Page |1 [1967V322E] THE BOARD OF LIQUIDATORS representing THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES, plaintiff-appellant, vs.

HEIRS OF MAXIMO M. KALAW, JUAN BOCAR, ESTATE OF THE DECEASED CASIMIRO GARCIA, and LEONOR MOLL, defendants-appellees.1967 Aug 14En Banc G.R. No. L-18805 DECISION SANCHEZ, J.: The National Coconut Corporation (NACOCO, for short) was chartered as a non-profit governmental organization on May 7, 1940 by Commonwealth Act 518 avowedly for the protection, preservation and development of the coconut industry in the Philippines. On August 1, 1946, NACOCO's charter was amended [Republic Act 5] to grant that corporation the express power "to buy, sell, barter, export, and in any other manner deal in, coconut, copra, and dessicated coconut, as well as their by-products, and to act as agent, broker or commission merchant of the producers, dealers or merchants" thereof. The charter amendment was enacted to stabilize copra prices, to serve coconut producers by securing advantageous prices for them, to cut down to a minimum, if not altogether eliminate, the margin of middlemen, mostly aliens. General manager and board chairman was Maximo M. Kalaw; defendants Juan Bocar and Casimiro Garcia were members of the Board; defendant Leonor Moll became director only on December 22, 1947. NACOCO, after the passage of Republic Act 5, embarked on copra trading activities. Amongst the scores of contracts executed by general manager Kalaw are the disputed contracts, for the delivery of copra, viz: (a) July 30, 1947: Alexander Adamson & Co., for 2,000 long tons, $167.00 per ton, f.o.b., delivery: August and September, 1947. This contract was later assigned to Louis Dreyfus & Co. (Overseas) Ltd. (b) August 14, 1947: Alexander Adamson & Co., for 3,000 long tons, $145.00 per long ton, f.o.b., Philippine ports, to be shipped: September/October, 1947. This contract was also assigned to Louis Dreyfus & Co. (Overseas) Ltd. (c) August 22, 1947: Pacific Vegetable Co, for 3,000 tons, $137.50 per ton, delivery: September, 1947. (d) September 5, 1947: Spencer Kellog & Sons, for 1,000 long tons, $160.00 per ton, c.i.f., Los Angeles, California delivery: November, 1947. (e) September 9, 1947: Franklin Baker Division of General Foods Corporation, for 1,500 long tons, $164.00 per ton, c.i.f., New York, to be shipped in November, 1947. (f) September 12, 1947: Louis Dreyfus & Co. (Overseas) Ltd., for 3,000 long tons, $154.00 per ton, f.o.b., 3 Philippine ports, delivery: November, 1947. (g) September 13, 1947: Juan Cojuangco, for 2,000 tons $175.00 per ton, delivery: November and December, 1947. This contract was assigned to Pacific Vegetable Co. (h) October 27, 1947: Fairwood & Co., for 1,000 tons $210.00 per short ton, c.i.f., Pacific ports, delivery: December, 1947 and January, 1948. This contract was assigned to Pacific Vegetable Co.

Page |2 (i) October 28, 1947: Fairwood & Co., for 1,000 tons $210.00 per short ton, c.i.f., Pacific ports, delivery: January, 1948. This contract was assigned to Pacific Vegetable Co. An unhappy chain of events conspired to deter NACOCO from fulfilling these contracts. Nature supervened. Four devastating typhoons visited the Philippines: the first in October, the second and third in November, and the fourth in December, 1947. Coconut trees throughout the country suffered extensive damage. Copra production decreased. Prices spiralled. Warehouses were destroyed. Cash requirements doubled. Deprivation of export facilities increased the time necessary to accumulate shiploads of copra. Quick turnovers became impossible, financing a problem. When it became clear that the contracts would be unprofitable Kalaw submitted them to the board for approval. It was not until December 22, 1947 when the membership was completed. Defendant Moll took her oath on that date. A meeting was then held. Kalaw made a full disclosure of the situation, apprised the board of the impending heavy losses. No action was taken on the contracts. Neither did the board vote thereon at the meeting of January 7, 1948 following. Then, on January 11, 1948, President Roxas made a statement that the NACOCO head did his best to avert the losses, emphasized that government concerns faced the same risks that confronted private companies, that NACOCO was recouping its losses, and that Kalaw was to remain in his post. Not long thereafter, that is, on January 30, 1948, the board met again with Kalaw, Bocar, Garcia and Moll in attendance. They unanimously approved the contracts hereinbefore enumerated. As was to be expected, NACOCO but partially performed the contracts, as follows: Buyers Tons Delivered 2,386.45 Undelivered 4,613.55

Pacific Vegetable Oil Spencer Kellog Franklin Baker Louis Dreyfus

None 1,000 1,000 500 800 2,200

Louis Dreyfus (Adamson contract of July 30, 1947) 1,150 850 Louis Dreyfus (Adamson contract of August 14, 1947) TOTALS 1,755 245

9,408.55

7,091.45

The buyers threatened damage suits. Some of the claims were settled, viz: Pacific Vegetable Oil Co., in copra delivered by NACOCO, P539,000.00; Franklin Baker Corporation, P78,210,00; Spencer Kellog & Sons, P159,040.00. But one buyer, Louis Dreyfus & Co. (Overseas) Ltd., did in fact sue before the Court of First Instance of Manila, upon claims as follows: For the undelivered copra under the July 30 contract (Civil Case 4459), P287,028.00; for the balance on the August 14, contract (Civil Case 4398,

Page |3 P75,098.63; for that per the September 12 contract reduced to judgment (Civil Case 4322, appealed to this Court in L- 2829), P447,904.40. These cases culminated in an out-of-court amicable settlement - when the Kalaw management was already out. The corporation thereunder paid Dreyfus P567,024.52 representing 70% of the total claims. With particular reference to the Dreyfus claims, NACOCO put up the defenses that: (1) the contracts were void because Louis Dreyfus & Co. (Overseas) Ltd. did not have license to do business here; and (2) failure to deliver was due to force majeure, the typhoons. To project the utter unreasonableness of this compromise, we reproduce in haec verba this finding below: ". . . However, in similar cases brought by the same claimant [Louis Dreyfus & Co. (Overseas) Ltd.] against Santiago Syjuco for non- delivery of copra also involving a claim of P345,654.68 wherein defendant set up same defenses as above, plaintiff accepted a promise of P5,000.00 only (Exhs. 31 & 32-Heirs). Following the same proportion, the claim of Dreyfus against NACOCO should have been compromised for only P10,000.00, if at all. Now, why should defendant be held liable for the large sum paid as compromise by the Board of Liquidators? This is just a sample to show how unjust it would be to hold defendants liable for the readiness with which the Board of Liquidators disposed of the NACOCO funds, although there was much possibility of successfully resisting the claims, or at least settlement for nominal sums like what happened in the Syjuco case." All the settlements sum up to P1,343,274.52. In this suit started in February, 1949, NACOCO seeks to recover the above sum of P1,343,274.52 from general manager and board chairman Maximo M. Kalaw, and directors Juan Bocar, Casimiro Garcia and Leonor Moll. It charges Kalaw with negligence under Article 1902 of the old Civil Code (now Article 2176, new Civil Code); and defendant board members, including Kalaw, with bad faith and/or breach trust for having approved the contracts. The fifth amended complaint, on which this case was tried, was filed on July 2, 1959. Defendants resisted the action upon defenses hereinafter in this opinion to be discussed. The lower court came out with a judgment dismissing the complaint without costs as well as defendant's counterclaims, except that plaintiff was ordered to pay the heirs of Maximo Kalaw the sum of P2,601.94 for unpaid salaries and cash deposit due the deceased Kalaw from NACOCO. Plaintiff appealed direct to this Court. Plaintiff's brief did not question the judgment on Kalaw's counterclaim for the sum of P2,601.94. Right at the outset, two preliminary questions raised before, but adversely decided by, the court below, arrest our attention. On appeal, defendants renew their bid. And this, upon established jurisprudence that an appellate court may base its decision of affirmance of the judgment below on a point or points ignored by the trial court or in which said court was in error. 1. First of the threshold questions is that advanced by defendants that plaintiff Board of Liquidators has lost its legal personality to continue with this suit. Accepted in this jurisdiction are three methods by which a corporation may wind up its affairs: (1) under Section 3, Rule 104, of the Rules of Court [which superseded Section 66 of the Corporation Law] whereby, upon voluntary dissolution of a corporation, the court may direct "such disposition of its assets as justice requires, and may appoint a receiver to collect such assets and pay the debts of the corporation;" (2) under Section 77 of the Corporation Law,

Page |4 whereby a corporation whose corporate existence is terminated, "shall nevertheless be continued as a body corporate for three years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and of enabling it gradually to settle and close its affairs, to dispose of and convey its property and to divide its capital stock, but not for the purpose of continuing the business for which it was established"; and (3) under Section 78 of the Corporation Law, by virtue of which the corporation, within the three-year period just mentioned, "is authorized and empowered to convey all of its property to trustees for the benefit of members, stockholders, creditors, and others interested." It is defendants' pose that their case comes within the coverage of the second method. They reason out that suit was commenced in February, 1949; that by Executive Order 372, dated November 24, 1950, NACOCO, together with other government-owned corporations, was abolished, and the Board of Liquidators was entrusted with the function of settling and closing its affairs; and that, since the three-year period has elapsed, the Board of Liquidators may not now continue with, and prosecute, the present case to its conclusion, because Executive Order 372 provides in Section 1 thereof that "SECTION 1. The National Abaca and Other Fibers Corporation, the National Coconut Corporation, the National Tobacco Corporation, the National Food Products Corporation and the former enemy-owned or controlled corporations or associations, . . . are hereby abolished. The said corporations shall be liquidated in accordance with law, the provisions of this Order, and/or in such manner as the President of the Philippines may direct; Provided, however, That each of the said corporations shall nevertheless be continued as a body corporate for a period of three (3) years from the effective date of this Executive Order for the purpose of prosecuting and defending suits by or against it and of enabling the Board of Liquidators gradually to settle and close its affairs, to dispose of and convey its property in the manner hereinafter provided." Citing Mr. Justice Fisher, defendants proceed to argue that even where it may be found impossible within the 3-year period to reduce disputed claims to judgment, nonetheless, "suits by or against a corporation abate when it ceases to be an entity capable of suing or being sued" (Fisher, The Philippine Law of Stock Corporations, pp. 390-391). Corpus Juris Secundum likewise is authority for the statement that "[t]he dissolution of a corporation ends its existence so that there must be statutory authority for prolongation of its life even for purposes of pending litigation"; and that suit "cannot be continued or revived; nor can a valid judgment be rendered therein, and a judgment, if rendered, is not only erroneous, but void and subject to collateral attack." So it is, that abatement of pending actions follows as a matter of course upon the expiration of the legal period for liquidation, unless the statute merely requires a commencement of suit within the added time. For, the court cannot extend the time alloted by statute. We, however, express the view that the executive order abolishing NACOCO and creating the Board of Liquidators should be examined in context. The proviso in Section 1 of Executive Order 372, whereby the corporate existence of NACOCO was continued for a period of three years from the effectivity of the order for "the purpose of prosecuting and defending suits by or against it and of enabling the Board of Liquidators gradually to settle and close its affairs, to dispose of and convey its property in the manner hereinafter provided", is to be read not as an isolated provision but in conjunction with the whole. So reading, it will be readily observed that no time limit has been tackled to the existence of the Board of Liquidators and its function of closing the affairs of the various government-owned corporations, including NACOCO.

Page |5 By Section 2 of the executive order, while the boards of directors of the various corporations were abolished, their powers and functions and duties under existing laws were to be assumed and exercised by the Board of Liquidators. The President thought it best to do away with the boards of directors of the defunct corporations; at the same time, however, the President had chosen to see to it that the Board of Liquidators step into the vacuum. And nowhere in the executive order was there any mention of the lifespan of the Board of Liquidators. A glance at the other provisions of the executive order buttresses our conclusion. Thus, liquidation by the Board of Liquidators may, under section 1, proceed in accordance with law, the provisions of the executive order, "and/or in such manner as the President of the Philippines may direct." By Section 4, when any property, fund, or project is transferred to any governmental instrumentality "for administration or continuance of any project," the necessary funds therefor shall be taken from the corresponding special fund created in Section 5. Section 5, in turn, talks of special funds established from the "net proceeds of the liquidation" of the various corporations abolished. And by Section 7, fifty per centum of the fees collected from the copra standardization and inspection service shall accrue "to the special fund created in section 5 hereof for the rehabilitation and development of the coconut industry." Implicit in all these, is that the term of life of the Board of Liquidators is without time limit. Contemporary history gives us the fact that the Board of Liquidators still exists as an office with officials and numerous employees continuing the job of liquidation and prosecution of several court actions. Not that our views on the power of the Board of Liquidators to proceed to the final determination of the present case is without jurisprudential support. The first judicial test before this Court is National Abaca and Other Fibers Corporation vs. Pore, L-16779, August 16, 1961. In that case, the corporation, already dissolved, commenced suit within the three-year extended period for liquidation. That suit was for recovery of money advanced to defendant for the purchase of hemp in behalf of the corporation. She failed to account for that money. Defendant moved to dismiss, questioned the corporation's capacity to sue. The lower court ordered plaintiff to include as co- party plaintiff. The Board of Liquidators, to which the corporation's liquidation was entrusted by Executive Order 372. Plaintiff failed to effect inclusion. The lower court dismissed the suit. Plaintiff moved to reconsider. Ground: excusable negligence, in that its counsel prepared the amended complaint, as directed, and instructed the board's incoming and outgoing correspondence clerk, Mrs. Receda Vda. de Ocampo, to mail the original thereof to the court and a copy of the same to defendant's counsel. She mailed the copy to the latter but failed to send the original to the court. This motion was rejected below. Plaintiff came to this Court on appeal. We there said that "the rule appears to be well settled that, in the absence of statutory provision to the contrary, pending actions by or against a corporation are abated upon expiration of the period allowed by law for the liquidation of its affairs." We there noted that "[o]ur Corporation Law contains no provision authorizing a corporation, after three (3) years from the expiration of its lifetime, to continue in its corporate name actions instituted by it within said period of three (3) years." 14 However, these precepts notwithstanding, we, in effect, held in that case that the Board of Liquidators escapes from the operation thereof for the reason that "[o]bviously, the complete loss of plaintiffs corporate existence after the expiration of the period of three (3) years for the settlement of its affairs is what impelled the President to create a Board of Liquidators, to continue the management of such matters as may then be pending." 15 We accordingly directed the record of said case to be returned to the lower court, with instructions to admit plaintiff's amended complaint to include, as party plaintiff, The Board of Liquidators. Defendant's position is vulnerable to attack from another direction.

Page |6 By Executive Order 372, the government, the sole stockholder, abolished NACOCO, and placed its assets in the hands of the Board of Liquidators. The Board of Liquidators thus became the trustee on behalf of the government. It was an express trust. The legal interest became vested in the trustee the Board of Liquidators. The beneficial interest remained with the sole stockholder the government. At no time had the government withdrawn the property, or the authority to continue the present suit, from the Board of Liquidators. If for this reason alone, we cannot stay the hand of the Board of Liquidators from prosecuting this case to its final conclusion. 16 The provisions of Section 78 of the Corporation Law the third method of winding up corporate affairs find application. We, accordingly, rule that the Board of Liquidators has personality to proceed as party-plaintiff in this case. 2. Defendant's second poser is that the action is unenforceable against the heirs of Kalaw.

Appellee heirs of Kalaw raised in their motion to dismiss, 17 which was overruled, and in their nineteenth special defense, that plaintiffs action is personal to the deceased Maximo M. Kalaw, and may not be deemed to have survived after his death. 18 They say that the controlling statute is Section 5, Rule 87, of the 1940 Rules of Court, 19 which provides that "[a]ll claims for money against the decedent, arising from contract, express or implied," must be filed in the estate proceedings of the deceased. We disagree. The suit here revolves around the alleged negligent acts of Kalaw for having entered into the questioned contracts without prior approval of the board of directors, to the damage and prejudice of plaintiff; and is against Kalaw and the other directors for having subsequently approved the said contracts in bad faith and/or breach of trust. Clearly then, the present case is not a mere action for the recovery of money nor a claim for money arising from contract. The suit involves alleged tortious acts. And the action is embraced in suits filed "to recover damages for an injury to person or property, real or personal," which survive. 20 The leading expositor of the law on this point is Aguas vs. Llemos, L-18107, August 30, 1962. There, plaintiffs sought to recover damages from defendant Llemos. The complaint averred that Llemos had served plaintiff by registered mail with a copy of a petition for a writ of possession in Civil Case 4824 of the Court of First Instance at Catbalogan, Samar, with notice that the same would be submitted to the Samar court on February 23, 1960 at 8:00 am.; that in view of the copy and notice served, plaintiffs proceeded to the said court of Samar from their residence in Manila accompanied by their lawyers, only to discover that no such petition had been filed; and that defendant Llemos maliciously failed to appear in court, so that plaintiffs' expenditure and trouble turned out to be in vain, causing them mental anguish and undue embarrassment. Defendant died before he could answer the complaint. Upon leave of court, plaintiffs amended their complaint to include the heirs of the deceased. The heirs moved to dismiss. The court dismissed the complaint on the ground that the legal representative, and not the heirs, should have been made the party defendant; and that, anyway, the action being for recovery of money, testate or intestate proceedings should be initiated and the claim filed therein. This Court, thru Mr. Justice Jose B. L. Reyes, there declared: "Plaintiffs argue with considerable cogency that contrasting the correlated provisions of the Rules of Court, those concerning claims that are barred if not filed in the estate settlement proceedings (Rule 87, sec. 5) and those defining actions that survive and may be prosecuted against the executor or administrator (Rule 88, sec. 1), it is apparent that actions for damages caused by tortious conduct of a defendant (as in the case at bar) survive the death of the latter.

