Head
of the Remedial Management Group of PNB. 1âwphi 1

5.97. Clearly, the filing of this baseless, if not contemptuous, suit is nothing but a continuation of
plaintiffs’ fraudulent attempt to evade the payment of undeniably due and demandable obligations.
Accordingly, the complaint against defendant Padilla should be dismissed for utter lack of
merit.41 (Emphasis supplied.)

Ironically, while it is the respondents who erroneously and maliciously asked the Pasig City RTC to
pass upon these issues still pending in a co-equal court, for which reason the said court dismissed
their complaint, petitioner was notallowed to prove her counterclaim by reason of the unfounded suit
in the same case aspurportedly it will entail verifying respondents’ claim that they were prejudiced by
the orders and processes in the Pasay City RTC. This situation exemplifies the rationale in Perkin
Elmer Singapore Pte Ltd.42 on requiring the petitioner to make the counterclaim in the present action,
under threat of losing such right to claim the same ever again any other court, yet make such right of
the petitioner totally dependent on the fate of the respondents’ complaint.

As fittingly expressed by petitioner in her Reply:

Pertinently, it is relevant to note that respondents never denied in their Commentthat the institution
of the case a quowas premature and violated the principle of judicial stability. Stated otherwise,
respondents admit that they are the ones who have invited the court a quo to interfere with the
rulings of the Pasay Court, which fortunately, the former refused to do so. To allow the respondents
to cite their own unlawful actions as a shield against the harm that they have inflicted upon petitioner
Padilla would indubitably allow the respondents to profit from their own misdeeds. With due respect,
this cannot be countenanced by the Honorable Court.43 WHEREFORE, the petition is GRANTED.
The Orders dated November 12, 2012 and May 8, 2013 of the Regional Trial Court of Pasig City,
Branch 155 in Civil Case No. 73132 are hereby REVERSED and SET ASIDE. Said court is hereby
directed to proceed with the presentation of evidence in support of the compulsory counterclaim of
petitioner Aida Padilla.
SO ORDERED.

G.R. No. 197380 October 8, 2014

ELIZA ZUNIGA-SANTOS,* represented by her Attorney-in Fact, NYMPHA Z.

SALES, Petitioners,
vs.
MARIA DIVINA GRACIA SANTOS-GRAN** and REGISTER OF DEEDS OF MARIKINA
CITY, Respondents.

DECISION

PERLAS-BERNABE, J.:

Before the Court is a petition for review on certiorari1 assailing the Decision2 dated January 10, 2011
and the Resolution3 dated June 22, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 87849
which affirmed the Order4dated July 6, 2006 of the Regional Trial Court of San Mateo, Rizal, Branch
76 (RTC) in Civil Case No. 2018-06, dismissing the Amended Complaint for annulment of sale and
revocation of title on the ground of insufficiency of factual basis.

The Facts

On January 9, 2006, petitioner Eliza Zuñiga-Santos (petitioner), through her authorized

representative, Nympha Z. Sales,5 filed a Complaint6 for annulment of sale and revocation of title
against respondents Maria Divina Gracia Santos-Gran (Gran) and the Register of Deeds of Marikina
City before the RTC, docketed asCivil Case No. 2018-06. The said complaint was later amended7 on
March 10, 2006 (Amended Complaint).

In her Amended Complaint,8 petitioner alleged, among others, that: (a) she was the registered owner
of three (3) parcels of land located in the Municipality of Montalban, Province of Rizal, covered by
Transfer Certificate of Title (TCT) Nos. N-5500,9 224174,10 and N-423411 (subject properties) prior to
their transfer in the name of private respondent Gran; (b) she has a second husband by the name
ofLamberto C. Santos (Lamberto), with whom she did not have any children; (c) she was forced to
take care of Lamberto’s alleged daughter, Gran, whose birth certificate was forged to make it appear
that the latter was petitioner’s daughter; (d) pursuant to void and voidable documents, i.e., a Deed of
Sale, Lamberto succeeded in transferring the subject properties in favor of and in the name of Gran;
(e) despite diligent efforts, said Deed of Sale could not be located; and (f) she discovered that the
subject properties were transferred to Gran sometime in November 2005. Accordingly, petitioner
prayed, inter alia, that Gran surrender to her the subject properties and pay damages, including
costs of suit.12

