G.R. No.

L-25138 August 28, 1969

JOSE A. BELTRAN, ET AL., plaintiffs-appellants,

vs.
PEOPLE'S HOMESITE & HOUSING CORPORATION, defendants-appellees.

Beltran, Cendaña, Camu, Pelias and Manuel for plaintiffs-appellants.

Government Corporate Counsel Tomas P. Matic Jr. and Assistant Government Corporate Counsel
Romualdo Valera for defendants-appellees.

TEEHANKEE, J.:

Appeal on purely questions of law from an order of dismissal of the complaint for interpleader, on the
ground that it does not state a cause of action, as certified to this Court by the Court of Appeals. We
affirm the dismissal on the ground that where the defendants sought to be interpleaded as conflicting
claimants have no conflicting claims against plaintiff, as correctly found by the trial court, the special
civil action of interpleader will not lie.

This interpleader suit was filed on August 21, 1962, by plaintiffs in their own behalf and in behalf of
all residents of Project 4 in Quezon City, praying that the two defendant-government corporations be
compelled to litigate and interplead between themselves their alleged conflicting claims involving
said Project 4.

Plaintiffs' principal allegations in their complaint were as follows: Since they first occupied in 1953
their respective housing units at Project 4, under lease from the People's Homesite & Housing
Corporation (PHHC) and paying monthly rentals therefor, they were assured by competent authority
that after five years of continuous occupancy, they would be entitled to purchase said units. On
February 21, 1961, the PHHC announced to the tenants that the management, administration and
ownership of Project 4 would be transferred by the PHHC to the Government Service Insurance
System (GSIS) in payment of PHHC debts to the GSIS. In the same announcement, the PHHC also
asked the tenants to signify their conformity to buy the housing units at the selling price indicated on
the back thereof, agreeing to credit the tenants, as down payment on the selling price, thirty (30%)
percent of what had been paid by them as rentals. The tenants accepted the PHHC offer, and on
March 27, 1961, the PHHC announced in another circular that all payments made by the tenants
after March 31, 1961 would be considered as amortizations or installment payments. The PHHC
furthermore instructed the Project Housing Manager in a memorandum of May 16, 1961 to accept as
installments on the selling price the payments made after March 31, 1961 by tenants who were up-
to-date in their accounts as of said date. In September, 1961, pursuant to the PHHC-GSIS
arrangement, collections from tenants on rentals and/or installment payments were delivered by the
PHHC to the GSIS. On December 27, 1961, the agreement of turnover of administration and
ownership of PHHC properties, including Project 4 was executed by PHHC in favor of GSIS,
pursuant to the release of mortgage and amicable settlement of the extrajudicial foreclosure
proceedings instituted in May, 1960 by GSIS against PHHC. Subsequently, however, PHHC through
its new Chairman-General Manager, Esmeraldo Eco, refused to recognize all agreements and
undertakings previously entered into with GSIS, while GSIS insisted on its legal rights to enforce the
said agreements and was upheld in its contention by both the Government Corporate Counsel and
the Secretary of Justice. Plaintiffs thus claimed that these conflicting claims between the defendants-
corporations caused them great inconvenience and incalculable moral and material damage, as they
did not know to whom they should pay the monthly amortizations or payments. They further alleged
that as the majority of them were GSIS policy holders, they preferred to have the implementation of
the outright sale in their favor effected by the GSIS, since the GSIS was "legally entitled to the
management, administration and ownership of the PHHC properties in question." 1

Upon urgent ex parte motion of plaintiffs, the trial Court issued on August 23, 1962 its Order
designating the People's First Savings Bank at Quezon City "to receive in trust the payments from
the plaintiffs on their monthly amortizations on PHHC lots and to be released only upon proper
authority of the Court." 2

On August 29, 1962, the two defendant corporations represented by the Government Corporate
Counsel filed a Motion to Dismiss the complaint for failure to state a cause of action as well as to lift
the Court's order designating the People's First Savings Bank as trustee to receive the tenants'
payments on the PHHC lots.

The trial Court heard the motion on September 1, 1962 in the presence of all the parties, and
thereafter issued its Order of September 6, 1962, dismissing the Complaint, ruling that: "During the
hearing of the said motion and opposition thereto, the counsel for the defendants ratified the
allegations in his motion and made of record that the defendant Government Service Insurance
System has no objection that payments on the monthly amortizations from the residents of Project 4
be made directly to the defendant People's Homesite and Housing Corporation. From what appears
in said motion and the statement made in open court by the counsel for defendants that there is no
dispute as to whom the residents of Project 4 should make their monthly amortizations payments,
there is, therefore, no cause of action for interpleading and that the order of August 23, 1962 is not
warranted by the circumstances surrounding the case. In so far as payments are concerned,
defendant GSIS has expressed its conformity that they be made directly to defendant PHHC.
Counsel for defendants went further to say that whatever dispute, if any, may exist between the two
corporations over the lots and buildings in Project 4, payments made to the PHHC will not and
cannot in any way affect or prejudice the rights of the residents thereof as they will be credited by
either of the two defendants." 3

Plaintiffs subsequently filed their motion for reconsideration and the trial court, "with a view to thresh
out the matter once and for all," called the Managers of the two defendants-corporations and the
counsels for the parties to appear before it for a conference on October 24, 1962. "During the
conference," the trial court related in its Order of November 20, 1962, denying plaintiffs' Motion for
Reconsideration, "Manager Diaz of the GSIS made of record that he has no objection that payments
be made to the PHHC. On the other hand, Manager Eco of the PHHC made of record that at present
there is a standing arrangement between the GSIS and the PHHC that as long as there is showing
that the PHHC has remitted 100% of the total purchase price of a given lot to the GSIS, the latter
corporation shall authorize the issuance of title to the corresponding lot. It was also brought out in
said conference that there is a new arrangement being negotiated between the two corporations that
only 50% of the purchase price be remitted to the GSIS by the PHHC, instead of the 100%. At any
rate the two Managers have assured counsel for the plaintiffs that upon payment of the whole
purchase price of a given lot, the title corresponding to said lot will be issued." 4

On appeal, plaintiffs claim that the trial Court erred in dismissing their suit, contending the allegations
in their complaint "raise questions of fact that can be established only by answer and trial on the
merits and not by a motion to dismiss heard by mere oral manifestations in open court," and that
they "do not know who, as between the GSIS and the PHHC, is the right and lawful party to receive
their monthly amortizations as would eventually entitle them to a clear title to their dwelling units." 5

Plaintiffs entirely miss the vital element of an action of interpleader. Rule 63, section 1 of the Revised
Rules of Court (formerly Rule 14) requires as an indispensable element that "conflicting claims upon
the same subject matter are or may be made" against the plaintiff-in-interpleader "who claims no
interest whatever in the subject matter or an interest which in whole or in part is not disputed by the
claimants." While the two defendant corporations may have conflicting claims between
themselves with regard to the management, administration and ownership of Project 4, such
conflicting claims are not against the plaintiffs nor do they involve or affect the plaintiffs. No
allegation is made in their complaint that any corporation other than the PHHC which was the only
entity privy to their lease-purchase agreement, ever made on them any claim or demand for
payment of the rentals or amortization payments. The questions of fact raised in their complaint
concerning the enforceability, and recognition or non-enforceability and non-recognition of the
turnover agreement of December 27, 1961 between the two defendant corporations are irrelevant to
their action of interpleader, for these conflicting claims, loosely so-called, are between the two
corporations and not against plaintiffs. Both defendant corporations were in conformity and had no
dispute, as pointed out by the trial court that the monthly payments and amortizations should be
made directly to the PHHC alone.

The record rejects plaintiffs' claim that the trial courts order was based on "mere oral manifestations
in court." The Reply to Opposition of September 11, 1962 filed by the Government Corporate
Counsel expressly "reiterates his manifestation in open court that no possible injustice or prejudice
would result in plaintiffs by continuing to make payments of such rentals or amortizations to
defendant PHHC because any such payments will be recognized as long as they are proper, legal
and in due course by anybody who might take over the property. Specifically, any such payments
will be recognized by the GSIS in the event that whatever conflict there might be (and this is only on
the hypothetical assumption that such conflict exists) between the PHHC and the GSIS should finally
be resolved in favor of the GSIS". 6 The assurances and undertakings to the same affect given by the
Managers of the defendants-corporations at the conference held by the trial Court are expressly
embodied in the Court's Order of November 20, 1962 quoted above. The GSIS' undertaking to
recognize and respect the previous commitments of PHHC towards its tenants is expressly set forth
in Par. III, section M of the turnover agreement, Annex "F" of plaintiffs' complaint, wherein it is
provided that "GSIS shall recognize and respect all awards, contracts of sale, lease agreements and
transfer of rights to lots and housing units made and approved by PHHC, subsisting as of the signing
of this agreement, and PHHC commitment to sell its housing projects 4, 6 and 8-A at the selling
prices less rental credits fixed by PHHC and as finally approved by the OEC. PHHC, however, shall
be liable and answerable for any and all claims and consequences arising from double or multiple
awards or in the case of awards of non-existing houses and/or lots." 7

In fine, the record shows clearly that there were no conflicting claims by defendant corporations as
against plaintiff-tenants, which they may properly be compelled in an interpleader suit to interplead
and litigate among themselves. Both defendant corporations were agreed that PHHC should
continue receiving the tenants' payments, and that such payments would be duly recognized even if
the GSIS should eventually take over Project 4 by virtue of their turnover agreement of December
27, 1961. As held by this Court in an early case, the action of interpleader is a remedy whereby a
person who has property in his possession or has an obligation to render wholly or partially, without
claiming any right in both, comes to court and asks that the defendants who have made upon him
conflicting claims upon the same property or who consider themselves entitled to demand
compliance with the obligation be required to litigate among themselves in order to determine who is
entitled to the property or payment of the obligation. "The remedy is afforded not to protect a person
against a double liability but to protect him against a double vexation in respect of one
liability." 8 Thus, in another case, where the occupants of two different parcels of land adjoining each
other belonging to two separate plaintiffs, but on which the occupants had constructed a building
encroaching upon both parcels of land, faced two ejectment suits from the plaintiffs, each plaintiff
claiming the right of possession and recovery over his respective portion of the lands encroached
upon, this Court held that the occupants could not properly file an interpleader suit, against the
plaintiffs, to litigate their alleged conflicting claims; for evidently, the two plaintiff did not have any
conflicting claims upon the same subject matter against the occupants, but were enforcing separate
and distinct claims on their respective properties. 9

Plaintiffs' other contention in their appeal is that notwithstanding that the issue as to which of the
defendants is authorized to receive the tenants' payments was resolved in favor of the PHHC, they
had raised other issues that were not resolved and would require rendition of judgment after trial on
the merits, such as "the issue of the right of ownership over the houses and lots in Project 4 (and)
the issue of the status of the commitment agreements and undertakings made by the previous
PHHC Administration, particularly those of the then PHHC General Manager Bernardo
Torres." 10 This contention is without merit, for no conflicting claims have been made with regard to
such issues upon plaintiffs by defendant corporations, who both bound themselves to recognize and
respect the rights of plaintiffs-tenants. The resolution of such issues affecting the defendant
corporations exclusively may not properly be sought through the special civil action of interpleader.
Should there be a breach of the PHHC undertakings towards plaintiffs, plaintiffs' recourse would be
an ordinary action of specific performance or other appropriate suit against either the PHHC or GSIS
or both, as the circumstances warrant.

We find no error, therefore, in the trial court's order of dismissal of the complaint for interpleader and
the lifting, as a consequence, of its other order designating the People's First Savings Bank as
trustee to receive the tenants' payments on the PHHC lots.

ACCORDINGLY, the trial Court's order of dismissal is hereby affirmed. Without costs. 1äw phï1.ñët

Concepcion, C.J., Dizon, Makalintal, Sanchez, Castro, Fernando, Capistrano and Barredo, JJ.,
concur.
Reyes, J.B.L., and Zaldivar, JJ., are on leave.

G.R. No. 133113 August 30, 2001

EDGAR H. ARREZA, petitioner,

vs.
MONTANO M. DIAZ, JR., respondent.

QUISUMBING, J.:

This petition assails the decision 1 promulgated on December 24, 1997, and the resolution 2 dated
March 6, 1998, by the Court of Appeals in CA-G.R SP No. 43895. That decision dismissed the
petition for certiorari questioning the order 3 dated February 4, 1997 of the Regional Trial Court of
Makati City, Branch 59, in Civil Case No. 96-1372, which had denied petitioner's motion to dismiss
the complaint filed against him on grounds of res adjudicata.

The factual antecedents of the present petition are culled from the findings of the Court of Appeals.
Bliss Development Corporation is the owner of a housing unit located at Lot 27. Block 30 New
Capitol Estates I, Barangay Matandang Balara, Quezon City. In the course of a case involving a
conflict of ownership between petitioner Edgar H. Arreza and respondent Montano M. Diaz, Jr., 4
docketed as Civil Case No. 94-2086 before the Regional Trial Court of Makati, Branch 146, Bliss
Development Corporation filed a complaint for interpleader.

In a decision dated March 27, 1996, the trial court resolved the conflict by decreeing as follows:

WHEREFORE, premises considered, the herein interpleader is resolved in favor of

defendant Edgar H. Arreza, and plaintiff Bliss Development is granted cognizance of the May
6, 1991 transfer of rights by Emiliano and Leonila Melgazo thru Manuel Melgazo, to said
defendant Edgar Arreza. The case is dismissed as against defendant Montano M. Diaz, Jr.

The third-party complaint is likewise dismissed.

SO ORDERED.

The decision became final and was duly executed with Bliss executing a Contract to Sell the
aforementioned property to petitioner Arreza. Respondent Diaz was constrained to deliver the
property with all its improvements to petitioner.

Thereafter respondent Diaz filed a complaint against Bliss Development Corporation, Edgar H.
Arreza, and Domingo Tapay in the Regional Trial Court of Makati, Branch 59, docketed as Civil
Case No. 96-1372. He sought to hold Bliss Development Corporation and petitioner Arreza liable for
reimbursement to him of P1,706,915;58 representing the cost of his acquisition and improvements
on the subject property with interest at 8% per annum.

Petitioner Arreza filed a Motion to Dismiss the case, citing as grounds res adjudicata or
conclusiveness of the judgment in the interpleader case as well as lack of cause of action.

In an Order dated February 4, 1997, the motion was denied for lack of merit.

A Motion for Reconsideration filed by Arreza was likewise denied on March 20, 1997.

On April 16, 1997, Arreza filed a petition for certiorari before the Court of Appeals alleging that the
Orders dated February 4 and March 20, 1997, were issued against clear provisions of pertinent
laws, the Rules of Court, and established jurisprudence such that respondent court acted without or
in excess of jurisdiction, or grave abuse of discretion amounting to lack or excess of jurisdiction.

The petition was dismissed for lack of merit. The Court of Appeals said:

The decision invoked by the petitioner as res adjudicata resolved only the issue of who
between Edgar H. Arreza and Montano Diaz has the better right over the property under
litigation. It did not resolve the rights and obligations of the parties.

The action filed by Montano M. Diaz against Bliss Development Corporation, et al. seeks
principally the collection of damages in the form of the payments Diaz made to the defendant
and the value of the improvements he introduced on the property — matters that were not
adjudicated upon in the previous case for interpleader.

xxx xxx xxx

 WHEREFORE, this petition is hereby DISMISSED with costs against the petitioner.

SO ORDERED.5

Petitioner's motion to reconsider the decision of the Court of Appeals was denied.6 Hence, the
present petition, where petitioner raises the following grounds for review:

THE CAUSE OF ACTION EMBODIED IN THE PRESENT RTC CASE PERTAINING TO MR.
DIAZ'S CLAIMS FOR REIMBURSEMENT OF AMOUNTS WHICH HE ALLEGEDLY PAID
TO BLISS BY WAY OF PREMIUM OR INSTALLMENT PAYMENTS FOR THE
ACQUISITION OF THE PROPERTY WAS ERRONEOUSLY BROUGHT AGAINST MR.
ARREZA. ALSO, SAID CLAIMS ARE BARRED BY RES ADJUDICATA OR
CONCLUSIVENESS OF A PRIOR JUDGMENT IN THE PRIOR RTC CASE WHICH WAS
ULTIMATELY AFFIRMED BY THIS HONORABLE COURT IN G.R. NO. 128726.

II

THE CAUSE OF ACTION EMBODIED IN THE PRESENT RTC CASE PERTAINING TO MR.
DIAZ'S CLAIMS FOR REIMBURSEMENT OF THE COST OF IMPROVEMENTS HE
ALLEGEDLY INTRODUCED TO THE PROPERTY IS LIKEWISE BARRED BY RES
ADJUDICATA OR CONCLUSIVENESS OF A PRIOR JUDGMENT IN THE PRIOR RTC
CASE WHICH WAS ULTIMATELY AFFIRMED BY THIS HONORABLE COURT IN G.R NO.
128726.

III.

THE RULING IN THE PRIOR CA PETITION (CA-G.R. SP. NO. 41974) WHICH WAS
ULTIMATELY AFFIRMED BY THIS HONORABLE COURT IN G.R. NO. 128726 THAT THE
DECISION IN THE PRIOR RTC CASE SETTLED ALL CLAIMS WHICH MESSRS. DIAZ
AND ARREZA HAD AGAINST EACH OTHER CONSTITUTES THE LAW OF THE CASE
BETWEEN THEM AND SERVES AS BAR TO THE FILING OF THE PRESENT RTC CASE
INVOLVING THE SAME CLAIMS.

IV.

IN ITS ENTIRETY, THE AMENDED COMPLAINT IN THE PRESENT RTC CASE IS

DISMISSIBLE ON THE GROUND OF LACK OF CAUSE OF ACTION.7

The issue for our resolution now is whether respondent Diaz's claims for reimbursement against
petitioner Arreza are barred by res adjudicata.

The elements of res adjudicata are: (a) that the former judgment must be final; (b) the court which
rendered judgment had jurisdiction over the parties and the subject matter; (c) it must be a judgment
on the merits; and (d) there must be between the first and second causes of action identity of the
parties, subject matter, and cause of action.8

Worthy of note, the prior case for interpleader filed with Branch 146 of the Regional Trial Court of
Makati, Civil Case No. 94-2086, was settled with finality with this Court's resolution in G.R. No.
128726. 9 The judgment therein is now final.
When the Regional Trial Court of Makati (Branch 146) rendered judgment, it had priorly acquired
jurisdiction over the parties and the subject matter. Respondent, however, contends that the trial
court did not acquire jurisdiction over the property subject of the action, as the action was instituted
in Makati City while the subject unit is situated in Quezon City.

We find, however, that in his answer to the complaint dated October 3, 1994, respondent alleged:

20. That should the said additional provision be declared valid and in the remote possibility
that the alleged conflicting claimant is adjudged to possess better right herein answering
defendant is asserting his right as a buyer for value and in good faith against all
persons/parties concerned.10 (Italics supplied)

Respondent in his answer also prayed that:

D. Should the said additional provision be found valid and in the event his co-defendant is
found to possess better rights, to adjudge him (Diaz) entitled to rights as a buyer in good
faith and for value.11

By asserting his right as a buyer for value and in good faith of the subject property, and asking for
relief arising therefrom, respondent invoked the jurisdiction of the trial court. Having invoked the
jurisdiction of the Regional Trial Court of Makati (Branch 146) by filing his answer to secure
affirmative relief against petitioner, respondent is now estopped from challenging the jurisdiction of
said court after it had decided the case against him. Surely we cannot condone here the undesirable
practice of a party submitting his case for decision and then accepting the judgment only if favorable,
but attacking it on grounds of jurisdiction when adverse.12

Respondent also claims that there is no identity of causes of action between Civil Case No. 94-2086,
the prior case, and Civil Case No. 96-1372, the present case subject of this petition, as the former
involved a complaint for interpleader while the latter now involves an action for a sum of money and
damages. He avers that a complaint for interpleader is nothing more than the determination of rights
over the subject matter involved.

In its assailed decision, respondent Court of Appeals pointed out that the 1997 Rules of Civil
Procedure provide that in a case for interpleader, the court shall determine the respective rights and
obligations of the parties and adjudicate their respective claims.13 The appellate court noted,
however, that the defendants in that interpleader case, namely Diaz and Arreza, did not pursue the
issue of damages and reimbursement although the answer of respondent Diaz did pray for
affirmative relief arising out of the rights of a buyer in good faith.14

Following the same tack, respondent Diaz now alleges that the issues in the prior case, Civil Case
No. 94-2086, were delimited by the pre-trial order which did not include matters of damages and
reimbursement as an issue. He faults petitioner for not raising such issues in the prior case, with the
result that the trial court did not resolve the rights and obligations of the parties. There being no such
resolution, no similar cause of action exists between the prior case and the present case, according
to respondent Diaz.

Respondent in effect argues that it was incumbent upon petitioner as a party in Civil Case No. 94-
2086 to put in issue respondent's demands for reimbursement. However, it was not petitioner's duty
to do the lawyering for respondent. As stated by the Court of Appeals, the court in a complaint for
interpleader shall determine the rights and obligations of the parties and adjudicate their respective
claims. Such rights, obligations, and claims could only be adjudicated if put forward by the aggrieved
party in assertion of his rights. That party in this case referred to respondent Diaz. The second
paragraph of Section 5 of Rule 62 of the 1997 Rules of Civil Procedure provides that the parties in
an interpleader action may file counterclaims, cross-claims, third party complaints and responsive
pleadings thereto, "as provided by these Rules." The second paragraph was added to Section 5 to
expressly authorize the additional pleadings and claims enumerated therein, in the interest of a
complete adjudication of the controversy and its incidents.15

Pursuant to said Rules, respondent should have filed his claims against petitioner Arreza in the
interpleader action. Having asserted his rights as a buyer in good faith in his answer, and praying
relief therefor, respondent Diaz should have crystallized his demand into specific claims for
reimbursement by petitioner Arreza. This he failed to do. Such failure gains significance in light of
our ruling in Baclayon vs. Court of Appeals, 182 SCRA 761, 771-772 (1990), where this Court said:

A corollary question that We might as well resolve now (although not raised as an issue in
the present petition, but conformably with Gayos, et al. v. Gayos, et al., G.R. No. L-27812,
September 26, 197S, 67 SCRA 146, that it is a cherished rule of procedure that a court
should always strive to settle the entire controversy in a single proceeding leaving no root or
branch to bear the seeds in future litigation) is whether or not the private respondents can
still file a separate complaint against the petitioners on the ground that they are builders in
good faith and consequently, recover the value of the improvements introduced by them on
the subject lot. The case of Heirs of Laureano Marquez v. Valencia, 99 Phil. 740, provides
the answer:

If, aside from relying solely on the deed of sale with a right to repurchase and failure
on the part of the vendors to purchase it within the period stipulated therein, the
defendant had set up an alternative though inconsistent defense that he had
inherited the parcel of land from his late maternal grandfather and presented
evidence in support of both defenses, the overruling of the first would not bar the
determination by the court of the second. The defendant having failed to set up such
alternative defenses and chosen or elected to rely on one only, the overruling thereof
was a complete determination of the controversy between the parties which bars a
subsequent action based upon an unpleaded defense, or any other cause of action,
except that of Failure of the complaint to state a cause of action and of lack of
jurisdiction of the Court. The determination of the issue joined by the parties
constitutes res judicata. (Italics supplied)

Although the alternative defense of being builders in good faith is only permissive, the
counterclaim for reimbursement of the value of the improvements is in the nature of a
compulsory counterclaim. Thus, the failure by the private respondents to set it up bars their
right to raise it in a subsequent litigation (Rule 9, Section 4 of the Rules of Court). While We
realize the plight of the private respondents, the rule on compulsory counterclaim is designed
to enable the disposition of the whole controversy at one time and in one action. The
philosophy of the rule is to discourage multiplicity of suits. (Italics supplied)

Having failed to set up his claim for reimbursement, said claim of respondent Diaz being in the
nature of a compulsory counterclaim is now barred.16

In cases involving res adjudicata, the parties and the causes of action are identical or substantially
the same in the prior as well as the subsequent action. The judgment in the first action is conclusive
as to every matter offered and received therein and as to any other matter admissible therein and
which might have been offered for that purpose, hence said judgment is an absolute bar to a
subsequent action for the same cause.17 The bar extends to questions "necessarily involved in an
issue, and necessarily adjudicated, or necessarily implied in the final judgment, although no specific
finding may have been made in reference thereto, and although such matters were directly referred
to in the pleadings and were not actually or formally presented"18 Said prior judgment is conclusive in
a subsequent suit between the same parties on the same subject matter, and on the same cause of
action, not only as to matters which were decided in the first action, but also as to every other matter
which the parties could have properly set up in the prior suit.19

In the present case, we find there is an identity of causes of action between Civil Case No. 94-2086
and Civil Case No. 96-1372. Respondent Diaz's cause of action in the prior case, now the crux of his
present complaint against petitioner, was in the nature of an unpleaded compulsory counterclaim,
which is now barred. There being a former final judgment on the merits in the prior case, rendered in
Civil Case No. 94-2086 by Branch 146 of the Regional Trial Court of Makati, which acquired
jurisdiction over the same parties, the same subject property, and the same cause of action, the
present complaint of respondent herein (Diaz) against petitioner Arreza docketed as Civil Case No.
96-1372 before the Regional Trial of Makati, Branch 59 should be dismissed on the ground of res
adjudicata.

WHEREFORE, the instant petition is GRANTED. The decision dated December 24, 1997 and the
resolution dated March 6, 1998 of the Court of Appeals in CA-G.R. SP No. 43895 are REVERSED
and SET ASIDE. Civil Case No. 96-1372 before the Regional Trial Court of Makati City, Branch 59,
is hereby ordered DISMISSED as against herein petitioner Edgar H. Arreza. Costs against
respondent.

SO ORDERED.

G.R. No. 127913 September 13, 2001

RIZAL COMMERCIAL BANKING CORPORATION, petitioner,

vs.
METRO CONTAINER CORPORATION, respondent.

KAPUNAN, J.:

Assailed in this petition for review on certiorari are the Decision, promulgated on 18 October 1996
and the Resolution, promulgated on 08 January 1997, of the Court of Appeals in CA-G.R. SP No.
41294.

The facts of the case are as follows:

On 26 September 1990, Ley Construction Corporation (LEYCON) contracted a loan from Rizal
Commercial Banking Corporation (RCBC) in the amount of Thirty Million Pesos (P30,000,000.00).
The loan was secured by a real estate mortgage over a property, located in Barrio Ugong,
Valenzuela, Metro Manila (now Valenzuela City) and covered by TCT No. V-17223. LEYCON failed
to settle its obligations prompting RCBC to institute an extrajudicial foreclosure proceedings against
it.
After LEYCON's legal attempts to forestall the action of RBCB failed, the foreclosure took place on
28 December 1992 with RCBC as the highest bidder.

LEYCON promptly filed an action for Nullification of Extrajudicial Foreclosure Sale and Damages
against RCBC. The case, docketed as Civil Case No. 4037-V-93, was raffled to the Regional Trial
Court (RTC) of Valenzuela, Branch 172. Meanwhile, RCBC consolidated its ownership over the
property due to LEYCON's failure to redeem it within the 12-month redemption period and TCT No.
V-332432 was issued if favor of the bank. By virtue thereof, RCBC demanded rental payments from
Metro Container Corporation (METROCAN) which was leasing the property from LEYCON.

On 26 May 1994, LEYCON filed an action for Unlawful Detainer, docketed as Civil Case No. 6202,
against METROCAN before the Metropolitan Trial Court (MeTC) of Valenzuela, Branch 82.

On 27 May 1994, METROCAN filed a complaint for Interpleader, docketed as Civil Case No. 4398-
V-94 before the Regional Trial Court of Valenzuela, Metro Manila; Branch 75 against LEYCON and
RCBC to compel them to interplead and litigate their several claims among themselves and to
determine which among them shall rightfully receive the payment of monthly rentals on the subject
property .On 04 July 1995, during the pre-trial conference in Civil Case No. 4398-V-94, the trial court
ordered the dismissal of the case insofar as METROCAN and LEYCON were concerned in view of
an amicable settlement they entered by virtue of which METROCAN paid back rentals to LEYCON.

On 31 October 1995, judgment was rendered in Civil Case No.6202, which among other things,
ordered METROCAN to pay LEYCON whatever rentals due on the subject premises. The MeTC
decision became final and executory.

On 01 February 1996, METROCAN moved for the dismissal of Civil Case No. 4398-V-94 for having
become moot and academic due to the amicable settlement it entered with LEYCON on 04 July
1995 and the decision in Civil Case No. 6202 on 31 October 1995. LEYCON, likewise, moved for the
dismissal of the case citing the same grounds cited by METROCAN.

On 12 March 1996, the two motions were dismissed for lack of merit. The motions for
reconsideration filed by METROCAN and LEYCON were also denied prompting METROCAN to
seek relief from the Court of Appeals via a petition for certiorari and prohibition with prayer for the
issuance of a temporary restraining order and a writ of preliminary injunction. LEYCON, as private
respondent, also sought for the nullification of the RTC orders.

In its Decision, promulgated on 18 October 1996, the Court of Appeals granted the petition and set
aside the 12 March 1996 and 24 June 1996 orders of the RTC. The appellate court also ordered the
dismissal of Civil Case No. 4398-V-94. RCBC's motion for reconsideration was denied for lack of
merit in the resolution of 08 January 1997.

Hence, the present recourse.

RCBC alleged, that:

(1) THE DECISION OF THE METROPOLITAN TRIAL COURT IN THE EJECTMENT CASE
BETWEEN METROCAN AND LEYCON DOES NOT AND CANNOT RENDER THE
INTERPLEADER ACTION MOOT AND ACADEMIC.

(2) WHILE A PARTY WHO INITIATES AN INTERPLEADER ACTION MAY NOT BE

COMPELLED TO LITIGATE IF HE IS NO LONGER INTERESTED TO PURSUE SUCH
 CAUSE OF ACTION, SAID PARTY MAY NOT UNILATERALLY CAUSE THE DISMISSAL
OF THE CASE AFTER THE ANSWER HA VE BEEN FILED. FURTHER, THE
DEFENDANTS IN AN INTERPLEADER SUIT SHOULD BE GIVEN FULL OPPORTUNITY
TO LITIGATE THEIR RESPECTIVE CLAIMS.1

We sustain the Court of Appeals.

Section 1, Rule 63 of the Revised Rules of Court2 provides:

Section 1. - Interpleader when proper. - Whenever conflicting claims upon the same subject
matter are or may be made against a person, who claims no interest whatever in the subject
matter, or an interest which in whole or in part is not disputed by the claimants, he may bring
an action against the conflicting claimants to compel them to interplead and litigate their
several claims among themselves.

In the case before us, it is undisputed that METROCAN filed the interpleader action (Civil Case No.
4398-V-94) because it was unsure which between LEYCON and RCBC was entitled to receive the
payment of monthly rentals on the subject property. LEYCON was claiming payment of the rentals
as lessor of the property while RCBC was making a demand by virtue of the consolidation of the title
of the property in its name.

It is also undisputed that LEYCON, as lessor of the subject property filed an action for unlawful
detainer (Civil Case No. 6202) against its lessee METROCAN. The issue in Civil Case No. 6202 is
limited to the question of physical or material possession of the premises.3 The issue of ownership is
immaterial therein4 and the outcome of the case could not in any way affect conflicting claims of
ownership, in this case between RCBC and LEYCON. This was made clear when the trial court, in
denying RCBC's "Motion for Inclusion x x x as an Indispensable Party" declared that "the final
determination of the issue of physical possession over the subject premises between the plaintiff and
the defendant shall not in any way affect RCBC's claims of ownership over the said premises, since
RCBC is neither a co-lessor or co- lessee of the same, hence he has no legal personality to join the
parties herein with respect to the issue of physical possession vis-a-vis the contract of lease
between the parties."5 As aptly pointed by the MeTC, the issue in Civil Case No. 6202 is limited to
the defendant LEYCON's breach of the provisions of the Contract of Lease Rentals.6

Hence, the reason for the interpleader action ceased when the MeTC rendered judgment in Civil
Case No. 6202 whereby the court directed METROCAN to pay LEYCON "whatever rentals due on
the subject premises x x x." While RCBC, not being a party to Civil Case No. 6202, could not be
bound by the judgment therein, METROCAN is bound by the MeTC decision. When the decision in
Civil Case No. 6202 became final and executory, METROCAN has no other alternative left but to
pay the rentals to LEYCON. Precisely because there was already a judicial fiat to METROCAN,
there was no more reason to continue with Civil Case No. 4398-V-94. Thus, METROCAN moved for
the dismissal of the interpleader action not because it is no longer interested but because there is no
more need for it to pursue such cause of action.

It should be remembered that an action of interpleader is afforded to protect a person not against
double liability but against double vexation in respect of one liability.7 It requires, as an
indespensable requisite, that "conflicting claims upon the same subject matter are or may be made
against the plaintiff-in-interpleader who claims no interest whatever in the subject matter or an
interest which in whole or in part is not disputed by the claimants."8 The decision in Civil Case No.
6202 resolved the conflicting claims insofar as payment of rentals was concerned.
Petitioner is correct in saying that it is not bound by the decision in Civil Case No. 6202. It is not a
party thereto. However, it could not compel METROCAN to pursue Civil Case No. 4398-V-94. RCBC
has other avenues to prove its claim. Is not bereft of other legal remedies. In fact, he issue of
ownership can very well be threshed out in Civil Case No. 4037-V-93, the case for Nullification of
Extrajudicial foreclosure Sale and Damages filed by LEYCON against RCBC. 1âwphi 1.nêt

WHEREFORE, the petition for review is DENIED and the Decision of the Court of Appeals,
promulgated on 18 October 1996, as well as its Resolution promulgated on 08 January 1997,
are AFFIRMED.

SO ORDERED.

March 12, 2014

G.R. No. 193494

LUI ENTERPRISES, INC., Petitioners,

vs.
ZUELLIG PHARMA CORPORATION and the PHILIPPINE BANK OF
COMMUNICATIONS, Respondents.

DECISION

LEONEN, J.:

There should be no inexplicable delay in the filing of a motion to set aside order of default. Even
when a motion is filed within the required period, excusable negligence must be properly alleged and
proven.

This is a petition for review on certiorari of the Court of Appeals' decision1 dated May 24, 2010 and
resoluticm2 dated August 13, 2010 in CA- G.R. CV No. 88023. The Court of Appeals affirmed in toto
the Regional

Trial Court of Makati’s decision3 dated July 4, 2006.

The facts as established from the pleadings of the parties are as follows:

On March 9, 1995, Lui Enterprises, Inc. and Zuellig Pharma Corporation entered into a 10-year
contract of lease4 over a parcel of land located in Barrio Tigatto, Buhangin, Davao City. The parcel of
land was covered by Transfer Certificate of Title No. T-166476 and was registered under Eli L. Lui.5

On January 10, 2003, Zuellig Pharma received a letter6 from the Philippine Bank of Communications.
Claiming to be the new owner of the leased property, the bank asked Zuellig Pharma to pay rent
directly to it. Attached to the letter was a copy of Transfer Certificate of Title No. 336962 under the
name of the Philippine Bank of Communications.7 Transfer Certificate ofTitle No. 336962 was
derived fromTransfer Certificate ofTitle No.T-166476.8

Zuellig Pharma promptly informed Lui Enterprises of the Philippine Bank of Communications’ claim.
On January 28, 2003, Lui Enterprises wrote to Zuellig Pharma and insisted on its right to collect the
leased property’srent.9

Due to the conflicting claims of Lui Enterprises and the Philippine Bank of Communications over the
rental payments, Zuellig Pharma filed a complaint10 for interpleader with the Regional Trial Court of
Makati. In its complaint, Zuellig Pharma alleged that it already consigned in court P604,024.35 as
rental payments. Zuellig Pharma prayed that it be allowed to consign in court its succeeding monthly
rental payments and that Lui Enterprises and the Philippine Bank of Communications be ordered to
litigate their conflicting claims.11

The Philippine Bank of Communications filed its answer12 to the complaint. On the other hand, Lui
Enterprises filed a motion to dismiss13 on the ground that Zuellig Pharma’s alleged representative did
not have authority to file the complaint for interpleader on behalf of the corporation. Under the
secretary’s certificate14 dated May 6, 2003 attached to the complaint, Atty. Ana L.A. Peralta was only
authorized to "initiate and represent [Zuellig Pharma] in the civil proceedings for consignation of
rental payments to be filed against Lui Enterprises, Inc. and/or [the Philippine Bank of
Communications]."15

According to Lui Enterprises, an earlier filed nullification of deed of dation in payment case pending
with the Regional Trial Court of Davao barred the filing of the interpleader case.16 Lui Enterprises
filed this nullification case against the Philippine Bank of Communications with respect to several
properties it dationed to the bank in payment of its obligations. The property leased by Zuellig
Pharma was among those allegedly dationed to the Philippine Bank of Communications.17

In the nullification of deed of dation in payment case, Lui Enterprises raised the issue of which
corporation had the better right over the rental payments.18 Lui Enterprises argued that the same
issue was involved in the interpleader case. To avoid possible conflicting decisions of the Davao trial
court and the Makati trial court on the same issue, Lui Enterprises argued that the subsequently filed
interpleader case be dismissed.

To support its argument, Lui Enterprises cited a writ of preliminary injunction19 dated July 2, 2003
issued by the Regional Trial Court of Davao, ordering Lui Enterprises and the Philippine Bank of
Communications "[to maintain] status quo"20 with respect to the rent. By virtue of the writ of
preliminary injunction, Lui Enterprises argued that it should continue collecting the rental payments
from its lessees until the nullification of deed of dation in payment case was resolved. The writ of
preliminary injunction dated July 2, 2003 reads:

WHEREAS, on June 30, 2003, the Court issued an Order, a portion of which is quoted:

WHEREFORE, PREMISES CONSIDERED, let a Writ of Preliminary Injunction issue, restraining and
enjoining [the Philippine Bank of Communications], its agents or [representative], the Office of the
Clerk of Court- Sheriff and all persons acting on their behalf, from conducting auction sale on the
properties of [Lui Enterprises] in EJF-REM Case No. 6272-03 scheduled on July 3, 2003 at 10:00
a.m. at the Hall of Justice, Ecoland, Davao City, until the final termination of the case, upon plaintiff
[sic] filing of a bond in the amount of P1,000,000.00 to answer for damages that the enjoined parties
may sustain by reason of the injunction if the Court should finally decide that applicant is not entitled
thereto.
WHEREAS, that plaintiff posted a bond of P1,000,000.00 duly approved by this Court.

IT IS HEREBY ORDERED by the undersigned Judge that, until further orders, [the Philippine Bank
of Communications] and all [its] attorneys, representatives, agents and any other persons assisting
[the bank], are directed to restrain from conducting auction sale on the Properties of [Lui Enterprises]
in EJF-REM Case No. 6272-03 scheduled on July 3, 2003 at 10:00 a.m. at the Hall of Justice,
Ecoland, Davao City, until the final termination of the case.21

Zuellig Pharma filed its opposition22 to the motion to dismiss. It argued that the motion to dismiss
should be denied for having been filed late. Under Rule 16, Section 1 of the 1997 Rules of Civil
Procedure, a motion to dismiss should be filed within the required time given to file an answer to the
complaint, which is 15 days from service of summons on the defendant.23 Summons was served on
Lui Enterprises on July 4, 2003. It had until July 19, 2003 to file a motion to dismiss, but Lui
Enterprises filed the motion only on July23, 2003.24

As to Lui Enterprises’ claim that the interpleader case was filed without authority, Zuellig Pharma
argued that an action interpleader "is a necessary consequence of the action for
consignation."25 Zuellig Pharma consigned its rental payments because of "the clearly conflicting
claims of [Lui Enterprises] and [the Philippine Bank of Communications]."26 Since Atty. Ana L.A.
Peralta was authorized to file a consignation case, this authority necessarily included an authority to
file the interpleader case.

Nevertheless, Zuellig Pharma filed in court the secretary’s certificate dated August 28, 2003,27 which
expressly stated that Atty. Ana L.A. Peralta was authorized to file a consignation and interpleader
case on behalf of Zuellig Pharma.28

With respect to the nullification of deed of dation in payment case, Zuellig Pharma argued that its
pendency did not bar the filing of the interpleader case. It was not a party to the nullification case.29

As to the writ of preliminary injunction issued by the Regional Trial Court of Davao, Zuellig Pharma
argued that the writ only pertained to properties owned by Lui Enterprises. Under the writ of
preliminary injunction, the Regional Trial Court of Davao enjoined the July 3, 2003 auction sale of Lui
Enterprises’ properties, the proceeds of which were supposed to satisfy its obligations to the
Philippine Bank of Communications. As early as April 21, 2001, however, the Philippine Bank of
Communications already owned the leased property as evidenced by Transfer Certificate of Title No.
336962. Thus, the writ of preliminary injunction did not apply to the leased property.30

Considering that Lui Enterprises filed its motion to dismiss beyond the 15-day period to file an
answer, Zuellig Pharma moved that Lui Enterprises be declared in default.31

In its compliance32 dated September 15, 2003, the Philippine Bank of Communications "[joined
Zuellig Pharma] in moving to declare [Lui Enterprises] in default, and in [moving for] the denial of [Lui
Enterprises’] motion to dismiss."33

The Regional Trial Court of Makati found that Lui Enterprises failed to file its motion to dismiss within
the reglementary period. Thus, in its order34 dated October 6, 2003, the trial court denied Lui
Enterprises’motion to dismiss and declared it in default.35

Lui Enterprises did not move for the reconsideration of the order dated October 6, 2003. Thus, the
Makati trial court heard the interpleader case without Lui Enterprises’participation.
Despite having been declared in default, Lui Enterprises filed the manifestation with prayer36 dated
April 15, 2004. It manifested that the Regional Trial Court of Davao allegedly issued the order37 dated
April 1, 2004, ordering all of Lui Enterprises’ lessees to "observe status quo with regard to the rental
payments"38 and continue remitting their rental payments to Lui Enterprises while the nullification of
deed of dation in payment case was being resolved. The order dated April 1, 2004 of the Regional
Trial Court of Davao reads:

ORDER

Posed for Resolution is the Motion for Amendment of Order filed by [Lui Enterprises] on September
23, 2003 seeking for the preservation of status quo on the payment/remittance of rentals to [it] and
the disposal/construction of the properties subject matter of this case.

xxxx

As elsewhere stated, [the Philippine Bank of Communications] did not oppose the instant motion up
to the present. In fact, during the hearing held on March 15, 2004, [the bank’s] counsel manifested in
open court that except for the rentals due from [Zuellig Pharma] which are the subject of a
consignation suit before a Makati Court, the other rental payments are continuously received by [Lui
Enterprises].

There being no objection from [the Philippine Bank of Communications], and in order to protect the
right of [Lui Enterprises] respecting the subject of the action during the pendency of this case, this
Court, in the exercise of its discretion hereby grants the motion.

Accordingly, consistent with the order of this Court dated June 30, 2003, the parties are hereby
directed to further observe status quo with regard to the rental payments owing or due from the
lessees of the properties subject of the first set of deeds of dacion and that the defendants are
enjoined from disposing of the properties located at Green Heights Village, Davao City until the case
is finally resolved.

With the order dated April 1, 2004 issued by the Regional Trial Court of Davao as basis, Lui
Enterprises argued that Zuellig Pharma must remit its rental payments to it and prayed that the
interpleader case be dismissed.

The Regional Trial Court of Makati only noted the manifestation with prayer dated April 15, 2004.39

It was only on October 21, 2004, or one year after the issuance of the order of default, that Lui
Enterprises filed a motion to set aside order of default40 in the Makati trial court on the ground of
excusable negligence. Lui Enterprises argued that its failure to file a motion to dismiss on time "was
caused by the negligence of [Lui Enterprises’] former counsel."41 This negligence was allegedly
excusable because "[Lui Enterprises] was prejudiced and prevented from fairly presenting [its]
case."42

For its allegedly meritorious defense, Lui Enterprises argued that the earlier filed nullification of deed
of dation in payment case barred the filing of the interpleader case. The two actions allegedly
involved the same parties and the same issue of which corporation had the better right over the
rental payments. To prevent "the possibility of two courts x x x rendering conflicting rulings [on the
same issue],"43 Lui Enterprises argued that the subsequently filed interpleader case be dismissed.
Zuellig Pharma filed its opposition44 to the motion to set aside order of default. It argued that a
counsel’s failure to file a timely answer was inexcusable negligence which bound his client.

Further, Zuellig Pharma argued that the pending case for nullification of deed of dation in payment
"[did] not preclude [Zuellig Pharma] from seeking the relief prayed for in the [interpleader case]."45

While the motion to set aside order of default was still pending for resolution, Lui Enterprises filed the
manifestation and motion to dismiss46 dated April 21, 2005 in the Makati trial court. It manifested that
the Davao trial court issued another order47 dated April 18, 2005 in the nullification of deed of dation
in payment case. In this order, the Davao trial court directed the Philippine Bank of Communications
to inform Zuellig Pharma to pay rent to Lui Enterprises while the Davao trial court’s order dated April
1, 2004 was subsisting. The order datedApril 18, 2005 of the Davao trial court reads:

ORDER

Plaintiffs move for execution or implementation of the Order dated September 14, 2004. In
substance, [Lui Enterprises] seek[s] to compel the remittance in their favor of the rentals from
[Zuellig Pharma], one of the lessees alluded to in the September 14, 2004 Order whose rental
payments "must be remitted to and collected by [Lui Enterprises]." [The Philippine Bank of
Communications] did not submit any opposition.

It appears from the records that sometime in February 2003, after being threatened with a lawsuit
coming from [the Philippine Bank of Communications], [Zuellig Pharma] stopped remitting its rentals
to [Lui Enterprises] and instead, has reportedly deposited the monthly rentals before a Makati court
for consignation.

As aptly raised by the plaintiffs, a possible impasse may insist should the Makati Court’s ruling be
contrary to or in conflict with the status quo order issued by this Court. To preclude this spectacle,
Zuellig Pharma should accordingly be advised with the import of the Order dated September 14,
2004, the salient portion of which is quoted:

x x x prior to the institution of the instant case and by agreement of the parties, plaintiffs were given
as they did exercise the right to collect, receive and enjoy rental payments x x x.

Since the April 1, 2004 status quo order was a necessary implement of the writ of preliminary
injunction issued on June 30, 2003, it follows that plaintiff's right to collect and receive rental
payments which he enjoyed prior to the filing of this case, must be respected and protected and
maintained until the case is resolved. As such, all rentals due from the above-enumerated lessees
must be remitted to and collectedby the Plaintiffs.

Status quo simply means the last actual peaceable uncontested status that preceded the actual
controversy. (Searth Commodities Corp. v. Court ofAppeals, 207 SCRA 622).

As such, the [Philippine Bank of Communications] [is] hereby directed to forthwith inform [Zuellig
Pharma] of the April 1, 2004 status quo order and the succeeding September 14, 2004 Order, and
consequently, for the said lessee to remit all rentals due from February 23, 2003 and onwards to [Lui
Enterprises] in the meanwhile that the status quo order is subsisting.

In its manifestation and motion to dismiss, Lui Enterprises reiterated its prayer for the dismissal of
the interpleader case to prevent "the possibility of [the Regional Trial Court, Branch 143, Makati City]
and [the Regional Trial Court, Branch 16, Davao City] rendering conflicting rulings [on the same
issue of which corporation has the better right to the rental payments]."48

Without resolving the motion to set aside order of default, the Makati trial court denied the
manifestation with motion to dismiss dated April 21, 2005 on the ground that Lui Enterprises already
lost its standing in court.49

Lui Enterprises did not file any motion for reconsideration of the denial of the manifestation and
motion to dismiss dated April 21, 2005.

In its decision50 dated July 4, 2006, the Regional Trial Court of Makati ruled that Lui Enterprises
"[was] barred from any claim in respect of the [rental payments]"51 since it was declared in default.
Thus, according to the trial court, there was no issue as to which corporation had the better right
over the rental payments.52 The trial court awarded the total consigned amount of P6,681,327.30 to
the Philippine Bank of Communications and ordered Lui Enterprises to pay Zuellig Pharma
P50,000.00 in attorney’s fees.53

Lui Enterprises appealed to the Court of Appeals.54

The Court of Appeals found Lui Enterprises’ appellant’s brief insufficient. Under Rule 44, Section 13
of the 1997 Rules of Civil Procedure, an appellant’s brief must contain a subject index, page
references to the record, table of cases, textbooks and statutes cited, and the statement of issues,
among others. However, Lui Enterprises’ appellant’s brief did not contain these requirements.55

As to the denial of Lui Enterprises’ motion to dismiss, the Court of Appeals sustained the trial court.
The Court of Appeals found that Lui Enterprises filed its motion to dismiss four days late.56

With respect to Lui Enterprises’ motion to set aside order of default, the Court ofAppeals found that
Lui Enterprises failed to show the excusable negligence that prevented it from filing its motion to
dismiss on time. On its allegedly meritorious defense, the Court of Appeals ruled that the nullification
of deed of dation in payment case did not bar the filing of the interpleader case, with Zuellig Pharma
not being a party to the nullification case.57

On the award of attorney’s fees, the Court of Appeals sustained the trial court since "Zuellig Pharma
x x x was constrained to file the action for interpleader with consignation inorder to protect its
interests x x x."58

Thus, in its decision59 promulgated on May 24, 2010, the Court of Appeals dismissed Lui
Enterprises’appeal and affirmed in toto the Regional Trial Court of Makati’s decision.

