G.R. No.

138822

January 23, 2001

EVANGELINE ALDAY, petitioner,

vs.
FGU INSURANCE CORPORATION, respondent.
GONZAGA-REYES, J.:
On 5 May 1989, respondent FGU Insurance Corporation filed a
complaint with the Regional Trial Court of Makati1alleging that
petitioner Evangeline K. Alday owed it P114,650.76, representing
unliquidated cash advances, unremitted costs of premiums and
other charges incurred by petitioner in the course of her work as
an insurance agent for respondent.2 Respondent also prayed for
exemplary damages, attorney's fees, and costs of suit.3Petitioner
filed her answer and by way of counterclaim, asserted her right for
the payment of P104,893.45, representing direct commissions,
profit commissions and contingent bonuses earned from 1 July
1986 to 7 December 1986, and for accumulated premium
reserves amounting to P500,000.00. In addition, petitioner prayed
for attorney's fees, litigation expenses, moral damages and
exemplary damages for the allegedly unfounded action filed by
respondent.4 On 23 August 1989, respondent filed a "Motion to
Strike Out Answer With Compulsory Counterclaim And To Declare
Defendant In Default" because petitioner's answer was allegedly
filed out of time.5 However, the trial court denied the motion on 25
August 1989 and similarly rejected respondent's motion for
reconsideration on 12 March 1990.6 A few weeks later, on 11 April
1990, respondent filed a motion to dismiss petitioner's
counterclaim, contending that the trial court never acquired
jurisdiction over the same because of the non-payment of docket
fees by petitoner.7 In response, petitioner asked the trial court to
declare her counterclaim as exempt from payment of docket fees
since it is compulsory and that respondent be declared in default
for having failed to answer such counterclaim.8
In its 18 September 1990 Order, the trial court9 granted
respondent's motion to dismiss petitioner's counterclaim and
consequently, denied petitioner's motion. The court found
petitioner's counterclaim to be merely permissive in nature and
held that petitioner's failure to pay docket fees prevented the court
from acquiring jurisdiction over the same.10 The trial court similar
denied petitioner's motion for reconsideration on 28 February
1991.1wphi1.nt

On 23 December 1998, the Court of Appeals11 sustained the trial

court, finding that petitioner's own admissions, as contained in her
answer, show that her counterclaim is merely permissive. The
relevant portion of the appellate court's decision12 is quoted
herewith Contrary to the protestations of appellant, mere reading
of the allegations in the answer a quo will readily show
that her counterclaim can in no way be compulsory. Take
note of the following numbered paragraphs in her
answer:
"(14) That, indeed, FGU's cause of action which
is not supported by any document other than
the self-serving 'Statement of Account' dated
March 28, 1988 x x x
(15) That it should be noted that the cause of
action of FGU is not the enforcement of the
Special Agent's Contract but the alleged 'cash
accountabilities which are not based on written
agreement x x x.
x

(19) x x x A careful analysis of FGU's threepage complaint will show that its cause of action
is not for specific performance or enforcement
of the Special Agent's Contract rather, it is for
the payment of the alleged cash accountabilities
incurred by defendant during the period form
[sic] 1975 to 1986 which claim is executory and
has not been ratified. It is the established rule
that unenforceable contracts, like this purported
money claim of FGU, cannot be sued upon or
enforced unless ratified, thus it is as if they have
no effect. x x x."
To support the heading "Compulsory Counterclaim" in
her answer and give the impression that the counterclaim
is compulsory appellant alleged that "FGU has
unjustifiably failed to remit to defendant despite repeated
demands in gross violation of their Special Agent's
Contract x x x." The reference to said contract was

included purposely to mislead. While on one hand

appellant alleged that appellee's cause of action had
nothing to do with the Special Agent's Contract, on the
other hand, she claim that FGU violated said contract
which gives rise of [sic] her cause of action. Clearly,
appellant's cash accountabilities cannot be the offshoot
of appellee's alleged violation of the aforesaid contract.
On 19 May 1999, the appellate court denied petitioner's motion for
reconsideration,13 giving rise to the present petition.
Before going into the substantive issues, the Court shall first
dispose of some procedural matters raised by the parties.
Petitioner claims that respondent is estopped from questioning her
non-payment of docket fees because it did not raise this particular
issue when it filed its motion - the "Motion to Strike out Answer
With Compulsory Counterclaim And To Declare Defendant In
Default" - with the trial court; rather, it was only nine months after
receiving petitioner's answer that respondent assailed the trial
court's lack of jurisdiction over petitioner's counterclaims based on
the latter's failure to pay docket fees.14 Petitioner's position is
unmeritorious. Estoppel by laches arises from the negligence or
omission to assert a right within a reasonable time, warranting a
presumption that the party entitled to assert it either has
abandoned or declined to assert it.15 In the case at bar,
respondent cannot be considered as estopped from assailing the
trial court's jurisdiction over petitioner's counterclaim since this
issue was raised by respondent with the trial court itself - the body
where the action is pending - even before the presentation of any
evidence by the parties and definitely, way before any judgment
could be rendered by the trial court.
Meanwhile, respondent questions the jurisdiction of the Court of
Appeals over the appeal filed by petitioner from the 18 September
1990 and 28 February 1991 orders of the trial court. It is
significant to note that this objection to the appellate court's
jurisdiction is raised for the first time before this Court; respondent
never having raised this issue before the appellate court. Although
the lack of jurisdiction of a court may be raised at any stage of the
action, a party may be estopped from raising such questions if he
has actively taken part in the very proceedings which he
questions, belatedly objecting to the court's jurisdiction in the
event that the judgment or order subsequently rendered is
adverse to him.16 In this case, respondent actively took part in the

proceedings before the Court of Appeals by filing its appellee's

brief with the same.17 Its participation, when taken together with its
failure to object to the appellate court's jurisdiction during the
entire duration of the proceedings before such court,
demonstrates a willingness to abide by the resolution of the case
by such tribunal and accordingly, respondent is now most
decidedly estopped from objecting to the Court of Appeals'
assumption of jurisdiction over petitioner's appeal.18
The basic issue for resolution in this case is whether or not the
counterclaim of petitioner is compulsory or permissive in nature. A
compulsory counterclaim is one which, being cognizable by the
regular courts of justice, arises out of or is connected with the
transaction or occurrence constituting the subject matter of the
opposing party's claim and does not require for its adjudication the
presence of third parties of whom the court cannot acquire
jurisdiction.19
In Valencia v. Court of Appeals,20 this Court capsulized the criteria
or tests that may be used in determining whether a counterclaim
is compulsory or permissive, summarized as follows:
1. Are the issues of fact and law raised by the claim and
counterclaim largely the same?
2. Would res judicata bar a subsequent suit on
defendant's claim absent the compulsory counterclaim
rule?
3. Will substantially the same evidence support or refute
plaintiff's claim as well s defendant's counterclaim?
4. Is there any logical relation between the claim and the
counterclaim?
Another test, applied in the more recent case of Quintanilla v.
Court of Appeals,21 is the "compelling test of compulsoriness"
which requires "a logical relationship between the claim and
counterclaim, that is, where conducting separate trials of the
respective claims of the parties would entail a substantial
duplication of effort and time by the parties and the court."
As contained in her answer, petitioner's counterclaims
are as follows:

(20) That defendant incorporates and repleads by

reference all the foregoing allegations as may be
material to her Counterclaim against FGU.
(21) That FGU is liable to pay the following just, valid and
legitimate claims of defendant:
(a) the sum of at least P104,893.45 plus
maximum interest thereon representing, among
others, direct commissions, profit commissions
and contingent bonuses legally due to
defendant; and
(b) the minimum amount of P500,000.00 plus
the maximum allowable interest representing
defendant's accumulated premium reserve for
1985 and previous years,
which FGU has unjustifiably failed to remit to defendant
despite repeated demands in gross violation of their
Special Agent's Contract and in contravention of the
principle of law that "every person must, in the exercise
of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and
good faith."
(22) That as a result of the filing of this patently baseless,
malicious and unjustified Complaint, and FGU's unlawful,
illegal and vindictive termination of their Special Agent's
Contract, defendant was unnecessarily dragged into this
litigation and to defense [sic] her side and assert her
rights and claims against FGU, she was compelled to
hire the services of counsel with whom she agreed to
pay the amount of P30,000.00 as and for attorney's fees
and stands to incur litigation expenses in the amount
estimated to at least P20,000.00 and for which FGU
should be assessed and made liable to pay defendant.
(23) That considering further the malicious and
unwarranted action of defendant in filing this grossly
unfounded action, defendant has suffered and continues
to suffer from serious anxiety, mental anguish, fright and
humiliation. In addition to this, defendant's name, good
reputation and business standing in the insurance

business as well as in the community have been

besmirched and for which FGU should be adjudged and
made liable to pay moral damages to defendant in the
amount of P300,000.00 as minimum.
(24) That in order to discourage the filing of groundless
and malicious suits like FGU's Complaint, and by way of
serving [as] an example for the public good, FGU should
be penalized and assessed exemplary damages in the
sum of P100,000.00 or such amount as the Honorable
Court may deem warranted under the circumstances.22
Tested against the abovementioned standards, petitioner's
counterclaim for commissions, bonuses, and accumulated
premium reserves is merely permissive. The evidence required to
prove petitioner's claims differs from that needed to establish
respondent's demands for the recovery of cash accountabilities
from petitioner, such as cash advances and costs of premiums.
The recovery of respondent's claims is not contingent or
dependent upon establishing petitioner's counterclaim, such that
conducting separate trials will not result in the substantial
duplication of the time and effort of the court and the parties. One
would search the records in vain for a logical connection between
the parties' claims. This conclusion is further reinforced by
petitioner's own admissions since she declared in her answer that
respondent's cause of action, unlike her own, was not based upon
the Special Agent's Contract.23 However, petitioner's claims for
damages, allegedly suffered as a result of the filing by respondent
of its complaint, are compulsory.24
There is no need for need for petitioner to pay docket fees for her
compulsory counterclaim.25 On the other hand, in order for the trial
court to acquire jurisdiction over her permissive counterclaim,
petitioner is bound to pay the prescribed docket fees.26 The rule
on the payment of filing fees has been laid down by the Court in
the case ofSun Insurance Office, Ltd. V. Hon. Maximiano
Asuncion271. It is not simply the filing of the complaint or appropriate
initiatory pleading, but the payment of the prescribed
docket fee, that vests a trial court with jurisdiction over
the subject-matter or nature of the action. Where the
filing of the initiatory pleading is not accompanied by
payment of the docket fee, the court may allow payment

of the fee within a reasonable time but in no case beyond

the applicable prescriptive or reglementary period.
2. The same rule applies to permissive counterclaims,
third-party claims and similar pleadings, which shall not
be considered filed until and unless the filing fee
prescribed therefor is paid. The court may allow payment
of said fee within a reasonable time but also in no case
beyond its applicable prescriptive or reglementary period.
3. Where the trial court acquires jurisdiction over a claim
by the filing of the appropriate pleading and payment of
the prescribed filing fee but, subsequently, the judgment
awards a claim not specified in the pleading, or if
specified the same has been left for determination by the
court, the additional filing fee therefor shall constitute a
lien on the judgment. It shall be the responsibility of the
Clerk of Court or his duly authorized deputy to enforce
said lien and assess and collect the additional fee.
The above mentioned ruling in Sun Insurance has been reiterated
in the recent case of Susan v. Court of Appeals.28 In Suson, the
Court explained that although the payment of the prescribed
docket fees is a jurisdictional requirement, its non-payment does
not result in the automatic dismissal of the case provided the
docket fees are paid within the applicable prescriptive or
reglementary period. Coming now to the case at bar, it has not
been alleged by respondent and there is nothing in the records to
show that petitioner has attempted to evade the payment of the
proper docket fees for her permissive counterclaim. As a matter of
fact, after respondent filed its motion to dismiss petitioner's
counterclaim based on her failure to pay docket fees, petitioner
immediately filed a motion with the trial court, asking it to declare
her counterclaim as compulsory in nature and therefore exempt
from docket fees and, in addition, to declare that respondent was
in default for its failure to answer her counterclaim.29 However, the
trial court dismissed petitioner's counterclaim. Pursuant to this
Court's ruling in Sun Insurance, the trial court should have instead
given petitioner a reasonable time, but in no case beyond the
applicable prescriptive or reglementary period, to pay the filing
fees for her permissive counterclaim.
Petitioner asserts that the trial court should have declared
respondent in default for having failed to answer her

counterclaim.30 Insofar as the permissive counterclaim of

petitioner is concerned, there is obviously no need to file an
answer until petitioner has paid the prescribed docket fees for only
then shall the court acquire jurisdiction over such
claim.31 Meanwhile, the compulsory counterclaim of petitioner for
damages based on the filing by respondent of an allegedly
unfounded and malicious suit need not be answered since it is
inseparable from the claims of respondent. If respondent were to
answer the compulsory counterclaim of petitioner, it would merely
result in the former pleading the same facts raised in its
complaint.32
WHEREFORE, the assailed Decision of the Court of Appeals
promulgated on 23 December 1998 and its 19 May 1999
Resolution are hereby MODIFIED. The compulsory counterclaim
of petitioner for damages filed in Civil Case No. 89-3816 is
ordered REINSTATED. Meanwhile, the Regional Trial Court of
Makati (Branch 134) is ordered to require petitioner to pay the
prescribed docket fees for her permissive counterclaim (direct
commissions, profit commissions, contingent bonuses and
accumulated premium reserves), after ascertaining that the
applicable prescriptive period has not yet set in.33
SO ORDERED.1wphi1.nt
Melo, Vitug, Panganiban, and Sandoval-Gutierrez, JJ., concur.

G.R. No. 143581

January 7, 2008

KOREA TECHNOLOGIES CO., LTD., petitioner,

vs.
HON. ALBERTO A. LERMA, in his capacity as Presiding
Judge of Branch 256 of Regional Trial Court of Muntinlupa
City, and PACIFIC GENERAL STEEL MANUFACTURING
CORPORATION, respondents.
DECISION
VELASCO, JR., J.:
In our jurisdiction, the policy is to favor alternative methods of
resolving disputes, particularly in civil and commercial disputes.
Arbitration along with mediation, conciliation, and negotiation,
being inexpensive, speedy and less hostile methods have long
been favored by this Court. The petition before us puts at issue an
arbitration clause in a contract mutually agreed upon by the
parties stipulating that they would submit themselves to arbitration
in a foreign country. Regrettably, instead of hastening the
resolution of their dispute, the parties wittingly or unwittingly
prolonged the controversy.
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean
corporation which is engaged in the supply and installation of
Liquefied Petroleum Gas (LPG) Cylinder manufacturing plants,
while private respondent Pacific General Steel Manufacturing
Corp. (PGSMC) is a domestic corporation.
On March 5, 1997, PGSMC and KOGIES executed a
Contract1 whereby KOGIES would set up an LPG Cylinder
Manufacturing Plant in Carmona, Cavite. The contract was
executed in the Philippines. On April 7, 1997, the parties
executed, in Korea, an Amendment for Contract No. KLP-970301
dated March 5, 19972 amending the terms of payment. The
contract and its amendment stipulated that KOGIES will ship the
machinery and facilities necessary for manufacturing LPG
cylinders for which PGSMC would pay USD 1,224,000. KOGIES
would install and initiate the operation of the plant for which
PGSMC bound itself to pay USD 306,000 upon the plants
production of the 11-kg. LPG cylinder samples. Thus, the total
contract price amounted to USD 1,530,000.

On October 14, 1997, PGSMC entered into a Contract of

Lease3 with Worth Properties, Inc. (Worth) for use of Worths
5,079-square meter property with a 4,032-square meter
warehouse building to house the LPG manufacturing plant. The
monthly rental was PhP 322,560 commencing on January 1, 1998
with a 10% annual increment clause. Subsequently, the
machineries, equipment, and facilities for the manufacture of LPG
cylinders were shipped, delivered, and installed in the Carmona
plant. PGSMC paid KOGIES USD 1,224,000.
However, gleaned from the Certificate4 executed by the parties on
January 22, 1998, after the installation of the plant, the initial
operation could not be conducted as PGSMC encountered
financial difficulties affecting the supply of materials, thus forcing
the parties to agree that KOGIES would be deemed to have
completely complied with the terms and conditions of the March 5,
1997 contract.
For the remaining balance of USD306,000 for the installation and
initial operation of the plant, PGSMC issued two postdated
checks: (1) BPI Check No. 0316412 dated January 30, 1998 for
PhP 4,500,000; and (2) BPI Check No. 0316413 dated March 30,
1998 for PhP 4,500,000.5
When KOGIES deposited the checks, these were dishonored for
the reason "PAYMENT STOPPED." Thus, on May 8, 1998,
KOGIES sent a demand letter6 to PGSMC threatening criminal
action for violation of Batas Pambansa Blg. 22 in case of
nonpayment. On the same date, the wife of PGSMCs President
faxed a letter dated May 7, 1998 to KOGIES President who was
then staying at a Makati City hotel. She complained that not only
did KOGIES deliver a different brand of hydraulic press from that
agreed upon but it had not delivered several equipment parts
already paid for.
On May 14, 1998, PGSMC replied that the two checks it issued
KOGIES were fully funded but the payments were stopped for
reasons previously made known to KOGIES.7
On June 1, 1998, PGSMC informed KOGIES that PGSMC was
canceling their Contract dated March 5, 1997 on the ground that
KOGIES had altered the quantity and lowered the quality of the
machineries and equipment it delivered to PGSMC, and that
PGSMC would dismantle and transfer the machineries,

equipment, and facilities installed in the Carmona plant. Five days

later, PGSMC filed before the Office of the Public Prosecutor an
Affidavit-Complaint for Estafa docketed as I.S. No. 98-03813
against Mr. Dae Hyun Kang, President of KOGIES.
On June 15, 1998, KOGIES wrote PGSMC informing the latter
that PGSMC could not unilaterally rescind their contract nor
dismantle and transfer the machineries and equipment on mere
imagined violations by KOGIES. It also insisted that their disputes
should be settled by arbitration as agreed upon in Article 15, the
arbitration clause of their contract.
On June 23, 1998, PGSMC again wrote KOGIES reiterating the
contents of its June 1, 1998 letter threatening that the
machineries, equipment, and facilities installed in the plant would
be dismantled and transferred on July 4, 1998. Thus, on July 1,
1998, KOGIES instituted an Application for Arbitration before the
Korean Commercial Arbitration Board (KCAB) in Seoul, Korea
pursuant to Art. 15 of the Contract as amended.
On July 3, 1998, KOGIES filed a Complaint for Specific
Performance, docketed as Civil Case No. 98-1178 against
PGSMC before the Muntinlupa City Regional Trial Court (RTC).
The RTC granted a temporary restraining order (TRO) on July 4,
1998, which was subsequently extended until July 22, 1998. In its
complaint, KOGIES alleged that PGSMC had initially admitted that
the checks that were stopped were not funded but later on
claimed that it stopped payment of the checks for the reason that
"their value was not received" as the former allegedly breached
their contract by "altering the quantity and lowering the quality of
the machinery and equipment" installed in the plant and failed to
make the plant operational although it earlier certified to the
contrary as shown in a January 22, 1998 Certificate. Likewise,
KOGIES averred that PGSMC violated Art. 15 of their Contract, as
amended, by unilaterally rescinding the contract without resorting
to arbitration. KOGIES also asked that PGSMC be restrained from
dismantling and transferring the machinery and equipment
installed in the plant which the latter threatened to do on July 4,
1998.
On July 9, 1998, PGSMC filed an opposition to the TRO arguing
that KOGIES was not entitled to the TRO since Art. 15, the
arbitration clause, was null and void for being against public policy

as it ousts the local courts of jurisdiction over the instant

controversy.
On July 17, 1998, PGSMC filed its Answer with Compulsory
Counterclaim9 asserting that it had the full right to dismantle and
transfer the machineries and equipment because it had paid for
them in full as stipulated in the contract; that KOGIES was not
entitled to the PhP 9,000,000 covered by the checks for failing to
completely install and make the plant operational; and that
KOGIES was liable for damages amounting to PhP 4,500,000 for
altering the quantity and lowering the quality of the machineries
and equipment. Moreover, PGSMC averred that it has already
paid PhP 2,257,920 in rent (covering January to July 1998) to
Worth and it was not willing to further shoulder the cost of renting
the premises of the plant considering that the LPG cylinder
manufacturing plant never became operational.
After the parties submitted their Memoranda, on July 23, 1998, the
RTC issued an Order denying the application for a writ of
preliminary injunction, reasoning that PGSMC had paid KOGIES
USD 1,224,000, the value of the machineries and equipment as
shown in the contract such that KOGIES no longer had proprietary
rights over them. And finally, the RTC held that Art. 15 of the
Contract as amended was invalid as it tended to oust the trial
court or any other court jurisdiction over any dispute that may
arise between the parties. KOGIES prayer for an injunctive writ
was denied.10 The dispositive portion of the Order stated:
WHEREFORE, in view of the foregoing consideration,
this Court believes and so holds that no cogent reason
exists for this Court to grant the writ of preliminary
injunction to restrain and refrain defendant from
dismantling the machineries and facilities at the lot and
building of Worth Properties, Incorporated at Carmona,
Cavite and transfer the same to another site: and
therefore denies plaintiffs application for a writ of
preliminary injunction.
On July 29, 1998, KOGIES filed its Reply to Answer and Answer
to Counterclaim.11 KOGIES denied it had altered the quantity and
lowered the quality of the machinery, equipment, and facilities it
delivered to the plant. It claimed that it had performed all the
undertakings under the contract and had already produced
certified samples of LPG cylinders. It averred that whatever was

unfinished was PGSMCs fault since it failed to procure raw

materials due to lack of funds. KOGIES, relying on Chung Fu
Industries (Phils.), Inc. v. Court of Appeals,12 insisted that the
arbitration clause was without question valid.
After KOGIES filed a Supplemental Memorandum with Motion to
Dismiss13 answering PGSMCs memorandum of July 22, 1998 and
seeking dismissal of PGSMCs counterclaims, KOGIES, on
August 4, 1998, filed its Motion for Reconsideration14 of the July
23, 1998 Order denying its application for an injunctive writ
claiming that the contract was not merely for machinery and
facilities worth USD 1,224,000 but was for the sale of an "LPG
manufacturing plant" consisting of "supply of all the machinery
and facilities" and "transfer of technology" for a total contract price
of USD 1,530,000 such that the dismantling and transfer of the
machinery and facilities would result in the dismantling and
transfer of the very plant itself to the great prejudice of KOGIES as
the still unpaid owner/seller of the plant. Moreover, KOGIES points
out that the arbitration clause under Art. 15 of the Contract as
amended was a valid arbitration stipulation under Art. 2044 of the
Civil Code and as held by this Court in Chung Fu Industries
(Phils.), Inc.15
In the meantime, PGSMC filed a Motion for Inspection of
Things16 to determine whether there was indeed alteration of the
quantity and lowering of quality of the machineries and equipment,
and whether these were properly installed. KOGIES opposed the
motion positing that the queries and issues raised in the motion
for inspection fell under the coverage of the arbitration clause in
their contract.
On September 21, 1998, the trial court issued an Order (1)
granting PGSMCs motion for inspection; (2) denying KOGIES
motion for reconsideration of the July 23, 1998 RTC Order; and
(3) denying KOGIES motion to dismiss PGSMCs compulsory
counterclaims as these counterclaims fell within the requisites of
compulsory counterclaims.
On October 2, 1998, KOGIES filed an Urgent Motion for
Reconsideration17 of the September 21, 1998 RTC Order granting
inspection of the plant and denying dismissal of PGSMCs
compulsory counterclaims.

Ten days after, on October 12, 1998, without waiting for the
resolution of its October 2, 1998 urgent motion for
reconsideration, KOGIES filed before the Court of Appeals (CA) a
petition for certiorari18 docketed as CA-G.R. SP No. 49249,
seeking annulment of the July 23, 1998 and September 21, 1998
RTC Orders and praying for the issuance of writs of prohibition,
mandamus, and preliminary injunction to enjoin the RTC and
PGSMC from inspecting, dismantling, and transferring the
machineries and equipment in the Carmona plant, and to direct
the RTC to enforce the specific agreement on arbitration to
resolve the dispute.
In the meantime, on October 19, 1998, the RTC denied KOGIES
urgent motion for reconsideration and directed the Branch Sheriff
to proceed with the inspection of the machineries and equipment
in the plant on October 28, 1998.19
Thereafter, KOGIES filed a Supplement to the Petition20 in CAG.R. SP No. 49249 informing the CA about the October 19, 1998
RTC Order. It also reiterated its prayer for the issuance of the
writs of prohibition, mandamus and preliminary injunction which
was not acted upon by the CA. KOGIES asserted that the Branch
Sheriff did not have the technical expertise to ascertain whether or
not the machineries and equipment conformed to the
specifications in the contract and were properly installed.
On November 11, 1998, the Branch Sheriff filed his Sheriffs
Report21 finding that the enumerated machineries and equipment
were not fully and properly installed.
The Court of Appeals affirmed the trial court and declared
the arbitration clause against public policy
On May 30, 2000, the CA rendered the assailed
Decision22 affirming the RTC Orders and dismissing the petition
for certiorari filed by KOGIES. The CA found that the RTC did not
gravely abuse its discretion in issuing the assailed July 23, 1998
and September 21, 1998 Orders. Moreover, the CA reasoned that
KOGIES contention that the total contract price for USD
1,530,000 was for the whole plant and had not been fully paid was
contrary to the finding of the RTC that PGSMC fully paid the price
of USD 1,224,000, which was for all the machineries and
equipment. According to the CA, this determination by the RTC
was a factual finding beyond the ambit of a petition for certiorari.

On the issue of the validity of the arbitration clause, the CA agreed

with the lower court that an arbitration clause which provided for a
final determination of the legal rights of the parties to the contract
by arbitration was against public policy.
On the issue of nonpayment of docket fees and non-attachment of
a certificate of non-forum shopping by PGSMC, the CA held that
the counterclaims of PGSMC were compulsory ones and payment
of docket fees was not required since the Answer with
counterclaim was not an initiatory pleading. For the same reason,
the CA said a certificate of non-forum shopping was also not
required.
Furthermore, the CA held that the petition for certiorari had been
filed prematurely since KOGIES did not wait for the resolution of
its urgent motion for reconsideration of the September 21, 1998
RTC Order which was the plain, speedy, and adequate remedy
available. According to the CA, the RTC must be given the
opportunity to correct any alleged error it has committed, and that
since the assailed orders were interlocutory, these cannot be the
subject of a petition for certiorari.
Hence, we have this Petition for Review on Certiorari under Rule
45.

"CONTRARY TO PUBLIC POLICY" AND FOR OUSTING

THE COURTS OF JURISDICTION;
c. DECREEING PRIVATE RESPONDENTS
COUNTERCLAIMS TO BE ALL COMPULSORY NOT
NECESSITATING PAYMENT OF DOCKET FEES AND
CERTIFICATION OF NON-FORUM SHOPPING;
d. RULING THAT THE PETITION WAS FILED
PREMATURELY WITHOUT WAITING FOR THE
RESOLUTION OF THE MOTION FOR
RECONSIDERATION OF THE ORDER DATED
SEPTEMBER 21, 1998 OR WITHOUT GIVING THE
TRIAL COURT AN OPPORTUNITY TO CORRECT
ITSELF;
e. PROCLAIMING THE TWO ORDERS DATED JULY 23
AND SEPTEMBER 21, 1998 NOT TO BE PROPER
SUBJECTS OF CERTIORARI AND PROHIBITION FOR
BEING "INTERLOCUTORY IN NATURE;"
f. NOT GRANTING THE RELIEFS AND REMEDIES
PRAYED FOR IN HE (SIC) PETITION AND, INSTEAD,
DISMISSING THE SAME FOR ALLEGEDLY "WITHOUT
MERIT."23

The Issues
The Courts Ruling
Petitioner posits that the appellate court committed the following
errors:
a. PRONOUNCING THE QUESTION OF OWNERSHIP
OVER THE MACHINERY AND FACILITIES AS "A
QUESTION OF FACT" "BEYOND THE AMBIT OF A
PETITION FOR CERTIORARI" INTENDED ONLY FOR
CORRECTION OF ERRORS OF JURISDICTION OR
GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OF (SIC) EXCESS OF JURISDICTION, AND
CONCLUDING THAT THE TRIAL COURTS FINDING
ON THE SAME QUESTION WAS IMPROPERLY
RAISED IN THE PETITION BELOW;
b. DECLARING AS NULL AND VOID THE
ARBITRATION CLAUSE IN ARTICLE 15 OF THE
CONTRACT BETWEEN THE PARTIES FOR BEING

The petition is partly meritorious.

Before we delve into the substantive issues, we shall first tackle
the procedural issues.
The rules on the payment of docket fees for counterclaims
and cross claims were amended effective August 16, 2004
KOGIES strongly argues that when PGSMC filed the
counterclaims, it should have paid docket fees and filed a
certificate of non-forum shopping, and that its failure to do so was
a fatal defect.
We disagree with KOGIES.

As aptly ruled by the CA, the counterclaims of PGSMC were

incorporated in its Answer with Compulsory Counterclaim dated
July 17, 1998 in accordance with Section 8 of Rule 11, 1997
Revised Rules of Civil Procedure, the rule that was effective at the
time the Answer with Counterclaim was filed. Sec. 8 on existing
counterclaim or cross-claim states, "A compulsory counterclaim or
a cross-claim that a defending party has at the time he files his
answer shall be contained therein."
On July 17, 1998, at the time PGSMC filed its Answer
incorporating its counterclaims against KOGIES, it was not liable
to pay filing fees for said counterclaims being compulsory in
nature. We stress, however, that effective August 16, 2004 under
Sec. 7, Rule 141, as amended by A.M. No. 04-2-04-SC, docket
fees are now required to be paid in compulsory counterclaim or
cross-claims.
As to the failure to submit a certificate of forum shopping,
PGSMCs Answer is not an initiatory pleading which requires a
certification against forum shopping under Sec. 524 of Rule 7,
1997 Revised Rules of Civil Procedure. It is a responsive
pleading, hence, the courts a quo did not commit reversible error
in denying KOGIES motion to dismiss PGSMCs compulsory
counterclaims.
Interlocutory orders proper subject of certiorari
Citing Gamboa v. Cruz,25 the CA also pronounced that "certiorari
and Prohibition are neither the remedies to question the propriety
of an interlocutory order of the trial court."26 The CA erred on its
reliance on Gamboa.Gamboa involved the denial of a motion to
acquit in a criminal case which was not assailable in an action for
certiorari since the denial of a motion to quash required the
accused to plead and to continue with the trial, and whatever
objections the accused had in his motion to quash can then be
used as part of his defense and subsequently can be raised as
errors on his appeal if the judgment of the trial court is adverse to
him. The general rule is that interlocutory orders cannot be
challenged by an appeal.27 Thus, in Yamaoka v. Pescarich
Manufacturing Corporation, we held:
The proper remedy in such cases is an ordinary appeal
from an adverse judgment on the merits, incorporating in
said appeal the grounds for assailing the interlocutory

orders. Allowing appeals from interlocutory orders would

result in the sorry spectacle of a case being subject of a
counterproductive ping-pong to and from the appellate
court as often as a trial court is perceived to have made
an error in any of its interlocutory rulings. However,
where the assailed interlocutory order was issued with
grave abuse of discretion or patently erroneous and the
remedy of appeal would not afford adequate and
expeditious relief, the Court allows certiorari as a mode
of redress.28
Also, appeals from interlocutory orders would open the floodgates
to endless occasions for dilatory motions. Thus, where the
interlocutory order was issued without or in excess of jurisdiction
or with grave abuse of discretion, the remedy is certiorari.29
The alleged grave abuse of discretion of the respondent court
equivalent to lack of jurisdiction in the issuance of the two assailed
orders coupled with the fact that there is no plain, speedy, and
adequate remedy in the ordinary course of law amply provides the
basis for allowing the resort to a petition for certiorari under Rule
65.
Prematurity of the petition before the CA

The September 21, 1998 RTC Order directing the branch sheriff to
inspect the plant, equipment, and facilities when he is not
competent and knowledgeable on said matters is evidently flawed
and devoid of any legal support. Moreover, there is an urgent
necessity to resolve the issue on the dismantling of the facilities
and any further delay would prejudice the interests of KOGIES.
Indeed, there is real and imminent threat of irreparable destruction
or substantial damage to KOGIES equipment and machineries.
We find the resort to certiorari based on the gravely abusive
orders of the trial court sans the ruling on the October 2, 1998
motion for reconsideration to be proper.
The Core Issue: Article 15 of the Contract
We now go to the core issue of the validity of Art. 15 of the
Contract, the arbitration clause. It provides:
Article 15. Arbitration.All disputes, controversies, or
differences which may arise between the parties, out of
or in relation to or in connection with this Contract or for
the breach thereof, shall finally be settled by arbitration in
Seoul, Korea in accordance with the Commercial
Arbitration Rules of the Korean Commercial Arbitration
Board. The award rendered by the arbitration(s) shall
be final and binding upon both parties concerned.
(Emphasis supplied.)

Neither do we think that KOGIES was guilty of forum shopping in

filing the petition for certiorari. Note that KOGIES motion for
reconsideration of the July 23, 1998 RTC Order which denied the
issuance of the injunctive writ had already been denied. Thus,
KOGIES only remedy was to assail the RTCs interlocutory order
via a petition for certiorari under Rule 65.

Petitioner claims the RTC and the CA erred in ruling that the
arbitration clause is null and void.

While the October 2, 1998 motion for reconsideration of KOGIES

of the September 21, 1998 RTC Order relating to the inspection of
things, and the allowance of the compulsory counterclaims has
not yet been resolved, the circumstances in this case would allow
an exception to the rule that before certiorari may be availed of,
the petitioner must have filed a motion for reconsideration and
said motion should have been first resolved by the court a quo.
The reason behind the rule is "to enable the lower court, in the
first instance, to pass upon and correct its mistakes without the
intervention of the higher court."30

Established in this jurisdiction is the rule that the law of the place
where the contract is made governs. Lex loci contractus. The
contract in this case was perfected here in the Philippines.
Therefore, our laws ought to govern. Nonetheless, Art. 2044 of the
Civil Code sanctions the validity of mutually agreed arbitral clause
or the finality and binding effect of an arbitral award. Art. 2044
provides, "Any stipulation that the arbitrators award or
decision shall be final, is valid, without prejudice to Articles
2038, 2039 and 2040." (Emphasis supplied.)

Petitioner is correct.

Arts. 2038,31 2039,32 and 204033 abovecited refer to instances

where a compromise or an arbitral award, as applied to Art. 2044

pursuant to Art. 2043,34 may be voided, rescinded, or annulled, but

these would not denigrate the finality of the arbitral award.
The arbitration clause was mutually and voluntarily agreed upon
by the parties. It has not been shown to be contrary to any law, or
against morals, good customs, public order, or public policy. There
has been no showing that the parties have not dealt with each
other on equal footing. We find no reason why the arbitration
clause should not be respected and complied with by both parties.
In Gonzales v. Climax Mining Ltd.,35 we held that submission to
arbitration is a contract and that a clause in a contract providing
that all matters in dispute between the parties shall be referred to
arbitration is a contract.36 Again in Del Monte Corporation-USA v.
Court of Appeals, we likewise ruled that "[t]he provision to submit
to arbitration any dispute arising therefrom and the relationship of
the parties is part of that contract and is itself a contract."37
Arbitration clause not contrary to public policy
The arbitration clause which stipulates that the arbitration must be
done in Seoul, Korea in accordance with the Commercial
Arbitration Rules of the KCAB, and that the arbitral award is final
and binding, is not contrary to public policy. This Court has
sanctioned the validity of arbitration clauses in a catena of cases.
In the 1957 case ofEastboard Navigation Ltd. v. Juan Ysmael and
Co., Inc.,38 this Court had occasion to rule that an arbitration
clause to resolve differences and breaches of mutually agreed
contractual terms is valid. In BF Corporation v. Court of Appeals,
we held that "[i]n this jurisdiction, arbitration has been held valid
and constitutional. Even before the approval on June 19, 1953 of
Republic Act No. 876, this Court has countenanced the settlement
of disputes through arbitration. Republic Act No. 876 was adopted
to supplement the New Civil Codes provisions on
arbitration."39 And in LM Power Engineering Corporation v. Capitol
Industrial Construction Groups, Inc., we declared that:
Being an inexpensive, speedy and amicable method of
settling disputes, arbitrationalong with mediation,
conciliation and negotiationis encouraged by the
Supreme Court. Aside from unclogging judicial dockets,
arbitration also hastens the resolution of disputes,
especially of the commercial kind. It is thus regarded as
the "wave of the future" in international civil and
commercial disputes. Brushing aside a contractual

agreement calling for arbitration between the parties

would be a step backward.
Consistent with the above-mentioned policy of
encouraging alternative dispute resolution methods,
courts should liberally construe arbitration clauses.
Provided such clause is susceptible of an interpretation
that covers the asserted dispute, an order to arbitrate
should be granted. Any doubt should be resolved in favor
of arbitration.40
Having said that the instant arbitration clause is not against public
policy, we come to the question on what governs an arbitration
clause specifying that in case of any dispute arising from the
contract, an arbitral panel will be constituted in a foreign country
and the arbitration rules of the foreign country would govern and
its award shall be final and binding.
RA 9285 incorporated the UNCITRAL Model law
to which we are a signatory
For domestic arbitration proceedings, we have particular agencies
to arbitrate disputes arising from contractual relations. In case a
foreign arbitral body is chosen by the parties, the arbitration rules
of our domestic arbitration bodies would not be applied. As
signatory to the Arbitration Rules of the UNCITRAL Model Law on
International Commercial Arbitration41 of the United Nations
Commission on International Trade Law (UNCITRAL) in the New
York Convention on June 21, 1985, the Philippines committed
itself to be bound by the Model Law. We have even incorporated
the Model Law in Republic Act No. (RA) 9285, otherwise known
as the Alternative Dispute Resolution Act of 2004 entitled An Act
to Institutionalize the Use of an Alternative Dispute Resolution
System in the Philippines and to Establish the Office for
Alternative Dispute Resolution, and for Other Purposes,
promulgated on April 2, 2004. Secs. 19 and 20 of Chapter 4 of the
Model Law are the pertinent provisions:
CHAPTER 4 - INTERNATIONAL COMMERCIAL
ARBITRATION
SEC. 19. Adoption of the Model Law on International
Commercial Arbitration.International commercial
arbitration shall be governed by the Model Law on

International Commercial Arbitration (the "Model Law")

adopted by the United Nations Commission on
International Trade Law on June 21, 1985 (United
Nations Document A/40/17) and recommended for
enactment by the General Assembly in Resolution No.
40/72 approved on December 11, 1985, copy of which is
hereto attached as Appendix "A".

(2) Foreign arbitral awards must be confirmed by the RTC

SEC. 20. Interpretation of Model Law.In interpreting

the Model Law, regard shall be had to its international
origin and to the need for uniformity in its interpretation
and resort may be made to the travaux preparatories and
the report of the Secretary General of the United Nations
Commission on International Trade Law dated March 25,
1985 entitled, "International Commercial Arbitration:
Analytical Commentary on Draft Trade identified by
reference number A/CN. 9/264."

Foreign arbitral awards while mutually stipulated by the parties in

the arbitration clause to be final and binding are not immediately
enforceable or cannot be implemented immediately. Sec. 3543 of
the UNCITRAL Model Law stipulates the requirement for the
arbitral award to be recognized by a competent court for
enforcement, which court under Sec. 36 of the UNCITRAL Model
Law may refuse recognition or enforcement on the grounds
provided for. RA 9285 incorporated these provisos to Secs. 42,
43, and 44 relative to Secs. 47 and 48, thus:

While RA 9285 was passed only in 2004, it nonetheless applies in

the instant case since it is a procedural law which has a
retroactive effect. Likewise, KOGIES filed its application for
arbitration before the KCAB on July 1, 1998 and it is still pending
because no arbitral award has yet been rendered. Thus, RA 9285
is applicable to the instant case. Well-settled is the rule that
procedural laws are construed to be applicable to actions pending
and undetermined at the time of their passage, and are deemed
retroactive in that sense and to that extent. As a general rule, the
retroactive application of procedural laws does not violate any
personal rights because no vested right has yet attached nor
arisen from them.42

SEC. 42. Application of the New York Convention.The

New York Convention shall govern the recognition and
enforcement of arbitral awards covered by said
Convention.

Among the pertinent features of RA 9285 applying and

incorporating the UNCITRAL Model Law are the following:

party so requests not later than the pre-trial conference,

or upon the request of both parties thereafter, refer the
parties to arbitration unless it finds that the arbitration
agreement is null and void, inoperative or incapable of
being performed.

The recognition and enforcement of such arbitral awards

shall be filed with the Regional Trial Court in
accordance with the rules of procedure to be
promulgated by the Supreme Court. Said procedural
rules shall provide that the party relying on the award or
applying for its enforcement shall file with the court the
original or authenticated copy of the award and the
arbitration agreement. If the award or agreement is not
made in any of the official languages, the party shall
supply a duly certified translation thereof into any of such
languages.

