Procedural Law v.

Substantive Law
DOMINADOR B. BUSTOS, Petitioner, vs. ANTONIO G. LUCERO, Judge of First
Instance of Pampanga, Respondent.
G.R. No. L-2068

October 20, 1948

The petitioner herein, an accused in a criminal case, filed a motion with the Court of First
Instance of Pampanga after he had been bound over to that court for trial, praying that the
record of the case be remanded to the justice of the peace court of Masantol, the court of origin,
in order that the petitioner might cross-examine the complainant and her witnesses in
connection with their testimony, on the strength of which warrant was issued for the arrest of
the accused. The motion was denied and that denial is the subject matter of this
proceeding.chanroblesvirtualawlibrary chanrobles virtual law library
According to the memorandum submitted by the petitioner's attorney to the Court of First
Instance in support of his motion, the accused, assisted by counsel, appeared at the preliminary
investigation. In that investigation, the justice of the peace informed him of the charges and
asked him if he pleaded guilty or not guilty, upon which he entered the plea of not guilty. "Then
his counsel moved that the complainant present her evidence so that she and her witnesses
could be examined and cross-examined in the manner and form provided by law." The fiscal
and the private prosecutor objected, invoking section 11 of rule 108, and the objection was
sustained. "In view thereof, the accused's counsel announced his intention to renounce his right
to present evidence," and the justice of the peace forwarded the case to the court of first
instance.chanroblesvirtualawlibrary chanrobles virtual law library
Leaving aside the question whether the accused, after renouncing his right to present evidence,
and by reason of that waiver he was committed to the corresponding court for trial, is estopped,
we are of the opinion that the respondent judge did not act in excess of his jurisdiction or in
abuse of discretion in refusing to grant the accused's motion to return the record for the purpose
set out therein. In Dequito and Saling Buhay vs. Arellano, G.R. No. L-1336, recently
promulgated, in which case the respondent justice of the peace had allowed the accused, over
the complaint's objection, to recall the complainant and her witnesses at the preliminary
investigation so that they might be cross-examined, we sustained the justice of the peace's
order. We said that section 11 of Rule 108 does not curtail the sound discretion of the justice of
the peace on the matter. We said that "while section 11 of Rule 108 defines the bounds of the
defendant's right in the preliminary investigation, there is nothing in it or any other law
restricting the authority, inherent in a court of justice, to pursue a course of action reasonably
calculated to bring out the truth."chanrobles virtual law library
But we made it clear that the "defendant can not, as a matter of right, compel the complaint and
his witnesses to repeat in his presence what they had said at the preliminary examination before
the issuance of the order of arrest." We called attention to the fact that "the constitutional right
of an accused to be confronted by the witnesses against him does not apply to preliminary
hearings' nor will the absence of a preliminary examination be an infringement of his right to

confront witnesses." As a matter of fact, preliminary investigation may be done away with
entirely without infringing the constitutional right of an accused under the due process clause
to a fair trial.chanroblesvirtualawlibrary chanrobles virtual law library
The foregoing decision was rendered by a divided court. The minority went farther than the
majority and denied even any discretion on the part of the justice of the peace or judge holding
the preliminary investigation to compel the complainant and his witnesses to testify
anew.chanroblesvirtualawlibrary chanrobles virtual law library
Upon the foregoing considerations, the present petition is dismissed with costs against the
petitioner.
Moran, C.J., Paras, Pablo, Bengzon, and Briones, JJ., concur.
Separate Opinions
FERIA, J., dissenting:chanrobles virtual law library
I am sorry to dissent from the decision.chanroblesvirtualawlibrary chanrobles virtual law
library
The petitioner in the present case appeared at the preliminary investigation before the Justice of
the Peace of Masantol, Pampanga, and after being informed of the criminal charges against him
and asked if he pleaded guilty or not guilty, pleaded not guilty. "Then the counsel for the
petitioner moved that the complainant present her evidence so that her witnesses could be
examined and cross-examined in the manner and form provided by law." The fiscal and the
private prosecutor objected to petitioner's motion invoking section 11, Rule 108, and the
objection was sustained. In view thereof, the accused refused to present his evidence, and the
case was forwarded to the Court of First Instance of
Pampanga.chanroblesvirtualawlibrary chanrobles virtual law library
The counsel for the accused petitioner filed a motion with the Court of First Instance praying
that the record of the case be remanded to the justice of the peace of Masantol, in order that the
petitioner might cross-examine the complainant and her witnesses in connection with their
testimony. The motion was denied, and for that reason the present special civil action
of mandamus was instituted.chanroblesvirtualawlibrary chanrobles virtual law library
It is evident that the refusal or waiver of the petitioner to present his evidence during the
investigation in the justice of the peace, was not a waiver of his alleged right to be confronted
with and cross-examine the witnesses for the prosecution, that is, of the preliminary
investigation provided for in General Order No. 58 and Act No. 194, to which he claims to be
entitled, as shown by the fact that, as soon as the case was forwarded to the Court of First
Instance, counsel for the petitioner filed a motion with said court to remand the case to the

Justice of the Peace of Masantol ordering the latter to make said preliminary investigation. His
motion having been denied, the petitioner has filed the present action in which he squarely
attacks the validity of the provision of section 11, Rule 108, on the ground that it deprives him
of the right to be confronted with and cross-examine the witnesses for the prosecution, contrary
to the provision of section 13, Article VIII, of the
Constitution.chanroblesvirtualawlibrary chanrobles virtual law library

evidence in his favor, that the testimonies of the witnesses for the prosecution are not sufficient
to indicate that there is a probability that a crime has been committed and he is guilty thereof,
and therefore the accused is entitled to be released and not committed to prison, and thus avoid
an open and public accusation of crime, the trouble, expense, and anxiety of a public trial, and
the corresponding anxiety or moral suffering which a criminal prosecution always
entails.chanroblesvirtualawlibrary chanrobles virtual law library

In the case of Dequito and Saling Buhay vs. Arellano, No. L-1336, we did not discuss and
decide the question of validity or constitutionality of said section 11 in connection with section
1 of Rule 108, because that question was not raised therein, and we merely construed the
provisions on preliminary investigation or Rule 108. In said case the writer of this dissenting
opinion said:

This right is not a constitutional but a statutory right granted by law to an accused outside of
the City of Manila because of the usual delay in the final disposition of criminal cases in
provinces. The law does not grant such right to a person charged with offenses triable by the
Court of First Instance in the City of Manila, because of the promptness, actual or presumptive,
with which criminal cases are tried and disposed of in the Court of First Instance of said city.
But this right, though not a constitutional one, can not be modified, abridged, or diminished by
the Supreme Court, by virtue of the rule making power conferred upon this Court by the
Constitution.chanroblesvirtualawlibrary chanrobles virtual law library

It may not be amiss to state that, modesty aside, the writer of this dissenting opinion, then a
practising attorney, was the one who prepared the draft of the Rules of Court relating to
criminal procedure, and the provisions on preliminary investigation in the draft were the same
as those of the old law, which gave the defendant the right to be confronted with and to crossexamine the witnesses for the prosecution. But the Supreme Court approved and adopted in
toto the draft, except the part referring to preliminary investigation which it modified, by
suppressing said right and enacting, in its stead, the provisions of section 11 of Rule 108 in its
present form. I prefer the old to the new procedure. But I can not subscribe to the majority
decision, which is a judicial legislation and makes the exercise of the right of a defendant to be
confronted, with and cross-examine the witnesses against him, to depend entirely upon the
whim or caprice of a judge or officer conducting the preliminary investigation.
But now the question of the validity of said section 11, Rule 108, is squarely presented to this
Court for decision, we have perforce to pass upon it.chanroblesvirtualawlibrary chanrobles
virtual law library
Section 13, Article VIII, of the Constitution prescribes that "the Supreme Court shall have
power to promulgate rules concerning pleading, practice and procedure in all courts, but said
rules shall not diminish, increase or modify substantive rights." The constitution added the last
part of the above-quoted constitutional precept in order to emphasize that the Supreme Court is
not empowered, and therefore can not enact or promulgate substantive laws or rules, for it is
obvious that rules which diminish, increase or modify substantive rights, are substantive and
not adjective laws or rules concerning pleading, practice and
procedure.chanroblesvirtualawlibrary chanrobles virtual law library
It does not require an elaborate arguments to show that the right granted by law upon a
defendant to be confronted with and cross-examine the witnesses for the prosecuted in
preliminary investigation as well as in the trial of the case is a substantive right. It is based on
human experience, according to which a person is not prone to tell a lie against another in his
presence, knowing fully well that the latter may easily contradict him, and that the credibility
of a person or veracity of his testimony may be efficaciously tested by a cross-examination. It
is substantive right because by exercising it, an accused person may show, even if he has no

Since the provisions of section 11 of Rule 108 as construed by this Court in several cases, (in
which the question of constitutionality or validity of said section had not been squarely raised)
do away with the defendant's right under discussion, it follows that said section 11 diminishes
the substantive right of the defendant in criminal case, and this Court has no power or authority
to promulgate it and therefore is null and void.chanroblesvirtualawlibrary chanrobles virtual
law library
The fact that the majority of this Court has ruled in the above cited case of Dequito and Saling
Buhay vs. Arellano, that the inferior or justice of the peace courts have discretion to grant a
defendant's request to have the witnesses for the prosecution recalled to testify again in the
presence of the defendant and be cross-examined by the latter, does not validate said provision;
because to make the exercise of an absolute right discretionary or dependent upon the will or
discretion of the court or officer making the preliminary investigation, is evidently to diminish
or modify it.chanroblesvirtualawlibrary chanrobles virtual law library
Petition is therefore granted.

Retroactive Application of Procedural Law: FreshPeriod Rule

ROLEX RODRIGUEZ y OLAYRES, Petitioner, v. PEOPLE OF THE PHILIPPINES and
ALLIED DOMECQ SPIRITS AND WINES, represented by ALLIED DOMECQ PHILS.,
INC., Respondents.
G.R. No. 192799 : October 24, 2012
In this Petition for Review on Certiorari, petitioner assails the March 2, 2010
Decision1rll and June 29, 2010 Resolution2rll of the Court of Appeals (CA) in CA-

G.R. SP No. 108789, which affirmed the April 14, 2009 Order3rll of the Regional Trial
Court (RTC), Branch 24 in Manila, denying due course to petitioners Notice of Appeal in
Criminal Case No. 02-206499.

The pivotal question is whether the "fresh period rule" is applicable to appeals from conviction
in criminal cases governed by Sec. 6 of Rule 122 which pertinently
provides:chanroblesvirtuallawlibrary

The RTC convicted petitioner for Unfair Competition penalized under Sections 155, 168, 160
in relation to Sec. 170 of Republic Act No. 8293 or the Intellectual Property Code of the
Philippines, and sentenced him to serve imprisonment of two (2) years, to pay a fine of PhP 50,
000 and actual damages of PhP 75,000.

Sec. 6. When appeal to be taken. An appeal must be taken within fifteen (15) days from
promulgation of the judgment or from notice of the final order appealed from. This period for
perfecting an appeal shall be suspended from the time a motion for new trial or reconsideration
is filed until notice of the order overruling the motion has been served upon the accused or his
counsel at which time the balance of the period begins to run. (Emphasis supplied.)

The pertinent factual antecedents are undisputed.

After promulgation of the Decision in Criminal Case No. 02-206499 convicting him for unfair
competition, petitioner filed a motion for reconsideration before the RTC on the 15th or the last
day of the reglementary period to appeal. Fourteen (14) days after receipt of the RTC Order
denying his motion for reconsideration, petitioner filed his Notice of Appeal.4rll Thus, the
denial of his Notice of Appeal on the ground of its being filed out of time under Sec. 6, Rule
122, Revised Rules of Criminal Procedure. Before the RTC, the CA and now here, petitioner
was unwavering in his assertion of the applicability of the "fresh period rule" as laid down in
Neypes v. Court of Appeals.5rll

While Neypes was silent on the applicability of the "fresh period rule" to criminal cases, the
issue was squarely addressed in Yu v. Tatad,9rll which expanded the scope of the doctrine
in Neypes to criminal cases in appeals of conviction under Sec. 6, Rule 122 of the Revised
Rules of Criminal Procedure. Thus, the Court held in Yu:chanroblesvirtuallawlibrary
While Neypes involved the period to appeal in civil cases, the Courts pronouncement of a
"fresh period" to appeal should equally apply to the period for appeal in criminal cases under
Section 6 of Rule 122 of the Revised Rules of Criminal Procedure x x x.10rll
xxxx

The rationale of the "fresh period rule" is:chanroblesvirtuallawlibrary

To standardize the appeal periods provided in the Rules and to afford litigants fair opportunity
to appeal their cases, the Court deems it practical to allow a fresh period of 15 days within
which to file the notice of appeal in the Regional Trial Court, counted from receipt of the order
dismissing a motion for a new trial or motion for reconsideration.
Henceforth, this "fresh period rule" shall also apply to Rule 40 governing appeals from the
Municipal Trial Courts to the Regional Trial Courts; Rule 42 on petitions for review from the
Regional Trial Courts to the Court of Appeals; Rule 43 on appeals from quasi-judicial agencies
to the Court of Appeals and Rule 45 governing appeals by certiorari to the Supreme Court. The
new rule aims to regiment or make the appeal period uniform, to be counted from receipt of the
order denying the motion for new trial, motion for reconsideration (whether full or partial) or
any final order or resolution.6rll
Neypes elucidates that the "fresh period rule" applies to appeals under Rule 40 (appeals from
the Municipal Trial Courts to the RTC) and Rule 41 (appeals from the RTCs to the CA or this
Court); Rule 42 (appeals from the RTCs to the CA); Rule 43 (appeals from quasi-judicial
agencies to the CA); and Rule 45 (appeals by certiorari to this Court).7rll A scrutiny of the
said rules, however, reveals that the "fresh period rule" enunciated in Neypes need NOT apply
to Rules 42, 43 and 45 as there is no interruption in the 15-day reglementary period to appeal.
It is explicit in Rules 42, 43 and 45 that the appellant or petitioner is accorded a fresh period of
15 days from the notice of the decision, award, judgment, final order or resolution or of the
denial of petitioners motion for new trial or reconsideration filed.8rll

Were we to strictly interpret the "fresh period rule" in Neypes and make it applicable only to
the period to appeal in civil cases, we shall effectively foster and encourage an absurd situation
where a litigant in a civil case will have a better right to appeal than an accused in a criminal
casea situation that gives undue favor to civil litigants and unjustly discriminates against the
accused-appellants. It suggests a double standard of treatment when we favor a situation where
property interests are at stake, as against a situation where liberty stands to be prejudiced.
We must emphatically reject this double and unequal standard for being contrary to reason.
Over time, courts have recognized with almost pedantic adherence that what is contrary to
reason is not allowed in lawQuod est inconveniens, aut contra rationem non permissum est in
lege.
Thus, we agree with the OSGs view that if a delay in the filing of an appeal may be excused on
grounds of substantial justice in civil actions, with more reason should the same treatment be
accorded to the accused in seeking the review on appeal of a criminal case where no less than
the liberty of the accused is at stake. The concern and the protection we must extend to matters
of liberty cannot be overstated.11rll (Emphasis supplied.)
It is, thus, now settled that the fresh period rule is applicable in criminal cases, like the instant
case, where the accused files from a judgment of conviction a motion for new trial or
reconsideration which is denied by the trial court. The accused will have a fresh 15-day period
counted from receipt of such denial within which to file his or her notice of appeal.

Verily, the application of the statutory privilege of appeal must not prejudice an accused who
must be accorded the same statutory privilege as litigants in civil cases who are granted a fresh
15-day period within which to file an appeal from receipt of the denial of their motion for new
trial or reconsideration. It is indeed absurd and incongruous that an appeal from a conviction in
a criminal case is more stringent than those of civil cases. If the Court has accorded litigants in
civil casesunder the spirit and rationale in Neypesgreater leeway in filing an appeal through the
"fresh period rule," with more reason that it should equally grant the same to criminal cases
which involve the accuseds "sacrosanct right to liberty, which is protected by the Constitution,
as no person should be deprived of life, liberty, or property without due process of
law."12rll
Consequently, in light of the foregoing, we hold that petitioner seasonably filed his notice of
appeal on February 2, 2009, within the fresh period of 15 days, counted from January 19, 2009,
the date of receipt of the RTC Order denying his motion for
reconsideration.blrlllbrr
WHEREFORE, the instant petition is GRANTED. Accordingly, the April 14, 2009 Order of
the RTC, Branch 24 in Manila and the assailed March 2, 2010 Decision and June 29, 2010
Resolution of the CA in CA-G.R. SP No. 108789 are REVERSED and SET ASIDE. The
Notice of Appeal of petitioner Rolex Rodriguez y Olayres dated January 29, 2009 is hereby
GIVEN DUE COURSE. Let the case records be elevated by the RTC to the CA for the review
of petitioners appeal with dispatch. No costs.rllbrr
SO ORDERED.

Concept of Liberal Construction of the Rules

MARYLOU CABRERA, Petitioner, vs. FELIX NG, Respondent.
G.R. No. 201601

March 12, 2014

Before this Court is a petition for review on certiorari1 under Rule 45 of the Rules of Court
seeking to annul and set aside the Decision2 dated October 21, 2009 and the Resolution3 dated
March 26, 2012 of the Court of Appeals (CA) in CA-G.R. SP No. 03392. The CA denied the
petition for certiorari filed by Marylou Cabrera (petitioner), which assailed the Order4 dated
December 19, 2007 of the Regional Trial Court (RTC) of Mandaue City, Branch 56, in Civil
Case No. MAN-4773.

dated August 9, 2002 for the amount of Thirty-Eight Thousand Seventy-Four Pesos and
Seventy-Six Centavos (P38,074.76); and (3) Metrobank Check No. 0244745 dated August 15,
2005 for Two Million Five Hundred Thousand Pesos (P2,500,000.00). That when presented for
payment, the said checks were all dishonored as the accounts from which they had been drawn
were already closed.
The spouses Cabrera admitted that they issued Metrobank Check No. 0244694 and Metrobank
Check No. 0244674 to the respondent and that the same were dishonored when presented for
payment. However, they claimed that they paid the respondent the amount represented by the
said checks through the latters son Richard Ng. Further, they deny having issued Metrobank
Check No. 0244745 to the respondent, alleging that the said check was forcibly taken from
them by Richard Ng.
On August 7, 2007, the RTC rendered a Decision,5 which ordered the spouses Cabrera to pay
the respondent the following: (1) Two Million Five Hundred Sixty-Nine Thousand SeventyFour Pesos (P2,569,074.00) plus legal interest from inception of the obligation until fully paid;
(2) moral damages in the amount of Fifty Thousand Pesos (P50,000.00); (3) attorneys fees of
Twenty Thousand Pesos (P20,000.00); and (4) litigation expenses in the amount of Ten
Thousand Pesos (P10,000.00).
On August 8, 2007, the spouses Cabrera received a copy of the RTC Decision dated August 7,
2007. On August 14, 2007, the spouses Cabrera filed with the RTC a motion for
reconsideration,6 which they set for hearing on August 17, 2007. On even date, the spouses
Cabrera sent a copy of their motion for reconsideration to the respondent thru registered mail;
it was actually received by the respondent on August 21, 2007.
The said motion for reconsideration, however, was not heard on August 17, 2007 as the new
acting presiding judge of the said court had just assumed office. On August 28, 2007, the RTC
issued a notice,7 which set the said motion for reconsideration for hearing on September 25,
2007.
On September 20, 2007, the respondent filed an opposition8 to the motion for reconsideration
filed by the spouses Cabrera. The respondent alleged that the said motion for reconsideration is
a mere scrap of paper since it violated the three-day notice requirement. The respondent
pointed out that the spouses Cabrera sent to him a copy of their motion for reconsideration,
which was set for hearing on August 17, 2007, via registered mail on August 14, 2007; that he
actually received a copy thereof only on August 21, 2007 four days after the scheduled
hearing thereon.

The Facts
On February 14, 2004, Felix Ng (respondent) filed a complaint for sum of money with the RTC
against the petitioner and her husband Marionilo Cabrera (spouses Cabrera), alleging that the
latter issued to him the following: (1) Metrobank Check No. 0244694 dated June 30, 2002 for
the amount of Thirty-One Thousand Pesos (P31,000.00); (2) Metrobank Check No. 0244674

It appears that the scheduled hearing of the spouses Cabreras motion for reconsideration on
September 25, 2007 did not push through. Consequently, on September 26, 2007, the RTC
issued another notice,9 which set the said motion for reconsideration for hearing on October
26, 2007.

On October 26, 2007, the RTC issued an Order,10 which directed the parties to file their
additional pleadings, after which the motion for reconsideration filed by the spouses Cabrera
would be deemed submitted for resolution.
On December 19, 2007, the RTC issued an Order11 which denied the motion for
reconsideration filed by the spouses Cabrera. The RTC pointed out that the spouses Cabrera
violated Section 4, Rule 15 of the Rules of Court, which mandates that every motion required
to be heard should be served by the movant in such a manner as to ensure its receipt by the
other party at least three days before the date of hearing. Thus:
After a meticulous scrutiny of the records of this case, the court opines that the motion was
filed beyond the reglementary three (3)[-]day period.

