G.R. No.

L-2352

July 26, 1910

ELADIO ALONSO, plaintiff-appellee,

vs.
TOMAS VILLAMOR, ET AL., defendants-appellants.

this letter the key of the alms box of the said image in order that we may
comply with our obligation in conformity with the dispositions of said order.
We beg to remain as always by your spiritual sons. Q. B. S. M.
(Signed) ANDRES OJEDA.

This is an action brought to recover of the defendants the value of certain articles taken
from a Roman Catholic Church located in the municipality of Placer, and the rental value
of the church and its appurtenances, including the church cemetery, from the 11th day of
December, 1901, until the month of April, 1904. After hearing the evidence, the court
below gave judgment in favor of the plaintiff for the sum of P1,581, with interest at 6 per
cent from the date of the judgment. The said sum of P1,581 was made up of two items,
one of which, P741, was for the value of the articles taken from the church, and the other,
P840, the rental value of the premises during the occupations by defendants. From this
judgment the defendants appealed to this court.
It appears that the defendants were on the 11th day of December, 1901, members of the
municipal board of the municipality of Placer, and that they on that date addressed to the
plaintiff in this case, who was the priest in charge of the church, its appurtenances and
contents, the following letter:
PLACER, 11th December, 1901.
R. P. ELADIO ALONSO, Benedicto, Suriago.
ESTEEMED PADRE: After saluting you, we take the liberty of writing you that
in the municipality of which we have charged we have received an order from
the provincial fiscal, dated the 5th instant, which says: "The cemeteries,
convents, and the other buildings erected on land belonging to the town at the
expense of the town and preserved by it belong to the town, and for this reason
the municipality is under the obligation of administering them and of collecting
the revenues therefrom, and for this reason we notify you that from this date all
of the revenues and products therefrom must be turned into the treasury of the
municipality in order that the people may properly preserve them.
In the same way we notify you that the image of St. Vicente which is now in the
church, as it is an image donated to the people by its owner, by virtue of said
order is also the property of said people, and therefore the alms which are given
it by the devotees thereof must be also turned into the municipal treasury for the
proper preservation of the church and for other necessary purposes. We hope
that you will view in the proper light and that you will deliver to the bearer of

TOMAS VILLAMOR.
ANDRES CALINAUAN.
BERNARDINO TANDOY.
EUSEBIO LIRIO.
ELEUTERIO MONDAYA.
MAXIMO DELOLA.
SEGUNDO BECERRO.
ONOFRE ELIMANCE.
On the 13th of December, 1901, the defendants took possession of the church and its
appurtenances, and also of all of the personal property contained therein. The plaintiff, as
priest of the church and the person in charge thereof, protested against the occupation
thereof by the defendants, but his protests received no consideration, and he was
summarily removed from possession of the church, its appurtenances and contents.
The only defense presented by the defendants, except the one that the plaintiff was not
the real party in interest, was that the church and other buildings had been erected by
funds voluntarily contributed by the people of that municipality, and that the articles
within the church had been purchased with funds raised in like manner, and that,
therefore, the municipality was the owner thereof.
The question as to the ownership of the church and its appurtenances, including the
convent and cemetery, was before this court on the 23rd day of September, 1908, in an
action entitled "The Roman Catholic Apostolic Church against the municipality of
Placer."1 Substantially the same facts were presented on the part of the defendants in that
case as are presented by the defendants in this. The question there litigated was the claim
upon the part of the municipality of ownership of said church and its appurtenances on

the ground that according to Spanish law the Roman Catholic Apostolic Church was not
the owner of such property, having only the use thereof for ordinary ecclesiastical and
religious purposes, and that the true owner thereof was the municipality or the State by
reason of the contributions by them, or by the people, of the land and of the funds with
which the buildings were constructed or repaired. The court decided in that case that the
claim of the defendants was not well founded and that the property belonged to the
Roman Catholic Church. The same question was discussed and decided in the case
of Barlin vs. Ramirez (7 Phil. Rep., 41), and the case of The Municipality of Ponce vs.
Roman Catholic Apostolic Church in Porto Rico (28 Sup. Ct. Rep., 737, 6 Off. Gaz.,
1213).
We have made a careful examination of the record and the evidence in this case and we
have no doubt that the property sued for was, at the time it was taken by the defendants,
the property of the Roman Catholic Church, and that the seizure of the same and
occupation of the church and its appurtenances by the defendants were wrongful and
illegal. We are also convinced, from such examination, that the conclusions of the court
below as to the value of the articles taken by the defendants and of the rent of the church
for the time of its illegal occupation by the defendants were correct and proper. While
some objection was made on appeal by counsel for the defendants that the value of the
articles taken and of the rent of the church and its appurtenances had not been proved by
competent evidence, no objection to the introduction of the evidence of value was made
at the trial and we can not consider that question raised for the first time here.
We have carefully examined the assignments of error made by counsel for defendants on
this appeal. We find none of them well founded. The only one which deserves especial
attention at our hands is the one wherein the defendants assert that the court below erred
in permitting the action to be brought and continued in the name of the plaintiff instead of
in the name of the bishop of the diocese within which the church was located, or in the
name of the Roman Catholic Apostolic Church, as the real party in interest.
It is undoubted the bishop of the diocese or the Roman Catholic Apostic Church itself is
the real party in interest. The plaintiff personally has no interest in the cause of action.
Section 114 of the Code of Civil Procedure requires that every action must be prosecuted
in the name of the real party in interest. The plaintiff is not such party.
Section 110 of the Code of Civil Procedure, however, provides:
SEC. 110. Amendments in general. The court shall, in furtherance of justice,
and on such terms, if any, as may be proper, allow a party to amend any
pleading or proceeding and at any stage of the action, in either the Court of First
Instance or the Supreme Court, by adding or striking out the name of any party,
either plaintiff or defendant, or by correcting a mistake in the name of a party,

or a mistaken or inadequate allegation or description in any other respect so that

the actual merits of the controversy may speedily be determined, without regard
to technicalities, and in the most expeditious, and inexpensive manner. The
court may also, upon like terms, allow an answer or other pleading to be made
after the time limited by the rules of the court for filing the same. Orders of the
court upon the matters provided in this section shall be made upon motion filed
in court, and after notice to the adverse party, and an opportunity to be heard.
Section 503 of the same code provides:
SEC. 503. Judgment not to be reversed on technical grounds. No judgment
shall be reversed on formal or technical grounds, or for such error as has not
prejudiced the real rights of the excepting party.
We are confident under these provisions that this court has full power, apart from that
power and authority which is inherent, to amend the process, pleadings, proceedings, and
decision in this case by substituting, as party plaintiff, the real party in interest. Not only
are we confident that we may do so, but we are convinced that weshould do so. Such an
amendment does not constitute, really a change in the identity of the parties. The plaintiff
asserts in his complaint, and maintains that assertion all through the record, that he is
engaged in the prosecution of this case, not for himself, but for the bishop of the diocese
not by his own right, but by right of another. He seeks merely to do for the bishop what
the bishop might do for himself. His own personality is not involved. His own rights are
not presented. He claims no interest whatever in the litigation. He seeks only the welfare
of the great church whose servant he is. Gladly permits his identity to be wholly
swallowed up in that of his superior. The substitution, then, of the name of the bishop of
the diocese, or the Roman Catholic Apostolic Church, for that of Padre Alonso, as party
plaintiff, is not in reality the substitution of one identity for another, of one party for
another, but is simply to make the form express the substance. The substance is there. It
appears all through the proceedings. No one is deceived for an instant as to whose interest
are at stake. The form of its expression is alone defective. The substitution, then, is not
substantial but formal. Defect in mere form can not possibly so long as the substantial is
clearly evident. Form is a method of speech used to express substance and make it clearly
appear. It is the means by which the substance reveals itself. If the form be faulty and still
the substance shows plainly through no, harm can come by making the form accurately
expressive of the substance.
No one has been misled by the error in the name of the party plaintiff. If we should by
reason of this error send this back for amendment and new trial, there would be on the
retrial the same complaint, the same answer, the same defense, the same interests, the
same witnesses, and the same evidence. The name of the plaintiff would constitute the

only difference between the old trial and the new. In our judgment there is not enough in
a name to justify such action.
There is nothing sacred about processes or pleadings, their forms or contents. Their sole
purpose is to facilitate the application of justice to the rival claims of contending parties.
They were created, not to hinder and delay, but to facilitate and promote, the
administration of justice. They do not constitute the thing itself, which courts are always
striving to secure to litigants. They are designed as the means best adapted to obtain that
thing. In other words, they are a means to an end. When they lose the character of the one
and become the other, the administration of justice is at fault and courts are
correspondingly remiss in the performance of their obvious duty.
The error in this case is purely technical. To take advantage of it for other purposes than
to cure it, does not appeal to a fair sense of justice. Its presentation as fatal to the
plaintiff's case smacks of skill rather than right. A litigation is not a game of technicalities
in which one, more deeply schooled and skilled in the subtle art of movement and
position, entraps and destroys the other. It is, rather, a contest in which each contending
party fully and fairly lays before the court the facts in issue and then, brushing aside as
wholly trivial and indecisive all imperfections of form and technicalities of procedure,
asks that justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a
rapier's thrust. Technicality, when it desserts its proper office as an aid to justice and
becomes its great hindrance and chief enemy, deserves scant consideration from courts.
There should be no vested rights in technicalities. No litigant should be permitted to
challenge a record of a court of these Islands for defect of form when his substantial
rights have not been prejudiced thereby.
In ordering this substitution, we are in accord with the best judicial thought.
(McKeighan vs. Hopkins, 19 Neb., 33; Dixon vs. Dixon, 19 Ia., 512; Hodges vs. Kimball,
49 Ia., 577; Sanger vs. Newton, 134 Mass., 308; George vs. Reed, 101 Mass., 378;
Bowden vs. Burnham, 59 Fed. Rep., 752; Phipps and Co. vs. Hurlburt, 70 Fed. Rep., 202;
McDonal vs. State, 101 Fed. Rep., 171; Morford vs. Diffenbocker, 20 N. W., 600;
Costelo vs. Costelo vs. Crowell, 134 Mass., 280; Whitaker vs. Pope, 2 Woods, 463, Fed.
Cas. no. 17528; Miller vs. Pollock, 99 Pa. St., 202; Wilsonvs. Presbyterian Church, 56
Ga., 554; Wood vs. Circuit Judge, 84 Mich., 521; Insurance Co, vs. Mueller, 77 Ill., 22;
Farman vs. Doyle, 128 Mich., 696; Union Bank vs. Mott, 19 How. Pr., 114; R. R. Co. vs.
Gibson, 4 Ohio St., 145; Hume vs. Kelly, 28 Oreg., 398.)
It is therefore, ordered and decreed that the process, pleadings, proceedings and decision
in this action be, and the same are hereby, amended by substituting the Roman Catholic
Apostolic Church in the place and stead of Eladio Alonso as party plaintiff, that the
complaint be considered as though originally filed by the Catholic Church, the answer
thereto made, the decision rendered and all proceedings in this case had, as if the said

institution which Father Eladio Alonso undertook to represent were the party plaintiff,
and that said decision of the court below, so amended, is affirmed, without special finding
as to the costs.
Arellano, C. J., Torres, Johnson and Trent, JJ., concur.

G.R. No. 29155

JOSEFINA RUBIO DE LARENA, plaintiff-appellant,
vs.
HERMENEGILDO VILLANUEVA, defendant-appellee.
The case at bar is a sequel to case G. R. No. 21706, Josefina Rubio de Larena vs.
Hermenegildo Villanueva, decided on March 26, 1924.[[1]] In that case we affirmed a
decision of the Court of First Instance ordering the rescission of a lease of the Tacgajan
Sugar Plantation and the payment by the defendant-lessee of the unpaid balance of the
rent for the agricultural year 1920-1922 in the sum of P5,949.28 with interest from
August 26, 1922, an for P8,000 in rent for the agricultural year 1921-1923. The decision
also provided that the possession of the leased land be delivered to the plaintiff.
Shortly after the record was returned to the court below, a writ of execution was issued,
but before levy was made the parties came to an agreement, under which the money
judgment was to be satisfied by the payment of P10,500 in cash and the transfer to the
plaintiff of a dwelling house situated in the municipality of Bais. The agreement was
carried out in accordance with its terms, and on September 30, 1924, the following
document was executed by the plaintiff:
Habiendo llegado a un convenio entre la que subscribe, ejecutante, en la causa civil No.
67 decidida por la Corte Suprema, y el ejecutado, Don Hermenegildo Villanueva, por la
presente declaro haber recibido del Sheriff Provincial de Negros Oriental, y mi entera
satisfaccion la suma de diez mil quinientos pesos (P10,500), mas una casa residencial con
su solar, situada en la plaza del Municipio de Bais, Provincia de Negros Oriental, cuyas
descripciones aparecen an un ocumento aparte, por el importnte de la ejecusacion
expidida por el Jusgado de Negros Oriental al 14 de mayo de 1924, en vitud de una
decision de la Corte Suprema. Con este queda definitivamente cumplimentada esta
ejecucion.
Y para que asi conste, firmo la presente en el Municipio de Bais, Provincia de Negros
Oriental, I. F., ante el Sheriff Provincial de esta Provincia de Negros Oriental y el Notario
Publico Don Francisco Romero, que ratifica este compromiso.
(Fda.) JOSEFINA RUBIO, Vda. DE LARENA
Firmado en presencia de:
(Fdos.) BRAULIO RUBIO
FRANCISCO PINERO
(ACKNOWLEDGMENT)
In the meantime, the defendant had harvested the sugarcane crop produced in the
agricultural year 1922-1924, and after having satisfied the aforesaid money judgment, he
also continued in possession of the plantation long enough to appropriate to himself the
following ratoon cane crop.

The present action was brought on April 13, 1925, but the last amended complaint,
setting forth three causes of action, was not filed until June 17, 1927. As her first cause of
action the plaintiff, after a preliminary statement of the origin of the controversy, alleges
that while case G. R. No. 21706 was on appeal to the Supreme Court, the defendant knew
positively that the aforesaid lease was declared rescinded by the Court of First Instance
on September 8, 1923, and that he, the defendant, also knew that he thereafter was not
entitled to the possession of the aforesaid hacienda; that he, nevertheless, in bad faith
continued in such possession during the agricultural year 1922-1924 and appropriated to
himself the cane harvest for that year, which after deducting the share of the sugar
central, produced 1,679.02 piculs for his own benefit, which sugar was sold by him for
the sum of P13 a picul; that the plaintiff has demanded payment to her of the total value
of said 1,679.02 piculs, amounting to P21,827.26, but that the defendant refuses to pay.
The plaintiff, therefore, asks judgment for the sum of P21,827.26 upon the first cause of
action.
For the second cause of action the plaintiff alleges that under the contract of lease of the
Tacgajan Hacienda, one of the obligations assumed by the defendant was that he would
use the care of a good father of the family in conserving the tools, agricultural
implements, draft animals, and other effects enumerated in an inventory made at the time
the defendant entered in possession under the lease; that he was further obligated to
return said property to the plaintiff, but that he return said property to the plaintiff, but
that he returned only a part that he returned only a part thereof and failed to returned only
a part thereof and failed to return 4 carabaos, 4 vacunos, 1 corn mill, 4 wagons, 106 steel
rails, 14 plows, 1 table, 1 scale, an 1 telephone, the total value of the property enumerated
being P3,596 for which amount, plus P500 in damages, the plaintiff asks judgment under
her second cause of action.
As a third cause of action the plaintiff alleges that the harvest of sugar cane illegally
made by the defendant in 1924 left ratoon sugar cane in the fields of the hacienda, which
sugar can was the property of the plaintiff, and that during the year 1925, the defendant
illegally harvested said ratoon cane together with some recently planted cane, which
harvested after deducting the share of the sugar central, produced 1,613.25 piculs of
sugar, which the defendant sold for his own benefit at the price of P13 per picul, the total
amount received by him being P20,962.25 for which the plaintiff demands judgment.
In his answer to the first and third causes of action, the defendants alleges that according
to the pleadings in case G. R. No. 21706, the two causes of action were included in that
case and, therefore, must be considered res adjudicata. In regard to the second cause of
action the defendant pleads the general issue and sets up as a special defense that
assuming that the property referred to in said cause of action was missing, it loss was due
to its total extinction by ordinary use, for which the defendant could not be held
responsible. For all three causes of action, the defendant sets up as a special defense the
document executed by the plaintiff on September 30, 1924, acknowledging the
satisfaction of the judgment in case G. R. No. 21706.
Upon trial the Court of First Instance sustained the defendant's special defense and
absolved him from the complaint with the cost against the plaintiff, whereupon the latter
appealed to this court.

