G.R. No. 161135.

April 8, 2005

SWAGMAN HOTELS AND TRAVEL, INC., Petitioners,

vs.
HON. COURT OF APPEALS, and NEAL B. CHRISTIAN, Respondents.

DECISION

DAVIDE, JR., C.J.:

May a complaint that lacks a cause of action at the time it was filed be cured by the accrual of a cause of action
during the pendency of the case? This is the basic issue raised in this petition for the Courts consideration.

Sometime in 1996 and 1997, petitioner Swagman Hotels and Travel, Inc., through Atty. Leonor L. Infante and
Rodney David Hegerty, its president and vice-president, respectively, obtained from private respondent Neal B.
Christian loans evidenced by three promissory notes dated 7 August 1996, 14 March 1997, and 14 July 1997. Each
of the promissory notes is in the amount of US$50,000 payable after three years from its date with an interest of
15% per annum payable every three months.1 In a letter dated 16 December 1998, Christian informed the petitioner
corporation that he was terminating the loans and demanded from the latter payment in the total amount of
US$150,000 plus unpaid interests in the total amount of US$13,500.2

On 2 February 1999, private respondent Christian filed with the Regional Trial Court of Baguio City, Branch 59, a
complaint for a sum of money and damages against the petitioner corporation, Hegerty, and Atty. Infante. The
complaint alleged as follows: On 7 August 1996, 14 March 1997, and 14 July 1997, the petitioner, as well as its
president and vice-president obtained loans from him in the total amount of US$150,000 payable after three years,
with an interest of 15% per annum payable quarterly or every three months. For a while, they paid an interest of
15% per annum every three months in accordance with the three promissory notes. However, starting January 1998
until December 1998, they paid him only an interest of 6% per annum, instead of 15% per annum, in violation of the
terms of the three promissory notes. Thus, Christian prayed that the trial court order them to pay him jointly and
solidarily the amount of US$150,000 representing the total amount of the loans; US$13,500 representing unpaid
interests from January 1998 until December 1998; 100,000 for moral damages; 50,000 for attorneys fees; and the
cost of the suit.3

The petitioner corporation, together with its president and vice-president, filed an Answer raising as defenses lack of
cause of action and novation of the principal obligations. According to them, Christian had no cause of action
because the three promissory notes were not yet due and demandable. In December 1997, since the petitioner
corporation was experiencing huge losses due to the Asian financial crisis, Christian agreed (a) to waive the interest
of 15% per annum, and (b) accept payments of the principal loans in installment basis, the amount and period of
which would depend on the state of business of the petitioner corporation. Thus, the petitioner paid Christian capital
repayment in the amount of US$750 per month from January 1998 until the time the complaint was filed in February
1999. The petitioner and its co-defendants then prayed that the complaint be dismissed and that Christian be ordered
to pay 1 million as moral damages; 500,000 as exemplary damages; and 100,000 as attorneys fees.4

In due course and after hearing, the trial court rendered a decision5 on 5 May 2000 declaring the first two
promissory notes dated 7 August 1996 and 14 March 1997 as already due and demandable and that the interest on
the loans had been reduced by the parties from 15% to 6% per annum. It then ordered the petitioner corporation to
pay Christian the amount of $100,000 representing the principal obligation covered by the promissory notes dated 7
August 1996 and 14 March 1997, "plus interest of 6% per month thereon until fully paid, with all interest payments
already paid by the defendant to the plaintiff to be deducted therefrom."

The trial court ratiocinated in this wise:

(1) There was no novation of defendants obligation to the plaintiff. Under Article 1292 of the Civil Code, there is
an implied novation only if the old and the new obligation be on every point incompatible with one another.
The test of incompatibility between the two obligations or contracts, according to an imminent author, is whether
they can stand together, each one having an independent existence. If they cannot, they are incompatible, and the
subsequent obligation novates the first (Tolentino, Civil Code of the Philippines, Vol. IV, 1991 ed., p. 384).
Otherwise, the old obligation will continue to subsist subject to the modifications agreed upon by the parties. Thus,
it has been written that accidental modifications in an existing obligation do not extinguish it by novation. Mere
modifications of the debt agreed upon between the parties do not constitute novation. When the changes refer to
secondary agreement and not to the object or principal conditions of the contract, there is no novation; such changes
will produce modifications of incidental facts, but will not extinguish the original obligation. Thus, the acceptance of
partial payments or a partial remission does not involve novation (id., p. 387). Neither does the reduction of the
amount of an obligation amount to a novation because it only means a partial remission or condonation of the same
debt.

In the instant case, the Court is of the view that the parties merely intended to change the rate of interest from 15%
per annum to 6% per annum when the defendant started paying $750 per month which payments were all accepted
by the plaintiff from January 1998 onward. The payment of the principal obligation, however, remains unaffected
which means that the defendant should still pay the plaintiff $50,000 on August 9, 1999, March 14, 2000 and July
14, 2000.

(2) When the instant case was filed on February 2, 1999, none of the promissory notes was due and demandable. As
of this date however, the first and the second promissory notes have already matured. Hence, payment is already
due.

Under Section 5 of Rule 10 of the 1997 Rules of Civil Procedure, a complaint which states no cause of action may
be cured by evidence presented without objection. Thus, even if the plaintiff had no cause of action at the time he
filed the instant complaint, as defendants obligation are not yet due and demandable then, he may nevertheless
recover on the first two promissory notes in view of the introduction of evidence showing that the obligations
covered by the two promissory notes are now due and demandable.

(3) Individual defendants Rodney Hegerty and Atty. Leonor L. Infante can not be held personally liable for the
obligations contracted by the defendant corporation it being clear that they merely acted in representation of the
defendant corporation in their capacity as General Manager and President, respectively, when they signed the
promissory notes as evidenced by Board Resolution No. 1(94) passed by the Board of Directors of the defendant
corporation (Exhibit "4").6

In its decision7 of 5 September 2003, the Court of Appeals denied petitioners appeal and affirmed in toto the
decision of the trial court, holding as follows:

In the case at bench, there is no incompatibility because the changes referred to by appellant Swagman consist only
in the manner of payment. . . .

Appellant Swagmans interpretation that the three (3) promissory notes have been novated by reason of appellee
Christians acceptance of the monthly payments of US$750.00 as capital repayments continuously even after the
filing of the instant case is a little bit strained considering the stiff requirements of the law on novation that the
intention to novate must appear by express agreement of the parties, or by their acts that are too clear and
unequivocal to be mistaken. Under the circumstances, the more reasonable interpretation of the act of the appellee
Christian in receiving the monthly payments of US$750.00 is that appellee Christian merely allowed appellant
Swagman to pay whatever amount the latter is capable of. This interpretation is supported by the letter of demand
dated December 16, 1998 wherein appellee Christian demanded from appellant Swagman to return the principal
loan in the amount of US$150,000 plus unpaid interest in the amount of US$13,500.00

...

Appellant Swagman, likewise, contends that, at the time of the filing of the complaint, appellee Christian ha[d] no
cause of action because none of the promissory notes was due and demandable.
Again, We are not persuaded.

...

In the case at bench, while it is true that appellant Swagman raised in its Answer the issue of prematurity in the
filing of the complaint, appellant Swagman nonetheless failed to object to appellee Christians presentation of
evidence to the effect that the promissory notes have become due and demandable.

The afore-quoted rule allows a complaint which states no cause of action to be cured either by evidence presented
without objection or, in the event of an objection sustained by the court, by an amendment of the complaint with
leave of court (Herrera, Remedial Law, Vol. VII, 1997 ed., p. 108).8

Its motion for reconsideration having been denied by the Court of Appeals in its Resolution of 4 December 2003,9
the petitioner came to this Court raising the following issues:

I. WHERE THE DECISION OF THE TRIAL COURT DROPPING TWO DEFENDANTS HAS BECOME FINAL
AND EXECUTORY, MAY THE RESPONDENT COURT OF APPEALS STILL STUBBORNLY CONSIDER
THEM AS APPELLANTS WHEN THEY DID NOT APPEAL?

ii. Where there is no cause of action, is the decision of the lower court valid?

III. MAY THE RESPONDENT COURT OF APPEALS VALIDLY AFFIRM A DECISION OF THE LOWER
COURT WHICH IS INVALID DUE TO LACK OF CAUSE OF ACTION?

IV. Where there is a valid novation, may the original terms of contract which has been novated still prevail?10

The petitioner harps on the absence of a cause of action at the time the private respondents complaint was filed with
the trial court. In connection with this, the petitioner raises the issue of novation by arguing that its obligations under
the three promissory notes were novated by the renegotiation that happened in December 1997 wherein the private
respondent agreed to waive the interest in each of the three promissory notes and to accept US$750 per month as
installment payment for the principal loans in the total amount of US$150,000. Lastly, the petitioner questions the
act of the Court of Appeals in considering Hegerty and Infante as appellants when they no longer appealed because
the trial court had already absolved them of the liability of the petitioner corporation.

On the other hand, the private respondent asserts that this petition is "a mere ploy to continue delaying the payment
of a just obligation." Anent the fact that Hegerty and Atty. Infante were considered by the Court of Appeals as
appellants, the private respondent finds it immaterial because they are not affected by the assailed decision anyway.

Cause of action, as defined in Section 2, Rule 2 of the 1997 Rules of Civil Procedure, is the act or omission by
which a party violates the right of another. Its essential elements are as follows:

1. A right in favor of the plaintiff by whatever means and under whatever law it arises or is created;

2. An obligation on the part of the named defendant to respect or not to violate such right; and

3. Act or omission on the part of such defendant in violation of the right of the plaintiff or constituting a breach of
the obligation of the defendant to the plaintiff for which the latter may maintain an action for recovery of damages
or other appropriate relief.11

It is, thus, only upon the occurrence of the last element that a cause of action arises, giving the plaintiff the right to
maintain an action in court for recovery of damages or other appropriate relief.
It is undisputed that the three promissory notes were for the amount of P50,000 each and uniformly provided for (1)
a term of three years; (2) an interest of 15 % per annum, payable quarterly; and (3) the repayment of the principal
loans after three years from their respective dates. However, both the Court of Appeals and the trial court found that
a renegotiation of the three promissory notes indeed happened in December 1997 between the private respondent
and the petitioner resulting in the reduction not waiver of the interest from 15% to 6% per annum, which from
then on was payable monthly, instead of quarterly. The term of the principal loans remained unchanged in that they
were still due three years from the respective dates of the promissory notes. Thus, at the time the complaint was filed
with the trial court on 2 February 1999, none of the three promissory notes was due yet; although, two of the
promissory notes with the due dates of 7 August 1999 and 14 March 2000 matured during the pendency of the case
with the trial court. Both courts also found that the petitioner had been religiously paying the private respondent
US$750 per month from January 1998 and even during the pendency of the case before the trial court and that the
private respondent had accepted all these monthly payments.

With these findings of facts, it has become glaringly obvious that when the complaint for a sum of money and
damages was filed with the trial court on 2 February 1999, no cause of action has as yet existed because the
petitioner had not committed any act in violation of the terms of the three promissory notes as modified by the
renegotiation in December 1997. Without a cause of action, the private respondent had no right to maintain an action
in court, and the trial court should have therefore dismissed his complaint.

