113.

) *Rule 3 Section 7 to 12

FIRST DIVISION

G.R. No. 198124, September 12, 2018

JOHN CARY TUMAGAN, ALAM HALIL, AND BOT PADILLA, Petitioners, v. MARIAM K. KAIRUZ, Respondent.

DECISION

JARDELEZA, J.:

This is a petition for review on certiorari1 seeking to set aside the Decision2 dated December 21, 2010
and Resolution3 dated July 22, 2011 of the Court of Appeals (CA) in CA-G.R. SP No. 112613. The CA
granted respondent's petition and reversed the Decision4 dated December 11, 2009 of Branch 10 of the
Regional Trial Court (RTC), La Trinidad, Benguet, which affirmed the dismissal of the complaint for
ejectment on the ground of failure to implead an indispensable party rendered by the 5th Municipal
Circuit Trial Court (MCTC), Tuba-Sablan, Benguet.5

I.

In her complaint for ejectment filed before the MCTC, respondent Mariam K. Kairuz (Mariam) alleged
that she had been in actual and physical possession of a 5.2-hectare property located at Tadiangan,
Tuba, Benguet (property) until May 28, 2007. She alleged that in the afternoon of May 28, 2007,
petitioners John Cary Tumagan (John), Alam Halil (Alam), and Bot Padilla (Bot) conspired with each other
and took possession of the property by means of force, intimidation, strategy, threat, and stealth with
the aid of armed men. After forcibly gaining entry into the property, petitioners then padlocked its three
gates, posted armed men, and excluded Mariam from the property.6 Mariam likewise sought the
issuance of a temporary restraining order (TRO) and/or a writ of preliminary injunction (WPI) against
petitioners.7

In their answer, petitioners averred that Mariam could not bring the present action for forcible entry
because she was never the sole owner or possessor of the property.8 They alleged that Mariam is the
spouse of the late Laurence Ramzy Kairuz (Laurence), who co-owned the property with his sisters, Vivien
Kairuz (Vivien) and Elizabeth D' Alessandri (Elizabeth). Petitioners claimed that the property is a good
source of potable water and is publicly known as Kairuz Spring. During his lifetime, Laurence, in his own
capacity and as attorney-in-fact for his sisters, entered into a Memorandum of Agreement9 (MOA) with
Balibago Waterworks System Incorporated (BWSI) and its affiliate company, PASUDECO, to establish a
new corporation, Bali Irisan Resources, Inc. (BIRI). As stipulated in the MOA, Laurence and his two sisters
will sell the property containing Kairuz Spring and other improvements to BIRI for P115,000,000.00.
Eventually, the Kairuz family sold the property, including the bottling building, Kairuz Spring,
machineries, equipment, and other facilities following the terms of the MOA. BIRI took full possession
over the property and caused new certificates of title10 to be issued. BIRI is 30% owned by the Kairuz
family and 70% owned by BWSI and its allied company, PASUDECO. Its Board of Directors is composed of
seven members, with a three-person Management Committee (ManCom) handling its day-to-day
operations. The one seat accorded to the Kairuz family in the ManCom was initially occupied by
Laurence, while the two other seats in the ManCom were occupied by John and one Victor Hontiveros.
Petitioners alleged that Mariam was aware of the MOA, the ManCom, and of the operations of the BIRI
properties precisely because she succeeded Laurence's seat in the Board of Directors and ManCom after
his death.11

Petitioners also asserted that under the MOA, the Kairuz family assigned their Baguio Spring Mineral
Water Corporation (BSMWC) shares and water rights through the BSMWC water permit. The MOA also
stipulated the continued operation of the truck water business by the Kairuzes and this was honored by
BIRI. However, this privilege enjoyed by the Kairuzes is contingent on their compliance with their own
obligations and conditions as set forth in the MOA. Unfortunately, upon Mariam's assumption of the
truck water business as well as Lexber Subdivision water service, she started to commit actions in
conflict with the best interest of BIRI, such as: (a) she opposed the required transfer of the BSMWC
water permit to BIRI before the National Water Resources Board; (b) she intervened in the case filed by
Baguio Water District against BIRI, weakening BIRI's position; (c) she filed a complaint before the RTC of
Angeles City questioning the Deed of Assignment of the BSMWC shares executed by the Kairuz family in
favor of BIRI; and (d) she asked the barangay officials at Tadiangan, Tuba and Sangguniang Bayan
Members of Tuba to deny BIRI's offer to service the water requirements of Tuba residents.12 This
prompted BIRI's shareholders to write Mariam regarding her default on the provisions of the MOA,
warning her that unless appropriate remedies are fulfilled, the MOA will be terminated.13 Mariam
refused to receive the registered mail sent by BIRI14 and ignored their official communications,
choosing instead to file the present ejectment complaint against petitioners.15

Furthermore, petitioners claimed that contrary to Mariam's allegations, on May 28, 2007, BIRI, as a
corporation and owner of the spring property, merely exercised its legal right to prevent unauthorized
persons from entering its property. The deployment of licensed security guards was intended to secure
its property and prevent forcible entry into the area, specifically by people who are "persona non-grata"
to the company.16
Petitioners claim that the MCTC has no jurisdiction over the action filed by Mariam because the same is
an intra-corporate dispute which falls under the jurisdiction of the appropriate RTC. They further assert
that BIRI's actions in terminating the MOA, disallowing entry of unauthorized persons, and the
continuance of Mariam's truck water business are all pursuant to the MOA, which is the law between
the parties. Thus, petitioners prayed for the dismissal of the complaint.17

On March 9, 2009, the MCTC dismissed the case due to Mariam's failure to implead BIRI, an
indispensable party.18 It ruled that the joinder of all indispensable parties must be made under any and
all conditions, their presence being sine qua non to the exercise of judicial power. Thus, although it
made a finding on Mariam's prior physical possession of the property, ultimately, the MCTC ruled that if
an indispensable party is not impleaded, as in this case, there can be no final determination of the
action.19

On appeal, the RTC upheld the MCTC's dismissal of the case. It ruled that since petitioners were able to
establish that they acted as mere employees or agents of BIRI, the issue of possession cannot be
resolved without the court first acquiring jurisdiction over BIRI. The defendants in the complaint for
ejectment are John, the branch manager of BIRI who carried out BIRI 's order to secure the property
with the assistance of security guards, Alam, and Bot, who are both licensed geodetic engineers hired by
BIRI to conduct a location survey of the property. The facts clearly show that they all acted in behalf of
BIRI which was, in tum, allegedly exercising its right of possession as the owner of the property that
would be benefited or injured by the judgment.20

Aggrieved, Mariam filed a petition for review before the CA.

On December 21, 2010, the CA granted the petition and reversed the RTC Decision. It ruled that the
MCTC and the RTC should have limited the issue to who had prior physical possession of the disputed
land. It ruled that the MCTC erred in dismissing Mariam's complaint because of a technical rule of failure
to implead an indispensable party, BIRI. It pointed out that Rule 3, Section 11 of the Rules of Court
provides that neither misjoinder nor non-joinder of parties is a ground for the dismissal of an action. The
remedy is to implead the non-party claimed to be indispensable either by order of the court on motion
of the party or on its own initiative at any stage of the action. If the party refuses to implead the
indispensable party despite order of the court, then the latter may dismiss the complaint/petition for
the plaintiffs failure to comply therewith. Here, the CA held that the records do not disclose that there
was such an order for petitioners to implead the supposed indispensable party, thus, dismissal of the
case for failure to implead BIRI is improper.21 Furthermore, since BIRI owns the property and pursuant
to the MOA, the Kairuzes own 30% of BIRI, then Mariam, who was unlawfully ousted from the property
by mere employees of BIRI, may file the case for ejectment. Furthermore, under Article 487 of the Civil
Code, any one of the co-owners may bring an action for ejectment without necessarily joining all other
co-owners. The CA, thus, upheld Mariam's right to possess the property concurrently with her co-
owners.22 The dispositive portion of the CA Decision reads:
WHEREFORE, the Decision of the Regional Tr[ia]l Court dated December 11, 2009 is REVERSED and SET
ASIDE. In lieu thereof, judgment is hereby rendered, ordering:

a)

Respondents, their agents, deputies and employees and all persons under them, to allow petitioner's
entry to the subject premises; and

b)

Respondents to pay petitioner the amount of P25,000.00 as attorney's fees.

SO ORDERED.23

Hence, this petition for review where petitioners argue that the CA gravely erred in: (1) reversing the
Decisions of the MCTC and the RTC dismissing the complaint for failure to implead BIRI, an indispensable
party; (2) agreeing with Mariam's baseless claim of possession; and (3) not finding that the issues are
intra-corporate in nature which should be best resolved before the RTC in Angeles City.24

The petition is meritorious.