We do not think that the court below erred in absolving the defendant from liability upon
the second cause of action. It is not without significance that in her original complaint the
plaintiff claimed only 5 plows, 6 carts, 3 carabaos an 4 vacunos, the total value of which
was alleged to be P1,360; in the first amended complaint filed over two years later, the
same claim was made, but in the last amended complaint a number of other articles were
included, thus increasing the claim to P3,596. The court below found that the weight of
the evidence showed that the missing draft animals died from rinderpest and that the
other personal property was turned over to the provincial sheriff for delivery to the
plaintiff before the writ of execution was returned to the court. If so, the action would lie
against the sheriff rather than against the defendant.
As to the first cause of action the defendant argues that it was included in the prayer of an
amended complaint filed in case G. R. No. 21706 and that, although no express
determination thereof was made in the decision of the case, it must, nevertheless, be
regarded as res judicata. That such is not the case is very clear. The Code of Civil
Procedure says:
That only is deemed to have been so adjudged in a former judgment which appears upon
its face to have been so adjudged, or which was actually and necessarily included therein
or necessary thereto. (Sec. 307, Code of Civil Proc.)
But the defendant maintains that the plaintiff having had an opportunity to ventilate the
matter in the former case, she cannot now enforce the same cause of action in the present
case. Properly speaking, this argument does not involve the doctrine of res judicata but
rests on the well-known an, in American law, firmly established principle that a party will
not be permitted to split up a single cause of action an make it the basis for several suits.
But that is not this case. The rule is well established that when a lease provides for the
payment of the rent in separate installments, each installment is an independent cause of
action, though it has been held and is good law, that in an action upon such a lease for the
recovery of rent, the installments due at the time the action brought must be included in
the complaint an that failure to o so will constitute a bar to a subsequent action for the
payment of that rent. The aforesaid action, G. R. No. 21706, was brought on August 23,
1922, the plaintiff demanding payment of then sue rent in addition to the rescission of the
lease. On July 27, 1923, the plaintiff filed a motion for an amendment to paragraph 6 of
the complaint adding to that paragraph the following sentence:
Que tambien ha vencido ya el tercer ano el arrendamiento de la finca en cuestion y que
tampoco ha pagado el demandao el canon correspondiente a icho ano.
The plaintiff also amended the prayer of the complaint by asking judgment for rent for
years subsequent to 1922. The motion was granted, and the case came up for trial on July
30, 1923, and on September 8, 1923, the trial court rendered its decision giving judgment
for rent up to and including the rent for the agricultural year ending in 1923. The lease
did not provide for payment of rent in advance or at any definite time, an it appears
plainly from the record that the rent for an agricultural year was not considered due until
the end of the corresponding year. It follows that the rent for the agricultural year 19221924 ha not become sue time of the trial of the case and that consequently the trial court
could not render judgment therefore. The action referred to is, therefore, no bar to the
first cause of action in the present litigation.

The defendant places much weigh upon the document of September 30, 1924,
hereinbefore quoted. The document speaks for itself, and it will be readily seen that it is
merely a receipt for the satisfaction of the money judgment in the case G. R. No. L-21706
and has nothing to with the present case.
The only question in regard to the first cause of action relates to the amount of the
damages. The plaintiff contends that the defendant was a possessor in bad faith, and
therefore, must pay the value of the fruits of the land in accordance with article 455 of the
Civil Code. Under the circumstances of the case, we cannot so hold. The defendant held
possession under the contract of lease until said contract was rescinded. The contract
contained no special provision for the procedure in effecting the rescission, and it follows
that it could only be accompanied by a final judgment of the court. The judgment in case
G. R. No. L-210706 did not become final until March 27, 192, when our decision on
appeal was rendered. As that must have been close to the end of the harvest and milling
of the sugar crop for the period to which the first cause of action refers, we do not think
that the defendant should be required to pay more than the amount of the stipulated rent
for the period, i. e., the sum of P8,000 with interest rent for that period, i. e., the sum of
P8,000 with interest. (Lerma vs. De la Cruz, 7 Phil., 581.)
The action for terminating the lease was brought under article 1124 of the Civil Code, an
it may, perhaps, he said that properly speaking, the subject matter of the action was a
resolution of the contract an not a rescission. That may be true, but it is a distinction
without a difference; in their case a judicial declaration would be necessary for the
cancellation of the contract in the absence of a special agreement.
Very little need be said in regard to the third cause of action. It relates to a period
subsequent to the complete termination of the lease by final judicial order. The defendant
had then no right whatever to the possession of the land or to the fruits thereof, and in
removing the fruits, he acted in bad faith. This being the case, he must pay for the fruits
received by him, less the necessary expenses of production. (Arts. 455 and 453 of the
Civil Code.) As his bad faith commence long before the fruits in question were produced,
he is not entitled to any part of the net proceeds of the crop. The evidence shows that the
net ratoon crop of the year 1924-1925 was 1,613.25 piculs of sugar, and according to the
defendant's own statement, the market value of the sugar was in the neighborhood of P11
per picul an the costs of production about P4.50. The net result is that under the third
cause of action, the defendant must pay to the plaintiff the sum of P10,486.13 with
interest.
For the reason stated, the judgment of the court below is affirmed in regard to the second
cause of action. It is reversed as to the first and third causes of action, and it is hereby
ordered that the plaintiff have and recover from the defendant the sum of P18,486.13 with
interest at the rate of 6 per cent per annum from April 13, 1925, the date of the filing of
the complaint. No costs will be allowed. So ordered.
Avancea, C. J., Johnson Street, Malcolm, Villamor, Romualdez, an Villa-Real, JJ.,
concur.
ORDER AMENDING DECISION

December 10, 1928

OSTRAND, J.:
In the motion filed by the defendant on November 14, 1928 our attention is called to a
mathematical error in that we, in discussing the plaintiff's third cause of action, failed to
take into consideration the fact that one-half of the gross ratoon crop produced on the
land in question in the agricultural year 1924-1925 was ceded to the sugar central as
compensation for the milling of the cane and that the defendant paid the expenses of the
production of the total or gross crop. Page 8 of the aforesaid decision is therefore
amended so as to read as follows:
Very little need be said in regard to the third cause of action. It relates to a period
subsequent to complete termination of the lease by final judicial order. The defendant had
then no right whatever to the possession of the land or to the fruits thereof, and in
removing the fruits, he acted in bad faith. This being the case, he must pay for the fruits
received by him, less the necessary expenses of production (Arts. 455 and 453 of the
Civil Code.) As his bad faith commenced long before the fruits in question were
produced, he is not entitled to any part of the net proceeds of the crop. The evidence
shows that the gross ratoon crop for the year 1924-1925 was 3,226.50 piculs of sugar, and
according to the defendant's own statement, the market value of the sugar was in the
neighborhood of P11 per picul and the cost of production about P4.50. The defendant
received only one-half of the gross crop, the other half going to the sugar central as
compensation for the milling of the cane, but the defendant paid the cost of production
both of his share of the sugar and that of the sugar central. The net result is that under the
third cause of action, the defendant must pay to the plaintiff the sum of P3,226.50 with
interest.
"For the reasons stated, the judgment of the court below is affirmed in regard to the
second cause of action. It is reversed as to the first an third causes of action, an it is
hereby ordered that the plaintiff have and recover from the defendant the sum of
P11,226.50 with interest at the rate of 6 per cent per annum from April 13, 1925, the date
of the filing of the complaint. No costs will be allowed." So ordered.

November 8, 1930
G.R. No. 32958
BLOSSOM AND COMPANY, INC., plaintiff-appellant,
vs.
MANILA GAS CORPORATION, defendant-appellee.
STATEMENT
In its complaint filed March 3, 1927, the plaintiff alleges that on September 10, 1918, it
entered into a contract with the defendant in which the plaintiff promised and undertook
to purchase and receive from the defendant and the defendant agreed to sell and deliver to
the plaintiff, for a period of four years, three tons of water gas tar per month from
September to January 1, 1919 and twenty tons per month after January 1, 1919, for the
remaining period of the contract; one-half ton of coal gas tar a month from September to
January 1, 1919, and six tons per month after January 1, 1919, for the remainder of the
contract, delivery to be made at the plant of the defendant in the City of Manila, without
containers and at the price of P65 per ton for each kind of gas tar, it being agreed that this
price should prevail only so long as the raw materials coal and crude oil used by the
defendant in the manufacture of gas should cost the defendant the same price as that
prevailing at the time of the contract, and that in the event of an increase or decrease in
the cost of raw material there would be a corresponding increase or decrease in the price
of the tar. That on January 31, 1919, this contract was amended so that it should continue
to remain in force for a period of ten years from January 1, 1919, and it was agreed that
the plaintiff should not be obliged to take the qualities of the tars required during the year
1919, but that it might purchase tars in such quantities as it could use to advantage at the
stipulated price. That after the year 1919 the plaintiff would take at least the quantities
specified in the contract of September 10, 1918, to be taken from and after January 1,
1919, and that at its option it would have the right to take any quantity of water gas tar in
excess of the minimum quantity specified in that contract and up to the total amount of
output of that tar of defendant's plant and also to take any quantity of coal gas tar in
excess of the minimum quantity specified in that contract and up to 50 per cent of
defendant's entire output of coal gas tar, and that by giving the defendant ninety days'
notice, it would have the right at its option to take the entire output of defendant's coal
gas tar, except such as it might need for its own use in and about its plant. That in
consideration of this modification of the contract of September 10, 1918, plaintiff agreed
to purchase from the defendant of certain piece of land lying adjacent to its plant at the
price of P5 per square meter, the proof of which is evidenced by Exhibit C. That pursuant
to Exhibit C, defendant sold and conveyed the land to the plaintiff which in turn executed
a mortgage thereon to the defendant for P17,140.20, to secure the payment of the balance
of the purchase price.

by the plaintiff upon it to comply with its aforesaid contract by continuing to deliver the
coal and water gas tar to the plaintiff thereunder, but the said defendant flatly refused to
make any deliveries under said contract, and finally on November 23, 1923, the plaintiff
was forced to commence action against the defendant herein in the Court of First Instance
of Manila, being case No. 25352, of that court entitled 'Blossom & Co., plaintiff, vs.
Manila Gas Corporation, defendant,' to recover the damages which it had up to that time
suffered by reason of such flagrant violation of said contract on the part of the defendant
herein, and to obtain the specific performance of the said contract and after due trial of
that action, judgment was entered therein in favor of the plaintiff herein and against the
said defendant, the Manila Gas Corporation, for the sum of P26,119.08, as the damages
suffered by this plaintiff by the defendant's breach of said contract from July, 1920, up to
and including September, 1923, with legal interest thereon from November 23, 1923, and
for the costs but the court refused to order the said defendant to resume the delivery of
the coal and water gas tar to the plaintiff under said contract, but left the plaintiff with its
remedy for damages against said defendant for the subsequent breaches of said contract,
which said decision, as shown by the copy attached hereto as Exhibit G, and made a part
hereof, was affirmed by our Supreme Court on March 3, 1926;
IX. That after the defendant had willfully and deliberately violated its said contract as
herein-before alleged, and the plaintiff suffered great damage by reason thereof, the
plaintiff claimed the right to off- set its damages against the balance due from it to said
defendant on account of the purchase of said land from the defendant, and immediately
thereupon and notwithstanding said defendant was justly indebted to the plaintiff at that
time as shown by the judgment of the Court Exhibit G, in more that four times the
amount due to it from the plaintiff, the said defendant caused to be presented against the
plaintiff a foreclosure action, known as the Manila Gas Corporation versus Blossom &
Company, No. 24267, of the Court of First Instance of Manila, and obtained judgment
therein ordering that Blossom & Company pay the last installment and interest due on
said land or else the land and improvements placed thereon by the plaintiff would be sold
as provided by law in such cases to satisfy the same, and the said defendant proceeded
with the sale of said property under said judgment and did everything in its power to sell
the same for the sole purpose of crushing and destroying the plaintiff's business and thus
rendering it impossible for the plaintiff herein to continue with its said contract in the
event that said defendant might in the future consider it more profitable to resume
performance of the same, but fortunately the plaintiff was able to redeem its property as
well as to comply with its contract and continued demanding that the defendant
performed its said contract and deliver to it the coal and water gas tar required thereby.
That the defendant made no deliveries under its contract, Exhibit C, from July, 1920 to
March 26, 1926, or until after the Supreme Court affirmed the judgment of the lower
court for damages in the sum of P26, 119.08. [[1]]

It is then alleged:

It is then alleged that:

VIII. That about the last part of July, 1920 the defendant herein, the Manila Gas
Corporation willfully, and deliberately breached its said contract, Exhibit C, with the
plaintiff by ceasing to deliver any coal and water gas tar to it thereunder solely because of
the increased price of its tar products and its desire to secure better prices therefor than
plaintiff was obliged to pay to it, notwithstanding the frequent and urgent demands made

. . . On March 26, 1926 the said defendant offered to resume delivery to the plaintiff from
that date of the minimum monthly quantities of tars stated in its contract ,and the plaintiff
believing that the said defendant was at least going to try to act in good faith in the
further performance of its said contract, commenced to accept deliveries of said tars from
it, and at once ascertained that the said defendant was deliberately charging it prices

much higher than the contract price, and while the plaintiff accepted deliveries of the
minimum quantities of tars stated in said contract up to and including January, 1927,
(although it had demanded deliveries of larger quantities thereunder, as hereinafter
alleged) and paid the increased prices demanded by the defendant, in the belief that it was
its duty to minimize the damages as much as possible which the defendant would be
required to pay to it by reason of its violation of said contract, it has in all cases done so
under protest and with the express reservation of the right to demand from the said
defendant an adjustment of the prices charged in violation of its contract, and the right to
the payment of the losses which it had and would suffer by reason of its refusal to make
additional deliveries under said contract, and it also has continuously demanded that the
said defendant furnish to it statements supported by its invoices showing the cost prices if
its raw materials coal and crude oil upon which the contract price of the tars in
question is fixed, which is the only way the plaintiff has to calculate the true price of said
tars, but said defendant has and still refuses to furnish such information, and will
continue to refuse to do so, unless ordered to furnish such information to the plaintiff by
the court, and the plaintiff believes from the information which it now has and so alleges
that the said defendant has overcharged it on the deliveries of said tars mentioned in the
sum of at least P10,000, all in violation of the rights of the plaintiff under its said contract
with the defendant.
That on January 31, 1926 and pursuant to Exhibit C. plaintiff notified the defendant in
writing that commencing with the month of August, 1926 it desired to take delivery of 50
per cent of defendant's coal tar production for that month and that on November 1, 1926,
it desired to take the entire output of defendant's coal gas tar, but that the defendant
refused and still refuses to make such deliveries unless plaintiff would take all of its
water gas tar production with the desired quantity of coal gas tar which refusal was a
plain violation of the contract. That on January 29, 1927, and in accord with Exhibit C,
plaintiff notified the defendant in writing that within ninety days after the initial delivery
to it of its total coal gas tar production or in February, 1927, it would require 50 per cent
of its total water gas tar production and that in April 1927, it would require the total
output of the defendant of both coal and water gas tars, and that it refused to make either
of such deliveries.
It is then alleged:
XIV. That as shown by the foregoing allegations of this complaint, it is apparent that
notwithstanding the plaintiff in this case has at all times faithfully performed all the terms
and conditions of said contract, Exhibit C, on its part of be performed, and has at all times
and is now ready, able and willing to accept and pay for the deliveries of said coal and
water gas tars required by said contract and the notices given pursuant thereto, the said
defendant, the Manila Gas Corporation, does not intend to comply with its said contract,
Exhibit C, and deliver to the plaintiff at the times and under the terms and conditions
stated therein the quantities of coal and water gas tars required by said contract, and the
several notices given pursuant thereto, and that it is useless for the plaintiff to insist
further upon its performance of the said contract, and for that reason he only feasible
course for the plaintiff to pursue is to ask the court for the rescission of said contract and
for the full damages which the plaintiff has suffered from September, 1923, and will
suffer for the remainder of said contract by reason of the defendant's failure and refusal to
perform the same, and the plaintiff has so notified the said defendant.

That since September, 1923, by reason of the bad faith of the defendant, the plaintiff has
been damaged in the sum of P300,000, for which it prays a corresponding judgment, and
that the contract, Exhibit C, be rescinded and declared void and without force and effect.
After the filing and overruling of its demurrer, the defendant filed an answer in the nature
of a general and specific denial and on April 10, 1928, and upon stipulation of the parties,
the court appointed W. W. Larkin referee, "to take the evidence and, upon completion of
the trial, to report his findings of law and fact to the court."
July 18, 1928, the defendant filed an amended answer in which it alleged as an
affirmative defense, first, that the complaint does not state facts sufficient to constitute
cause of action the reason that a prior adjudication has been had of all the issues involved
in this action, and, second, "that on or about the 16th day of June, 1925, in an action
brought in the Court of First Instance of the City on Manila, Philippine Islands, before the
Honorable Geo. R. Harvey, Judge, by Blossom & Company, plaintiff, vs. Manila Gas
Corporation, defendant, being civil case No. 25353, of said court, for the same cause of
action as that set fourth in the complaint herein, said plaintiff recovered judgment upon
the merits thereof, against said defendant decreeing a breach of the contract sued upon
herein, and awarding damages therefor in the sum of P26,119.08 with legal interest from
November 23, 1923, and costs of suit, which judgment was upon appeal affirmed by the
Supreme Court of the Philippine Islands, in case G. R. No. 24777 of said court, on the 3d
day of March, 1926 and reported in volume 48 Philippines Reports at page 848," and it
prays that plaintiff's complaint be dismissed with costs.
After the evidence was taken the referee made an exhaustive report of sixty-pages in
which he found that the plaintiff was entitled to P56,901.53 damages, with legal interest
from the date of the filing on the complaint, to which both parties filed numerous
exceptions
In its decision the court says:
Incidental references have been made to the referee's report. It was admirably prepared.
Leaving aside the question of damages and the facts upon which the referee assessed
them, the facts are not in dispute at least not in serious dispute. They appear in the
documentary evidence and this decision is based upon documents introduced into
evidence by plaintiff. If I could have agreed with the referee in respect to the question of
law, I should have approved his report in toto. If defendant is liable for the damages
accruing from November 23, 1923, the date the first complaint was filed, to April 1st,
1926, the date of resumption of relations; and if defendant, after such resumption of
relations, again violated the contract, the damages assessed by the referee, are, to my way
of thinking, as fair as could be estimated. He went to tremendous pains in figuring out the
details upon which he based his decision. Unfortunately, I cannot agree with his legal
conclusions and the report is set aside except wherein specifically approved.
It is unnecessary to resolve specifically the many exceptions made by both partied to the
referee's report. It would take much time to do so. Much time has already been spent in
preparing this decision. Since both parties have informed me that in case of adverse
judgment ,and appeal would be taken, I desire to conclude the case so that delay will be
avoided.