For her part, Gran filed a Motion to Dismiss,13 contending, inter alia, that (a) the action filed by
petitioner had prescribed since an action upon a written contract must be brought within ten (10)
years from the time the cause of action accrues, or in this case, from the time of registration of the
questioned documents before the Registry of Deeds;14 and (b) the Amended Complaint failed to state
a cause of action as the void and voidable documents sought to be nullified were not properly
identified nor the substance thereof set forth, thus, precluding the RTC from rendering a valid
judgment in accordance withthe prayer to surrender the subject properties.15

The RTC Ruling

In an Order16 dated July 6, 2006, the RTC granted Gran’s motion and dismissed the Amended
Complaint for its failure to state a cause of action, considering that the deed of sale sought to be
nullified – an "essential and indispensable part of [petitioner’s] cause of action"17 – was not attached.
It likewise held that the certificates oftitle covering the subject properties cannot be collaterally
attacked and that since the action was based on a written contract, the same had already prescribed
under Article 1144 of the Civil Code.18

Dissatisfied, petitioner elevated the matter to the CA.

The CA Ruling

In a Decision19 dated January 10, 2011, the CA sustained the dismissal of petitioner’s Amended
Complaint buton the ground of insufficiency of factual basis. It disagreed with the RTC’s findingthat
the said pleading failed to state a cause of action since it had averred that: (a) petitioner has a right
over the subject properties being the registered owner thereof prior to their transfer in the name of
Gran; (b) Lamberto succeeded in transferring the subject properties to his daughter, Gran, through
void and voidable documents; and (c) the latter’s refusal and failure to surrender to her the subject
properties despite demands violated petitioner’s rights over them.20 The CA likewise ruled that the
action has not yet prescribed since an action for nullity of void deeds of conveyance is
imprescriptible.21 Nonetheless, it held that since the Deed of Sale sought to be annulled was not
attached to the Amended Complaint, it was impossible for the court to determine whether petitioner’s
signature therein was a forgery and thus, would have no basis to order the surrender or
reconveyance of the subject properties.22

Aggrieved, petitioner moved for reconsideration23 and attached, for the first time, a copy of the
questioned Deed of Sale24 which she claimed to have recently recovered, praying that the order of
dismissal be set aside and the case be remanded to the RTC for further proceedings.

In a Resolution25 dated June 22, 2011, the CA denied petitioner’s motion and held that the admission
of the contested Deed of Sale at this late stage would be contrary to Gran’s right to due process.

Hence, the instant petition.

The Issue Before the Court

The primordial issue for the Court’s resolution is whether or not the dismissal of petitioner’s
Amended Complaint should be sustained.

The Court’s Ruling

Failure to state a cause of action and lack of cause of action are distinct grounds to dismiss a
particularaction. The former refers to the insufficiency of the allegations in the pleading, while the
latter to the insufficiency of the factual basis for the action. Dismissal for failure to state a cause of
action may be raised at the earliest stages of the proceedings through a motion to dismiss under
Rule16 of the Rules of Court, while dismissal for lack of cause of action may be raised any time after
the questions of fact have been resolved on the basis of stipulations, admissions or evidence
presented by the plaintiff.26 In Macaslang v. Zamora,27 the Court, citing the commentary of Justice
Florenz D. Regalado, explained:

Justice Regalado, a recognized commentator on remedial law, has explained the distinction:

x x x What is contemplated, therefore, is a failure to statea cause of action which is provided in Sec.
1(g) of Rule 16. This is a matter of insufficiency of the pleading. Sec. 5 of Rule 10, which was also
included as the last mode for raising the issue to the court, refers to the situation where the evidence
does not provea cause of action. This is, therefore, a matter of insufficiency of evidence. Failure to
state a cause of action is different from failure to prove a cause of action. The remedy in the first is to
move for dismissal of the pleading, whilethe remedy in the second is to demur to the evidence,
hence reference to Sec. 5 of Rule 10 has been eliminated in this section. The procedure would
consequently be to require the pleading to state a cause of action, by timely objection to its
deficiency; or, at the trial, to file a demurrer to evidence, if such motion is warranted.28

In the case at bar, both the RTC and the CA were one in dismissing petitioner’s Amended
Complaint, but varied on the grounds thereof – that is, the RTC held that there was failure tostate a
cause of action while the CA ruled that there was insufficiency of factual basis.