Lui Enterprises filed a motion for reconsideration.60

The Court of Appeals denied Lui Enterprises’ motion for reconsideration in its resolution promulgated
on August 13, 2010.61 Hence, this petition.

In this petition for review on certiorari,62 Lui Enterprises argued that the Court of Appeals applied "the
rules of procedure strictly"63 and dismissed its appeal on technicalities. According to Lui Enterprises,
the Court of Appeals should have taken a liberal stance and allowed its appeal despite the lack of
subject index, page references to the record, table of cases, textbooks and statutes cited, and the
statement of issues in its appellant’s brief.64
Lui Enterprises also claimed that the trial court should have set aside the order of default since its
failure to file a motion to dismiss on time was due to excusable negligence.65

For its allegedly meritorious defense, Lui Enterprises argued that the pending nullification of deed of
dation in payment case barred the filing of the interpleader case.The nullification of deed of dation in
payment case and the interpleader case allegedly involved the same issue of which corporation had
the better right to the rent. To avoid conflicting rulings on the same issue, Lui Enterprises argued that
the subsequently filed interpleader case be dismissed.66

No attorney’s fees should have been awarded to Zuellig Pharma as argued by Lui Enterprises.
Zuellig Pharma filed the interpleader case despite its knowledge of the nullification of deed of dation
in payment case filed in the Davao trial court where the same issue of which corporation had the
better right over the rental payments was being litigated. Thus, Zuellig Pharma filed the interpleader
case in bad faith for which it was not entitled to attorney’s fees.67

The Philippine Bank of Communications filed its comment68 on the petition for review on certiorari. It
argued that Lui Enterprises failed to raise any error of law and prayed that we affirm in toto the Court
of Appeals’ decision.

For Zuellig Pharma, it manifested that it was adopting the Philippine Bank of
Communications’arguments in its comment.69

The issues for our resolution are:

I. Whether the Court of Appeals erred in dismissing Lui Enterprises’ appeal for lack of subject
index, page references to the record, table of cases, textbooks and statutes cited, and the
statement of issues in Lui Enterprises’appellant’s brief;

II. Whether the Regional Trial Court of Makati erred in denying Lui Enterprises’motion to set
aside order of default;

III. Whether the annulment of deed of dation in payment pending in the Regional Trial Court
of Davao barred the subsequent filing of the interpleader case in the Regional Trial Court of
Makati; and

IV. Whether Zuellig Pharma was entitled to attorney’s fees.

Lui Enterprises’ petition for review on certiorari is without merit. However, we delete the award of
attorney’s fees.

Lui Enterprises did not comply with the rules on the contents of the appellant’s brief

Under Rule 50, Section 1, paragraph (f) of the 1997 Rules of Civil Procedure, the Court of Appeals
may, on its own motion or that of the appellee, dismiss an appeal should the appellant’s brief lack
specific requirements under Rule 44, Section 13, paragraphs (a), (c), (d), and (f):

Section 1. Grounds for dismissal of appeal. – An appeal may be dismissed by the Court of Appeals,
on its own motion or on that of the appellee, on the following grounds:
 xxxx

(f) Absence of specific assignment of errors in the appellant’s brief, or of page references to the
record as required in Section 13, paragraphs (a), (c), (d), and (f) of Rule 44.

These requirements are the subject index of the matter in brief, page references to the record, and a
table of cases alphabetically arranged and with textbooks and statutes cited:

Section 13. Contents of the appellant’s brief. – The appellant’s brief shall contain, in the order herein
indicated, the following:

(a) A subject index of the matter in brief with a digest of the arguments and page references, and a
table of cases alphabetically arranged, textbooks and statutes cited with references to the pages
where they are cited;

xxxx

(c) Under the heading "Statement of the Case," a clear and concise statement of the nature of the
action, a summary of the proceedings, the appealed rulings and orders of the court, the nature of the
controversy, with page references to the record;

(d) Under the heading "Statement of Facts," a clear and concise statement in a narrative form of the
facts admitted by both parties and of those in controversy, together with the substance of the proof
relating thereto in sufficient detail to make it clearly intelligible, with page references to the record;

xxxx

(f) Under the heading "Argument," the appellant’s arguments on each assignment of error with page
references to the record. The authorities relied upon shall be cited by the page of the report at which
the case begins and the page of the report on which the citation isfound;

xxxx

Lui Enterprises’ appellant’s brief lacked a subject index, page references to the record, and table of
cases, textbooks and statutes cited. Under Rule 50, Section 1 of the 1997 Rules of Civil Procedure,
the Court of Appeals correctly dismissed Lui Enterprises’ appeal.

Except for cases provided in the Constitution,70 appeal is a "purely statutory right."71 The right to
appeal "must be exercised in the manner prescribed by law"72 and requires strict compliance with the
Rules of Court on appeals.73 Otherwise, the appeal shall be dismissed, and its dismissal shall not be
a deprivation of due process of law.

In Mendoza v. United Coconut Planters Bank, Inc.,74 this court sustained the Court of Appeals’
dismissal of Mendoza’s appeal. Mendoza’s appellant’s brief lacked a subject index, assignment of
errors, and page references to the record. In De Liano v. Court of Appeals,75 this court also sustained
the dismissal of De Liano’s appeal. De Liano’s appellant’s brief lacked a subject index, a table of
cases and authorities, and page references to the record.

There are exceptions to this rule. In Philippine Coconut Authority v. Corona International, Inc.,76 the
Philippine Coconut Authority’s appellant’s brief lacked a clear and concise statement of the nature of
the action, a summary of the proceedings, the nature of the judgment, and page references to the
record. However, this court found that the Philippine Coconut Authority substantially complied with
the Rules. Its appellant’s brief "apprise[d] [the Court of Appeals] of the essential facts and nature of
the case as well as the issues raised and the laws necessary [to dispose of the case]."77 This court
"[deviated] from a rigid enforcement of the rules"78 and ordered the Court of Appeals to resolve the
Philippine Coconut Authority’s appeal.

In Go v. Chaves,79 Go’s 17-page appellant’s brief lacked a subject index. However, Go subsequently
filed a subject index. This court excused Go’s procedural lapse since the appellant’s brief
"[consisted] only of 17 pages which [the Court of Appeals] may easily peruse to apprise it of [the
case] and of the relief sought."80 This court ordered the Court of Appeals to resolve Go’s appeal "in
the interest of justice."81

In Philippine Coconut Authority and Go, the appellants substantially complied with the rules on the
contents of the appellant’s brief. Thus, this court excused the appellants’procedural lapses.

In this case, Lui Enterprises did not substantially comply with the rules on the contents of the
appellant’s brief. It admitted that its appellant’s brief lacked the required subject index, page
references to the record, and table of cases, textbooks, and statutes cited. However, it did not even
correct its admitted "technical omissions"82 by filing an amended appellant’s brief with the required
contents.83 Thus, this case does not allow a relaxation of the rules. The Court of Appeals did not err
in dismissing Lui Enterprises’ appeal.

Rules on appeal "are designed for the proper and prompt disposition of cases before the Court
ofAppeals."84 With respect to the appellant’s brief, its required contents are designed "to minimize the
[Court ofAppeals’] labor in [examining]the record uponwhich the appeal is heard and determined."85

The subject index serves as the brief’s table of contents.86 Instead of "[thumbing] through the
[appellant’s brief]"87 every time the Court of Appeals Justice encounters an argument or citation, the
Justice deciding the case only has to refer to the subject index for the argument or citation he or she
needs.88 This saves the Court ofAppeals time in reviewing the appealed case. Efficiency allows the
justices of the appellate court to substantially attend to this case as well as other cases.

Page references to the record guarantee that the facts stated in the appellant’s brief are supported
by the record.89 Astatement of fact without a page reference to the record creates the presumption
that it is unsupported by the record and, thus, "may be stricken or disregarded altogether."90

As for the table of cases, textbooks, and statutes cited, this is required so that the Court of Appeals
can easily verify the authorities cited "for accuracy and aptness."91

Lui Enterprises’ appellant’s brief lacked a subject index, page references to the record, and a table
of cases, textbooks, and statutes cited. These requirements "were designed to assist the appellate
court in the accomplishment of its tasks, and, overall, to enhance the orderly administration of
justice."92 This court will not disregard rules on appeal "in the guise of liberal construction."93 For this
court to liberally construe the Rules, the party must substantially comply with the Rules and correct
its procedural lapses.94 Lui Enterprises failed to remedy these errors.

All told, the Court of Appeals did not err in dismissing Lui Enterprises’ appeal. It failed to comply with
Rule 44, Section 13, paragraphs (a), (c), (d), and (f) of the 1997 Rules of Civil Procedure on the
required contents of the appellant’s brief.

II
Lui Enterprises failed to show that its failure to answer the complaint within the required
period was due to excusable negligence

When a defendant is served with summons and a copy of the complaint, he or she is required to
answer within 15 days from the day he or she was served with summons.95 The defendant may also
move to dismiss the complaint "[w]ithin the time for but before filing the answer."96

Fifteen days is sufficient time for a defendant to answer with good defenses against the plaintiff’s
allegations in the complaint. Thus, a defendant who fails to answer within 15 days from service of
summons either presents no defenses against the plaintiff’s allegations in the complaint or was
prevented from filing his or her answer within the required period due to fraud, accident, mistake or
excusable negligence.97

In either case, the court may declare the defendant in default on plaintiff’s motion and notice to
defendant.98 The court shall then try the case until judgment without defendant’s participation99 and
grant the plaintiff such relief as his or her complaint may warrant.100

A defendant declared in default loses his or her standing in court.101 He or she is "deprived of the
right to take part in the trial and forfeits his [or her] rights as a party litigant,"102 has no right "to present
evidence [supporting his or her] allegations,"103 and has no right to "control the proceedings [or]
cross-examine witnesses."104 Moreover, he or she "has no right to expect that [the court] would [act]
upon [his or her pleadings]"105 or that he or she "may [oppose]motions filed against him [or her]."106

However, the defendant declared in default "does not [waive] all of [his or her] rights."107 He or she
still has the right to "receive notice of subsequent proceedings."108 Also, the plaintiff must still present
evidence supporting his or her allegations "despite the default of [the defendant]."109

Default, therefore, is not meant to punish the defendant but to enforce the prompt filing of the answer
to the complaint. For a defendant without good defenses, default saves him or her "the
embarrassment of openly appearing to defend the indefensible."110 As this court explained
in Gochangco v. The Court of First Instance of Negros Occidental, Branch

IV:111

It does make sense for a defendant without defenses, and who accepts the correctness of
the specific relief prayed for in the complaint, to forego the filing of the answer or any sort of
intervention in the action at all. For even if he did intervene, the result would be the same: since he
would be unable to establish any good defense, having none in fact, judgment would inevitably go
against him. And this would be an acceptable result, if not being in his power to alter or prevent it,
provided that the judgment did not go beyond or differ from the specific relief stated in the complaint.
x x x.112 (Emphasis in the original)

On the other hand, for a defendant with good defenses, "it would be unnatural for him [or her] not to
set x x x up [his or her defenses] properly and timely."113 Thus, "it must be presumed that some
insuperable cause prevented him [or her] from [answering the complaint]."114 In which case, his or her
proper remedy depends on when he or she discovered the default and whether the default judgment
was already rendered by the trial court.

After notice of the declaration of default but before the court renders the default judgment, the
defendant may file, under oath, a motion to set aside order of default. The defendant must properly
show that his or her failure to answer was due to fraud, accident,115 mistake116 or excusable
negligence.117 The defendant must also have a meritorious defense. Rule 9, Section 3, paragraph (b)
of the1997 Rules of Civil Procedure provides:

Section 3. Default; declaration of. – x x x x

(b) Relief from order of default. – A party declared in default may at any time after notice thereof and
before judgment file a motion under oath to set aside the order of default upon proper showing that
his failure to answer was due to fraud, accident, mistake or excusable negligence and that he has a
meritorious defense. In such case, the order of default may be set aside on such terms and
conditions as the judge may impose in the interest of justice.

If the defendant discovers his or her default after judgment but prior to the judgment becoming final
and executory, he or she may file a motion for new trial under Rule 37, Section 1, paragraph (a) of
the 1997 Rules of Civil Procedure.118 If he or she discovers his or her default after the judgment has
become final and executory, a petition for relief from judgment under Rule 38, Section 1 of the 1997
Rules of Civil Procedure may be filed.119

Appeal is also available to the defendant declared in default. He or she may appeal the judgment for
being contrary to the evidence or to the law under Rule 41, Section 2 of the 1997 Rules of Civil
Procedure.120 He or she may do so even if he or she did not file a petition to set aside order of
default.121

A petition for certiorari may also be filed if the trial court declared the defendant in default with grave
abuse of discretion.122

The remedies of the motion to set aside order of default, motion for new trial, and petition for relief
from judgment are mutually exclusive, not alternative or cumulative. This is to compel defendants to
remedy their default at the earliest possible opportunity. Depending on when the default was
discovered and whether a default judgment was already rendered, a defendant declared in default
may avail of onlyone of the three remedies.

Thus, if a defendant discovers his or her default before the trial court renders judgment, he or she
shall file a motion to set aside order of default. If this motion to set aside order of default is denied,
the defendant declared in default cannot await the rendition of judgment, and he or she cannot file a
motion for new trial before the judgment becomes final and executory, or a petition for relief from
judgment after the judgment becomes final and executory.

Also, the remedies against default become narrower and narrower as the trial nears judgment. The
defendant enjoys the most liberality from this court with a motion to set aside order of default, as he
or she has no default judgment to contend with, and he or she has the whole period before judgment
to remedy his or her default.

With a motion for new trial, the defendant must file the motion within the period for taking an
appeal123 or within 15 days from notice of the default judgment. Although a default judgment has
already been rendered, the filing of the motion for new trial tolls the reglementary period of appeal,
and the default judgment cannot be executed against the defendant.

A petition for relief from judgment is filed after the default judgment has become final and executory.
Thus, the filing of the petition for relief from judgment does not stay the execution of the default
judgment unless a writ of preliminary injunction is issued pending the petition’s resolution.124
Upon the grant of a motion to set aside order of default, motion for new trial, or a petition for relief
from judgment, the defendant is given the chance to present his or her evidence against that of
plaintiff’s. With an appeal, however, the defendant has no right to present evidence on his or her
behalf and can only appeal the judgment for being contrary to plaintiff’s evidence or the law.

Similar to an appeal, a petition for certiorari does not allow the defendant to present evidence on his
or her behalf. The defendant can only argue that the trial court committed grave abuse of discretion
in declaring him or her in default.

Thus, should a defendant prefer to present evidence on his or her behalf, he or she must file either a
motion to set aside order of default, motion for new trial, or a petition for relief from judgment.

In this case, Lui Enterprises had discovered its default before the Regional Trial Court of Makati
rendered judgment. Thus, it timely filed a motion to set aside order of default, raising the ground of
excusable negligence.

Excusable negligence is "one which ordinary diligence and prudence could not have guarded
against."125 The circumstances should be properly alleged and proved. In this case, we find that Lui
Enterprises’ failure to answer within the required period is inexcusable.

Lui Enterprises’ counsel filed its motion to dismiss four days late. It did not immediately take steps to
remedy its default and took one year from discovery of default to file a motion to set aside order of
default. In its motion to set aside order of default, Lui Enterprises only "conveniently blamed its x x x
counsel [for the late filing of the answer]"126 without offering any excuse for the late filing. This is not
excusable negligence under Rule 9, Section 3, paragraph (b)127 of the 1997 Rules of Civil Procedure.
Thus, the Regional Trial Court of Makati did not err in refusing to set aside the order of default.

Lui Enterprises argued that the Regional Trial Court of Makati should have been liberal in setting
aside its order of default. After it had been declared in default, Lui Enterprises filed several
manifestations informing the Makati trial court of the earlier filed nullification of deed of dation in
payment case which barred the filing of the interpleader case. Lui Enterprises’ president, Eli L. Lui,
and counsel even flew in from Davao to Makati to "formally [manifest that] a [similar] action between
[Lui Enterprises] and [the Philippine Bank of Communications]"128 was already pending in the
Regional Trial Court of Davao. However, the trial court did not recognize Lui Enterprises’standing
incourt.

The general rule is that courts should proceed with deciding cases on the merits and set aside
orders of default as default judgments are "frowned upon."129 As much as possible, cases should be
decided with both parties "given every chance to fight their case fairly and in the open, without resort
to technicality."130

However, the basic requirements of Rule 9, Section 3, paragraph (b) of the 1997 Rules of Civil
Procedure must first be complied with.131 The defendant’s motion to set aside order of default must
satisfy three conditions. First is the time element. The defendant must challenge the default order
before judgment. Second, the defendant must have been prevented from filing his answer due to
fraud, accident, mistake or excusable negligence. Third, he must have a meritorious defense. As this
court held in SSS v. Hon. Chaves:132

Procedural rules are not to be disregarded or dismissed simply because their non-observance may
have resulted in prejudice to a party’s substantive rights. Like all rules[,] they are to be followed,
except only when for the most persuasive of reasons they may be relaxed to relieve a litigant of an
injustice not commensurate with the degree of his thoughtlessness in not complying with the
procedure prescribed. x x x.133

As discussed, Lui Enterprises never explained why its counsel failed to file the motion to dismiss on
time. It just argued that courts should be liberal in setting aside orders of default. Even assuming that
it had a meritorious defense and that its representative and counsel had to fly in from Davao to
Makati to personally appear and manifest in court its meritorious defense, Lui Enterprises must first
show that its failure to answer was due to fraud, accident, mistake or excusable negligence. This Lui
Enterprises did not do.

Lui Enterprises argued that Zuellig Pharma filed the interpleader case to compel Lui Enterprises and
the Philippine Bank of Communications to litigate their claims. Thus, "[d]eclaring the other claimant
in default would ironically defeat the very purpose of the suit."134 The RegionalTrial Court of Makati
should not have declared Lui Enterprises in default.

Under Rule 62, Section 1 of the 1997 Rules of Civil Procedure, a person may file a special civil
action for interpleader if conflicting claims are made against him or her over a subject matter in
which he or she has no interest. The action is brought against the claimants to compel them to
litigate their conflicting claims among themselves. Rule 62, Section 1 of the 1997 Rules of Civil
Procedure provides:

Section 1. When interpleader proper. – Whenever conflicting claims upon the same subject matter
are or may be made against a person who claims no interest whatever in the subject matter, or an
interest which in whole or in part is not disputed bythe claimants, he may bring an action against the
conflicting claimants to compel them to interplead and litigate their several claims among
themselves.

An interpleader complaint may be filed by a lessee against those who have conflicting claims over
the rent due for the property leased.135 This remedy is for the lessee to protect him or her from
"double vexation in respect of one liability."136 He or she may file the interpleader case to extinguish
his or her obligation to pay rent, remove him or her from the adverse claimants’dispute, and compel
the parties with conflicting claims to litigate among themselves.

In this case, Zuellig Pharma filed the interpleader case to extinguish its obligation to pay rent. Its
purpose in filing the interpleader case "was not defeated"137 when the Makati trial court declared Lui
Enterprises in default.

At any rate, an adverse claimant in an interpleader case may be declared in default. Under Rule 62,
Section 5 of the 1997 Rules of Civil Procedure, a claimant who fails to answer within the required
period may, on motion, be declared in default. The consequence of the default is that the court may
"render judgment barring [the defaulted claimant] from any claim in respect to the subject
matter."138 The Rules would not have allowed claimants in interpleader cases to be declared in
default if it would "ironically defeat the very purpose of the suit."139

The Regional Trial Court of Makati declared Lui Enterprises in default when it failed to answer the
complaint within the required period. Lui Enterprises filed a motion to set aside order of default
without an acceptable excuse why its counsel failed to answer the complaint. It failed to prove the
excusable negligence. Thus, the Makati trial court did not err in refusing to set aside the order of
default.

III
The nullification of deed in dation in payment case did not bar the filing of the interpleader
case. Litis pendentia is not present in this case.

Lui Enterprises allegedly filed for nullification of deed of dation in payment with the Regional Trial
Court of Davao. It sought to nullify the deed of dation in payment through which the Philippine Bank
of Communications acquired title over the leased property. Lui Enterprises argued that this pending
nullification case barred the Regional Trial Court of Makati from hearing the interpleader case. Since
the interpleader case was filed subsequently to the nullification case, the interpleader case should
be dismissed.

Under Rule 16, Section 1, paragraph (e) of the 1997 Rules of Civil Procedure, a motion to dismiss
may be filed on the ground of litis pendentia:

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

xxxx

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

xxxx

Litis pendentia is Latin for "a pending suit."140 It exists when "another action is pending between the
same parties for the same cause of actionx x x."141 The subsequent action is "unnecessary and
vexatious"142 and is instituted to "harass the respondent [in the subsequent action]."143

The requisites of litis pendentia are:

(1)Identity of parties or at least such as represent the same interest in both actions;

(2)Identity of rights asserted and reliefs prayed for, the reliefs being founded on the same
facts; and

(3)The identity in the two cases should be such that the judgment that may be rendered in
one would, regardless of which party is successful, amount to res judicata in the other.144

All of the requisites must be present.145 Absent one requisite, there is no litis pendentia.146

In this case, there is no litis pendentia since there is no identity of parties in the nullification of deed
of dation in payment case and the interpleader case. Zuellig Pharma is not a party to the nullification
case filed in the Davao trial court.

There is also no identity of rights asserted and reliefs prayed for. Lui Enterprises filed the first case
to nullify the deed of dation in payment it executed in favor of the Philippine Bank of
Communications. Zuellig Pharma subsequently filed the interpleader case to consign in court the
rental payments and extinguish its obligation as lessee. The interpleader case was necessary and
was not instituted to harass either Lui Enterprises or the Philippine Bank of Communications.

Thus, the pending nullification case did not bar the filing of the interpleader case.
Lui Enterprises cited Progressive Development Corporation, Inc. v. Court of Appeals147 as authority to
set aside the subsequently filed interpleader case. In this cited case, petitioner Progressive
Development Corporation, Inc. entered into a lease contract with Westin Seafood Market, Inc. The
latter failed to pay rent. Thus, Progressive Development Corporation, Inc. repossessed the leased
premises, inventoried the movable properties inside the leased premises, and scheduled the public
sale of the inventoried properties as they agreed upon in their lease contract.

Westin Seafood Market, Inc. filed for forcible entry with damages against Progressive Development
Corporation, Inc. It subsequently filed an action for damages against Progressive Development
Corporation for its "forcible takeover of the leased premises."148

This court ordered the subsequently filed action for damages dismissed as the pending forcible entry
with damages case barred the subsequently filed damages case.

Progressive Development Corporation, Inc. does not apply in this case. The action for forcible entry
with damages and the subsequent action for damages were filed by the same plaintiff against the
same defendant. There is identity of parties in both cases.

In this case, the nullification of deed of dation in payment case was filed by Lui Enterprises against
the Philippine Bank of Communications. The interpleader case was filed by Zuellig Pharma against
Lui Enterprises and the Philippine Bank of Communications. A different plaintiff filed the interpleader
case against Lui Enterprises and the Philippine Bank of Communications. Thus, there is no identity
of parties, and the first requisite of litis pendentia is absent.

As discussed, Lui Enterprises filed the nullification of deed of dation in payment to recover
ownership of the leased premises. Zuellig Pharma filed the interpleader case to extinguish its
obligation to pay rent.There is no identity of reliefs prayed for, and the second requisite of litis
pendentia is absent.

Since two requisites of litis pendentia are absent, the nullification of deed of dation in payment case
did not bar the filing of the interpleader case.

Lui Enterprises alleged that the Regional Trial Court of Davao issued a writ of preliminary injunction
against the Regional Trial Court of Makati. The Regional Trial Court of Davao allegedly enjoined the
Regional Trial Court of Makati from taking cognizance of the interpleader case. Lui Enterprises
argued that the Regional Trial Court of Makati "should have respected the orders issued by the
Regional Trial Court of Davao."149 Lui Enterprises cited Compania General de Tabacos de Filipinas v.
Court of Appeals150 where this court allegedly held:

x x x [T]he issuance of the said writ by the RTC ofAgoo, La Union not only seeks to enjoin Branch 9
of the RTC of Manila from proceeding with the foreclosure case but also has the effect of pre-
empting the latter’s orders. x x x.151

Compania General de Tabacos de Filipinas is not an authority for the claim that a court can issue a
writ of preliminary injunction against a co- equal court. The cited sentence was taken out of context.
1âwphi1

In Compania General de Tabacos de Filipinas, this court held that the Regional Trial Court ofAgoo
had no power to issue a writ of preliminary injunction against the Regional Trial Court of
Manila.152 Acourt cannot enjoin the proceedings of a co-equal court.

Thus, when this court said that the Regional Trial Court of Agoo’s writ of preliminary injunction "not
only seeks to enjoin x x x [the Regional Trial Court of Manila] from proceeding with the foreclosure
case but also has the effect of pre-empting the latter’s orders,"153 this court followed with "[t]his we
cannot countenance."154

At any rate, the Regional Trial Court of Davao’s order datedApril 18, 2005 was not a writ of
preliminary injunction. It was a mere order directing the Philippine Bank of Communications to inform
Zuellig Pharma to pay rent to Lui Enterprises while the status quo order between Lui Enterprises and
the Philippine Bank of Communications was subsisting. The Regional Trial Court of Davao did not
enjoin the proceedings before the Regional Trial Court of Makati.The order datedApril 18, 2005
provides:

As such, [the Philippine Bank of Communications] [is] hereby directed to forthwith inform Zuellig
Pharma Corp., of the April 1, 2004 status quo order and the succeeding September 14, 2004 Order,
and consequently, for the said lessee to remit all rentals due from February 23, 2003 and onwards to
plaintiff Lui Enterprises, Inc., in the meanwhile that the status quo order is subsisting.155

Thus, the Regional Trial Court of Davao did not enjoin the Regional Trial Court of Makati
fromhearing the interpleader case.

All told, the trial court did not err in proceeding with the interpleader case. The nullification of deed of
dation in payment case pending with the Regional Trial Court of Davao did not bar the filing of the
interpleader case with the RegionalTrial Court of Makati.

IV

The Court of Appeals erred in awarding attorney’s fees

In its ordinary sense, attorney’s fees "represent the reasonable compensation [a client pays his or
her lawyer] [for legal service rendered]."156 In its extraordinary sense, attorney’s fees "[are] awarded x
x x as indemnity for damages [the losing party pays the prevailingparty]."157

The award of attorney’s fees is the exception rather than the rule.158 It is not awarded to the prevailing
party "as a matter of course."159 Under Article 2208 of the Civil Code, attorney’s fees cannot be
recovered in the absence of stipulation, except under specific circumstances:

(1)When exemplary damages are awarded;

(2)When the defendant’s act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;

(3)In criminal cases of malicious prosecution against the plaintiff;

(4)In case of a clearly unfounded civil action or proceeding against the plaintiff;

(5)Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiff’s plainly valid, just and demandable claim;

(6)In actions for legal support;

(7)In actions for the recovery of wages of household helpers, laborers and skilled workers;

(8)In actions for indemnity under workmen’s compensation and employer’s liability laws;
 (9)In a separate civil action to recover civil liability arising froma crime;

(10)When at least double judicial costs are awarded;

(11)In any other case where the court deems it just and equitable that attorney's fees and
expenses of litigation should be recovered.160

Even if a party is "compelled to litigate with third persons or to incur expenses to protect his [or her]
rights,"161 attorney's fees will not be awarded if no bad faith "could be reflected in a party's
persistence in a case."162

To award attorney's fees, the court must have "factual, legal, [and] equitable justification."163 The
court must state the award's basis in its decision.164These rules are based on the policy that "no
premium should be placed.on the right to litigate."165

In this case, the Court of Appeals awarded attorney's fees as "[Zuellig Pharma] was compelled to
litigate with third persons or to incur expenses to protect [its] interest[s]."166 This is not a compelling
reason to award attorney's fees. That Zuellig Pharma had to file an interpleader case to consign its
rental payments did not mean that Lui Enterprises was in bad faith in insisting that rental payments
be paid to it. Thus, the Court. of Appeals erred in awarding attorney's fees to Zuellig Pharma.

All told, the Court of Appeals' award of P50,000.00 as attorney's fees must be deleted.

WHEREFORE, in view of the foregoing, the petition for review on certiorari is DENIED. The Court of
Appeals' decision and resolution in CA- G.R. CV No. 88023 are AFFIRMED with MODIFICATION.
The award of PS0,000.00 attorney's fees to Zuellig Pharma Corporation is DELETED.

SO ORDERED.

LEONEN, J.:
A conflict between two (2) stockholders of a corporation does not
automatically render their dispute as intra-corporate. The nature of the
controversy must also be examined.[1]

In this Petition for Review on Certiorari[2] under Rule 45 of the Rules of

Court, Belo Medical Group, Inc. (Belo Medical Group) assails the Regional
Trial Court December 8, 2008 Joint Resolution in Civil Case No. 08-
397.[3] This Joint Resolution granted respondent Jose L. Santos' (Santos)
Motion to Dismiss and Belo Medical Group's Complaint for interpleader
and Supplemental Complaint for Declaratory Relief against Santos and
Victoria G. Belo (Belo), and declared all other pending incidents as moot.[4]

The controversy began on May 5, 2008[5] when Belo Medical Group

received a request from Santos for the inspection of corporate
records.[6] Santos claimed that he was a registered shareholder and a co-
owner of Belo's shares, as these were acquired while they cohabited as
husband and wife.[7] Santos sought advice on his probable removal as
director of the corporation considering that he was not notified of meetings
where he could have been removed. He also inquired on the election of
Alfredo Henares (Henares) as Corporate Secretary in 2007 when Santos
had not been notified of a meeting for Henares' possible election. Finally,
he sought explanation on the corporation's failure to inform him of the
2007 annual meeting and the holding of an annual meeting in
2008.[8] Santos' concern over the corporate operations arose from the
alleged death of a patient in one (1) of its clinics.[9]

Santos was unsuccessful in inspecting the corporate books as Henares, the

officer-in-charge of corporate records, was travelling. Belo Medical Group
asked for time in order for Henares to accommodate Santos' request.[10]

After the first attempt to inspect, Belo wrote Belo Medical Group on May
14, 2007 to repudiate Santos' co-ownership of her shares and his interest in
the corporation. She claimed that Santos held the 25 shares in his name
merely in trust for her, as she, and not Santos, paid for these shares. She
informed Belo Medical Group that Santos already had a pending petition
with the Regional Trial Court to be declared as co-owner of her properties.
She asserted that unless a decision was rendered in Santos' favor, he could
not exercise ownership rights over her properties.[11]

Belo also informed Belo Medical Group that Santos had a business in direct
competition with it. She suspected that Santos' request to inspect the
records of Belo Medical Group was a means to obtain a competitor's
business information, and was, therefore, in bad faith.[12]

A second inspection was attempted through a written demand by Santos on

May 15, 2008.[13] Again, he was unsuccessful.

Belo wrote to Belo Medical Group on May 20, 2008 to reiterate her
objections to Santos' attempts at inspecting corporate books and his inquiry
regarding a patient. Belo further manifested that she was exercising her
right as a shareholder to inspect the books herself to establish that the 25
shares were not owned by Santos, and that he did not pay for these
shares.[14]

Thus, Belo Medical Group filed a Complaint for Interpleader[15] with Branch
149, Regional Trial Court, Makati City on May 21, 2008. Belo Medical
Group alleged that while Santos appeared to be a registered stockholder,
there was nothing on the record to show that he had paid for the shares
under his name. The Complaint was filed "to protect its interest and compel
[Belo and Santos] to interplead and litigate their conflicting claims of
ownership of, as well as the corresponding right of inspection arising from,
the twenty-five (25) [Belo Medical Group] shares between themselves
pursuant to Rule 62 of the 1997 Rules of Civil Procedure . . ."[16] The
following reliefs were prayed for:

(i) issue an Order summoning and requiring defendants Santos and Belo to
interplead with each other to resolve their conflicting claims of ownership
of the 25 shares of stock of [Belo Medical Group], including their opposing
claims of exclusive entitlement to inspect [Belo Medical Group] corporate
records;

(ii) after due proceedings render judgment in favor of the proper

defendant; and

(iii) allow plaintiff [Belo Medical Group] to recover attorney's fees and
litigation expenses in the amount of at least Php1,000,000.00 jointly and
solidarity against both defendants and for them to pay the costs of suit.[17]
On the same day, Henares wrote Belo's and Santos' respective counsels to
inform them of the Complaint.[18] Despite receipt, Santos' counsel still
proceeded to Belo Medical Group's Makati office on May 22, 2008, where,
again, they were unsuccessful in inspecting the corporate books.[19]

Santos, for the third time, sent a letter on May 22, 2008 to schedule an
inspection of the corporate books and warned that continued rejection of
his request exposed the corporation to criminal liability.[20] Nothing came
out of this last attempt as well.

Bela and Bela Medical Group wrote to Santos on May 27, 2008 to inform
him that he was barred from accessing corporate records because doing so
would be inimical to Belo Medical Group's interests.[21] Through another
letter on May 28, 2008, Santos was reminded of his majority share in The
Obagi Skin Health, Inc. the owner and operator of the House of Obagi
(House of Obagi) clinics. He was likewise reminded of the service of a
notice of the 2007 special meeting of stockholders to his address at Valero
Street, Makati City, contrary to his claim.[22]

On May 29, 2008, Belo Medical Group filed a Supplemental

Complaint[23] for declaratory relief under Rule 63 of the Rules of Court. In
its Supplemental Complaint, Belo Medical Group relied on Section 74[24] of
the Corporation Code to deny Santos' request for inspection. It prayed that
Santos be perpetually barred from inspecting its books due to his business
interest in a competitor.[25] Should the ruling for interpleader be in favor of
Santos, Belo Medical Group prayed that the trial court:

a. exercise its power under Rule 63 of the Revised Rules of Civil Procedure
and give a proper construction of Sections 74 and 75 of the Corporation
Code in relation to the facts presented above, and declare that plaintiff can
rightfully decline defendant Santos's request for inspection under those
sections and related provisions and jurisprudence; and

b. allow plaintiff to recover attorney's fees and litigation expenses from

defendant Santos in the amount of at least PHP1,000,000.00 and the costs
of suit.[26]
Belo Medical Group's Complaint and Supplemental Complaint were raffled
to Branch 149 of the Regional Trial Court of Makati, a special commercial
court,[27] thus classifying them as intra-corporate.[28]

Belo filed her Answer Ad Cautelam with Cross-Claim to put on record her
defenses that Santos had no right to inspect the books as he was not the
owner of the 25 shares of stock in his name and that he was acting in bad
faith because he was a majority owner of House of Obagi.[29]

Belo further argued that the proceedings should not have been classified as
intra-corporate because while their right of inspection as shareholders may
be considered intra-corporate, "it ceases to be that and becomes a full-
blown civil law question if competing rights of ownership are asserted as
the basis for the right of inspection."[30]

Meanwhile, on several dates, the trial court sheriff attempted to personally

serve Santos with summons.[31] After unsuccessful attempts,[32] the sheriff
resorted to substituted service in Santos' Makati office condominium
unit.[33]

On July 4, 2008, Belo Medical Group filed an Omnibus Motion for

Clarificatory Hearing and for Leave to File Consolidated Reply,[34] praying
that the case be tried as a civil case and not as an intra-corporate
controversy. It argued that the Interim Rules of Procedure Governing Intra-
Corporate Controversies[35] did not include special civil actions for
interpleader and declaratory relief found under the Rules of Court. Belo
Medical Group clarified that the issue on ownership of the shares of stock
must first be resolved before the issue on inspection could even be
considered ripe for determination.[36]

Belo Medical Group later on moved that Santos be declared in

default.[37] Instead of filing an answer Santos filed a Motion to Dismiss.[38]

Apart from procedural infirmities, Santos argued that Belo Medical Group's
Complaint and Supplemental Complaint must be dismissed "for its failure
to state, and ultimately, lack of, a cause of action."[39] No ultimate facts were
given to establish the act or omission of Santos and Belo that violated Belo
Medical Group's rights. There was simply no conflict on the ownership of
the 25 shares of stock under Santos' name. Based on the corporation's 2007
Articles of Incorporation and General Information Sheet, Santos was
reflected as a stockholder and owner of the 25 shares of stock. No
documentary evidence was submitted to prove that Belo owned these
shares and merely transferred them to Santos as nominal shares.[40]

Santos further argued that the filing of the complaints was an afterthought
to take attention away from Belo Medical Group's criminal liability when it
refused Santos' demand to inspect the records of the corporation. For years,
neither Belo Medica1 Group nor Belo questioned Santos' standing in the
corporation. No change in ownership from Santos to another person was
reflected in the company's General Information Sheet.[41]

Santos also invoked the doctrine of piercing the corporate veil as Belo
owned 90% of Belo Medical Group. Her claim over the 25 shares was a ploy
to defeat Santos' right to inspect corporate records. He asserts that the
Complaint for interpleader was an anticipatory move by the company to
evade criminal liability upon its denial of Santos' requests.[42]
In addition, Santos argued that a prerequisite to filing these cases is that
the plaintiff has not yet incurred liability to any of the parties. Since Belo
Medical Group had already incurred criminal liability, it could no longer
file a complaint for interpleader or declaratory relief.[43]

Santos denied any conflict of interest because Belo Medical Group's

products and services differed from House of Obagi's[44] Belo Medical
Group's primary purpose was the management and operation of skin
clinics[45] while the House of Obagi's main purpose was the sale and
distribution of high-end facial products.[46]

On October 29, 2008, Belo Medical Group filed its Opposition[47] and
argued that the Motion to Dismiss was a prohibited pleading under Section
8 of the Interim Rules of Procedure Governing Intra-Corporate
Controversies.

Belo Medical Group reiterated that Belo and Santos must litigate against
each other to determine who rightfully owned the 25 shares. An
accommodation of one of them, absent a resolution to this issue, would
make Belo Medical Group liable to the other.[48]

On its supposed criminal liability when it refused Santos access to

corporate records, Belo Medical Group explained that the independent
liability necessary to defeat complaints for interpleader arose from a final
judgment and not merely a cause of action that has accrued.[49]

Finally, Belo Medical Group averred that substantiation must be done

during trial. The dismissal of the case would be premature.[50]

Belo's Opposition dated October 29, 2008 raised the same arguments of
Belo Medical Group.[51]

Santos filed his Reply to the Oppositions on November 18, 2008.[52] He

agreed that the controversy was not intra-corporate but civil in nature, as it
involved ownership.[53] However, he stood firm on his arguments that the
case should be dismissed due to the Complaints' failure to state a cause of
action[54] and the trial court's failure to acquire jurisdiction over his
person.[55]
On December 8, 2008, the assailed Joint Resolution[56] was issued by the
trial court resolving the following incidents: Belo Medical Group's Omnibus
Motion for Clarificatory Hearing and for Leave to File Consolidated Reply
and Motion to Declare Santos in Default, and Santos' Motion to Dismiss.
The trial court declared the case as an intra-corporate controversy but
dismissed the Complaints.[57]

The trial court characterized the dispute as "intrinsically connected with the
regulation of the corporation as it involves the right of inspection of
corporate records."[58] Included in Santos and Belo's conflict was a
shareholder's exclusive right to inspect corporate records. In addition, the
issue on the ownership of shares requires the application of laws and
principles regarding corporations.[59]

However, the Complaint could not flourish as Belo Medical Group "failed to
sufficiently allege conflicting claims of ownership over the subject
shares."[60] In justifying failure to state a cause of action, the trial court
reasoned:

Plaintiff clearly admits in the complaint that defendant Santos is the

registered stockholder of the subject shares albeit no records show that he
made any payments thereof. Also, notwithstanding defendant Belo's claim
that she is the true owner thereof, there was no allegation that defendant
Santos is no longer the holder on record of the same or that it is now
defendant Belo who is the registered stockholder thereof. In fact, the
complaint even alleges that defendant Santos holds the 25 BMGI shares
merely as nominal qualifying shares in trust for defendant Belo. Thus, the
complaint failed to state a cause of action that would warrant the resort to
an action for interpleader.[61]
Though a motion to dismiss is a prohibited pleading under the Interim
Rules of Procedure Governing Intra-Corporate Controversies, the trial
court ruled that Section 2, Rule 1 of these rules allowed for the Rules of
Court to apply suppletorily. According to the Rules of Court, motions to
dismiss are allowed in interpleader cases.[62]

Finally, the Complaint for Declaratory Relief was struck down as improper
because it sought an initial determination on whether Santos was in bad
faith and if he should be barred from inspecting the books of the
corporation. Only after resolving these issues can the trial court determine
his rights under Sections 74 and 75 of the Corporation Code. The act of
resolving these issues is not within the province of the special civil action as
declaratory relief is limited to the construction and declaration of actual
rights and does not include the determination of issues.[63]

From the Joint Resolution, Belo and Belo Medical Group pursued different
remedies.

Belo filed her Petition for Review before the Court of Appeals docketed as
CA G.R. No. 08-397.[64]

Belo Medical Group, on the other hand, directly filed its Petition for Review
with this Court, alleging that purely questions of law are at issue.

Belo Medical Group argues that it is enough that there are two (2) people
who have adverse claims against each other and who are in positions to
make effective claims for interpleader to be given due course.[65] Belo
Medical Group cites Lim v. Continental Development
Corporation,[66] which allowed a complaint for interpleader to continue
because two (2) parties claimed ownership over the same shares of stock.[67]

On January 30, 2009, Belo Medical Group filed a

Manifestation/Disclosure[68] informing this Court that on January 28,
2009, it received Belo's Petition for Review filed before the Court of
Appeals. On February 4, 2009, this Court also received Belo's
Manifestation[69] that she filed a Petition for Review before the Court of
Appeals, assailing the Joint Resolution primarily because it dismissed her
counterclaims. She also furnished this Court a copy of her Manifestation
filed with the Court of Appeals to inform it of Belo Medical Group's Petition
for Review before this Court.[70]

On April 15, 2009, Belo filed her Comment[71] and manifested that she
agrees with the arguments raised by Belo Medical Group.

On April 28, 2009, Santos filed his Comment.[72] He argues that the
Petition filed by Belo Medical Group should be dismissed as the wrong
mode of appeal. It should have filed an appeal under Rule 43, pursuant to
the Interim Rules on Intra-Corporate Disputes.[73] He alleges that Belo
Medical Group committed forum shopping. It filed the present Petition for
Review after Belo had already filed an appeal under Rule 43 before the
Court of Appeals. He asserts that Belo and Belo Medical Group have the
san1e interest. Belo, owner of 90% of the shares of stock of the corporation,
dictates Belo Medical Group's actions, which were ultimately for Belo's
benefit and interests.[74]

Meanwhile, on July 31, 2009, the Court of Appeals dismissed Belo's

Petition for Review and ruled that the pending case before this Court was
the more appropriate vehicle to determine the issues.[75]

The issues for this Court's resolution are as follows:

First, whether or not Belo Medical Group, Inc. committed forum shopping;

Second, whether or not the present controversy is intra-corporate; Third,

whether or not Belo Medical Group, Inc. came to this Court using the
correct mode of appeal; and

Finally, whether or not the trial court had basis in dismissing Belo Medica]
Group, Inc.'s Complaint for Declaratory Relief.

Neither Belo nor the Belo Medical Group is guilty of forum shopping.

Forum shopping exists when parties seek multiple judicial remedies

simultaneously or successively, involving the same causes of action, facts,
circumstances, and transactions, in the hopes of obtaining a favorable
decision.[76] It may be accomplished by a party defeated in one forum, in an
attempt to obtain a favorable outcome in another, "other than by appeal or
a special civil action for certiorari."[77]

Forum shopping trivializes rulings of courts, abuses their processes,

cheapens the administration of justice, and clogs court dockets.[78] In Top
Rate Construction & General Services, Inc. v. Paxton Development
Corporation:[79]

What is critical is the vexation brought upon the courts and the litigants by
a party who asks different courts to rule on the same or related causes and
grant the same or substantially the same reliefs and in the process creates
the possibility of conflicting decisions being rendered by the different fora
upon the same issues.[80]
Rule 7, Section 5 of the Rules of Court contains the rule against forum
shopping:

Section 5. Certification against forum shopping. - The plaintiff or principal

party shall certify under oath in the complaint or other initiatory pleading
asserting a claim for relief, or in a sworn certification annexed thereto and
simultaneously filed therewith: (a) that he has not theretofore commenced
any action or filed any claim involving the same issues in any court,
tribunal or quasi-judicial agency and, to the best of his knowledge, no such
other action or claim is pending therein; (b) if there is such other per ding
action or claim, a complete statement of the present status thereof; and (c)
if he should thereafter learn that the same or similar action or claim has
been filed or is pending, he shall report that fact within five (5) days
therefrom to the court wherein his aforesaid complaint or initiatory
pleading has been filed.

Failure to comply with the foregoing requirements shall not be curable by

mere amendment of the complaint or other initiatory pleading but shall be
cause for the dismissal of the case without prejudice; unless otherwise
provided, upon motion and after hearing. The submission of a false
certification or non-compliance with any of the undertakings therein shall
constitute indirect contempt of court, without prejudice to the
corresponding administrative and criminal actions. If the acts of the party
or his counsel clearly constitute willful and deliberate forum shopping, the
same shall be ground for summary dismissal with prejudice and shall
constitute direct contempt, as well as a cause for administrative sanctions.
When willful and deliberate violation is clearly shown, it can be a ground
for all pending cases' summary dismissal with prejudice[81] and direct
contempt [82]

Belo Medical Group filed its Petition for Review on Certiorari under Rule
45 before this Court to appeal against the Joint Resolution of the trial court.
It did not file any other petition related to the case, as indicated in it
verification and certification against forum shopping. It was Belo, a
defendant in Belo Medical Groups Complaint, who filed a separate appeal
under Rule 43 with the Court of Appeals primarily to protect her
counterclaims. Belo and Belo Medical Group both filed their respective
Petitions for Review on January 28, 2009, the lat day within the period
allowed to do so.[83] The Court of Appeals already ruled that litis
pendencia was present when Belo and Belo Medical Group filed their
respective petitions on the same date before different fora. The two
petitions involved the same parties, rights and reliefs sought, and causes of
action.[84] This is a decision this Court can no longer disturb.

Neither Belo Medical Group nor Belo can be faulted for willful and
deliberate violation of the rule against forum shopping. Their prompt
compliance of the certification against forum shopping appended to their
Petitions negates willful and deliberate intent.

Belo Medical Group was not remiss in its duty to inform this Court of a
similar action or proceeding related to its Petition. It promptly manifested
before this Court its receipt of Belo's Petition before the Court of Appeals.
Belo Medical Group and Belo manifested before this Court that Belo filed a
Rule 43 petition to protect her counterclaims and to question the same
Joint Resolution issued by the trial court. Both did so within five (5) days
from discovery, as they undertook in their respective certificates against
forum shopping.

The issue of forum shopping has become moot. The appeal under Rule 43
filed by Belo has been dismissed by the Court of Appeals on the ground
of litis pendencia.[85] The purpose of proscribing forum shopping is the
proliferation of contradictory decisions on the same controversy.[86] This
possibility no longer exists in this case.

II

Belo Medical Group filed a case for interpleader, the proceedings of which
are covered by the Rules of Court. At its core, however, it is an intra-
corporate controversy.

A.M. No. 01-2-04-SC, or the Interim Rules of Procedure Governing Intra-

Corporate Controversies, enumerates the cases where the rules will apply:

Section 1. (a) Cases Covered - These Rules shall govern the procedure to be
observed in civil cases involving the following:
 1. Devices or schemes employed by, or any act of, the board of directors,
business associates, officers or partners, amounting to fraud or
misrepresentation which may be detrimental to the interest of the
public and/or of the stockholders, partners, or members of any
corporation, partnership, or association;

2. Controversies arising out of intra-corporate, partnership, or

association relations, between and among stockholders, members, or
associates; and between, any or all of them and the corporation,
partnership, or association of which they are stockholders, members,
or associates, respectively;

3. Controversies in the election or appointment of directors, trustees,

officers, or managers of corporations, partnerships, or associations;

4. Derivative suits; and

5. Inspection of corporate books.[87]

The same rules prohibit the filing of a motion to dismiss:

Section 8. Prohibited Pleadings. -The following pleadings are prohibited:

(1) Motion to dismiss;

(2) Motion for a bill of particulars;

(3) Motion for new trial or for reconsideration of judgment or order, or for
reopening of trial;

(4) Motion for extension of time to file pleadings, affidavits or any other
paper, except those filed due to clearly compelling reasons. Such motion
must be verified and under oath; and

(5) Motion for postponement and other motions of similar intent, except
those filed due to clearly compelling reasons. Such motion must be verified
and under oath.
To determine whether an intra-corporate dispute exists and whether this
case requires the application of these rules of procedure, this Court
evaluated the relationship of the parties. The types of intra-corporate
relationships were reviewed in Union Glass & Container Corporation v.
Securities and Exchange Commission:[88]

[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 in so far as its franchise, permit or license to
operate is concerned; and [d] among the stockholders, partners or
associates themselves.[89]
For as long as any of these intra-corporate relationships exist between the
parties, the controversy would be characterized as intra-corporate.[90] This
is known as the "relationship test."