It appears that petitioners Motion for Reconsideration was set for hearing on 17 August 2007.
A copy thereof was mailed to private respondent on 14 August 2007, and private respondent
actually received his copy only on 21 August 2007 or four (4) days after the set date of hearing;
and thus, depriving him of the opportunity to oppose the motion. Respondent court, therefore,
correctly held that such motion violated the three (3)-day notice rule; the essence of due
process. Respondent court had applied said rule to the given situation, and of no doubt, mere
adherence to the rules cannot be considered grave abuse of discretion on the part of the
respondent court. x x x.15 (Citation omitted)
The petitioner sought a reconsideration of the Decision dated October 21, 2009 but it was
denied by the CA in its Resolution16 dated March 26, 2012.
Hence, the instant petition.
The Issue

As the records bear out, the instant motion was mailed to the plaintiffs counsel on August 14[,
2007] and was set for hearing on August 17, 2007. However, the copy of said motion had
reached plaintiffs side and a copy of which was received by plaintiffs counsel only on August
17, 2007[,] four (4) days late after it was supposed to be heard. Hence, a clear blatant violations
[sic] of the rule on notice and hearing.12
The RTC further opined that a motion, which fails to comply with the three-day notice
requirement is a mere scrap of paper; it is not entitled to judicial cognizance and would not toll
the running of the reglementary period for filing the requisite pleadings. Accordingly, the RTC
held, its Decision dated August 7, 2007 had already become final for failure of the spouses
Cabrera to comply with the three-day notice requirement.
The petitioner then filed a petition for certiorari13 with the CA, alleging that the RTC gravely
abused its discretion in denying her motion for reconsideration. The petitioner pointed out that
the RTC did not actually conduct a hearing on her motion for reconsideration on August 17,
2007;
that her motion for reconsideration was actually heard on October 26, 2007, after the
respondent had already filed his opposition thereto. Thus, the petitioner claimed, the issue of
her failure to comply with the three-day notice requirement had already been rendered moot. In
any case, the petitioner asserted, the RTC should have resolved her motion for reconsideration
on its merits rather than simply denying it on mere technicality.
On October 21, 2009, the CA, by way of the assailed Decision,14 denied the petition for
certiorari filed by the petitioner. The CA opined that the RTC did not abuse its discretion in
denying the motion for reconsideration filed by the spouses Cabrera since it merely applied the
three-day notice requirement under Section 4, Rule 15 of the Rules of Court. Thus:

The sole issue to be resolved by the Court is whether the CA erred in affirming the RTC Order
dated December 19, 2007, which denied the motion for reconsideration filed by the spouses
Cabrera.
The Courts Ruling
The petition is meritorious.
Sections 4 and 5, Rule 15 of the Rules of Court provide that:
Sec. 4. Hearing of motion. Except for motions which the court may act upon without
prejudicing the rights of the adverse party, every written motion shall be set for hearing by the
applicant.
Every written motion required to be heard and the notice of the hearing thereof shall be served
in such a manner as to ensure its receipt by the other party at least three (3) days before the date
of hearing, unless the court for good cause sets the hearing on shorter notice.
Sec. 5. Notice of hearing. The notice of hearing shall be addressed to all parties concerned,
and shall specify the time and date of the hearing which must not be later than ten (10) days
after the filing of the motion. (Emphasis ours)
The general rule is that the three-day notice requirement in motions under Sections 4 and 5 of
the Rules of Court is mandatory. It is an integral component of procedural due process.17 "The

purpose of the three-day notice requirement, which was established not for the benefit of the
movant but rather for the adverse party, is to avoid surprises upon the latter and to grant it
sufficient time to study the motion and to enable it to meet the arguments interposed
therein."18
"A motion that does not comply with the requirements of Sections 4 and 5 of Rule 15 of the
Rules of Court is a worthless piece of paper which the clerk of court has no right to receive and
which the court has no authority to act upon."19 "Being a fatal defect, in cases of motions to
reconsider a decision, the running of the period to appeal is not tolled by their filing or
pendency."20

As an integral component of the procedural due process, the three-day notice required by the
Rules is not intended for the benefit of the movant. Rather, the requirement is for the purpose
of avoiding surprises that may be sprung upon the adverse party, who must be given time to
study and meet the arguments in the motion before a resolution of the court.1wphi1 Principles
of natural justice demand that the right of a party should not be affected without giving it an
opportunity to be heard.
The test is the presence of opportunity to be heard, as well as to have time to study the motion
and meaningfully oppose or controvert the grounds upon which it is based. x x x22
(Emphasis supplied and citations omitted)

Nevertheless, the three-day notice requirement is not a hard and fast rule. When the adverse
party had been afforded the opportunity to be heard, and has been indeed heard through the
pleadings filed in opposition to the motion, the purpose behind the three-day notice
requirement is deemed realized. In such case, the requirements of procedural due process are
substantially complied with. Thus, in Preysler, Jr. v. Manila Southcoast Development
Corporation,21 the Court ruled that:

The three-day notice rule is not absolute. A liberal construction of the procedural rules is proper
where the lapse in the literal observance of a rule of procedure has not prejudiced the adverse
party and has not deprived the court of its authority. Indeed, Section 6, Rule 1 of the Rules of
Court provides that the Rules should be liberally construed in order to promote their objective
of securing a just, speedy and inexpensive disposition of every action and proceeding. Rules of
procedure are tools designed to facilitate the attainment of justice, and courts must avoid their
strict and rigid application which would result in technicalities that tend to frustrate rather than
promote substantial justice.
In Somera Vda. De Navarro v. Navarro, the Court held that there was substantial compliance of
the rule on notice of motions even if the first notice was irregular because no prejudice was
caused the adverse party since the motion was not considered and resolved until after several
postponements of which the parties were duly notified.

It is undisputed that the hearing on the motion for reconsideration filed by the spouses Cabrera
was reset by the RTC twice with due notice to the parties; it was only on October 26, 2007 that
the motion was actually heard by the RTC. At that time, more than two months had passed
since the respondent received a copy of the said motion for reconsideration on August 21,
2007. The respondent was thus given sufficient time to study the motion and to enable him to
meet the arguments interposed therein. Indeed, the respondent was able to file his opposition
thereto on September 20, 2007.
Notwithstanding that the respondent received a copy of the said motion for reconsideration
four days after the date set by the spouses Cabrera for the hearing thereof, his right to due
process was not impinged as he was afforded the chance to argue his position. Thus, the R TC
erred in denying the spouses Cabrera's motion for reconsideration based merely on their failure
to comply with the three-day notice requirement.
WHEREFORE, in consideration of the foregoing disquisitions, the instant petition is
GRANTED. The Decision dated October 21, 2009 and the Resolution dated March 26, 2012 of
the Court of Appeals in CA-G.R. SP No. 03392, are hereby REVERSED and SET ASIDE. The
case is hereby REMANDED to the Regional Trial Court of Mandaue City, Branch 56, to
resolve the Motion for Reconsideration filed by the spouses Cabrera on the merits within five
(5) days from the finality of this Decision.
SO ORDERED.

Likewise, in Jehan Shipping Corporation v. National Food Authority, the Court held that
despite the lack of notice of hearing in a Motion for Reconsideration, there was substantial
compliance with the requirements of due process where the adverse party actually had the
opportunity to be heard and had filed pleadings in opposition to the motion. The Court held:
This Court has indeed held time and again, that under Sections 4 and 5 of Rule 15 of the Rules
of Court, mandatory is the requirement in a motion, which is rendered defective by failure to
comply with the requirement. As a rule, a motion without a notice of hearing is considered pro
forma and does not affect the reglementary period for the appeal or the filing of the requisite
pleading.

Negros Slashers, INc., v. Alvarez, et al.

G.R. No. 187122

February 22, 2012

Before us is a petition for review on certiorari assailing the Decision[1] dated September 17,
2008 and Resolution[2] dated February 11 2009 of the Court of Appeals (CA) in CA-G.R. SP
No. 00817. The appellate court had reversed and set aside the September 10, 2004 Decision[3]
and March 21, 2005 Resolution[4] of the National Labor Relations Commission (NLRC) and

reinstated with modification the Decision[5] of the Labor Arbiter finding respondent to have
been illegally dismissed.
The facts are undisputed.
Respondent Alvin Teng is a professional basketball player who started his career as such in the
Philippine Basketball Association and then later on played in the Metropolitan Basketball
Association (MBA).
On February 4, 1999, Teng signed a 3-year contract[6] (which included a side contract and
agreement for additional benefits and bonuses) with the Laguna Lakers. Before the expiration
of his contract with the Laguna Lakers on December 31, 2001, the Lakers traded and/or
transferred Teng to petitioner Negros Slashers, with the latter assuming the obligations of
Laguna Lakers under Tengs unexpired contract, including the monthly salary of P250,000,
P50,000 of which remained to be the obligation of the Laguna Lakers. On March 28, 2000, the
management of the Laguna Lakers formally informed Teng of his transfer to the Negros
Slashers.[7] Teng executed with the Negros Slashers the Players Contract of Employment.[8]
On Game Number 4 of the MBA Championship Round for the year 2000 season, Teng had a
below-par playing performance. Because of this, the coaching staff decided to pull him out of
the game. Teng then sat on the bench, untied his shoelaces and donned his practice jersey. On
the following game, Game Number 5 of the Championship Round, Teng called-in sick and did
not play.
On November 21, 2000, Vicente Tan, Finance Head of Negros Slashers, wrote[9] Teng
requiring him to explain in writing why no disciplinary action should be taken against him for
his precipitated absence during the crucial Game 5 of the National Championship Round. He
was further informed that a formal investigation would be conducted on November 28, 2000.
The hearing, however, did not push through because Teng was absent on the said scheduled
investigation. Hearing was rescheduled for December 11, 2000. On said date, the investigation
proceeded, attended by Tengs representatives, Atty. Arsenio Yulo and Atty. Jose Aspiras.[10] A
subsequent meeting was also conducted attended by the management, coaching staff and
players of the Negros Slashers team, wherein the team members and coaching staff
unanimously expressed their sentiments against Teng and their opposition against the
possibility of Teng joining back the team.[11]
On March 16, 2001, the management of Negros Slashers came up with a decision, and through
its General Manager, petitioner Rodolfo Alvarez, wrote[12] Teng informing him of his
termination from the team.
On July 28, 2001, Teng filed a complaint before the Office of the Commissioner of the MBA
pursuant to the provision of the Uniform Players Contract which the parties had executed.
Subsequently, on November 6, 2001, Teng also filed an illegal dismissal case with the Regional
Arbitration Branch No. VI of the NLRC.[13]
On July 16, 2002, the Labor Arbiter issued a decision finding Tengs dismissal illegal and
ordering petitioner Negros Slashers, Inc. to pay Teng P2,530,000 representing his unpaid
salaries, separation pay and attorneys fees. The Labor Arbiter ruled that the penalty of

dismissal was not justified since the grounds relied upon by petitioners did not constitute
serious misconduct or willful disobedience or insubordination that would call for the extreme
penalty of dismissal from service. The dispositive portion of the Labor Arbiters decision reads:
WHEREFORE, premises considered, judgment is hereby rendered declaring the dismissal of
complainant illegal and respondents Negros Slashers, Inc. are hereby ordered to PAY
complainant the total sum of TWO MILLION FIVE HUNDRED THIRTY THOUSAND
(P2,530,000.00) PESOS representing complainants unpaid salaries, separation pay and
attorneys fee, the award to be deposited with this Office within ten (10) days from receipt of
this Decision.
All other claims are hereby DISMISSED for lack of merit.
SO ORDERED.[14]
The case was then appealed to the NLRC. On September 10, 2004, the NLRC issued a
Decision setting aside the July 16, 2002 Decision of the Labor Arbiter and entering a new one
dismissing the complaint for being premature since the arbitration proceedings before the
Commissioner of the MBA were still pending when Teng filed his complaint for illegal
dismissal. The dispositive portion of the NLRC Decision reads:
WHEREFORE, premises considered, the decision of the Executive Labor Arbiter a quo is
hereby REVERSED and SET ASIDE. A new one is entered, dismissing the instant case for
being premature.
SO ORDERED.[15]
Teng filed a motion for reconsideration, but it was denied for being filed beyond the ten-day
reglementary period provided for in Section 15,[16] Rule VII of the NLRC Rules of Procedure.
Aggrieved, Teng filed a petition for certiorari with the CA assailing the NLRC Decision dated
September 10, 2004 and the Resolution dated March 21, 2005 denying his motion for
reconsideration.
On September 17, 2008 the CA rendered the assailed Decision setting aside the September 10,
2004 Decision and March 21, 2005 Resolution of the NLRC and reinstating with modification
the Labor Arbiters Decision.
The CA reinstated the findings of the Labor Arbiter that Teng was illegally dismissed because
the grounds relied upon by petitioners were not enough to merit the supreme penalty of
dismissal. The CA held that there was no serious misconduct or willful disobedience or
insubordination on Tengs part. On the issue of jurisdiction, the CA ruled that the Labor Arbiter
had jurisdiction over the case notwithstanding the pendency of arbitration proceedings in the
Office of the Commissioner of the MBA.
Petitioners sought reconsideration of the above ruling, but their motion was denied by the CA
in a Resolution[17] dated February 11, 2009.

Petitioners now come to this Court assailing the Decision dated September 17, 2008 and
Resolution dated February 11, 2009 of the CA.
Firstly, petitioners argue that respondent Teng and his counsel committed a blatant violation of
the rule against forum shopping. Petitioners aver that on July 28, 2001, Teng filed a complaint
before the MBA pursuant to the voluntary arbitration provision of the Uniform Players
Contract he executed with Negros Slashers, Inc. During the pendency of said complaint, Teng
filed another complaint for illegal dismissal with the Labor Arbiter. It is petitioners position
that Teng lied by certifying under oath that there is no similar case pending between him and
Negros Slashers, Inc., when in fact, months before he had filed a complaint with the MBA
alleging the same factual antecedents and raising the same issues.
Secondly, petitioners argue that the CA erred in ruling that Tengs offenses were just minor
lapses and irresponsible action not warranting the harsh penalty of dismissal. Petitioners allege
that the CA paid scant attention to two very important pieces of evidence which would clearly
show the gravity and seriousness of the offenses committed by Teng. Petitioners claim that
these two documents, i.e., the minutes of the meeting[18] of players, management, and
coordinating staff, and a petition[19] by the players to the management not to allow Teng to
come back to the team, would show that Teng should not have been treated as an ordinary
working man who merely absented himself by feigning sickness when called upon to work.
Petitioners argue that the nature of the work and team atmosphere should have been considered
and given credence. By neglecting these two documents, the CA failed to appreciate the gravity
of the misconduct committed by Teng and the effects it had on the basketball organization.
Petitioners also argue that respondents petition for certiorari with the CA should have been
dismissed outright because it was filed beyond the reglementary period. Petitioners point out
that Teng received the NLRC Decision on October 15, 2004 and therefore had ten days[20] or
until October 25, 2004 within which to file a motion for reconsideration. But he filed his
motion for reconsideration only on October 26, 2004 and said motion was denied[21] on
March 21, 2005 for being filed late. Thereafter he filed his petition for certiorari[22] with the
CA on June 20, 2005. Petitioners contend that the petition for certiorari was filed beyond the
period allowed by the Rules of Court because the 60-day period to file the petition for certiorari
should have started to run from the receipt of the NLRC decision on October 15, 2004. And it
should have expired on December 14, 2004 because it was as if no motion for reconsideration
was filed in the NLRC. Further, petitioners argue that the CA could not take cognizance of the
case because it is a settled rule that certiorari as a special civil action will not lie unless a
motion for reconsideration is first filed before the NLRC to allow it an opportunity to correct
its errors. In this case, since the motion for reconsideration was filed late, it should have been
treated as if no motion for reconsideration was filed.
Teng, on the other hand, maintains that there is no violation of the rule against forum shopping.
He submits that he indeed filed his complaint before the MBA as early as July 28, 2001.
Unfortunately, for more than three months, the supposed voluntary arbitration failed to yield
any result until the MBA itself was dissolved. It was only on November 2001, after exhausting
the arbitration process, did he file his complaint before the Labor Arbiter. In other words, it was
only after the MBA failed to come up with a resolution on the matter did he opt to seek legal
redress elsewhere.

On the merits, Teng relies on the reasoning of the Labor Arbiter in finding that his alleged
lapses and misconduct were too minor to justify the extreme penalty of dismissal from service.
In large part, he quotes the Labor Arbiters decision, and emphasizes the Labor Arbiters
statements that (1) loosening of the shoe laces and the donning of the practice jersey are not
indicative of serious misconduct that would justify dismissal from employment; (2) it cannot
be concluded that he merely feigned sickness when he informed the Coach of his inability to
play during Game No. 5; and (3) there is no showing of any bad faith or ill motive on his part
that would qualify his actions as serious, severe and grave as to warrant termination from
service.
Teng also argues that the CA aptly clarified and explained the legal reason why the petition for
certiorari was given due course despite some procedural lapses regarding the motion for
reconsideration with the NLRC. Teng stresses that jurisprudence allows the relaxation of
procedural rules even of the most mandatory character in the interest of substantial justice. In
this particular case, justice and equity calls for the relaxation of the reglementary period for
filing a motion for reconsideration as well as the rule prohibiting the filing of a petition for
certiorari without first filing a motion for reconsideration.
Simply put, the basic issues for our resolution are as follows: (1) whether the CA erred in
giving due course to respondent Tengs petition for certiorari despite its late filing; (2) whether
Teng violated the rule on forum shopping when he filed a complaint for illegal dismissal with
the Regional Arbitration Branch of the NLRC while a similar complaint was pending in the
Office of the Commissioner of the MBA; and (3) whether the CA erred in ruling that Tengs
dismissal from the Negros Slashers Team was unjustified and too harsh considering his
misconduct.
The petition is bereft of merit.
On the first issue raised by petitioners, we rule that the CA did not commit a reversible error in
giving due course to Tengs petition for certiorari although said petition was filed late.
Ordinarily, rules of procedure are strictly enforced by courts in order to impart stability in the
legal system. However, in not a few instances, we relaxed the rigid application of the rules of
procedure to afford the parties the opportunity to fully ventilate their cases on the merits. This
is in line with the time honored principle that cases should be decided only after giving all the
parties the chance to argue their causes and defenses. In that way, the ends of justice would be
better served. For indeed, the general objective of procedure is to facilitate the application of
justice to the rival claims of contending parties, bearing always in mind that procedure is not to
hinder but to promote the administration of justice.[23] In Ong Lim Sing, Jr. v. FEB Leasing
and Finance Corporation,[24] we ruled:
Courts have the prerogative to relax procedural rules of even the most mandatory character,
mindful of the duty to reconcile both the need to speedily put an end to litigation and the
parties right to due process. In numerous cases, this Court has allowed liberal construction of
the rules when to do so would serve the demands of substantial justice and equity. x x x
Indeed the prevailing trend is to accord party litigants the amplest opportunity for the proper
and just determination of their causes, free from the constraints of needless technicalities.

Here, besides the fact that a denial of the recourse to the CA would serve more to perpetuate an
injustice and violation of Tengs rights under our labor laws, we find that as correctly held by
the CA, no intent to delay the administration of justice could be attributed to Teng. The CA
therefore did not commit reversible error in excusing Tengs one-day delay in filing his motion
for reconsideration and in giving due course to his petition for certiorari.
As regards the second issue, we likewise find no merit in petitioners claim that respondents act
of filing a complaint with the Labor Arbiter while the same case was pending with the Office of
the Commissioner of the MBA constituted forum shopping.
For forum shopping to exist, it is necessary that (a) there be identity of parties or at least such
parties that represent the same interests in both actions; (b) there be identity of rights asserted
and relief prayed for, the relief being founded on the same facts; and (c) the identity of the two
preceding particulars is such that any judgment rendered in one action will, regardless of which
party is successful, amount to res judicata in the other action.[25]
Petitioners are correct as to the first two requisites of forum shopping. First, there is identity of
parties involved: Negros Slashers Inc. and respondent Teng. Second, there is identity of rights
asserted i.e., the right of management to terminate employment and the right of an employee
against illegal termination. However, the third requisite of forum shopping is missing in this
case. Any judgment or ruling of the Office of the Commissioner of the MBA will not amount to
res judicata. As defined in Agustin v. Delos Santos,[26]
Res Judicata is defined as a matter adjudged; a thing judicially acted upon or decided; a thing
or matter settled by judgment. According to the doctrine of res judicata, an existing final
judgment or decree rendered on the merits, and without fraud or collusion, by a court of
competent jurisdiction, upon any matter within its jurisdiction, is conclusive of the rights of the
parties or their privies, in all other actions or suits in the same or any other judicial tribunal of
concurrent jurisdiction on the points and matters in issue in the first suit. To state simply, a final
judgment or decree on the merits by a court of competent jurisdiction is conclusive of the rights
of the parties or their privies in all later suits on all points and matters determined in the former
suit. (Emphasis supplied.)
To clarify, res judicata is defined in jurisprudence as to have four basic elements: (1) the
judgment sought to bar the new action must be final; (2) the decision must have been rendered
by a court having jurisdiction over the subject matter and the parties; (3) the disposition of the
case must be a judgment on the merits; and (4) there must be as between the first and second
action, identity of parties, subject matter, and causes of action.[27]
Here, although contractually authorized to settle disputes, the Office of the Commissioner of
the MBA is not a court of competent jurisdiction as contemplated by law with respect to the
application of the doctrine of res judicata. At best, the Office of the Commissioner of the MBA
is a private mediator or go-between as agreed upon by team management and a player in the
MBA Players Contract of Employment.[28] Any judgment that the Office of the Commissioner
of the MBA may render will not result in a bar for seeking redress in other legal venues. Hence,
respondents action of filing the same complaint in the Regional Arbitration Branch of the
NLRC does not constitute forum shopping.

On the third issue, we find that the penalty of dismissal handed out against Teng was indeed
too harsh.
We understand petitioners in asserting that a basketball organization is a team-based enterprise
and that a harmonious working relationship among team players is essential to the success of
the organization. We also take into account the petition of the other team members voicing out
their desire to continue with the team without Teng. We note likewise the sentiments of the
players and coaching staff during the meeting of February 4, 2001 stating how they felt when
Teng abandoned them during a crucial Game Number 5 in the MBA championship round.
Petitioners rely heavily on the alleged effects of Tengs actions on the rest of the team.
However, such reaction from team members is expected after losing a game, especially a
championship game. It is also not unlikely that the team members looked for someone to blame
after they lost the championship games and that Teng happened to be the closest target of the
teams frustration and disappointment. But all these sentiments and emotions from Negros
Slashers players and staff must not blur the eyes of the Court from objectively assessing Tengs
infraction in order to determine whether the same constitutes just ground for dismissal. The
incident in question should be clear: Teng had a below-par performance during Game Number
4 for which he was pulled out from the game, and then he untied his shoelaces and donned his
practice jersey. In Game Number 5, he did not play.
As an employee of the Negros Slashers, Teng was expected to report for work regularly.
Missing a team game is indeed a punishable offense. Untying of shoelaces when the game is
not yet finished is also irresponsible and unprofessional. However, we agree with the Labor
Arbiter that such isolated foolishness of an employee does not justify the extreme penalty of
dismissal from service. Petitioners could have opted to impose a fine or suspension on Teng for
his unacceptable conduct. Other forms of disciplinary action could also have been taken after
the incident to impart on the team that such misconduct will not be tolerated.
In Sagales v. Rustans Commercial Corporation,[29] this Court ruled:
Truly, while the employer has the inherent right to discipline, including that of dismissing its
employees, this prerogative is subject to the regulation by the State in the exercise of its police
power.
In this regard, it is a hornbook doctrine that infractions committed by an employee should merit
only the corresponding penalty demanded by the circumstance. The penalty must be
commensurate with the act, conduct or omission imputed to the employee and must be imposed
in connection with the disciplinary authority of the employer. (Emphasis in the original.)
In the case at bar, the penalty handed out by the petitioners was the ultimate penalty of
dismissal. There was no warning or admonition for respondents violation of team rules, only
outright termination of his services for an act which could have been punished appropriately
with a severe reprimand or suspension.
WHEREFORE, the petition for review on certiorari is DENIED for lack of merit and the
Decision of the Court of Appeals dated September 17, 2008 and Resolution dated February 11,
2009, in CA-G.R. SP No. 00817 are hereby AFFIRMED.