Page |7 Under Rule 87, section 5, the actions that are abated by death are: (1) claims for funeral expenses and those for the last sickness of the decedent; (2) judgments for money; and (3) 'all claims for money against the decedent, arising from contract express or implied.' None of these includes that of the plaintiffs appellants; for it is not enough that the claim against the deceased party be for money, but it must arise from 'contract express or implied,' and these words (also used by the Rules in connection with attachments and derived from the common law) were construed in Leung Ben vs. O'Brien, 38 Phil., 182, 189-194, 'to include all purely personal obligations other than those which have their source in delict or tort.' Upon the other hand, Rule 88, section 1, enumerates actions that survive against a decedent's executors or administrators, and they are: (1) actions to recover real and personal property from the estate; (2) actions to enforce a lien thereon; and (3) actions to recover damages for an injury to person or property. The present suit is one for damages under the last class, it having been held that 'injury to property' is not limited to injuries to specific property, but extends to other wrongs by which personal estate is injured or diminished (Baker vs. Crandall, 47 Am. Rep. 126; also 171 A.L.R., 1395). To maliciously cause a party to incur unnecessary expenses, as charged in this case, is certainly injury to that party's property (Javier vs. Araneta, 90 Phil. 287). The ruling in the preceding case was hammered out of facts comparable to those of the present. No cogent reason exists why we should break away from the views just expressed. And, the conclusion remains: Action against the Kalaw heirs and, for that matter, against the Estate of Casimiro Garcia, survives. The preliminaries out of the way, we now go to the core of the controversy. 3. Plaintiff levelled a major attack on the lower court's holding that Kalaw justifiedly entered into the controverted contracts without the prior approval of the corporation's directorate. Plaintiff leans heavily on NACOCO's corporate by-laws. Article IV (b), Chapter III thereof, recites, as amongst the duties of the general manager, the obligation: "(b) To perform or execute on behalf of the Corporation upon prior approval of the Board, all contracts necessary and essential to the proper accomplishment for which the Corporation was organized." Not of de minimis importance in a proper approach to the problem at hand, is the nature of a general manager's position in the corporate structure. A rule that has gained acceptance through the years is that a corporate officer "intrusted with the general management and control of its business, has implied authority to make any contract or do any other act which is necessary or appropriate to the conduct of the ordinary business of the corporation." 21 As such officer, "he may, without any special authority from the Board of Directors, perform all acts of an ordinary nature, which by usage or necessity are incident to his office, and may bind the corporation by contracts in matters arising in the usual course of business." 22 The problem, therefore, is whether the case at bar is to be taken out of the general concept of the powers of a general manager, given the cited provision of the NACOCO by-laws requiring prior directorate approval of NACOCO contracts. The peculiar nature of copra trading, at this point, deserves express articulation. Ordinary in this enterprise are copra sales for future delivery. The movement of the market requires that sales agreements be entered into, even though the goods are not yet in the hands of the seller. Known in business parlance as forward sales, it is concededly the practice of the trade. A certain amount of speculation is inherent in the undertaking. NACOCO was much more conservative

Page |8 than the exporters with big capital. This short-selling was inevitable at the time in the light of other factors, such as availability of vessels, the quantity required before being accepted for loading, the labor needed to prepare and sack the copra for market. To NACOCO, forward sales were a necessity. Copra could not stay long in its hands; it would lose weight, its value decrease. Above all, NACOCO'S limited funds necessitated a quick turnover. Copra contracts then had to be executed on short notice at times within twenty-four hours. To be appreciated then is the difficulty of calling a formal meeting of the board. Such were the environmental circumstances when Kalaw went into copra trading. Long before the disputed contracts came into being, Kalaw contracted by himself alone as general manager for forward sales of copra. For the fiscal year ending June 30, 1947, Kalaw signed some 60 such contracts for the sale of copra to divers parties. During that period, from those copra sales, NACOCO reaped a gross profit of P3,631,181.48. So pleased was NACOCO's board of directors that, on December 5, 1946, in Kalaw's absence, it voted to grant him a special bonus "in recognition of the signal achievement rendered by him in putting the Corporation's business on a self-sufficient basis within a few months after assuming office, despite numerous handicaps and difficulties." These previous contracts, it should be stressed, were signed by Kalaw without prior authority from the board. Said contracts were known all along to the board members. Nothing was said by them. The aforesaid contracts stand to prove one thing. Obviously NACOCO board met the difficulties attendant to forward sales by leaving the adoption of means to end, to the sound discretion of NACOCO's general manager Maximo M. Kalaw. Liberally spread on the record are instances of contracts executed by NACOCO's general manager and submitted to the board after their consummation, not before. These agreements were not Kalaw's alone. One at least was executed by a predecessor way back in 1940, soon after NACOCO was chartered. It was a contract of lease executed on November 16, 1940 by the then general manager and board chairman, Maximo Rodriguez, and A. Soriano y Cia., for the lease of a space in Soriano Building. On November 14, 1946, NACOCO, thru its general manager Kalaw, sold 3,000 tons of copra to the Food Ministry, London, thru Sebastian Palanca. On December 22, 1947, when the controversy over the present contracts cropped up, the board voted to approve a lease contract previously executed between Kalaw and Fidel Isberto and Ulpiana Isberto covering a warehouse of the latter. On the same date, the board gave its nod to a contract for renewal of the services of Dr. Manuel L. Roxas. In fact, also on that date, the board requested Kalaw to report for action all copra contracts signed by him "at the meeting immediately following the signing of the contracts." This practice was observed in a later instance when, on January 7, 1948, the board approved two previous contracts for the sale of 1,000 tons of copra each to a certain "SCAP" and a certain "GNAPO." And more. On December 19, 1946, the board resolved to ratify the brokerage commission of 2% of Smith Bell and Co., Ltd., in the sale of 4,300 long tons of copra to the French Government. Such ratification was necessary because, as stated by Kalaw in that same meeting, "under am existing resolution he is authorized to give a brokerage fee of only 1% on sales of copra made through brokers." On January 15, 1947, the brokerage fee agreements of 1 1/2% on three export contracts, and 2% on three others, for the sale of copra were approved by the board with a proviso authorizing the general manager to pay a commission up to the amount of 1 1/2% 'without further action by the Board." On February 5, 1947, the brokerage fee of 2% of J. Cojuangco & Co. on the sale of 2,000 tons of copra was favorably acted upon by the board. On

Page |9 March 19, 1947, a 2% brokerage commission was similarly approved by the board for Pacific Trading Corporation on the sale of 2,000 tons of copra. It is to be noted in the foregoing cases that only the brokerage fee agreements were passed upon by the board, not the sales contracts themselves. And even those fee agreements were submitted only when the commission exceeded the ceiling fixed by the board. Knowledge by the board is also discernible from other recorded instances. When the board met on May 10, 1947, the directors discussed the copra price situation: There was a slow downward trend but belief was entertained that the nadir might have already been reached and an improvement in prices was expected. In view thereof, Kalaw informed the board that "he intends to wait until he has signed contracts to sell before starting to buy copra." 23 In the board meeting of July 29, 1947, Kalaw reported on the copra price conditions then current: The copra market appeared to have become fairly steady; it was not expected that copra prices would again rise very high as in the unprecedented boom during January- April, 1947; the prices seemed to oscillate between $140 to $150 per ton; a radical rise or decrease was not indicated by the trends. Kalaw continued to say that "the corporation has been closing contracts for the sale of copra generally with a margin of P5.00 to P7.00 per hundred kilos." 24 We now lift the following excerpts from the minutes of that same board meeting of July 29, 1947: "521. In connection with the buying and selling of copra the Board inquired whether it is the practice of the Management to close contracts of sale first before buying. The General Manager replied that this practice is generally followed but that it is not always possible to do so for two reasons: (1) The role of the Nacoco to stabilize the prices of copra requires that it should not cease buying even when it does not have actual contracts of sale since the suspension of buying by the Nacoco will result in middlemen taking advantage of the temporary inactivity of the Corporation to lower the prices to the detriment of the producers. (2) The movement of the market is such that it may not be practical always to wait for the consummation of contracts of sale before beginning to buy copra. The General Manager explained that in this connection a certain amount of speculation is unavoidable. However he said that the Nacoco is much more conservative than the other big exporters in this respect." 25 Settled jurisprudence has it that where similar acts have been approved by the directors as a matter of general practice, custom, and policy, the general manager may bind the company without formal authorization of the board of directors. 26 In varying language, existence of such authority is established, by proof of the course of business, the usages and practices of the company and by the knowledge which the board of directors has, or must be presumed to have, of acts and doings of its subordinates in and about the affairs of the corporation. 27 So also, ". . . authority to act for and bind a corporation may be presumed from acts of recognition in other instances where the power was in fact exercised." 28

P a g e | 10 ". . . Thus, when, in the usual course of business of a corporation, an officer has been allowed in his official capacity to manage its affairs, his authority to represent the corporation may be implied from the manner in which he has been permitted by the directors to manage its business." 29 In the case at bar, the practice of the corporation has been to allow its general manager to negotiate and execute contracts in its copra trading activities for and in NACOCO's behalf without prior board approval. If the by-laws were to be literally followed, the board should give its stamp of prior approval on all corporate contracts. But that board itself, by its acts and through acquiescence practically laid aside the by-law requirement of prior approval. Under the given circumstances, the Kalaw contracts are valid corporate acts. 4. But if more were required, we need but turn to the board's ratification of the contracts in dispute on January 30, 1948, though it is our (and the lower court's) belief that ratification here is nothing more than a mere formality. Authorities, great in number, are one in the idea that "ratification by a corporation of an unauthorized act or contract by its officers or others relates back to the time of the act or contract ratified, and is equivalent to original authority;" and that "[t]he corporation and the other party to the transaction are in precisely the same position as if the act or contract had been authorized at the time." 30 The language of one case is expressive: "The adoption or ratification of a contract by a corporation is nothing more nor less than the making of an original contract. The theory of corporate ratification is predicated on the right of a corporation to contract, and any ratification or adoption is equivalent to a grant of prior authority." 31 Indeed, our law pronounces that "[r]atification cleanses the contract from all its defects from the moment it was constituted." 32 By corporate confirmation, the contracts executed by Kalaw are thus purged of whatever vice or defect they may have. 33 In sum, a case is here presented whereunder, even in the face of an express by-law requirement of prior approval, the law on corporations is not to be held so rigid and inflexible as to fail to recognize equitable considerations. And, the conclusion inevitably is that the embattled contracts remain valid. 5. It would be difficult, even with hostile eyes, to read the record in terms of "bad faith and/or breach of trust" in the board's ratification of the contracts without prior approval of the board. For, in reality, all that we have on the government's side of the scale is that the board knew that the contracts so confirmed would cause heavy losses. As we have earlier expressed, Kalaw had authority to execute the contracts without need of prior approval. Everybody, including Kalaw himself, thought so, and for a long time. Doubts were first thrown on the way only when the contracts turned out to be unprofitable for NACOCO. Rightfully had it been said that bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of a known duty thru some motive or interest or ill will; it partakes of the nature of fraud. 34 Applying this precept to the given facts herein, we find that there was no "dishonest purpose," or "some moral obliquity," or "conscious doing of wrong," or "breach of a known duty," or "some motive or interest or ill will" that "partakes of the nature of fraud." Nor was it even intimated here that the NACOCO directors acted for personal reasons, or to serve their own private interests, or to pocket money at the expense of the corporation. 35

P a g e | 11 We have had occasion to affirm that bad faith contemplates a "state of mind affirmatively operating with furtive design or with some motive of self-interest or ill will or for ulterior purpose." 36 Briggs vs. Spaulding, 141 U.S. 132, 148-149, 35 L. ed. 662, 669, quotes with approval from Judge Sharswood (in Spering's App., 71 Pa. 11), the following: "Upon a close examination of all the reported cases, although there are many dicta not easily reconcilable, yet I have found no judgment or decree which has held directors to account, except when they have themselves been personally guilty of some fraud on the corporation, or have known and connived at some fraud in others, or where such fraud might have been prevented had they given ordinary attention to their duties . . ." Plaintiff did not even dare charge its defendantdirectors with any of these malevolent acts. Obviously, the board thought that to jettison Kalaw's contracts would contravene basic dictates of fairness. They did not think of raising their voice in protest against past contracts which brought in enormous profits to the corporation. By the same token, fair dealing disagrees with the idea that similar contracts, when unprofitable, should not merit the same treatment. Profit or loss resulting from business ventures is no justification for turning one's back on contracts entered into. The truth, then, of the matter is that in the words of the trial court the ratification of the contracts was "an act of simple justice and fairness to the general manager and in the best interest of the corporation whose prestige would have been seriously impaired by a rejection by the board of those contracts which proved disadvantageous." 37 The directors are not liable. 6. 38

To what then may we trace the damage suffered by NACOCO?

The facts yield the answer. Four typhoons wreaked havoc then on our copra-producing regions. Result: Copra production was impaired, prices spiralled, warehouses destroyed. Quick turnovers could not be expected. NACOCO was not alone in this misfortune. The record discloses that private traders, old, experienced, with bigger facilities, were not spared; also suffered tremendous losses. Roughly estimated, eleven principal trading concerns did run losses to about P10,300,000.00. Plaintiff's witness Sisenando Barretto, head of the copra marketing department of NACOCO, observed that from late 1947 to early 1948 "there were many who lost money in the trade." 39 NACOCO was not immune from such usual business risk. The typhoons were known to plaintiff. In fact, NACOCO resisted the suits filed by Louis Dreyfus & Co. by pleading in its answers force majeure as an affirmative defense, and there vehemently asserted that "as a result of the said typhoons, extensive damage was caused to the coconut trees in the copra producing regions of the Philippines and according to estimates of competent authorities, it will take about one year until the coconut producing regions will be able to produce their normal coconut yield, and it will take some time until the price of copra will reach normal levels;" and that "it had never been the intention of the contracting parties in entering into the contract in question that, in the event of a sharp rise in the price of copra in the Philippine market produced by force majeure or by causes beyond defendant's control, the defendant should buy the copra contracted for at exorbitant prices far beyond the buying price of the plaintiff under the contract." 40 A high regard for normal judicial admissions made in court pleadings would suffice to deter us from permitting plaintiff to stray away therefrom, to charge now that the damage suffered was because of Kalaw's negligence, or for that matter, by reason of the board's ratification of the contracts. 41