DMRC Enterprises v. Este del Sol Mountain Reserve, Inc.[91] employed

what would later be called as the "nature of controversy test." It became
another means to determine if the dispute should be considered as intra-
corporate.

In DMRC Enterprises, Este del Sol leased equipment from DMRC

Enterprises. Part of Este del Sol's payment was shares of stock in the
company. When Este del Sol defaulted, DMRC Enterprises filed a collection
case before the Regional Trial Court. Este del Sol argued that it should have
been filed before the Securities and Exchange Commission as it involved an
intra-corporate dispute where a corporation was being compelled to issue
its shares of stock to subscribers. This Court held that it was not just the
relationship of the parties that mattered but also the conflict between them:

The purpose and the wording of the law escapes the respondent. Nowhere
in said decree do we find even so much as an intimidation that absolute
jurisdiction and control is vested in the Securities and Exchange
Commission in all matters affecting corporations. To uphold the
respondent's argument would remove without legal imprimatur from the
regular courts all conflicts over matters involving or affecting corporations,
regardless of the nature of the transactions which give rise to such disputes.
The courts would then be divested of jurisdiction not by reason of the
nature of the dispute submitted to them for adjudication, but solely for the
reason that the dispute involves a corporation. This cannot be done. To do
so would not only be to encroach on the legislative prerogative to grant and
revoke jurisdiction of the courts but such a sweeping interpretation may
suffer constitutional infirmity. Neither can we reduce jurisdiction of the
courts by judicial fiat (Article X, Section 1, The Constitution).[92]
This Court now uses both the relationship test and the nature of the
controversy test to determine if an intra-corporate controversy is
present.[93]

Applying the relationship test, this Court notes that both Belo and Santos
are named shareholders in Belo Medical Group's Articles of
Incorporation[94] and General Information Sheet for 2007.[95] The conflict is
clearly intra-corporate as it involves two (2) shareholders although the
ownership of stocks of one stockholder is questioned. Unless Santos is
adjudged as a stranger to the corporation because he holds his shares only
in trust for Belo, then both he and Belo, based on official records, are
stockholders of the corporation. Belo Medical Group argues that the case
should not have been characterized as intra-corporate because it is not
between two shareholders as only Santos or Belo can be the rightful
stockholder of the 25 shares of stock. This may be true. But this finding can
only be made after trial where ownership of the shares of stock is decided.

The trial court cannot classify the case based on potentialities. The two
defendants in that case are both stockholders on record. They continue to
be stockholders until a decision is rendered on the true ownership of the 25
shares of stock in Santos' name. If Santos' subscription is declared fictitious
and he still insists on inspecting corporate books and exercising rights
incidental to being a stockholder, then, and only then, shall the case cease
to be intra-corporate.

Applying the nature of the controversy test, this is still an intra-corporate

dispute. The Complaint for interpleader seeks a determination of the true
owner of the shares of stock registered in Santos' name. Ultimately,
however, the goal is to stop Santos from inspecting corporate books. This
goal is so apparent that, even if Santos is declared the true owner of the
shares of stock upon completion of the interpleader case, Belo Medical
Group still seeks his disqualification from inspecting the corporate books
based on bad faith. Therefore, the controversy shifts from a mere question
of ownership over movable property to the exercise of a registered
stockholder's proprietary right to inspect corporate books.

Belo Medical Group argues that to include inspection of corporate books to

the controversy is premature considering that there is still no
determination as to who, between Belo and Santos, is the rightful owner of
the 25 shares of stock. Its actions belie its arguments. Belo Medical Group
wants the trial court not to prematurely characterize the dispute as intra-
corporate when, in the same breath, it prospectively seeks Santos' perpetual
disqualification from inspecting its books. This case was never about
putting into light the ownership of the shares of stock in Santos' name. If
that was a concern at all, it was merely secondary. The primary aim of Belo
and Belo Medical Group was to defeat his right to inspect the corporate
books, as can be seen by the filing of a Supplemental Complaint for
declaratory relief.

The circumstances of the case and the aims of the parties must not be taken
in isolation from one another. The totality of the controversy must be taken
into account to improve upon the existing tests. This Court notes that Belo
Medical Group used its Complaint for interpleader as a subterfuge in order
to stop Santos, a registered stockholder, from exercising his right to inspect
corporate books.

Belo made no claims to Santos' shares before he attempted to inspect

corporate books, and inquired about the Henares' election as corporate
secretary and the conduct of stockholders' meetings. Even as she claimed
Santos' shares as hers, Belo proffered no initial proof that she had paid for
these shares. She failed to produce any document except her bare allegation
that she had done so. Even her Answer Ad Cautelam with Cross-
Claim[96] contained bare allegations of ownership.

According to its Complaint, although Belo Medical Group's records reflect

Santos as the registered stockholder of the 25 shares, they did not show that
Santos had made payments to Belo Medical Group for these shares,
"consistent with Bela's claim of ownership over them."[97] The absence of
any document to establish that Santos had paid for his shares does not
bolster Belo's claim of ownership of the same shares. Santos remains a
stockholder on record until the contrary is shown.

Belo Medical Group cites Lim v. Continental Development

Corporation[98] as its basis for filing its Complaint for interpleader. In Lim,
Benito Gervasio Tan (Tan) appeared as a stockholder of Continental
Development Corporation. He repeatedly requested the corporation to
issue certificates of shares of stock in his name but Continental
Development Corporation could not do this due to the claims of Zoila Co
Lim (Lim). Lim alleged that her mother, So Bi, was the actual owner of the
shares that were already registered in the corporate books as Lim's, and she
delivered these in trust to Lim before she died. Lim wanted to have the
certificates of shares cancelled and new ones re-issued in his name. This
Court ruled that Continental Development Corporation was correct in filing
a case for interpleader:

Since there is an active conflict of interests between the two defendants,

now herein respondent Benito Gervasio Tan and petitioner Zoila Co Lim,
over the disputed shares of stock, the trial court gravely abused its
discretion in dismissing the complaint for interpleader, which practically
decided ownership of the shares of stock in favor of defendant Benito
Gervasio Tan. The two defendants, now respondents in G.R. No. L-41831,
should be given full opportunity to litigate their respective claims.

Rule 63, Section 1 of the New Rules of Court tells us when a cause of action
exists to support a complaint in interpleader:

Whenever conflicting claims upon the same subject matter are or may be
made against a person, who claims no interest whatever in the subject
matter, or an interest which in whole or in part is not disputed by the
claimants, he may bring an action against the conflicting claimants to
compel them to interplead and litigate their several claims among
themselves . . .
This provision only requires as an indispensable requisite:

that conflicting claims upon the same subject matter are or may be made
against the plaintiff-in-interpleader who claims no interest whatever in the
subject matter or an interest which in whole or in part is not disputed by
the claimants (Beltran vs. People's Homesite and Housing Corporation, No.
L-25138, 29 SCRA 145).
This ruling, penned by Mr. Justice Teehankee, reiterated the principle in
Alvarez vs. Commonwealth (65 Phil. 302), that

The action of interpleader, under section 120, is a remedy whereby a person

who has personal property in his possession. or an obligation to render
wholly or partially, without claiming any right in both comes to court and
asks that the persons who claim the said personal property or who consider
themselves entitled to demand compliance with the obligation. be required
to litigate among themselves, in order to determine finally who is entitled to
one or the other thing. The remedy is afforded not to protect a person
against a double liability but to protect him against a double vexation in
respect of one liability.
An interpleader merely demands as a sine qua non element

. . . that there be two or more claimants to the fund or thing in dispute

through separate and different interests. The claims must be adverse before
relief can be granted and the parties sought to be interpleaded must be in a
position to make effective claims (33 C.J. 430).
Additionally, the fund thing, or duty over which the parties assert adverse
claims must be one and the same and derived from the same source (33
C.J., 328; Martin, Rules of Court, 1969 ed., Vol. 3, 133-134; Moran, Rules of
Court, 1970 ed., Vol. 3, 134-136).

Indeed, petitioner corporation is placed in the same situation as a lessee

who does not know the person to whom he will pay the rentals due to the
conflicting claims over t[h]e property leased, or a sheriff who finds himself
puzzled by conflicting claims to a property seized by him. In these
examples, the lessee (Pangkalinawan vs. Rodas, 80 Phil. 28) and the sheriff
(Sy-Quia vs. Sheriff, 46 Phil. 400) were each allowed to file a complaint in
interpleader to determine the respective rights of the claimants.[99]
In Lim, the corporation was presented certificates of shares of stock in So
Bi's name. This proof was sufficient for Continental Development
Corporation to reasonably conclude that controversy on ownership of the
shares of stock existed.

Furthermore, the controversy in Lim was between a registered stockholder

in the books of the corporation and a stranger who claimed to be the
rightful transferee of the shares of stock of her mother. The relationship of
the parties and the circumstances of the case establish the civil nature of
the controversy, which was plainly, ownership of shares of stock.
Interpleader was not filed to evade or defeat a registered stockholder's right
to inspect corporate books. It was borne by the sincere desire of a
corporation, not interested in the certificates of stock to be issued to either
claimant, to eliminate its liability should it favor one over the other.

On the other hand, based on the facts of this case and applying the
relationship and nature of the controversy tests, it was understandable how
the trial court could classify the interpleader case as intra-corporate and
dismiss it. There was no ostensible debate on the ownership of the shares
that called for an interpleader case. The issues and remedies sought have
been muddled when, ultimately, at the front and center of the controversy
is a registered stockholder's right to inspect corporate books.

As an intra-corporate dispute, Santos should not have been allowed to file a

Motion to Dismiss.[100] The trial court should have continued on with the
case as an intra-corporate dispute considering that it called for the
judgments on the relationship between a corporation and its two warring
stockholders and the relationship of these two stockholders with each
other.

III

Rule 45 is the wrong mode of appeal.

A.M. No. 04-9-07-SC promulgated by this Court En Banc on September 14,

2004 laid down the rules on modes of appeal m cases formerly cognizable
by the Securities and Exchange Commission:

1. All decisions and final orders in cases falling under the Interim Rules of
Corporate Rehabilitation and the Interim Rules of Procedure Governing
Intra-Corporate Controversies under Republic Act No. 8799 shall be
appealable to the Court of Appeals through a petition for review under Rule
43 of the Rules of Court.

2. The petition for review shall be taken within fifteen (15) days from notice
of the decision or final order of the Regional Trial Court. Upon proper
motion and the payment of the full amount of the legal fee prescribed in
Rule 141 as amended before the expiration of the reglementary period, the
Court of Appeals may grant an additional period of fifteen (15) days within
which to file the petition for review. No further extension shall be granted
except for the most compelling reasons and in no case to exceed fifteen (15)
days.
On the other hand, Rule 43 of the Rules of Court allows for appeals to the
Court of Appeals to raise questions of fact, of law, or a mix of both. Hence, a
party assailing a decision or a final order of the trial court acting as a special
commercial court, purely on questions of law, must raise these issues before
the Court of Appeals through a petition for review.[101] A.M. No. 04-9-07-SC
mandates it. Rule 43 allows it.
Belo Medical Group argues that since it raises only questions of law, the
proper mode of appeal is Rule 45 filed directly to this Court. This is correct
assuming there were no rules specific to intra-corporate disputes.
Considering that the controversy was still classified as intra-corporate upon
filing of appeal, special rules, over general ones, must apply.

Based on the policy of judicial economy and for practical

considerations,[102] this Court will not dismiss the case despite the wrong
mode of appeal utilized. For one, it would be taxing in time and resources
not just for Belo Medical Group but also for Santos and Belo to dismiss this
case and have them refile their petitions for review before the Court of
Appeals. There would be no benefit to any of the parties to dismiss the case
especially since the issues can already be resolved based n the records
before this Court. Also, the Court of Appeals already referred the matter to
this Court when it dismissed Belo's Petition for Review. Remanding this
case to the Court of Appeals would not only be unprecedented, it would
further delay its resolution.

IV

At the outset, this Court notes that two cases were filed by Belo Medical
Group: the Complaint for interpleader and the Supplemental Complaint for
Declaratory Relief. Under Rule 2, Section 5 of the Rules of Court, a joinder
of cause of action is allowed, provided that it follows the conditions
enumerated below:

Section 5. Joinder of Causes of Action. A party may in one pleading assert,

in the alternative or otherwise, as many causes of action as he may have
against an opposing party, subject to the following conditions:

(a) The party joining the causes of action shall comply with the rules on
joinder of parties;

(b) The joinder shall not include special civil actions or actions
governed by special rules;

(c) Where the causes of action are between the same parties but pertain to
different venues or jurisdictions, the joinder may be allowed in the Regional
Trial Court provided one of the causes of action falls within the jurisdiction
of said court and the venue lies therein; and

(d) Where the claims in all the causes of action are principally for recovery
of money, the aggregate amount claimed shall be the test of jurisdiction.
(Emphasis supplied)
Assuming this case continues on as an interpleader, it cannot be joined with
the Supplemental Complaint for declaratory relief as both are special civil
actions. However, as the case was classified and will continue as an intra-
corporate dispute, the simultaneous complaint for declaratory relief
becomes superfluous. The right of Santos to inspect the books of Belo
Medical Group and the appreciation for his motives to do so will necessarily
be determined by the trial court together with determining the ownership
of the shares of stock under Santos' name.

The trial court may make a declaration first on who owns the shares of
stock and suspend its ruling on whether Santos should be allowed to
inspect corporate records. Or, it may rule on whether Santos has the right
to inspect corporate books in the meantime while there has yet to be a
resolution on the ownership of shares. Remedies are available to Belo
Medical Group and Belo at any stage of the proceeding, should they carry
on in prohibiting Santos from inspecting the corporate books.

WHEREFORE, the Petition for Review of Belo Medical Group, Inc.

is PARTIALLY GRANTED. The December 8, 2008 Joint Resolution of
Branch 149, Regional Trial Court, Makati City in Civil Case No. 08-397
is REVERSED regarding its dismissal of the intra-corporate case. Let this
case be REMANDED to the commercial court of origin for further
proceedings.

SO ORDERED.

March 7, 2018

G.R. No. 196795

INTRAMUROS ADMINISTRATION, Petitioner
vs.
OFFSHORE CONSTRUCTION DEVELOPMENT COMPANY, Respondent

DECISION

LEONEN, J.:

The sole issue in ejectment proceedings is determining which of the parties has the better right to
physical possession of a piece of property. The defendant's claims and allegations in its answer or
motion to dismiss do not oust a trial court's jurisdiction to resolve this issue.

This is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, assailing the April 14,
2011 Decision2 of Branch 173, Regional Trial Court, Manila in Civil Case No. 10-124740. The
Regional Trial Court affirmed in toto the October 19, 2010 Order3 of Branch 24, Metropolitan Trial
Court, Manila in Civil Case No. 186955-CV, dismissing Intramuros Administration's (Intramuros)
Complaint for Ejectment against Offshore Construction and Development Company (Offshore
Construction) on the grounds 6f forum shopping and lack of jurisdiction.

In 1998, Intramuros leased certain real properties of the national government, which it administered
to Offshore Construction. Three (3) properties were subjects of Contracts of Lease: Baluarte De San
Andres, with an area of 2, 793 sq. m.;4 Baluarte De San Francisco De Dilao, with an area of 1,880
sq. m.;5 and Revellin De Recoletos, with an area of 1,036 sq. m.6 All three (3) properties were leased
for five (5) years, from September 1, 1998 to August 31, 2003. All their lease contracts also made
reference to an August 20, 1998 memorandum of stipulations, which included a provision for lease
renewals every five (5) years upon the parties' mutual agreement.7

Offshore Construction occupied and introduced improvements in the leased premises. However,
Intramuros and the Department of Tourism halted the projects due to Offshore Construction's non-
conformity with Presidential Decree No. 1616, which required 16th to 19th centuries' Philippine-
Spanish architecture in the area.8 Consequently, Offshore Construction filed a complaint with prayer
for preliminary injunction and temporary restraining order against Intramuros and the Department of
Tourism before the Manila Regional Trial Court,9 which was docketed as Civil Case No. 98-91587.10

Eventually, the parties executed a Compromise Agreement on July 26, 1999,11 which the Manila
Regional Trial Court approved on February 8, 2000.12 In the Compromise Agreement, the parties
affirmed the validity of the two (2) lease contracts but terminated the one over Revellin de
Recoletos.13 The Compromise Agreement retained the five (5)-year period of the existing lease
contracts and stated the areas that may be occupied by Offshore Construction:

FROM:

(1) Baluarte de San Andres

TO:

(1) Only the stable house, the gun powder room and two (2)

Chambers with comfort rooms, will be utilized for restaurants. All other structures built and
introduced including trellises shall be transferred/relocated to:
(a) Two (2) restaurants as Asean Garden. Each will have an aggregate area of two hundred square
meters (200 sq. mtrs.);

b) One (1) kiosk at Puerta Isabel Garden fronting Terraza de la Reyna with an aggregate area of
twenty (20) square meters;

(c) Three (3) restaurants at the chambers of Puerta Isabel II with an aggregate area of 1,180.5
sq.m.;

(d) One (1) restaurant at Fort Santiago American Barracks. Subject to IA Guidelines, the maximum
floor area will be the perimeter walls of the old existing building;

FROM:

(2) Baluarte De San Francisco Dilao

TO:

(2) All seven (7) structures including the [Offshore Construction] Administration Building and
Trellises shall be transferred [t]o Cuartel de Sta. Lucia, [O]therwise known as the PC Barracks[.]14

During the lease period, Offshore Construction failed to pay its utility bills and rental fees, despite
several demand letters.15 Intramuros tolerated the continuing occupation, hoping that Offshore
Construction would pay its arrears. As of July 31, 2004, these arrears allegedly totaled
P6,762,153.70.16

To settle its arrears, Offshore Construction proposed to pay the Department of Tourism's monthly
operational expenses for lights and sound equipment, electricity, and performers at the Baluarte
Plano Luneta de Sta. Isabel. Intramuros and the Department of Tourism accepted the offer, and the
parties executed a Memorandum of Agreement covering the period of August 15, 2004 to August 25,
2005.17

However, Offshore Construction continued to fail to pay its arrears, which amounted to
₱13,448,867.45 as of December 31, 2009. On March 26, 2010, Offshore Construction received
Intramuros' latest demand letter.18

Intramuros filed a Complaint for Ejectment before the Manila Metropolitan Trial Court on April 28,
2010.19 Offshore Construction filed its Answer with Special and Affirmative Defenses and
Compulsory Counterclaim.20

On July 12, 2010, Offshore Construction filed a Very Urgent Motion,21 praying that Intramuros'
complaint be dismissed on the grounds of violation of the rule on non-forum shopping, lack of
jurisdiction over the case, and litis pendentia. First, it claimed that Intramuros failed to inform the
Metropolitan Trial Court that there were two (2) pending cases with the Manila Regional Trial Court
over Puerta de Isabel II.22 Second, it argued that the Metropolitan Trial Court did not acquire
jurisdiction over the case since the relationship between the parties was not one of lessor-lessee but
governed by a concession agreement.23 Finally, it contended that Intramuros' cause of action was
barred by litis pendentia, since the pending Regional Trial Court cases were over the same rights,
claims, and interests of the parties.24
In its October 19, 2010 Order,25 the Metropolitan Trial Court granted the motion and dismissed the
case. Preliminarily, it found that while a motion to dismiss is a prohibited pleading under the Rule on
Summary Procedure, Offshore Construction's motion was grounded on the lack of jurisdiction over
the subject matter.26

The Metropolitan Trial Court found that Intramuros committed forum shopping and that it had no
jurisdiction over the case.27

First, it pointed out that there were two (2) pending cases at the time Intramuros filed its complaint:
Civil Case No. 08-119138 for specific performance filed by Offshore Construction against
Intramuros, and SP CA No. 10-123257 for interpleader against Offshore Construction and
Intramuros filed by 4H Intramuros, Inc. (4H Intramuros),28 which claimed to be a group of
respondent's tenants.29

The Metropolitan Trial Court found that the specific performance case was anchored on Offshore
Construction's rights under the Compromise Agreement. In that case, Offshore Construction claimed
that it complied with its undertakings, but Intramuros failed to perform its obligations when it refused
to offset Offshore Construction's expenses with the alleged unpaid rentals. The interpleader case, on
the other hand, dealt with Offshore Construction's threats to evict the tenants of Puerta de Isabel II.
4H Intramuros prayed that the Regional Trial Court determine which between Offshore Construction
and Intramuros was the rightful lessor of Puerta de Isabel II.30

The Metropolitan Trial Court found that the cause of action in Intramuros' complaint was similar with
those in the specific performance and intetj)leader cases. Any judgment in any of those cases would
affect the resolution or outcome in the ejectment case, since they would involve Offshore
Construction's right to have its expenses offset from the rentals it owed Intramuros, and the
determination of the rightful lessor of Puerta de Isabel II. The Metropolitan Trial Court pointed to the
arrears in rentals that Intramuros prayed for as part of its complaint. Further, Intramuros failed to
disclose the specific performance and interpleader cases in its certification against forum shopping.31

Second, the Metropolitan Trial Court held that it had no jurisdiction over the complaint. While there
were lease contracts between the parties, the existence of the other contracts between them made
Intramuros and Offshore Construction's relationship as one of concession. Under this concession
agreement, Offshore Construction undertook to develop several areas of the Intramuros District, for
which it incurred expenses. The trial court found that the issues could not be mere possession and
rentals only.32

Intramuros appealed the October 19, 2010 Order with the Regional Trial Court. On April 14, 2011,
the Regional Trial Court affirmed the Municipal Trial Court October 19, 2010 Order in toto.33

On May 25, 2011, Intramuros, through the Office of the Solicitor General, filed a Motion for
Extension of Time to File Petition for Review on Certiorari (Motion for Extension) before this Court. It
prayed for an additional 30 days, or until June 16, 2011, within which to file its petition for review on
solely on questions of law.34

On June 16, 2011, Intramuros filed its Petition for Review on Certiorari,35 assailing the April 14, 2011
Decision of the Regional Trial Court.

In its Petition for Review, Intramuros argues that the Regional Trial Court erred in upholding the
Metropolitan Trial Court findings that it had no jurisdiction over Intramuros' ejectment complaint36 and
that it committed forum shopping.37
First, Intramuros argues that Offshore Construction's Very Urgent Motion should not have been
entertained by the Metropolitan Trial Court as it was a motion to dismiss, which was prohibited under
the Rule on Summary Procedure.38 It claims that the Metropolitan Trial Court could have determined
the issue of jurisdiction based on the allegations in its complaint. It points out that "jurisdiction over
the subject matter is determined by the allegations [in] the complaint" and that the trial court's
jurisdiction is not lost "just because the defendant makes a contrary allegation" in its defense.39 In
ejectment cases, courts do not lose jurisdiction by a defendant's mere allegation that it has
ownership over the litigated property. It holds that the Metropolitan Trial Court did not lose
jurisdiction when Offshore Construction alleged that its relationship with Intramuros is one of
concession, that the cause of action accrued in 2003, and that there was litis pendentia and forum
shopping. It contends that the sole issue in an ejectment suit is the summary restoration of
possession of a piece of land or building to the party that was deprived of it.40 Thus, the Metropolitan
Trial Court gravely erred in granting Offshore Construction's motion to dismiss despite having
jurisdiction over the subject matter of Intramuros' complaint.41

Second, Intramuros avers that it did not commit forum shopping as to warrant the dismissal of its
complaint. It claims that while there were pending specific performance and interpleader cases
related to the ejectment case, Intramuros was not guilty of forum shopping since it instituted neither
action and did not seek a favorable ruling as a result of an earlier adverse opinion in these
cases.42 Intramuros points out that it was Offshore Construction and 4H Intramuros which filed the
specific performance and interpleader cases, respectively.43 In both cases, Intramuros was the
defendant and did not seek fossession of Puerta de Isabel II as a relief in its answers to the
complaints.44 Moreover, the issues raised in these earlier cases were different from the issue of
possession in the ejectment case. The issue in the specific performance case was whether or not
Intramuros should offset the rentals in arrears from Offshore Construction's expenses in continuing
the WOW Philippines Project.45 Meanwhile, the issue in the interpleader case was to determine
which between Intramuros and Offshore Construction was the rightful lessor of Puerta de Isabel II.46

Finally, Intramuros maintains that there is no concession agreement between the parties, only lease
contracts that have already expired and are not renewed. It argues that there is no basis for alleging
the existence of a concession agreement. It points out that in the Contracts of Lease and
Memorandum of Agreement entered into by Intramuros and Offshore Construction, the expiry of the
leases would be on August 31, 2003. Afterwards, Intramuros tolerated Offshore Construction's
continued occupation of its properties in hopes that it would pay its arrears in due course.47

On July 20, 2011, this Court issued its Resolution48 granting the Motion for Extension and requiring
Offshore Construction to comment on the Petition for Review.

On October 10, 2011, Offshore Construction filed its Coniment49 to the Petition for Review. In its
Comment, Offshore Construction argues that the Petition for Review should be dismissed because it
violates the principle of hierarchy of courts and raises questions of fact.50 It points out that Intramuros
did not move for the reconsideration of the Regional Trial Court April 14, 2011 Decision. Instead of
directly filing with this Court, Intramuros should have filed a Petition for Review with the Court of
Appeals, in accordance with Rule 42 of the Rules of Court.51 It claims that Intramuros raises
questions of fact in its Petition for Review, namely, the expiration of the Contracts of Lease and the
business concession in favor of Offshore Construction.52

In its November 21, 2011 Resolution, this Court noted the Comment and required Intramuros to file
its Reply.53

On March 12, 2012, Intramuros filed its Reply54 to the Comment. It argues that direct resort to this
Court is proper because the issues it raises in its Petition for Review do not require review of
evidence to resolve, and the facts of the case are undisputed.55 It claims that the nature of Intramuros
and Offshore Construction's relationship is never an issue because all the documents referenced
and relied upon by the parties were lease agreements.56

On August 23, 2012, this Court gave due course to the Petition for Review and ordered both parties
to submit their memoranda.57

On January 7, 2013, Intramuros filed its Memorandum,58 while Offshore Construction filed its
Memorandum59 on August 16, 2013.

In its Memorandum, Offshore Construction claims that it occupies Puerta de Isabel II by virtue of a
legal concession based not only on the parties' contracts but also on the contemporaneous and
subsequent acts of Intramuros and Offshore Construction. It argues that under the Contracts of
Lease, Offshore Construction was required to invest around ₱20,000,000.00 worth of investments in
the leased properties and that it lost its initial investments, which were demolished due to adverse
criticism by then Intramuros Administrator Anna Maria L. Harper. Under the Compromise
Agreement, Offshore Construction was again required to make new developments, again worth
millions of pesos. Offshore Construction claims that these conditions make their relationship not one
of mere lessor and lessee.60

Further, it attests that Intramuros committed illegal and inhuman acts, and injustice against it and its
sublessees, allegedly because the Contracts of Lease had expired.61 Moreover, it points out that
Intramuros only filed the ejectment complaint in 2010, even though the Contracts of Lease expired
on August 31, 2003. It argues that Intramuros was guilty of estoppel in pais, since it continued to
accept rental payments as late as July 10, 2009.62 Assuming that the lease contracts had expired,
these contracts were impliedly renewed by the mutual and voluntary acts of the parties, in
accordance with Article 1670 of the Civil Code.63 Offshore Construction claims that there is now
novation of the Contracts of Lease, and the courts may fix a period for them,64 pursuant to Article
1687 of the Civil Code.65 It reiterates its prayer that the Petition for Review be dismissed, due to
questions of fact more properly cognizable by the Court of Appeals.66

The issues to be resolved by this Court are:

First, whether or not direct resort to this Court is proper;

Second, whether or not the Metropolitan Trial Court had jurisdiction over the ejectment complaint
filed by Intramuros Administration;

Third, whether or not Intramuros Administration committed forum shopping when it filed its ejectment
complaint despite the pending cases for specific performance and interpleader; and

Finally, whether or not Intramuros Administration is entitled to possess the leased premises and to
collect unpaid rentals.

At the outset, petitioner should have filed a petition for review under Rule 42 of the Rules of Court to
assail the Regional Trial Court's ruling upholding the Metropolitan Trial Court October 19, 2010
Order instead of filing a petition for review on certiorari under Rule 45 with this Court.
Under Rule 42, Section 1 of the Rules of Court, the remedy from an adverse decision rendered by a
Regional Trial Court exercising its appellate jurisdiction is to file a verified petition for review with the
Court of Appeals:

Section 1. How appeal taken; time for filing. -A party desiring to appeal from a decision of the
Regional Trial Court rendered in the exercise of its appellate jurisdiction may file a verified petition
for review with the Court of Appeals, paying at the same time to the clerk of said court the
corresponding docket and other lawful fees, depositing the amount of ₱500.00 for costs, and
furnishing the Regional Trial Court and the adverse party with a copy of the petition. The petition
shall be filed and served within fifteen (15) days from notice of the decision sought to be reviewed or
of the denial of petitioner's motion for new trial or reconsideration filed in due time after judgment.
Upon proper motion and the payment of the full amount of the docket and other lawful fees and the
deposit for costs before the expiration of the reglementary period, the Court of Appeals may grant an
additional period of fifteen (15) days only within which to file the petition for review. No further
extension shall be granted except for the most compelling reason and in no case to exceed fifteen
(15) days.

Petitioner puts in issue before this Court the findings of the Metropolitan Trial Court that it has no
jurisdiction over the ejectment complaint and that petitioner committed forum shopping when it failed
to disclose two (2) pending cases, one filed by respondent Offshore Construction and the other filed
by respondent's group of tenants, 4H Intramuros. Both of these cases raise questions of law, which
are cognizable by the Court of Appeals in a petition for review under Rule 42.

"A question of law exists when the law applicable to a particular set of facts is not settled, whereas a
question of fact arises when the truth or falsehood of alleged facts is in doubt."67 This Court has ruled
that the jurisdiction of a court over the subject matter of a complaint68 and the existence of forum
shopping69 are questions of law.

A petition for review under Rule 42 may include questions of fact, of law, or mixed questions of fact
and law.70 This Court has recognized that the power to hear cases on appeal in which only questions
of law are raised is not vested exclusively in this Court.71 As provided in Rule 42, Section 2, errors of
fact or law, or both, allegedly committed by the Regional Trial Court in its decision must be specified
in the petition for review:

Section 2. Form and Contents. - The petition shall be filed in seven (7) legible copies, with the
original copy intended for the court being indicated as such by the petitioner, and shall (a) state the
full names of the parties to the case, without impleading the lower courts or judges thereof either as
petitioners or respondents; (b) indicate the specific material dates showing that it was filed on time;
(c) set forth concisely a statement of the matters involved, the issues raised, the specification of
errors of fact or law, or both, allegedly committed by the Regional Trial Court, and the reasons or
arguments relied upon for the allowance of the appeal; (d) be accompanied by clearly legible
duplicate originals or true copies of the judgments or final orders of both lower courts, certified
correct by the clerk of court of the Regional Trial Court, the requisite number of plain copies thereof
and of the pleadings and other material portions of the record as would support the allegations of the
petition.

The petitioner shall also submit together with the petition a certification under oath that he has not
theretofore commenced any other action involving the same issues in the Supreme Court, the Court
of Appeals or different divisions thereof, or any other tribunal or agency; if there is such other action
or proceeding, he must state the status of the same; and if he should thereafter learn that a similar
action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or
different divisions thereof, or any other tribunal or agency, he undertakes to promptly inform the
aforesaid courts and other tribunal or agency thereof within five (5) days therefrom. (Emphasis
supplied)

Petitioner's direct resort to this Court, instead of to the Court of Appeals for intermediate review as
sanctioned by the rules, violates the principle of hierarchy of courts.72 In Diocese of
Bacolod v. Commission onElections:73

The doctrine that requires respect for the hierarchy of courts was created by this court to ensure that
every level of the judiciary performs its designated roles in an effective and efficient manner. Trial
courts do not only determine the facts from the evaluation of the evidence presented before them.
They are likewise competent to determine issues of law which may include the validity of an
ordinance, statute, or even an executive issuance in relation to the Constitution. To effectively
perform these functions, they are territorially organized into regions and then into branches. Their
writs generally reach within those territorial boundaries. Necessarily, they mostly perform the all-
important task of inferring the facts from the evidence as these are physically presented before
them. In many instances, the facts occur within their territorial jurisdiction, which properly present the
'actual case' that makes ripe a determination of the constitutionality of such action. The
consequences, of course, would be national in scope. There are, however, some cases where resort
to courts at their level would not be practical considering their decisions could still be appealed
before the higher courts, such as the Court of Appeals.74 (Citation omitted)

Nonetheless, the doctrine of hierarchy of courts is not inviolable, and this Court has provided several
exceptions to the doctrine.75 One of these exceptions is the exigency of the situation being
litigated.76 Here, the controversy between the parties has been dragging on since 2010, which should
not be the case when the initial dispute-an ejectment case-is, by nature and design, a summary
procedure and should have been resolved with expediency.

Moreover, this Court's rules of procedure permit the direct resort to this Court from a decision of the
Regional Trial Court upon questions of law, such as those which petitioner raises in this case.
In Barcenas v. Spouses Tomas and Caliboso: 77

Nonetheless, a direct recourse to this Court can be taken for a review of the decisions, final orders
or resolutions of the RTC, but only on questions of law. Under Section 5 of Article VIII of the
Constitution, the Supreme Court has the power to

(2) Review, revise, reverse, modify, or affirm on appeal or certiorari as the law or the Rules of Court
may provide, final judgments and orders of lower courts in:

....

(e) All cases in which only an error or question of law is involved.

This kind of direct appeal to this Court of RTC judgments, final orders or resolutions is provided for in
Section 2(c) of Rule 41, which reads:

SEC. 2. Modes of appeal. -

....

(c) Appeal by certiorari. - In all cases where only questions of law are raised or involved, the appeal
shall be to the Supreme Court by petition for review on certiorari in accordance with Rule 45.
Procedurally then, petitioners could have appealed the RTC Decision affirming the MTC (1) to this
Court on questions of law only; or (2) if there are factual questions involved, to the CA - as they in
fact did.78

Thus, petitioner's resort to this Court is proper and warranted under the circumstances.

II

In dismissing the complaint, the Metropolitan Trial Court found that "[t]he issues . . . between the
parties cannot be limited to a simple determination of who has the better right of possession of the
subject premises or whether or not [petitioner] is entitled [to] rentals in arrears."79 It held that the
relationship between the parties was a "more complicated situation where jurisdiction is better
lodged with the regional trial court,"80 upon a finding that there was a concession, rather than a lease
relationship between the parties.81

It is settled that the only issue that must be settled in an ejectment proceeding is physical
possession of the property involved.82 Specifically, action for unlawful detainer is brought against a
possessor who unlawfully withholds possession after the termination and expiration of the right to
hold possession.83

To determine the nature of the action and the jurisdiction of the court, the allegations in the
complaint must be examined. The jurisdictional facts must be evident on the face of the
complaint.84 There is a case for unlawful detainer if the complaint states the following:

(1) initially, possession of property by the defendant was by contract with or by tolerance of the
plaintiff;

(2) eventually, such possession became illegal upon notice by plaintiff to defendant of the
termination of the latter's right of possession;

(3) thereafter, the defendant remained in possession of the property and deprived the plaintiff of the
enjoyment thereof; and

(4) within one year from the last demand on defendant to vacate the property, the plaintiff instituted
the complaint for ejectment.85 (Citation omitted)

A review of petitioner's Complaint for Ejectment shows that all of these allegations were made.

First, petitioner alleges that respondent is its lessee by virtue of three (3) Contracts of Lease. The
validity of these contracts was later affirmed in a Compromise Agreement, which modified certain
provisions of the previous leases but retained the original lease period. Respondent does not dispute
these contracts' existence or their validity.

Second, following respondent's failure to pay rentals, petitioner alleges that it has demanded that
respondent vacate the leased premises.

Third, respondent continues to occupy and possess the leased premises despite petitioner's
demand. This is admitted by respondent, which seeks to retain possession and use of the properties
to "recoup its multimillion pesos worth of investment."86
Fourth, petitioner filed its Complaint for Ejectment on April 28, 2010,87 within one (1) year of its last
written demand to respondent, made on March 18, 2010 and received by respondent on March 26,
2010.88 Contrary to respondent's claim, the one (1)-year period to file the complaint must be
reckoned from the date of last demand, in instances when there has been more than one (1)
demand to vacate.89

The Metropolitan Trial Court seriously erred in finding that it did not have jurisdiction over petitioner's
complaint because the parties' situation has allegedly become "more complicated"90 than one of
lease. Respondent's defense that its relationship with petitioner is one of concession rather than
lease does not determine whether or not the Metropolitan Trial Court has jurisdiction over petitioner’s
complaint. The pleas or theories set up by a defendant in its answer or motion to dismiss do not
affect the court’s jurisdiction.91 In Morta v. Occidental:92

It is axiomatic that what determines the nature of an action as well as which court has jurisdiction
over it, are the allegations in the complaint and the character of the relief sought. "Jurisdiction over
the subject matter is determined upon the allegations made in the complaint, irrespective of whether
the plaintiff is entitled to recover upon a claim asserted therein - a matter resolved only after and as
a result of the trial. Neither can the jurisdiction of the court be made to depend upon the defenses
made by the defendant in his answer or motion to dismiss. If such were the rule, the question of
jurisdiction would depend almost entirely upon the defendant."93 (Citations omitted)

Not even the claim that there is an implied new lease or tacita reconduccion will remove the
Metropolitan Trial Court's jurisdiction over the complaint.94 To emphasize, physical possession, or de
facto possession, is the sole issue to be resolved in ejectment proceedings. Regardless of the
claims or defenses raised by a defendant, a Metropolitan Trial Court has jurisdiction over an
ejectment complaint once it has been shown that the requisite jurisdictional facts have been alleged,
such as in this case. Courts are reminded not to abdicate their jurisdiction to resolve the issue of
physical possession, as there is a public need to prevent a breach of the peace by requiring parties
to resort to legal means to recover possession of real property.95

III

In its October 19, 2010 Order, the Metropolitan Trial Court found that petitioner committed forum
shopping when it failed to disclose that there were two (2) pending cases in other trial courts
concerning the same parties and similar causes of action. These two (2) cases were Civil Case No.
08- 119138 for specific performance filed by respondent against petitioner; and SP CA Case No. 10-
123257 for interpleader filed by 4H Intramuros. Both cases were pending with the Manila Regional
Trial Court. The Metropolitan Trial Court found that if it decides petitioner's Complaint for Ejectment,
its ruling would conflict with any resolution in the specific performance and interpleader cases, since
the same contracts were involved in all three (3) cases. It found that the parties were the same and
the reliefs prayed for were the same.

Forum shopping is the practice of resorting to multiple fora for the same relief, to increase the
chances of obtaining a favorable judgment.96 In Spouses Reyes v. Spouses Chung:97

It has been jurisprudentially established that forum shopping exists when a party avails himself of
several judicial remedies in different courts, simultaneously or successively, all substantially founded
on the same transactions and the same essential facts and circumstances, and all raising
substantially the same issues either pending in or already resolved adversely by some other courts.

The test to determine whether a party violated the rule against forum shopping is whether the
elements of litis pendentia are present, or whether a final judgment in one case will amount to res
judicata in another. Simply put, when litis pendentia or res judicata does not exist, neither can forum
shopping exist.

The requisites of litis pendentia are: (a) the identity of parties, or at least such as representing the
same interests in both actions; (b) the identity of rights asserted and relief prayed for, the relief being
founded on the same facts; and (c) the identity of the two cases such that judgment in one,
regardless of which party is successful, would amount to res judicata in the other. On the other hand,
the elements of res judicata, also known as bar by prior judgment, are: (a) the former judgment must
be final; (b) the court which rendered it had jurisdiction over the subject matter and the parties; (c) it
must be a judgment on the merits; and (d) there must be, between the first and second actions,
identity of parties, subject matter, and causes of action.98 (Citation omitted)

As observed by the Metropolitan Trial Court, there is an identity of parties in the specific
performance and interpleader cases, and the Complaint for Ejectment. However, there is no identity
of asserted rights or reliefs prayed for, and a judgment in any of the three (3) cases will not amount
to res judicata in the two others.

In respondent’s amended complaint for specific performance, it prays that petitioner be compelled to
offset respondent's unpaid rentals, with the expenses that respondent supposedly incurred due to
the Department of Tourism's WOW Philippines project,99 pursuant to a July 27, 2004 Memorandum
of Agreement. Concededly, one of respondent's reliefs prayed for is for petitioner to respect
respondent's lease over Puerta de Isabel II, Asean Garden and Revellin de Recoletos:

2. Order [Department of Tourism], [Intramuros Administration] and [Anna Maria L. Harper] to perform
their obligation under the "Memorandum of Agreement" dated 27 July 2004 by OFFSETTING the
rentals in arrears from the expenses incurred by Offshore in the continuance of the Department of
Tourism's WOW Philippines Project and to allow Offshore to recover their investment at Intramuros
by respecting their lease over Puerta Isabel II, Asean Garden and Revellin de Recoletos[.]100

Nevertheless, the Memorandum of Agreement expressly stated that its purpose was for respondent
to pay petitioner and the Department of Tourism rentals in arrears as of July 31, 2004:

WHEREAS, [respondent] has been indebted to [petitioner] in the form of rental and utility
consumption arrears for the occupancy of Puerta Isabel Chambers, Asean Gardens and Baluarte de
San Andres (Stable House) in the amount of Six Million Seven Hundred Sixty[-]Two Thousand One
Hundred Fifty[-]Three and 70/100 (P6,762,153.70) as of July 31, 2004 and as a way of settling said
arrears, [respondent] had proposed to pay its obligations with [petitioner] as shown in the breakdown
in "Annex A" hereof through [respondent's] assumption of [Department of Tourism's] monthly
operational expenses for lights and sound equipment, electricity, and performers at the Baluarte
Plano Luneta de Sta. Isabel in Intramuros, Manila[.]101

This was affirmed in petitioner's May 29, 2005 letter to respondent, in which petitioner stated:

During our meeting last May 5, 2005 with Mr. Rico Cordova, it was reiterated that the subject of the
[Memorandum of Agreement] for the lights and sound at Plano Luneta de Sta. Isabel was your
accumulated account as of July 2004. Subsequent rentals have to be remitted to [Intramuros] as
they become due and demandable. We have emphasized this concern in our letter of November 12,
2004.102

A final judgment in the specific performance case will not affect the outcome of the ejectment case.
As pointed out by petitioner, respondent's right to possess the leased premises is founded initially on
the Contracts of Lease and, upon their expiration, on petitioner's tolerance in hopes of payment of
outstanding arrears. The July 27, 2004 Memorandum of Agreement subject of the specific
performance case cannot be the source of respondent's continuing right of possession, as it
expressly stated there that the offsetting was only for respondent's outstanding arrears as of July 31,
2004. Any favorable judgment compelling petitioner to comply with its obligation under this
agreement will not give new life to the expired Contracts of Lease, such as would repel petitioner's
unlawful detainer complaint.

In its Amended Answer in the specific performance case, petitioner sets up the counterclaim that
"[respondent] be ordered to pay its arrears of (₱13,448,867.45) as of December 31, 2009 plus such
rent and surcharges as may be incurred until [respondent] has completely vacated the [leased]
premises."103 This counterclaim is exactly the same as one of petitioner's prayers in its ejectment
complaint:

WHEREFORE, premises considered, it is most respectfully prayed that JUDGMENT be rendered

ORDERING:

....

(2) DEFENDANT [OFFSHORE CONSTRUCTION] TO PAY ITS ARREARS OF THIRTEEN MILLION

FOUR HUNDRED FORTYEIGHT THOUSAND, EIGHT HUNDRED SIXTY-SEVEN PESOS AND
FORTY-FIVE CENTAVOS (₱13,448,867.45), PLUS INTEREST OF 1% PER MONTH AS
STIPULATED IN THE LEASE CONTRACTS[.]104

A compulsory counterclaim is a defendant's claim for money or other relief which arises out of, or is
necessarily connected with, the subject matter of the complaint. In Spouses Ponciano v. Hon.
Parentela, Jr.:105

A compulsory counterclaim is any claim for money or other relief which a defending party may have
against an opposing party, which at the time of suit arises out of, or is necessarily connected with,
the same transaction or occurrence that is the subject matter of plaintiff's complaint.

It is compulsory in the sense that if it is within the jurisdiction of the court, and does not require for its
adjudication the presence of third parties over whom the court cannot acquire jurisdiction, it must be
set up therein, and will be barred in the future if not set up.106 (Citation omitted)

In its complaint for specific performance, respondent claimed that petitioner should offset its
outstanding rentals and that it was petitioner which had an outstanding debt to respondent:

16. In compliance with the Memorandum of Agreement, Offshore incurred expenses amounting to
Seven Million Eight Hundred Twenty[] Five Thousand Pesos (P7,825,000.00) by way of Expenses
for Rentals of Lights & Sound System, Electrical Bill and Performers Fees. This amount is excluding
the expenses incurred during the period Offshore supplied the Light & Sound System, as well as
Performers, aforementioned started in October 2004. A copy of the Statement of Account is hereto
appended as ANNEX "H" to "H-4";

17. Based on Offshore's records, upon re-computation of Actual Area used during all these period[s]
from July 2001 to March 30, 2008, copy of Statement of Accounts has been sent to Intramuros
Administration for reconciliation, Offshore’s total obligation by way of back and current rentals up to
March 30, 2008 is only in the amount of Six Million Four Hundred Three Thousand Three Hundred
Sixty[-]Four Pesos (P6,403,364.00);
18. Obviously, when both accounts are offset, it will clearly show that [Intramuros] still owes Offshore
the amount of One Million Four Hundred Twenty[-]One Thousand Six Hundred Thirty[-]Six Pesos
(P1,421,636.00) as of March 2008;

19. Unfortunately, despite this glaring fact that [Intramuros] owes Offshore, Defendant [Anna Maria
L.] Harper (who has already showed sour and adverse treatment of Offshore in the past), being the
new Administrator of Intramuros Administration, sent a Letter dated 09 April 2008 demanding from
Offshore to pay [Intramuros] alleged rentals in arrears in the amount of P12,478[,]461.74, within
seven (7) days from receipt. A copy of the Letter is hereto attached and marked as Annex "I" to "1-
1";

20. It can be deduced from the attachment to the aforementioned letter that [Intramuros] did not
honor the obligations imposed in the Memorandum of Agreement because the monthly expenses
incurred by Offshore for the payment of the Lights and Sound System, Electricity and Performers
Fees for the continuance of the Department of Tourism WOW Project at Baluarte Plano, Luneta de
Sta. Isabel which were duly furnished [Intramuros] in the amount of Seven Million Eight Hundred
Twenty[-]Five Thousand Pesos (P7,825,000.00) as expressly agreed by [Department of Tourism],
[Intramuros] and Offshore in the Memorandum of Agreement were NOT deducted from the rentals
due[.]107

Petitioner's counterclaim in its Amended Answer was set up to defend itself against such a claim:

26. [Offshore Construction] has not established its right, or the reality is, [Offshore Constructioin] has
been delinquent in the payment of its financial obligations which are specifically provided in its
contract with defendant [Intramuros], such as rental fees.

27. [Offshore Construction] has to pay rent for being still in possession of Puerta Isabel II and Asean
Garden. Moreover, plaintiff has enjoyed the fruits of subleasing these premises for years and yet it
has continuously failed to remit all rental fees and surcharges despite repeated demands from
defendants. It bears stressing that as of December 31, 2009, [Offshore Construction's] arrears has
already ballooned to thirteen million four hundred and forty[-]eight thousand eight hundred and sixty[]
seven pesos and forty[-]five centavos (PB,448,867.45).

28. Glaringly, [Offshore Construction] has been remiss in performing its obligations stated in the
Lease Contracts (Annexes A to A- 15; B to B-14 and C to C-14 of the Complaint), Compromise
Agreement (Annexes E to E-17 of the Complaint) and Memorandum of Agreement (Annexes F to F-
16 of the Complaint). [Intramuros and Anna Maria L. Harper] are therefore constrained to demand
payment from [Offshore Construction] for the latter's failure or refusal to honor its just and valid
obligations. Necessarily, [Intramuros and Anna Maria L. Harper] will not hesitate to seek legal
remedies if [Offshore Construction] continues to be delinquent.