At once, it is apparent that the CA based its dismissal on an incorrect ground. From the preceding
discussion, it is clear that "insufficiency of factual basis" is not a ground for a motion to dismiss.
Rather, it is a ground which becomes available only after the questions of fact have been resolved
on the basis of stipulations, admissions or evidence presented by the plaintiff. The procedural
recourse to raise such ground is a demurrer to evidence taken only after the plaintiff’s presentation
of evidence. This parameter is clear under Rule 33 of the Rules of Court: RULE 33

Demurrer to Evidence

Section 1. Demurrer to evidence. — After the plaintiff has completed the presentation of his
evidence, the defendant may move for dismissal on the ground that upon the facts and the law the
plaintiff has shown no right to relief. If his motion isdenied he shall have the right to present
evidence. If the motion is granted but on appeal the order of dismissal is reversed he shall be
deemed to have waived the right to present evidence.

At the preliminary stages of the proceedings, without any presentation of evidence even conducted,
it is perceptibly impossible to assess the insufficiency of the factual basis on which the plaintiff
asserts his cause of action, as in this case. Therefore, that ground could not be the basis for the
dismissal of the action.

However, the Amended Complaint is still dismissible but on the ground of failure to state a cause of
action, as correctly held by the RTC. Said ground was properly raised by Granin a motion to dismiss
pursuant to Section 1, Rule 16 of the Rules of Court:

RULE 16
Motion to Dismiss

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

xxxx
(g) That the pleading asserting the claim states no cause of action;

xxxx

A complaint states a cause of action if it sufficiently avers the existence of the three (3) essential
elements of a cause of action, namely: (a) a right in favor of the plaintiff by whatever means and
under whatever law it arises or is created; (b) an obligation on the part of the named defendant to
respect or not to violate such right; and (c) an act or omission on the part of the named defendant
violative of the right of the plaintiff or constituting a breach of the obligation of defendant tothe
plaintiff for which the latter may maintain an action for recovery of damages.29 If the allegations of the
complaint do not state the concurrence of these elements, the complaint becomes vulnerable to a
motion to dismiss on the ground of failure to state a cause of action.30

It is well to point out that the plaintiff’s cause of action should not merely be "stated" but, importantly,
the statement thereof should be "sufficient." This is why the elementarytest in a motion to dismiss on
such ground is whether or not the complaint alleges facts which if true would justify the relief
demanded.31 As a corollary, it has been held that only ultimate facts and not legal conclusions or
evidentiary facts are considered for purposes of applying the test.32 This is consistent with Section 1,
Rule 8 of the Rules of Court which states that the complaint need only allege the ultimate facts or the
essential facts constituting the plaintiff’s cause of action. A fact is essential if they cannot be stricken
out without leaving the statement of the cause of action inadequate.33 Since the inquiry is into the
sufficiency, not the veracity, of the material allegations, it follows that the analysis should be confined
to the four corners of the complaint, and no other.34

A judicious examination of petitioner’s Amended Complaint readily shows its failure to sufficiently
state a cause of action. Contrary to the findings of the CA, the allegations therein do not proffer
ultimate facts which would warrant an action for nullification of the sale and recovery of the
properties in controversy, hence,rendering the same dismissible.

While the Amended Complaint does allege that petitioner was the registered owner of the subject
properties in dispute, nothing in the said pleading or its annexes would show the basis of that
assertion, either through statements/documents tracing the rootof petitioner’s title or copies of
previous certificates of title registeredin her name. Instead, the certificates of title covering the said
properties that were attached to the Amended Complaint are in the name of Gran. At best, the
attached copies of TCT Nos. N-5500 and N-4234 only mention petitioner as the representative of
Gran at the time of the covered property’s registration when she was a minor. Nothing in the
pleading, however, indicates that the former had become any of the properties’ owner. This leads to
the logical conclusion that her right to the properties in question – at least through the manner in
which it was alleged in the Amended Complaint – remains ostensibly unfounded. Indeed, while the
facts alleged in the complaint are hypothetically admitted for purposes of the motion, it must,
nevertheless, be remembered that the hypothetical admission extends only to the relevant and
material facts well pleaded in the complaint as well as toinferences fairly deductible
therefrom.35 Verily, the filing of the motion to dismiss assailing the sufficiency of the complaint does
not hypothetically admit allegations of which the court will take judicial notice ofto be not true, nor
does the rule of hypothetical admission apply to legallyimpossible facts, or to facts inadmissible in
evidence, or to facts that appear to be unfounded by record or document included in the pleadings.36