Let judgment be entered awarding damages to plaintiff in the sum of P2,219.60, with
costs.
From which plaintiff only appealed and assigns twenty-four different errors, of which the
following are material to this opinion:
I. The trial court erred in holding that this suit in so far as the damages from November,
1923, to March 31, 1926, are concerned, is res adjudicata.
II. The trial court erred in holding that the defendant repudiated the contract in question
as a whole, and that the plaintiff when it brought its first suit to collect damages had
already elected and consented to the dissolution of the contract, and its choice once made,
being final, it was estopped to claim that the contract was alive when that suit was
brought.
xxx

xxx

quantities of both at any time it chose, it announced its intention f breaching the contract,
and defendant was under no obligation to deliver maximum quantities of either tars, and
since this was the efficient cause of the failure of defendant to deliver or plaintiff to
accept tars, the blame is attribute to plaintiff, and it cannot recover for a rescission.
xxx

Water gas tar (Exhibit Ref. 21)

Coal gas tar (Exhibit Ref. 22)

VII. The trial court erred in refusing to sustain plaintiff's third exception to the legal
interpretation placed on the contract in this case by the referee with reference to quantity
of tars and his conclusion with respect to the terms thereof that:

Overcharges on deliveries (Exhibit Ref. 23)

"1. Plaintiff must take and defendant must deliver either the minimum or maximum
quantity of water gas tar and not any quantity from the minimum to the maximum and/or

"3. With ninety days' notice by plaintiff to defendant the former must take and the latter
must deliver total output of both tars, except such as might be needed by defendant for
use in and about its plants and not any quantity from the minimum up to total output of
both tars." (See page 47, Referee's report.)
And in holding that the option contained in said contract, taking into consideration the
purposes of both parties in entering into the contract, was a claimed by defendant: all the
water gas tar and 50 per cent of the coal gas tar upon immediate notice and all tars upon
ninety day's notice.
VIII. The trial court erred in refusing to sustain plaintiff's fourth exception to the finding
and conclusion of the referee that from the correspondence between the parties it was
apparent that plaintiff did not make a right use of its option, and that the letter of June 25,
1926, and the subsequent demands, with exception of the letter of July 31, 1926, were not
made in pursuance to the terms of the contract, and that defendant had no liability in
refusing to comply therewith, and in allowing plaintiff damages only for the failure of the
defendant to deliver quantities shown in Exhibits Ref. 21 and 22. (See pages 51, 52,
Referee's report.)
IX. The trial court erred in finding and holding that the demands of plaintiff for additional
tars under its contract with the defendant were extravagant and not made in good faith,
and that when it wrote to defendant that it desired maximum quantities of coal gas tars
and only minimum of water gas tars, but with the reservation of going back to minimum

xxx

XXIII. The trial court erred in refusing to sustain plaintiff's seventeenth exception to the
finding and conclusion of the referee that the plaintiff is entitled to recover from the
defendant only the following sums:

xxx

"2. Plaintiff must take either the minimum and any quantity up to fifty per cent of entire
output of coal gas tar.

xxx

or a total of
with interest, and in not awarding to the plaintiff as damages in this case the sum of
P319,253.40, with legal interest thereon from the date of filing the complaint in this case,
in the manner and form computed but it, and in awarding damages to the plaintiff for the
sum of only P2,219.60. with costs.
xxx

xxx

xxx

JOHNS, J.:
In this action plaintiff seeks to recover damages from the defendant which it claims to
have sustained after September, 1923, arising from, and growing out of, its original
contract of September 10, 1918, as modified on January 1, 1919, to continue for a period
of ten years from that date.
In paragraph VIII of its complaint, plaintiff alleges that about the last part of July, 1920,
the defendant "willfully and deliberately breached its said contract," and that it "flatly
refused to make any deliveries under said contract, and finally on November 23, 1923," it
was forced to commence action in the Court of First Instance against the defendant
known as case No. 25352, to recover the damages which it had then sustained by reason
of such flagrant violation of said contract on the part of the defendant, in which judgment
was rendered in favor of the plaintiff and against the defendant for P26,1119.08, as
damages suffered by this plaintiff by the defendant's breach of said contract from July
1920, up to and including September, 1923, with legal interest thereon from November
23, 1923, and for the costs," in which the court refused to order the defendant to resume
the delivery of the coal and water gas tar to the plaintiff, in accord with said contract, but

left it with its remedy for damages against the defendant for any subsequent breaches of
the contract. A copy of that judgment, which was later affirmed by this court, is attached
to, marked Exhibit G, and made a part of, the complaint in this action.
In their respective briefs, opposing counsel have much to say about the purpose and
intent of the judgment, and it is vigorously asserted that it was never intended that it
should be or become a bar to another action by the plaintiff to recover any damages it
may have sustained after September, 1923, during the remainder of the ten-year period of
that contract. Be that as it may, it must be conceded that the question as to what would be
the legal force and effect of that judgment in that case was never presented to, or decided
by, the lower court or this court. In the very nature of things, neither court in that case
would have the power to pass upon or decided the legal force and effect of its own
judgment, for the simple reason that it would be premature and outside of the issues of
any pleading, and could not be raised or presented until after the judgment became final
and then only by an appropriate plea, as in this case.
Plaintiff specifically alleges that the defendant willfully and deliverately breached the
contract and "flatly refused to make any deliveries under said contract," by reason of.
which it was forced to and commenced its former action in which it was awarded
P26,119.08 damages against the defendant by reason of its breach of the contract from
July, 1920, to September, 1923.
In the final analysis, plaintiff in this action seeks to recover damages growing out of, and
arising from, other and different breaches of that same contract after November, 1923, for
the remainder of the ten-year period, and the question is thus squarely presented as to
whether the rendition of the former judgment is a bar to the right of the plaintiff to
recover damages from and after September, 1923, arising from, and growing out of,
breaches of the original contract of September 10, 1918, as modified on January 1, 1919.
That is to say, whether the plaintiff, in a former action, having recovered judgment for the
damages which it sustained by reason of a breach of its contract by the defendant up to
September, 1923, can now in this action recover damages it may have sustained after
September, 1923, arising from, and growing out of, a breach of the same contract, upon
and for which it recovered its judgment in the former action.
In the former action in which the judgment was rendered, it is alleged in the compliant:
"7. That about the last part of July or the first part of August, 1920, the Manila Gas
Corporation, the defendant herein, without any cause ceased delivering coal and water
gas tar to the plaintiff herein; and that from that time up to the present date, the plaintiff
corporation, Blossom & Company, has frequently and urgently demanded of the
defendant, the Manila Gas Corporation, that it comply with its aforesaid contract Exhibit
A by continuing to deliver coal and water gas tar to this plaintiff but that the said
defendant has refused and still refuses, to deliver to the plaintiff any coal and water gas
tar whatsoever under the said contract Exhibit A, since the said month of July 1920.
"9. That owing to the bad faith of the said Manila Gas Corporation, defendant herein, in
not living up to its said contract Exhibit A, made with this plaintiff, and refusing now to
carry out the terms of the same, be delivering to this plaintiff the coal and water gas tar
mentioned in the said Exhibit A, has caused to this plaintiff great and irreparable damages

amounting to the sum total of one hundred twenty- four thousand eight hundred forty
eight pesos and seventy centavos (P124,848,70);and that the said defendant corporation
has refused, and still refuses, to pay to this plaintiff the whole or any part of the aforesaid
sum.
"10. That the said contract Exhibit A, was to be in force until January 1, 1929, that is to
say ten (10) years counted from January 1, 1929; and that unless the defendant again
commence to furnish and supply this plaintiff with coal and water gas tar, as provided for
in the said contract Exhibit A, the damages already suffered by this plaintiff will
continually increase and become larger and larger in the course of years preceding the
termination of the said contract on January 1, 1929."
In that action plaintiff prays for judgment against the defendant:
"(a) That upon trial of this this cause judgment be rendered in favor of the plaintiff and
against the defendant for the sum of P124,8484.70), with legal interest thereon from
November 23, 1923;
"(b) That the court specifically order the defendant to resume the delivery of the coal and
water gas tar to the plaintiff under the terms of the said contract Exhibit A of this
complaint."
In the final analysis, plaintiff must stand or fall on its own pleadings, and tested by that
rule it must be admitted that the plaintiff's original cause of action, in which it recovered
judgment for damages, was founded on the ten-year contract, and that the damages which
it then recovered were recovered for a breach of that contract.
Both actions are founded on one and the same contract. By the terms of the original
contract of September 10, 1018, the defendant was to sell and the plaintiff was to
purchase three tons of water gas tar per month form September to January 1, 1919, and
twenty tons of water gas tar per month after January 1, 1919, one-half ton of coal gas tar
per month from September to January 1, 1919, and six tons of coal gas tar per month
after January 1, 1919. That from and after January 1, 1919, plaintiff would take at least
the quantities specified in the contract of September 10, 1918, and that at its option, it
would have the right to take the total output of water gas tar of defendant's plant and 50
per cent of the gross output of its coal gas tar, and upon giving ninety days' notice, it
would have the right to the entire output of coal gas tar, except such as the defendant
might need for its own use. That is to say, the contract provided for the delivery to the
plaintiff from month to month of the specified amounts of the different tars as ordered
and requested by the plaintiff. In other words, under plaintiff's own theory, the defendant
was to make deliveries from month to month of the tars during the period of ten years,
and it is alleged in both complaints that the defendant broke its contract, and in bad faith
refused to make any more deliveries.
In 34 Corpus Juris, p. 839, it is said:
As a general rule a contract to do several things at several times in its nature, so as to
authorize successive actions; and a judgment recovered for a single breach of a
continuing contract or covenant is no bar to a suit for a subsequent breach thereof. But

where the covenant or contract is entire, and the breach total, there can be only one
action, and plaintiff must therein recover all his damages.
In the case of Rhoelm vs, Horst, 178 U. U., 1; 44 Law. ed., 953, that court said:
An unqualified and positive refusal to perform a contract, though the performance thereof
is not yet due, may, if the renunciation goes to the whole contract, be treated as a
complete breach which will entitle the injured party to bring his action at once.
15 Ruling Case Law, 966, 967, sec. 441 says:
Similarly if there is a breach by the vendor of a contract for the sale of goods to be
delivered and paid for in installments, and the vendee maintains an action therefor and
recovers damages, he cannot maintain a subsequent action to recover for the failure to
deliver later installments.
In Pakas vs. Hollingshead, 184 N. Y., 211; 77 N. E., 40; 3 L. R. A. (N. S.), 1024, the
syllabus says:
Upon refusal, by the seller, after partial performance, longer to comply with his contract
to sell and deliver a quantity of articles in installments the buyer cannot keep the contract
in force and maintain actions for breaches as they occur but must recover all his damages
in one suit.
And on page 1044 of its opinion, the court say:
The learned counsel for the plaintiff contends that the former judgment did not constitute
a bar to the present action but that the plaintiff had the right to elect to waive or disregard
the breach, keep the contract in force, and maintain successive actions for time to time as
the installments of goods were to be delivered, however numerous these actions might be.
It is said that this contention is supported in reason and justice, and has the sanction of
authority at least in other jurisdictions. We do not think that the contention can be
maintained. There is not as it seems to us any judicial authority in this state that gives it
any substantial support. On the contrary, we think that the cases, so far as we have been
able to examine them, are all the other way, and are to the effect that, inasmuch as there
was a total breach of the contract by the defendant's refusal to deliver, the plaintiff cannot
split up his demand and maintain successive actions, but must either recover all his
damages in the first suit or wait until the contract matured or the time for the delivery of
all the goods had arrived. In other words, there can be but one action for damages for a
total breach of an entire contract to deliver goods, and the fact that they were to be
delivered in installment from time to time does not change the general rule.

relation tot he deliveries. It contained stipulations as to such payments, and guaranties as

to the average size of the logs to be delivered in each installment.Held, that it was an
entire contract, and not a number of separate and independent agreements for the sale of
the quantity to be delivered and paid for each month, although there might be breaches of
the minor stipulations and warranties with reference thereto which would warrant suits
without a termination of the contract.
2. JUDGMENTS MATTERS CONCLUDED ACTION FOR BREACH OF
INDIVISIBLE CONTRACT. The seller declared the contract terminated for alleged
breaches by the purchaser, and brought suit for general and special damages the latter
covering payments due for installments of logs delivered. By way of set-off and
recoupment against this demand, the purchaser pleaded breaches of the warranty as to the
size of the logs delivered during the months for which payment had not been made. Held,
that the judgment in such action was conclusive as to all claims or demands or either
party against the other growing out of the entire contract, and was a bar to a subsequent
suit brought by the purchaser to recover for other breaches of the same warranty in
relation to deliveries made in previous months.
On page 415 of the opinion, the court says:
When the contract was ended, the claims of each party for alleged breaches and damages
therefor constituted an indivisible demand; and when the same, or any part of the same,
was pleaded, litigation had, and final judgment rendered, such suit and judgment
constitute a bar to subsequent demands which were or might have been litigated (Baird
vs. U. S., 96 U. S., 430; 24 L. ed., 703.)
In Watts vs. Weston (238 Federal, 149), Circuit Court of Appeals, Second Circuit, the
syllabus says:
1. JUDGMENTS 593 JUDGMENT AS BAR MATTERS CONCLUDED.
Where a continuing contract was terminated by the absolute refusal of the party whose
action was necessary to further perform, a claim for damages on account of the breach
constituted as indivisible demand, and when the same or any part of the same was
pleaded, litigated, and final judgment rendered, such suit and judgment constitute a bar to
subsequent demands which were or might have been litigated therein.
And on page 150 of the opinion, the court says:

The syllabus says:

It is enough to show the lack of merit in the present contention to point out as an
inexorable rule of law that, when Kneval's contract was discharged by his total
repudiation thereof, Watt's claims for breaches and damages therefor constituted an
indivisible demand, and when the same, or any part of the same, was pleaded, litigation
had and final judgment rendered, such suit and judgment constitute a bar to subsequent
demands which were or might have been litigated." (Bucki, etc., Co. vs. Atlantic, etc.,
Co., 109 Fed. at page 415; 48 C. C. A., 459; Cf. Landon vs. Bulkley, 95 Fed., 344; 337 C.
C. A., 96.)

1. CONTRACTS CONSTRUCTION ENTIRE CONTRACT. A contract was

made for the sale of a large quantity of logs to be delivered in monthly installments
during a period of eight years, payments to be made also in installments at times having

The rule is usually applied in cases of alleged or supposed successive breaches, and
consequently severable demands for damages; but if the contract has been discharged by
breach, if suit for damages is all that is left, the rule is applicable, and every demand

The case of L. Bucki & Son Lumber Co. vs. Atlantic Lumber Co. (109 Federal, 411), of
the United States Circuit Court of Appeals for the Fifth Circuit, is very similar.

arising form that contract and possessed by any given plaintiff must be presented (at least
as against any given defendant) in one action; what the plaintiff does not advance he
foregoes by conclusive presumption.

It is admitted that the defendant never made any deliveries of any tar from July, 1920, to
April, 1936. Also that it made nine deliveries to plaintiff of the minimum quantities of
coal and water gas tar from April 7, 1926, to January 5, 1927.

Inn Abbott vs. 76 Land and Water Co. (118 Pac., 425; 161 Cal., 42), at page 428, the
court said:

Plaintiff contends that such deliveries were made under and in continuation of the old
contract.

In Fish vs. Folley, 6 Hill (N. Y.), 54, it was held, in accord with the rule we have
discussed, that, where the defendant had covenanted that plaintiff should have a continual
supply of water for his mill from a dam, and subsequently totally failed to perform for
nine years, and plaintiff brought an action for the breach and recovered damages
sustained by him to that time, the judgment was a bar to a second action arising from
subsequent failure to perform, on the theory that, although he covenant was a continuing
one in one sense, it was an entire contract, and a total breach put an end to it, and gave
plaintiff the right to sue for an equivalent in damages.

March 26, 1926, after the decision of this court affirming the judgment in the original
action, plaintiff wrote the defendant:

In such a case it is no warrant for a second action that the party may not be able to
actually prove in the first action all the items of the demand, or that all the damage may
not then have been actually suffered. He is bound to prove in the first action not only
such damages as has been actually suffered, but also such prospective damage by reason
of the breach as he may be legally entitled to, for the judgment he recovers in such action
will be a conclusive adjudication as to the total damage on account of the breach.
It will thus be seen that, where there is a complete and total breach of a continuous
contract for a term of years, the recovery of a judgment for damages by reason of the
breach is a bar to another action on the same contract for and on account of the
continuous breach.
In the final analysis is, there is no real dispute about any material fact, and the important
and decisive question is the legal construction of the pleadings in the former case and in
this case, and of the contract between the plaintiff and the defendant of January 1, 1920.

. . . It is our desire to take deliveries of at least the minimum quantities set forth therein
and shall appreciate to have you advise us how soon you will be in a position to make
deliveries; . . .
. . . In view of the fact that you have only effected settlement up to November 23, 1923,
please inform us what adjustment you are willing to make for the period of time that has
since elapsed without your complying with the contract.
In response to which on March 31, 1926, the defendant wrote this letter to the plaintiff:
In reply to your letter of March 26th, 1926, in regard to tar, we beg to advise you that we
are prepared to furnish the minimum quantities of coal and water gas tars as per your
letter, viz: twenty tons of water gas tar and six tons of coal gas tar. The price figured on
present costs of raw materials is P39.01 ) Thirty-nine and 01/100 Pesos) per ton of water
gas and P33.59 (Thirty-three and 59/100 Pesos) per ton of coal tar.
We shall expect you to take delivery and pay for the above amount of tars at our factory
on or before April 7th prox.
Thereafter we shall be ready to furnish equal amounts on the first of each month. Kindly
make your arrangements accordingly.