29. Essentially, [Offshore Construction] is protesting the computation of its arrears (P12,478,461.74)
in the demand letter sent by Administrator [Anna Maria L.] Harper on April 9, 2008. [Offshore
Construction] also asserts that it only owes defendant [Intramuros] six million four hundred three
thousand and three hundred sixty[-]four pesos (P6,403,364.00).

30. [Offshore Construction] is misguided. The [Memorandum of Agreement] dated July 27, 2004 was
executed because [Offshore Construction], at that time, had been indebted to defendant [Intramuros]
in the form of rental and utility consumption arrears for the occupancy of Puerta Isabel Chambers,
Asean Gardens and Baluarte de San Andres in the amount of six million seven hundred sixty[-]two
thousand one hundred fifty[-]three and seventy centavos (P6, 762, 153. 70) ....
....

32. Even after July 27, 2004, and up to this time, [Offshore Construction] remained in possession of,
used and/or subleased the subject premises. As such, [Offshore Construction] still has to pay rental
fees, aside from the aforesaid arrears. The rental fees continued to pile up and triggered the
imposition of surcharges as [Offshore Construction] again failed to remit payments thereon. This
explains the demandable amount of P13,448,867.45 (Annex I to 11 of Complaint). [Offshore
Construction] is therefore mistaken in believing that it only owes defendant [Intramuros] the arrears
subject of the [Memorandum of Agreement] of July 27, 2004 and nothing more.108

Clearly, petitioner's counterclaim is compulsory, arising as it did out of, and being necessarily
connected with, the parties' respective obligations under the July 27, 2004 Memorandum of
Agreement. Petitioner cannot be faulted for raising the issue of unpaid rentals in the specific
performance case or for raising the same issue in the present ejectment case, since it appears that
respondent's alleged failure to pay the rent led to the nonrenewal of the Contracts of Lease.
However, it must be emphasized that any recovery made by petitioner of unpaid rentals in either its
ejectment case or in the specific performance case must bar recovery in the other, pursuant to the
principle of unjust enrichment.109

A judgment in the Complaint for Interpleader will likewise not be res judicata against the ejectment
complaint. The plaintiff in the interpleader case, 4H Intramuros, allegedly representing the tenants
occupying Puerta de Isabel II, does not expressly disclose in its Complaint110 for Interpleader the
source of its right to occupy those premises. However, it can be determined from petitioner's
Answer111 and from respondent's Memorandum112 that the members of 4H Intramuros are
respondent's sublessees.

A sublessee cannot invoke a superior right over that of the sublessor.113 A judgment of eviction
against respondent will affect its sublessees since the latter's right of possession depends entirely on
that of the former.114 A complaint for interpleader by sublessees cannot bar the recovery by the
rightful possessor of physical possession of the leased premises.

Since neither the specific performance case nor the interpleader case constituted forum shopping by
petitioner, the Metropolitan Trial Court erred in dismissing its Complaint for Ejectment.

IV

Ordinarily, this case would now be remanded to the Metropolitan Trial Court for the determination of
the rightful possessor of the leased premises. However, this would cause needless delay
inconsistent with the summary nature of ejectment proceedings.115 Given that there appears sufficient
evidence on record to make this determination, judicial economy dictates that this Court now resolve
the issue of possession.116

It is undisputed that respondent's occupation and use of Baluarte de San Andres, Baluarte de San
Francisco de Dilao, and Revellin de Recoletos started on September 1, 1998 by virtue of Contracts
of Lease all dated August 20, 1998.117 The Contracts of Lease were modified through Addendums to
the Contracts likewise dated August 20, 1998.118

Then, to amicably settle Civil Case No. 98-91587 entitled Offshore Construction and Development
Company v. Hon. Gemma Cruz-Araneta and Hon. Dominador Ferrer, Jr., then pending before
Branch 47, Regional Trial Court, Manila,119 the parties and the Department of Tourism entered into a
July 26, 1999 Compromise Agreement. In the Compromise Agreement, the parties affirmed the
validity of the lease contracts, but agreed to transfer the areas to be occupied and used by
respondent in Baluarte de San Andres and Baluarte de San Francisco de Dilao due to improvements
that it had introduced to the leased premises.120 The lease over Revellin de Recoletos was
terminated.121 It appears that under this Compromise Agreement, the original five (5)-year period of
the Contracts of Lease were retained,122 such that the leases would expire on August 31, 2003, and
renewable for another five (5) years upon the parties' mutual agreement.123

Thereafter, the Contracts of Lease expired. Respondent does not concede this, but there is no proof
that there has been any contract mutually agreed upon by the parties for any extensions of the
leases. Respondent can only argue that petitioner's continuing tolerance of respondent's possession
and acceptance of respondent's rental payments impliedly renewed the Contracts of Lease.124

But petitioner's tolerance of respondent's occupation and use of the leased premises after the end of
the lease contracts does not give the latter a permanent and indefeasible right of possession in its
favor. When a demand to vacate has been made, as what petitioner had done, respondent’s
possession became illegal and it should have left the leased premises. In Caniza v. Court of
1âw phi 1

Appeals:125

The Estradas’ first proffered defense derives from a literal construction of Section 1, Rule 70 of the
Rules of Court which inter alia authorizes the institution of an unlawful detainer suit when "the
possession of any land or building is unlawfully withheld after the expiration or termination of the
right to hold possession, by virtue of any contract, express or implied." They contend that since they
did not acquire possession of the property in question "by virtue of any contract, express or implied" -
they having been, to repeat, "allowed to live temporarily ... (therein) for free, out of ... (Cañiza’s)
kindness" - in no sense could there be a4n "expiration or termination of . . . (their) right to hold
possession, by virtue of any contract, express or implied." Nor would an action for forcible entry lie
against them, since there is no claim that they had "deprived (Cañiza) of the possession of ... (her
property) by force, intimidation, threat, strategy, or stealth."

The argument is arrant sophistry. Cañiza’s act of allowing the Estradas to occupy her house, rent-
free, did not create a permanent and indefeasible right of possession in the latter's favor. Common
sense, and the most rudimentary sense of fairness clearly require that act of liberality be implicitly,
but no less certainly, accompanied by the necessary burden on the Estradas of returning the house
to Cañiza upon her demand. More than once has this Court adjudged that a person who occupies
the land of another at the latter's tolerance or permission without any contract between them is
necessarily bound by an implied promise that he will vacate upon demand, failing which a summary
action for ejectment is the proper remedy against him. The situation is not much different from that of
a tenant whose lease expires but who continues in occupancy by tolerance of the owner, in which
case there is deemed to be an unlawful deprivation or withholding of possession as of the date of the
demand to vacate. In other words, one whose stay is merely tolerated becomes a deforciant illegally
occupying the land or property the moment he is required to leave. Thus, in Asset Privatization Trust
vs. Court of Appeals, where a company, having lawfully obtained possession of a plant upon its
undertaking to buy the same, refused to return it after failing to fulfill its promise of payment despite
demands, this Court held that "(a)fter demand and its repudiation, ... (its) continuing possession ...
became illegal and the complaint for unlawful detainer filed by the ... (plant’s owner) was its proper
remedy."126 (Emphasis supplied, citations omitted)

The existence of an alleged concession agreement between petitioner and respondent is

unsupported by the evidence on record. The Metropolitan Trial Court found that a concession
agreement existed due to the agreements entered into by the parties:

This Court agrees with the defendant. The various contracts of lease between the parties
notwithstanding, the existence of the other agreements involved herein cannot escape the scrutiny
of this Court. Although couched in such words as "contracts of lease", the relationship between the
parties has evolved into another kind - that of a concession agreement whereby defendant [Offshore
Construction] undertook to develop several areas of the Intramuros District, defendant [Offshore
Construction] actually commenced the development of the subject premises and incurred expenses
for the said development, effectively making the relationship more than an ordinary lessor-lessee but
one governed by concession whereby both parties undertook other obligations in addition to their
basic obligations under the contracts of lease. Consensus facit legem (The parties make their own
law by their agreement). It behooves this Court to respect the parties' contracts, including the
memoranda of agreement that ensued after it. ...127

Respondent claims that the parties’ agreement was for it to operate the leased premises to recover
its investments and to make profits. However, a review of the Contracts of Lease show that they are
1âwphi1

lease contracts, as defined in Article 1643 of the Civil Code:

Article 1643. In the lease of things, one of the parties binds himself to give to another the enjoyment
or use of a thing for a price certain, and for a period which may be definite or indefinite. However, no
lease for more than ninety-nine years shall be valid.

The restrictions and limitations on respondent's use of the leased premises are consistent with
petitioner’s right as lessor to stipulate the use of the properties being leased.128 Neither the Contracts
of Lease nor their respective Addendums to the Contract contain any stipulation that respondent
may occupy and use the leased premises until it recovers the expenses it incurred for improvements
it introduced there. Instead, the lease period was fixed at five (5) years, renewable for another five
(5) years upon mutual agreement:

3. CONTRACT TERM. (Leased Period) This lease shall be for a period of FIVE YEARS (5 YRS)
commencing from September 1, 1998 to August 31, 2003, renewable for another period of FIVE
YEARS (5 YRS) under such terms and condition that may be mutually agreed upon in writing by the
parties[.]129

The subsequent contracts, namely, the July 26, 1999 Compromise Agreement and the July 27, 2004
Memorandum of Agreement, also do not point to any creation of a "concession" in favor of
respondent. The Compromise Agreement affirms the validity of the lease contracts, while the
Memorandum of Agreement was for the payment of respondent's arrears until July 2004.

However, this Court cannot award unpaid rentals to petitioner pursuant to the ejectment proceeding,
since the issue of rentals in Civil Case No. 08-119138 is currently pending with Branch 37, Regional
Trial Court, Manila, by virtue of petitioner's counterclaim. As the parties dispute the amounts to be
offset under the July 27, 2004 Memorandum of Agreement and respondent’s actual back and current
rentals due,130 the resolution of that case is better left to the Regional Trial Court for trial on the
merits.

WHEREFORE, the Petition for Review on Certiorari is GRANTED. The April 14, 2011 Decision of
Branch 173, Regional Trial Court, Manila in Civil Case No. 10-124740 is REVERSED AND SET
ASIDE, and a new decision is hereby rendered ordering respondent Offshore Construction and
Development Company and any and all its sublessees and successors-in-interest to vacate the
leased premises immediately.

Branch 37, Regional Trial Court, Manila is DIRECTED to resolve Civil Case No. 08-119138 with
dispatch.

SO ORDERED.
G.R. No.147812. April 6, 2005

LEONARDO R. OCAMPO, Petitioners,

vs.
LEONORA TIRONA, Respondents.

DECISION

CARPIO, J.:

The Case

This is a petition for review1 to annul the Decision2 dated 29 November 2000 of the Court of Appeals
("appellate court") in CA-G.R. SP No. 41686, and its Resolution dated 16 April 2001 denying the
motion for reconsideration. The appellate court set aside the Decision3 dated 27 June 1996 of Branch
110 of the Regional Trial Court of Pasay City ("RTC") in Civil Case No. 96-0209. The RTC affirmed
the Decision4 dated 29 December 1995 of Branch 47 of the Metropolitan Trial Court of Pasay City
("MTC") in Civil Case No. 754-95 ordering respondent Leonora Tirona ("Tirona") to vacate and
surrender possession of the property under litigation to petitioner Leonardo R. Ocampo ("Ocampo").
The MTC also ordered Tirona to pay Ocampo rentals in arrears, attorney’s fees, and costs of suit.

Antecedent Facts

Ocampo alleged that he is the owner of a parcel of land ("subject land") described in Transfer
Certificate of Title ("TCT") No. 134359, with an approximate area of 500 square meters, located at
Alvarez Street, Pasay City. Ocampo bought the subject land from Rosauro Breton, heir of the
subject land’s registered owner Alipio Breton Cruz. Possession and administration of the subject
land are claimed to be already in Ocampo’s management even though the TCT is not yet in his
name. Tirona, on the other hand, is a lessee occupying a portion of the subject land.5 The MTC
established the following facts:

According to [Ocampo], upon acquisition of ownership of the subject premises, a formal written
notice was given to [Tirona] which was received by the latter on 9 March 1995, copy of the said
formal written agreement marked as Annex "A" and likewise copy of the registry return receipt
showing that [Tirona] received Annex "A" was marked as Annex "A-1". In recognition of [Ocampo’s]
right of ownership over the subject premises, [Tirona] paid some monthly rentals due, however, on
July 5, 1995, [Ocampo] received a letter from Callejo Law Office of Room 513 Borja Bldg., 645 Sta.
Cruz, Manila stating among others, that, in view of the fact that the subject premises was declared
under area for priority development, [Tirona] is invoking her right of first refusal and in connection
thereto [Tirona] will temporarily stop paying her monthly rentals until and unless the National
Housing Authority have processed the pertinent papers as regards the amount due to [Ocampo] by
reason of the implementation of the above law, a copy of the said letter marked as Annex "B" of the
Complaint. In reply to Annex "B", [Ocampo] sent a letter dated 17 July 1995 addressed to the said
Callejo Law Office, copy furnished [Tirona]. A copy of the said reply of [Ocampo] marked as Annex
"C" of the Complaint, a copy of the Registry Return Receipt showing that [Tirona] received said
Annex "C" on 20 July 1995 marked as Annex "C-1" of the Complaint, while as the original copy
which was sent to Callejo Law Office was also received by said office. On 7 August 1995, [Ocampo]
wrote a letter to [Tirona] demanding upon [Tirona] to pay the rentals in arrears for the months of
April, May, June, July and August at the rate of ₱1,200 a month and to vacate the premises, copy of
the said letter dated 7 August 1995 marked as Annex "D" of the Complaint and the signature at the
bottom portion of Annex "D" clearly shows that the same was received by [Tirona] on 8 August 1995.
Despite receipt of said letter, [Tirona] failed and refused and still fails and refuses to heed
[Ocampo’s] demands.6

On 11 September 1995, Ocampo filed a complaint docketed as Civil Case No. 754-95 for unlawful
detainer and damages against Tirona before the MTC.

Tirona filed her answer on 27 September 1995. Tirona asserted that Doña Lourdes Rodriguez
Yaneza actually owns the subject land. The allegations in the answer state thus:

1. That the Assignor [one Edison A. Hindap, Sr.] is the General Overseer and Attorney-in-Fact of
DOÑA LOURDES RODRIGUEZ YANEZA, Heir/Owner of TITULO DE PROPRIEDAD DE TERENOS
of 1891, Royal Degree 01-4 Protocol, the real owner of a parcel of land allegedly claimed by
[Ocampo].

2. That the Title of [Ocampo] was overlapped [sic] the Original Land Title of the Assignor.

3. That [Tirona], hereby recognized by the Assignor as co-owner by possession and hereby cede,
transfer and assign the said parcel of land in [Tirona’s] favor.

4. That [Tirona] hereby denied [sic] and discontinued [sic] all the obligations imposed by [Ocampo],
for the simple reason, the property in question is not owned by [Ocampo], but rather owned by the
Assignor, as proof of evidence herein Assignor issued a Certification for Occupancy and Assignment
in favor of [Tirona] herein attached with [sic], and the other evidence shall be presented upon the
proper hearing on the merits of this case.7

Ocampo filed a motion to strike out the answer filed and a motion for judgment on 10 October 1995.
Ocampo claimed that the answer was not verified; therefore, it was as if no answer was filed.

On 12 October 1995, Tirona filed a motion with leave to amend defendant’s answer.8 She alleged
that she filed her answer without the assistance of a lawyer due to fear that she might be unable to
file the required pleading on time. In her amended answer, Tirona maintained that Ocampo is not the
owner of the subject land. She stated that the certificate of title to the subject land is not even
registered under Ocampo’s name. Tirona also alleged that she has a right of first refusal in case of
sale of the land, pursuant to Presidential Decree ("PD") Nos. 1517,9 189310 and 1968.11 The area
where the subject land is located was certified as an area under priority development.12 Tirona asked
for attorney’s fees and moral and exemplary damages.

In the spirit of substantial justice, the MTC granted Tirona’s motion to amend her answer on 20
October 1995. On 15 November 1995, the MTC directed Ocampo and Tirona to submit their
respective position papers and other evidence after the termination of the pre-trial conference.

The issue considered by the MTC for resolution was whether Ocampo may eject Tirona because of
non-payment of rent and because of the termination of Tirona’s right to possess and occupy the
subject land.
The MTC’s Ruling

The MTC ruled that Tirona does not have any reason to suspend payment of rents until after PD No.
1517, in relation to PD Nos. 1893 and 1968, is implemented in her favor. Tirona’s non-payment of
rents rendered her occupation of the subject land illegal. As owner of the subject land, Ocampo is
entitled to its use and enjoyment, as well as to recover its possession from any person unlawfully
withholding it.

The dispositive part of the MTC’s decision reads:

WHEREFORE, judgment is hereby rendered in favor of [Ocampo] and against [Tirona]:

1. Ordering [Tirona] and all other persons claiming possession under her to vacate and surrender
possession to [Ocampo] the premises known as, parcel of land located at 2132 Alvarez St., Pasay
City, covered by Transfer Certificate of Title No. 134359 of the Register of Deeds of Pasay City;

2. Ordering [Tirona] to pay the rentals in arrears covering the period from April 1995 until such time
[Tirona] shall have finally vacated the subject premises at the rate of ₱1,200 a month, with interest at
a legal rate;

3. Ordering [Tirona] to pay the sum of ₱5,000 for and as attorney’s fees; and

4. Ordering [Tirona] to pay the cost of the suit.

SO ORDERED.13

Ocampo filed a motion for execution pending appeal on 24 January 1996, while Tirona filed a notice
of appeal on 25 January 1996. The MTC directed its clerk of court to transmit the records of the
case, as well as the motion for execution pending appeal, through an order issued on 29 January
1996. The RTC issued an order on 26 February 1996 ordering both parties to file their respective
memoranda.

On 4 March 1996, Maria Lourdes Breton-Mendiola, who claimed to be the owner of the subject land,
filed a motion with leave to file intervention before the RTC.

The RTC’s Ruling

In an order dated 11 March 1996, the RTC issued a writ of execution pending appeal for the
enforcement of the MTC’s decision. The RTC stated that although Tirona perfected her appeal on
time, the record showed that she failed to pay the required supersedeas bond as well as deposit the
current rentals as mandated by Section 8, Rule 70 of the 1964 Rules of Court. In a separate order
issued on the same date, the RTC denied Maria Lourdes Breton-Mendiola’s motion with leave to file
intervention. The RTC stated that granting the motion to intervene would violate the 1964 Rules of
Court and jurisprudence.

Ocampo filed his memorandum on 21 March 1996.14 He emphasized that Tirona’s assertion of a
"preferential right of first refusal" is a recognition of the sale by Rosauro Breton of the subject land to
him. Moreover, Tirona is not qualified to claim this preferential right because she is no longer a
legitimate tenant. The payment of Tirona’s monthly rent was already in arrears at the time Ocampo
filed the complaint against Tirona.
On 25 March 1996, Tirona filed a manifestation which stated that she paid both the supersedeas
bond and rent on the subject land. The RTC considered Tirona’s manifestation as a motion for
reconsideration of its previous order issuing a writ of execution pending appeal. In its order dated 15
April 1996, the RTC recalled its 11 March 1996 order and cancelled the writ of execution.

Tirona filed her memorandum also on 25 March 1996. For the first time, Tirona disclosed that Alipio
Breton is the registered owner of the subject land and that he is her landlord since 1962. When
Alipio Breton died in 1975, his children, Rosauro Breton and Maria Lourdes Breton-Mendiola,
inherited the subject land. Tirona claims she has never stopped paying her rent to Maria Lourdes
Breton-Mendiola. Tirona also stated that Rosauro Breton could not transfer ownership to the subject
land to Ocampo. On 14 July 1978, Rosauro Breton executed a deed of conveyance and waiver in
favor of his sister, Maria Lourdes Breton-Mendiola. Rosauro Breton executed another deed of
conveyance and waiver in favor of Maria Lourdes Breton-Mendiola on 9 March 1995. Thus, Tirona
claims, Ocampo cannot legally acquire title from Rosauro Breton in view of the waivers. Maria
Lourdes Breton-Mendiola is Tirona’s lessor, and is the only person who can validly file an ejectment
suit against Tirona.15

After quoting the findings of the MTC, the RTC held thus:

This Court after a careful review of the complete record of this case particularly the evidences,
applicable laws and jurisprudence relied upon by the [MTC] in finding for [Ocampo] and declaring
that [Tirona] can be lawfully ejected from the subject premises, concurs with the findings thereof.
There is therefore nothing in the record which would warrant the Court to disturb the findings of fact
and law and the conclusions reached by the [MTC].

This Court finds the decision of the lower court fully justified in granting the reliefs to [Ocampo].

WHEREFORE, judgment is hereby rendered AFFIRMING IN TOTO the decision of the [MTC] with
costs against [Tirona].

SO ORDERED.16

In its petition before the appellate court, Tirona stated that the RTC erred in the following grounds:

1. ORDERING THE EJECTMENT OF [TIRONA] IN VIOLATION OF SECTION 2 OF PD [NO.]

2016.17

2. NOT RULING THAT [TIRONA] HAS A BETTER RIGHT OF POSSESSION OVER THE
PROPERTY IN QUESTION.

3. RULING THAT THE SUCCESSOR-IN-INTEREST OF AN UNDIVIDED IDEAL ONE-HALF

PORTION, [OCAMPO] MAY DEPRIVE THE OTHER CO-OWNER OF THE ADMINISTRATION OF
ONE-HALF PORTION BY EJECTING HER LESSEE, [TIRONA].18

The appellate court stated that the principal issue for its resolution is whether Ocampo, being the
buyer of the subject land which is not yet partitioned among the heirs, can validly evict Tirona.19

The Appellate Court’s Ruling

The appellate court considered partition of the estate of Alipio Breton as a prerequisite to Ocampo’s
action. The appellate court ruled that "[u]ntil the partition of the estate is ordered by the Regional
Trial Court of Pasay City in the pending partition proceedings and the share of each co-heir is
determined by metes and bounds, [Ocampo] cannot rightfully claim that what he bought is part of the
property occupied by [Tirona]."20 The dispositive part of the appellate court’s decision reads thus:

WHEREFORE, the decision of the respondent court is hereby SET ASIDE and judgment is hereby
rendered dismissing the complaint of the private respondent in the court below.

SO ORDERED.21

Hence, the instant petition.

The Issues

Ocampo assigned three errors to the appellate court. Ocampo stated that the appellate court erred
in:

1. ENTERTAINING AND NOT DISMISSING THE PETITION FOR REVIEW (with prayer for its
issuance of Writ of Preliminary Injunction and immediate issuance of TRO), THE SAME HAVING
BEEN FILED BEYOND THE REGLAMENTARY PERIOD.

2. CONSIDERING AND RESOLVING AN ISSUE RAISED IN THE PETITION FOR REVIEW FOR
THE FIRST TIME ON APPEAL.

3. DECLARING THAT LEONARDO R. OCAMPO HAS NO RIGHT TO EJECT LEONORA TIRONA,

NOR DEMAND PAYMENT OF RENTALS FROM HER FOR THE USE AND OCCUPANCY OF THE
LOT INVOLVED IN THE PRESENT CASE.22

The Ruling of the Court

The petition has merit.

We agree with Ocampo’s observation that Tirona changes her theory of the case each time she
appeals.23 For this reason, we shall limit our ruling to the propriety of Ocampo’s unlawful detainer
case against Tirona.

Moreover, we have assessed the evidence on record and found that the appellate court did not
contradict the findings of facts of the MTC and RTC. Thus, we see no reason to deviate from their
findings of facts.

Unlawful Detainer

Elements to be Proved

Unlawful detainer cases are summary in nature. The elements to be proved and resolved in unlawful
detainer cases are the fact of lease and expiration or violation of its terms.24 To support their
conclusion that there was an existing lease, the MTC and RTC found that:

(1) Ocampo informed Tirona through a letter dated 1 March 1995 that he bought the subject land,
upon which Tirona’s house stands, from the previous owner and lessor Rosauro Breton;25
(2) Tirona’s continued occupancy of the subject land signifies Tirona’s acceptance of Ocampo’s
conditions of lease stated in the 1 March 1995 letter;26 and

(3) In asserting her right to possess the subject land, Tirona admitted that Ocampo is her lessor. In
the 5 July 1995 letter, Tirona was referred to as "the hereinmentioned tenant of yours."27

In Mirasol v. Magsuci, et al.,28 we ruled that the sale of a leased property places the vendee into the
shoes of the original lessor to whom the lessee bound himself to pay. The vendee acquires the right
to evict the lessee from the premises and to recover the unpaid rentals after the vendee had notified
the lessee that he had bought the leased property and that the rentals on it should be paid to him,
and the lessee refused to comply with the demand.

The following facts support the conclusion that there was a violation of the lease agreement:

(1) Tirona, through Callejo Law Office, sent a letter dated 5 July 1995 which stated that Tirona will
temporarily stop paying her monthly obligation until the National Housing Authority has processed
the pertinent papers regarding the amount due to Ocampo in view of PD 1517;29

(2) As of August 1995, Tirona has not paid her rent to Ocampo corresponding to April to August
1995;30 and

(3) In a letter dated 7 August 1995, Ocampo demanded from Tirona unpaid rent payments.31

In view of these facts, we hold that Tirona is estopped from denying her possession under a
lease32 and that there was a violation of the lease agreement. Thus, the MTC and RTC correctly ruled
against Tirona.

Ownership as an Issue

When Tirona filed her answer before the MTC, she raised the issue of ownership and ascribed
ownership of the subject lot to one Doña Lourdes Rodriguez Yaneza. Tirona later changed her
strategy and filed an amended answer that ascribed ownership of the subject lot to Maria Lourdes
Breton-Mendiola. Tirona justified the amendment by stating that she did not ask for the assistance of
a lawyer for fear of not being able to file her answer on time. This excuse is flimsy considering that
Tirona first communicated to Ocampo through Callejo Law Office. However, the MTC still allowed
Tirona to amend her answer. Tirona stated that there was no violation of the lease agreement
because she paid her rent to the real owner, Maria Lourdes Breton-Mendiola.

Contrary to Tirona’s position, the issue of ownership is not essential to an action for unlawful
detainer. The fact of the lease and the expiration of its term are the only elements of the action. The
defense of ownership does not change the summary nature of the action. The affected party should
raise the issue of ownership in an appropriate action, because a certificate of title cannot be the
subject of a collateral attack.33 Although a wrongful possessor may at times be upheld by the courts,
this is merely temporary and solely for the maintenance of public order. The question of ownership is
to be settled in the proper court and in a proper action.34

In actions for forcible entry and [unlawful] detainer, the main issue is possession de facto,
independently of any claim of ownership or possession de jure that either party may set forth in his
pleadings, and an appeal does not operate to change the nature of the original action. On appeal, in
an ejectment case, it is within the discretion of the court to look into the evidence supporting the
assigned errors relating to the alleged ownership of appellant insofar as said evidence would
indicate or determine the nature of appellant’s possession of the controverted premises. Said court
should not however resolve the issue raised by such assigned errors. The resolution of said issues
would effect an adjudication on ownership which is not sanctioned in the summary action for
unlawful detainer.35

Unlawful detainer being a summary proceeding, it was error for the appellate court to include the
issue of ownership. Had the appellate court limited its ruling to the elements to be proved in a case
of unlawful detainer, Ocampo need not even prove his ownership. When the appellate court ruled
that the case of unlawful detainer had to wait for the results of the partition proceedings, it effectively
put ownership as the main issue in the case. The issue of ownership opens a virtual Pandora’s Box
for Tirona and her supposed intervenor, Maria Lourdes Breton-Mendiola.36

Interpleader

The good faith of Tirona is put in question in her preference for Maria Lourdes Breton-Mendiola. As a
stakeholder, Tirona should have used reasonable diligence in hailing the contending claimants to
court. Tirona need not have awaited actual institution of a suit by Ocampo against her before filing a
bill of interpleader.37 An action for interpleader is proper when the lessee does not know the person to
whom to pay rentals due to conflicting claims on the property.38

The action of interpleader is a remedy whereby a person who has property whether personal or real,
in his possession, or an obligation to render wholly or partially, without claiming any right in both, or
claims an interest which in whole or in part is not disputed by the conflicting claimants, comes to
court and asks that the persons who claim the said property or who consider themselves entitled to
demand compliance with the obligation, be required to litigate among themselves, in order to
determine finally who is entitled to one or the other thing. The remedy is afforded not to protect a
person against a double liability but to protect him against a double vexation in respect of one
liability. When the court orders that the claimants litigate among themselves, there arises in reality a
new action and the former are styled interpleaders, and in such a case the pleading which initiates
the action is called a complaint of interpleader and not a cross-complaint.39

Ocampo has the right to eject Tirona from the subject land. All the elements required for an unlawful
detainer case to prosper are present. Ocampo notified Tirona that he purchased the subject land
from Tirona’s lessor. Tirona’s continued occupation of the subject land amounted to acquiescence to
Ocampo’s terms. However, Tirona eventually refused to pay rent to Ocampo, thus violating the
lease.

Finally, legal interest at the annual rate of 6% is due on the unpaid monthly rentals starting from 7
August 1995 when Ocampo made an extrajudicial demand on Tirona for payment of the monthly
rental.40 On finality of our decision, annual interest at 12%, in lieu of 6% annual interest, is due on the
amounts the MTC awarded until full payment.41

WHEREFORE, we GRANT the instant petition for review. The Decision dated 27 June 1996 of
Branch 110 of the RTC in Civil Case No. 96-0209, which affirmed the Decision dated 29 December
1995 of Branch 47 of the MTC in Civil Case No. 754-95, is REINSTATED. The Decision dated 29
November 2000 of the appellate court in CA-G.R. SP No. 41686, and its Resolution dated 16 April
2001 denying the motion for reconsideration, are SET ASIDE.

SO ORDERED.
DECLARATORY RELIEF

G.R. No. L-15509 March 31, 1962

SEBASTIAN SARMIENTO, ET AL., petitioners-appellees,

vs.
HON. ELEUTERIO CAPAPAS, as Commissioner of Customs, et al., respondents-appellants,
GREGORIO GAMULO, ET AL., intervenors-appellees.

Ferdinand E. Marcos for petitioners-appellees.

Office of the Solicitor General for respondent-appellant Eleuterio Capapas.
Manuel C. Chan for respondent-appellant Harry S. Stonehill.
Deogracias E. Lerma for respondent-appellant Ernesto T. Jimenez.
Conrado Rubio for intervenors-appellees.

LABRADOR, J.:

Appeal from a decision of the Court of First Instance of Ilocos Norte, Hon. Delfin B. Flores, presiding,
in Civil Case No. 2790 of that court, declaring the nullity of Barter Permit No. BT-1380 (SP) issued to
the Philippine Tobacco Flue-Curing and Redrying Corporation (hereinafter called PTFRC) and all the
importations made thereunder, and ordering the forfeiture to the Government of said importations.

The original action in this case was presented on May 28, 1958 and the petition seeks the issuance
of an injunction against the respondent Collector of Customs and Commissioner of Customs to
prohibit them from releasing the importations made under the Barter Permit No. BT-1380 (SP) in the
name of the Philippine Tobacco Flue-Curing and Redrying Corporation, and to order the
respondents Collector of Customs and Commissioner of Customs to institute seizure and
confiscation proceedings of the importations of tobacco under said Barter Permit No. BT-1380 (SP).

On June 9, 1958 the petitioners filed a motion to be permitted to file new petition for declaratory
relief, in substitution of the petition for prohibition with preliminary injunction. The principal allegations
of the amended petition are as follows: .

That on May 1 to 6, 1958, shipments of 666 hogsheads of Virginia Type Leaf Tobacco, worth
$314,675.62 were imported by the Philippine Tobacco Flue-Curing and Redrying Corporation under
the Barter Permit No. BT-1380 (SP) issued on January 21, 1958; .

That on May 8, 1958, the Collector of Internal Revenue issued an authority to release the said
imported goods, which authority was addressed to his co-respondents Hon. Eleuterio Capapas, as
Commissioner of Customs and/or Hon. Isidro Angangco as incumbent Collector for the Port of
Manila, declaring that said 666 hogsheads of tobacco were imported under the Barter Permit No.
BT-1380 (SP) dated January 21, 1958 by the No-Dollar Import Office; .

That on May 13, 1958 the administrator of ACCFA addressed a communication to the Commissioner
of Customs, Manila, stating that he had no objection to the release of the imported Virginia leaf
tobacco or the release of said 666 hogsheads of tobacco; .
That the said shipments of 666 hogsheads of tobacco form part of several other shipments of
Virginia Type Leaf Tobacco, which are due to arrive at the Port of Manila under the same Barter
Permit No. BT-1380 (SP) which tobacco will aggregate in value to the sum of $4,900,000.00; .

That the respondent, Mr. Juan Echiverri, in his capacity as President of the Ilocos Norte Federation
of Facomas, failed miserably to protect the virginia tobacco producers in failing to register the
objections of the different members of the Ilocos Norte Federation of Facomas against the said
importations of virginia leaf tobacco; .

That the Barter Permit No. BT-1380 (SP) issued by the No-Dollar Import Office on January 21, 1958,
in favor of the Philippine Tobacco Flue-Curing and Redrying Corporation, was issued in violation of
the provisions of existing laws, particularly Republic Act Nos. 1194 and 1410; .

That the certificates issued by the ACCFA and/or the Bureau of Internal Revenue were false
because we have surplusage of indigenous production of Virginia type leaf tobacco in the
Philippines, which is sufficient to maintain the manufacture of tobacco production; .

That the importations in question are not actually covered by any Central Bank license whatsoever; .

That as early as January, 1958, petitioners had already protested with the Secretary of Commerce
and Industry against the issuance of barter permits for such kind of tobacco; .

That the Commissioner of Customs and the Collector of Customs for Manila are in possession,
custody and control of any and all documents pertaining to the importations made under the
aforesaid Barter Permit No. BT-1380 (SP); .

That the Commissioner of Customs and the Collector of Customs threaten to release the whole or
part of said shipment to the Philippine Tobacco Flue-Curing and Redrying Corporation, some 60
hogsheads having been already released in violation of existing laws, more specifically Republic Act
Nos. 1194 and 1410. 1äwphï1.ñët

It is prayed that the court determine —

1. Whether the barter permit in question is legal or valid; .

2. Whether Sec. 1 of Republic Act No. 1194 in relation to Republic Act No. 1410, permits barter of
virginia leaf tobacco; .

3. Whether the administrator of ACCFA can issue a certificate under the law in view of the actual
and existing fact of surplusage in the production of Virginia leaf tobacco; and .

4. Whether the Virginia leaf tobacco so imported may be forfeited to the government.

The respondents filed their respective answers. Respondent Echiverri, on June 25, 1958, denied the
charge that he failed miserably to protect the interests of tobacco growers.

Harry Stonehill likewise denied all the material allegations of the petition, but admitted that the barter
permit was issued to the PTFRC, after favorable indorsements were made for its issuance; that
several shipments have already been made to the company under said barter permit; and that a part
of said shipments has already been delivered to the consignee. As special defenses, he claimed that
he is not the real party in interest, the barter license having been issued to the PTFRC, of which he
is only the President, and that the amended petition is not proper because there was already a
breach of the law upon the issuance of the barter permit.

Respondent Jimenez denied all the material allegations of the petition, except the issuance by the
No-Dollar Import Office of the barter permit and his certification authorizing release of the shipment;
and as special defense he alleged that the subject matter is not justifiable for declaratory relief.

Respondent Quirino also filed his answer, claiming that the barter permit was issued by him in
compliance with a Presidential Directive dated January 13, 1958.

On July 14, 1958, respondents Capapas, Angangco and Arañas filed their joint answer, denying, like
their co-respondents, all the material allegations of the petition. As special defenses, they claim that
the petition states no cause of action against them individually, and that the petition is improper
because there is no justiciable controversy and there is no violation of law.

On November 19, 1958, respondents Capapas, Arañas, Quirino and Stonehill, filed a joint motion
asking the court to set a preliminary hearing on the special defense that the petition does not state a
cause of action for declaratory relief, but the motion was denied.

After the hearing and on March 12, 1959 the court rendered the decision, which is now sought to be
reviewed, thus;

IN VIEW OF THE FOREGOING, the court finds and so holds that: (1) the report
(indorsement), Exhs. "3-Jimenez", "3 Capapas" and "hh-Intervenors", of respondent Jimenez
recommending the approval of respondent Stonehill's request to import 10,000,000 lbs. of
Virginia leaf tobacco by means of barter is manifestly against the spirit and letter of Sec. 1 of
Republic Act No. 1194 construed in relation to Sec. 6 of Republic Act 1410 and is, therefore,
illegal (2) The Barter Permit No. BT-1380 (Special), Exh. "JJ-1" and "JJ-2"; Exhs. "2" and "2-
A" and "4" and "4-A", issued by respondent Carlos Quirino to the Philippine Tobacco Flue-
Curing and Redrying Corporation of which respondent Stonehill is the President must
necessarily be without legal basis. (3) The home grown Virginia leaf tobacco cannot be
bartered with Virginia leaf tobacco coming from abroad because the entrance of Virginia leaf
tobacco to the Philippines unless there is insufficiency of home-grown Virginia tobacco for
local consumption is prohibited by Sec. 1 of Republic Act 1194 construed in relation to Sec. 6
of Republic Act No. 1410. Therefore, the Virginia leaf tobacco imported by the Philippine
Tobacco Flue-Curing and Redrying Corporation of which respondent Stonehill is the
President from the USA by virtue of the said Barter Permit No. BT-1380 (Special) has
entered this country in flagrant violation of the above-mentioned laws and, that being the
case, (4) all of the said Virginia tobacco so far imported as above stated must be confiscated
in favor of the Government in accordance with Sec. 1-e of Republic Act No. 1194.

In view of the penal provision of Republic Act 1194, the Clerk of Court is hereby directed to
furnish the honorable Secretary of Justice with a copy of this decision for his information. .

The most important error assigned on the appeal is the ruling of the trial court that although there
has been a breach of the law, as the breach continued and could continue up to January 21, 1960,
when the barter permit would expire, the breach is not yet complete.

The above ruling of the court is an express violation of Sec. 2 of Rule 66, which reads as follows:

SEC. 2. — A contract or statute may be construed before there has been a breach thereof.
In the case of De Borja vs. Villadolid, 85 Phil., pp. 36-39 we held: .

... We are only concerned with the question whether or not the complaint for declaratory
relief filed by plaintiff, and which the Court of First Instance of Manila dismissed for lack of
merit, should be given due course in this Court.

It appears that the Director of the Bureau of Fisheries demanded that plaintiff pay the license
provided in that Act and in view of the insistent refusal of plaintiff to comply with such
demand, he finally turned over the case to the Office of the Fiscal of the City of Manila for
appropriate action. However, plaintiff, upon learning of the step taken by the Director of the
Bureau of Fisheries countered by filing this complaint for declaratory relief, but this attitude of
the plaintiff will only result in multiplicity of actions which should always be avoided and the
Rules of Court obviously seeks to prevent when, in section 2 of Rule 66, it provides that the
action for declaratory relief must be brought "before there has been a breach" of a contract
or statute the construction of which is sought.

The facts in this case are so clear and unambiguous, that in the light of said section 2 of Rule
66, there is nothing left for the courts to adjudicate or construe regarding the legal rights,
duties and status of appellant in the premises. The general purpose of a declaratory
judgment act is to provide for adjudication of the legal rights, duties, or status of the
respective parties. (1 C.J.S., p. 1022; see also 16 Am. Jur., 284; (De Borja vs. Villadolid, 85
Phil., pp. 36-39).

Following the above-quoted decision, if an action for declaratory relief were to be allowed in this
case, after a breach of the statute, the decision of the court in the action for declaratory relief would
prejudge the action for violation of the barter law.

The institution of an action for declaratory relief after a breach of contract or statute, is objectionable
on various grounds, among which is that it violates the rule on multiplicity of suits. If the case at bar
were allowed for a declaratory relief, the judgment therein notwithstanding, another action would still
lie against the importer respondent for violation of the barter law. So, instead of one case only before
the courts in which all issues would be decided, two cases will be allowed, one being the present
action for declaratory relief and a subsequent one for the confiscation of the importations as a
consequence of the breach of the barter law.

The impropriety of allowing an action for declaratory relief, after a breach of the law, can be seen in
the very decision of the court itself, which is now subject of the appeal. Whereas the case at bar was
purported to bring about a simple declaration of the rights of the parties to the action, the judgment
goes further than said declaration and decrees that the importation by the respondent corporation
violates the law, and further directs that legal importation be confiscated under the provisions the law
(Section 1 (c), R.A. No. 1194.) This confiscation directed by the court lies clearly beyond the scope
and nature of an action for declaratory relief, as the judgment of confiscation goes beyond the issues
expressly raised, and to that extent it is null and void.

That the proper remedy under the circumstances was an action for injunction, and not one for
declaratory relief, is evident from the fact that the original petition was for injunction; petitioner herein
only changed the nature of the action into one for declaratory relief when, as they explain, they found
out that they did not have funds for the writ of preliminary injunction..

As a final reason for dismissing the present action, we have the undeniable fact that as of this date
(March 1962) the permit had expired two years before (its life extended to January 21, 1960 only),
and all the shipments under the permit had already been delivered to the consignee and used in the
manufacture of tobacco. The petitioner did not secure a writ of preliminary injunction, as this remedy
is not proper in an action for declaratory relief; as a result, aside from the complete violation of the
barter law, the importations have already been completely used up in the manufacture of tobacco
during the pendency of these proceedings.

Under the circumstances and at present, of what use will a declaration of the rights of the parties
under the barter law be? In fact as of the date of this decision the issues have become moot and
academic and the court can do no other than declare the action to be so and of no practical use or
value.

FOR THE FOREGOING CONSIDERATIONS, judgment appealed from is set aside and the action
for declaratory relief dismissed. Without costs.

G.R. No. L-22313 March 31, 1966

BARTOLOME DY POCO, plaintiff-appellant,

vs.
THE COMMISSIONER OF IMMIGRATION, and THE IMMIGRATION OFFICER OF
CEBU, defendants-appellees.

Celso T. Gallego, for plaintiff-appellant.

Office of the Solicitor General A. A. Alafriz, Assistant Solicitor General P. P. de Castro and Solicitor
S. V. Bernardo, for defendants-appellees.

BARRERA, J.:

Appealing from the decision of the Court of First Instance of Cebu (in Civil Case No. R-4021),
denying his petition to be declared exempted "from compliance with the duties of aliens under the
Alien Registration Act and/or from securing an Immigrant Certificate of Residence", Bartolome Dy
Poco claims that said court erred (1) in holding that the issue of his (petitioner's) citizenship cannot
properly be passed upon in a declaratory relief proceeding, and (2) in not declaring him exempted
from the requirements of the Alien Registration Law.

The petition for declaratory judgment was based on the allegations that petitioner-appellant is a
Filipino, having been born in 1910 in Cebu City, out of wedlock, of a Filipino mother, Susana Apura,
who died in 1928, and a Chinese father, Dy Poco, who died in 1915; that believing himself at first to
be a Chinese, petitioner secured alien certificates of registration in 1947 and 1951; that in 1952,
petitioner-appellant, realizing his mistake, petitioned the Commissioner of Immigration for
cancellation of his name from the list of aliens, which petition was denied. On petitioner's request for
reconsideration of said ruling, the Secretary of Justice, to whom the matter was referred, rendered
an opinion (Op. No. 72, s-1965) sustaining the stand of the Commissioner, for the reason that the
nationality of the mother and the illegitimate status of petitioner had not been satisfactorily
established. Upon being required, subsequently, by the immigration authorities to secure an
immigrant certificate of residence, petitioner instituted the present declaratory relief proceeding in the
Court of First Instance of Cebu. As heretofore stated, in its decision of April 10, 1957, the court
dismissed the petition, on the ground that the declaration of citizenship is not a proper subject of a
proceeding for declaratory judgment. Petitioner has appealed.
To show that his petition comes within the purview of the Rules,1 appellant contains that it was filed
to determine whether he is "duty bound to make annual report under Section 10 of Rep. Act No. 502
and/or secure an Immigrant Certificate under Sec. 41 (a) of Com. Act 613, as amended by Rep. Act
503". It may be pointed out, however, that notwithstanding the manner in which the petition was
worded, it is clear from all the allegations thereof that the relief being sought therein is a declaration
of petitioner's alleged Philippine citizenship. As consistently ruled by this Court, the proceeding for
declaratory relief is the proper and available remedy to secure such declaration of citizenship.2

But, even assuming for the sake of argument, that the issue raised in this case can properly be the
subject of a declaratory judgment, the dismissal of the petition must still be sustained.

Appellant's claim to Philippine citizenship, or "exemption from compliance with the requirements of
the Alien Registration law", as he wants to put it, is based on his alleged illegitimacy or that, even if
his parents were legally married, he followed the citizenship of his Filipino mother when the latter
became a Filipino again upon the death of her Chinese husband in 1915. However, both the
Secretary of Justice and the lower court found these allegations not substantiated by evidence. In
other words, these material facts upon which the cause of action was based, were and still are
subject to dispute or controversy. Consequently, no declaration based on such questioned facts can
be made. 1äwphï1.ñët

Even in the United States, where the law on declaratory judgment permits, in certain specific
instances, inquiry on questions of fact during the proceedings,3 the prevailing rule is that "where a
declaratory judgment as to a disputed fact would be determinative of issues rather than a
construction of definite stated rights, status, and other relations, commonly expressed in written
instruments, the case is not one for declaratory judgment."4 And, here, the material issues are the
citizenship of the mother and the illegitimacy of the petitioner, and the rights and status of the latter
which are sought to be declared are dependent upon those disputed issues.

It may be observed further that our Rules contain no similar provision. Taking into consideration the
nature of a proceeding for declaratory judgment, wherein relief may be sought only to declare rights,
and not to determine or try issues,5 there is more valid reason for us to adhere to the rule that a
declaratory relief proceeding is unavailable where the judgment would have to be made only after a
judicial investigation of disputed facts.6

For the foregoing considerations, the decision appealed from is hereby affirmed, with costs against
appellant. So ordered.

G.R. No. L-23565 March 21, 1968

THE INSULAR LIFE ASSURANCE CO., LTD., petitioner-appellant,

vs.
SOCIAL SECURITY COMMISSION and RAMON GAVIOLA, JR., respondents-appellees.

Araneta, Mendoza & Papa for, petitioner-appellant.

Javellana, Almazen & Inton and Office of the Solicitor General for respondents-appellees.

ANGELES, J.:
 The Insular Life Assurance Co., Ltd. has taken this appeal from the decision of the Court of
First Instance of Manila dismissing its petition for declaratory relief (Case No. 46745) against the
Social Security Commission and Ramon Gaviola, Jr.

The subject petition alleged that on November 6, 1960, the respondent Ramon Gaviola, Jr., as
administrator of the Social Security System, issued Circular No. 34, which reads:

TO: ALL EMPLOYEES

RE: COVERAGE OF INSURANCE AGENTS OR UNDERWRITERS.

Your attention is invited to the fact that under the provisions of the Social Security Act,
as amended, Insurance Agents, Underwriters, and others similarly situated, are considered
employees of the insurance firms they work for and are therefore subject to the compulsory
coverage of the Social Security System if they possess all the qualifications therefor.

In view thereof, all firms or employers who have not yet submitted names of their
agents or underwriters for coverage should do so immediately and pay the corresponding
premiums based on the actual commissions received by each agent during each month.

Contesting the construction of the term "employer and employee" given by the Social Security
System in the aforequoted circular, and claiming that it is not bound to comply with its terms,
inasmuch as its insurance agents and underwriters are not its employees, the petitioner prayed the
Court of First Instance to declare said Circular No. 34 null and void ab initio.

On April 25, 1961, the respondents filed a motion to dismiss the petition on the ground that the
complaint states no cause of action and that the Court has no jurisdiction over the subject matter of
the action.

On June 12, 1961, the court denied the motion to dismiss for the reason that the grounds
alleged therein do not appear indubitable. Accordingly, respondent Gaviola filed his answer, setting
up specific and special defenses, among which is the alleged lack of jurisdiction of the said court,
over the subject matter of the case, and prayed that said petition be dismissed and that petitioner be
ordered to ventilate its action, if any, before the Social Security Commission.

On a stipulation of facts and memoranda from both parties, the case was submitted for
decision.

Without going over the merits of the petition, the lower court finally dismissed it on the ground
of lack of jurisdiction, declaring that by filing the petition for declaratory relief, petitioner did not only
deprive the Social Security Commission of its statutory power to decide the matter in dispute, but
also sought to go about the procedure for appeal delineated by law with respect to any decision of
said Commission, with the result of divesting the Court of Appeals or the Supreme Court of their
appellate jurisdiction over the decision of the Commission.

Hence, this appeal.