Aside from the insufficiency of petitioner’s allegations with respect to her right to the subject
properties sought to be recovered, the ultimate facts supposedly justifying the "annulment of sale,"
by which the reconveyance of the subject properties is sought, were also insufficiently pleaded. The
following averments in the Amended Complaint betray no more than an insufficient narration of facts:
6. That pursuant to a voidable [sic] and void documents, the second husband of the plaintiff succeed
[sic] in transferring the above TITLES in the name of MARIA DIVINAGRACIA SANTOS, who is (sic)
alleged daughter of LAMBERTO C. SANTOS in violation of Article 1409, Par. 2 of the Civil Code;

7. That the said properties [were] transferred to the said defendant by a Deed of Sale (DOS) to the
said MARIA DIVINA GRACIA SANTOS through a void documents [sic] considering that the seller is
the alleged mother of defendant is also the buyer of the said properties in favor of defendant;

8. x x x.

9. That the alleged sale and transfer of the said properties in favor of defendant was only discovered
by [plaintiff’s] daughter CYNTHIA BELTRAN-LASMARIAS when [plaintiff] has been requesting for
financial assistance, considering that the said mother of plaintiff [sic] has so many properties which
is now the subject of this complaint;

10. That plaintiff then return on [to] the Philippines sometime [in] November, 2005 and discovered
that all [plaintiff’s] properties [had] been transferred to defendant MARIA DIVINA GRACIA SANTOS
who is not a daughter either by consanguinity or affinity to the plaintiff mother [sic];

11. That the titles that [were] issued in the name of MARIA DIVINAGRACIA SANTOS by virtue of the
said alleged voidable and void documents, should be annulled and cancelled as the basis of the
transfer is through void and voidable documents;

x x x x37

Clearly, the claim that the sale was effected through "voidable and void documents" partakes merely
of a conclusion of law that is not supported by any averment of circumstances that will show why or
how such conclusion was arrived at. In fact, what these "voidable and void documents" are were not
properly stated and/or identified. In Abad v. Court of First Instance of Pangasinan,38 the Court
pronounced that:

A pleading should state the ultimate facts essential to the rights of action or defense asserted, as
distinguished from mere conclusions of fact, or conclusions of law. General allegations thata contract
is valid or legal, or is just, fair, and reasonable, are mere conclusions of law. Likewise, allegations
that a contract is void, voidable, invalid, illegal, ultra vires, or against public policy, without stating
facts showing its invalidity, are mere conclusions of law.39 (Emphases supplied)

Hence, by merely stating a legal conclusion, the Amended Complaint presented no sufficient
allegation upon which the Court could grant the relief petitioner prayed for. Thus, said pleading
should be dismissed on the ground of failure to state cause of action, as correctly held by the RTC.

That a copy of the Deed of Saleadverted to in the Amended Complaint was subsequently submitted
by petitioner does not warrant a different course of action. The submission of that document was
1âwphi1

made, as it was purportedly "recently recovered," only on reconsideration before the CA which,
nonetheless, ruled against the remand of the case. An examination of the present petition, however,
reveals no counter-argument against the foregoing actions; hence, the Court considers any objection
thereto as waived.

In any event, the Court finds the Amended Complaint’s dismissal to be in order considering that
petitioner’s cause of action had already prescribed.
It is evident that petitioner ultimately seeks for the reconveyance to her of the subject properties
through the nullification of their supposed sale to Gran. An action for reconveyance is one that seeks
to transfer property, wrongfully registered by another, to its rightful and legal owner.40 Having alleged
the commission of fraud by Gran in the transfer and registration of the subject properties in her
name, there was, in effect, an implied trust created by operation of law pursuant to Article 1456 of
the Civil Code which provides:

Art. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the benefit of the person from whom the property comes. 1âwphi 1