The complaint on the former case specifically alleges that the defendant "has refused and
still refuses, to deliver to the plaintiff any coal and water gas tar whatsoever under the
said contract Exhibit A, since the said month of July, 1920." " That owing to the bad faith
of the said Manila Gas Corporation, defendant herein, in not living up to its said contract
Exhibit A, made with this plaintiff, and refusing now to carry out the terms of the same."
That is a specific allegation not only a breach of the contract since the month of July,
1920, but of the faith of the defendant in its continuous refusal to make deliveries of any
coal and water gas tar. That amended complaint was filed on July 11, 1924, or four years
after the alleged bad faith in breaking the contract.

On January 29, 1927, the plaintiff wrote the defendant that:

Having recovered damages against it, covering a period of four years, upon the theory
that the defendant broke the contract, and in bad faith refused to make deliveries of either
of the tars, how can the plaintiff now claim and assert that the contract is still in fierce
and effect? In the instant case the plaintiff alleges and relies upon the ten year contract on
January 11, 1920, which in bad faith was broken by the defendant. If the contract was
then broken, how can it be enforced in this action?

We are here again on your for your total output of coal tar immediately and the regular
minimum monthly quantity of water gas tar. In this connection we desire to advise you
that within 90 days of your initial delivery to us of your total coal tar output we will
require 50 per cent of your total water gas tar output, and, further, that two months
thereafter we will require your total output of both tars.

On July 31st last, we made demand upon you, under the terms of our tar contract for 50
per cent of your total coal tar production for that month and also served notice on you
that beginning 90 days from August 1st we would require you total output of coal tar
monthly; this in addition to the 20 tons of water gas tar provided for in the contract to be
taken monthly.
xxx

xxx

xxx

February 2, 1927, the defendant wrote the plaintiff:

Replying to your letter of Jan. 29, we would sat that we have already returned to you the
check enclosed there with. As we have repeatedly informed you we disagree with you as
to the construction of your contract and insist that you take the whole output of both tars
if you wish to secure the whole of the coal tar.
With regard to your threat of further suits we presume that you will act as advised. If you
make it necessary we shall do the same.
From an analysis of these letters it clearly appears that the plaintiff then sought to reply
upon and enforce the contract of January 1, 1920, and that defendant denied plaintiff's
construction of the contract, and insisted "that you take the whole output of both tars if
you wish to secure the whole of the coal tar."
February 28, 1927, the plaintiff wrote the defendant:
In view of your numerous violations of and repeated refusal and failure to comply with
the terms and provisions of our contract dated January 30-31, 1919, for the delivery to us
of water and coal gas tars, etc., we will commence action," which it did.
The record tends to show that tars which the defendant delivered after April 7, 1926, were
not delivered under the old contract of January 1, 1920, and that at all times since July
1920, the defendant has consistently refused to make any deliveries of any tars under that
contract.
The referee found as a fact that plaintiff was entitled to P2,219.60 for and on account of
overcharges which the defendant made for the deliveries of fifty-four tons of coal gas tar,
and one hundred eighty tons of water gas tar after April, 1926, and upon that point the
lower says:
The fourth charge that plaintiff makes is meritorious. The price was to be fixed on the
basis of raw materials. The charge for deliveries during 1926 were too high. In this I
agree with entirely with the referee and adopt his findings of fact and calculations.
(See Referee's report, p. 83) The referee awarded for overcharge during the period
aforesaid, the sum of P2,219.60. The defendant was trying to discharge plaintiff from
buying tars and made the price of raw material appear as high as possible.
That finding is sustained upon the theory that the defendant broke its contract which it
made with the plaintiff for the sale and delivery of the tars on and after April, 1926.
After careful study of the many important questions presented on this appeal in the
exhaustive brief of the appellant, we are clearly of the opinion that, as found by the lower
court, the plea of res judicata must be sustained. The judgment of the lower court is
affirmed.
It is so ordered, with costs against the appellant.

[G.R. No. 161135. April 8, 2005]

SWAGMAN HOTELS AND TRAVEL, INC., petitioner, vs. HON. COURT OF
APPEALS, and NEAL B. CHRISTIAN, respondents.
DECISION
DAVIDE, JR., C.J.:
May a complaint that lacks a cause of action at the time it was filed be cured by the
accrual of a cause of action during the pendency of the case? This is the basic issue raised
in this petition for the Courts consideration.
Sometime in 1996 and 1997, petitioner Swagman Hotels and Travel, Inc., through
Atty. Leonor L. Infante and Rodney David Hegerty, its president and vice-president,
respectively, obtained from private respondent Neal B. Christian loans evidenced by three
promissory notes dated 7 August 1996, 14 March 1997, and 14 July 1997. Each of the
promissory notes is in the amount of US$50,000 payable after three years from its date
with an interest of 15% per annum payable every three months. [1] In a letter dated 16
December 1998, Christian informed the petitioner corporation that he was terminating the
loans and demanded from the latter payment in the total amount of US$150,000 plus
unpaid interests in the total amount of US$13,500.[2]
On 2 February 1999, private respondent Christian filed with the Regional Trial
Court of Baguio City, Branch 59, a complaint for a sum of money and damages against
the petitioner corporation, Hegerty, and Atty. Infante. The complaint alleged as follows:
On 7 August 1996, 14 March 1997, and 14 July 1997, the petitioner, as well as its
president and vice-president obtained loans from him in the total amount of US$150,000
payable after three years, with an interest of 15% per annum payable quarterly or every
three months. For a while, they paid an interest of 15% per annum every three months in
accordance with the three promissory notes. However, starting January 1998 until
December 1998, they paid him only an interest of 6% per annum, instead of 15% per
annum, in violation of the terms of the three promissory notes. Thus, Christian prayed
that the trial court order them to pay him jointly and solidarily the amount of US$150,000
representing the total amount of the loans; US$13,500 representing unpaid interests from
January 1998 until December 1998; P100,000 for moral damages;P50,000 for attorneys
fees; and the cost of the suit.[3]
The petitioner corporation, together with its president and vice-president, filed an
Answer raising as defenses lack of cause of action and novation of the principal
obligations. According to them, Christian had no cause of action because the three

promissory notes were not yet due and demandable. In December 1997, since the
petitioner corporation was experiencing huge losses due to the Asian financial crisis,
Christian agreed (a) to waive the interest of 15% per annum, and (b) accept payments of
the principal loans in installment basis, the amount and period of which would depend on
the state of business of the petitioner corporation. Thus, the petitioner paid Christian
capital repayment in the amount of US$750 per month from January 1998 until the time
the complaint was filed in February 1999. The petitioner and its co-defendants then
prayed that the complaint be dismissed and that Christian be ordered to pay P1 million as
moral damages; P500,000 as exemplary damages; and P100,000 as attorneys fees.[4]
In due course and after hearing, the trial court rendered a decision [5] on 5 May 2000
declaring the first two promissory notes dated 7 August 1996 and 14 March 1997 as
already due and demandable and that the interest on the loans had been reduced by the
parties from 15% to 6% per annum. It then ordered the petitioner corporation to pay
Christian the amount of $100,000 representing the principal obligation covered by the
promissory notes dated 7 August 1996 and 14 March 1997, plus interest of 6% per month
thereon until fully paid, with all interest payments already paid by the defendant to the
plaintiff to be deducted therefrom.
The trial court ratiocinated in this wise:
(1) There was no novation of defendants obligation to the plaintiff. Under Article 1292 of
the Civil Code, there is an implied novation only if the old and the new obligation be on
every point incompatible with one another.
The test of incompatibility between the two obligations or contracts, according to an
imminent author, is whether they can stand together, each one having an independent
existence. If they cannot, they are incompatible, and the subsequent obligation novates
the first (Tolentino, Civil Code of the Philippines, Vol. IV, 1991 ed., p. 384). Otherwise,
the old obligation will continue to subsist subject to the modifications agreed upon by the
parties. Thus, it has been written that accidental modifications in an existing obligation
do not extinguish it by novation. Mere modifications of the debt agreed upon between the
parties do not constitute novation. When the changes refer to secondary agreement and
not to the object or principal conditions of the contract, there is no novation; such
changes will produce modifications of incidental facts, but will not extinguish the
original obligation. Thus, the acceptance of partial payments or a partial remission does
not involve novation (id., p. 387). Neither does the reduction of the amount of an
obligation amount to a novation because it only means a partial remission or condonation
of the same debt.

In the instant case, the Court is of the view that the parties merely intended to change the
rate of interest from 15% per annum to 6% per annum when the defendant started paying
$750 per month which payments were all accepted by the plaintiff from January 1998
onward. The payment of the principal obligation, however, remains unaffected which
means that the defendant should still pay the plaintiff $50,000 on August 9, 1999, March
14, 2000 and July 14, 2000.
(2) When the instant case was filed on February 2, 1999, none of the promissory notes
was due and demandable. As of this date however, the first and the second promissory
notes have already matured. Hence, payment is already due.
Under Section 5 of Rule 10 of the 1997 Rules of Civil Procedure, a complaint which
states no cause of action may be cured by evidence presented without objection. Thus,
even if the plaintiff had no cause of action at the time he filed the instant complaint, as
defendants obligation are not yet due and demandable then, he may nevertheless recover
on the first two promissory notes in view of the introduction of evidence showing that the
obligations covered by the two promissory notes are now due and demandable.
(3) Individual defendants Rodney Hegerty and Atty. Leonor L. Infante can not be held
personally liable for the obligations contracted by the defendant corporation it being clear
that they merely acted in representation of the defendant corporation in their capacity as
General Manager and President, respectively, when they signed the promissory notes as
evidenced by Board Resolution No. 1(94) passed by the Board of Directors of the
defendant corporation (Exhibit 4).[6]
In its decision[7] of 5 September 2003, the Court of Appeals denied petitioners
appeal and affirmed in toto the decision of the trial court, holding as follows:
In the case at bench, there is no incompatibility because the changes referred to by
appellant Swagman consist only in the manner of payment. . . .
Appellant Swagmans interpretation that the three (3) promissory notes have been novated
by reason of appellee Christians acceptance of the monthly payments of US$750.00 as
capital repayments continuously even after the filing of the instant case is a little bit
strained considering the stiff requirements of the law on novation that the intention to
novate must appear by express agreement of the parties, or by their acts that are too clear
and unequivocal to be mistaken. Under the circumstances, the more reasonable
interpretation of the act of the appellee Christian in receiving the monthly payments of
US$750.00 is that appellee Christian merely allowed appellant Swagman to pay whatever
amount the latter is capable of. This interpretation is supported by the letter of demand
dated December 16, 1998 wherein appellee Christian demanded from appellant Swagman

to return the principal loan in the amount of US$150,000 plus unpaid interest in the
amount of US$13,500.00
...
Appellant Swagman, likewise, contends that, at the time of the filing of the complaint,
appellee Christian ha[d] no cause of action because none of the promissory notes was due
and demandable.
Again, We are not persuaded.
...
In the case at bench, while it is true that appellant Swagman raised in its Answer the issue
of prematurity in the filing of the complaint, appellant Swagman nonetheless failed to
object to appellee Christians presentation of evidence to the effect that the promissory
notes have become due and demandable.
The afore-quoted rule allows a complaint which states no cause of action to be cured
either by evidence presented without objection or, in the event of an objection sustained
by the court, by an amendment of the complaint with leave of court (Herrera, Remedial
Law, Vol. VII, 1997 ed., p. 108).[8]
Its motion for reconsideration having been denied by the Court of Appeals in its
Resolution of 4 December 2003,[9] the petitioner came to this Court raising the following
issues:
I. WHERE THE DECISION OF THE TRIAL COURT DROPPING TWO
DEFENDANTS HAS BECOME FINAL AND EXECUTORY, MAY THE
RESPONDENT COURT OF APPEALS STILL STUBBORNLY CONSIDER THEM AS
APPELLANTS WHEN THEY DID NOT APPEAL?
II. WHERE THERE IS NO CAUSE OF ACTION, IS THE DECISION OF THE
LOWER COURT VALID?
III. MAY THE RESPONDENT COURT OF APPEALS VALIDLY AFFIRM A
DECISION OF THE LOWER COURT WHICH IS INVALID DUE TO LACK OF
CAUSE OF ACTION?
IV. WHERE THERE IS A VALID NOVATION, MAY THE ORIGINAL TERMS OF
CONTRACT WHICH HAS BEEN NOVATED STILL PREVAIL? [10]

The petitioner harps on the absence of a cause of action at the time the private
respondents complaint was filed with the trial court. In connection with this, the
petitioner raises the issue of novation by arguing that its obligations under the three
promissory notes were novated by the renegotiation that happened in December 1997
wherein the private respondent agreed to waive the interest in each of the three
promissory notes and to accept US$750 per month as installment payment for the
principal loans in the total amount of US$150,000. Lastly, the petitioner questions the act
of the Court of Appeals in considering Hegerty and Infante as appellants when they no
longer appealed because the trial court had already absolved them of the liability of the
petitioner corporation.
On the other hand, the private respondent asserts that this petition is a mere ploy to
continue delaying the payment of a just obligation. Anent the fact that Hegerty and Atty.
Infante were considered by the Court of Appeals as appellants, the private respondent
finds it immaterial because they are not affected by the assailed decision anyway.
Cause of action, as defined in Section 2, Rule 2 of the 1997 Rules of Civil
Procedure, is the act or omission by which a party violates the right of another. Its
essential elements are as follows:
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. 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 or other appropriate relief.[11]
It is, thus, only upon the occurrence of the last element that a cause of action arises,
giving the plaintiff the right to maintain an action in court for recovery of damages or
other appropriate relief.
It is undisputed that the three promissory notes were for the amount of P50,000
each and uniformly provided for (1) a term of three years; (2) an interest of 15 % per
annum, payable quarterly; and (3) the repayment of the principal loans after three years
from their respective dates. However, both the Court of Appeals and the trial court found
that a renegotiation of the three promissory notes indeed happened in December 1997
between the private respondent and the petitioner resulting in the reduction not waiver of
the interest from 15% to 6% per annum, which from then on was payable monthly,

instead of quarterly. The term of the principal loans remained unchanged in that they
were still due three years from the respective dates of the promissory notes. Thus, at the
time the complaint was filed with the trial court on 2 February 1999, none of the three
promissory notes was due yet; although, two of the promissory notes with the due dates
of 7 August 1999 and 14 March 2000 matured during the pendency of the case with the
trial court. Both courts also found that the petitioner had been religiously paying the
private respondent US$750 per month from January 1998 and even during the pendency
of the case before the trial court and that the private respondent had accepted all these
monthly payments.
With these findings of facts, it has become glaringly obvious that when the
complaint for a sum of money and damages was filed with the trial court on 2 February
1999, no cause of action has as yet existed because the petitioner had not committed any
act in violation of the terms of the three promissory notes as modified by the
renegotiation in December 1997. Without a cause of action, the private respondent had no
right to maintain an action in court, and the trial court should have therefore dismissed his
complaint.
Despite its finding that the petitioner corporation did not violate the modified terms
of the three promissory notes and that the payment of the principal loans were not yet due
when the complaint was filed, the trial court did not dismiss the complaint, citing Section
5, Rule 10 of the 1997 Rules of Civil Procedure, which reads:
Section 5. Amendment to conform to or authorize presentation of evidence. When issues
not raised by the pleadings are tried with the express or implied consent of the parties,
they shall be treated in all respects as if they had been raised in the pleadings. Such
amendment of the pleadings as may be necessary to cause them to conform to the
evidence and to raise these issues may be made upon motion of any party at any time,
even after judgment; but failure to amend does not affect the result of the trial of these
issues. If evidence is objected to at the trial on the ground that it is not within the issues
made by the pleadings, the court may allow the pleadings to be amended and shall do so
with liberality if the presentation of the merits of the action and the ends of substantial
justice will be subserved thereby. The court may grant a continuance to enable the
amendment to be made.
According to the trial court, and sustained by the Court of Appeals, this Section
allows a complaint that does not state a cause of action to be cured by evidence presented
without objection during the trial. Thus, it ruled that even if the private respondent had no
cause of action when he filed the complaint for a sum of money and damages because
none of the three promissory notes was due yet, he could nevertheless recover on the first
two promissory notes dated 7 August 1996 and 14 March 1997, which became due during

the pendency of the case in view of the introduction of evidence of their maturity during
the trial.
Such interpretation of Section 5, Rule 10 of the 1997 Rules of Civil Procedure is
erroneous.
Amendments of pleadings are allowed under Rule 10 of the 1997 Rules of Civil
Procedure in order that the actual merits of a case may be determined in the most
expeditious and inexpensive manner without regard to technicalities, and that all other
matters included in the case may be determined in a single proceeding, thereby avoiding
multiplicity of suits.[12]Section 5 thereof applies to situations wherein evidence not within
the issues raised in the pleadings is presented by the parties during the trial, and to
conform to such evidence the pleadings are subsequently amended on motion of a party.
Thus, a complaint which fails to state a cause of action may be cured by evidence
presented during the trial.
However, the curing effect under Section 5 is applicable only if a cause of action in
fact exists at the time the complaint is filed, but the complaint is defective for failure to
allege the essential facts. For example, if a complaint failed to allege the fulfillment of a
condition precedent upon which the cause of action depends, evidence showing that such
condition had already been fulfilled when the complaint was filed may be presented
during the trial, and the complaint may accordingly be amended thereafter. [13] Thus,
in Roces v. Jalandoni,[14] this Court upheld the trial court in taking cognizance of an
otherwise defective complaint which was later cured by the testimony of the plaintiff
during the trial. In that case, there was in fact a cause of action and the only problem was
the insufficiency of the allegations in the complaint. This ruling was reiterated in Pascua
v. Court of Appeals.[15]
It thus follows that a complaint whose cause of action has not yet accrued cannot be
cured or remedied by an amended or supplemental pleading alleging the existence or
accrual of a cause of action while the case is pending. [16] Such an action is prematurely
brought and is, therefore, a groundless suit, which should be dismissed by the court upon
proper motion seasonably filed by the defendant. The underlying reason for this rule is
that a person should not be summoned before the public tribunals to answer for
complaints which are immature. As this Court eloquently said in Surigao Mine
Exploration Co., Inc. v. Harris:[17]
It is a rule of law to which there is, perhaps, no exception, either at law or in equity, that
to recover at all there must be some cause of action at the commencement of the suit.
As observed by counsel for appellees, there are reasons of public policy why there should
be no needless haste in bringing up litigation, and why people who are in no default and
against whom there is yet no cause of action should not be summoned before the public