The issue is whether or not the Court of First Instance has jurisdiction over the petition for
declaratory relief which prays for the annulment of Circular No. 34 issued by the administrator of the
Social Security System.
 It is urged, in support of the jurisdiction of the lower court, that the Social Security Act has
limited the semi-judicial powers of the Commission to money claims involving the benefits that may
accrue to any member of the system, so that the provisions of section 5 of the Social Security Act,
which treat of the settlement of claims, appeals to court, and court review thereof, are not to be
applied to the instant case, since the issue does not involve a money claim but the compulsory
coverage of the Act. In furtherance of this argument, the petitioner-appellant ratiocinates:

THE LAW, as we have previously shown 1. . . has not vested upon the Social Security
Commission the power to determine who are the employers and/or employees covered by
the Social Security Act. Section 4 of the Social Security Act has enumerated the powers and
duties of the Commission, and such power is not among those so enumerated. Therefore, it
is evident that the Legislature has seen fit to leave the determination of this important
question to our courts of justice. And since no such power of ultimate decision is lodged in
the Social Security Commission, it follows that its unilateral appreciation as to who are or are
not covered by the Social Security Act, can never be binding and final and can not by the
same token, be appealable either to the Court of Appeals or the Supreme Court.

On the other hand, the defendant-appellee points out to an alleged erroneous citation
contained in appellant's brief, 2 where section 5[a] of the Social Security Act is quoted in its original
form, which error, according to the appellee, might probably be the reason for petitioner-appellant's
insistence that the Social Security Commission has no jurisdiction to decide any matter except
money claims.

Delving into the history of Section 5 of the law above referred to, We have found that while it
originally read:

Sec. 5: (a) Settlement of Claims. — The filing, determination and settlement of claims
shall be governed by the rules and regulations promulgated by the Commission. If the money
is payable to the estate of a deceased person, the System shall pay the same to such
person or persons as it may ascertain to be lawfully entitled thereto.

(b)Appeal to courts. — Any decision of the Commission, in the absence of an appeal

therefrom as herein provided, shall become final fifteen days after the date of notification,
and judicial review thereof shall be permitted only after any party claiming to be aggrieved
thereby has exhausted his remedies before the Commission. The Commission shall be
deemed to be a party to any judicial action involving any such decision, and may be
represented by an attorney employed by the Commission, or when requested by the
Commission, by the Solicitor General or any fiscal.

(c)Court review. — The decision of the Commission upon any disputed matter may be
reviewed both upon the law and the facts by the Court of Appeals. For the purpose of such
review the procedure concerning appeals from the Court of First Instance shall be followed
as far as practicable and consistent with the purposes of this Act. Appeal from a decision of
the Commission must be taken within fifteen days from notification of such decision. If the
decision of the Commission involves only questions of law, the same shall be reviewed by
the Supreme Court. No appeal bond shall be required. The case shall be heard in a
summary manner, and shall take precedence over all cases, except that in the Supreme
Court, criminal cases wherein life imprisonment or death has been imposed by the trial court
shall take precedence. No appeal shall act as a supersedeas or a stay of the order of the
Commission, unless the Commission itself, or the Court of Appeals, or the Supreme Court,
shall so order. (Emphasis supplied).
 However, as amended by section 3 of Republic Act 2658, which had taken effect upon its
approval on June 18, 1960, long before this case was instituted in the lower court, said provision no
longer contains the second sentence of paragraph (a) as above underscored. A limited construction
of the original provision would, of course, naturally result in the conclusion that the two sentences in
paragraph (a) of section 5 apply only to money claims. But as the section as a whole now stands,
there should be no reason to decipher the provisions thereof as to apply only to such a limited
scope.

What is clear, indeed, from the provisions of section 5 of the Social Security Act, particularly
paragraphs (b) and (c), is the restriction upon the court to review the decision of the Social Security
Commission "on any disputed matter" unless "any party claiming to be aggrieved thereby has
exhausted his remedies before the Commission."

At any rate, the question as to whether the Social Security Commission should first, before the
courts, pass upon the propriety or legality of Circular No. 34, now in dispute, finds its answer
in Philippine American Life Insurance Co. vs. Social Security Commission, 3 when this Court,
referring to the same circular, made this pronouncement.

It is true that the same bears the approval of the Chairman of the Commission. Even if
this fact were construed as an approval of the Circular by the Commission itself, such
approval would not constitute a "decision" thereof, as the term is used in said section 5,
which regulates the judicial review of such decision. Indeed, a "decision" connotes the
adjudication or settlement of a controversy, and the same did not exist between the System
and the plaintiff when the Chairman of the Commission affixed his signature to said Circular
No. 34, on or before November 6, 1960. The issue did not arise until March 7, 1961, when
plaintiff expressed its objection to the circular upon the ground that the agents, solicitors and
underwriters thereof are not its employees. It is only fair and just, therefore, as well as
administratively expedient, that before a judicial review could be sought, said issue be
previously submitted to and passed upon by the Commission, on appeal from the action
taken or contemplated to be taken by the System, since, prior to such submission to and
determination by the Commission, the same had no occasion to consider the specific
reasons adduced by the plaintiff in support of its objection to said Circular No. 34. (Emphasis
supplied).

The fact that the petition held to have been improperly brought to court in the aforecited case,
was one for prohibition and not declaratory relief, would not preclude the application of the above
ruling to the present case. For a petition for declaratory relief has its own conditions sine-qua
non 4 one of which is that the issue involved must be ripe for judicial determination. 5 As already
adverted to, by mandate of section 5(b) of the Social Security Act, any matter in dispute that
concerns the Social Security Commission may not be properly entertained before the courts until all
remedies in said Commission have been exhausted.

To except petitions for declaratory relief, as proposed by petitioner-appellant, from the

application of section 5(b) of the Act, simply because in such actions the Court of First Instance is
not asked to exercise any appellate or review power, would render it easy for parties to circumvent
said provision on appeals from decisions of the Social Security Commission, and it would practically
strip the Commission of its semi-judicial powers. For then, any party involved with the Social Security
System on any deed, will, contract or other instruments, statute, executive order or regulation, can
always petition the Court of First Instance for declaratory judgment to determine questions of
construction or validity arising therefrom, instead of having first a decision on the matter from the
Social Security Commission and then appealing to the appellate courts. As ruled in Elliot vs.
American Manufacturing Company, 6 courts are loath to interfere prematurely with administrative
proceedings, and will not assume jurisdiction of declaratory judgment proceedings until
administrative remedies have been exhausted. 7

Indeed, declaratory relief is discretionary the courts to entertain. It may refuse to

exercise the power to declare rights and to construe instruments in any case where the
declaration or construction is not necessary and proper at the time under all circumstances. 8

If We are to apply further one of the principles laid down in Chua U., et al. vs. Hon. Manuel
Lim, et al., 9 one other reason for upholding the dismissal of the petition filed in the court below is that
the declaratory judgment sought would necessarily affect also other insurance companies which
were not represented nor made parties in the proceedings.

IN VIEW OF ALL THE FOREGOING, the decision appealed from is hereby affirmed, with
costs against the petitioner-appellant.

G.R. No. 159357 April 28, 2004

Brother MARIANO "MIKE" Z. VELARDE, petitioner,

vs.
SOCIAL JUSTICE SOCIETY, respondent.

DECISION

PANGANIBAN, J.:

A decision that does not conform to the form and substance required by the Constitution and the law
is void and deemed legally inexistent. To be valid, decisions should comply with the form, the
procedure and the substantive requirements laid out in the Constitution, the Rules of Court and
relevant circulars/orders of the Supreme Court. For the guidance of the bench and the bar, the Court
hereby discusses these forms, procedures and requirements.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the June 12, 2003
Decision2 and July 29, 2003 Order3 of the Regional Trial Court (RTC) of Manila (Branch 49).4

The challenged Decision was the offshoot of a Petition for Declaratory Relief5 filed before the RTC-
Manila by herein Respondent Social Justice Society (SJS) against herein Petitioner Mariano "Mike"
Z. Velarde, together with His Eminence, Jaime Cardinal Sin, Executive Minister Eraño Manalo,
Brother Eddie Villanueva and Brother Eliseo F. Soriano as co-respondents. The Petition prayed for
the resolution of the question "whether or not the act of a religious leader like any of herein
respondents, in endorsing the candidacy of a candidate for elective office or in urging or requiring
the members of his flock to vote for a specified candidate, is violative of the letter or spirit of the
constitutional provisions x x x."6
Alleging that the questioned Decision did not contain a statement of facts and a dispositive portion,
herein petitioner filed a Clarificatory Motion and Motion for Reconsideration before the trial court.
Soriano, his co-respondent, similarly filed a separate Motion for Reconsideration. In response, the
trial court issued the assailed Order, which held as follows:

"x x x [T]his Court cannot reconsider, because what it was asked to do, was only to clarify a
Constitutional provision and to declare whether acts are violative thereof. The Decision did
not make a dispositive portion because a dispositive portion is required only in coercive
reliefs, where a redress from wrong suffered and the benefit that the prevailing party
wronged should get. The step that these movants have to take, is direct appeal under Rule
45 of the Rules of Court, for a conclusive interpretation of the Constitutional provision to the
Supreme Court."7

The Antecedent Proceedings

On January 28, 2003, SJS filed a Petition for Declaratory Relief ("SJS Petition") before the RTC-
Manila against Velarde and his aforesaid co-respondents. SJS, a registered political party, sought
the interpretation of several constitutional provisions,8 specifically on the separation of church and
state; and a declaratory judgment on the constitutionality of the acts of religious leaders endorsing a
candidate for an elective office, or urging or requiring the members of their flock to vote for a
specified candidate.

The subsequent proceedings were recounted in the challenged Decision in these words:

"x x x. Bro. Eddie Villanueva submitted, within the original period [to file an Answer], a Motion
to Dismiss. Subsequently, Executive Minister Eraño Manalo and Bro. Mike Velarde, filed
their Motions to Dismiss. While His Eminence Jaime Cardinal L. Sin, filed a Comment and
Bro. Eli Soriano, filed an Answer within the extended period and similarly prayed for the
dismissal of the Petition. All sought the dismissal of the Petition on the common grounds that
it does not state a cause of action and that there is no justiciable controversy. They were
ordered to submit a pleading by way of advisement, which was closely followed by another
Order denying all the Motions to Dismiss. Bro. Mike Velarde, Bro. Eddie Villanueva and
Executive Minister Eraño Manalo moved to reconsider the denial. His Eminence Jaime
Cardinal L. Sin, asked for extension to file memorandum. Only Bro. Eli Soriano complied with
the first Order by submitting his Memorandum. x x x.

"x x x the Court denied the Motions to Dismiss, and the Motions for Reconsideration filed by
Bro. Mike Velarde, Bro. Eddie Villanueva and Executive Minister Eraño Manalo, which raised
no new arguments other than those already considered in the motions to dismiss x x x."9

After narrating the above incidents, the trial court said that it had jurisdiction over the Petition,
because "in praying for a determination as to whether the actions imputed to the respondents are
violative of Article II, Section 6 of the Fundamental Law, [the Petition] has raised only a question of
law."10 It then proceeded to a lengthy discussion of the issue raised in the Petition – the separation of
church and state – even tracing, to some extent, the historical background of the principle. Through
its discourse, the court a quo opined at some point that the "[e]ndorsement of specific candidates in
an election to any public office is a clear violation of the separation clause."11

After its essay on the legal issue, however, the trial court failed to include a dispositive portion in its
assailed Decision. Thus, Velarde and Soriano filed separate Motions for Reconsideration which, as
mentioned earlier, were denied by the lower court.
Hence, this Petition for Review.12

This Court, in a Resolution13 dated September 2, 2003, required SJS and the Office of the Solicitor
General (OSG) to submit their respective comments. In the same Resolution, the Court gave the
other parties -- impleaded as respondents in the original case below --the opportunity to comment, if
they so desired.

On April 13, 2004, the Court en banc conducted an Oral Argument.14

The Issues

In his Petition, Brother Mike Velarde submits the following issues for this Court’s resolution:

"1. Whether or not the Decision dated 12 June 2003 rendered by the court a quo was proper
and valid;

"2. Whether or not there exists justiceable controversy in herein respondent’s Petition for
declaratory relief;

"3. Whether or not herein respondent has legal interest in filing the Petition for declaratory
relief;

"4. Whether or not the constitutional question sought to be resolved by herein respondent is
ripe for judicial determination;

"5. Whether or not there is adequate remedy other than the declaratory relief; and,

"6. Whether or not the court a quo has jurisdiction over the Petition for declaratory relief of
herein respondent."15

During the Oral Argument, the issues were narrowed down and classified as follows:

"A. Procedural Issues

"Did the Petition for Declaratory Relief raise a justiciable controversy? Did it state a cause of
action? Did respondent have any legal standing to file the Petition for Declaratory Relief?

"B. Substantive Issues

"1. Did the RTC Decision conform to the form and substance required by the
Constitution, the law and the Rules of Court?

"2. May religious leaders like herein petitioner, Bro. Mike Velarde, be prohibited from
endorsing candidates for public office? Corollarily, may they be banned from
campaigning against said candidates?"

The Court’s Ruling

The Petition of Brother Mike Velarde is meritorious.

 Procedural Issues:

Requisites of Petitions for Declaratory Relief

Section 1 of Rule 63 of the Rules of Court, which deals with petitions for declaratory relief, provides
in part:

"Section 1. Who may file petition.- Any person interested under a deed, will, contract or other
written instrument, whose rights are affected by a statute, executive order or regulation,
ordinance, or any other governmental regulation may, before breach or violation thereof,
bring an action in the appropriate Regional Trial Court to determine any question of
construction or validity arising, and for a declaration of his rights or duties thereunder."

Based on the foregoing, an action for declaratory relief should be filed by a person interested under
a deed, a will, a contract or other written instrument, and whose rights are affected by a statute, an
executive order, a regulation or an ordinance. The purpose of the remedy is to interpret or to
determine the validity of the written instrument and to seek a judicial declaration of the parties’ rights
or duties thereunder.16 The essential requisites of the action are as follows: (1) there is a justiciable
controversy; (2) the controversy is between persons whose interests are adverse; (3) the party
seeking the relief has a legal interest in the controversy; and (4) the issue is ripe for judicial
determination.17

Justiciable Controversy

Brother Mike Velarde contends that the SJS Petition failed to allege, much less establish before the
trial court, that there existed a justiciable controversy or an adverse legal interest between them; and
that SJS had a legal right that was being violated or threatened to be violated by petitioner. On the
contrary, Velarde alleges that SJS premised its action on mere speculations, contingent events, and
hypothetical issues that had not yet ripened into an actual controversy. Thus, its Petition for
Declaratory Relief must fail.

A justiciable controversy refers to an existing case or controversy that is appropriate or ripe for
judicial determination, not one that is conjectural or merely anticipatory.18 The SJS Petition for
Declaratory Relief fell short of this test. It miserably failed to allege an existing controversy or dispute
between the petitioner and the named respondents therein. Further, the Petition did not sufficiently
state what specific legal right of the petitioner was violated by the respondents therein; and what
particular act or acts of the latter were in breach of its rights, the law or the Constitution.

As pointed out by Brother Eliseo F. Soriano in his Comment,19 what exactly has he done that merited
the attention of SJS? He confesses that he does not know the answer, because the SJS Petition (as
well as the assailed Decision of the RTC) "yields nothing in this respect." His Eminence, Jaime
Cardinal Sin, adds that, at the time SJS filed its Petition on January 28, 2003, the election season
had not even started yet; and that, in any event, he has not been actively involved in partisan
politics.

An initiatory complaint or petition filed with the trial court should contain "a plain, concise and direct
statement of the ultimate facts on which the party pleading relies for his claim x x x."20 Yet, the SJS
Petition stated no ultimate facts.

Indeed, SJS merely speculated or anticipated without factual moorings that, as religious leaders, the
petitioner and his co-respondents below had endorsed or threatened to endorse a candidate or
candidates for elective offices; and that such actual or threatened endorsement "will enable [them] to
elect men to public office who [would] in turn be forever beholden to their leaders, enabling them to
control the government"[;]21 and "pos[ing] a clear and present danger of serious erosion of the
people’s faith in the electoral process[;] and reinforc[ing] their belief that religious leaders determine
the ultimate result of elections,"22 which would then be violative of the separation clause.

Such premise is highly speculative and merely theoretical, to say the least. Clearly, it does not
suffice to constitute a justiciable controversy. The Petition does not even allege any indication or
manifest intent on the part of any of the respondents below to champion an electoral candidate, or to
urge their so-called flock to vote for, or not to vote for, a particular candidate. It is a time-honored
rule that sheer speculation does not give rise to an actionable right.

Obviously, there is no factual allegation that SJS’ rights are being subjected to any threatened,
imminent and inevitable violation that should be prevented by the declaratory relief sought. The
judicial power and duty of the courts to settle actual controversies involving rights that are legally
demandable and enforceable23 cannot be exercised when there is no actual or threatened violation
of a legal right.

All that the 5-page SJS Petition prayed for was "that the question raised in paragraph 9 hereof be
resolved."24 In other words, it merely sought an opinion of the trial court on whether the speculated
acts of religious leaders endorsing elective candidates for political offices violated the constitutional
principle on the separation of church and state. SJS did not ask for a declaration of its rights and
duties; neither did it pray for the stoppage of any threatened violation of its declared rights. Courts,
however, are proscribed from rendering an advisory opinion.25

Cause of Action

Respondent SJS asserts that in order to maintain a petition for declaratory relief, a cause of action
need not be alleged or proven. Supposedly, for such petition to prosper, there need not be any
violation of a right, breach of duty or actual wrong committed by one party against the other.

Petitioner, on the other hand, argues that the subject matter of an action for declaratory relief should
be a deed, a will, a contract (or other written instrument), a statute, an executive order, a regulation
or an ordinance. But the subject matter of the SJS Petition is "the constitutionality of an act of a
religious leader to endorse the candidacy of a candidate for elective office or to urge or require the
members of the flock to vote for a specified candidate."26 According to petitioner, this subject matter
is "beyond the realm of an action for declaratory relief."27 Petitioner avers that in the absence of a
valid subject matter, the Petition fails to state a cause of action and, hence, should have been
dismissed outright by the court a quo.

A cause of action is an act or an omission of one party in violation of the legal right or rights of
another, causing injury to the latter.28 Its essential elements are the following: (1) a right in favor of
the plaintiff; (2) an obligation on the part of the named defendant to respect or not to violate such
right; and (3) such defendant’s act or omission that is violative of the right of the plaintiff or
constituting a breach of the obligation of the former to the latter.29

The failure of a complaint to state a cause of action is a ground for its outright dismissal.30 However,
in special civil actions for declaratory relief, the concept of a cause of action under ordinary civil
actions does not strictly apply. The reason for this exception is that an action for declaratory relief
presupposes that there has been no actual breach of the instruments involved or of rights arising
thereunder.31 Nevertheless, a breach or violation should be impending, imminent or at least
threatened.
A perusal of the Petition filed by SJS before the RTC discloses no explicit allegation that the former
had any legal right in its favor that it sought to protect. We can only infer the interest, supposedly in
its favor, from its bare allegation that it "has thousands of members who are citizens-taxpayers-
registered voters and who are keenly interested in a judicial clarification of the constitutionality of the
partisan participation of religious leaders in Philippine politics and in the process to insure adherence
to the Constitution by everyone x x x."32

Such general averment does not, however, suffice to constitute a legal right or interest. Not only is
the presumed interest not personal in character; it is likewise too vague, highly speculative and
uncertain.33 The Rules require that the interest must be material to the issue and affected by the
questioned act or instrument, as distinguished from simple curiosity or incidental interest in the
question raised.34

To bolster its stance, SJS cites the Corpus Juris Secundum and submits that the "[p]laintiff in a
declaratory judgment action does not seek to enforce a claim against [the] defendant, but seeks a
judicial declaration of [the] rights of the parties for the purpose of guiding [their] future conduct, and
the essential distinction between a ‘declaratory judgment action’ and the usual ‘action’ is that no
actual wrong need have been committed or loss have occurred in order to sustain the declaratory
judgment action, although there must be no uncertainty that the loss will occur or that the asserted
rights will be invaded."35

SJS has, however, ignored the crucial point of its own reference – that there must be no uncertainty
that the loss will occur or that the asserted rights will be invaded. Precisely, as discussed earlier, it
merely conjectures that herein petitioner (and his co-respondents below) might actively participate in
partisan politics, use "the awesome voting strength of its faithful flock [to] enable it to elect men to
public office x x x, enabling [it] to control the government."36

During the Oral Argument, though, Petitioner Velarde and his co-respondents below all strongly
asserted that they had not in any way engaged or intended to participate in partisan politics. They all
firmly assured this Court that they had not done anything to trigger the issue raised and to entitle
SJS to the relief sought.

Indeed, the Court finds in the Petition for Declaratory Relief no single allegation of fact upon which
SJS could base a right of relief from the named respondents. In any event, even granting that it
sufficiently asserted a legal right it sought to protect, there was nevertheless no certainty that such
right would be invaded by the said respondents. Not even the alleged proximity of the elections to
the time the Petition was filed below (January 28, 2003) would have provided the certainty that it had
a legal right that would be jeopardized or violated by any of those respondents.

Legal Standing

Legal standing or locus standi has been defined as a personal and substantial interest in the case,
such that the party has sustained or will sustain direct injury as a result of the challenged
act.37 Interest means a material interest in issue that is affected by the questioned act or instrument,
as distinguished from a mere incidental interest in the question involved.38

Petitioner alleges that "[i]n seeking declaratory relief as to the constitutionality of an act of a religious
leader to endorse, or require the members of the religious flock to vote for a specific candidate,
herein Respondent SJS has no legal interest in the controversy";39 it has failed to establish how the
resolution of the proffered question would benefit or injure it.
Parties bringing suits challenging the constitutionality of a law, an act or a statute must show "not
only that the law [or act] is invalid, but also that [they have] sustained or [are] in immediate or
imminent danger of sustaining some direct injury as a result of its enforcement, and not merely that
[they] suffer thereby in some indefinite way."40 They must demonstrate that they have been, or are
about to be, denied some right or privilege to which they are lawfully entitled, or that they are about
to be subjected to some burdens or penalties by reason of the statute or act complained of.41

First, parties suing as taxpayers must specifically prove that they have sufficient interest in
preventing the illegal expenditure of money raised by taxation.42 A taxpayer’s action may be properly
brought only when there is an exercise by Congress of its taxing or spending power.43 In the present
case, there is no allegation, whether express or implied, that taxpayers’ money is being illegally
disbursed.

Second, there was no showing in the Petition for Declaratory Relief that SJS as a political party or its
members as registered voters would be adversely affected by the alleged acts of the respondents
below, if the question at issue was not resolved. There was no allegation that SJS had suffered or
would be deprived of votes due to the acts imputed to the said respondents. Neither did it allege that
any of its members would be denied the right of suffrage or the privilege to be voted for a public
office they are seeking.

Finally, the allegedly keen interest of its "thousands of members who are citizens-taxpayers-
registered voters" is too general44 and beyond the contemplation of the standards set by our
jurisprudence. Not only is the presumed interest impersonal in character; it is likewise too vague,
highly speculative and uncertain to satisfy the requirement of standing.45

Transcendental Importance

In any event, SJS urges the Court to take cognizance of the Petition, even sans legal standing,
considering that "the issues raised are of paramount public interest."

In not a few cases, the Court has liberalized the locus standi requirement when a petition raises an
issue of transcendental significance or paramount importance to the people.46 Recently, after holding
that the IBP had no locus standi to bring the suit, the Court in IBP v. Zamora47 nevertheless
entertained the Petition therein. It noted that "the IBP has advanced constitutional issues which
deserve the attention of this Court in view of their seriousness, novelty and weight as precedents."48

Similarly in the instant case, the Court deemed the constitutional issue raised in the SJS Petition to
be of paramount interest to the Filipino people. The issue did not simply concern a delineation of the
separation between church and state, but ran smack into the governance of our country. The issue
was both transcendental in importance and novel in nature, since it had never been decided before.

The Court, thus, called for Oral Argument to determine with certainty whether it could resolve the
constitutional issue despite the barren allegations in the SJS Petition as well as the abbreviated
proceedings in the court below. Much to its chagrin, however, counsels for the parties -- particularly
for Respondent SJS -- made no satisfactory allegations or clarifications that would supply the
deficiencies hereinabove discussed. Hence, even if the Court would exempt this case from the
stringent locus standi requirement, such heroic effort would be futile because the transcendental
issue cannot be resolved anyway.

Proper Proceedings Before the Trial Court

To prevent a repetition of this waste of precious judicial time and effort, and for the guidance of the
bench and the bar, the Court reiterates the elementary procedure49 that must be followed by trial
courts in the conduct of civil cases.50

Prefatorily, the trial court may -- motu proprio or upon motion of the defendant -- dismiss a
complaint51 (or petition, in a special civil action) that does not allege the plaintiff’s (or petitioner’s)
cause or causes of action.52 A complaint or petition should contain "a plain, concise and direct
statement of the ultimate facts on which the party pleading relies for his claim or defense."53 It should
likewise clearly specify the relief sought.54

Upon the filing of the complaint/petition and the payment of the requisite legal fees, the clerk of court
shall forthwith issue the corresponding summons to the defendants or the respondents, with a
directive that the defendant answer55 within 15 days, unless a different period is fixed by the
court.56 The summons shall also contain a notice that if such answer is not filed, the
plaintiffs/petitioners shall take a judgment by default and may be granted the relief applied for.57 The
court, however, may -- upon such terms as may be just -- allow an answer to be filed after the time
fixed by the Rules.58

If the answer sets forth a counterclaim or cross-claim, it must be answered within ten (10) days from
service.59 A reply may be filed within ten (10) days from service of the pleading responded to.60

When an answer fails to tender an issue or admits the material allegations of the adverse party’s
pleading, the court may, on motion of that party, direct judgment on such pleading (except in actions
for declaration of nullity or annulment of marriage or for legal separation).61 Meanwhile, a party
seeking to recover upon a claim, a counterclaim or crossclaim -- or to obtain a declaratory relief --
may, at any time after the answer thereto has been served, move for a summary judgment in its
favor.62 Similarly, a party against whom a claim, a counterclaim or crossclaim is asserted -- or a
declaratory relief sought -- may, at any time, move for a summary judgment in its favor.63 After the
motion is heard, the judgment sought shall be rendered forthwith if there is a showing that, except as
to the amount of damages, there is no genuine issue as to any material fact; and that the moving
party is entitled to a judgment as a matter of law.64

Within the time for -- but before -- filing the answer to the complaint or petition, the defendant may
file a motion to dismiss based on any of the grounds stated in Section 1 of Rule 16 of the Rules of
Court. During the hearing of the motion, the parties shall submit their arguments on the questions of
law, and their evidence on the questions of fact.65 After the hearing, the court may dismiss the action
or claim, deny the motion, or order the amendment of the pleadings. It shall not defer the resolution
of the motion for the reason that the ground relied upon is not indubitable. In every case, the
resolution shall state clearly and distinctly the reasons therefor.66

If the motion is denied, the movant may file an answer within the balance of the period originally
prescribed to file an answer, but not less than five (5) days in any event, computed from the receipt
of the notice of the denial. If the pleading is ordered to be amended, the defendant shall file an
answer within fifteen (15) days, counted from the service of the amended pleading, unless the court
provides a longer period.67

After the last pleading has been served and filed, the case shall be set for pretrial,68 which is a
mandatory proceeding.69 A plaintiff’s/ petitioner’s (or its duly authorized representative’s) non-
appearance at the pretrial, if without valid cause, shall result in the dismissal of the action with
prejudice, unless the court orders otherwise. A similar failure on the part of the defendant shall be a
cause for allowing the plaintiff/petitioner to present evidence ex parte, and the court to render
judgment on the basis thereof.70
The parties are required to file their pretrial briefs; failure to do so shall have the same effect as
failure to appear at the pretrial.71 Upon the termination thereof, the court shall issue an order reciting
in detail the matters taken up at the conference; the action taken on them, the amendments allowed
to the pleadings; and the agreements or admissions, if any, made by the parties regarding any of the
matters considered.72 The parties may further avail themselves of any of the modes of discovery,73 if
they so wish.

Thereafter, the case shall be set for trial,74 in which the parties shall adduce their respective
evidence in support of their claims and/or defenses. By their written consent or upon the application
of either party, or on its own motion, the court may also order any or all of the issues to be referred
to a commissioner, who is to be appointed by it or to be agreed upon by the parties.75 The trial or
hearing before the commissioner shall proceed in all respects as it would if held before the court.76

Upon the completion of such proceedings, the commissioner shall file with the court a written report
on the matters referred by the parties.77 The report shall be set for hearing, after which the court shall
issue an order adopting, modifying or rejecting it in whole or in part; or recommitting it with
instructions; or requiring the parties to present further evidence before the commissioner or the
court.78

Finally, a judgment or final order determining the merits of the case shall be rendered. The decision
shall be in writing, personally and directly prepared by the judge, stating clearly and distinctly the
facts and the law on which it is based, signed by the issuing magistrate, and filed with the clerk of
court.79

Based on these elementary guidelines, let us examine the proceedings before the trial court in the
instant case.

First, with respect to the initiatory pleading of the SJS. Even a cursory perusal of the Petition
immediately reveals its gross inadequacy. It contained no statement of ultimate facts upon which the
petitioner relied for its claim. Furthermore, it did not specify the relief it sought from the court, but
merely asked it to answer a hypothetical question.

Relief, as contemplated in a legal action, refers to a specific coercive measure prayed for as a result
of a violation of the rights of a plaintiff or a petitioner.80 As already discussed earlier, the Petition
before the trial court had no allegations of fact81 or of any specific violation of the petitioner’s rights,
which the respondents had a duty to respect. Such deficiency amounted to a failure to state a cause
of action; hence, no coercive relief could be sought and adjudicated. The Petition evidently lacked
substantive requirements and, we repeat, should have been dismissed at the outset.

Second, with respect to the trial court proceedings. Within the period set to file their respective
answers to the SJS Petition, Velarde, Villanueva and Manalo filed Motions to Dismiss; Cardinal Sin,
a Comment; and Soriano, within a priorly granted extended period, an Answer in which he likewise
prayed for the dismissal of the Petition.82 SJS filed a Rejoinder to the Motion of Velarde, who
subsequently filed a Sur-Rejoinder. Supposedly, there were "several scheduled settings, in which
the "[c]ourt was apprised of the respective positions of the parties."83 The nature of such settings --
whether pretrial or trial hearings -- was not disclosed in the records. Before ruling on the Motions to
Dismiss, the trial court issued an Order84 dated May 8, 2003, directing the parties to submit their
memoranda. Issued shortly thereafter was another Order85 dated May 14, 2003, denying all the
Motions to Dismiss.

In the latter Order, the trial court perfunctorily ruled:

 "The Court now resolves to deny the Motions to Dismiss, and after all the memoranda are
submitted, then, the case shall be deemed as submitted for resolution."86

Apparently, contrary to the requirement of Section 2 of Rule 16 of the Rules of Court, the Motions
were not heard. Worse, the Order purportedly resolving the Motions to Dismiss did not state any
reason at all for their denial, in contravention of Section 3 of the said Rule 16. There was not even
any statement of the grounds relied upon by the Motions; much less, of the legal findings and
conclusions of the trial court.

Thus, Velarde, Villanueva and Manalo moved for reconsideration. Pending the resolution of these
Motions for Reconsideration, Villanueva filed a Motion to suspend the filing of the parties’
memoranda. But instead of separately resolving the pending Motions fairly and squarely, the trial
court again transgressed the Rules of Court when it immediately proceeded to issue its Decision,
even before tackling the issues raised in those Motions.

Furthermore, the RTC issued its "Decision" without allowing the parties to file their answers. For this
reason, there was no joinder of the issues. If only it had allowed the filing of those answers, the trial
court would have known, as the Oral Argument revealed, that the petitioner and his co-respondents
below had not committed or threatened to commit the act attributed to them (endorsing candidates) -
- the act that was supposedly the factual basis of the suit.

Parenthetically, the court a quo further failed to give a notice of the Petition to the OSG, which was
entitled to be heard upon questions involving the constitutionality or validity of statutes and other
measures.87

Moreover, as will be discussed in more detail, the questioned Decision of the trial court was utterly
wanting in the requirements prescribed by the Constitution and the Rules of Court.

All in all, during the loosely abbreviated proceedings of the case, the trial court indeed acted with
inexplicable haste, with total ignorance of the law -- or, worse, in cavalier disregard of the rules of
procedure -- and with grave abuse of discretion.

Contrary to the contentions of the trial judge and of SJS, proceedings for declaratory relief must still
follow the process described above -- the petition must state a cause of action; the proceedings
must undergo the procedure outlined in the Rules of Court; and the decision must adhere to
constitutional and legal requirements.

First Substantive Issue:

Fundamental Requirements of a Decision

The Constitution commands that "[n]o decision shall be rendered by any court without expressing
therein clearly and distinctly the facts and the law on which it is based. No petition for review or
motion for reconsideration of a decision of the court shall be refused due course or denied without
stating the basis therefor."88

Consistent with this constitutional mandate, Section 1 of Rule 36 of the Rules on Civil Procedure
similarly provides:

"Sec. 1. Rendition of judgments and final orders. – A judgment or final order determining the
merits of the case shall be in writing personally and directly prepared by the judge, stating
 clearly and distinctly the facts and the law on which it is based, signed by him and filed with
the clerk of court."

In the same vein, Section 2 of Rule 120 of the Rules of Court on Criminal Procedure reads as
follows:

"Sec. 2. Form and contents of judgments. -- The judgment must be written in the official
language, personally and directly prepared by the judge and signed by him and shall contain
clearly and distinctly a statement of the facts proved or admitted by the accused and the law
upon which the judgment is based.

"x x x xxx x x x."

Pursuant to the Constitution, this Court also issued on January 28, 1988, Administrative Circular No.
1, prompting all judges "to make complete findings of facts in their decisions, and scrutinize closely
the legal aspects of the case in the light of the evidence presented. They should avoid the tendency
to generalize and form conclusions without detailing the facts from which such conclusions are
deduced."

In many cases,89 this Court has time and time again reminded "magistrates to heed the demand of
Section 14, Article VIII of the Constitution." The Court, through Chief Justice Hilario G. Davide Jr.
in Yao v. Court of Appeals,90 discussed at length the implications of this provision and strongly
exhorted thus:

"Faithful adherence to the requirements of Section 14, Article VIII of the Constitution is indisputably a
paramount component of due process and fair play. It is likewise demanded by the due process
clause of the Constitution. The parties to a litigation should be informed of how it was decided, with
an explanation of the factual and legal reasons that led to the conclusions of the court. The court
cannot simply say that judgment is rendered in favor of X and against Y and just leave it at that
without any justification whatsoever for its action. The losing party is entitled to know why he lost, so
he may appeal to the higher court, if permitted, should he believe that the decision should be
reversed. A decision that does not clearly and distinctly state the facts and the law on which it is
based leaves the parties in the dark as to how it was reached and is precisely prejudicial to the
losing party, who is unable to pinpoint the possible errors of the court for review by a higher tribunal.
More than that, the requirement is an assurance to the parties that, in reaching judgment, the judge
did so through the processes of legal reasoning. It is, thus, a safeguard against the impetuosity of
the judge, preventing him from deciding ipse dixit. Vouchsafed neither the sword nor the purse by
the Constitution but nonetheless vested with the sovereign prerogative of passing judgment on the
life, liberty or property of his fellowmen, the judge must ultimately depend on the power of reason for
sustained public confidence in the justness of his decision."

In People v. Bugarin,91 the Court also explained:

"The requirement that the decisions of courts must be in writing and that they must set forth
clearly and distinctly the facts and the law on which they are based serves many functions. It
is intended, among other things, to inform the parties of the reason or reasons for the
decision so that if any of them appeals, he can point out to the appellate court the finding of
facts or the rulings on points of law with which he disagrees. More than that, the requirement
is an assurance to the parties that, in reaching judgment, the judge did so through the
processes of legal reasoning. x x x."
Indeed, elementary due process demands that the parties to a litigation be given information on how
the case was decided, as well as an explanation of the factual and legal reasons that led to the
conclusions of the court.92

In Madrid v. Court of Appeals,93 this Court had instructed magistrates to exert effort to ensure that
their decisions would present a comprehensive analysis or account of the factual and legal findings
that would substantially address the issues raised by the parties.

In the present case, it is starkly obvious that the assailed Decision contains no statement of facts --
much less an assessment or analysis thereof -- or of the court’s findings as to the probable facts.
The assailed Decision begins with a statement of the nature of the action and the question or issue
presented. Then follows a brief explanation of the constitutional provisions involved, and what the
Petition sought to achieve. Thereafter, the ensuing procedural incidents before the trial court are
tracked. The Decision proceeds to a full-length opinion on the nature and the extent of the
separation of church and state. Without expressly stating the final conclusion she has reached or
specifying the relief granted or denied, the trial judge ends her "Decision" with the clause "SO
ORDERED."

What were the antecedents that necessitated the filing of the Petition? What exactly were the distinct
facts that gave rise to the question sought to be resolved by SJS? More important, what were the
factual findings and analysis on which the trial court based its legal findings and conclusions? None
were stated or implied. Indeed, the RTC’s Decision cannot be upheld for its failure to express clearly
and distinctly the facts on which it was based. Thus, the trial court clearly transgressed the
constitutional directive.

The significance of factual findings lies in the value of the decision as a precedent. How can it be so
if one cannot apply the ruling to similar circumstances, simply because such circumstances are
unknown? Otherwise stated, how will the ruling be applied in the future, if there is no point of factual
comparison?

Moreover, the court a quo did not include a resolutory or dispositive portion in its so-called Decision.
The importance of such portion was explained in the early case Manalang v. Tuason de
Rickards,94 from which we quote:

"The resolution of the Court on a given issue as embodied in the dispositive part of the
decision or order is the investitive or controlling factor that determines and settles the rights
of the parties and the questions presented therein, notwithstanding the existence of
statements or declaration in the body of said order that may be confusing."

The assailed Decision in the present case leaves us in the dark as to its final resolution of the
Petition. To recall, the original Petition was for declaratory relief. So, what relief did the trial court
grant or deny? What rights of the parties did it conclusively declare? Its final statement says, "SO
ORDERED." But what exactly did the court order? It had the temerity to label its issuance a
"Decision," when nothing was in fact decided.

Respondent SJS insists that the dispositive portion can be found in the body of the assailed
Decision. It claims that the issue is disposed of and the Petition finally resolved by the statement of
the trial court found on page 10 of its 14-page Decision, which reads: "Endorsement of specific
candidates in an election to any public office is a clear violation of the separation clause."95

We cannot agree.
In Magdalena Estate, Inc. v. Caluag,96 the obligation of the party imposed by the Court was allegedly
contained in the text of the original Decision. The Court, however, held:

"x x x The quoted finding of the lower court cannot supply deficiencies in the dispositive
portion. It is a mere opinion of the court and the rule is settled that where there is a conflict
between the dispositive part and the opinion, the former must prevail over the latter on the
theory that the dispositive portion is the final order while the opinion is merely a statement
ordering nothing." (Italics in the original)

Thus, the dispositive portion cannot be deemed to be the statement quoted by SJS and embedded
in the last paragraph of page 10 of the assailed 14-page Decision. If at all, that statement is merely
an answer to a hypothetical legal question and just a part of the opinion of the trial court. It does not
conclusively declare the rights (or obligations) of the parties to the Petition. Neither does it grant any
-- much less, the proper -- relief under the circumstances, as required of a dispositive portion.

Failure to comply with the constitutional injunction is a grave abuse of discretion amounting to lack or
excess of jurisdiction. Decisions or orders issued in careless disregard of the constitutional mandate
are a patent nullity and must be struck down as void.97

Parts of a Decision

In general, the essential parts of a good decision consist of the following: (1) statement of the case;
(2) statement of facts; (3) issues or assignment of errors; (4) court ruling, in which each issue is, as a
rule, separately considered and resolved; and, finally, (5) dispositive portion. The ponente may also
opt to include an introduction or a prologue as well as an epilogue, especially in cases in which
controversial or novel issues are involved.98

An introduction may consist of a concise but comprehensive statement of the principal factual or
legal issue/s of the case. In some cases -- particularly those concerning public interest; or involving
complicated commercial, scientific, technical or otherwise rare subject matters -- a longer
introduction or prologue may serve to acquaint readers with the specific nature of the controversy
and the issues involved. An epilogue may be a summation of the important principles applied to the
resolution of the issues of paramount public interest or significance. It may also lay down an
enduring philosophy of law or guiding principle.

Let us now, again for the guidance of the bench and the bar, discuss the essential parts of a good
decision.

1. Statement of the Case

The Statement of the Case consists of a legal definition of the nature of the action. At the first
instance, this part states whether the action is a civil case for collection, ejectment, quieting of title,
foreclosure of mortgage, and so on; or, if it is a criminal case, this part describes the specific charge
-- quoted usually from the accusatory portion of the information -- and the plea of the accused. Also
mentioned here are whether the case is being decided on appeal or on a petition for certiorari, the
court of origin, the case number in the trial court, and the dispositive portion of the assailed decision.

In a criminal case, the verbatim reproduction of the criminal information serves as a guide in
determining the nature and the gravity of the offense for which the accused may be found culpable.
As a rule, the accused cannot be convicted of a crime different from or graver than that charged.
Also, quoting verbatim the text of the information is especially important when there is a question on
the sufficiency of the charge, or on whether qualifying and modifying circumstances have been
adequately alleged therein.

To ensure that due process is accorded, it is important to give a short description of the proceedings
regarding the plea of the accused. Absence of an arraignment, or a serious irregularity therein, may
render the judgment void, and further consideration by the appellate court would be futile. In some
instances, especially in appealed cases, it would also be useful to mention the fact of the appellants’
detention, in order to dispose of the preliminary query -- whether or not they have abandoned their
appeal by absconding or jumping bail.

Mentioning the court of origin and the case number originally assigned helps in facilitating the
consolidation of the records of the case in both the trial and the appellate courts, after entry of final
judgment.

Finally, the reproduction of the decretal portion of the assailed decision informs the reader of how
the appealed case was decided by the court a quo.

2. Statement of Facts

There are different ways of relating the facts of the case. First, under the objective or reportorial
method, the judge summarizes -- without comment -- the testimony of each witness and the contents
of each exhibit. Second, under the synthesis method, the factual theory of the plaintiff or prosecution
and then that of the defendant or defense is summarized according to the judge’s best light. Third, in
the subjective method, the version of the facts accepted by the judge is simply narrated without
explaining what the parties’ versions are. Finally, through a combination of objective and subjective
means, the testimony of each witness is reported and the judge then formulates his or her own
version of the facts.

In criminal cases, it is better to present both the version of the prosecution and that of the defense, in
the interest of fairness and due process. A detailed evaluation of the contentions of the parties must
follow. The resolution of most criminal cases, unlike civil and other cases, depends to a large extent
on the factual issues and the appreciation of the evidence. The plausibility or the implausibility of
each version can sometimes be initially drawn from a reading of the facts. Thereafter, the bases of
the court in arriving at its findings and conclusions should be explained.

On appeal, the fact that the assailed decision of the lower court fully, intelligently and correctly
resolved all factual and legal issues involved may partly explain why the reviewing court finds no
reason to reverse the findings and conclusions of the former. Conversely, the lower court’s patent
misappreciation of the facts or misapplication of the law would aid in a better understanding of why
its ruling is reversed or modified.

In appealed civil cases, the opposing sets of facts no longer need to be presented. Issues for
resolution usually involve questions of law, grave abuse of discretion, or want of jurisdiction; hence,
the facts of the case are often undisputed by the parties. With few exceptions, factual issues are not
entertained in non-criminal cases. Consequently, the narration of facts by the lower court, if
exhaustive and clear, may be reproduced; otherwise, the material factual antecedents should be
restated in the words of the reviewing magistrate.

In addition, the reasoning of the lower court or body whose decision is under review should be laid
out, in order that the parties may clearly understand why the lower court ruled in a certain way, and
why the reviewing court either finds no reason to reverse it or concludes otherwise.
3. Issues or Assignment of Errors

Both factual and legal issues should be stated. On appeal, the assignment of errors, as mentioned in
the appellant’s brief, may be reproduced in toto and tackled seriatim, so as to avoid motions for
reconsideration of the final decision on the ground that the court failed to consider all assigned errors
that could affect the outcome of the case. But when the appellant presents repetitive issues or when
the assigned errors do not strike at the main issue, these may be restated in clearer and more
coherent terms.

Though not specifically questioned by the parties, additional issues may also be included, if deemed
important for substantial justice to be rendered. Note that appealed criminal cases are given de
novo review, in contrast to noncriminal cases in which the reviewing court is generally limited to
issues specifically raised in the appeal. The few exceptions are errors of jurisdiction; questions not
raised but necessary in arriving at a just decision on the case; or unassigned errors that are closely
related to those properly assigned, or upon which depends the determination of the question
properly raised.

4. The Court’s Ruling

This part contains a full discussion of the specific errors or issues raised in the complaint, petition or
appeal, as the case may be; as well as of other issues the court deems essential to a just disposition
of the case. Where there are several issues, each one of them should be separately addressed, as
much as practicable. The respective contentions of the parties should also be mentioned here.
When procedural questions are raised in addition to substantive ones, it is better to resolve the
former preliminarily.

5. The Disposition or Dispositive Portion

In a criminal case, the disposition should include a finding of innocence or guilt, the specific crime
committed, the penalty imposed, the participation of the accused, the modifying circumstances if
any, and the civil liability and costs. In case an acquittal is decreed, the court must order the
immediate release of the accused, if detained, (unless they are being held for another cause) and
order the director of the Bureau of Corrections (or wherever the accused is detained) to report, within
a maximum of ten (10) days from notice, the exact date when the accused were set free.

In a civil case as well as in a special civil action, the disposition should state whether the complaint
or petition is granted or denied, the specific relief granted, and the costs. The following test of
completeness may be applied. First, the parties should know their rights and
obligations. Second, they should know how to execute the decision under alternative
contingencies. Third, there should be no need for further proceedings to dispose of the
issues. Fourth, the case should be terminated by according the proper relief. The "proper relief"
usually depends upon what the parties seek in their pleadings. It may declare their rights and duties,
command the performance of positive prestations, or order them to abstain from specific acts. The
disposition must also adjudicate costs.

The foregoing parts need not always be discussed in sequence. But they should all be present and
plainly identifiable in the decision. Depending on the writer’s character, genre and style, the
language should be fresh and free-flowing, not necessarily stereotyped or in a fixed form; much less
highfalutin, hackneyed and pretentious. At all times, however, the decision must be clear, concise,
complete and correct.

Second Substantive Issue:

 Religious Leaders’ Endorsement

of Candidates for Public Office

The basic question posed in the SJS Petition -- WHETHER ENDORSEMENTS OF CANDIDACIES
BY RELIGIOUS LEADERS IS UNCONSTITUTIONAL -- undoubtedly deserves serious
consideration. As stated earlier, the Court deems this constitutional issue to be of paramount interest
to the Filipino citizenry, for it concerns the governance of our country and its people. Thus, despite
the obvious procedural transgressions by both SJS and the trial court, this Court still called for Oral
Argument, so as not to leave any doubt that there might be room to entertain and dispose of the SJS
Petition on the merits.

Counsel for SJS has utterly failed, however, to convince the Court that there are enough factual and
legal bases to resolve the paramount issue. On the other hand, the Office of the Solicitor General
has sided with petitioner insofar as there are no facts supporting the SJS Petition and the assailed
Decision.

We reiterate that the said Petition failed to state directly the ultimate facts that it relied upon for its
claim. During the Oral Argument, counsel for SJS candidly admitted that there were no factual
allegations in its Petition for Declaratory Relief. Neither were there factual findings in the assailed
Decision. At best, SJS merely asked the trial court to answer a hypothetical question. In effect, it
merely sought an advisory opinion, the rendition of which was beyond the court’s constitutional
mandate and jurisdiction.99

Indeed, the assailed Decision was rendered in clear violation of the Constitution, because it made no
findings of facts and final disposition. Hence, it is void and deemed legally inexistent. Consequently,
there is nothing for this Court to review, affirm, reverse or even just modify.

Regrettably, it is not legally possible for the Court to take up, on the merits, the paramount question
involving a constitutional principle. It is a time-honored rule that "the constitutionality of a statute [or
act] will be passed upon only if, and to the extent that, it is directly and necessarily involved in a
justiciable controversy and is essential to the protection of the rights of the parties concerned."100

WHEREFORE, the Petition for Review of Brother Mike Velarde is GRANTED. The assailed June 12,
2003 Decision and July 29, 2003 Order of the Regional Trial Court of Manila (Branch 49) are
hereby DECLARED NULL AND VOID and thus SET ASIDE. The SJS Petition for Declaratory Relief
is DISMISSED for failure to state a cause of action.