With costs against the petitioners.

SO ORDERED.
Cebu Bionic Builders Supply v. DBP
November 17, 2010
This Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court assails the
Resolution[2] dated February 5, 2002 and the Amended Decision[3] dated July 5, 2002 of the
Court of Appeals in CA-G.R. CV No. 57216. In the Resolution dated February 5, 2002, the
Court of Appeals admitted the Motion for Reconsideration[4] of herein respondents
Development Bank of the Philippines (DBP), Jose To Chip, Patricio Yap and Roger Balila,
notwithstanding the fact that the same was filed more than six months beyond the reglementary
period. Said motion prayed for the reversal of the Court of Appeals Decision[5] dated February
14, 2001, which affirmed the Decision[6] dated April 25, 1997 of the Regional Trial Court
(RTC) of Cebu, Branch 8, in Civil Case No. CEB-10104 that ruled in favor of petitioners. In
the Amended Decision of July 5, 2002, the Court of Appeals reversed its previous Decision
dated February 14, 2001 and dismissed the petitioners complaint for lack of merit.
The facts leading to the instant petition are as follows:
On June 2, 1981, the spouses Rudy R. Robles, Jr. and Elizabeth R. Robles entered into a
mortgage contract[7] with DBP in order to secure a loan from the said bank in the amount of
P500,000.00. The properties mortgaged were a parcel of land situated in Tabunoc, Talisay,
Cebu, which was then covered by Transfer Certificate of Title (TCT) No. T- 47783 of the
Register of Deeds of Cebu, together with all the existing improvements, and the commercial
building to be constructed thereon[8] (subject properties). Upon completion, the commercial
building was named the State Theatre Building.

On October 28, 1981, Rudy Robles executed a contract of lease in favor of petitioner Cebu
Bionic Builders Supply, Inc. (Cebu Bionic), a domestic corporation engaged in the construction
business, as well as the sale of hardware materials. The contract pertinently provides:
CONTRACT OF LEASE

KNOW ALL MEN BY THESE PRESENTS:

This Lease Contract made and entered into, by and between:
RUDY ROBLES, JR., Filipino, of legal age, married and resident of 173 Maria Cristina Ext.,
Cebu City, hereinafter referred to as the LESSOR,
- and -

CEBU BIONIC BUILDER SUPPLY, represented by LYDIA SIA, Filipino, of legal age,
married and with address at 240 Magallanes St., Cebu City hereinafter known as the LESSEE;
WITNESSETH:
The LESSOR is the owner of a commercial building along Tabunok, Talisay, Cebu, known as
the State Theatre Building.
The LESSOR agrees to lease unto the LESSEE and the LESSEE accepts the lease from the
LESSOR, a portion of the ground floor thereof, consisting of one (1) unit/store space under the
following terms and conditions:
1.
The LESSEE shall pay a monthly rental of One Thousand (P1,000.00) Pesos, Philippine
Currency. The rental is payable in advance within the first five (5) days of the month, without
need of demand;

2.
That the term of this agreement shall start on November 1, 1981 and shall terminate on
the last day of every month thereafter; provided however that this contract shall be
automatically renewed on a month to month basis if no notice, in writing, is sent to the other
party to terminate this agreement after fifteen (15) days from receipt of said notice;
xxxx
9.
Should the LESSOR decide to sell the property during the term of this lease contract or
immediately after the expiration of the lease, the LESSEE shall have the first option to buy and
shall match offers from outside parties.[9] (Emphases ours.)

The above contract was not registered by the parties thereto with the Registry of Deeds of
Cebu.
Subsequently, the spouses Robles failed to settle their loan obligation with DBP. The latter was,
thus, prompted to effect extrajudicial foreclosure on the subject properties.[10] On February 6,
1987, DBP was the lone bidder in the foreclosure sale and thereby acquired ownership of the
mortgaged subject properties.[11] On October 13, 1988, a final Deed of Sale[12] was issued in
favor of DBP.
Meanwhile, on June 18, 1987, DBP sent a letter to Bonifacio Sia, the husband of petitioner
Lydia Sia who was then President of Cebu Bionic, notifying the latter of DBPs acquisition of
the State Theatre Building. Said letter reads:
June 18, 1987
Mr. Bonifacio Sia

Bionic Builders Inc.

(SGD)LUCILO S. REVILLAS

State Theatre Bldg.

Branch Head[13] (Emphases ours.)

Tabunok, Talisay, Cebu

On July 7, 1987, the counsel of Bonifacio Sia replied to the above letter, to wit:
Sir:
July 7, 1987
This refers to the commercial space you are occupying in the acquired property of the Bank,
formerly owned by Rudy Robles, Jr.
Mr. Lucilo S. Revillas
Branch Head
Please be informed that said property has been acquired through foreclosure on February 6,
1987. Considering thereat, we require you to remit the rental due for June 1987.

If you wish to continue on leasing the property, we request you to come to the Bank for the
execution of a Contract of Lease, the salient conditions of which are as follows:

Development Bank of the Philippines

Dear Mr. Revillas,

1. The lease will be on month to month basis, for a maximum period of one (1) year;

This has reference to your letter of 18 June 1987 which you sent to my client, Mr. Bonifacio
Sia of Cebu Bionic Builders Supply the lessee of a commercial space of the State Theatre
Bldg., located at Tabunok, Talisay, Cebu.

2. Deposit equivalent to two (2) months rental and advance of one (1) month rental, and the
remaining amount for one year period (equivalent to 9 months rental) shall be secured by either
surety bond, cash bond or assigned time deposit;

My client is amenable to the terms contained in your letter except the following:

3. That in case there is a better offer or if the property will be subject of a purchase offer,
within the term, the lessor is given an option of first refusal, otherwise he has to vacate the
premises within thirty (30) days from date of notice.

1.
In lieu of item no. 2 thereof, my client will deposit with your bank the amount of
P10,000.00, as assigned time deposit;

We consider, temporarily, the current monthly rental based on the six-month receipts, which we
require you to submit, until such time when we will fix the amount accordingly.
If the contract of lease is not executed within thirty (30) days from date hereof, it is construed
that you are not interested in leasing the premises and will vacate within the said period.

2.
The 30 days notice you mentioned in your letter, (3), is too short. My client is requesting
for at least 60 days notice.

Please be guided accordingly.

Truly yours,

I sincerely hope that you will give due course to this request.

Committee on Negotiated Offers at exactly 2:00 oclock in the afternoon of the last day of the
acceptance period in order to determine the highest and/or most advantageous offer.
Thank you.
Item No.
Truly yours,

Description/Location
Starting Price

(SGD) ANASTACIO T. MUNTUERTO, JR.[14]

xxxx

Thereafter, on November 14, 1989, a Certificate of Time Deposit[15] for P11,395.64 was
issued in the name of Bonifacio Sia and the same was allegedly remitted to DBP as advance
rental deposit.

II

For reasons unclear, however, no written contract of lease was executed between DBP and
Cebu Bionic.

P1,838,100.00

In the meantime, subsequent to the acquisition of the subject properties, DBP offered the same
for sale along with its other assets. Pursuant thereto, DBP published a series of invitations to
bid on such properties, which were scheduled on January 19, 1989,[16] February 23, 1989,[17]
April 13, 1989,[18] and November 15, 1990.[19] As no interested bidder came forward, DBP
publicized an Invitation on Negotiated Sale/Offer, the relevant terms and conditions of which
stated:

INVITATION ON NEGOTIATED SALE/OFFER

The DEVELOPMENT BANK OF THE PHILIPPINES, Cebu Branch, will receive SEALED
NEGOTIATED OFFERS/PURCHASE PROPOSALS tendered at its Branch Office, DBP
Building, Osmea Boulevard, Cebu City for the sale of its acquired assets mentioned
hereinunder within the 15-Day-Acceptance-Period starting from NOVEMBER 19, 1990 up to
12:00 oclock noon of DECEMBER 3, 1990. Sealed offers submitted shall be opened by the

Commercial land, Lot No. 3681-C-3, having an area of 396 sq. m., situated in Tabunok,
Talisay, Cebu and covered by TCT No. T-65199 (DBP), including the commercial building
thereon.

xxxx
A pre-numbered Acknowledgment Receipt duly signed by at least two (2) of the Committee
members shall be issued to the offeror acknowledging receipt of such offer.

Negotiated offers may be made in CASH or TERMS, the former requiring a deposit of 10%
and the latter 20% of the starting price, either in the form of cash or cashiers/managers check to
be enclosed in the sealed offer.

xxxx

Interested negotiated offerors are requested to see Atty. Apolinar K. Panal, Jr., Acquired Asset
in Charge (Tel. No. 9-63-25), in order to secure copies of the Letter-Offer form and Negotiated
Sale Rules and Procedures.

NOTE: If no offer is received during the above stated acceptance period, the properties
described above shall be sold to the first offeror who submits an acceptable proposal on a FirstCome-First-Served basis.

to pursue their business plans. He also reiterated their demand for Cebu Bionic to vacate the
premises.

City of Cebu, Philippines, November 16, 1990.

Shortly thereafter, on February 27, 1991, the counsel of respondents To Chip, Yap and Balila
sent its final demand letter[26] to Cebu Bionic, warning the latter to vacate the subject
properties within seven (7) days from receipt of the letter, otherwise, a case for ejectment with
damages will be filed against it.[27]

(SGD.) TIMOTEO P. OLARTE

Despite the foregoing notice, Cebu Bionic still paid[28] to DBP, on March 22, 1991, the
amount of P5,000.00 as monthly rentals on the unit of the State Theatre Building it was
occupying for period of November 1990 to March 1991.

Branch Head[20] (Emphases ours.)

In the morning of December 3, 1990, the last day for the acceptance of negotiated offers,
petitioners submitted through their representative, Judy Garces, a letter-offer form, offering to
purchase the subject properties for P1,840,000.00. Attached to the letter-offer was a copy of the
Negotiated Sale Rules and Procedures issued by DBP and a managers check for the amount of
P184,000.00, representing 10% of the offered purchase price. This offer of petitioners was not
accepted by DBP, however, as the corresponding deposit therefor was allegedly insufficient.
After the lapse of the above-mentioned 15-day acceptance period, petitioners did not submit
any other offer/proposal to purchase the subject properties.
On December 17, 1990, respondents To Chip, Yap and Balila presented their letter-offer[21] to
purchase the subject properties on a cash basis for P1,838,100.00. Said offer was accompanied
by a downpayment of 10% of the offered purchase price, amounting to P183,810.00. On even
date, DBP acknowledged the receipt of and accepted their offer. On December 28, 1990,
respondents To Chip, Yap and Balila paid the balance of the purchase price and DBP issued a
Deed of Sale[22] over the subject properties in their favor.
On January 11, 1991, the counsel of respondents To Chip, Yap and Balila sent a letter[23]
addressed to the proprietor of Cebu Bionic, informing the latter of the transfer of ownership of
the subject properties. Cebu Bionic was ordered to vacate the premises within thirty (30) days
from receipt of the letter and directed to pay the rentals from January 1, 1991 until the end of
the said 30-day period.
The counsel of Cebu Bionic replied[24] that his client received the above letter on January 11,
1991. He stated that he has instructed Cebu Bionic to verify first the ownership of the subject
properties since it had the preferential right to purchase the same. He likewise requested that he
be furnished a copy of the deed of sale executed by DBP in favor of respondents To Chip, Yap
and Balila.
On February 15, 1991, respondent To Chip wrote a letter[25] to the counsel of Cebu Bionic,
insisting that he and his co-respondents Yap and Balila urgently needed the subject properties

On April 10, 1991, petitioners filed against respondents DBP, To Chip, Yap and Balila a
complaint[29] for specific performance, cancellation of deed of sale with damages, injunction
with a prayer for the issuance of a writ of preliminary injunction.[30] The complaint was
docketed as Civil Case No. CEB-10104 in the RTC.

Petitioners alleged, inter alia, that Cebu Bionic was the lessee and occupant of a commercial
space in the State Theatre Building from October 1981 up to the time of the filing of the
complaint. During the latter part of 1990, DBP advertised for sale the State Theatre Building
and the commercial lot on which the same was situated. In the prior invitation to bid, the
bidding was scheduled on November 15, 1990; while in the next, under the 15-day acceptance
period, the submission of proposals was to be made from November 19, 1990 up to 12:00 noon
of December 3, 1990. Petitioners claimed that, at about 10:00 a.m. on December 3, 1990, they
duly submitted to Atty. Apolinar Panal, Jr., Chief of the Acquired Assets of DBP, the following
documents, namely:

6.1
Letter-offer form, offering to purchase the property advertised, for the price of
P1,840,000, which was higher than the starting price of P1,838,100.00 on cash basis. x x x;
6.2

Negotiated Sale Rules and Procedures, duly signed by plaintiff, x x x;

6.3
Managers check for the amount of P184,000 representing 10% of the deposit dated
December 3, 1990 and issued by Allied Banking Corp. in favor of the Development Bank of
the Philippines. x x x.[31] (Emphasis ours.)
Petitioners asserted that the above documents were initially accepted but later returned. DBP
allegedly advised petitioners that there was no urgent need for the same x x x, considering that
the property will necessarily be sold to [Cebu Bionic] for the reasons that there was no other
interested party and that [Cebu Bionic] was a preferred party being the lessee and present
occupant of the property subject of the lease[.][32] Petitioners then related that, without their
knowledge, DBP sold the subject properties to respondents To Chip, Yap and Balila. The sale
was claimed to be simulated and fictitious, as DBP still received rentals from petitioners until
March 1991. By acquiring the subject properties, petitioners contended that DBP was deemed

to have assumed the contract of lease executed between them and Rudy Robles. As such, DBP
was bound by the provision of the lease contract, which stated that:
9. Should the Lessor decide to sell the property during the term of this lease contract or
immediately after the expiration of the lease, the Lessee shall have the first option to buy and
shall match offers from outside parties.[33]
Petitioners sought the rescission of the contract of sale between DBP and respondents To Chip,
Yap and Balila. Petitioners also prayed for the issuance of a writ of preliminary injunction,
restraining respondents To Chip, Yap and Balila from registering the Deed of Sale in the latters
favor and from undertaking the ejectment of petitioners from the subject properties. Likewise,
petitioners entreated that DBP be ordered to execute a deed of sale covering the subject
properties in their name and to pay damages and attorneys fees.
In its answer,[34] DBP denied the existence of a contract of lease between itself and
petitioners. DBP countered that the letter-offer of petitioners was actually not accepted as their
offer to purchase was on a term basis, which therefore required a 20% deposit. The 10%
deposit accompanying the petitioners letter-offer was declared insufficient. DBP stated that the
letter-offer form was not completely filled out as the Term and Mode of Payment fields were
left blank. DBP then informed petitioner Lydia Sia of the inadequacy of her offer. After
ascertaining that there was no other offeror as of that time, Lydia Sia allegedly summoned back
her representative who did not leave a copy of the letter-offer and the attached documents. DBP
maintained that petitioners documents did not show that the same were received and approved
by any approving authority of the bank. The letter-offer attached to the complaint, which
indicated that the mode of payment was on a cash basis, was allegedly not the document shown
to DBP. In addition, DBP argued that there was no assumption of the lease contract between
Rudy Robles and petitioners since it acquired the subject properties through the involuntary
mode of extrajudicial foreclosure and its request to petitioners to sign a new lease contract was
simply ignored. DBP, therefore, insisted that petitioners occupancy of the unit in the State
Theatre Building was merely upon its acquiescence. The petitioners payment of rentals on
March 22, 1991 was supposedly made in bad faith as they were made to a mere teller who had
no knowledge of the sale of the subject properties to respondents To Chip, Yap and Balila.
DBP, thus, prayed for the dismissal of the complaint and, by way of counterclaim, asked that
petitioners be ordered to pay damages and attorneys fees.
Respondents To Chip, Yap and Balila no longer filed a separate answer, adopting instead the
answer of DBP.[35]
In an Order[36] dated July 31, 1991, the RTC granted the prayer of petitioners for the issuance
of a writ of preliminary injunction.[37]
On April 25, 1997, the RTC rendered judgment in Civil Case No. CEB-10104, finding
meritorious the complaint of the petitioners. Explained the trial court:
It is a fact on record that [petitioners] complied with the requirements of deposit and advance
rental as conditions for constitution of lease between the parties. [Petitioners] in complying
with the requirements, issued a time deposit in the amount of P11,395.64 and remitted
faithfully its monthly rentals until April, 1991, which monthly rental was no longer accepted by

the DBP. Although there was no formal written contract executed between [respondent] DBP
and the [petitioners], it is very clear that DBP opted to continue the old and previous contract
including the terms thereon by accepting the requirements contained in paragraph 2 of its letter
dated June 18, 1987. It is also a fact on record that under the lease contract continued by the
DBP on the [petitioners], it is provided in paragraph 9 thereof that the lessee shall have the first
option to buy and shall match offers from outside parties. And yet, [respondent] DBP never
gave [petitioners] the first option to buy or to match offers from outside parties, more
specifically [respondents] To Chip, Balila and Yap. It is also a fact on record that [respondent]
DBP in its letter dated June 18, 1987 to [petitioners] wrote in paragraph 3 thereof, that in case
there is better offer or if a property will be subject of purchase offer, within the term, the lessee
is given the option of first refusal, otherwise, he has to vacate the premises within thirty (30)
days. Yet, [respondent] DBP never informed [petitioners] that there was an interested party to
buy the property, meaning, [respondents To Chip, Yap and Balila], thus depriving [petitioners]
of the opportunity of first refusal promised to them in its letter dated June 18, 1987. x x x.[38]
(Emphases ours.)

As regards the offer of petitioners to purchase the subject properties from DBP, the RTC gave
more credence to the petitioners version of the facts, to wit:

It is also a fact on record that when [respondent] DBP offered the property for negotiated sale
under the 15-day acceptance period[, which] ended at noon of December 3, 1991, [Cebu
Bionic] submitted its offer, complete with [the required documents.] x x x.
xxxx
These requirements, however, were unceremoniously returned by [respondent] bank with the
assurance that since there was no other bidder of the said property, there was no urgency for the
same and that [Cebu Bionic] also, in all events, is entitled to first option being the present
lessee.
The declaration of Atty. Panal to the effect that Cebu Bionic wanted to buy the property on
installment terms, such that the deposit of P184,000.00 was insufficient being only 10% of the
offer, could not be given much credence as it is refuted by Exh. H which is the negotiated offer
to purchase form under the 15-day acceptance period accomplished by [petitioners] which
shows clearly the written word Cash after the printed words Term and Mode of Payment,
Exhibit J, the Managers check issued by Allied Banking Corporation dated December 3, 1990
in the amount of P184,000.00 representing 10% of the offer showing the mode of payment is
for cash; Exhibit K which is the application for Managers check in the amount of P184,000.00
dated December 3, 1990 showing the beneficiary as DBP. If it is true that the offer of
[petitioners] was for installment payments, then in the ordinary course of human behavior, it
would not have wasted effort in securing a Managers check in the amount of P184,000.00
which was insufficient for 20% deposit as required for installment payments. More credible is
the explanation [given by] witness Judy Garces when she said that DBP through Atty. Panal

returned the documents submitted by her, saying that there was no urgency for the same as
there was no other bidder of [the said] property and that Cebu Bionic was entitled to a first
option to buy being the present lessee. In the letter also of [respondent] bank dated June 18,
1987, it is important to note that aside from requiring Cebu Bionic to comply with certain
requirements of time deposit and advance rental, as condition for constitution of lease between
the parties and which was complied by Cebu Bionic[,] said letter further states in paragraph 3
thereof that in case there is [a] better offer or if the property will be subject of a purchase offer,
within the term, the lessee is given the option of first refusal, otherwise, he has to vacate the
premises within thirty days. In answer to the Courts question, however, Atty. Panal admitted
that he did not tell [petitioners] that there was another party who was willing to purchase the
property, in violation of [petitioners] right of first refusal.[39] (Emphasis ours.)
Likewise, the RTC found that respondents To Chip, Yap and Balila were aware of the lease
contract involving the subject properties before they purchased the same from DBP. Thus:
[Respondent] Jose To Chip lamely pretends ignorance that [petitioners] are lessees of the
property, subject matter of this case. He states that he and his partners, the other [respondents],
were given assurances by Atty. Panal of the DBP that [Lydia Sia] is not a lessee, although he
knew that [petitioners] were presently occupying the property and that it was possessed by
[petitioners] even before it was owned by the DBP. x x x.
xxxx
[Respondent] Roger Balila, in his testimony, likewise pretended ignorance that he knew that
[Lydia Sia] was a lessee of the property. x x x.
xxxx
Upon further questioning by the Court, he admitted that [Lydia Sia] was not possessing the
building freely; that she was a lessee of Rudy Robles, the former owner, but cleverly insisted in
disowning knowledge that [Lydia Sia] was a lessee, denying knowledge that [Lydia Sia] was
paying rentals to [respondent] bank. His pretended ignorance x x x was a way of evading
[Cebu Bionics] right of first priority to buy the property under the contract of lease. x x x The
Court is convinced that [respondents To Chip, Yap and Balila] knew that [Cebu Bionic] was the
present lessee of the property before they bought the same from [respondent] bank. Common
observation, knowledge and experience dictates that as a prudent businessman, it was but
natural that he ask Lydia Sia what her status was in occupying the property when he went to
talk to her, that he ask her if she was a lessee. But he said, all he asked her was whether she
was interested to buy the property. x x x.[40]

The trial court, therefore, concluded that:

From the foregoing facts on record, it is thus clear that [petitioner] Cebu Bionic is the present
lessee of the property, the lease contract having been continued by [respondent] DBP when it
received rental payments up to March of 1991 as well as the advance rental for one year
represented by the assigned time deposit which is still in [respondent] banks possession. The

provision, therefore, in the lease contract, on the right of first option to buy and the right of first
refusal contained in [respondent] banks letter dated June 18, 1987, are still subsisting and
binding up to the present, not only on [respondent] bank but also on [respondents To Chip, Yap
and Balila]. x x x.
xxxx
WHEREFORE, THE FOREGOING PREMISES CONSIDERED, judgment is hereby
rendered:
(1) Rescinding the Deed of Sale dated December 28, 1990 between [respondent]
Development Bank of the Philippines and [respondents] Roger Balila, Jose To Chip and
Patricio Yap;
(2) Ordering the [respondent] Development Bank of the Philippines to execute a Deed of Sale
over the property, subject matter of this case upon payment by [petitioners] of the whole
consideration involved and to complete all acts or documents necessary to have the title over
said property transferred to the name of [petitioners];
(3) Costs against [respondents].[41]
DBP forthwith filed a Notice of Appeal.[42] Respondents To Chip, Yap and Balila filed a
Motion for Reconsideration[43] of the above decision, but the RTC denied the same in an
Order[44] dated July 4, 1997. Said respondents then filed their Notice of Appeal.[45]
On February 14, 2001, the Court of Appeals promulgated its Decision,[46] pronouncing that:
We find nothing erroneous with the judgment rendered by the trial court. Perforce, We sustain
it and dismiss the [respondents] submission.
The RTC determined, upon evidence on record after a careful evaluation of the witnesses and
their testimonies during the trial that indeed [petitioners] right of first option was violated and
thus, rescission of the sale made by DBP to [respondents To Chip, Yap and Balila] are in order.
xxxx
Apparently, DBP accepted [the documents submitted by petitioners] and thereafter, through
Atty. Panal (of DBP), returned all of it to the [petitioners] with the assurance that since there
was no other bidder of the said property, there was no urgency for the same and that [Cebu
Bionic] also, in all events, is entitled to first option being the present lessee.
[DBP] maintains that the return of the documents [submitted by petitioners] was in order since
the [petitioners] offered to buy the property in question on installment basis requiring a higher
20% deposit. This, however, was correctly rejected by the trial court[.] x x x
The binding effect of the lease agreement upon the [respondents To Chip, Yap and Balila] must
be sustained since from existing jurisprudence cited by the lower court, it was determined
during trial that:

... [respondents To Chip, Yap and Balila] knew that [Cebu Bionic] was the present lessee of the
property before they bought the same from [respondent] bank. Common observation,
knowledge and experience dictates that as a prudent businessman, it was but natural that he ask
Lydia Sia what her status was in occupying the property when he went to talk to her, that he
ask her if she was a lessee. But he said, all he asked her was whether she was interested to buy
the property. x x x.