tribunals to answer complaints which are groundless. We say groundless because if the
action is immature, it should not be entertained, and an action prematurely brought is a
groundless suit.
It is true that an amended complaint and the answer thereto take the place of the originals
which are thereby regarded as abandoned (Reynes vs. Compaa General de Tabacos
[1912], 21 Phil. 416; Ruyman and Farris vs. Director of Lands [1916], 34 Phil., 428) and
that the complaint and answer having been superseded by the amended complaint and
answer thereto, and the answer to the original complaint not having been presented in
evidence as an exhibit, the trial court was not authorized to take it into account. (Bastida
vs. Menzi & Co. [1933], 58 Phil., 188.) But in none of these cases or in any other case
have we held that if a right of action did not exist when the original complaint was filed,
one could be created by filing an amended complaint. In some jurisdictions in the United
States what was termed an imperfect cause of action could be perfected by suitable
amendment (Brown vs. Galena Mining & Smelting Co., 32 Kan., 528; Hooper vs. City of
Atlanta, 26 Ga. App., 221) and this is virtually permitted in Banzon and Rosauro vs.
Sellner ([1933], 58 Phil., 453); Asiatic Potroleum [sic] Co. vs. Veloso ([1935], 62 Phil.,
683); and recently in Ramos vs. Gibbon (38 Off. Gaz., 241). That, however, which is no
cause of action whatsoever cannot by amendment or supplemental pleading be
converted into a cause of action: Nihil de re accrescit ei qui nihil in re quando jus
accresceret habet.
We are therefore of the opinion, and so hold, that unless the plaintiff has a valid and
subsisting cause of action at the time his action is commenced, the defect cannot be
cured or remedied by the acquisition or accrual of one while the action is pending,
and a supplemental complaint or an amendment setting up such after-accrued cause
of action is not permissible. (Emphasis ours).
Hence, contrary to the holding of the trial court and the Court of Appeals, the defect
of lack of cause of action at the commencement of this suit cannot be cured by the
accrual of a cause of action during the pendency of this case arising from the alleged
maturity of two of the promissory notes on 7 August 1999 and 14 March 2000.
Anent the issue of novation, this Court observes that the petitioner corporation
argues the existence of novation based on its own version of what transpired during the
renegotiation of the three promissory notes in December 1997. By using its own version
of facts, the petitioner is, in a way, questioning the findings of facts of the trial court and
the Court of Appeals.
As a rule, the findings of fact of the trial court and the Court of Appeals are final
and conclusive and cannot be reviewed on appeal to the Supreme Court [18] as long as they
are borne out by the record or are based on substantial evidence. [19] The Supreme Court is

not a trier of facts, its jurisdiction being limited to reviewing only errors of law that may
have been committed by the lower courts. Among the exceptions is when the finding of
fact of the trial court or the Court of Appeals is not supported by the evidence on record
or is based on a misapprehension of facts. Such exception obtains in the present case. [20]
This Court finds to be contrary to the evidence on record the finding of both the
trial court and the Court of Appeals that the renegotiation in December 1997 resulted in
the reduction of the interest from 15% to 6% per annum and that the monthly payments
of US$750 made by the petitioner were for the reduced interests.
It is worthy to note that the cash voucher dated January 1998 [21] states that the
payment of US$750 represents INVESTMENT PAYMENT. All the succeeding cash
vouchers describe the payments from February 1998 to September 1999 as CAPITAL
REPAYMENT.[22] All these cash vouchers served as receipts evidencing private
respondents acknowledgment of the payments made by the petitioner: two of which were
signed by the private respondent himself and all the others were signed by his
representatives. The private respondent even identified and confirmed the existence of
these receipts during the hearing. [23] Significantly, cognizant of these receipts, the private
respondent applied these payments to the three consolidated principal loans in the
summary of payments he submitted to the court.[24]
Under Article 1253 of the Civil Code, if the debt produces interest, payment of the
principal shall not be deemed to have been made until the interest has been covered. In
this case, the private respondent would not have signed the receipts describing the
payments made by the petitioner as capital repayment if the obligation to pay the interest
was still subsisting. The receipts, as well as private respondents summary of payments,
lend credence to petitioners claim that the payments were for the principal loans and that
the interests on the three consolidated loans were waived by the private respondent
during the undisputed renegotiation of the loans on account of the business reverses
suffered by the petitioner at the time.
There was therefore a novation of the terms of the three promissory notes in that the
interest was waived and the principal was payable in monthly installments of US$750.
Alterations of the terms and conditions of the obligation would generally result only in
modificatory novation unless such terms and conditions are considered to be the essence
of the obligation itself.[25] The resulting novation in this case was, therefore, of the
modificatory type, not the extinctive type, since the obligation to pay a sum of money
remains in force.
Thus, since the petitioner did not renege on its obligation to pay the monthly
installments conformably with their new agreement and even continued paying during the
pendency of the case, the private respondent had no cause of action to file the complaint.

It is only upon petitioners default in the payment of the monthly amortizations that a
cause of action would arise and give the private respondent a right to maintain an action
against the petitioner.
Lastly, the petitioner contends that the Court of Appeals obstinately included its
President Infante and Vice-President Hegerty as appellants even if they did not appeal the
trial courts decision since they were found to be not personally liable for the obligation of
the petitioner. Indeed, the Court of Appeals erred in referring to them as defendantsappellants; nevertheless, that error is no cause for alarm because its ruling was clear that
the petitioner corporation was the one solely liable for its obligation. In fact, the Court of
Appeals affirmed in toto the decision of the trial court, which means that it also upheld
the latters ruling that Hegerty and Infante were not personally liable for the pecuniary
obligations of the petitioner to the private respondent.
In sum, based on our disquisition on the lack of cause of action when the complaint
for sum of money and damages was filed by the private respondent, the petition in the
case at bar is impressed with merit.
WHEREFORE, the petition is hereby GRANTED. The Decision of 5 September
2003 of the Court of Appeals in CA-G.R. CV No. 68109, which affirmed the Decision of
5 May 2000 of the Regional Trial Court of Baguio, Branch 59, granting in part private
respondents complaint for sum of money and damages, and its Resolution of 4 December
2003, which denied petitioners motion for reconsideration are hereby REVERSED and
SET ASIDE. The complaint docketed as Civil Case No. 4282-R is hereby DISMISSED
for lack of cause of action.

ROSENDO BACALSO, RODRIGO BACALSO,

MARCILIANA B. DOBLAS, TEROLIO BACALSO,
ALIPIO
BACALSO,
JR., MARIO
BACALSO,
WILLIAM BACALSO,ALIPIO BACALSO III and
CRISTITA B. BAES,
Petitioners,

G.R. No. 173192

petitioners, for quieting of title, declaration of nullity of documents, recovery of

possession, and damages.

Present:

The therein plaintiffs-herein respondents Maximo and Flaviano claimed that

QUISUMBING, J., Chairperson,
they are children of the deceased co-owner Simplicio; that respondents Gaudencio and
CARPIO MORALES,
Domingo are children of the deceased co-owner Ignacio; and that respondent Victoria and
TINGA,
respondent Lilia P. Gabison (Lilia) are grandchildren of the late co-owner Fortunata. [3]
- versus VELASCO, JR., and
Respondents also alleged that the therein defendants-petitioners Rosendo and
BRION, JJ.
Rodrigo are heirs of Alipio Bacalso, Sr. (Alipio, Sr.) who, during his lifetime, secured Tax
MAXIMO
PADIGOS,
FLAVIANO
MABUYO,
Declaration Nos. L-078-02223 and L-078-02224 covering the lot without any legal
GAUDENCIO PADIGOS, DOMINGO PADIGOS,
basis; that Rosendo and Rodrigo have been leasing portions of the lot to persons who
VICTORIA P. ABARQUEZ, LILIA P. GABISON,
built houses thereon, and Rosendo has been living in a house built on a portion of the lot;
[4]
TIMOTEO
PADIGOS,
PERFECTO
PADIGOS,
and that demands to vacate and efforts at conciliation proved futile, [5] prompting them
PRISCA SALARDA, FLORA GUINTO, BENITA
Promulgated:
to file the complaint at the RTC.
TEMPLA, SOTERO PADIGOS, ANDRES PADIGOS,
April 14, 2008
EMILIO PADIGOS, DEMETRIO PADIGOS, JR.,
In their Answer[6] to the complaint, petitioners Rosendo and Rodrigo claimed
WENCESLAO
PADIGOS,
NELLY
PADIGOS,
that their father Alipio, Sr. purchased via deeds of sale the shares in the lot of Fortunata,
EXPEDITO PADIGOS, HENRY PADIGOS and
Simplicio, Wenceslao, Geronimo, and Felix from their respective heirs, and that Alipio,
ENRIQUE P. MALAZARTE,
Sr. acquired the shares of the other co-owners of the lot by extraordinary acquisitive
Respondents.
prescription through continuous, open, peaceful, and adverse possession thereof in the
x--------------------------------------------------X
concept of an owner since 1949.[7]
DECISION
CARPIO MORALES, J.:
The case at bar involves a parcel of land identified as Lot No. 3781 (the lot)
located in Inayawan, Cebu, covered by Original Certificate of Title No. RO-2649 (09092)[1]in the name of the following 13 co-owners, their respective shares of which are
indicated opposite their names:
Fortunata Padigos (Fortunata)
Felix Padigos (Felix)
Wenceslao Padigos (Wenceslao)
Maximiano Padigos (Maximiano)
Geronimo Padigos (Geronimo)
Macaria Padigos
Simplicio Padigos (Simplicio)
Ignacio Padigos (Ignacio)
Matilde Padigos
Marcelo Padigos
Rustica Padigos
Raymunda Padigos
Antonino Padigos

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1/8
1/8
1/8
1/8
1/8
1/8
1/48
1/48
1/48
1/48
1/48
1/48

Maximo Padigos (Maximo), Flaviano Mabuyo (Flaviano), Gaudencio Padigos

(Gaudencio), Domingo Padigos (Domingo), and Victoria P. Abarquez (Victoria), who are
among the herein respondents, filed on April 17, 1995, before the Regional Trial Court
(RTC) of Cebu City, a Complaint, [2] docketed as Civil Case No. CEB-17326, against
Rosendo Bacalso (Rosendo) and Rodrigo Bacalso (Rodrigo) who are among the herein

By way of Reply and Answer to the Defendants Counterclaim, [8] herein

respondents Gaudencio, Maximo, Flaviano, Domingo, and Victoria alleged that the deeds
of sale on which Rosendo and Rodrigo base their claim of ownership of portions of the
lot are spurious, but assuming that they are not, laches had set in against Alipio, Sr.; and
that the shares of the other co-owners of the lot cannot be acquired through laches or
prescription.
Gaudencio, Maximo, Flaviano, Domingo, and Victoria, with leave of court,
filed an Amended Complaint [10] impleading as additional defendants Alipio, Sr.s other
heirs, namely, petitioners Marceliana[11] Doblas, Terolio Bacalso, Alipio Bacalso, Jr.,
Mario Bacalso, William Bacalso, Alipio Bacalso III, and Christine B. Baes. [12] Still later,
Gaudencio et al. filed a Second Amended Complaint [13] with leave of court,[14] impleading
as additional plaintiffs the other heirs of registered co-owner Maximiano, namely, herein
respondents
Timoteo
Padigos,
Perfecto
Padigos,
Frisca [15] Salarda,
Flora Quinto (sometimes rendered as Guinto), Benita Templa, Sotero Padigos, Andres
Padigos, and Emilio Padigos.[16]
[9]

In their Answer to the Second Amended Complaint, [17] petitioners contended

that the Second Amended Complaint should be dismissed in view of the failure to
implead other heirs of the other registered owners of the lot who are indispensable
parties.[18]
A Third Amended Complaint[19] was thereafter filed with leave of
court impleading as additional plaintiffs the heirs of Wenceslao, namely, herein
respondents Demetrio Padigos, Jr., Wenceslao Padigos, and Nelly Padigos, and the heirs
of Felix, namely, herein respondents Expedito Padigos (Expedito), Henry Padigos, and
Enrique P. Malazarte.[21]
[20]

After trial, Branch 16 of the Cebu City RTC decided [22] in favor in the therein
plaintiffs-herein respondents, disposing as follows:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the plaintiffs and against the defendants.
1.

Declaring the plaintiffs to be entitled to the

ownership and possession of the lot in litigation;

2.

Declaring as null and

Absolute Sale in question;

3.

Ordering the defendants to pay plaintiffs the sum of

P50,000.00 as actual and compensatory damages[,]
the sum of P20,000.00 as attorneys fees, and
P10,000.00 as litigation expenses.

4.

void

the

Deeds

of

Ordering the defendants to pay the costs of suit.

SO
ORDERED.[23] (Emphasis
original; underscoring supplied)

in

the

The defendants-herein petitioners Bacalsos appealed. [24] Meanwhile, the trial

court, on respondents Motion for Execution Pending Appeal, [25] issued a writ of execution
which was implemented by, among other things, demolishing the houses constructed on
the lot.[26]
By Decision[27] of September 6, 2005, the Court of Appeals affirmed the trial
courts decision. Their Motion for Reconsideration[28] having been denied,[29] petitioners
filed the present Petition for Review on Certiorari,[30] faulting the Court of Appeals:
. . . when it ruled that the Second Amended Complaint is
valid and legal, even if not all indispensable parties are impleaded or
joined . . .
. . . when [it] wittingly overlooked the most potent,
unescapable and indubitable fact or circumstance which proved the
continuous possession of Lot No. 3781 by the defendants and their
predecessors in interest, Alipio Bacalso [Sr.] and/or when it sanctioned
impliedly the glaring arbitrary RTC order of the demolition of the
over 40 years old houses, situated on Lot No. 3781 Cebu
Cad., belonging to the old lessees, long allowed to lease or stay
thereat for many years, by Alipio Bacalso [Sr.], father and
[predecessor] in interest of the defendants, now the herein
Petitioners. The said lessees were not even joined as parties in this
case, much less were they given a chance to air their side before their

houses were demolished, in gross violation of the due process clause

provided for in Sec. 1[,] Art. III of the Constitution . . .
. . . in upholding as gospel truth the report and conclusion of
Nimrod Vao, the supposed handwriting expert[,] that signatures and
thumb marks appearing on all documents of sale presented by the
defendants are forgeries, and not mindful that Nimrod Vao was not
cross-examined thoroughly by the defense counsel as he was
prevented from doing so by the trial judge, in violation of the law
more particularly Sec. 6, Rule 132, Rules of Court and/or the accepted
and usual course of judicial proceedings and is therefore not
admissible in evidence.
. . . [when it] . . . wittingly or unwittingly,
again overlooked the vital facts, the circumstances, the laws and
rulings of the Supreme Court, which are of much weight, substance
and influence which, if considered carefully, undoubtedly uphold that
the defendants and their predecessors in interests, have long been in
continuous, open, peaceful and adverse, and notorious possession
against the whole world of Lot No. 3781, Cebu Cad., in concept of
absolute owners for 46 years, a period more than sufficient to sustain
or uphold the defense of prescription, provided for in Art. 1137 of the
Civil Code even without good faith. [31] (Emphasis and underscoring in
the original; italics supplied)
Respondents admit that Teodulfo Padigos (Teodulfo), an heir of Simplicio, was
not impleaded.[32] They contend, however, that the omission did not deprive the trial court
of jurisdiction because Article 487 of the Civil Code states that [a]ny of the co-owners
may bring an action in ejectment.[33]
Respondents contention does not lie. The action is for quieting of title,
declaration of nullity of documents, recovery of possession and ownership, and
damages. Arcelona v. Court of Appeals[34] defines indispensable parties under Section 7 of
Rule 3, Rules of Court as follows:
[P]arties-in-interest without whom there can be no final
determination of an action. As such, they must be joined either as
plaintiffs or as defendants. The general rule with reference to the
making of parties in a civil action requires, of course, the joinder of all
necessary parties where possible, and the joinder of all indispensable
parties under any and all conditions, their presence being a sine qua
non for the exercise of judicial power. It is precisely when an
indispensable party is not before the court (that) the action should be
dismissed. 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.
Petitioners are co-owners of a fishpond . . . The fishpond is
undivided; it is impossible to pinpoint which specific portion of the

property is owned by Olanday, et. al. and which portion belongs to

petitioners. x x x Indeed, petitioners should have been properly
impleaded as indispensable parties. x x x
x x x x[35] (Underscoring supplied)
The absence then of an indispensable party renders all subsequent actions of a
court null and void for want of authority to act, not only as to the absent party but even as
to those present.[36]
Failure to implead indispensable parties aside, the resolution of the case hinges
on a determination of the authenticity of the documents on which petitioners in part
anchor their claim to ownership of the lot. The questioned documents are:

expert witness for petitioners, that Gaudencios signature and Maximos thumbprint are
genuine.[40]
Expert opinions are not ordinarily conclusive. They are generally regarded as
purely advisory in character.[41] The courts may place whatever weight they choose upon
and may reject them, if they find them inconsistent with the facts in the case or otherwise
unreasonable.[42] When faced with conflicting expert opinions, courts give more weight
and credence to that which is more complete, thorough, and scientific. [43]
The Court observes that in examining the questioned signatures of respondent
Gaudencio, petitioners expert witness Espina used as standards 15 specimen signatures
which have been established to be Gaudencios,[44] and that after identifying similarities
between the questioned signatures and the standard signatures, he concluded that the
questioned signatures are genuine. On the other hand, respondents expert witness Vao
used, as standards, the questioned signatures themselves. [45] He identified characteristics
of the signatures indicating that they may have been forged. Vaos statement of the
purpose of the examination is revealing:

1.