Let a copy of this Decision be furnished the Office of the Court Administrator to evaluate and
recommend whether the trial judge may, after observing due process, be held administratively liable
for rendering a decision violative of the Constitution, the Rules of Court and relevant circulars of this
Court. No costs.

SO ORDERED.
G.R. No. 175064 September 18, 2009

PROVINCE OF CAMARINES SUR, represented by Governor LUIS RAYMUND F.

VILLAFUERTE, Jr., Petitioner,
vs.
HONORABLE COURT OF APPEALS; and CITY OF NAGA, represented by Mayor JESSE M.
ROBREDO, Respondents.

DECISION

CHICO-NAZARIO, J.:

This Petition for Certiorari1 under Rule 65 of the Rules of Court seeks to annul and set aside the
Decision2 dated 28 June 2004 and the Resolution3 dated 11 August 2006 of the Court of Appeals in
CA-G.R. SP No. 56243. The assailed Decision of the appellate court denied due course the Petition
for Review on Certiorari4 filed by petitioner Province of Camarines Sur (Camarines Sur), while the
assailed Resolution denied the Motion for Reconsideration of the earlier Decision.

The property subject of the instant case is a parcel of land, known as Plaza Rizal, situated within the
territory of herein respondent City of Naga and with an aggregate area of 4,244 square meters, more
or less. Plaza Rizal is located in front of the old provincial capitol building, where the Provincial
Government of Camarines Sur used to have its seat, at the time when the then Municipality of Naga
was still the provincial capital.

On 18 June 1948, Republic Act No. 3055 took effect and, by virtue thereof, the Municipality of Naga
was converted into the City of Naga. Subsequently, on 16 June 1955, Republic Act No. 13366 was
approved, transferring the site of the provincial capitol of Camarines Sur from the City of Naga to the
barrio of Palestina, Municipality of Pili.7 The Municipality of Pili was also named as the new provincial
capital.8

On 13 January 1997, the City of Naga filed a Complaint9 for Declaratory Relief and/or Quieting of
Title against Camarines Sur before the Regional Trial Court (RTC) of the City of Naga, Branch 61,
which was docketed as Civil Case No. 97-3691.

The City of Naga alleged that, for a considerable length of time, Camarines Sur possessed and
claimed ownership of Plaza Rizal because of a tax declaration over the said property in the name of
the province. As a result, Camarines Sur had long exercised administrative control and management
of Plaza Rizal, to the exclusion of the City of Naga. The City of Naga could not introduce
improvements on Plaza Rizal, and its constituents could not use the property without securing a
permit from the proper officials of Camarines Sur. The situation had created a conflict of interest
between the parties herein and had generated animosities among their respective officials.

The City of Naga stressed that it did not intend to acquire ownership of Plaza Rizal. Being a property
of the public domain, Plaza Rizal could not be claimed by any subdivision of the state, as it belonged
to the public in general. Instead, the City of Naga sought a declaration that the administrative control
and management of Plaza Rizal should be vested in it, given that the said property is situated within
its territorial jurisdiction. The City of Naga invoked Section 2, Article I of Republic Act No. 305, the
Charter of the City of Naga, which states:

SEC. 2. Territory of the City of Naga. — The city of Naga which is hereby created, shall comprise the
present territorial jurisdiction of the municipality of Naga, in the Province of Camarines Sur.
On 21 February 1997, Camarines Sur filed an Answer with Motion to Dismiss.10 It argued that it was
the legal and absolute owner of Plaza Rizal and, therefore, had the sole right to maintain, manage,
control, and supervise the said property. Camarines Sur asserted that the City of Naga was without
any cause of action because the Complaint lacked any legal or factual basis. Allegedly, Section 2 of
Republic Act No. 305 merely defined the territorial jurisdiction of the City of Naga and did not vest
any color of right to the latter to manage and control any property owned by Camarines Sur.
Furthermore, the remedy of Declaratory Relief was inappropriate because there was no justiciable
controversy, given that the City of Naga did not intend to acquire ownership of Plaza Rizal; and
Camarines Sur, being the owner of Plaza Rizal, had the right to the management, maintenance,
control, and supervision thereof. There was likewise no actual or impending controversy, since Plaza
Rizal had been under the control and supervision of Camarines Sur since time immemorial. The
remedy of Quieting of Title was inappropriate, as the City of Naga had no legal or equitable title to or
interest in Plaza Rizal that needed protection. Lastly, Camarines Sur stated that Plaza Rizal was not
a property of public domain, but a property owned by Camarines Sur which was devoted to public
use.

In an Order11 dated 28 May 1997, the RTC denied the Motion to Dismiss of Camarines Sur, since the
grounds cited therein were legal issues that were evidentiary in nature and could only be threshed
out in a full-blown trial.

On 10 March 1999, the RTC rendered a Decision12 in favor of the City of Naga, the pertinent portions
of which provide:

As understood in the Law of Nations, the right of jurisdiction accorded a sovereign state consists of
first, its personal jurisdiction, which in a sense is its authority over its nationals who are in a foreign
country and second, territorial jurisdiction, which is its authority over persons and properties within
the territorial boundaries x x x.

"The territorial jurisdiction of a state is based on the right of domain. The domain of a State includes
normally only the expanse of its territory over which it exercises the full rights of sovereignty." x x x

"Sovereignty, in turn, refers to the supreme power of a State to command and enforce obedience; it
is the power, to which, legally speaking all interest[s] are practically subject and all wills
subordinate." x x x Indeed, from the point of view of national law, it is in a sense absolute control
over a definite territory. x x x.

In summation therefore from the above-quoted citations, when territorial jurisdiction is being referred
to, it means the entire territory over which a State (or any local government unit) can exercise
absolute control.

In the instant case, [Camarines Sur] thru (sic) counsel admitted during the pre-trial conference that
indeed, the property in question, which is Plaza Rizal, is within the territorial jurisdiction of the [City of
Naga]. Thus, applying the above-quoted principles concerning territorial jurisdiction, [Camarines Sur]
is barred by its express admission from claiming that it is the Province of Camarines Sur who has
the right to administratively control, manage and supervise said Plaza Rizal.

[The contention of Camarines Sur] that [Section 2, Article I] of [Republic Act No.] 305 merely defines
[the] territory of the City of Naga has no strong leg to stand on.

The unequivocal and specific import of said provision provides the extent into which the City of Naga
can exercise its powers and functions over all its constituents and properties found within its territory.
Further, Art. II, Sec. 9, par. b of [Republic Act No.] 305 provides one of the general powers and
duties of the City Mayor, to wit:

"To safeguard all the lands, buildings, records, moneys, credits and other property and rights of the
city, and subject to the [provisions] of this Charter, have control of all its property."

Considering that the Province [of Camarines Sur] expressly acknowledged that [Section 2, Article I]
of [Republic Act No.] 305 merely defines the territory of [the City of Naga], then it is safe to assume
that it also accept that the City of Naga as represented by the City Mayor exercises control of all the
properties of the City, for properties as used in the above-quoted provision refers to lands, buildings,
records, moneys[,] credits and other property and rights of the city. x x x Since [Section 2, Article I] of
[Republic Act No.] 305 defines the territory of [the City of] Naga and Plaza Rizal is within its territorial
jurisdiction, ergo, it is the City [of Naga] who has the right of administrative control and management
of Plaza Rizal.

The RTC thus decreed:

WHEREFORE, premises considered, [Section 2, Article I] of [Republic Act No.] 305 is hereby
interpreted and declared in this Court to mean that the administrative control and management of
Plaza Rizal is within the City of Naga and not with the Province of Camarines Sur.13

Camarines Sur received a copy of the foregoing Decision on 16 March 1999, and filed a Motion for
Reconsideration14 of the same on 30 March 1999. The RTC denied the Motion for Reconsideration
of Camarines Sur in an Order15 dated 1 September 1999. The RTC reiterated that the enactment of
Republic Act No. 305, which converted the Municipality of Naga into an independent city, had ipso
facto ceased the power of administrative control and supervision exercised by Camarines Sur over
the property within the territorial jurisdiction of the Municipality of Naga and vested into the City of
Naga. The administrative control and supervision exercised by Camarines Sur over Plaza Rizal,
since the time of the creation of the City of Naga and up to the time of the filing of the instant case,
was by mere tolerance on the part of the said city. Furthermore, the claim of ownership of Plaza
Rizal by Camarines Sur was wanting, given that there was no express legislative action therefor.
Public streets, squares, plazas and the like, are not the private property of either the City of Naga or
Camarines Sur.

Camarines Sur received a copy of the RTC Order dated 1 September 1999, denying its Motion for
Reconsideration, on 3 September 1999. On 8 September 1999, Camarines Sur filed with the RTC a
Notice of Appeal.16 In an Order17 dated 13 September 1999, the RTC disapproved the Notice of
Appeal for non-compliance with the material data rule, which requires the statement of such data as
will show that the appeal was perfected on time.

On 13 September 1999, Camarines Sur filed a second Notice of Appeal,18 which was again
disapproved by the RTC in an Order19 dated 14 September 1999 for having been filed outside of the
reglementary period. The RTC noted that Camarines Sur received a copy of the RTC Decision dated
10 March 1999 on 16 March 1999. It thus had a period of 15 days therefrom to file a motion for
reconsideration or appeal. Camarines Sur filed its Motion for Reconsideration on 30 March 1999 or
on the fourteenth day of the reglementary period. Said Motion for Reconsideration was denied by the
RTC in an Order dated 1 September 1999, which was received by Camarines Sur on 3 September
1999. Thereafter, Camarines Sur only had two days left to file its Notice of Appeal, but the province
filed said Notice on 8 September 1999, or five days after receipt of the Order denying its Motion for
Reconsideration.20 1avv phi 1
On 18 October 1999, Camarines Sur filed before the Court a Petition for Review on
Certiorari,21 which was docketed as G.R. No. 139838. Camarines Sur questioned in its Petition the
act of the RTC of giving due course to the Complaint for Declaratory Relief and/or Quieting of Title
and the interpretation of said trial court of Section 2, Article 1 of Republic Act No. 305.

In a Resolution22 dated 17 November 1999, the Court referred the Petition for Review filed by
Camarines Sur to the Court of Appeals for appropriate action, holding that the latter had jurisdiction
concurrent with that of the former over the case, and no special and important reason was cited for
the Court to take cognizance of the case in the first instance. Before the appellate court, the Petition
for Review of Camarines Sur was docketed as CA-G.R. SP No. 56243.

On 28 June 2004, the Court of Appeals promulgated the assailed Decision denying the Petition in
CA-G.R. SP No. 56243. It pronounced:

We deny the petition.

Where an appeal would have been an adequate remedy but it was lost through petitioner’s
inexcusable negligence, certiorari is not in order. x x x Certiorari cannot be resorted to as a
substitute for the lost remedy of appeal x x x. It is notable that Camarines Sur took this recourse of
petition for certiorari only after it twice attempted to avail of appeal, but both of which were
DISAPPROVED. Because it made these attempts to appeal, it goes without saying that Camarines
Sur believed that the errors it claimed were committed by the court a quo were correctible only by
appeal and not by certiorari. Thus, when it subsequently filed the instant petition, it was availing of it
as a disallowed substitute remedy for a lost appeal. Time and again it has been ruled that [the]
remedies of appeal and certiorari are mutually exclusive and not alternative or successive x x x.

But disregarding for the nonce the lost appeal and its disallowed substitution by certiorari, still the
petition would fail because of the absence of grave abuse of discretion. The court a quo had
declared that:

The existence of the Municipality of Naga was governed by the provisions of Chapter 57 of the Old
Revised Administrative Code, otherwise known as the Regular Municipal Law. A law under which
the municipalities in regularly organized provinces like the province of Camarines Sur may be
organized. As a consequence of its creation, the Municipality of Naga acquired title to all the
property, powers, rights and obligations falling within its territorial limits (62 C.J.S. 193). Being a
political subdivision created within an organized province, the administration of the higher political
subdivision, the province of Camarines Sur x x x has stood as trustee of all the properties belonging
to the State within its territorial limits. This is the legal and logical reason why[,] before the
conversion of the municipality of Naga to a City[,] [Camarines Sur] was exercising control and
supervision over Plaza Rizal. x x x

This finds support in one of the provisions of the old Administrative Code of the Philippine Islands
where it was provided that:

SEC. 2168. Beginning of the corporate existence of new municipality. – x x x.

When a township or other local territorial division is converted or fused into a municipality all property
rights vested in the original territorial organization shall become vested in the government of the
municipality. x x x.

When Naga was converted from a municipality into a city, all properties under its territorial
jurisdiction including Plaza Rizal was vested upon it.23 (Emphasis ours.)
The fallo of the Court of Appeals decision reads:

WHEREFORE, the petition is DENIED DUE COURSE and DISMISSED.24

Camarines Sur sought a reconsideration25 of the aforequoted Decision, but the Court of Appeals
denied the same in the assailed Resolution dated 11 August 2006.

Camarines Sur, thus, filed the instant Petition, raising the sole issue of:

WHETHER OR NOT THE HONORABLE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT TREATED THE
[PETITION FOR REVIEW UNDER RULE 45 FILED BY CAMARINES SUR] AS ONE FOR
CERTIORARI UNDER RULE 65 THEREBY DENYING DUE COURSE AND DISMISSING THE
PETITION AND EVEN THE MOTION FOR RECONSIDERATION ON THE GROUND THAT THE
PETITION WAS AVAILED OF AS A SUBSTITUTE FOR THE LOST APPEAL AND FOR ABSENCE
OF GRAVE ABUSE OF DISCRETION.

Camarines Sur argues that the Court of Appeals went beyond its authority and gravely abused its
discretion when it treated and resolved the Petition for Review on Certiorari under Rule 45 of the
Rules of Court as a Petition for Certiorari under Rule 65, which must allege grave abuse of discretion
on the part of the RTC, and which cannot be made a substitute for a lost appeal. Camarines Sur
insists that what it filed was a Petition under Rule 45, which raised all reversible errors committed by
the RTC and presented all questions of laws.

Moreover, as the Court of Appeals upheld the Decision dated 16 March 1999 of the RTC based on a
wrong premise and application of legal principles, Camarines Sur pleads for this Court to decide on
the questions of law raised in the dismissed Petition.

First, Camarines Sur avers that the filing of the Complaint for Declaratory Relief and/or Quieting of
Title was improper as it was hinged on a pretended controversy. Essentially, the complaint of the
City of Naga did not show "an active antagonistic assertion of a legal right, on one side, and a denial
thereof, on the other." Such action sought merely to create an unwarranted inference not of a clear
right, but of a theoretical implication that a property, even if not legally owned or possessed by a city,
could be administratively controlled and managed by it on the sheer expediency of being located
within its territorial jurisdiction. Thus, there was no actual controversy between Camarines Sur and
the City of Naga, considering that Camarines Sur had always managed and administratively
controlled the same, the projects installed thereon and the programs and activities held therein,
without any question from the previous Mayors of the City of Naga or from any national official,
department, bureau or agency.

Second, Camarines Sur contends that since Plaza Rizal is admittedly located within the territorial
jurisdiction of the City of Naga, the question of law is whether the management and administrative
control of said land should be vested in the City of Naga, simply because of Article 1, Section 2 of
the Charter of the City of Naga. Naga never possessed administrative control and management of
Plaza Rizal when it was still a municipality, and it cannot be deemed to have been vested with the
same, just because it was converted into the City of Naga – especially when the City admits it does
not intend to acquire ownership of Plaza Rizal.

Petition for Review v. Petition for Certiorari

At the outset, the Court holds that the Court of Appeals indeed committed grave abuse of discretion
amounting to lack or excess of jurisdiction in erroneously and inexplicably resolving the Petition,
which was initially filed by Camarines Sur before the Court, but later referred to the appellate court,
as if the same were a Petition for Certiorari under Rule 65 of the Rules of Court. This mistake is
evident in the preliminary statement of the case, as found in the first paragraph of the Decision dated
28 June 2004, where the Court of Appeals stated that:

The petitioner Province of Camarines Sur (or Camarines Sur for brevity), represented by Gov. Luis
Villafuerte, asks through this Petition for Certiorari that the Decision of Branch 61 of the Regional
Trial Court stationed at Naga City x x x be reversed and set aside x x x.26 (Emphasis ours.)

For a Petition for Certiorari under Rule 65 of the Rules of Court to prosper, the following requisites
must be present: (1) the writ is directed against a tribunal, a board or an officer exercising judicial or
quasi-judicial functions; (2) such tribunal, board or officer has acted without or in excess of
jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction; and (3) there
is no appeal or any plain, speedy and adequate remedy in the ordinary course of law.27

There is grave abuse of discretion "when there is a capricious and whimsical exercise of judgment
as is equivalent to lack of jurisdiction, such as where the power is exercised in an arbitrary or
despotic manner by reason of passion or personal hostility, and it must be so patent and gross so as
to amount to an evasion of positive duty or to a virtual refusal to perform the duty enjoined or to act
at all in contemplation of law."28

On the other hand, Rule 45 of the Rules of Court pertains to a Petition for Review
on Certiorari, whereby "a party desiring to appeal by certiorari from a judgment, final order or
resolution of the x x x the Regional Trial Court x x x, may file with the Supreme Court a verified
petition for review on certiorari. The petition may include an application for a writ of preliminary
injunction or other provisional remedies and shall raise only questions of law, which must be
distinctly set forth."29

A perusal of the petition referred to the Court of Appeals lays bare the fact that the same was
undoubtedly a Petition for Review on Certiorari under Rule 45 of the Rules of Court. Not only does
the title of the Petition indicate it as such, but a close reading of the issues and allegations set forth
therein also discloses that it involved pure questions of law. A question of law arises when there is
doubt as to what the law is on a certain state of facts. For a question to be one of law, the same
must not involve an examination of the probative value of the evidence presented by the litigants or
any of them. The resolution of the issue must rest solely on what the law provides on the given set of
circumstances.30 The Court of Appeals, thus, could not fault Camarines Sur for failing to allege,
much less prove, grave abuse of discretion amounting to lack or excess of jurisdiction on the part of
the RTC when such is not required for a Petition for Review on Certiorari.

Likewise, the doctrine that certiorari cannot be resorted to as a substitute for the lost remedy of
appeal applies only when a party actually files a Petition for Certiorari under Rule 65 in lieu of a
Petition for Review under Rule 45, since the latter remedy was already lost through the fault of the
petitioning party. In the instant case, Camarines Sur actually filed a Petition for Review under Rule
45; the Court of Appeals only mistook the same for a Petition for Certiorari under Rule 65.

Be that as it may, the Court still finds that the questions of law invoked by Camarines Sur must be
resolved against it.

Declaratory Relief

Declaratory relief is defined as an action by any person interested in a deed, will, contract or other
written instrument, executive order or resolution, to determine any question of construction or validity
arising from the instrument, executive order or regulation, or statute; and for a declaration of his
rights and duties thereunder.31 The only issue that may be raised in such a petition is the question of
construction or validity of provisions in an instrument or statute.32

The requisites of an action for declaratory relief are: (1) there must be a justiciable controversy
between persons whose interests are adverse; (2) the party seeking the relief has a legal interest in
the controversy; and (3) the issue is ripe for judicial determination.33

The Court rules that the City of Naga properly resorted to the filing of an action for declaratory relief.

In the instant case, the controversy concerns the construction of the provisions of Republic Act No.
305 or the Charter of the City of Naga. Specifically, the City of Naga seeks an interpretation of
Section 2, Article I of its Charter, as well as a declaration of the rights of the parties to this case
thereunder.

To recall, Section 2, Article I of Republic Act No. 305 defines the territory of the City of Naga,
providing that the City shall comprise the present territorial jurisdiction of the Municipality of Naga.
By virtue of this provision, the City of Naga prays that it be granted the right to administratively
control and supervise Plaza Rizal, which is undisputedly within the territorial jurisdiction of the City.

Clearly, the interests of the City of Naga and Camarines Sur in this case are adverse. The assertion
by the City of Naga of a superior right to the administrative control and management of Plaza Rizal,
because said property of the public domain is within its territorial jurisdiction, is clearly antagonistic to
and inconsistent with the insistence of Camarines Sur. The latter asserted in its Complaint for
Declaratory Relief and/or Quieting of Title that it should maintain administrative control and
management of Plaza Rizal having continuously possessed the same under a claim of ownership,
even after the conversion of the Municipality of Naga into an independent component city. The City
of Naga further asserted that as a result of the possession by Camarines Sur, the City of Naga could
not introduce improvements on Plaza Rizal; its constituents were denied adequate use of said
property, since Camarines Sur required that the latter’s permission must first be sought for the use of
the same; and it was still Camarines Sur that was able to continuously use Plaza Rizal for its own
programs and projects. The City of Naga undoubtedly has a legal interest in the controversy, given
that Plaza Rizal is undisputedly within its territorial jurisdiction. Lastly, the issue is ripe for judicial
determination in that, in view of the conflicting interests of the parties to this case, litigation is
inevitable, and there is no adequate relief available in any other form or proceeding.34

Administrative control and supervision of Plaza Rizal

Republic Act No. 305 took effect on 18 June 1948. At that time, the Spanish Civil Code of 1889 was
still in effect in the Philippines. Properties of local government units under the Spanish Civil Code
were limited to properties of public use and patrimonial property.35 Article 344 of the Spanish Civil
Code provides:

Art. 344. Property of public use, in provinces and in towns, comprises the provincial and town roads,
the squares, streets, fountains, and public waters, the promenades, and public works of general
service paid for by such towns or provinces.

All other property possessed by either is patrimonial and shall be governed by the provisions of this
code, unless otherwise provided by special laws.

Under the 1950 Civil Code, the properties of local government units are set forth in Article 424
thereof, which reads:
Art. 424. Property for public use, in the provinces, cities, and municipalities, consist of the provincial
roads, city streets, municipal streets, the squares, fountains, public waters, promenades, and public
works for public service paid for by said provinces, cities, or municipalities.

All other property possessed by any of them is patrimonial and shall be governed by this Code,
without prejudice to the provisions of special laws.

Manifestly, the definition of what constitutes the properties for public use and patrimonial properties
of local government units has practically remained unchanged.

As regards properties for public use, the principle is the same: property for public use can be used
by everybody, even by strangers or aliens, in accordance with its nature; but nobody can exercise
over it the rights of a private owner.36

It is, therefore, vital to the resolution of this case that the exact nature of Plaza Rizal be ascertained.
In this regard, the description thereof by Camarines Sur is enlightening, viz:

The land subject of the Action filed by the City of Naga against the Province of Camarines Sur was a
garden that served as the front lawn of the old capitol site in Naga. A monument in honor of our
national hero was built by the Provincial Government of Camarines Sur sometime in 1911 on a
portion of subject land. Within the same land, a structure as a memorial for Ninoy Aquino was also
constructed by the Provincial Government of Camarines Sur; and nearby, a stage in honor of
President Manuel Quezon was also built. In the post-martial [law] period there was inscribed in the
wall of the said garden the following words: "Freedom Park of Camarines Sur."

A historical marker was erected in the said place which attests to the long standing ownership,
possession and management by the Province of Camarines Sur of said place.

All the improvements in said place, such as the construction of monuments and memorial structures,
the concreting of its flooring and the walkways, planting of trees and ornamental plants, the
construction of the skating or skateboard ring, a public TV facility, an internet café, a gazebo where
people from all walks of life discuss religion, political, social and economic issues, a portable stage
where cultural shows are held, a giant chessboard on the tiled ground with large pieces for playing,
where portable booths are installed for the trade fairs during fiesta or Christmas season, where year-
round lights are wrapped around the trees, all of which have been constructed, operated and
maintained by the Province of Camarines Sur (not by Naga City) where millions of pesos had been
spent for construction and millions of pesos are budgeted annually for maintenance, operating
expenses and personnel services by the Province of Camarines Sur.37

Unmistakable from the above description is that, at present, Plaza Rizal partakes of the nature of a
public park or promenade. As such, Plaza Rizal is classified as a property for public use.

In Municipality of San Carlos, Pangasinan v. Morfe,38 the Court recognized that a public plaza is a
public land belonging to, and, subject to the administration and control of, the Republic of the
Philippines. Absent an express grant by the Spanish Government or that of the Philippines, the local
government unit where the plaza was situated, which in that case was the Municipality of San
Carlos, had no right to claim it as its patrimonial property. The Court further held that whatever right
of administration the Municipality of San Carlos may have exercised over said plaza was not
proprietary, but governmental in nature. The same did not exclude the national government. On the
contrary, it was possessed on behalf and in representation thereof, the municipal government of San
Carlos being -- in the performance of its political functions -- a mere agency of the Republic, acting
for its benefit.
Applying the above pronouncements to the instant case, Camarines Sur had the right to administer
and possess Plaza Rizal prior to the conversion of the then Municipality of Naga into the
independent City of Naga, as the plaza was then part of the territorial jurisdiction of the said
province. Said right of administration by Camarines Sur was governmental in nature, and its
possession was on behalf of and in representation of the Republic of the Philippines, in the
performance of its political functions.

Thereafter, by virtue of the enactment of Republic Act No. 305 and as specified in Section 2, Article I
thereof, the City of Naga was created out of the territory of the old Municipality of Naga. Plaza Rizal,
which was located in the said municipality, thereby ceased to be part of the territorial jurisdiction of
Camarines Sur and was, instead transferred to the territorial jurisdiction of the City of Naga.
Theretofore, the local government unit that is the proper agent of the Republic of the Philippines that
should administer and possess Plaza Rizal is the City of Naga.

Camarines Sur cannot claim that Plaza Rizal is part of its patrimonial property. The basis for the
claim of ownership of Camarines Sur, i.e., the tax declaration39 covering Plaza Rizal in the name of
the province, hardly convinces this Court. Well-settled is the rule that a tax declaration is not
conclusive evidence of ownership or of the right to possess land, when not supported by any other
evidence. The same is merely an indicia of a claim of ownership.40 In the same manner, the
Certification41 dated 14 June 1996 issued by the Department of Environment and Natural
Resources–Community Environment and Natural Resources Office (DENR-CENRO) in favor of
Camarines Sur, merely stating that the parcel of land described therein, purportedly Plaza Rizal, was
being claimed solely by Camarines Sur, hardly constitutes categorical proof of the alleged ownership
of the said property by the province.

Thus, being a property for public use within the territorial jurisdiction of the City of Naga, Plaza Rizal
should be under the administrative control and supervision of the said city.

WHEREFORE, premises considered, the Petition for Certiorari under Rule 65 of the Rules of Court
is hereby DISMISSED. The administrative control and supervision of Plaza Rizal is hereby vested in
the City of Naga. Costs against petitioner.

SO ORDERED.

G.R. No. 181303 September 17, 2009

CARMEN DANAO MALANA, MARIA DANAO ACORDA, EVELYN DANAO, FERMINA DANAO,
LETICIA DANAO and LEONORA DANAO, the last two are represented herein by their
Attorney-in-Fact, MARIA DANAO ACORDA, Petitioners,
vs.
BENIGNO TAPPA, JERRY REYNA, SATURNINO CAMBRI and SPOUSES FRANCISCO AND
MARIA LIGUTAN, Respondents.

DECISION
CHICO-NAZARIO, J.:

This is a Petition for Certiorari under Rule 65 of the Rules of Court, assailing the Orders1 dated 4
May 2007, 30 May 2007, and 31 October 2007, rendered by Branch 3 of the Regional Trial Court
(RTC) of Tuguegarao City, which dismissed, for lack of jurisdiction, the Complaint of petitioners
Carmen Danao Malana, Leticia Danao, Maria Danao Accorda, Evelyn Danao, Fermina Danao, and
Leonora Danao, against respondents Benigno Tappa, Jerry Reyna, Saturnino Cambri, Francisco
Ligutan and Maria Ligutan, in Civil Case No. 6868.

Petitioners filed before the RTC their Complaint for Reivindicacion, Quieting of Title, and
Damages2 against respondents on 27 March 2007, docketed as Civil Case No. 6868. Petitioners
alleged in their Complaint that they are the owners of a parcel of land covered by Transfer Certificate
of Title (TCT) No. T-1279373 situated in Tuguegarao City, Cagayan (subject property). Petitioners
inherited the subject property from Anastacio Danao (Anastacio), who died intestate.4 During the
lifetime of Anastacio, he had allowed Consuelo Pauig (Consuelo), who was married to Joaquin
Boncad, to build on and occupy the southern portion of the subject property. Anastacio and
Consuelo agreed that the latter would vacate the said land at any time that Anastacio and his heirs
might need it.5

Petitioners claimed that respondents, Consuelo’s family members,6 continued to occupy the subject
property even after her death, already building their residences thereon using permanent materials.
Petitioners also learned that respondents were claiming ownership over the subject property.
Averring that they already needed it, petitioners demanded that respondents vacate the same.
Respondents, however, refused to heed petitioners’ demand.7

Petitioners referred their land dispute with respondents to the Lupong Tagapamayapa of Barangay
Annafunan West for conciliation. During the conciliation proceedings, respondents asserted that they
owned the subject property and presented documents ostensibly supporting their claim of
ownership.

According to petitioners, respondents’ documents were highly dubious, falsified, and incapable of
proving the latter’s claim of ownership over the subject property; nevertheless, they created a cloud
upon petitioners’ title to the property. Thus, petitioners were compelled to file before the RTC a
Complaint to remove such cloud from their title.8 Petitioners additionally sought in their Complaint an
award against respondents for actual damages, in the amount of ₱50,000.00, resulting from the
latter’s baseless claim over the subject property that did not actually belong to them, in violation of
Article 19 of the Civil Code on Human Relations.9 Petitioners likewise prayed for an award against
respondents for exemplary damages, in the amount of ₱50,000.00, since the latter had acted in bad
faith and resorted to unlawful means to establish their claim over the subject property. Finally,
petitioners asked to recover from respondents ₱50,000.00 as attorney’s fees, because the latter’s
refusal to vacate the property constrained petitioners to engage the services of a lawyer.10

Before respondents could file their answer, the RTC issued an Order dated 4 May 2007 dismissing
petitioners’ Complaint on the ground of lack of jurisdiction. The RTC referred to Republic Act No.
7691,11 amending Batas Pambansa Blg. 129, otherwise known as the Judiciary Reorganization Act
of 1980, which vests the RTC with jurisdiction over real actions, where the assessed value of the
property involved exceeds ₱20,000.00. It found that the subject property had a value of less than
₱20,000.00; hence, petitioners’ action to recover the same was outside the jurisdiction of the RTC.
The RTC decreed in its 4 May 2007 Order that:

The Court has no jurisdiction over the action, it being a real action involving a real property with
assessed value less than ₱20,000.00 and hereby dismisses the same without prejudice.12
Petitioners filed a Motion for Reconsideration of the aforementioned RTC Order dismissing their
Complaint. They argued that their principal cause of action was for quieting of title; the accion
reivindicacion was included merely to enable them to seek complete relief from respondents.
Petitioner’s Complaint should not have been dismissed, since Section 1, Rule 63 of the Rules of
Court13 states that an action to quiet title falls under the jurisdiction of the RTC.14

In an Order dated 30 May 2007, the RTC denied petitioners’ Motion for Reconsideration. It reasoned
that an action to quiet title is a real action. Pursuant to Republic Act No. 7691, it is the Municipal Trial
Court (MTC) that exercises exclusive jurisdiction over real actions where the assessed value of real
property does not exceed ₱20,000.00. Since the assessed value of subject property per Tax
Declaration No, 02-48386 was ₱410.00, the real action involving the same was outside the
jurisdiction of the RTC.15

Petitioners filed another pleading, simply designated as Motion, in which they prayed that the RTC
Orders dated 4 May 2007 and 30 May 2007, dismissing their Complaint, be set aside. They
reiterated their earlier argument that Section 1, Rule 63 of the Rules of Court states that an action to
quiet title falls under the exclusive jurisdiction of the RTC. They also contended that there was no
obstacle to their joining the two causes of action, i.e., quieting of title and reivindicacion, in a single
Complaint, citing Rumarate v. Hernandez.16 And even if the two causes of action could not be joined,
petitioners maintained that the misjoinder of said causes of action was not a ground for the dismissal
of their Complaint.17

The RTC issued an Order dated 31 October 2007 denying petitioners’ Motion. It clarified that their
Complaint was dismissed, not on the ground of misjoinder of causes of action, but for lack of
jurisdiction. The RTC dissected Section 1, Rule 63 of the Rules of Court, which provides:

Section 1. Who may file petition. Any person interested under a deed, will, contract or other written
instrument, or whose rights are affected by a statute, executive order or regulation, ordinance, or any
other governmental regulation may, before breach or violation thereof, bring an action in the
appropriate Regional Trial Court to determine any question of construction or validity arising, and for
a declaration of his rights or duties, thereunder.

An action for the reformation of an instrument, to quiet title to real property or remove clouds
therefrom, or to consolidate ownership under Article 1607 of the Civil Code, may be brought under
this Rule.

The RTC differentiated between the first and the second paragraphs of Section 1, Rule 63 of the
Rules of Court. The first paragraph refers to an action for declaratory relief, which should be brought
before the RTC. The second paragraph, however, refers to a different set of remedies, which
includes an action to quiet title to real property. The second paragraph must be read in relation to
Republic Act No. 7691, which vests the MTC with jurisdiction over real actions, where the assessed
value of the real property involved does not exceed ₱50,000.00 in Metro Manila and ₱20,000.00 in
all other places.18 The dispositive part of the 31 October 2007 Order of the RTC reads:

This Court maintains that an action to quiet title is a real action. [Herein petitioners] do not dispute
the assessed value of the property at ₱410.00 under Tax Declaration No. 02-48386. Hence, it has
no jurisdiction over the action.

In view of the foregoing considerations, the Motion is hereby denied.19

Hence, the present Petition, where petitioners raise the sole issue of:
 I

WHETHER OR NOT THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF DISCRETION

IN DISMISSING THE COMPLAINT OF THE PETITIONERS MOTU PROPRIO.20

Petitioners’ statement of the issue is misleading. It would seem that they are only challenging the
fact that their Complaint was dismissed by the RTC motu proprio. Based on the facts and arguments
set forth in the instant Petition, however, the Court determines that the fundamental issue for its
resolution is whether the RTC committed grave abuse of discretion in dismissing petitioners’
Complaint for lack of jurisdiction.

The Court rules in the negative.

An action for declaratory relief should be filed by a person interested under a deed, a will, a contract
or other written instrument, and whose rights are affected by a statute, an executive order, a
regulation or an ordinance. The relief sought under this remedy includes the interpretation and
determination of the validity of the written instrument and the judicial declaration of the parties’ rights
or duties thereunder.21

Petitions for declaratory relief are governed by Rule 63 of the Rules of Court. The RTC correctly
made a distinction between the first and the second paragraphs of Section 1, Rule 63 of the Rules of
Court.

The first paragraph of Section 1, Rule 63 of the Rules of Court, describes the general circumstances
in which a person may file a petition for declaratory relief, to wit:

Any person interested under a deed, will, contract or other written instrument, or whose rights are
affected by a statute, executive order or regulation, ordinance, or any other governmental regulation
may, before breach or violation thereof, bring an action in the appropriate Regional Trial Court to
determine any question of construction or validity arising, and for a declaration of his rights or duties,
thereunder. (Emphasis ours.)

As the afore-quoted provision states, a petition for declaratory relief under the first paragraph of
Section 1, Rule 63 may be brought before the appropriate RTC.

Section 1, Rule 63 of the Rules of Court further provides in its second paragraph that:

An action for the reformation of an instrument, to quiet title to real property or remove clouds
therefrom, or to consolidate ownership under Article 1607 of the Civil Code, may be brought under
this Rule. (Emphasis ours.)

The second paragraph of Section 1, Rule 63 of the Rules of Court specifically refers to (1) an action
for the reformation of an instrument, recognized under Articles 1359 to 1369 of the Civil Code; (2) an
action to quiet title, authorized by Articles 476 to 481 of the Civil Code; and (3) an action to
consolidate ownership required by Article 1607 of the Civil Code in a sale with a right to repurchase.
These three remedies are considered similar to declaratory relief because they also result in the
adjudication of the legal rights of the litigants, often without the need of execution to carry the
judgment into effect.22
To determine which court has jurisdiction over the actions identified in the second paragraph of
Section 1, Rule 63 of the Rules of Court, said provision must be read together with those of the
Judiciary Reorganization Act of 1980, as amended.

It is important to note that Section 1, Rule 63 of the Rules of Court does not categorically require that
an action to quiet title be filed before the RTC. It repeatedly uses the word "may" – that an action for
quieting of title "may be brought under [the] Rule" on petitions for declaratory relief, and a person
desiring to file a petition for declaratory relief "may x x x bring an action in the appropriate Regional
Trial Court." The use of the word "may" in a statute denotes that the provision is merely permissive
and indicates a mere possibility, an opportunity or an option.23

In contrast, the mandatory provision of the Judiciary Reorganization Act of 1980, as amended, uses
the word "shall" and explicitly requires the MTC to exercise exclusive original jurisdiction over all civil
actions which involve title to or possession of real property where the assessed value does not
exceed ₱20,000.00, thus:

Section 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit
Trial Courts in Civil Cases.—Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit
Trial Courts shall exercise:

xxxx

(3) Exclusive original jurisdiction in all civil actions which involve title to, possession of, real property,
or any interest therein where the assessed value of the property or interest therein does not exceed
Twenty thousand pesos (₱20,000.00) or, in civil actions in Metro Manila, where such assessed value
does not exceeds Fifty thousand pesos (₱50,000.00) exclusive of interest, damages of whatever
kind, attorney’s fees, litigation expenses and costs: x x x (Emphasis ours.)

As found by the RTC, the assessed value of the subject property as stated in Tax Declaration No.
02-48386 is only ₱410.00; therefore, petitioners’ Complaint involving title to and possession of the
said property is within the exclusive original jurisdiction of the MTC, not the RTC.

Furthermore, an action for declaratory relief presupposes that there has been no actual breach of
the instruments involved or of rights arising thereunder.24 Since the purpose of an action for
declaratory relief is to secure an authoritative statement of the rights and obligations of the parties
under a statute, deed, or contract for their guidance in the enforcement thereof, or compliance
therewith, and not to settle issues arising from an alleged breach thereof, it may be entertained only
before the breach or violation of the statute, deed, or contract to which it refers. A petition for
declaratory relief gives a practical remedy for ending controversies that have not reached the state
where another relief is immediately available; and supplies the need for a form of action that will set
controversies at rest before they lead to a repudiation of obligations, an invasion of rights, and a
commission of wrongs.25

Where the law or contract has already been contravened prior to the filing of an action for
declaratory relief, the courts can no longer assume jurisdiction over the action. In other words, a
court has no more jurisdiction over an action for declaratory relief if its subject has already been
infringed or transgressed before the institution of the action.26

In the present case, petitioners’ Complaint for quieting of title was filed after petitioners already
demanded and respondents refused to vacate the subject property. In fact, said Complaint was filed
only subsequent to the latter’s express claim of ownership over the subject property before the
Lupong Tagapamayapa, in direct challenge to petitioners’ title.
Since petitioners averred in the Complaint that they had already been deprived of the possession of
their property, the proper remedy for them is the filing of an accion publiciana or an accion
reivindicatoria, not a case for declaratory relief. An accion publiciana is a suit for the recovery of
possession, filed one year after the occurrence of the cause of action or from the unlawful
withholding of possession of the realty. An accion reivindicatoria is a suit that has for its object one’s
recovery of possession over the real property as owner.27 1avv phi 1

Petitioners’ Complaint contained sufficient allegations for an accion reivindicatoria. Jurisdiction over
such an action would depend on the value of the property involved. Given that the subject property
herein is valued only at ₱410.00, then the MTC, not the RTC, has jurisdiction over an action to
recover the same. The RTC, therefore, did not commit grave abuse of discretion in dismissing,
without prejudice, petitioners’ Complaint in Civil Case No. 6868 for lack of jurisdiction.

As for the RTC dismissing petitioners’ Complaint motu proprio, the following pronouncements of the
Court in Laresma v. Abellana28 proves instructive:

It is axiomatic that the nature of an action and the jurisdiction of a tribunal are determined by the
material allegations of the complaint and the law at the time the action was commenced. Jurisdiction
of the tribunal over the subject matter or nature of an action is conferred only by law and not by the
consent or waiver upon a court which, otherwise, would have no jurisdiction over the subject matter
or nature of an action. Lack of jurisdiction of the court over an action or the subject matter of an
action cannot be cured by the silence, acquiescence, or even by express consent of the parties. If
the court has no jurisdiction over the nature of an action, it may dismiss the same ex mero motu or
motu proprio. x x x. (Emphasis supplied.)

Since the RTC, in dismissing petitioners’ Complaint, acted in complete accord with law and
jurisprudence, it cannot be said to have done so with grave abuse of discretion amounting to lack or
excess of jurisdiction. An act of a court or tribunal may only be considered to have been committed
in grave abuse of discretion when the same was performed in a capricious or whimsical exercise of
judgment, which is equivalent to lack of jurisdiction. The abuse of discretion must be so patent and
gross as to amount to an evasion of a positive duty or to a virtual refusal to perform a duty enjoined
by law or to act at all in contemplation of law, as where the power is exercised in an arbitrary and
despotic manner by reason of passion or personal hostility.29 No such circumstances exist herein as
to justify the issuance of a writ of certiorari.

IN VIEW OF THE FOREGOING, the instant Petition is DISMISSED. The Orders dated 4 May 2007,
30 May 2007 and 31 October 2007 of the Regional Trial Court of Tuguegarao City, Branch 3,
dismissing the Complaint in Civil Case No. 6868, without prejudice, are AFFIRMED. The Regional
Trial Court is ordered to REMAND the records of this case to the Municipal Trial Court or the court of
proper jurisdiction for proper disposition. Costs against the petitioners.

SO ORDERED.
REFORMATION OF CONTRACT

G.R. No. 158901 March 9, 2004

PROCESO QUIROS and LEONARDA VILLEGAS, petitioners,

vs.
MARCELO ARJONA, TERESITA BALARBAR, JOSEPHINE ARJONA, and CONCHITA
ARJONA, respondents.

DECISION

YNARES-SANTIAGO, J.:

Assailed in this petition for review is the decision of the Court of Appeals in an action for the
execution/enforcement of amicable settlement between petitioners Proceso Quiros and Leonarda
Villegas and respondent Marcelo Arjona. Appellate court reversed the decision of the Regional Trial
Court of Dagupan City-Branch 44 and reinstated the decision of the Municipal Trial Court of San
Fabian-San Jacinto, Pangasinan.

On December 19, 1996, petitioners Proceso Quiros and Leonarda Villegas filed with the office of the
barangay captain of Labney, San Jacinto, Pangasinan, a complaint for recovery of ownership and
possession of a parcel of land located at Labney, San Jacinto, Pangasinan. Petitioners sought to
recover from their uncle Marcelo Arjona, one of the respondents herein, their lawful share of the
inheritance from their late grandmother Rosa Arjona Quiros alias Doza, the same to be segregated
from the following parcels of land:

a) A parcel of land (Lot 1, plan Psu-189983, L.R. Case No. D-614, LRC Record No. N-
22630), situated in the Barrio of Labney, Torud, Municipality of San Jacinto, Province of
Pangasinan x x x Containing an area of Forty Four Thousand Five Hundred and Twenty
(44,520) square meters, more or less, covered by Tax Decl. No. 607;

b) A parcel of Unirrig. riceland situated at Brgy. Labney, San Jacinto, San Jacinto,
Pangasinan with an area of 6450 sq. meters, more or less declared under Tax Decl. No.
2066 of the land records of San Jacinto, Pangasinan assessed at P2390.00 x x x;

c) A parcel of Unirrig. riceland situated at Brgy. Labney, San Jacinto, Pangasinan with an
area of 6450 sq. meters, more or less, declared under Tax Declaration No. 2047 of the land
records of San Jacinto, Pangasinan assessed at P1700.00 x x x

d) A parcel of Unirrig. riceland situated at Brgy. Labney, San Jacinto, Pangasinan assessed
at P5610.00 x x x;

e) A parcel of Cogon land situated at Brgy. Labney, San Jacinto, Pangasinan, with an area of
14133 sq. meters, more or less declared under Tax Declaration No. 14 of the land records of
San Jacinto, Pangasinan assessed at P2830.00 x x x.1

On January 5, 1997, an amicable settlement was reached between the parties. By reason thereof,
respondent Arjona executed a document denominated as "PAKNAAN" ("Agreement", in Pangasinan
dialect), which reads:
 AGREEMENT

I, MARCELO ARJONA, of legal age, resident of Barangay Sapang, Buho, Palayan City, Nueva
Ecija, have a land consisting of more or less one (1) hectare which I gave to Proceso Quiros and
Leonarda Villegas, this land was inherited by Doza that is why I am giving the said land to them for it
is in my name, I am affixing my signature on this document for this is our agreement besides there
are witnesses on the 5th day (Sunday) of January 1997.

Signed in the presence of:

(Sgd) Avelino N. De la Masa, Jr.

(Sgd) Marcelo Arjona

Witnesses:

1) (Sgd.) Teresita Balarbar

2) (Sgd.) Josephine Arjona

3) (Sgd.) Conchita Arjona

On the same date, another "PAKNAAN" was executed by Jose Banda, as follows:

AGREEMENT

I, JOSE BANDA, married to Cecilia L. Banda, of legal age, and resident of Sitio Torrod, Barangay
Labney, San Jacinto, Pangasinan. There is a land in which they entrusted to me and the same land
is situated in Sitio Torrod, Brgy. Labney, San Jacinto, Pangasinan, land of Arjona family.

I am cultivating/tilling this land but if ever Leonarda Villegas and Proceso Quiros would like to get
this land, I will voluntarily surrender it to them.

In order to attest to the veracity and truthfulness of this agreement, I affixed (sic) my signature
voluntarily below this document this 5th day (Sunday) of January 1997.

(Sgd.) Jose Banda

Signed in the presence of:

(Sgd) Avelino N. de la Masa, Sr.

Barangay Captain
Brgy. Labney, San Jacinto
Pangasinan

Witnesses:

1) Irene Banda
 (sgd.)
2) Jose (illegible) x x x

Petitioners filed a complaint with the Municipal Circuit Trial Court with prayer for the issuance of a
writ of execution of the compromise agreement which was denied because the subject property
cannot be determined with certainty.

The Regional Trial Court reversed the decision of the municipal court on appeal and ordered the
issuance of the writ of execution.

Respondents appealed to the Court of Appeals, which reversed the decision of the Regional Trial
Court and reinstated the decision of the Municipal Circuit Trial Court.2

Hence, this petition on the following errors:

THE PAKNAAN BEING A FINAL AND EXECUTORY JUDGMENT UNDER THE LAW IS AN
IMMUTABLE JUDGMENT CAN NOT BE ALTERED, MODIFIED OR CHANGED BY THE COURT
INCLUDING THE HIGHEST COURT; and

II

THE SECOND PAKNAAN ALLEGEDLY EXECUTED IN CONJUNCTION WITH THE FIRST

PAKNAAN WAS NEVER ADDUCED AS EVIDENCE BY EITHER OF THE PARTIES, SO IT IS
ERROR OF JURISDICTION TO CONSIDER THE SAME IN THE DECISION MAKING.

The pivotal issue is the validity and enforceability of the amicable settlement between the parties and
corollary to this, whether a writ of execution may issue on the basis thereof.

In support of their stance, petitioners rely on Section 416 of the Local Government Code which
provides that an amicable settlement shall have the force and effect of a final judgment upon the
expiration of 10 days from the date thereof, unless repudiated or nullified by the proper court. They
argue that since no such repudiation or action to nullify has been initiated, the municipal court has no
discretion but to execute the agreement which has become final and executory.

Petitioners likewise contend that despite the failure of the Paknaan to describe with certainty the
object of the contract, the evidence will show that after the execution of the agreement, respondent
Marcelo Arjona accompanied them to the actual site of the properties at Sitio Torod, Labney, San
Jacinto, Pangasinan and pointed to them the 1 hectare property referred to in the said agreement.

In their Comment, respondents insist that respondent Arjona could not have accompanied
petitioners to the subject land at Torrod, Labney because he was physically incapacitated and there
was no motorized vehicle to transport him to the said place.

The Civil Code contains salutary provisions that encourage and favor compromises and do not even
require judicial approval. Thus, under Article 2029 of the Civil Code, the courts must endeavor to
persuade the litigants in a civil case to agree upon some fair compromise. Pursuant to Article 2037
of the Civil Code, a compromise has upon the parties the effect and authority of res judicata, and this
is true even if the compromise is not judicially approved. Articles 2039 and 2031 thereof also provide
for the suspension of pending actions and mitigation of damages to the losing party who has shown
a sincere desire for a compromise, in keeping with the Code’s policy of encouraging amicable
settlements.3

Cognizant of the beneficial effects of amicable settlements, the Katarungang Pambarangay Law
(P.D. 1508) and later the Local Government Code provide for a mechanism for conciliation where
party-litigants can enter into an agreement in the barangay level to reduce the deterioration of the
quality of justice due to indiscriminate filing of court cases. Thus, under Section 416 of the said
Code, an amicable settlement shall have the force and effect of a final judgment of the court upon
the expiration of 10 days from the date thereof, unless repudiation of the settlement has been made
or a petition to nullify the award has been filed before the proper court

Petitioners submit that since the amicable settlement had not been repudiated or impugned before
the court within the 10-day prescriptive period in accordance with Section 416 of the Local
Government Code, the enforcement of the same must be done as a matter of course and a writ of
execution must accordingly be issued by the court.