Moreover, We find that the submissions presented by the [respondents] in their respective
briefs argue against questions of facts as found and determined by the lower court. The
respondents contentions consist of crude attempts to question the assessment and evaluation of
testimonies and other evidence gathered by the trial court.

It must be remembered that findings of fact as determined by the trial court are entitled to great
weight and respect from appellate courts and should not be disturbed on appeal unless for
[strong] and cogent reasons. These findings generally, so long as supported by evidence on
record, are not to be disturbed unless there are some facts or evidence which the trial court has
misappreciated or overlooked, and which if considered would have altered the results of the
entire case. Sad to say for the [respondents], We see no reason to depart from this well-settled
legal principle.
WHEREFORE, in view of the foregoing, the judgment of the Regional Trial Court of Cebu
City, Branch 8, in Civil Case No. 10104 is hereby AFFIRMED in toto.[47]
On October 1, 2001, petitioners filed a Motion for Issuance of Entry of Judgment.[48]
Petitioners stressed that, based on the records of the case, respondents were served a copy of
the Court of Appeals Decision dated February 14, 2001 sometime on March 7, 2001. However,
petitioners discovered that respondents have not filed any motion for reconsideration of the
said decision within the reglementary period therefor, nor was there any petition for certiorari
or appeal filed before the Supreme Court.
In response to the above motion, respondents To Chip, Yap and Balila filed on October 8, 2001
a Motion to Admit Motion for Reconsideration.[49] Atty. Francis M. Zosa, the counsel for
respondents To Chip, Yap and Balila, explained that he sent copies of the motion for
reconsideration to petitioners and DBP via personal delivery. On the other hand, the copies of
the motion to be filed with the Court of Appeals were purportedly sent to Mr. Domingo Tan, a
friend of Atty. Zosa in Quezon City, who agreed to file the same personally with the appellate
court in Manila. When Atty. Zosa inquired if the motion for reconsideration was accordingly
filed, Mr. Tan allegedly answered in the affirmative. To his surprise, Atty. Zosa received a copy
of petitioners Motion for Issuance of Entry of Judgment. Atty. Zosa, thus, attributed the failure
of his clients to file a motion for reconsideration on the mistake, excusable negligence and/or
fraud committed by Mr. Tan.

In the assailed Resolution dated February 5, 2002, the Court of Appeals granted the motion of
respondents To Chip, Yap and Balila and admitted the motion for reconsideration attached
therewith in the higher interest of substantial justice.[50]
On July 5, 2002, the Court of Appeals reversed its original Decision dated February 14, 2001,
reasoning thus:
After a judicious review and reevaluation of the evidence and facts on record, we are
convinced that DBP had terminated the Robles lease contract. From its letter of June 18, 1987,
DBP had expressly notified [petitioners] that (I)f they wish to continue on leasing the property
x x x to come to the Bank for the execution of a Contract of Lease, the salient conditions of
which are as follows:
1. The lease will be on a month to month basis for a maximum period of one (1) year;
2. Deposit equivalent to two (2) months rental and advance of one (1) month rental, and the
remaining amount for one year (equivalent to 9 months rental) shall be secured by either surety
bond, cash bond or assigned time deposit;
3. That in case there is a better offer or if the property will be subject of a purchase offer,
within the term, the lessor is given an option of first refusal, otherwise he has to vacate the
premises within thirty (30) days from date of notice.
We consider, temporarily, the current monthly rental based on the six-month receipts, which we
require you to submit, until such time when we will fix the amount accordingly.
Evidently, except for the remittance of the monthly rentals up to March 1991, the conditions
imposed by DBP have never been complied with. [Petitioners] did not go to the Bank to sign
any new written contract of lease with DBP. [Petitioners] also did not put up a surety bond nor
cash bond nor assign a time deposit to secure the payment of rental for nine (9) months,
although the [petitioners] opened a time deposit but did not assign it to DBP.
But even with the remittance and acceptance of the deposit made by [petitioners] equivalent to
two (2) months rental and advance of one (1) month rental it does not necessarily follow that
DBP opted to continue with the Robles lease. This is because the Robles contract provides:
That the term of the agreement shall start on November 1, 1981 and shall terminate on the last
day of every month thereafter, provided however, that this contract shall be automatically
renewed on a month to month basis if no notice in writing is sent to the other party to
determine to terminate this agreement after fifteen (15) days from the receipt of said notice.
Here, a notice was sent to [petitioners] on June 18, 1987, informing them that if they wish to
continue on leasing the property, we request you to come to the Bank for the execution of a
Contract of Lease x x x.
[Petitioners] failed to enter into the contract of lease required by DBP for it to continue
occupying the leased premises.

Because of [petitioners] failure to comply with the conditions embodied in the 18 June 1987
letter, it cannot be said that [petitioners] entered into a new contract with DBP where they were
given the first option to buy the leased property and to match offers from outside parties.
xxxx

WHETHER OR NOT THE VERIFICATION (AND CERTIFICATION OF NON-FORUM

SHOPPING) IN THE INSTANT PETITION WAS PROPER AND VALID DESPITE ITS
BEING SIGNED BY ONLY ONE OF THE TWO PETITIONERS.

Be that as it may, DBP continued to accept the monthly rentals based on the old Robles
contract despite the fact that the [petitioners] failed to enter into a written lease contract with it.
Corollarily, the relations between the parties is now governed by Article 1670 of the New Civil
Code, thus:

II

Art. 1670. If at the end of contract the lessee should continue enjoying the thing leased for
fifteen days with the acquiescence of the lessor, and unless a notice to the contrary by either
party has previously been given, it is understood that there is an implied new lease, not for the
period of the original contract, but for the time established in Articles 1682 and 1687. The other
terms of the original contract shall be revived.
xxxx
x x x [T]he acceptance by DBP of the monthly rentals does not mean that the terms of the
Robles contract were revived. In the case of Dizon vs. Court of Appeals, the Supreme Court
declared that:
The other terms of the original contract of lease which are revived in the implied new lease
under Article 1670 of the New Civil Code are only those terms which are germane to the
lessees right [of] continued enjoyment of the property leased an implied new lease does not
ipso facto carry with it any implied revival of any option to purchase the leased premises.
In view of the foregoing, it is clear that [petitioners] had no right to file a case for rescission of
the deed of sale executed by DBP in favor of [respondents To Chip, Yap and Balila] because
said deed of sale did not violate their alleged first option to buy or match offers from outside
parties which is legally non-existent and which was not impliedly renewed under Article 1670
of the Civil Code.
WHEREFORE, premises considered, the 14 February 2001 Decision is hereby
RECONSIDERED and another one is issued REVERSING the 25 April 1997 Decision of the
Regional Trial Court, Branch 8, Cebu City in Civil Case No. CEB-10104 and the complaint of
[petitioners] is DISMISSED for lack of merit.[51]
Without seeking a reconsideration of the above decision, petitioners filed the instant petition. In
their Comment, respondents opposed the petition on both procedural and substantive grounds.
In petitioners Memorandum, they summarized the issues to be resolved in the present case as
follows:
A) PRELIMINARY ISSUES:
I

WHETHER OR NOT ONLY QUESTIONS OF LAW AND NOT OF FACT CAN BE RAISED
IN THE INSTANT PETITION BEFORE THIS HON. SUPREME COURT.
B) MAIN AND PRINCIPAL ISSUES IN THE INSTANT PETITION:
I
WHETHER OR NOT THE HON. COURT OF APPEALS ERRED IN ADMITTING
RESPONDENTS MOTION FOR RECONSIDERATION DESPITE ITS BEING FILED OUT
OF TIME
II
WHETHER OR NOT THE HON. COURT OF APPEALS ERRED IN DECLARING THAT
PETITIONERS DID NOT ENTER INTO CONTRACT WITH RESPONDENT DBP
CONTINUING THE TERMS OF THE ROBLES CONTRACT
III

WHETHER OR NOT THE HON. COURT OF APPEALS ERRED WHEN IT DECLARED

THAT THE CONTINUATION BY RESPONDENT DBP OF THE LEASE CONTRACT DID
NOT CONTAIN THE RIGHT OF FIRST REFUSAL
IV
WHETHER OR NOT THE HON. COURT OF APPEALS ERRED WHEN IT DECLARED
THAT THE LEASE CONTRACT IS GOVERNED BY ART. 1670 OF THE NEW CIVIL
CODE
V
WHETHER OR NOT THE HON. COURT OF APPEALS ERRED WHEN IT FAILED TO
RECOGNIZE PETITIONERS RIGHT OF FIRST REFUSAL TO WHICH RESPONDENTS
WERE BOUND

VI
WHETHER OR NOT THE HON. COURT OF APPEALS ERRED WHEN IT FAILED TO
DECLARE THAT RESPONDENT DBP HAD VIOLATED PETITIONERS RIGHTS
VII
WHETHER OR NOT THE HON. COURT OF APPEALS ERRED IN REVERSING ITS
OWN JUDGMENT AND DISMISSING PETITIONERS CLAIM FOR RESCISSION[52]
We shall first resolve the preliminary issues.
Respondents To Chip, Yap and Balila argue that the instant petition should be dismissed
outright as the verification and certification of non-forum shopping was executed only by
petitioner Lydia Sia in her personal capacity, without the participation of Cebu Bionic.

The Court is not persuaded.

Except for the powers which are expressly conferred on it by the Corporation Code and those
that are implied by or are incidental to its existence, a corporation has no powers. It exercises
its powers through its board of directors and/or its duly authorized officers and agents. Thus,
its power to sue and be sued in any court is lodged with the board of directors that exercises its
corporate powers.[53] Physical acts, like the signing of documents, can be performed only by
natural persons duly authorized for the purpose by corporate by-laws or by a specific act of the
board of directors.[54]

In this case, respondents To Chip, Yap and Balila obviously overlooked the Secretarys
Certificate[55] attached to the instant petition, which was executed by the Corporate Secretary
of Cebu Bionic. Unequivocally stated therein was the fact that the Board of Directors of Cebu
Bionic held a special meeting on July 26, 2002 and they thereby approved a Resolution
authorizing Lydia Sia to elevate the present case to this Court in behalf of Cebu Bionic, to wit:

Whereas, the board appointed LYDIA I. SIA to act and in behalf of the corporation to file the
CERTIORARI with the Supreme Court in relations to the decision of the Court of Appeals
dated July 5, 2002 which reversed its own judgment earlier promulgated on February 14, 2001
entitled CEBU BIONIC BUILDERS SUPPLY, INC. and LYDIA SIA, (Petitioners- Appellants)
versus THE DEVELOPMENT BANK OF THE PHILIPPINES, JOSE TO CHIP, PATRICIO
YAP and ROGER BALILA (Respondents- Appelles), docketed CA-G.R. NO. 57216.

Whereas, on mass unanimously motion of all members of directors present hereby approved
the appointment of LYDIA I. SIA to act and sign all papers in connection of CA-G.R. NO.
57216.
Resolved and it is hereby resolve to appoint and authorized LYDIA I. SIA to sign and file with
the SUPREME COURT in connection to decision of the Court of Appeals as above mention.
[56]

Respondents To Chip, Yap and Balila next argue that the instant petition raises questions of
fact, which are not allowed in a petition for review on certiorari. They, therefore, submit that
the factual findings of the Court of Appeals are binding on this Court.
Section 1, Rule 45 of the Rules of Court categorically states that the petition filed thereunder
shall raise only questions of law, which must be distinctly set forth. A question of law arises
when there is doubt as to what the law is on a certain state of facts, while there is a question of
fact when the doubt arises as to the truth or falsity of the alleged facts. For a question to be one
of law, the same must not involve an examination of the probative value of the evidence
presented by the litigants or any of them. The resolution of the issue must rest solely on what
the law provides on the given set of circumstances. Once it is clear that the issue invites a
review of the evidence presented, the question posed is one of fact.[57]
The above rule, however, admits of certain exceptions,[58] one of which is when the findings
of the Court of Appeals are contrary to those of the trial court. As will be discussed further, this
exception is attendant in the case at bar.
We now determine the principal issues put forward by petitioners.
First off, petitioners fault the Court of Appeals for admitting the Motion for Reconsideration of
its Decision dated February 14, 2001, which was filed by respondents To Chip, Yap and Balila
more than six months after receipt of the said decision. The motion was eventually granted and
the Court of Appeals issued its assailed Amended Decision, ruling in favor of respondents.
Indeed, the appellate courts Decision dated February 14, 2001 would have ordinarily attained
finality for failure of respondents to seasonably file their Motion for Reconsideration thereon.
However, we agree with the Court of Appeals that the higher interest of substantial justice will
be better served if respondents procedural lapse will be excused.
Verily, we had occasion to apply this liberality in the application of procedural rules in Barnes
v. Padilla[59] where we aptly declared that
The failure of the petitioner to file his motion for reconsideration within the period fixed by
law renders the decision final and executory. Such failure carries with it the result that no court
can exercise appellate jurisdiction to review the case. Phrased elsewise, a final and executory
judgment can no longer be attacked by any of the parties or be modified, directly or indirectly,
even by the highest court of the land.

However, this Court has relaxed this rule in order to serve substantial justice considering (a)
matters of life, liberty, honor or property, (b) the existence of special or compelling
circumstances, (c) the merits of the case, (d) a cause not entirely attributable to the fault or
negligence of the party favored by the suspension of the rules, (e) a lack of any showing that
the review sought is merely frivolous and dilatory, and (f) the other party will not be unjustly
prejudiced thereby.[60]
In this case, what are involved are the property rights of the parties given that, ultimately, the
fundamental issue to be determined is who among the petitioners and respondents To Chip, Yap
and Balila has the better right to purchase the subject properties. More importantly, the merits
of the case sufficiently called for the suspension of the rules in order to settle conclusively the
rights and obligations of the parties herein.
In essence, the questions that must be resolved are: 1) whether or not there was a contract of
lease between petitioners and DBP; 2) if in the affirmative, whether or not this contract
contained a right of first refusal in favor of petitioners; and 3) whether or not respondents To
Chip, Yap and Balila are likewise bound by such right of first refusal.
Petitioners contend that there was a contract of lease between them and DBP, considering that
they had been allowed to occupy the premises of the subject property from 1987 up to 1991
and DBP received their rental payments corresponding to the said period. Petitioners claim that
DBP were aware of their lease on the subject property when the latter foreclosed the same and
the acquisition of the subject properties through foreclosure did not terminate the lease.
Petitioners subscribe to the ruling of the RTC that even if there was no written contract of
lease, DBP chose to continue the existing contract of lease between petitioners and Rudy
Robles by accepting the requirements set down by DBP on the letter dated June 18, 1987.
Petitioners likewise posit that the contract of lease between them and Rudy Robles never
expired, inasmuch as the contract did not have a definite term and none of the parties thereto
terminated the same. In view of the continuation of the lease contract between petitioners and
Rudy Robles, petitioners submit that Article 1670 of the Civil Code on implied lease is not
applicable on the instant case.
We are not persuaded.
In Uy v. Land Bank of the Philippines,[61] the Court held that [i]n respect of the lease on the
foreclosed property, the buyer at the foreclosure sale merely succeeds to the rights and
obligations of the pledgor-mortgagor subject to the provisions of Article 1676 of the Civil Code
on its possible termination. This article provides that [t]he purchaser of a piece of land which is
under a lease that is not recorded in the Registry of Property may terminate the lease, save
when there is a stipulation to the contrary in the contract of sale, or when the purchaser knows
of the existence of the lease. In short, the buyer at the foreclosure sale, as a rule, may terminate
an unregistered lease except when it knows of the existence of the lease.
In the instant case, the lease contract between petitioners and Rudy Robles was not registered.
[62] During trial, DBP denied having any knowledge of the said lease contract.[63] It asserted
that the lease was merely presumed in view of the existence of tenants in the subject property.
[64] Nevertheless, DBP recognized and acknowledged this lease contract in its letter dated June
18, 1987, which was addressed to Bonifacio Sia, then President of Cebu Bionic. DBP even

required Sia to pay the monthly rental for the month of June 1987, thereby exercising the right
of the previous lessor, Rudy Robles, to collect the rental payments from the lessee. In the same
letter, DBP extended an offer to Cebu Bionic to continue the lease on the subject property,
outlining the provisions of the proposed contract and specifically instructing the latter to come
to the bank for the execution of the same. DBP likewise gave Cebu Bionic a 30-day period
within which to act on the said contract execution. Should Cebu Bionic fail to do so, it would
be deemed uninterested in continuing with the lease. In that eventuality, the letter states that
Cebu Bionic should vacate the premises within the said period.
Instead of acceding to the terms of the aforementioned letter, the counsel of Cebu Bionic sent a
counter-offer to DBP dated July 7, 1987, suggesting a different mode of payment for the rentals
and requesting for a 60-day period within which time the parties will execute a new contract of
lease.
The parties, however, failed to execute a written contract of lease. Petitioners put the blame on
DBP, asserting that no contract was signed because DBP did not prepare it for them. DBP, on
the other hand, counters that it was petitioners who did not positively act on the conditions for
the execution of the lease contract. In view of the counter-offer of petitioners, DBP and
respondents To Chip, Yap and Balila argue that there was no meeting of minds between DBP
and petitioners, which would have given rise to a new contract of lease.
The Court rules that, indeed, no new contract of lease was ever perfected between petitioners
and DBP.
In Metropolitan Manila Development Authority v. JANCOM Environmental Corporation,[65]
we emphasized that:

Under Article 1305 of the Civil Code, [a] contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give something or to render some
service. A contract undergoes three distinct stages preparation or negotiation, its perfection, and
finally, its consummation. Negotiation begins from the time the prospective contracting parties
manifest their interest in the contract and ends at the moment of agreement of the parties. The
perfection or birth of the contract takes place when the parties agree upon the essential
elements of the contract. The last stage is the consummation of the contract wherein the parties
fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment
thereof (Bugatti vs. CA, 343 SCRA 335 [2000]). Article 1315 of the Civil Code, provides that a
contract is perfected by mere consent. Consent, on the other hand, is manifested by the meeting
of the offer and the acceptance upon the thing and the cause which are to constitute the contract
(See Article 1319, Civil Code). x x x.[66]
In the case at bar, there was no concurrence of offer and acceptance vis--vis the terms of the
proposed lease agreement. In fact, after the reply of petitioners counsel dated July 7, 1987,
there was no indication that the parties undertook any other action to pursue the execution of
the intended lease contract. Petitioners even admitted that they merely waited for DBP to
present the contract to them, despite being instructed to come to the bank for the execution of
the same.[67]

Contrary to the ruling of the RTC, the Court is also not convinced that DBP opted to continue
the existing lease contract between petitioners and Rudy Robles.
The findings of the RTC that DBP supposedly accepted the requirements the latter set forth in
its letter dated June 18, 1987 is not well taken. To recapitulate, the third paragraph of the letter
reads:
If you wish to continue on leasing the property, we request you to come to the Bank for the
execution of a Contract of Lease, the salient conditions of which are as follows:
1. The lease will be on month to month basis, for a maximum period of one (1) year;