Exhibit 3 a notarized Deed of Sale executed by Gaudencio, Domingo, a certain

Hermenegilda Padigos, and the heirs of Fortunata, in favor of Alipio, Sr.
on June 8, 1959;

2.

Exhibit 4 a notarized Deed of Sale executed on September 9, 1957 by Gavino

Padigos (Gavino), alleged son of Felix, in favor of Alipio Gadiano;

3.

Exhibit 5 a private deed of sale executed in June 1957 by Macaria Bongalan,

Marciano Padigos, and Dominga Padigos, supposed heirs of Wenceslao, in
favor of Alipio, Sr.;

4.

Exhibit 6 a notarized deed of sale executed on September 9, 1957 by Gavino

and Rodulfo Padigos, heirs of Geronimo, in favor of Alipio Gadiano;

5.

Exhibit 7 a notarized deed of sale executed on March 19, 1949 by Irenea

Mabuyo, Teodulfo and Maximo, heirs of Simplicio;

6.

Exhibit 8 a private deed of sale executed on May 3, 1950 by Candido Padigos,

one of Simplicios children, in favor of Alipio, Sr.; and

The Court also notes that Vao also analyzed the signatures of the witnesses to
the questioned documents, the absence of standard specimens with which those
signatures could be compared notwithstanding.[47] On the other hand, Espina refrained
from making conclusions on signatures which could not be compared with established
genuine specimens.[48]
Specifically with respect to Vaos finding that Maximos thumbprint on Exhibit 7
is spurious, the Court is not persuaded, no comparison having been made of such
thumbprint with a genuine thumbprint established to be Maximos. [49]

7.

Exhibit 9 a notarized deed of sale executed on May 17, 1957 by Alipio Gadiano
in favor of Alipio, Sr.

Vaos testimony should be received with caution, the trial court having abruptly
cut short his cross-examination conducted by petitioners counsel, [50] thus:

Exhibits 3, 4, 6, 7, and 8, which are notarized documents, have in their favor the
presumption of regularity.[37]
Forgery, as any other mechanism of fraud, must be proved clearly and
convincingly, and the burden of proof lies on the party alleging forgery.[38]
The trial court and the Court of Appeals relied on the findings of Nimrod
Bernabe Vao (Vao), expert witness for respondents, that Gaudencios signature on Exhibit
3 (Deed of Absolute Sale covering Fortunatas share in the lot) and Maximos thumbprint
on Exhibit 7 (Deed of Sale covering Simplicios share in the lot) are spurious. [39] Vaos
findings were presented by respondents to rebut those of Wilfredo Espina (Espina),

x x x [t]o x x x discover, classify and determine the authenticity of

every document that for any reason requires examination be [sic]
scrutinized in every particular that may possibly throw any light upon
its origin, its age or upon quality element or condition that may have a
bearing upons [sic] its genuineness or spuriousness. [46] (Emphasis
supplied)

COURT:
You are just delaying the proceedings in this case if you are
going to ask him about the documents one by one. Just leave
it to the Court to determine whether or not he is a qualified
expert witness. The Court will just go over the Report of the
witness. You do not have to ask the witness one by one on
the document,[51]

thereby depriving this Court of the opportunity to determine his credibility. Espina, on the
other hand, withstood thorough cross-examination, re-direct and re-cross examination. [52]
The value of the opinion of a handwriting expert depends not upon his mere
statements of whether a writing is genuine or false, but upon the assistance he may afford
in pointing out distinguishing marks, characteristics and discrepancies in and between
genuine and false specimens of writing which would ordinarily escape notice or detection
from an unpracticed observer.[53] While differences exist between Gaudencios signatures
appearing on Exhibits 3-3-D and his signatures appearing on the affidavits accompanying
the pleadings in this case,[54] the gap of more than 30 years from the time he affixed his
signatures on the questioned document to the time he affixed his signatures on the
pleadings in the case could explain the difference. Thus Espina observed:
xxxx
4. Both questioned and standard signatures exhibited the same style
and form of the movement impulses in its execution;
5. Personal habits of the writer were established in both questioned
and standard signatures such as misalignment of the whole structure of
the signature, heavy penpressure [sic] of strokes from initial to the
terminal, formation of the loops and ovals, poor line quality and
spacing between letters are all repeated;
6. Both questioned and standard signatures [show] no radical change
in the strokes and letter formation in spite o[f] their wide difference in
dates of execution considering the early writing maturity of the writer;
7. Variations in both writings questioned and standards were
considered and properly evaluated.
xxxx
Fundamental similarities are observed in the following characteristics
to wit:
xxxx

5.

Top of c either with a retrace, angular formation or an eyelet;

6.

Terminal ending of o heavy with a short tapering formation;

7.

Loop stem of P with wide space and angular;

8.

Oval of P either rounded or multi-angular;

9.

Base loop of g consistently short either a retrace, a blind loop or

narrow space disproportionate to the top oval;

10. Angular top of s are repeated with sameness;

11. Terminal ending of s short and heavy with blind loop or retrace at
the base. [55]
And Espina concluded
xxxx
[t]hat the four (4) questioned signatures over and above the
typewritten name and word GAUDENCIO PADIGOS Vendor on four
copies of a DEED OF ABSOLUTE SALE (original and carbon)
dated June 8, 1959 were written, signed, and prepared by the hand
who wrote the standard specimens Exh. G and other specimen
materials collected from the records of this case that were submitted or
comparison;
a
product
of
one Mind
and
Brain hence GENUINE and AUTHENTIC.[56] (Emphasis in the
original; underscoring supplied)
Respondents brand Maximos thumbmark on Exhibit 7 as spurious because, so
they claim, Maximo did not affix his signature thru a thumbmark, he knowing how to
write.[57] Such conclusion is a non sequitur, however, for a person who knows how to write
is not precluded from signing by thumbmark.
In affirming the nullification by the trial court of Exhibits 3, 4, 5, 6, 7, and 8, the
Court of Appeals held:

SIGNATURES
xxxx
1.

Ovals of a either rounded or angular at the base;

2.

Ovals of d either narrow, rounded, or angular at the base;

3.
4.

Loop stems of d consistently tall and retraced in both specimens

questioned and standards;
Base alignment of e and i are repeated with sameness;

First of all, facts about pedigree of the registered owners and

their lawful heirs were convincingly testified to by plaintiff-appellant
Gaudencio Padigos and his testimony remained uncontroverted.
xxxx

Giving due weight to his testimony, we find that x x x

the vendors in the aforesaid Deeds of Sale x x x were not the legal
heirs of the registered owners of the disputed land. x x x
xxxx
As for Exhibit 4, the vendor Gavino Padigos is not a legal
heir of the registered owner Felix Padigos. The latters heirs are
plaintiff-appellants Expedito Padigos, Henry Padigos and Enrique P.
Malazarte. Accordingly, Exhibit 4 is a patent nullity and did not vest
title of Felix Padigos share of Lot 3781 to Alipio [Gadiano].
As for Exhibit 6, the vendors Gavino and Rodulfo Padigos
are not the legal heirs of the registered owner Geronimo
Padigos. Therefore, these fictitious heirs could not validly convey
ownership in favor of Alipio [Gadiano].
xxxx
As for Exhibit 8, the vendor Candido Padigos is not a legal
heir of Simplicio Padigos. Therefore, the former could not vest title of
the land to Alipio Bacalso.
As for Exhibit 3, the vendors Gaudencio Padigos,
Hermenegilda Padigos and Domingo Padigos are not the legal heirs of
registered owner Fortunata Padigos. Hermenegilda Padigos is not a
known heir of any of the other registered owners of the property.
On the other hand, plaintiffs-appellants Gaudencio and
Domingo Padigos are only some of the collateral grandchildren of
Fortunata Padigos. They could not by themselves dispose of the share
of Fortunata Padigos.
xxxx
As for Exhibit 5, the vendors in Exhibit 5 are not the legal
heirs of Wenceslao Padigos. The children of registered owner
Wenceslao Padigos are: Wenceslao Padigos, Demetrio Padigos and
Nelly Padigos. Therefore, Exhibit 5 is null and void and could not
convey the shares of the registered owner Wenceslao Padigos in favor
of Alipio Bacalso.
As for Exhibit 9, the Deed of Sale executed by Alipio
[Gadiano] in favor of Alipio Bacalso is also void because the shares of
the registered owners Felix and Geronimo Padigos were not validly
conveyed to Alipio [Gadiano] because Exhibit 4 and 6 were void
contracts. Thus, Exhibit 9 is also null and void.[58] (Italics in the
original; underscoring supplied)

The evidence regarding the facts of pedigree of the registered owners and their
heirs does not, however, satisfy this Court. Not only is Gaudencios self-serving testimony
uncorroborated; it contradicts itself on material points. For instance, on direct
examination, he testified that Ignacio is his father and Fortunata is his grandmother.[59] On
cross-examination, however, he declared that his father Ignacio is the brother of Fortunata.
[60]
On direct examination, he testified that his co-plaintiffs Victoria and Lilia are already
dead.[61] On cross-examination, however, he denied knowledge whether the two are
already dead.[62] Also on direct examination, he identified Expedito, Henry, and Enrique as
the children of Felix.[63] Expedito himself testified, however, that he is the son of a certain
Mamerto Padigos, the son of a certain Apolonio Padigos who is in turn the son of Felix. [64]
AT ALL EVENTS, respondents are guilty of laches the negligence or omission to
assert a right within a reasonable time, warranting a presumption that the party entitled to
assert it has either abandoned it or declined to assert it. [65] While, by express provision of
law, no title to registered land in derogation of that of the registered owner shall be
acquired by prescription or adverse possession, it is an enshrined rule that even a
registered owner may be barred from recovering possession of property by virtue of
laches.[66]
Respondents insist, however, that they only learned of the deeds of sale in 1994,
the year that Alipio, Sr. allegedly commenced possession of the property.[67] The record
shows, however, that although petitioners started renting out the land in 1994, they have
been tilling it since the 1950s,[68] and Rosendos house was constructed in about 1985.
[69]
These acts of possession could not have escaped respondents notice given the
following unassailed considerations, inter alia: Gaudencio testified that he lived on the lot
from childhood until 1985, after which he moved to a place three kilometers away, and
after he moved, a certain Vicente Debelos lived on the lot with his permission.
[70]
Petitioners witness Marina Alcoseba, their employee, [71] testified that Gaudencio and
Domingo used to cut kumpay planted by petitioners tenant on the lot. [72] The tax
declarations in Alipio, Sr.s name for the years 1967-1980 covering a portion of the lot
indicate Fortunatas share to be the north and east boundaries of Alipio, Sr.s; [73] hence,
respondents could not have been unaware of the acts of possession that petitioners
exercised over the lot.
Upon the other hand, petitioners have been vigilant in protecting their rights over
the lot, which their predecessor-in-interest Alipio, Sr. had declared in his name for tax
purposes as early as 1960, and for which he had been paying taxes until his death in 1994,
by continuing to pay the taxes thereon.[74]
Respondents having failed to establish their claim by preponderance of evidence,
their action for quieting of title, declaration of nullity of documents, recovery of
possession, and damages must fail.
A final word. While petitioners attribution of error to the appellate courts implied
sanction of the trial courts order for the demolition pending appeal of the houses of their
lessees is well taken, the Court may not consider any grant of relief to them, they not
being parties to the case.

WHEREFORE, the petition is GRANTED. The September 6, 2005 decision of

the Court of Appeals is REVERSED and SET ASIDE. Civil Case No. CEB-17326 of
Branch 16 of the Regional Trial Court of Cebu City is DISMISSED.
SO ORDERED.

ROGER V. NAVARRO,
Petitioner,

G.R. No. 153788

- versus -

Present:
CARPIO, J., Chairperson,
LEONARDO-DE CASTRO,
BRION,
DEL CASTILLO, and
ABAD, JJ.

HON. JOSE L. ESCOBIDO, Presiding Judge, RTC

Branch 37, Cagayan de Oro City, and KAREN T. GO, Promulgated:
doing business under the name KARGO
ENTERPRISES,
November 27, 2009
Respondents.

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

x ---------------------------------------------------------------------------------------- x
DECISION
BRION, J.:
This is a petition for review on certiorari[1] that seeks to set aside the Court of
Appeals (CA) Decision[2] dated October 16, 2001 and Resolution[3] dated May 29, 2002 in
CA-G.R. SP. No. 64701. These CA rulings affirmed the July 26, 2000[4] and March 7,
2001[5] 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

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) post-dated 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 above-described
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.

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 co-plaintiff.
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 coplaintiff. 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

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:

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.

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 of P100,000.00, to Karen Go in payment of the agreed rentals; however,
the third check was dishonored when presented for payment.[8]

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.

On October 12, 1998[9] 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.

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.

On Navarros motion, both cases were duly consolidated on December 13, 1999.

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.

In its May 8, 2000 order, the RTC dismissed the case on the ground that the complaints
did not state a cause of action.

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.

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:

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.

GLENN O. GO, of legal age, married, with post office

address at xxx, herein referred to as the LESSORSELLER; 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:

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-in-interest, 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-ininterest 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

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.

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

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

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.
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 co-owners of Kargo
Enterprises and the properties registered under this name; hence, both have an equal
right to seek possession of these properties. Applying Article 484 of the Civil Code,
which states that in default of contracts, or special provisions, co-ownership 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.

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 andAdlawan 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 Enterprises-leased vehicles which they coown. 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.

This provision is practically the same as the Civil Code provision it

superseded:

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:

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.

Section 4. Spouses as parties. Husband and wife shall sue or be sued

jointly, except as provided by law.

Sec. 2. Affidavit and bond.

Non-joinder of indispensable
parties not ground to dismiss
action
Even assuming that Glenn Go is an indispensable party to the action, we have
held in a number of cases[26] 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:
(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
undercustodia legis, or if so seized, that it is exempt from such
seizure or custody; and

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

(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.

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:

The Office may also accept other government printing jobs,

including government publications, aside from those enumerated
above, but not in an exclusive basis.

BANDA VS ERMITA
LEONARDO-DE CASTRO, J.:

The present controversy arose from a Petition for Certiorari and

prohibition challenging the constitutionality of Executive Order No. 378
dated October 25, 2004, issued by President Gloria Macapagal Arroyo
(President Arroyo). Petitioners characterize their action as a class suit
filed on their own behalf and on behalf of all their co-employees at the
National Printing Office (NPO).

The NPO was formed on July 25, 1987, during the term of
former President Corazon C. Aquino (President Aquino), by virtue of
Executive Order No. 285[1] which provided, among others, the creation
of the NPO from the merger of the Government Printing Office and the
relevant printing units of the Philippine Information Agency
(PIA).Section 6 of Executive Order No. 285 reads:

SECTION 6. Creation of the National Printing

Office. There is hereby created a National Printing Office out of the
merger of the Government Printing Office and the relevant printing
units of the Philippine Information Agency. The Office shall have
exclusive printing jurisdiction over the following:

a. Printing, binding and distribution of all standard and

accountable forms of national, provincial, city and municipal
governments, including government corporations;

b.

Printing of officials ballots;

c.
Printing of public documents such as the
Official Gazette, General Appropriations Act, Philippine Reports, and
development information materials of the Philippine Information
Agency.