(1) The RTC must refer to arbitration in proper cases

Under Sec. 24, the RTC does not have jurisdiction over disputes
that are properly the subject of arbitration pursuant to an
arbitration clause, and mandates the referral to arbitration in such
cases, thus:
SEC. 24. Referral to Arbitration.A court before which
an action is brought in a matter which is the subject
matter of an arbitration agreement shall, if at least one

The applicant shall establish that the country in which

foreign arbitration award was made in party to the New
York Convention.
xxxx
SEC. 43. Recognition and Enforcement of Foreign
Arbitral Awards Not Covered by the New York
Convention.The recognition and enforcement of

foreign arbitral awards not covered by the New York

Convention shall be done in accordance with procedural
rules to be promulgated by the Supreme Court. The
Court may, on grounds of comity and reciprocity,
recognize and enforce a non-convention award as a
convention award.
SEC. 44. Foreign Arbitral Award Not Foreign
Judgment.A foreign arbitral award when confirmed by
a court of a foreign country, shall be recognized and
enforced as a foreign arbitral award and not as a
judgment of a foreign court.
A foreign arbitral award, when confirmed by the Regional
Trial Court, shall be enforced in the same manner as final
and executory decisions of courts of law of the
Philippines
xxxx
SEC. 47. Venue and Jurisdiction.Proceedings for
recognition and enforcement of an arbitration agreement
or for vacations, setting aside, correction or modification
of an arbitral award, and any application with a court for
arbitration assistance and supervision shall be deemed
as special proceedings and shall be filed with the
Regional Trial Court (i) where arbitration proceedings are
conducted; (ii) where the asset to be attached or levied
upon, or the act to be enjoined is located; (iii) where any
of the parties to the dispute resides or has his place of
business; or (iv) in the National Judicial Capital Region,
at the option of the applicant.
SEC. 48. Notice of Proceeding to Parties.In a special
proceeding for recognition and enforcement of an arbitral
award, the Court shall send notice to the parties at their
address of record in the arbitration, or if any part cannot
be served notice at such address, at such partys last
known address. The notice shall be sent al least fifteen
(15) days before the date set for the initial hearing of the
application.
It is now clear that foreign arbitral awards when confirmed by the
RTC are deemed not as a judgment of a foreign court but as a

foreign arbitral award, and when confirmed, are enforced as final

and executory decisions of our courts of law.
Thus, it can be gleaned that the concept of a final and binding
arbitral award is similar to judgments or awards given by some of
our quasi-judicial bodies, like the National Labor Relations
Commission and Mines Adjudication Board, whose final
judgments are stipulated to be final and binding, but not
immediately executory in the sense that they may still be judicially
reviewed, upon the instance of any party. Therefore, the final
foreign arbitral awards are similarly situated in that they need first
to be confirmed by the RTC.
(3) The RTC has jurisdiction to review foreign arbitral awards
Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested
the RTC with specific authority and jurisdiction to set aside, reject,
or vacate a foreign arbitral award on grounds provided under Art.
34(2) of the UNCITRAL Model Law. Secs. 42 and 45 provide:
SEC. 42. Application of the New York Convention.The
New York Convention shall govern the recognition and
enforcement of arbitral awards covered by said
Convention.
The recognition and enforcement of such arbitral awards
shall be filed with the Regional Trial Court in
accordance with the rules of procedure to be
promulgated by the Supreme Court. Said procedural
rules shall provide that the party relying on the award or
applying for its enforcement shall file with the court the
original or authenticated copy of the award and the
arbitration agreement. If the award or agreement is not
made in any of the official languages, the party shall
supply a duly certified translation thereof into any of such
languages.
The applicant shall establish that the country in which
foreign arbitration award was made is party to the New
York Convention.
If the application for rejection or suspension of
enforcement of an award has been made, the Regional
Trial Court may, if it considers it proper, vacate its

decision and may also, on the application of the party

claiming recognition or enforcement of the award, order
the party to provide appropriate security.
xxxx
SEC. 45. Rejection of a Foreign Arbitral Award.A party
to a foreign arbitration proceeding may oppose an
application for recognition and enforcement of the arbitral
award in accordance with the procedures and rules to be
promulgated by the Supreme Court only on those
grounds enumerated under Article V of the New York
Convention. Any other ground raised shall be
disregarded by the Regional Trial Court.
Thus, while the RTC does not have jurisdiction over disputes
governed by arbitration mutually agreed upon by the parties, still
the foreign arbitral award is subject to judicial review by the RTC
which can set aside, reject, or vacate it. In this sense, what this
Court held in Chung Fu Industries (Phils.), Inc. relied upon by
KOGIES is applicable insofar as the foreign arbitral awards, while
final and binding, do not oust courts of jurisdiction since these
arbitral awards are not absolute and without exceptions as they
are still judicially reviewable. Chapter 7 of RA 9285 has made it
clear that all arbitral awards, whether domestic or foreign, are
subject to judicial review on specific grounds provided for.
(4) Grounds for judicial review different in domestic and
foreign arbitral awards
The differences between a final arbitral award from an
international or foreign arbitral tribunal and an award given by a
local arbitral tribunal are the specific grounds or conditions that
vest jurisdiction over our courts to review the awards.
For foreign or international arbitral awards which must first be
confirmed by the RTC, the grounds for setting aside, rejecting or
vacating the award by the RTC are provided under Art. 34(2) of
the UNCITRAL Model Law.
For final domestic arbitral awards, which also need confirmation
by the RTC pursuant to Sec. 23 of RA 87644 and shall be
recognized as final and executory decisions of the RTC,45 they

may only be assailed before the RTC and vacated on the grounds
provided under Sec. 25 of RA 876.46

Finally, it must be noted that there is nothing in the subject

Contract which provides that the parties may dispense with the
arbitration clause.

(5) RTC decision of assailed foreign arbitral award appealable

Unilateral rescission improper and illegal
Sec. 46 of RA 9285 provides for an appeal before the CA as the
remedy of an aggrieved party in cases where the RTC sets aside,
rejects, vacates, modifies, or corrects an arbitral award, thus:
SEC. 46. Appeal from Court Decision or Arbitral Awards.
A decision of the Regional Trial Court confirming,
vacating, setting aside, modifying or correcting an arbitral
award may be appealed to the Court of Appeals in
accordance with the rules and procedure to be
promulgated by the Supreme Court.
The losing party who appeals from the judgment of the
court confirming an arbitral award shall be required by
the appellate court to post a counterbond executed in
favor of the prevailing party equal to the amount of the
award in accordance with the rules to be promulgated by
the Supreme Court.
Thereafter, the CA decision may further be appealed or reviewed
before this Court through a petition for review under Rule 45 of the
Rules of Court.
PGSMC has remedies to protect its interests
Thus, based on the foregoing features of RA 9285, PGSMC must
submit to the foreign arbitration as it bound itself through the
subject contract. While it may have misgivings on the foreign
arbitration done in Korea by the KCAB, it has available remedies
under RA 9285. Its interests are duly protected by the law which
requires that the arbitral award that may be rendered by KCAB
must be confirmed here by the RTC before it can be enforced.
With our disquisition above, petitioner is correct in its contention
that an arbitration clause, stipulating that the arbitral award is final
and binding, does not oust our courts of jurisdiction as the
international arbitral award, the award of which is not absolute and
without exceptions, is still judicially reviewable under certain
conditions provided for by the UNCITRAL Model Law on ICA as
applied and incorporated in RA 9285.

In addition, whatever findings and conclusions made by the RTC

Branch Sheriff from the inspection made on October 28, 1998, as
ordered by the trial court on October 19, 1998, is of no worth as
said Sheriff is not technically competent to ascertain the actual
status of the equipment and machineries as installed in the plant.

Having ruled that the arbitration clause of the subject contract is

valid and binding on the parties, and not contrary to public policy;
consequently, being bound to the contract of arbitration, a party
may not unilaterally rescind or terminate the contract for whatever
cause without first resorting to arbitration.

For these reasons, the September 21, 1998 and October 19, 1998
RTC Orders pertaining to the grant of the inspection of the
equipment and machineries have to be recalled and nullified.

What this Court held in University of the Philippines v. De Los

Angeles47 and reiterated in succeeding cases,48that the act of
treating a contract as rescinded on account of infractions by the
other contracting party is valid albeit provisional as it can be
judicially assailed, is not applicable to the instant case on account
of a valid stipulation on arbitration. Where an arbitration clause in
a contract is availing, neither of the parties can unilaterally treat
the contract as rescinded since whatever infractions or breaches
by a party or differences arising from the contract must be brought
first and resolved by arbitration, and not through an extrajudicial
rescission or judicial action.

Petitioner assails the CA ruling that the issue petitioner raised on

whether the total contract price of USD 1,530,000 was for the
whole plant and its installation is beyond the ambit of a Petition for
Certiorari.

The issues arising from the contract between PGSMC and

KOGIES on whether the equipment and machineries delivered
and installed were properly installed and operational in the plant in
Carmona, Cavite; the ownership of equipment and payment of the
contract price; and whether there was substantial compliance by
KOGIES in the production of the samples, given the alleged fact
that PGSMC could not supply the raw materials required to
produce the sample LPG cylinders, are matters proper for
arbitration. Indeed, we note that on July 1, 1998, KOGIES
instituted an Application for Arbitration before the KCAB in Seoul,
Korea pursuant to Art. 15 of the Contract as amended. Thus, it is
incumbent upon PGSMC to abide by its commitment to arbitrate.

However, what appears to constitute a grave abuse of discretion

is the order of the RTC in resolving the issue on the ownership of
the plant when it is the arbitral body (KCAB) and not the RTC
which has jurisdiction and authority over the said issue. The
RTCs determination of such factual issue constitutes grave abuse
of discretion and must be reversed and set aside.

Corollarily, the trial court gravely abused its discretion in granting

PGSMCs Motion for Inspection of Things on September 21, 1998,
as the subject matter of the motion is under the primary
jurisdiction of the mutually agreed arbitral body, the KCAB in
Korea.

Issue on ownership of plant proper for arbitration

Petitioners position is untenable.

It is settled that questions of fact cannot be raised in an original
action for certiorari.49 Whether or not there was full payment for
the machineries and equipment and installation is indeed a factual
issue prohibited by Rule 65.

RTC has interim jurisdiction to protect the rights of the

parties
Anent the July 23, 1998 Order denying the issuance of the
injunctive writ paving the way for PGSMC to dismantle and
transfer the equipment and machineries, we find it to be in order
considering the factual milieu of the instant case.
Firstly, while the issue of the proper installation of the equipment
and machineries might well be under the primary jurisdiction of the
arbitral body to decide, yet the RTC under Sec. 28 of RA 9285 has

jurisdiction to hear and grant interim measures to protect vested

rights of the parties. Sec. 28 pertinently provides:
SEC. 28. Grant of interim Measure of Protection.(a) It
is not incompatible with an arbitration agreement for
a party to request, before constitution of the tribunal,
from a Court to grant such measure. After constitution
of the arbitral tribunal and during arbitral proceedings, a
request for an interim measure of protection, or
modification thereof, may be made with the arbitral or to
the extent that the arbitral tribunal has no power to
act or is unable to act effectivity, the request may be
made with the Court. The arbitral tribunal is deemed
constituted when the sole arbitrator or the third arbitrator,
who has been nominated, has accepted the nomination
and written communication of said nomination and
acceptance has been received by the party making the
request.
(b) The following rules on interim or provisional relief
shall be observed:
Any party may request that provisional relief be granted
against the adverse party.
Such relief may be granted:
(i) to prevent irreparable loss or injury;
(ii) to provide security for the performance of
any obligation;
(iii) to produce or preserve any evidence; or
(iv) to compel any other appropriate act or
omission.
(c) The order granting provisional relief may be
conditioned upon the provision of security or any act or
omission specified in the order.
(d) Interim or provisional relief is requested by written
application transmitted by reasonable means to the Court

or arbitral tribunal as the case may be and the party

against whom the relief is sought, describing in
appropriate detail the precise relief, the party against
whom the relief is requested, the grounds for the relief,
and the evidence supporting the request.
(e) The order shall be binding upon the parties.
(f) Either party may apply with the Court for assistance in
implementing or enforcing an interim measure ordered
by an arbitral tribunal.
(g) A party who does not comply with the order shall be
liable for all damages resulting from noncompliance,
including all expenses, and reasonable attorney's fees,
paid in obtaining the orders judicial enforcement.
(Emphasis ours.)
Art. 17(2) of the UNCITRAL Model Law on ICA defines an "interim
measure" of protection as:
Article 17. Power of arbitral tribunal to order interim
measures
xxx xxx xxx
(2) An interim measure is any temporary measure,
whether in the form of an award or in another form, by
which, at any time prior to the issuance of the award by
which the dispute is finally decided, the arbitral tribunal
orders a party to:
(a) Maintain or restore the status quo pending
determination of the dispute;
(b) Take action that would prevent, or refrain from taking
action that is likely to cause, current or imminent harm or
prejudice to the arbitral process itself;
(c) Provide a means of preserving assets out of which a
subsequent award may be satisfied; or

(d) Preserve evidence that may be relevant and material

to the resolution of the dispute.
Art. 17 J of UNCITRAL Model Law on ICA also grants courts
power and jurisdiction to issue interim measures:
Article 17 J. Court-ordered interim measures
A court shall have the same power of issuing an interim
measure in relation to arbitration proceedings,
irrespective of whether their place is in the territory of this
State, as it has in relation to proceedings in courts. The
court shall exercise such power in accordance with its
own procedures in consideration of the specific features
of international arbitration.
In the recent 2006 case of Transfield Philippines, Inc. v. Luzon
Hydro Corporation, we were explicit that even "the pendency of an
arbitral proceeding does not foreclose resort to the courts for
provisional reliefs." We explicated this way:
As a fundamental point, the pendency of arbitral
proceedings does not foreclose resort to the courts for
provisional reliefs. The Rules of the ICC, which governs
the parties arbitral dispute, allows the application of a
party to a judicial authority for interim or conservatory
measures. Likewise, Section 14 of Republic Act (R.A.)
No. 876 (The Arbitration Law) recognizes the rights of
any party to petition the court to take measures to
safeguard and/or conserve any matter which is the
subject of the dispute in arbitration. In addition, R.A.
9285, otherwise known as the "Alternative Dispute
Resolution Act of 2004," allows the filing of provisional or
interim measures with the regular courts whenever the
arbitral tribunal has no power to act or to act effectively.50
It is thus beyond cavil that the RTC has authority and jurisdiction
to grant interim measures of protection.
Secondly, considering that the equipment and machineries are in
the possession of PGSMC, it has the right to protect and preserve
the equipment and machineries in the best way it can.
Considering that the LPG plant was non-operational, PGSMC has
the right to dismantle and transfer the equipment and machineries

either for their protection and preservation or for the better way to
make good use of them which is ineluctably within the
management discretion of PGSMC.
Thirdly, and of greater import is the reason that maintaining the
equipment and machineries in Worths property is not to the best
interest of PGSMC due to the prohibitive rent while the LPG plant
as set-up is not operational. PGSMC was losing PhP322,560 as
monthly rentals or PhP3.87M for 1998 alone without considering
the 10% annual rent increment in maintaining the plant.
Fourthly, and corollarily, while the KCAB can rule on motions or
petitions relating to the preservation or transfer of the equipment
and machineries as an interim measure, yet on hindsight, the July
23, 1998 Order of the RTC allowing the transfer of the equipment
and machineries given the non-recognition by the lower courts of
the arbitral clause, has accorded an interim measure of protection
to PGSMC which would otherwise been irreparably damaged.
Fifth, KOGIES is not unjustly prejudiced as it has already been
paid a substantial amount based on the contract.
Moreover, KOGIES is amply protected by the arbitral action it has
instituted before the KCAB, the award of which can be enforced in
our jurisdiction through the RTC. Besides, by our decision,
PGSMC is compelled to submit to arbitration pursuant to the valid
arbitration clause of its contract with KOGIES.
PGSMC to preserve the subject equipment and machineries
Finally, while PGSMC may have been granted the right to
dismantle and transfer the subject equipment and machineries, it
does not have the right to convey or dispose of the same
considering the pending arbitral proceedings to settle the
differences of the parties. PGSMC therefore must preserve and
maintain the subject equipment and machineries with the
diligence of a good father of a family51 until final resolution of the
arbitral proceedings and enforcement of the award, if any.
WHEREFORE, this petition is PARTLY GRANTED, in that:
(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249
is REVERSED and SET ASIDE;

(2) The September 21, 1998 and October 19, 1998 RTC Orders in
Civil Case No. 98-117 are REVERSED andSET ASIDE;
(3) The parties are hereby ORDERED to submit themselves to the
arbitration of their dispute and differences arising from the subject
Contract before the KCAB; and
(4) PGSMC is hereby ALLOWED to dismantle and transfer the
equipment and machineries, if it had not done so,
and ORDERED to preserve and maintain them until the finality of
whatever arbitral award is given in the arbitration proceedings.
No pronouncement as to costs.
SO ORDERED.
Quisumbing,Chairperson Carpio, Carpio-Morales, Tinga,
JJ., concur.

G.R. No. 169576

October 17, 2008

LEONIDES MERCADO, represented by his heirs: Racquel D.

Mercado, Jimmy D. Mercado, Henry D. Mercado, Louricar D.
Mercado and Virgilio D. Mercado, petitioners,
vs.
COURT OF APPEALS and SAN MIGUEL
CORPORATION, respondents.
RESOLUTION
CORONA, J.:
Leonides Mercado had been distributing respondent San Miguel
Corporations (SMCs) beer products in Quiapo, Manila since
1967. In 1991, SMC extended to him a P7.5 million credit line
allowing him to withdraw goods on credit. To secure his
purchases, Mercado assigned three China Banking Corporation
(CBC) certificates of deposit amounting to P5 million1 to SMC and
executed a continuing hold-out agreement stating:
Any demand made by [SMC] on [CBC], claiming default on my/our
part shall be conclusive on [CBC] and shall serve as absolute
authority for [CBC] to encash the [CBC certificates of deposit] in
accordance with the third paragraph of this Hold-Out Agreement,
whether or not I/we have in fact defaulted on any of my/our
obligations with [SMC], it being understood that the issue of
whether or not there was factual default must be threshed out
solely between me/us and [SMC]
He also submitted three surety bonds from Eastern Assurance
and Surety Corporation (EASCO) totaling P2.6 million.2
On February 10, 1992, SMC notified CBC that Mercado failed to
pay for the items he withdrew on credit. Consequently, citing the
continuing hold-out agreement, it asked CBC to release the
proceeds of the assigned certificates of deposit. CBC approved
SMBs request and informed Mercado.
On March 2, 1992, Mercado filed an action to annul the continuing
hold-out agreement and deed of assignment in the Regional Trial
Court (RTC) of Manila, Branch 55.3 He claimed that the continuing
hold-out agreement allowed forfeiture without the benefit of
foreclosure. It was therefore void pursuant to Article 2088 of the

Civil Code.4Moreover, Mercado argued that he had already settled

his recent purchases on credit but SMC erroneously applied the
said payments to his old accounts not covered by the continuing
hold-out agreement (i.e., purchases made prior to the extension of
the credit line).
On March 18, 1992, SMC filed its answer with counterclaim
against Mercado. It contended that Mercado delivered only two
CBC certificates of deposit amounting to P4.5 million5 and
asserted that the execution of the continuing hold-out agreement
and deed of assignment was a recognized business practice.
Furthermore, because Mercado admitted his outstanding
liabilities, SMC sought payment of the lees products he withdrew
(or purchased on credit) worth P7,468,153.75.6
On April 23, 1992, SMC filed a third-party complaint against
EASCO.7 It sought to collect the proceeds of the surety bonds
submitted by Mercado.
On September 14, 1994, Mercado filed an urgent manifestation
and motion seeking the dismissal of the complaint. He claimed
that he was no longer interested in annulling the continuing holdout agreement and deed of assignment. The RTC, however,
denied the motion.8 Instead, it set the case for pre-trial. Thereafter,
trial ensued.
During trial, Mercado acknowledged the accuracy of SMCs
computation of his outstanding liability as of August 15, 1991.
Thus, the RTC dismissed the complaint and ordered Mercado and
EASCO (to the extent of P2.6 million or the value of its bonds) to
jointly and severally pay SMC the amount of P7,468,153.75.9
Aggrieved, Mercado and EASCO appealed to the Court of
Appeals (CA)10 insisting that Mercado did not default in the
payment of his obligations to SMC.
On December 14, 2004, the CA affirmed the RTC decision in
toto.11 Mercado and EASCO both moved for reconsideration but
their respective motions were denied.12
On October 28, 2005, EASCO filed a petition for review on
certiorari in this Court13 but eventually agreed to settle its liability
with SMC.14 The petition was terminated on September 19,
2007.15

Meanwhile, Mercado passed away and was substituted by his

heirs, petitioners Racquel D. Mercado, Jimmy D. Mercado, Henry
D. Mercado, Louricar D. Mercado and Virgilio D. Mercado.
Petitioners subsequently filed this petition asserting that the CA
erred in affirming the RTC decision in toto. The said decision
(insofar as it ordered Mercado to pay SMC P7,468,153.75) was
void. SMCs counterclaim was permissive in nature. Inasmuch as
SMC did not pay docket fees, the RTC never acquired jurisdiction
over the counterclaim.
We deny the petition.
A counterclaim (or a claim which a defending party may have
against any party)16 may be compulsory17 or permissive. A
counterclaim that (1) arises out of (or is necessarily connected
with) the transaction or occurrence that is the subject matter of the
opposing partys claim; (2) falls within the jurisdiction of the court
and (3) does not require for its adjudication the presence of third
parties over whom the court cannot acquire jurisdiction, is
compulsory.18 Otherwise, a counterclaim is merely permissive.
When Mercado sought to annul the continuing hold-out agreement
and deed of assignment (which he executed as security for his
credit purchases), he in effect sought to be freed from them. While
he admitted having outstanding obligations, he nevertheless
asserted that those were not covered by the assailed accessory
contracts. For its part, aside from invoking the validity of the said
agreements, SMC therefore sought to collect the payment for the
value of goods Mercado purchased on credit. Thus, Mercados
complaint and SMCs counterclaim both touched the issues of
whether the continuing hold-out agreement and deed of
assignment were valid and whether Mercado had outstanding
liabilities to SMC. The same evidence would essentially support or
refute Mercados claim and SMCs counterclaim.
Based on the foregoing, had these issues been tried separately,
the efforts of the RTC and the parties would have had to be
duplicated. Clearly, SMCs counterclaim, being logically related to
Mercados claim, was compulsory in nature.19 Consequently, the
payment of docket fees was not necessary for the RTC to acquire
jurisdiction over the subject matter.
WHEREFORE, the petition is hereby DENIED.

Costs against petitioners.

SO ORDERED.
RENATO C. CORONA
Associate Justice

[G.R. No. 138031. May 27, 2004]

ANTONIO
NAVARRO
and GRAHMMS,
INC., petitioners, vs. METROPOLITAN
BANK
&
TRUST COMPANY, THE HON. COURT OF APPEALS,
and THE HON. ZEUS C. ABROGAR (Presiding Judge
of the Regional Trial Court of Makati City, Branch
150), respondents.

sale, execution on the defendants property shall be

implemented. Likewise, 10% of the total amount due shall be awarded
as attorneys fees.[4]

Wherefore, from the foregoing, the notice of appeal is hereby DENIED

for not being accompanied by the required docket fees, and let a writ of
execution be issued for the enforcement of the decision.

The petitioners received a copy of the Decision on February

10, 1998 and on February 18, 1998 filed a Motion for
Reconsideration of the decision.[5] On March 25, 1998, the trial
court issued an Order denying the said motion. [6] The petitioners
received their copy of the order on April 7, 1998.

On June 2, 1998, the RTC correspondingly issued the Writ

of Execution[10] prayed for by the respondent MBTC.

DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari under Rule 45 of the
Rules of Court, as amended, assailing the Decision [1] of the Court
of Appeals, which affirmed the denial by the Regional Trial Court
of Makati City, Branch 150, in Civil Case No. 94-2913, of the
petitioners appeal for non-payment of docket fees, as well as the
appellate courts March 29, 1999 Resolution which denied the
petitioners motion for reconsideration.
The facts are undisputed:
On November 3, 1994, the private respondent Metropolitan
Bank and Trust Company (respondent MBTC) filed with the RTC
of Makati City a petition for the judicial foreclosure of the real
estate mortgage executed by the petitioners in its favor.[2] The
case was docketed as Civil Case No. 94-2913 and was raffled to
Branch 150 of the same court.
After due proceedings, the RTC rendered judgment
on January 16, 1998,[3] the dispositive portion of which reads:
WHEREFORE, the court hereby grants the right of the plaintiff bank to
foreclose the properties belonging to defendant Antonio Navarro covered
by TCT Nos. 155256, 155257, 155258 particularly described as follows:

to be sold at public auction the proceeds of which to be applied in

payment of the P3,500,000.00 loan, plus interest and penalty charges
until fully paid. In case of deficiency on the proceeds of the aforesaid

On April 14, 1998, the last day of the reglementary period,

the petitioners filed with the RTC a Notice of Appeal [7] from its
January 16, 1998 Decision and March 25, 1998 Order. However,
the petitioners failed to pay the requisite docket and other lawful
fees.
On April 21, 1998, the respondent MBTC filed a Motion to
Deny Due Course to Notice of Appeal with Motion for
Execution[8] on the ground that the notice of appeal was not timely
filed. Acting on the motion, the RTC, while ruling in favor of the
timeliness of the petitioners notice of appeal, nevertheless denied
the appeal for not being accompanied by the required docket
fees. Hence, in its Order dated May 27, 1998,[9] the RTC granted
the motion of the respondents for the issuance of a writ of
execution for the enforcement of the decision. The RTC held that:
From the sequence of dates and events, it is clear that defendants filed
their Notice of Appeal within the reglementary period from the date of
their receipt of the denial of their motion for reconsideration since they
had still seven days left to file an appeal. However, since Section 4, Rule
41 of the New Rules of Civil Procedure, states that:
Within the period for taking an appeal, the appellant shall pay to the
clerk of court which rendered the judgment or final order appealed from,
the full amount of the appellate court docket and other lawful
fees. Proof of payment of said fees shall be transmitted to the appellate
court together with the original record or the record on appeal.
It is also incumbent upon the appellants to pay the required appeal fee
within the reglementary period. Up to the present, the court has not yet
received any evidence of payment of the appellate docket fee to be
attached to the record of this case, in accordance with the New Rules, to
the prejudice of the other party.

On June 11, 1998, the counsel for the petitioners informed

the court by letter that on June 9, 1998, he sent his messenger to
the court to pay the docket fees on the notice of appeal but was
refused by the receiving clerk.[11] In a Letter-Response dated June
19, 1998, the trial court instructed the counsel for the petitioners,
to wit:
In response to your letter dated June 11, 1998, please be informed that as
a matter of policy, courts do not receive payments of docket fees. This
should be made to the Office of the Clerk of Court, with only the official
receipts and/or proofs of payment filed in court to be attached to the
record of the case to be forwarded to the Court of Appeals. Moreover,
the court has already resolved all pending incidents before it, the last one
in its Order dated May 27, 1998 so that, if the receiving clerk refused
receipt of the docket fee on the nature (sic) of appeal, it is only in
consonance with the above-mentioned order.[12]
On June 29, 1998, the petitioner filed with the CA a petition
for certiorari assailing the May 27, 1998 Order of the RTC for
having been issued with grave abuse of discretion amounting to
lack or excess of jurisdiction.[13] In their reply to the comment, the
petitioners, for the first time, proffered to the appellate court an
explanation for their admitted failure to pay the appellate docket
fees within the prescribed reglementary period. The petitioners,
thus, averred:
6. Petitioners failure to pay the appellate docket fee is not without a
valid explanation. At the time of the filing of Notice of Appeal,
petitioners counsels lone secretary, without informing in advance the
undersigned, decided to migrate to another country for greener pasture,
leaving the undersigned the responsibility to tend to all the cases in his
office. The undersigneds operation was literally disabled and in
shambles;

7. Thus, when the undersigned discovered this inadvertence, he

immediately tried to remedy the situation and can only hope that this
Honorable Court can understand the undersigneds predicament. [14]
On September 30, 1998, the CA promulgated its Decision
dismissing the petitioners appeal.[15] The petitioners motion for
reconsideration[16] and its supplement[17] thereto was, likewise,
denied by the appellate court in its Resolution dated March 29,
1999.[18]
Hence, the petition at bar.
The petitioners assail the decision of the CA grounded on
the following:
A.
THE APPEAL OF PETITIONER WAS DULY AND
SEASONABLY PERFECTED; HENCE, THE HON. CA ACTED WITH
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF
JURISDICTION IN RENDERING THE ASSAILED DECISION
(ANNEX M) THAT SUSTAINED THE ORDER OF THE RTC
DENYING, DISALLOWING AND DISMISSING THE APPEAL;
B.
THE ORDER [OF THE RTC] DIRECTING THE EXECUTION
OF ITS JUDGMENT [BEFORE THE EXPIRY OF THE 90-DAY
PERIOD FROM RECEIPT THEREOF BY THE PETITIONERS] IS
PREMATURE, BECAUSE (1) THE COURT HAD LOST
JURISDICTION OVER THE CASE UPON THE FILING OF THE
NOTICE OF APPEAL AND (2) RULE 68 PROVIDES FOR THE
PROCEDURE HOW TO ENFORCE A JUDGMENT IN A PETITION
FOR FORECLOSURE;
C.
THE HONORABLE COURT OF APPEALS ERRED IN
SUSTAINING THE ORDER OF THE RTC THAT DISMISSED THE
THIRD-PARTY COMPLAINT OF PETITIONER NAVARRO
AGAINST THE ERRANT AND FRAUDULENT BRANCH
MANAGER DANILO MENESES OF RESPONDENT METROBANK;
D.
THE JUDGMENT BINDING THE CONJUGAL PROPERTY OF
SPOUSES CLARITA PARAGAS AND ANTONIO NAVARRO ON
THE ALLEGED DEBT OF THE HUSBAND IS AGAINST THE LAW;
[19]

The petition is denied due course.

The petitioners contend that the appellate court erred in

sustaining the RTCs denial of their notice of appeal on the ground
of their failure to pay the docket and other legal fees. The
petitioners aver that the payment of the said fees is not a
prerequisite for the perfection of an appeal. They contend that
having seasonably filed their notice of appeal from the
RTCsJanuary 16, 1998 Decision and March 25, 1998 Order, the
appeal therefrom was deemed perfected; thus, divesting the RTC
of jurisdiction over the case. Hence, when the RTC issued
itsMarch 25, 1998 Order, it had no jurisdiction to do so. The
petitioners cited the rulings of this Court in Santos v. Court of
Appeals[20] and in Manila Mandarin Employees Union v.
NLRC[21] to bolster its stance.
We are not convinced. Time and time again, this Court has
consistently held that the payment of docket fees within the
prescribed period is mandatory for the perfection of an
appeal. Without such payment, the appeal is not perfected. The
appellate court does not acquire jurisdiction over the subject
matter of the action and the decision sought to be appealed from
becomes final and executory.[22]
It bears stressing that appeal is not a right, but a mere
statutory privilege.[23] Corollary to this principle is that the appeal
must be exercised strictly in accordance with the provisions set by
law. Rule 41 of the Rules of Court provides that an appeal to the
CA from a case decided by the RTC in the exercise of the latters
original jurisdiction shall be taken within fifteen (15) days from the
notice of judgment or final order appealed from. Such appeal is
perfected by filing a notice of appeal thereof with the court that
rendered the judgment or final order and, by serving a copy of that
notice upon the adverse party,[24] and by paying within this same
period the full amount of the appellate court docket and other
lawful fees to the clerk of court.[25]
The payment of the docket fees within this period is a
condition sine qua non to the perfection of the appeal. Contrary to
the petitioners predication, the payment of the appellate docket
and other lawful fees is not a mere technicality of law or
procedure. It is an essential requirement, without which the
decision or final order appealed from would become final and
executory as if no appeal was filed at all.

We have consistently ruled that litigation is not a game of

technicalities and that every case must be prosecuted in
accordance with the prescribed procedure so that issues may be
properly presented and justly resolved.[26] However, we have also
ruled that rules of procedure must be faithfully followed except
only when, for persuasive and weighting reasons, they may be
relaxed to relieve a litigant of an injustice commensurate with his
failure to comply with the prescribed procedure. Concomitant to a
liberal interpretation of the rules of procedure should be an effort
on the part of the party invoking liberality to adequately explain his
failure to abide by the rules.[27]
Our ruling in this case is not antithetical to our ruling
in La Salette College v. Victor Pilotin,[28] viz:
Notwithstanding the mandatory nature of the requirement of payment of
appellate docket fees, we also recognize that its strict application is
qualified by the following: first, failure to pay those fees within the
reglementary period allows only discretionary, not automatic,
dismissal; second, such power should be used by the court in conjunction
with its exercise of sound discretion in accordance with the tenets of
justice and fair play, as well as with a great deal of circumspection in
consideration of all attendant circumstances.
In Mactan Cebu International Airport Authority v. Mangubat, the
payment of the docket fees was delayed by six (6) days, but the late
payment was accepted, because the party showed willingness to abide by
the Rules by immediately paying those fees. Yambao v. Court of
Appeals, saw us again relaxing the Rules when we declared therein that
the appellate court may extend the time for the payment of the docket
fees if appellant is able to show that there is a justifiable reason for
the failure to pay the correct amount of docket fees within the prescribed
period, like fraud, accident, mistake, excusable negligence, or a similar
supervening casualty, without fault on the part of the appellant.
In the present case, the petitioners failed to establish any
sufficient and satisfactory reason to warrant a relaxation of the
mandatory rule on the payment of appellate docket and other
lawful fees. The explanation given by the petitioners counsel for
the non-payment was that his secretary, who migrated to another
country, inadvertently failed to pay the docket and other fees when
she filed the petitioners notice of appeal with the court. The said
counsel came to know of the inadvertence only when he received
a copy of the RTCs May 27, 1998 Order which denied due course

to the appeal for failure to pay the required docket fees. The
explication deserves scant consideration. We have reviewed the
records and find that the petitioners failed to show how and when
their counsels secretary left the country. Neither did the
petitioners submit any explanation why their counsel failed to
ascertain immediately afterApril 14, 1998 if the requisite appellate
docket and other lawful fees had been paid by the said secretary
before her departure.
Thus, putting the blame on the counsels secretary for her
failure to perfect the petitioners appeal to the CA is unjustified. As
aptly declared by the appellate court:
The reason given for movants failure to pay the docket fees,
i.e., that their counsels employee had left his office has been
debunked by the Supreme Court as a hackneyed and habitual
subterfuge employed by litigants who fail to observe the
procedural requirements prescribed by the Rules of
Court. (Lanting vs. Guevarra, 27 SCRA 974) The Supreme Court
has also often repeated that the negligence of clerks which
adversely affect the case handled by lawyers, is binding upon the
latter. (Negros Stevedoring Co., Inc. vs. Court of Appeals, 162
SCRA 371.)[29]
Indeed, this Court has admonished law offices to adopt a
system of distributing and receiving pleadings and notices, so that
the lawyers will be promptly informed of the status of their cases.
[30]
Hence, the negligence of clerks which adversely affect the
cases handled by lawyers is binding upon the latter.
IN LIGHT OF ALL THE FOREGOING, the petition is hereby
DENIED. The assailed decision of the Court of Appeals is
AFFIRMED. Costs against the petitioners.
SO ORDERED.
Quisumbing,
(Acting
Martinez, and Tinga, JJ., concur.

Chairman),

Puno, (Chairman), J., on official leave.

Austria-

G.R. No. 151242

June 15, 2005

PROTON PILIPINAS CORPORATION, AUTOMOTIVE

PHILIPPINES, ASEA ONE CORPORATION and
AUTOCORP, Petitioners,
vs.
BANQUE NATIONALE DE PARIS,1 Respondent.

First Cause of Action

Second Cause of Action
Third Cause of Action
5% as Attorney's Fees
TOTAL ..
Conversion rate to peso
TOTAL ..