2. Deposit equivalent to two (2) months rental and advance of one (1) month rental, and the
remaining amount for one year period (equivalent to 9 months rental) shall be secured by either
surety bond, cash bond or assigned time deposit;
3.
That in case there is a better offer or if the property will be subject of a purchase
offer, within the term, the lessor is given an option of first refusal, otherwise he has to vacate
the premises within thirty (30) days from date of notice.[68]
The so-called requirements enumerated in the above paragraph are not really requirements to
be complied with by the petitioners for the execution of the proposed lease contract, as
apparently considered by the RTC and the petitioners. A close reading of the letter reveals that
the items enumerated therein were in fact the salient terms and conditions of the proposed
contract of lease, which the DBP and the petitioners were to execute if the latter were so
willing. Also, the Certificate of Time Deposit in the amount of P11,395.64, which was
allegedly paid to DBP as advance rental deposit pursuant to the said requirements, was not
even clearly established as such since it was neither secured by a security bond or a cash bond,
nor was it assigned to DBP.
The contention that the lease contract between petitioners and Rudy Robles did not expire,
given that it did not have a definite term and the parties thereto failed to terminate the same,
deserves scant consideration. To recall, the second paragraph of the terms and conditions of the
contract of lease between petitioners and Rudy Robles reads:
2. That the term of this agreement shall start on November 1, 1981 and shall terminate on the
last day of every month thereafter; provided however that this contract shall be automatically
renewed on a month to month basis if no notice, in writing, is sent to the other party to
terminate this agreement after fifteen (15) days from receipt of said notice.[69] (Emphases
ours.)
Crystal clear from the above provision is that the lease is on a month-to-month basis.
Relevantly, the well-entrenched principle is that a lease from month-to-month is with a definite
period and expires at the end of each month upon the demand to vacate by the lessor.[70] As
held by the Court of Appeals in the assailed Amended Decision, the above-mentioned lease
contract was duly terminated by DBP by virtue of its letter dated June 18, 1987. We reiterate

that the letter explicitly directed the petitioners to come to the office of the DBP if they wished
to enter into a new lease agreement with the said bank. Otherwise, if no contract of lease was
executed within 30 days from the date of the letter, petitioners were to be considered
uninterested in entering into a new contract and were thereby ordered to vacate the property. As
no new contract was in fact executed between petitioners and DBP within the 30-day period,
the directive to vacate, thus, took effect. DBPs letter dated June 18, 1987, therefore, constituted
the written notice that was required to terminate the lease agreement between petitioners and
Rudy Robles. From then on, the petitioners continued possession of the subject property could
be deemed to be without the consent of DBP.
Thusly, petitioners assertion that Article 1670 of the Civil Code is not applicable to the instant
case is correct. The reason, however, is not that the existing contract was continued by DBP,
but because the lease was terminated by DBP, which termination was accompanied by a
demand to petitioners to vacate the premises of the subject property.
Article 1670 states that [i]f at the end of the contract the lessee should continue enjoying the
thing leased for fifteen days with the acquiescence of the lessor, and unless a notice to the
contrary by either party has previously been given, it is understood that there is an implied new
lease, not for the period of the original contract, but for the time established in Articles 1682
and 1687. The other terms of the original contract shall be revived. In view of the order to
vacate embodied in the letter of DBP dated June 18, 1987 in the event that no new lease
contract is entered into, the petitioners continued possession of the subject properties was
without the acquiescence of DBP, thereby negating the constitution of an implied lease.
Contrary to the ruling of the RTC, DBPs acceptance of petitioners rental payments of
P5,000.00 for the period of November 1990 to March 1991 did not likewise give rise to an
implied lease between petitioners and DBP. In Tagbilaran Integrated Settlers Association
(TISA) Incorporated v. Court of Appeals,[71] we held that the subsequent acceptance by the
lessor of rental payments does not, absent any circumstance that may dictate a contrary
conclusion, legitimize the unlawful character of their possession. In the present case, the
petitioners rental payments to DBP were made in lump sum on March 22, 1991. Significantly,
said payments were remitted only after petitioners were notified of the sale of the subject
properties to respondents To Chip, Yap and Balila and after the petitioners were given a final
demand to vacate the properties. These facts substantially weaken, if not controvert, the finding
of the RTC and the argument of petitioners that the latter were faithfully remitting their rental
payments to DBP until the year 1991.
Thus, having determined that the petitioners and DBP neither executed a new lease agreement,
nor entered into an implied lease contract, it follows that petitioners claim of entitlement to a
right of first refusal has no leg to stand on. Furthermore, even if we were to grant, for the sake
of argument, that an implied lease was constituted between petitioners and the DBP, the right of
first refusal that was contained in the prior lease contract with Rudy Robles was not renewed
therewith. This is in accordance with the ruling in Dizon v. Magsaysay,[72] which involved the
issue of whether a provision regarding a preferential right to purchase is revived in an implied
lease under Article 1670, to wit:
[T]he other terms of the original contract which are revived in the implied new lease under
Article 1670 are only those terms which are germane to the lessees right of continued

enjoyment of the property leased. This is a reasonable construction of the provision, which is
based on the presumption that when the lessor allows the lessee to continue enjoying
possession of the property for fifteen days after the expiration of the contract he is willing that
such enjoyment shall be for the entire period corresponding to the rent which is customarily
paid in this case up to the end of the month because the rent was paid monthly. Necessarily, if
the presumed will of the parties refers to the enjoyment of possession the presumption covers
the other terms of the contract related to such possession, such as the amount of rental, the date
when it must be paid, the care of the property, the responsibility for repairs, etc. But no such
presumption may be indulged in with respect to special agreements which by nature are foreign
to the right of occupancy or enjoyment inherent in a contract of lease.[73]
DBP cannot, therefore, be accused of violating the rights of petitioners when it offered the
subject properties for sale, and eventually sold the same to respondents To Chip, Yap and
Balila, without first notifying petitioners. Neither were the said respondents bound by any right
of first refusal in favor of petitioners. Consequently, the sale of the subject properties to
respondents was valid. Petitioners claim for rescission was properly dismissed.
WHEREFORE, the Petition for Review on Certiorari under Rule 45 of the Rules of Court is
DENIED. The Resolution dated February 5, 2002 and the Amended Decision dated July 5,
2002 of the Court of Appeals in CA-G.R. CV No. 57216 are hereby AFFIRMED. No costs.
SO ORDERED.

Rule Making Power of the Supreme Court

GSIS v Caballero, October 4, 2010
Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court
seeking to set aside the Decision[1] and the Resolution,[2] dated December 17, 2002 and April
29, 2003, respectively, of the Court of Appeals (CA) in CA-G.R. CV. No. 49300.
The antecedents are as follows:
Respondent Fernando C. Caballero (Fernando) was the registered owner of a residential lot
designated as Lot No. 3355, Ts-268, covered by TCT No. T-16035 of the Register of Deeds of
Cotabato, containing an area of 800 square meters and situated at Rizal Street, Mlang,
Cotabato. On the said lot, respondent built a residential/commercial building consisting of two
(2) stories.

On March 7, 1968, Fernando and his wife, Sylvia Caballero, secured a loan from petitioner
Government Service Insurance System (GSIS) in the amount of P20,000.00, as evidenced by a
promissory note. Fernando and his wife likewise executed a real estate mortgage on the same
date, mortgaging the afore-stated property as security.

Fernando defaulted on the payment of his loan with the GSIS. Hence, on January 20, 1973, the
mortgage covering the subject property was foreclosed, and on March 26, 1973, the same was
sold at a public auction where the petitioner was the only bidder in the amount of P36,283.00.
For failure of Fernando to redeem the said property within the designated period, petitioner
executed an Affidavit of Consolidation of Ownership on September 5, 1975. Consequently,
TCT No. T-16035 was cancelled and TCT No. T-45874 was issued in the name of petitioner.
On November 26, 1975, petitioner wrote a letter to Fernando, informing him of the
consolidation of title in its favor, and requesting payment of monthly rental in view of
Fernando's continued occupancy of the subject property. In reply, Fernando requested that he
be allowed to repurchase the same through partial payments. Negotiation as to the repurchase
by Fernando of the subject property went on for several years, but no agreement was reached
between the parties.
On January 16, 1989, petitioner scheduled the subject property for public bidding. On the
scheduled date of bidding, Fernando's daughter, Jocelyn Caballero, submitted a bid in the
amount of P350,000.00, while Carmelita Mercantile Trading Corporation (CMTC) submitted a
bid in the amount of P450,000.00. Since CMTC was the highest bidder, it was awarded the
subject property. On May 16, 1989, the Board of Trustees of the GSIS issued Resolution No.
199 confirming the award of the subject property to CMTC for a total consideration of
P450,000.00. Thereafter, a Deed of Absolute Sale was executed between petitioner and CMTC
on July 27, 1989, transferring the subject property to CMTC. Consequently, TCT No. T-45874
in the name of GSIS was cancelled, and TCT No. T-76183 was issued in the name of CMTC.
Due to the foregoing, Fernando, represented by his daughter and attorney-in-fact, Jocelyn
Caballero, filed with the Regional Trial Court (RTC) of Kabacan, Cotabato a Complaint[3]
against CMTC, the GSIS and its responsible officers, and the Register of Deeds of Kidapawan,
Cotabato. Fernando prayed, among others, that judgment be rendered: declaring GSIS Board of
Trustees Resolution No. 199, dated May 16, 1989, null and void; declaring the Deed of
Absolute Sale between petitioner and CMTC null and void ab initio; declaring TCT No. 76183
of the Register of Deeds of Kidapawan, Cotabato, likewise, null and void ab initio; declaring
the bid made by Fernando in the amount of P350,000.00 for the repurchase of his property as
the winning bid; and ordering petitioner to execute the corresponding Deed of Sale of the
subject property in favor of Fernando. He also prayed for payment of moral damages,
exemplary damages, attorney's fees and litigation expenses.

In his complaint, Fernando alleged that there were irregularities in the conduct of the bidding.
CMTC misrepresented itself to be wholly owned by Filipino citizens. It misrepresented its
working capital. Its representative Carmelita Ang Hao had no prior authority from its board of
directors in an appropriate board resolution to participate in the bidding. The corporation is not
authorized to acquire real estate or invest its funds for purposes other than its primary purpose.
Fernando further alleged that the GSIS allowed CMTC to bid despite knowledge that said
corporation has no authority to do so. The GSIS also disregarded Fernando's prior right to buy
back his family home and lot in violation of the laws. The Register of Deeds of Cotabato acted
with abuse of power and authority when it issued the TCT in favor of CMTC without requiring
the CMTC to submit its supporting papers as required by the law.

Petitioner and its officers filed their Answer with Affirmative Defenses and Counterclaim.[4]
The GSIS alleged that Fernando lost his right of redemption. He was given the chance to
repurchase the property; however, he did not avail of such option compelling the GSIS to
dispose of the property by public bidding as mandated by law. There is also no prior right to
buy back that can be exercised by Fernando. Further, it averred that the articles of
incorporation and other papers of CMTC were all in order. In its counterclaim, petitioner
alleged that Fernando owed petitioner the sum of P130,365.81, representing back rentals,
including additional interests from January 1973 to February 1987, and the additional amount
of P249,800.00, excluding applicable interests, representing rentals Fernando unlawfully
collected from Carmelita Ang Hao from January 1973 to February 1988.

After trial, the RTC, in its Decision[5] dated September 27, 1994, ruled in favor of petitioner
and dismissed the complaint. In the same decision, the trial court granted petitioner's
counterclaim and directed Fernando to pay petitioner the rentals paid by CMTC in the amount
of P249,800.00. The foregoing amount was collected by Fernando from the CMTC and
represents payment which was not turned over to petitioner, which was entitled to receive the
rent from the date of the consolidation of its ownership over the subject property.

Fernando filed a motion for reconsideration, which was denied by the RTC in an Order dated
March 27, 1995.
Aggrieved by the Decision, respondent filed a Notice of Appeal.[6] The CA, in its Decision
dated December 17, 2002, affirmed the decision of the RTC with the modification that the
portion of the judgment ordering Fernando to pay rentals in the amount of P249,800.00, in
favor of petitioner, be deleted. Petitioner filed a motion for reconsideration, which the CA
denied in a Resolution dated April 29, 2003. Hence, the instant petition.

An Ex Parte Motion for Substitution of Party,[7] dated July 18, 2003, was filed by the
surviving heirs of Fernando, who died on February 12, 2002. They prayed that they be allowed
to be substituted for the deceased, as respondents in this case.

Petitioner enumerated the following grounds in support of its petition:

I
THE HONORABLE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN
HOLDING THAT GSIS' COUNTERCLAIM, AMONG OTHERS, OF P249,800.00
REPRESENTING RENTALS COLLECTED BY PRIVATE RESPONDENT FROM
CARMELITA MERCANTILE TRADING CORPORATION IS IN THE NATURE OF A
PERMISSIVE COUNTERCLAIM WHICH REQUIRED THE PAYMENT BY GSIS OF
DOCKET FEES BEFORE THE TRIAL COURT CAN ACQUIRE JURISDICTION OVER
SAID COUNTERCLAIM.
II
THE HONORABLE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN
HOLDING THAT GSIS' DOCUMENTARY EVIDENCE SUPPORTING ITS CLAIM OF
P249,800.00 LACKS PROPER IDENTIFICATION.[8]

The petition of the GSIS seeks the review of the CA's Decision insofar as it deleted the trial
court's award of P249,800.00 in its favor representing rentals collected by Fernando from the
CMTC.
In their Memorandum, respondents claim that CMTC cannot purchase real estate or invest its
funds in any purpose other than its primary purpose for which it was organized in the absence
of a corporate board resolution; the bid award, deed of absolute sale and TCT No. T-76183,
issued in favor of the CMTC, should be nullified; the trial court erred in concluding that GSIS
personnel have regularly performed their official duty when they conducted the public bidding;
Fernando, as former owner of the subject property and former member of the GSIS, has the
preemptive right to repurchase the foreclosed property.

These additional averments cannot be taken cognizance by the Court, because they were
substantially respondents arguments in their petition for review on certiorari earlier filed before
Us and docketed as G.R. No. 156609. Records show that said petition was denied by the Court
in a Resolution[9] dated April 23, 2003, for petitioners (respondents herein) failure to
sufficiently show that the Court of Appeals committed any reversible error in the challenged
decision as to warrant the exercise by this Court of its discretionary appellate jurisdiction.[10]
Said resolution became final and executory on June 9, 2003.[11] Respondents attempt to re-

litigate claims already passed upon and resolved with finality by the Court in G.R. No. 156609
cannot be allowed.

Going now to the first assigned error, petitioner submits that its counterclaim for the rentals
collected by Fernando from the CMTC is in the nature of a compulsory counterclaim in the
original action of Fernando against petitioner for annulment of bid award, deed of absolute sale
and TCT No. 76183. Respondents, on the other hand, alleged that petitioner's counterclaim is
permissive and its failure to pay the prescribed docket fees results into the dismissal of its
claim.
To determine whether a counterclaim is compulsory or not, the Court has devised the following
tests: (a) Are the issues of fact and law raised by the claim and by the counterclaim largely the
same? (b) Would res judicata bar a subsequent suit on defendants claims, absent the
compulsory counterclaim rule? (c) Will substantially the same evidence support or refute
plaintiffs claim as well as the defendants counterclaim? and (d) Is there any logical relation
between the claim and the counterclaim? A positive answer to all four questions would indicate
that the counterclaim is compulsory.[12]

Tested against the above-mentioned criteria, this Court agrees with the CA's view that
petitioner's counterclaim for the recovery of the amount representing rentals collected by
Fernando from the CMTC is permissive. The evidence needed by Fernando to cause the
annulment of the bid award, deed of absolute sale and TCT is different from that required to
establish petitioner's claim for the recovery of rentals.
The issue in the main action, i.e., the nullity or validity of the bid award, deed of absolute sale
and TCT in favor of CMTC, is entirely different from the issue in the counterclaim, i.e.,
whether petitioner is entitled to receive the CMTC's rent payments over the subject property
when petitioner became the owner of the subject property by virtue of the consolidation of
ownership of the property in its favor.
The rule in permissive counterclaims is that for the trial court to acquire jurisdiction, the
counterclaimant is bound to pay the prescribed docket fees.[13] This, petitioner did not do,
because it asserted that its claim for the collection of rental payments was a compulsory
counterclaim. Since petitioner failed to pay the docket fees, the RTC did not acquire
jurisdiction over its permissive counterclaim. The judgment rendered by the RTC, insofar as it
ordered Fernando to pay petitioner the rentals which he collected from CMTC, is considered
null and void. Any decision rendered without jurisdiction is a total nullity and may be struck
down at any time, even on appeal before this Court.[14]
Petitioner further argues that assuming that its counterclaim is permissive, the trial court has
jurisdiction to try and decide the same, considering petitioner's exemption from all kinds of
fees.

In In Re: Petition for Recognition of the Exemption of the Government Service Insurance
System from Payment of Legal Fees,[15] the Court ruled that the provision in the Charter of
the GSIS, i.e., Section 39 of Republic Act No. 8291, which exempts it from all taxes,
assessments, fees, charges or duties of all kinds, cannot operate to exempt it from the payment
of legal fees. This was because, unlike the 1935 and 1973 Constitutions, which empowered
Congress to repeal, alter or supplement the rules of the Supreme Court concerning pleading,
practice and procedure, the 1987 Constitution removed this power from Congress. Hence, the
Supreme Court now has the sole authority to promulgate rules concerning pleading, practice
and procedure in all courts.
In said case, the Court ruled that:
The separation of powers among the three co-equal branches of our government has erected an
impregnable wall that keeps the power to promulgate rules of pleading, practice and procedure
within the sole province of this Court. The other branches trespass upon this prerogative if they
enact laws or issue orders that effectively repeal, alter or modify any of the procedural rules
promulgated by this Court. Viewed from this perspective, the claim of a legislative grant of
exemption from the payment of legal fees under Section 39 of RA 8291 necessarily fails.
Congress could not have carved out an exemption for the GSIS from the payment of legal fees
without transgressing another equally important institutional safeguard of the Court's
independence fiscal autonomy. Fiscal autonomy recognizes the power and authority of the
Court to levy, assess and collect fees, including legal fees. Moreover, legal fees under Rule 141
have two basic components, the Judiciary Development Fund (JDF) and the Special Allowance
for the Judiciary Fund (SAJF). The laws which established the JDF and the SAJF expressly
declare the identical purpose of these funds to "guarantee the independence of the Judiciary as
mandated by the Constitution and public policy." Legal fees therefore do not only constitute a
vital source of the Court's financial resources but also comprise an essential element of the
Court's fiscal independence. Any exemption from the payment of legal fees granted by
Congress to government-owned or controlled corporations and local government units will
necessarily reduce the JDF and the SAJF. Undoubtedly, such situation is constitutionally infirm
for it impairs the Court's guaranteed fiscal autonomy and erodes its independence.

Petitioner also invoked our ruling in Sun Insurance Office, Ltd. v. Judge Asuncion,[16] where
the Court held that:

xxxx

3. Where the trial court acquires jurisdiction over a claim by the filing of the appropriate
pleading and payment of the prescribed filing fee but, subsequently, the judgment awards a
claim not specified in the pleading, or if specified the same has been left for determination by

the court, the additional filing fee therefor shall constitute a lien on the judgment. It shall be
the responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien and
assess and collect the additional fee.
In Ayala Corporation v. Madayag,[17] the Court, in interpreting the third rule laid down in Sun
Insurance Office, Ltd. v. Judge Asuncion regarding awards of claims not specified in the
pleading, held that the same refers only to damages arising after the filing of the complaint or
similar pleading as to which the additional filing fee therefor shall constitute a lien on the
judgment.

The amount of any claim for damages, therefore, arising on or before the filing of the
complaint or any pleading should be specified. While it is true that the determination of certain
damages as exemplary or corrective damages is left to the sound discretion of the court, it is the
duty of the parties claiming such damages to specify the amount sought on the basis of which
the court may make a proper determination, and for the proper assessment of the appropriate
docket fees. The exception contemplated as to claims not specified or to claims although
specified are left for determination of the court is limited only to any damages that may arise
after the filing of the complaint or similar pleading for then it will not be possible for the
claimant to specify nor speculate as to the amount thereof. (Emphasis supplied.)
Petitioner's claim for payment of rentals collected by Fernando from the CMTC did not arise
after the filing of the complaint; hence, the rule laid down in Sun Insurance finds no
application in the present case.
Due to the non-payment of docket fees on petitioner's counterclaim, the trial court never
acquired jurisdiction over it and, thus, there is no need to discuss the second issue raised by
petitioner.
WHEREFORE, the petition is DENIED. The Decision and the Resolution, dated December 17,
2002 and April 29, 2003, respectively, of the Court of Appeals in CA-G.R. CV. No. 49300, are
AFFIRMED.
SO ORDERED.

Katarungang Pambarangay Law:

o Purpose
Aquiono v. Laure, February 18, 2008
Before this Court is a Petition for Review on Certiorari2 under Rule 45 of
the Revised Rules of Court filed by petitioner Librada M. Aquino (Aquino),
seeking the reversal and the setting aside of the Decision3 dated 17
October 2001 and the Resolution4 dated 8 May 2002 of the Court of
Appeals in CA-G.R. SP No. 63733. The appellate court, in its assailed

Decision and Resolution, reversed the Decision5 of the Regional Trial Court
(RTC) of Quezon City, Branch 88, affirming the Decision6 of the
Metropolitan Trial Court (MeTC) of Quezon City, Branch 32, which dismissed
respondent Ernesto Aures (Aure) complaint for ejectment on the ground,
inter alia, of failure to comply with barangay conciliation proceedings.

The subject of the present controversy is a parcel of land situated in Roxas

District, Quezon City, with an area of 449 square meters and covered by
Transfer Certificate of Title (TCT) No. 205447 registered with the Registry
of Deeds of Quezon City (subject property).7

Aure and E.S. Aure Lending Investors, Inc. (Aure Lending) filed a
Complaint for ejectment against Aquino before the MeTC docketed as Civil
Case No. 17450. In their Complaint, Aure and Aure Lending alleged that
they acquired the subject property from Aquino and her husband Manuel
(spouses Aquino) by virtue of a Deed of Sale8 executed on 4 June 1996.
Aure claimed that after the spouses Aquino received substantial
consideration for the sale of the subject property, they refused to vacate
the same.9

In her Answer,10 Aquino countered that the Complaint in Civil Case No.
17450 lacks cause of action for Aure and Aure Lending do not have any
legal right over the subject property. Aquino admitted that there was a sale
but such was governed by the Memorandum of Agreement11 (MOA) signed
by Aure. As stated in the MOA, Aure shall secure a loan from a bank or
financial institution in his own name using the subject property as collateral
and turn over the proceeds thereof to the spouses Aquino. However, even
after Aure successfully secured a loan, the spouses Aquino did not receive
the proceeds thereon or benefited therefrom.