Despite its finding that the petitioner corporation did not violate the modified terms of the three promissory notes
and that the payment of the principal loans were not yet due when the complaint was filed, the trial court did not
dismiss the complaint, citing Section 5, Rule 10 of the 1997 Rules of Civil Procedure, which reads:

Section 5. Amendment to conform to or authorize presentation of evidence. When issues not raised by the
pleadings are tried with the express or implied consent of the parties, they shall be treated in all respects as if they
had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to
the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but
failure to amend does not affect the result of the trial of these issues. If evidence is objected to at the trial on the
ground that it is not within the issues made by the pleadings, the court may allow the pleadings to be amended and
shall do so with liberality if the presentation of the merits of the action and the ends of substantial justice will be
subserved thereby. The court may grant a continuance to enable the amendment to be made.

According to the trial court, and sustained by the Court of Appeals, this Section allows a complaint that does not
state a cause of action to be cured by evidence presented without objection during the trial. Thus, it ruled that even if
the private respondent had no cause of action when he filed the complaint for a sum of money and damages because
none of the three promissory notes was due yet, he could nevertheless recover on the first two promissory notes
dated 7 August 1996 and 14 March 1997, which became due during the pendency of the case in view of the
introduction of evidence of their maturity during the trial.

Such interpretation of Section 5, Rule 10 of the 1997 Rules of Civil Procedure is erroneous.

Amendments of pleadings are allowed under Rule 10 of the 1997 Rules of Civil Procedure in order that the actual
merits of a case may be determined in the most expeditious and inexpensive manner without regard to technicalities,
and that all other matters included in the case may be determined in a single proceeding, thereby avoiding
multiplicity of suits.12 Section 5 thereof applies to situations wherein evidence not within the issues raised in the
pleadings is presented by the parties during the trial, and to conform to such evidence the pleadings are subsequently
amended on motion of a party. Thus, a complaint which fails to state a cause of action may be cured by evidence
presented during the trial.

However, the curing effect under Section 5 is applicable only if a cause of action in fact exists at the time the
complaint is filed, but the complaint is defective for failure to allege the essential facts. For example, if a complaint
failed to allege the fulfillment of a condition precedent upon which the cause of action depends, evidence showing
that such condition had already been fulfilled when the complaint was filed may be presented during the trial, and
the complaint may accordingly be amended thereafter.13 Thus, in Roces v. Jalandoni,14 this Court upheld the trial
court in taking cognizance of an otherwise defective complaint which was later cured by the testimony of the
plaintiff during the trial. In that case, there was in fact a cause of action and the only problem was the insufficiency
of the allegations in the complaint. This ruling was reiterated in Pascua v. Court of Appeals.15

It thus follows that a complaint whose cause of action has not yet accrued cannot be cured or remedied by an
amended or supplemental pleading alleging the existence or accrual of a cause of action while the case is pending.16
Such an action is prematurely brought and is, therefore, a groundless suit, which should be dismissed by the court
upon proper motion seasonably filed by the defendant. The underlying reason for this rule is that a person should not
be summoned before the public tribunals to answer for complaints which are immature. As this Court eloquently
said in Surigao Mine Exploration Co., Inc. v. Harris:17

It is a rule of law to which there is, perhaps, no exception, either at law or in equity, that to recover at all there must
be some cause of action at the commencement of the suit. As observed by counsel for appellees, there are reasons
of public policy why there should be no needless haste in bringing up litigation, and why people who are in no
default and against whom there is yet no cause of action should not be summoned before the public tribunals to
answer complaints which are groundless. We say groundless because if the action is immature, it should not be
entertained, and an action prematurely brought is a groundless suit.

It is true that an amended complaint and the answer thereto take the place of the originals which are thereby
regarded as abandoned (Reynes vs. Compaa General de Tabacos [1912], 21 Phil. 416; Ruyman and Farris vs.
Director of Lands [1916], 34 Phil., 428) and that "the complaint and answer having been superseded by the amended
complaint and answer thereto, and the answer to the original complaint not having been presented in evidence as an
exhibit, the trial court was not authorized to take it into account." (Bastida vs. Menzi & Co. [1933], 58 Phil., 188.)
But in none of these cases or in any other case have we held that if a right of action did not exist when the original
complaint was filed, one could be created by filing an amended complaint. In some jurisdictions in the United States
what was termed an "imperfect cause of action" could be perfected by suitable amendment (Brown vs. Galena
Mining & Smelting Co., 32 Kan., 528; Hooper vs. City of Atlanta, 26 Ga. App., 221) and this is virtually permitted
in Banzon and Rosauro vs. Sellner ([1933], 58 Phil., 453); Asiatic Potroleum [sic] Co. vs. Veloso ([1935], 62 Phil.,
683); and recently in Ramos vs. Gibbon (38 Off. Gaz., 241). That, however, which is no cause of action
whatsoever cannot by amendment or supplemental pleading be converted into a cause of action: Nihil de re
accrescit ei qui nihil in re quando jus accresceret habet.

We are therefore of the opinion, and so hold, that unless the plaintiff has a valid and subsisting cause of action at
the time his action is commenced, the defect cannot be cured or remedied by the acquisition or accrual of one
while the action is pending, and a supplemental complaint or an amendment setting up such after-accrued
cause of action is not permissible. (Emphasis ours).

Hence, contrary to the holding of the trial court and the Court of Appeals, the defect of lack of cause of action at the
commencement of this suit cannot be cured by the accrual of a cause of action during the pendency of this case
arising from the alleged maturity of two of the promissory notes on 7 August 1999 and 14 March 2000.

Anent the issue of novation, this Court observes that the petitioner corporation argues the existence of novation
based on its own version of what transpired during the renegotiation of the three promissory notes in December
1997. By using its own version of facts, the petitioner is, in a way, questioning the findings of facts of the trial court
and the Court of Appeals.

As a rule, the findings of fact of the trial court and the Court of Appeals are final and conclusive and cannot be
reviewed on appeal to the Supreme Court18 as long as they are borne out by the record or are based on substantial
evidence.19 The Supreme Court is not a trier of facts, its jurisdiction being limited to reviewing only errors of law
that may have been committed by the lower courts. Among the exceptions is when the finding of fact of the trial
court or the Court of Appeals is not supported by the evidence on record or is based on a misapprehension of facts.
Such exception obtains in the present case.20
This Court finds to be contrary to the evidence on record the finding of both the trial court and the Court of Appeals
that the renegotiation in December 1997 resulted in the reduction of the interest from 15% to 6% per annum and that
the monthly payments of US$750 made by the petitioner were for the reduced interests.

It is worthy to note that the cash voucher dated January 199821 states that the payment of US$750 represents
"INVESTMENT PAYMENT." All the succeeding cash vouchers describe the payments from February 1998 to
September 1999 as "CAPITAL REPAYMENT."22 All these cash vouchers served as receipts evidencing private
respondents acknowledgment of the payments made by the petitioner: two of which were signed by the private
respondent himself and all the others were signed by his representatives. The private respondent even identified and
confirmed the existence of these receipts during the hearing. 23 Significantly, cognizant of these receipts, the private
respondent applied these payments to the three consolidated principal loans in the summary of payments he
submitted to the court.24

Under Article 1253 of the Civil Code, if the debt produces interest, payment of the principal shall not be deemed to
have been made until the interest has been covered. In this case, the private respondent would not have signed the
receipts describing the payments made by the petitioner as "capital repayment" if the obligation to pay the interest
was still subsisting. The receipts, as well as private respondents summary of payments, lend credence to petitioners
claim that the payments were for the principal loans and that the interests on the three consolidated loans were
waived by the private respondent during the undisputed renegotiation of the loans on account of the business
reverses suffered by the petitioner at the time.

There was therefore a novation of the terms of the three promissory notes in that the interest was waived and the
principal was payable in monthly installments of US$750. Alterations of the terms and conditions of the obligation
would generally result only in modificatory novation unless such terms and conditions are considered to be the
essence of the obligation itself.25 The resulting novation in this case was, therefore, of the modificatory type, not the
extinctive type, since the obligation to pay a sum of money remains in force.

Thus, since the petitioner did not renege on its obligation to pay the monthly installments conformably with their
new agreement and even continued paying during the pendency of the case, the private respondent had no cause of
action to file the complaint. It is only upon petitioners default in the payment of the monthly amortizations that a
cause of action would arise and give the private respondent a right to maintain an action against the petitioner.

Lastly, the petitioner contends that the Court of Appeals obstinately included its President Infante and Vice-
President Hegerty as appellants even if they did not appeal the trial courts decision since they were found to be not
personally liable for the obligation of the petitioner. Indeed, the Court of Appeals erred in referring to them as
defendants-appellants; nevertheless, that error is no cause for alarm because its ruling was clear that the petitioner
corporation was the one solely liable for its obligation. In fact, the Court of Appeals affirmed in toto the decision of
the trial court, which means that it also upheld the latters ruling that Hegerty and Infante were not personally liable
for the pecuniary obligations of the petitioner to the private respondent.

In sum, based on our disquisition on the lack of cause of action when the complaint for sum of money and damages
was filed by the private respondent, the petition in the case at bar is impressed with merit.

WHEREFORE, the petition is hereby GRANTED. The Decision of 5 September 2003 of the Court of Appeals in
CA-G.R. CV No. 68109, which affirmed the Decision of 5 May 2000 of the Regional Trial Court of Baguio, Branch
59, granting in part private respondents complaint for sum of money and damages, and its Resolution of 4
December 2003, which denied petitioners motion for reconsideration are hereby REVERSED and SET ASIDE. The
complaint docketed as Civil Case No. 4282-R is hereby DISMISSED for lack of cause of action.

No costs.

SO ORDERED.
G.R. No. 188051 November 22, 2010

ASIA UNITED BANK, Petitioner,

vs.
GOODLAND COMPANY, INC., Respondent.

DECISION

NACHURA, J.:

Petitioner assails the February 16, 2009 Decision1 and the May 18, 2009 Resolution2 of the Court
of Appeals (CA) in CA-G.R. SP No. 103304, annulling the August 23, 20073 and February 15,
20084 Orders of the Regional Trial Court (RTC) of Makati City, Branch 150, which in turn
denied due course to respondent Goodland Company, Inc.s (GOODLAND) notice of appeal for
invalid substitution of counsel.

The antecedents:

An Ex-Parte Application/Petition for the Issuance of Writ of Possession5 was filed by Asia
United Bank (AUB) over a 5,801-square- meter lot located in Makati City and covered by
Transfer Certificate of Title (TCT) No. 223120 of the Registry of Deeds of Makati in AUBs
name. The property was previously registered in the name of GOODLAND under TCT No.
192674 (114645).

The petition alleged that, on February 20, 2000, GOODLAND executed a Third Party Real
Estate Mortgage on the property in favor of AUB to secure the 202 million credit
accommodation extended by the latter to Radiomarine Network (Smartnet) Inc. (Radiomarine).