An indispensable party is a party in interest without whom no final determination can be had of an
action and who shall be joined either as plaintiffs or defendants. The presence of indispensable parties is
necessary to vest the court with jurisdiction.25

Here, as correctly held by the MCTC and the RTC, it is indisputable that BIRI is an indispensable party,
being the registered owner of the property and at whose behest the petitioner-employees acted.26
Thus, without the participation of BIRI, there could be no full determination of the issues in this case
considering that it was sufficiently established that petitioners did not take possession of the property
for their own use but for that of BIRI's. Contrary to the CA's opinion, the joinder of indispensable parties
is not a mere technicality. We have ruled that the joinder of indispensable parties is mandatory and the
responsibility of impleading all the indispensable parties rests on the plaintiff.27 In Domingo v.
Scheer,28 we ruled that without the presence of indispensable parties to the suit, the judgment of the
court cannot attain real finality. Otherwise stated, the absence of an indispensable party renders all
subsequent actions of the court null and void for want of authority to act not only as to the absent
party but even as to those present.29

In this case, while the CA correctly pointed out that under Rule 3, Section 11 of the Rules of Court,
failure to implead an indispensable party is not a ground for the dismissal of an action, it failed to take
into account that it remains essential that any indispensable party be impleaded in the proceedings
before the court renders judgment.30 Here, the CA simply proceeded to discuss the merits of the case
and rule in Mariam's favor, recognizing her prior physical possession of the subject property. This is not
correct. The Decision and Resolution of the CA in this case is, therefore, null and void for want of
jurisdiction, having been rendered in the absence of an indispensable party, BIRI.31

Nonetheless, while a remand of the case to the MCTC for the inclusion of BIRI, the non-party claimed to
be indispensable, seems to be a possible solution, a review of the records reveals that the remand to the
MCTC is not warranted considering that the MCTC itself did not acquire jurisdiction over Mariam's
complaint for forcible entry.

From the beginning, petitioners were consistent in their position that the MCTC has no jurisdiction over
the action filed by Mariam. They claim that Mariam is not only a shareholder of BIRI, she is also the
successor of her late husband, Laurence, and the case involves management of corporate property, an
intra-corporate dispute which falls under the jurisdiction of the appropriate commercial court. Thus,
pursuant to Article XII of the MOA,32 Mariam should have brought the case before the RTC of Angeles,
Pampanga.33 Petitioners also argue that Mariam has already filed a case earlier against BIRI for
annulment of the Deed of Assignment before the RTC of Angeles City, that this case is merely an
attempt to split causes of action, and that Mariam purposely did not mention material facts in order to
obtain a favorable judgment. Petitioners likewise point out that Mariam cannot feign ignorance that
petitioners were merely acting on the orders of BIRI considering that both Mariam and John are
members of the same ManCom which oversaw the day-to-day business operations of BIRI.34

In Matling Industrial and Commercial Corporation v. Coros,35 the Court summarized the guidelines for
determining whether a dispute constitutes an intra-corporate controversy or not. There, we held that in
order that the SEC (now the RTC)36 can take cognizance of a case, the controversy must pertain to any
of the following relationships: (a) between the corporation, partnership, or association and the public;
(b) between the corporation, partnership, or association and its stockholders, partners, members, or
officers; (c) between the corporation, partnership, or association and the State as far as its franchise,
permit, or license to operate is concerned; and (d) among the stockholders, partners, or associates
themselves. However, not every conflict between a corporation and its stockholders involves corporate
matters. Concurrent factors, such as the status or relationship of the parties, or the nature of the
question that is the subject of their controversy, must be considered in determining whether the SEC
(now the RTC) has jurisdiction over the controversy.37

Here, the Court considers two elements in determining the existence of an intra-corporate controversy,
namely: (a) the status or relationship of the parties; and (b) the nature of the question that is the subject
of their controversy.38

As discussed earlier, the parties involved in the controversy are respondent Mariam (a shareholder of
BIRI and successor to her late husband's position on the ManCom), petitioner John (then the branch
manager, shareholder, and part of the BIRI ManCom), and petitioners Bot and Alam (licensed geodetic
engineers engaged by BIRI for a contract to survey the property subject of the dispute). The controversy
also involves BIRI itself, the corporation of which Mariam is a shareholder, and which through Board
Resolutions No. 2006-0001,39 2007-000440 and 2007-000541 authorized John, its branch manager, to
do all acts fit and necessary to enforce its corporate rights against the Kairuz family, including the
posting of guards to secure the property. The controversy is thus one between corporation and one of
its shareholders.

Moreover, the CA erred in characterizing the action as an ejectment case filed by a co-owner who was
illegally deprived of her right to possess the property by the presence of armed men.

TheCA ruled that since the Kairuzes own 30% of the shares of stocks of BIRI, Mariam, as a co-owner who
was unlawfully ousted from BIRI property by its employees, may bring an action for ejectment against
the employees. This is not correct.

Here, it is undisputed that the property has already been transferred to BIRI and registered in its
name.42 It is likewise undisputed that based on the MOA, the Kairuzes own 30% of the outstanding
capital stock of BIRI. This, however, does not make Mariam a co-owner of the property of BIRI, including
the property subject of this case. Shareholders are in no legal sense the owners of corporate property,
which is owned by the corporation as a distinct legal person.43 At most, Mariam's interest as a
shareholder is purely inchoate, or in sheer expectancy of a right, in the management of the corporation
and to share in its profits, and in its properties and assets on dissolution after payment of the corporate
debts and obligations.44

While Mariam insists that the case is one for forcible entry where the only issue is the physical
possession and not ownership of the property, her prior physical possession has not been established in
the courts below. In fact, the MCTC found that prior to the events of May 28, 2007, both petitioners and
respondent were in actual possession of the property: petitioners, on behalf of BIRI as the owner of the
property, and respondent Mariam, by virtue of the accommodation granted to her by BIRI under the
MOA allowing her to continue her water reloading business on the property even after the transfer of its
ownership to BIRI.45

In sum, what appears on record as the true nature of the controversy is that of a shareholder seeking
relief from the court to contest the management's decision to: (1) post guards to secure the premises of
the corporate property; (2) padlock the premises; and (3) deny her access to the same on May 28, 2007
due to her alleged default on the provisions of the MOA.

Thus, we agree with petitioners that while the case purports to be one for forcible entry filed by Mariam
against BIRI's employees and contractors in their individual capacities, the true nature of the
controversy is an intra-corporate dispute between BIRI and its shareholder, Mariam, regarding the
management of, and access to, the corporate property subject of the MOA. We therefore find that the
MCTC never acquired jurisdiction over the ejectment case filed by Mariam.

WHEREFORE, the petition is GRANTED. The Decision dated December 21, 2010 and Resolution dated
July 22, 2011 of the Court of Appeals in CA-G.R. SP No. 112613 are REVERSED and SET ASIDE. The
complaint for ejectment in Civil Case No. 272 filed before the 5th Municipal Circuit Trial Court, Tuba-
Sablan, Benguet, is DISMISSED for lack of jurisdiction.

SO ORDERED.
114.) * Rule 3 Section 13 to 19 : parties to a civil Action

G.R. No. L-58028 April 18, 1989

CHIANG KAI SHEK SCHOOL, petitioner,

vs.
COURT OF APPEALS and FAUSTINA FRANCO OH, respondents.

CRUZ, J.:

An unpleasant surprise awaited Fausta F. Oh when she reported for work at the Chiang Kai Shek
School in Sorsogon on the first week of July, 1968. She was told she had no assignment for the next
semester. Oh was shocked. She had been teaching in the school since 1932 for a continuous period
of almost 33 years. And now, out of the blue, and for no apparent or given reason, this abrupt
dismissal.

Oh sued. She demanded separation pay, social security benefits, salary differentials, maternity
benefits and moral and exemplary damages. 1 The original defendant was the Chiang Kai Shek School but when it filed a
motion to dismiss on the ground that it could not be sued, the complaint was amended. 2 Certain officials of the school were also impleaded
to make them solidarily liable with the school.

The Court of First Instance of Sorsogon dismissed the complaint. 3 On appeal, its decision was set aside by the
respondent court, which held the school suable and liable while absolving the other defendants. 4 The motion for reconsideration having
been denied, 5 the school then came to this Court in this petition for review on certiorari.

The issues raised in the petition are:

1. Whether or not a school that has not been incorporated may be sued by reason alone of its long
continued existence and recognition by the government,

2. Whether or not a complaint filed against persons associated under a common name will justify a
judgment against the association itself and not its individual members.

3. Whether or not the collection of tuition fees and book rentals will make a school profit-making and
not charitable.

4. Whether or not the Termination Pay Law then in force was available to the private respondent
who was employed on a year-to-year basis.