On 20 April 1999, the MeTC rendered a Decision in Civil Case No. 17450 in
favor of Aquino and dismissed the Complaint for ejectment of Aure and
Aure Lending for non-compliance with the barangay conciliation process,
among other grounds. The MeTC observed that Aure and Aquino are
residents of the same barangay but there is no showing that any attempt
has been made to settle the case amicably at the barangay level. The MeTC
further observed that Aure Lending was improperly included as plaintiff in
Civil Case No. 17450 for it did not stand to be injured or benefited by the

suit. Finally, the MeTC ruled that since the question of ownership was put in
issue, the action was converted from a mere detainer suit to one "incapable
of pecuniary estimation" which properly rests within the original exclusive
jurisdiction of the RTC. The dispositive portion of the MeTC Decision reads:

WHEREFORE, premises considered, let this case be, as it is, hereby ordered
DISMISSED. [Aquinos] counterclaim is likewise dismissed.12

On appeal, the RTC affirmed the dismissal of the Complaint on the same
ground that the dispute was not brought before the Barangay Council for
conciliation before it was filed in court. In a Decision dated 14 December
2000, the RTC stressed that the barangay conciliation process is a conditio
sine qua non for the filing of an ejectment complaint involving residents of
the same barangay, and failure to comply therewith constitutes sufficient
cause for the dismissal of the action. The RTC likewise validated the ruling
of the MeTC that the main issue involved in Civil Case No. 17450 is
incapable of pecuniary estimation and cognizable by the RTC. Hence, the
RTC ruled:

WHEREFORE, finding no reversible error in the appealed judgment, it is

hereby affirmed in its entirety.13

Aures Motion for Reconsideration was denied by the RTC in an Order14

dated 27 February 2001.

Undaunted, Aure appealed the adverse RTC Decision with the Court of
Appeals arguing that the lower court erred in dismissing his Complaint for
lack of cause of action. Aure asserted that misjoinder of parties was not a
proper ground for dismissal of his Complaint and that the MeTC should
have only ordered the exclusion of Aure Lending as plaintiff without
prejudice to the continuation of the proceedings in Civil Case No. 17450
until the final determination thereof. Aure further asseverated that mere
allegation of ownership should not divest the MeTC of jurisdiction over the
ejectment suit since jurisdiction over the subject matter is conferred by law
and should not depend on the defenses and objections raised by the
parties. Finally, Aure contended that the MeTC erred in dismissing his
Complaint with prejudice on the ground of non-compliance with barangay

conciliation process. He was not given the opportunity to rectify the

procedural defect by going through the barangay mediation proceedings
and, thereafter, refile the Complaint.15

On 17 October 2001, the Court of Appeals rendered a Decision, reversing

the MeTC and RTC Decisions and remanding the case to the MeTC for
further proceedings and final determination of the substantive rights of the
parties. The appellate court declared that the failure of Aure to subject the
matter to barangay conciliation is not a jurisdictional flaw and it will not
affect the sufficiency of Aures Complaint since Aquino failed to seasonably
raise such issue in her Answer. The Court of Appeals further ruled that
mere allegation of ownership does not deprive the MeTC of jurisdiction over
the ejectment case for jurisdiction over the subject matter is conferred by
law and is determined by the allegations advanced by the plaintiff in his
complaint. Hence, mere assertion of ownership by the defendant in an
ejectment case will not oust the MeTC of its summary jurisdiction over the
same. The decretal part of the Court of Appeals Decision reads:

WHEREFORE, premises considered, the petition is hereby GRANTED - and

the decisions of the trial courts below REVERSED and SET ASIDE. Let the
records be remanded back to the court a quo for further proceedings for
an eventual decision of the substantive rights of the disputants.16

In a Resolution dated 8 May 2002, the Court of Appeals denied the Motion
for Reconsideration interposed by Aquino for it was merely a rehash of the
arguments set forth in her previous pleadings which were already
considered and passed upon by the appellate court in its assailed Decision.

Aquino is now before this Court via the Petition at bar raising the following
issues:

I.

WHETHER OR NOT NON-COMPLIANCE WITH THE BARANGAY

CONCILIATION PROCEEDINGS IS A JURISDICTIONAL DEFECT THAT
WARRANTS THE DISMISSAL OF THE COMPLAINT.

II.

WHETHER OR NOT ALLEGATION OF OWNERSHIP OUSTS THE MeTC OF ITS

JURISDICTION OVER AN EJECTMENT CASE.

The barangay justice system was established primarily as a means of

easing up the congestion of cases in the judicial courts. This could be
accomplished through a proceeding before the barangay courts which,
according to the conceptor of the system, the late Chief Justice Fred Ruiz
Castro, is essentially arbitration in character, and to make it truly effective,
it should also be compulsory. With this primary objective of the barangay
justice system in mind, it would be wholly in keeping with the underlying
philosophy of Presidential Decree No. 1508, otherwise known as the
Katarungang Pambarangay Law, and the policy behind it would be better
served if an out-of-court settlement of the case is reached voluntarily by
the parties.17

The primordial objective of Presidential Decree No. 1508 is to reduce the

number of court litigations and prevent the deterioration of the quality of
justice which has been brought by the indiscriminate filing of cases in the
courts.18 To ensure this objective, Section 6 of Presidential Decree No.
150819 requires the parties to undergo a conciliation process before the
Lupon Chairman or the Pangkat ng Tagapagkasundo as a precondition to
filing a complaint in court subject to certain exceptions20 which are
inapplicable to this case. The said section has been declared compulsory in
nature.21

Presidential Decree No. 1508 is now incorporated in Republic Act No. 7160,
otherwise known as The Local Government Code, which took effect on 1
January 1992.

The pertinent provisions of the Local Government Code making conciliation

a precondition to filing of complaints in court, read:

SEC. 412. Conciliation.- (a) Pre-condition to filing of complaint in court.

No complaint, petition, action, or proceeding involving any matter within
the authority of the lupon shall be filed or instituted directly in court or any
other government office for adjudication, unless there has been a
confrontation between the parties before the lupon chairman or the
pangkat, and that no conciliation or settlement has been reached as
certified by the lupon secretary or pangkat secretary as attested to by the
lupon chairman or pangkat chairman or unless the settlement has been
repudiated by the parties thereto.

(b) Where parties may go directly to court. The parties may go directly to
court in the following instances:

(1) Where the accused is under detention;

(2) Where a person has otherwise been deprived of personal liberty calling
for habeas corpus proceedings;

(3) Where actions are coupled with provisional remedies such as

preliminary injunction, attachment, delivery of personal property, and
support pendente lite; and

(4) Where the action may otherwise be barred by the statute of limitations.

(c) Conciliation among members of indigenous cultural communities. The

customs and traditions of indigenous cultural communities shall be applied
in settling disputes between members of the cultural communities.

SEC. 408. Subject Matter for Amicable Settlement; Exception Therein.

The lupon of each barangay shall have authority to bring together the
parties actually residing in the same city or municipality for amicable
settlement of all disputes except:

proceedings was made in Aure and Aure Lendings Complaint before the
MeTC. The only issue to be resolved is whether non-recourse to the
barangay conciliation process is a jurisdictional flaw that warrants the
dismissal of the ejectment suit filed with the MeTC.

(a) Where one party is the government or any subdivision or

instrumentality thereof;

Aquino posits that failure to resort to barangay conciliation makes the

action for ejectment premature and, hence, dismissible. She likewise avers
that this objection was timely raised during the pre-trial and even
subsequently in her Position Paper submitted to the MeTC.

(b) Where one party is a public officer or employee, and the dispute relates
to the performance of his official functions;
We do not agree.
(c) Offenses punishable by imprisonment exceeding one (1) year or a fine
exceeding Five thousand pesos (P5,000.00);

(d) Offenses where there is no private offended party;

(e) Where the dispute involves real properties located in different cities or
municipalities unless the parties thereto agree to submit their differences
to amicable settlement by an appropriate lupon;

(f) Disputes involving parties who actually reside in barangays of different

cities or municipalities, except where such barangay units adjoin each other
and the parties thereto agree to submit their differences to amicable
settlement by an appropriate lupon;

(g) Such other classes of disputes which the President may determine in
the interest of justice or upon the recommendation of the Secretary of
Justice.

There is no dispute herein that the present case was never referred to the
Barangay Lupon for conciliation before Aure and Aure Lending instituted
Civil Case No. 17450. In fact, no allegation of such barangay conciliation

It is true that the precise technical effect of failure to comply with the
requirement of Section 412 of the Local Government Code on barangay
conciliation (previously contained in Section 5 of Presidential Decree No.
1508) is much the same effect produced by non-exhaustion of
administrative remedies -- the complaint becomes afflicted with the vice of
pre-maturity; and the controversy there alleged is not ripe for judicial
determination. The complaint becomes vulnerable to a motion to
dismiss.22 Nevertheless, the conciliation process is not a jurisdictional
requirement, so that non-compliance therewith cannot affect the
jurisdiction which the court has otherwise acquired over the subject matter
or over the person of the defendant.23

As enunciated in the landmark case of Royales v. Intermediate Appellate

Court24:

Ordinarily, non-compliance with the condition precedent prescribed by P.D.

1508 could affect the sufficiency of the plaintiff's cause of action and make
his complaint vulnerable to dismissal on ground of lack of cause of action
or prematurity; but the same would not prevent a court of competent
jurisdiction from exercising its power of adjudication over the case before
it, where the defendants, as in this case, failed to object to such exercise of
jurisdiction in their answer and even during the entire proceedings a quo.

While petitioners could have prevented the trial court from exercising
jurisdiction over the case by seasonably taking exception thereto, they
instead invoked the very same jurisdiction by filing an answer and seeking
affirmative relief from it. What is more, they participated in the trial of the
case by cross-examining respondent Planas. Upon this premise, petitioners
cannot now be allowed belatedly to adopt an inconsistent posture by
attacking the jurisdiction of the court to which they had submitted
themselves voluntarily. x x x (Emphasis supplied.)

In the case at bar, we similarly find that Aquino cannot be allowed to attack
the jurisdiction of the MeTC over Civil Case No. 17450 after having
submitted herself voluntarily thereto. We have scrupulously examined
Aquinos Answer before the MeTC in Civil Case No. 17450 and there is utter
lack of any objection on her part to any deficiency in the complaint which
could oust the MeTC of its jurisdcition.

We thus quote with approval the disquisition of the Court of Appeals:

Moreover, the Court takes note that the defendant [Aquino] herself did not
raise in defense the aforesaid lack of conciliation proceedings in her
answer, which raises the exclusive affirmative defense of simulation. By this
acquiescence, defendant [Aquino] is deemed to have waived such
objection. As held in a case of similar circumstances, the failure of a
defendant [Aquino] in an ejectment suit to specifically allege the fact that
there was no compliance with the barangay conciliation procedure
constitutes a waiver of that defense. x x x.25

By Aquinos failure to seasonably object to the deficiency in the Complaint,

she is deemed to have already acquiesced or waived any defect attendant
thereto. Consequently, Aquino cannot thereafter move for the dismissal of
the ejectment suit for Aure and Aure Lendings failure to resort to the
barangay conciliation process, since she is already precluded from doing
so. The fact that Aquino raised such objection during the pre-trial and in
her Position Paper is of no moment, for the issue of non-recourse to
barangay mediation proceedings should be impleaded in her Answer.

As provided under Section 1, Rule 9 of the 1997 Rules of Civil Procedure:

Sec. 1. Defenses and objections not pleaded. Defenses and objections

not pleaded either in a motion to dismiss or in the answer are deemed
waived. However, when it appears from the pleadings or the evidence on
record that the court has no jurisdiction over the subject matter, that there
is another action pending between the same parties for the same cause, or
that the action is barred by a prior judgment or by statute of limitations,
the court shall dismiss the claim. (Emphasis supplied.)

While the aforequoted provision applies to a pleading (specifically, an

Answer) or a motion to dismiss, a similar or identical rule is provided for all
other motions in Section 8 of Rule 15 of the same Rule which states:

Sec. 8. Omnibus Motion. - Subject to the provisions of Section 1 of Rule 9,

a motion attacking a pleading, order, judgment, or proceeding shall include
all objections then available, and all objections not so included shall be
deemed waived.

The spirit that surrounds the foregoing statutory norm is to require the
party filing a pleading or motion to raise all available exceptions for relief
during the single opportunity so that single or multiple objections may be
avoided.26 It is clear and categorical in Section 1, Rule 9 of the Revised
Rules of Court that failure to raise defenses and objections in a motion to
dismiss or in an answer is deemed a waiver thereof; and basic is the rule in
statutory construction that when the law is clear and free from any doubt
or ambiguity, there is no room for construction or interpretation.27 As has
been our consistent ruling, where the law speaks in clear and categorical
language, there is no occasion for interpretation; there is only room for
application.28 Thus, although Aquinos defense of non-compliance with
Presidential Decree No. 1508 is meritorious, procedurally, such defense is
no longer available for failure to plead the same in the Answer as required
by the omnibus motion rule.

Neither could the MeTC dismiss Civil Case No. 17450 motu proprio. The
1997 Rules of Civil Procedure provide only three instances when the court
may motu proprio dismiss the claim, and that is when the pleadings or
evidence on the record show that (1) the court has no jurisdiction over the

subject matter; (2) there is another cause of action pending between the
same parties for the same cause; or (3) where the action is barred by a
prior judgment or by a statute of limitations. Thus, it is clear that a court
may not motu proprio dismiss a case on the ground of failure to comply
with the requirement for barangay conciliation, this ground not being
among those mentioned for the dismissal by the trial court of a case on its
own initiative.

Aquino further argues that the issue of possession in the instant case
cannot be resolved by the MeTC without first adjudicating the question of
ownership, since the Deed of Sale vesting Aure with the legal right over the
subject property is simulated.

Again, we do not agree. Jurisdiction in ejectment cases is determined by

the allegations pleaded in the complaint. As long as these allegations
demonstrate a cause of action either for forcible entry or for unlawful
detainer, the court acquires jurisdiction over the subject matter. This
principle holds, even if the facts proved during the trial do not support the
cause of action thus alleged, in which instance the court -- after acquiring
jurisdiction -- may resolve to dismiss the action for insufficiency of
evidence.

The necessary allegations in a Complaint for ejectment are set forth in

Section 1, Rule 70 of the Rules of Court, which reads:

SECTION 1. Who may institute proceedings, and when. Subject to the

provisions of the next succeeding section, a person deprived of the
possession of any land or building by force, intimidation, threat, strategy,
or stealth, or a lessor, vendor, vendee, or other person against whom the
possession of any land or building is unlawfully withheld after the
expiration or termination of the right to hold possession, by virtue of any
contract, express or implied, or the legal representatives or assigns of any
such lessor, vendor, vendee, or other person may at any time within one
(1) year after such unlawful deprivation or withholding of possession, bring
an action in the proper Municipal Trial Court against the person or persons
unlawfully withholding or depriving of possession, or any person or persons
claiming under them, for the restitution of such possession, together with
damages and costs.

In the case at bar, the Complaint filed by Aure and Aure Lending on 2 April
1997, alleged as follows:

2. [Aure and Aure Lending] became the owners of a house and lot located
at No. 37 Salazar Street corner Encarnacion Street, B.F. Homes, Quezon
City by virtue of a deed of absolute sale executed by [the spouses Aquino]
in favor of [Aure and Aure Lending] although registered in the name of x x
x Ernesto S. Aure; title to the said property had already been issued in the
name of [Aure] as shown by a transfer Certificate of Title , a copy of which
is hereto attached and made an integral part hereof as Annex A;

3. However, despite the sale thus transferring ownership of the subject

premises to [Aure and Aure Lending] as above-stated and consequently
terminating [Aquinos] right of possession over the subject property,
[Aquino] together with her family, is continuously occupying the subject
premises notwithstanding several demands made by [Aure and Aure
Lending] against [Aquino] and all persons claiming right under her to
vacate the subject premises and surrender possession thereof to [Aure and
Aure Lending] causing damage and prejudice to [Aure and Aure Lending]
and making [Aquinos] occupancy together with those actually occupying
the subject premises claiming right under her, illegal.29

It can be inferred from the foregoing that Aure, together with Aure
Lending, sought the possession of the subject property which was never
surrendered by Aquino after the perfection of the Deed of Sale, which gives
rise to a cause of action for an ejectment suit cognizable by the MeTC.
Aures assertion of possession over the subject property is based on his
ownership thereof as evidenced by TCT No. 156802 bearing his name. That
Aquino impugned the validity of Aures title over the subject property and
claimed that the Deed of Sale was simulated should not divest the MeTC of
jurisdiction over the ejectment case.30

As extensively discussed by the eminent jurist Florenz D. Regalado in

Refugia v. Court of Appeals31:

As the law on forcible entry and unlawful detainer cases now stands, even
where the defendant raises the question of ownership in his pleadings and
the question of possession cannot be resolved without deciding the issue of
ownership, the Metropolitan Trial Courts, Municipal Trial Courts, and
Municipal Circuit Trial Courts nevertheless have the undoubted competence
to resolve the issue of ownership albeit only to determine the issue of
possession.

x x x. The law, as revised, now provides instead that when the question of
possession cannot be resolved without deciding the issue of ownership, the
issue of ownership shall be resolved only to determine the issue of
possession. On its face, the new Rule on Summary Procedure was
extended to include within the jurisdiction of the inferior courts ejectment
cases which likewise involve the issue of ownership. This does not mean,
however, that blanket authority to adjudicate the issue of ownership in
ejectment suits has been thus conferred on the inferior courts.

At the outset, it must here be stressed that the resolution of this particular
issue concerns and applies only to forcible entry and unlawful detainer
cases where the issue of possession is intimately intertwined with the issue
of ownership. It finds no proper application where it is otherwise, that is,
where ownership is not in issue, or where the principal and main issue
raised in the allegations of the complaint as well as the relief prayed for
make out not a case for ejectment but one for recovery of ownership.

Apropos thereto, this Court ruled in Hilario v. Court of Appeals32:

Thus, an adjudication made therein regarding the issue of ownership

should be regarded as merely provisional and, therefore, would not bar or
prejudice an action between the same parties involving title to the land.
The foregoing doctrine is a necessary consequence of the nature of forcible
entry and unlawful detainer cases where the only issue to be settled is the
physical or material possession over the real property, that is, possession
de facto and not possession de jure."

In other words, inferior courts are now "conditionally vested with

adjudicatory power over the issue of title or ownership raised by the parties

in an ejectment suit." These courts shall resolve the question of ownership

raised as an incident in an ejectment case where a determination thereof is
necessary for a proper and complete adjudication of the issue of
possession.33

WHEREFORE, premises considered, the instant Petition is DENIED. The

Court of Appeals Decision dated 17 October 2001 and its Resolution dated
8 May 2002 in CA-G.R. SP No. 63733 are hereby AFFIRMED. Costs against
the petitioner.
SO ORDERED.

Katarungan Pambarangay: Exceptions to Referral

to Katarungang Pambarangay Law

Sanbanun v. Go, February 2, 2010

This petition for review on certiorari[1] assails the 30 September 2003
Decision[2] and the 18 March 2004 Resolution[3] of the Court of Appeals in
CA-G.R. CV No. 67836.
The Facts
Petitioner Doris U. Sunbanun is the owner of a residential house located at
No. 68-F Junquera Street, Cebu City. On 7 July 1995, respondent Aurora B.
Go leased the entire ground floor of petitioners residential house for one
year which was to expire on 7 July 1996. As required under the lease
contract, respondent paid a deposit of P16,000 to answer for damages and
unpaid rent. To earn extra income, respondent accepted lodgers, mostly
her relatives, from whom she received a monthly income of P15,000.
Respondent paid the monthly rental until March 1996 when petitioner drove
away respondents lodgers by telling them that they could stay on the
rented premises only until 15 April 1996 since she was terminating the
lease. The lodgers left the rented premises by 15 April 1996, and petitioner
then padlocked the rooms vacated by respondents lodgers.
On 10 May 1996, respondent filed an action for damages against petitioner.
Respondent alleged that she lost her income from her lodgers for the
months of April, May, and June 1996 totaling P45,000. Respondent, who
worked in Hongkong, also incurred expenses for plane fares and other
travel expenses in coming to the Philippines and returning to Hongkong.

On the other hand, petitioner argued that respondent violated the lease
contract when she subleased the rented premises. Besides, the lease
contract was not renewed after its expiration on 7 July 1996; thus,
respondent had no more right to stay in the rented premises. Petitioner
also moved to dismiss the complaint in the trial court for failure to comply
with prior barangay conciliation.