P a g e | 12 Indeed, were it not for the typhoons, 42 NACOCO could have, with ease, met its contractual obligations. Stock accessibility was no problem. NACOCO had 90 buying agencies spread throughout the islands. It could purchase 2,000 tons of copra a day. The various contracts involved delivery of but 16,500 tons over a five-month period. Despite the typhoons, NACOCO was still able to deliver a little short of 50% of the tonnage required under the contracts. As the trial court correctly observed, this is a case of damnum absque injuria. Conjunction of damage and wrong is here absent. There cannot be an actionable wrong if either one or the other is wanting. 43 7. On top of all these, is that no assertion is made and no proof is presented which would link Kalaw's acts - ratified by the board to a matrix for defraudation of the government. Kalaw is clear of the stigma of bad faith. Plaintiff's corporate counsel 44 concedes that Kalaw all along thought that he had authority to enter into the contracts; that he did so in the best interests of the corporation; that he entered into the contracts in pursuance of an over-all policy to stabilize prices, to free the producers from the clutches of the middlemen. The prices for which NACOCO contracted in the disputed agreements, were at a level calculated to produce profits and higher than those prevailing in the local market. Plaintiff's witness, Barretto, categorically stated that "it would be foolish to think that one would sign (a) contract when you are going to lose money" and that no contract was executed "at a price unsafe for the Nacoco." 45 Really, on the basis of prices then prevailing, NACOCO envisioned a profit of around P752,440,00. 46 Kalaw's acts were not the result of haphazard decisions either. Kalaw invariably consulted with NACOCO's Chief Buyer, Sisenando Barretto, or the Assistant General Manager. The dailies and quotations from abroad were guideposts to him. Of course, Kalaw could not have been an insurer of profits. He could not be expected to predict the coming unpredictable typhoons. And even as typhoons supervened, Kalaw was not remiss in his duty. He exerted efforts to stave off loses. He asked the Philippine National Bank to implement its commitment to extend a P400,000.00 loan. The bank did not release the loan, not even the sum of P200,000.00, which, in October, 1947, was approved by the bank's board of directors. In frustration, on December 12, 1947, Kalaw turned to the President, complained about the bank's short-sighted policy. In the end, nothing came out of the negotiations with the bank. NACOCO eventually faltered in its contractual obligations. That Kalaw cannot be tagged with crassa negligentia or as much as simple negligence, would seem to be supported by the fact that even as the contracts were being questioned in Congress and in the NACOCO board itself, President Roxas defended the actuations of Kalaw. On December 27, 1947, President Roxas expressed his desire "that the Board of Directors should reelect Hon. Maximo M. Kalaw as General Manager of the National Coconut Corporation." 47 And, on January 7, 1948, at a time when the contracts had already been openly disputed, the board, at its regular meeting, appointed Maximo M. Kalaw as acting general manager of the corporation. Well may we profit from the following passage from Montelibano vs. Bacolod-Murcia Milling Co., Inc., L-15092, May 18, 1962: "They (the directors) hold such office charged with the duty to act for the corporation according to their best judgment, and in so doing they cannot be controlled in the reasonable exercise and performance of such duty. Whether the business of a corporation should be operated at a loss during a business depression, or closed down at a smaller loss, is a purely business and

P a g e | 13 economic problem to be determined by the directors of the corporation, and not by the court. It is a well-known rule of law that questions of policy of management are left solely to the honest decision of officers and directors of a corporation, and the court is without authority to substitute its judgment for the judgment of the board of directors; the board is the business manager of the corporation, and so long as it acts in good faith its orders are not reviewable by the courts.' (Fletcher on Corporations, Vol. 2., p. 390)." 48 Kalaw's good faith, and that of the other directors, clinch the case for defendants. 49

Viewed in the light of the entire record, the judgment under review must be, as it is hereby, affirmed. Without costs. So ordered. [1958V244E] ARSENIO FERRERIA, ET AL., petitioners-appellees, vs. MANUELA IBARRA VDA. DE GONZALES, ET AL., respondents-appellants.1958 Jul 17En BancG.R. No. L11567D E C I S I O N MONTEMAYOR, J.: This is quite an old case, about a landlord and some of her tenants, which had its origin in a complaint filed by some of said tenants way back on February 3, 1947. The thing involved is about twenty cavans of palay. But under the present law, the appeal from a resolution of the Court of Agrarian Relations had to come directly to this Tribunal. Manuela Ibarra Vda. de Gonzales presumably owned a parcel of land in Umingan, Pangasinan, cultivated by tenants. After the sharing of the crop for the agricultural year 1946-47 by her overseer, Luis Tecson, a number of the tenants, dissatisfied with their share on the basis of 6040, claiming that they were entitled to 70% of said crop, filed complaints with the Tenancy Division of the Department of Justice. It would appear, however, that only tenant Arsenio Ferreria continued with his complaint, his co-complainants having withdrawn theirs. Ferreria's complaint was filed not only against Manuela Ibarra, but also against the overseer, Luis Tecson. During the pendency of the case, Manuela died on November 27, 1948. Counsel for Ferreria filed a petition for substitution which was granted by order of the Department of Justice, dated December 9, 1948, which also set the case for hearing on January 6, 1949. The said order of December 9, 1948, at the bottom thereof, made mention of Manolita Gonzales as residing at 272 Buendia St., Rizal City. The return of service of said order supposedly by the Sheriff (Annex C), shows that a copy of the same was left with one Aurora Gonzales, niece of Manolita Gonzales, apparently living in said address. It may be stated in passing that Manolita Gonzales claims that she did not own the land in question; that her only right and interest in it was as an heir, being one of the five surviving children of Manuel. The scheduled hearing was held in the absence of Manolita Gonzales. Decision was finally rendered in the case on May 18, 1951. On May 23, 1952, the Court of Industrial Relations, then in charge of tenancy cases, issued a writ of execution of the judgment, the dispositive part of said decision in part reading as follows: "IN VIEW OF ALL THE FOREGOING, the respondent landlord and/or her duly authorized representative is/are hereby ordered to deliver to the petitioner-tenant Arsenio C. Ferreria the balance of 20.6 cavanes of palay equivalent to 10% of his share to complete his 70% participation in the crop harvested for the agricultural year 1946-1947, or its money value at the Naric price of palay in the locality, within 15 days from receipt of this decision.

P a g e | 14 Another portion of the dispositive part reproduced, states that the complaints of the other complainants were dismissed. On receipt of a copy of this writ of execution, Luis Tecson and Manolita Gonzales each filed a petition to set aside said writ. Luis claimed that it was true that he was an overseer of Manuela Ibarra, but that upon her death on November 27, 1948, the possession that he held of the land as overseer passed on to the administrator of the estate; that thereafter, he no longer had anything to do with said property, and that in the distribution of the crop for 1946-1947, the share of Manuela was duly delivered by him to her, and that any claim by Ferreria should be filed with and against her estate. On her part, Manolita claimed that she was surprised to receive a copy of the writ of execution because she was never made a party to the case and had never been served any process or notice of hearing therein, and that an examination of the record of the case would show that from the inception of the case up to the rendering of the decision, her name was never mentioned by any of the parties, and that it was a surprise to find her name included in the title of the decision as one of the defendants, although the body of said decision never mentioned her name; that although she was one of the five heirs of Manuela Ibarra, she, Manolita, was not the actual owner of the estate which was then under probate proceedings in the Court of First Instance of Rizal; and that if Ferreria had any claim against the estate, he should file the same to be passed upon by the probate court. Both Luis and Manolita asked that the writ of execution be set aside. It would seem that nothing was done about the petitions, and after the creation of the Court of Agrarian Relations, Judge Tomas P. Panganiban finally took action on the same, and by order of August 23, 1956, overruled the same, holding that under the law creating the Court of Agrarian Relations, said court had exclusive and original jurisdiction to try, investigate, and settle all cases, matters and disputes arising between landlord and tenant, and that the case at bar was purely a dispute between landlord and tenant. Both petitioners Luis and Manolita asked for reconsideration of the order, Manolita emphasizing her contention that she was deprived of her day in court due to the failure of plaintiff Ferreria to make the proper substitution, citing Rule 3, Section 17, above-reproduced. In a resolution dated October 29, 1956, the Agrarian Court held that Manuela Ibarra had been duly substituted by Manolita Gonzales, and that service of the order of substitution was duly served upon her. We reproduce the pertinent portion of the resolution: "Anent the first ground, it appears that respondent Manuela Ibarra Vda. de Gonzales was duly substituted upon her death by Manolita Gonzales Vda. de Carungcong in a petition filed by counsel for the petitioners on December 9, 1948, and granted by the representative of the former Tenancy Division, now Court of Agrarian Relations, on the same date. A copy of the order granting the petition for substitution was sent to Manolita Gonzales Vda. de Carungcong, through the Chief of Police of Rizal City, by registered mail on December 9, 1948. Therefore, respondent Manolita was duly notified of the hearing set on January 6, January 26, March 26, April 21, May 7, June 7, and July 1, all in the year 1949, but these hearings had to be cancelled due to the absence of the respondents on January 6, 1949 and their several motions for postponement on the subsequent dates. On July 2, 1949, the hearing proceeded in the absence of the respondents during which petitioners presented their evidence. Notwithstanding several chances given to the respondents to present their evidence on August 5, 1949 and September 20, 1949, respondents persistently failed to appear. However, on February 3, 1960, counsel for the respondents cross examined one witness of the petitioners and finally, on March 4, 1950 respondents presented their evidence, with the exception of Manolita Gonzales de Carungcong (who) never appeared."

P a g e | 15 The Agrarian Court further said that if Manolita did not care to appear before the former Tenancy Division, she cannot now complain that she was deprived of her day in court; and that as to Luis Tecson, since the decision orders "the respondent landlord and/or her duly authorized representative" to deliver to the petitioner Ferreria the balance of 20.6 cavans of palay, Luis Tecson, as overseer and duly authorized representative of the landlord, must comply with the decision of the court, and that his counsel's contention that the property involved was within the jurisdiction of the probate court was incorrect, for the reason that the palay ordered to be delivered, properly belonged to Ferreria as his share in the crop and, therefore, it was not part of the estate under administration, neither was it a claim against the estate. Both Manolita and Luis have filed the present petition to review the order of August 23, 1956, denying the petitions to lift the writ of execution and the order of October 29, 1956, denying the petition for reconsideration. The petition was given due course and appellee Ferreria was required to answer, which he did. Thereafter, both parties filed memoranda in support of their contentions. The first question to be determined is whether or not there was a valid notification or service of the order granting the petition for substitution on Manolita Gonzales. It will be remembered that a copy of the order was never served on Manolita personally, but upon her niece, Aurora Gonzales. In other words, it was substituted service. Section 8, Rule 7, regarding the service of summons, provides as follows: "SEC. 8. Substituted service. - If the defendant cannot be promptly served as required in the preceding section, service may be effected by leaving copies of the summons at the defendant's dwelling house or usual place of abode with some person of suitable age and discretion then residing therein, or by leaving the copies at defendant's office or regular place of business with some competent person in charge thereof or upon the defendant by registered mail." As to the service of court orders, we have Sections 3 and 4 of Rule 27, which read as follows: "SEC. 3. Modes of service. - Service of pleadings, motions, notices, orders, judgments and other papers shall be made either personally or by mail." "SEC. 4. Personal service. - Service of the papers may be made by delivering personally a copy to the party or his attorney, or by leaving it in his office with his clerk or with a person having charge thereof. If no person is found in his office, or his office is not known, then by leaving the copy, between the hours of eight in the morning and six in the evening, at the party's or attorney's residence, if known, with a person of sufficient discretion to receive the same." We find that under none of these above-quoted provisions of the Rules of Court had Manolita been duly served with the order of substitution. According to her, at the time, she was not living at 272 Buendia St., where copy of the order was left with Aurora who lived in that place. The rules require that the copy should be left at the residence or office of the one served, or with someone living therein. Furthermore, Manolita claims that she never received the copy left with her niece and that they were not living together. The other question is whether or not there had been a valid substitution. Rule 3, Section 17, of the Rules of Court provides as follows: "SEC. 17. Death of party. - After a party die and the claim is not thereby extinguished, the court shall order, upon proper notice, the legal representative of the deceased to appear and to

P a g e | 16 be substituted for the deceased, within a period of thirty (30) days, or within such time as may be granted. If the legal representative fails to appear within said time, the court may order the opposing party to procure the appointment of a legal representative of the deceased within a time to be specified by the court, and the representative shall immediately appear for and on behalf of the interest of the deceased. The court charges involved in procuring such appointment, if defrayed by the opposing party, may be recovered as costs. The heirs of the deceased may be allowed to be substituted for the deceased, without requiring the appointment of an executor or administrator and the court may appoint guardian ad litem for the minor heirs." In the present case, there is no question that there had been no court order for the legal representative of Manuela Ibarra to appear, nor had any such legal representative ever appeared in court to be substituted for the deceased; neither had complainant Ferreria ever procured the appointment of such legal representative of the deceased, nor had the heirs of the deceased, including Manolita ever asked to be allowed to be substituted for the deceased Manuela. As a result, the hearings were held without the presence of Manolita Gonzales. True, Atty. Emilio Fernandez, it seems, originally represented Manuela and apparently, Luis Tecson, and continued with their representation, but Manolita now argues that with the death of Manuela Ibarra, his relationship as counsel for Manuela ceased, and what is more, he was never authorized to appear for Manolita Gonzales. Inasmuch as Manolita Gonzales was never validly served a copy of the order granting the substitution and that, furthermore, a valid substitution was never effected, consequently, the court never acquired jurisdiction over Manolita Gonzales for the purpose of making her a party to the case and making the decision binding upon her, either personally or as legal representative of the estate of her mother Manuela. However, we agree with the Agrarian Court in so far as it holds that it has exclusive jurisdiction over cases involving tenancy. The fact that the landlord dies does not mean that the relation of landlord and tenant ends, because the estate continues to be the landlord and if, as in this case, it is found that during the lifetime of Manuela Ibarra, the sharing of crop for the agricultural year 1946- 1947 should have been on the basis of 70-30, instead of 60-40, and therefore, she owed Ferreria 10% of said crop, then said obligation remained a charge on her estate after she died and there was no necessity for the tenant to file a claim for this 10% with the probate court in charge of the estate. As to Luis Tecson, we agree with him in his contention that in the sharing of the crop for the agricultural year 1946-1947, he acted merely as an overseer and that he gave the share corresponding to the owner to Manuela, and that since then, specially after her death, he had nothing more to do with the land. It is clear that the obligation to deliver to tenant Ferreria 10% of that crop of the agricultural year, should it be later found that the basis should have been 7030, instead of 60-40, rests with the estate of Manuela through the administrator and not with Luis Tecson, whose relation as overseer had long ceased. In connection with the basis of sharing of the crop for the agricultural year 1946-1947, Manolita in her pleadings claims that her mother furnished the work animals, seeds, and other facilities used in the cultivation and that consequently, the share should have been on the 50-50 basis. Ferreria claims the contrary. These conflicting claims should be finally determined by the Agrarian Court. In view of the foregoing, we hereby set aside not only the writ of execution, the resolution of the Agrarian Court and its order denying the motion for reconsideration of the same, now sought to be reviewed, but also the original decision of the Tenancy Division for lack of jurisdiction. The

P a g e | 17 case is hereby ordered remanded to the Court of Agrarian Relations for further proceedings, in which proceedings, the Agrarian Court may bear in mind and consider the rulings and holdings contained in this decision, specially with regards to substitution of parties and the liability of Luis Tecson in relation to any palay which Ferreria may be found to be entitled to. No costs. Paras, C.J., Bengzon, Reyes, A., Bautista Angelo, Concepcion, Reyes, J. B. L., Endencia and Felix, JJ., concur.