5. Whether or not the awards made by the respondent court were warranted.

We hold against the petitioner on the first question. It is true that Rule 3, Section 1, of the Rules of
Court clearly provides that "only natural or juridical persons may be parties in a civil action." It is also
not denied that the school has not been incorporated. However, this omission should not prejudice
the private respondent in the assertion of her claims against the school.

As a school, the petitioner was governed by Act No. 2706 as amended by C.A. No. 180, which
provided as follows:
 Unless exempted for special reasons by the Secretary of Public Instruction, any
private school or college recognized by the government shall be incorporated under
the provisions of Act No. 1459 known as the Corporation Law, within 90 days after
the date of recognition, and shall file with the Secretary of Public Instruction a copy of
its incorporation papers and by-laws.

Having been recognized by the government, it was under obligation to incorporate under the
Corporation Law within 90 days from such recognition. It appears that it had not done so at the time
the complaint was filed notwithstanding that it had been in existence even earlier than 1932. The
petitioner cannot now invoke its own non-compliance with the law to immunize it from the private
respondent's complaint.

There should also be no question that having contracted with the private respondent every year for
thirty two years and thus represented itself as possessed of juridical personality to do so, the
petitioner is now estopped from denying such personality to defeat her claim against it. According to
Article 1431 of the Civil Code, "through estoppel an admission or representation is rendered
conclusive upon the person making it and cannot be denied or disproved as against the person
relying on it."

As the school itself may be sued in its own name, there is no need to apply Rule 3, Section 15,
under which the persons joined in an association without any juridical personality may be sued with
such association. Besides, it has been shown that the individual members of the board of trustees
are not liable, having been appointed only after the private respondent's dismissal. 6

It is clear now that a charitable institution is covered by the labor laws 7 although the question was still unsettled when this case arose in
1968. At any rate, there was no law even then exempting such institutions from the operation of the labor laws (although they were exempted
by the Constitution from ad valorem taxes). Hence, even assuming that the petitioner was a charitable institution as it claims, the private
respondent was nonetheless still entitled to the protection of the Termination Pay Law, which was then in force.

While it may be that the petitioner was engaged in charitable works, it would not necessarily follow
that those in its employ were as generously motivated. Obviously, most of them would not have the
means for such charity. The private respondent herself was only a humble school teacher receiving
a meager salary of Pl80. 00 per month.

At that, it has not been established that the petitioner is a charitable institution, considering
especially that it charges tuition fees and collects book rentals from its students. 8 While this alone may not
indicate that it is profit-making, it does weaken its claim that it is a non-profit entity.

The petitioner says the private respondent had not been illegally dismissed because her teaching
contract was on a yearly basis and the school was not required to rehire her in 1968. The argument
is that her services were terminable at the end of each year at the discretion of the school.
Significantly, no explanation was given by the petitioner, and no advance notice either, of her relief
after teaching year in and year out for all of thirty-two years, the private respondent was simply told
she could not teach any more.

The Court holds, after considering the particular circumstance of Oh's employment, that she had
become a permanent employee of the school and entitled to security of tenure at the time of her
dismissal. Since no cause was shown and established at an appropriate hearing, and the notice then
required by law had not been given, such dismissal was invalid.

The private respondent's position is no different from that of the rank-and-file employees involved
in Gregorio Araneta University Foundation v. NLRC, 9 of whom the Court had the following to say:
 Undoubtedly, the private respondents' positions as deans and department heads of
the petitioner university are necessary in its usual business. Moreover, all the private
respondents have been serving the university from 18 to 28 years. All of them rose
from the ranks starting as instructors until they became deans and department heads
of the university. A person who has served the University for 28 years and who
occupies a high administrative position in addition to teaching duties could not
possibly be a temporary employee or a casual.

The applicable law is the Termination Pay Law, which provided:

SECTION 1. In cases of employment, without a definite period, in a commercial,

industrial, or agricultural establishment or enterprise, the employer or the employee
may terminate at any time the employment with just cause; or without just cause in
the case of an employee by serving written notice on the employer at least one
month in advance, or in the case of an employer, by serving such notice to the
employee at least one month in advance or one-half month for every year of service
of the employee, whichever, is longer, a fraction of at least six months being
considered as one whole year.

The employer, upon whom no such notice was served in case of termination of
employment without just cause may hold the employee liable for damages.

The employee, upon whom no such notice was served in case of termination of
employment without just cause shall be entitled to compensation from the date of
termination of his employment in an I amount equivalent to his salaries or wages
correspond to the required period of notice. ... .

The respondent court erred, however, in awarding her one month pay instead of only one-half month
salary for every year of service. The law is quite clear on this matter. Accordingly, the separation pay
should be computed at P90.00 times 32 months, for a total of P2,880.00.

Parenthetically, R.A. No. 4670, otherwise known as the Magna Carta for Public School Teachers,
confers security of tenure on the teacher upon appointment as long as he possesses the required
qualification. 10 And under the present policy of the Department of Education, Culture and Sports, a teacher becomes permanent and
automatically acquires security of tenure upon completion of three years in the service. 11

While admittedly not applicable to the case at bar, these I rules nevertheless reflect the attitude of the government on the protection of the
worker's security of tenure, which is now guaranteed by no less than the Constitution itself. 12

We find that the private respondent was arbitrarily treated by the petitioner, which has shown no cause for her removal nor had it given her
the notice required by the Termination Pay Law. As the respondent court said, the contention that she could not report one week before the
start of classes is a flimsy justification for replacing her. 13 She had been in its employ for all of thirty-two years. Her record was apparently
unblemished. There is no showing of any previous strained relations between her and the petitioner. Oh had every reason to assume, as she
had done in previous years, that she would continue teaching as usual.

It is easy to imagine the astonishment and hurt she felt when she was flatly and without warning told
she was dismissed. There was not even the amenity of a formal notice of her replacement, with
perhaps a graceful expression of thanks for her past services. She was simply informed she was no
longer in the teaching staff. To put it bluntly, she was fired.

For the wrongful act of the petitioner, the private respondent is entitled to moral damages. 14 As a
proximate result of her illegal dismissal, she suffered mental anguish, serious anxiety, wounded feelings and even besmirched reputation as
an experienced teacher for more than three decades. We also find that the respondent court did not err in awarding her exemplary damages
because the petitioner acted in a wanton and oppressive manner when it dismissed her. 15
The Court takes this opportunity to pay a sincere tribute to the grade school teachers, who are always at the forefront in the battle against
illiteracy and ignorance. If only because it is they who open the minds of their pupils to an unexplored world awash with the magic of letters
and numbers, which is an extraordinary feat indeed, these humble mentors deserve all our respect and appreciation.

WHEREFORE, the petition is DENIED. The appealed decision is AFFIRMED except for the award of
separation pay, which is reduced to P2,880.00. All the other awards are approved. Costs against the
petitioner.

This decision is immediately executory.

SO ORDERED.
115.) *Rule 3 Section 13 to 19: parties to a civil Action

G.R. Nos. L-42699 to L-42709 May 26, 1981

THE HEIRS OF THE LATE FLORENTINA NUGUID VDA. DE HABERER, petitioner,

vs.
COURT OF APPEALS, ** FEDERICO MARTINEZ, BALDOMERO MANALO, FAUSTINO BAGALAWIS, FEDERICO STA.
TERESA, ANGELITO KING, GREGORIO DEL ROSARIO, LEODOVICO TORRES, LEON SORIANO, SANTIAGO TUMANG, LUIS
PASTOR and CRISTINO LIBRAMANTE, respondents.

TEEHANKEE, J.: 1äwph ï1.ñët

The Court grants the petition for review by way of appeal from the Resolutions of respondent Court
of Appeals dated November 24, 1975 and January 15, 1976 dismissing the appeal of the late
Florentino Nuguid Vda. de Haberer in CA-G. R. No. 53680—90-R and ordering all pleadings filed in
said cases after the death of said appellant stricken off the records, for having been issued with
grave error of law if not with grave abuse of discretion and remands the case for proper proceedings
and determination of the appeal on the merits.

This case originated from the Court of First Instance of Rizal where the late Florentina Nuguid Vda.
de Haberer as the duly registered owner filed in 1964 and 1965 (11) complaints for recovery of
possession of the parcel of land evidenced by Transfer Certificate of Title No. 15043 of the Register
of Deeds of Rizal issued in her name, situated at Mandaluyong, Rizal, alleging that private
respondents had surreptitiously entered the land and built their houses thereon.

The lower court, after trial on the merits, rendered a consolidated decision, dated May 26, 197 l,
dismissing all the complaints. On motion of the late Florentina Nuguid Vda. de Haberer the cases
were reopened and retried on grounds of newly discovered evidence. On September 15, 1972, the
lower court issued an order reviving its decision of May 26, 1971. The decision was thus appealed to
the Court of Appeals.