3. P50,000.00 as exemplary damages;

4. P8,000.00 as Attorneys Fees;
5. Cost of the suit.
SO ORDERED.[5]

The Court of Appeals Ruling

During the pre-trial, petitioner moved for the case to be submitted for
judgment on the pleadings considering that the only disagreement between
the parties was the correct interpretation of the lease contract. Respondent
did not object to petitioners motion. The trial court then directed the
parties to submit their respective memoranda, after which the case would
be considered submitted for decision.[4]
In its decision dated 28 March 2000, the trial court held that the case is not
covered by the barangay conciliation process since respondent is a resident
of Hongkong. The trial court noted that petitioner did not controvert
respondents allegation that petitioner ejected respondents lodgers
sometime in March 1996 even if the contract of lease would expire only on
7 July 1996. The trial court found untenable petitioners contention that
subleasing the rented premises violated the lease contract. The trial court
held that respondents act of accepting lodgers was in accordance with the
lease contract which allows the lessee to use the premises as a dwelling or
as lodging house. Thus, the trial court ordered petitioner to pay respondent
actual damages of P45,000 for respondents lost income from her lodgers
for the months of April, May, and June 1996, and attorneys fees of P8,000.
Both parties appealed before the Court of Appeals. On 30 September 2003,
the Court of Appeals rendered its decision in favor of respondent and
modified the trial courts decision. Aside from actual damages and attorneys
fees, the Court of Appeals also ordered petitioner to pay moral and
exemplary damages and the cost of the suit. The dispositive portion of the
Court of Appeals decision reads:

The Court of Appeals held that petitioners act of forcibly ejecting

respondents lodgers three months prior to the termination of the lease
contract without valid reason constitutes breach of contract. Petitioner also
violated Article 1654 of the Civil Code which states that the lessor is
obliged to maintain the lessee in the peaceful and adequate enjoyment of
the lease for the duration of the contract. The Court of Appeals awarded
P50,000 as moral damages to respondent for breach of contract and for
petitioners act of pre-terminating the lease contract without valid reason,
which shows bad faith on the part of petitioner. The Court of Appeals also
awarded respondent P50,000 as exemplary damages for petitioners
oppressive act.
The Issues
Petitioner raises the following issues:
I. THE COURT OF APPEALS ERRED IN AFFIRMING THE AWARD OF ACTUAL
DAMAGES BY THE TRIAL COURT.
II. THE COURT OF APPEALS ERRED IN MODIFYING THE JUDGMENT OF THE
TRIAL COURT AND AWARDING MORAL AND EXEMPLARY DAMAGES AND
COSTS OF SUIT IN FAVOR OF RESPONDENT.
III. THE COURT OF APPEALS ERRED IN AFFIRMING THE AWARD OF
ATTORNEYS FEES IN FAVOR OF RESPONDENT.[6]

WHEREFORE, premises considered, the assailed Decision of the trial court

is hereby MODIFIED by ordering defendant-appellant [Doris U. Sunbanun]
to pay plaintiff-appellant [Aurora B. Go] the following amounts:

The Ruling of the Court

1. P45,000.00 as compensation for actual damages;

We find the petition without merit.

2. P50,000.00 as moral damages;

In this case, the trial court rendered a judgment on the pleadings. Section
1, Rule 34 of the Rules of Court reads:
SECTION 1. Judgment on the pleadings. Where an answer fails to tender
an issue, or otherwise admits the material allegations of the adverse partys
pleading, the court may, on motion of that party, direct judgment on such
pleading. However, in actions for declaration of nullity or annulment of
marriage or for legal separation, the material facts alleged in the complaint
shall always be proved.

The trial court has the discretion to grant a motion for judgment on the
pleadings filed by a party if there is no controverted matter in the case
after the answer is filed.[7] A judgment on the pleadings is a judgment on
the facts as pleaded,[8] and is based exclusively upon the allegations
appearing in the pleadings of the parties and the accompanying annexes.
This case is unusual because it was petitioner, and not the claimant
respondent, who moved for a judgment on the pleadings during the pretrial. This is clear from the trial courts Order[9] dated 7 October 1997
which reads:
ORDER
When this case was called for pre-trial, parties appeared together with
counsel. Defendant [Doris U. Sunbanun] moved that considering that there
is no dispute as far as the contract is concerned and the only disagreement
between the parties is on the interpretation of the contract so that the
issue boils down on to which of the parties are correct on their
interpretation. With the conformity of the plaintiff [Aurora B. Go], this case
is therefore considered closed and submitted for judgment on the
pleadings. x x x (Emphasis supplied

his own allegations with respect to the damages claimed by him, and gave
no opportunity for the appellant to introduce evidence to refute his claims.
We find this objection without merit. It appears that when the plaintiff
moved to have the case decided on the pleadings, the defendant
interposed no objection and has practically assented thereto. The
defendant, therefore, is deemed to have admitted the allegations of fact of
the complaint, so that there was no necessity for plaintiff to submit
evidence of his claim.
In this case, it is undisputed that petitioner ejected respondents lodgers
three months before the expiration of the lease contract on 7 July 1996.
Petitioner maintains that she had the right to terminate the contract prior
to its expiration because respondent allegedly violated the terms of the
lease contract by subleasing the rented premises. Petitioners assertion is
belied by the provision in the lease contract[12] which states that the
lessee can use the premises as a dwelling or as lodging house. Furthermore
the lease contract clearly provides that petitioner leased to respondent the
ground floor of her residential house for a term of one year commencing
from 7 July 1995. Thus, the lease contract would expire only on 7 July
1996. However, petitioner started ejecting respondents lodgers in March
1996 by informing them that the lease contract was only until 15 April
1996. Clearly, petitioners act of ejecting respondents lodgers resulted in
respondent losing income from her lodgers. Hence, it was proper for the
trial court and the appellate court to order petitioner to pay respondent
actual damages in the amount of P45,000.
We likewise sustain the award of moral damages in favor of respondent. In
this case, moral damages may be recovered under Article 2219 and Article
2220 of the Civil Code in relation to Article 21. The pertinent provisions
read:

Petitioner, in moving for a judgment on the pleadings without offering proof

as to the truth of her own allegations and without giving respondent the
opportunity to introduce evidence, is deemed to have admitted the material
and relevant averments of the complaint, and to rest her motion for
judgment based on the pleadings of the parties.[10] As held in Tropical
Homes, Inc. v. CA:[11]

Art. 2219. Moral damages may be recovered in the following and analogous
cases:

As to the amount of damages awarded as a consequence of this violation of

plaintiffs rights, the lower court based its award from the allegations and
prayer contained in the complaint. The defendant, however, questions this
award for the reason that, according to the defendant, the plaintiff, in
moving for judgment on the pleadings, did not offer proof as to the truth of

Art. 2220. Wilfull injury to property may be a legal ground for awarding
moral damages if the court should find that, under the circumstances, such
damages are justly due. The same rule applies to breaches of contract
where the defendant acted fraudulently or in bad faith. (Emphasis supplied)

xxx
(10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34,
and 35.

Miguel v. Montanez, January 25, 2012

Art. 21. Any person who wilfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage.

Before this Court is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court. Petitioner Crisanta Alcaraz Miguel (Miguel) seeks the
reversal and setting aside of the September 17, 2009 Decision[1] and
February 11, 2010 Resolution[2] of the Court of Appeals (CA) in CA-G.R.
SP No. 100544, entitled Jerry D. Montanez v. Crisanta Alcaraz Miguel.

Antecedent Facts
We agree with the appellate court that petitioners act of ejecting
respondents lodgers three months before the lease contract expired
without valid reason constitutes bad faith. What aggravates the situation
was that petitioner did not inform respondent, who was then working in
Hongkong, about petitioners plan to pre-terminate the lease contract and
evict respondents lodgers. Moral damages may be awarded when the
breach of contract was attended with bad faith.[13]

Furthermore, we affirm the award of exemplary damages and attorneys

fees. Exemplary damages may be awarded when a wrongful act is
accompanied by bad faith or when the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner which would justify
an award of exemplary damages under Article 2232[14] of the Civil Code.
[15] Since the award of exemplary damages is proper in this case,
attorneys fees and cost of the suit may also be recovered as provided
under Article 2208[16] of the Civil Code.[17]
WHEREFORE, the Court DENIES the petition. The Court AFFIRMS the 30
September 2003 Decision and the 18 March 2004 Resolution of the Court
of Appeals in CA-G.R. CV No. 67836.

SO ORDERED.

o
o

Effect of Non-Compliance with Katarungan

Pambarangay Law
Effect of Amicable Settlement at the Barangay
Level

On February 1, 2001, respondent Jerry Montanez (Montanez) secured a

loan of One Hundred Forty-Three Thousand Eight Hundred Sixty-Four Pesos
(P143,864.00), payable in one (1) year, or until February 1, 2002, from the
petitioner. The respondent gave as collateral therefor his house and lot
located at Block 39 Lot 39 Phase 3, Palmera Spring, Bagumbong, Caloocan
City.

Due to the respondents failure to pay the loan, the petitioner filed a
complaint against the respondent before the Lupong Tagapamayapa of
Barangay San Jose, Rodriguez, Rizal. The parties entered into a
Kasunduang Pag-aayos wherein the respondent agreed to pay his loan in
installments in the amount of Two Thousand Pesos (P2,000.00) per month,
and in the event the house and lot given as collateral is sold, the
respondent would settle the balance of the loan in full. However, the
respondent still failed to pay, and on December 13, 2004, the Lupong
Tagapamayapa issued a certification to file action in court in favor of the
petitioner.

On April 7, 2005, the petitioner filed before the Metropolitan Trial Court
(MeTC) of Makati City, Branch 66, a complaint for Collection of Sum of
Money. In his Answer with Counterclaim,[3] the respondent raised the
defense of improper venue considering that the petitioner was a resident of
Bagumbong, Caloocan City while he lived in San Mateo, Rizal.

After trial, on August 16, 2006, the MeTC rendered a Decision,[4] which
disposes as follows:

WHEREFORE, premises considered[,] judgment is hereby rendered ordering

defendant Jerry D. Montanez to pay plaintiff the following:

1. The amount of [Php147,893.00] representing the obligation with legal

rate of interest from February 1, 2002 which was the date of the loan
maturity until the account is fully paid;

2. The amount of Php10,000.00 as and by way of attorneys fees; and the

costs.

Dissatisfied, the respondent appealed to the CA raising two issues, namely,

(1) whether or not venue was improperly laid, and (2) whether or not the
Kasunduang Pag-aayos effectively novated the loan agreement. On
September 17, 2009, the CA rendered the assailed Decision, disposing as
follows:

WHEREFORE, premises considered, the petition is hereby GRANTED. The

appealed Decision dated March 14, 2007 of the Regional Trial Court (RTC)
of Makati City, Branch 146, is REVERSED and SET ASIDE. A new judgment
is entered dismissing respondents complaint for collection of sum of money,
without prejudice to her right to file the necessary action to enforce the
Kasunduang Pag-aayos.

SO ORDERED.[8]
SO ORDERED. [5]

Anent the issue of whether or not there is novation of the loan

On appeal to the Regional Trial Court (RTC) of Makati City, Branch 146, the
respondent raised the same issues cited in his Answer. In its March 14,
2007 Decision,[6] the RTC affirmed the MeTC Decision, disposing as
follows:

WHEREFORE, finding no cogent reason to disturb the findings of the court a

quo, the appeal is hereby DISMISSED, and the DECISION appealed from is
hereby AFFIRMED in its entirety for being in accordance with law and
evidence.

SO ORDERED.[7]

contract, the CA ruled in the negative. It ratiocinated as follows:

Judging from the terms of the Kasunduang Pag-aayos, it is clear that no

novation of the old obligation has taken place. Contrary to petitioners
assertion, there was no reduction of the term or period originally
stipulated. The original period in the first agreement is one (1) year to be
counted from February 1, 2001, or until January 31, 2002. When the
complaint was filed before the barangay on February 2003, the period of
the original agreement had long expired without compliance on the part of
petitioner. Hence, there was nothing to reduce or extend. There was only a
change in the terms of payment which is not incompatible with the old
agreement. In other words, the Kasunduang Pag-aayos merely
supplemented the old agreement.[9]

Perforce, the complaint for collection of sum of money is the proper

remedy.
The CA went on saying that since the parties entered into a Kasunduang
Pag-aayos before the Lupon ng Barangay, such settlement has the force
and effect of a court judgment, which may be enforced by execution within
six (6) months from the date of settlement by the Lupon ng Barangay, or
by court action after the lapse of such time.[10] Considering that more
than six (6) months had elapsed from the date of settlement, the CA ruled
that the remedy of the petitioner was to file an action for the execution of
the Kasunduang Pag-aayos in court and not for collection of sum of money.
[11] Consequently, the CA deemed it unnecessary to resolve the issue on
venue.[12]

The petitioner now comes to this Court.

Issues

(1) Whether or not a complaint for sum of money is the proper remedy for
the petitioner, notwithstanding the Kasunduang Pag-aayos;[13] and

(2) Whether or not the CA should have decided the case on the merits
rather than remand the case for the enforcement of the Kasunduang Pagaayos.[14]

The petitioner contends that the CA erred in ruling that she should have
followed the procedure for enforcement of the amicable settlement as
provided in the Revised Katarungang Pambarangay Law, instead of filing a
collection case. The petitioner points out that the cause of action did not
arise from the Kasunduang Pag-aayos but on the respondents breach of the
original loan agreement.[15]

This Court agrees with the petitioner.

It is true that an amicable settlement reached at the barangay conciliation

proceedings, like the Kasunduang Pag-aayos in this case, is binding
between the contracting parties and, upon its perfection, is immediately
executory insofar as it is not contrary to law, good morals, good
customs, public order and public policy.[16] This is in accord with the broad
precept of Article 2037 of the Civil Code, viz:

A compromise has upon the parties the effect and authority of res judicata;
but there shall be no execution except in compliance with a judicial
compromise.

Our Ruling

Because the respondent failed to comply with the terms of the Kasunduang
Pag-aayos, said agreement is deemed rescinded pursuant to Article 2041 of
the New Civil Code and the petitioner can insist on his original demand.

Being a by-product of mutual concessions and good faith of the parties, an

amicable settlement has the force and effect of res judicata even if not
judicially approved.[17] It transcends being a mere contract binding only
upon the parties thereto, and is akin to a judgment that is subject to
execution in accordance with the Rules.[18] Thus, under Section 417 of the
Local Government Code,[19] such amicable settlement or arbitration award
may be enforced by execution by the Barangay Lupon within six (6)

months from the date of settlement, or by filing an action to enforce such

settlement in the appropriate city or municipal court, if beyond the sixmonth period.

Under the first remedy, the proceedings are covered by the Local
Government Code and the Katarungang Pambarangay Implementing Rules
and Regulations. The Punong Barangay is called upon during the hearing to
determine solely the fact of non-compliance of the terms of the settlement
and to give the defaulting party another chance at voluntarily complying
with his obligation under the settlement. Under the second remedy, the
proceedings are governed by the Rules of Court, as amended. The cause of
action is the amicable settlement itself, which, by operation of law, has the
force and effect of a final judgment.[20]

It must be emphasized, however, that enforcement by execution of the

amicable settlement, either under the first or the second remedy, is only
applicable if the contracting parties have not repudiated such settlement
within ten (10) days from the date thereof in accordance with Section 416
of the Local Government Code. If the amicable settlement is repudiated by
one party, either expressly or impliedly, the other party has two options,
namely, to enforce the compromise in accordance with the Local
Government Code or Rules of Court as the case may be, or to consider it
rescinded and insist upon his original demand. This is in accord with Article
2041 of the Civil Code, which qualifies the broad application of Article
2037, viz:

If one of the parties fails or refuses to abide by the compromise, the other
party may either enforce the compromise or regard it as rescinded and
insist upon his original demand.

In the case of Leonor v. Sycip,[21] the Supreme Court (SC) had the
occasion to explain this provision of law. It ruled that Article 2041 does not
require an action for rescission, and the aggrieved party, by the breach of
compromise agreement, may just consider it already rescinded, to wit:

It is worthy of notice, in this connection, that, unlike Article 2039 of the

same Code, which speaks of "a cause of annulment or rescission of the
compromise" and provides that "the compromise may be annulled or
rescinded" for the cause therein specified, thus suggesting an action for
annulment or rescission, said Article 2041 confers upon the party
concerned, not a "cause" for rescission, or the right to "demand" the
rescission of a compromise, but the authority, not only to "regard it as
rescinded", but, also, to "insist upon his original demand". The language of
this Article 2041, particularly when contrasted with that of Article 2039,
denotes that no action for rescission is required in said Article 2041, and
that the party aggrieved by the breach of a compromise agreement may, if
he chooses, bring the suit contemplated or involved in his original demand,
as if there had never been any compromise agreement, without bringing an
action for rescission thereof. He need not seek a judicial declaration of
rescission, for he may "regard" the compromise agreement already
"rescinded".[22] (emphasis supplied)

As so well stated in the case of Chavez v. Court of Appeals,[23] a party's

non-compliance with the amicable settlement paved the way for the
application of Article 2041 under which the other party may either enforce
the compromise, following the procedure laid out in the Revised
Katarungang Pambarangay Law, or consider it as rescinded and insist upon
his original demand. To quote:

In the case at bar, the Revised Katarungang Pambarangay Law provides for
a two-tiered mode of enforcement of an amicable settlement, to wit: (a) by
execution by the Punong Barangay which is quasi-judicial and summary in
nature on mere motion of the party entitled thereto; and (b) an action in
regular form, which remedy is judicial. However, the mode of enforcement
does not rule out the right of rescission under Art. 2041 of the Civil Code.
The availability of the right of rescission is apparent from the wording of
Sec. 417 itself which provides that the amicable settlement "may" be
enforced by execution by the lupon within six (6) months from its date or
by action in the appropriate city or municipal court, if beyond that period.
The use of the word "may" clearly makes the procedure provided in the

Revised Katarungang Pambarangay Law directory or merely optional in

nature.

Thus, although the "Kasunduan" executed by petitioner and respondent

before the Office of the Barangay Captain had the force and effect of a final
judgment of a court, petitioner's non-compliance paved the way for the
application of Art. 2041 under which respondent may either enforce the
compromise, following the procedure laid out in the Revised Katarungang
Pambarangay Law, or regard it as rescinded and insist upon his original
demand. Respondent chose the latter option when he instituted Civil Case
No. 5139-V-97 for recovery of unrealized profits and reimbursement of
advance rentals, moral and exemplary damages, and attorney's fees.
Respondent was not limited to claiming P150,000.00 because although he
agreed to the amount in the "Kasunduan," it is axiomatic that a
compromise settlement is not an admission of liability but merely a
recognition that there is a dispute and an impending litigation which the
parties hope to prevent by making reciprocal concessions, adjusting their
respective positions in the hope of gaining balanced by the danger of
losing. Under the "Kasunduan," respondent was only required to execute a
waiver of all possible claims arising from the lease contract if petitioner
fully complies with his obligations thereunder. It is undisputed that herein
petitioner did not.[24] (emphasis supplied and citations omitted)

In the instant case, the respondent did not comply with the terms and
conditions of the Kasunduang Pag-aayos. Such non-compliance may be
construed as repudiation because it denotes that the respondent did not
intend to be bound by the terms thereof, thereby negating the very
purpose for which it was executed. Perforce, the petitioner has the option
either to enforce the Kasunduang Pag-aayos, or to regard it as rescinded
and insist upon his original demand, in accordance with the provision of
Article 2041 of the Civil Code. Having instituted an action for collection of
sum of money, the petitioner obviously chose to rescind the Kasunduang
Pag-aayos. As such, it is error on the part of the CA to rule that
enforcement by execution of said agreement is the appropriate remedy
under the circumstances.

Considering that the Kasunduang Pag-aayos is deemed rescinded by the

non-compliance of the respondent of the terms thereof, remanding the
case to the trial court for the enforcement of said agreement is clearly
unwarranted.

The petitioner avers that the CA erred in remanding the case to the
trial court for the enforcement of the Kasunduang Pag-aayos as it
prolonged the process, thereby putting off the case in an indefinite
pendency.[25] Thus, the petitioner insists that she should be allowed to
ventilate her rights before this Court and not to repeat the same
proceedings just to comply with the enforcement of the Kasunduang Pagaayos, in order to finally enforce her right to payment.[26]

The CA took off on the wrong premise that enforcement of the Kasunduang
Pag-aayos is the proper remedy, and therefore erred in its conclusion that
the case should be remanded to the trial court. The fact that the petitioner
opted to rescind the Kasunduang Pag-aayos means that she is insisting
upon the undertaking of the respondent under the original loan contract.
Thus, the CA should have decided the case on the merits, as an appeal
before it, and not prolong the determination of the issues by remanding it
to the trial court. Pertinently, evidence abounds that the respondent has
failed to comply with his loan obligation. In fact, the Kasunduang Pagaayos is the well nigh incontrovertible proof of the respondents
indebtedness with the petitioner as it was executed precisely to give the
respondent a second chance to make good on his undertaking. And since
the respondent still reneged in paying his indebtedness, justice demands
that he must be held answerable therefor.

WHEREFORE, the petition is GRANTED. The assailed decision of the Court

of Appeals is SET ASIDE and the Decision of the Regional Trial Court,
Branch 146, Makati City, dated March 14, 2007 is REINSTATED.

SO ORDERED.

Execution and Repudiation of Amicable

Settlement
Vidal et al., v. Escueta, December 10, 2003
o

This is a petition for review of the Decision[1] dated July 23, 2002 of the
Court of Appeals in CA-G.R. SP NO. 68895 which affirmed the decision[2]
of the Regional Trial Court (RTC) of Mandaluyong City, Branch 208, which
reversed and set aside the decision[3] of the Metropolitan Trial Court of
Mandaluyong City (MTC), Branch 60; and granted the motion for execution
filed by private respondent Ma. Teresa O. Escueta in Civil Case No. 17520.

The petition at bar stemmed from the following antecedents:

When Abelardo Escueta died intestate on December 3, 1994, he was

survived by his widow Remedios Escueta and their six children, including
Ma. Teresa O. Escueta and her brother Herman O. Escueta. Part of his
estate was a parcel of land located at No. 14 Sierra Madre corner Kanlaon
Streets, Barangay Highway Hills, Mandaluyong City, covered by Transfer
Certificate of Title (TCT) No. (77083) - 27568, and the house thereon. The
property was leased to Rainier Llanera, who sublet the same to 25 persons.
The heirs executed an extra-judicial settlement of estate over the property.
They also executed a special power of attorney authorizing Ma. Teresa
Escueta to sell the said property.[4]

Sometime in 1999, Ma. Teresa Escueta, as a co-owner of the property, filed

an ejectment case against Llanera and the sub-lessees before the Lupon of
Barangay Highway Hills, docketed as Barangay Case No. 99-09.[5]

In the meantime, on April 15, 1999, the heirs of Abelardo Escueta executed
a deed of conditional sale[6] over the property including the house
thereon, to Mary Liza Santos for P13,300,000.00 payable as follows:

Down payment ONE MILLION FIVE HUNDRED THOUSAND (P1,500,000.00)

which the HEIRS-SELLERS acknowledged receipt thereof with complete and
full satisfaction;

Second payment - TEN MILLION EIGHT HUNDRED THOUSAND

(P10,800,000.00) after publication of the Extra-Judicial Settlement of the
Estate of the late Abelardo Escueta and payment of the taxes with the
Bureau of Internal Revenue by the Attorney-in-Fact; and

The balance of ONE MILLION (P1,000,000.00) upon vacation of all the

occupants of the subject property within SIX (6) months from date hereof.
[7]

The parties further agreed that:

Ms. Maria Teresa Escueta shall deliver unto the BUYER the Owners
Duplicate Copy of the title upon receipt of the down payment while the
original copies of the Special Power of Attorney shall be delivered upon
payment of the Second Payment stated above.