[1984V212] ARSENIO FLORENDO, JR., MILAGROS FLORENDO and BEATRIZ FLORENDO, petitioners, vs. HON. PERPETUA D. COLOMA, Presiding Judge of Branch VII, City Court of Quezon City; GAUDENCIO TOBIAS, General Manager, National Housing Authority; Registrar of Deeds for Quezon City; WILLIAM R. VASQUEZ and ERLINDA NICOLAS, respondents.1984 May 191st DivisionG.R. No. L-60544D E C I S I O N GUTIERREZ, JR., J.: In this petition for certiorari with preliminary injunction, the petitioners seek the annulment of: (1) the May 20, 1975 decision of the respondent court in Civil Case No. VII-17952 for ejectment entitled Adela Salindon v. William Vasquez and Silverio Nicolas; (2) the August 3, 1981 writ of execution issued by the respondent court; and (3) the March 1, 1982 order also issued by the respondent court directing the Register of Deeds of Quezon City to annul Transfer Certificate of Title No. 138007 in the name of Adela Salindon and Transfer Certificate of Title No. 239729 in the name of the petitioners. On July 11, 1969, Adela Salindon an awardee of a Philippine Homesite and Housing Corporation (hereinafter referred to as PHHC) lot filed a complaint for ejectment against William Vasquez and Silverio Nicolas with the respondent court. The disputed residential lot, located at Diliman, Quezon City, is more particularly described as follows: "Residential lot situated at Quezon City, Philippines, covered by Transfer Certificate of Title No. 138007, in the name of the herein plaintiff, containing an area of 915.00 square meters. Designated as Lot No. 1, Block No. 101 Psd-68808 Diliman Estate Subdivision. Bounded on the SW-by Lot No. 2, Block 101; of the subdivision plan; on the NW-by Road Lot 8, Pcs-4564; on the NE by Road Lot 96; and on the SE by Lot No. 12, Block 101; both of the subdivision plan." In her complaint, Salindon alleged that the defendants were squatters occupying her property. Defendant William Vasquez denied his being a squatter in the subject parcel of land. He alleged that he had been in continuous, open, adverse and actual possession and occupation of the lot since 1950. He also questioned the city court's jurisdiction over the subject matter of the action stating that the facts alleged in the complaint involved questions of title or ownership of the lot, matters outside the jurisdiction of the respondent court. He further questioned the qualifications of Salindon to purchase the disputed lot from the PHHC, as she was the owner of several other registered real estate properties and an outsider in so far as the lot was concerned. On March 12, 1971, defendant Silverio Nicolas died. He was substituted by his wife Erlinda who filed an amended answer with third party complaint against PHHC. In his answer, Nicolas had denied that he was a squatter on the lot. He alleged that he had been a possessor and occupant of a piece of residential lot located at Malaya Avenue, continuously, openly, publicly and adverse to any other claimant and under concept of an owner for more than ten years. Like defendant Vasquez, he also questioned the jurisdiction of the respondent court over the subject matter of the action and the qualifications of Salindon to purchase the subject parcel of land. Third-Party defendant PHHC admitted the sale of the disputed land to Adela Salindon. According to PHHC, the award of the lot to Salindon was a valid exercise of the PHHC's powers and could not be collaterally assailed; the illegal acts of the defendants could not ripen into legal ones; the defendants being squatters have not acquired any vested right over the property and that, since the subject lot is not a relocation area intended for squatters, the defendants can not claim preference in the award of the lot. The PHHC also questioned the jurisdiction of the city court over the third party complaint on the following grounds: (1) cancellation of the deed of

sale executed in favor of Salindon amounts to an action for rescission of contract which falls within the original and exclusive jurisdiction of the Court of First Instance; and (2) the action involves title or possession of real property, hence the action against PHHC should be dismissed for lack of jurisdiction. After trial on the merits, the respondent court issued a decision in favor of the defendants, The dispositive portion of the decision reads: WHEREFORE, this Court renders judgment in favor of the defendants and against the plaintiff as follows: (1) declaring the conditional and the absolute deeds of sale executed by the PHHC in favor of the plaintiff Adela Salindon as null and void; and (2) ordering the PHHC to award the lot in litigation to the defendant William Vasquez and Erlinda Nicolas and, upon payment by said defendants of the total consideration within 30 days from notice of this decision, to execute the corresponding deed of absolute sale in their favor. On August 25, 1975 Adela Salindon appealed the aforequoted decision to the Court of Appeals. On December 11, 1976, Salindon died. There was, however, no substitution of party, hence Salindon continued to be the appellant in the appealed case. On March 21, 1977 the case was remanded to the city court for the retaking of testimony which could not be considered because the stenographic notes could not be transcribed. The deceased Salindon continued to be an adverse party. Meanwhile, after Salindon's death, her heirs settled her estate and the subject lot was transferred with a new Transfer Certificate of Title to the petitioners. On July 31, 1980 the Court of Appeals issued a Resolution ordering plaintiff-appellant Salindon to show cause why her appeal should not be dismissed. On December 4, 1980, the Court of Appeals issued another Resolution dismissing the appeal for having been abandoned. On August 3, 1981, respondent court issued a writ of execution to enforce the decision. On November 7, 1981, respondent General Manager Gaudencio Tobias of the National Housing Authority (hereinafter referred as NHA), successor to the powers and functions of the PHHC, wrote a letter to private respondents informing them that the NHA was ready to implement the decision and suggesting that in order to avoid delay, they secure an order directing the Registrar of Deeds of Quezon City to cancel Transfer Certificate of Title No. 239729. On February 16, 1982 respondent William Vasquez filed a motion for the issuance of an order directing the Quezon City Register of Deeds to cancel TCT No. 138007 in the name of Adela Salindon and TCT No. 239729, in the name of petitioners. A similar motion was filed by respondent Erlinda Nicolas. On March 19, 1982, petitioner Arsenio Florendo, Jr., filed a manifestation and opposition to the motions for cancellation alleging that the court has no jurisdiction to order the cancellation of the titles. Hence, the instant petition. Considering the circumstances of the case, a preliminary issue surfaces as to the status of the decision vis-a-vis the petitioners. The petitioners challenge the proceeding in the Court of

Appeals after the death of the plaintiff-appellant Adela Salindon. They are of the opinion that since there was no legal representative substituted for Salindon after her death, the appellate court lost its jurisdiction over the case and consequently, the proceedings in the said court are null and void. This argument is without merit. There is no dispute that an ejectment case survives the death of a party. The supervening death of plaintiff-appellant Salindon did not extinguish her civil personality (Republic v. Bagtas, 6 SCRA 242; Vda. de Haberes v. Court of Appeals, 104 SCRA 534). Section 17, Rule 3 of the Rules of Court provides: "After a party dies and the claim is not thereby extinguished, the court shall order upon proper notice, the legal representative of the deceased to appear and to be substituted for the deceased within a period of thirty (30) days, or within such time as may be granted. . . ." Section 16 of Rule 3 provides: "Whenever a party to a pending case dies . . . it shall be the duty of his attorney to inform the court promptly of such death . . . and to give the name and residence of the executor, administrator, guardian or other legal representative of the deceased . . ." In the case at bar, Salindon's counsel after her death on December 11, 1976 failed to inform the court of Salindon's death. The appellate court could not be expected to know or take judicial notice of the death of Salindon without the proper manifestation from Salindon's counsel. In such a case and considering that the supervening death of appellant did not extinguish her civil personality, the appellate court was well within its jurisdiction to proceed as it did with the case. There is no showing that the appellate court's proceedings in the case were tainted with irregularities. It appears that the petitioners are heirs of Adela Salindon. In fact, it was because of this relationship that the petitioners were able to transfer the title of Adela Salindon over the subject lot to their names. After Salindon's death, the disputed lot was included as part of her estate. Salindon's counsel, whose acts bind his client, failed to comply with his duty to the court and his deceased client. Considering all this, the appellate decision is binding and enforceable against the petitioners as successors-in-interest by title subsequent to the commencement of the action (Section 49 (b) Rule 39, Rules of Court). Furthermore, ". . . judgment in an ejectment case may be enforced not only against defendants therein but also against the members of their family, their relatives, or privies who derived their right of possession from the defendants" (Ariem v. De los Angeles, 49 SCRA 343). Under the circumstances of this case, the same rule should apply to the successors-in-interest if the decision should go against the original plaintiff. We note, however, that the petitioners challenge the decision on the ground that the respondent city court had no jurisdiction in the first instance over the ejectment complaint. In this respect, the petitioners are correct. Adela Salindon filed an ejectment case to evict alleged squatters who were in possession of a lot awarded to her by the PHHC. Instead of dealing with the case as a simple one of ejectment and handling the issues within the confines of its limited jurisdiction, the respondent city court went further into territory out of bounds to it and cancelled the administrative determinations of the PHHC, rescinded the deeds of sale, usurped the powers of the administrative agency by awarding the government lots to the defendants on the basis of evidence clearly inadequate from the records and by the rules of the agency to sustain such awards, conclusively adjudicated on the basis of irregular proceedings

the ownership of the disputed lot, and ordered the cancellation of Torrens titles already issued in the petitioners' names. May the petitioners take advantage of this lack of jurisdiction? As a rule, the issue of jurisdiction is not lost by waiver or by estoppel. The time-honored principle is that ". . . jurisdiction of a court is a matter of law and may not be conferred by consent or agreement of the parties. The lack of jurisdiction of a court may be raised at any stage of the proceedings, even on appeal . . .". (Calimlim v. Ramirez, 118 SCRA 399). This principle, however, is not absolute. There are cases wherein we ruled that because of their exceptional and peculiar circumstances, a party is estopped from invoking the lack of the court's jurisdiction. (Tijam v. Sibonghanoy, 23 SCRA 29; Crisostomo v. Court of Appeals, 32 SCRA 543). We always look into the attendant circumstances of the case so as not So subvert public policy. (See Paro v. Court of Appeals, 111 SCRA 262). This is one such case where the successors-in-interest of the original plaintiff are estopped from questioning the jurisdiction of the respondent court. Adela Salindon, the original plaintiff in the ejectment case consistently maintained her stand that the respondent court had jurisdiction over the ejectment complaint. She insisted on this jurisdiction over the opposition of the defendants, the private respondents herein. Thus, she filed a lengthy memorandum against the dismissal of the complaint after the trial on the merits of the case and made an emphatic justification of the jurisdiction of the respondent court. The following rule applies: ". . . a party cannot invoke the jurisdiction of a court to secure affirmative relief against his opponent and, after obtaining or failing to obtain such relief, repudiate or question that same jurisdiction (Dean vs. Dean, 136 Or. 694, 86 A.L.R. 79). In the case just cited, by way of explaining the rule, it was further said that the question whether the court had jurisdiction either of the subject-matter of the action or of the parties was not important in such cases because the party is barred from such conduct not because the judgment or order of the court is valid and conclusive as an adjudication, but for the reason that such a practice con not be tolerated obviously for reasons of public policy." (Tijam vs. Sibonghanoy, supra) Equitable considerations cannot also help the petitioners. Their own deed of extrajudicial partition dated March 31, 1977 shows that Adela Lucero Salindon left forty four (44) parcels of land, forty two (42) of which were in Pangasinan, one (1) parcel in Natividad Street, Manila and the disputed parcel in Quezon City. There is no showing in the records that the forty three (43) other parcels were either not owned by Salindon when the PHHC lot was awarded to her or that ownership of these lots and of 706,684 shares of stock in such blue chip corporations as Lepanto Consolidated Mining Co., Philippine Overseas Drilling and Oil Development Corporation, etc. did not disqualify her from applying for a PHHC lot. There is no showing from the records that the petitioners would suffer from a denial of substantial justice if the foregoing rules are applied to them. The private respondents, however, stand on an entirely different footing. As defendants in the ejectment case they vigorously questioned the jurisdiction of the city court. They cannot now take advantage of a decision issued in excess of jurisdiction and in doing so abandon a principal averment in their respective answers. The respondent court had no jurisdiction to take over the functions of the PHHC and award ownership of the lot to them.

Not only was the decision of the city court rendered without jurisdiction, it was also erroneously irregular to the point of constituting grave abuse of discretion. The PHHC was correct when it stated that squatters and intruders who clandestinely enter into titled government property cannot, by such act, acquire any legal right to said property. There is no showing in the records that the entry of the private respondents into the lot was effected legally and properly. An act which was illegal from the start cannot ripen into lawful ownership simply because the usurper has occupied and possessed the government lot for more than ten (10) years, cleared it of cogon grass, fenced it, and built a house on the premises. No vested rights should be allowed to arise from the social blights and lawless acts of squatting and clandestine entrance. True, the government by an act of magnanimity and in the interest of buying social peace through the quieting of mass unrest may declare usurped property as a "relocation" area for the squatters. However, the records fail to show that there has been such action insofar as the disputed lot is concerned or that the private respondents fall within such a policy or that they have complied with the usual requirements before the benefits of relocation may be given them. At any rate, this was for the PHHC, now the NHA, to decide and not the city court. Under the circumstances of this case, the ownership of the disputed lot remains with the National Housing Authority. The NHA may use the authority of this decision to evict the private respondents and their successors-in-interest from the property and deal with the lot according to its present powers vested by law and in the light of its current policies and programs. This decision, however, should not be interpreted to preclude the private respondents from introducing evidence and presenting arguments before the National Housing Authority to establish any right to which they may be entitled under the law and the facts of the case. WHEREFORE, the decision dated May 20, 1975, the writ of execution dated August 3, 1981 and the order to annul TCT Nos. 138007 and 239729 dated March 1, 1982, all issued by the respondent city court are nullified and set aside for having been issued in excess of jurisdiction and with grave abuse of discretion insofar as the private respondents are concerned. Considering our findings as regards the petitioner, the Registrar of Deeds for Quezon City is hereby ordered to cancel TCT No. 239729 in the names of the petitioners and TCT No 138007 in the name of Adela Salindon. The National Housing Authority is declared the owner of the disputed lot and is directed to take possession of the same and to either hold or dispose of it according to law and this decision. SO ORDERED. [2001V302] VIRGINIA O. GOCHAN, FELIX Y. GOCHAN III, MAE GOCHAN-EFANN, LOUISE Y. GOCHAN, ESTEBAN Y. GOCHAN JR., DOMINIC Y. GOCHAN, FELIX O. GOCHAN III, MERCEDES R. GOCHAN, ALFREDO R. GOCHAN, ANGELINA R. GOCHAN-HERNAEZ, MARIA MERCED R. GOCHAN, CRISPO R. GOCHAN JR., MARION R. GOCHAN, MACTAN REALTY DEVELOPMENT CORPORATION and FELIX GOCHAN & SONS REALTY CORPORATION, petitioners, vs. RICHARD G. YOUNG, DAVID G. YOUNG, JANE G. YOUNG-LLABAN, JOHN D. YOUNG JR., MARY G. YOUNG-HSU and ALEXANDER THOMAS G. YOUNG as heirs of Alice Gochan; the INTESTATE ESTATE OF JOHN D. YOUNG SR.; and CECILIA GOCHAN-UY and MIGUEL C. UY, for themselves and on behalf and for the benefit of FELIX GOCHAN & SONS REALTY CORPORATION, respondents.2001 Mar 123rd DivisionG.R. No. 131889 D E C I S I O N PANGANIBAN, J.:

A court or tribunal's jurisdiction over the subject matter is determined by the allegations in the complaint. The fact that certain persons are not registered as stockholders in the books of the corporation will not bar them from filing a derivative suit, if it is evident from the allegations in the complaint that they are bona fide stockholders. In view of RA 8799, intra-corporate controversies are now within the jurisdiction of courts of general jurisdiction, no longer of the Securities and Exchange Commission. The Case Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court. The Petition assails the February 28, 1996 Decision[1] of the Court of Appeals (CA), as well as its December 18, 1997 Resolution denying petitioner's Motion for Reconsideration. The dispositive part of the CA Decision reads as follows: "WHEREFORE, the petition as far as the heirs of Alice Gochan, is DISMISSED, without prejudice to filing the same in the regular courts. SO ORDERED."[2] In dismissing the Complaint before the SEC regarding only Alice Gochan's heirs but not the other complainants, the CA effectively modified the December 9, 1994 Order of the hearing officer[3] of the Securities and Exchange Commission (SEC). The Order, which was affirmed in full by the SEC en banc, dismissed the entire case. The Facts The undisputed facts are summarized by the Court of Appeals as follows: "Felix Gochan and Sons Realty Corporation (Gochan Realty, for brevity) was registered with the SEC on June, 1951, with Felix Gochan, Sr., Maria Pan Nuy Go Tiong, Pedro Gochan, Tomasa Gochan, Esteban Gochan and Crispo Gochan as its incorporators. "Felix Gochan Sr.'s daughter, Alice, mother of [herein respondents], inherited 50 shares of stock in Gochan Realty from the former. "Alice died in 1955, leaving the 50 shares to her husband, John Young, Sr. "In 1962, the Regional Trial Court of Cebu adjudicated 6/14 of these shares to her children, herein [respondents] Richard Young, David Young, Jane Young Llaban, John Young Jr., Mary Young Hsu and Alexander Thomas Young. "Having earned dividends, these stocks numbered 179 by 20 September 1979. "Five days later (25 September), at which time all the children had reached the age of majority, their father John Sr., requested Gochan Realty to partition the shares of his late wife by cancelling the stock certificates in his name and issuing in lieu thereof, new stock certificates in the names of [herein respondents]. "On 17 October 1979, respondent Gochan Realty refused, citing as reason, the right of first refusal granted to the remaining stockholders by the Articles of Incorporation. "On 21, 1990, [sic] John, Sr. died, leaving the shares to the [respondents]. "On 8 February 1994, [respondents] Cecilia Gochan Uy and Miguel Uy filed a complaint with the SEC for issuance of shares of stock to the rightful owners, nullification of shares of stock, reconveyance of property impressed with trust, accounting, removal of officers and directors

and damages against respondents. A Notice of Lis Pendens was annotated as [sic] real properties of the corporation. "On 16 March 1994, [herein petitioners] moved to dismiss the complaint alleging that: (1) the SEC ha[d] no jurisdiction over the nature of the action; (2) the [respondents] [were] not the real parties-in-interest and ha[d] no capacity to sue; and (3) [respondents'] causes of action [were] barred by the Statute of Limitations. "The motion was opposed by herein [respondents]. "On 29 March 1994, [petitioners] filed a Motion for cancellation of Notice of Lis Pendens. [Respondents] opposed the said motion. "On 9 December 1994, the SEC, through its Hearing Officer, granted the motion to dismiss and ordered the cancellation of the notice of lis pendens annotated upon the titles of the corporate lands. In its order, the SEC opined: 'In the instant case, the complaint admits that complainants Richard G. Young, David G. Young, Jane G. Young Llaban, John D. Young, Jr., Mary G. Young Hsu and Alexander Thomas G. Young, who are the children of the late Alice T. Gochan and the late John D. Young, Sr. are suing in their own right and as heirs of and/or as the beneficial owners of the shares in the capital stock of FGSRC held in trust for them during his lifetime by the late John D. Young. Moreover, it has been shown that said complainants ha[d] never been x x x stockholder[s] of record of FGSRC to confer them with the legal capacity to bring and maintain their action. Conformably, the case cannot be considered as an intra-corporate controversy within the jurisdiction of this Commission. 'The complainant heirs base what they perceived to be their stockholders' rights upon the fact of their succession to all the rights, property and interest of their father, John D. Young, Sr. While their heirship is not disputed, their right to compel the corporation to register John D. Young's Sr. shares of stock in their names cannot go unchallenged because the devolution of property to the heirs by operation of law in succession is subject to just obligations of the deceased before such property passes to the heirs. Conformably, until therefore the estate is settled and the payment of the debts of the deceased is accomplished, the heirs cannot as a matter of right compel the delivery of the shares of stock to them and register such transfer in the books of the corporation to recognize them as stockholders. The complainant heirs succeed to the estate of [the] deceased John D. Young, Sr. but they do not thereby become stockholders of the corporation. 'Moreover, John D. [Young Sr.'s] shares of stocks form part of his estate which is the subject of Special Proceedings No. 3694-CEB in the Regional Trial Court of Cebu, Branch VIII, [par. 4 of the complaint]. As complainants clearly claim[,] the Intestate Estate of John D. Young, Sr. has an interest in the subject matter of the instant case. However, actions for the recovery or protection of the property [such as the shares of stock in question] may be brought or defended not by the heirs but by the executor or administrator thereof. 'Complainants further contend that the alleged wrongful acts of the corporation and its directors constitute fraudulent devices or schemes which may be detrimental to the stockholders. Again, the injury [is] perceived[,] as is alleged[,] to have been suffered by complainants as stockholders, which they are not. Admittedly, the SEC has no jurisdiction over a controversy wherein one of the parties involved is not or not yet a stockholder of the corporation. [SEC vs. CA, 201 SCRA 134]. 'Further, by the express allegation of the complaint, herein complainants bring this action as [a] derivative suit on their own behalf and on behalf of respondent FGSRC.