DECISION
CARPIO MORALES, J.:
It appears that sometime in 1995, petitioner Proton Pilipinas
Corporation (Proton) availed of the credit facilities of herein
respondent, Banque Nationale de Paris (BNP). To guarantee the
payment of its obligation, its co-petitioners Automotive Corporation
Philippines (Automotive), Asea One Corporation (Asea) and
Autocorp Group (Autocorp) executed a corporate guarantee2 to
the extent of US$2,000,000.00. BNP and Proton subsequently
entered into three trust receipt agreements dated June 4,
1996,3 January 14, 1997,4 and April 24, 1997.5
Under the terms of the trust receipt agreements, Proton would
receive imported passenger motor vehicles and hold them in trust
for BNP. Proton would be free to sell the vehicles subject to the
condition that it would deliver the proceeds of the sale to BNP, to
be applied to its obligations to it. In case the vehicles are not sold,
Proton would return them to BNP, together with all the
accompanying documents of title.
Allegedly, Proton failed to deliver the proceeds of the sale and
return the unsold motor vehicles.
Pursuant to the corporate guarantee, BNP demanded from
Automotive, Asea and Autocorp the payment of the amount of
US$1,544,984.406 representing Proton's total outstanding
obligations. These guarantors refused to pay, however. Hence,
BNP filed on September 7, 1998 before the Makati Regional Trial
Court (RTC) a complaint against petitioners praying that they be
ordered to pay (1) US$1,544,984.40 plus accrued interest and
other related charges thereon subsequent to August 15, 1998 until
fully paid and (2) an amount equivalent to 5% of all sums due from
petitioners as attorney's fees.
The Makati RTC Clerk of Court assessed the docket fees which
BNP paid at P352,116.307 which was computed as follows:8

$ 844,674.07
171,120.53
529,189.80
$1,544,984.40
$ 77,249.22
$1,622,233.62
x 43_
P69,756,000.00
(roundoff)

Computation based on Rule 141:

COURT
P 69,756,000.00
- 150,000.00
69,606,000.00
x .002
139,212.00
+ 150.00
P 139,362.00
LEGAL :
P139,362.00
+ 209,268.00
P348,630.00
P 139,362.00
+ 209,268.00
3,486.00
P 352,116.30

JDF
P 69.606.000.00
x .003
208,818.00
+ 450.00
P 209,268.00

x 1% = P3,486.30

- Total fees paid by the plaintiff

To the complaint, the defendants-herein petitioners filed on

October 12, 1998 a Motion to Dismiss9 on the ground that BNP
failed to pay the correct docket fees to thus prevent the trial court
from acquiring jurisdiction over the case.10 As additional ground,
petitioners raised prematurity of the complaint, BNP not having
priorly sent any demand letter.11
12

By Order of August 3, 1999, Branch 148 of the Makati RTC

denied petitioners' Motion to Dismiss, viz:
Resolving the first ground relied upon by the defendant, this court
believes and so hold that the docket fees were properly paid. It is
the Office of the Clerk of Court of this station that computes the
correct docket fees, and it is their duty to assess the docket fees
correctly, which they did.1avvphi1.zw+
Even granting arguendo that the docket fees were not properly
paid, the court cannot just dismiss the case. The Court has not yet

ordered (and it will not in this case) to pay the correct docket fees,
thus the Motion to dismiss is premature, aside from being without
any legal basis.
As held in the case of National Steel Corporation vs. CA, G.R. No.
123215, February 2, 1999, the Supreme Court said:
xxx
Although the payment of the proper docket fees is a jurisdictional
requirement, the trial court may allow the plaintiff in an action to
pay the same within a reasonable time within the expiration of
applicable prescription or reglementary period. If the plaintiff fails
to comply with this requirement, the defendant should timely raise
the issue of jurisdiction or else he would be considered in
estoppel. In the latter case, the balance between appropriate
docket fees and the amount actually paid by the plaintiff will be
considered a lien or (sic) any award he may obtain in his favor.
As to the second ground relied upon by the defendants, in that a
review of all annexes to the complaint of the plaintiff reveals that
there is not a single formal demand letter for defendants to fulfill
the terms and conditions of the three (3) trust agreements.
In this regard, the court cannot sustain the submission of
defendant. As correctly pointed out by the plaintiff,failure to make
a formal demand for the debtor to pay the plaintiff is not among
the legal grounds for the dismissal of the case. Anyway, in the
appreciation of the court, this is simply evidentiary.
xxx
WHEREFORE, for lack of merit, the Motion to Dismiss interposed
by the defendants is hereby DENIED.13(Underscoring supplied)
Petitioners filed a motion for reconsideration14 of the denial of their
Motion to Dismiss, but it was denied by the trial court by Order15 of
October 3, 2000.
Petitioners thereupon brought the case on certiorari and
mandamus16 to the Court of Appeals which, by Decision17 of July
25, 2001, denied it in this wise:
Section 7(a) of Rule 141 of the Rules of Court excludes interest
accruing from the principal amount being claimed in the pleading
in the computation of the prescribed filing fees. The complaint was
submitted for the computation of the filing fee to the Office of the

Clerk of Court of the Regional Trial Court of Makati City which

made an assessment that respondent paid accordingly. What the
Office of the Clerk of Court did and the ruling of the respondent
Judge find support in the decisions of the Supreme Court in Ng
Soon vs. Alday and Tacay vs. RTC of Tagum, Davao del Norte. In
the latter case, the Supreme Court explicitly ruled that "where the
action is purely for recovery of money or damages, the docket
fees are assessed on the basis of the aggregate amount claimed,
exclusive only of interests and costs."
Assuming arguendo that the correct filing fees was not made, the
rule is that the court may allow a reasonable time for the payment
of the prescribed fees, or the balance thereof, and upon such
payment, the defect is cured and the court may properly take
cognizance of the action unless in the meantime prescription has
set in and consequently barred the right of action. Here
respondent Judge did not make any finding, and rightly so, that
the filing fee paid by private respondent was insufficient.
On the issue of the correct dollar-peso rate of exchange, the
Office of the Clerk of Court of the RTC of Makati pegged it
at P 43.21 to US$1. In the absence of any office guide of the rate
of exchange which said court functionary was duty bound to
follow, the rate he applied is presumptively correct.
Respondent Judge correctly ruled that the matter of demand letter
is evidentiary and does not form part of the required allegations in
a complaint. Section 1, Rule 8 of the 1997 Rules of Civil
Procedure pertinently provides:
"Every pleading shall contain in a methodical and logical form, a
plain, concise and direct statement of the ultimate facts on which
the party pleading relies for his claim or defense, as the case may
be, omitted the statement of mere evidentiary facts."
Judging from the allegations of the complaint particularly
paragraphs 6, 12, 18, and 23 where allegations of imputed
demands were made upon the defendants to fulfill their respective
obligations, annexing the demand letters for the purpose of putting
up a sufficient cause of action is not required.
In fine, respondent Judge committed no grave abuse of discretion
amounting to lack or excess of jurisdiction to warrant certiorari and
mandamus.18 (Underscoring supplied)
Their Motion for Reconsideration19 having been denied by the
Court of Appeals,20 petitioners filed the present petition for review
on certiorari21 and pray for the following reliefs:

WHEREFORE, in view of all the foregoing, it is most respectfully

prayed of this Honorable Court to grant the instant petition by
REVERSING and SETTING ASIDE the questioned Decision of
July 25, 2001 and the Resolution of December 18, 2001 for
being contrary to law, to Administrative Circular No. 11-94 and
Circular No. 7 and instead direct the court a quo to require Private
Respondent Banque to pay the correct docket fee pursuant to the
correct exchange rate of the dollar to the peso on September 7,
1998 and to quantify its claims for interests on the principal
obligations in the first, second and third causes of actions in its
Complaint in Civil Case No. 98-2180.22 (Underscoring supplied)
Citing Administrative Circular No. 11-94,23 petitioners argue that
BNP failed to pay the correct docket fees as the said circular
provides that in the assessment thereof, interest claimed should
be included. There being an underpayment of the docket fees,
petitioners conclude, the trial court did not acquire jurisdiction over
the case.
Additionally, petitioners point out that the clerk of court, in
converting BNP's claims from US dollars to Philippine pesos,
applied the wrong exchange rate of US $1 = P43.00, the
exchange rate on September 7, 1998 when the complaint was
filed having been pegged at US $1 = P43.21. Thus, by petitioners'
computation, BNP's claim as of August 15, 1998 was
actually P70,096,714.72,24 not P69,756,045.66.
Furthermore, petitioners submit that pursuant to Supreme Court
Circular No. 7,25 the complaint should have been dismissed for
failure to specify the amount of interest in the prayer.
Circular No. 7 reads:
TO: JUDGES AND CLERKS OF COURT OF THE COURT OF
TAX APPEALS, REGIONAL TRIAL COURTS, METROPOLITAN
TRIAL COURTS IN CITIES, MUNICIPAL TRIAL COURTS,
MUNICIPAL CIRCUIT TRIAL COURTS, SHARI'A DISTRICT
COURTS;AND THE INTEGRATED BAR OF THE PHILIPPINES
SUBJECT: ALL COMPLAINTS MUST SPECIFY AMOUNT OF
DAMAGES SOUGHT NOT ONLY IN THE BODY OF THE
PLEADING, BUT ALSO IN THE PRAYER IN ORDER TO BE
ACCEPTED AND ADMITTED FOR FILING. THE AMOUNT OF
DAMAGES SO SPECIFIED IN THE COMPLAINT SHALL BE THE
BASIS FOR ASSESSING THE AMOUNT OF THE FILING FEES.
In Manchester Development Corporation vs. Court of Appeals,
No. L-75919, May 7, 1987, 149 SCRA 562, this Court condemned
the practice of counsel who in filing the original complaint omitted

from the prayer any specification of the amount of damages

although the amount of over P78 million is alleged in the body of
the complaint. This Court observed that "(T)his is clearly intended
for no other purpose than to evade the payment of the correct
filing fees if not to mislead the docket clerk, in the assessment of
the filing fee. This fraudulent practice was compounded when,
even as this Court had taken cognizance of the anomaly and
ordered an investigation, petitioner through another counsel filed
an amended complaint, deleting all mention of the amount of
damages being asked for in the body of the complaint. xxx"
For the guidance of all concerned, the WARNING given by the
court in the afore-cited case is reproduced hereunder:
"The Court serves warning that it will take drastic action upon a
repetition of this unethical practice.
To put a stop to this irregularity, henceforth all complaints,
petitions, answers and other similar pleadings should specify the
amount of damages being prayed for not only in the body of
the pleading but also in the prayer, and said damages shall
be considered in the assessment of the filing fees in any
case. Any pleading that fails to comply with this requirement
shall not be accepted nor admitted, or shall otherwise be
expunged from the record.
The Court acquires jurisdiction over any case only upon the
payment of the prescribed docket fee. An amendment of the
complaint or similar pleading will not thereby vest jurisdiction in
the Court, much less the payment of the docket fee based on the
amount sought in the amended pleading. The ruling in the
Magaspi case (115 SCRA 193) in so far as it is inconsistent with
this pronouncement is overturned and reversed."
Strict compliance with this Circular is hereby enjoined.
Let this be circularized to all the courts hereinabove named and to
the President and Board of Governors of the Integrated Bar of the
Philippines, which is hereby directed to disseminate this Circular
to all its members.
March 24, 1988.
(Sgd). CLAUDIO TEEHANKEE
Chief Justice
(Emphasis and underscoring supplied)

On the other hand, respondent maintains that it had paid the filing
fee which was assessed by the clerk of court, and that there was
no violation of Supreme Court Circular No. 7 because the amount
of damages was clearly specified in the prayer, to wit:

charges which had accrued as of August 15, 1998. Respondent

goes even further by suggesting that in light of Tacay v. Regional
Trial Court of Tagum, Davao del Norte27 where the Supreme Court
held,

2. On the FIRST CAUSE OF ACTION -

Where the action is purely for the recovery of money or damages,

the docket fees are assessed on the basis of the aggregate
amount claimed, exclusive only of interests and
costs.28 (Emphasis and underscoring supplied),

(c) Defendant PROTON be ordered to pay the sum of (i) US

DOLLARS EIGHT HUNDRED FORTY FOUR THOUSAND SIX
HUNDRED SEVENTY FOUR AND SEVEN CENTS (US$
844,674.07), plus accrued interests and other related charges
thereon subsequent to August 15, 1998, until fully paid; and (ii) an
amount equivalent to 5% of all sums due from said Defendant, as
and for attorney's fees;
3. On the SECOND CAUSE OF ACTION (d) Defendant PROTON be ordered to pay the sum of (i) US
DOLLARS ONE HUNDRED TWENTY AND FIFTY THREE
CENTS (US$171,120.53), plus accrued interests and other
related charges thereon subsequent to August 15, 1998 until fully
paid; and (ii) an amount equivalent to 5% of all sums due from
said Defendant, as and for attorney's fees;
4. On the THIRD CAUSE OF ACTION -

5. On ALL THE CAUSES OF ACTION Defendants AUTOMOTIVE CORPORATION PHILIPPINES, ASEA

ONE CORPORATION and AUTOCORP GROUP to be ordered to
pay Plaintiff BNP the aggregate sum of (i) US DOLLARS ONE
MILLION FIVE HUNDRED FORTY FOUR THOUSAND NINE
HUNDRED EIGHTY FOUR AND FORTY CENTS
(US$1,544,984.40) (First through Third Causes of Action), plus
accrued interest and other related charges thereon subsequent to
August 15, 1998 until fully paid; and (ii) an amount equivalent to
5% of all sums due from said Defendants, as and for attorney's
fees.26
Moreover, respondent posits that the amount of US$1,544,984.40
represents not only the principal but also interest and other related

In case the value of the property or estate or the sum claim is less
or more in accordance with the appraisal of the court, the
difference of fees shall be refunded or paid as the case may be.
When the complaint in this case was filed in 1998, however, as
correctly pointed out by petitioners, Rule 141 had been amended
by Administrative Circular No. 11-9429 which provides:

it made an overpayment.
When Tacay was decided in 1989, the pertinent rule applicable
was Section 5 (a) of Rule 141 which provided for the following:
SEC. 5. Clerks of Regional Trial Courts. - (a) For filing an action or
proceeding, or a permissive counter-claim or cross-claim not
arising out of the same transaction subject of the complaint, a
third-party complaint and a complaint in intervention and for all
services in the same, if the sum claimed, exclusive of interest,
of the value of the property in litigation, or the value of the
estate, is:
1.
2.

(e) Defendant PROTON be ordered to pay the sum of (i) US

DOLLARS FIVE HUNDRED TWENTY NINE THOUSAND ONE
HUNDRED EIGHTY NINE AND EIGHTY CENTS
(US$529,189.80), plus accrued interests and other related
charges thereon subsequent to August 15, 1998 until fully paid;
and (ii) an amount equivalent to 5% or all sums due from said
Defendant, as and for attorney's fees;

If the case concerns real estate, the assessed value thereof shall
be considered in computing the fees.

3.
4.
5.
6.
7.
8.
9.
10
.
11
.

Less than P 5,000.00 .

P 5,000.00 or more but less than P 10,000.00

P 10,000.00 or more but less than P 20,000.00

..
P 20,000.00 or more but less than P 40,000.00
..
P 40,000.00 or more but less than P 60,000.00
..
P 60,000.00 or more but less than P 80,000.00
.
P 80,000.00 or more but less
than P 150,000.00
And for each P 1,000.00 in excess
of P 150,000.00 .....
When the value of the case cannot be
estimated
When the case does not concern property
(naturalization, adoption, legal separation,
etc.) .....
In forcible entry and illegal detainer cases
appealed from inferior courts
.

P 32.0
0
48.00
64.00
80.00

BY RESOLUTION OF THE COURT, DATED JUNE 28, 1994,

PURSUANT TO SECTION 5 (5) OF ARTICLE VIII OF THE
CONSTITUTION, RULE 141, SECTION 7 (a) AND (d), and
SECTION 8 (a) and (b) OF THE RULES OF COURT ARE
HEREBY AMENDED TO READ AS FOLLOWS:
RULE 141
LEGAL FEES
xxx
Sec. 7. Clerks of Regional Trial Courts
(a) For filing an action or a permissive counterclaim or money
claim against an estate not based on judgment, or for filing with
leave of court a third-party, fourth-party, etc. complaint, or a
complaint in intervention, and for all clerical services in the same,
if the total sum claimed, inclusive of interest, damages of
whatever kind, attorney's fees, litigation expenses, and costs,
or the stated value of the property in litigation, is:

120.00
160.00
200.00
4.00
400.00
64.00

40.00

1
.
2
.
3
.

Not more than P 100,000.00

P 100,000.00, or more but not more

than P 150,000.00
For each P 1,000.00 in excess of P 150,000.00
.

P 400.0
0
600.00
5.00

xxx
Sec. 8. Clerks of Metropolitan and Municipal Trial Courts
(a) For each civil action or proceeding, where
the value of the subject matter involved, or
the amount of the demand, inclusive of
interest, damages or whatever kind,

attorney's fees, litigation expenses, and

costs, is:
1
.
2
.
3
.

Not more than P 20,000.00

...
More than P 20,000.00 but not more
than P 100,000.00 .
More than P 100,000.00 but not more
than P 200,000.00

P 120.0
0
400.00
850.00

(Emphasis and underscoring supplied)

The clerk of court should thus have assessed the filing fee by
taking into consideration "the total sum claimed,inclusive of
interest, damages of whatever kind, attorney's fees, litigation
expenses, and costs, or the stated value of the property in
litigation." Respondent's and the Court of Appeals' reliance then
on Tacay was not in order.
Neither was, for the same reason, the Court of Appeals' reliance
on the 1989 case of Ng Soon v. Alday,30 where this Court held:
The failure to state the rate of interest demanded was not
fatal not only because it is the Courts which ultimately fix the
same, but also because Rule 141, Section 5(a) of the Rules of
Court, itemizing the filing fees, speaks of "the sum
claimed, exclusive of interest." This clearly implies that
the specification of the interest rate is not that indispensable.
Factually, therefore, not everything was left to "guesswork" as
respondent Judge has opined. The sums claimed were
ascertainable, sufficient enough to allow a computation pursuant
to Rule 141, section 5(a).
Furthermore, contrary to the position taken by respondent
Judge, the amounts claimed need not be initially stated with
mathematical precision. The same Rule 141, section 5(a) (3rd
paragraph), allows an appraisal "more or less."31 Thus:
"In case the value of the property or estate or the sum claimed is
less or more in accordance with the appraisal of the court, the
difference of fee shall be refunded or paid as the case may be."
In other words, a final determination is still to be made by the
Court, and the fees ultimately found to be payable will either be
additionally paid by the party concerned or refunded to him, as the
case may be. The above provision clearly allows an initial

payment of the filing fees corresponding to the estimated amount

of the claim subject to adjustment as to what later may be proved.
". . . there is merit in petitioner's claim that the third paragraph of
Rule 141, Section 5(a) clearly contemplates a situation where an
amount is alleged or claimed in the complaint but is less or more
than what is later proved. If what is proved is less than what was
claimed, then a refund will be made; if more, additional fees will
be exacted. Otherwise stated, what is subject to adjustment is the
difference in the fee and not the whole amount" (Pilipinas Shell
Petroleum Corp., et als., vs. Court of Appeals, et als., G.R. No.
76119, April 10, 1989).32 (Emphasis and underscoring supplied)
Respecting the Court of Appeals' conclusion that the clerk of court
did not err when he applied the exchange rate of US $1 = P43.00
"[i]n the absence of any office guide of the rate of exchange which
said court functionary was duty bound to follow,[hence,] the rate
he applied is presumptively correct," the same does not lie. The
presumption of regularity of the clerk of court's application of the
exchange rate is not conclusive.33 It is disputable.34 As such, the
presumption may be overturned by the requisite rebutting
evidence.35 In the case at bar, petitioners have adequately proven
with documentary evidence36 that the exchange rate when the
complaint was filed on September 7, 1998 was US $1 = P43.21.
In fine, the docket fees paid by respondent were insufficient.
With respect to petitioner's argument that the trial court did not
acquire jurisdiction over the case in light of the insufficient docket
fees, the same does not lie.
True, in Manchester Development Corporation v. Court of
Appeals,37 this Court held that the court acquires jurisdiction over
any case only upon the payment of the prescribed docket
fees,38 hence, it concluded that the trial court did not acquire
jurisdiction over the case.
It bears emphasis, however, that the ruling in Manchester was
clarified in Sun Insurance Office, Ltd. (SIOL) v. Asuncion39 when
this Court held that in the former there was clearly an effort to
defraud the government in avoiding to pay the correct docket fees,
whereas in the latter the plaintiff demonstrated his willingness to
abide by paying the additional fees as required.
The principle in Manchester could very well be applied in the
present case. The pattern and the intent to defraud the
government of the docket fee due it is obvious not only in the filing
of the original complaint but also in the filing of the second
amended complaint.

However, in Manchester, petitioner did not pay any additional

docket fee until the case was decided by this Court on May 7,
1987. Thus, in Manchester, due to the fraud committed on the
government, this Court held that the court a quo did not
acquire jurisdiction over the case and that the amended
complaint could not have been admitted inasmuch as the
original complaint was null and void.
In the present case, a more liberal interpretation of the rules
is called for considering that, unlikeManchester, private
respondent demonstrated his willingness to abide by the
rules by paying the additional docket fees as required. The
promulgation of the decision in Manchester must have had that
sobering influence on private respondent who thus paid the
additional docket fee as ordered by the respondent court. It
triggered his change of stance by manifesting his willingness to
pay such additional docket fee as may be ordered.
Nevertheless, petitioners contend that the docket fee that was
paid is still insufficient considering the total amount of the claim.
This is a matter which the clerk of court of the lower court and/or
his duly authorized docket clerk or clerk in charge should
determine and, thereafter, if any amount is found due, he must
require the private respondent to pay the same.
Thus, the Court rules as follows:
1. It is not simply the filing of the complaint or appropriate
initiatory pleading, but the payment of the prescribed
docket fee, that vests a trial court with jurisdiction over
the subject-matter or nature of the action. Where the
filing of the initiatory pleading is not accompanied by
payment of the docket fee, the court may allow payment
of the fee within a reasonable time but in no case beyond
the applicable prescriptive or reglementary period.
2. The same rule applies to permissive counterclaims,
third-party claims and similar pleadings, which shall not
be considered filed until and unless the filing fee
prescribed therefor is paid. The court may also allow
payment of said fee within a reasonable time but also in
no case beyond its applicable prescriptive or
reglementary period.
3. Where the trial court acquires jurisdiction over a claim
by the filing of the appropriate pleading and payment of
the prescribed filing fee but, subsequently, the judgment
awards a claim not specified in the pleading, or if
specified the same has been left for determination by the
court, the additional filing fee therefor shall constitute a

lien on the judgment. It shall be the responsibility of the

Clerk of Court or his duly authorized deputy to enforce
said lien and assess and collect the additional
fee.40 (Emphasis and underscoring supplied)
The ruling in Sun Insurance Office was echoed in the 2005 case
of Heirs of Bertuldo Hinog v. Hon. Achilles Melicor:41
Plainly, while the payment of the prescribed docket fee is a
jurisdictional requirement, even its non-payment at the time of
filing does not automatically cause the dismissal of the case, as
long as the fee is paid within the applicable prescriptive or
reglementary period, more so when the party involved
demonstrates a willingness to abide by the rules prescribing such
payment. Thus, when insufficient filing fees were initially paid
by the plaintiffs and there was no intention to defraud the
government, the Manchester rule does not apply.(Emphasis
and underscoring supplied; citations omitted)
In the case at bar, respondent merely relied on the assessment
made by the clerk of court which turned out to be incorrect. Under
the circumstances, the clerk of court has the responsibility of
reassessing what respondent must pay within the prescriptive
period, failing which the complaint merits dismissal.
Parenthetically, in the complaint, respondent prayed for "accrued
interest subsequent to August 15, 1998 until fully paid." The
complaint having been filed on September 7, 1998, respondent's
claim includes the interest from August 16, 1998 until such date of
filing.
Respondent did not, however, pay the filing fee corresponding to
its claim for interest from August 16, 1998 until the filing of the
complaint on September 7, 1998. As priorly discussed, this is
required under Rule 141, as amended by Administrative Circular
No. 11-94, which was the rule applicable at the time. Thus, as the
complaint currently stands, respondent cannot claim the interest
from August 16, 1998 until September 7, 1998, unless respondent
is allowed by motion to amend its complaint within a reasonable
time and specify the precise amount of interest petitioners owe
from August 16, 1998 to September 7, 199842 and pay the
corresponding docket fee therefor.
With respect to the interest accruing after the filing of the
complaint, the same can only be determined after a final judgment
has been handed down. Respondent cannot thus be made to pay
the corresponding docket fee therefor. Pursuant, however, to
Section 2, Rule 141, as amended by Administrative Circular No.
11-94, respondent should be made to pay additional fees which

shall constitute a lien in the event the trial court adjudges that it is
entitled to interest accruing after the filing of the complaint.
Sec. 2. Fees as lien. - Where the court in its final judgment
awards a claim not alleged, or a relief different or more than that
claimed in the pleading, the party concerned shall pay the
additional fees which shall constitute a lien on the judgment in
satisfaction of said lien. The clerk of court shall assess and collect
the corresponding fees.
In Ayala Corporation v. Madayag,43 in interpreting the third rule
laid down in Sun Insurance regarding awards of claims not
specified in the pleading, this Court held that the
same refers only to damages arising after the filing of the
complaint or similar pleading as to which the additional filing
fee therefor shall constitute a lien on the judgment.
The amount of any claim for damages, therefore, arising on or
before the filing of the complaint or any pleading should be
specified. While it is true that the determination of certain
damages as exemplary or corrective damages is left to the sound
discretion of the court, it is the duty of the parties claiming such
damages to specify the amount sought on the basis of which the
court may make a proper determination, and for the proper
assessment of the appropriate docket fees. The exception
contemplated as to claims not specified or to claims although
specified are left for determination of the court is limited only
to any damages that may arise after the filing of the
complaint or similar pleading for then it will not be possible
for the claimant to specify nor speculate as to the amount
thereof.44 (Emphasis and underscoring supplied; citation
omitted)1avvphi1.zw+
WHEREFORE, the petition is GRANTED in part. The July 25,
2001 Decision and the December 18, 2001 Resolution of the
Court Appeals are hereby MODIFIED. The Clerk of Court of the
Regional Trial Court of Makati City is ordered to reassess and
determine the docket fees that should be paid by respondent,
BNP, in accordance with the Decision of this Court, and direct
respondent to pay the same within fifteen (15) days, provided the
applicable prescriptive or reglementary period has not yet expired.
Thereafter, the trial court is ordered to proceed with the case with
utmost dispatch.
SO ORDERED.
CONCHITA CARPIO MORALES
Associate Justice

G.R. No. 175914

February 10, 2009

RUBY SHELTER BUILDERS AND REALTY DEVELOPMENT

CORPORATION, Petitioner,
vs.
HON. PABLO C. FORMARAN III, Presiding Judge of Regional
Trial Court Branch 21, Naga City, as Pairing Judge for
Regional Trial Court Branch 22, Formerly Presided By HON.
NOVELITA VILLEGAS-LLAGUNO (Retired 01 May 2006),
ROMEO Y. TAN, ROBERTO L. OBIEDO and ATTY. TOMAS A.
REYES, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule
45 of the Rules of Court seeking the reversal of the
Decision1 dated 22 November 2006 of the Court of Appeals in CAG.R. SP No. 94800. The Court of Appeals, in its assailed
Decision, affirmed the Order2 dated 24 March 2006 of the
Regional Trial Court (RTC), Branch 22, of Naga City, in Civil Case
No. RTC-2006-0030, ordering petitioner Ruby Shelter Builders
and Realty Development Corporation to pay additional
docket/filing fees, computed based on Section 7(a) of Rule 141 of
the Rules of Court, as amended.
The present Petition arose from the following facts:
Petitioner obtained a loan3 in the total amount of P95,700,620.00
from respondents Romeo Y. Tan (Tan) and Roberto L. Obiedo
(Obiedo), secured by real estate mortgages over five parcels of
land, all located in Triangulo, Naga City, covered by Transfer
Certificates of Title (TCTs) No. 38376,4 No. 29918,5 No.
38374,6 No. 39232,7and No. 39225,8 issued by the Registry of
Deeds for Naga City, in the name of petitioner. When petitioner
was unable to pay the loan when it became due and demandable,
respondents Tan and Obiedo agreed to an extension of the same.
In a Memorandum of Agreement9 dated 17 March 2005,
respondents Tan and Obiedo granted petitioner until 31 December
2005 to settle its indebtedness, and condoned the interests,
penalties and surcharges accruing thereon from 1 October 2004
to 31 December 2005 which amounted to P74,678,647.00. The
Memorandum of Agreement required, in turn, that petitioner
execute simultaneously with the said Memorandum, "by way of
dacion en pago," Deeds of Absolute Sale in favor of respondents
Tan and Obiedo, covering the same parcels of land subject of the

mortgages. The Deeds of Absolute Sale would be uniformly dated

2 January 2006, and state that petitioner sold to respondents Tan
and Obiedo the parcels of land for the following purchase prices:
TCT No.
38376
29918
38374
39232
39225

Purchase Price
P 9,340,000.00
P 28,000,000.00
P 12,000,000.00
P 1,600,000.00
P 1,600,000.00

Petitioner could choose to pay off its indebtedness with individual

or all five parcels of land; or it could redeem said properties by
paying respondents Tan and Obiedo the following prices for the
same, inclusive of interest and penalties:
TCT No.
38376
29918
38374
39232
39225

Redemption Price
P 25,328,939.00
P 35,660,800.00
P 28,477,600.00
P 6,233,381.00
P 6,233,381.00

In the event that petitioner is able to redeem any of the aforementioned parcels of land, the Deed of Absolute Sale covering the
said property shall be nullified and have no force and effect; and
respondents Tan and Obiedo shall then return the owners
duplicate of the corresponding TCT to petitioner and also execute
a Deed of Discharge of Mortgage. However, if petitioner is unable
to redeem the parcels of land within the period agreed upon,
respondents Tan and Obiedo could already present the Deeds of
Absolute Sale covering the same to the Office of the Register of
Deeds for Naga City so respondents Tan and Obiedo could
acquire TCTs to the said properties in their names.
The Memorandum of Agreement further provided that should
petitioner contest, judicially or otherwise, any act, transaction, or
event related to or necessarily connected with the said
Memorandum and the Deeds of Absolute Sale involving the five
parcels of land, it would pay respondents Tan and
Obiedo P10,000,000.00 as liquidated damages inclusive of costs
and attorneys fees. Petitioner would likewise pay respondents
Tan and Obiedo the condoned interests, surcharges and
penalties.10 Finally, should a contest arise from the Memorandum
of Agreement, Mr. Ruben Sia (Sia), President of petitioner
corporation, personally assumes, jointly and severally with
petitioner, the latters monetary obligation to respondent Tan and
Obiedo.

Respondent Atty. Tomas A. Reyes (Reyes) was the Notary Public

who notarized the Memorandum of Agreement dated 17 March
2005 between respondent Tan and Obiedo, on one hand, and
petitioner, on the other.
Pursuant to the Memorandum of Agreement, petitioner,
represented by Mr. Sia, executed separate Deeds of Absolute
Sale,11 over the five parcels of land, in favor of respondents Tan
and Obiedo. On the blank spaces provided for in the said Deeds,
somebody wrote the 3rd of January 2006 as the date of their
execution. The Deeds were again notarized by respondent Atty.
Reyes also on 3 January 2006.
Without payment having been made by petitioner on 31
December 2005, respondents Tan and Obiedo presented the
Deeds of Absolute Sale dated 3 January 2006 before the Register
of Deeds of Naga City on 8 March 2006, as a result of which, they
were able to secure TCTs over the five parcels of land in their
names.
On 16 March 2006, petitioner filed before the RTC a
Complaint12 against respondents Tan, Obiedo, and Atty. Reyes, for
declaration of nullity of deeds of sales and damages, with prayer
for the issuance of a writ of preliminary injunction and/or
temporary restraining order (TRO). The Complaint was docketed
as Civil Case No. 2006-0030.
On the basis of the facts already recounted above, petitioner
raised two causes of action in its Complaint.
As for the first cause of action, petitioner alleged that as early as
27 December 2005, its President already wrote a letter informing
respondents Tan and Obiedo of the intention of petitioner to pay
its loan and requesting a meeting to compute the final amount
due. The parties held meetings on 3 and 4 January 2006 but they
failed to arrive at a mutually acceptable computation of the final
amount of loan payable. Respondents Tan and Obiedo then
refused the request of petitioner for further dialogues.
Unbeknownst to petitioner, despite the ongoing meetings,
respondents Tan and Obiedo, in evident bad faith, already had the
pre-executed Deeds of Absolute Sale notarized on 3 January
2006 by respondent Atty. Reyes. Atty. Reyes, in connivance with
respondents Tan and Obiedo, falsely made it appear in the Deeds
of Absolute Sale that Mr. Sia had personally acknowledged/ratified
the said Deeds before Atty. Reyes.
Asserting that the Deeds of Absolute Sale over the five parcels of
land were executed merely as security for the payment of its loan

to respondents Tan and Obiedo; that the Deeds of Absolute Sale,

executed in accordance with the Memorandum of Agreement,
constituted pactum commisorium and as such, were null and void;
and that the acknowledgment in the Deeds of Absolute Sale were
falsified, petitioner averred:
13. That by reason of the fraudulent actions by the [herein
respondents], [herein petitioner] is prejudiced and is now in
danger of being deprived, physically and legally, of the mortgaged
properties without benefit of legal processes such as the remedy
of foreclosure and its attendant procedures, solemnities and
remedies available to a mortgagor, while [petitioner] is desirous
and willing to pay its obligation and have the mortgaged properties
released.13
In support of its second cause of action, petitioner narrated in its
Complaint that on 18 January 2006, respondents Tan and Obiedo
forcibly took over, with the use of armed men, possession of the
five parcels of land subject of the falsified Deeds of Absolute Sale
and fenced the said properties with barbed wire. Beginning 3
March 2006, respondents Tan and Obiedo started demolishing
some of the commercial spaces standing on the parcels of land in
question which were being rented out by petitioner. Respondents
Tan and Obiedo were also about to tear down a principal
improvement on the properties consisting of a steel-and-concrete
structure housing a motor vehicle terminal operated by petitioner.
The actions of respondents Tan and Obiedo were to the damage
and prejudice of petitioner and its tenants/lessees. Petitioner,
alone, claimed to have suffered at least P300,000.00 in actual
damages by reason of the physical invasion by respondents Tan
and Obiedo and their armed goons of the five parcels of land.
Ultimately, petitioners prayer in its Complaint reads:
WHEREFORE, premises considered, it is most respectfully
prayed of this Honorable Court that upon the filing of this
complaint, a 72-hour temporary restraining order be forthwith
issued ex parte:
(a) Restraining [herein respondents] Tan and Obiedo,
their agents, privies or representatives, from committing
act/s tending to alienate the mortgaged properties from
the [herein petitioner] pending the resolution of the case,
including but not limited to the acts complained of in
paragraph "14", above;
(b) Restraining the Register of Deeds of Naga City from
entertaining moves by the [respondents] to have
[petitioners] certificates of title to the mortgaged
properties cancelled and changed/registered in

[respondents] Tans and Obiedos names, and/or

released to them;
(c) After notice and hearing, that a writ of preliminary
injunction be issued imposing the same restraints
indicated in the next preceding two paragraphs of this
prayer; and
(d) After trial, judgment be rendered:
1. Making the injunction permanent;
2. Declaring the provision in the Memorandum
of Agreement requiring the [petitioner] to
execute deed of sales (sic) in favor of the
[respondents Tan and Obiedo] as dacion en
pago in the event of non-payment of the debt as
pactum commissorium;
3. Annulling the Deed[s] of Sale for TCT Nos.
29918, 38374, 38376, 39225 and 39232, all
dated January 3, 2006, the same being in
contravention of law;
4. Ordering the [respondents] jointly and
solidarily to pay the [petitioner] actual damages
of at leastP300,000.00; attorneys fees in the
amount of P100,000.00 plus P1,000.00 per
court attendance of counsel as appearance fee;
litigation expenses in the amount of at
least P10,000.00 and exemplary damages in
the amount of P300,000.00, plus the costs.
[Petitioner] further prays for such other reliefs as may be proper,
just and equitable under the premises.14
Upon filing its Complaint with the RTC on 16 March 2006,
petitioner paid the sum of P13,644.25 for docket and other legal
fees, as assessed by the Office of the Clerk of Court. The Clerk of
Court initially considered Civil Case No. 2006-0030 as an action
incapable of pecuniary estimation and computed the docket and
other legal fees due thereon according to Section 7(b)(1), Rule
141 of the Rules of Court.
Only respondent Tan filed an Answer15 to the Complaint of
petitioner. Respondent Tan did admit that meetings were held with
Mr. Sia, as the representative of petitioner, to thresh out Mr. Sias
charge that the computation by respondents Tan and Obiedo of
the interests, surcharges and penalties accruing on the loan of

petitioner was replete with errors and uncertainties. However, Mr.

Sia failed to back up his accusation of errors and uncertainties
and to present his own final computation of the amount due.
Disappointed and exasperated, respondents Tan and Obiedo
informed Mr. Sia that they had already asked respondent Atty.
Reyes to come over to notarize the Deeds of Absolute Sale.
Respondent Atty. Reyes asked Mr. Sia whether it was his
signature appearing above his printed name on the Deeds of
Absolute Sale, to which Mr. Sia replied yes. On 4 January 2006,
Mr. Sia still failed to establish his claim of errors and uncertainties
in the computation of the total amount which petitioner must pay
respondent Tan and Obiedo. Mr. Sia, instead, sought a ninemonth extension for paying the loan obligation of petitioner and
the reduction of the interest rate thereon to only one percent (1%)
per month. Respondents Tan and Obiedo rejected both demands.
Respondent Tan maintained that the Deeds of Absolute Sale were
not executed merely as securities for the loan of petitioner. The
Deeds of Absolute Sale over the five parcels of land were the
consideration for the payment of the total indebtedness of
petitioner to respondents Tan and Obiedo, and the condonation of
the 15-month interest which already accrued on the loan, while
providing petitioner with the golden opportunity to still redeem all
or even portions of the properties covered by said Deeds.
Unfortunately, petitioner failed to exercise its right to redeem any
of the said properties.
Belying that they forcibly took possession of the five parcels of
land, respondent Tan alleged that it was Mr. Sia who, with the aid
of armed men, on board a Sports Utility Vehicle and a truck,
rammed into the personnel of respondents Tan and Obiedo
causing melee and disturbance. Moreover, by the execution of the
Deeds of Absolute Sale, the properties subject thereof were, ipso
jure, delivered to respondents Tan and Obiedo. The demolition of
the existing structures on the properties was nothing but an
exercise of dominion by respondents Tan and Obiedo.
Respondent Tan, thus, sought not just the dismissal of the
Complaint of petitioner, but also the grant of his counterclaim. The
prayer in his Answer is faithfully reproduced below:
Wherefore, premises considered, it is most respectfully prayed
that, after due hearing, judgment be rendered dismissing the
complaint, and on the counterclaim, [herein petitioner] and Ruben
Sia, be ordered to indemnify, jointly and severally [herein
respondents Tan and Obiedo] the amounts of not less
than P10,000,000.00 as liquidated damages and the further sum
of not less than P500,000.00 as attorneys fees. In the alternative,
and should it become necessary, it is hereby prayed that
[petitioner] be ordered to pay herein [respondents Tan and

Obiedo] the entire principal loan of P95,700,620.00, plus interests,

surcharges and penalties computed from March 17, 2005 until the
entire sum is fully paid, including the amount of P74,678,647.00
foregone interest covering the period from October 1, 2004 to
December 31, 2005 or for a total of fifteen (15) months, plus
incidental expenses as may be proved in court, in the event that
Annexes "G" to "L" be nullified. Other relief and remedies as are
just and equitable under the premises are hereby prayed for.16

WHEREFORE, premises considered, the [herein petitioner] is

hereby ordered to pay additional filing fee and the [herein
respondent], Romeo Tan is also ordered to pay docket and filing
fees on his counterclaim, both computed based on Section 7(a) of
the Supreme Court Amended Administrative Circular No. 35-2004
within fifteen (15) days from receipt of this Order to the Clerk of
Court, Regional Trial Court, Naga City and for the latter to
compute and to collect the said fees accordingly.19

Thereafter, respondent Tan filed before the RTC an Omnibus

Motion in which he contended that Civil Case No. 2006-0030
involved real properties, the docket fees for which should be
computed in accordance with Section 7(a), not Section 7(b)(1), of
Rule 141 of the Rules of Court, as amended by A.M. No. 04-2-04SC which took effect on 16 August 2004. Since petitioner did not
pay the appropriate docket fees for Civil Case No. 2006-0030, the
RTC did not acquire jurisdiction over the said case. Hence,
respondent Tan asked the RTC to issue an order requiring
petitioner to pay the correct and accurate docket fees pursuant to
Section 7(a), Rule 141 of the Rules of Court, as amended; and
should petitioner fail to do so, to deny and dismiss the prayer of
petitioner for the annulment of the Deeds of Absolute Sale for
having been executed in contravention of the law or of the
Memorandum of Agreement as pactum commisorium.

Petitioner moved20 for the partial reconsideration of the 24 March

2006 Order of the RTC, arguing that Civil Case No. 2006-0030
was principally for the annulment of the Deeds of Absolute Sale
and, as such, incapable of pecuniary estimation. Petitioner
submitted that the RTC erred in applying Section 7(a), Rule 141 of
the Rules of Court, as amended, to petitioners first cause of
action in its Complaint in Civil Case No. 2006-0030.

As required by the RTC, the parties submitted their Position

Papers on the matter. On 24 March 2006, the RTC issued an
Order17 granting respondent Tans Omnibus Motion. In holding that
both petitioner and respondent Tan must pay docket fees in
accordance with Section 7(a), Rule 141 of the Rules of Court, as
amended, the RTC reasoned:
It must be noted that under paragraph (b) 2. of the said Section 7,
it is provided that QUIETING OF TITLE which is an action
classified as beyond pecuniary estimation "shall be governed by
paragraph (a)". Hence, the filing fee in an action for Declaration of
Nullity of Deed which is also classified as beyond pecuniary
estimation, must be computed based on the provision of Section
7(A) herein-above, in part, quoted.
Since [herein respondent], Romeo Tan in his Answer has a
counterclaim against the plaintiff, the former must likewise pay the
necessary filling (sic) fees as provided for under Section 7 (A) of
Amended Administrative Circular No. 35-2004 issued by the
Supreme Court.18
Consequently, the RTC decreed on the matter of docket/filing
fees:

In its Order21 dated 29 March 2006, the RTC refused to reconsider

its 24 March 2006 Order, based on the following ratiocination:
Analyzing, the action herein pertains to real property, for as
admitted by the [herein petitioner], "the deeds of sale in question
pertain to real property" x x x. The Deeds of Sale subject of the
instant case have already been transferred in the name of the
[herein respondents Tan and Obiedo].
Compared with Quieting of Title, the latter action is brought when
there is cloud on the title to real property or any interest therein or
to prevent a cloud from being cast upon title to the real property
(Art. 476, Civil Code of the Philippines) and the plaintiff must have
legal or equitable title to or interest in the real property which is
the subject matter of the action (Art. 447, ibid.), and yet plaintiff in
QUIETING OF TITLE is required to pay the fees in accordance
with paragraph (a) of Section 7 of the said Amended
Administrative Circular No. 35-2004, hence, with more reason that
the [petitioner] who no longer has title to the real properties
subject of the instant case must be required to pay the required
fees in accordance with Section 7(a) of the Amended
Administrative Circular No. 35-2004 afore-mentioned.
Furthermore, while [petitioner] claims that the action for
declaration of nullity of deed of sale and memorandum of
agreement is one incapable of pecuniary estimation, however, as
argued by the [respondent Tan], the issue as to how much filing
and docket fees should be paid was never raised as an issue in
the case of Russell vs. Vestil, 304 SCRA 738.
xxxx

WHEREFORE, the Motion for Partial Reconsideration is hereby

DENIED.22
In a letter dated 19 April 2006, the RTC Clerk of Court computed,
upon the request of counsel for the petitioner, the additional
docket fees petitioner must pay for in Civil Case No. 2006-0030 as
directed in the afore-mentioned RTC Orders. Per the computation
of the RTC Clerk of Court, after excluding the amount petitioner
previously paid on 16 March 2006, petitioner must still pay the
amount of P720,392.60 as docket fees.23
Petitioner, however, had not yet conceded, and it filed a Petition
for Certiorari with the Court of Appeals; the petition was docketed
as CA-G.R. SP No. 94800. According to petitioner, the
RTC24 acted with grave abuse of discretion, amounting to lack or
excess of jurisdiction, when it issued its Orders dated 24 March
2006 and 29 March 2006 mandating that the docket/filing fees for
Civil Case No. 2006-0030, an action for annulment of deeds of
sale, be assessed under Section 7(a), Rule 141 of the Rules of
Court, as amended. If the Orders would not be revoked,
corrected, or rectified, petitioner would suffer grave injustice and
irreparable damage.
On 22 November 2006, the Court of Appeals promulgated its
Decision wherein it held that:
Clearly, the petitioners complaint involves not only the annulment
of the deeds of sale, but also the recovery of the real properties
identified in the said documents. In other words, the objectives of
the petitioner in filing the complaint were to cancel the deeds of
sale and ultimately, to recover possession of the same. It is
therefore a real action.
Consequently, the additional docket fees that must be paid cannot
be assessed in accordance with Section 7(b). As a real action,
Section 7(a) must be applied in the assessment and payment of
the proper docket fee.
Resultantly, there is no grave abuse of discretion amounting to
lack or excess of jurisdiction on the part of the court a quo. By
grave abuse of discretion is meant capricious and whimsical
exercise of judgment as is equivalent to lack of jurisdiction, and
mere abuse of discretion is not enough it must be grave. The
abuse must be grave and patent, and it must be shown that the
discretion was exercised arbitrarily and despotically.1avvphi1
Such a situation does not exist in this particular case. The
evidence is insufficient to prove that the court a quo acted

despotically in rendering the assailed orders. It acted properly and

in accordance with law. Hence, error cannot be attributed to it.25

no case beyond its applicable prescriptive or

reglementary period.

Hence, the fallo of the Decision of the appellate court reads:

3. Where the trial court acquires jurisdiction over a claim

by the filing of the appropriate pleading and payment of
the prescribed filing fee but, subsequently, the judgment
awards a claim not specified in the pleading, or if
specified the same has been left for determination by the
court, the additional filing fee therefor shall constitute a
lien on the judgment. It shall be the responsibility of the
Clerk of Court or his duly authorized deputy to enforce
said lien and assess and collect the additional fee.