Generally, the rule is that where no repudiation was made during the 10-day period, the amicable
settlement attains the status of finality and it becomes the ministerial duty of the court to implement
and enforce it. However, such rule is not inflexible for it admits of certain exceptions. In Santos v.
Judge Isidro,4 the Court observed that special and exceptional circumstances, the imperatives of
substantial justice, or facts that may have transpired after the finality of judgment which would render
its execution unjust, may warrant the suspension of execution of a decision that has become final
and executory. In the case at bar, the ends of justice would be frustrated if a writ of execution is
issued considering the uncertainty of the object of the agreement. To do so would open the
possibility of error and future litigations.

The Paknaan executed by respondent Marcelo Arjona purports to convey a parcel of land consisting
of more or less 1 hectare to petitioners Quiros and Villegas. Another Paknaan, prepared on the
same date, and executed by one Jose Banda who signified his intention to vacate the parcel of land
he was tilling located at Torrod, Brgy. Labney, San Jacinto, Pangasinan, for and in behalf of the
Arjona family. On ocular inspection however, the municipal trial court found that the land referred to
in the second Paknaan was different from the land being occupied by petitioners. Hence, no writ of
execution could be issued for failure to determine with certainty what parcel of land respondent
intended to convey.

In denying the issuance of the writ of execution, the appellate court ruled that the contract is null and
void for its failure to describe with certainty the object thereof. While we agree that no writ of
execution may issue, we take exception to the appellate court’s reason for its denial.

Since an amicable settlement, which partakes of the nature of a contract, is subject to the same
legal provisions providing for the validity, enforcement, rescission or annulment of ordinary contracts,
there is a need to ascertain whether the Paknaan in question has sufficiently complied with the
requisites of validity in accordance with Article 1318 of the Civil Code.5

There is no question that there was meeting of the minds between the contracting parties. In
executing the Paknaan, the respondent undertook to convey 1 hectare of land to petitioners who
accepted. It appears that while the Paknaan was prepared and signed by respondent Arjona,
petitioners acceded to the terms thereof by not disputing its contents and are in fact now seeking its
enforcement. The object is a 1-hectare parcel of land representing petitioners’ inheritance from their
deceased grandmother. The cause of the contract is the delivery of petitioners’ share in the
inheritance. The inability of the municipal court to identify the exact location of the inherited property
did not negate the principal object of the contract. This is an error occasioned by the failure of the
parties to describe the subject property, which is correctible by reformation and does not indicate the
absence of the principal object as to render the contract void. It cannot be disputed that the object is
determinable as to its kind, i.e.1 hectare of land as inheritance, and can be determined without need
of a new contract or agreement.6 Clearly, the Paknaan has all the earmarks of a valid contract.

Although both parties agreed to transfer one-hectare real property, they failed to include in the
written document a sufficient description of the property to convey. This error is not one for
nullification of the instrument but only for reformation.

Article 1359 of the Civil Code provides:

When, there having been a meeting of the minds of the parties to a contract, their true intention is
not expressed in the instrument purporting to embody the agreement by reason of mistake, fraud,
inequitable conduct or accident, one of the parties may ask for the reformation of the instrument to
the end that such true intention may be expressed.

If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the
parties, the proper remedy is not reformation of the instrument but annulment of the contract.

Reformation is a remedy in equity whereby a written instrument is made or construed so as to

express or conform to the real intention of the parties where some error or mistake has been
committed.7 In granting reformation, the remedy in equity is not making a new contract for the
parties, but establishing and perpetuating the real contract between the parties which, under the
technical rules of law, could not be enforced but for such reformation.

In order that an action for reformation of instrument as provided in Article 1359 of the Civil Code may
prosper, the following requisites must concur: (1) there must have been a meeting of the minds of
the parties to the contract; (2) the instrument does not express the true intention of the parties; and
(3) the failure of the instrument to express the true intention of the parties is due to mistake, fraud,
inequitable conduct or accident.8

When the terms of an agreement have been reduced to writing, it is considered as containing all the
terms agreed upon and there can be, between the parties and their successors in interest, no
evidence of such terms other than the contents of the written agreement, except when it fails to
express the true intent and agreement of the parties thereto, in which case, one of the parties may
bring an action for the reformation of the instrument to the end that such true intention may be
expressed.9

Both parties acknowledge that petitioners are entitled to their inheritance, hence, the remedy of
nullification, which invalidates the Paknaan, would prejudice petitioners and deprive them of their just
share of the inheritance. Respondent can not, as an afterthought, be allowed to renege on his legal
obligation to transfer the property to its rightful heirs. A refusal to reform the Paknaan under such
circumstances would have the effect of penalizing one party for negligent conduct, and at the same
time permitting the other party to escape the consequences of his negligence and profit thereby. No
person shall be unjustly enriched at the expense of another.

WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision dated March 21, 2003
of the Court of Appeals, which reversed the decision of the Regional Trial Court and reinstated the
decision of the Municipal Trial Court, is AFFIRMED. This is without prejudice to the filing by either
party of an action for reformation of the Paknaan executed on January 5, 1997.

SO ORDERED.
G.R. No. 157439 July 4, 2007

MULTI-VENTURES CAPITAL and MANAGEMENT CORPORATION, Petitioner.

vs.
STALWART MANAGEMENT SERVICES CORPORATION, MARIAN G. TAJO, CESAR TAJO and
ARIANA GALANG, Respondents*

DECISION

AUSTRIA-MARTINEZ, J.:

The sole issue in this case is whether the contract entered into by Multi-Ventures Capital and
Management Corporation (petitioner) and Stalwart Management Services Corporation (respondent)
is one of loan or sale.

The facts are as follows:

On July 10, 1991, Multi-Ventures Capital and Management Corporation filed with the Regional Trial
Court (RTC) of Makati, Branch 134, a Complaint for Reformation of Instrument with application for
attachment against Stalwart Management Services Corporation and its officers. Petitioner alleged
that on January 11, 1991, respondent obtained from the former a loan in the amount of
₱9,000,000.00, with interest, but for purposes of expediency, said transaction was denominated as a
sale whereby petitioner bought from respondent various Land Bank bonds originally valued at
₱11,557,972.60 at discounted price, as shown in a Confirmation of Agreement; that the bonds serve
as a partial collateral for the payment of the loan; that respondent and some of its officers, however,
have plans of defrauding their creditors by absconding and disposing of its properties, thus
constraining petitioner to file the complaint for reformation in order to express the true intent of the
parties, i.e., that the ostensible sale of the bonds is actually a loan agreement.1

Respondent, together with its co-defendants, filed an Answer denying petitioner's allegations and
claiming, among others, that both petitioner and respondent are companies engaged in dealing and
trading government securities. According to respondent, the transaction entered into on January 11,
1991 is really a purchase of Land Bank bonds, and there is no mistake, fraud, inequitable conduct or
accident in the preparation of the true agreement of the parties such that reformation is called for.2

After trial on the merits, the RTC rendered a Decision dated May 11, 1995, in favor of petitioner. The
dispositive portion of the RTC Decision reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant:

1. These instruments subject matter of this case are hereby ordered REFORMED as
Contract of Loan and not a Contract of Sale.

2. To order the defendants, jointly and severally, to pay the plaintiff the sum of
₱11,557,972.60 PESOS from June 11, 1992 as the date of maturity plus legal interest until
fully paid;

3. To order defendants, jointly and severally, to pay the plaintiff the sum of ₱100,000.00
PESOS by way of attorney’s fees;

4. Ordering the dismissal of defendants’ counter-claim for being devoid of legal merit; and
 5. To order defendants' jointly and severally, to pay the costs of suit.

SO ORDERED.3

Dissatisfied, respondent and its officers appealed to the Court of Appeals (CA). In a Decision dated
February 24, 2003,4 the CA sustained respondent’s position that the transaction was, in fact, a sale;
reversed the RTC Decision; and dismissed petitioner’s complaint and respondent’s counterclaim.

Hence, the present Petition for Review on Certiorari predicated on the following grounds:

A. THAT DUE TO MISAPPRECIATION OF FACTS AND EVIDENCE, THE COURT OF

APPEALS ERRED IN REVERSING THE COURT A QUO'S DECISION AND IN NOT
DECLARING THAT THE INTENDED AND TRUE TRANSACTION AGREED UPON AND
ENTERED INTO BETWEEN MULTI-VENTURES AND STALWART WAS THAT OF LOAN,
NOT SALE OF LAND BANK BONDS.

B. THAT THE COURT OF APPEALS ERRED IN NOT ORDERING THE REFORMATION

OF THE INSTRUMENT OSTENSIBLY APPEARING AS A PURCHASE AND SALE WITH
THE RIGHT TO REPURCHASE LAND BANK BONDS SO AS TO REFLECT THE TRUE
INTENTION AND AGREEMENT OF PARTIES THAT THE TRANSACTION WAS THAT OF
LOAN OF P9 MILLION PAYABLE FOR A PERIOD OF ONE (1) YEAR, JANUARY 11, 1992
IN THE AMOUNT OF ₱11,537,972.60 INCLUSIVE OF INTEREST.5

Ordinarily, the Court will not dwell on the issues raised in this petition as it pertains to questions of
fact, and under Rule 45 of the Rules of Court, only questions of law may be raised, the reason being
that this Court is not a trier of facts, and it is not for this Court to re-examine and re-evaluate the
evidence on record.6 Considering, however, that the CA and the RTC came up with divergent
findings regarding the real nature of the transaction in question, the Court is now constrained to
review the evidence on record so as to resolve the conflict.7

After a careful examination of the evidence on record, the Court sustains the CA’s ruling that the
transaction between the parties was one of sale and not of loan.

An action for reformation of an instrument finds ground in Article 1359 of the Civil Code, which
provides:

ARTICLE 1359. When, there having been a meeting of the minds of the parties to a contract, their
true intention is not expressed in the instrument purporting to embody the agreement, by reason of
mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the
instrument to the end that such true intention may be expressed.

xxxx

Reformation is a remedy in equity, whereby a written instrument is made or construed so as to

express or conform to the real intention of the parties, where some error or mistake has been
committed. In granting reformation, the remedy in equity is not making a new contract for the parties,
but establishing and perpetuating the real contract between the parties which, under the technical
rules of law, could not be enforced but for such reformation.8

In order that an action for reformation of instrument may prosper, the following requisites must
concur: (1) there must have been a meeting of the minds of the parties to the contract; (2) the
instrument does not express the true intention of the parties; and (3) the failure of the instrument to
express the true intention of the parties is due to mistake, fraud, inequitable conduct or accident.9

In the present case, there is no question that there was a meeting of the minds between the parties.
What remains to be resolved is whether the contract expressed their true intention; and, if not,
whether it was due to mistake, fraud, inequitable conduct or accident.

While intentions involve a state of mind which may sometimes be difficult to decipher, subsequent
and contemporaneous acts of the parties as well as the evidentiary facts as proved and admitted
can be reflective of one’s intention.10

The onus probandi is upon the party who insists that the contract should be reformed.11 Moreover,
the presumption is that an instrument sets out the true agreement of the parties thereto and that it
was executed for valuable consideration.12 Unfortunately, petitioner was not able to overturn the
presumption of validity of the contract and it also failed to discharge the burden of proving that the
true intention of the parties has not been expressed.

In support of its contention that the transaction is one of loan, petitioner relies principally on the letter
dated January 11, 1991, wherein respondent offered to purchase on January 10, 1992 the Land
Bank bonds from petitioner for the total amount of ₱11,557,972.60.13 According to petitioner, the
amount borrowed by respondent was ₱9,000,000.00, with interest, or a total of ₱11,557,972.60,
payable within one year.14 Petitioner insists that the buy-back letter proves that the transaction was
indeed a loan, for if it was a sale, why would respondent buy back the bonds in the same amount
that was payable under their alleged loan agreement?15

There is nothing on record, as well as in the buy-back letter, that clearly and convincingly proves or
substantiates petitioner’s contention that the real intent of the parties was to enter into a loan
agreement for the amount of ₱11,557,972.60, inclusive of interest. In fact, respondent’s buy-back
letter supports the finding that the agreement entered into by the parties was a sale transaction. For
if the bonds were only to serve as a collateral for the loan, why would respondent offer to buy them
back from petitioner if they were not sold in the first place? Obviously, ownership of the bonds had
been transferred from respondent to petitioner on January 11, 1991; for if it were not so and the
bonds were merely being held by petitioner as a security for the payment of the alleged loan, then
ownership would have remained with respondent and there would have been no need to buy it back.

The Court agrees with and adopts the findings of the CA, thus:

The lower court, and the appellee, advance that it was highly improbable that plaintiff would really
purchase the Land Bank bonds for 9 million pesos, when it would have called for only 6.5 million
pesos if sold in the market. Aside from such self-serving statements, however, there is no direct or
substantial proof that the bonds would have demanded a lower actual price when it was sold. In any
case, poor business decisions are not adequate grounds to nullify the effects of a contract entered
into in the course of business operations. x x x

Furthermore, the fact that the Confirmation of Agreement (Exhibit "1") and offer to purchase by
defendants (Exhibit "B") were executed simultaneously and delivered to the plaintiff, is not
inconsistent with the conclusion that the contract between the parties was truly a Sale. In order to
hold that the parties' agreement was really a loan, more concrete and convincing evidence must be
produced. x x x16

In addition, and more significantly, what militates against petitioner’s argument that their agreement
was a loan is the fact that subsequent thereto, petitioner endorsed and transferred the bonds to the
AFP Mutual Benefits Association, Inc., as collateral for an investment. Petitioner did not rebut or at
the very least, offer a plausible explanation for said transfer which is unmistakably an act of
ownership. It sufficiently established the CA finding that the transaction is one of sale, thus:

Aside from Exhibit "1", evidence on record, particularly Exhibits "8" to "9" show that the bonds were
indeed delivered to the plaintiff pursuant to the Contract of Sale. Furthermore, almost immediately
after taking possession of the subject bonds, plaintiff corporation through its Vice-President
and incorporator, Natividad Aureola, endorsed and transferred the same to the AFP Mutual
Benefits Association, Inc., as collateral for an investment made by the latter. Such1avvphi1

endorsement and transfer, to our mind, amount to an act of ownership, which can only be
made by one who owns a certain property, and not by one who holds a property only as
security for loan. Defendants' position that it had sold the bonds to the plaintiff pursuant to Exhibit
"1" is thus fortified. 17

Finally, petitioner failed to show that mistake, fraud, inequitable conduct or accident attended the
execution of the agreement such that their true intention was not reflected. As admitted by petitioner,
the parties agreed to execute a purchase and sale agreement "for purposes of expediency and
convenience."18 Expediency and convenience, however, are not grounds for the reformation of an
instrument. As such, absent any proof of mistake, fraud, inequitable conduct or accident, the
Confirmation of Agreement dated January 11, 1991 remains the best evidence to ascertain the real
intent of the parties.

The transaction of sale entered into by the parties on January 11, 1991 is accurately expressed in
the Confirmation of Agreement. Petitioner, therefore, has no cause of action for its reformation.

WHEREFORE, the petition is DENIED for lack of merit.

Costs against petitioner.

SO ORDERED.

G.R. No. 181855 March 30, 2010

FLORDELIZA EMILIO, Petitioner,

vs.
BILMA RAPAL, Respondent.

DECISION

CARPIO MORALES, J.:

Flordeliza Emilio (petitioner), by virtue of a grant from the National Housing Authority (NHA), became
the registered owner of a parcel of land with an area of 196 square meters (sq. m.) situated in
Caloocan City and covered by TCT No. C-345262 whereon she built a house which occupied an
area of 27 sq. m.
Since 1989, Bilma Rapal (respondent) had been leasing a portion of the house. In 1993, she leased
an adjoining room in the house.

In early 1996, petitioner borrowed ₱10,000 from respondent. By petitioner’s claim, she accepted
respondent’s offer to extend her an additional ₱60,000.00 loan upon the condition that respondent
would not pay the monthly rentals from February 1996 until December 1998, as the total amount of
₱70,000.00 would serve as advance rentals.

Atty. Patricio Balao-Ga (Atty. Balao-Ga) of the Public Attorney’s Office (PAO) notarized a document
entitled "Sale and Transfer of Rights over a Portion of a Parcel of Land"1 executed by petitioner
whereby she sold to respondent 27 sq. m. of her lot, together with the house constructed thereon, for
a consideration of ₱90,000.00.

Petitioner was later to claim that she signed the deed, without its contents having been explained to
her. She thus filed a complaint2 on July 11, 2002 with the Regional Trial Court (RTC) of Caloocan,
for reformation of document, docketed as Civil Case No. C-20148, alleging that the deed of sale and
transfer must be reformed, there being no intention on her part to sell the property as she could not
do so without the consent of the NHA.

Respondent moved to dismiss the complaint on the ground of lack of cause of action and
prescription, averring that while the complaint was denominated as one for reformation of document,
it was actually one for annulment of contract which was executed on February 2, 1996, hence, the
action had prescribed when it was filed on July 11, 2002.

Respondent’s motion was denied, and as the Answer filed by respondent was found to have been
filed way out of time, Branch 131 of the

RTC granted petitioner’s motion to declare respondent in default, and to allow her to, as she did,
present evidence ex parte.3

By Decision4 of January 26, 2005, the trial court ruled in favor of petitioner, declaring that the deed of
sale is null and void as it did not reflect the true intention of the parties, the intention being one of
loan.

On respondent’s appeal, the Court of Appeals, by Decision5 of September 27, 2007, reversed the
decision of the trial court. The appellate court held that while petitioner’s cause of action is one for
reformation of instrument and, as such, it had not yet prescribed, she failed to discharge the burden
of proving that fraud attended the execution of the deed to warrant its reformation.

The appellate court brushed aside petitioner’s claim that she did not understand the contents of the
deed, absent proof that she does not know how to read or that the deed was written in a language
not known to her. 1avv phi 1

Petitioner timely filed a motion for reconsideration of the appellate court’s decision to which she
attached a Motion to Admit an October 16, 2007 "Sinumpaang Salaysay"6 executed by her daughter
Armi Munsayac. In said affidavit, Armi stated that, from what she knows, her mother was not able to
finish her elementary school studies and could not fully understand English; and that, also from what
she knows, her mother did not sell the property to respondent.

Petitioner’s motion was denied by Resolution7 of February 27, 2008, hence, the present petition for
review on certiorari.
Respondent disputes petitioner’s claim that petitioner did not understand the contents of the deed,
given that in her (petitioner’s) pleadings which are in English, petitioner stated under oath that she
read and understood the same; and that petitioner testified in court in English as borne by the
Transcript of Stenographic Notes, and her request/demand letters dated September 6, 2004 and
November 4, 2004 addressed to the Barangay Captain were also written in English.8

The petition fails.

For an action for reformation of instrument to prosper, the following requisites must concur: (1) there
must have been a meeting of the minds of the parties to the contract; (2) the instrument does not
express the true intention of the parties; and (3) the failure of the instrument to express the true
intention of the parties is due to mistake, fraud, inequitable conduct or accident.9

Petitioner having admitted the existence and execution of the instrument, what remains to be
resolved is whether the contract expressed the true intention of the parties; if not, whether it was due
to mistake, fraud, inequitable conduct or accident. The onus probandi is upon the party who insists
that the contract should be reformed.10

Notarized documents, like the deed in question, enjoy the presumption of regularity which can be
overturned only by clear, convincing and more than merely preponderant evidence. This petitioner
failed to discharge.11

The October 16, 2007 "Sinumpaang Salaysay" of petitioner’s daughter, which was submitted only
when petitioner was moving for reconsideration of the appellate court’s decision and, therefore, not
procedurally in order, does not convince. In any event, it is clearly hearsay as the affiant’s "what I
know" statements indicate.

Petitioner could have presented PAO lawyer-notary public Atty. Balao-Ga or the witnesses to the
deed, but she failed to do so. Atty. Balao-Ga, in fact, in a Certification12 dated April 28, 2006, stated
that the deed was one of sale, not a real estate mortgage.

WHEREFORE, the petition is DENIED.

SO ORDERED.

G.R. No. 123643 October 30, 1996

PHILIPPINE NATIONAL BANK, petitioner,

vs.
COURT OF APPEALS and DR. ERLINDA G. IBARROLA, respondents.

RESOLUTION
FRANCISCO, J.:p

As payments for the purchase of medicines, the Province of Isabela issued several checks
drawn against its account with petitioner Philippine National Bank (PNB) in favor of the seller,
Lyndon Pharmaceuticals Laboratories, a business operated by private respondent Ibarrola.
The checks were delivered to the seller's agents 1 who turned them over to Ibarrola, except
23 checks amounting to P98,691.90, which the agents appropriated after negotiating them
with PNB. For her failure to receive the full payment for the medicines, Ibarrola filed on
November 6, 1974 before the Regional Trial Court (RTC) an "action for a sum of money and
damages," docketed as Civil Case 4226-p, 2 against the Province of Isabela, its Treasurer,
the two agents and PNB.

In its decision dated September 29, 1987, the trial court ordered all the defendants in said
civil case, except the treasurer who died in the meantime, to "jointly and solidarily" pay
Ibarrola several amounts, among which is:

(1) P98,691.90 with interest thereon at the legal rate from the date of the filing of the
complaint until the entire amount is fully paid; 3 (Emphasis supplied.)

PNB's appeal to the Court of Appeals (CA) 4 and later to the Supreme Court 5 were denied
and dismissed, respectively. All the three courts, however, did not specify whether the legal
rate of interest referred to in the judgment is 6% or 12%. The judgment in Civil Case 4226-P
became final and executory on November 26, 1993. At the execution stage, the sheriff
computed the interest mentioned in the judgment at the rate of 12% which PNB opposed
insisting that the rate should only be 6%. Ibarrola sought clarification from the same RTC
which promulgated the decision. On August 4, 1994 said court issued an order clarifying that
the rate is 12%. PNB's direct appeal to this court from that order was referred to the CA
which affirmed the RTC order. Hence, this petition for review under Rule 45 where two legal
issues are raised: (1) whether in an action for damages, the legal rate of interest is 6% as
provided by Article 2209 6 of the New Civil Code or 12% as provided by CB Circular 416
series of 1974, 7 and (2) whether such rate shall be computed from the filing of the complaint
until fully paid?

The issues are not new. In the case of Estern Shipping Lines, Inc. v.
CA, 8 this Court had provided a rule "of thumb for future guidance," 9 to wit:

When an obligation, not constituting a loan or forbearance of money, is breached, an

interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be
so reasonably established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case,
be on the amount finally adjudged. 10 (Emphasis ours.)

The case at bench does not involve a loan, forbearance of money or judgment involving a
loan or forbearance of money as it arose from a contract of sale whereby Ibarrola did not
receive full payment for her merchandise. When an obligation arises "from a contract of
 purchase and sale and not from a contract of loan or mutuum," the applicable rate is "6% per
annum as provided in Article 2209 of the NCC and not the rate of 12% per annum as
provided in (CB) Cir. No. 416." 11 Indeed, PNB's liability is based only on the RTC's judgment
where it was held solidarily liable with the other defendants due to its negligence when it
"failed to assure itself" if the Provincial Treasurer was "properly authorized" by Ibarrola to
"make endorsements" of said checks. 12

The rate of 12% interest referred to in Cir. 416 applies only to:

[L]oan or forbearance of money, or to cases where money is transferred from one

person to another and the obligation to return the same or a portion thereof is
adjudged. Any other monetary judgment which does not involve or which has nothing
to do with loans or forbearance of any money, goods or credit does not fall within its
coverage for such imposition is not within the ambit of the authority granted to the
Central Bank. When an obligation not constituting a loan or forbearance of money is
breached then an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum in accordance with Art. 2209
of the Civil Code. Indeed, the monetary judgment in favor of private respondent does
not involve a loan or forbearance of money, hence the proper imposable rate of
interest is six (6%) per cent. 13 (Emphasis ours.)

Applying the aforequoted rule, therefore, the proper rate of interest referred to in the
judgment under execution is only 6%. This interest according to Eastern Shipping shall be
computed from the time of the filing of the complaint considering that the amount adjudged
(P98,691.90) can be established with reasonable certainty. Said amount being merely the
uncollected balance of the purchase price covered by the 23 checks encashed and
appropriated by Ibarrola's agents. However, once the judgment becomes final and
executory, the "interim period from the finality of judgment awarding a monetary claim and
until payment thereof, is deemed to be equivalent to a forbearance of credit." 14 Thus, in
accordance with the pronouncement in Eastern Shipping the rate of 12% p.a. should be
imposed, and to be computed from the time the judgment became final and executory until
fully satisfied. The actual base for the computation of this 12% interest after the judgment in
this damage suit became final shall be the amount adjudged (P98,691.90).

ACCORDINGLY, the appealed decision is REVERSED. The rate of interest shall be 6% p.a.
computed from the time of the filing of the complaint until its full payment before finality of
judgment. Thereafter, if the amount adjudged remains unpaid, the interest rate shall be 12%
p.a. computed from the time the judgment became final and executory on November 26,
1993 until fully satisfied.

SO ORDERED.

G.R. No. 159048 October 11, 2005

BENNY GO, Petitioner,
vs.
ELIODORO BACARON, Respondent.

DECISION

PANGANIBAN, J.:

he present Contract, which purports to be an absolute deed of sale, should be deemed an equitable
mortgage for the following reasons: (1) the consideration has been proven to be unusually
inadequate; (2) the supposed vendor has remained in possession of the property even after the
execution of the instrument; and (3) the alleged seller has continued to pay the real estate taxes on
the property.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to set aside the
October 17, 2002 Decision2 and the May 20, 2003 Resolution3 of the Court of Appeals (CA) in CA-
GR CV No. 67218. The assailed Decision disposed as follows:

"WHEREFORE, premises considered, the Decision dated February 24, 2000 of the Regional Trial
Court of Davao City, Branch 12, in Civil Case No. 25,101-97 is hereby REVERSED and SET
ASIDE and a new one is hereby rendered ordering the reformation of the subject instrument, such
that the same must be considered a mortgage contract and not a transfer of right. Costs against
[petitioner]."4

The assailed Resolution denied Reconsideration.

The Facts

The antecedents are narrated by the CA as follows:

"As evidenced by the Transfer of Rights dated October 1, 1993, Eliodoro Bacaron conveyed a
15.3955-hectare parcel of land located in Langub, Talomo, Davao City, in favor of Benny Go for
₱20,000.00.

"About a year thereafter, Bacaron, seeking to recover his property, went to Go to pay his alleged
₱20,000.00 ‘loan’ but the latter refused to receive the same and to return his property saying that the
transaction between the two of them was a sale and not a mortgage as claimed by Bacaron.

"Consequently, on March 5, 1997, Eliodoro Bacaron, as plaintiff [herein respondent], filed

a Complaint for Reformation of Instrument with Damages and prayer for the issuance of a writ of
preliminary injunction, with the Regional Trial Court of Davao City, Branch 12, against the [petitioner]
Benny Go, which case was docketed as Civil Case No. 25,101-97.

"In his Complaint, [respondent] alleged that in the middle part of 1993, he suffered business
reversals which prompted him, being in urgent need of funds, to borrow ₱20,000.00 from the
[petitioner]. He however averred that prior to extending said loan to him, the [petitioner] required him
to execute a document purporting to be a Transfer of Rights but was told that the same would only
be a formality as he could redeem the unregistered land the moment he pays the loan. Admitting
that he signed the instrument despite knowing that the same did not express the true intention of the
parties’ agreement, i.e., that the transaction was a mere equitable mortgage, the [respondent]
explained that he did so only because he was in a very tight financial situation and because he was
assured by the [petitioner] that he could redeem his property. To support this claim, [respondent]
stressed the fact that the consideration in the instrument was merely ₱20,000.00, which is grossly
inadequate as the selling price of a 15-hectare land considering that, at that time, the market value
of land in Davao City amounts to ₱100,000.00 per hectare. [Respondent] narrated that a year
thereafter, or in a middle part of 1994, he was able to raise the ₱20,000.00 and went to the
[petitioner] to pay his loan but the latter refused to accept his payment, insisting that the transaction
entered into by the parties was not an equitable mortgage, as the [respondent] insists, but a real
transfer of right over the property. Because of said refusal, [respondent] continued, he was
compelled to refer the matter to his lawyer in order to request the [petitioner] to accept his payment
otherwise he would file the necessary action in court. Despite said formal demand by the
[respondent], however, [petitioner] allegedly continued to refuse to recognize the ‘equitable
mortgage’, prompting [respondent] to consign the ₱20,000.00 with the Clerk of Court of the RTC of
Davao City, Branch 12. He thus insisted that it is [petitioner] who is ‘dead wrong’ in not recognizing
the equitable mortgage since, aside from the fact that the consideration was unusually inadequate,
[respondent] allegedly remained in possession of the property.

"[Respondent] thus prayed for an award for moral damages, in view of the [petitioner’s] evident bad
faith in refusing to recognize the equitable mortgage, and for attorney’s fees as [petitioner’s] alleged
stubbornness compelled him to engage the services of counsel. He likewise sought an award for
exemplary damages to deter others from committing similar acts and at the same time asked the
court to issue a writ of preliminary injunction and/or temporary restraining order to prevent [petitioner]
from dispossessing [respondent] of the subject property or from disposing of the same in favor of
third parties as these acts would certainly work injustice for and cause irreparable damage to the
[respondent]. The prayer for the issuance of a restraining order was however denied by the court in
an Order.

"[Petitioner] filed his Answer on May 5, 1997, denying [respondent’s] claim that the transaction was
only an equitable mortgage and not an actual transfer of right. He asserted that the truth of the
matter was that when [respondent] suffered business reverses, his accounts with the [petitioner], as
evidenced by postdated checks, cash vouchers and promissory notes, remained unpaid and his total
indebtedness, exclusive of interests, amounted to ₱985,423.70. [Petitioner] further averred that, in
order to avoid the filing of cases against him, [respondent] offered to pay his indebtedness
through dacion en pago, giving the land in question as full payment thereof. In addition, he stressed
that considering that the property is still untitled and the [respondent] bought the same from one
Meliton Bacarro for only ₱50,000.00, it is most unreasonable for him to agree to accept said land in
exchange for over a million pesos of indebtedness. He claimed though that he was only forced to do
so when [respondent] told him that if he did not accept the offer, other creditors would grab the
same.

"By way of affirmative defenses, the [petitioner] pointed out that [respondent] has no cause of action
against him as the [respondent] failed to comply with the essential requisites for an action for
reformation of instrument. He moreover alleged that the [respondent] is in estoppel because, by his
own admission, he signed the document knowing that the same did not express the true intention of
the parties. Further, [petitioner] claimed that there was a valid transfer of the property herein since
the consideration is not only the actual amount written in the instrument but it also includes the
outstanding obligation of [respondent] to the [petitioner] amounting to almost ₱1 million.

"As counterclaim, [petitioner] averred that, because of this baseless complaint, he suffered mental
anguish, wounded feelings and besmirched reputation, entitling him to moral damages amounting to
₱20,000.00, and that in order to deter others from doing similar acts, exemplary damages amounting
to ₱20,000.00 should likewise be awarded in his favor. [Petitioner] also prayed for attorney’s fees
and litigation expenses claiming that, because he was constrained to litigate, he was forced to hire
the services of counsel.

xxxxxxxxx

"Trial ensued and thereafter the trial court rendered its Decision dated February 24, 2000
dismissing the complaint while finding the [petitioner’s] counterclaim meritorious. In making said
ruling, the lower court, citing Article 1350 (should be 1359) of the New Civil Code, found that
[respondent] failed to establish the existence of all the requisites for an action for reformation by
clear, convincing and competent evidence. Considering [respondent’s] own testimony that he read
the document and fully understood the same, signing it without making any complaints to his lawyer,
the trial court held that the evidence on record shows that the subject instrument had been freely
and voluntarily entered into by the parties and that the same expresses the true intention of the
parties. The court further noted that the [respondent’s] wife even signed the document and that the
same had been duly acknowledged by the parties before a notary public as their ‘true act and
voluntary deed.’

"The trial court likewise observed that, contrary to [respondent’s] claim that the transaction was a
mere mortgage of the property, the terms of the instrument are clear and unequivocable that the
property subject of the document was ‘sold, transferred, ceded and conveyed’ to the [petitioner] ‘by
way of absolute sale,’ and hence, no extrinsic aids are necessary to ascertain the intention of the
parties as the same is determinable from the document itself. Moreover, said court emphasized that
considering the fact that [respondent] is an educated person, having studied in an exclusive school
like Ateneo de Davao, and an experienced businessman, he is presumed to have acted with due
care and to have signed the instrument with full knowledge of its contents and import.
[Respondent’s] claim that he merely borrowed money from the [petitioner] and mortgaged the
property subject of litigation to guarantee said loan was thus found to be specious by the court,
which found that the [respondent] was actually indebted to the [petitioner] for almost a million pesos
and that the true consideration of the sale was in fact said outstanding obligation.

"With respect to [respondent’s] alleged possession of the property and payment of real estate taxes,
both of which were relied upon by the [respondent] to boost his assertion that the transaction was
merely an equitable mortgage, the trial court said that his claim of possession is belied by the fact
that the actual occupants of the property recognize that the [petitioner] owns the same and in fact
said occupants prevented [respondent’s] wife from entering the premises. The court, noting that the
[petitioner] also paid the realty taxes, was also of the opinion that [respondent] merely made such
payments in order to lay the basis of his allegation that the contract was a mere equitable mortgage.

"Accordingly, the court held that [respondent] is also not entitled to his other claims and that his
unfounded action caused [petitioner] to an award for moral damages, in addition to the expenses he
incurred in defending his cause, i.e. services of a lawyer and transportation and other expenses,
which justifies an award for the reimbursement of his expenses and attorney’s fees."5

Ruling of the Court of Appeals

Granting respondent’s appeal, the appellate court ruled that the Contract entered into by the parties
should be deemed an equitable mortgage, because the consideration for the sale was grossly
inadequate. By continuing to harvest the crops and supervise his workers, respondent remained in
control of the property. True, upon the institution of this case, petitioner paid the required real estate
taxes that were still in arrears. Respondent, however paid the taxes for 1995, 1996 and 1997 -- the
years between the dates when the alleged absolute sale was entered into on October 1, 1993, and
when this case was instituted on March 5, 1997.6
Granting respondent’s prayer for reformation of the Contract, the CA ruled that the instrument failed
to reflect the true intention of the parties because of petitioner’s inequitable conduct.7

Hence, this Petition.8

The Issues

Petitioner raises the following issues for this Court’s consideration:

"I.

Whether o[r] not the Court of Appeals erred in ruling that there was inadequate consideration.

"II.

Whether o[r] not the Court of Appeals erred in ruling that the respondent remained in possession of
the land in question.

"III.

Whether or not the Court of Appeals erred in ruling that the taxes were not paid by the petitioner.

"IV.

Whether or not the Court of Appeals erred in ruling that reformation is proper."9

Simply put, these are the issues to be resolved: (1) whether the agreement entered into by the
parties was one for equitable mortgage or for absolute sale; and (2) whether the grant of the relief of
contract reformation was proper.

The Court’s Ruling

The Petition has no merit.

First Issue:

Equitable Mortgage

An equitable mortgage has been defined "as one which although lacking in some formality, or form
or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties
to charge real property as security for a debt, and contains nothing impossible or contrary to law."10

The instances in which a contract of sale is presumed to be an equitable mortgage are enumerated
in Article 1602 of the Civil Code as follows:

"Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following
cases:

(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;

(3) When upon or after the expiration of the right to repurchase another instrument extending the
period of redemption or granting a new period is executed;

(4) When the purchaser retains for himself a part of the purchase price;

(5) When the vendor binds himself to pay the taxes on the thing sold;

(6) In any other case where it may be fairly inferred that the real intention of the parties is that the
transaction shall secure the payment of a debt or the performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as
rent or otherwise shall be considered as interest which shall be subject to the usury laws."

Furthermore, Article 1604 of the Civil Code provides that "[t]he provisions of Article 1602 shall also
apply to a contract purporting to be an absolute sale."

In the present case, three of the instances enumerated in Article 1602 -- grossly inadequate
consideration, possession of the property, and payment of realty taxes -- attended the assailed
transaction and thus showed that it was indeed an equitable mortgage.

Inadequate Consideration

Petitioner Go avers that the amount of ₱20,000 was not unusually inadequate. He explains that the
present parties entered into a Dacion en Pago, whereby respondent conveyed the subject property
as payment for his outstanding debts to petitioner -- debts supposedly amounting to
₱985,243.70.11 To substantiate his claim, petitioner presented the checks that respondent had
issued, as well as the latter’s testimony purportedly admitting the genuineness and due execution of
the checks and the existence of the outstanding debts.12 Petitioner Go contends that respondent
failed to establish by sufficient evidence that those debts had already been paid.13 Petitioner relies
on the trial court’s finding that respondent knowingly and intentionally entered into a contract of sale,
not an equitable mortgage.14

On the other hand, Respondent Bacaron argues that the value of the property at the time of the
alleged sale was ₱120,000 per hectare, and that the indicated sale amount of ₱20,000 was thus
grossly iniquitous.15 Allegedly, the previous cash advances secured from petitioner’s father had been
settled, as evidenced by the fact that petitioner did not negotiate further or encash the checks; the
latter could have done so, if the obligation was still extant.16 Respondent points out that he paid for
that obligation with the coprax he had previously delivered to the father.17 Petitioner allegedly
admitted this fact, though inadvertently, when he testified that respondent had already paid some of
the latter’s previous cash advances.18 Otherwise, petitioner would have then set off his own debt to
respondent (amounting to ₱214,000) against the amount of almost one million pesos that the latter
supposedly owed him.19

Checks have the character of negotiability. At the same time, they may constitute evidence of
indebtedness.20 Those presented by petitioner may indeed evince respondent’s indebtedness to him
in the amounts stated on the faces of those instruments. He, however, acknowledges (1) that
respondent paid some of the obligations through the coprax delivered to petitioner’s father; and (2)
that petitioner owed and subsequently paid respondent ₱214,000.21
The parties’ respective arguments show that the sum of ₱20,000, by itself, is inadequate to justify
the purported absolute Transfer of Rights.22 Petitioner’s claim that there was a dacion en pago is not
reflected on the instrument executed by the parties. That claim, however, confirms the inadequacy of
the ₱20,000 paid in consideration of the Transfer of Rights; hence, the Contract does not reflect the
true intention of the parties. As to what their true intention was -- whether dacion en pago or
equitable mortgage -- will have to be determined by some other means.

Possession

According to Article 1602(2) of the New Civil Code, one of the instances showing that a purported
contract of sale is presumed to be an equitable mortgage is when the supposed vendor remains in
possession of the property even after the conclusion of the transaction.

In general terms, possession is the holding of a thing or the enjoyment of a right, whether by material
occupation or by the fact
that the right -- or, as in this case, the property -- is subjected to the will of the claimant.23 In Director
of Lands v. Heirs of Abaldonado,24 the gathering of the products of and the act of planting on the
land were held to constitute occupation, possession and cultivation.

In the present case, the witnesses of respondent swore that they had seen him gather fruits and
coconuts on the property. Based on the cited case, the witnesses’ testimonies sufficiently establish
that even after the execution of the assailed Contract, respondent has remained in possession of the
property. The testimonies proffered by petitioner’s witnesses merely indicated that they were tenants
of the property. Petitioner only informed them that he was the new owner of the property. This
attempt at a factual presentation hardly signifies that he exercised possession over the property. As
held by the appellate court, petitioner’s other witness (Redoña) was unconvincing, because he could
not even say whether he resided within the premises.25

The factual findings of the trial court and the CA are conflicting and, hence, may be reviewed by this
Court.26 Normally, the findings of the trial court on the credibility of witnesses should be respected.
Here, however, their demeanor while testifying is not at issue. What is disputed is the substance of
their testimonies -- the facts to which they testified. Assuming that the witnesses of petitioner were
indeed credible, their testimonies were insufficient to establish that he enjoyed possession over the
property.

Payment of Realty Taxes

Finally, petitioner asserts that the trial court’s finding that he paid the realty taxes should also be
given corresponding weight.27

Respondent counters with the CA’s findings that it was he who paid realty taxes on the property. The
appellate court concluded that he had paid taxes for the years 1995, 1996 and 1997 within each of
those years; hence, before the filing of the present controversy. In contrast, petitioner paid only the
remaining taxes due on October 17, 1997, or after the case had been instituted. This fact allegedly
proves that respondent has remained in possession of the property and continued to be its
owner.28 He argues that if he had really transferred ownership, he would have been foolish to
continue paying for those taxes.29

On this point, we again rule for respondent.

Petitioner indeed paid the realty taxes on the property for the years 1980 to 1997. The records show
that the payments were all simultaneously made only on October 31, 1997, evidently in the light of
the Complaint respondent had filed before the trial court on March 5, 1997.30 On the other hand,
respondent continued to pay for the realty taxes due on the property for the years 1995, 1996 and
1997.31

That the parties intended to enter into an equitable mortgage is bolstered by respondent’s continued
payment of the real property
taxes subsequent to the alleged sale. Payment of those taxes is a usual burden attached to
ownership. Coupled with continuous possession of the property, it constitutes evidence of great
weight that a person under whose name the realty taxes were declared has a valid and rightful claim
over the land.32

That the parties intended to enter into an equitable mortgage is also shown by the fact that the
"seller" was driven to obtain the loan at a time when he was in urgent need of money; and that he
signed the Deed of Sale, despite knowing that it did not express the real intention of the parties.33 In
the present proceedings, the collapse of his business prompted respondent to obtain the
loan.34 Petitioner himself admitted that at the time they entered into the alleged absolute sale,
respondent had suffered from serious business reversals.35

Second Issue:

Reformation of Instrument

Petitioner claims that the CA erred in granting the remedy of reformation of contracts. He avers that
the failure of the instrument to express the parties’ true agreement was not due to his mistake; or to
fraud, inequitable conduct, or accident.36

We rule for respondent.

Ultimately, it is the intention of the parties that determines whether a contract is one of sale or of
mortgage.37 In the present case, one of the parties to the contract raises as an issue the fact that
their true intention or agreement is not reflected in the instrument. Under this circumstance, parol
evidence becomes admissible and competent evidence to prove the true nature of the
instrument.38 Hence, unavailing is the assertion of petitioner that the interpretation of the terms of the
Contract is unnecessary, and that the parties clearly agreed to execute an absolute deed of sale. His
assertion does not hold, especially in the light of the provisions of Article 1604 of the Civil Code,
under which even contracts purporting to be absolute sales are subject to the provisions of Article
1602.

Moreover, under Article 1605 of the New Civil Code, the supposed vendor may ask for the
reformation of the instrument, should the case be among those mentioned in Articles 1602 and
1604. Because respondent has more than sufficiently established that the assailed Contract is in fact
an equitable mortgage rather than an absolute sale, he is allowed to avail himself of the remedy of
reformation of contracts.

WHEREFORE, the Petition is hereby DENIED, and the assailed Decision and Resolution
AFFIRMED.

SO ORDERED.
QUIETING OF TITLE

June 5, 2017

G.R. No. 208450

SPS. ROBERTO ABOITIZ AND MARIA CRISTINA CABARRUS, Petitioners

vs.
SPS. PETER L. PO AND VICTORIA L. PO, Respondents

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

G.R. No. 208497

SPS. PETER L. PO AND VICTORIA L. PO, Petitioners,

vs.
SPS. ROBERTO ABOITIZ AND MARIA CRISTINA CABARRUS, JOSE MARIA MORAZA, AND
ERNESTO ABOITIZ AND ISABEL ABOITIZ, Respondents

DECISION

LEONEN, J.:

This resolves two (2) Petitions for Review on Certiorari 1 assailing the Court of Appeals' October 31,
2012 Decision2 and its June 17, 2013 Resolution3 in CA-G.R. CV No. 03803. The assailed decision
affirmed the Regional Trial Court's Decision,4 which declared the spouses Peter Po and Victoria Po
(Spouses Po) as the rightful owners of the parcel of land. However, the Court of Appeals ruled that
respondents Jose Maria Moraza (Jose), spouses Ernesto Aboitiz (Ernesto), and Isabel Aboitiz
(Isabel) were innocent buyers in good faith whose titles were entitled to protection. 5 The assailed
resolution denied the Motion for Partial Reconsideration of the spouses Roberto Aboitiz and Maria
Cristina Cabarrus (Spouses Aboitiz).6

The Spouses Aboitiz filed the Petition7 docketed as G.R. No. 208450. The Spouses Po filed the
Petition8 docketed as G.R. No. 208497. These cases are consolidated in the case at bar.

This case involves a parcel of land located in Cabancalan, Mandaue City,9 initially registered as
Original Certificate of Title No. 0-887, and titled under the name of Roberto Aboitiz (Roberto). 10 The
land is referred to as Lot No. 2835. 11

This parcel of land originally belonged to the late Mariano Seno (Mariano). 12
On July 31, 1973, Mariano executed a Deed of Absolute Sale in favor of his son, Ciriaco Seno
(Ciriaco), over a 1.0120-hectare land in Cebu covered by Tax Declaration No. 43358. 13 This property
included two (2)

lots: Lot No. 2807 and the land subject of this case, Lot No. 2835.14

On May 5, 1978, Ciriaco sold the two (2) lots to Victoria Po (Victoria).15 The parties executed a Deed
of Absolute Sale. 16

On July 15, 1982, Mariano died and was survived by his five (5) children (Mariano Heirs): Esperanza
Seno V da. De Kuizon, Ramon Seno, 17 Benita Seno Vda. De Lim, Simeon Seno,18 and Ciriaco.19

In 1990, Peter Po (Peter) discovered that Ciriaco "had executed a [q]uitclaim dated August 7, 1989
renouncing [his] interest over Lot [No.] 2807 in favor of [petitioner] Roberto."20 In the quitclaim,
Ciriaco stated that he was "the declared owner of Lot [Nos.] 2835 and 2807."21

The Spouses Po confronted Ciriaco.22 By way of remedy, Ciriaco and the Spouses Po executed a
Memorandum of Agreement dated June 28, 1990 in which Ciriaco agreed to pay Peter the difference
between the amount paid by the Spouses Po as consideration for the entire property and the value
of the land the Spouses Po were left with after the quitclaim. 23

However, also in 1990, Lot No. 2835 was also sold to Roberto.24 The Mariano Heirs, including
Ciriaco, executed separate deeds of absolute sale in favor of Roberto.25 Thereafter, Roberto
immediately developed the lot as part of a subdivision called North Town Homes.26

In 1991, the Spouses Po declared Lot No. 2835 for taxation purposes and was issued Tax
Declaration No. 0634-A.27

In 1992, Roberto also declared Lot No. 2835 for taxation purposes and was issued Tax Declaration
No. 1100, annotated with: "This tax declaration is also declared in the name of Mrs. VICTORIA LEE
PO married to PETER PO under [T]ax [Declaration] [N]o. 0634-A so that one may be considered a
duplicate to the other. "28

On April 19, 1993, Roberto filed an application for original registration of Lot No. 2835 with the
Mandaue City Regional Trial Court, acting as land registration court. 29 The case was raffled to
Branch 28 and docketed as LRC Case No. N-208.30

In its Decision dated October 28, 1993, the trial court granted the issuance of Original Certificate of
Title No. 0-887 in the name of Roberto.31 The lot was immediately subdivided with portions sold to
Ernesto and Jose.32

On November 19, 1996, the Spouses Po filed a complaint to recover the land and to declare nullity
of title with damages.33

The complaint was docketed in Branch 55, Regional Trial Court of Mandaue City. 34

The trial court ruled in favor of the Spouses Po in its Decision dated November 23, 2009:

WHEREFORE, premises considered, judgment is rendered in favor of plaintiffs, and against

defendants, declaring the plaintiffs as owner of subject land and ordering the defendants reconvey
and/or return to plaintiffs Lot No. 2835; declaring as absolute nullity all the documents of sale
involving Lot 283 5 executed by the Heirs of Mariano Seno in favor of defendant Roberto Aboitiz and
such other documents used in the improvident issuance of titles in the name of defendants, and to
cancel the said titles.35

The Spouses Aboitiz appealed to the Court of Appeals. The Court of Appeals, in its Decision dated
October 31, 2012, partially affirmed the trial court decision, declaring the Spouses Po as the rightful
owner of the land. However, it ruled that the titles issued to respondents Jose, Ernesto, and Isabel
should be respected.36

The Court of Appeals discussed the inapplicability of the rules on double sale and the doctrine of
buyer in good faith since the land was not yet registered when it was sold to the Spouses
Po.37 However, it ruled in favor of the Spouses Po on the premise that registered property may be
reconveyed to the "rightful or legal owner or to the one with a better right if the title [was] wrongfully
or erroneously registered in another person's name."38 The Court of Appeals held that the Mariano
Heirs were no longer the owners of the lot at the time they sold it to Roberto in 1990 because
Mariano, during his lifetime, already sold this to Ciriaco in 1973. 39

It found that the Deed of Absolute Sale between Ciriaco and the Spouses Po was duly notarized and
was thus presumed regular on its face.40 Their Memorandum of Agreement did not cancel or rescind
the Deed of Absolute Sale but rather strengthened their claim that they "entered into a contract of
[s]ale. "41

It likewise ruled that, contrary to the assertion of the Spouses Aboitiz, there was no showing that
Ciriaco merely held the property in trust for the Mariano Heirs. 42

It held that the action of the Spouses Po had not yet prescribed because their complaint in 1996 was
within the 10-year prescriptive period as the title in favor of the Spouses Aboitiz was issued in 1994.43

However, the Court of Appeals ruled that the certificates of title of Jose, Ernesto, and Isabel were
valid as they were innocent buyers in good faith.44

The Spouses Aboitiz thus filed their Petition for Review, which was docketed as G.R. No. 208450. 1âwphi1

45
They argue that the Decision of Branch 55, Regional Trial Court of Mandaue City granting the
complaint of the Spouses Po is void for lack of jurisdiction over the matter.46 They claim that a branch
of the Regional Trial Court has no jurisdiction to nullify a final and executory decision of a co-equal
branch;47 it is the Court of Appeals that has this jurisdiction. 48

They likewise assert that the Spouses Po's cause of action has prescribed 49 and allegedly accrued
when the Deed of Absolute Sale between the Spouses Po and Ciriaco was executed on May 5,
1978.50 They maintain that more than 10 years had elapsed when the complaint was filed on
November 12, 1996, thus barring the action through prescription.51

The Spouses Aboitiz further insist that "estoppel and laches have already set in."52 They claim that
they have been "in open, public, continuous, uninterrupted, peaceful[,] and adverse possession" in
the concept of owners over the property for "46 years as of 1993," without the Spouses Po acting on
the Deed of Absolute Sale.53 They attest that the development of North Town Homes Subdivision
"was covered by utmost publicity," but the Spouses Po did not immediately question the
development or interpose any objection during the registration proceedings. 54
They posit that the Deed of Absolute Sale between Ciriaco and the Spouses Po is "clearly fake and
fraudulent" 55 as evidenced by certifications of its non-existence in the notarial books and the
Spouses Po's failure to enforce their rights over the property until 18 years later. 56 They also affirm
that the Deed of Absolute Sale between Ciriaco and the Spouses Po is inadmissible as no
documentary stamp was paid and affixed. 57

Lastly, they contend that the Mariano Heirs should have been impleaded in the action as they are
indispensable parties. 58

The Spouses Po filed a Comment59 where they argued that the Regional Trial Court had jurisdiction
when it granted their complaint because the case filed by the Spouses Aboitiz was for the
registration of the land, while the case they filed was for reconveyance.60 They insisted that their
action had not prescribed because an action for reconveyance prescribes in 10 years from the "date
of issuance of the certificate of title over the property."61 They argued that "laches ha[d] not set
in."62 They claimed that the notarized Deed of Absolute Sale between them and Ciriaco was not fake
or fraudulent and was admissible in evidence63 whereas the Spouses Aboitiz failed "to overcome [its]
presumption of regularity and due execution."64 They asserted that "the documentary stamps tax
ha[d] been paid"65 and that the Mariano Heirs were not indispensable parties.66

Spouses Aboitiz filed a Reply67 reiterating their arguments in the Petition.