'Section 5, Rule III of the Revised Rules of Procedure in the Securities and Exchange Commission provides: 'Section 5. Derivative Suit. No action shall be brought by stockholder in the right of a corporation unless the complainant was a stockholder at the time the questioned transaction occurred as well as at the time the action was filed and remains a stockholder during the pendency of the action. x x x.' 'The rule is in accord with well settled jurisprudence holding that a stockholder bringing a derivative action must have been [so] at the time the transaction or act complained of [took] place. (Pascual vs. Orozco, 19 Phil. 82; Republic vs. Cuaderno, 19 SCRA 671; San Miguel Corporation vs. Khan, 176 SCRA 462-463) The language of the rule is mandatory, strict compliance with the terms thereof thus being a condition precedent, a jurisdictional requirement to the filing of the instant action. 'Otherwise stated, proof of compliance with the requirement must be sufficiently established for the action to be given due course by this Commission. The failure to comply with this jurisdictional requirement on derivative action must necessarily result in the dismissal of the instant complaint.' (pp. 77-79, Rollo) "[Respondents] moved for a reconsideration but the same was denied for being pro-forma. "[Respondents] appealed to the SEC en banc, contending, among others, that the SEC ha[d] jurisdiction over the case. "[Petitioners], on the other hand, contend that the appeal was 97 days late, beyond the 30-day period for appeals. "On 3 March 1995, the SEC en banc ruled for the [petitioners,] holding that the [respondents'] motion for reconsideration did not interrupt the 30-day period for appeal because said motion was pro-forma."[4] Aggrieved, herein respondents then filed a Petition for Review with the Court of Appeals. Ruling of the Court of Appeals The Court of Appeals ruled that the SEC had no jurisdiction over the case as far as the heirs of Alice Gochan were concerned, because they were not yet stockholders of the corporation. On the other hand, it upheld the capacity of Respondents Cecilia Gochan Uy and her spouse Miguel Uy. It also held that the intestate Estate of John Young Sr. was an indispensable party. The appellate court further ruled that the cancellation of the notice of lis pendens on the titles of the corporate real estate was not justified. Moreover, it declared that respondents' Motion for Reconsideration before the SEC was not pro forma; thus, its filing tolled the appeal period. Hence, this Petition.[5] The Issues These are the issues presented before us: "A. Whether or not the Spouses Uy have the personality to file an action before the SEC against Gochan Realty Corporation. "B. Whether or not the Spouses Uy could properly bring a derivative suit in the name of Gochan Realty to redress wrongs allegedly committed against it for which the directors refused to sue.

"C. Whether or not the intestate estate of John D. Young Sr. is an indispensable party in the SEC case considering that the individual heirs' shares are still in the decedent stockholder's name. "D. Whether or not the cancellation of [the] notice of lis pendens was justified considering that the suit did not involve real properties owned by Gochan Realty."[6] In addition, the Court will determine the effect of Republic Act No. 8799[7] on this case. The Court's Ruling The Petition has no merit. In view of the effectivity of RA 8799, however, the case should be remanded to the proper regional trial court, not to the Securities and Exchange Commission. First Issue: Personality of the Spouses Uy to File a Suit Before the SEC Petitioners argue that Spouses Cecilia and Miguel Uy had no capacity or legal standing to bring the suit before the SEC on February 8, 1994, because the latter were no longer stockholders at the time. Allegedly, the stocks had already been purchased by the corporation. Petitioners further assert that, being allegedly a simple contract of sale cognizable by the regular courts, the purchase by Gochan Realty of Cecilia Gochan Uy's 210 shares does not come within the purview of an intra-corporate controversy. As a general rule, the jurisdiction of a court or tribunal over the subject matter is determined by the allegations in the complaint.[8] For purposes of resolving a motion to dismiss, Cecilia Uy's averment in the Complaint -- that the purchase of her stocks by the corporation was null and void ab initio is deemed admitted. It is elementary that a void contract produces no effect either against or in favor of anyone; it cannot create, modify or extinguish the juridical relation to which it refers.[9] Thus, Cecilia remains a stockholder of the corporation in view of the nullity of the Contract of Sale. Although she was no longer registered as a stockholder in the corporate records as of the filing of the case before the SEC, the admitted allegations in the Complaint made her still a bona fide stockholder of Felix Gochan & Sons Realty Corporation (FGSRC), as between said parties. In any event, the present controversy, whether intra-corporate or not, is no longer cognizable by the SEC, in view of RA 8799, which transferred to regional trial courts the former's jurisdiction over cases involving intra-corporate disputes. Action Has Not Prescribed Petitioners contend that the statute of limitations already bars the Uy spouses' action, be it one for annulment of a voidable contract or one based upon a written contract. The Complaint, however, contains respondents' allegation that the sale of the shares of stock was not merely voidable, but was void ab initio. Below we quote its relevant portion: "38. That on November 21, 1979, respondent Felix Gochan & Sons Realty Corporation did not have unrestricted retained earnings in its books to cover the purchase price of the 208 shares of stock it was then buying from complainant Cecilia Gochan Uy, thereby rendering said purchase null and void ab initio for being violative of the trust fund doctrine and contrary to law, morals good customs, public order and public policy;" Necessarily, petitioners' contention that the action has prescribed cannot be sustained. Prescription cannot be invoked as a ground if the contract is alleged to be void ab initio.[10] It is axiomatic that the action or defense for the declaration of nullity of a contract does not prescribe.[11]

Second Issue: Derivative Suit and the Spouses Uy Petitioners also contend that the action filed by the Spouses Uy was not a derivative suit, because the spouses and not the corporation were the injured parties. The Court is not convinced. The following quoted portions of the Complaint readily shows allegations of injury to the corporation itself: "16. That on information and belief, in further pursuance of the said conspiracy and for the fraudulent purpose of depressing the value of the stock of the Corporation and to induce the minority stockholders to sell their shares of stock for an inadequate consideration as aforesaid, respondent Esteban T. Gochan . . ., in violation of their duties as directors and officers of the Corporation . . ., unlawfully and fraudulently appropriated [for] themselves the funds of the Corporation by drawing excessive amounts in the form of salaries and cash advances. . . and by otherwise charging their purely personal expenses to the Corporation." xxxxxxxxx "41. That the payment of P1,200,000.00 by the Corporation to complainant Cecilia Gochan Uy for her shares of stock constituted an unlawful, premature and partial liquidation and distribution of assets to a stockholder, resulting in the impairment of the capital of the Corporation and prevented it from otherwise utilizing said amount for its regular and lawful business, to the damage and prejudice of the Corporation, its creditors, and of complainants as minority stockholders;"[12] As early as 1911, this Court has recognized the right of a single stockholder to file derivative suits. In its words: "[W]here corporate directors have committed a breach of trust either by their frauds, ultra vires acts, or negligence, and the corporation is unable or unwilling to institute suit to remedy the wrong, a single stockholder may institute that suit, suing on behalf of himself and other stockholders and for the benefit of the corporation, to bring about a redress of the wrong done directly to the corporation and indirectly to the stockholders."[13] In the present case, the Complaint alleges all the components of a derivative suit. The allegations of injury to the Spouses Uy can coexist with those pertaining to the corporation. The personal injury suffered by the spouses cannot disqualify them from filing a derivative suit on behalf of the corporation. It merely gives rise to an additional cause of action for damages against the erring directors. This cause of action is also included in the Complaint filed before the SEC. The Spouses Uy have the capacity to file a derivative suit in behalf of and for the benefit of the corporation. The reason is that, as earlier discussed, the allegations of the Complaint make them out as stockholders at the time the questioned transaction occurred, as well as at the time the action was filed and during the pendency of the action. Third Issue: Capacity of the Intestate Estate of John D. Young Sr. Petitioners contend that the Intestate Estate of John D. Young Sr. is not an indispensable party, as there is no showing that it stands to be benefited or injured by any court judgment. It would be useful to point out at this juncture that one of the causes of action stated in the Complaint filed with the SEC refers to the registration, in the name of the other heirs of Alice Gochan Young, of 6/14th of the shares still registered under the name of John D. Young Sr. Since all the shares that belonged to Alice are still in his name, no final determination can be had without his estate being impleaded in the suit. His estate is thus an indispensable party with respect to the cause of action dealing with the registration of the shares in the names of the heirs of Alice.

Petitioners further claim that the Estate of John Young Sr. was not properly represented. They claim that "when the estate is under administration, suits for the recovery or protection of the property or rights of the deceased may be brought only by the administrator or executor as approved by the court."[14] The rules relative to this matter do not, however, make any such categorical and confining statement. Section 3 of Rule 3 of the Rules of Court, which is cited by petitioner in support of their position, reads: "Sec. 3. Representatives as parties. - Where the action is allowed to be prosecuted or defended by a representative or someone acting in a fiduciary capacity, the beneficiary shall be included in the title of the case and shall be deemed to be the real party in interest. A representative may be a trustee of an express trust, a guardian, an executor or administrator, or a party authorized by law or these Rules. An agent acting in his own name and for the benefit of an undisclosed principal may sue or be sued without joining the principal except when the contract involves things belonging to the principal." Section 2 of Rule 87 of the same Rules, which also deals with administrators, states: "Sec. 2. Executor or administrator may bring or defend actions which survive. - For the recovery or protection of the property or rights of the deceased, an executor or administrator may bring or defend, in the right of the deceased, actions for causes which survive." The above-quoted rules, while permitting an executor or administrator to represent or to bring suits on behalf of the deceased, do not prohibit the heirs from representing the deceased. These rules are easily applicable to cases in which an administrator has already been appointed. But no rule categorically addresses the situation in which special proceedings for the settlement of an estate have already been instituted, yet no administrator has been appointed. In such instances, the heirs cannot be expected to wait for the appointment of an administrator; then wait further to see if the administrator appointed would care enough to file a suit to protect the rights and the interests of the deceased; and in the meantime do nothing while the rights and the properties of the decedent are violated or dissipated. The Rules are to be interpreted liberally in order to promote their objective of securing a just, speedy and inexpensive disposition of every action and proceeding.[15] They cannot be interpreted in such a way as to unnecessarily put undue hardships on litigants. For the protection of the interests of the decedent, this Court has in previous instances[16] recognized the heirs as proper representatives of the decedent, even when there is already an administrator appointed by the court. When no administrator has been appointed, as in this case, there is all the more reason to recognize the heirs as the proper representatives of the deceased. Since the Rules do not specifically prohibit them from representing the deceased, and since no administrator had as yet been appointed at the time of the institution of the Complaint with the SEC, we see nothing wrong with the fact that it was the heirs of John D. Young Sr. who represented his estate in the case filed before the SEC. Fourth Issue Notice of Lis Pendens On the issue of the annotation of the Notice of Lis Pendens on the titles of the properties of the corporation and the other respondents, we still find no reason to disturb the ruling of the Court of Appeals. Under the third, fourth and fifth causes of action of the Complaint, there are allegations of breach of trust and confidence and usurpation of business opportunities in conflict with petitioners' fiduciary duties to the corporation, resulting in damage to the Corporation. Under

these causes of action, respondents are asking for the delivery to the Corporation of possession of the parcels of land and their corresponding certificates of title. Hence, the suit necessarily affects the title to or right of possession of the real property sought to be reconveyed. The Rules of Court[17] allows the annotation of a notice of lis pendens in actions affecting the title or right of possession of real property.[18] Thus, the Court of Appeals was correct in reversing the SEC Order for the cancellation of the notice of lis pendens.
The fact that respondents are not stockholders of the Mactan Realty Development Corporation and the Lapu-Lapu Real Estate Corporation does not make them non-parties to this case. To repeat, the jurisdiction of a court or tribunal over the subject matter is determined by the allegations in the Complaint. In this case, it is alleged that the aforementioned corporations are mere alter egos of the directors-petitioners, and that the former acquired the properties sought to be reconveyed to FGSRC in violation of the directors-petitioners' fiduciary duty to FGSRC. The notion of corporate entity will be pierced or disregarded and the individuals composing it will be treated as identical[19] if, as alleged in the present case, the corporate entity is being used as a cloak or cover for fraud or illegality; as a justification for a wrong; or as an alter ego, an adjunct, or a business conduit for the sole benefit of the stockholders. Effect of RA 8799 While we sustain the appellate court, the case can no longer be remanded to the SEC. As earlier stated, RA 8799, which became effective on August 8, 2000, transferred SEC's jurisdiction over cases involving intra-corporate disputes to courts of general jurisdiction or to the regional trial courts.[20] Section 5.2 thereof reads as follows: "5.2. The Commission's jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided, That the Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which should be resolved within one (1) year from the enactment of this Code. The Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed." In the light of the Resolution issued by this Court in AM No. 00-8-10-SC,[21] the Court Administrator and the Securities and Exchange Commission should be directed to cause the transfer of the records of SEC Case No. 02-94-4674 to the appropriate court of general jurisdiction. WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED, subject to the modification that the case be remanded to the proper regional trial court. The December 9, 1994 Order of Securities and Exchange Commission hearing officer dismissing the Complaint and directing the cancellation of the notice of lis pendens, as well as the March 3, 1995 Order denying complainants' motion for reconsideration are REVERSED and SET ASIDE. Pursuant to AM No. 00-8-10-SC, the Office of the Court Administrator and the SEC are DIRECTED to cause the actual transfer of the records of SEC Case No. 02-94-4674 to the appropriate regional trial court. SO ORDERED.