WHEREFORE, the petition for certiorari is DENIED. The assailed

Orders of the court a quo are AFFIRMED.26
Without seeking reconsideration of the foregoing Decision with the
Court of Appeals, petitioner filed its Petition for Review on
Certiorari before this Court, with a lone assignment of error, to wit:
18. The herein petitioner most respectfully submits that the Court
of Appeals committed a grave and serious reversible error in
affirming the assailed Orders of the Regional Trial Court which
are clearly contrary to the pronouncement of this Honorable Court
in the case of Spouses De Leon v. Court of Appeals, G.R. No.
104796, March 6, 1998, not to mention the fact that if the said
judgment is allowed to stand and not rectified, the same would
result in grave injustice and irreparable damage to herein
petitioner in view of the prohibitive amount assessed as a
consequence of said Orders.27
In Manchester Development Corporation v. Court of Appeals,28 the
Court explicitly pronounced that "[t]he court acquires jurisdiction
over any case only upon the payment of the prescribed docket
fee." Hence, the payment of docket fees is not only mandatory,
but also jurisdictional.
In Sun Insurance Office, Ltd. (SIOL) v. Asuncion,29 the Court laid
down guidelines for the implementation of its previous
pronouncement in Manchester under particular circumstances, to
wit:
1. It is not simply the filing of the complaint or appropriate
initiatory pleading, but the payment of the prescribed
docket fee, that vests a trial court with jurisdiction over
the subject matter or nature of the action. Where the
filing of the initiatory pleading is not accompanied by
payment of the docket fee, the court may allow payment
of the fee within a reasonable time but in no case beyond
the applicable prescriptive or reglementary period.
2. The same rule applies to permissive counterclaims,
third-party claims and similar pleadings, which shall not
be considered filed until and unless the filing fee
prescribed therefor is paid. The court may also allow
payment of said fee within a reasonable time but also in

In the Petition at bar, the RTC found, and the Court of Appeals
affirmed, that petitioner did not pay the correct amount of docket
fees for Civil Case No. 2006-0030. According to both the trial and
appellate courts, petitioner should pay docket fees in accordance
with Section 7(a), Rule 141 of the Rules of Court, as amended.
Consistent with the liberal tenor of Sun Insurance, the RTC,
instead of dismissing outright petitioners Complaint in Civil Case
No. 2006-0030, granted petitioner time to pay the additional
docket fees. Despite the seeming munificence of the RTC,
petitioner refused to pay the additional docket fees assessed
against it, believing that it had already paid the correct amount
before, pursuant to Section 7(b)(1), Rule 141 of the Rules of
Court, as amended.
Relevant to the present controversy are the following provisions
under Rule 141 of the Rules of Court, as amended by A.M. No.
04-2-04-SC30 and Supreme Court Amended Administrative
Circular No. 35-200431 :
SEC. 7. Clerks of Regional Trial Courts.
(a) For filing an action or a permissive OR COMPULSORY
counterclaim, CROSS-CLAIM, or money claim against an estate
not based on judgment, or for filing a third-party, fourth-party, etc.
complaint, or a complaint-in-intervention, if the total sum claimed,
INCLUSIVE OF INTERESTS, PENALTIES, SURCHARGES,
DAMAGES OF WHATEVER KIND, AND ATTORNEYS FEES,
LITIGATIO NEXPENSES AND COSTS and/or in cases involving
property, the FAIR MARKET value of the REAL property in
litigation STATED IN THE CURRENT TAX DECLARATION OR
CURRENT ZONAL VALUATION OF THE BUREAU OF
INTERNAL REVENUE, WHICHEVER IS HIGHER, OR IF THERE
IS NONE, THE STATED VALUE OF THE PROPERTY IN
LITIGATION OR THE VALUE OF THE PERSONAL PROPERTY
IN LITIGATION OR THE VALUE OF THE PERSONAL
PROPERTY IN LITIGATION AS ALLEGED BY THE CLAIMANT,
is:

[Table of fees omitted.]

If the action involves both a money claim and relief pertaining to
property, then THE fees will be charged on both the amounts
claimed and value of property based on the formula prescribed in
this paragraph a.
(b) For filing:
1. Actions where the value of the subject matter cannot
be estimated
2. Special civil actions, except judicial foreclosure of
mortgage, EXPROPRIATION PROCEEDINGS,
PARTITION AND QUIETING OF TITLE which will
3. All other actions not involving property
[Table of fees omitted.]
The docket fees under Section 7(a), Rule 141, in cases involving
real property depend on the fair market value of the same: the
higher the value of the real property, the higher the docket fees
due. In contrast, Section 7(b)(1), Rule 141 imposes a fixed or flat
rate of docket fees on actions incapable of pecuniary estimation.
In order to resolve the issue of whether petitioner paid the correct
amount of docket fees, it is necessary to determine the true nature
of its Complaint. The dictum adhered to in this jurisdiction is that
the nature of an action is determined by the allegations in the
body of the pleading or Complaint itself, rather than by its title or
heading.32 However, the Court finds it necessary, in ascertaining
the true nature of Civil Case No. 2006-0030, to take into account
significant facts and circumstances beyond the Complaint of
petitioner, facts and circumstances which petitioner failed to state
in its Complaint but were disclosed in the preliminary proceedings
before the court a quo.
Petitioner persistently avers that its Complaint in Civil Case No.
2006-0030 is primarily for the annulment of the Deeds of Absolute
Sale. Based on the allegations and reliefs in the Complaint alone,
one would get the impression that the titles to the subject real
properties still rest with petitioner; and that the interest of
respondents Tan and Obiedo in the same lies only in the Deeds of
Absolute Sale sought to be annulled.
What petitioner failed to mention in its Complaint was that
respondents Tan and Obiedo already had the Memorandum of

Agreement, which clearly provided for the execution of the Deeds

of Absolute Sale, registered on the TCTs over the five parcels of
land, then still in the name of petitioner. After respondents Tan and
Obiedo had the Deeds of Absolute Sale notarized on 3 January
2006 and presented the same to Register of Deeds for Naga City
on 8 March 2006, they were already issued TCTs over the real
properties in question, in their own names. Respondents Tan and
Obiedo have also acquired possession of the said properties,
enabling them, by petitioners own admission, to demolish the
improvements thereon.
It is, thus, suspect that petitioner kept mum about the aforementioned facts and circumstances when they had already taken
place before it filed its Complaint before the RTC on 16 March
2006. Petitioner never expressed surprise when such facts and
circumstances were established before the RTC, nor moved to
amend its Complaint accordingly.1avvphi1.zw+ Even though the
Memorandum of Agreement was supposed to have long been
registered on its TCTs over the five parcels of land, petitioner did
not pray for the removal of the same as a cloud on its title. In the
same vein, although petitioner alleged that respondents Tan and
Obiedo forcibly took physical possession of the subject real
properties, petitioner did not seek the restoration of such
possession to itself. And despite learning that respondents Tan
and Obiedo already secured TCTs over the subject properties in
their names, petitioner did not ask for the cancellation of said
titles. The only logical and reasonable explanation is that
petitioner is reluctant to bring to the attention of the Court certain
facts and circumstances, keeping its Complaint safely worded, so
as to institute only an action for annulment of Deeds of Absolute
Sale. Petitioner deliberately avoided raising issues on the title and
possession of the real properties that may lead the Court to
classify its case as a real action.
No matter how fastidiously petitioner attempts to conceal them,
the allegations and reliefs it sought in its Complaint in Civil Case
No. 2006-0030 appears to be ultimately a real action, involving as
they do the recovery by petitioner of its title to and possession of
the five parcels of land from respondents Tan and Obiedo.

In a real action, the assessed value of the property, or if there is

none, the estimated value thereof shall be alleged by the claimant
and shall be the basis in computing the fees.

An action to annul a real estate mortgage foreclosure sale is no

different from an action to annul a private sale of real property.
(Muoz v. Llamas, 87 Phil. 737, 1950).

It was in accordance with the afore-quoted provision that the

Court, in Gochan v. Gochan,34 held that although the caption of
the complaint filed by therein respondents Mercedes Gochan, et
al. with the RTC was denominated as one for "specific
performance and damages," the relief sought was the conveyance
or transfer of real property, or ultimately, the execution of deeds of
conveyance in their favor of the real properties enumerated in the
provisional memorandum of agreement. Under these
circumstances, the case before the RTC was actually a real
action, affecting as it did title to or possession of real property.
Consequently, the basis for determining the correct docket fees
shall be the assessed value of the property, or the estimated value
thereof as alleged in the complaint. But since Mercedes Gochan
failed to allege in their complaint the value of the real properties,
the Court found that the RTC did not acquire jurisdiction over the
same for non-payment of the correct docket fees.

While it is true that petitioner does not directly seek the recovery
of title or possession of the property in question, his action for
annulment of sale and his claim for damages are closely
intertwined with the issue of ownership of the building which,
under the law, is considered immovable property, the recovery of
which is petitioner's primary objective. The prevalent doctrine is
that an action for the annulment or rescission of a sale of real
property does not operate to efface the fundamental and prime
objective and nature of the case, which is to recover said real
property. It is a real action.

Likewise, in Siapno v. Manalo,35 the Court disregarded the

title/denomination of therein plaintiff Manalos amended petition as
one for Mandamus with Revocation of Title and Damages; and
adjudged the same to be a real action, the filing fees for which
should have been computed based on the assessed value of the
subject property or, if there was none, the estimated value thereof.
The Court expounded in Siapno that:
In his amended petition, respondent Manalo prayed that NTAs
sale of the property in dispute to Standford East Realty
Corporation and the title issued to the latter on the basis thereof,
be declared null and void. In a very real sense, albeit the
amended petition is styled as one for "Mandamus with Revocation
of Title and Damages," it is, at bottom, a suit to recover from
Standford the realty in question and to vest in respondent the
ownership and possession thereof. In short, the amended petition
is in reality an action in res or a real action. Our pronouncement in
Fortune Motors (Phils.), Inc. vs. Court of Appeals is instructive.
There, we said:

A real action is one in which the plaintiff seeks the recovery of real
property; or, as indicated in what is now Section 1, Rule 4 of the
Rules of Court, a real action is an action affecting title to or
recovery of possession of real property.33

A prayer for annulment or rescission of contract does not operate

to efface the true objectives and nature of the action which is to
recover real property. (Inton, et al., v. Quintan, 81 Phil. 97, 1948)

Section 7, Rule 141 of the Rules of Court, prior to its amendment

by A.M. No. 04-2-04-SC, had a specific paragraph governing the
assessment of the docket fees for real action, to wit:

An action for the annulment or rescission of a sale of real property

is a real action. Its prime objective is to recover said real property.
(Gavieres v. Sanchez, 94 Phil. 760, 1954)

Unfortunately, and evidently to evade payment of the correct

amount of filing fee, respondent Manalo never alleged in the body
of his amended petition, much less in the prayer portion thereof,
the assessed value of the subject res, or, if there is none, the
estimated value thereof, to serve as basis for the receiving clerk in
computing and arriving at the proper amount of filing fee due
thereon, as required under Section 7 of this Courts en banc
resolution of 04 September 1990 (Re: Proposed Amendments to
Rule 141 on Legal Fees).
Even the amended petition, therefore, should have been
expunged from the records.
In fine, we rule and so hold that the trial court never acquired
jurisdiction over its Civil Case No. Q-95-24791.36
It was in Serrano v. Delica,37 however, that the Court dealt with a
complaint that bore the most similarity to the one at bar. Therein
respondent Delica averred that undue influence, coercion, and
intimidation were exerted upon him by therein petitioners Serrano,
et al. to effect transfer of his properties. Thus, Delica filed a
complaint before the RTC against Serrano, et al., praying that the
special power of attorney, the affidavit, the new titles issued in the
names of Serrano, et al., and the contracts of sale of the disputed
properties be cancelled; that Serrano, et al. be ordered to pay
Delica, jointly and severally, actual, moral and exemplary
damages in the amount ofP200,000.00, as well as attorneys fee
of P200,000.00 and costs of litigation; that a TRO and a writ of
preliminary injunction be issued ordering Serrano, et al. to
immediately restore him to his possession of the parcels of land in
question; and that after trial, the writ of injunction be made
permanent. The Court dismissed Delicas complaint for the
following reasons:

A careful examination of respondents complaint is that it is a real

action. In Paderanga vs. Buissan, we held that "in a real action,
the plaintiff seeks the recovery of real property, or, as stated in
Section 2(a), Rule 4 of the Revised Rules of Court, a real action is
one affecting title to real property or for the recovery of
possession of, or for partition or condemnation of, or foreclosure
of a mortgage on a real property."
Obviously, respondents complaint is a real action involving not
only the recovery of real properties, but likewise the cancellation
of the titles thereto.
Considering that respondents complaint is a real action, the Rule
requires that "the assessed value of the property, or if there is
none, the estimated value thereof shall be alleged by the claimant
and shall be the basis in computing the fees."
We note, however, that neither the "assessed value" nor the
"estimated value" of the questioned parcels of land were alleged
by respondent in both his original and amended complaint. What
he stated in his amended complaint is that the disputed realties
have a "BIR zonal valuation" of P1,200.00 per square meter.
However, the alleged "BIR zonal valuation" is not the kind of
valuation required by the Rule. It is the assessed value of the
realty. Having utterly failed to comply with the requirement of the
Rule that he shall allege in his complaint the assessed value of his
real properties in controversy, the correct docket fee cannot be
computed. As such, his complaint should not have been accepted
by the trial court. We thus rule that it has not acquired jurisdiction
over the present case for failure of herein respondent to pay the
required docket fee. On this ground alone, respondents complaint
is vulnerable to dismissal.38
Brushing aside the significance of Serrano, petitioner argues that
said decision, rendered by the Third Division of the Court, and not
by the Court en banc, cannot modify or reverse the doctrine laid
down in Spouses De Leon v. Court of Appeals.39 Petitioner relies
heavily on the declaration of this Court in Spouses De Leon that
an action for annulment or rescission of a contract of sale of real
property is incapable of pecuniary estimation.
The Court, however, does not perceive a contradiction between
Serrano and the Spouses De Leon. The Court calls attention to
the following statement in Spouses De Leon: "A review of the
jurisprudence of this Court indicates that in determining whether
an action is one the subject matter of which is not capable of
pecuniary estimation, this Court has adopted the criterion of first
ascertaining the nature of the principal action or remedy sought."
Necessarily, the determination must be done on a case-to-case
basis, depending on the facts and circumstances of each. What

petitioner conveniently ignores is that in Spouses De Leon, the

action therein that private respondents instituted before the RTC
was "solely for annulment or rescission" of the contract of sale
over a real property.40 There appeared to be no transfer of title or
possession to the adverse party. Their complaint simply prayed
for:
1. Ordering the nullification or rescission of the Contract
of Conditional Sale (Supplementary Agreement) for
having violated the rights of plaintiffs (private
respondents) guaranteed to them under Article 886 of the
Civil Code and/or violation of the terms and conditions of
the said contract.
2. Declaring void ab initio the Deed of Absolute Sale for
being absolutely simulated; and
3. Ordering defendants (petitioners) to pay plaintiffs
(private respondents) attorney's fees in the amount
ofP100,000.00.41
As this Court has previously discussed herein, the nature of Civil
Case No. 2006-0030 instituted by petitioner before the RTC is
closer to that of Serrano, rather than of Spouses De Leon, hence,
calling for the application of the ruling of the Court in the former,
rather than in the latter.
It is also important to note that, with the amendments introduced
by A.M. No. 04-2-04-SC, which became effective on 16 August
2004, the paragraph in Section 7, Rule 141 of the Rules of Court,
pertaining specifically to the basis for computation of docket fees
for real actions was deleted. Instead, Section 7(1) of Rule 141, as
amended, provides that "in cases involving real property, the FAIR
MARKET value of the REAL property in litigation STATED IN THE
CURRENT TAX DECLARATION OR CURRENT ZONAL
VALUATION OF THE BUREAU OF INTERNAL REVENUE,
WHICH IS HIGHER, OR IF THERE IS NONE, THE STATED
VALUE OF THE PROPERTY IN LITIGATION x x x" shall be the
basis for the computation of the docket fees. Would such an
amendment have an impact on Gochan, Siapno, and Serrano?
The Court rules in the negative.
A real action indisputably involves real property. The docket fees
for a real action would still be determined in accordance with the
value of the real property involved therein; the only difference is in
what constitutes the acceptable value. In computing the docket
fees for cases involving real properties, the courts, instead of
relying on the assessed or estimated value, would now be using
the fair market value of the real properties (as stated in the Tax
Declaration or the Zonal Valuation of the Bureau of Internal

Revenue, whichever is higher) or, in the absence thereof, the

stated value of the same.
In sum, the Court finds that the true nature of the action instituted
by petitioner against respondents is the recovery of title to and
possession of real property. It is a real action necessarily involving
real property, the docket fees for which must be computed in
accordance with Section 7(1), Rule 141 of the Rules of Court, as
amended. The Court of Appeals, therefore, did not commit any
error in affirming the RTC Orders requiring petitioner to pay
additional docket fees for its Complaint in Civil Case No. 20060030.
The Court does not give much credence to the allegation of
petitioner that if the judgment of the Court of Appeals is allowed to
stand and not rectified, it would result in grave injustice and
irreparable injury to petitioner in view of the prohibitive amount
assessed against it. It is a sweeping assertion which lacks
evidentiary support. Undeniably, before the Court can conclude
that the amount of docket fees is indeed prohibitive for a party, it
would have to look into the financial capacity of said party. It
baffles this Court that herein petitioner, having the capacity to
enter into multi-million transactions, now stalls at
paying P720,392.60 additional docket fees so it could champion
before the courts its rights over the disputed real properties.
Moreover, even though the Court exempts individuals, as indigent
or pauper litigants, from paying docket fees, it has never extended
such an exemption to a corporate entity.
WHEREFORE, premises considered, the instant Petition for
Review is hereby DENIED. The Decision, dated 22 November
2006, of the Court of Appeals in CA-G.R. SP No. 94800, which
affirmed the Orders dated 24 March 2006 and 29 March 2006 of
the RTC, Branch 22, of Naga City, in Civil Case No. RTC-20060030, ordering petitioner Ruby Shelter Builders and Realty
Development Corporation to pay additional docket/filing fees,
computed based on Section 7(a), Rule 141 of the Rules of Court,
as amended, is hereby AFFIRMED. Costs against the petitioner.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice

G.R. No. 187104

August 3, 2010

SAINT LOUIS UNIVERSITY, INC., Petitioner,

vs.
EVANGELINE C. COBARRUBIAS, Respondent.
DECISION
BRION, J.:
We resolve the present petition for review on certiorari1 filed by
petitioner Saint Louis University, Inc. (SLU), to challenge the
decision2 and the resolution3 of the Court of Appeals (CA) in CAG.R. SP No. 101708.4
The Factual Background
The facts of the case, gathered from the records, are briefly
summarized below.
Respondent Evangeline C. Cobarrubias is an associate professor
of the petitioners College of Human Sciences. She is an active
member of the Union of Faculty and Employees of Saint Louis
University (UFESLU).

To reverse the imposed forced leave, Cobarrubias sought

recourse from the CBAs grievance machinery. Despite the
conferences held, the parties still failed to settle their dispute,
prompting Cobarrubias to file a case for illegal forced leave or
illegal suspension with the National Conciliation and Mediation
Board of the Department of Labor and Employment, Cordillera
Administrative Region, Baguio City. When circulation and
mediation again failed, the parties submitted the issues between
them for voluntary arbitration before Voluntary Arbitrator (VA)
Daniel T. Farias.
Cobarrubias argued that the CA already resolved the forced leave
issue in a prior case between the parties, CA-G.R. SP No.
90596,8 ruling that the forced leave for teachers who fail their
evaluation for three (3) times within a five-year period should be
coterminous with the CBA in force during the same five-year
period.9
SLU, for its part, countered that the CA decision in CA-G.R. SP
No. 90596 cannot be considered in deciding the present case
since it is presently on appeal with this Court (G.R. No.
176717)10 and, thus, is not yet final. It argued that the forced leave
provision applies irrespective of which CBA is applicable, provided
the employee fails her evaluation three (3) times in five (5) years.11
The Voluntary Arbitrator Decision

The 2001-20065 and 2006-20116 Collective Bargaining

Agreements (CBAs) between SLU and UFESLU contain the
following common provision on forced leave:
Section 7.7. For teaching employees in college who fail the yearly
evaluation, the following provisions shall apply:
(a) Teaching employees who are retained for three (3) cumulative
years in five (5) years shall be on forced leave for one (1) regular
semester during which period all benefits due them shall be
suspended.7
SLU placed Cobarrubias on forced leave for the first semester of
School Year (SY) 2007-2008 when she failed the evaluation for
SY 2002-2003, SY 2005-2006, and SY 2006-2007, with the rating
of 85, 77, and 72.9 points, respectively, below the required rating
of 87 points.

On October 26, 2007, VA Daniel T. Farias dismissed the

case.12 He found that the CA decision in CA-G.R. SP No. 90596 is
not yet final because of the pending appeal with this Court. He
noted that the CBA clearly authorized SLU to place its teaching
employees on forced leave when they fail in the evaluation for
three (3) years within a five-year period, without a distinction on
whether the three years fall within one or two CBA periods.
Cobarrubias received the VAs decision on November 20, 2007.13
On December 5, 2007, Cobarrubias filed with the CA a petition for
review under Rule 43 of the Rules of Court, but failed to pay the
required filing fees and to attach to the petition copies of the
material portions of the record.14
Thus, on January 14, 2008, the CA dismissed the petition outright
for Cobarrubias procedural lapses.15Cobarrubias received the CA
resolution, dismissing her petition, on January 31, 2008.16

On February 15, 2008, Cobarrubias filed her motion for

reconsideration, arguing that the ground cited is technical. She,
nonetheless, attached to her motion copies of the material
portions of the record and the postal money orders for P4,230.00.
She maintained that the ends of justice and fair play are better
served if the case is decided on its merits.17
On July 30, 2008, the CA reinstated the petition. It found that
Cobarrubias substantially complied with the rules by paying the
appeal fee in full and attaching the proper documents in her
motion for reconsideration.18
SLU insisted that the VA decision had already attained finality for
Cobarrubias failure to pay the docket fees on time.
The CA Decision
The CA brushed aside SLUs insistence on the finality of the VA
decision and annulled it, declaring that the "three (3) cumulative
years in five (5) years" phrase in Section 7.7(a) of the 2006-2011
CBA means within the five-year effectivity of the CBA. Thus, the
CA ordered SLU to pay all the benefits due Cobarrubias for the
first semester of SY 2007-2008, when she was placed on forced
leave.19
When the CA denied20 the motion for reconsideration that
followed,21 SLU filed the present petition for review on certiorari.22
The Petition
SLU argues that the CA should not have reinstated the appeal
since Cobarrubias failed to pay the docket fees within the
prescribed period, and rendered the VA decision final and
executory. Even if Cobarrubias procedural lapse is disregarded,
SLU submits that Section 7.7(a) of the 2006-2011 CBA should
apply irrespective of the five-year effectivity of each CBA.23
The Case for Cobarrubias

Cobarrubias insists that the CA settled the appeal fee issue, in its
July 30, 2008 resolution, when it found that she had substantially
complied with the rules by subsequently paying the docket fees in
full. She submits that the CAs interpretation of Section 7.7(a) of
the 2006-2011 CBA is more in accord with law and
jurisprudence.24
The Issues
The core issues boil down to whether the CA erred in reinstating
Cobarrubias petition despite her failure to pay the appeal fee
within the reglementary period, and in reversing the VA decision.
To state the obvious, the appeal fee is a threshold issue that
renders all other issues unnecessary if SLUs position on this
issue is correct.
The Courts Ruling
We find the petition meritorious.
Payment of Appellate Court Docket Fees
Appeal is not a natural right but a mere statutory privilege, thus,
appeal must be made strictly in accordance with the provision set
by law.25 Rule 43 of the Rules of Court provides that appeals from
the judgment of the VA shall be taken to the CA, by filing a petition
for review within fifteen (15) days from the receipt of the notice of
judgment.26 Furthermore, upon the filing of the petition, the
petitioner shall pay to the CA clerk of court the docketing and
other lawful fees;27 non-compliance with the procedural
requirements shall be a sufficient ground for the petitions
dismissal.28 Thus, payment in full of docket fees within the
prescribed period is not only mandatory, but also jurisdictional.29 It
is an essential requirement, without which, the decision appealed
from would become final and executory as if no appeal has been
filed.30
As early as the 1932 case of Lazaro v. Endencia and Andres,31 we
stressed that the payment of the full amount of the docket fee is
an indispensable step for the perfection of an appeal. In Lee v.
Republic,32 we decided that even though half of the appellate
court docket fee was deposited, no appeal was deemed perfected
where the other half was tendered after the period within which
payment should have been made. In Aranas v. Endona,33we

reiterated that the appeal is not perfected if only a part of the

docket fee is deposited within the reglementary period and the
remainder is tendered after the expiration of the period.
The rulings in these cases have been consistently reiterated in
subsequent cases: Guevarra v. Court of Appeals,34 Pedrosa v.
Spouses Hill,35 Gegare v. Court of Appeals,36 Lazaro v. Court of
Appeals,37 Sps. Manalili v. Sps. de Leon,38 La Salette College v.
Pilotin,39 Saint Louis University v. Spouses Cordero,40 M.A.
Santander Construction, Inc. v. Villanueva,41 Far Corporation v.
Magdaluyo,42 Meatmasters Intl. Corp. v. Lelis Integrated Devt.
Corp.,43 Tamayo v. Tamayo, Jr.,44 Enriquez v. Enriquez,45 KLT
Fruits, Inc. v. WSR Fruits, Inc.,46 Tan v. Link,47 Ilusorio v. IlusorioYap,48 and most recently in Tabigue v. International Copra Export
Corporation (INTERCO),49 and continues to be the controlling
doctrine.
In the present case, Cobarrubias filed her petition for review on
December 5, 2007, fifteen (15) days from receipt of the VA
decision on November 20, 2007, but paid her docket fees in full
only after seventy-two (72) days, when she filed her motion for
reconsideration on February 15, 2008 and attached the postal
money orders forP4,230.00. Undeniably, the docket fees were
paid late, and without payment of the full docket fees,
Cobarrubias appeal was not perfected within the reglementary
period.
Exceptions to the Rule on Payment of Appellate Court Docket
Fees not applicable
Procedural rules do not exist for the convenience of the litigants;
the rules were established primarily to provide order to and
enhance the efficiency of our judicial system.50 While procedural
rules are liberally construed, the provisions on reglementary
periods are strictly applied, indispensable as they are to the
prevention of needless delays, and are necessary to the orderly
and speedy discharge of judicial business.51
Viewed in this light, procedural rules are not to be belittled or
dismissed simply because their non-observance may have
prejudiced a party's substantive rights; like all rules, they are
required to be followed. However, there are recognized exceptions
to their strict observance, such as: (1) most persuasive and
weighty reasons; (2) to relieve a litigant from an injustice not

commensurate with his failure to comply with the prescribed

procedure; (3) good faith of the defaulting party by immediately
paying within a reasonable time from the time of the default; (4)
the existence of special or compelling circumstances; (5) the
merits of the case; (6) a cause not entirely attributable to the fault
or negligence of the party favored by the suspension of the rules;
(7) a lack of any showing that the review sought is merely
frivolous and dilatory; (8) the other party will not be unjustly
prejudiced thereby; (9) fraud, accident, mistake or excusable
negligence without the appellant's fault; (10) peculiar, legal and
equitable circumstances attendant to each case; (11) in the name
of substantial justice and fair play; (12) importance of the issues
involved; and (13) exercise of sound discretion by the judge,
guided by all the attendant circumstances.52 Thus, there should be
an effort, on the part of the party invoking liberality, to advance a
reasonable or meritorious explanation for his/her failure to comply
with the rules.1avvphi1
In Cobarrubias' case, no such explanation has been
advanced. Other than insisting that the ends of justice and fair
play are better served if the case is decided on its merits,
Cobarrubias offered no excuse for her failure to pay the docket
fees in full when she filed her petition for review. To us,
Cobarrubias omission is fatal to her cause.
We, thus, find that the CA erred in reinstating Cobarrubias petition
for review despite the nonpayment of the requisite docket fees
within the reglementary period. The VA decision had lapsed to
finality when the docket fees were paid; hence, the CA had no
jurisdiction to entertain the appeal except to order its dismissal.
WHEREFORE, the present petition is GRANTED. The assailed
decision and resolution of the Court of Appeals in CA-G.R. SP No.
101708 are hereby DECLARED VOID and are consequently SET
ASIDE. The decision of the voluntary arbitrator, that the voided
Court of Appeals decision and resolution nullified, stands. No
pronouncement as to costs.
SO ORDERED.
ARTURO D. BRION
Associate Justice

G.R. No. 138497

January 16, 2002

IMELDA RELUCIO, petitioner,

vs.
ANGELINA MEJIA LOPEZ, respondent.
PARDO, J.:
The Case
The case is a petition for review on certiorari1 seeking to set aside
the decision2 of the Court of Appeals that denied a petition for
certiorari assailing the trial court's order denying petitioner's
motion to dismiss the case against her inclusion as party
defendant therein.
The Facts
The facts, as found by the Court of Appeals, are as follows:
"On September 15, 1993, herein private respondent
Angelina Mejia Lopez (plaintiff below) filed a petition for
"APPOINTMENT AS SOLE ADMINISTRATIX OF
CONJUGAL PARTNERSHIP OF PROPERTIES,
FORFEITURE, ETC.," against defendant Alberto Lopez
and petition Imelda Relucio, docketed as Spec. Proc. M3630, in the Regional Trial Court of Makati, Branch 141.
In the petition, private-respondent alleged that sometime
in 1968, defendant Lopez, who is legally married to the
private respondent, abandoned the latter and their four
legitimate children; that he arrogated unto himself full
and exclusive control and administration of the conjugal
properties, spending and using the same for his sole gain
and benefit to the total exclusion of the private
respondent and their four children; that defendant Lopez,
after abandoning his family, maintained an illicit
relationship and cohabited with herein petitioner since
1976.
"It was further alleged that defendant Lopez and
petitioner Relucio, during their period of cohabitation
since 1976, have amassed a fortune consisting mainly of
stockholdings in Lopez-owned or controlled corporations,
residential, agricultural, commercial lots, houses,

apartments and buildings, cars and other motor vehicles,

bank accounts and jewelry. These properties, which are
in the names of defendant Lopez and petitioner Relucio
singly or jointly or their dummies and proxies, have been
acquired principally if not solely through the actual
contribution of money, property and industry of defendant
Lopez with minimal, if not nil, actual contribution from
petitioner Relucio.
"In order to avoid defendant Lopez obligations as a
father and husband, he excluded the private respondent
and their four children from sharing or benefiting from the
conjugal properties and the income or fruits there from.
As such, defendant Lopez either did not place them in
his name or otherwise removed, transferred, stashed
away or concealed them from the private-respondent. He
placed substantial portions of these conjugal properties
in the name of petitioner Relucio.1wphi1.nt
"It was also averred that in the past twenty five years
since defendant Lopez abandoned the privaterespondent, he has sold, disposed of, alienated,
transferred, assigned, canceled, removed or stashed
away properties, assets and income belonging to the
conjugal partnership with the private-respondent and
either spent the proceeds thereof for his sole benefit and
that of petitioner Relucio and their two illegitimate
children or permanently and fraudulently placed them
beyond the reach of the private-respondent and their four
children.
"On December 8, 1993, a Motion to Dismiss the Petition
was filed by herein petitioner on the ground that private
respondent has no cause of action against her.
"An Order dated February 10, 1994 was issued by herein
respondent Judge denying petitioner Relucio's Motion to
Dismiss on the ground that she is impleaded as a
necessary or indispensable party because some of the
subject properties are registered in her name and
defendant Lopez, or solely in her name.
"Subsequently thereafter, petitioner Relucio filed a
Motion for Reconsideration to the Order of the

respondent Judge dated February 10, 1994 but the same

was likewise denied in the Order dated May 31, 1994."3
On June 21, 1994, petitioner filed with the Court of Appeals a
petition for certiorari assailing the trial court's denial of her motion
to dismiss.4
On May 31, 1996, the Court of Appeals promulgated a decision
denying the petition.5 On June 26, 1996, petitioner filed a motion
for reconsideration.6 However, on April 6, 1996, the Court of
Appeals denied petitioner's motion for reconsideration.7
Hence, this appeal.8
The Issues
1. Whether respondent's petition for appointment as sole
administratrix of the conjugal property, accounting, etc.
against her husband Alberto J. Lopez established a
cause of action against petitioner.
2. Whether petitioner's inclusion as party defendant is
essential in the proceedings for a complete adjudication
of the controversy.9
The Court's Ruling
We grant the petition. We resolve the issues in seriatim.
First issue: whether a cause of action exists against petitioner in
the proceedings below. "A cause of action is an act or omission of
one party the defendant in violation of the legal right of the
other."10 The elements of a cause of action are:
(1) a right in favor of the plaintiff by whatever means and
under whatever law it arises or is created;
(2) an obligation on the part of the named defendant to
respect or not to violate such right; and
(3) an act or omission on the part of such defendant in
violation of the right of the plaintiff or constituting a
breach of the obligation of the defendant to the plaintiff

for which the latter may maintain an action for recovery

of damages.11
A cause of action is sufficient if a valid judgment may be rendered
thereon if the alleged facts were admitted or proved.12
In order to sustain a motion to dismiss for lack of cause of action,
the complaint must show that the claim for relief does not exist,
rather than that a claim has been merely defectively stated or is
ambiguous, indefinite or uncertain.13
Hence, to determine the sufficiency of the cause of action alleged
in Special Proceedings M-3630, we assays its allegations.
In Part Two on the "Nature of [the] Complaint," respondent
Angelina Mejia Lopez summarized the causes of action alleged in
the complaint below.
The complaint is by an aggrieved wife against her husband.
Nowhere in the allegations does it appear that relief is sought
against petitioner. Respondent's causes of action were all against
her husband.
The first cause of action is for judicial appointment of
respondent as administratrix of the conjugal partnership or
absolute community property arising from her marriage to Alberto
J. Lopez. Petitioner is a complete stranger to this cause of action.
Article 128 of the Family Code refers only to spouses, to wit:
"If a spouse without just cause abandons the other or
fails to comply with his or her obligations to the family,
the aggrieved spouse may petition the court for
receivership, for judicial separation of property, or for
authority to be the sole administrator of the conjugal
partnership property xxx"
The administration of the property of the marriage is entirely
between them, to the exclusion of all other persons. Respondent
alleges that Alberto J. Lopez is her husband. Therefore, her first
cause of action is against Alberto J. Lopez. There is no right-duty
relation between petitioner and respondent that can possibly

support a cause of action. In fact, none of the three elements of a

cause of action exists.
The second cause of action is for an accounting "by respondent
husband."14 The accounting of conjugal partnership arises from or
is an incident of marriage.
Petitioner has nothing to do with the marriage between
respondent Alberto J. Lopez. Hence, no cause of action can exist
against petitioner on this ground.
Respondent's alternative cause of action is for forfeiture of Alberto
J. Lopez' share in the co-owned property "acquired during his illicit
relationship and cohabitation with [petitioner]"15 and for the
"dissolution of the conjugal partnership of gains between him
[Alberto J. Lopez] and the [respondent]."
The third cause of action is essentially for forfeiture of Alberto J.
Lopez' share in property co-owned by him and petitioner. It does
not involve the issue of validity of the co-ownership between
Alberto J. Lopez and petitioner. The issue is whether there is
basis in law to forfeit Alberto J. Lopez' share, if any there be, in
property co-owned by him with petitioner.
Respondent's asserted right to forfeit extends to Alberto J. Lopez'
share alone. Failure of Alberto J. Lopez to surrender such share,
assuming the trial court finds in respondent's favor, results in a
breach of an obligation to respondent and gives rise to a cause of
action.16 Such cause of action, however, pertains to Alberto J.
Lopez, not petitioner.

To sustain a cause of action for moral damages, the complaint

must have the character of an action for interference with marital
or family relations under the Civil Code.
A real party in interest is one who stands "to be benefited or
injured by the judgment of the suit."18 In this case, petitioner would
not be affected by any judgment in Special Proceedings M-3630.
If petitioner is not a real party in interest, she cannot be an
indispensable party. An indispensable party is one without whom
there can be no final determination of an action.19 Petitioner's
participation in Special Proceedings M-36-30 is not indispensable.
Certainly, the trial court can issue a judgment ordering Alberto J.
Lopez to make an accounting of his conjugal partnership with
respondent, and give support to respondent and their children,
and dissolve Alberto J. Lopez' conjugal partnership with
respondent, and forfeit Alberto J. Lopez' share in property coowned by him and petitioner. Such judgment would be perfectly
valid and enforceable against Alberto J. Lopez.
Nor can petitioner be a necessary party in Special Proceedings M3630. A necessary party as one who is not indispensable but who
ought to be joined as party if complete relief is to be accorded
those already parties, or for a complete determination or
settlement of the claim subject of the action.20 In the context of her
petition in the lower court, respondent would be accorded
complete relief if Alberto J. Lopez were ordered to account for his
alleged conjugal partnership property with respondent, give
support to respondent and her children, turn over his share in the
co-ownership with petitioner and dissolve his conjugal partnership
or absolute community property with respondent.

The respondent also sought support. Support cannot be

compelled from a stranger.

The Judgment

The action in Special Proceedings M-3630 is, to use respondent

Angelina M. Lopez' own words, one by "an aggrieved wife against
her husband."17 References to petitioner in the common and
specific allegations of fact in the complaint are merely incidental,
to set forth facts and circumstances that prove the causes of
action alleged against Alberto J. Lopez.

WHEREFORE, the Court GRANTS the petition and REVERSES

the decision of the Court of Appeals.21 The Court DISMISSES
Special Proceedings M-3630 of the Regional Trial Court, Makati,
Branch 141 as against petitioner.1wphi1.nt

Finally, as to the moral damages, respondent's claim for moral

damages is against Alberto J. Lopez, not petitioner.

SO ORDERED.

No costs.

Davide, Jr., C.J., Puno, Kapunan, and Ynares-Santiago,

JJ., concur.

[G.R. No. 115838. July 18, 2002]

CONSTANTE AMOR DE CASTRO and CORAZON AMOR DE
CASTRO, petitioners, vs. COURT OF APPEALS and
FRANCISCO ARTIGO, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a Petition for Review on Certiorari [1] seeking to
annul the Decision of the Court of Appeals[2] dated May 4, 1994 in
CA-G.R. CV No. 37996, which affirmed in toto the decision[3] of
the Regional Trial Court of Quezon City, Branch 80, in Civil Case
No. Q-89-2631. The trial court disposed as follows:
WHEREFORE, the Court finds defendants Constante and
Corazon Amor de Castro jointly and solidarily liable to plaintiff the
sum of:

x x x. Appellants[5] were co-owners of four (4) lots located at

EDSA corner New York and Denver Streets in Cubao, Quezon
City. In a letter dated January 24, 1984 (Exhibit A-1, p. 144,
Records), appellee[6] was authorized by appellants to act as real
estate broker in the sale of these properties for the amount
of P23,000,000.00, five percent (5%) of which will be given to the
agent as commission. It was appellee who first found Times
Transit Corporation, represented by its president Mr. Rondaris, as
prospective buyer which desired to buy two (2) lots only,
specifically lots 14 and 15. Eventually, sometime in May of 1985,
the sale of lots 14 and 15 was consummated. Appellee received
from appellants P48,893.76 as commission.
It was then that the rift between the contending parties soon
emerged. Appellee apparently felt short changed because
according to him, his total commission should be P352,500.00
which is five percent (5%) of the agreed price of P7,050,000.00
paid by Times Transit Corporation to appellants for the two (2)
lots, and that it was he who introduced the buyer to appellants and
unceasingly facilitated the negotiation which ultimately led to the
consummation of the sale. Hence, he sued below to collect the
balance of P303,606.24 after having received P48,893.76 in
advance.

a) P303,606.24 representing unpaid commission;

b) P25,000.00 for and by way of moral damages;
c) P45,000.00 for and by way of attorneys fees;
d) To pay the cost of this suit.
Quezon City, Metro Manila, December 20, 1991.
The Antecedent Facts
On May 29, 1989, private respondent Francisco Artigo
(Artigo for brevity) sued petitioners Constante A. De Castro
(Constante for brevity) and Corazon A. De Castro (Corazon for
brevity) to collect the unpaid balance of his brokers commission
from the De Castros.[4] The Court of Appeals summarized the facts
in this wise:

On the other hand, appellants completely traverse appellees

claims and essentially argue that appellee is selfishly asking for
more than what he truly deserved as commission to the prejudice
of other agents who were more instrumental in the consummation
of the sale. Although appellants readily concede that it was
appellee who first introduced Times Transit Corp. to them,
appellee was not designated by them as their exclusive real
estate agent but that in fact there were more or less eighteen (18)
others whose collective efforts in the long run dwarfed those of
appellees, considering that the first negotiation for the sale where
appellee took active participation failed and it was these other
agents who successfully brokered in the second negotiation. But
despite this and out of appellants pure liberality, beneficence and
magnanimity, appellee nevertheless was given the largest cut in
the commission (P48,893.76), although on the principle
of quantum meruit he would have certainly been entitled to less.
So appellee should not have been heard to complain of getting
only a pittance when he actually got the lions share of the
commission and worse, he should not have been allowed to get

the entire commission. Furthermore, the purchase price for the

two lots was only P3.6 million as appearing in the deed of sale
and not P7.05 million as alleged by appellee. Thus, even
assuming that appellee is entitled to the entire commission, he
would only be getting 5% of the P3.6 million, or P180,000.00.
Ruling of the Court of Appeals
The Court of Appeals affirmed in toto the decision of the trial
court.
First. The Court of Appeals found that Constante authorized
Artigo to act as agent in the sale of two lots in Cubao, Quezon
City. The handwritten authorization letter signed by Constante
clearly established a contract of agency between Constante and
Artigo. Thus, Artigo sought prospective buyers and found Times
Transit Corporation (Times Transit for brevity). Artigo facilitated
the negotiations which eventually led to the sale of the two
lots. Therefore, the Court of Appeals decided that Artigo is
entitled to the 5% commission on the purchase price as provided
in the contract of agency.
Second. The Court of Appeals ruled that Artigos complaint
is not dismissible for failure to implead as indispensable parties
the other co-owners of the two lots. The Court of Appeals
explained that it is not necessary to implead the other co-owners
since the action is exclusively based on a contract of agency
between Artigo and Constante.
Third. The Court of Appeals likewise declared that the trial
court did not err in admitting parol evidence to prove the true
amount paid by Times Transit to the De Castros for the two
lots. The Court of Appeals ruled that evidence aliunde could be
presented to prove that the actual purchase price was P7.05
million and not P3.6 million as appearing in the deed of
sale. Evidence aliunde is admissible considering that Artigo is not
a party, but a mere witness in the deed of sale between the De
Castros and Times Transit. The Court of Appeals explained that,
the rule that oral evidence is inadmissible to vary the terms of
written instruments is generally applied only in suits between
parties to the instrument and strangers to the contract are not
bound by it. Besides, Artigo was not suing under the deed of sale,
but solely under the contract of agency. Thus, the Court of

Appeals upheld the trial courts finding that the purchase price
was P7.05 million and not P3.6 million.

indispensable parties is fatal to the complaint since Artigo, as

agent of all the four co-owners, would be paid with funds coowned by the four co-owners.