When Radiomarine defaulted in the payment of its obligation, AUB instituted extrajudicial
foreclosure proceedings against the real estate mortgage. At the public auction sale held on
December 4, 2006, AUB was declared the highest bidder. On the same date, a Certificate of Sale
was issued in its name and registered with the Registry of Deeds of Makati City.

With the expiration of the redemption period, AUB proceeded to execute an Affidavit of
Consolidation of Ownership, through its First Vice-President, Florante del Mundo. AUB
thereafter secured a Certificate Authorizing Registration from the Bureau of Internal Revenue to
facilitate the transfer of the title.

On December 8, 2006, TCT No. 192674 (114645) was cancelled and, in lieu thereof, TCT No.
223120 was issued in the name of AUB.

GOODLAND, through its counsel, Atty. Antonio Bautista (Atty. Bautista), opposed the petition,
denying that it executed the real estate mortgage. GOODLAND further averred that the signature
of the notary public appearing on the deed was a forgery, and that no technical description of the
property supposedly mortgaged was indicated therein. Concluding that AUBs title was derived
from the foreclosure of a fake mortgage, GOODLAND prayed for the petitions denial.6
On March 1, 2007, the RTC issued the writ of possession sought by AUB. It ratiocinated that, as
the purchaser of the property at the foreclosure sale and as the new title holder thereof, AUBs
right of possession and enjoyment of the same had become absolute.7

GOODLAND, through its counsel on record, Atty. Bautista, filed a motion for reconsideration8
and a supplemental motion for reconsideration,9 but both were denied in the Order10 dated April
25, 2007, which was received by Atty. Bautista on June 15, 2007.11

Relentless, GOODLAND sought recourse with the CA by initially filing a Notice of Appeal12
with the RTC, through a certain Atty. Lito Mondragon (Atty. Mondragon) of the Mondragon &
Montoya Law Offices. On August 23, 2007, the RTC issued an Order13 denying due course to
GOODLANDs notice of appeal for being legally inutile due to Atty. Mondragons failure to
properly effect the substitution of former counsel on record, Atty. Bautista. GOODLAND moved
for reconsideration, but the same was denied in the Order dated February 15, 2008.14

GOODLAND elevated the incident to the CA by way of a special civil acton for certiorari. In its
February 16, 2009 Decision, the CA granted the petition and directed the RTC to give due course
to the notice of appeal, thus:

WHEREFORE, the petition is hereby GRANTED. The assailed Orders dated August 23, 2007
and February 15, 2008 of the Regional Trial Court, Branch 150, Makati City are ANNULLED
and SET ASIDE. The trial court is DIRECTED to give due course to petitioners Notice of
Appeal.

SO ORDERED.15

Aggrieved, AUB moved for reconsideration, but the CA denied the motion in its Resolution
dated May 18, 2009. Hence, the present petition for review on certiorari,16 praying for the
reinstatement of the RTC Order.

The petition is meritorious.

Under Rule 138, Section 26 of the Rules of Court, for a substitution of attorney to be effectual,
the following essential requisites must concur: (1) there must be a written application for
substitution; (2) it must be filed with the written consent of the client; (3) it must be with the
written consent of the attorney substituted; and (4) in case the consent of the attorney to be
substituted cannot be obtained, there must at least be proof of notice that the motion for
substitution was served on him in the manner prescribed by the Rules of Court. 17

The courts a quo were uniform and correct in finding that Atty. Mondragon failed to observe the
prescribed procedure and, thus, no valid substitution of counsel was actualized. However, they
took divergent postures as to the repercussion of such non-compliance, thereby igniting the
herein controversy.

The RTC strictly imposed the rule on substitution of counsel and held that the notice of appeal
filed by Atty. Mondragon was a mere scrap of paper.lawphi1
However, relying on our pronouncement in Land Bank of the Philippines v. Pamintuan
Development Co.,18 the CA brushed aside the procedural lapse and took a liberal stance on
considerations of substantial justice, viz.:

It is a far better and more prudent course of action for the court to excuse a technical lapse and
afford the parties a review of the case on appeal to attain the ends of justice rather than dispose
of the case on technicality and cause a grave injustice to the parties, giving a false impression of
speedy disposal of cases while actually resulting in more delay, if not a miscarriage of justice.
Thus, substantial justice would be better served by giving due course to petitioners notice of
appeal.19

AUB argues that the liberality applied by the Court in Land Bank is incompatible with the herein
controversy, and that Pioneer Insurance and Surety Corporation v. De Dios Transportation Co.,
Inc.,20 which espouses the same view adopted by the RTC, is more appropriate.

GOODLAND, on the other hand, insists that the CA committed no reversible error in ordering
that the notice of appeal be allowed in order not to frustrate the ends of substantial justice.

We agree with AUB. A revisit of our pronouncements in Land Bank and Pioneer is in order.

In Land Bank, we held that the Department of Agrarian Reform Adjudication Board gravely
abused its discretion when it denied due course to the Notice of Appeal and Notice of Entry of
Appearance filed by petitioners new counsel for failure to effect a valid substitution of the
former counsel on record.

We clarified that the new counsel never intended to replace the counsel of record because,
although not so specified in the notice, they entered their appearance as collaborating counsel.
Absent a formal notice of substitution, all lawyers who appear before the court or file pleadings
in behalf of a client are considered counsel of the latter. We pursued a liberal application of the
rule in order not to frustrate the just, speedy, and inexpensive determination of the controversy.

In Pioneer, we adopted a strict posture and declared the notice of withdrawal of appeal filed by
appellants new counsel as a mere scrap of paper for his failure to file beforehand a motion for
the substitution of the counsel on record.

Provoking such deportment was the absence of a special power of attorney authorizing the
withdrawal of the appeal in addition to the lack of a proper substitution of counsel. More
importantly, we found that the withdrawal of the appeal was calculated to frustrate the
satisfaction of the judgment debt rendered against appellant, thereby necessitating a rigid
application of the rules in order to deter appellant from benefiting from its own deleterious
manipulation thereof.

The emerging trend of jurisprudence is more inclined to the liberal and flexible application of the
Rules of Court. However, we have not been remiss in reminding the bench and the bar that
zealous compliance with the rules is still the general course of action. Rules of procedure are in
place to ensure the orderly, just, and speedy dispensation of cases;21 to this end, inflexibility or
liberality must be weighed. The relaxation or suspension of procedural rules or the exemption of
a case from their operation is warranted only by compelling reasons or when the purpose of
justice requires it.22

As early as 1998, in Hon. Fortich v. Hon. Corona,23 we expounded on these guiding principles:

Procedural rules, we must stress, should be treated with utmost respect and due regard since they
are designed to facilitate the adjudication of cases to remedy the worsening problem of delay in
the resolution of rival claims and in the administration of justice. The requirement is in
pursuance to the bill of rights inscribed in the Constitution which guarantees that "all persons
shall have a right to the speedy disposition of their cases before all judicial, quasi-judicial and
administrative bodies." The adjudicatory bodies and the parties to a case are thus enjoined to
abide strictly by the rules. While it is true that a litigation is not a game of technicalities, it is
equally true that every case must be prosecuted in accordance with the prescribed procedure to
ensure an orderly and speedy administration of justice. There have been some instances wherein
this Court allowed a relaxation in the application of the rules, but this flexibility was "never
intended to forge a bastion for erring litigants to violate the rules with impunity." A liberal
interpretation and application of the rules of procedure can be resorted to only in proper cases
and under justifiable causes and circumstances.

In Sebastian v. Hon. Morales,24 we straightened out the misconception that the enforcement of
procedural rules should never be permitted if it would prejudice the substantive rights of
litigants:

Under Rule 1, Section 6 of the 1997 Rules of Civil Procedure, liberal construction of the rules is
the controlling principle to effect substantial justice. Thus, litigations should, as much as
possible, be decided on their merits and not on technicalities. This does not mean, however, that
procedural rules are to be ignored or disdained at will to suit the convenience of a party.
Procedural law has its own rationale in the orderly administration of justice, namely, to ensure
the effective enforcement of substantive rights by providing for a system that obviates
arbitrariness, caprice, despotism, or whimsicality in the settlement of disputes. Hence, it is a
mistake to suppose that substantive law and procedural law are contradictory to each other, or as
often suggested, that enforcement of procedural rules should never be permitted if it would result
in prejudice to the substantive rights of the litigants.

x x x. Hence, rules of procedure must be faithfully followed except only when for persuasive
reasons, they may be relaxed to relieve a litigant of an injustice not commensurate with his
failure to comply with the prescribed procedure. x x x.

Indeed, the primordial policy is a faithful observance of the Rules of Court, and their relaxation
or suspension should only be for persuasive reasons and only in meritorious cases, to relieve a
litigant of an injustice not commensurate with the degree of his thoughtlessness in not complying
with the procedure prescribed.25 Further, a bare invocation of "the interest of substantial justice"
will not suffice to override a stringent implementation of the rules.26
A reading of the CAs Decision readily shows that the leniency it granted GOODLAND was
merely anchored on substantial justice. The CA overlooked GOODLANDs failure to advance
meritorious reasons to support its plea for the relaxation of Rule 138, Section 26. The fact that
GOODLAND stands to lose a valuable property is inadequate to dispense with the exacting
imposition of a rather basic rule.

More importantly, the CA failed to realize that the ultimate consequences that will come about
should GOODLANDs appeal proceed would in fact contravene substantial justice. The CA and,
eventually, this Court will just re-litigate an otherwise non-litigious matter and thereby
compound the delay GOODLAND attempts to perpetrate in order to prevent AUB from
rightfully taking possession of the property.

It is a time-honored legal precept that after the consolidation of titles in the buyer's name, for
failure of the mortgagor to redeem, entitlement to a writ of possession becomes a matter of
right.27 As the confirmed owner, the purchasers right to possession becomes absolute.28 There is
even no need for him to post a bond,29 and it is the ministerial duty of the courts to issue the
same upon proper application and proof of title.30 To accentuate the writs ministerial character,
the Court has consistently disallowed injunction to prohibit its issuance despite a pending action
for annulment of mortgage or the foreclosure itself.31

The nature of an ex parte petition for issuance of the possessory writ under Act No. 3135 has
been described as a non-litigious proceeding and summary in nature.32 As an ex parte
proceeding, it is brought for the benefit of one party only, and without notice to or consent by
any person adversely interested.33

Subsequent proceedings in the appellate courts would merely involve a reiteration of the
foregoing settled doctrines. The issue involved in the assailed RTC issuances is conclusively
determined by the above cited legal dictum, and it would be unnecessarily vexatious and unjust
to allow the present controversy to undergo protracted litigation.