[2000R1493] SPOUSES ROY PO LAM and JOSEFA ONG PO LAM, petitioners, vs. COURT OF APPEALS and FELIX LIM now JOSE LEE, respondents.2000 Dec 63rd DivisionG.R. No. 116220 R E S O L U T I O N MELO, J.: On October 13, 1999, this Division, under the ponencia of Mr. Justice Purisima handed down a decision declaring petitioners, the spouses Roy Po Lam and Josefa Ong Po Lam, as transferees pendente lite and not purchasers in good faith of Lots No. 1557 and 1558 and ordering them to reconvey said lots to private respondent Jose Lee. Forthwith, petitioners filed a motion for reconsideration which was received hereat on November 15, 1999. Respondents thereupon filed their opposition, as well as a separate comment, to which petitioners submitted a reply. Regrettably, however, for one reason or another, the motion for reconsideration remained unacted upon until the retirement of Justice Purisima in October, 2000, notwithstanding the fact that it was calendared or placed in the Court's agenda a number of times, as well as the urgings of both parties to have the matter resolved. Thus, with Justice Purisima leaving the Court and, in accordance with A.M. No. 99-8-99 promulgated by the Court En Banc on February 15, 2000, the matter of the motion for reconsideration was assigned by raffle to herein ponente for study and the preparation of the appropriate action. A review of the facts, uncontroverted though they are, is in order. Lots No. 1557 and 1558 are prime commercial lots located in the heart of Legaspi City's commercial district. These were sold by Lim Kok Chiong to the Legaspi Avenue Hardware Company (hereafter referred to as LAHCO) sometime in the early 60's. On December 4, 1964, however, Felix Lim, Lim Kok Chiong's brother, filed a complaint with the then Court of First Instance of Albay against his brother and LAHCO to annul the deeds of sale covering said lots on the ground that the sale included the 3/14 pro-indiviso portion of the lots which Felix Lim had inherited from his foster parents. The complaint was docketed as Civil Case No. 2953 of the Court of First Instance of Albay. On January 27, 1965, Felix Lim filed with the Register of Deeds of Albay a notice of lis pendens over the two lots. The same was inscribed on Transfer Certificates of Title No. 2580 and 2581, covering Lots No. 1557 and 1558, respectively. Later, the trial court, on motion of Felix Lim, dropped the case against Lim Kok Chiong. On March 15, 1969, the trial court rendered a decision declaring LAHCO to be the absolute owner of the two above-mentioned lots. As a consequence of its decision, the trial court ordered the cancellation of the notice of lis pendens inscribed on the titles of the two lots. Pursuant to this order, the notice of lis pendens inscribed on TCT No. 2580 was cancelled. However, the notice of lis pendens annotated on TCT No. 2581 remained uncancelled, allegedly because the duplicate owner's copy of said TCT was with the Continental Bank, Lot No. 1558 having been mortgaged by LAHCO to said bank. Aggrieved, Felix Lim appealed to the Court of Appeals. On May 28, 1970, and during the pendency of the appeal, CA-G.R. No. 44770-R, LAHCO sold the two lots to herein petitioners, the spouses Roy Po Lam and Josefa Ong Po Lam. On May 20, 1974, petitioners, by virtue of the court order adverted to earlier, had the notice of lis pendens still inscribed on TCT No. 2581 cancelled. Felix Lim did not move for the reinstatement of the cancelled notices of lis pendens on TCT No. 2580 and 2581. Thereafter, said certificates of title were themselves cancelled and replaced by TCT No. 8102 and 13711, respectively, in the name of petitioners.

On April 29, 1980, the Court of Appeals affirmed the decision of the trial court in Civil Case No. 2953, appellant Felix Lim's counsel receiving a copy of thereof on May 16, 1980. On May 23, 1980, counsel for Felix Lim filed a motion for extension of time to file a motion for reconsideration. The appellate court gave Felix Lim up to June 20, 1980 to file one. On June 17, 1980, he filed a motion for reconsideration, which was, however, denied. Without leave of court, Felix Lim filed, on July 14, 1980, a second motion for reconsideration. This was acted upon favorably by the Court of Appeals on March 11, 1981, with the appellate court declaring that Felix Lim, by returning P20,000.00 to LAHCO, could exercise the right of redemption over the two lots sold by Lim Kok Chiong to LAHCO. Although LAHCO asked this Court for an extension of time to file a petition for review, none was ever filed, for which reason the Court remanded the case to the trial court for execution. On November 12, 1981, Felix Lim moved, in Civil Case No. 2953, to have the March 11, 1981 resolution of the Court of Appeals annotated on TCT No. 8102 and 13711. He also moved for the issuance of a writ of execution to enforce said resolution. Likewise, he filed a motion praying that the Clerk of Court execute a deed of conveyance over the disputed lots in his favor. All these motions were denied by the trial court on the ground that the Po Lam spouses could not be bound thereby since they were not impleaded as party-litigants in Civil Case No. 2953 or CA-G.R. No. 44770-R. However, the trial court reserved to Felix Lim "the right to institute an action on whether or not the acquisition of the properties in question by spouses Roy Po Lam and Josefa Ong Po Lam were made in good faith or bad faith." In consonance with this ruling, Felix Lim filed a complaint for reconveyance and annulment of the sale and titles of said lots with the Regional Trial Court of Legaspi City, which was docketed therein as Civil Case No. 6767. On September 19, 1985, Felix Lim filed with the trial court, in the old case, Civil Case No. 2953, a motion to include as defendants the Po Lam spouses, as well as to execute the March 11, 1981 resolution of the Court of Appeals. Both motions were denied. On appeal (CA-G.R. No. 08533-CV), the Court of Appeals upheld the denial. Felix Lim appealed the decision to this Court. In the meantime, in June, 1970, or one month after the Po Lam spouses had purchased the two lots from LAHCO, they leased the commercial building erected on Lot No. 1557 to private respondent Jose Lee for one year. After the contract expired, Jose Lee continued to occupy the same, paying monthly rentals therefor. However, after September 15, 1981, Jose Lee refused to pay rentals to the Po Lam spouses, informing them that he would deposit the same in court since Felix Lim had promised to sell the property to him. Lee's failure to pay rentals prompted the Po Lam spouses to file an unlawful detainer case against him with the Metropolitan Trial Court of Legaspi City. On October 29, 1990, Felix Lim assigned all his rights to and interests in the disputed lots to Jose Lee, who then substituted Felix Lim as party plaintiff, now private respondent. On December 19, 1993, the Metropolitan Trial Court of Legaspi City declared the Po Lam spouses to be the lawful owners of Lot No. 1557. On appeal, said judgment was affirmed by the regional trial court and thereafter, by the Court of Appeals in CA-G.R. No. 12316-SP. Aggrieved, Jose Lee filed an appeal with this Court, which consolidated the case with the appeal filed in CAG.R. No. 08533-CV where the trial court in the original 1965 case refused to have petitioners impleaded as defendants, and to execute the March 11, 1981 resolution of the Court of Appeals, were upheld by the appellate court. It must be mentioned that in both CA-G.R. No. 12316-SP and CA-G.R. No. 08533-CV, the appellate court ruled that the March 11, 1981 resolution of the Court of Appeals in CA-G.R. No. 44770-R was null and void on the ground that the decision it had issued earlier on April 29, 1980 had already become final and executory when the above-said resolution was promulgated. The appellate court ruled that Felix Lim's counsel should not have filed a motion for extension of

time to file a motion for reconsideration, the same being a prohibited pleading under the rule laid down in Habaluyas v. Japson (138 SCRA 46 [1985]). Being a prohibited pleading, it was held that the extension granted to Lim did not arrest the running of the 15-day period. Thus, when Lim filed his motion for reconsideration on June 17, 1980, the same was already filed out of time, he having received a copy of the judgment of affirmance on May 16, 1980. The above finding of the appellate court was, however, debunked by this Court in G.R. No. 84145-55 (Lim v. Court of Appeals, 188 SCRA 23 [1988]) where we held that Habaluyas v. Japson (supra) must be applied prospectively so that "when petitioner Lim filed thru registered mail on May 23, 1980 his motion for extension of time to file a motion for reconsideration, the motion was deemed properly filed contrary to the respondent court's ruling that it was a prohibited pleading." Ruling on the appeals filed from CA-G.R. No. 12316-SP and CA-G.R. No. 08533-CV, this Court thus declared, on February 18, 1988, in Lim vs. CA cited in the immediately preceding paragraph that: ACCORDINGLY, the decisions appealed from are modified. The portions of the appealed decisions dealing with the March 11, 1981 resolution in CA-G.R. No. 44770-R are reversed and set aside and the said resolution is ordered reinstated. The decisions are affirmed in all other respects. Costs against private respondents. SO ORDERED. In the interim, Civil Case No. 6767 for reconveyance and annulment of sale and titles filed by Felix Lim (now Jose Lee) went on until, on January 14, 1992, the Regional Trial Court of Legaspi City rendered a decision declaring the spouses Roy Po Lam and Josefa Ong Po Lam as transferees pendente lite and not purchasers in good faith. It held that the Po Lam spouses were bound by the March 11, 1981 resolution rendered in CA-G.R. No. 44770-R. The Po Lam spouses forthwith appealed to the Court of Appeals (CA-G.R. CV No. 37452) but said Court, on June 30, 1993, affirmed the trial court's decision. The Po Lam spouses thus filed a petition for certiorari with this Court. On October 13, 1999, we denied the petition and affirmed in toto the decision of the Court of Appeals in CA-G.R. CV No. 37452. We held that the Po Lam spouses could not be deemed buyers in good faith, ratiocinating in the process: As to Lot 1558, there is no question that they (petitioners) cannot be deemed buyers in good faith. The annotation of lis pendens on TCT No. 2581 which covers Lot 1558, served as notice to them that the said lot is involved in a pending litigation. Settled is the rule that one who deals with property subject of a notice of lis pendens cannot invoke the right of a purchaser in good faith. Neither can he acquire better rights than those of his predecessor in interest. A transferee pendente lite stands in the shoes of the transferor and is bound by any judgment or decree which may be rendered for or against the transferor. It is thus beyond cavil that the herein petitioners, who purchased Lot 1558 subject of a notice of lis pendens, are not purchasers in good faith and are consequently bound by the Resolution dated March 11, 1981 of the Court of Appeals. Can petitioners then be treated purchasers in good faith of Lot 1557 covered by TCT No. 2580 considering that the notice of lis pendens thereon had been already cancelled at the time of the sale? We rule in the negative. It is a firmly settled jurisprudence that a purchaser cannot close his eyes to facts which should put a reasonable man on guard and claim that he acted in good faith in the belief that there was no defect in the title of the vendor. His mere refusal to believe that such a defect exist, or his willful closing of his eyes to the possibility of the existence of a defect on his vendor's title, will not make him innocent purchaser for value, if it develops afterwards that the title was in fact defective, and it appears that he had notice of such defect

as would have led to its discovery had he acted with that measure of precaution which may reasonably be required of a prudent man in like situation. In the case under consideration, there exist circumstances which should have placed the herein petitioners on guard. As aptly stressed upon by the respondent court, while it is true that when the petitioners purchased Lot 1557, the notice of lis pendens affecting said lot had been cancelled, it could not be denied that such inscription appears on the Transfer Certificate of Title of the said lot together with the cancellation of the notice of lis pendens. This fact coupled with the non-cancellation of the notice of lis pendens on Transfer Certificate of Title No. 2581 covering Lot 1558, should have sufficiently alerted the petitioners vis--vis a possible defect in the title of LACHO, especially so that Lots 1557 and 1558 were simultaneously sold to the petitioners in a single deed of sale executed on May 28, 1969. Undeterred, the Po Lam spouses filed a motion for reconsideration, alleging, inter alia, that it was error to hold them as purchasers in bad faith. The motion for reconsideration is impressed with merit. It must be stressed that the sole basis for finding petitioners to be purchasers in bad faith was the subsistence of the notice of lis pendens inscribed on TCT No. 2581, which covered Lot No. 1558, at the time petitioners-spouses purchased the lots in dispute. And since Lot No. 1558 was sold simultaneously with Lot No. 1557, even if the notice of lis pendens on Lot No. 1557 had already been cancelled, petitioners were held to be purchasers in bad faith even in regard to Lot No. 1557. However, it must be pointed out that even if a notice of lis pendens on TCT No. 2581 (Lot No. 1558) was still subsisting at the time petitioners bought the property from LAHCO, there also was a court order ordering that the annotation be cancelled, as in fact, it was cancelled on May 20, 1974. A possessor in good faith has been defined as "one who is unaware that there exists a flaw which invalidates his acquisition of the thing (See Article 526, Civil Code). Good faith consists in the possessor's belief that the person from whom he received the thing was the owner of the same and could convey his title (Pio v. CA, 198 SCRA 434 [1991]). In this case, while petitioners bought Lot No. 2581 from LAHCO while a notice of lis pendens was still annotated thereon, there was also existing a court order canceling the same. Hence, petitioners cannot be considered as being "aware of a flaw which invalidates their acquisition of the thing" since the alleged flaw, the notice of lis pendens, was already being ordered cancelled at the time of the purchase. On this ground alone, petitioners can already be considered buyers in good faith. More importantly, however, the notice of lis pendens inscribed on TCT No. 2581 was cancelled on May 20, 1974, pursuant to the order of the trial court in Civil Case No. 2953. Felix Lim did not move for the reinstatement of the cancelled notices of lis pendens. What is the effect of this cancellation? To follow the prior ruling of the Court in the instant case, the cancellation of the notice of lis pendens would have no effect. Regardless of the cancellation of the notice of lis pendens, the Po Lam spouses are still considered as having notice of a possible defect in the title of LAHCO, making them purchasers in bad faith. As we shall elucidate, hewing to such an interpretation misunderstands the nature and effect of a notice of lis pendens. The meaning, nature, recording, and effects of a notice of lis pendens are clearly stated in Section 14, Rule 13 of the 1997 Rules of Civil Procedure, thus: SEC. 14. Notice of lis pendens. In an action affecting the title or the right of possession of real property, the plaintiff and the defendant, when affirmative relief is claimed in his answer, may record in the office of the registry of deeds of the province in which the property is situated a notice of the pendency of the action. Said notice shall contain the names of the parties and the object of the action or defense, and a description of the property in that province affected thereby. Only from the time of filing such notice for record shall a purchaser, or encumbrancer

of the property affected thereby, be deemed to have constructive notice of the pendency of the action, and only of its pendency against the parties designated by their real names. The notice of lis pendens hereinabove mentioned may be cancelled only upon order of the court, after proper showing that the notice is for the purpose of molesting the adverse party, or that it is not necessary to protect the right of the party who caused it to be recorded. Lis pendens literally means a pending suit or a pending litigation; and the doctrine of lis pendens has been defined as the jurisdiction, power, or control which a court acquires over property involved in a suit, pending the continuance of the action, and until final judgment therein (54 C.J.S. Lis Pendens 1). A notice of lis pendens is an announcement to the whole world that a particular real property is in litigation, serving as a warning that one who acquires an interest over said property does so at his own risk, or that he gambles on the result of the litigation over the said property (AFPMBAI v. CA, G.R. No. 104769, March 3, 2000). The filing of a notice of lis pendens charges all strangers with a notice of the particular litigation referred to therein and, therefore, any right they may thereafter acquire on the property is subject to the eventuality of the suit (Laroza v. Guia, 134 SCRA 341 [1985]). Notice of lis pendens has been conceived and, more often than not, availed of, to protect the real rights of the registrant while the case involving such rights is pending resolution or decision. With the notice of lis pendens duly recorded, and while it remains uncancelled, the registrant could rest secure that he would not lose the property or any part of it during the litigation (People v. Regional Trial Court of Manila, 178 SCRA 299 [1989]). The filing of a notice of lis pendens in effect (1) keeps the subject matter of the litigation within the power of the court until the entry of the final judgment so as to prevent the defeat of the latter by successive alienations; and (2) binds a purchaser of the land subject of the litigation to the judgment or decree that will be promulgated thereon whether such a purchaser is a bona fide purchaser or not; but (3) does not create a non-existent right or lien (Somes v. Government, 62 Phil. 432 [1935]). The doctrine of lis pendens is founded upon reason of public policy and necessity, the purpose of which is to keep the subject matter of the litigation within the power of the court until the judgment or decree shall have been entered; otherwise by successive alienations pending the litigation, its judgment or decree shall be rendered abortive and impossible of execution (Laroza v. Guia, supra; People v. Regional Trial Court of Manila, supra). The doctrine of lis pendens is based on considerations of public policy and convenience, which forbid a litigant to give rights to others, pending the litigation, so as to affect the proceedings of the court then progressing to enforce those rights, the rule being necessary to the administration of justice in order that decisions in pending suits may be binding and may be given full effect, by keeping the subject matter in controversy within the power of the court until final adjudication, that there may be an end to litigation, and to preserve the property that the purpose of the pending suit may not be defeated by successive alienations and transfers of title (54 C.J.S. Lis Pendens, supra). From the above, it can be seen that the basis of the doctrine of lis pendens is public policy and convenience, under the view that once a court has taken cognizance of a controversy, it should be impossible to interfere with consummation of the judgment by any ad interim transfer, encumbrance, or change of possession (51 Am Jur 2d, Lis Pendens, 3). However, to hold that the Po Lam spouses are still bound by the results of the litigation over the property, despite and notwithstanding the cancellation of the notices of lis pendens prior to the termination of litigation, would consider the doctrine of lis pendens as one of implied or constructive notice. This view is erroneous. While the doctrine of lis pendens is frequently spoken of as one of implied or constructive notice, according to many authorities, the doctrine is not founded on any idea of constructive notice, since its true foundation rests, as has already been stated, on principles of public policy and necessity. The lis pendens annotation, although considered a "general notice to all the world, . . . it is not correct to speak of it as part of the doctrine of notice; the purchaser