Hence, the instant petition.

co
-owners
This authority is on a first-come

The De Castros contentions are devoid of legal basis.

The Issues
According to petitioners, the Court of Appeals erred in I. NOT ORDERING THE DISMISSAL OF THE
COMPLAINT FOR FAILURE TO IMPLEAD
INDISPENSABLE PARTIES-IN-INTEREST;
II. NOT ORDERING THE DISMISSAL OF THE
COMPLAINT ON THE GROUND THAT ARTIGOS
CLAIM HAS BEEN EXTINGUISHED BY FULL
PAYMENT, WAIVER, OR ABANDONMENT;
III. CONSIDERING INCOMPETENT EVIDENCE;
IV. GIVING CREDENCE TO PATENTLY PERJURED
TESTIMONY;

First serve basis CAC

An indispensable party is one whose interest will be affected
by the courts action in the litigation, and without whom no final
determination of the case can be had.[7] The joinder of
indispensable parties is mandatory and courts cannot proceed
without their presence.[8] Whenever it appears to the court in the
course of a proceeding that an indispensable party has not been
joined, it is the duty of the court to stop the trial and order the
inclusion of such party.[9]
However, the rule on mandatory joinder of indispensable
parties is not applicable to the instant case.
There is no dispute that Constante appointed Artigo in a
handwritten note dated January 24, 1984 to sell the properties of
the De Castros for P23 million at a 5 percent commission. The
authority was on a first come, first serve basis. The authority
reads in full:

V. SANCTIONING AN AWARD OF MORAL DAMAGES

AND ATTORNEYS FEES;
VI. NOT AWARDING THE DE CASTROS MORAL
AND
EXEMPLARY
DAMAGES,
AND
ATTORNEYS FEES.
The Courts Ruling
The petition is bereft of merit.
First Issue: whether the complaint merits dismissal for
failure to implead other co-owners as indispensable parties
The De Castros argue that Artigos complaint should have
been dismissed for failure to implead all the co-owners of the two
lots. The De Castros claim that Artigo always knew that the two
lots were co-owned by Constante and Corazon with their other
siblings Jose and Carmela whom Constante merely
represented. The De Castros contend that failure to implead such

24 Jan. 84
To Whom It May Concern:
This is to state that Mr. Francisco Artigo is authorized as our real
estate broker in connection with the sale of our property located at
Edsa Corner New York & Denver, Cubao, Quezon City.
Asking price P23,000,000.00 with
5% commission as agents fee.
C.
C. de Castro
ow
ner & representing

Constante signed the note as owner and as representative

of the other co-owners. Under this note, a contract of agency was
clearly constituted between Constante and Artigo. Whether
Constante appointed Artigo as agent, in Constantes individual or
representative capacity, or both, the De Castros cannot seek the
dismissal of the case for failure to implead the other co-owners as
indispensable parties. The De Castros admit that the other coowners are solidarily liable under the contract of agency,
[10]
citing Article 1915 of the Civil Code, which reads:
Art. 1915. If two or more persons have appointed an agent for a
common transaction or undertaking, they shall be solidarily liable
to the agent for all the consequences of the agency.
The solidary liability of the four co-owners, however, militates
against the De Castros theory that the other co-owners should be
impleaded as indispensable parties. A noted commentator
explained Article 1915 thus
The rule in this article applies even when the appointments were
made by the principals in separate acts, provided that they are for
the same transaction. The solidarity arises from the common
interest of the principals, and not from the act of constituting
the agency. By virtue of this solidarity, the agent can recover
from any principal the whole compensation and indemnity
owing to him by the others. The parties, however, may, by
express agreement, negate this solidary responsibility. The
solidarity does not disappear by the mere partition effected by the
principals after the accomplishment of the agency.
If the undertaking is one in which several are interested, but only
some create the agency, only the latter are solidarily liable,
without prejudice to the effects of negotiorum gestio with respect
to the others. And if the power granted includes various
transactions some of which are common and others are not, only
those interested in each transaction shall be liable for it.[11]

When the law expressly provides for solidarity of the

obligation, as in the liability of co-principals in a contract of
agency, each obligor may be compelled to pay the entire
obligation.[12]The agent may recover the whole compensation from
any one of the co-principals, as in this case.
Indeed, Article 1216 of the Civil Code provides that a creditor
may sue any of the solidary debtors. This article reads:
Art. 1216. The creditor may proceed against any one of the
solidary debtors or some or all of them simultaneously. The
demand made against one of them shall not be an obstacle to
those which may subsequently be directed against the others, so
long as the debt has not been fully collected.
Thus, the Court has ruled in Operators Incorporated vs.
American Biscuit Co., Inc.[13] that
x x x solidarity does not make a solidary obligor an
indispensable party in a suit filed by the creditor. Article 1216
of the Civil Code says that the creditor `may proceed against
anyone of the solidary debtors or some or all of them
simultaneously. (Emphasis supplied)
Second Issue: whether Artigos claim has been extinguished
by full payment, waiver or abandonment
The De Castros claim that Artigo was fully paid on June 14,
1985, that is, Artigo was given his proportionate share and no
longer entitled to any balance. According to them, Artigo was just
one of the agents involved in the sale and entitled to a
proportionate share in the commission. They assert that Artigo
did absolutely nothing during the second negotiation but to sign as
a witness in the deed of sale. He did not even prepare the
documents for the transaction as an active real estate broker
usually does.
The De Castros arguments are flimsy.
A contract of agency which is not contrary to law, public
order, public policy, morals or good custom is a valid contract, and
constitutes the law between the parties.[14] The contract of agency
entered into by Constante with Artigo is the law between them and

both are bound to comply with its terms and conditions in good
faith.

actually paid him. The De Castros cite Article 1235 of the Civil
Code which reads:

The mere fact that other agents intervened in the

consummation of the sale and were paid their respective
commissions cannot vary the terms of the contract of agency
granting Artigo a 5 percent commission based on the selling
price. These other agents turned out to be employees of Times
Transit, the buyer Artigo introduced to the De Castros. This
prompted the trial court to observe:

Art. 1235. When the obligee accepts the performance, knowing

its incompleteness and irregularity, and without expressing any
protest or objection, the obligation is deemed fully complied with.

The alleged `second group of agents came into the picture only
during the so-called `second negotiation and it is amusing to note
that these (sic) second group, prominent among whom are Atty.
Del Castillo and Ms. Prudencio, happened to be employees of
Times Transit, the buyer of the properties. And their efforts were
limited to convincing Constante to part away with the properties
because the redemption period of the foreclosed properties is
around the corner, so to speak. (tsn. June 6, 1991).
xxx
To accept Constantes version of the story is to open the
floodgates of fraud and deceit. A seller could always pretend
rejection of the offer and wait for sometime for others to renew it
who are much willing to accept a commission far less than the
original broker. The immorality in the instant case easily
presents itself if one has to consider that the alleged `second
group are the employees of the buyer, Times Transit and
they have not bettered the offer secured by Mr. Artigo for P7
million.
It is to be noted also that while Constante was too particular about
the unrenewed real estate brokers license of Mr. Artigo, he did not
bother at all to inquire as to the licenses of Prudencio and Castillo.
(tsn, April 11, 1991, pp. 39-40).[15] (Emphasis supplied)
In any event, we find that the 5 percent real estate brokers
commission is reasonable and within the standard practice in the
real estate industry for transactions of this nature.
The De Castros also contend that Artigos inaction as well as
failure to protest estops him from recovering more than what was

The De Castros reliance on Article 1235 of the Civil Code is

misplaced. Artigos acceptance of partial payment of his
commission neither amounts to a waiver of the balance nor puts
him in estoppel. This is the import of Article 1235 which was
explained in this wise:
The word accept, as used in Article 1235 of the Civil Code,
means to take as satisfactory or sufficient, or agree to an
incomplete or irregular performance. Hence, the mere receipt of
a partial payment is not equivalent to the required
acceptance of performance as would extinguish the whole
obligation.[16] (Emphasis supplied)
There is thus a clear distinction between acceptance and
mere receipt. In this case, it is evident that Artigo merely received
the partial payment without waiving the balance. Thus, there is no
estoppel to speak of.
The De Castros further argue that laches should apply
because Artigo did not file his complaint in court until May 29,
1989, or almost four years later. Hence, Artigos claim for the
balance of his commission is barred by laches.
Laches means the failure or neglect, for an unreasonable
and unexplained length of time, to do that which by exercising due
diligence could or should have been done earlier. It is negligence
or omission to assert a right within a reasonable time, warranting
a presumption that the party entitled to assert it either has
abandoned it or declined to assert it.[17]

Artigo disputes the claim that he neglected to assert his

rights. He was appointed as agent on January 24, 1984. The two
lots were finally sold in June 1985. As found by the trial court,
Artigo demanded in April and July of 1985 the payment of his
commission by Constante on the basis of the selling price
of P7.05 million but there was no response from Constante.
[18]
After it became clear that his demands for payment have fallen
on deaf ears, Artigo decided to sue on May 29, 1989.
Actions upon a written contract, such as a contract of
agency, must be brought within ten years from the time the right of
action accrues.[19] The right of action accrues from the moment the
breach of right or duty occurs. From this moment, the creditor can
institute the action even as the ten-year prescriptive period begins
to run.[20]
The De Castros admit that Artigos claim was filed within the
ten-year prescriptive period. The De Castros, however, still
maintain that Artigos cause of action is barred by laches. Laches
does not apply because only four years had lapsed from the time
of the sale in June 1985. Artigo made a demand in July 1985 and
filed the action in court on May 29, 1989, well within the ten-year
prescriptive period. This does not constitute an unreasonable
delay in asserting ones right. The Court has ruled, a delay
within the prescriptive period is sanctioned by law and is not
considered to be a delay that would bar relief. [21] In explaining
that laches applies only in the absence of a statutory prescriptive
period, the Court has stated Laches is recourse in equity. Equity, however, is applied only
in the absence, never in contravention, of statutory
law. Thus, laches, cannot, as a rule, be used to abate a
collection suit filed within the prescriptive period mandated
by the Civil Code.[22]
Clearly, the De Castros defense of laches finds no support
in law, equity or jurisprudence.
Third issue: whether the determination of the purchase price
was made in violation of the Rules on Evidence
The De Castros want the Court to re-examine the probative
value of the evidence adduced in the trial court to determine
whether the actual selling price of the two lots was P7.05 million

and not P3.6 million. The De Castros contend that it is erroneous

to base the 5 percent commission on a purchase price of P7.05
million as ordered by the trial court and the appellate court. The
De Castros insist that the purchase price is P3.6 million as
expressly stated in the deed of sale, the due execution and
authenticity of which was admitted during the trial.
The De Castros believe that the trial and appellate courts
committed a mistake in considering incompetent evidence and
disregarding the best evidence and parole evidence rules. They
claim that the Court of Appeals erroneously affirmed sub
silentio the trial courts reliance on the various correspondences
between Constante and Times Transit which were mere
photocopies that do not satisfy the best evidence rule. Further,
these letters covered only the first negotiations between
Constante and Times Transit which failed; hence, these are
immaterial in determining the final purchase price.
The De Castros further argue that if there was an
undervaluation, Artigo who signed as witness benefited therefrom,
and being equally guilty, should be left where he presently
stands. They likewise claim that the Court of Appeals erred in
relying on evidence which were not offered for the purpose
considered by the trial court. Specifically, Exhibits B, C, D and
E were not offered to prove that the purchase price was P7.05
Million. Finally, they argue that the courts a quo erred in giving
credence to the perjured testimony of Artigo. They want the entire
testimony of Artigo rejected as a falsehood because he was lying
when he claimed at the outset that he was a licensed real estate
broker when he was not.
Whether the actual purchase price was P7.05 Million as
found by the trial court and affirmed by the Court of Appeals,
or P3.6 Million as claimed by the De Castros, is a question of fact
and not of law. Inevitably, this calls for an inquiry into the facts
and evidence on record. This we can not do.
It is not the function of this Court to re-examine the evidence
submitted by the parties, or analyze or weigh the evidence again.
[23]
This Court is not the proper venue to consider a factual issue
as it is not a trier of facts. In petitions for review on certiorari as a
mode of appeal under Rule 45, a petitioner can only raise
questions of law. Our pronouncement in the case of Cormero vs.
Court of Appeals[24] bears reiteration:

At the outset, it is evident from the errors assigned that the

petition is anchored on a plea to review the factual conclusion
reached by the respondent court. Such task however is
foreclosed by the rule that in petitions for certiorari as a mode of
appeal, like this one, only questions of law distinctly set forth may
be raised. These questions have been defined as those that do
not call for any examination of the probative value of the evidence
presented by the parties. (Uniland Resources vs. Development
Bank of the Philippines, 200 SCRA 751 [1991] citing Goduco vs.
Court of appeals, et al., 119 Phil. 531; Hernandez vs. Court of
Appeals, 149 SCRA 67). And when this court is asked to go over
the proof presented by the parties, and analyze, assess and
weigh them to ascertain if the trial court and the appellate court
were correct in according superior credit to this or that piece of
evidence and eventually, to the totality of the evidence of one
party or the other, the court cannot and will not do the
same. (Elayda vs. Court of Appeals, 199 SCRA 349
[1991]). Thus, in the absence of any showing that the findings
complained of are totally devoid of support in the record, or that
they are so glaringly erroneous as to constitute serious abuse of
discretion, such findings must stand, for this court is not expected
or required to examine or contrast the oral and documentary
evidence submitted by the parties. (Morales vs. Court of Appeals,
197 SCRA 391 [1991] citing Santa Ana vs. Hernandez, 18 SCRA
973 [1966]).
We find no reason to depart from this principle. The trial and
appellate courts are in a much better position to evaluate properly
the evidence. Hence, we find no other recourse but to affirm their
finding on the actual purchase price.
Fourth Issue: whether award of moral damages and
attorneys fees is proper
The De Castros claim that Artigo failed to prove that he is
entitled to moral damages and attorneys fees. The De Castros,
however, cite no concrete reason except to say that they are the
ones entitled to damages since the case was filed to harass and
extort money from them.
Law and jurisprudence support the award of moral damages
and attorneys fees in favor of Artigo. The award of damages and
attorneys fees is left to the sound discretion of the court, and if
such discretion is well exercised, as in this case, it will not be

disturbed on appeal.[25] Moral damages may be awarded when in

a breach of contract the defendant acted in bad faith, or in wanton
disregard of his contractual obligation.[26] On the other hand,
attorneys fees are awarded in instances where the defendant
acted in gross and evident bad faith in refusing to satisfy the
plaintiffs plainly valid, just and demandable claim. [27] There is no
reason to disturb the trial courts finding that the defendants lack
of good faith and unkind treatment of the plaintiff in refusing to
give his due commission deserve censure. This warrants the
award of P25,000.00 in moral damages and P45,000.00 in
attorneys fees. The amounts are, in our view, fair and
reasonable. Having found a buyer for the two lots, Artigo had
already performed his part of the bargain under the contract of
agency. The De Castros should have exercised fairness and
good judgment in dealing with Artigo by fulfilling their own part of
the bargain - paying Artigo his 5 percent brokers commission
based on the actual purchase price of the two lots.
WHEREFORE, the petition is denied for lack of merit. The
Decision of the Court of Appeals dated May 4, 1994 in CA-G.R.
CV No. 37996 is AFFIRMED in toto.
SO ORDERED.
Puno, (Chairman), and Panganiban, JJ., concur.
Sandoval-Gutierrez, J., no part due to close family relation
with a party.

G.R. No. 141463

August 6, 2002

VICTOR ORQUIOLA and HONORATA ORQUIOLA, petitioners,

vs.
HON. COURT OF APPEALS, HON. VIVENCIO S. BACLIG,
Presiding Judge, Regional Trial Court, Branch 77, Quezon
City, THE SHERIFF OF QUEZON CITY and HIS/HER DEPUTIES
and PURA KALAW LEDESMA, substituted by TANDANG
SORA DEVELOPMENT CORPORATION, respondents.

of Quezon City against Herminigilda Pedro and Mariano Lising for

allegedly encroaching upon Lot 689. During the pendency of the
action, Tandang Sora Development Corporation replaced Pura
Kalaw Ledesma as plaintiff by virtue of an assignment of Lot 689
made by Ledesma in favor of said corporation. Trial continued for
three decades.
On August 21, 1991, the trial court finally adjudged defendants
Pedro and Lising jointly and severally liable for encroaching on
plaintiffs land and ordered them:

QUISUMBING, J.:
1

This petition for review seeks the reversal of the decision of the
Court of Appeals dated January 28, 1999 in CA-G.R. SP No.
47422, which dismissed the petition to prohibit Judge Vivencio
Baclig of the Regional Trial Court of Quezon City, Branch 77, from
issuing a writ of demolition against petitioners, and the sheriff and
deputy sheriff of the same court from implementing an alias writ of
execution. Also assailed is the resolution2 of the Court of Appeals
dated December 29, 1999 which denied petitioners motion for
reconsideration.
The facts are as follows:
Pura Kalaw Ledesma was the registered owner of Lot 689,
covered by TCT Nos. 111267 and 111266, in Tandang Sora,
Quezon City. This parcel of land was adjacent to certain portions
of Lot 707 of the Piedad Estates, namely, Lot 707-A and 707-B,
registered in the name of Herminigilda Pedro under TCT Nos.
16951 and 16952, respectively. On October 29, 1964,
Herminigilda sold Lot 707-A and 707-B to Mariano Lising who then
registered both lots and Lot 707-C in the name of M.B. Lising
Realty and subdivided them into smaller lots.1wphi1.nt
Certain portions of the subdivided lots were sold to third persons
including herein petitioners, spouses Victor and Honorata
Orquiola, who purchased a portion of Lot 707-A-2, Lot 5, Block 1
of the subdivision plan (LRC), Psd-42965. The parcel is now #33
Doa Regina St., Regina Village, Tandang Sora, Quezon City. The
other portions were registered in the name of the heirs of Pedro,
heirs of Lising, and other third persons.
Sometime in 1969, Pura Kalaw Ledesma filed a complaint,
docketed as Civil Case No. Q-12918, with the Regional Trial Court

(a) to solidarily pay the plaintiff Tandang Sora Dev. Corp.

actual damages in the amount of P20,000 with interest
from date of filing of the complaint;
(b) to remove all construction, including barbed wires and
fences, illegally constructed by defendants on plaintiffs
property at defendants expense;
(c) to replace the removed concrete monuments
removed by defendants, at their own expense;
(d) to pay attorneys fees in the amount of FIVE
THOUSAND PESOS (P5,000.00) with interest computed
from the date of filing of the complaint;
(e) to relocate the boundaries to conform with the
Commissioners Report, particularly, Annexes "A" and "B"
thereof, at the expense of the defendants.3
As a result, in February 1998, the Deputy Sheriff of Quezon City
directed petitioners, through an alias writ of execution, to remove
the house they constructed on the land they were occupying.
On April 2, 1998, petitioners received a Special Order dated
March 30, 1998, from the trial court stating as follows:
Before the Court for resolution is the "Ex-Parte Motion
For The Issuance of A Writ of Demolition," filed by
plaintiff, through counsel, praying for the issuance of an
Order directing the Deputy Sheriff to cause the removal
and/or demolition of the structures on the plaintiffs
property constructed by defendants and/or the present

occupants. The defendants-heirs of Herminigilda Pedro

filed their comment on the said Motion.
Considering that the decision rendered in the instant
case had become final and executory, the Court, in its
Order of November 14, 1997, directed the issuance of an
alias writ of execution for the enforcement of the said
decision. However, despite the service of the said writ to
all the defendants and the present occupants of the
subject property, they failed to comply therewith, as per
the Partial Sheriffs Return, dated February 9, 1998,
issued by the Deputy Sheriff of this branch of the Court.
Thus, there is now a need to demolish the structures in
order to implement the said decision.
WHEREFORE, the defendants are hereby directed to
remove, at their expense, all constructions, including
barbed wires and fences, which defendants constructed
on plaintiffs property, within fifteen (15) days from notice
of this Order; otherwise, this Court will issue a writ of
demolition against them.
SO ORDERED.4
To prohibit Judge Vivencio Baclig of the Regional Trial Court of
Quezon City from issuing a writ of demolition and the Quezon City
sheriff from implementing the alias writ of execution, petitioners
filed with the Court of Appeals a petition for prohibition with prayer
for a restraining order and preliminary injunction on April 17,
1998.5 Petitioners alleged that they bought the subject parcel of
land in good faith and for value, hence, they were parties in
interest. Since they were not impleaded in Civil Case No. Q12918, the writ of demolition issued in connection therewith
cannot be enforced against them because to do so would amount
to deprivation of property without due process of law.
The Court of Appeals dismissed the petition on January 28, 1999.
It held that as buyers and successors-in-interest of Mariano
Lising, petitioners were considered privies who derived their rights
from Lising by virtue of the sale and could be reached by the
execution order in Civil Case No. Q-12918. Thus, for lack of merit,
the petition was ordered dismissed.6

Petitioners motion for reconsideration was denied. Hence, this

petition, where petitioners aver that:
I.
THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT THE DECISION IN CIVIL CASE NO. Q12918 CAN ALSO BE ENFORCED AGAINST THE
PETITIONERS EVEN IF THEY WERE NOT
IMPLEADED AS PARTIES THERETO.
II.
THE HONORABLE COURT OF APPEALS ERRED IN
NOT UPHOLDING PETITIONERS TITLE DESPITE
THEIR BEING BUILDER IN GOOD FAITH AND
INNOCENT PURCHASER AND FOR VALUE.
III.
PETITIONERS ARE ENTITLED TO INJUNCTIVE
RELIEF CONSIDERING THAT THEY STAND TO
SUFFER GRAVE AND IRREPARABLE INJURY IF ALIAS
WRIT OF EXECUTION AND THE SPECIAL ORDER
ISSUED BY THE COURT A QUO IN CIVIL CASE NO. Q12918 FOR THE DEMOLITION OF ALL THE
STRUCTURES ON THE DISPUTED PROPERTY WERE
ENFORCED AGAINST THE PETITIONERS WHO
WERE NOT EVEN GIVEN THEIR DAY IN COURT.7
For our resolution are the following issues: (1) whether
the alias writ of execution may be enforced against petitioners;
and (2) whether petitioners were innocent purchasers for value
and builders in good faith.
On the first issue, petitioners claim that the alias writ of execution
cannot be enforced against them. They argue that the appellate
court erred when it relied heavily on our ruling in Vda. de Medina
vs. Cruz8 in holding that petitioners are successors-in-interest of
Mariano Lising, and as such, they can be reached by the order of
execution in Civil Case No. Q-12918 even though they were not
impleaded as parties thereto. Petitioners submit that Medina is not
applicable in this case because the circumstances therein are
different from the circumstances in the present case.

In Medina, the property in dispute was registered under Land

Registration Act No. 496 in 1916 and Original Certificate of Title
No. 868 was issued in the name of Philippine Realty Corporation
(PRC). In 1949, Benedicta Mangahas and Francisco Ramos
occupied and built houses on the lot without the PRCs consent. In
1959, PRC sold the lot to Remedios Magbanua. Mangahas and
Ramos opposed and instituted Civil Case No. C-120 to annul the
sale and to compel PRC to execute a contract of sale in their
favor. The trial court dismissed the complaint and ordered
Mangahas and Ramos to vacate the lot and surrender possession
thereof to Magbanua. The judgment became final and executory.
When Magbanua had paid for the land in full, PRC executed a
deed of absolute sale in her favor and a new title was
consequently issued in her name. Magbanua then sought the
execution of the judgment in Civil Case No. C-120. This was
opposed by petitioner Medina who alleged that she owned the
houses and lot subject of the dispute. She said that she bought
the houses from spouses Ricardo and Eufrocinia de Guzman,
while she purchased the lot from the heirs of the late Don Mariano
San Pedro y Esteban. The latter held the land by virtue of a Titulo
de Composicion Con El Estado Num. 4136, dated April 29, 1894.
In opposing the execution, Medina argued that the trial court did
not acquire jurisdiction over her, claiming that she was not a party
in Civil Case No. C-120, thus, she could not be considered as "a
person claiming under" Ramos and Mangahas.
When Medina reached this Court, we held that the decision in
Civil Case No. C-120, which had long become final and executory,
could be enforced against petitioner even though she was not a
party thereto. We found that the houses on the subject lot were
formerly owned by Mangahas and Ramos who sold them to
spouses de Guzman, who in turn sold them to Medina. Under the
circumstances, petitioner was privy to the two judgment debtors
Mangahas and Ramos, and thus Medina could be reached by the
order of execution and writ of demolition issued against the two.
As to the lot under dispute, we sustained Magbanuas ownership
over it, she being the holder of a Torrens title. We declared that a
Torrens title is generally conclusive evidence of ownership of the
land referred to therein, and a strong presumption exists that a
Torrens title was regularly issued and valid. A Torrens title is
incontrovertible against any informacion possessoria, or other title
existing prior to the issuance thereof not annotated on the Torrens
title. Moreover, persons dealing with property covered by a
Torrens certificate of title are not required to go beyond what
appears on its face.

Medina markedly differs from the present case on major

points. First, the petitioner in Medina acquired the right over the
houses and lot subject of the dispute after the original action was
commenced and became final and executory. In the present case,
petitioners acquired the lot before the commencement of Civil
Case No. Q-12918.Second, the right over the disputed land of the
predecessors-in-interest of the petitioner in Medina was based on
a title of doubtful authenticity, allegedly a Titulo de Composicion
Con El Estado issued by the Spanish Government in favor of one
Don Mariano San Pedro y Esteban, while the right over the land of
the predecessors-in-interest of herein petitioners is based on a
fully recognized Torrens title. Third, petitioners in this case
acquired the registered title in their own names, while the
petitioner in Medina merely relied on the title of her predecessorin-interest and tax declarations to prove her alleged ownership of
the land.
We must stress that where a case like the present one involves a
sale of a parcel of land under the Torrens system, the applicable
rule is that a person dealing with the registered property need not
go beyond the certificate of title; he can rely solely on the title and
he is charged with notice only of such burdens and claims as are
annotated on the title.9 It is our view here that the petitioners,
spouses Victor and Honorata Orquiola, are fully entitled to the
legal protection of their lot by the Torrens system, unlike the
petitioner in the Medina case who merely relied on a mere Titulo
de Composicion.
Coming now to the second issue, were petitioners purchasers in
good faith and for value? A buyer in good faith is one who buys
the property of another without notice that some other person has
a right to or interest in such property. He is a buyer for value if he
pays a full and fair price at the time of the purchase or before he
has notice of the claim or interest of some other person in the
property.10 The determination of whether one is a buyer in good
faith is a factual issue which generally is outside the province of
this Court to determine in a petition for review. An exception is
when the Court of Appeals failed to take into account certain
relevant facts which, if properly considered, would justify a
different conclusion.11 The instant case is covered by this
exception to the general rule. As found by the Court of Appeals
and not refuted by private respondent, petitioners purchased the
subject land in 1964 from Mariano Lising.12 Civil Case No. Q12918 was commenced sometime in 1969. The Court of Appeals
overlooked the fact that the purchase of the land took place prior

to the institution of Civil Case No. Q-12918. In other words, the

sale to petitioners was made before Pura Kalaw Ledesma claimed
the lot. Petitioners could reasonably rely on Mariano Lisings
Certificate of Title which at the time of purchase was still free from
any third party claim. Hence, considering the circumstances of this
case, we conclude that petitioners acquired the land subject of
this dispute in good faith and for value.
The final question now is: could we consider petitioners builders in
good faith? We note that this is the first time that petitioners have
raised this issue. As a general rule, this could not be done. Fair
play, justice, and due process dictate that parties should not raise
for the first time on appeal issues that they could have raised but
never did during trial and even during proceedings before the
Court of Appeals.13 Nevertheless, we deem it proper that this
issue be resolved now, to avoid circuitous litigation and further
delay in the disposition of this case. On this score, we find that
petitioners are indeed builders in good faith.
A builder in good faith is one who builds with the belief that the
land he is building on is his, and is ignorant of any defect or flaw in
his title.14 As earlier discussed, petitioner spouses acquired the
land in question without knowledge of any defect in the title of
Mariano Lising. Shortly afterwards, they built their conjugal home
on said land. It was only in 1998, when the sheriff of Quezon City
tried to execute the judgment in Civil Case No. Q-12918, that they
had notice of private respondents adverse claim. The institution of
Civil Case No. Q-12918 cannot serve as notice of such adverse
claim to petitioners since they were not impleaded therein as
parties.
As builders in good faith and innocent purchasers for value,
petitioners have rights over the subject property and hence they
are proper parties in interest in any case thereon.15 Consequently,
private respondents should have impleaded them in Civil Case
No. Q-12918. Since they failed to do so, petitioners cannot be
reached by the decision in said case. No man shall be affected by
any proceeding to which he is a stranger, and strangers to a case
are not bound by any judgment rendered by the court. In the same
manner, a writ of execution can be issued only against a party and
not against one who did not have his day in court. Only real
parties in interest in an action are bound by the judgment therein
and by writs of execution and demolition issued pursuant
thereto.16In our view, the spouses Victor and Honorata Orquiola

have valid and meritorious cause to resist the demolition of their

house on their own titled lot, which is tantamount to a deprivation
of property without due process of law.1wphi1.nt
WHEREFORE, the petition is GRANTED. The decision of the
Court of Appeals dated January 28, 1999, and its resolution dated
December 29, 1999, in CA-G.R. SP No. 47422,
are REVERSED and SET ASIDE. Respondents are hereby
enjoined from enforcing the decision in Civil Case No. Q-12918
through a writ of execution and order of demolition issued against
petitioners. Costs against private respondent.
SO ORDERED.
Bellosillo, Mendoza, and Corona, JJ., concur.

[G.R. No. 135796. October 3, 2002]

CHINA BANKING CORPORATION, petitioner, vs. MERCEDES
M. OLIVER, respondent.
RESOLUTION
QUISUMBING, J.:
This petition for review[1] seeks the reversal of the decision
dated June 1, 1998, of the Court of Appeals in CA-G.R. SP No.
43836, dismissing China Banking Corporations petition for
certiorari to annul the two orders of the Regional Trial Court of
Muntinlupa City, Branch 276, which earlier denied petitioners
motion to dismiss and then declared the bank in default in Civil
Case No. 96-219. The appellate court also denied petitioners
motion for reconsideration in a resolution dated September 30,
1998.
The facts of this case are culled from the records.
In August 1995, Pangan Lim, Jr. and a certain Mercedes M.
Oliver opened a joint account in China Banking Corporation
(hereinafter Chinabank) at EDSA Balintawak Branch. Lim
introduced Oliver to the banks branch manager as his partner in
the rice and palay trading business. Thereafter, Lim and Oliver
applied for a P17 million loan, offering as collateral a 7,782 square
meter lot located in Tunasan, Muntinlupa and covered by TCT No.
S-50195 in the name of Oliver. The bank approved the
application. On November 17, 1995, Lim and Oliver executed in
favor of Chinabank a promissory note for P16,650,000, as well as
a Real Estate Mortgage on the property. The mortgage was duly
registered and annotated on the original title under the custody of
the Registry of Deeds of Makati and on the owners duplicate copy
in the banks possession. The mortgage document showed
Mercedes Olivers address to be No. 95 Malakas Street, Diliman,
Quezon City. For brevity, she is hereafter referred to as Oliver
One.
On November 18, 1996, respondent claiming that she is
Mercedes M. Oliver with postal office address at No. 40 J.P. Rizal
St., San Pedro, Laguna, filed an action for annulment of mortgage
and cancellation of title with damages against Chinabank,

Register of Deeds Atty. Mila G. Flores, and Deputy Register of

Deeds Atty. Ferdinand P. Ignacio. Respondent, whom we shall
call as Oliver Two, claimed that she was the registered and
lawful owner of the land subject of the real estate mortgage; that
the owners duplicate copy of the title had always been in her
possession; and that she did not apply for a loan or surrender her
title to Chinabank.[2] She prayed that: (1) the owners duplicate
copy surrendered to Chinabank as well as the original title with the
Registry of Deeds be cancelled; (2) the mortgage be declared null
and void; and (3) the Registry of Deeds be ordered to issue a new
and clean title in her name.[3]
On January 31, 1997, Chinabank moved to dismiss the case
for lack of cause of action and non-joinder of an indispensable
party, the mortgagor.
On March 13, 1997, Judge Norma C. Perello issued an order
denying the motion to dismiss, stating that:
A reading of the COMPLAINT which of course is hypothetically
admitted, will show that a valid judgment can be rendered against
defendant. Plaintiff having sufficiently averred that defendants
negligently failed to ascertain the genuineness or not (sic) of the title of
the land mortgaged to it upon the claim of ownership by the
mortgagors. Furthermore, the matters alleged in the MOTION TO
DISMISS are all evidentiary which Defendants may substantiate at the
appointed hours.[4]
On April 7, 1997, Chinabank filed with the Court of Appeals a
petition for certiorari with prayer for the issuance of a writ of
preliminary injunction and/or restraining order to enjoin
enforcement of the March 13, 1997 order and further action on the
case. The Court of Appeals directed respondent Oliver Two to file
her comment and deferred action on the prayer for the issuance of
the preliminary injunction pending submission of the comment.
On June 30, 1997, respondent Oliver Two moved to declare
petitioner Chinabank in default. She pointed out that since
petitioner received the order denying the motion to dismiss on
March 21, 1997, it had only until April 7, 1997 to file its answer to
the complaint. However, until the filing of the motion for default,
no answer had been filed yet. The trial court granted the motion

and declared petitioner in default in its order dated July 17, 1997,
thus:
Acting on the Motion To Declare Defendant Bank in Default, and
finding the same to be legally tenable is granted.
Accordingly, the Defendant Bank is declared in default as summons was
served on It as early as December 16, 1996, but until date they have not
filed an Answer nor any responsive pleading and instead, It filed a
Motion to Dismiss, which was denied by this Court on March 13, 1997.
The filing of a CERTIORARI to question the Orders by this Court did
not toll the period for Defendants to answer the complaint.
Therefore, the reglementary period for the filing of responsive pleading
has long expired.
Let the case be submitted for Decision based on the complaint.
It is SO ORDERED.[5]
Consequently, petitioner Chinabank filed a supplemental
petition on August 11, 1997, seeking annulment of the July 17,
1997 order. It argued that the special civil action for certiorari filed
in the Court of Appeals interrupted the proceedings before the trial
court, thereby staying the period for filing the answer.
On June 1, 1998, the Court of Appeals promulgated the
assailed decision, finding no grave abuse of discretion committed
by the trial judge in ruling that the Rules of Court provided the
manner of impleading parties to a case and in suggesting that
petitioner file an appropriate action to bring the mortgagor within
the courts jurisdiction. The appellate court said that Rule 6,
Section 11 of the Rules of Court allows petitioner to file a thirdparty complaint against the mortgagor. As to the judgment by
default, the Court of Appeals said that an order denying the
motion to dismiss is interlocutory and may not be questioned
through a special civil action for certiorari. The defendant must
proceed with the case and raise the issues in his motion to
dismiss when he appeals to a higher court. In this case, petitioner
Chinabank should have filed its answer when it received the
March 13, 1997 order denying the motion to dismiss. The special

civil action for certiorari with the Court of Appeals did not interrupt
the period to file an answer, there being no temporary restraining
order or writ of preliminary injunction issued.
The Court of Appeals denied petitioners motion for
reconsideration. Hence, this petition anchored on the following
grounds:

THE OWNERS DUPLICATE COPY OF THE TITLE OF

MORTGAGOR MERCEDES M. OLIVER OWNERS DUPLICATE
COPY CANNOT, IN HER ABSENCE, BE DECLARED NULL AND
VOID. CONSEQUENTLY, INASMUCH AS THE MORTGAGE IN
FAVOR OF PETITIONER IS DEPENDENT UPON THE OWNERS
DUPLICATE COPY OF THE MORTGAGOR, THE COMPLAINT IN
CIVIL CASE NO. 96-219 CAN NOT RESOLVE THE
CONTROVERSY WITH FINALITY.

I
VI
SEC. 11, RULE 3, OF THE 1997 RULES OF CIVIL PROCEDURE
DOES NOT APPLY WHERE THE PARTY WHO WAS NOT
IMPLEADED IS AN INDISPENSABLE PARTY; INSTEAD, SECTION
7, RULE 3 THEREOF, APPLIES.
II
THE MORTGAGOR MERCEDES M. OLIVER IS AN
INDISPENSABLE PARTY UNDER SECTION 7, RULE 3, OF THE
1997 RULES OF CIVIL PROCEDURE, AND MUST THEREFORE
INDISPENSABLY BE JOINED AS A PARTY-DEFENDANT.
III
RESPONDENTS CAUSE OF ACTION IS ANCHORED ON HER
CLAIM AS THE REGISTERED AND LAWFUL OWNER OF THE
PROPERTY IN QUESTION AND THAT HER OWNERS
DUPLICATE COPY OF THE TITLE (ANNEX A) IS THE TRUE
AND GENUINE TITLE. THUS, THE ACTION BEFORE THE
HONORABLE COURT-A-QUO IS A LAND DISPUTE BETWEEN
TWO (2) PERSONS CLAIMING OWNERSHIP.
IV
THE ANNULMENT OF THE MORTGAGE AND THE
CANCELLATION OF ANNEXES B AND C AS PRAYED FOR IN
THE COMPLAINT IN CIVIL CASE NO. 96-219 ARE
INEXTRICABLY INTERTWINED WITH THE ISSUE OF
OWNERSHIP. HENCE, THE LATTER MUST FIRST BE RESOLVED
TO DETERMINE THE FORMER.
V

THE CASE OF CHURCH OF CHRIST VS. VALLESPIN, G.R. NO.

53726, AUGUST 15, 1988, DOES NOT APPLY INASMUCH AS THE
USE OF TERM INDISPENSABLE PARTY IN SAID CASE WAS
LOOSELY USED AND IN TRUTH WAS INTENDED TO MEAN
PARTIES-IN-INTEREST AS CONTEMPLATED BY SECTION 2,
RULE 3 OF THE RULES OF COURT.
VII
THE HONORABLE COURT OF APPEALS GRAVELY ERRED
WHEN IT SANCTIONED THE TRIAL COURTS ERROR IN
DECLARING DEFENDANT CBC IN DEFAULT FOR FAILURE TO
FILE AN ANSWER, NOTWITHSTANDING THE SETTLED
DOCTRINE THAT WHERE AN INDISPENSABLE PARTY IS NOT IN
COURT, THE TRIAL COURT SHOULD NOT PROCEED BUT
INSTEAD SHOULD DISMISS THE CASE.
VIII
THE DISMISSAL/WITHDRAWAL OF THE COMPLAINT AGAINST
DEFENDANTS REGISTER AND DEPUTY REGISTER OF DEEDS
NECESSARILY GIVE RISE TO, AND BOLSTERS, THE
CONCLUSION THAT THE OWNERS DUPLICATE COPY OF TCT
NO. S-50195 OF MORTGAGOR MERCEDES M. OLIVER IS THE
GENUINE AND AUTHENTIC COPY.[6]
For a clearer discussion of the issues in this controversy, we
may state them as follows:
1. Is the mortgagor who goes by the name of Mercedes
M. Oliver, herein called Oliver One, an
indispensable party in Civil Case No. 96219?