AUBs right of possession is founded on its right of ownership over the property which it
purchased at the auction sale. Upon expiration of the redemption period and consolidation of the
title to the property, its possessory rights over the same became absolute. We quote with
approval the pronouncement of the RTC, viz.:

As the purchaser of the property in the foreclosure sale to which new title has already been
issued, petitioners right over the property has become absolute, vesting upon it the right of
possession and enjoyment of the property which this Court must aid in effecting its delivery.
Under the circumstances, and following established doctrine, the issuance of a writ of possession
is a ministerial function whereby the court exercises neither discretion nor judgment x x x. Said
writ of possession must be enforced without delay x x x.34

The law does not require that a petition for a writ of possession be granted only after
documentary and testimonial evidence shall have been offered to and admitted by the court.35 As
long as a verified petition states the facts sufficient to entitle petitioner to the relief requested, the
court shall issue the writ prayed for.36
Given the foregoing, we are bound to deny a liberal application of the rules on substitution of
counsel and resolve definitively that GOODLANDs notice of appeal merits a denial, for the
failure of Atty. Mondragon to effect a valid substitution of the counsel on record. Substantial
justice would be better served if the notice of appeal is disallowed. In the same way that the
appellant in Pioneer was not permitted to profit from its own manipulation of the rules on
substitution of counsel, so too can GOODLAND be not tolerated to foster vexatious delay by
allowing its notice of appeal to carry on.

WHEREFORE, premises considered, the petition is GRANTED. The February 16, 2009
Decision and the May 18, 2009 Resolution of the Court of Appeals are hereby ANNULLED and
SET ASIDE; and the August 23, 2007 and February 15, 2008 Orders of the Regional Trial Court
of Makati City, Branch 150, are REINSTATED.

SO ORDERED.

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

LOTTE PHIL. CO., INC., Petitioners,

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

DECISION

YNARES-SANTIAGO, J.:

This petition for review on certiorari1 assails the July 9, 2004 decision2 of the Court of Appeals
in CA-G.R. SP No. 72732 and its November 26, 2004 resolution3 denying reconsideration
thereof.

The established facts of this case are as follows:

Private respondent (petitioner herein) Lotte Phils., Inc. (Lotte) is a domestic corporation.
Petitioners (respondents herein) are among those who were hired and assigned to the
confectionery facility operated by private respondent.

On December 14, 1995 and yearly thereafter until the year 2000 7J Maintenance and
Janitorial Services ("7J") entered into a contract with private respondent to provide manpower
for needed maintenance, utility, janitorial and other services to the latter. In compliance with the
terms and conditions of the service contract, and to accommodate the needs of private respondent
for personnel/workers to do and perform "piece works," petitioners, among others, were hired
and assigned to private respondent as repackers or sealers.

However, either in October, 1999 or on February 9, 2000, private respondent dispensed with
their services allegedly due to the expiration/termination of the service contract by respondent
with 7J. They were either told "hwag muna kayong pumasok at tatawagan na lang kung may
gawa"; or were asked to wait "pag magrereport sila sa trabaho." Unfortunately, petitioners were
never called back to work again.

Aggrieved, petitioners lodged a labor complaint against both private respondent Lotte and 7J, for
illegal dismissal, regularization, payment of corresponding backwages and related employment
benefits, 13th month pay, service incentive leave, moral and exemplary damages and attorneys
fees based on total judgment award.4

On February 28, 2001, Labor Arbiter Cresencio G. Ramos, Jr., rendered judgment5 declaring 7J
as employer of respondents.6 The arbiter also found 7J guilty of illegal dismissal7 and ordered to
reinstate respondents,8 pay P2,374,710.00 as backwages, P713,648.00 as 13th month pay and
P117,000.00 as service incentive leave pay.9

Respondents appealed to the National Labor Relations Commission (NLRC) praying that Lotte
be declared as their direct employer because 7J is merely a labor-only contractor. In its decision10
dated April 24, 2002, the NLRC found no cogent reason to disturb the findings of the labor
arbiter and affirmed its ruling that 7J is the employer of respondents and solely liable for their
claims.

Respondents motion for reconsideration was denied by the NLRC in a resolution dated June 18,
2002.

Undaunted, they filed a petition for certiorari in the Court of Appeals11 against the NLRC and
Lotte, insisting that their employer is Lotte and not 7J.

Lotte, however, denied that respondents were its employees. It prayed that the petition be
dismissed for failure to implead 7J who is a party interested in sustaining the proceedings in
court, pursuant to Section 3, Rule 46 of the Revised Rules of Civil Procedure.

On July 9, 2004, the Court of Appeals reversed and set aside the rulings of the Labor Arbiter and
the NLRC. In its decision, the Court of Appeals declared Lotte as the real employer of
respondents and that 7J who engaged in labor-only contracting was merely the agent of Lotte.
Respondents who performed activities directly related to Lottes business were its regular
employees under Art. 280 of the Labor Code. As such, they must be accorded security of tenure
and their services terminated only on "just" and "authorized" causes.

Lottes motion for reconsideration was denied, hence this petition, on the following issues:
8. Whether or not petitioner herein had the burden of proof to establish before the proceedings in
the Court of Appeals that 7J Maintenance and Janitorial Service was not a labor-only contractor.

8.1. Whether or not the Petition in CA-G.R. SP No. 72732 is dismissible for failure to comply
with Section 3, Rule 46 in relation to Section 5, Rule 65 of the 1997 Rules of Civil Procedure.12

We first resolve the procedural issue raised by petitioner. Lotte asserts that 7J is an indispensable
party and should have been impleaded in respondents petition in the Court of Appeals. It claims
that the petition before the Court of Appeals was dismissible for failure to comply with Section
3,13 Rule 46 in relation to Section 514 of Rule 65 of the Revised Rules of Civil Procedure.

Petitioners contention is tenable.

An indispensable party is a party in interest without whom no final determination can be had of
an action,15 and who shall be joined either as plaintiffs or defendants.16 The joinder of
indispensable parties is mandatory.17 The presence of indispensable parties is necessary to vest
the court with jurisdiction, which is "the authority to hear and determine a cause, the right to act
in a case".18 Thus, without the presence of indispensable parties to a suit or proceeding, judgment
of a court cannot attain real finality.19 The absence of an indispensable party renders all
subsequent actions of the court null and void for want of authority to act, not only as to the
absent parties but even as to those present.20

In the case at bar, 7J is an indispensable party. It is a party in interest because it will be affected
by the outcome of the case. The Labor Arbiter and the NLRC found 7J to be solely liable as the
employer of respondents. The Court of Appeals however rendered Lotte jointly and severally
liable with 7J who was not impleaded by holding that the former is the real employer of
respondents. Plainly, its decision directly affected 7J.

In Domingo v. Scheer,21 we held that the non-joinder of indispensable parties is not a ground for
the dismissal of an action22 and the remedy is to implead the non-party claimed to be
indispensable.23 Parties may be added by order of the court on motion of the party or on its own
initiative at any stage of the action and/or such times as are just. If the petitioner refuses to
implead an indispensable party despite the order of the court, the latter may dismiss the
complaint/petition for the petitioner/plaintiffs failure to comply therefor.24

Although 7J was a co-party in the case before the Labor Arbiter and the NLRC, respondents
failed to include it in their petition for certiorari in the Court of Appeals. Hence, the Court of
Appeals did not acquire jurisdiction over 7J. No final ruling on this matter can be had without
impleading 7J, whose inclusion is necessary for the effective and complete resolution of the case
and in order to accord all parties with due process and fair play.

In light of the foregoing, the Court sees no need to discuss the second issue raised by petitioner.

WHEREFORE, the July 9, 2004 decision of the Court of Appeals in CA-G.R. SP No. 72732
and the November 26, 2004 resolution, are SET ASIDE. Let the case be REMANDED to the
Court of Appeals to include 7J Maintenance and Janitorial Services as an indispensable party to
the case for further proceedings.

SO ORDERED.

[G.R. NO. 161955 : August 31, 2005]

CELEDONIO MOLDES, ROSITA MOLDES and CAROLINA CEDIA, Petitioners, v.

TIBURCIO VILLANUEVA, APOLONIO VILLANUEVA, MANUEL VILLANUEVA,
MARIANO DULLAVIN, RONALDO DULLAVIN and TEODORA DULLAVIN,
Respondent.

DECISION

CALLEJO, SR., J.:

This is a Petition for Review on Certiorariof the Decision1 of the Court of Appeals (CA) and its
Resolution2 in CA-G.R. CV No. 47518.

The Antecedents

The spouses Juan Mollet and Silvina Del Monte were the owners of three parcels of land then
located in the Municipality of Taguig (now a part of Muntinlupa City) identified as Lot Nos. 589,
590 and 591. The lots had a total area of 3,600 square meters, covered by Transfer Certificate of
Title (TCT) No. 2180 issued by the Register of Deeds of Rizal. Their daughter, Josefa, died
intestate on November 24, 1918 at the age of 25. Juan Mollet died intestate on January 30, 1934
and his widow died also, intestate, on March 22, 1948. They were survived by their daughter
Romana Mollet, who married Andres Gelardo.3 Romana and Andres were blessed with five
children, namely, Flaviana, Brigida, Maria, Isaac and Leonila, all surnamed Gelardo.4 Flaviana
married Manuel Villanueva, and their marriage produced four offsprings, namely, Apolinario,
Tiburcio, Manuel and Juanita (now deceased), all surnamed Villanueva.5 Juanita married
Cornelio Maritana. The couple begot five children, namely, Luis, Orlando, Normita, Diego, and
Julieta, all surnamed Maritima.

Brigida married Mariano Dullavin and they had two children, Rolando and Teodora, both
surnamed Dullavin.6 Maria married Primo Tolentino and the couple had two children, Hermino
and Carolyn.7 Leonila married Delfin Malacca and they had two sons, Gelardo and Marcial.8
Isaac died a bachelor and without any issue.9

On March 17, 1965, a document denominated as Deed of Extrajudicial Settlement with

Quitclaim10 covering Lot Nos. 589, 590 and 591 was executed by Maria and Leonila, surnamed
Gelardo, Mariano Dullavin, Manuel, Juanita, Tiburcio and Apolonio, all surnamed Villanueva,
and Emeterio, Celedonio, Domingo, Rosita and Carolina, all surnamed Moldes.
Lot 589 was divided as follows: Maria Gelardo, - share; Emeterio Moldes, Domingo Moldes,
Celedonio Moldes, Rosita Moldes, and Carolina Moldes Cedia, - share. It appears that the
Villanueva siblings (Manuel, Tiburcio, Apolonio and Juanita) waived their - share in favor of the
Moldeses and Carolina.

Lot 590 was adjudicated as follows: Lot 590-B entirely to Leonila Gelardo; Lot 590-C was
allotted to Emeterio Moldes, Domingo Moldes, Celedonio Moldes, Rosita Moldes, and Carolina
Moldes Cedia; Lot 590-D was given to Maria Gelardo, Leonila Gelardo, Mariano Dullavin,
Emeterio Moldes, Domingo Moldes, Celedonio Moldes, Rosita Moldes, and Carolina Moldes
Cedia.

It appears that Mariano Dullavin and the Villanueva siblings waived their respective shares in
Lot 590-B in favor of Leonila Gelardo; in Lot 590-C, to Emeterio Moldes, Domingo Moldes,
Celedonio Moldes, Rosita Moldes, and Carolina Moldes Cedia; and, again in Lot D in favor of
Maria Gelardo, Leonila Gelardo, Emeterio Moldes, Domingo Moldes, Celedonio Moldes, Rosita
Moldes, and Carolina Moldes Cedia.