pendente lite is affected, not by notice, but because the law does not allow litigating parties to give to others, pending the litigation, rights to the property in dispute as to prejudice the opposite party. The doctrine rests upon public policy, not notice" (Tirado v. Sevilla, 188 SCRA 321 [1990]). "The doctrine of lis pendens, as generally understood and applied by the courts of this country, is not based upon presumption of notice, but upon a public policy, imperatively demanded by a necessity which can be met and overcome in no other way. It is careless 'use of language which has led judges to speak of it as notice, because it happens to have in some instance similar effect with notice' (Smith v. Kimball, 13 P. 801, 36 Kan. 474)." And since the doctrine rests on public policy, not notice, upon the cancellation of the notice of lis pendens, the Po Lam spouses cannot then be considered as having constructive notice of any defect in the title of LAHCO as to make them transferees pendente lite and purchasers in bad faith of Lots No. 1557 and 1558. To hold otherwise would render nugatory the cancellation of the notices of lis pendens inscribed on TCT Nos. 2580 and 2581. Differently stated, to hold the Po Lam spouses still bound by the notice of lis pendens inscribed on TCT No. 2581 despite its subsequent cancellation on May 20, 1974, would render said cancellation an empty, unavailing, and purposeless act, which could not have been the intent of the law. Lex neminem cogit ad van seu inutilia peragenda. The law will not compel one to do useless things. As adverted to earlier, while the notice of lis pendens is duly recorded and as long as it remains uncancelled, the litigant can rest secure that he would not lose the property or any part of it during litigation. Conversely, cancellation of the notice of pendency terminates the effects of such notice. Therefore, with the cancellation of the notices of lis pendens on TCT No. 2580 and 2581, the effects of such notice were terminated, resulting in the Po Lam spouses not being bound thereby. In fine, they cannot be considered transferees pendente lite and purchasers in bad faith of the property. Moreover, since its operation is arbitrary and it may be harsh in particular instances, the doctrine of lis pendens is to be strictly construed and applied. It should not be extended without strict necessity (54 C.J.S. Lis Pendens 1). To consider the Po Lam spouses still bound by the notice of lis pendens even after the same had been cancelled would be extending the doctrine when there is no reason therefor. Lastly, Felix Lim's claim is barred by the equitable principle of laches. At the time the notices of lis pendens were cancelled in 1969 and 1974, Felix Lim did not move to reinstate the same. Nor did he act when TCT No. 2580 and 2581 were replaced by TCT No. 8102 and 13711. Instead, he waited seven years, or until 1981, to have his claim on the disputed pieces of property recognized. Felix Lim's long inaction and passivity in asserting his rights over the disputed property precludes him from recovering them from petitioners-spouses. WHEREFORE, premises considered, the Motion for Reconsideration of petitioners-spouses Roy Po Lam and Josefa Ong Po Lam is hereby GRANTED. Consequently, the decision dated October 13, 1999, is VACATED and SET ASIDE. A new judgment is hereby entered declaring petitionersspouses to be PURCHASERS IN GOOD FAITH and Transfer Certificates of Title No. 8102 and 13711 in their name valid, without prejudice on the part of private respondent Jose Lee to file a separate action for reimbursement for the value of said property from the Legaspi Avenue Hardware Company. SO ORDERED.

[1981V241] PAZ G. ROMUALDEZ, BELEN A. GUECO, assisted by her husband, JOSE TINSAY, and CATALINA A. GUECO, assisted by her husband JOSE SIOPONGCO, plaintiffs-appellees, vs. ANTONIO P. TIGLAO, ERNESTO TIGLAO, BERNARDO TIGLAO and JUANA TIGLAO, defendants, ESTATE OF FELISA TIGLAO, defendantappellant.1981 Jul 242nd DivisionG.R. No. 51151 D E C I S I O N

ABAD SANTOS, J.: This is an appeal by the Estate of Felisa Tiglao from a decision in Civil Case No. Q-14424 of the Court of First Instance of Rizal which revived a judgment rendered in Civil Case No . Q-5055 also of the Court of First Instance of Rizal. Originally appealed to the Court of Appeals, that court certified the case to us on the ground that it involves questions of law only. The relevant facts are the following: On March 15, 1960, Paz G. Romualdez and others sued Antonio Tiglao for the payment of unpaid rentals for the lease of a hacienda and its sugar quota. Included in the suit were Felisa Tiglao and others who had guaranteed the payment of the rents jointly and severally with Antonio Tiglao. The suit was docketed as Civil Case No. Q-5055 of the Court of First Instance of Rizal. On May 31, 1960, a decision was rendered with the following dispositive portion: "IN VIEW OF THE FOREGOING, the Court hereby renders judgment in favor of the plaintiffs and against the defendants, by ordering said defendants to pay jointly and severally the plaintiffs the sum of P22,767.17 representing the unpaid rentals on the sugar quota, to pay P5,000.00 as liquidated damages and the sum of P1,000.00 as attorney's fees plus costs." The judgment was not satisfied notwithstanding a writ of execution to enforce it. Accordingly, on May 18, 1970, Paz G. Romualdez, et al. filed Civil Case No. Q-14424 in the Court of First Instance of Rizal against Antonio Tiglao and his sureties in order to revive the judgment above quoted. It should be stated that when the suit to revive judgment was filed, Felisa Tiglao had died and her estate was being settled in Special Proc. No. Q-10731 of the Court of First Instance of Rizal. Accordingly, the one who was made defendant was her estate represented by the Special Administratrix Maningning Tiglao-Naguiat. In her Motion to Dismiss, dated October 5, 1970, Answer dated April 5, 1971, and still another Motion to Dismiss, dated September 25, 1973, the administratrix questioned the jurisdiction of the court a quo to entertain the suit to revive judgment. She invoked Sec. 1 of Rule 87 of the Rules of Court that, "No action upon a claim for the recovery of money or debt or interest thereon shall be commenced against the executor or administrator; . . ." Brushing aside the posture of the administratrix, the court a quo rendered a decision on January 21, 1974, with the following dispositive portion: "WHEREFORE, for all the foregoing considerations the Court hereby renders judgment in favor of the plaintiffs ordering the revival of the judgment of this court in Civil Case No. 5055, which runs as follows: 'IN VIEW OF THE FOREGOING, the Court hereby renders judgment in favor of the plaintiffs and against the defendants, by ordering the said defendants to pay jointly and severally the plaintiffs the sum of P22,767.17 representing the unpaid rental on the sugar quota, to pay P5,000.00 as liquidated damages and the sum of P1,000.00 as attorney's fees plus costs.'

without pronouncement as to costs." The Estate of Felisa Tiglao filed a separate appeal which is now before us. The decision reviving the judgment states: "For the estate of Felisa Tiglao, no evidence was presented, it having been declared in default previously." But as can be gleaned from the facts stated above, the Estate of Felisa Tiglao filed an Answer, dated April 1, 1971, and a second Motion to Dismiss, dated September 25, 1973. The reason for the mistake is that the case was handled by several judges (Judges Lorenzo Relova and Santiago O. Taada) before it was decided by Judge Augusto L. Valencia. However, the mistake is not fatal for the Estate of Felisa Tiglao did not raise any factual issue in the court below. It raised a question of law only which we now resolve in this appeal. The appellant argues that the present action is one for the recovery of a sum of money so that it is barred by Sec. 1 of Rule 87 of the Rules of Court and that the remedy of the appellees is to present their claim in Special Proc. No. Q-10731 of the Court of First Instance of Rizal. This argument is simply answered thus: the original judgment which was rendered on May 31, 1960, has become stale because of its non-execution after the lapse of five years. (Sec. 6, Rule 39 of the Rules of Court.) Accordingly, it cannot be presented against the Estate of Felisa Tiglao unless it is first revived by action. This is precisely why the appellees have instituted the second suit whose object is not to make the Estate of Felisa Tiglao pay the sums of money adjudged in the first judgment but merely to keep alive said judgment so that the sums therein awarded can be presented as claims against the estate in Special Proc. No. Q-10731 of the Court of First Instance of Rizal. WHEREFORE, finding no error in the judgment insofar as the Estate of Felisa Tiglao is concerned, its appeal is hereby dismissed with costs against the appellant. SO ORDERED. Barredo (Chairman), Concepcion Jr. and De Castro, JJ., concur. Separate Opinions AQUINO, J., concurring: I concur. Felisa Tiglao died on December 4, 1966. Special Proceeding No. Q-10731 of Branch V of the Court of First Instance of Quezon City, the testamentary proceeding for the settlement of her estate, was filed on January 18, 1967 (p. 3, Appellant's brief). It is a fact that when the ten-year period for enforcing the judgment of Judge Nicasio Yatco dated May 31, 1960 against the Tiglao defendants was about to expire, there was as yet no notice to creditors in Special Proceeding No. Q-10731 and no regular administrator had been appointed. Hence, the judgment creditors could not file a claim against the testate estate for the amount of the unsatisfied judgment. The judgment creditors had no alternative but to file an action for revival of judgment to prevent its extinguishment by prescription. It is true that, as a general rule, "no action upon a claim for the recovery of money or debt or interest thereon shall be commenced against the executor or administrator" because the creditor's remedy is to file the proper claim in the proceeding for the settlement of the deceased debtor's estate within the period fixed in the Statute of Nonclaims (Secs. 2 and 5, Rule 86 and sec. 1, Rule 87, Rules of Court).

But the instant case, because of the singular circumstances recounted above, is an exception to that general rule. At any rate, the judgment creditors filed on August 20, 1971 in the testate proceeding already mentioned the corresponding claim (p. 44, Record on Appeal). The lower court's judgment in this case, which is being assailed on appeal, is simply a confirmation of that claim which was based on Judge Yatco's 1960 judgment. The confirmation was necessary to forestall extinctive prescription of the judgment.

G.R. No. 143365

December 4, 2008

GENEROSO SALIGUMBA, ERNESTO SALIGUMBA, and HEIRS OF SPOUSES VALERIA SALIGUMBA AND ELISEO SALIGUMBA, SR., petitioners, vs. MONICA PALANOG, respondent. DECISION CARPIO, J.: The Case This is a petition for review of the Decision dated 24 May 2000 of the Regional Trial Court, Branch 5, Kalibo, Aklan (RTC-Branch 5) in Civil Case No. 5288 for Revival of Judgment. The case is an offshoot of the action for Quieting of Title with Damages in Civil Case No. 2570. The Facts Monica Palanog, assisted by her husband Avelino Palanog (spouses Palanogs), filed a complaint dated 28 February 1977 for Quieting of Title with Damages against defendants, spouses Valeria Saligumba and Eliseo Saligumba, Sr. (spouses Saligumbas), before the Regional Trial Court, Branch 3, Kalibo, Aklan (RTC-Branch 3). The case was docketed as Civil Case No. 2570. In the complaint, spouses Palanogs alleged that they have been in actual, open, adverse and continuous possession as owners for more than 50 years of a parcel of land located in Solido, Nabas, Aklan. The spouses Saligumbas allegedly prevented them from entering and residing on the subject premises and had destroyed the barbed wires enclosing the land. Spouses Palanogs prayed that they be declared the true and rightful owners of the land in question. When the case was called for pre-trial on 22 September 1977, Atty. Edilberto Miralles (Atty. Miralles), counsel for spouses Saligumbas, verbally moved for the appointment of a commissioner to delimit the land in question. Rizalino Go, Deputy Sheriff of Aklan, was appointed commissioner and was directed to submit his report and sketch within 30 days.1 Present during the delimitation were spouses Palanogs, spouses Saligumbas, and Ernesto Saligumba, son of spouses Saligumbas.2 After submission of the Commissioners Report, spouses Palanogs, upon motion, were granted 10 days to amend their complaint to conform with the items mentioned in the report.3 Thereafter, trial on the merits ensued. At the hearing on 1 June 1984, only the counsel for spouses Palanogs appeared. The trial court issued an order resetting the hearing to 15 August 1984 and likewise directed spouses Saligumbas to secure the services of another counsel who should be ready on that date.4 The order sent to Eliseo Saligumba, Sr. was returned to the court unserved with the notation "PartyDeceased" while the order sent to defendant Valeria Saligumba was returned with the notation "Party in Manila."5 At the hearing on 15 August 1984, spouses Palanogs direct examination was suspended and the continuation of the hearing was set on 25 October 1984. The trial court stated that Atty. Miralles, who had not withdrawn as counsel for spouses Saligumbas despite his appointment as Municipal Circuit Trial Court judge, would be held responsible for the case of spouses Saligumbas until he formally withdrew as counsel. The trial court reminded Atty. Miralles to secure the consent of spouses Saligumbas for his withdrawal.6 A copy of this order was sent to Valeria Saligumba but the same was returned unserved with the notation "Party in Manila."7 The hearing set on 25 October 1984 was reset to 25 January 1985 and the trial court directed that a copy of this order be sent to Eliseo Saligumba, Jr. at COA, PNB, Manila.8 The presentation of evidence for spouses Palanogs resumed on 25 January 1985 despite the motion of Atty. Miralles for postponement on the ground that his client was sick. The exhibits were admitted and plaintiffs spouses Palanogs rested their case. Reception of evidence for the defendants spouses Saligumbas was scheduled on 3, 4, and 5 June 1985.9

On 3 June 1985, only spouses Palanogs and counsel appeared. Upon motion of the spouses Palanogs, spouses Saligumbas were deemed to have waived the presentation of their evidence. On 3 August 1987, after a lapse of more than two years, the trial court considered the case submitted for decision. On 7 August 1987, RTC-Branch 3 rendered a judgment in Civil Case No. 2570 declaring spouses Palanogs the lawful owners of the subject land and ordering spouses Saligumbas, their agents, representatives and all persons acting in privity with them to vacate the premises and restore possession to spouses Palanogs. The trial court, in a separate Order dated 7 August 1987, directed that a copy of the courts decision be furnished plaintiff Monica Palanog and defendant Valeria Saligumba. Thereafter, a motion for the issuance of a writ of execution of the said decision was filed but the trial court, in its Order dated 8 May 1997, ruled that since more than five years had elapsed after the date of its finality, the decision could no longer be executed by mere motion. Thus, on 9 May 1997, Monica Palanog (respondent), now a widow, filed a Complaint seeking to revive and enforce the Decision dated 7 August 1987 in Civil Case No. 2570 which she claimed has not been barred by the statute of limitations. She impleaded petitioners Generoso Saligumba and Ernesto Saligumba, the heirs and children of the spouses Saligumbas, as defendants. The case was docketed as Civil Case No. 5288 before the RTC-Branch 5. Petitioner Generoso Saligumba, for himself and in representation of his brother Ernesto who was out of the country working as a seaman, engaged the services of the Public Attorneys Office, Kalibo, Aklan which filed a motion for time to allow them to file a responsive pleading. Petitioner Generoso Saligumba filed his Answer10alleging that: (1) respondent had no cause of action; (2) the spouses Saligumbas died while Civil Case No. 2570 was pending and no order of substitution was issued and hence, the trial was null and void; and (3) the court did not acquire jurisdiction over the heirs of the spouses Saligumbas and therefore, the judgment was not binding on them. Meanwhile, on 19 December 1997, the trial court granted respondents motion to implead additional defendants namely, Eliseo Saligumba, Jr. and Eduardo Saligumba, who are also the heirs and children of spouses Saligumbas.11 They were, however, declared in default on 1 October 1999 for failure to file any responsive pleading.12 The Trial Courts Ruling On 24 May 2000, the RTC-Branch 5 rendered a decision in favor of respondent ordering the revival of judgment in Civil Case No. 2570. The trial court ruled that the non-substitution of the deceased spouses did not have any legal significance. The land subject of Civil Case No. 2570 was the exclusive property of defendant Valeria Saligumba who inherited the same from her deceased parents. The death of her husband, Eliseo Saligumba, Sr., did not change the complexion of the ownership of the property that would require his substitution. The spouses Saligumbas children, who are the petitioners in this case, had no right to the property while Valeria Saligumba was still alive. The trial court further found that when defendant Valeria Saligumba died, her lawyer, Atty. Miralles, did not inform the court of the death of his client. The trial court thus ruled that the non-substitution of the deceased defendant was solely due to the negligence of counsel. Moreover, petitioner Ernesto Saligumba could not feign ignorance of Civil Case No. 2570 as he was present during the delimitation of the subject land. The trial court likewise held that the decision in Civil Case No. 2570 could not be the subject of a collateral attack. There must be a direct action for the annulment of the said decision. Petitioners elevated the matter directly to this Court. Hence, the present petition. The Courts Ruling The instant case is an action for revival of judgment and the judgment sought to be revived in this case is the decision in the action for quieting of title with damages in Civil Case No. 2570. This is not one for annulment of judgment. An action for revival of judgment is no more than a procedural means of securing the execution of a previous judgment which has become dormant after the passage of five years without it being executed upon motion of the