In the Court of Appeals, the cases were erroneously dismissed once before, on the ground that the
appeal was allegedly filed out of time. The issue was brought to this Court in Cases Nos. L-39366
and L-39620-29, entitled "Florentina Nuguid Vda. de Haberer vs. Federico Martinez, et al., 1 On
January 29, 1975, this Court rendered its judgment setting aside the appellate court's dismissal of
the appeal and ordering the reinstatement of the same for proper disposition on the merits, having
found "that contrary to respondent court's erroneous premises and computation, petitioner duly and
timely perfected her appeal within the reglementary period and in compliance with the material data
rule requiring that the Record on Appeal state such data as will show that the appeal was perfected
on time. "

The cases were remanded to the Court of Appeals where appellant was required to file printed brief
within forty-five days from her receipt of notice. Three days before the period was to expire, or on
June 18, 1975, appellant's counsel requested for an extension of time within which to file appellant's
brief. Respondent court in a resolution dated June 23, 1975 granted the request and gave appellant
a 90-day extension (with warning of no further extension) from receipt on June 27, 1975 or up to
September 25, 1975 within which to file the appellant's printed brief. On June 23, 1975, private
respondent opposed the extension by filing a "Motion to Set Aside Order Granting Extension of Time
to File Brief." Appellant was directed by respondent court to comment on the said opposition and
appellant's counsel complied by submitting its comments on July 15, 1975.
In the meantime, appellant Florentina Nuguid Vda. de Haberer had died on May 26, 1975.
Appellant's counsel Attorneys Bausa, Ampil and Suarez accordingly gave respondent court notice of
the death of their client in their motion of June 28, 1975 and asked for the suspension of the running
of the period within which to file the appellant's brief pending the appointment of an executor of the
estate left by their client in the Court of First Instance of Quezon City (Sp. Proc. No. Q-2026) where
a petition for the probate of the alleged will of the deceased had been filed by another lawyer, Atty.
Sergio Amante. Respondents in turn contended that the lawyers of he deceased had "no longer any
legal standing and her atorneys could no longer act for and in her behalf for the reason that their
client-attorney relationship had been automatically erminated or severed" and asked that the appeal
be dismissed for failure to prosecute." 2

Since their motion of June 28, 1975 remained unacted upon and the original extension granted by
the respondent court for the deceased appellant to file her printed brief was about to expire, her
counsel filed on September 18, 1975 a manifestation and/or motion asking either for an extension of
sixty (60) days and/or resolution suspending the running of the period within which to submit
appellant's printed brief. Still, respondent, court remained silent.

Not certain whether their services would still be retained by the heirs of the deceased, counsel for
the late Florentina Nuguid Vda. de Haberer reiterated their request in a motion dated November 14,
1975 either for an extension of time to file appellant's brief or for the issuance of a resolution
suspending the running of the period for filing the same, pending the appointment of an administrator
or executor of the estate of the deceased appellant.

Finally, acting on counsel's motion of November 14, 1975, respondent court denied the request for
extension and at the same time dismissed the appeal, ruling in its resolution dated November 24,
1975 as follows:1äwphï1.ñët

Upon consideration of the manifestation and/or for another extension to file

appellant's brief dated November 14, 1975, filed by counsel for the appellant on the
grounds therein stated, and considering that appellant has already been given a total
of one hundred ninety-five (195) days within which to file brief, the Court Resolved to
deny the motion for another extension to file brief and to dismiss the appeal.

Counsel for the deceased appellant forthwith filed their urgent motion for reconsideration of
December 8, 1975 explaining their predicament that the requests for extension/suspension of period
to file brief was due to the uncertainty that their services may no longer be retained by the heirs or
legal representatives of their deceased client but they felt obligated to preserve the right of such
heirs/successors to continue the appeal pursuant to Rule 3, Section 17 of the Rules of Court,
pending the settlement of the question of who among them should be the executor of the deceased's
estate and presented therewith, for admission, the printed "brief for the appellant" the printing of
which they had deferred "for professional ethical considerations," pending respondent court's action
on their request for suspension of the period. They further submitted therewith copies of 2 separate
orders of September 3, 1975 and August 26, 1975 issued by the Court of Agrarian Relations and the
Court of First Instance both at Guimba, Nueva Ecija, respectively, wherein the deceased Florentina
Nuguid Vda. de Haberer was party-defendant, granting the deceased's counsel's prayer to hold in
abeyance further proceedings therein pending the appointment of an administrator for the estate of
the deceased.

Respondent court, however, denied reconsideration, per its Resolution of January 15, 1976 citing
the general principle that "litigants have no right to assume that such extensions will be granted as a
matter of course." But respondent court erred in applying this general principle and summarily
denying reconsideration and denying admission of the appellant's brief conditioned upon the
administrator of the deceased's estate making his appearance upon his appointment and being
granted leave to file his supplemental brief/memorandum, 3 in view of the intervening event of
appellant's death and the interposition of the equally established principle that the relation of attorney
and client is terminated by the death of the client, as acknowledged by respondent court itself as well
as respondents. ln the absence of a retainer from the heirs or authorized representatives of his
deceased client, the attorney would thereafter have no further power or authority to appear or take
any further action in the case, save to inform the court of the client's death and take the necessary
steps to safeguard the deceased's rights in the case.

This is what the deceased's counsel did in the case at bar. They properly informed respondent court
of the death of the appellant and sought suspension of the proceedings and of the period for filing
appeliant's brief pending the appointment of the executor of the deceased's estate in the proper
probate proceedings filed with the Court of First Instance of Quezon City. Section 17, Rule 3 of the
Rules of Court 4 sets the rule on substitution of parties in case of death of any of the parties. Under
the Rule, it is the court that is called upon, after notice of a party's death and the claim is not thereby
extinguished, to order upon proper notice the legal representative of the deceased to appear within a
period of 30 days or such tlnie as it may grant. Since no administrator of the estate of the deceased
appellant had yet been appointed as the same was still pending determination in the Court of First
Instance of Quezon City, the motion of the deceased's counsel for the suspension of the running of
the period within which to file appellant's brief was well-taken. More, under the Rule, it should have
set a period for the substitution of the deceased party with her legal representative or heirs, failing
which, the court is called upon to order the opposing party to procure the appointment of a legal
representative of the deceased at the cost of the deceased's estate, and such representative shall
then "immediately appear for and on behalf of the interest of the deceased."

Respondent court gravely erred in not following the Rule and requiring the appearance of the legal
representative of the deceased and instead dismissing the appeal of the deceased who yet had to
be substituted in the pending appeal. Thus, it has been held that when a party dies in an action that
survives, and no order is issued by the court for the appearance of the legal representative or of the
heirs of the deceased in substitution of the deceased, and as a matter of fact no such substitution
has ever been effected, the trial held by the court without such legal representatives or heirs and the
judgment rendered after such trial are null and void because the court acquired no jurisdiction over
the persons of the legal representatives or of the heirs upon whom the trial and the judgment would
be binding. 5

Respondent court therefore erred in ruling that since upon the demise of the party-appellant, the
attorney-client relationship between her and her counsels "was automatically severed and
terminated," whatever pleadings filed by said counsel with it after the death of said appellant "are
mere scraps of paper." 6 If at all, due to said death on May 25, 1975 and severance of the attorney-
client relationship, further proceedings and specifically the running of the original 45-day period for
filing the appellnt's brief should be legally deemed as having been automatically suspended, until the
proper substitution of the deceased appellant by her executor or administrator or her heirs shall have
been effected within the time set by respondent court pursuant to the cited Rule.