To determine when the prescriptive period commenced in an action for reconveyance, the plaintiff’s
possession of the disputed property is material. If there is an actual need to reconvey the property as
when the plaintiff is not in possession, the action for reconveyance based on implied trust prescribes
in ten (10) years, the reference point being the date of registration of the deed or the issuance of the
title. On the other hand, if the real owner of the property remains in possession of the property, the
prescriptive period to recover titleand possession of the property does not run against him and in
such case,the action for reconveyance would be in the nature of a suit for quieting of title which is
imprescriptible.41

In the case at bar, a reading ofthe allegations of the Amended Complaint failed to show that
petitioner remained in possession of the subject properties in dispute. On the contrary, it can be
reasonably deduced that it was Gran who was in possession ofthe subject properties, there being an
admission by the petitioner that the property covered by TCT No. 224174 was being used by Gran’s
mother-in-law.42 In fact, petitioner’s relief in the Amended Complaint for the "surrender" of three (3)
properties to her bolsters such stance.43 And since the new titles tothe subject properties in the name
of Gran were issued by the Registry of Deeds of Marikina on the following dates: TCT No. 224174
on July 27, 1992,44 TCT No. N-5500 on January 29, 1976,45 and TCT No. N-4234 on November 26,
1975,46 the filing of the petitioner’s complaint beforethe RTC on January 9, 2006 was obviously
beyond the ten-year prescriptive period, warranting the Amended Complaint’s dismissal all the
same.

WHEREFORE, the petition is DENIED. The Decision dated January 10, 2011 and the Resolution
dated June 22, 2011 of the Court of Appeals in CA-G.R. CV No. 87849 are hereby AFFIRMEDwith
MODIFICATION in that the Amended Complaint be dismissed on the grounds of (a) failure to state a
cause of action, and (b) prescription as herein discussed.

SO ORDERED.

April 19, 2016

G.R. No. 195728

PARAMOUNT LIFE & GENERAL INSURANCE CORPORATION, Petitioner,

vs.
CHERRY T. CASTRO and GLENN ANTHONY T. CASTRO, Respondents.
x-----------------------x

G.R. No. 211329

CHERRY T. CASTRO and GLENN ANTHONY T. CASTRO, Petitioners,

vs.
PARAMOUNT LIFE & GENERAL INSURANCE CORPORATION, Respondent

DECISION

SERENO, CJ:

These Petitions for Review on Certiorari under Rule 45 of the Rules of Court originate from a
Complaint1 for Declaration of Nullity of Individual Insurance Contract (Civil Case No. 09-5992). The
Complaint was instituted by Paramount Life and General Insurance Corporation (Paramount) against
Cherry T. Castro and Glenn Anthony T. Castro (Castro’s) and filed before the Regional Trial Court,
Makati City, Branch 61 (RTC), on 2 July 2009.

The Petition3 docketed as G.R. No. 195728 assails the Court of Appeals (CA) Decision4 dated 4
October 2010 and Resolution5 dated 21 February 2011 in CA-G.R. SP No. 113972. The CA
remanded the case to the RTC for the admission of the Castro's Third-Party Complaint against the
Philippine Postal Savings Bank, Incorporated (PPS BI). 6

On the other hand, the Petition 7 docketed as G.R. No. 211329 assails the Resolution8 of the RTC in
Civil Case No. 09-599 dated 11 February 2014. The trial court ordered that the Motion to Dismiss
filed by the defendants (the Castro’s) be deemed expunged from the records, as they had previously
been declared to be in default. Nonetheless, due to the protracted nature of the proceedings, the
RTC allowed the plaintiff no more than two settings for the presentation of evidence.9

These Petitions have been consolidated as they involve the same parties, arise from an identical set
of facts, and raise interrelated issues. 10 The Court resolves to dispose of these cases jointly.

FACTS OF THE CASE

In 2004, the PPSBI applied for and obtained insurance from Paramount, 11 which accordingly issued
Group Master Policy No. G-08612 effective 1 September 2004. Under Section 20, Article IV of the
said policy, "all death benefits shall be payable to the creditor, PPSBI, as its interest may appeal." 13

Meanwhile, Virgilio J. Castro (Virgilio) - Cherry's husband and Glenn's father - obtained a housing
loan from the PPSBI in the amount of Pl .5 million. 14 PPSBI required Virgilio to apply for a mortgage
redemption insurance (MRI) from Paramount to cover the loan. 15 In his application for the said
insurance policy, Virgilio named Cherry and Glenn as beneficiaries. 16 Paramount issued Certificate
No. 041913 effective 12 March 2008 in his favor, subject to the terms and conditions of Group
Master Policy No. G-086. 17