The details of the organization, powers, functions,

authorities, and related management aspects of the Office shall be
provided in the implementing details which shall be prepared and
promulgated in accordance with Section II of this Executive Order.
The Office shall be attached to the Philippine Information
Agency.
On October 25, 2004, President Arroyo issued the herein assailed Executive
Order No. 378, amending Section 6 of Executive Order No. 285 by, inter alia, removing
the exclusive jurisdiction of the NPO over the printing services requirements of
government agencies and instrumentalities. The pertinent portions of Executive Order
No. 378, in turn, provide:
SECTION 1. The NPO shall continue to provide printing
services to government agencies and instrumentalities as
mandated by law. However, it shall no longer enjoy exclusive
jurisdiction over the printing services requirements of the
government over standard and accountable forms. It shall have
to compete with the private sector, except in the printing of
election paraphernalia which could be shared with the Bangko
Sentral ng Pilipinas, upon the discretion of the Commission on
Elections consistent with the provisions of the Election Code of 1987.
SECTION 2. Government agencies/instrumentalities may
source printing services outside NPO provided that:
2.1 The printing services to be provided by the private
sector is superior in quality and at a lower cost than what is offered
by the NPO; and
2.2 The private printing provider is flexible in terms of
meeting the target completion time of the government agency.
SECTION 3. In the exercise of its functions, the amount
to be appropriated for the programs, projects and activities of the
NPO in the General Appropriations Act (GAA) shall be limited to
its income without additional financial support from the
government. (Emphases and underscoring supplied.)
Pursuant to Executive Order No. 378, government agencies and
instrumentalities are allowed to source their printing services from the private sector
through competitive bidding, subject to the condition that the services offered by the

private supplier be of superior quality and lower in cost compared to what was offered by
the NPO. Executive Order No. 378 also limited NPOs appropriation in the General
Appropriations Act to its income.
Perceiving Executive Order No. 378 as a threat to their security of tenure as
employees of the NPO, petitioners now challenge its constitutionality, contending that:
(1) it is beyond the executive powers of President Arroyo to amend or repeal Executive
Order No. 285 issued by former President Aquino when the latter still exercised
legislative powers; and (2) Executive Order No. 378 violates petitioners security of
tenure, because it paves the way for the gradual abolition of the NPO.
We dismiss the petition.
Before proceeding to resolve the substantive issues, the Court must first delve
into a procedural matter. Since petitioners instituted this case as a class suit, the Court,
thus, must first determine if the petition indeed qualifies as one. In Board of Optometry
v. Colet,[2] we held that [c]ourts must exercise utmost caution before allowing a class suit,
which is the exception to the requirement of joinder of all indispensable parties. For
while no difficulty may arise if the decision secured is favorable to the plaintiffs, a
quandary would result if the decision were otherwise as those who were deemed
impleaded by their self-appointed representatives would certainly claim denial of due
process.
Section 12, Rule 3 of the Rules of Court defines a class suit, as follows:
Sec. 12. Class suit. When the subject matter of the
controversy is one of common or general interest to many persons so
numerous that it is impracticable to join all as parties, a number of
them which the court finds to be sufficiently numerous and
representative as to fully protect the interests of all concerned may
sue or defend for the benefit of all. Any party in interest shall have
the right to intervene to protect his individual interest.
From the foregoing definition, the requisites of a class suit are: 1) the
subject matter of controversy is one of common or general interest to many persons;
2) the parties affected are so numerous that it is impracticable to bring them all to
court; and 3) the parties bringing the class suit are sufficiently numerous or
representative of the class and can fully protect the interests of all concerned.
In Mathay v. The Consolidated Bank and Trust Company,[3] the Court held that:
An action does not become a class suit merely because it is designated
as such in the pleadings. Whether the suit is or is not a class suit
depends upon the attending facts, and the complaint, or other
pleading initiating the class action should allege the existence of the
necessary facts, to wit, the existence of a subject matter of common
interest, and the existence of a class and the number of persons in
the alleged class, in order that the court might be enabled to
determine whether the members of the class are so numerous as to

make it impracticable to bring them all before the court, to

contrast the number appearing on the record with the number in
the class and to determine whether claimants on record
adequately represent the class and the subject matter of general or
common interest. (Emphases ours.)
Here, the petition failed to state the number of NPO employees who would be
affected by the assailed Executive Order and who were allegedly represented by
petitioners.It was the Solicitor General, as counsel for respondents, who pointed out that
there were about 549 employees in the NPO. [4] The 67 petitioners undeniably comprised
a small fraction of the NPO employees whom they claimed to represent. Subsequently,
32 of the original petitioners executed an Affidavit of Desistance, while one signed a
letter denying ever signing the petition, [5] ostensibly reducing the number of petitioners
to 34. We note that counsel for the petitioners challenged the validity of the desistance or
withdrawal of some of the petitioners and insinuated that such desistance was due to
pressure from people close to the seat of power.[6] Still, even if we were to disregard the
affidavit of desistance filed by some of the petitioners, it is highly doubtful that a
sufficient, representative number of NPO employees have instituted this purported class
suit. A perusal of the petition itself would show that of the 67 petitioners who signed the
Verification/Certification of Non-Forum Shopping, only 20 petitioners were in fact
mentioned in the jurat as having duly subscribed the petition before the notary public. In
other words, only 20 petitioners effectively instituted the present case.
Indeed, in MVRS Publications, Inc. v. Islamic Dawah Council of the
Philippines, Inc.,[7] we observed that an element of a class suit or representative suit is
the adequacy of representation. In determining the question of fair and adequate
representation of members of a class, the court must consider (a) whether the interest of
the named party is coextensive with the interest of the other members of the class; (b) the
proportion of those made a party, as it so bears, to the total membership of the class; and
(c) any other factor bearing on the ability of the named party to speak for the rest of the
class.
Previously, we held in Ibaes v. Roman Catholic Church[8] that where the
interests of the plaintiffs and the other members of the class they seek to represent are
diametrically opposed, the class suit will not prosper.
It is worth mentioning that a Manifestation of Desistance, [9] to which the
previously mentioned Affidavit of Desistance [10] was attached, was filed by the President
of the National Printing Office Workers Association (NAPOWA). The said manifestation
expressed NAPOWAs opposition to the filing of the instant petition in any court. Even if
we take into account the contention of petitioners counsel that the NAPOWA President
had no legal standing to file such manifestation, the said pleading is a clear indication
that there is a divergence of opinions and views among the members of the class sought
to be represented, and not all are in favor of filing the present suit. There is here an
apparent conflict between petitioners interests and those of the persons whom they claim
to represent. Since it cannot be said that petitioners sufficiently represent the interests of
the entire class, the instant case cannot be properly treated as a class suit.

As to the merits of the case, the petition raises two main grounds to assail the
constitutionality of Executive Order No. 378:

(3) Transfer any agency under the

Office of the President to any other department
or agency as well as transfer agencies to the
Office of the President from other Departments
or agencies. (Emphases ours.)

First, it is contended that President Arroyo cannot amend or repeal Executive

Order No. 285 by the mere issuance of another executive order (Executive Order No.
378).Petitioners maintain that former President Aquinos Executive Order No. 285 is a
legislative enactment, as the same was issued while President Aquino still had legislative
powers under the Freedom Constitution; [11] thus, only Congress through legislation can
validly amend Executive Order No. 285.

Interpreting the foregoing provision, we held in Buklod ng Kawaning EIIB,

thus:

Second, petitioners maintain that the issuance of Executive Order No. 378
would lead to the eventual abolition of the NPO and would violate the security of tenure
of NPO employees.
Anent the first ground raised in the petition, we find the same patently without
merit.
It is a well-settled principle in jurisprudence that the President has the power to
reorganize the offices and agencies in the executive department in line with the
Presidents constitutionally granted power of control over executive offices and by virtue
of previous delegation of the legislative power to reorganize executive offices under
existing statutes.
In Buklod ng Kawaning EIIB v. Zamora,[12] the Court pointed out that Executive
Order No. 292 or the Administrative Code of 1987 gives the President continuing
authority to reorganize and redefine the functions of the Office of the President. Section
31, Chapter 10, Title III, Book III of the said Code, is explicit:
Sec. 31. Continuing Authority of the President to
Reorganize his Office. The President, subject to the policy in the
Executive Office and in order to achieve simplicity, economy and
efficiency, shall have continuing authority to reorganize the
administrative structure of the Office of the President. For this
purpose, he may take any of the following actions:
(1) Restructure
the
internal
organization of the Office of the President
Proper, including the immediate Offices, the
President Special Assistants/Advisers System and
the Common Staff Support System, by
abolishing, consolidating or merging units
thereof or transferring functions from one unit
to another;
(2) Transfer any function under the
Office of the President to any other
Department or Agency as well as transfer
functions to the Office of the President from
other Departments and Agencies; and

But of course, the list of legal basis authorizing the

President to reorganize any department or agency in the executive
branch does not have to end here. We must not lose sight of the very
source of the power that which constitutes an express grant of
power. Under Section 31, Book III of Executive Order No. 292
(otherwise known as the Administrative Code of 1987), the President,
subject to the policy in the Executive Office and in order to achieve
simplicity, economy and efficiency, shall have the continuing
authority to reorganize the administrative structure of the Office of
the President. For this purpose, he may transfer the functions of other
Departments
or
Agencies
to
the
Office
of
the
President. In Canonizado v. Aguirre [323 SCRA 312 (2000)], we
ruled that reorganization involves the reduction of personnel,
consolidation of offices, or abolition thereof by reason of economy
or redundancy of functions. It takes place when there is an
alteration of the existing structure of government offices or units
therein, including the lines of control, authority and responsibility
between them. The EIIB is a bureau attached to the Department of
Finance. It falls under the Office of the President. Hence, it is subject
to the Presidents continuing authority to reorganize. [13] (Emphasis
ours.)
It is undisputed that the NPO, as an agency that is part of the Office of the Press
Secretary (which in various times has been an agency directly attached to the Office of
the Press Secretary or as an agency under the Philippine Information Agency), is part of
the Office of the President.[14]
Pertinent to the case at bar, Section 31 of the Administrative Code of 1987
quoted above authorizes the President (a) to restructure the internal organization of the
Office of the President Proper, including the immediate Offices, the President Special
Assistants/Advisers System and the Common Staff Support System, by abolishing,
consolidating or merging units thereof or transferring functions from one unit to another,
and (b) to transfer functions or offices from the Office of the President to any other
Department or Agency in the Executive Branch, and vice versa.
Concomitant to such power to abolish, merge or consolidate offices in the
Office of the President Proper and to transfer functions/offices not only among the offices

in the Office of President Proper but also the rest of the Office of the President and the
Executive Branch, the President implicitly has the power to effect less radical or less
substantive changes to the functional and internal structure of the Office of the President,
including the modification of functions of such executive agencies as the exigencies of
the service may require.
In the case at bar, there was neither an abolition of the NPO nor a removal of
any of its functions to be transferred to another agency. Under the assailed Executive
Order No. 378, the NPO remains the main printing arm of the government for all kinds of
government forms and publications but in the interest of greater economy and
encouraging efficiency and profitability, it must now compete with the private sector for
certain government printing jobs, with the exception of election paraphernalia which
remains the exclusive responsibility of the NPO, together with the Bangko Sentral ng
Pilipinas, as the Commission on Elections may determine. At most, there was a mere
alteration of the main function of the NPO by limiting the exclusivity of its printing
responsibility to election forms.[15]
There is a view that the reorganization actions that the President may take with
respect to agencies in the Office of the President are strictly limited to transfer of
functions and offices as seemingly provided in Section 31 of the Administrative Code of
1987.
However, Section 20, Chapter 7, Title I, Book III of the same Code significantly
provides:
Sec. 20. Residual Powers. Unless Congress provides
otherwise, the President shall exercise such other powers and
functions vested in the President which are provided for under the
laws and which are not specifically enumerated above, or which are
not delegated by the President in accordance with law. (Emphasis
ours.)
Pursuant to Section 20, the power of the President to reorganize the Executive
Branch under Section 31 includes such powers and functions that may be provided for
under other laws. To be sure, an inclusive and broad interpretation of the Presidents
power to reorganize executive offices has been consistently supported by specific
provisions ingeneral appropriations laws.
In the oft-cited Larin v. Executive Secretary,[16] the Court likewise adverted to
certain provisions of Republic Act No. 7645, the general appropriations law for 1993, as
among the statutory bases for the Presidents power to reorganize executive agencies, to
wit:
Section 48 of R.A. 7645 provides that:
Sec. 48. Scaling Down and Phase Out of
Activities of Agencies Within the Executive
Branch. The heads of departments, bureaus and
offices and agencies are hereby directed to identify

their respective activities which are no longer

essential in the delivery of public services and
which may be scaled down, phased out or
abolished, subject to civil [service] rules and
regulations. x x x. Actual scaling down, phasing out
or abolition of the activities shall be effected
pursuant to Circulars or Orders issued for the
purpose by the Office of the President.
Said provision clearly mentions the acts of "scaling down, phasing
out and abolition" of offices only and does not cover the creation
of offices or transfer of functions. Nevertheless, the act of creating
and decentralizing is included in the subsequent provision of
Section 62, which provides that:
Sec. 62. Unauthorized organizational
changes. Unless otherwise created by law or
directed by the President of the Philippines, no
organizational unit or changes in key positions in
any department or agency shall be authorized in
their respective organization structures and be
funded from appropriations by this Act.
The foregoing provision evidently shows that the President is
authorized to effect organizational changes including the creation of
offices in the department or agency concerned.
The contention of petitioner that the two provisions are riders deserves
scant consideration. Well settled is the rule that every law has in its
favor the presumption of constitutionality. Unless and until a specific
provision of the law is declared invalid and unconstitutional, the same
is valid and binding for all intents and purposes.[17] (Emphases ours)
Buklod ng Kawaning EIIB v. Zamora,[18] where the Court upheld as valid then
President Joseph Estradas Executive Order No. 191 deactivating the Economic
Intelligence and Investigation Bureau (EIIB) of the Department of Finance, hewed
closely to the reasoning in Larin. The Court, among others, also traced from the General
Appropriations Act[19] the Presidents authority to effect organizational changes in the
department or agency under the executive structure, thus:
We adhere to the precedent or ruling in Larin that this provision
recognizes the authority of the President to effect organizational
changes in the department or agency under the executive structure. Such
a ruling further finds support in Section 78 of Republic Act No. 8760.
Under this law, the heads of departments, bureaus, offices and agencies
and other entities in the Executive Branch are directed (a) to conduct a
comprehensive review of their respective mandates, missions,
objectives, functions, programs, projects, activities and systems and
procedures; (b) identify activities which are no longer essential in the
delivery of public services and which may be scaled down, phased-out
or abolished; and (c) adopt measures that will result in the
streamlined organization and improved overall performance of

their respective agencies. Section 78 ends up with the mandate that the
actual streamlining and productivity improvement in agency
organization and operation shall be effected pursuant to Circulars or
Orders issued for the purpose by the Office of the President. x x x.
[20]
(Emphasis ours)
Notably, in the present case, the 2003 General Appropriations Act, which was
reenacted in 2004 (the year of the issuance of Executive Order No. 378), likewise gave
the President the authority to effect a wide variety of organizational changes in any
department or agency in the Executive Branch. Sections 77 and 78 of said Act provides:
Section
77. Organized
Changes. Unless
otherwise
provided by law or directed by the President of
the Philippines, no changes in key positions or organizational units
in any department or agency shall be authorized in their respective
organizational structures and funded from appropriations provided by
this Act.
Section 78. Institutional Strengthening and Productivity
Improvement in Agency Organization and Operations and
Implementation of Organization/Reorganization Mandated by
Law.The Government shall adopt institutional strengthening and
productivity improvement measures to improve service delivery
and enhance productivity in the government, as directed by the
President of the Philippines. The heads of departments, bureaus,
offices, agencies, and other entities of the Executive Branch shall
accordingly conduct a comprehensive review of their respective
mandates, missions, objectives, functions, programs, projects,
activities and systems and procedures; identify areas where
improvements are necessary; and implement corresponding
structural, functional and operational adjustments that will result
in streamlined organization and operations and improved
performance and productivity: PROVIDED, That actual
streamlining and productivity improvements in agency organization
and operations, as authorized by the President of the Philippines for
the purpose, including the utilization of savings generated from such
activities, shall be in accordance with the rules and regulations to be
issued by the DBM, upon consultation with the Presidential
Committee on Effective Governance: PROVIDED, FURTHER,
That in the implementation of organizations/reorganizations, or
specific changes in agency structure, functions and operations as
a result of institutional strengthening or as mandated by law, the
appropriation, including the functions, projects, purposes and
activities of agencies concerned may be realigned as may be
necessary: PROVIDED, FINALLY, That any unexpended balances
or savings in appropriations may be made available for payment of
retirement gratuities and separation benefits to affected personnel, as
authorized under existing laws. (Emphases and underscoring ours.)

Implicitly, the aforequoted provisions in the appropriations law recognize the

power of the President to reorganize even executive offices already funded by the said
appropriations act, including the power to implement structural, functional, and
operational adjustments in the executive bureaucracy and, in so doing, modify or
realign appropriations of funds as may be necessary under such reorganization. Thus,
insofar as petitioners protest the limitation of the NPOs appropriations to its own income
under Executive Order No. 378, the same is statutorily authorized by the above
provisions.
In the 2003 case of Bagaoisan v. National Tobacco Administration,[21] we upheld
the streamlining of the National Tobacco Administration through a reduction of its
personnel and deemed the same as included in the power of the President to reorganize
executive offices granted under the laws, notwithstanding that such streamlining neither
involved an abolition nor a transfer of functions of an office. To quote the relevant
portion of that decision:
In the recent case of Rosa Ligaya C. Domingo, et al. vs. Hon. Ronaldo
D. Zamora, in his capacity as the Executive Secretary, et al., this
Court has had occasion to also delve on the Presidents power to
reorganize the Office of the President under Section 31(2) and (3) of
Executive Order No. 292 and the power to reorganize the Office of the
President Proper. x x x
xxxx
The first sentence of the law is an express grant to the President of
a continuing authority to reorganize the administrative structure of the
Office of the President. The succeeding numbered paragraphs are
not in the nature of provisos that unduly limit the aim and scope of
the grant to the President of the power to reorganize but are to be
viewed in consonance therewith. Section 31(1) of Executive Order
No. 292 specifically refers to the Presidents power to restructure the
internal organization of the Office of the President Proper, by
abolishing, consolidating or merging units hereof or transferring
functions from one unit to another, while Section 31(2) and (3)
concern executive offices outside the Office of the
President Properallowing the President to transfer any function under
the Office of the President to any other Department or Agency
and vice-versa, and the transfer of any agency under the Office of the
President to any other department or agency and vice-versa.

In the present instance, involving neither an abolition nor

transfer of offices, the assailed action is a mere reorganization
under the general provisions of the law consisting mainly
of streamlining the NTA in the interest of simplicity, economy and
efficiency. It is an act well within the authority of the
President motivated and carried out, according to the findings of the
appellate court, in good faith, a factual assessment that this Court
could only but accept.[22] (Emphases and underscoring supplied.)

reshaped by the President in the manner the Chief Executive deems fit
to carry out presidential directives and policies.
The Administrative Code provides that the Office of the President
consists of the Office of the President Proper and the agencies under
it. The agencies under the Office of the President are identified in
Section 23, Chapter 8, Title II of the Administrative Code:
Sec. 23. The Agencies under the Office of
the President.The agencies under the Office of the
President refer to those offices placed under the
chairmanship of the President, those under the
supervision and control of the President, those
under the administrative supervision of the Office
of the President, those attached to it for policy and
program coordination, and those that are not placed
by law or order creating them under any specific
department.