2. Should Section 7 Rule 3 of the 1997 Rules of Civil

Procedure[7] apply in this case?
3. Did the Court of Appeals err when it sustained the
trial courts declaration that petitioner was in
default?
4. Were the withdrawal and consequent dismissal of
the complaint against the Registry of Deeds
officials indicative of the authenticity of mortgagor
Oliver Ones copy of TCT No. S-50195?
Petitioner Chinabank alleges that there are two owners
duplicate copies of TCT No. S-50195 involved in this case and two
persons claiming to be the real MERCEDES MARAVILLA
OLIVER. One is the mortgagor, Oliver One. The other is the
respondent, Oliver Two. Respondents complaint before the trial
court was one for cancellation of the transfer certificate of title in
petitioners possession (Annex B). According to petitioner, the
issue below is the genuineness of the titles, which is intertwined
with the issue of ownership. This being the case, said the
petitioner, the mortgagor Oliver One must necessarily be
impleaded for she is the registered owner under Annex
B. Petitioner argues that mortgagor Oliver One is in a better
position to defend her title. She stands to suffer if it is declared
fake. Further, petitioner claims that the validity and enforceability
of the mortgage entirely depends on the validity and authenticity
of Annex B. The mortgage cannot be declared a nullity without
the trial court declaring Annex B a nullity. Hence, mortgagor
Oliver Ones participation in the suit is indispensable, according to
petitioner. In brief, what petitioner Chinabank is saying is that it
was indispensable for respondent Oliver Two to implead
mortgagor Oliver One in the case before the trial court. Failing to
do that, the complaint of herein respondent Oliver Two should
have been dismissed.
Petitioners contention is far from tenable. An indispensable
party is a party in interest, without whom no final determination
can be had of an action.[8] It is true that mortgagor Oliver One is a
party in interest, for she will be affected by the outcome of the
case. She stands to be benefited in case the mortgage is
declared valid, or injured in case her title is declared fake.
[9]
However, mortgagor Oliver Ones absence from the case does
not hamper the trial court in resolving the dispute between

respondent Oliver Two and petitioner. A perusal of Oliver Twos

allegations in the complaint below shows that it was for annulment
of mortgage due to petitioners negligence in not determining the
actual ownership of the property, resulting in the mortgages
annotation on TCT No. S-50195 in the Registry of Deeds
custody. To support said allegations, respondent Oliver Two had
to prove (1) that she is the real Mercedes M. Oliver referred to in
the TCT, and (2) that she is not the same person using that name
who entered into a deed of mortgage with the petitioner. This,
respondent Oliver Two can do in her complaint without necessarily
impleading the mortgagor Oliver One. Hence, Oliver One is not
an indispensable party in the case filed by Oliver Two.
In Noceda vs. Court of Appeals, et al., 313 SCRA 504
(1999), we held that a party is not indispensable to the suit if his
interest in the controversy or subject matter is distinct and divisible
from the interest of the other parties and will not necessarily be
prejudiced by a judgment which does complete justice to the
parties in court. In this case, Chinabank has interest in the loan
which, however, is distinct and divisible from the mortgagors
interest, which involves the land used as collateral for the loan.
Further, a declaration of the mortgages nullity in this case
will not necessarily prejudice mortgagor Oliver One. The bank still
needs to initiate proceedings to go after the mortgagor, who in
turn can raise other defenses pertinent to the two of them. A party
is also not indispensable if his presence would merely permit
complete relief between him and those already parties to the
action, or will simply avoid multiple litigation, as in the case of
Chinabank and mortgagor Oliver One.[10] The latters participation
in this case will simply enable petitioner Chinabank to make its
claim against her in this case, and hence, avoid the institution of
another action. Thus, it was the bank who should have filed a
third-party complaint or other action versus the mortgagor Oliver
One.
As to the second issue, since mortgagor Oliver One is not an
indispensable party, Section 7, Rule 3 of the 1997 Rules of Civil
Procedure, which requires compulsory joinder of indispensable
parties in a case, does not apply. Instead, it is Section 11, Rule 3,
that applies.[11] Non-joinder of parties is not a ground for dismissal
of an action. Parties may be added by order of the court, either
on its own initiative or on motion of the parties. [12] Hence, the
Court of Appeals committed no error when it found no abuse of

discretion on the part of the trial court for denying Chinabanks

motion to dismiss and, instead, suggested that petitioner file an
appropriate action against mortgagor Oliver One. A person who is
not a party to an action may be impleaded by the defendant either
on the basis of liability to himself or on the ground of direct liability
to the plaintiff.[13]
Now, the third issue, did the Court of Appeals err when it
sustained the trial courts ruling that petitioner Chinabank was in
default? As found by the Court of Appeals, petitioner did not file
its answer, although it received the March 13, 1997 order denying
the motion to dismiss. Instead, petitioner filed a petition for
certiorari under Rule 65 of the Rules of Court. Said petition,
however, does not interrupt the course of the principal case unless
a temporary restraining order or writ of preliminary injunction is
issued.[14] No such order or writ was issued in this case. Hence,
Chinabank as defendant below was properly declared in default
by the trial court, after the 15-day period to file its answer or other
responsive pleading lapsed.
Lastly, were the withdrawal and consequent dismissal of the
complaint against officials of the Registry of Deeds conclusive of
the authenticity of mortgagor Oliver Ones copy of TCT No. S50195? This is a question of fact, which is not a proper subject for
review in this petition. Here, we are limited only to questions of
law,[15] as a general rule. Petitioner failed to show that this case
falls under any of the exceptions to this rule. We need not tarry
on this issue now.
WHEREFORE, the petition is DENIED for lack of merit. The
assailed decision dated June 1, 1998 and the resolution dated
September 30, 1998 of the Court of Appeals in CA-G.R. SP No.
43836 are AFFIRMED. Costs against petitioner.
SO ORDERED.
Bellosillo, (Chairman), Austria-Martinez, and Callejo, Sr., JJ.,
concur.
Mendoza, J., on official leave.

G.R. No. 166302. July 28, 2005

LOTTE PHIL. CO., INC., Petitioners,
vs.
ERLINDA DELA CRUZ, LEONOR MAMAUAG, LOURDES
CAUBA, JOSEPHINE DOMANAIS, ARLENE CAGAYAT,
AMELITA YAM, VIVIAN DOMARAIS, MARILYN ANTALAN,
CHRISTOPHER RAMIREZ, ARNOLD SAN PEDRO, MARISSA
SAN PEDRO, LORELI JIMENEZ, JEFFREY BUENO,
CHRISTOPHER CAGAYAT, GERARD CABILES, JOAN
ENRIQUEZ, JOSEPH DE LA CRUZ, NELLY CLERIGO, DULCE
NAVARETTE, ROWENA BELLO, DANIEL RAMIREZ, AILEEN
BAUTISTA and BALTAZAR FERRERA, Respondents.
DECISION

magrereport sila sa trabaho." Unfortunately, petitioners were

never called back to work again.
Aggrieved, petitioners lodged a labor complaint against
both private respondent Lotte and 7J, for illegal dismissal,
regularization, payment of corresponding backwages and related
employment benefits, 13th month pay, service incentive leave,
moral and exemplary damages and attorneys fees based on total
judgment award.4
On February 28, 2001, Labor Arbiter Cresencio G. Ramos, Jr.,
rendered judgment5 declaring 7J as employer of
respondents.6 The arbiter also found 7J guilty of illegal
dismissal7 and ordered to reinstate respondents,8 pay
P2,374,710.00 as backwages, P713,648.00 as 13th month pay
and P117,000.00 as service incentive leave pay.9

YNARES-SANTIAGO, J.:
This petition for review on certiorari1 assails the July 9, 2004
decision2 of the Court of Appeals in CA-G.R. SP No. 72732 and its
November 26, 2004 resolution3 denying reconsideration thereof.
The established facts of this case are as follows:
Private respondent (petitioner herein) Lotte Phils., Inc. (Lotte) is a
domestic corporation. Petitioners (respondents herein) are among
those who were hired and assigned to the confectionery facility
operated by private respondent.
On December 14, 1995 and yearly thereafter until the year 2000
7J Maintenance and Janitorial Services ("7J") entered into a
contract with private respondent to provide manpower for needed
maintenance, utility, janitorial and other services to the latter. In
compliance with the terms and conditions of the service contract,
and to accommodate the needs of private respondent for
personnel/workers to do and perform "piece works," petitioners,
among others, were hired and assigned to private respondent as
repackers or sealers.
However, either in October, 1999 or on February 9, 2000, private
respondent dispensed with their services allegedly due to the
expiration/termination of the service contract by respondent with
7J. They were either told "hwag muna kayong pumasok at
tatawagan na lang kung may gawa"; or were asked to wait "pag

Respondents appealed to the National Labor Relations

Commission (NLRC) praying that Lotte be declared as their direct
employer because 7J is merely a labor-only contractor. In its
decision10 dated April 24, 2002, the NLRC found no cogent reason
to disturb the findings of the labor arbiter and affirmed its ruling
that 7J is the employer of respondents and solely liable for their
claims.
Respondents motion for reconsideration was denied by the NLRC
in a resolution dated June 18, 2002.
Undaunted, they filed a petition for certiorari in the Court of
Appeals11 against the NLRC and Lotte, insisting that their
employer is Lotte and not 7J.
Lotte, however, denied that respondents were its employees. It
prayed that the petition be dismissed for failure to implead 7J who
is a party interested in sustaining the proceedings in court,
pursuant to Section 3, Rule 46 of the Revised Rules of Civil
Procedure.
On July 9, 2004, the Court of Appeals reversed and set aside the
rulings of the Labor Arbiter and the NLRC. In its decision, the
Court of Appeals declared Lotte as the real employer of
respondents and that 7J who engaged in labor-only contracting
was merely the agent of Lotte. Respondents who performed
activities directly related to Lottes business were its regular

employees under Art. 280 of the Labor Code. As such, they must
be accorded security of tenure and their services terminated only
on "just" and "authorized" causes.
Lottes motion for reconsideration was denied, hence this petition,
on the following issues:
8. Whether or not petitioner herein had the burden of proof to
establish before the proceedings in the Court of Appeals that 7J
Maintenance and Janitorial Service was not a labor-only
contractor.
8.1. Whether or not the Petition in CA-G.R. SP No. 72732 is
dismissible for failure to comply with Section 3, Rule 46 in relation
to Section 5, Rule 65 of the 1997 Rules of Civil Procedure.12
We first resolve the procedural issue raised by petitioner. Lotte
asserts that 7J is an indispensable party and should have been
impleaded in respondents petition in the Court of Appeals. It
claims that the petition before the Court of Appeals was
dismissible for failure to comply with Section 3,13 Rule 46 in
relation to Section 514 of Rule 65 of the Revised Rules of Civil
Procedure.
Petitioners contention is tenable.
An indispensable party is a party in interest without whom no final
determination can be had of an action,15 and who shall be joined
either as plaintiffs or defendants.16 The joinder of indispensable
parties is mandatory.17 The presence of indispensable parties is
necessary to vest the court with jurisdiction, which is "the authority
to hear and determine a cause, the right to act in a case".18 Thus,
without the presence of indispensable parties to a suit or
proceeding, judgment of a court cannot attain real finality.19 The
absence of an indispensable party renders all subsequent actions
of the court null and void for want of authority to act, not only as to
the absent parties but even as to those present.20
In the case at bar, 7J is an indispensable party. It is a party in
interest because it will be affected by the outcome of the case.
The Labor Arbiter and the NLRC found 7J to be solely liable as
the employer of respondents. The Court of Appeals however
rendered Lotte jointly and severally liable with 7J who was not

impleaded by holding that the former is the real employer of

respondents. Plainly, its decision directly affected 7J.
In Domingo v. Scheer,21 we held that the non-joinder of
indispensable parties is not a ground for the dismissal of an
action22 and the remedy is to implead the non-party claimed to be
indispensable.23 Parties may be added by order of the court on
motion of the party or on its own initiative at any stage of the
action and/or such times as are just. If the petitioner refuses to
implead an indispensable party despite the order of the court, the
latter may dismiss the complaint/petition for the
petitioner/plaintiffs failure to comply therefor.24
Although 7J was a co-party in the case before the Labor Arbiter
and the NLRC, respondents failed to include it in their petition
for certiorari in the Court of Appeals. Hence, the Court of Appeals
did not acquire jurisdiction over 7J. No final ruling on this matter
can be had without impleading 7J, whose inclusion is necessary
for the effective and complete resolution of the case and in order
to accord all parties with due process and fair play.
In light of the foregoing, the Court sees no need to discuss the
second issue raised by petitioner.
WHEREFORE, the July 9, 2004 decision of the Court of Appeals
in CA-G.R. SP No. 72732 and the November 26, 2004 resolution,
are SET ASIDE. Let the case be REMANDED to the Court of
Appeals to include 7J Maintenance and Janitorial Services as an
indispensable party to the case for further proceedings.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, Carpio, and Azcuna,
JJ., concur.

G.R. No. 190823

April 4, 2011

DOMINGO CARABEO, Petitioner,

vs.
SPOUSES NORBERTO and SUSAN DINGCO, Respondents.
DECISION
CARPIO MORALES, J.:
On July 10, 1990, Domingo Carabeo (petitioner) entered into a
contract denominated as "Kasunduan sa Bilihan ng Karapatan sa
Lupa"1 (kasunduan) with Spouses Norberto and Susan Dingco
(respondents) whereby petitioner agreed to sell his rights over a
648 square meter parcel of unregistered land situated in Purok III,
Tugatog, Orani, Bataan to respondents for P38,000.
Respondents tendered their initial payment of P10,000 upon
signing of the contract, the remaining balance to be paid on
September 1990.
Respondents were later to claim that when they were about to
hand in the balance of the purchase price, petitioner requested
them to keep it first as he was yet to settle an on-going "squabble"
over the land.
Nevertheless, respondents gave petitioner small sums of money
from time to time which totaled P9,100, on petitioners request
according to them; due to respondents inability to pay the amount
of the remaining balance in full, according to petitioner.
By respondents claim, despite the alleged problem over the land,
they insisted on petitioners acceptance of the remaining balance
of P18,900 but petitioner remained firm in his refusal, proffering as
reason therefor that he would register the land first.
Sometime in 1994, respondents learned that the alleged problem
over the land had been settled and that petitioner had caused its
registration in his name on December 21, 1993 under Transfer
Certificate of Title No. 161806. They thereupon offered to pay the
balance but petitioner declined, drawing them to file a complaint
before the Katarungan Pambarangay. No settlement was
reached, however, hence, respondent filed a complaint for specific

performance before the Regional Trial Court (RTC) of Balanga,

Bataan.

filed by Antonio Carabeo, petitioners son,7 faulting the appellate

court:

Petitioner countered in his Answer to the Complaint that the sale

was void for lack of object certain, the kasunduan not having
specified the metes and bounds of the land. In any event,
petitioner alleged that if the validity of the kasunduan is upheld,
respondents failure to comply with their reciprocal obligation to
pay the balance of the purchase price would render the action
premature. For, contrary to respondents claim, petitioner
maintained that they failed to pay the balance of P28,000 on
September 1990 to thus constrain him to accept installment
payments totaling P9,100.

(A)
in holding that the element of a contract, i.e., an object
certain is present in this case.
(B)
in considering it unfair to expect respondents who are
not lawyers to make judicial consignation after herein
petitioner allegedly refused to accept payment of the
balance of the purchase price.

After the case was submitted for decision or on January 31,

2001,2 petitioner passed away. The records do not show that
petitioners counsel informed Branch 1 of the Bataan RTC, where
the complaint was lodged, of his death and that proper
substitution was effected in accordance with Section 16, Rule 3,
Rules of Court.3

(C)
in upholding the validity of the contract, "Kasunduan
sa Bilihan ng Karapatan sa Lupa," despite the lack of
spousal consent, (underscoring supplied)

By Decision of February 25, 2001,4 the trial court ruled in favor of

respondents, disposing as follows:

and proffering that

(D)

WHEREFORE, premises considered, judgment is hereby

rendered ordering:

[t]he death of herein petitioner causes the dismissal of

the action filed by respondents; respondents cause of
action being an action in personam. (underscoring
supplied)

1. The defendant to sell his right over 648 square meters

of land pursuant to the contract dated July 10, 1990 by
executing a Deed of Sale thereof after the payment of
P18,900 by the plaintiffs;

The petition fails.

2. The defendant to pay the costs of the suit.
The pertinent portion of the kasunduan reads:8
SO ORDERED.5
xxxx
Petitioners counsel filed a Notice of Appeal on March 20, 2001.
By the herein challenged Decision dated July 20, 2009,6 the Court
of Appeals affirmed that of the trial court.
Petitioners motion for reconsideration having been denied by
Resolution of January 8, 2010, the present petition for review was

Na ako ay may isang partial na lupa na matatagpuan sa Purok

111, Tugatog, Orani Bataan, na may sukat na 27 x 24 metro
kuwadrado, ang nasabing lupa ay may sakop na dalawang
punong santol at isang punong mangga, kayat ako ay
nakipagkasundo sa mag-asawang Norby Dingco at Susan Dingco
na ipagbili sa kanila ang karapatan ng nasabing lupa sa
halagang P38,000.00.

x x x x (underscoring supplied)
That the kasunduan did not specify the technical boundaries of
the property did not render the sale a nullity. The requirement that
a sale must have for its object a determinate thing is satisfied as
long as, at the time the contract is entered into, the object of the
sale is capable of being made determinate without the necessity
of a new or further agreement between the parties.9 As the abovequoted portion of the kasunduan shows, there is no doubt that the
object of the sale is determinate.

In another vein, the death of a client immediately divests the

counsel of authority.14 Thus, in filing a Notice of Appeal,
petitioners counsel of record had no personality to act on behalf
of the already deceased client who, it bears reiteration, had not
been substituted as a party after his death. The trial courts
decision had thereby become final and executory, no appeal
having been perfected.
WHEREFORE, the petition is DENIED.
SO ORDERED.

Clutching at straws, petitioner proffers lack of spousal consent.

This was raised only on appeal, hence, will not be considered, in
the present case, in the interest of fair play, justice and due
process.10
Respecting the argument that petitioners death rendered
respondents complaint against him dismissible, Bonilla v.
Barcena11 enlightens:
The question as to whether an action survives or not depends on
the nature of the action and the damage sued for. In the causes of
action which survive, the wrong complained [of] affects primarily
and principally property and property rights, the injuries to the
person being merely incidental, while in the causes of action
which do not survive, the injury complained of is to the person, the
property and rights of property affected being incidental.
(emphasis and underscoring supplied)
In the present case, respondents are pursuing a property right
arising from the kasunduan, whereas petitioner is invoking nullity
of the kasunduan to protect his proprietary interest.
Assuming arguendo, however, that the kasunduan is deemed
void, there is a corollary obligation of petitioner to return the
money paid by respondents, and since the action involves
property rights,12 it survives.1avvphi1
It bears noting that trial on the merits was already concluded
before petitioner died. Since the trial court was not informed of
petitioners death, it may not be faulted for proceeding to render
judgment without ordering his substitution. Its judgment is thus
valid and binding upon petitioners legal representatives or
successors-in-interest, insofar as his interest in the property
subject of the action is concerned.13

CONCHITA CARPIO MORALES

Associate Justice

[G.R. No. 162788. July 28, 2005]

Spouses JULITA DE LA CRUZ and FELIPE DE LA
CRUZ, petitioners, vs. PEDRO JOAQUIN, respondent.
DECISION
PANGANIBAN, J.:
The Rules require the legal representatives of a dead litigant
to be substituted as parties to a litigation. This requirement is
necessitated by due process. Thus, when the rights of the legal
representatives of a decedent are actually recognized and
protected, noncompliance or belated formal compliance with the
Rules cannot affect the validity of the promulgated decision. After
all, due process had thereby been satisfied.
The Case
Before us is a Petition for Review[1] under Rule 45 of the
Rules of Court, assailing the August 26, 2003 Decision [2] and the
March 9, 2004 Resolution[3] of the Court of Appeals (CA) in CAGR CV No. 34702. The challenged Decision disposed as follows:
WHEREFORE, the foregoing considered, the appeal is DISMISSED
and the assailed decision accordingly AFFIRMED in toto. No costs.[4]
On the other hand, the trial courts affirmed Decision
disposed as follows:
WHEREFORE, judgment is hereby rendered:
a) declaring the Deed of Absolute Sale (Exh. D) and
Kasunduan (Exhibit B), to be a sale with right of repurchase;
b) ordering the plaintiff to pay the defendants the sum
of P9,000.00 by way of repurchasing the land in question;
c) ordering the defendants to execute a deed of reconveyance
of said land in favor of the plaintiff after the latter has paid them
the amount of P9,000.00 to repurchase the land in question;

d) ordering the defendants to yield possession of the subject

land to the plaintiff after the latter has paid them the amount
of P9,000.00 to repurchase the property from them; and

terms and conditions of their actual agreement. [13] The appellate

court also found no reason to overturn the finding that respondent
had validly exercised his right to repurchase the land.[14]

e) ordering the defendants to pay the plaintiff the amount

of P10,000.00 as actual and compensatory damages; the amount
of P5,000[.00] as exemplary damages; the amount of P5,000.00
as expenses of litigation and the amount of P5,000.00 by way of
attorneys fees.[5]

In the March 9, 2004 Resolution, the CA denied

reconsideration and ordered a substitution by legal
representatives, in view of respondents death on December 24,
1988.[15]
Hence, this Petition.[16]

The Facts
The Issues
The case originated from a Complaint for the recovery of
possession and ownership, the cancellation of title, and damages,
filed by Pedro Joaquin against petitioners in the Regional Trial
Court of Baloc, Sto. Domingo, Nueva Ecija.[6] Respondent alleged
that he had obtained a loan from them in the amount of P9,000 on
June 29, 1974, payable after five (5) years; that is, on June 29,
1979. To secure the payment of the obligation, he supposedly
executed a Deed of Sale in favor of petitioners. The Deed was for
a parcel of land in Pinagpanaan, Talavera, Nueva Ecija, covered
by TCT No. T-111802. The parties also executed another
document entitled Kasunduan. [7]
Respondent claimed that the Kasunduan showed the Deed
of Sale to be actually an equitable mortgage.[8] Spouses De la
Cruz contended that this document was merely an
accommodation to allow the repurchase of the property until June
29, 1979, a right that he failed to exercise.[9]
On April 23, 1990, the RTC issued a Decision in his favor.
The trial court declared that the parties had entered into a sale
with a right of repurchase.[10] It further held that respondent had
made a valid tender of payment on two separate occasions to
exercise his right of repurchase.[11] Accordingly, petitioners were
required to reconvey the property upon his payment.[12]

Petitioners assign the following errors for our consideration:

I.
Public Respondent Twelfth Division of the Honorable Court of
Appeals seriously erred in dismissing the appeal and affirming in toto the
Decision of the trial court in Civil Case No. SD-838;
II.
Public Respondent Twelfth Division of the Honorable Court of
Appeals likewise erred in denying [petitioners] Motion for
Reconsideration given the facts and the law therein presented. [17]
Succinctly, the issues are whether the trial court lost
jurisdiction over the case upon the death of Pedro Joaquin, and
whether respondent was guilty of forum shopping.[18]
The Courts Ruling

The Petition has no merit.

First Issue:
Jurisdiction

Ruling of the Court of Appeals

Sustaining the trial court, the CA noted that petitioners had
given respondent the right to repurchase the property within five
(5) years from the date of the sale or until June 29, 1979.
Accordingly, the parties executed the Kasunduan to express the

Petitioners assert that the RTCs Decision was invalid for

lack of jurisdiction.[19] They claim that respondent died during the
pendency of the case. There being no substitution by the heirs,
the trial court allegedly lacked jurisdiction over the litigation.[20]

Rule on Substitution
When a party to a pending action dies and the claim is not
extinguished,[21] the Rules of Court require a substitution of the
deceased. The procedure is specifically governed by Section 16
of Rule 3, which reads thus:
Section 16. Death of a party; duty of counsel. Whenever a party to a
pending action dies, and the claim is not thereby extinguished, it shall be
the duty of his counsel to inform the court within thirty (30) days after
such death of the fact thereof, and to give the name and address of his
legal representative or representatives. Failure of counsel to comply
with this duty shall be a ground for disciplinary action.
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 a guardian ad litem for the
minor heirs.
The court shall forthwith order said legal representative or
representatives to appear and be substituted within a period of thirty (30)
days from notice.
If no legal representative is named by the counsel for the deceased
party, or if the one so named shall fail to appear within the specified
period, the court may order the opposing party, within a specified time,
to procure the appointment of an executor or administrator for the estate
of the deceased, and the latter shall immediately appear for and on behalf
of the deceased. The court charges in procuring such appointment, if
defrayed by the opposing party, may be recovered as costs.
The rule on the substitution of parties was crafted to protect
every partys right to due process.[22] The estate of the deceased
party will continue to be properly represented in the suit through
the duly appointed legal representative.[23] Moreover, no
adjudication can be made against the successor of the deceased
if the fundamental right to a day in court is denied.[24]
The Court has nullified not only trial proceedings conducted
without the appearance of the legal representatives of the
deceased, but also the resulting judgments.[25] In those instances,
the courts acquired no jurisdiction over the persons of the legal
representatives or the heirs upon whom no judgment was binding.
[26]

This general rule notwithstanding, a formal substitution by

heirs is not necessary when they themselves voluntarily appear,
participate in the case, and present evidence in defense of the
deceased.[27] These actions negate any claim that the right to due
process was violated.
The Court is not unaware of Chittick v. Court of Appeals,[28] in
which the failure of the heirs to substitute for the original plaintiff
upon her death led to the nullification of the trial courts Decision.
The latter had sought to recover support in arrears and her share
in the conjugal partnership. The children who allegedly
substituted for her refused to continue the case against their
father and vehemently objected to their inclusion as parties.
[29]
Moreover, because he died during the pendency of the case,
they were bound to substitute for the defendant also. The
substitution effectively merged the persons of the plaintiff and the
defendant and thus extinguished the obligation being sued upon.
[30]

Clearly, the present case is not similar, much less identical,

to the factual milieu of Chittick.
Strictly speaking, the rule on the substitution by heirs is not a
matter of jurisdiction, but a requirement of due process. Thus,
when due process is not violated, as when the right of the
representative or heir is recognized and protected, noncompliance
or belated formal compliance with the Rules cannot affect the
validity of a promulgated decision.[31] Mere failure to substitute for
a deceased plaintiff is not a sufficient ground to nullify a trial
courts decision. The alleging party must prove that there was an
undeniable violation of due process.

It is further prayed that henceforth the undersigned counsel [32] for the
heirs of Pedro Joaquin be furnished with copies of notices, orders,
resolutions and other pleadings at its address below.
Evidently, the heirs of Pedro Joaquin voluntary appeared
and participated in the case. We stress that the appellate court
had ordered[33] his legal representatives to appear and substitute
for him. The substitution even on appeal had been ordered
correctly. In all proceedings, the legal representatives must
appear to protect the interests of the deceased.[34] After the
rendition of judgment, further proceedings may be held, such as a
motion for reconsideration or a new trial, an appeal, or an
execution.[35]
Considering the foregoing circumstances, the Motion for
Substitution may be deemed to have been granted; and the heirs,
to have substituted for the deceased, Pedro Joaquin. There being
no violation of due process, the issue of substitution cannot be
upheld as a ground to nullify the trial courts Decision.
Second Issue:
Forum Shopping

Substitution in

Petitioners also claim that respondents were guilty of forum

shopping, a fact that should have compelled the trial court to
dismiss the Complaint.[36] They claim that prior to the
commencement of the present suit on July 7, 1981, respondent
had filed a civil case against petitioners on June 25, 1979.
Docketed as Civil Case No. SD-742 for the recovery of
possession and for damages, it was allegedly dismissed by the
Court of First Instance of Nueva Ecija for lack of interest to
prosecute.

the Instant Case

Forum Shopping Defined

The records of the present case contain a Motion for

Substitution of Party Plaintiff dated February 15, 2002, filed
before the CA. The prayer states as follows:

Forum shopping is the institution of two or more actions or

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

WHEREFORE, it is respectfully prayed that the Heirs of the deceased

plaintiff-appellee as represented by his daughter Lourdes dela Cruz be
substituted as party-plaintiff for the said Pedro Joaquin.

Forum shopping trifles with the courts, abuses their

processes, degrades the administration of justice, and congests
court dockets.[39] Willful and deliberate violation of the rule against
it is a ground for the summary dismissal of the case; it may also
constitute direct contempt of court.[40]
The test for determining the existence of forum shopping is
whether the elements of litis pendentia are present, or whether a
final judgment in one case amounts to res judicata in another.
[41]
We note, however, petitioners claim that the subject matter of
the present case has already been litigated and decided.
Therefore, the applicable doctrine is res judicata.[42]
Applicability of Res Judicata
Under res judicata, a final judgment or decree on the merits
by a court of competent jurisdiction is conclusive of the rights of
the parties or their privies, in all later suits and on all points and
matters determined in the previous suit.[43] The term literally
means a matter adjudged, judicially acted upon, or settled by
judgment.[44] The principle bars a subsequent suit involving the
same parties, subject matter, and cause of action. Public policy
requires that controversies must be settled with finality at a given
point in time.
The elements of res judicata are as follows: (1) the former
judgment or order must be final; (2) it must have been rendered
on the merits of the controversy; (3) the court that rendered it
must have had jurisdiction over the subject matter and the parties;
and (4) there must have been -- between the first and the second
actions -- an identity of parties, subject matter and cause of
action.[45]
Failure to Support Allegation
The onus of proving allegations rests upon the party raising
them.[46] As to the matter of forum shopping and res judicata,
petitioners have failed to provide this Court with relevant and clear
specifications that would show the presence of an identity of
parties, subject matter, and cause of action between the present
and the earlier suits. They have also failed to show whether the
other case was decided on the merits. Instead, they have made
only bare assertions involving its existence without reference to its
facts. In other words, they have alleged conclusions of law

without stating any factual or legal basis. Mere mention of other

civil cases without showing the identity of rights asserted and
reliefs sought is not enough basis to claim that respondent is
guilty of forum shopping, or that res judicata exists.[47]
WHEREFORE, the Petition is DENIED and the assailed
Decision and Resolution are AFFIRMED. Costs against
petitioners.
SO ORDERED.
Sandoval-Gutierrez, Corona, Carpio-Morales, and Garcia,
JJ., concur.

G.R. No. 153788

November 27, 2009

ROGER V. NAVARRO, Petitioner,

vs.
HON. JOSE L. ESCOBIDO, Presiding Judge, RTC Branch 37,
Cagayan de Oro City, and KAREN T. GO, doing business
under the name KARGO ENTERPRISES, Respondents.
DECISION
BRION, J.:
This is a petition for review on certiorari1 that seeks to set aside
the Court of Appeals (CA) Decision2 dated October 16, 2001 and
Resolution3 dated May 29, 2002 in CA-G.R. SP. No. 64701. These
CA rulings affirmed the July 26, 20004 and March 7, 20015 orders
of the Regional Trial Court (RTC), Misamis Oriental, Cagayan de
Oro City, denying petitioner Roger V. Navarros (Navarro) motion
to dismiss.
BACKGROUND FACTS
On September 12, 1998, respondent Karen T. Go filed two
complaints, docketed as Civil Case Nos. 98-599 (first
complaint)6 and 98-598 (second complaint),7 before the RTC for
replevin and/or sum of money with damages against Navarro. In
these complaints, Karen Go prayed that the RTC issue writs of
replevin for the seizure of two (2) motor vehicles in Navarros
possession.
The first complaint stated:
1. That plaintiff KAREN T. GO is a Filipino, of legal age,
married to GLENN O. GO, a resident of Cagayan de Oro
City and doing business under the trade name KARGO
ENTERPRISES, an entity duly registered and existing
under and by virtue of the laws of the Republic of the
Philippines, which has its business address at Bulua,
Cagayan de Oro City; that defendant ROGER NAVARRO
is a Filipino, of legal age, a resident of 62 Dolores Street,
Nazareth, Cagayan de Oro City, where he may be
served with summons and other processes of the
Honorable Court; that defendant "JOHN DOE" whose
real name and address are at present unknown to

plaintiff is hereby joined as party defendant as he may be

the person in whose possession and custody the
personal property subject matter of this suit may be
found if the same is not in the possession of defendant
ROGER NAVARRO;
2. That KARGO ENTERPRISES is in the business of,
among others, buying and selling motor vehicles,
including hauling trucks and other heavy equipment;
3. That for the cause of action against defendant
ROGER NAVARRO, it is hereby stated that on August 8,
1997, the said defendant leased [from] plaintiff a certain
motor vehicle which is more particularly described as
follows
Make/Type FUSO WITH MOUNTED CRANE
Serial No. FK416K-51680
Motor No. 6D15-338735
Plate No. GHK-378
as evidenced by a LEASE AGREEMENT WITH OPTION TO
PURCHASE entered into by and between KARGO
ENTERPRISES, then represented by its Manager, the
aforementioned GLENN O. GO, and defendant ROGER
NAVARRO xxx; that in accordance with the provisions of the
above LEASE AGREEMENT WITH OPTION TO PURCHASE,
defendant ROGER NAVARRO delivered unto plaintiff six (6) postdated checks each in the amount of SIXTY-SIX THOUSAND
THREE HUNDRED THIRTY-THREE & 33/100 PESOS
(P66,333.33) which were supposedly in payment of the agreed
rentals; that when the fifth and sixth checks, i.e. PHILIPPINE
BANK OF COMMUNICATIONS CAGAYAN DE ORO BRANCH
CHECKS NOS. 017112 and 017113, respectively dated January
8, 1998 and February 8, 1998, were presented for payment and/or
credit, the same were dishonored and/or returned by the drawee
bank for the common reason that the current deposit account
against which the said checks were issued did not have sufficient
funds to cover the amounts thereof; that the total amount of the
two (2) checks, i.e. the sum of ONE HUNDRED THIRTY-TWO
THOUSAND SIX HUNDRED SIXTY-SIX & 66/100 PESOS
(P132,666.66) therefore represents the principal liability of
defendant ROGER NAVARRO unto plaintiff on the basis of the

provisions of the above LEASE AGREEMENT WITH RIGHT TO

PURCHASE; that demands, written and oral, were made of
defendant ROGER NAVARRO to pay the amount of ONE
HUNDRED THIRTY-TWO THOUSAND SIX HUNDRED SIXTYSIX & 66/100 PESOS (P132,666.66), or to return the subject
motor vehicle as also provided for in the LEASE AGREEMENT
WITH RIGHT TO PURCHASE, but said demands were, and still
are, in vain to the great damage and injury of herein plaintiff; xxx
4. That the aforedescribed motor vehicle has not been the subject
of any tax assessment and/or fine pursuant to law, or seized
under an execution or an attachment as against herein plaintiff;
xxx
8. That plaintiff hereby respectfully applies for an order of the
Honorable Court for the immediate delivery of the abovedescribed motor vehicle from defendants unto plaintiff pending the
final determination of this case on the merits and, for that purpose,
there is attached hereto an affidavit duly executed and bond
double the value of the personal property subject matter hereof to
answer for damages and costs which defendants may suffer in the
event that the order for replevin prayed for may be found out to
having not been properly issued.
The second complaint contained essentially the same allegations
as the first complaint, except that the Lease Agreement with
Option to Purchase involved is dated October 1, 1997 and the
motor vehicle leased is described as follows:
Make/Type FUSO WITH MOUNTED CRANE
Serial No. FK416K-510528
Motor No. 6D14-423403
The second complaint also alleged that Navarro delivered three
post-dated checks, each for the amount ofP100,000.00, to Karen
Go in payment of the agreed rentals; however, the third check was
dishonored when presented for payment.8
On October 12, 19989 and October 14, 1998,10 the RTC issued
writs of replevin for both cases; as a result, the Sheriff seized the
two vehicles and delivered them to the possession of Karen Go.

In his Answers, Navarro alleged as a special affirmative defense

that the two complaints stated no cause of action, since Karen Go
was not a party to the Lease Agreements with Option to Purchase
(collectively, the lease agreements) the actionable documents
on which the complaints were based.
On Navarros motion, both cases were duly consolidated on
December 13, 1999.
In its May 8, 2000 order, the RTC dismissed the case on the
ground that the complaints did not state a cause of action.
In response to the motion for reconsideration Karen Go filed dated
May 26, 2000,11 the RTC issued another order dated July 26,
2000 setting aside the order of dismissal. Acting on the
presumption that Glenn Gos leasing business is a conjugal
property, the RTC held that Karen Go had sufficient interest in his
leasing business to file the action against Navarro. However, the
RTC held that Karen Go should have included her husband,
Glenn Go, in the complaint based on Section 4, Rule 3 of the
Rules of Court (Rules).12 Thus, the lower court ordered Karen Go
to file a motion for the inclusion of Glenn Go as coplaintiff.1avvphi1
When the RTC denied Navarros motion for reconsideration on
March 7, 2001, Navarro filed a petition for certiorari with the CA,
essentially contending that the RTC committed grave abuse of
discretion when it reconsidered the dismissal of the case and
directed Karen Go to amend her complaints by including her
husband Glenn Go as co-plaintiff. According to Navarro, a
complaint which failed to state a cause of action could not be
converted into one with a cause of action by mere amendment or
supplemental pleading.
On October 16, 2001, the CA denied Navarros petition and
affirmed the RTCs order.13 The CA also denied Navarros motion
for reconsideration in its resolution of May 29, 2002,14 leading to
the filing of the present petition.
THE PETITION
Navarro alleges that even if the lease agreements were in the
name of Kargo Enterprises, since it did not have the requisite
juridical personality to sue, the actual parties to the agreement are

himself and Glenn Go. Since it was Karen Go who filed the
complaints and not Glenn Go, she was not a real party-in-interest
and the complaints failed to state a cause of action.
Navarro posits that the RTC erred when it ordered the
amendment of the complaint to include Glenn Go as a co-plaintiff,
instead of dismissing the complaint outright because a complaint
which does not state a cause of action cannot be converted into
one with a cause of action by a mere amendment or a
supplemental pleading. In effect, the lower court created a cause
of action for Karen Go when there was none at the time she filed
the complaints.
Even worse, according to Navarro, the inclusion of Glenn Go as
co-plaintiff drastically changed the theory of the complaints, to his
great prejudice. Navarro claims that the lower court gravely
abused its discretion when it assumed that the leased vehicles are
part of the conjugal property of Glenn and Karen Go. Since Karen
Go is the registered owner of Kargo Enterprises, the vehicles
subject of the complaint are her paraphernal properties and the
RTC gravely erred when it ordered the inclusion of Glenn Go as a
co-plaintiff.
Navarro likewise faults the lower court for setting the trial of the
case in the same order that required Karen Go to amend her
complaints, claiming that by issuing this order, the trial court
violated Rule 10 of the Rules.
Even assuming the complaints stated a cause of action against
him, Navarro maintains that the complaints were premature
because no prior demand was made on him to comply with the
provisions of the lease agreements before the complaints for
replevin were filed.
Lastly, Navarro posits that since the two writs of replevin were
issued based on flawed complaints, the vehicles were illegally
seized from his possession and should be returned to him
immediately.
Karen Go, on the other hand, claims that it is misleading for
Navarro to state that she has no real interest in the subject of the
complaint, even if the lease agreements were signed only by her
husband, Glenn Go; she is the owner of Kargo Enterprises and
Glenn Go signed the lease agreements merely as the manager of

Kargo Enterprises. Moreover, Karen Go maintains that Navarros

insistence that Kargo Enterprises is Karen Gos paraphernal
property is without basis. Based on the law and jurisprudence on
the matter, all property acquired during the marriage is presumed
to be conjugal property. Finally, Karen Go insists that her
complaints sufficiently established a cause of action against
Navarro. Thus, when the RTC ordered her to include her husband
as co-plaintiff, this was merely to comply with the rule that
spouses should sue jointly, and was not meant to cure the
complaints lack of cause of action.
THE COURTS RULING
We find the petition devoid of merit.
Karen Go is the real party-in-interest
The 1997 Rules of Civil Procedure requires that every action must
be prosecuted or defended in the name of the real party-ininterest, i.e., the party who stands to be benefited or injured by the
judgment in the suit, or the party entitled to the avails of the suit.15
Interestingly, although Navarro admits that Karen Go is the
registered owner of the business name Kargo Enterprises, he still
insists that Karen Go is not a real party-in-interest in the case.
According to Navarro, while the lease contracts were in Kargo
Enterprises name, this was merely a trade name without a
juridical personality, so the actual parties to the lease agreements
were Navarro and Glenn Go, to the exclusion of Karen Go.
As a corollary, Navarro contends that the RTC acted with grave
abuse of discretion when it ordered the inclusion of Glenn Go as
co-plaintiff, since this in effect created a cause of action for the
complaints when in truth, there was none.
We do not find Navarros arguments persuasive.
The central factor in appreciating the issues presented in this case
is the business name Kargo Enterprises. The name appears in the
title of the Complaint where the plaintiff was identified as "KAREN
T. GO doing business under the name KARGO ENTERPRISES,"
and this identification was repeated in the first paragraph of the
Complaint. Paragraph 2 defined the business KARGO
ENTERPRISES undertakes. Paragraph 3 continued with the

allegation that the defendant "leased from plaintiff a certain motor

vehicle" that was thereafter described. Significantly, the Complaint
specifies and attaches as its integral part the Lease Agreement
that underlies the transaction between the plaintiff and the
defendant. Again, the name KARGO ENTERPRISES entered the
picture as this Lease Agreement provides:
This agreement, made and entered into by and between:
GLENN O. GO, of legal age, married, with post office address at
xxx, herein referred to as the LESSOR-SELLER; representing
KARGO ENTERPRISES as its Manager,
xxx
thus, expressly pointing to KARGO ENTERPRISES as the
principal that Glenn O. Go represented. In other words, by the
express terms of this Lease Agreement, Glenn Go did sign the
agreement only as the manager of Kargo Enterprises and the
latter is clearly the real party to the lease agreements.
As Navarro correctly points out, Kargo Enterprises is a sole
proprietorship, which is neither a natural person, nor a juridical
person, as defined by Article 44 of the Civil Code:
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public
interest or purpose, created by law; their personality
begins as soon as they have been constituted according
to law;
(3) Corporations, partnerships and associations for
private interest or purpose to which the law grants a
juridical personality, separate and distinct from that of
each shareholder, partner or member.
Thus, pursuant to Section 1, Rule 3 of the Rules,16 Kargo
Enterprises cannot be a party to a civil action. This legal reality
leads to the question: who then is the proper party to file an action
based on a contract in the name of Kargo Enterprises?