On 26 February 2009, Virgilio died of septic shock. 18 Consequently, a claim was filed for death
benefits under the individual insurance coverage issued under the group policy. 19 Paramount
however denied the claim, on the

ground of the failure of Virgilio to disclose material information, or material concealment or

misrepresentation.20 It said that when Virgilio submitted his insurance application on 12 March 2008,
he made some material misrepresentations by answering "no" to questions on whether he had any
adverse health history and whether he had sought medical advice or consultation concerning it.
Paramount learned that in 2005, Virgilio had sought consultation in a private hospital after
complaining of a dull pain in his lumbosacral area. 21 Because of the alleged material concealment or
misrepresentation, it declared Virgilio's individual insurance certificate (No. 041913) rescinded, null,
and absolutely void from the very beginning.22

On 2 July 2009, Paramount filed a Complaint23 with the RTC docketed as Civil Case No. 09-599. It
prayed that Application and Insurance Certificate No. 041913 covering the individual insurance of
Virgilio be declared null and void by reason of material concealment and misrepresentation. It also
prayed for attorney's fees and exemplary damages.24

In their Answer with Counterclaim, 25 the Castro’s argued that Virgilio had not made any material
misrepresentation. They contended that he had submitted the necessary evidence of insurability to
the satisfaction of

Paramount. They further argued that by approving Virgilio's application, Paramount was estopped
from raising the supposed misrepresentations. 26 The Castro’s made a counterclaim for actual and
exemplary damages, as well

as attorney's fees, for the alleged breach of contract by Paramount arising from its refusal to honor
its obligation as insurer of the Pl.5 million loan.27

STATEMENT OF THE CASES

G.R. No. 195728

On 29 October 2009, the Castros filed a motion28 to include the PPSBI as an indispensible party-
defendant. The RTC thereafter denied the motion, reasoning that Paramount's Complaint could be
fully resolved without the PPSBI's participation. 29

Consequently, the Castro’s filed a Motion for Leave to File a Third Party-Complaint and to Admit
Attached Third-Party Complaint.30 They argued that due to the death of Virgilio, and by virtue of
Group Policy No. G-086 in· relation to Certificate No. 041913, PPSBI stepped into the shoes of
Cherry and Glen under the principle of "indemnity, subrogation, or any other reliefs" found in Section
22, Rule 6 of the Rules of Court.31 This motion was likewise denied, on the ground that "what the
defendants herein want is the introduction of a controversy that is entirely foreign and distinct from
the main cause."32 The Castro’s Motion for Reconsideration was again denied in a Resolution33 dated
19 April 2010

On 13 May 2010, the Castro’s assailed the RTC Resolutions through a Petition for Certiorari filed
with the CA.34They likewise subsequently filed a Motion for Leave of Court to File and to Admit
Attached Supplemental Petition for Review.35

In its Decision36 dated 4 October 2010, the CA partially granted the Petition by allowing a third-party
complaint to be filed against the PPSBI. It ruled that the Castro’s were freed from the obligation to
pay the bank by virtue of subrogation, as the latter would collect the loan amount pursuant to the
MRI issued by Paramount in Virgilio's favor. 37 Paramount moved for reconsideration, but the CA
denied the motion through a Resolution38 dated 21 February 2011.
On 11 April 2011, Paramount filed a Petition for Review under Rule 45, arguing that the case could
be fully appreciated and resolved without involving the PPSBI as a third-party defendant in Civil
Case No. 09-599.39

G.R. No. 211329

Meanwhile, on 7 January 2014, the Castro’s filed a Motion to Dismiss40 the Complaint on the ground
of failure to prosecute for an unreasonable length of time without justifiable cause and to present
evidence ex parte pursuant to a court order. In a Resolution41 dated 11 February 2014, the RTC
denied the motion. Owing to its previous Order dated 26 May 2010, which declared the Castro’s as
in default for failure to attend the pretrial, the RTC treated the Motion to Dismiss as a mere scrap of
paper and expunged it from the records.

The Castro’s come straight to this Court via a Petition for Review42 under Rule 45, assailing the RTC
Resolution dated 11 February 2014.