The ATTORNEY-IN-FACT-SELLER shall be responsible for the ejectment of

all the tenants in the said subject property.

The ATTORNEY-IN-FACT-SELLER shall pay the estate tax, capital gains tax
and documentary stamp tax including the telephone, water and Meralco
bills and the publication for the Extra-Judicial Settlement of the estate of
the late ABELARDO ESCUETA while the registration and transfer fees shall
be shouldered by the BUYER.[8]

On May 5, 1999, Escueta and Llanera, and the sub-lessees, executed an

Amicable Settlement,[9] where they agreed that (a) the owners of the
property would no longer collect the rentals due from the respondents
therein (lessee and sub-lessees) starting May 1999, with the concomitant
obligation of the respondents to vacate the property on or before
December 1999; (b) time was the essence of the agreement, and that
consequently, if the lessee and sub-lessees fail or refuse to vacate the
property on or before December 1999, the barangay chairman was

authorized without any court order to cause the eviction and removal of all
the respondents on the property.[10] The amicable settlement was attested
by Pangkat Chairman Jose Acong. The parties did not repudiate the
amicable settlement within ten days from the execution thereof. Neither did
any of the parties file any petition to repudiate the settlement.

The vendees having paid the down payment and second installment of the
price of the property, the vendors caused the cancellation on December 17,
1999, of TCT No. 27568 and the issuance of TCT No. 15324 to and under
the names of the vendees Mary Liza Santos, Susana Lim and Johnny Lim.
[11] However, Escueta and the other vendors had yet to receive the
balance of the purchase price of P1,000,000.00 because the respondents
were still in the property.

Llanera vacated the leased premises. Later, twenty of the sub-lessees also
vacated the property. By January 2000, five sub-lessees, namely, Ma.
Teresa Vidal, Lulu Marquez, Marcelo Trinidad, Carlos Sobremonte,[12] and
Jingkee Ang remained in the property, and requested Escueta for
extensions to vacate the property. Escueta agreed, but despite the lapse of
the extensions granted them, the five sub-lessees refused to vacate the
property.

Escueta opted not to have the sub-lessees evicted through the Punong
Barangay as provided for in the amicable settlement. Neither did she file a
motion with the Punong Barangay for the enforcement of the settlement.
Instead, she filed on May 12, 2000, a verified Motion for Execution against
the recalcitrant sub-lessees with the MTC for the enforcement of the
amicable settlement and the issuance of a writ of execution. The pleading
was docketed as Civil Case No. 17520, with Teresa Escueta as plaintiff, and
the sub-lessees as defendants.[13]

They also contended that the plaintiff came to court with unclean hands, as
the property had been sold by the co-owners thereof on June 8, 1999,
without notifying them. The real parties-in-interest as plaintiffs, would be
the new owners of the property, and not the Escuetas. The defendants
further asserted that the amicable settlement was not elevated to or
approved by the MTC as required by Section 419 of the Local Government
Code (LGC), nor approved by a competent court; hence, there was no
judgment to enforce by a new motion for a writ of execution. As such, the
plaintiffs motion was premature and procedurally improper. The defendants
asserted that the plaintiff must first secure a certification to file action from
the barangay and thereafter, file an action for ejectment against them as
required by Section 417 of the LGC. The amicable settlement of the parties
before the Lupon cannot be a substitute for an action for ejectment. Finally,
they averred that they had been sub-lessees for more than ten years
already; hence, had the right of first refusal under Section 6 of the Urban
Land Reform Law (P.D. No. 1517). For her part, the plaintiff asserted that
there having been no execution of the amicable settlement on or before
November 6, 1999 by the Lupon, the settlement may now be enforced by
action in the proper city or municipal court.

On February 22, 2001, the court issued an Order[15] denying the Motion
for Execution. The court held that the plaintiff was not the real party-ininterest as the subject property had already been sold and titled to Susana
Lim, Johnny Lim and Mary Liza Santos. Only the vendees had the right to
demand the ejectment of the defendants from the said property. The court
further ruled that the defendants had the right of first refusal to purchase
the property under Presidential Decree No. 1517. The MTC, however, did
not rule on the issue of whether or not the plaintiffs motion for execution
was premature.

Aggrieved, the plaintiff, now the appellant, appealed the order to the RTC
where she contended that:
The defendants opposed the motion[14] alleging that they were enveigled
into executing the amicable settlement despite the fact that they had not
violated any of the terms and conditions of the verbal lease of the
property; they were coerced and forced to enter into such amicable
settlement as it was the only way of prolonging their stay in the leased
premises; and that they had been paying faithfully and religiously the
monthly rentals in advance.

THE METROPOLITAN TRIAL COURT COMMITTED THE REVERSIBLE ERROR

IN FINDING AND IN CONCLUDING THAT PLAINTIFF IS NO LONGER THE
REAL PARTY-IN-INTEREST.

THE METROPOLITAN TRIAL COURT COMMITTED THE REVERSIBLE ERROR

IN FINDING AND IN CONCLUDING THAT DEFENDANTS CANNOT BE
EJECTED AND CAN EXERCISE THE RIGHT OF FIRST REFUSAL.

THE METROPOLITAN TRIAL COURT COMMITTED THE REVERSIBLE ERROR

IN NOT FINDING AND IN NOT MAKING THE CONCLUSION THAT
DEFENDANTS HAVE VIOLATED THE FINAL AND EXECUTORY THE WRITTEN
AMICABLE SETTLEMENT BETWEEN PARTIES EXECUTED IN THEIR
BARANGAY CONFRONTATION.

fourth issues on the ground that the said issues were never raised by the
parties. The decretal portion of the RTC decision reads as follows:

PREMISES CONSIDERED, the appeal is GRANTED. The Order dated

February 2, 2001 issued by the Metropolitan Trial Court of Mandaluyong
City, Branch 60, in Civil Case No. 17520 is hereby REVERSED and SET
ASIDE, and a new one is entered granting the Motion for Execution.

Let the Record of this case be remanded to the court a quo for proper
disposition.
THE METROPOLITAN TRIAL COURT COMMITTED THE REVERSIBLE ERROR
IN NOT ORDERING THE EJECTMENT OF THE DEFENDANTS AND IN NOT
ORDERING SAID DEFENDANTS TO PAY THEIR ARREARAGES IN RENTAL
PAYMENTS FROM MAY 1999 UP TO THE DAY THEY ACTUALLY LEAVE THE
PREMISES AS WELL AS ATTORNEYS FEES AND DAMAGES.[16]

On August 31, 2001, the RTC rendered a decision holding that the plaintiffappellant was still the owner of the property when the ejectment case was
filed in the office of the barangay captain, and, as such, was the real partyin-interest as the plaintiff in the MTC. Moreover, under the deed of
conditional sale between her and the buyers, it was stipulated therein that
the purchase price of P1,000,000.00 would be delivered to the vendors
only upon the vacation of all the occupants of the subject property within
six (6) months from date hereof. She was duty-bound to cause the eviction
of the defendant from the property; hence, the appellant, as a co-owner,
had a substantial interest in the property. The MTC further held that the
sale, having been executed while the appellants complaint was pending
with the Lupon, the action in the MTC may be continued by the plaintiffappellant.

As to the right of first refusal being asserted by the appellees, the court
ruled that there was no showing that the land leased had been proclaimed
to be within a specific Urban Land Reform Zone. In fact, the Housing and
Land Use Regulatory Board had certified that the subject property was
outside the area for priority development; thus, the appellees may not
claim that they had been deprived of their preemptive right when no such
right existed in the first place. The court did not rule on the third and

SO ORDERED.[17]

A petition for review under Rule 42 was filed with the Court of Appeals by
three of the appellees, now petitioners Ma. Teresa Vidal, Lulu Marquez and
Carlos Sobremonte. The court, however, dismissed the petition on (1)
procedural grounds, and (2) for lack of merit. [18]

On procedural grounds, the CA ruled that the petitioners failed to indicate

the specific material dates, showing that their petition was filed on time as
required by the rules, and in declaring that they failed to justify their
failure to do so.

On the merits of the petition, the appellate court upheld the ruling of the
RTC. The decretal portion of the decision of the CA reads:

WHEREFORE, the instant petition is hereby DISMISSED. The assailed

Decision of the Regional Trial Court of Mandaluyong City, Branch 208,
rendered in Civil Case No. MC01-333-A, dated August 31, 2001 is hereby
AFFIRMED.

SO ORDERED.[19]

In their petition at bar, the petitioners assert that the CA erred as follows:
(1) in not applying the rules of procedure liberally; (2) in declaring that
there was no need for the respondents to file an ejectment case for the
eviction of the petitioners; (3) that the real parties-in-interest as plaintiffs
in the MTC were the new owners of the property, Susana Lim, Johnny Lim
and Mary Liza Santos; (4) in not finding that the Amicable Settlement was
obtained through deceit and fraud; and (5) in ruling that the petitioners
had no right of first refusal in the purchase and sale of the subject property
under Presidential Decree No. 1517.

The petition is bereft of merit.

On the procedural issue, the CA dismissed the petition before it for the
petitioners failure to comply with Section 2, par. 1, Rule 42 of the 1997
Rules of Civil Procedure.[20] The CA ratiocinated that there was no
justification for a relaxation of the Rules, thus:

Petitioners cited decisions of the Supreme Court where a relaxation of

procedural rules was allowed. However, a reading of those cases shows
that they are not exactly similar with the present case. In the case of
Mactan Cebu International Airport Authority vs. Francisco Cuizon
Mangubat, the Supreme Court allowed the late payment of docket fee by
the Solicitor General on the ground that the 1997 Rules of Civil Procedure
regarding payment of docket fees was still new at that time. The same
cannot be said in the present case. The petition was filed on February 28,
2002, almost five years from the issuance of the 1997 Rules of Civil
Procedure. The circumstances of typhoon and holiday for failure to obtain a
certified true copy of the DOJs Decision, in the case of Hagonoy Market
Vendor Association vs. Municipality of Hagonoy, Bulacan, were present in
the instant petition. The case of Salazar vs. Court of Appeals is also not
similar with the present case.[21]

The petitioners aver in this case that the failure of their counsel to include
the material dates in their petition with the CA was, as stated in their
Amended Manifestation, because the said counsel was suffering from a
slight heart attack. The Court finds the petitioners pretext flimsy. If the

petitioners counsel was able to prepare their petition despite her condition,
there was no valid reason why she failed to include the material dates
required under the Rules of Court. Besides, the petitioners stated in their
petition that they had appended a copy of their Amended Manifestation,
but failed to do so. If the rules were to be applied strictly, the CA could not
be faulted for dismissing the petition.

However, in order to promote their objective of securing a just, speedy and

inexpensive dispensation of every action and proceedings, the Rules are to
be liberally construed.[22] Rules of procedure are intended to promote, not
to defeat substantial justice and, therefore, should not be applied in a very
rigid and technical sense. This Court ruled in Buenaflor vs. Court of
Appeals, et al.[23] that appeal is an essential part of our judicial system
and trial courts and the Court of Appeals are advised to proceed with
caution so as not to deprive a party of the right to appeal and that every
party litigant should be afforded the amplest opportunity for the proper and
just disposition of his cause, free from the constraints of technicalities. The
Court has given due course to petitions where to do so would serve the
demands of substantial justice and in the exercise of its equity jurisdiction.
[24] In this case, the Court opts to apply the rules liberally to enable it to
delve into and resolve the cogent substantial issues posed by the
petitioners.

We agree with the contention of the petitioners that under Section 416 of
the LGC, the amicable settlement executed by the parties before the Lupon
on the arbitration award has the force and effect of a final judgment of a
court upon the expiration of ten (10) days from the date thereof, unless the
settlement is repudiated within the period therefor, where the consent is
vitiated by force, violence or intimidation, or a petition to nullify the award
is filed before the proper city or municipal court.[25] The repudiation of the
settlement shall be sufficient basis for the issuance of a certification to file
a complaint.[26]

We also agree that the Secretary of the Lupon is mandated to transmit the
settlement to the appropriate city or municipal court within the time frame
under Section 418 of the LGC and to furnish the parties and the Lupon
Chairman with copies thereof.[27] The amicable settlement which is not
repudiated within the period therefor may be enforced by execution by the
Lupon through the Punong Barangay within a time line of six months, and if
the settlement is not so enforced by the Lupon after the lapse of the said

period, it may be enforced only by an action in the proper city or municipal

court as provided for in Section 417 of the LGC of 1991, as amended,
which reads:

SEC. 417. Execution. The amicable settlement or arbitration award may be

enforced by execution by the Lupon within six (6) months from the date of
the settlement. After the lapse of such time, the settlement may be
enforced by action in the proper city or municipal court. (Underlining
supplied).

Section 417 of the Local Government Code provides a mechanism for the
enforcement of a settlement of the parties before the Lupon. It provides for
a two-tiered mode of enforcement of an amicable settlement executed by
the parties before the Lupon, namely, (a) by execution of the Punong
Barangay which is quasi-judicial and summary in nature on mere motion of
the party/parties entitled thereto;[28] and (b) by an action in regular form,
which remedy is judicial. Under the first remedy, the proceedings are
covered by the LGC and the Katarungang Pambarangay Implementing
Rules and Regulations. The Punong Barangay is called upon during the
hearing to determine solely the fact of non-compliance of the terms of the
settlement and to give the defaulting party another chance at voluntarily
complying with his obligation under the settlement. Under the second
remedy, the proceedings are governed by the Rules of Court, as amended.
The cause of action is the amicable settlement itself, which, by operation of
law, has the force and effect of a final judgment.

Section 417 of the LGC grants a party a period of six months to enforce the
amicable settlement by the Lupon through the Punong Barangay before
such party may resort to filing an action with the MTC to enforce the
settlement. The raison d etre of the law is to afford the parties during the
six-month time line, a simple, speedy and less expensive enforcement of
their settlement before the Lupon.

The time line of six months is for the benefit not only of the complainant,
but also of the respondent. Going by the plain words of Section 417 of the
LGC, the time line of six months should be computed from the date of
settlement. However, if applied to a particular case because of its peculiar
circumstance, the computation of the time line from the date of the

settlement may be arbitrary and unjust and contrary to the intent of the
law. To illustrate: Under an amicable settlement made by the parties before
the Lupon dated January 15, 2003, the respondents were obliged to vacate
the subject property on or before September 15, 2003. If the time line of
six months under Section 417 were to be strictly and literally followed, the
complainant may enforce the settlement through the Lupon only up to July
15, 2003. But under the settlement, the respondent was not obliged to
vacate the property on or before July 15, 2003; hence, the settlement
cannot as yet be enforced. The settlement could be enforced only after
September 15, 2003, when the respondent was obliged to vacate the
property. By then, the six months under Section 417 shall have already
elapsed. The complainant can no longer enforce the settlement through the
Lupon, but had to enforce the same through an action in the MTC, in
derogation of the objective of Section 417 of the LGC. The law should be
construed and applied in such a way as to reflect the will of the legislature
and attain its objective, and not to cause an injustice. As Justice Oliver
Wendell Holmes aptly said, courts are apt to err by sticking too closely to
the words of the law where these words support a policy that goes beyond
them. The Court should not defer to the latter that killeth but to the spirit
that vivifieth.[29]

In light of the foregoing considerations, the time line in Section 417 should
be construed to mean that if the obligation in the settlement to be enforced
is due and demandable on the date of the settlement, the six-month period
should be counted from the date of the settlement; otherwise, if the
obligation to be enforced is due and demandable on a date other than the
date of the settlement, the six-month period should be counted from the
date the obligation becomes due and demandable.

Parenthetically, the Katarungang Pambarangay Implementing Rules and

Regulations, Rule VII, Section 2 provides:

SECTION 2. Modes of Execution. - The amicable settlement or arbitration

award may be enforced by execution by the Lupon within six [6] months
from date of the settlement or date of receipt of the award or from the
date the obligation stipulated in the settlement or adjudged in the
arbitration award becomes due and demandable. After the lapse of such
time, the settlement or award may be enforced by the appropriate local
trial court pursuant to the applicable provisions of the Rules of Court . An
amicable settlement reached in a case referred by the Court having

jurisdiction over the case to the Lupon shall be enforced by execution by

the said court. (Underlining supplied).

By express provision of Section 417 of the LGC, an action for the

enforcement of the settlement should be instituted in the proper municipal
or city court. This is regardless of the nature of the complaint before the
Lupon, and the relief prayed for therein. The venue for such actions is
governed by Rule 4, Section 1 of the 1997 Rules of Civil Procedure, as
amended. An action for the enforcement of a settlement is not one of those
covered by the Rules on Summary Procedure in civil cases;[30] hence, the
rules on regular procedure shall apply, as provided for in Section 1, Rule 5
of the Rules of Civil Procedure, as amended.[31]

As to the requisite legal fees for the filing of an action in the first level court
under Section 417 of the Local Government Code, indigents-litigants (a)
whose gross income and that of their immediate family do not exceed ten
thousand (P10,000.00) pesos a month if residing in Metro Manila, and five
thousand (P5,000.00) pesos a month if residing outside Metro Manila, and
(b) who do not own real property with an assessed value of more than fifty
thousand (P50,000.00) pesos shall be exempt from the payment of legal
fees. Section 18, Rule 141 of the Revised Rules of Court, as amended by
A.M. No. 00-2-01-SC, is hereby further amended accordingly.

In this case, the parties executed their Amicable Settlement on May 5,

1999. However, the petitioners were obliged to vacate the property only in
January 2000, or seven months after the date of the settlement; hence,
the respondent may enforce the settlement through the Punong Barangay
within six months from January 2000 or until June 2000, when the
obligation of the petitioners to vacate the property became due. The
respondent was precluded from enforcing the settlement via an action with
the MTC before June 2000. However, the respondent filed on May 12, 2000
a motion for execution with the MTC and not with the Punong Barangay.
Clearly, the respondent adopted the wrong remedy. Although the MTC
denied the respondents motion for a writ of execution, it was for a reason
other than the impropriety of the remedy resorted to by the respondent.
The RTC erred in granting the respondents motion for a writ of execution,
and the CA erred in denying the petitioners petition for review.

Normally, the Court would remand the case to the Punong Barangay for
further proceedings. However, the Court may resolve the issues posed by
the petitioners, based on the pleadings of the parties to serve the ends of
justice. It is an accepted rule of procedure for the Court to strive to settle
the existing controversy in a single proceeding, leaving no root or branch to
bear the seeds of future litigation.[32]

In this case, there is no question that the petitioners were obliged under
the settlement to vacate the premises in January 2000. They refused,
despite the extensions granted by the respondent, to allow their stay in the
property. For the court to remand the case to the Lupon and require the
respondent to refile her motion for execution with the Lupon would be an
idle ceremony. It would only unduly prolong the petitioners unlawful
retention of the premises.[33]

The RTC and the CA correctly ruled that the respondent is the real party-ininterest to enforce amicable settlement. Rule 3, Section 2 of the Rules of
Court, as amended, reads:

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.

The party-in-interest applies not only to the plaintiff but also to the
defendant. Interest within the meaning of the rules means material
interest, an interest in issue and to be affected by the decree as
distinguished from mere interest in the question involved, or a mere
incidental interest.[34] A real party in interest is one who has a legal right.
[35] Since a contract may be violated only by the parties thereto as against
each other, in an action upon that contract, the real parties-in-interest,
either as plaintiff or as defendant, must be parties to the said contract.[36]
The action must be brought by the person who, by substantive law,
possesses the right sought to be enforced.[37] In this case, the respondent
was the party in the amicable settlement. She is the real party-in-interest
to enforce the terms of the settlement because unless the petitioners
vacate the property, the respondent and the other vendors should not be

paid the balance of P1,000,000.00 of the purchase price of the property

under the Deed of Conditional Sale.

The petitioners are estopped from assailing the amicable settlement on the
ground of deceit and fraud. First. The petitioners failed to repudiate the
settlement within the period therefor. Second. The petitioners were
benefited by the amicable settlement. They were allowed to remain in the
property without any rentals therefor until December 1998. They were
even granted extensions to continue in possession of the property. It was
only when the respondent filed the motion for execution that the
petitioners alleged for the first time that the respondents deceived them
into executing the amicable settlement.[38]

On the petitioners claim that they were entitled to the right of first refusal
under P.D. No. 1517, we agree with the disquisition of the trial court, as
quoted by the Court of Appeals:

We likewise find no reversible error on the part of [the] RTC in rejecting

that the petitioners have a right of first refusal in the purchase and sale of
the subject property. As ratiocinated by the court:

xxx. Presidential Decree No. 1517 (The Urban Land Reform Law) does not
apply where there is no showing that the land leased has been proclaimed
to be within a specific Urban Land Reform Zone. In the instant case, the
annex attached to the Proclamation 1967 creating the areas declared as

priority development and urban land reform zone ... does not indicate that
the barangay where the subject property is located is included therein. This
is bolstered by the certification issued by the Housing and Land Regulatory
Board to the effect that the location of the property is outside the area of
Priority Development. It is therefore a reversible error for the lower court
to conclude that defendants-appellees were deprived of their preemptive
right when no right exists in the first place.

Indeed, before a preemptive right under PD 1517 can be exercised, the

disputed land should be situated in an area declared to be both an APD
(Areas for Priority Development) and a ULRZ (Urban Land Reform Zones).
Records show, and as not disputed by the petitioners, the disputed
property is not covered by the aforementioned areas and zones.[39]

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The petitioners

and all those acting for and in their behalf are directed to vacate, at their
own expense, the property covered by Transfer Certificate of Title No.
15324 of the Register of Deeds of Muntinlupa City and deliver possession of
the property to the vendees Mary Liza Santos, Susana Lim and Johnny Lim.
This is without prejudice to the right of the vendees to recover from the
petitioners reasonable compensation for their possession of the property
from January 2000 until such time that they vacate the property. Costs
against the petitioners.

SO ORDERED.