Respondent court likewise gravely erred in dismissing the appeal on "(its) belief that the supervening
death of the appellant Florentina Nuguid Vda. de Haberer rendered the continuance of the appeal
unnecessary" on the basis of a totally inapplicable citation of a ruling in Velasco vs. Rosenberg, 29
Phil. 212, 214 that "If pending appeal, an event occurs which renders it impossible for the appellate
court to grant any relief, the appeal will be dismissed." Manifestly, the appenant's death in no way
impedes that the deceased's appeal to recover the parcel of land registered in her name be
continued and determined for the benefit of her estate and heirs.
Prescinding from the foregoing, justice and equity dictate under the circumstances of the case at bar
that the rules, while necessary for the speedy and orderly administration of justice, should not be
applied with the rigidity and inflexibility of respondent court's resolutions. 7 What should guide judicial
action is the principle that a party litigant is to be given the fullest opportunity to establish the merits
of his complaint or defense rather than for him to lose life, liberty, honor or property on
technicalities. 8 A liberal, rather than a strict and inflexible adherence to the Rules, is justified not only
because appellant (in this case, her estate and/or heirs) should be given every opportunity to be
heard but also because no substantial injury or prejudice can well be caused to the adverse parties
principally, since they are in actual possession of the disputed land. 9 The better and certainly the
more prudent course of action in every judicial proceeding is to hear both sides and decide on the
merits rather than dispose of a case on technicalities, 10 especially where no substantial prejudice is
caused to the adverse party. 11

The dismissal of an appeal based on the appellant's failure to file brief is based on a power granted
to respondent Court of Appeals and not on a specific and mandatory duty imposed upon it by the
Rules. 12 Since the power or authority is not mandatory but merely directory, the exercise thereof
requires a great deal of circumspection, considering all the attendant circumstances. 13 The failure of
an appellant to file his brief within the time prescribed does not have the effect of dismissing the
appeal automatically. 14 Rather, the Court of Appeals has the discretion to dismiss or not to dismiss
appellant's appeal, which discretion must be a sound one to be exercised in accordance with the
tenets of justice and fair play having in mind the circumstances obtaining in each case. l5

Paraphrasing what the Court stressed in the leading case of Berkenkotter vs. Court of Appeals, 16 a reading of the appellant's brief discloses
that petitioners-appellants have a prima facie meritorious case which should be properly determined on the merits and "the element of rigidity
should not be affixed to procedural concepts and made to cover the matter," 17 for to dismiss the appeal would not serve the ends of justice.

A final note: On March 19, 1976, counsels submitted with their Manifestation the written authority
dated January 20, 1976 individually signed by instituted heirs and/or legal representatives of the
testate estate of the deceased Florentina Nuguid Vda. de Haberer granting said counsels full
authority to file and prosecute the case and any other incidental cases for and in their behalf, 18 which
was duly noted in the Court's Resolution of March 26, 1976. Such manifestation and authority may
be deemed the formal substitution of the deceased by her heirs, as in fact they appear as petitioners
in the title of the case at bar. Hence, the proper determination of the pending appeal may now
proceed, as herein directed.

ACCORDINGLY, the petition is granted and respondent court's resolutions of November 24, 1975
and January 15, 1976 are set aside. The appellant's brief filed with respondent court in the pending
appeal in CA-G.R. Nos. 53680-90-R is ordered admitted and the cases are remanded to respondent,
Court of Appeals for further proceedings and proper determination of the appeal on the merits. With
costs against private respondents.

The Court has noted that upon recommendation of the Solicitor General in Adm. Case No. 2148
entitled "Francisco Ortigas, Jr., et al. vs. Atty. Felipe C. Navarro" that counsel for respondents Felipe
C. Navarro be disbarred for "gross misconduct and/or malpractice," he has been suspended from the
practice of law during the pendency of said proceedings. The Court, however, directs that copy of
this decision be served on said counsel for the sole purpose of apprising private respondents
through him of the promulgation of this judgment and to require respondents (1) to inform the Court
of their new counsel, if any, and to direct him to enter his appearance or (2) if they have no new or
other counsel, to inform the Court of their respective addresses for purposes of service of the Court's
processes, within ten (10) days from notice hereof.
116.) Rule 3 Section 13 to 19 : parties to a civil Action

G.R. No. 121510 November 23, 1995

FABIANA C. VDA. DE SALAZAR, petitioner,

vs.
COURT OF APPEALS, PRIMITIVO NEPOMUCENO and EMERENCIANA
NEPOMUCENO, respondents.

HERMOSISIMA, JR., J.:

Where the defendant in an ejectment case dies before the rendition by the trial court of its decision
therein, does the trial court's failure to effectuate a substitution of heirs before its rendition of
judgment render such judgment jurisdictionally infirm?

On July 23, 1970, both private respondents Primitive Nepomuceno and Emerenciana Nepomuceno
filed separate complaints1 with the then Court of Agrarian Relations of Malolos, Bulacan, for
ejectment on the ground of personal cultivation and conversion of land for useful non-agricultural
purposes against petitioner's deceased husband, Benjamin Salazar. After protracted proceedings in
the agrarian court and then the Regional Trial Court2 spanning from 1970 to 1993, the trial court
rendered its joint decision3 in favor of private respondents. An appeal4 therefrom was interposed in
the name of petitioner's deceased husband on the ground that private respondents herein failed to
satisfy the requirements pertaining to personal cultivation and conversion of the landholdings into
non-agricultural uses. The Court of Appeals rejected such contention upon finding that the record
was replete with evidence justifying private respondents' assertion of their right of cultivation and
conversion of their landholdings.5

Almost a year after the termination of that appeal, the same trial court decision subject thereof was
once again assailed before the Court of Appeals through a petition6 for annulment of judgment.
Herein petitioner assailed the same trial court decision as having been rendered by a court that did
not have jurisdiction over her and the other heirs of her deceased husband because notwithstanding
the fact that her husband had already died on October 3, 1991, the trial court still proceeded to
render its decision on August 23, 1993 without effecting the substitution of heirs in accordance with
Section 17, Rule 3, of the Rules of Court thereby depriving her of her day in court.

Petitioner, not having asserted the matter of fraud or collusion in her petition for annulment of
judgment, the Court of Appeals decided the same on the basis of the sole issue of non-jurisdiction
resulting from the alleged deprivation of petitioner's right to due process and ruled in favor of the
validity of the challenged decision.7 Petitioner filed a motion for reconsideration of the decision of the
appellate court reiterating the trial court's lack of jurisdiction over the heirs of petitioner's deceased
husband as a consequence of the failure of the trial court to effectuate a valid substitution of heirs.
Said motion was denied in a resolution promulgated on August 14, 1995. Hence this petition.

The petition is bereft of merit.

The need for substitution of heirs is based on the right to due process accruing to every party in any
proceeding.8The rationale underlying this requirement in case a party dies during the pendency of
proceedings of a nature not extinguished by such death, is that
 . . . the exercise of judicial power to hear and determine a cause implicitly
presupposes in the trial court, amongst other essentials, jurisdiction over the persons
of the parties. That jurisdiction was inevitably impaired upon the death of the
protestee pending the proceedings below such that unless and until a legal
representative is for him duly named and within the jurisdiction of the trial court, no
adjudication in the cause could have been accorded any validity or binding effect
upon any party, in representation of the deceased, without trenching upon the
fundamental right to a day in court which is the very essence of the constitutionally
enshrined guarantee of due process.9

We are not unaware of several cases10 where we have ruled that a party having died in an
action that survives, the trial held by the court without appearance of the deceased's legal
representative or substitution of heirs and the judgment rendered after such trial, are null and
void because the court acquired no jurisdiction over the persons of the legal representatives
or of the heirs upon whom the trial and the judgment would be binding. This general rule
notwithstanding, in denying petitioner's motion for reconsideration, the Court of Appeals
correctly ruled that formal substitution of heirs is not necessary when the heirs themselves
voluntarily appeared, participated in the case and presented evidence in defense of
deceased defendant. Attending the case at bench, after all, are these particular
circumstances which negate petitioner's belated and seemingly ostensible claim of violation
of her rights to due process. We should not lose sight of the principle underlying the general
rule that formal substitution of heirs must be effectuated for them to be bound by a
subsequent judgment. Such had been the general rule established not because the rule on
substitution of heirs and that on appointment of a legal representative are jurisdictional
requirements per se but because non-compliance therewith results in the undeniable
violation of the right to due process of those who, though not duly notified of the proceedings,
are substantially affected by the decision rendered therein. Viewing the rule on substitution of
heirs in this light, the Court of Appeals, in the resolution denying petitioner's motion for
reconsideration, thus expounded:

Although the jurisprudential rule is that failure to make the substitution is a

jurisdictional defect, it should be noted that the purpose of this procedural rule is to
comply with due process requirements. The original party having died, he could not
continue to defend himself in court despite the fact that the action survived him. For
the case to continue, the real party in interest must be substituted for the deceased.
The real party in interest is the one who would be affected by the judgment. It could
be the administrator or executor or the heirs. In the instant case, the heirs are the
proper substitutes. Substitution gives them the opportunity to continue the defense
for the deceased. Substitution is important because such opportunity to defend is a
requirement to comply with due process. Such substitution consists of making the
proper changes in the caption of the case which may be called the formal aspect of
it. Such substitution also includes the process of letting the substitutes know that they
shall be bound by any judgment in the case and that they should therefore actively
participate in the defense of the deceased. This part may be called the substantive
aspect. This is the heart of the procedural rule because this substantive aspect is the
one that truly embodies and gives effect to the purpose of the rule. It is this court's
view that compliance with the substantive aspect of the rule despite failure to comply
with the formal aspect may be considered substantial compliance. Such is the
situation in the case at bench because the only inference that could be deduced from
the following facts was that there was active participation of the heirs in the defense
of the deceased after his death:
 1. The original lawyer did not stop representing the deceased. It would be absurd to
think that the lawyer would continue to represent somebody if nobody is paying him
his fees. The lawyer continued to represent him in the litigation before the trial court
which lasted for about two more years. A dead party cannot pay him any fee. With or
without payment of fees, the fact remains that the said counsel was allowed by the
petitioner who was well aware of the instant litigation to continue appearing as
counsel until August 23, 1993 when the challenged decision was rendered;