prevailing party. It is not intended to re-open any issue affecting the merits of the judgment debtors case nor the propriety or correctness of the first judgment.13 An action for revival of judgment is a new and independent action, different and distinct from either the recovery of property case or the reconstitution case, wherein the cause of action is the decision itself and not the merits of the action upon which the judgment sought to be enforced is rendered.14 Revival of judgment is premised on the assumption that the decision to be revived, either by motion or by independent action, is already final and executory.15 The RTC-Branch 3 Decision dated 7 August 1987 in Civil Case No. 2570 had been rendered final and executory by the lapse of time with no motion for reconsideration nor appeal having been filed. While it may be true that the judgment in Civil Case No. 2570 may be revived and its execution may be had, the issue now before us is whether or not execution of judgment can be issued against petitioners who claim that they are not bound by the RTCBranch 3 Decision dated 7 August 1987 in Civil Case No. 2570. Petitioners contend that the RTC-Branch 3 Decision of 7 August 1987 in Civil Case No. 2570 is null and void since there was no proper substitution of the deceased spouses Saligumbas despite the trial courts knowledge that the deceased spouses Saligumbas were no longer represented by counsel. They argue that they were deprived of due process and justice was not duly served on them. Petitioners argue that the trial court even acknowledged the fact of death of spouses Saligumbas but justified the validity of the decision rendered in that case despite lack of substitution because of the negligence or fault of their counsel. Petitioners contend that the duty of counsel for the deceased spouses Saligumbas to inform the court of the death of his clients and to furnish the name and address of the executor, administrator, heir or legal representative of the decedent under Rule 3 presupposes adequate or active representation by counsel. However, the relation of attorney and client was already terminated by the appointment of counsel on record, Atty. Miralles, as Municipal Circuit Trial Court judge even before the deaths of the spouses Saligumbas were known. Petitioners invoke the Order of 1 June 1984 directing the spouses Saligumbas to secure the services of another lawyer to replace Atty. Miralles. The registered mail containing that order was returned to the trial court with the notation that Eliseo Saligumba, Sr. was "deceased." Petitioners thus question the decision in Civil Case No. 2570 as being void and of no legal effect because their parents were not duly represented by counsel of record. Petitioners further argue that they have never taken part in the proceedings in Civil Case No. 2570 nor did they voluntarily appear or participate in the case. It is unfair to bind them in a decision rendered against their deceased parents. Therefore, being a void judgment, it has no legal nor binding effect on petitioners. Civil Case No. 2570 is an action for quieting of title with damages which is an action involving real property. It is an action that survives pursuant to Section 1, Rule 8716 as the claim is not extinguished by the death of a party. And when a party dies in an action that survives, Section 17 of Rule 3 of the Revised Rules of Court17 provides for the procedure, thus: Section 17. Death of Party. - After a party dies and the claim is not thereby extinguished, the court shall order, upon proper notice, the legal representative of the deceased to appear and to be substituted for the deceased, within a period of thirty (30) days, or within such time as may be granted. If the legal representative fails to appear within said time, the court may order the opposing party to procure the appointment of a legal representative of the deceased within a time to be specified by the court, and the representative shall immediately appear for and on behalf of the interest of the deceased. The court charges involved in procuring such appointment, if defrayed by the opposing party, may be recovered as costs. The heirs of the deceased may be allowed to be substituted for the deceased, without requiring the appointment of an executor or administrator and the court may appoint guardian ad litem for the minor heirs. (Emphasis supplied) Under the express terms of Section 17, in case of death of a party, and upon proper notice, it is the duty of the court to order the legal representative or heir of the deceased to appear for the deceased. In the instant case, it is true that the trial court, after receiving an informal notice of death by the mere notation in the envelopes, failed to order the appearance of the legal representative or heir of the deceased. There was no court order for deceaseds legal representative or heir to appear, nor did any such legal representative ever appear in court to be substituted for the deceased. Neither did the respondent ever procure the appointment of such legal representative, nor did the heirs ever ask to be substituted. It appears that Eliseo Saligumba, Sr. died on 18 February 1984 while Valeria Saligumba died on 2 February 1985. No motion for the substitution of the spouses was filed nor an order issued for the substitution of the deceased

spouses Saligumbas in Civil Case No. 2570. Atty. Miralles and petitioner Eliseo Saligumba, Jr., despite notices sent to them to appear, never confirmed the death of Eliseo Saligumba, Sr. and Valeria Saligumba. The record is bereft of any evidence proving the death of the spouses, except the mere notations in the envelopes enclosing the trial courts orders which were returned unserved. Section 17 is explicit that the duty of the court to order the legal representative or heir to appear arises only "upon proper notice." The notation "Party-Deceased" on the unserved notices could not be the "proper notice" contemplated by the rule. As the trial court could not be expected to know or take judicial notice of the death of a party without the proper manifestation from counsel, the trial court was well within its jurisdiction to proceed as it did with the case. Moreover, there is no showing that the courts proceedings were tainted with irregularities.18 Likewise, the plaintiff or his attorney or representative could not be expected to know of the death of the defendant if the attorney for the deceased defendant did not notify the plaintiff or his attorney of such death as required by the rules.19 The judge cannot be blamed for sending copies of the orders and notices to defendants spouses in the absence of proof of death or manifestation to that effect from counsel.20 Section 16, Rule 3 of the Revised Rules of Court likewise expressly provides: SEC. 16. Duty of attorney upon death, incapacity or incompetency of party. - Whenever a party to a pending case dies, becomes incapacitated or incompetent, it shall be the duty of his attorney to inform the court promptly of such death, incapacity or incompetency, and to give the name and residence of his executor, administrator, guardian or other legal representative. It is the duty of counsel for the deceased to inform the court of the death of his client. The failure of counsel to comply with his duty under Section 16 to inform the court of the death of his client and the non-substitution of such party will not invalidate the proceedings and the judgment thereon if the action survives the death of such party. The decision rendered shall bind the partys successor-in-interest.21 The rules operate on the presumption that the attorney for the deceased party is in a better position than the attorney for the adverse party to know about the death of his client and to inform the court of the name and address of his legal representative.22 Atty. Miralles continued to represent the deceased spouses even after the latters demise. Acting on their behalf, Atty. Miralles even asked for postponement of the hearings and did not even confirm the death of his clients nor his appointment as Municipal Circuit Trial Court judge. These clearly negate petitioners contention that Atty. Miralles ceased to be spouses Saligumbas counsel. Atty. Miralles still remained the counsel of the spouses Saligumbas despite the alleged appointment as judge. Records show that when Civil Case No. 2570 was called for trial on 25 October 1984, Atty. Miralles appeared and moved for a postponement. The 25 October 1984 Order reads: ORDER Upon petition of Judge Miralles who is still the counsel on record of this case and who is held responsible for anything that will happen in this case, postpone the hearing of this case to JANUARY 25, 1985 AT 8:30 in the morning. x x x23 The trial court issued an Order dated 1 June 1984 directing the defendants to secure the services of another counsel. This order was sent to Eliseo Saligumba, Sr. by registered mail but the same was returned with the notation "Party-Deceased" while the notice to Valeria Saligumba was returned with the notation "Party in Manila."24Eliseo Saligumba, Sr. died on 18 February 1984. When Atty. Miralles appeared in court on 25 October 1984, he did not affirm nor inform the court of the death of his client. There was no formal substitution. The trial court issued an order resetting the hearing to 25 January 1985 and directed that a copy of the order be furnished petitioner Eliseo Saligumba, Jr. at COA, PNB, Manila by registered mail.25 When the case was called on 25 January 1985, Atty. Miralles sought for another postponement on the ground that his client was sick and under medical treatment in Manila.26 Again, there was no manifestation from counsel about the death of Eliseo

Saligumba, Sr. The trial court issued an Order dated 25 January 1985 setting the reception of evidence for the defendants on 3, 4, and 5 June 1985. A copy of this order was sent to Eliseo Saligumba, Jr. by registered mail. Nonetheless, as the trial court in Civil Case No. 5288 declared, the non-substitution of Eliseo Saligumba, Sr. did not have any legal significance as the land subject of Civil Case No. 2570 was the exclusive property of Valeria Saligumba who inherited it from her deceased parents. This notwithstanding, when Valeria Saligumba died on 2 February 1985, Atty. Miralles again did not inform the trial court of the death of Valeria Saligumba. There was no formal substitution nor submission of proof of death of Valeria Saligumba. Atty. Miralles was remiss in his duty under Section 16, Rule 3 of the Revised Rules of Court. The counsel of record is obligated to protect his clients interest until he is released from his professional relationship with his client. For its part, the court could recognize no other representation on behalf of the client except such counsel of record until a formal substitution of attorney is effected.27 An attorney must make an application to the court to withdraw as counsel, for the relation does not terminate formally until there is a withdrawal of record; at least, so far as the opposite party is concerned, the relation otherwise continues until the end of the litigation.28 Unless properly relieved, the counsel is responsible for the conduct of the case.29 Until his withdrawal shall have been approved, the lawyer remains counsel of record who is expected by his client as well as by the court to do what the interests of his client require. He must still appear on the date of hearing for the attorney-client relation does not terminate formally until there is a withdrawal of record.30 Petitioners should have questioned immediately the validity of the proceedings absent any formal substitution. Yet, despite the courts alleged lack of jurisdiction over the persons of petitioners, petitioners never bothered to challenge the same, and in fact allowed the proceedings to go on until the trial court rendered its decision. There was no motion for reconsideration, appeal or even an action to annul the judgment in Civil Case No. 2570. Petitioners themselves could not feign ignorance of the case since during the pendency of Civil Case No. 2570, petitioner Ernesto Saligumba, son of the deceased spouses, was among the persons present during the delimitation of the land in question before the Commissioner held on 5 November 1977.31 Petitioner Eliseo Saligumba, Jr. was likewise furnished a copy of the trial courts orders and notices. It was only the Answer filed by petitioner Generoso Saligumba in Civil Case No. 5288 that confirmed the dates when the spouses Saligumbas died and named the latters children. Consequently, Atty. Miralles was responsible for the conduct of the case since he had not been properly relieved as counsel of record. His acts bind his clients and the latters successorsin-interest. In the present case for revival of judgment, the other petitioners have not shown much interest in the case. Petitioners Eliseo Saligumba, Jr. and Eduardo Saligumba were declared in default for failure to file their answer. Petitioner Ernesto Saligumba was out of the country working as a seaman. Only petitioner Generoso Saligumba filed an Answer to the complaint. The petition filed in this Court was signed only by petitioner Generoso Saligumba as someone signed on behalf of petitioner Ernesto Saligumba without the latters authority to do so. WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 24 May 2000 of the Regional Trial Court, Branch 5, Kalibo, Aklan in Civil Case No. 5288. Costs against petitioners. SO ORDERED.

A. M. No. 09-6-9-SC

August 19, 2009

RE: Query of Mr. Roger C. Prioreschi Re Exemption from Legal and Filing Fees of the Good Shepherd Foundation, Inc. RESOLUTION BERSAMIN, J.:p In his letter dated May 22, 2009 addressed to the Chief Justice, Mr. Roger C. Prioreschi, administrator of the Good Shepherd Foundation, Inc., wrote: The Good Shepherd Foundation, Inc. is very grateful for your 1rst. Indorsement to pay a nominal fee of Php 5,000.00 and the balance upon the collection action of 10 million pesos, thus giving us access to the Justice System previously denied by an up-front excessive court fee. The Hon. Court Administrator Jose Perez pointed out to the need of complying with OCA Circular No. 42-2005 and Rule 141 that reserves this "privilege" to indigent persons. While judges are appointed to interpret the law, this type of law seems to be extremely detailed with requirements that do not leave much room for interpretations. In addition, this law deals mainly with "individual indigent" and it does not include Foundations or Associations that work with and for the most Indigent persons. As seen in our Article of Incorporation, since 1985 the Good Shepherd Foundation, Inc. reached-out to the poorest among the poor, to the newly born and abandoned babies, to children who never saw the smile of their mother, to old people who cannot afford a few pesos to pay for "common prescriptions", to broken families who returned to a normal life. In other words, we have been working hard for the very Filipino people, that the Government and the society cannot reach to, or have rejected or abandoned them. Can the Courts grant to our Foundation who works for indigent and underprivileged people, the same option granted to indigent people? The two Executive Judges, that we have approached, fear accusations of favoritism or other kind of attack if they approve something which is not clearly and specifically stated in the law or approved by your HONOR. Can your Honor help us once more? Grateful for your understanding, God bless you and your undertakings. We shall be privileged if you find time to visit our orphanage the Home of Love and the Spiritual Retreat Center in Antipolo City. To answer the query of Mr. Prioreschi, the Courts cannot grant to foundations like the Good Shepherd Foundation, Inc. the same exemption from payment of legal fees granted to indigent litigants even if the foundations are working for indigent and underprivileged people. The basis for the exemption from legal and filing fees is the free access clause, embodied in Sec. 11, Art. III of the 1987 Constitution, thus: Sec. 11. Free access to the courts and quasi judicial bodies and adequate legal assistance shall not be denied to any person by reason of poverty. The importance of the right to free access to the courts and quasi judicial bodies and to adequate legal assistance cannot be denied. A move to remove the provision on free access from the Constitution on the ground that it was already covered by the equal protection clause was defeated by the desire to give constitutional stature to such specific protection of the poor.1 In implementation of the right of free access under the Constitution, the Supreme Court promulgated rules, specifically, Sec. 21, Rule 3, Rules of Court,2 and Sec. 19, Rule 141, Rules of Court,3 which respectively state thus:

Sec. 21. Indigent party. A party may be authorized to litigate his action, claim or defense as an indigent if the court, upon an ex parte application and hearing, is satisfied that the party is one who has no money or property sufficient and available for food, shelter and basic necessities for himself and his family. Such authority shall include an exemption from payment of docket and other lawful fees, and of transcripts of stenographic notes which the court may order to be furnished him. The amount of the docket and other lawful fees which the indigent was exempted from paying shall be a lien on any judgment rendered in the case favorable to the indigent, unless the court otherwise provides. Any adverse party may contest the grant of such authority at any time before judgment is rendered by the trial court. If the court should determine after hearing that the party declared as an indigent is in fact a person with sufficient income or property, the proper docket and other lawful fees shall be assessed and collected by the clerk of court. If payment is not made within the time fixed by the court, execution shall issue for the payment thereof, without prejudice to such other sanctions as the court may impose. (22a)
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Sec. 19. Indigent litigants exempt from payment of legal fees. Indigent litigants (a) whose gross income and that of their immediate family do not exceed an amount double the monthly minimum wage of an employee and (b) who do not own real property with a fair market value as stated in the current tax declaration of more than three hundred thousand (P300,000.00) pesos shall be exempt from payment of legal fees. The legal fees shall be a lien on any judgment rendered in the case favorable to the indigent litigant unless the court otherwise provides. To be entitled to the exemption herein provided, the litigant shall execute an affidavit that he and his immediate family do not earn a gross income abovementioned, and they do not own any real property with the fair value aforementioned, supported by an affidavit of a disinterested person attesting to the truth of the litigants affidavit. The current tax declaration, if any, shall be attached to the litigants affidavit. Any falsity in the affidavit of litigant or disinterested person shall be sufficient cause to dismiss the complaint or action or to strike out the pleading of that party, without prejudice to whatever criminal liability may have been incurred. The clear intent and precise language of the aforequoted provisions of the Rules of Court indicate that only a natural party litigant may be regarded as an indigent litigant. The Good Shepherd Foundation, Inc., being a corporation invested by the State with a juridical personality separate and distinct from that of its members,4 is a juridical person. Among others, it has the power to acquire and possess property of all kinds as well as incur obligations and bring civil or criminal actions, in conformity with the laws and regulations of their organization.5 As a juridical person, therefore, it cannot be accorded the exemption from legal and filing fees granted to indigent litigants. That the Good Shepherd Foundation, Inc. is working for indigent and underprivileged people is of no moment. Clearly, the Constitution has explicitly premised the free access clause on a persons poverty, a condition that only a natural person can suffer. There are other reasons that warrant the rejection of the request for exemption in favor of a juridical person. For one, extending the exemption to a juridical person on the ground that it works for indigent and underprivileged people may be prone to abuse (even with the imposition of rigid documentation requirements), particularly by corporations and entities bent on circumventing the rule on payment of the fees. Also, the scrutiny of compliance with the documentation requirements may prove too time-consuming and wasteful for the courts. In view of the foregoing, the Good Shepherd Foundation, Inc. cannot be extended the exemption from legal and filing fees despite its working for indigent and underprivileged people. SO ORDERED.