Lot 591 was partitioned as follows: - share of Lot 591-A to Leonila Gelardo; - share of Lot 591-
A to Maria Gelardo; and Lot Nos. 591-B and 591-C to Celedonio Moldes.

It appears that Emeterio Moldes, Domingo Moldes, Rosita Moldes, Apolonio Moldes and
Carolina Moldes Cedia, the Villanueva siblings, and Mariano Dullavin waived all their
respective rights to the - share of Lot 591-A given to Leonila Gelardo; to the - share of Lot 591-
A given to Maria Gelardo; and to Lot Nos. 591-B and 591-C awarded to Celedonio Moldes.

On January 26, 1987, Manuel Villanueva and his children, namely, Tiburio and Apolonio, and
Mariano Dullavin and his children, namely, Rolando and Teodora, filed a Complaint with the
Regional Trial Court (RTC) of Makati against Celedonio, Rosita and Carolina Cedia, all
surnamed Moldes, to annul the Deed of Extrajudicial Settlement with Quitclaim. The complaint
contained the following prayer:

WHEREFORE, it is most respectfully prayed of this Honorable Court to:

1. Order the rescission of the Extrajudicial Settlement with Quitclaim (Annex "B");

2. Order the defendants to pay plaintiffs the following:

a) Moral damages in the sum of P100,000;

b) Exemplary damages in the sum of P50,000;

c) Attorney's fee of P60,000 plus P450 per court appearance; and,

d) To pay the costs of suit.

Plaintiffs further pray for such other reliefs and remedies which are just and equitable under
premises.11

Plaintiffs Rolando and Teodora Dullavin also alleged that they never knew of any document
wherein they repudiated their share in the estate of their great-grandparents. In fact, in the past,
they had wanted to eject the Moldeses but their case was dismissed because of the questioned
deed, which incidentally was the very first time they saw it. They pointed out that by reckoning,
they were still minor when their father, Mariano, signed the questioned deed. Be that as it may, it
was of no moment, because their father had nothing to repudiate as he was not given any share in
the estate of the spouses Mollet.12

Plaintiffs Tiburio and Apolonio Villanueva alleged that they and their sister Juanita were
entrusted by their father to their aunt, Leonila Gelardo, when they were eight years old, six years
old and one year old, respectively; they lived with her until 1938 when they were married; as a
result, they developed a deep respect for their aunt, so much so that they signed the deed
believing that they would be getting their inheritance under the deed more expeditiously, not
knowing that because of their illiteracy, they had relinquished their rights over their inheritance.

Plaintiffs Tiburcio, Apolonio and Manuel further alleged that they were hoodwinked by their
aunt Leonila as well as Celedonio in parting with their inheritance. They claimed that being
illiterate and unlettered, they did not understand the contents and the legal effects of the
questioned deed. They explained that they signed the deed upon Leonila's representation and that
what they were signing was just a partition of the estate of their great-grandparents. As it turned
out and was revealed later, they were surprised to be excluded therefrom.13

The plaintiffs alleged, inter alia, that the deed was tainted with fraud because it included
Celedonio, Rosita and Carolina, who were not heirs of the spouses Mollet (whose estate was
partitioned). They denied the defendants' allegation that they were Josefa's descendants, the latter
having died single at the age of 25 and without issue.

In their answer, the defendants specifically denied that there was fraud or undue pressure in the
execution of the questioned deed. They maintained that they were the direct descendants of the
spouses Mollet, and successors-in-interest of Josefa Mollet from whom they derived their rights.
According to them, long before she died, their grandmother Josefa married one Florencio Diaz.
This matrimonial union begot Domingo Diaz and their mother, Dolores Diaz, who, in turn,
married their father, Emeterio Moldes.14

By way of special and affirmative defense, the defendants averred that the action had prescribed
because more than 20 years had elapsed from execution of the questioned deed.15 As
counterclaim, they prayed that the plaintiffs be adjudged to pay them the amounts of
P100,000.00 for moral damages; P50,000.00, for exemplary damages; and P30,000.00, for
attorney's fees.16

The Ruling of the Regional Trial Court

On May 16, 1994, the RTC rendered a decision declaring that the Deed of Extra-judicial
Settlement with Quitclaim was void. The dispositive portion thereof, reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs. It is

the findings of this Court that since the consent of the plaintiffs were not freely given when they
signed the document of the parties which they did not understand, but was obtained thru fraud,
the Deed of Partition with Quitclaim is hereby ordered rescinded and voided.

The other great grandchildren, particularly the children of Brigida Mollet Gelardo, married to
Mariano Dullavin, being Rolando Dullavin and Teodora Dullavin, including the children of
Maria Mollet Gelardo married to Primo Tolentino, being Hermino and Carolyn, were not given
their share of their inheritance, all the more reason that this Deed of Partition with Waiver and
Quitclaim should be rescinded and partition effected among all of the Plaintiffs as they probably
are the only true heirs of spouses Juan Mollet and Silvina Del Monte.

Accordingly, the property should remain as the Estate of the late Spouses Juan Mollet and
Silvina Del Monte Mollet.

As plaintiffs were force to litigate, all Defendants are, jointly and solidarily, directed to pay the
Plaintiffs actual damages in the sum of P100,000.00.

Defendants, jointly and solidarily, must pay moral damages for the trouble and anxiety caused to
plaintiffs in the sum of P100,000.00 and as a deterrent to their propensity to covet what do not
belong to them, Defendants must, jointly and solidarily, pay Plaintiffs exemplary damages of
P100,000.00.

As Plaintiffs were forced to litigate thru counsel, Defendants must, jointly and in solidum, pay
Attorney's fees in the sum of P50,000.00, and,

The cost of this proceedings.

It is SO ORDERED.17

The RTC held that the Deed of Extrajudicial Settlement with Quitclaim was a sham. Through
deceit and machinations, the plaintiffs, being illiterate at that, were "mislead, duped, railroaded
and bamboozled" by the defendants in signing the deed and waiving their respective shares. In
fact, the defendants never filed it in the Office of the Register of Deeds, an act "[giving] doubt to
[its] existence and validity."

The RTC further ruled that the evidence showed that the defendants were not heirs of the spouses
Mollet, whose estate was partitioned. According to the trial court, the defendants' own evidence
belied their claim of heirship.

The defendants appealed the decision to the CA where they alleged, inter alia, that the RTC
erred (1) in ruling that they were not heirs of the spouses Juan Mollet and Silvina Del Monte
Mollet; (2) in voiding the Deed of Extrajudicial Settlement with Quitclaim on the ground of
fraud; and (3) in awarding damages against them.18

The Ruling of the Court of Appeals

On January 30, 2003, the CA affirmed with modification the decision of the RTC with this fallo:

WHEREFORE, the assailed decision dated 16 May 1994 is hereby AFFIRMED with
MODIFICATION deleting the award of damages and attorney's fees.

SO ORDERED.19

The CA affirmed the findings of the RTC that the plaintiffs-appellees were duped by the
defendants-appellants in signing the fraudulent deed. It amplified that the waivers, having no
consideration, were wangled from the very much gullible plaintiffs-appellees, who were not
given a copy by the defendants-appellants. In fact, the latter refused to give the plaintiffs-
appellees a copy of the deed when they requested one.

The appellate court further ratiocinated that as the subject deed included persons who were not
heirs of the person whose estate was partitioned, such deed is governed by Article 1105 of the
Civil Code.20 Thus, since the partition deemed inexistent and void from the beginning, the action
seeking a declaration of its nullity could not prescribe.

The appellate court denied the motion for reconsideration of the defendants-appellants21 who,
forthwith, filed the instant petition. They made the following allegations:

I. The Court of Appeals disregarded the basic rule that the respondents were the plaintiffs who
had the burden of proving the rescissability (sic) of the notarial deed in favor of the petitioners.

II. The Court of Appeals disregarded the incontestable and uncontested fact that petitioners have
been in possession of the property in the concept of owners fifty (50) years prior to the execution
of the deed that respondents sought to rescind.

III. The Court of Appeals disregarded the basic principle in the adjudication that when the
evidence of the parties in a civil case are in equipoise, the complaint must be dismissed for
failure of the plaintiff to prove his case by preponderant evidence.

IV. The Court of Appeals based its decision on evidence it itself pronounce as improbable,
compounding the error by completely disregarding the nature and consequence of a notarial
document.22

The Ruling of the Court

The Court grants the petition on the sole ground that the respondents, who were the plaintiffs in
the trial court, failed to implead indispensable parties.
The respondents herein, who were the plaintiffs in the court a quo, alleged in their complaint
that, as heirs of the spouses Mollet, they were co-owners of the subject property together with the
heirs of Maria and Leonila, namely, Primo Tolentino and their children, Hermino and Carolyn,
and Delfin Malacca and their sons Gelardo and Marcial. With the death of the respondent's sister
Juanita Maritana, her heirs, (Cornelio Maritana and their children Luis, Orlando, Normita, Diego,
and Julieta) retained their right to inherit despite her death.23 However, the respondents failed to
implead the aforementioned heirs as parties-plaintiffs. The respondents also failed to implead the
other signatories of the deed, namely, Emeterio and Domingo, surnamed Moldes, who, under the
deed, were deeded shares in the property.

This is fatal to the complaint. All heirs of the deceased are indispensable parties to the
respondents' action to nullify the deed and the partition of the subject property among the
signatories therein.24 All the parties to the deed are, likewise, indispensable parties.25

Section 7, Rule 3 of the Rules of Court provides:

SEC. 7. Compulsory joinder of indispensable parties. - Parties-in-interest without whom no final

determination can be had of an action shall be joined either as plaintiffs or defendants.

An indispensable party is one who has such an interest in the controversy or subject matter that a
final adjudication cannot be made, in his absence, without injuring or affecting that interest. A
party who has not only an interest in the subject matter of the controversy, but also has an
interest of such nature that a final decree cannot be made without affecting his interest or leaving
the controversy in such a condition that its final determination may be wholly inconsistent with
equity and good conscience. He is a person in whose absence there cannot be a determination
between the parties already before the court which is effective, complete, or equitable.26 In
Commissioner Andrea D. Domingo v. Herbert Markus Emil Scheer,27 the Court held that the
joinder of indispensable parties is mandatory. Without the presence of indispensable parties to
the suit, the judgment of the court cannot attain real finality. Strangers to a case are not bound by
the judgment rendered by the court. The absence of an indispensable party renders all subsequent
actions of the court null and void, with no authority to act not only as to the absent party but also
as to those present. The responsibility of impleading all the indispensable parties rests on the
petitioner/plaintiff.

Likewise, in Metropolitan Bank and Trust Company v. Hon. Floro T. Alejo,28 the Court ruled
that the evident aim and intent of the Rules regarding the joinder of indispensable and necessary
parties is a complete determination of all possible issues, not only between the parties themselves
but also as regards to other persons who may be affected by the judgment. A valid judgment
cannot even be rendered where there is want of indispensable parties.

WHEREFORE, the petition is GRANTED. The Decision of the Regional Trial Court and
Decision of the Court of Appeals in CA-G.R. CV No. 47518 are REVERSED and SET ASIDE.
No costs.