2. After the death of the defendant, his wife, who is the petitioner in the instant case,
even testified in the court and declared that her husband is already deceased. She
knew therefore that there was a litigation against her husband and that somehow her
interest and those of her children were involved;

3. This petition for annulment of judgment was filed only after the appeal was
decided against the defendant on April 3, 1995, more than one and a half year (sic)
after the decision was rendered (even if we were to give credence to petitioner's
manifestation that she was not aware that an appeal had been made);

4. The Supreme Court has already established that there is such a thing as
jurisdiction by estoppel. This principle was established even in cases where
jurisdiction over the subject matter was being questioned. In the instant case, only
jurisdiction over the person of the heirs is in issue. Jurisdiction over the person may
be acquired by the court more easily than jurisdiction over the subject matter.
Jurisdiction over the person may be acquired by the simple appearance of the
person in court as did herein petitioner appear;

5. The case cited by the herein petitioner (Ferreria et al. vs. Manuela Ibarra vda. de
Gonzales, et al.) cannot be availed of to support the said petitioner's contention
relative to non-acquisition of jurisdiction by the court. In that case, Manolita Gonzales
was not served notice and, more importantly, she never appeared in court, unlike
herein petitioner who appeared and even testified regarding the death of her
husband.11

Consequently, we rule that, as in the case at bench, the defendant in an ejectment case
having died before the rendition by the trial court of its decision therein, its failure to
effectuate a formal substitution of heirs before its rendition of judgment, does not invalidate
such judgment where the heirs themselves appeared before the trial court, participated in the
proceedings therein, and presented evidence in defense of deceased defendant, it
undeniably being evident that the heirs themselves sought their day in court and exercised
their right to due process.

Respondent Court of Appeals also correctly ruled that ejectment, being an action involving recovery
of real property, is a real action which as such, is not extinguished by the defendant's death.

. . . The question as to whether an action survives or not depends on the nature of

the action and the damage sued for. In the causes of action which survive, the wrong
complained affects primarily and principally property and property rights, the injuries
to the person being merely incidental, while in the causes of action which do not
survive, the injury complained of is to the person, the property and rights of property
affected being incidental.12
 There is no dispute that an ejectment case survives the death of a party, which death did not
extinguish the deceased's civil personality.13 More significantly, a judgment in an ejectment
case is conclusive between the parties and their successors in interest by title subsequent to
the commencement of the action.14 Thus, we have held that:

. . . In such a case and considering that the supervening death of appellant did not
extinguish her civil personality, the appellate court was well within its jurisdiction to
proceed as it did with the case. There is no showing that the appellate court's
proceedings in the case were tainted with irregularities.

It appears that petitioners are heirs of Adela Salindon. In fact, it was because of this
relationship that the petitioners were able to transfer the title of Adela Salindon over
the subject lot to their names. . . . Considering all this, the appellate decision is
binding and enforceable against the petitioners as successors-in-interest by title
subsequent to the commencement of the action (Section 49 [b] Rule 39, Rules of
Court). Furthermore, . . . judgment in an ejectment case may be enforced not only
against defendants therein but also against the members of their family, their
relatives, or privies who derive their right of possession from the defendants (Ariem
v. De los Angeles, 49 SCRA 343). Under the circumstances of this case, the same
rule should apply to the successors-in-interest . . . .15

While it is true that a decision in an action for ejectment is enforceable not only against the
defendant himself but also against members of his family, his relatives, and his privies who derived
their right of possession from the defendant and his successors-in-interest,16 it had been established
that petitioner had, by her own acts, submitted to the jurisdiction of the trial court. She is now
estopped to deny that she had been heard in defense of her deceased husband in the proceedings
therein. As such, this petition evidently has no leg to stand on.

WHEREFORE, the instant petition is dismissed for lack of merit. Costs against petitioner.

SO ORDERED.
117.) Rule 3 Section 13 to 19 : parties to a civil Action

[G.R. No. 131889. March 12, 2001]

VIRGINIA O. GOCHAN, FELIX Y. GOCHAN III, MAE GOCHAN-EFANN,

LOUISE Y. GOCHAN, ESTEBAN Y. GOCHAN JR., DOMINIC Y.
GOCHAN, FELIX O. GOCHAN III, MERCEDES R. GOCHAN,
ALFREDO R. GOCHAN, ANGELINA R. GOCHAN-HERNAEZ,
MARIA MERCED R. GOCHAN, CRISPO R. GOCHAN JR., MARION
R. GOCHAN, MACTAN REALTY DEVELOPMENT CORPORATION
and FELIX GOCHAN & SONS REALTY CORPORATION, petitioners,
vs. RICHARD G. YOUNG, DAVID G. YOUNG, JANE G. YOUNG-
LLABAN, JOHN D. YOUNG JR., MARY G. YOUNG-HSU and
ALEXANDER THOMAS G. YOUNG as heirs of Alice Gochan; the
INTESTATE ESTATE OF JOHN D. YOUNG SR.; and CECILIA
GOCHAN-UY and MIGUEL C. UY, for themselves and on behalf and
for the benefit of FELIX GOCHAN & SONS REALTY
CORPORATION, respondents.

DECISION
PANGANIBAN, J.:

A court or tribunals jurisdiction over the subject matter is determined by the

allegations in the complaint. The fact that certain persons are not registered as
stockholders in the books of the corporation will not bar them from filing a derivative
suit, if it is evident from the allegations in the complaint that they are bona fide
stockholders. In view of RA 8799, intra-corporate controversies are now within the
jurisdiction of courts of general jurisdiction, no longer of the Securities and Exchange
Commission.

The Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of

Court. The Petition assails the February 28, 1996 Decision [1] of the Court of Appeals
(CA), as well as its December 18, 1997 Resolution denying petitioners Motion for
Reconsideration. The dispositive part of the CA Decision reads as follows:
WHEREFORE, the petition as far as the heirs of Alice Gochan, is DISMISSED,
without prejudice to filing the same in the regular courts.

SO ORDERED.[2]

In dismissing the Complaint before the SEC regarding only Alice Gochans heirs
but not the other complainants, the CA effectively modified the December 9, 1994
Order of the hearing officer[3] of the Securities and Exchange Commission (SEC). The
Order, which was affirmed in full by the SEC en banc, dismissed the entire case.

The Facts

The undisputed facts are summarized by the Court of Appeals as follows:

Felix Gochan and Sons Realty Corporation (Gochan Realty, for brevity) was
registered with the SEC on June, 1951, with Felix Gochan, Sr., Maria Pan Nuy Go
Tiong, Pedro Gochan, Tomasa Gochan, Esteban Gochan and Crispo Gochan as its
incorporators.

Felix Gochan Sr.s daughter, Alice, mother of [herein respondents], inherited 50 shares
of stock in Gochan Realty from the former.

Alice died in 1955, leaving the 50 shares to her husband, John Young, Sr.

In 1962, the Regional Trial Court of Cebu adjudicated 6/14 of these shares to her
children, herein [respondents] Richard Young, David Young, Jane Young Llaban,
John Young Jr., Mary Young Hsu and Alexander Thomas Young.

Having earned dividends, these stocks numbered 179 by 20 September 1979.

Five days later (25 September), at which time all the children had reached the age of
majority, their father John Sr., requested Gochan Realty to partition the shares of his
late wife by cancelling the stock certificates in his name and issuing in lieu thereof,
new stock certificates in the names of [herein respondents].

On 17 October 1979, respondent Gochan Realty refused, citing as reason, the right of
first refusal granted to the remaining stockholders by the Articles of Incorporation.

On 21, 1990, [sic] John, Sr. died, leaving the shares to the [respondents].
On 8 February 1994, [respondents] Cecilia Gochan Uy and Miguel Uy filed a
complaint with the SEC for issuance of shares of stock to the rightful owners,
nullification of shares of stock, reconveyance of property impressed with trust,
accounting, removal of officers and directors and damages against respondents. A
Notice of Lis Pendens was annotated as [sic] real properties of the corporation.

On 16 March 1994, [herein petitioners] moved to dismiss the complaint alleging that:
(1) the SEC ha[d] no jurisdiction over the nature of the action; (2) the [respondents]
[were] not the real parties-in-interest and ha[d] no capacity to sue; and (3)
[respondents] causes of action [were] barred by the Statute of Limitations.

The motion was opposed by herein [respondents].