We faced a similar question in Juasing Hardware v.

Mendoza,17 where we said:
Finally, there is no law authorizing sole proprietorships like
petitioner to bring suit in court. The law merely recognizes the
existence of a sole proprietorship as a form of business
organization conducted for profit by a single individual, and
requires the proprietor or owner thereof to secure licenses and
permits, register the business name, and pay taxes to the national
government. It does not vest juridical or legal personality upon the
sole proprietorship nor empower it to file or defend an action in
court.
Thus, the complaint in the court below should have been filed in
the name of the owner of Juasing Hardware. The allegation in the
body of the complaint would show that the suit is brought by such
person as proprietor or owner of the business conducted under
the name and style Juasing Hardware. The descriptive words
"doing business as Juasing Hardware" may be added to the title
of the case, as is customarily done.18 [Emphasis supplied.]
This conclusion should be read in relation with Section 2, Rule 3
of the Rules, which states:
SEC. 2. Parties in interest. A real party in interest is the party
who stands to be benefited or injured by the judgment in the suit,
or the party entitled to the avails of the suit. Unless otherwise
authorized by law or these Rules, every action must be
prosecuted or defended in the name of the real party in interest.
As the registered owner of Kargo Enterprises, Karen Go is the
party who will directly benefit from or be injured by a judgment in
this case. Thus, contrary to Navarros contention, Karen Go is the
real party-in-interest, and it is legally incorrect to say that her
Complaint does not state a cause of action because her name did
not appear in the Lease Agreement that her husband signed in
behalf of Kargo Enterprises. Whether Glenn Go can legally sign
the Lease Agreement in his capacity as a manager of Kargo
Enterprises, a sole proprietorship, is a question we do not decide,
as this is a matter for the trial court to consider in a trial on the
merits.
Glenn Gos Role in the Case

We find it significant that the business name Kargo Enterprises is

in the name of Karen T. Go,19 who described herself in the
Complaints to be "a Filipino, of legal age, married to GLENN O.
GO, a resident of Cagayan de Oro City, and doing business under
the trade name KARGO ENTERPRISES."20 That Glenn Go and
Karen Go are married to each other is a fact never brought in
issue in the case. Thus, the business name KARGO
ENTERPRISES is registered in the name of a married woman, a
fact material to the side issue of whether Kargo Enterprises and
its properties are paraphernal or conjugal properties. To restate
the parties positions, Navarro alleges that Kargo Enterprises is
Karen Gos paraphernal property, emphasizing the fact that the
business is registered solely in Karen Gos name. On the other
hand, Karen Go contends that while the business is registered in
her name, it is in fact part of their conjugal property.
The registration of the trade name in the name of one person a
woman does not necessarily lead to the conclusion that the
trade name as a property is hers alone, particularly when the
woman is married. By law, all property acquired during the
marriage, whether the acquisition appears to have been made,
contracted or registered in the name of one or both spouses, is
presumed to be conjugal unless the contrary is proved.21 Our
examination of the records of the case does not show any proof
that Kargo Enterprises and the properties or contracts in its name
are conjugal. If at all, only the bare allegation of Navarro to this
effect exists in the records of the case. As we emphasized
in Castro v. Miat:22
Petitioners also overlook Article 160 of the New Civil Code. It
provides that "all property of the marriage is presumed to be
conjugal partnership, unless it be prove[n] that it pertains
exclusively to the husband or to the wife." This article does not
require proof that the property was acquired with funds of the
partnership. The presumption applies even when the manner in
which the property was acquired does not appear.23 [Emphasis
supplied.]
Thus, for purposes solely of this case and of resolving the issue of
whether Kargo Enterprises as a sole proprietorship is conjugal or
paraphernal property, we hold that it is conjugal property.
Article 124 of the Family Code, on the administration of the
conjugal property, provides:

Art. 124. The administration and enjoyment of the conjugal

partnership property shall belong to both spouses jointly. In
case of disagreement, the husbands decision shall prevail,
subject to recourse to the court by the wife for proper remedy,
which must be availed of within five years from the date of the
contract implementing such decision.
xxx
This provision, by its terms, allows either Karen or Glenn Go to
speak and act with authority in managing their conjugal
property, i.e., Kargo Enterprises. No need exists, therefore, for
one to obtain the consent of the other before performing an act of
administration or any act that does not dispose of or encumber
their conjugal property.
Under Article 108 of the Family Code, the conjugal partnership is
governed by the rules on the contract of partnership in all that is
not in conflict with what is expressly determined in this Chapter or
by the spouses in their marriage settlements. In other words, the
property relations of the husband and wife shall be governed
primarily by Chapter 4 on Conjugal Partnership of Gains of the
Family Code and, suppletorily, by the spouses marriage
settlement and by the rules on partnership under the Civil Code.
In the absence of any evidence of a marriage settlement between
the spouses Go, we look at the Civil Code provision on
partnership for guidance.
A rule on partnership applicable to the spouses circumstances is
Article 1811 of the Civil Code, which states:
Art. 1811. A partner is a co-owner with the other partners of
specific partnership property.

these properties. Applying Article 484 of the Civil Code, which

states that "in default of contracts, or special provisions, coownership shall be governed by the provisions of this Title," we
find further support in Article 487 of the Civil Code that allows any
of the co-owners to bring an action in ejectment with respect to
the co-owned property.
While ejectment is normally associated with actions involving real
property, we find that this rule can be applied to the circumstances
of the present case, following our ruling in Carandang v. Heirs of
De Guzman.24 In this case, one spouse filed an action for the
recovery of credit, a personal property considered conjugal
property, without including the other spouse in the action. In
resolving the issue of whether the other spouse was required to
be included as a co-plaintiff in the action for the recovery of the
credit, we said:
Milagros de Guzman, being presumed to be a co-owner of the
credits allegedly extended to the spouses Carandang, seems to
be either an indispensable or a necessary party. If she is an
indispensable party, dismissal would be proper. If she is merely a
necessary party, dismissal is not warranted, whether or not there
was an order for her inclusion in the complaint pursuant to Section
9, Rule 3.
Article 108 of the Family Code provides:
Art. 108. The conjugal partnership shall be governed by the rules
on the contract of partnership in all that is not in conflict with what
is expressly determined in this Chapter or by the spouses in their
marriage settlements.
This provision is practically the same as the Civil Code provision it
superseded:

The incidents of this co-ownership are such that:

(1) A partner, subject to the provisions of this Title and to any
agreement between the partners, has an equal right with his
partners to possess specific partnership property for
partnership purposes; xxx
Under this provision, Glenn and Karen Go are effectively coowners of Kargo Enterprises and the properties registered under
this name; hence, both have an equal right to seek possession of

Art. 147. The conjugal partnership shall be governed by the rules

on the contract of partnership in all that is not in conflict with what
is expressly determined in this Chapter.
In this connection, Article 1811 of the Civil Code provides that "[a]
partner is a co-owner with the other partners of specific
partnership property." Taken with the presumption of the conjugal
nature of the funds used to finance the four checks used to pay for
petitioners stock subscriptions, and with the presumption that the

credits themselves are part of conjugal funds, Article 1811 makes

Quirino and Milagros de Guzman co-owners of the alleged credit.
Being co-owners of the alleged credit, Quirino and Milagros de
Guzman may separately bring an action for the recovery thereof.
In the fairly recent cases of Baloloy v. Hular and Adlawan v.
Adlawan, we held that, in a co-ownership, co-owners may bring
actions for the recovery of co-owned property without the
necessity of joining all the other co-owners as co-plaintiffs
because the suit is presumed to have been filed for the benefit of
his co-owners. In the latter case and in that of De Guia v. Court of
Appeals, we also held that Article 487 of the Civil Code, which
provides that any of the co-owners may bring an action for
ejectment, covers all kinds of action for the recovery of
possession.
In sum, in suits to recover properties, all co-owners are real
parties in interest. However, pursuant to Article 487 of the Civil
Code and relevant jurisprudence, any one of them may bring an
action, any kind of action, for the recovery of co-owned properties.
Therefore, only one of the co-owners, namely the co-owner who
filed the suit for the recovery of the co-owned property, is an
indispensable party thereto. The other co-owners are not
indispensable parties. They are not even necessary parties, for a
complete relief can be accorded in the suit even without their
participation, since the suit is presumed to have been filed for the
benefit of all co-owners.25[Emphasis supplied.]
Under this ruling, either of the spouses Go may bring an action
against Navarro to recover possession of the Kargo Enterprisesleased vehicles which they co-own. This conclusion is consistent
with Article 124 of the Family Code, supporting as it does the
position that either spouse may act on behalf of the conjugal
partnership, so long as they do not dispose of or encumber the
property in question without the other spouses consent.
On this basis, we hold that since Glenn Go is not strictly an
indispensable party in the action to recover possession of the
leased vehicles, he only needs to be impleaded as a pro-forma
party to the suit, based on Section 4, Rule 4 of the Rules, which
states:
Section 4. Spouses as parties. Husband and wife shall sue or
be sued jointly, except as provided by law.

Non-joinder of indispensable parties not ground to dismiss action

Sec. 2. Affidavit and bond.

Even assuming that Glenn Go is an indispensable party to the

action, we have held in a number of cases26 that the misjoinder or
non-joinder of indispensable parties in a complaint is not a ground
for dismissal of action. As we stated in Macababbad v. Masirag:27

The applicant must show by his own affidavit or that of some other
person who personally knows the facts:

Rule 3, Section 11 of the Rules of Court provides that neither

misjoinder nor nonjoinder of parties is a ground for the dismissal
of an action, thus:
Sec. 11. Misjoinder and non-joinder of parties. Neither misjoinder
nor non-joinder of parties is ground for dismissal of an action.
Parties may be dropped or added by order of the court on motion
of any party or on its own initiative at any stage of the action and
on such terms as are just. Any claim against a misjoined party
may be severed and proceeded with separately.
In Domingo v. Scheer, this Court held that the proper remedy
when a party is left out is to implead the indispensable party at
any stage of the action. The court, either motu proprio or upon the
motion of a party, may order the inclusion of the indispensable
party or give the plaintiff opportunity to amend his complaint in
order to include indispensable parties. If the plaintiff to whom the
order to include the indispensable party is directed refuses to
comply with the order of the court, the complaint may be
dismissed upon motion of the defendant or upon the court's own
motion. Only upon unjustified failure or refusal to obey the order to
include or to amend is the action dismissed.
In these lights, the RTC Order of July 26, 2000 requiring plaintiff
Karen Go to join her husband as a party plaintiff is fully in order.
Demand not required prior
to filing of replevin action
In arguing that prior demand is required before an action for a writ
of replevin is filed, Navarro apparently likens a replevin action to
an unlawful detainer.
For a writ of replevin to issue, all that the applicant must do is to
file an affidavit and bond, pursuant to Section 2, Rule 60 of the
Rules, which states:

(a) That the applicant is the owner of the

property claimed, particularly describing it, or is entitled
to the possession thereof;
(b) That the property is wrongfully detained by the
adverse party, alleging the cause of detention thereof
according to the best of his knowledge, information, and
belief;
(c) That the property has not been distrained or taken for
a tax assessment or a fine pursuant to law, or seized
under a writ of execution or preliminary attachment, or
otherwise placed under custodia legis, or if so seized,
that it is exempt from such seizure or custody; and
(d) The actual market value of the property.
The applicant must also give a bond, executed to the adverse
party in double the value of the property as stated in the affidavit
aforementioned, for the return of the property to the adverse party
if such return be adjudged, and for the payment to the adverse
party of such sum as he may recover from the applicant in the
action.
We see nothing in these provisions which requires the applicant to
make a prior demand on the possessor of the property before he
can file an action for a writ of replevin. Thus, prior demand is not a
condition precedent to an action for a writ of replevin.
More importantly, Navarro is no longer in the position to claim that
a prior demand is necessary, as he has already admitted in his
Answers that he had received the letters that Karen Go sent him,
demanding that he either pay his unpaid obligations or return the
leased motor vehicles. Navarros position that a demand is
necessary and has not been made is therefore totally
unmeritorious.

WHEREFORE, premises considered, we DENY the petition for

review for lack of merit. Costs against petitioner Roger V. Navarro.
SO ORDERED.
ARTURO D. BRION
Associate Justice

G.R. No. 166920

February 19, 2007

PACIFIC CONSULTANTS INTERNATIONAL ASIA, INC. and

JENS PETER HENRICHSEN, Petitioners,
vs.
KLAUS K. SCHONFELD, Respondent.
DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari under Rule 45 of
the Revised Rules of Court of the Decision1 of the Court of
Appeals (CA) in CA-G.R. SP No. 76563. The CA decision
reversed the Resolution of the National Labor Relations
Commission (NLRC) in NLRC NCR CA No. 029319-01, which, in
turn, affirmed the Decision of the Labor Arbiter in NLRC NCR
Case No. 30-12-04787-00 dismissing the complaint of respondent
Klaus K. Schonfeld.
The antecedent facts are as follows:
Respondent is a Canadian citizen and was a resident of New
Westminster, British Columbia, Canada. He had been a consultant
in the field of environmental engineering and water supply and
sanitation. Pacicon Philippines, Inc. (PPI) is a corporation duly
established and incorporated in accordance with the laws of the
Philippines. The primary purpose of PPI was to engage in the
business of providing specialty and technical services both in and
out of the Philippines.2 It is a subsidiary of Pacific Consultants
International of Japan (PCIJ). The president of PPI, Jens Peter
Henrichsen, who was also the director of PCIJ, was based in
Tokyo, Japan. Henrichsen commuted from Japan to Manila and
vice versa, as well as in other countries where PCIJ had business.
In 1997, PCIJ decided to engage in consultancy services for water
and sanitation in the Philippines. In October 1997, respondent
was employed by PCIJ, through Henrichsen, as Sector Manager
of PPI in its Water and Sanitation Department. However, PCIJ
assigned him as PPI sector manager in the Philippines. His salary
was to be paid partly by PPI and PCIJ.
On January 7, 1998, Henrichsen transmitted a letter of
employment to respondent in Canada, requesting him to accept

the same and affix his conformity thereto. Respondent made

some revisions in the letter of employment and signed the
contract.3 He then sent a copy to Henrichsen. The letter of
employment reads:
Mr. Klaus K. Schonfeld
II-365 Ginger Drive
New Westminster, B.C.
Canada V3L 5L5
Tokyo 7
January 1998
Dear Mr. Schonfeld,
Letter of Employment
This Letter of Employment with the attached General Conditions
of Employment constitutes the agreement under which you will be
engaged by our Company on the terms and conditions defined
hereunder. In case of any discrepancies or contradictions between
this Letter of Employment and the General Conditions of
Employment, this Letter of Employment will prevail.

5. Commencement: 1st October 1997.

6. Remuneration: US$7,000.00 per month. The amount
will be paid partly as a local salary (US$2,100.00 per
month) by Pacicon and partly as an offshore salary
(US$4,900.00) by PCI to bank accounts to be nominated
by you.
A performance related component corresponding to
17.6% of the total annual remuneration, subject to
satisfactory performance against agreed tasks and
targets, paid offshore.
7. Accommodation: The company will provide partly
furnished accommodation to a rent including association
fees, taxes and VAT not exceeding the Pesos equivalent
of US$2,900.00 per month.
8. Transportation: Included for in the remuneration.
9. Leave Travels: You are entitled to two leave travels per
year.
10. Shipment of Personal

You will, from the date of commencement, be ["seconded"] to our

subsidiary Pacicon Philippines, Inc. in Manila, hereinafter referred
as Pacicon. Pacicon will provide you with a separate contract,
which will define that part of the present terms and conditions for
which Pacicon is responsible. In case of any discrepancies or
contradictions between the present Letter of Employment and the
contract with Pacicon Philippines, Inc. or in the case that Pacicon
should not live up to its obligations, this Letter of Employment will
prevail.
1. Project Country: The Philippines with possible shortterm assignments in other countries.
2. Duty Station: Manila, the Philippines.
3. Family Status: Married.
4. Position: Sector Manager, Water and Sanitation.

Effects: The maximum allowance is US$4,000.00.

11. Mobilization
Travel: Mobilization travel will be from New Westminster,
B.C., Canada.
This letter is send (sic) to you in duplicate; we kindly request you
to sign and return one copy to us.
Yours sincerely,
Pacific Consultants International
Jens Peter Henrichsen
Above terms and conditions accepted
Date: 2 March 1998

(Sgd.)
Klaus Schonfeld

EMPLOYER: PACICON PHILIPPINES, INC.

as annotated and initialed4

ADDRESS: 27/F Rufino Pacific Towers Bldg., Ayala Ave., Makati

City

Section 21 of the General Conditions of Employment appended to

the letter of employment reads:

PERMIT
ISSUED ON: February 26, 1999 SIGNATURE OF BEARER:

21 Arbitration
VALID UNTIL: January 7, 2000 (Sgd.)
Any question of interpretation, understanding or fulfillment of the
conditions of employment, as well as any question arising
between the Employee and the Company which is in
consequence of or connected with his employment with the
Company and which can not be settled amicably, is to be finally
settled, binding to both parties through written submissions, by the
Court of Arbitration in London.5
Respondent arrived in the Philippines and assumed his position
as PPI Sector Manager. He was accorded the status of a resident
alien.
As required by Rule XIV (Employment of Aliens) of the Omnibus
Rules Implementing the Labor Code, PPI applied for an Alien
Employment Permit (Permit) for respondent before the
Department of Labor and Employment (DOLE). It appended
respondents contract of employment to the
application.1awphi1.net
On February 26, 1999, the DOLE granted the application and
issued the Permit to respondent. It reads:
Republic of the Philippines
Department of Labor & Employment
National Capital Region
ALIEN EMPLOYMENT PERMIT
ISSUED TO: SCHONFELD, KLAUS KURT
DATE OF BIRTH: January 11, 1942 NATIONALITY: Canadian
POSITION: VP WATER & SANITATION

APPROVED: BIENVENIDO S. LAGUESMA

By: MAXIMO B. ANITO
REGIONAL DIRECTOR
(Emphasis supplied)6
Respondent received his compensation from PPI for the following
periods: February to June 1998, November to December 1998,
and January to August 1999. He was also reimbursed by PPI for
the expenses he incurred in connection with his work as sector
manager. He reported for work in Manila except for occasional
assignments abroad, and received instructions from Henrichsen.7
On May 5, 1999, respondent received a letter from Henrichsen
informing him that his employment had been terminated effective
August 4, 1999 for the reason that PCIJ and PPI had not been
successful in the water and sanitation sector in the
Philippines.8 However, on July 24, 1999, Henrichsen, by electronic
mail,9 requested respondent to stay put in his job after August 5,
1999, until such time that he would be able to report on certain
projects and discuss all the opportunities he had
developed.10 Respondent continued his work with PPI until the
end of business hours on October 1, 1999.
Respondent filed with PPI several money claims, including unpaid
salary, leave pay, air fare from Manila to Canada, and cost of
shipment of goods to Canada. PPI partially settled some of his
claims (US$5,635.99), but refused to pay the rest.

On December 5, 2000, respondent filed a Complaint11 for Illegal

Dismissal against petitioners PPI and Henrichsen with the Labor
Arbiter. It was docketed as NLRC-NCR Case No. 30-12-04787-00.
In his Complaint, respondent alleged that he was illegally
dismissed; PPI had not notified the DOLE of its decision to close
one of its departments, which resulted in his dismissal; and they
failed to notify him that his employment was terminated after
August 4, 1999. Respondent also claimed for separation pay and
other unpaid benefits. He alleged that the company acted in bad
faith and disregarded his rights. He prayed for the following reliefs:
1. Judgment be rendered in his favor ordering the
respondents to reinstate complainant to his former
position without loss of seniority and other privileges and
benefits, and to pay his full backwages from the time
compensation was with held (sic) from him up to the time
of his actual reinstatement. In the alternative, if
reinstatement is no longer feasible, respondents must
pay the complainant full backwages, and separation pay
equivalent to one month pay for every year of service, or
in the amount of US$16,400.00 as separation pay;
2. Judgment be rendered ordering the respondents to
pay the outstanding monetary obligation to complainant
in the amount of US$10,131.76 representing the balance
of unpaid salaries, leave pay, cost of his air travel and
shipment of goods from Manila to Canada; and
3. Judgment be rendered ordering the respondent
company to pay the complainant damages in the amount
of no less than US $10,000.00 and to pay 10% of the
total monetary award as attorneys fees, and costs.
Other reliefs just and equitable under the premises are, likewise,
prayed for.12 1awphi1.net
Petitioners filed a Motion to Dismiss the complaint on the following
grounds: (1) the Labor Arbiter had no jurisdiction over the subject
matter; and (2) venue was improperly laid. It averred that
respondent was a Canadian citizen, a transient expatriate who
had left the Philippines. He was employed and dismissed by PCIJ,
a foreign corporation with principal office in Tokyo, Japan. Since
respondents cause of action was based on his letter of

employment executed in Tokyo, Japan dated January 7, 1998,

under the principle of lex loci contractus, the complaint should
have been filed in Tokyo, Japan. Petitioners claimed that
respondent did not offer any justification for filing his complaint
against PPI before the NLRC in the Philippines. Moreover, under
Section 12 of the General Conditions of Employment appended to
the letter of employment dated January 7, 1998, complainant and
PCIJ had agreed that any employment-related dispute should be
brought before the London Court of Arbitration. Since even the
Supreme Court had already ruled that such an agreement on
venue is valid, Philippine courts have no jurisdiction.13
Respondent opposed the Motion, contending that he was
employed by PPI to work in the Philippines under contract
separate from his January 7, 1998 contract of employment with
PCIJ. He insisted that his employer was PPI, a Philippineregistered corporation; it is inconsequential that PPI is a whollyowned subsidiary of PCIJ because the two corporations have
separate and distinct personalities; and he received orders and
instructions from Henrichsen who was the president of PPI. He
further insisted that the principles of forum non conveniens and
lex loci contractus do not apply, and that although he is a
Canadian citizen, Philippine Labor Laws apply in this case.
Respondent adduced in evidence the following contract of
employment dated January 9, 1998 which he had entered into
with Henrichsen:
Mr. Klaus K. Schonfeld
II-365 Ginger Drive
New Westminster, B.C.
Canada V3L 5L5

1. Project Country: The Philippines with possible

assignments in other countries.
2. Duty Station: Manila, the Philippines.
3. Family Status: Married.
4. Position: Sector Manager Water and Sanitation
Sector.
5. Commencement: 1 January, 1998.
6. Remuneration: US$3,100.00 per month payable to a
bank account to be nominated by you.
7. Accommodation: The company will provide partly
furnished accommodation to a rent including association
fees, taxes and VAT not exceeding the Pesos equivalent
of US$2300.00 per month.
8. Transportation: Included for in the remuneration.
9. Shipment of Personal The maximum allowance is
US$2500.00 in Effects: connection with initial shipment
of personal effects from Canada.
10. Mobilization Travel: Mobilization travel will be from
New Westminster, B.C., Canada.
This letter is send (sic) to you in duplicate; we kindly request you
to sign and return one copy to us.
Yours sincerely,

Manila 9 January, 1998

Dear Mr. Schonfeld,

Pacicon Philippines, Inc.

Jens Peter Henrichsen
President14

Letter of Employment
This Letter of Employment with the attached General Conditions
of Employment constitutes the agreement, under which you will be
engaged by Pacicon Philippines, Inc. on the terms and conditions
defined hereunder.

Philippine Labor Laws may be filed. Respondent pointed out that

PPI had adopted two inconsistent positions: it was first alleged
that he should have filed his complaint in Tokyo, Japan; and it
later insisted that the complaint should have been filed in the
London Court of Arbitration.15
In their reply, petitioners claimed that respondents employer was
PCIJ, which had exercised supervision and control over him, and
not PPI. Respondent was dismissed by PPI via a letter of
Henrichsen under the letterhead of PCIJ in Japan.16 The letter of
employment dated January 9, 1998 which respondent relies upon
did not bear his (respondents) signature nor that of Henrichsen.
On August 2, 2001, the Labor Arbiter rendered a decision granting
petitioners Motion to Dismiss. The dispositive portion reads:
WHEREFORE, finding merit in respondents Motion to Dismiss,
the same is hereby granted. The instant complaint filed by the
complainant is dismissed for lack of merit.
SO ORDERED.17
The Labor Arbiter found, among others, that the January 7, 1998
contract of employment between respondent and PCIJ was
controlling; the Philippines was only the "duty station" where
Schonfeld was required to work under the General Conditions of
Employment. PCIJ remained respondents employer despite his
having been sent to the Philippines. Since the parties had agreed
that any differences regarding employer-employee relationship
should be submitted to the jurisdiction of the court of arbitration in
London, this agreement is controlling.
On appeal, the NLRC agreed with the disquisitions of the Labor
Arbiter and affirmed the latters decision in toto.18
Respondent then filed a petition for certiorari under Rule 65 with
the CA where he raised the following arguments:
I

According to respondent, the material allegations of the complaint,

not petitioners defenses, determine which quasi-judicial body has
jurisdiction. Section 21 of the Arbitration Clause in the General
Conditions of Employment does not provide for an exclusive
venue where the complaint against PPI for violation of the

WITH ALL DUE RESPECT, THE HONORABLE NATIONAL

LABOR RELATIONS COMMISSION GRAVELY ABUSED ITS
DISCRETION AMOUNTING TO LACK OR EXCESS OF

JURISDICTION WHEN IT AFFIRMED THE LABOR ARBITERS

DECISION CONSIDERING THAT:
A. PETITIONERS TRUE EMPLOYER IS NOT PACIFIC
CONSULTANTS INTERNATIONAL OF JAPAN BUT
RESPONDENT COMPANY, AND THEREFORE, THE LABOR
ARBITER HAS JURISDICTION OVER THE INSTANT CASE;
AND
B. THE PROPER VENUE FOR THE PRESENT COMPLAINT IS
THE ARBITRATION BRANCH OF THE NLRC AND NOT THE
COURT OF ARBITRATION IN LONDON.
II
WITH ALL DUE RESPECT, THE HONORABLE NATIONAL
LABOR RELATIONS COMMISSION GRAVELY ABUSED ITS
DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WHEN IT AFFIRMED THE DISMISSAL OF THE
COMPLAINT CONSIDERING THAT PETITIONERS
TERMINATION FROM EMPLOYMENT IS ILLEGAL:
A. THE CLOSURE OF RESPONDENT COMPANYS
WATER AND SANITATION SECTOR WAS NOT BONA
FIDE.
B. ASSUMING ARGUENDO THAT THE CLOSURE OF
RESPONDENT COMPANYS WATER AND SANITATION
SECTOR WAS JUSTIFIABLE, PETITIONERS
DISMISSAL WAS INEFFECTUAL AS THE
DEPARTMENT OF LABOR AND EMPLOYMENT (DOLE)
AND PETITIONER WAS NOT NOTIFIED THIRTY (30)
DAYS BEFORE THE ALLEGED CLOSURE.19
Respondent averred that the absence or existence of a written
contract of employment is not decisive of whether he is an
employee of PPI. He maintained that PPI, through its president
Henrichsen, directed his work/duties as Sector Manager of PPI;
proof of this was his letter-proposal to the Development Bank of
the Philippines for PPI to provide consultancy services for the
Construction Supervision of the Water Supply and Sanitation
component of the World Bank-Assisted LGU Urban Water and
Sanitation Project.20 He emphasized that as gleaned from Alien
Employment Permit (AEP) No. M-029908-5017 issued to him by

DOLE on February 26, 1999, he is an employee of PPI. It was PPI

president Henrichsen who terminated his employment; PPI also
paid his salary and reimbursed his expenses related to
transactions abroad. That PPI is a wholly-owned subsidiary of
PCIJ is of no moment because the two corporations have
separate and distinct personalities.
The CA found the petition meritorious. Applying the four-fold
test21 of determining an employer-employee relationship, the CA
declared that respondent was an employee of PPI. On the issue
of venue, the appellate court declared that, even under the
January 7, 1998 contract of employment, the parties were not
precluded from bringing a case related thereto in other venues.
While there was, indeed, an agreement that issues between the
parties were to be resolved in the London Court of Arbitration, the
venue is not exclusive, since there is no stipulation that the
complaint cannot be filed in any other forum other than in the
Philippines.
On November 25, 2004, the CA rendered its decision granting the
petition, the decretal portion of which reads:
WHEREFORE, the petition is GRANTED in that the assailed
Resolutions of the NLRC are hereby REVERSED and SET
ASIDE. Let this case be REMANDED to the Labor Arbiter a quo
for disposition of the case on the merits.
SO ORDERED.22
A motion for the reconsideration of the above decision was filed by
PPI and Henrichsen, which the appellate court denied for lack of
merit.23
In the present recourse, PPI and Henrichsen, as petitioners, raise
the following issues:
I
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT
AN EMPLOYMENT RELATIONSHIP EXISTED BETWEEN
PETITIONERS AND RESPONDENT DESPITE THE
UNDISPUTED FACT THAT RESPONDENT, A FOREIGN
NATIONAL, WAS HIRED ABROAD BY A FOREIGN
CORPORATION, EXECUTED HIS EMPLOYMENT CONTRACT

ABROAD, AND WAS MERELY "SECONDED" TO PETITIONERS

SINCE HIS WORK ASSIGNMENT WAS IN MANILA.
II
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT
THE LABOR ARBITER A QUO HAS JURISDICTION OVER
RESPONDENTS CLAIM DESPITE THE UNDISPUTED FACT
THAT RESPONDENT, A FOREIGN NATIONAL, WAS HIRED
ABROAD BY A FOREIGN CORPORATION, EXECUTED HIS
EMPLOYMENT CONTRACT ABROAD, AND HAD AGREED
THAT ANY DISPUTE BETWEEN THEM "SHALL BE FINALLY
SETTLED BY THE COURT OF ARBITRATION IN LONDON."24
Petitioners fault the CA for reversing the findings of the Labor
Arbiter and the NLRC. Petitioners aver that the findings of the
Labor Arbiter, as affirmed by the NLRC, are conclusive on the CA.
They maintain that it is not within the province of the appellate
court in a petition for certiorari to review the facts and evidence on
record since there was no conflict in the factual findings and
conclusions of the lower tribunals. Petitioners assert that such
findings and conclusions, having been made by agencies with
expertise on the subject matter, should be deemed binding and
conclusive. They contend that it was the PCIJ which employed
respondent as an employee; it merely seconded him to petitioner
PPI in the Philippines, and assigned him to work in Manila as
Sector Manager. Petitioner PPI, being a wholly-owned subsidiary
of PCIJ, was never the employer of respondent.
Petitioners assert that the January 9, 1998 letter of employment
which respondent presented to prove his employment with
petitioner PPI is of doubtful authenticity since it was unsigned by
the purported parties. They insist that PCIJ paid respondents
salaries and only coursed the same through petitioner PPI. PPI,
being its subsidiary, had supervision and control over
respondents work, and had the responsibilities of monitoring the
"daily administration" of respondent. Respondent cannot rely on
the pay slips, expenses claim forms, and reimbursement
memoranda to prove that he was an employee of petitioner PPI
because these documents are of doubtful authenticity.
Petitioners further contend that, although Henrichsen was both a
director of PCIJ and president of PPI, it was he who signed the
termination letter of respondent upon instructions of PCIJ. This is

buttressed by the fact that PCIJs letterhead was used to inform

him that his employment was terminated. Petitioners further assert
that all work instructions came from PCIJ and that petitioner PPI
only served as a "conduit." Respondents Alien Employment
Permit stating that petitioner PPI was his employer is but a
necessary consequence of his being "seconded" thereto. It is not
sufficient proof that petitioner PPI is respondents employer. The
entry was only made to comply with the DOLE requirements.
There being no evidence that petitioner PPI is the employer of
respondent, the Labor Arbiter has no jurisdiction over
respondents complaint.
Petitioners aver that since respondent is a Canadian citizen, the
CA erred in ignoring their claim that the principlesof forum non
conveniens and lex loci contractus are applicable. They also point
out that the principal office, officers and staff of PCIJ are stationed
in Tokyo, Japan; and the contract of employment of respondent
was executed in Tokyo, Japan.
Moreover, under Section 21 of the General Conditions for
Employment incorporated in respondents January 7, 1998 letter
of employment, the dispute between respondent and PCIJ should
be settled by the court of arbitration of London. Petitioners claim
that the words used therein are sufficient to show the exclusive
and restrictive nature of the stipulation on venue.

General Conditions of Employment. In contrast, the CA took into

account the evidence on record and applied case law correctly.

SECTION 3. Registration of resident aliens. All employed

resident aliens shall register with the Bureau under such
guidelines as may be issued by it.

The petition is denied for lack of merit.

It must be stressed that in resolving a petition for certiorari, the CA
is not proscribed from reviewing the evidence on record. Under
Section 9 of Batas Pambansa Blg. 129, as amended by R.A. No.
7902, the CA is empowered to pass upon the evidence, if and
when necessary, to resolve factual issues.27 If it appears that the
Labor Arbiter and the NLRC misappreciated the evidence to such
an extent as to compel a contrary conclusion if such evidence had
been properly appreciated, the factual findings of such tribunals
cannot be given great respect and finality.28
Inexplicably, the Labor Arbiter and the NLRC ignored the
documentary evidence which respondent appended to his
pleadings showing that he was an employee of petitioner PPI;
they merely focused on the January 7, 1998 letter of employment
and Section 21 of the General Conditions of Employment.
Petitioner PPI applied for the issuance of an AEP to respondent
before the DOLE. In said application, PPI averred that respondent
is its employee. To show that this was the case, PPI appended a
copy of respondents employment contract. The DOLE then
granted the application of PPI and issued the permit.

Petitioners insist that the U.S. Labor-Management Act applies only

to U.S. workers and employers, while the Labor Code of the
Philippines applies only to Filipino employers and Philippinebased employers and their employees, not to PCIJ. In fine, the
jurisdictions of the NLRC and Labor Arbiter do not extend to
foreign workers who executed employment agreements with
foreign employers abroad, although "seconded" to the
Philippines.25

It bears stressing that under the Omnibus Rules Implementing the

Labor Code, one of the requirements for the issuance of an
employment permit is the employment contract. Section 5, Rule
XIV (Employment of Aliens) of the Omnibus Rules provides:

In his Comment,26 respondent maintains that petitioners raised

factual issues in their petition which are proscribed under Section
1, Rule 45 of the Rules of Court. The finding of the CA that he had
been an employee of petitioner PPI and not of PCIJ is buttressed
by his documentary evidence which both the Labor Arbiter and the
NLRC ignored; they erroneously opted to dismiss his complaint on
the basis of the letter of employment and Section 21 of the

SECTION 2. Submission of list. All employers employing foreign

nationals, whether resident or non-resident, shall submit a list of
nationals to the Bureau indicating their names, citizenship, foreign
and local address, nature of employment and status of stay in the
Philippines.

SECTION 1. Coverage. This rule shall apply to all aliens

employed or seeking employment in the Philippines and the
present or prospective employers.

SECTION 4. Employment permit required for entry. No alien

seeking employment, whether as a resident or non-resident, may
enter the Philippines without first securing an employment permit
from the Ministry. If an alien enters the country under a nonworking visa and wishes to be employed thereafter, he may only
be allowed to be employed upon presentation of a duly approved
employment permit.
SECTION 5. Requirements for employment permit applicants.
The application for an employment permit shall be accompanied
by the following:
(a) Curriculum vitae duly signed by the applicant
indicating his educational background, his work
experience and other data showing that he possesses
technical skills in his trade or profession.
(b) Contract of employment between the employer and
the principal which shall embody the following, among
others:
1. That the non-resident alien worker shall
comply with all applicable laws and rules and
regulations of the Philippines;
2. That the non-resident alien worker and the
employer shall bind themselves to train at least
two (2) Filipino understudies for a period to be
determined by the Minister; and
3. That he shall not engage in any gainful
employment other than that for which he was
issued a permit.
(c) A designation by the employer of at least two (2)
understudies for every alien worker. Such understudies
must be the most ranking regular employees in the
section or department for which the expatriates are being
hired to insure the actual transfer of technology.

Under Section 6 of the Rule, the DOLE may issue an alien

employment permit based only on the following:
(a) Compliance by the applicant and his employer with
the requirements of Section 2 hereof;
(b) Report of the Bureau Director as to the availability or
non-availability of any person in the Philippines who is
competent and willing to do the job for which the services
of the applicant are desired;
(c) His assessment as to whether or not the employment
of the applicant will redound to the national interest;
(d) Admissibility of the alien as certified by the
Commission on Immigration and Deportation;
(e) The recommendation of the Board of Investments or
other appropriate government agencies if the applicant
will be employed in preferred areas of investments or in
accordance with the imperative of economic
development.
Thus, as claimed by respondent, he had an employment contract
with petitioner PPI; otherwise, petitioner PPI would not have filed
an application for a Permit with the DOLE. Petitioners are thus
estopped from alleging that the PCIJ, not petitioner PPI, had been
the employer of respondent all along.
We agree with the conclusion of the CA that there was an
employer-employee relationship between petitioner PPI and
respondent using the four-fold test. Jurisprudence is firmly settled
that whenever the existence of an employment relationship is in
dispute, four elements constitute the reliable yardstick: (a) the
selection and engagement of the employee; (b) the payment of
wages; (c) the power of dismissal; and (d) the employers power
to control the employees conduct. It is the so-called "control test"
which constitutes the most important index of the existence of the
employer-employee relationshipthat is, whether the employer
controls or has reserved the right to control the employee not only
as to the result of the work to be done but also as to the means
and methods by which the same is to be accomplished. Stated
otherwise, an employer-employee relationship exists where the
person for whom the services are performed reserves the right to

control not only the end to be achieved but also the means to be
used in reaching such end.29 We quote with approval the following
ruling of the CA:

his complaint, however, petitioners themselves admitted that the

provision on venue in the employment contract is indeed merely
permissive.

[T]here is, indeed, substantial evidence on record which would

erase any doubt that the respondent company is the true
employer of petitioner. In the case at bar, the power to control and
supervise petitioners work performance devolved upon the
respondent company. Likewise, the power to terminate the
employment relationship was exercised by the President of the
respondent company. It is not the letterhead used by the company
in the termination letter which controls, but the person who
exercised the power to terminate the employee. It is also
inconsequential if the second letter of employment executed in the
Philippines was not signed by the petitioner. An employeremployee relationship may indeed exist even in the absence of a
written contract, so long as the four elements mentioned in the
Mafinco case are all present.30

Petitioners insistence on the application of the principle of forum

non conveniens must be rejected. The bare fact that respondent is
a Canadian citizen and was a repatriate does not warrant the
application of the principle for the following reasons:

The settled rule on stipulations regarding venue, as held by this

Court in the vintage case of Philippine Banking Corporation v.
Tensuan,31 is that while they are considered valid and enforceable,
venue stipulations in a contract do not, as a rule, supersede the
general rule set forth in Rule 4 of the Revised Rules of Court in
the absence of qualifying or restrictive words. They should be
considered merely as an agreement or additional forum, not as
limiting venue to the specified place. They are not exclusive but,
rather permissive. If the intention of the parties were to restrict
venue, there must be accompanying language clearly and
categorically expressing their purpose and design that actions
between them be litigated only at the place named by them.32

First. The Labor Code of the Philippines does not include

forum non conveniens as a ground for the dismissal of
the complaint.34
Second. The propriety of dismissing a case based on this
principle requires a factual determination; hence, it is
properly considered as defense.35
Third. In Bank of America, NT&SA, Bank of America
International, Ltd. v. Court of Appeals,36 this Court held
that:
x x x [a] Philippine Court may assume jurisdiction over the case if
it chooses to do so; provided, that the following requisites are met:
(1) that the Philippine Court is one to which the parties may
conveniently resort to; (2) that the Philippine Court is in a position
to make an intelligent decision as to the law and the facts; and, (3)
that the Philippine Court has or is likely to have power to enforce
its decision. x x x
Admittedly, all the foregoing requisites are present in this case.

In the instant case, no restrictive words like "only," "solely,"

"exclusively in this court," "in no other court save ,"
"particularly," "nowhere else but/except ," or words of equal
import were stated in the contract.33 It cannot be said that the
court of arbitration in London is an exclusive venue to bring forth
any complaint arising out of the employment contract.

WHEREFORE, the petition is DENIED. The Decision of the Court

of Appeals in CA-G.R. SP No. 76563 is AFFIRMED. This case is
REMANDED to the Labor Arbiter for disposition of the case on the
merits. Cost against petitioners.

Petitioners contend that respondent should have filed his

Complaint in his place of permanent residence, or where the PCIJ
holds its principal office, at the place where the contract of
employment was signed, in London as stated in their contract. By
enumerating possible venues where respondent could have filed

ROMEO J. CALLEJO, SR.

Associate Justice

SO ORDERED.

G.R. No. 161417

February 8, 2007

The written demand, however, proved futile.