SO ORDERED.
 G.R. No. 193753 : September 26, 2012

LIVING @ SENSE, INC., Petitioner, v. MALAYAN INSURANCE COMPANY, INC.,

Respondent.

RESOLUTION

PERLAS-BERNABE, J.:

This Petition for Review on Certiorari assails, on pure question of law, the Orders dated April 8,
20101 and August 25, 20102 of the Regional Trial Court (RTC) of Parafiaque City, Branch 257
rll rll

dismissing, without prejudice, the complaint for specific performance and breach of contract
filed by petitioner Living @ Sense, Inc. (petitioner) for failure to implead Dou Mac, Inc. (DMI)
as an indispensable party.

The Factual Antecedents

Records show that petitioner was the main contractor of the FOC Network Project of Globe
Telecom in Mindanao. In connection with the project, petitioner entered into a Sub-Contract
Agreement3 (Agreement) with DMI, under which the latter was tasked to undertake an
rll

underground open-trench work. Petitioner required DMI to give a bond, in the event that DMI
fails to perform its obligations under the Agreement. Thus, DMI secured surety4 and rll

performance5 bonds, both in the amount of P 5,171,488.00, from respondent Malayan Insurance
rll

Company, Inc. (respondent) to answer: (1) for the unliquidated portion of the downpayment, and
(2) for the loss and damage that petitioner may suffer, respectively, should DMI fail to perform
its obligations under the Agreement. Under the bonds, respondent bound itself jointly and
severally liable with DMI.6 rll

During the course of excavation and restoration works, the Department of Public Works and
Highways (DPWH) issued a work-stoppage order against DMI after finding the latters work
unsatisfactory. Notwithstanding the said order, however, DMI still failed to adopt corrective
measures, prompting petitioner to terminate7 the Agreement and seek8 indemnification from
rll rll

respondent in the total amount of P 1,040,895.34.

However, respondent effectively denied9 petitioners claim on the ground that the liability of its
rll

principal, DMI, should first be ascertained before its own liability as a surety attaches. Hence,
the instant complaint, premised on respondents liability under the surety and performance bonds
secured by DMI.

Seeking the dismissal10 of the complaint, respondent claimed that DMI is an indispensable party
rll

that should be impleaded and whose liability should first be determined before respondent can be
held liable.

On the other hand, petitioner asserted11 that respondent is a surety who is directly and primarily
rll

liable to indemnify petitioner, and that the bond is "callable on demand"12 in the event DMI fails rll

to perform its obligations under the Agreement.

The RTCs Ruling

In its April 8, 2010 Order,13 the RTC dismissed the complaint without prejudice, for failure to
rll

implead DMI as a party defendant. It ruled that before respondent could be held liable on the
surety and performance bonds, it must first be established that DMI, with whom petitioner had
originally contracted, had indeed violated the Agreement. DMI, therefore, is an indispensable
party that must be impleaded in the instant suit.

On August 25, 2010, the RTC denied14 petitioners motion for reconsideration for failure to set
rll

the same for hearing as required under the rules.

The Issue Before The Court

The sole issue to be resolved by the Court is whether DMI is an indispensable party in this case.

The Court's Ruling

Petitioner maintains that the rule on solidary obligations permits it, as creditor, to proceed against
any of the solidary debtors, citing Article 1216 of the Civil Code which provides: chanroblesvirtuallawlibrary

Article 1216. The creditor may proceed against any one of the solidary debtors or some or all of
them simultaneously. The demand made against one of them shall not be an obstacle to those
which may subsequently be directed against the others, so long as the debt has not been fully
collected.

The petition is meritorious.

Records show that when DMI secured the surety and performance bonds from respondent in
compliance with petitioners requirement, respondent bound itself "jointly and severally" with
DMI for the damages and actual loss that petitioner may suffer should DMI fail to perform its
obligations under the Agreement, as follows: chanroblesvirtuallawlibrary

That we, DOU MAC INC. as Principal, and MALAYAN INSURANCE CO., INC., x xx are held
firmly bound unto LIVING @ SENSE INC. in the sum of FIVE MILLION ONE HUNDRED
SEVENTY ONE THOUSAND FOUR HUNDRED EIGHTY EIGHT AND 00/100 PESOS
ONLY (PHP ***5,171,488.00), PHILIPPINE Currency, for the payment of which sum, well and
truly to be made, we bind ourselves, our heirs, executors, administrators, successors and assigns,
jointly and severally, firmly by these presents xxx15 (Emphasis Supplied) rll

The term "jointly and severally" expresses a solidary obligation16 granting petitioner, as creditor,
rll

the right to proceed against its debtors, i.e., respondent or DMI.

The nature of the solidary obligation under the surety does not make one an indispensable
party.17 An indispensable party is a party-in-interest without whom no final determination can be
rll

had of an action, and who shall be joined mandatorily either as plaintiffs or defendants. The
presence of indispensable parties is necessary to vest the court with jurisdiction, thus, without
their presence to a suit or proceeding, the judgment of a court cannot attain real finality. The
absence of an indispensable party renders all subsequent actions of the court null and void for
want of authority to act, not only as to the absent parties but even as to those present.18 rll

In this case, DMI is not an indispensable party because petitioner can claim indemnity directly
from respondent, having made itself jointly and severally liable with DMI for the obligation
under the bonds. Therefore, the failure to implead DMI is not a ground to dismiss the case, even
if the same was without prejudice.

Moreover, even on the assumption that DMI was, indeed, an indispensable party, the RTC
committed reversible error in dismissing the complaint. Failure to implead an indispensable party
is not a ground for the dismissal of an action, as the remedy in such case is to implead the party
claimed to be indispensable, considering that parties may be added by order of the court, on
motion of the party or on its own initiative at any stage of the action.19
rll

Accordingly, the Court finds that the RTC erred in holding that DMI Is an indispensable party
and, consequently, in dismissing the complaint filed by petitioner without prejudice. blr ll lbr r

WHEREFORE, the assailed April 8, 2010 and August 25, 2010 Orders of the Regional Trial
Court (RTC) of Paraque City, Branch 257 are hereby SET ASIDE. Petitioner's complaint is
ordered REINSTATED and the case remanded to the RTC for further proceedings. rl lbrr

SO ORDERED.

G.R. No. L-27033 October 31, 1969

POLYTRADE CORPORATION, plaintiff-appellee,

vs.
VICTORIANO BLANCO, defendant-appellant.

Paredes, Poblador, Cruz and Nazareno for plaintiff-appellee.

Isidro T. Almeda and Mario T. Banzuela for defendant-appellant.

SANCHEZ, J.:

Suit before the Court of First Instance of Bulacan on four causes of action to recover the
purchase price of rawhide delivered by plaintiff to defendant.1 Plaintiff corporation has its
principal office and place of business in Makati, Rizal. Defendant is a resident of Meycauayan,
Bulacan. Defendant moved to dismiss upon the ground of improper venue. He claims that by
contract suit may only be lodged in the courts of Manila. The Bulacan court overruled him. He
did not answer the complaint. In consequence, a default judgment was rendered against him on
September 21, 1966, thus:
 WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant
ordering defendant to pay plaintiff the following amounts:

First Cause of P60,845.67, with interest thereon at 1% a month from May 9, 1965
Action until the full amount is paid.

Second Cause of P51,952.55, with interest thereon at 1% a month from March 30,
Action 1965 until the full amount is paid.

Third Cause of P53,973.07, with interest thereon at 1% a month from July 3, 1965
Action until the full amount is paid.

Fourth Cause of P41,075.22, with interest thereon at 1% a month2 until the full
Action amount is paid.

In addition, defendant shall pay plaintiff attorney's fees amounting to 25% of the
principal amount due in each cause of action, and the costs of the suit. The amount of
P400.00 shall be deducted from the total amount due plaintiff in accordance with this
judgment.

Defendant appealed.

1. The forefront question is whether or not venue was properly laid in the province of Bulacan
where defendant is a resident.

Section 2 (b), Rule 4 of the Rules of Court on venue of personal actions triable by courts of first
instance and this is one provides that such "actions may be commenced and tried where the
defendant or any of the defendants resides or may be found, or where the plaintiff or any of the
plaintiffs resides, at the election of the plaintiff." Qualifying this provision in Section 3 of the
same Rule which states that venue may be stipulated by written agreement "By written
agreement of the parties the venue of an action may be changed or transferred from one province
to another."

Defendant places his case upon Section 3 of Rule 4 just quoted. According to defendant, plaintiff
and defendant, by written contracts covering the four causes of action, stipulated that: "The
parties agree to sue and be sued in the Courts of Manila." This agreement is valid.3 Defendant
says that because of such covenant he can only be sued in the courts of Manila. We are thus
called upon to shake meaning from the terms of the agreement just quoted.

But first to the facts. No such stipulation appears in the contracts covering the first two causes of
action. The general rule set forth in Section 2 (b), Rule 4, governs, and as to said two causes of
action, venue was properly laid in Bulacan, the province of defendant's residence.

The stipulation adverted to is only found in the agreements covering the third and fourth causes
of action. An accurate reading, however, of the stipulation, "The parties agree to sue and be sued
in the Courts of Manila," does not preclude the filing of suits in the residence of plaintiff or
defendant. The plain meaning is that the parties merely consented to be sued in Manila.
Qualifying or restrictive words which would indicate that Manila and Manila alone is the venue
are totally absent therefrom. We cannot read into that clause that plaintiff and defendant bound
themselves to file suits with respect to the last two transactions in question only or exclusively in
Manila. For, that agreement did not change or transfer venue. It simply is permissive. The parties
solely agreed to add the courts of Manila as tribunals to which they may resort. They did not
waive their right to pursue remedy in the courts specifically mentioned in Section 2(b) of Rule 4.
Renuntiatio non praesumitur.

Illuminating on this point is Engel vs. Shubert Theatrical Co., 151 N.Y.S. 593, 594. And this,
became there the stipulation as to venue is along lines similar to the present. Said stipulation
reads: "In case of dispute, both contracting parties agree to submit to the jurisdiction of the
Vienna courts." And the ruling is: "By the clause in question the parties do not agree to submit
their disputes to the jurisdiction of the Viennese court, and to those courts only. There is nothing
exclusive in the language used. They do agree to submit to the Viennese jurisdiction, but they
say not a word in restriction of the jurisdiction of courts elsewhere; and whatever may be said on
the subject of the legality of contracts to submit controversies to courts of certain jurisdictions
exclusively, it is entirely plain that such agreements should be strictly construed, and should not
be extended by implication."

Venue here was properly laid.

2. Defendant next challenges the lower court's grant to plaintiff of interest at the rate of one per
centum per month. Defendant says that no such stipulation as to right of interest appears in the
sales confirmation orders which provided: "TERMS 60 days after delivery with interest
accruing on postdated cheques beyond 30 days." The flaw in this argument lies in that the
interest and the rate thereof are expressly covenanted in the covering trust receipts executed by
defendant in favor of plaintiff, as follows: "All obligations of the undersigned under this
agreement of trust shall bear interest at the rate of one per centum (1%) per month from the date
due until paid."

On this score, we find no error.