On 29 March 1994, [petitioners] filed a Motion for cancellation of Notice of Lis

Pendens. [Respondents] opposed the said motion.

On 9 December 1994, the SEC, through its Hearing Officer, granted the motion to
dismiss and ordered the cancellation of the notice of lis pendens annotated upon the
titles of the corporate lands. In its order, the SEC opined:

In the instant case, the complaint admits that complainants Richard G. Young, David
G. Young, Jane G. Young Llaban, John D. Young, Jr., Mary G. Young Hsu and
Alexander Thomas G. Young, who are the children of the late Alice T. Gochan and
the late John D. Young, Sr. are suing in their own right and as heirs of and/or as the
beneficial owners of the shares in the capital stock of FGSRC held in trust for them
during his lifetime by the late John D. Young. Moreover, it has been shown that said
complainants ha[d] never been x x x stockholder[s] of record of FGSRC to confer
them with the legal capacity to bring and maintain their action. Conformably, the case
cannot be considered as an intra-corporate controversy within the jurisdiction of this
Commission.

The complainant heirs base what they perceived to be their stockholders rights upon
the fact of their succession to all the rights, property and interest of their father, John
D. Young, Sr. While their heirship is not disputed, their right to compel the
corporation to register John D. Youngs Sr. shares of stock in their names cannot go
unchallenged because the devolution of property to the heirs by operation of law in
succession is subject to just obligations of the deceased before such property passes to
the heirs. Conformably, until therefore the estate is settled and the payment of the
debts of the deceased is accomplished, the heirs cannot as a matter of right compel the
delivery of the shares of stock to them and register such transfer in the books of the
corporation to recognize them as stockholders. The complainant heirs succeed to the
estate of [the] deceased John D. Young, Sr. but they do not thereby become
stockholders of the corporation.

Moreover, John D. [Young Sr.s] shares of stocks form part of his estate which is the
subject of Special Proceedings No. 3694-CEB in the Regional Trial Court of Cebu,
Branch VIII, [par. 4 of the complaint].As complainants clearly claim[,] the Intestate
Estate of John D. Young, Sr. has an interest in the subject matter of the instant
case. However, actions for the recovery or protection of the property [such as the
shares of stock in question] may be brought or defended not by the heirs but by the
executor or administrator thereof.

Complainants further contend that the alleged wrongful acts of the corporation and its
directors constitute fraudulent devices or schemes which may be detrimental to the
stockholders. Again, the injury [is] perceived[,] as is alleged[,] to have been suffered
by complainants as stockholders, which they are not. Admittedly, the SEC has no
jurisdiction over a controversy wherein one of the parties involved is not or not yet a
stockholder of the corporation. [SEC vs. CA, 201 SCRA 134].

Further, by the express allegation of the complaint, herein complainants bring this
action as [a] derivative suit on their own behalf and on behalf of respondent FGSRC.

Section 5, Rule III of the Revised Rules of Procedure in the Securities and Exchange
Commission provides:

Section 5. Derivative Suit. No action shall be brought by stockholder in the right of a

corporation unless the complainant was a stockholder at the time the questioned
transaction occurred as well as at the time the action was filed and remains a
stockholder during the pendency of the action. x x x.

The rule is in accord with well settled jurisprudence holding that a stockholder
bringing a derivative action must have been [so] at the time the transaction or act
complained of [took] place. (Pascual vs. Orozco, 19 Phil. 82; Republic vs. Cuaderno,
19 SCRA 671; San Miguel Corporation vs. Khan, 176 SCRA 462-463) The language
of the rule is mandatory, strict compliance with the terms thereof thus being a
condition precedent, a jurisdictional requirement to the filing of the instant action.

Otherwise stated, proof of compliance with the requirement must be sufficiently

established for the action to be given due course by this Commission. The failure to
comply with this jurisdictional requirement on derivative action must necessarily
result in the dismissal of the instant complaint. (pp. 77-79, Rollo)
[Respondents] moved for a reconsideration but the same was denied for being pro-
forma.

[Respondents] appealed to the SEC en banc, contending, among others, that the SEC
ha[d] jurisdiction over the case.

[Petitioners], on the other hand, contend that the appeal was 97 days late, beyond the
30-day period for appeals.

On 3 March 1995, the SEC en banc ruled for the [petitioners,] holding that the
[respondents] motion for reconsideration did not interrupt the 30-day period for
appeal because said motion was pro-forma.[4]

Aggrieved, herein respondents then filed a Petition for Review with the Court of
Appeals.

Ruling of the Court of Appeals

The Court of Appeals ruled that the SEC had no jurisdiction over the case as far as
the heirs of Alice Gochan were concerned, because they were not yet stockholders of
the corporation. On the other hand, it upheld the capacity of Respondents Cecilia
Gochan Uy and her spouse Miguel Uy. It also held that the intestate Estate of John
Young Sr. was an indispensable party.
The appellate court further ruled that the cancellation of the notice of lis pendens on
the titles of the corporate real estate was not justified. Moreover, it declared that
respondents Motion for Reconsideration before the SEC was not pro forma; thus, its
filing tolled the appeal period.
Hence, this Petition.[5]

The Issues

These are the issues presented before us:

A. Whether or not the Spouses Uy have the personality to file an action before the SEC against
Gochan Realty Corporation.
B. Whether or not the Spouses Uy could properly bring a derivative suit in the name of Gochan
Realty to redress wrongs allegedly committed against it for which the directors refused
to sue.
 C. Whether or not the intestate estate of John D. Young Sr. is an indispensable party in the SEC
case considering that the individual heirs shares are still in the decedent stockholders
name.
D. Whether or not the cancellation of [the] notice of lis pendens was justified considering that the
suit did not involve real properties owned by Gochan Realty.[6]

In addition, the Court will determine the effect of Republic Act No. 8799 [7] on this
case.

The Courts Ruling

The Petition has no merit. In view of the effectivity of RA 8799, however, the case
should be remanded to the proper regional trial court, not to the Securities and Exchange
Commission.
First Issue:
Personality of the Spouses Uy to File a Suit Before the SEC

Petitioners argue that Spouses Cecilia and Miguel Uy had no capacity or legal
standing to bring the suit before the SEC on February 8, 1994, because the latter were
no longer stockholders at the time.Allegedly, the stocks had already been purchased by
the corporation. Petitioners further assert that, being allegedly a simple contract of sale
cognizable by the regular courts, the purchase by Gochan Realty of Cecilia Gochan
Uys 210 shares does not come within the purview of an intra-corporate controversy.
As a general rule, the jurisdiction of a court or tribunal over the subject matter is
determined by the allegations in the complaint.[8] For purposes of resolving a motion to
dismiss, Cecilia Uys averment in the Complaint -- that the purchase of her stocks by the
corporation was null and void ab initio is deemed admitted. It is elementary that a void
contract produces no effect either against or in favor of anyone; it cannot create, modify
or extinguish the juridical relation to which it refers. [9] Thus, Cecilia remains a
stockholder of the corporation in view of the nullity of the Contract of Sale. Although
she was no longer registered as a stockholder in the corporate records as of the filing
of the case before the SEC, the admitted allegations in the Complaint made her still a
bona fide stockholder of Felix Gochan & Sons Realty Corporation (FGSRC), as
between said parties.
In any event, the present controversy, whether intra-corporate or not, is no longer
cognizable by the SEC, in view of RA 8799, which transferred to regional trial courts
the formers jurisdiction over cases involving intra-corporate disputes.

Action Has Not Prescribed

 Petitioners contend that the statute of limitations already bars the Uy spouses action,
be it one for annulment of a voidable contract or one based upon a written contract. The
Complaint, however, contains respondents allegation that the sale of the shares of stock
was not merely voidable, but was void ab initio. Below we quote its relevant portion:

38. That on November 21, 1979, respondent Felix Gochan & Sons Realty Corporation
did not have unrestricted retained earnings in its books to cover the purchase price of
the 208 shares of stock it was then buying from complainant Cecilia Gochan Uy,
thereby rendering said purchase null and void ab initio for being violative of the trust
fund doctrine and contrary to law, morals good customs, public order and public
policy;

Necessarily, petitioners contention that the action has prescribed cannot be

sustained. Prescription cannot be invoked as a ground if the contract is alleged to be
void ab initio.[10] It is axiomatic that the action or defense for the declaration of nullity
of a contract does not prescribe.[11]

Second Issue: Derivative Suit and the Spouses Uy

Petitioners also contend that the action filed by the Spouses Uy was not a derivative
suit, because the spouses and not the corporation were the injured parties. The Court is
not convinced. The following quoted portions of the Complaint readily shows
allegations of injury to the corporation itself:

16. That on information and belief, in further pursuance of the said conspiracy and for
the fraudulent purpose of depressing the value of the stock of the Corporation and to
induce the minority stockholders to sell their shares of stock for an inadequate
consideration as aforesaid, respondent Esteban T. Gochan . . ., in violation of their
duties as directors and officers of the Corporation . . ., unlawfully and fraudulently
appropriated [for] themselves the funds of the Corporation by drawing excessive
amounts in the form of salaries and cash advances. . . and by otherwise charging their
purely personal expenses to the Corporation.

xxxxxxxxx

41. That the payment of P1,200,000.00 by the Corporation to complainant Cecilia

Gochan Uy for her shares of stock constituted an unlawful, premature and partial
liquidation and distribution of assets to a stockholder, resulting in the impairment of
the capital of the Corporation and prevented it from otherwise utilizing said amount
for its regular and lawful business, to the damage and prejudice of the Corporation, its
creditors, and of complainants as minority stockholders;[12]

As early as 1911, this Court has recognized the right of a single stockholder to file
derivative suits. In its words:

[W]here corporate directors have committed a breach of trust either by their frauds,
ultra vires acts, or negligence, and the corporation is unable or unwilling to institute
suit to remedy the wrong, a single stockholder may institute that suit, suing on behalf
of himself and other stockholders and for the benefit of the corporation, to bring about
a redress of the wrong done directly to the corporation and indirectly to the
stockholders.[13]

In the present case, the Complaint alleges all the components of a derivative
suit. The allegations of injury to the Spouses Uy can coexist with those pertaining to
the corporation. The personal injury suffered by the spouses cannot disqualify them
from filing a derivative suit on behalf of the corporation. It merely gives rise to an
additional cause of action for damages against the erring directors. This cause of action
is also included in the Complaint filed before the SEC.
The Spouses Uy have the capacity to file a derivative suit in behalf of and for the
benefit of the corporation. The reason is that, as earlier discussed, the allegations of the
Complaint make them out as stockholders at the time the questioned transaction
occurred, as well as at the time the action was filed and during the pendency of the
action.

Third Issue: Capacity of the Intestate Estate of John D. Young Sr.

Petitioners contend that the Intestate Estate of John D. Young Sr. is not an
indispensable party, as there is no showing that it stands to be benefited or injured by
any court judgment.
It would be useful to point out at this juncture that one of the causes of action stated
in the Complaint filed with the SEC refers to the registration, in the name of the other
heirs of Alice Gochan Young, of 6/14th of the shares still registered under the name of
John D. Young Sr. Since all the shares that belonged to Alice are still in his name, no
final determination can be had without his estate being impleaded in the suit. His estate
is thus an indispensable party with respect to the cause of action dealing with the
registration of the shares in the names of the heirs of Alice.
Petitioners further claim that the Estate of John Young Sr. was not properly
represented. They claim that when the estate is under administration, suits for the
recovery or protection of the property or rights of the deceased may be brought only by
the administrator or executor as approved by the court.[14] The rules relative to this
matter do not, however, make any such categorical and confining statement.
Section 3 of Rule 3 of the Rules of Court, which is cited by petitioner in support of
their position, reads:

Sec. 3. Representatives as parties. - Where the action is allowed to be prosecuted or

defended by a representative or someone acting in a fiduciary capacity, the
beneficiary shall be included in the title of the case and shall be deemed to be the real
party in interest. A representative may be a trustee of an express trust, a guardian, an
executor or administrator, or a party authorized by law or these Rules. An agent acting
in his own name and for the benefit of an undisclosed principal may sue or be sued
without joining the principal except when the contract involves things belonging to
the principal.

Section 2 of Rule 87 of the same Rules, which also deals with administrators, states:

Sec. 2. Executor or administrator may bring or defend actions which survive. - For
the recovery or protection of the property or rights of the deceased, an executor or
administrator may bring or defend, in the right of the deceased, actions for causes
which survive.

The above-quoted rules, while permitting an executor or administrator to represent

or to bring suits on behalf of the deceased, do not prohibit the heirs from representing
the deceased. These rules are easily applicable to cases in which an administrator has
already been appointed. But no rule categorically addresses the situation in which
special proceedings for the settlement of an estate have already been instituted, yet no
administrator has been appointed. In such instances, the heirs cannot be expected to
wait for the appointment of an administrator; then wait further to see if the administrator
appointed would care enough to file a suit to protect the rights and the interests of the
deceased; and in the meantime do nothing while the rights and the properties of the
decedent are violated or dissipated.
The Rules are to be interpreted liberally in order to promote their objective of
securing a just, speedy and inexpensive disposition of every action and
proceeding.[15] They cannot be interpreted in such a way as to unnecessarily put undue
hardships on litigants. For the protection of the interests of the decedent, this Court has
in previous instances[16] recognized the heirs as proper representatives of the decedent,
even when there is already an administrator appointed by the court. When no
administrator has been appointed, as in this case, there is all the more reason to
recognize the heirs as the proper representatives of the deceased. Since the Rules do not
specifically prohibit them from representing the deceased, and since no administrator
had as yet been appointed at the time of the institution of the Complaint with the SEC,
we see nothing wrong with the fact that it was the heirs of John D. Young Sr. who
represented his estate in the case filed before the SEC.

Fourth Issue
Notice of Lis Pendens

On the issue of the annotation of the Notice of Lis Pendens on the titles of the
properties of the corporation and the other respondents, we still find no reason to disturb
the ruling of the Court of Appeals.
Under the third, fourth and fifth causes of action of the Complaint, there are
allegations of breach of trust and confidence and usurpation of business opportunities
in conflict with petitioners fiduciary duties to the corporation, resulting in damage to
the Corporation. Under these causes of action, respondents are asking for the delivery
to the Corporation of possession of the parcels of land and their corresponding
certificates of title. Hence, the suit necessarily affects the title to or right of possession
of the real property sought to be reconveyed. The Rules of Court[17] allows the
annotation of a notice of lis pendens in actions affecting the title or right of possession
of real property.[18] Thus, the Court of Appeals was correct in reversing the SEC Order
for the cancellation of the notice of lis pendens.
The fact that respondents are not stockholders of the Mactan Realty Development
Corporation and the Lapu-Lapu Real Estate Corporation does not make them non-
parties to this case. To repeat, the jurisdiction of a court or tribunal over the subject
matter is determined by the allegations in the Complaint. In this case, it is alleged that
the aforementioned corporations are mere alter egos of the directors-petitioners, and
that the former acquired the properties sought to be reconveyed to FGSRC in violation
of the directors-petitioners fiduciary duty to FGSRC. The notion of corporate entity will
be pierced or disregarded and the individuals composing it will be treated as
identical[19] if, as alleged in the present case, the corporate entity is being used as a cloak
or cover for fraud or illegality; as a justification for a wrong; or as an alter ego, an
adjunct, or a business conduit for the sole benefit of the stockholders.

Effect of RA 8799

While we sustain the appellate court, the case can no longer be remanded to the
SEC. As earlier stated, RA 8799, which became effective on August 8, 2000,
transferred SECs jurisdiction over cases involving intra-corporate disputes to courts of
general jurisdiction or to the regional trial courts.[20] Section 5.2 thereof reads as follows:
5.2. The Commissions jurisdiction over all cases enumerated under Section 5 of
Presidential Decree No. 902-A is hereby transferred to the Courts of general
jurisdiction or the appropriate Regional Trial Court: Provided, That the Supreme
Court in the exercise of its authority may designate the Regional Trial Court branches
that shall exercise jurisdiction over these cases. The Commission shall retain
jurisdiction over pending cases involving intra-corporate disputes submitted for final
resolution which should be resolved within one (1) year from the enactment of this
Code. The Commission shall retain jurisdiction over pending suspension of
payments/rehabilitation cases filed as of 30 June 2000 until finally disposed.

In the light of the Resolution issued by this Court in AM No. 00-8-10-SC,[21] the
Court Administrator and the Securities and Exchange Commission should be directed
to cause the transfer of the records of SEC Case No. 02-94-4674 to the appropriate court
of general jurisdiction.
WHEREFORE, the Petition is hereby DENIED and the assailed
Decision AFFIRMED, subject to the modification that the case be remanded to the
proper regional trial court. The December 9, 1994 Order of Securities and Exchange
Commission hearing officer dismissing the Complaint and directing the cancellation of
the notice of lis pendens, as well as the March 3, 1995 Order denying complainants
motion for reconsideration are REVERSED and SET ASIDE. Pursuant to AM No. 00-8-
10-SC, the Office of the Court Administrator and the SEC are DIRECTED to cause the
actual transfer of the records of SEC Case No. 02-94-4674 to the appropriate regional
trial court.
SO ORDERED.
Melo, (Chairman), Vitug, Gonzaga-Reyes, and Sandoval-Gutierrez, JJ., concur.