THE ISSUES

1. Whether the CA erred in remanding the case to the R TC for the admission of the Third-Party
Complaint against PPSBI

2. Whether the RTC erred in denying the Motion to Dismiss filed by the Castro’s

THE COURT'S RULING

G.R. No. 195728

The Castro’s sought to implead the PPSBI as a third-party defendant in the nullification case
instituted by Paramount. They theorized that by virtue of the death of Virgilio and the mandate of the
group insurance policy in relation to his individual insurance policy, the PPSBI stepped into the
shoes of Cherry and Glenn. According to the Castro’s, upon Virgilio's death, the obligation to pay the
third-party defendant (PPSBI) passed on to Paramount by virtue of the Mortgage Redemption
Insurance,43 and not to them as Virgilio's heirs.

In Great Pacific Life Assurance Corp. v. Court of Appeals, 44 we defined mortgage redemption
insurance as a device for the protection of both the mortgagee and the mortgagor:

On the part of the mortgagee, it has to enter into such form of contract so that in the event of the
unexpected demise of the mortgagor during the subsistence of the mortgage contract, the proceeds
from such insurance will

be applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from
paying the obligation. In a similar vein, ample protection is given to the mortgagor under such a
concept so that in the event of death, the mortgage obligation will be extinguished by the application
of the insurance proceeds to the mortgage indebtedness.45

In this case, the PPSBI, as the mortgagee-bank, required Virgilio to obtain an MRI from Paramount
to cover his housing loan. The issuance of the MRI, as evidenced by the Individual Insurance
Certificate in Virgilio's favor, was derived from the group insurance policy issued by Paramount in
favor of the PPSBI. Paramount undertook to pay the PPSBI "the benefits in accordance with the
Insurance Schedule, upon receipt and approval of due proof that the member has incurred a loss for
which benefits are payable."46

Paramount, in opposing the PPSBI's inclusion as a third-party defendant, reasons that it is only
seeking the nullification of Virgilio's individual insurance certificate, and not the group insurance
policy forged between it and the PPSBI. It concludes that the nullification action it filed has nothing to
do with the PPSBI.

We disagree.

Should Paramount succeed in having the individual insurance certificate nullified, the PPSBI shall
then proceed against the Castro’s. This would contradict the provisions of the group insurance policy
that ensure the direct payment by the insurer to the bank:

Notwithstanding the provision on Section 22 "No Assignment" of Article IV Benefit Provisions, and in
accordance with provisions of Section 6 "Amendment of this Policy" under Article II General
Provisions of the Group Policy, it is hereby agreed that all death benefits shall be payable to the
Creditor, Philippine Postal Savings Bank as its interest may appeal.47 (Emphasis supplied.)

In allowing the inclusion of the PPSBI as a third-party defendant, the Court recognizes the
inseparable interest of the bank (as policyholder of the group policy) in the validity of the individual
insurance certificates issued by Paramount. The PPSBI need not institute a separate case,
considering that its cause of action is intimately related to that of Paramount as against the Castro’s.
The soundness of admitting a third-party complaint hinges on causal connection between the claim
of the plaintiff in his complaint and a claim for contribution, indemnity or other relief of the defendant
against the third-party defendant. 48 In this case, the Castro’s stand to incur a bad debt to the PPSBI -
the exact event that is insured against by Group Master Policy No. G-086 - in the event that
Paramount succeeds in nullifying Virgilio's Individual Insurance Certificate.

Paramount further argues that the propriety of a third-party complaint rests on whether the possible
third-party defendant (in this case PPSBI) can raise the same defenses that the third-party plaintiffs
(the Castro’s) have against the plaintiff. However, the Rules do not limit the third-party defendant's
options to such a condition. Thus:

Section 13. Answer to third (fourth, etc.)-party complaint. – A third (fourth, etc.)-party defendant may
allege in his answer his defenses, counterclaims or cross-claims, including such defenses that the
third (fourth, etc.)-party plaintiff may have against the original plaintiffs claim. In proper cases, he
may also assert a counterclaim against the original plaintiff in respect of the latter's claim against the
third-party plaintiff. 49

As seen above, the same defenses the third-party plaintiff has against the original plaintiff are just
some of the allegations a third-party defendant may raise in its answer. Section 13 even gives the
third-party defendant the prerogative to raise a counterclaim against the original plaintiff in respect of
the latter's original claim against the defendant/third-party plaintiff.