MA. TERESA CHAVES BIACO, Petitioner,

vs.
PHILIPPINE COUNTRYSIDE RURAL BANK, Respondent.
DECISION
TINGA, J.:
Petitioner, Ma. Teresa Chaves Biaco, seeks a review of the
Decision1 of the Court of Appeals in CA-G.R. No. 67489 dated
August 27, 2003, which denied her petition for annulment of
judgment, and the Resolution2 dated December 15, 2003 which
denied her motion for reconsideration.
The facts as succinctly stated by the Court of Appeals are as
follows:
Ernesto Biaco is the husband of petitioner Ma. Teresa Chaves
Biaco. While employed in the Philippine Countryside Rural Bank
(PCRB) as branch manager, Ernesto obtained several loans from
the respondent bank as evidenced by the following promissory
notes:
Feb. 17, 1998
Mar. 18, 1998
May 6, 1998
May 20, 1998
July 30, 1998
Sept. 8, 1998
Sept. 8, 1998

P 65,000.00
30,000.00
60,000.00
350,000.00
155,000.00
40,000.00
120,000.00

As security for the payment of the said loans, Ernesto executed a

real estate mortgage in favor of the bank covering the parcel of
land described in Original Certificate of Title (OCT) No. P-14423.
The real estate mortgages bore the signatures of the spouses
Biaco.
When Ernesto failed to settle the above-mentioned loans on its
due date, respondent bank through counsel sent him a written
demand on September 28, 1999. The amount due as of
September 30, 1999 had already reached ONE MILLION EIGHTY
THOUSAND SIX HUNDRED SEVENTY SIX AND FIFTY
CENTAVOS (P1,080,676.50).

On February 22, 2000, respondent bank filed a complaint for

foreclosure of mortgage against the spouses Ernesto and Teresa
Biaco before the RTC of Misamis Oriental. Summons was served
to the spouses Biaco through Ernesto at his office (Export and
Industry Bank) located at Jofelmor Bldg., Mortola Street, Cagayan
de Oro City.
Ernesto received the summons but for unknown reasons, he failed
to file an answer. Hence, the spouses Biaco were declared in
default upon motion of the respondent bank. The respondent bank
was allowed to present its evidence ex parte before the Branch
Clerk of Court who was then appointed by the court as
Commissioner.
Arturo Toring, the branch manager of the respondent bank,
testified that the spouses Biaco had been obtaining loans from the
bank since 1996 to 1998. The loans for the years 1996-1997 had
already been paid by the spouses Biaco, leaving behind a balance
of P1,260,304.33 representing the 1998 loans. The amount being
claimed is inclusive of interests, penalties and service charges as
agreed upon by the parties. The appraisal value of the land
subject of the mortgage is only P150,000.00 as reported by the
Assessors Office.
Based on the report of the Commissioner, the respondent judge
ordered as follows:
WHEREFORE, judgment is hereby rendered ordering defendants
spouses ERNESTO R. BIACO and MA. THERESA [CHAVES]
BIACO to pay plaintiff bank within a period of not less than ninety
(90) days nor more than one hundred (100) days from receipt of
this decision the loan of ONE MILLION TWO HUNDRED SIXTY
THOUSAND THREE HUNDRED FOUR PESOS and THIRTY
THREE CENTAVOS (P1,260,304.33) plus litigation expenses in
the amount of SEVEN THOUSAND SIX HUNDRED FORTY
PESOS (P7,640.00) and attorneys fees in the amount of TWO
HUNDRED FIFTY TWO THOUSAND THIRTY PESOS and
FORTY THREE CENTAVOS (P252,030.43) and cost of this suit.
In case of non-payment within the period, the Sheriff of this Court
is ordered to sell at public auction the mortgaged Lot, a parcel of
registered land (Lot 35802, Cad. 237 {Lot No. 12388-B, Csd-10002342-D}), located at Gasi, Laguindingan, Misamis Oriental and
covered by TCT No. P-14423 to satisfy the mortgage debt, and
the surplus if there be any should be delivered to the defendants
spouses ERNESTO and MA. THERESA [CHAVES] BIACO. In the

event however[,] that the proceeds of the auction sale of the

mortgage[d] property is not enough to pay the outstanding
obligation, the defendants are ordered to pay any deficiency of the
judgment as their personal liability.
SO ORDERED.
On July 12, 2000, the sheriff personally served the abovementioned judgment to Ernesto Biaco at his office at Export and
Industry Bank. The spouses Biaco did not appeal from the
adverse decision of the trial court. On October 13, 2000, the
respondent bank filed an ex parte motion for execution to direct
the sheriff to sell the mortgaged lot at public auction. The
respondent bank alleged that the order of the court requiring the
spouses Biaco to pay within a period of 90 days had passed, thus
making it necessary to sell the mortgaged lot at public auction, as
previously mentioned in the order of the court. The motion for
execution was granted by the trial court per Order dated October
20, 2000.
On October 31, 2000, the sheriff served a copy of the writ of
execution to the spouses Biaco at their residence in #92 9th
Street, Nazareth, Cagayan de Oro City. The writ of execution was
personally received by Ernesto. By virtue of the writ of execution
issued by the trial court, the mortgaged property was sold at
public auction in favor of the respondent bank in the amount of
ONE HUNDRED FIFTY THOUSAND PESOS (P150,000.00).
The amount of the property sold at public auction being
insufficient to cover the full amount of the obligation, the
respondent bank filed an "ex parte motion for judgment" praying
for the issuance of a writ of execution against the other properties
of the spouses Biaco for the full settlement of the remaining
obligation. Granting the motion, the court ordered that a writ of
execution be issued against the spouses Biaco to enforce and
satisfy the judgment of the court for the balance of ONE MILLION
THREE HUNDRED SIXTY NINE THOUSAND NINE HUNDRED
SEVENTY FOUR PESOS AND SEVENTY CENTAVOS
(P1,369,974.70).
The sheriff executed two (2) notices of levy against properties
registered under the name of petitioner Ma. Teresa Chaves Biaco.
However, the notices of levy were denied registration because
Ma. Teresa had already sold the two (2) properties to her
daughters on April 11, 2001.3
Petitioner sought the annulment of the Regional Trial Court
decision contending that extrinsic fraud prevented her from

participating in the judicial foreclosure proceedings. According to

her, she came to know about the judgment in the case only after
the lapse of more than six (6) months after its finality. She claimed
that extrinsic fraud was perpetrated against her because the bank
failed to verify the authenticity of her signature on the real estate
mortgage and did not inquire into the reason for the absence of
her signature on the promissory notes. She moreover asserted
that the trial court failed to acquire jurisdiction because summons
were served on her through her husband without any explanation
as to why personal service could not be made.
The Court of Appeals considered the two circumstances that kept
petitioner in the dark about the judicial foreclosure proceedings:
(1) the failure of the sheriff to personally serve summons on
petitioner; and (2) petitioners husbands concealment of his
knowledge of the foreclosure proceedings. On the validity of the
service of summons, the appellate court ruled that judicial
foreclosure proceedings are actions quasi in rem. As such,
jurisdiction over the person of the defendant is not essential as
long as the court acquires jurisdiction over the res.Noting that the
spouses Biaco were not opposing parties in the case, the Court of
Appeals further ruled that the fraud committed by one against the
other cannot be considered extrinsic fraud.
Her motion for reconsideration having been denied, petitioner filed
the instant Petition for Review,4 asserting that even if the action
is quasi in rem, personal service of summons is essential in order
to afford her due process. The substituted service made by the
sheriff at her husbands office cannot be deemed proper service
absent any explanation that efforts had been made to personally
serve summons upon her but that such efforts failed. Petitioner
contends that extrinsic fraud was perpetrated not so much by her
husband, who did not inform her of the judicial foreclosure
proceedings, but by the sheriff who allegedly connived with her
husband to just leave a copy of the summons intended for her at
the latters office.
Petitioner further argues that the deficiency judgment is a
personal judgment which should be deemed void for lack of
jurisdiction over her person.
5

Respondent PCRB filed its Comment, essentially reiterating the

appellate courts ruling. Respondent avers that service of
summons upon the defendant is not necessary in actions quasi in
rem it being sufficient that the court acquire jurisdiction over
the res. As regards the alleged conspiracy between petitioners
husband and the sheriff, respondent counters that this is a new
argument which cannot be raised for the first time in the instant
petition.

We required the parties to file their respective memoranda in the

Resolution6 dated August 18, 2004. Accordingly, petitioner filed
her Memorandum7 dated October 10, 2004, while respondent filed
its Memorandum for Respondent8 dated September 9, 2004.
Annulment of judgment is a recourse equitable in character,
allowed only in exceptional cases as where there is no available
or other adequate remedy. Jurisprudence and Sec. 2, Rule 47 of
the 1997 Rules of Civil Procedure (Rules of Court) provide that
judgments may be annulled only on grounds of extrinsic fraud and
lack of jurisdiction or denial of due process.9
Petitioner asserts that extrinsic fraud consisted in her husbands
concealment of the loans which he obtained from respondent
PCRB; the filing of the complaint for judicial foreclosure of
mortgage; service of summons; rendition of judgment by default;
and all other proceedings which took place until the writ of
garnishment was served.10
Extrinsic fraud exists when there is a fraudulent act committed by
the prevailing party outside of the trial of the case, whereby
the defeated party was prevented from presenting fully his side of
the case by fraud or deception practiced on him by the prevailing
party.11 Extrinsic fraud is present where the unsuccessful
party had been prevented from exhibiting fully his case, by fraud
or deception practiced on him by his opponent, as by keeping him
away from court, a false promise of a compromise; or where
the defendant never had knowledge of the suit, being kept in
ignorance by the acts of the plaintiff; or where an attorney
fraudulently or without authority assumes to represent a party and
connives at his defeat; or where the attorney regularly employed
corruptly sells out his clients interest to the other side. The
overriding consideration is that the fraudulent scheme of
the prevailing litigant prevented a party from having his day in
court.12
With these considerations, the appellate court acted well in ruling
that there was no fraud perpetrated by respondent bank upon
petitioner, noting that the spouses Biaco were co-defendants in
the case and shared the same interest. Whatever fact or
circumstance concealed by the husband from the wife cannot be
attributed to respondent bank.
Moreover, petitioners allegation that her signature on the
promissory notes was forged does not evince extrinsic fraud. It is
well-settled that the use of forged instruments during trial is not
extrinsic fraud because such evidence does not preclude the
participation of any party in the proceedings.13

The question of whether the trial court has jurisdiction depends on

the nature of the action, i.e., whether the action is in personam, in
rem, or quasi in rem. The rules on service of summons under Rule
14 of the Rules of Court likewise apply according to the nature of
the action.
An action in personam is an action against a person on the basis
of his personal liability. An action in rem is an action against the
thing itself instead of against the person. An action quasi in rem is
one wherein an individual is named as defendant and the purpose
of the proceeding is to subject his interest therein to the obligation
or lien burdening the property.14
In an action in personam, jurisdiction over the person of the
defendant is necessary for the court to validly try and decide the
case. In a proceeding in rem or quasi in rem, jurisdiction over the
person of the defendant is not a prerequisite to confer jurisdiction
on the court provided that the court acquires jurisdiction over the
res. Jurisdiction over the res is acquired either (1) by the seizure
of the property under legal process, whereby it is brought into
actual custody of the law; or (2) as a result of the institution of
legal proceedings, in which the power of the court is recognized
and made effective.15
Nonetheless, summons must be served upon the defendant not
for the purpose of vesting the court with jurisdiction but merely for
satisfying the due process requirements.16
A resident defendant who does not voluntarily appear in court,
such as petitioner in this case, must be personally served with
summons as provided under Sec. 6, Rule 14 of the Rules of
Court. If she cannot be personally served with summons within a
reasonable time, substituted service may be effected (1) by
leaving copies of the summons at the defendants residence with
some person of suitable age and discretion then residing therein,
or (2) by leaving the copies at defendants office or regular place
of business with some competent person in charge thereof in
accordance with Sec. 7, Rule 14 of the Rules of Court.
In this case, the judicial foreclosure proceeding instituted by
respondent PCRB undoubtedly vested the trial court with
jurisdiction over the res. A judicial foreclosure proceeding is an
action quasi in rem. As such, jurisdiction over the person of
petitioner is not required, it being sufficient that the trial court is
vested with jurisdiction over the subject matter.
There is a dimension to this case though that needs to be delved
into. Petitioner avers that she was not personally served
summons. Instead, summons was served to her through her
husband at his office without any explanation as to why the

particular surrogate service was resorted to. The Sheriffs Return

of Service dated March 21, 2000 states:
xxxx
That on March 16, 2000, the undersigned served the copies of
Summons, complaint and its annexes to the defendants Sps.
Ernesto R. & Ma. Teresa Ch. Biaco thru Ernesto R. Biaco[,]
defendant of the above-entitled case at his office EXPORT &
INDUSTRY BANK, Jofelmore Bldg.[,] Mortola St., Cagayan de
Oro City and he acknowledged receipt thereof as evidenced with
his signature appearing on the original copy of the
Summons.17[Emphasis supplied]
Without ruling on petitioners allegation that her husband and the
sheriff connived to prevent summons from being served upon her
personally, we can see that petitioner was denied due process
and was not able to participate in the judicial foreclosure
proceedings as a consequence. The violation of petitioners
constitutional right to due process arising from want of valid
service of summons on her warrants the annulment of the
judgment of the trial court.
There is more, the trial court granted respondent PCRBs exparte motion for deficiency judgment and ordered the issuance of
a writ of execution against the spouses Biaco to satisfy the
remaining balance of the award. In short, the trial court went
beyond its jurisdiction over the res and rendered a personal
judgment against the spouses Biaco. This cannot be
countenanced.1awphil.net
In Sahagun v. Court of Appeals,18 suit was brought against a nonresident defendant, Abelardo Sahagun, and a writ of attachment
was issued and subsequently levied on a house and lot registered
in his name. Claiming ownership of the house, his wife, Carmelita
Sahagun, filed a motion to intervene. For failure of plaintiff to
serve summons extraterritorially upon Abelardo, the complaint
was dismissed without prejudice.
Subsequently, plaintiff filed a motion for leave to serve summons
by publication upon Abelardo. The trial court granted the motion.
Plaintiff later filed an amended complaint against Abelardo, this
time impleading Carmelita and Rallye as additional defendants.
Summons was served on Abelardo through publication in the
Manila Evening Post. Abelardo failed to file an answer and was
declared in default. Carmelita went on certiorari to the Court of
Appeals assailing as grave abuse of discretion the declaration of
default of Abelardo. The Court of Appeals dismissed the petition
and denied reconsideration.

In her petition with this Court, Carmelita raised the issue of

whether the trial court acquired jurisdiction over her husband, a
non-resident defendant, by the publication of summons in a
newspaper of general circulation in the Philippines. The Court
sustained the correctness of extrajudicial service of summons by
publication in such newspaper.
The Court explained, citing El Banco Espaol-Filipino v.
Palanca,19 that foreclosure and attachment proceedings are both
actions quasi in rem. As such, jurisdiction over the person of the
(non-resident) defendant is not essential. Service of summons on
a non-resident defendant who is not found in the country is
required, not for purposes of physically acquiring jurisdiction over
his person but simply in pursuance of the requirements of fair
play, so that he may be informed of the pendency of the action
against him and the possibility that property belonging to him or in
which he has an interest may be subjected to a judgment in favor
of a resident, and that he may thereby be accorded an opportunity
to defend in the action, should he be so minded.
Significantly, the Court went on to rule, citing De Midgely v.
Ferandos, et. al.20 and Perkins v. Dizon, et al.21 that in a
proceeding in rem or quasi in rem, the only relief that may be
granted by the court against a defendant over whose person it has
not acquired jurisdiction either by valid service of summons or by
voluntary submission to its jurisdiction, is limited to the res.
Similarly, in this case, while the trial court acquired jurisdiction
over the res, its jurisdiction is limited to a rendition of judgment on
the res. It cannot extend its jurisdiction beyond the res and issue a
judgment enforcing petitioners personal liability. In doing so
without first having acquired jurisdiction over the person of
petitioner, as it did, the trial court violated her constitutional right to
due process, warranting the annulment of the judgment rendered
in the case.
WHEREFORE, the instant petition is GRANTED. The Decision
dated August 27, 2003 and the Resolution dated December 15,
2003 of the Court of Appeals in CA-G.R. SP No. 67489 are SET
ASIDE. The Judgment dated July 11, 2000 and Order dated
February 9, 2001 of the Regional Trial Court of Cagayan de Oro
City, Branch 20, are likewise SET ASIDE.
SO ORDERED.
DANTE O. TINGA
Associate Justice

G.R. No. 173002

July 4, 2008

BENJAMIN BAUTISTA, petitioner,

vs.
SHIRLEY G. UNANGST and OTHER UNKNOWN
PERSONS, respondentS.
DECISION
REYES, R.T., J.:
THE presumption of equitable mortgage imposes a burden on the
buyer to present clear evidence to rebut it. He must overthrow it,
lest it persist.1 To overturn that prima facie presumption, the buyer
needs to adduce substantial and credible evidence to prove that
the contract was a bona fide deed of sale with right to repurchase.
This petition for review on certiorari impugns the Decision2 of the
Court of Appeals (CA) in CA-G.R. CV No. 859423 which reversed
and set aside that4 of the Regional Trial Court (RTC) in an action
for specific performance or recovery of possession, for sum of
money, for consolidation of ownerships and damages.
The Facts
On November 15, 1996, Hamilton Salak rented a car from GAB
Rent-A-Car, a car rental shop owned by petitioner Benjamin
Bautista. The lease was for three (3) consecutive days at a rental
fee of P1,000.00 per day.5 However, Salak failed to return the car
after three (3) days prompting petitioner to file a complaint against
him for estafa, violation of Batas Pambansa Blg. 22 and
carnapping.6
On February 2, 1997, Salak and his common-law wife, respondent
Shirley G. Unangst, were arrested by officers of the Criminal
Investigation Service Group (CISG) of the Philippine National
Police while riding the rented car along Quezon City. The next
day, petitioner demanded from Salak at the CISG Office the sum
of P232,372.00 as payment for car rental fees, fees incurred in
locating the car, attorney's fees, capital gains tax, transfer tax, and
other incidental expenses.7

Salak and respondent expressed willingness to pay but since they

were then short on cash, Salak proposed to sell to petitioner a
house and lot titled in the name of respondent. Petitioner
welcomed the proposal after consulting his wife, Cynthia. Cynthia,
on the other hand, further agreed to pay the mortgage loan of
respondent over the subject property to a certain Jojo Lee in the
amount of P295,000.00 as the property was then set to be publicly
auctioned on February 17, 1997.8
To formalize their amicable settlement, Cynthia, Salak and
respondent executed a written agreement.9 They stipulated that
respondent would sell, subject to repurchase, her residential
property in favor of Cynthia for the total amount of P527,372.00
broken down, as follows: (1) P295,000.00 for the amount paid by
Cynthia to Lee to release the mortgage on the property; and
(2) P232,372.00, which is the amount due to GAB Rent-A-Car.
Cynthia also agreed to desist from pursuing the complaint against
Salak and respondent.10
Respondent and petitioner also executed a separate deed of sale
with right to repurchase,11 specifying, among others, that: (1)
respondent, as vendor, shall pay capital gains tax, current real
estate taxes and utility bills pertaining to the property; (2) if
respondent fails to repurchase the property within 30 days from
the date of the deed, she and her assigns shall immediately
vacate the premises and deliver its possession to petitioner
without need of a judicial order; and (3) respondent's refusal to do
so will entitle petitioner to take immediate possession of the
property.12
Respondent failed to repurchase the property within the stipulated
period. As a result, petitioner filed, on June 5, 1998, a complaint
for specific performance or recovery of possession, for sum of
money, for consolidation of ownership and damages against
respondent and other unnamed persons before the RTC of
Olongapo City.
In his complaint,13 petitioner alleged, among others, that after
respondent failed to repurchase the subject realty, he caused the
registration of the deed of sale with the Register of Deeds and the
transfer of the tax declarations in his name; that respondent failed
to pay the capital gains taxes and update the real estate taxes
forcing him to pay said amounts in the sum of P71,129.05
and P11,993.72, respectively; and that respondent violated the

terms of the deed when she, as well as the other unnamed

persons, refused to vacate the subject property despite repeated
demands.14
Petitioner prayed before the RTC that an order be issued in his
favor directing respondents to: (1) surrender the possession of the
property; (2) pay P150,000.00 for the reasonable compensation
for its use from March 7, 1997 to June 7, 1998, plus P10,000.00
per month afterward; (3) pay the amount advanced by petitioner,
to wit:P71,129.05 and P11,993.72 for the payment of capital gains
tax and real estate taxes, respectively; andP70,000.00 for
attorney's fees.15
On June 16, 1998, petitioner filed an amended
complaint,16 reiterating his previous allegations but with the added
prayer for consolidation of ownership pursuant to Article 1607 of
the Civil Code.17
On the other hand, respondents controverted the allegations in
the complaint and averred in their Answer,18among others, that
plaintiff had no cause of action inasmuch as respondent Unangst
signed the subject deed of sale under duress and intimidation
employed by petitioner and his cohorts; that, assuming that her
consent was freely given, the contract of sale was simulated and
fictitious since the vendor never received the stipulated
consideration; that the sale should be construed as an equitable
mortgage pursuant to Articles 1602 and 1604 of the Civil Code
because of its onerous conditions and shockingly low
consideration; that their indebtedness in the form of arrears in car
rentals merely amounts to P90,000.00; and that the instant action
was premature as plaintiff had not yet consolidated ownership
over the property. Defendants counterclaimed for moral damages
in the amount of P500,000.00 and attorney's fees in the amount
of P50,000.00, plus P500.00 per appearance.19
On July 29, 2004, after due proceedings, the RTC rendered a
decision in favor of petitioner, disposing as follows:
WHEREFORE, judgment is rendered finding the Deed of
Sale with Right to Repurchase (Exh. "C") as, indeed, a
document of sale executed by the defendant in favor of
the plaintiff covering the parcel of land house (sic)
situated at Lot 3-B, Blk. 10, Waterdam Road, Gordon
Heights, Olongapo City, declared under Tax Declaration

Nos. 004-7756R and 7757R (Exhs. "I" and "I-1"). The

defendant and any person taking rights from her is (sic)
ordered to immediately vacate from the place and turn
over its possession to the plaintiff. They are likewise
directed not to remove any part of the building on the lot.
The ownership of the said property is properly
consolidated in the name of the plaintiff.
The defendant is further ordered to pay to the plaintiff the
amount of P10,000.00 a month from March 7, 1997 up to
the time possession of the lot and house is restored to
the plaintiff representing the reasonable value for the use
of the property; the amount of P71,129.05 representing
the payment made by the plaintiff on the capital gain
taxes and the further amount of P70,000.00 for attorney's
fees and the costs of suit.
SO ORDERED.20
Respondents failed to interpose a timely appeal. However, on
September 10, 2004, respondent Unangst filed a petition for relief
pursuant to Section 38 of the 1997 Rules on Civil Procedure. She
argued that she learned of the decision of the RTC only on
September 6, 2004 when she received a copy of the motion for
execution filed by petitioner.21
Petitioner, on the other hand, moved for the dismissal of
respondent's petition on the ground that the latter paid an
insufficient sum of P200.00 as docket fees.22
It appears that respondent Unangst initially paid P200.00 as
docket fees as this was the amount assessed by the Clerk of
Court of the RTC.23 Said amount was insufficient as the proper
filing fees amount to P1,715.00. Nevertheless, the correct amount
was subsequently paid by said respondent on February 22,
2005.24
In their comment,25 respondents countered that they should not be
faulted for paying deficient docket fees as it was due to an
erroneous assessment of the Clerk of Court.26
The RTC granted the petition for relief. Subsequently, it directed
respondents to file a notice of appeal within twenty-four (24) hours

from receipt of the order.27 Accordingly, on February 23, 2005,

respondents filed their notice of appeal.28
Respondents contended before the CA that the RTC erred in: (1)
not annulling the deed of sale with right to repurchase; (2)
declaring that the deed of sale with right to repurchase is a real
contract of sale; (3) ordering the consolidation of ownership of the
subject property in the name of petitioner.29 They argued that
respondent Unangst's consent to the deed of sale with right to
repurchase was procured under duress and that even assuming
that her consent was freely given, the contract partakes of the
nature of an equitable mortgage.30
On the other hand, petitioner insisted, among others, that
although the petition for relief of respondents was filed on time,
the proper filing fees for said petition were paid beyond the 60-day
reglementary period. He posited that jurisdiction is acquired by the
court over the action only upon full payment of prescribed docket
fees.31
CA Disposition
In a Decision32 dated April 7, 2006, the CA reversed and set aside
the RTC judgment.33 The dispositive part of the appellate court's
decision reads, thus:
IN VIEW OF ALL THE FOREGOING, the instant appeal
is hereby GRANTED, the challenged Decision dated July
29, 2004 hereby (sic) REVERSED and SET ASIDE, and
a new one entered declaring the Deed of Sale With Right
Of Repurchase dated February 4, 1997 as an equitable
mortgage. No cost.
SO ORDERED.34
The CA declared that the Deed of Sale with Right of Repurchase
executed by the parties was an equitable mortgage. On the
procedural aspect pertaining to the petition for relief filed by
respondent Unangst, the CA ruled that "the trial court, in opting to
apply the rules liberally, cannot be faulted for giving due course to
the questioned petition for relief which enabled appellants to
interpose the instant appeal."35 It ratiocinated:

Appellee recognizes the timely filing of appellants'

petition for relief to be able to appeal judgment but
nonetheless points out that the proper filing fees were
paid beyond the 60-day reglementary period. Arguing
that the court acquires jurisdiction over the action only
upon full payment of the prescribed docket fees, he
submits that the trial court erred in granting appellants'
petition for relief despite the late payment of the filing
fees.
While this Court is fully aware of the mandatory nature of
the requirement of payment of appellate docket fee, the
High Court has recognized that its strict application is
qualified by the following: first, failure to pay those fees
within the reglementary period allows only discretionary,
not automatic, dismissal; second, such power should be
used by the court in conjunction with its exercise of
sound discretion in accordance with the tenets of justice
and fair play, as well as with a great deal of
circumspection in consideration of all attendant
circumstances (Meatmasters International Corporation v.
Lelis Integrated Development Corporation, 452 SCRA
626 [2005], citing La Salette College v. Pilotin, 418 SCRA
380 [2003]).
Applied in the instant case, the docket fees were
admittedly paid only on February 22, 2005, or a little less
than two (2) months after the period for filing the petition
lapsed. Yet, this matter was sufficiently explained by
appellants. The records bear out that appellants initially
paid P200.00 as docket fees because this was the
amount assessed by the Clerk of Court of the RTC of
Olongapo City (p. 273, Records). As it turned out, the
fees paid was insufficient, the proper filing fees
being P1,715.00, which was eventually paid by
appellants on February 1, 2005 (p. 296, Records). As
such, appellants cannot be faulted for their failure to pay
the proper docket fees for, given the prevailing
circumstances, such failure was clearly not a dilatory
tactic nor intended to circumvent the Rules of Court. On
the contrary, appellants demonstrated their willingness to
pay the docket fees when they subsequently paid on the
same day they were assessed the correct fees (p. 299,
Records). Notably, in Yambao v. Court of Appeals (346
SCRA 141 [2000]), the High Court declared therein that

"the appellate court may extend the time for the payment
of the docket fees if appellants is able to show that there
is a justifiable reason for his failure to pay the correct
amount of docket fees within the prescribed period, like
fraud, accident, mistake, excusable negligence, or a
similar supervening casualty, without fault on the part of
appellant." Verily, the trial court, in opting to apply the
rules liberally, cannot be faulted for giving due course to
the questioned petition for relief which enabled
appellants to interpose the instant appeal.36
On the substantial issues, the CA concluded that "While the
records is bereft of any proof or evidence that appellee employed
unlawful or improper pressure against appellant Unangst to give
her consent to the contract of sale, there is, nevertheless,
sufficient basis to hold the subject contract as one of equitable
mortgage."37 It explained:
Jurisprudence has consistently held that the
nomenclature used by the contracting parties to describe
a contract does not determine its nature. The decisive
factor in determining the true nature of the transaction
between the parties is the intent of the parties, as shown
not necessarily by the terminology used in the contract
but by all the surrounding circumstances, such as the
relative situations of the parties at that time; the attitudes,
acts, conduct, and declarations of the parties; the
negotiations between them leading to the deed; and
generally, all pertinent facts having a tendency to fix and
determine the real nature of their design and
understanding (Legaspi v. Ong, 459 SCRA 122 [2005]).
It must be stressed, however, that there is no conclusive
test to determine whether a deed absolute on its face is
really a simple loan accommodation secured by a
mortgage. In fact, it is often a question difficult to resolve
and is frequently made to depend on the surrounding
circumstances of each case. When in doubt, courts are
generally inclined to construe a transaction purporting to
be a sale as an equitable mortgage, which involves a
lesser transmission of rights and interests over the
property in controversy (Legaspi, ibid.).

Article 1602 of the Civil Code enumerates the instances

where a contract shall be presumed to be an equitable
mortgage when - (a) the price of a sale with right to
repurchase is unusually inadequate; (b) the vendor
remains in possession as lessee or otherwise; (c) upon
or after the expiration of the right to repurchase another
instrument extending the period of redemption or
granting a new period is executed; (d) the purchaser
retains for himself a part of the purchase price; (e) the
vendor binds himself to pay taxes on the thing sold; and,
(f) in any other case where it may be fairly inferred that
the real intention of the parties is that the transaction
shall secure the payment of a debt or the performance of
any other obligation (Legaspi, supra; Martinez v. Court of
Appeals, 358 SCRA 38 [2001]).
For the presumption of an equitable mortgage to arise
under Article 1602, two (2) requisites must concur: (a)
that the parties entered into a contract denominated as a
contract of sale; and, (b) that their intention was to
secure an existing debt by way of a mortgage. Any of the
circumstance laid out in Article 1602, not the concurrence
nor an overwhelming number of the circumstances
therein enumerated, suffices to construe a contract of
sale to be one of equitable mortgage (Lorbes v. Court of
Appeals, 351 SCRA 716 [2001]).

The High Court, in several cases involving similar

situations, has declared that "while it was true that
plaintiffs were aware of the contents of the contracts, the
preponderance of the evidence showed, however, that
they signed knowing that said contracts did not express
their real intention, and if they did so notwithstanding
this, it was due to the urgent necessity of obtaining
funds. Necessitous men are not, truly speaking, free
men; but to answer a present emergency, will submit to
any terms that the crafty may impose upon them"
(Lorbes, ibid.; Reyes v. Court of Appeals, 339 SCRA 97
[2000]; Lao v. Court of Appeals, 275 SCRA 237 [1997];
Zamora v. Court of Appeals, 260 SCRA 10
[1996]; Labasan v. Lacuesta, 86 SCRA 16 [1978]).
After all, Article 1602(6) provides that a contract of sale
with right to repurchase is presumed to be an equitable
mortgage in any other case where it may be fairly
inferred that the real intention of the parties is that the
transaction shall secure the payment of a debt or the
performance of any obligation. In fine, a careful review of
the records convincingly shows that the obtaining facts in
this case qualify the controversial agreement between
the parties as an equitable mortgage under Article 1602
of the New Civil Code.38
Issues

Applying the foregoing considerations in the instant case,

there is hardly any doubt that the true intention of the
parties is that the transaction shall secure the payment of
a debt. It is not contested that before executing the
subject deed, Unangst and Salak were under police
custody and were sorely pressed for money. Such urgent
prospect of prolonged detention helps explain why
appellants would subscribe to an agreement like the
deed in the instant case. This might very well explain
appellants' insistence that Unangst was not truly free
when she signed the questioned deed. Besides, there is
no gainsaying that when appellee allowed appellants to
retain possession of the realty sold for 30 days, as part of
the agreement, that period of time surely signaled a time
allotted to Salak and Unangst, as debtors, within which to
pay their mortgage indebtedness.

Petitioner has resorted to the present recourse under Rule 45,

assigning to the CA the following errors:
(a) The Honorable Court of Appeals committed grave
error in finding that the respondent perfected an appeal
via Petition for Relief To Be Able To Appeal Judgment
even when the proper docket fees were paid beyond the
period prescribed to bring such action under Section 3 of
Rule 38 of the 1997 Rules of Civil Procedure in relation
to the pronouncements by the Honorable Court in the
cases of Philippine Rabbit Bus Lines, Inc. v. Arciaga [148
SCRA 433], Philippine Pryce Assurance Corp. v. Court of
Appeals [148 SCRA 433] and Sun Insurance Office, Ltd.
v. Asuncion [170 SCRA 274].

(b) The Honorable Court of Appeals erred on a question

of law in reversing the Decision of the Court a quo finding
the Deed of Sale with Right to Repurchase a document
of sale executed by the respondent in favor of the
petitioner and in further holding such contract as one of
equitable mortgage.39
Our Ruling
On the first issue, petitioner contends that respondents' "Petition
for Relief to Be Able to Appeal Judgment," which paved the way
for the allowance of respondents' appeal of the RTC decision, was
filed within the prescriptive period but the proper docket fees for it
were belatedly paid.40 He thus posits that the RTC did not acquire
jurisdiction over said petition. Having no jurisdiction, the RTC
could not have allowed respondents to appeal.
On this issue, respondent counters that the belated payment of
proper docket fees was not due to their fault but to the improper
assessment by the Clerk of Court. Respondent asserts the ruling
of the CA that the court may extend the time for the payment of
the docket fees if there is a justifiable reason for the failure to pay
the correct amount. Moreover, respondent argues that petitioner
failed to contest the RTC Order dated February 21, 2004 that
allowed the payment of supplementary docket fees. Petitioner
failed to file a motion for reconsideration or a petition for certiorari
to the higher court to question said order.
We agree with respondents. Their failure to pay the correct
amount of docket fees was due to a justifiable reason.
The right to appeal is a purely statutory right. Not being a natural
right or a part of due process, the right to appeal may be
exercised only in the manner and in accordance with the rules
provided therefor.41 For this reason, payment of the full amount of
the appellate court docket and other lawful fees within the
reglementary period is mandatory and
jurisdictional.42 Nevertheless, as this Court ruled in Aranas v.
Endona,43 the strict application of the jurisdictional nature of the
above rule on payment of appellate docket fees may be mitigated
under exceptional circumstances to better serve the interest of
justice. It is always within the power of this Court to suspend its
own rules, or to except a particular case from their operation,
whenever the purposes of justice require it.44

In not a few instances, the Court relaxed the rigid application of

the rules of procedure to afford the parties the opportunity to fully
ventilate their cases on the merits. This is in line with the timehonored principle that cases should be decided only after giving
all parties the chance to argue their causes and defenses.45 For, it
is far better to dispose of a case on the merit which is a primordial
end, rather than on a technicality, if it be the case, that may result
in injustice.46 The emerging trend in the rulings of this Court is to
afford every party-litigant the amplest opportunity for the proper
and just determination of his cause, free from the constraints of
technicalities.47
As early as 1946, in Segovia v. Barrios,48 the Court ruled that
where an appellant in good faith paid less than the correct amount
for the docket fee because that was the amount he was required
to pay by the clerk of court, and he promptly paid the balance, it is
error to dismiss his appeal because "(e)very citizen has the right
to assume and trust that a public officer charged by law with
certain duties knows his duties and performs them in accordance
with law. To penalize such citizen for relying upon said officer in all
good faith is repugnant to justice."49
Technicality and procedural imperfections should thus not serve
as bases of decisions.50 In that way, the ends of justice would be
better served. For, indeed, the general objective of procedure is to
facilitate the application of justice to the rival claims of contending
parties, bearing always in mind that procedure is not to hinder but
to promote the administration of justice.51
We go now to the crux of the petition. Should the deed of sale with
right to repurchase executed by the parties be construed as an
equitable mortgage? This is the pivotal question here.
According to petitioner, the deed should not be construed as an
equitable mortgage as it does not fall under any of the instances
mentioned in Article 1602 of the Civil Code where the agreement
can be construed as an equitable mortgage. He added that the
"language and terms of the Deed of Sale with Right to
Repurchase executed by respondent in favor of the petition are
clear and unequivocal. Said contract must be construed with its
literal sense."52
We cannot agree.

Respondent is correct in alleging that the deed of sale with right to

repurchase qualifies as an equitable mortgage under Article 1602.
She merely secured the payment of the unpaid car rentals and the
amount advanced by petitioner to Jojo Lee.
The transaction between the parties is one of equitable mortgage
and not a sale with right to purchase as maintained by petitioners.
Article 1602 of the New Civil Code provides that the contract is
presumed to be an equitable mortgage in any of the following
cases:
(1) When the price of a sale with right to repurchase is
unusually inadequate;
(2) When the vendor remains in possession as lessee or
otherwise;
(3) When upon or after the expiration of the right to
repurchase another instrument extending the period of
redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the
purchase price;
(5) When the vendor binds himself to pay the taxes on
the thing sold;
(6) In any other case where it may be fairly inferred
that the real intention of the parties is that the
transaction shall secure the payment of a debt or the
performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other
benefit to be received by the vendee as rent or otherwise
shall be considered as interest which shall be subject to
the usury laws.53 (Emphasis ours)
The conclusion that the deed of sale with right to repurchase is an
equitable mortgage is buttressed by the following:
First, before executing the deed, respondent and Salak were
under police custody due to the complaint lodged against them by
petitioner. They were sorely pressed for money, as they would not

be released from custody unless they paid petitioner. It was at this

point that respondent was constrained to execute a deed of sale
with right to repurchase. Respondent was in no position
whatsoever to bargain with their creditor, petitioner. Nel consensui
tam contrarium est quam vis atqui metus. There can be no
consent when under force or duress. Bale wala ang pagsangayon kung ito'y nakuha sa pamimilit o paraang di malaya.

Third, it is likewise undisputed that the deed was executed by

reason of: (1) the alleged indebtedness of Salak to petitioner, that
is, car rental payments; and (2) respondent's own obligation to
petitioner, that is, reimbursement of what petitioner paid to the
mortgagee, Jojo Lee. Fact is, the purchase price stated in the
deed was the amount of the indebtedness of both respondent and
Salak to petitioner.60

It is established that respondent signed the deed only because of

the urgent necessity of obtaining funds.1avvphi1 When the vendor
is in urgent need of money when he executes the sale, the alleged
sale with pacto de retro will be construed as an equitable
mortgage.54 "Necessitous men are not, truly speaking, free men;
but to answer a present emergency will submit to any terms that
the crafty may impose upon them."55

Apparently, the deed purports to be a sale with right to purchase.

However, since it was executed in consideration of the aforesaid
loans and/or indebtedness, said contract is indubitably an
equitable mortgage. The rule is firmly settled that whenever it is
clearly shown that a deed of sale with pacto de retro, regular on
its face, is given as security for a loan, it must be regarded as an
equitable mortgage.61

Second, petitioner allowed respondent and Salak to retain the

possession of the property despite the execution of the deed. In
fact, respondent and Salak were not bound to deliver the
possession of the property to petitioner if they would pay him the
amount he demanded.56

The above-mentioned circumstances preclude the Court from

declaring that the parties intended the transfer of the property
from one to the other by way of sale. They are more than
sufficient to show that the true intention of the parties is to secure
the payment of said debts. Verily, an equitable mortgage under
paragraphs 2 and 6 of Article 1602 exists here. Settled is the rule
that to create the presumption enunciated by Article 1602, the
existence of one circumstance is enough.62

Where in a contract of sale with pacto de retro, the vendor

remains in possession, as a lessee or otherwise, the contract shall
be presumed to be an equitable mortgage.57 The reason for the
presumption lies in the fact that in a contract of sale with pacto de
retro, the legal title to the property is immediately transferred to
the vendee, subject to the vendor's right to redeem. Retention,
therefore, by the vendor of the possession of the property is
inconsistent with the vendee's acquisition of the right of ownership
under a true sale.58 It discloses, in the alleged vendee, a lack of
interest in the property that belies the truthfulness of the sale a
retro.59

Moreover, under Article 1603 of the Civil Code it is provided that:

"(i)n case of doubt, a contract purporting to be a sale with right to
repurchase shall be construed as an equitable mortgage." In this
case, We have no doubt that the transaction between the parties
is that of a loan secured by said property by way of mortgage.
In Lorbes v. Court of Appeals,63 the Court held that:
The decisive factor in evaluating such agreement is the
intention of the parties, as shown not necessarily by the

terminology used in the contract but by all the

surrounding circumstances, such as the relative situation
of the parties at that time, the attitude, acts, conduct,
declarations of the parties, the negotiations between
them leading to the deed, and generally, all pertinent
facts having a tendency to fix and determine the real
nature of their design and understanding. As such,
documentary and parol evidence may be submitted and
admitted to prove the intention of the parties.
Sales with rights to repurchase, as defined by the Civil Code, are
not favored. We will not construe instruments to be sales with a
right to repurchase, with the stringent and onerous effects which
follow, unless the terms of the document and the surrounding
circumstances require it. Whenever, under the terms of the
writing, any other construction can fairly and reasonably be made,
such construction will be adopted and the contract will be
construed as a mere loan unless the court can see that, if
enforced according to its terms, it is not an unconscionable one.64
Article 1602 of the Civil Code is designed primarily to curtail the
evils brought about by contracts of sale with right of repurchase,
such as the circumvention of the laws against usury and pactum
commissorium.65
WHEREFORE, the petition is DENIED for lack of merit.
SO ORDERED.
Ynares-Santiago, Chairperson, Austria-Martinez, Chico-Nazario,
Nachura, JJ., concur.