3. Defendant protests the award of attorneys' fees which totals P51,961.63, i.e., 25% of the total
principal indebtedness of P207,846.51 (exclusive of interest). Defendant's thesis is that the
foregoing sum is "exorbitant and unconscionable."

To be borne in mind is that the attorneys' fees here provided is not, strictly speaking, the
attorneys' fees recoverable as between attorney and client spoken of and regulated by the Rules
of Court. Rather, the attorneys' fees here are in the nature of liquidated damages and the
stipulation therefor is aptly called a penal clause.4 It has been said that so long as such stipulation
does not contravene law, morals, or public order, it is strictly binding upon defendant.5 The
attorneys' fees so provided are awarded in favor of the litigant, not his counsel. It is the litigant,
not counsel, who is the judgment creditor entitled to enforce the judgment by execution.6
The governing law then is Article 2227 of the Civil Code, viz.: "Liquidated damages, whether
intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or
unconscionable." For this reason, we do not really have to strictly view the reasonableness of the
attorneys' fees in the light of such factors as the amount and character of the services rendered,
the nature and importance of the litigation, and the professional character and the social standing
of the attorney. We do concede, however, that these factors may be an aid in the determination of
the iniquity or unconscionableness of attorneys' fees as liquidated damages.

May the attorneys' fees (P51,961.63) here granted be tagged as iniquitous or unconscionable?
Upon the circumstances, our answer is in the negative. Plaintiff's lawyers concededly are of high
standing. More important is that this case should not have gone to court. It could have been
easily avoided had defendant been faithful in complying with his obligations. It is not denied that
the rawhide was converted into leather and sold by defendant. He raises no defense. In fact, he
did not even answer the complaint in the lower court, and was thus declared in default. Nor does
he deny the principal liability. Add to all these the fact that the writ of attachment issued below
upon defendant's properties yielded no more than P400 and the picture is complete. The
continued maintenance by defendant of the suit is plainly intended for delay. The attorneys' fees
awarded cannot be called iniquitous or unconscionable.

In the very recent case of Universal Motors Corporation vs. Dy Hian Tat (1969), 28 SCRA 161,
170, we allowed attorneys' fees in the form of liquidated damages at the rate of 25% of the total
amount of the indebtedness. Here, the trial court has already reduced the attorneys' fees from the
stipulated 25% "of the total amount involved, principal and interest, then unpaid" to only 25% of
the principal amount due. There is no reason why such judgment should be disturbed.

FOR THE REASON GIVEN, the appealed judgment is hereby affirmed, except that interest
granted, in reference to the fourth cause of action, should start from March 24, 1965.

Costs against defendant-appellant. So ordered.

G.R. No. 128314 May 29, 2002

RODOLFO V. JAO, petitioner,

vs.
COURT OF APPEALS and PERICO V. JAO, respondents.

YNARES-SANTIAGO, J.:

Rodolfo and Perico Jao were the only sons of the spouses Ignacio Jao Tayag and Andrea V. Jao,
who died intestate in 1988 and 1989, respectively. The decedents left real estate, cash, shares of
stock and other personal properties.

On April 17, 1991, Perico instituted a petition for issuance of letters of administration before the
Regional Trial Court of Quezon City, Branch 99, over the estate of his parents, docketed as
Special Proceedings No. Q-91-8507.1 Pending the appointment of a regular administrator, Perico
moved that he be appointed as special administrator. He alleged that his brother, Rodolfo, was
gradually dissipating the assets of the estate. More particularly, Rodolfo was receiving rentals
from real properties without rendering any accounting, and forcibly opening vaults belonging to
their deceased parents and disposing of the cash and valuables therein.

Rodolfo moved for the dismissal of the petition on the ground of improper venue.2 He argued
that the deceased spouses did not reside in Quezon City either during their lifetime or at the time
of their deaths. The decedents actual residence was in Angeles City, Pampanga, where his late
mother used to run and operate a bakery. As the health of his parents deteriorated due to old age,
they stayed in Rodolfos residence at 61 Scout Gandia Street, Quezon City, solely for the
purpose of obtaining medical treatment and hospitalization. Rodolfo submitted documentary
evidence previously executed by the decedents, consisting of income tax returns, voters
affidavits, statements of assets and liabilities, real estate tax payments, motor vehicle registration
and passports, all indicating that their permanent residence was in Angeles City,
Pampanga.1wphi1.nt

In his opposition,3 Perico countered that their deceased parents actually resided in Rodolfos
house in Quezon City at the time of their deaths. As a matter of fact, it was conclusively declared
in their death certificates that their last residence before they died was at 61 Scout Gandia Street,
Quezon City.4 Rodolfo himself even supplied the entry appearing on the death certificate of their
mother, Andrea, and affixed his own signature on the said document.

Rodolfo filed a rejoinder, stating that he gave the information regarding the decedents residence
on the death certificates in good faith and through honest mistake. He gave his residence only as
reference, considering that their parents were treated in their late years at the Medical City
General Hospital in Mandaluyong, Metro Manila. Their stay in his house was merely transitory,
in the same way that they were taken at different times for the same purpose to Pericos
residence at Legaspi Towers in Roxas Boulevard. The death certificates could not, therefore, be
deemed conclusive evidence of the decedents residence in light of the other documents showing
otherwise.5

The court required the parties to submit their respective nominees for the position.6 Both failed to
comply, whereupon the trial court ordered that the petition be archived.7

Subsequently, Perico moved that the intestate proceedings be revived.8 After the parties
submitted the names of their respective nominees, the trial court designated Justice Carlos L.
Sundiam as special administrator of the estate of Ignacio Jao Tayag and Andrea Jao.9

On April 6, 1994, the motion to dismiss filed by petitioner Rodolfo was denied, to wit:

A mere perusal of the death certificates of the spouses issued separately in 1988 and
1989, respectively, confirm the fact that Quezon City was the last place of residence of
the decedents. Surprisingly, the entries appearing on the death certificate of Andrea V.
Jao were supplied by movant, Rodolfo V. Jao, whose signature appears in said document.
 Movant, therefore, cannot disown his own representation by taking an inconsistent
position other than his own admission. xxx xxx xxx.

WHEREFORE, in view of the foregoing consideration, this court DENIES for lack of
merit movants motion to dismiss.

SO ORDERED.10

Rodolfo filed a petition for certiorari with the Court of Appeals, which was docketed as CA-
G.R. SP No. 35908. On December 11, 1996, the Court of Appeals rendered the assailed decision,
the dispositive portion of which reads:

WHEREFORE, no error, much less any grave abuse of discretion of the court a quo
having been shown, the petition for certiorari is hereby DISMISSED. The questioned
order of the respondent Judge is affirmed in toto.

SO ORDERED.11

Rodolfos motion for reconsideration was denied by the Court of Appeals in the assailed
resolution dated February 17, 1997.12 Hence, this petition for review, anchored on the following
grounds:

RESPONDENT COURT HAD DECIDED A QUESTION OF SUBSTANCE IN A WAY

NOT IN ACCORD WITH THE LAW AND IS DIRECTLY CONTRADICTORY TO
THE APPLICABLE DECISION ALREADY RENDERED BY THIS HONORABLE
COURT.

II

RESPONDENT COURT ERRED IN DISREGARDING THE RULING OF THIS

HONORABLE COURT IN THE CASE OF EUSEBIO VS. EUSEBIO, 100 PHILS. 593,
WHICH CLEARLY INTERPRETED WHAT IS MEANT BY RESIDENCE IN SEC. 1
OF RULE 73 OF THE RULES OF COURT.

III

RESPONDENT COURT ERRED IN HOLDING THAT PHYSICAL PRESENCE IN A

PLACE AT THE TIME OF DEATH IS DETERMINATIVE OF DECEDENTS
RESIDENCE RATHER THAN THE INTENTION OF THE DECEDENTS TO
ESTABLISH THEIR PERMANENT RESIDENCE IN ANOTHER PLACE.

IV
 RESPONDENT COURT ERRED IN APPLYING BY ANALOGY THE RESIDENCE
CONTEMPLATED IN SEC. 2 OF RULE 4 FOR THE PURPOSE OF SERVING
SUMMONS TO A DEFENDANT IN A PERSONAL ACTION TO THE RESIDENCE
CONTEMPLATED IN SEC. 1 OF RULE 73 FOR THE PURPOSE OF DETERMINING
VENUE IN THE SETTLEMENT OF THE ESTATE OF A DECEASED.

RESPONDENT COURT ERRED IN GIVING MORE WEIGHT TO THE ENTRY OF

PETITIONER AND PRIVATE RESPONDENT IN THE RESPECTIVE DEATH
CERTIFICATES OF THE DECEDENTS RATHER THAN THE OVERWHELMING
EVIDENCE SHOWING THE CLEAR INTENTION OF THE DECEDENTS TO
ESTABLISH THEIR PERMANENT RESIDENCE IN ANGELES CITY.

VI

RESPONDENT COURT ERRED IN APPLYING THE PRINCIPLE OF ESTOPPEL AS

AGAINST PETITIONER WHICH CAN NOT BE MORE PERSUASIVE THAN THE
CLEAR INTENTION OF THE DECEDENTS THEMSELVES TO ESTABLISH
PERMANENT RESIDENCE IN ANGELES CITY.

VII

RESPONDENT COURT ERRED IN DISMISSING THE PETITION FOR

CERTIORARI DESPITE THE CLEAR ABUSE OF DISCRETION ON THE PART OF
THE TRIAL COURT IN INSISTING TO TAKE COGNIZANCE OF SP.
PROCEEDING NO. Q-91-8507.13

The main issue before us is: where should the settlement proceedings be had --- in Pampanga,
where the decedents had their permanent residence, or in Quezon City, where they actually
stayed before their demise?

Rule 73, Section 1 of the Rules of Court states:

Where estate of deceased persons be settled. If the decedent is an inhabitant of the

Philippines at the time of his death, whether a citizen or an alien, his will shall be proved,
or letters of administration granted, and his estate settled, in the Court of First Instance in
the province in which he resides at the time of his death, and if he is an inhabitant of a
foreign country, the Court of First Instance of any province in which he had estate. The
court first taking cognizance of the settlement of the estate of a decedent shall exercise
jurisdiction to the exclusion of all other courts. The jurisdiction assumed by a court, so
far as it depends on the place of residence of the decedent, or of the location of his estate,
shall not be contested in a suit or proceeding, except in an appeal from that court, in the
original case, or when the want of jurisdiction appears on the record. (underscoring ours)
Clearly, the estate of an inhabitant of the Philippines shall be settled or letters of administration
granted in the proper court located in the province where the decedent resides at the time of his
death.

Petitioner Rodolfo invokes our ruling in the case of Eusebio v. Eusebio, et al.,14 where we held
that the situs of settlement proceedings shall be the place where the decedent had his permanent
residence or domicile at the time of death. In determining residence at the time of death, the
following factors must be considered, namely, the decedent had: (a) capacity to choose and
freedom of choice; (b) physical presence at the place chosen; and (c) intention to stay therein
permanently.15 While it appears that the decedents in this case chose to be physically present in
Quezon City for medical convenience, petitioner avers that they never adopted Quezon City as
their permanent residence.1wphi1.nt

The contention lacks merit.