In Firestone Tire & Rubber Co. of the Phil. v. Tempongko, 50 We ruled that a defendant is permitted
to bring in a third-party defendant to litigate a separate cause of action in respect of the plaintiffs
claim against a third party in the original and principal case. The objective is to avoid circuitry of
action and unnecessary proliferation of lawsuits, as well as to expeditiously dispose of the entire
subject matter arising from one particular set of facts, in one litigation.
The CA correctly ruled that to admit the Castro’s Third-Party Complaint, in which they can assert
against the PPSBI an independent claim they would otherwise assert in another action, would
prevent multiplicity of suits.51Considering also that the original case from which these. Present
Petitions arose has not yet been resolved, the Court deems it proper to have all the parties air all
their possible grievances in the original case still pending with the RTC.

Finally, the Court resolves the legal issues allegedly ignored by the CA, to wit: 1) whether legal
grounds exist for the inhibition of Judge Ruiz (the presiding judge); and 2) whether the defendants
were properly declared

as in default for failure to appear at pretrial.

The first issue is unmeritorious. Counsel for the Castro’s postulates that since six rulings of the judge
are being assailed for grave abuse of discretion, the judge should inhibit himself.52 According to
counsel, no judge shall sit in any case if the latter's ruling is subject to review. The Court reminds
counsel that the rule contemplates a scenario in which judges are tasked to review their own
decisions on appeal, not when their decisions are being appealed to another tribunal.

With regard to the second issue, counsel apparently confuses a declaration of default under Section
353 of Rule 9 with the effect of failure to appear under Section 554 of Rule 18. Failure to file a
responsive pleading within the reglementary period is the sole ground for an order of default under
Rule 9.55 On the other hand, under Rule 18, failure of the defendant to appear at the pre-trial
conference results in the plaintiff being allowed to present evidence ex parte. The difference is that a
declaration of default under Rule 9 allows the Court to proceed to render judgment granting the
claimant such relief as his pleading may warrant; while the effect of default under Rule 18 allows the
plaintiff to present evidence ex parte and for the Court to render judgment on the basis thereof. The
lower com1 may have declared defendants therein as in default; however, it did not issue an order of
default, rather, it ordered the plaintiff to present evidence ex parte in accordance with the Rules. In
any case, the Castro’s could have availed themselves of appropriate legal remedies when the CA
failed to resolve the issue, but they did not. They cannot now resurrect the issue through a Comment
before this Court.

G.R. No. 211329

As regards G.R. No. 211329, this Court finds that outright denial of the Petition is warranted,
pursuant to our ruling in Rayos v. City of Manila.56 In that case, We ruled that an order denying a
motion to dismiss is interlocutory and, hence, not appealable. 57 That ruling was based on Section 1
(b), Rule 41 of the Rules of Court, as amended, which provides:

SECTION 1. Subject of appeal. - An appeal may be taken from a judgment or final order that
completely disposes of the case, or of a particular matter therein when declared by these Rules to
be appealable.

No appeal may be taken from:

xxxx

(b) An interlocutory order;

xxxx
In all the above instances where the judgment or final order is not appealable, the aggrieved party
may file an appropriate special civil action under Rule 65.

In the present case, the RTC's denial of the Motion to Dismiss was an interlocutory order, as it did
not finally dispose of the case. On the contrary; the denial paved way for the case to proceed until
final adjudication by the trial court.

Upon denial of their Motion to Dismiss, the Castro’s were not left without any recourse. In such a
situation, the aggrieved party's remedy is to file a special civil action for certiorari under Rule 65 of
the Rules of Court. However, the aggrieved parties herein resorted to filing a Petition for Review
under Rule 45 before this Court. Even if the present Petition is treated as one for certiorari under
Rule 65, it must still be dismissed for violation of the principle of hierarchy of courts. This well-settled
principle dictates that petitioners should have filed the Petition for Certiorari with the CA, and not
directly with this Court.

WHEREFORE, premises considered, the Petitions in G.R. Nos. 195728 and 211329 are DENIED.

SO ORDERED.

MARIA LOURDES P.A. SERENO

Chief Justice, Chairperson