The Spouses Po also filed a Petition for Review, which was docketed as G.R. No. 208497. They
claim that respondents Jose, Ernesto, and Isabel are not "innocent purchasers for value."68 They
allegedly knew of the defective title of Roberto because his tax declaration had the following
annotation: "This tax declaration is also declared in the name of Mrs. VICTORIA LEE PO, married to
PETER PO under tax dec. No. 0634-A so that one may be considered a duplicate to the other.
(Section 89 Paragraph H PD 464)."69

Spouses Aboitiz filed a Comment.70 Aside from reiterating their assertions in their Petition for Review
in G.R No. 208450, they argued that there was no evidence that they acted in bad faith as
"subdivision lot buyers [were] not obliged to go beyond the [T]orrens title."71

Spouses Po filed a Reply. 72

For resolution are the following issues:

First, whether the Regional Trial Court has jurisdiction over the Spouses Peter and Victoria Po's
complaint;

Second, whether the action is barred by prescription,

Third, whether the doctrines of estoppel and laches apply;

Fourth, whether the land registration court's finding that Ciriaco Seno only held the property in trust
for the Mariano Heirs is binding as res judicata in this case;

Fifth, whether the Deed of Absolute Sale between Ciriaco Seno and the Spouses Peter and Victoria
Po should be considered as evidence of their entitlement to the property;

Sixth, whether the Mariano Heirs, as sellers in a deed of conveyance of realty, are indispensable
parties; and
Finally, whether the respondents Jose Maria Moraza, Ernesto Aboitiz, and Isabel Aboitiz are
innocent purchasers in good faith.

The Spouses Aboitiz argue that Branch 55, Regional Trial Court did not have jurisdiction to nullify
the final and executory Decision of Branch 28, Regional Trial Court in LRC Case No. N-208.73 They
claim that that it is the Court of Appeals that has jurisdiction to annul judgments of the Regional Trial
Court.74

However, the instant action is not for the annulment of judgment of a Regional Trial Court. It is a
complaint for reconveyance, cancellation of title, and damages.75

A complaint for reconveyance is an action which admits the registration of title of another party but
claims that such registration was erroneous or wrongful. 76 It seeks the transfer of the title to the
rightful and legal owner, or to the party who has a superior right over it, without prejudice to innocent
purchasers in good faith. 77 It seeks the transfer of a title issued in a valid proceeding. The relief
prayed for may be granted on the basis of intrinsic fraud-fraud committed on the true owner instead
of fraud committed on the procedure amounting to lack of jurisdiction.

An action for annulment of title questions the validity of the title because of lack of due process of
law. There is an allegation of nullity in the procedure and thus the invalidity of the title that is issued.

The complaint of the Spouses Po asserted that they were the true owners of the parcel of land which
was registered in the name of the

Spouses Aboitiz.78 They alleged that they acquired the property from Ciriaco, who acquired it from
Mariano. 79 They claimed that the Spouses Aboitiz had the property registered without their
knowledge and through fraud. 80 Thus, they sought to recover the property and to cancel the title of
the Spouses Aboitiz.81 Thus the prayer in their Complaint stated:

WHEREFORE, premises considered, this Honorable Court is respectfully prayed to render judgment
in favor of plaintiffs and against defendants, ordering the latter as follows:

1. To reconvey and/or return to plaintiffs Lot No. 2835 which is the subject matter of
this complaint;

2. To declare as absolute nullity all the documents of sale involving Lot 2835 in favor
of defendants and such other documents used in the improvident issuance of the
Title in the name of defendants, and to cancel said Title;

3. To pay jointly and severally the amount of ₱ 1,000,000.00 as moral damages;

₱500,000.00 as actual damages; ₱ 100,000.00 as attorneys fees and ₱ 20,000.00 as
litigation expenses.

Plaintiffs further pray for such other reliefs and remedies just and equitable in the premises. 82

Except for actions falling within the jurisdiction of the Municipal Trial Courts, the Regional Trial
Courts have exclusive original jurisdiction over actions involving "title to, or possession of, real
property."83 Section 19 of Batas Pambansa Blg. 129 provides:
Section 19. Jurisdiction in Civil Cases. - Regional Trial Courts shall exercise exclusive original
jurisdiction:

(2) In all civil actions which involve the title to, or possession of, real property, or any interest therein,
except actions for forcible entry into and unlawful detainer of lands or buildings, original jurisdiction
over which is conferred upon Metropolitan Trial Courts, Municipal Trial Courts, and Municipal Circuit
Trial Courts[.]

An action for reconveyance and annulment of title is an action involving the title to real property. 84

The complaint of the Spouses Po is clearly an action for reconveyance and annulment of title. Thus,
the Regional Trial Court has jurisdiction to hear the case.

The Spouses Aboitiz claim that it is the Court of Appeals that has jurisdiction over the annulment of
Regional Trial Court judgments. 85

The jurisdiction of the Court of Appeals is provided in Section 9 of Batas Pambansa Blg. 129:

Section 9. Jurisdiction. - The Intermediate Appellate Court shall exercise:

(2) Exclusive original jurisdiction over actions for annulment of judgments of Regional Trial Courts[.]

While the Court of Appeals has jurisdiction to annul judgments of the Regional Trial Courts, the case
at bar is not for the annulment of a judgment of a Regional Trial Court. It is for reconveyance and the
annulment of title.

The difference between these two (2) actions was discussed in Toledo l 86 v. Court of Appeals:

An action for annulment of judgment is a remedy in equity so exceptional in nature that it may be
availed of only when other remedies are wanting, and only if the judgment, final order or final
resolution sought to be annulled was rendered by a court lacking jurisdiction or through extrinsic
fraud. An action for reconveyance, on the other hand, is a legal and equitable remedy granted to the
rightful owner of land which has been wrongfully or erroneously registered in the name of another for
the purpose of compelling the latter to transfer or reconvey the land to him. The Court of Appeals
has exclusive original jurisdiction over actions for annulment of judgments of Regional Trial Courts
whereas actions for reconveyance of real property may be filed before the Regional Trial Courts or
the Municipal Trial Courts, depending on the assessed value of the property involved.

Petitioners allege that: first, they are the owners of the land by virtue of a sale between their and
respondents' predecessors-in-interest; and second, that respondents Ramoses and ARC Marketing
illegally dispossessed them by having the same property registered in respondents' names. Thus, far
from establishing a case for annulment of judgment, the foregoing allegations clearly show a case
for reconveyance. 87 (Citations omitted)

As stated, a complaint for reconveyance is a remedy where the plaintiff argues for an order for the
defendant to transfer its title issued in a proceeding not otherwise invalid. The relief prayed for may
be granted on the basis of intrinsic rather than extrinsic fraud; that is, fraud committed on the real
owner rather than fraud committed on the procedure amounting to lack of jurisdiction.

An action for annulment of title, on the other hand, questions the validity of the grant of title on
grounds which amount to lack of due process of law. The remedy is premised in the nullity of the
procedure and thus the invalidity of the title that is issued. Title that is invalidated as a result of a
successful action for annulment against the decision of a Regional Trial Court acting as a land
registration court may still however be granted on the merits in another proceeding not infected by
lack of jurisdiction or extrinsic fraud if its legal basis on the merits is properly alleged and proven.

Considering the Spouses Aboitiz's fraudulent registration without the Spouses Po's knowledge and
the latter's assertion of their ownership of the land, their right to recover the property and to cancel
the Spouses Aboitiz' s88 title, the action is for reconveyance and annulment of title and not for
annulment of judgment.

Thus, the Regional Trial Court has jurisdiction to hear this case.

II

The Spouses Aboitiz argue that the Spouses Po's cause of action has prescribed.89 They claim that
prescription has set in because the original complaint was filed only on November 12, 1996, after
more than 10 years after the Deed of Absolute Sale between Ciriaco and Spouses Po was executed
on May 5, 1978. 90

The Spouses Po's action has not prescribed.

"[A]n action for reconveyance ... prescribes in [10] years from the issuance of the Torrens title over
the property."91 The basis for this is Section 53, Paragraph 392 of Presidential Decree No. 152993 in
relation to Articles 145694 and 1144(2)95 of the Civil Code.96

Under Presidential Decree No. 1529 (Property Registration Decree), the owner of a property may
avail of legal remedies against a registration procured by fraud:

SECTION 53. Presentation of Owner's Duplicate Upon Entry of New Certificate. - ...

In all cases of registration procured by fraud, the owner may pursue all his legal and equitable
remedies against the parties to such fraud without prejudice, however, to the rights of any innocent
holder for value of a certificate of title ...

Article 1456 of the Civil Code provides that a person acquiring a property through fraud becomes an
implied trustee of the property's true and lawful owner.97

An implied trust is based on equity and is either (i) a constructive trust, or (ii) a resulting trust.98 A
resulting trust is created by implication of law and is presumed as intended by the parties.99 A
constructive trust is created by force of law 100 such as when a title is registered in favor of a person
other than the true owner. 101

The implied trustee only acquires the right "to the beneficial enjoyment of [the] property." 102 The legal
title remains with the true owner. 103 In Crisostomo v. Garcia, J,r., .: 104

Art. 1456 of the Civil Code 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.
Thus, it was held that when a party uses fraud or concealment to obtain a certificate of title of
property, a constructive trust is created in favor of the defrauded party.

Constructive trusts are "created by the construction of equity in order to satisfy the demands of
justice and prevent unjust enrichment. They arise contrary to intention against one who, by fraud,
duress or abuse of confidence, obtains or holds the legal right to property which he ought not, in
equity and good conscience, to hold."

When property is registered in another's name, an implied or constructive trust is created by law in
favor of the true owner. The action for reconveyance of the title to the rightful owner prescribes in 10
years from the issuance of the title. 105 (Citations omitted)

Thus, the law creates a trust in favor of the property's true owner.

The prescriptive period to enforce this trust is 10 years from the time the right of action accrues.
Article 1144 of the Civil Code provides:

Article 1144. The following actions must be brought within ten years from the time the right of action
accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment.

In an action for reconveyance, the right of action accrues from the time the property is registered . 106

In Crisostomo, 107 the petitioners were able to transfer the property under their names without
knowledge of the respondent. 108 The respondent filed an action for reconveyance. 109 In arguing that
the action for reconveyance had prescribed, the petitioners claimed that the cause of action of the
respondent should be based on the latter's Deed of Sale and thus the respondent's right of action
should have accrued from its execution.110 This Court, however, ruled that the right of action accrued
from the time the property was registered because registration is the act that signifies that the
adverse party repudiates the implied trust:

In the case at bar, respondent's action which is for Reconveyance and Cancellation of Title is based
on an implied trust under Art. 1456 of the Civil Code since he averred in his complaint that through
fraud petitioners were able to obtain a Certificate of Title over the property. He does not seek the
annulment of a voidable contract whereby Articles 1390 and 1391 of the Civil Code would find
application such that the cause of action would prescribe in four years.

An action for reconveyance based on implied or constructive trust prescribes in ten years from the
alleged fraudulent registration or date of issuance of the certificate of title over the property.

It is now well-settled that the prescriptive period to recover property obtained by fraud or mistake,
giving rise to an implied trust under Art. 1456 of the Civil Code, is 10 years pursuant to Art.
1144. This tenyear prescriptive period begins to run from the date the adverse party repudiates the
implied trust, which repudiation takes place when the adverse party registers the land. 111 (Citations
omitted, emphasis supplied)
Likewise, in Duque v. Domingo: 112

The registration of an instrument in the Office of the Register of Deeds constitutes constructive
notice to the whole world, and, therefore, discovery of the fraud is deemed to have taken place at the
time of registration. Such registration is deemed to be a constructive notice that the alleged fiduciary
or trust relationship has been repudiated. It is now settled that an action on an implied or
constructive trust prescribes in ten (10) years from the date the right of action accrued. The issuance
of Transfer Certificate of Title No. 7501 in 1931 to Mariano Duque commenced the effective
assertion of adverse title for the purpose of the statute of limitations. 113 (Citations omitted)

Registration of the property is a "constructive notice to the whole world."114 Thus, in registering the
property, the adverse party repudiates the implied trust. 115 Necessarily, the cause of action accrues
upon registration. 116

An action for reconveyance and annulment of title does not seek to question the contract which
allowed the adverse party to obtain the title to the property. 117 What is put on issue in an action for
reconveyance an d cancellation of title is the ownership of the property and its registration. 118 It does
not question any fraudulent contract. 119 Should that be the case, the applicable provisions are
Articles 1390120 and 1391 121 of the Civil Code. 122

Thus, an action for reconveyance and cancellation of title prescribes in 10 years from the time of the
issuance of the Torrens title over the property. 123

Considering that the Spouses Po's complaint was filed on November 19, 1996, less than three (3)
years from the issuance of the Torrens title over the property on April 6, 1994, it is well within the 10-
year prescriptive period imposed on an action for reconveyance.

III

The Spouses Aboitiz insist that estoppel and laches have already set in. 124 They claim that they have
been in "open, continuous, public, peaceful, [and] adverse" possession in the concept of owners
over the property for "46 years as of 1993," without the Spouses Po acting on their Deed of Absolute
Sale. 125 Moreover, the development of North Town Homes Subdivision "was covered by utmost
publicity" but the Spouses Po did not promptly question the development. 126 In fact, they did not
interpose any objection during the registration proceedings. 127

There is laches when a party was negligent or has failed "to assert a right within a reasonable time,"
thus giving rise to the presumption that he or she has abandoned it. 128 Laches has set in when it is
already inequitable or unfair to allow the party to assert the right. 129 The elements of laches were
enumerated in Ignacio v. Basilio:

There is laches when: (1) the conduct of the defendant or one under whom he claims, gave rise to
the situation complained of; (2) there was delay in asserting a right after knowledge of the
defendant's conduct and after an opportunity to sue; (3) defendant had no knowledge or notice that
the complainant would assert his right; (4) there is injury or prejudice to the defendant in the event
relief is accorded to the complainant. 130 (Citation omitted)

"Laches is different from prescription."131 Prescription deals with delay itself and thus is an issue of
how much time has passed. 132 The time period when prescription is deemed to have set in is fixed by
law. 133 Laches, on the other hand, concerns itself with the effect of delay and not the period of time
that has lapsed.134 It asks the question whether the delay has changed "the condition of the property
or the relation of the parties" such that it is no longer equitable to insist on the original
right. 135 In Nielson & Co., Inc. v. Lepanto Consolidated Mining Co.: 136

Appellee is correct in its contention that the defense of laches applies independently of prescription.
Laches is different from the statute of limitations. Prescription is concerned with the fact of delay.
Whereas laches is concerned with the effect of delay. Prescription is a matter of time; laches is
principally a question of inequity of permitting a claim to be enforced, this inequity being founded on
some change in the condition of the property or the relation of the parties. Prescription is statutory;
laches is not. Laches applies in equity, whereas prescription applies at law. Prescription is based on
fixed time, Laches is not. 137

The defense of laches is based on equity. 138 It is not based on the title of the party invoking it, but on
the right holder's "long inaction or inexcusable neglect" to assert his claim. 139

This Court rules that the Spouses Po is not barred by laches. There is no showing that they
abandoned their right to the property. The factual findings reveal that the Spouses Po had their
rights over the property registered in the assessor's office. 140 They testified that they introduced
improvements by cultivating fruit trees after they purchased the lots.141 When the Spouses Po
discovered that Ciriaco executed a quitclaim renouncing his interest over Lot No. 2807 in favor of
Roberto, the Spouses Po executed a Memorandum of Agreement with Ciriaco to protect their
interest in Lot No. 2835.142

The Spouses Po also had the property declared for taxation purposes in their names and Tax
Declaration No. 0634-A was issued. 143 Thus, when the Spouses Aboitiz also had the property
declared for taxation purposes, it had the annotation: "This tax declaration is also declared in the
name of Mrs. Victoria Lee Po, married to Peter Po under tax dee. no. 0634-A so that one may be
considered a duplicate to the other." 144

The Spouses Aboitiz only acquired their alleged rights over the property in 1990, when the Mariano
Heirs executed the Deeds of Sale in their favor. 145 Assuming the Spouses Aboitiz immediately took
possession and began construction in 1990, it cannot be said that the Spouses Po were in delay in
asserting their right. In the Spouses Po's complaint, they asserted that they made demands upon the
Spouses Aboitiz to reconvey to them the property. 146 They also referred the matter to the barangay
for conciliation:

11) That demands were made upon the defendants to reconvey to plaintiffs Lot 2835 unlawfully and
feloniously acquired by defendants, but to no avail, thereby compelling the plaintiffs to elevate the
matter for barangay conciliation, and for failure of the parties to effect a settlement, the proper
Certification to file action was then issued, a copy of which is hereto attached as Annex "L." 147

In their Answer with Counterclaim, the Spouses Aboitiz did not deny that demands were made upon
them and that the matter was elevated for barangay conciliation:

8. Par. 11 is denied as regards the all[e]gation that Lot 2835 was feloniously and un[l]awfully
acquired by defendants, for being false. The truth is that defendants were in good faith in acquiring
same property. Defendants refused to meet the demands of settlement by plaintiffs because they
are strangers to the property in question. 148

When they discovered that the property was registered in the name of the Spouses Aboitiz in 1993,
the Spouses Po then filed the instant complaint to recover the property sold to them by Ciriaco,
alleging that it was done without their knowledge, through evident bad faith and fraud. 149 The
Spouses Po filed this case in less than three (3) years from the time of registration.
Based on these circumstances, the elements of laches are clearly lacking in this case. There was no
delay in asserting their right over the property, and the Spouses Aboitiz had knowledge that the
Spouses Po would assert their right.

Thus, it cannot be said that they are barred by laches.

IV

The Spouses Aboitiz insist that there is already a finding by the Regional Trial Court in LRC Case
No. N-208 that Ciriaco merely held the property "in trust for the [Mariano Heirs]." 150 Thus, Ciriaco
could not have validly sold the property to the Spouses Po. 151 They claim that these findings are
binding on the whole world because land registration proceedings are actions in rem. 152

In the Decision in LRC Case No. N-208, no one opposed the application for registration.153 Moreover,
the Spouses Aboitiz presented only one (I) witness, Gregorio Espina (Espina), an employee of
Roberto, 154 whotestified:

That this parcel of land is covered by tax declarations, to wit: 1) Tax Dec. No. 43174 in the name of
Ciriaco Seno for the year 1953 (Exh. "T");

11) Tax Dec. No. 2835 in the name of applicant, Roberto Aboitiz for the year 1991 (Exh. "DD").

That the tax declarations covering Lot No. 2835 are in the name of Ciriaco Seno because the heirs
of Mariano Seno have agreed that Lot No. 2835 be held in trust by Ciriaco Seno in favor of the
heirs. 155

This Court rules that this cannot be binding in this action for reconveyance.

Res judicata embraces two (2) concepts: (i) bar by prior judgment and (ii) conclusiveness of
judgment, respectively covered under Rule 39, Section 47 of the Rules of Court, paragraphs (b) and
(c): 156

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

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

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

Res judicata in the concept of bar by prior judgment proscribes the filing of another action based on
"the same claim, demand, or cause of action."157 It applies when the following are present: (a) there is
a final judgment or order; (b) it is a judgment or order on the merits; (c) it was "rendered by a court
having jurisdiction over the subject matter and parties"; and (d) there is "identity of parties, of subject
matter, and of causes of action" between the first and second actions. 158
Res judicata in the concept of conclusiveness of judgment applies when there is an identity of issues
in two (2) cases between the same parties involving different causes of action.159 Its effect is to bar
"the relitigation of particular facts or issues" which have already been adjudicated in the other
case. 160 In Calalang v. Register of Deeds of Quezon City:161

The second concept - conclusiveness of judgment - states that a fact or question which was in issue
in a former suit and was there judicially passed upon and determined by a court of competent
jurisdiction, is conclusively settled by the judgment therein as far as the parties to that action and
persons in privity with them are concerned and cannot be again litigated in any future action
between such parties or their privies, in the same court or any other court of concurrent jurisdiction
on either the same or different cause of action, while the judgment remains unreversed by proper
authority. It has been held that in order that a judgment in one action can be conclusive as to a
particular matter in another action between the same parties or their privies, it is essential that the
issue[s] be identical. If a particular point or question is in issue in the second action, and the
judgment will depend on the determination of that particular point or question, a former judgment
between the same parties or their privies will be final and conclusive in the second if that same point
or question was in issue and adjudicated in the first suit (Nabus vs. Court of Appeals, 193 SCRA 732
[1991]). Identity of cause of action is not required but merely identity of issues. 162

However, in Racoma v. Fortich, 163 this Court held that res judicata could not be a defense in an
action for reconveyance based on fraud where the complainant had no knowledge of the application
for registration:

The other ground upon which the lower court dismissed the complaint is res judicata. It is stated in
the order of dismissal that the plaintiff had admitted that the property in controversy was applied for
by defendant Maximina Fortich in a cadastral proceeding and under Act 496; that the proceedings
were in rem and, therefore, the whole world, including the plaintiff, were parties thereto and bound
by the judgment thereon ... [I]t is obvious that the lower court was referring to the legal effect of the
conclusiveness against all persons of the in rem decision in the cadastral case rather than the actual
fact that the plaintiff was a claimant who appeared in the said case, for he alleged in his complaint
that he "has no knowledge whatsoever of the application for registration filed by defendant Maximina
Fortich and the order of decree of registration issued in favor of the defendant Maximina Fortich by
this Honorable Court until on February 25, 1967 ... " (Record on Appeal, page 30). Such being the
case, then an action for reconveyance is available to the plaintiff, the decree of registration
notwithstanding, for ...

" ... , it is now a well-settled doctrine in this jurisdiction that the existence of a decree of registration in
favor of one party is no bar to an action to compel reconveyance of the property to the true owner,
which is an action in personam, even if such action be instituted after the year fixed by Section 38 of
the Land Registration Act as a limit to the review of the registration decree, provided it is shown that
the registration is wrongful and the property sought to be reconveyed has not passed to an innocent
third party holder for value.["] 164 (Emphasis supplied)

The reason for this rule is to prevent the unjust deprivation of rights over real property. As discussed
in People v. Cainglet: 165

It is fundamental and well-settled that a final judgment in a cadastral proceeding - a proceeding in

rem - is binding and conclusive upon the whole world. Reason is that public policy and public order
1âw phi1

demand not only that litigations must terminate at some definite point but also that titles over lands
under the Torrens system should be given stability for on it greatly depends the stability of the
country's economy. Interest republicae ut sit finis litium. However, this conclusiveness of judgment in
the registration of lands is not absolute. It admits of exception. Public policy also dictates that those
unjustly deprived of their rights over real property by reason of the operation of our registration laws
be afforded remedies. Thus, the aggrieved party may file a suit for reconveyance of property or a
personal action for recovery of damages against the party who registered his property through fraud,
or in case of insolvency of the party who procured the registration through fraud, an action against
the Treasurer of the Philippines for recovery of damages from the Assurance Fund. Through these
remedial proceedings, the law, while holding registered titles indefeasible, allows redress calculated
to prevent one from enriching himself at the expense of other. Necessarily, without setting aside the
decree of title, the issues raised in the previous registration case are relit1ated, for purposes of
reconveyance of said title or recovery of damages. 166 (Citations omitted, emphasis supplied)

In this case, the Spouses Po allege that the registration was done through fraud. They contend that
they were unaware and were thus unable to contest the registration and prove their claim over the
property. Aside from several tax receipts, the Spouses Po formally offered as evidence, among
others, the Deed of Sale executed by Mariano in Ciriaco's favor, the Deed of Absolute Sale executed
by Ciriaco in their favor, and the Tax Declaration under Victoria's name. Additionally, they also
submitted their Memorandum of Agreement with Ciriaco and the Quitclaim executed by Ciriaco in
favor of the Spouses Aboitiz.167 These documents were not considered by the land registration court
when it issued the title in favor of the Spouses Aboitiz. The Spouses Po also offered the Application
of Original Registration of Title of the Spouses Aboitiz to prove that the Spouses Aboitiz only
submitted to the land registration court the cancelled tax declarations of Ciriaco, instead of the tax
declaration of the Spouses Po. 168

Thus, the ruling of the land registration court cannot be so conclusive as to deny the Spouses Po the
remedy afforded to them by law. The action for reconveyance allows them to prove their ownership
over the property. Hence, they are not precluded from presenting evidence that is contrary to the
findings in the land registration case.

The factual findings of the land registration court are not being questioned. An action for
reconveyance based on an implied trust seeks to compel the registered owner to transfer the
property to its true owner. 169 In Hortizuela v. Tagufa: 170

[A]n action for reconveyance is a recognized remedy, an action in personam, available to a person
whose property has been wrongfully registered under the Torrens system in another's name. In an
action for reconveyance, the decree is not sought to be set aside. It does not seek to set aside the
decree but, respecting it as incontrovertible and no longer open to review, seeks to transfer or
reconvey the land from the registered owner to the rightful owner. Reconveyance is always available
as long as the property has not passed to an innocent third person for value.

There is no quibble that a certificate of title, like in the case at bench, can only be questioned
through a direct proceeding. The MCTC and the CA, however, failed to take into account that in a
complaint for reconveyance, the decree of registration is respected as incontrovertible and is not
being questioned. What is being sought is the transfer of the property wrongfully or erroneously
registered in another's name to its rightful owner or to the one with a better right. If the registration of
the land is fraudulent, the person in whose name the land is registered holds it as a mere trustee,
and the real owner is entitled to file an action for reconveyance of the property. 171 (Citations omitted,
emphasis supplied)

Likewise in Naval v. Court of Appeals:172

Ownership is different from a certificate of title. The fact that petitioner was able to secure a title in
her name did not operate to vest ownership upon her of the subject land. Registration of a piece of
land under the Torrens System does not create or vest title, because it is not a mode of acquiring
ownership. A certificate of title is merely an evidence of ownership or title over the particular property
described therein. It cannot be used to protect a usurper from the true owner; nor can it be used as a
shield for the commission of fraud; neither does it permit one to enrich himself at the expense of
others. Its issuance in favor of a particular person does not foreclose the possibility that the real
property may be coowned with persons not named in the certificate, or that it may be held in trust for
another person by the registered owner.

As correctly held by the Court of Appeals, notwithstanding the indefeasibility of the Torrens title, the
registered owner may still be compelled to reconvey the registered property to its true owners. The
rationale for the rule is that reconveyance does not set aside or re-subject to review the findings of
fact of the Bureau of Lands. In an action for reconveyance, the decree of registration is respected as
incontrovertible. What is sought instead is the transfer of the property or its title which has been
wrongfully or erroneously registered in another person's name, to its rightful or legal owner, or to the
one with a better right. 173 (Citations omitted, emphasis supplied)

The rationale for allowing reconveyance despite the finality of the registration is that the issuance of
a certificate of title does not create or vest ownership to a person over the property. 174 Registration
under the Torrens system "is not a mode of acquiring ownership."175 A certificate is only a proof of
ownership. 176 Thus, its issuance does not foreclose the possibility of having a different owner, and it
cannot be used against the true owner as a shield for fraud. 177

In an action for reconveyance, the parties are obliged to prove their ownership over the property.
Necessarily, the parties may present evidence to support their claims. The court must weigh these
pieces of evidence and decide who between the parties the true owner is. Therefore, it cannot be
bound simply by the factual findings of the land registration court alone.

An exception to this rule is if the party claiming ownership has already had the opportunity to prove
his or her claim in the land registration case. 178 In such a case, res judicata will then apply. 179 When
an issue of ownership has been raised in the land registration proceedings where the adverse party
was given full opportunity to present his or her claim, the findings in the land registration case will
constitute a bar from any other claim of the adverse party on the property. 180

However, this is not the circumstance in the case at bar. The Spouses Po were not able to prove
their claim in the registration proceedings. Thus, res judicata cannot apply to their action for
reconveyance.

The Spouses Aboitiz posit that the Deed of Absolute Sale between Ciriaco and the Spouses Po is
fake and fraudulent. 181 They argue that this is evidenced by certifications of the document's non-
existence in the notarial books and the Spouses Po's failure to enforce their rights over the property
until 18 years later. 182 They also claim that the Deed of Absolute Sale is inadmissible as no
documentary stamp was paid and affixed. 183

This Court notes that the Spouses Aboitiz are raising questions of fact which are not within the
scope of a review on certiorari under Rule 45 of the Rules of Court. 184 An appeal under Rule 45 must
raise only questions of law, unless the factual findings are not supported by evidence or the
judgment is based on a misapprehension of facts. 185 Absent these exceptions, the factual findings of
the lower courts are accorded respect and are beyond the review of this Court.186

The Spouses Aboitiz failed to prove that these exceptions exist in the case at bar. The Regional Trial
Court lent credence to documents presented by the Spouses Po, Peter's testimony about Mariano's
sale of the property to Ciriaco,187 Ciriaco's sale of the property to the Spouses Po, and the issuance
of a Tax Declaration in the name of Victoria. 188

During trial, Peter also testified that after they bought the land, they had a caretaker who cultivated
the property by planting fruit trees. 189 He claimed that when they subsequently discovered the
quitclaim executed by Ciriaco in favor of the Spouses Aboitiz, they executed a Memorandum of
Agreement to protect their interests in the property. 190 He stated that they filed a complaint in the
barangay when the Spouses Aboitiz started cutting down their improvements and that they
subsequently discovered that Ciriaco was forced by the Mariano Heirs to sell the property to the
Spouses Aboitiz. 191

The Spouses Aboitiz presented as their first witness Armando Avenido, who testified according to
the records only. 192 He claimed that he was familiar with the land which was being developed by
Aboitiz Land. He testified that Roberto acquired the land through separate Deeds of Sale from the
Mariano Heirs, had the tax declaration transferred in his name, paid the taxes on the property,
applied for the property's registration, and developed the property into a subdivision.193 During cross-
examination it was revealed that the tax declaration of the Spouses Po was issued before the tax
declaration of the Spouses Aboitiz and that the Spouses Po acquired from Ciriaco the entire land,
while the Spouses Aboitiz purchased only one-fifth (1/5) of the property. 194

The Spouses Aboitiz's second witness, Bienvenido Escoton, testified that he was a mason working
in the subdivision on the road lot and that he knew no person claiming ownership of the land since
1989. 195

The Regional Trial Court thus held:

Analyzing the adduced and admitted evidence of both parties, Art. 1544 of the Civil Code cannot be
aptly applied in the case at bar, for reason that only the sale of Ciriaco Seno (Exh. "A" Exh. All" Exh.
2"/ A, A-1 and A-2) has the validating elements of sale, whereas the rest of the Deeds of Sale (Exhs
1 to 5) executed by the Heirs of Mariano Seno in favor of the Defendants are void, for containing
untruthful statements as pleaded and proven. They are no longer the owners of the subject property
when they executed the several Deeds of Conveyance to defendant Roberto Aboitiz.

On the first issue on the identity and location of the land, the sale of Ciriaco Seno to Plaintiffs (Exh.
"A") reflected in the Tax Declarations that the Defendants used in their titling proceeding is the very
same lot as certified by the Barangay Captain dated July 28, 1999 under Plaintiff's Request for
Admission. Concerning the second formulated issue, only the Deed of Sale executed by Ciriaco
Seno was valid with all the attending requisites of sale. It was sold by the legitimate owner of the
land, Ciriaco Seno to the Plaintiffs. The sale (Exh. A, Exhibit "X") enjoyed preferential date of
execution, being dated or executed in 1978 by the lawful owner Ciriaco Seno who was first to
register the sale in the Registry of Property office, and due to such registration, the Tax Declaration
of Ciriaco Seno, was cancelled and a new Tax Declaration was issued in the name of Victoria Po for
as shown in Exh. E the said tax declaration succeeded in canceling the Tax Declaration of Mariano
Seno (Exh. C) and was issued thereafter a Tax Declaration in the name of C[i]riaco Seno (Exh. D).
So, when the latter sold the subject land to plaintiffs in 1978, the same was already owned by
C[i]riaco Seno.

When Mariano Seno died in 1982, the subject land owned by C[i]riaco Seno, naturally, is not part of
the estate of Mariano Seno, for at that point in time, the subject land is now owned by plaintiffs Sps.
Po, and the same was declared in their names (Exh. "D" "E" & "E-1 ").
As to the issue whether defendant Roberto Aboitiz was a purchaser in good faith and for value, the
Court holds that defendant Roberto Aboitiz was not a purchaser in good faith and for value for he
was already informed of the ownership of plaintiffs over the subject land during the conciliation
proceedings before the barangay official when plaintiffs filed a barangay case against him.

In this case, the Court believes that defendant Roberto Aboitiz is aware of the proprietary rights of
the plaintiffs considering the land was already declared for taxation purposes in plaintiffs' names
after the tax declaration of said land, first in the name of Mariano Seno was cancelled and another
one issued in the name of C[i]riaco Seno when the latter bought the said land from his father
Mariano Seno, and after the said tax declaration in the name of C[i]riaco Seno was cancelled and
another one issued in the name of plaintiffs herein.

So, defendant Roberto Aboitiz purchased the subject land from the Heirs of Mariano Seno who are
no longer the owners thereof and the tax declaration of subject land was no longer in the name of
Mariano Seno nor in the name of Heirs of Mariano Seno.

The City Assessor of Mandaue City even issued a Certification (Exh. X) to the effect that Tax
Declaration No. 0634-A in the name of Mrs. Victoria Lee Po married to Peter Po was issued prior to
the issuance of T.D. No. 1100 in the name of Roberto Aboitiz married to Maria Cristina Cabarruz.

Buyers of any untitled parcel of land for that matter, to protect their interest, will first verify from the
Assessor's Office that status of said land whether it has clean title or not. 196

With the exception of its ruling regarding respondents Jose, Ernesto, and Isabel being purchasers in
good faith, these factual findings were affirmed by the Court of Appeals.

Thus, there is no showing that the factual findings are not supported by evidence or that the
judgment seems to be based on a misapprehension of facts. Therefore, the factual findings of the
lower courts are binding.

Furthermore, this Court finds that the Spouses Aboitiz failed to prove their claim of fraud. The
Spouses Aboitiz attempted to prove that the Deed of Absolute Sale between Ciriaco and the
Spouses Po was fake and fraudulent by presenting certifications of its non-existence in the notarial
books of the notary public who notarized the document.197

However, a review of the certifications does not even state that the document does not exist in the
notarial books.

The Certification dated April 1, 1997 of the Records Management and Archives Office of the
Department of Education, Culture and Sports states:

This is to certify that per records of this Office, Deed of Sale executed by and between Ciriaco Seno
and Victoria Lee known as Doc. No. 66; Page No. 14; Book No. I; Series of 1978 entered in the
Notarial Register of Notary Public Jesus Pono is not among the documents transferred by the
Regional Trial Court of Cebu for safekeeping. 198

Likewise, the Certification dated April 4, 1997 of the Office of the Clerk of Court of the Regional Trial
Court of Cebu, 7th Judicial Region, Cebu City provides:

This is to certify that as per notarial records on file with this office, available and found as of this
date, Atty. Jesus M. Pono had been issued a Notarial Commission for the term 1978-1979.
It is further certifie[d] that said Notary Public has not submitted his notarial reports for the year 1978-
1979 in this office wherein the Deed of Sale as stated on the letter dated March 31, 1997 designated
as Doc. no. 66; Page no. 14; Book no. I and Series of 1978 is allegedly included. 199 (Emphasis
supplied)

These Certifications do not declare that the Deed of Absolute Sale does not exist. They only state
that at the time of their issuance, the Notary Public had not submitted his notarial reports or that the
document had not been transferred to the archives for safekeeping. It cannot logically be concluded
from these certifications that the document is inexistent, false, or fraudulent. In any case, the Notary
Public's failure to submit his or her notarial report does not affect the act of notarization. 200

Rule 132, Section 30 of the Rules of Court provides that:

Section 30. Proof of notarial documents. - Every instrument duly acknowledged or proved and
certified as provided by law, may be presented in evidence without further proof, the certificate of
acknowledgment being prima facie evidence of the execution of the instrument or document
involved.

When a private document is notarized, the document is converted to a public document which is
presumed regular, admissible in evidence without need for proof of its authenticity and due
execution, and entitled to full faith and credit upon its face. 201

To overturn the presumption in favor of a notarized document, the party questioning it must present
"clear, convincing, and more than merely preponderant evidence."202

Thus, parties who appear before a Notary Public should not be prejudiced by the failure of the
Notary Public to follow rules imposed by the Notarial Law.203 They are not obliged to ensure that the
Notary Public submits his or her notarial reports. 204

The Spouses Aboitiz failed to present clear and convincing evidence to overturn the presumption.
The notarized Deed of Absolute Sale between Ciriaco and the Spouses Po is, thus, presumed
regular and authentic.

Consequently, this Court can affirm the finding that the property was sold to Ciriaco in 1973, and that
Ciriaco, as the owner of the property, had the right to sell it to the Spouses Po. Hence, the lot did not
form part of the estate of Mariano, and the Mariano Heirs did not have the capacity to sell the
property to the Spouses Aboitiz later on.

VI

The Spouses Aboitiz argue that the Mariano Heirs are indispensable parties who should have been
impleaded in this case.205

The Mariano Heirs are not indispensable parties.

Rule 3, Section 7 of the Revised Rules of Court provides:

Section 7. Compulsory Joinder of Indispensable Parties. - Parties in interest without whom no final
determination can be had of an action shall be joined either as plaintiffs or defendants.
An indispensable party is the party whose legal presence in the proceeding is so necessary that "the
action cannot be finally determined" without him or her because his or her interests in the matter and
in the relief "are so bound up with that of the other parties."206

The property owners against whom the action for reconveyance is filed are indispensable
parties.207 No relief can be had, and the court cannot render a valid judgment, without them. 208 The
property has been sold to respondents Jose, Ernesto, and Isabel.209 Thus, they are indispensable
parties.

However, the seller of the property is not an indispensable party.210 In Spring Homes Subdivision Co.,
Inc. v. Spouses Tablada, Jr.: 211

Similarly, by virtue of the second Deed of Absolute Sale between Spring Homes and the Spouses
Lumbres, the Spouses Lumbres became the absolute and registered owner of the subject property
herein. As such, they possess that certain interest in the property without which, the courts cannot
proceed for settled is the doctrine that registered owners of parcels of land whose title is sought to
be nullified should be impleaded as an indispensable party. Spring Homes, however, which has
already sold its interests in the subject land, is no longer regarded as an indispensableparty, but is,
at best, considered to be a necessary party whose presence is necessary to adjudicate the whole
controversy, but whose interests are so far separable that a final decree can be made in its absence
without affecting it. This is because when Spring Homes sold the property in question to the
Spouses Lumbres, it practically transferred all its interests therein to the said Spouses. In fact, a new
title was already issued in the names of the Spouses Lumbres. As such, Spring Homes no longer
stands to be directly benefited or injured by the judgment in the instant suit regardless of whether the
new title registered in the names of the Spouses Lumbres is cancelled in favor of the Spouses
Tablada or not. Thus, contrary to the ruling of the RTC, the failure to summon Spring Homes does
not deprive it of jurisdiction over the instant case for Spring Homes is not an indispensable
party. 212 (Citations omitted, emphasis supplied).

The Mariano Heirs, as the alleged sellers of the property, are not indispensable parties. They are at
best necessary parties, which are covered by Rule 3, Section 8 of the Rules of Court:

Section 8. Necessary Party. - A necessary party is one who is not indispensable but who ought to be
joined as a party if complete relief is to be accorded as to those already parties, or for a complete
determination or settlement of the claim subject of the action.

Necessary parties may be joined in the case "to adjudicate the whole controversy," but the case may
go on without them because a judgment may be rendered without any effect on their rights and
interests. 213

The Mariano Heirs may likewise be considered material witnesses to the action. A material matter to
which a witness can testify on can be a "main fact which was the subject of the inquiry" or any
circumstance or fact "which tends to prove" the fact subject of the inquiry, "which tends to
corroborate or strengthen the testimony relative to such inquiry," and "which legitimately affects the
credit of any witness who testifies."214

The validity of the Deeds of Sale allegedly executed by the parties in this case is a material matter in
determining who the true owner of the property is. Thus, the Mariano Heirs, including Ciriaco, may
testify as to the Deeds of Sale they executed to prove which sale is the valid one.

However, it is clear that the Mariano Heirs are not indispensable parties. They have already sold all
their interests in the property to the Spouses Aboitiz. They will no longer be affected, benefited, or
injured byany ruling of this Court on the matter, whether it grants or denies the complaint for
reconveyance. The ruling of this Court as to whether the Spouses Po are entitled to reconveyance
will not affect their rights. Their interest has, thus, become separable from that of Jose, Ernesto, and
Isabel.

Thus, the Court of Appeals correctly ruled that the Mariano Heirs are not indispensable parties.

VII

Despite these findings, the Spouses Po cannot recover the property. Respondents Jose, Ernesto,
and Isabel are innocent purchasers for value.

An innocent purchaser for value refers to the buyer of the property who pays for its full and fair price
without or before notice of another person's right or interest in it.215 He or she buys the property
believing that "the [seller] [i]s the owner and could [transfer] the title to the property."216

The Spouses Po argue that respondents Jose, Ernesto, and Isabel are not innocent purchasers for
value because the tax declaration over the property has the following annotation:

This tax declaration is also declared in the name of Mrs. Victoria Lee Po, married to Peter Po under
tax dee. no. 0634-A so that one may be considered a duplicate to the other.

However, if a property is registered, the buyer of a parcel of land is not obliged to look beyond the
transfer certificate of title to be considered a purchaser in good faith for value.217

Section 44 of Presidential Decree No. 1529218 states:

Section 44. Statutory liens affecting title. - Every registered owner receiving a certificate of title in
pursuance of a decree of registration, and every subsequent purchaser of registered land taking a
certificate of title for value and in good faith, shall hold the same free from all encumbrances except
those noted in said certificate and any of the following encumbrances which may be subsisting,
namely:

First. Liens, claims or rights arising or existing under the laws and Constitution of the Philippines
which are not by law required to appear ofrecord in the Registry of Deeds in order to be valid against
subsequent purchasers or encumbrancers of record.

Second. Unpaid real estate taxes levied and assessed within two years immediately preceding the
acquisition of any right over the land by an innocent purchaser for value, without prejudice to the
right of the government to collect taxes payable before that period from the delinquent taxpayer
alone.

Third. Any public highway or private way established or recognized by law, or any government
irrigation canal or lateral thereof, if the certificate of title does not state that the boundaries of such
highway or irrigation canal or lateral thereof have been determined.

Fourth. Any disposition of the property or limitation on the use thereof by virtue of, or pursuant to,
Presidential Decree No. 27 or any other law or regulations on agrarian reform. (Emphasis supplied)

In Cruz v. Court of Appeals:219

The real purpose of the Torrens system of registration is to quiet title to land and to put a stop to any
question of legality of the title except claims which have been recorded in the certificate of title at the
time of registration or which may arise subsequent thereto. Every registered owner and every
subsequent purchaser for value in good faith holds the title to the property free from all
encumbrances except those noted in the certificate. Hence, a purchaser is not required to explore
further what the Torrens title on its face indicates in quest for any hidden defect or inchoate right that
may subsequently defeat his right thereto.

Where innocent third persons, relying on the correctness of the certificate of title thus issued, acquire
rights over the property the court cannot disregard such rights and order the total cancellation of the
certificate. The effect of such an outright cancellation would be to impair public confidence in the
certificate of title, for everyone dealing with property registered under the Torrens system would
have to inquire in every instance whether the title has been regularly or irregularly issued. This is
contrary to the evident purpose of the law. Every person dealing with registered land may safely rely
on the correctness of the certificate of title issued therefor and the law will in no way oblige him to go
behind the certificate to determine the condition of the property. Even if a decree in a registration
proceeding is infected with nullity, still an innocent purchaser for value relying on a Torrens title
issued in pursuance thereof is protected. 220

The rationale for this rule is the public's interest in sustaining "the indefeasibility of a certificate of
title, as evidence of the lawful ownership of the land or of any encumbrance" on it.221 In Leong
v. See:222

One need not inquire beyond the four comers of the certificate of title when dealing with registered
property ...

The protection of innocent purchasers in good faith for value grounds on the social interest
embedded in the legal concept granting indefeasibility of titles. Between the third party and the
1âwphi1

owner, the latter would be more familiar with the history and status of the titled property.
Consequently, an owner would incur less costs to discover alleged invalidities relating to the
property compared to a third party. Such costs are, thus, better borne by the owner to mitigate costs
for the economy, lessen delays in transactions, and achieve a less optimal welfare level for the
entire society.223 (Citations omitted)

Thus, respondents were not obliged to look beyond the title before they purchased the property.
They may rely solely on the face of the title.

The only exception to the rule is when the purchaser has actual knowledge of any defect or other
circumstance that would cause "a reasonably cautious man" to inquire into the title of the seller.224 If
there is anything which arouses suspicion, the vendee is obliged to investigate beyond the face of
the title. 225 Otherwise, the vendee cannot be deemed a purchaser in good faith entitled to protection
under the law.226

In this case, there is no showing that respondents Jose, Ernesto, and Isabel had any knowledge of
the defect in the title. Considering that the annotation that the Spouses Po are invoking is found in
the tax declaration and not in the title of the property, respondents Jose, Ernesto, and Isabel cannot
be deemed purchasers in bad faith.

WHEREFORE, the Court of Appeals' October 31, 2012 Decision227 and its June 17, 2013
Resolution228 in CA-G.R. CV No. 03803 is AFFIRMED.

SO ORDERED.