In the more recent case of Tondo Medical Center Employees Association v.

Court of Appeals,[23] which involved a structural and functional reorganization of the
Department of Health under an executive order, we reiterated the principle that the
power of the President to reorganize agencies under the executive department by
executive or administrative order is constitutionally and statutorily recognized. We held
in that case:
This Court has already ruled in a number of cases that
the President may, by executive or administrative order, direct the
reorganization of government entities under the Executive
Department. This is also sanctioned under the Constitution, as well
as other statutes.
Section 17, Article VII of the 1987 Constitution, clearly
states:
[T]he president shall have control of all executive
departments, bureaus and offices. Section 31, Book III, Chapter 10
of Executive Order No. 292, also known as the Administrative Code of
1987 reads:
SEC. 31. Continuing Authority of the
President to Reorganize his Office - The President,
subject to the policy in the Executive Office and in
order to achieve simplicity, economy and
efficiency, shall have continuing authority to
reorganize the administrative structure of the Office
of the President. For this purpose, he may take any
of the following actions:
xxxx
In Domingo v. Zamora [445 Phil. 7 (2003)], this Court
explained the rationale behind the Presidents continuing authority
under the Administrative Code to reorganize the administrative
structure of the Office of the President. The law grants the President
the power to reorganize the Office of the President in recognition
of the recurring need of every President to reorganize his or her
office to achieve simplicity, economy and efficiency. To remain
effective and efficient, it must be capable of being shaped and

xxxx
The power of the President to reorganize the executive department
is likewise recognized in general appropriations laws. x x x.
xxxx
Clearly, Executive Order No. 102 is well within the constitutional
power of the President to issue. The President did not usurp any
legislative prerogative in issuing Executive Order No. 102. It is an
exercise of the Presidents constitutional power of control over the
executive department, supported by the provisions of the
Administrative Code, recognized by other statutes, and
consistently affirmed by this Court.[24] (Emphases supplied.)
Subsequently,
Secretary[25] that:

we

ruled

in Anak

Mindanao Party-List

Group

The Constitutions express grant of the power of control in the

President justifies an executive action to carry out reorganization
measures under a broad authority of law.
In enacting a statute, the legislature is presumed to have
deliberated with full knowledge of all existing laws and jurisprudence
on the subject. It is thus reasonable to conclude that in passing a
statute which places an agency under the Office of the President, it
was in accordance with existing laws and jurisprudence on the
Presidents power to reorganize.

v.

Executive

In establishing an executive department, bureau or office, the

legislature necessarily ordains an executive agencys position in the
scheme of administrative structure. Such determination is primary, but
subject to the Presidents continuing authority to reorganize the
administrative structure. As far as bureaus, agencies or offices in the
executive department are concerned, the power of control may justify
the President to deactivate the functions of a particular office. Or a
law may expressly grant the President the broad authority to carry out
reorganization measures. The Administrative Code of 1987 is one
such law.[26]
The issuance of Executive Order No. 378 by President Arroyo is an
exercise of a delegated legislative power granted by the aforementioned Section 31,
Chapter 10, Title III, Book III of the Administrative Code of 1987, which provides
for the continuing authority of the President to reorganize the Office of the
President, in order to achieve simplicity, economy and efficiency. This is a matter
already well-entrenched in jurisprudence. The reorganization of such an office
through executive or administrative order is also recognized in the Administrative
Code of 1987. Sections 2 and 3, Chapter 2, Title I, Book III of the said Code
provide:
Sec. 2. Executive Orders. - Acts of the President providing for rules
of a general or permanent character in implementation or execution
of constitutional or statutory powers shall be promulgated
in executive orders.
Sec. 3. Administrative Orders. - Acts of the President which relate to
particular aspects of governmental operations in pursuance of his
duties
as
administrative
head shall
be
promulgated
inadministrative orders. (Emphases supplied.)
To reiterate, we find nothing objectionable in the provision in Executive Order
No. 378 limiting the appropriation of the NPO to its own income. Beginning
with Larin and in subsequent cases, the Court has noted certain provisions in the general
appropriations laws as likewise reflecting the power of the President to reorganize
executive offices or agencies even to the extent of modifying and realigning
appropriations for that purpose.
Petitioners contention that the issuance of Executive Order No. 378 is an
invalid exercise of legislative power on the part of the President has no legal leg to stand
on.
In all, Executive Order No. 378, which purports to institute necessary reforms
in government in order to improve and upgrade efficiency in the delivery of public
services by redefining the functions of the NPO and limiting its funding to its own
income and to transform it into a self-reliant agency able to compete with the private
sector, is well within the prerogative of President Arroyo under her continuing delegated

legislative power to reorganize her own office. As pointed out in the separate concurring
opinion of our learned colleague, Associate Justice Antonio T. Carpio, the objective
behind Executive Order No. 378 is wholly consistent with the state policy contained in
Republic Act No. 9184 or the Government Procurement Reform Act to encourage
competitiveness by extending equal opportunity to private contracting parties who are
eligible and qualified.[27]
To be very clear, this delegated legislative power to reorganize pertains only to
the Office of the President and the departments, offices and agencies of the executive
branch and does not include the Judiciary, the Legislature or the constitutionally-created
or mandated bodies. Moreover, it must be stressed that the exercise by the President of
the power to reorganize the executive department must be in accordance with the
Constitution, relevant laws and prevailing jurisprudence.
In this regard, we are mindful of the previous pronouncement of this Court
in Dario v. Mison[28] that:
Reorganizations in this jurisdiction have been regarded
as valid provided they are pursued in good faith. As a general rule,
a reorganization is carried out in good faith if it is for the purpose of
economy or to make bureaucracy more efficient. In that event, no
dismissal (in case of a dismissal) or separation actually occurs because
the position itself ceases to exist. And in that case, security of tenure
would not be a Chinese wall. Be that as it may, if the abolition, which
is nothing else but a separation or removal, is done for political
reasons or purposely to defeat security of tenure, or otherwise not in
good faith, no valid abolition takes place and whatever abolition is
done, is void ab initio. There is an invalid abolition as where there is
merely a change of nomenclature of positions, or where claims of
economy are belied by the existence of ample funds. (Emphasis ours.)
Stated alternatively, the presidential power to reorganize agencies and offices in
the executive branch of government is subject to the condition that such reorganization is
carried out in good faith.
If the reorganization is done in good faith, the abolition of positions, which
results in loss of security of tenure of affected government employees, would be
valid. InBuklod ng Kawaning EIIB v. Zamora,[29] we even observed that there was no
such thing as an absolute right to hold office. Except those who hold constitutional
offices, which provide for special immunity as regards salary and tenure, no one can be
said to have any vested right to an office or salary.[30]
This brings us to the second ground raised in the petition that Executive Order
No. 378, in allowing government agencies to secure their printing requirements from the
private sector and in limiting the budget of the NPO to its income, will purportedly lead
to the gradual abolition of the NPO and the loss of security of tenure of its present
employees. In other words, petitioners avow that the reorganization of the NPO under
Executive Order No. 378 is tainted with bad faith. The basic evidentiary rule is that he
who asserts a fact or the affirmative of an issue has the burden of proving it. [31]

A careful review of the records will show that petitioners utterly failed to
substantiate their claim. They failed to allege, much less prove, sufficient facts to show
that the limitation of the NPOs budget to its own income would indeed lead to the
abolition of the position, or removal from office, of any employee. Neither did
petitioners present any shred of proof of their assertion that the changes in the functions
of the NPO were for political considerations that had nothing to do with improving the
efficiency of, or encouraging operational economy in, the said agency.
In sum, the Court finds that the petition failed to show any constitutional
infirmity or grave abuse of discretion amounting to lack or excess of jurisdiction in
President Arroyos issuance of Executive Order No. 378.

WHEREFORE, the petition is hereby DISMISSED and the prayer for a

Temporary Restraining Order and/or a Writ of Preliminary Injunction is
hereby DENIED. No costs.

G.R. No. 177429

November 24, 2009

ANICIA VALDEZ-TALLORIN, Petitioner,

vs.
HEIRS OF JUANITO TARONA, Represented by CARLOS TARONA, ROGELIO
TARONA and LOURDES TARONA, Respondents.
DECISION
ABAD, J.:
This case is about a courts annulment of a tax declaration in the names of three persons,
two of whom had not been impleaded in the case, for the reason that the document was
illegally issued to them.

The Taronas alleged in their complaint that, unknown to them, in 1981, the Assessors
Office of Morong in Bataan cancelled Tax Declaration 463 in the name of their father,
Juanito Tarona (Juanito), covering 6,186 square meters of land in Morong, Bataan. The
cancellation was said to be based on an unsigned though notarized affidavit that Juanito
allegedly executed in favor of petitioner Tallorin and two others, namely, Margarita
Pastelero Vda. de Valdez and Dolores Valdez, who were not impleaded in the action. In
place of the cancelled one, the Assessors Office issued Tax Declaration 6164 in the
names of the latter three persons. The old man Taronas affidavit had been missing and no
copy could be found among the records of the Assessors Office.2
The Taronas further alleged that, without their fathers affidavit on file, it followed that
his tax declaration had been illegally cancelled and a new one illegally issued in favor of
Tallorin and the others with her. The unexplained disappearance of the affidavit from
official files, the Taronas concluded, covered-up the falsification or forgery that caused
the substitution.3 The Taronas asked the RTC to annul Tax Declaration 6164, reinstate Tax
Declaration 463, and issue a new one in the name of Juanitos heirs.
On March 6, 1998 the Taronas filed a motion to declare petitioner Tallorin in default for
failing to answer their complaint within the allowed time. 4 But, before the RTC could act
on the motion, Tallorin filed a belated answer, alleging among others that she held a copy
of the supposedly missing affidavit of Juanito who was merely an agricultural tenant of
the land covered by Tax Declaration 463. He surrendered and waived in that affidavit his
occupation and tenancy rights to Tallorin and the others in consideration of P29,240.00.
Tallorin also put up the affirmative defenses of non-compliance with the requirement of
conciliation proceedings and prescription.
On March 12, 1998 the RTC set Tallorins affirmative defenses for hearing5 but the
Taronas sought reconsideration, pointing out that the trial court should have instead
declared Tallorin in default based on their earlier motion. 6 On June 2, 1998 the RTC
denied the Taronas motion for reconsideration7 for the reasons that it received Tallorins
answer before it could issue a default order and that the Taronas failed to show proof that
Tallorin was notified of the motion three days before the scheduled hearing. Although the
presiding judge inhibited himself from the case on motion of the Taronas, the new judge
to whom the case was re-raffled stood by his predecessors previous orders.

The Facts and the Case

On February 9, 1998 respondents Carlos, Rogelio, and Lourdes Tarona (the Taronas) filed
an action before the Regional Trial Court (RTC) of Balanga, Bataan,1 against petitioner
Anicia Valdez-Tallorin (Tallorin) for the cancellation of her and two other womens tax
declaration over a parcel of land.

By a special civil action for certiorari before the Court of Appeals (CA), 8 however, the
Taronas succeeded in getting the latter court to annul the RTCs March 12 and June 2,
1998 orders.9 The CA ruled that the RTC gravely abused its discretion in admitting
Tallorins late answer in the absence of a motion to admit it. Even if petitioner Tallorin
had already filed her late answer, said the CA, the RTC should have heard the Taronas
motion to declare Tallorin in default.

Upon remand of the case, the RTC heard the Taronas motion to declare Tallorin in
default,10 granted the same, and directed the Taronas to present evidence ex parte. 11
On January 30, 2002 the RTC rendered judgment, a) annulling the tax declaration in the
names of Tallorin, Margarita Pastelero Vda. de Valdez, and Dolores Valdez; b) reinstating
the tax declaration in the name of Juanito; and c) ordering the issuance in its place of a
new tax declaration in the names of Juanitos heirs. The trial court also ruled that
Juanitos affidavit authorizing the transfer of the tax declaration had no binding force
since he did not sign it.1avvphi1
Tallorin appealed the above decision to the CA,12 pointing out 1) that the land covered by
the tax declaration in question was titled in her name and in those of her two co-owners;
2) that Juanitos affidavit only dealt with the surrender of his tenancy rights and did not
serve as basis for canceling Tax Declaration 463 in his name; 3) that, although Juanito did
not sign the affidavit, he thumbmarked and acknowledged the same before a notary
public; and 4) that the trial court erred in not dismissing the complaint for failure to
implead Margarita Pastelero Vda. de Valdez and Dolores Valdez who were indispensable
parties in the action to annul Juanitos affidavit and the tax declaration in their favor.13
On May 22, 2006 the CA rendered judgment, affirming the trial courts decision. 14 The
CA rejected all of Tallorins arguments. Since she did not assign as error the order
declaring her in default and since she took no part at the trial, the CA pointed out that her
claims were in effect mere conjectures, not based on evidence of record. 15Notably, the CA
did not address the issue Tallorin raised regarding the Taronas failure to implead
Margarita Pastelero Vda. de Valdez and Dolores Valdez as indispensable partydefendants, their interest in the cancelled tax declarations having been affected by the
RTC judgment.
Questions Presented
The petition presents the following questions for resolution by this Court:
1. Whether or not the CA erred in failing to dismiss the Taronas complaint for
not impleading Margarita Pastelero Vda. de Valdez and Dolores Valdez in
whose names, like their co-owner Tallorin, the annulled tax declaration had
been issued;
2. Whether or not the CA erred in not ruling that the Taronas complaint was
barred by prescription; and
3. Whether or not the CA erred in affirming the RTCs finding that Juanitos
affidavit had no legal effect because it was unsigned; when at the hearing of the

motion to declare Tallorin in default, it was shown that the affidavit bore
Juanitos thumbmark.
The Courts Rulings
The first question, whether or not the CA erred in failing to dismiss the Taronas
complaint for not impleading Margarita Pastelero Vda. de Valdez and Dolores Valdez in
whose names, like their co-owner Tallorin, the annulled tax declaration had been issued,
is a telling question.
The rules mandate the joinder of indispensable parties. Thus:
Sec. 7. Compulsory joinder of indispensable parties. Parties in interest without whom
no final determination can be had of an action shall be joined either as plaintiffs and
defendants.16
Indispensable parties are those with such an interest in the controversy that a final decree
would necessarily affect their rights, so that the courts cannot proceed without their
presence.17 Joining indispensable parties into an action is mandatory, being a requirement
of due process. Without their presence, the judgment of the court cannot attain real
finality.
Judgments do not bind strangers to the suit. The absence of an indispensable party
renders all subsequent actions of the court null and void. Indeed, it would have no
authority to act, not only as to the absent party, but as to those present as well. And where
does the responsibility for impleading all indispensable parties lie? It lies in the
plaintiff.18
Here, the Taronas sought the annulment of the tax declaration in the names of defendant
Tallorin and two others, namely, Margarita Pastelero Vda. de Valdez and Dolores Valdez
and, in its place, the reinstatement of the previous declaration in their father Juanitos
name. Further, the Taronas sought to strike down as void the affidavit in which Juanito
renounced his tenancy right in favor of the same three persons. It is inevitable that any
decision granting what the Taronas wanted would necessarily affect the rights of such
persons to the property covered by the tax declaration.
The Court cannot discount the importance of tax declarations to the persons in whose
names they are issued. Their cancellation adversely affects the rights and interests of such
persons over the properties that the documents cover. The reason is simple: a tax
declaration is a primary evidence, if not the source, of the right to claim title of ownership
over real property, a right enforceable against another person. The Court held in Uriarte v.

People19 that, although not conclusive, a tax declaration is a telling evidence of the
declarants possession which could ripen into ownership.

own initiative. Only if plaintiff refuses to implead an indispensable party, despite the
order of the court, may it dismiss the action.

In Director of Lands v. Court of Appeals,20 the Court said that no one in his right mind
would pay taxes for a property that he did not have in his possession. This honest sense of
obligation proves that the holder claims title over the property against the State and other
persons, putting them on notice that he would eventually seek the issuance of a certificate
of title in his name. Further, the tax declaration expresses his intent to contribute needed
revenues to the Government, a circumstance that strengthens his bona fide claim to
ownership.21

There is a need, therefore, to remand the case to the RTC with an order to implead
Margarita Pastelero Vda. de Valdez and Dolores Valdez as defendants so they may, if they
so desire, be heard.

Here, the RTC and the CA annulled Tax Declaration 6164 that belonged not only to
defendant Tallorin but also to Margarita Pastelero Vda. de Valdez and Dolores Valdez,
which two persons had no opportunity to be heard as they were never impleaded. The
RTC and the CA had no authority to annul that tax declaration without seeing to it that all
three persons were impleaded in the case.
But the Taronas action cannot be dismissed outright. As the Court held in Plasabas v.
Court of Appeals,22 the non-joinder of indispensable parties is not a ground for dismissal.
Section 11, Rule 3 of the 1997 Rules of Civil Procedure prohibits the dismissal of a suit
on the ground of non-joinder or misjoinder of parties and allows the amendment of the
complaint at any stage of the proceedings, through motion or on order of the court on its

In view of the Courts resolution of the first question, it would serve no purpose to
consider the other questions that the petition presents. The resolution of those questions
seems to depend on the complete evidence in the case. This will not yet happen until all
the indispensable party-defendants are impleaded and heard on their evidence.
WHEREFORE, the Court GRANTS the petition and SETS ASIDE the decision of the
Regional Trial Court of Balanga, Bataan in Civil Case 6739 dated January 30, 2002 and
the decision of the Court of Appeals in CA-G.R. CV 74762 dated May 22, 2006. The
Court REMANDS the case to the Regional Trial Court of Balanga, Bataan which is
DIRECTED to have Margarita Pastelero Vda. de Valdez and Dolores Valdez impleaded
by the plaintiffs as party-defendants and, afterwards, to hear the case in the manner
prescribed by the rules.
SO ORDERED.