The facts in Eusebio were different from those in the case at bar. The decedent therein, Andres
Eusebio, passed away while in the process of transferring his personal belongings to a house in
Quezon City. He was then suffering from a heart ailment and was advised by his doctor/son to
purchase a Quezon City residence, which was nearer to his doctor. While he was able to acquire
a house in Quezon City, Eusebio died even before he could move therein. In said case, we ruled
that Eusebio retained his domicile --- and hence, residence --- in San Fernando, Pampanga. It
cannot be said that Eusebio changed his residence because, strictly speaking, his physical
presence in Quezon City was just temporary.

In the case at bar, there is substantial proof that the decedents have transferred to petitioners
Quezon City residence. Petitioner failed to sufficiently refute respondents assertion that their
elderly parents stayed in his house for some three to four years before they died in the late 1980s.

Furthermore, the decedents respective death certificates state that they were both residents of
Quezon City at the time of their demise. Significantly, it was petitioner himself who filled up his
late mothers death certificate. To our mind, this unqualifiedly shows that at that time, at least,
petitioner recognized his deceased mothers residence to be Quezon City. Moreover, petitioner
failed to contest the entry in Ignacios death certificate, accomplished a year earlier by
respondent.

The recitals in the death certificates, which are admissible in evidence, were thus properly
considered and presumed to be correct by the court a quo. We agree with the appellate courts
observation that since the death certificates were accomplished even before petitioner and
respondent quarreled over their inheritance, they may be relied upon to reflect the true situation
at the time of their parents death.

The death certificates thus prevailed as proofs of the decedents residence at the time of death,
over the numerous documentary evidence presented by petitioner. To be sure, the documents
presented by petitioner pertained not to residence at the time of death, as required by the Rules
of Court, but to permanent residence or domicile. In Garcia-Fule v. Court of Appeals,16 we
held:
 xxx xxx xxx the term "resides" connotes ex vi termini "actual residence" as distinguished
from "legal residence or domicile." This term "resides", like the terms "residing" and
"residence", is elastic and should be interpreted in the light of the object or purpose of the
statute or rule in which it is employed. In the application of venue statutes and rules
Section 1, Rule 73 of the Revised Rules of Court is of such nature residence rather than
domicile is the significant factor. Even where the statute uses the word "domicile" still it
is construed as meaning residence and not domicile in the technical sense. Some cases
make a distinction between the terms "residence" and "domicile" but as generally used in
statutes fixing venue, the terms are synonymous, and convey the same meaning as the
term "inhabitant." In other words, "resides" should be viewed or understood in its popular
sense, meaning, the personal, actual or physical habitation of a person, actual residence or
place of abode. It signifies physical presence in a place and actual stay thereat. In this
popular sense, the term means merely residence, that is, personal residence, not legal
residence or domicile. Residence simply requires bodily presence as an inhabitant in a
given place, while domicile requires bodily presence in that place and also an intention to
make it ones domicile. No particular length of time of residence is required though;
however, the residence must be more than temporary.17

Both the settlement court and the Court of Appeals found that the decedents have been living
with petitioner at the time of their deaths and for some time prior thereto. We find this
conclusion to be substantiated by the evidence on record. A close perusal of the challenged
decision shows that, contrary to petitioners assertion, the court below considered not only the
decedents physical presence in Quezon City, but also other factors indicating that the decedents
stay therein was more than temporary. In the absence of any substantial showing that the lower
courts factual findings stemmed from an erroneous apprehension of the evidence presented, the
same must be held to be conclusive and binding upon this Court.

Petitioner strains to differentiate between the venue provisions found in Rule 4, Section 2,18 on
ordinary civil actions, and Rule 73, Section 1, which applies specifically to settlement
proceedings. He argues that while venue in the former understandably refers to actual physical
residence for the purpose of serving summons, it is the permanent residence of the decedent
which is significant in Rule 73, Section 1. Petitioner insists that venue for the settlement of
estates can only refer to permanent residence or domicile because it is the place where the
records of the properties are kept and where most of the decedents properties are located.

Petitioners argument fails to persuade.

It does not necessarily follow that the records of a persons properties are kept in the place where
he permanently resides. Neither can it be presumed that a persons properties can be found
mostly in the place where he establishes his domicile. It may be that he has his domicile in a
place different from that where he keeps his records, or where he maintains extensive personal
and business interests. No generalizations can thus be formulated on the matter, as the question
of where to keep records or retain properties is entirely dependent upon an individuals choice
and peculiarities.
At any rate, petitioner is obviously splitting straws when he differentiates between venue in
ordinary civil actions and venue in special proceedings. In Raymond v. Court of Appeals19 and
Bejer v. Court of Appeals,20 we ruled that venue for ordinary civil actions and that for special
proceedings have one and the same meaning. As thus defined, "residence", in the context of
venue provisions, means nothing more than a persons actual residence or place of abode,
provided he resides therein with continuity and consistency.21 All told, the lower court and the
Court of Appeals correctly held that venue for the settlement of the decedents intestate estate
was properly laid in the Quezon City court.

WHEREFORE, in view of the foregoing, the petition is DENIED, and the decision of the Court
of Appeals in CA-G.R. SP No. 35908 is AFFIRMED.

SO ORDERED.

[G.R. NO. 155736. March 31, 2005]

SPOUSES DANILO and CRISTINA DECENA, Petitioners, v. SPOUSES PEDRO and

VALERIA PIQUERO, Respondents.

RESOLUTION

CALLEJO, SR., J.:

The petitioners, Spouses Danilo and Cristina Decena were the owners of a parcel of land, with a
house constructed thereon, located in Paraaque, Metro Manila (now Paraaque City)
covered by Transfer Certificate of Title (TCT) No. 134391 issued on February 24, 1998.1

On September 7, 1997, the petitioners and the respondents, the Spouses Pedro and Valeria
Piquero, executed a Memorandum of Agreement (MOA)2 in which the former sold the property
to the latter for the price of P940,250.00 payable in six (6) installments via postdated checks. The
vendees forthwith took possession of the property.

It appears in the MOA that the petitioners obliged themselves to transfer the property to the
respondents upon the execution of the MOA with the condition that if two of the postdated
checks would be dishonored by the drawee bank, the latter would be obliged to reconvey the
property to the petitioners.

On May 17, 1999, the petitioners, then residents of Malolos, Bulacan, filed a Complaint3 against
the respondents with the Regional Trial Court (RTC) of Malolos, Bulacan, for the annulment of
the sale/MOA, recovery of possession and damages. The petitioners alleged therein that, they did
not transfer the property to and in the names of the respondents as vendees because the first two
checks drawn and issued by them in payment for the purchase price of the property were
dishonored by the drawee bank, and were not replaced with cash despite demands therefor.
The petitioners prayed that, after due proceedings, judgment be rendered in their favor, thus:

a. The sale/Memorandum of Agreement (Annex "A," supra) be declared null and void, rescinded
and with no further force and effect;

b. Defendants, and all persons claiming right under them, be ordered to immediately vacate the
subject property and turnover its possession to the plaintiffs;

c. Defendants, jointly and severally, be ordered to pay the plaintiffs:

i. P10,000.00 - monthly, starting 01 October 1997 until complete turnover of the subject property
to the plaintiffs, as reasonable compensation for its continued unlawful use and occupation by
the defendants;

ii. P200,000.00 - moral damages;

iii. P200,000.00 - exemplary damages;

iv. P250,000.00 - attorney's fees and litigation - related expenses; and cralawlibrary

v. the costs of suit.

Other reliefs just and equitable are, likewise, prayed for.4

The petitioners declared in their complaint that the property subject of the complaint was valued
at P6,900,000.00. They appended copies of the MOA and TCT No. 134391 to their complaint.
The case was eventually raffled to Branch 13 of the RTC of Malolos, Bulacan.

The respondents filed a motion to dismiss the complaint on the ground, inter alia, of improper
venue and lack of jurisdiction over the property subject matter of the action.

On the first ground, the respondents averred that the principal action of the petitioners for the
rescission of the MOA, and the recovery of the possession of the property is a real action and not
a personal one; hence, it should have been brought in the RTC of Paraaque City, where the
property subject matter of the action was located, and not in the RTC of Malolos, Bulacan, where
the petitioners resided. The respondents posited that the said court had no jurisdiction over the
property subject matter of the action because it was located in Paraaque City.5

In opposition, the petitioners insisted that their action for damages and attorney's fees is a
personal action and not a real action; hence, it may be filed in the RTC of Bulacan where they
reside. They averred that while their second cause of action for the recovery of the possession of
the property is a real action, the same may, nevertheless, be joined with the rest of their causes of
action for damages, conformably with Section 5(c), Rule 2 of the Rules of Court.6

By way of reply, the respondents averred that Section 5(c), Rule 2 of the Rules of Court applies
only when one or more of multiple causes of action falls within the exclusive jurisdiction of the
first level courts, and the other or others are within the exclusive jurisdiction of the RTC, and the
venue lies therein.

On February 9, 2000, the trial court issued an Order7 denying the motion for lack of merit. It
found merit in the petitioner's contention that Section 5(c), Rule 2 was applicable.

Meanwhile, the case was re-raffled to Branch 10 of the RTC of Malolos, Bulacan. In a Motion8
dated December 20, 2000, the respondents prayed for the reconsideration of the trial court's
February 9, 2000 Order. On October 16, 2001, the court issued an Order9 granting the motion
and ordered the dismissal of the complaint. It ruled that the principal action of the petitioners was
a real action and should have been filed in the RTC of Paraaque City where the property
subject matter of the complaint was located. However, since the case was filed in the RTC of
Bulacan where the petitioners reside, which court had no jurisdiction over the subject matter of
the action, it must be dismissed.

Hence, the present recourse.

The petition has no merit.

The sole issue is whether or not venue was properly laid by the petitioners in the RTC of
Malolos, Bulacan. The resolution of this issue is, in turn, anchored on whether Section 5, Rule 2
of the Rules of Court invoked by the petitioners is applicable in this case.

Under the said Rule, a party may, in one pleading, assert, in the alternative or otherwise, as many
causes of action as he may have against an opposing party subject to the conditions therein
enumerated, one of which is Section 5(c) which reads:

Sec. 5. Joinder of causes of action. -

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

Explaining the aforequoted condition, Justice Jose Y. Feria declared:

(c) Under the third condition, if one cause of action falls within the jurisdiction of the Regional
Trial Court and the other falls within the jurisdiction of a Municipal Trial Court, the action
should be filed in the Regional Trial Court. If the causes of action have different venues, they
may be joined in any of the courts of proper venue. Hence, a real action and a personal action
may be joined either in the Regional Trial Court of the place where the real property is located or
where the parties reside.10

A cause of action is an act or omission of one party in violation of the legal right of the other
which causes the latter injury. The essential elements of a cause of action are the following: (1)
the existence of a legal right of the plaintiff; (2) a correlative legal duty of the defendant to
respect one's right; and (3) an act or omission of the defendant in violation of the plaintiff's
right.11 A cause of action should not be confused with the remedies or reliefs prayed for. A cause
of action is to be found in the facts alleged in the complaint and not in the prayer for relief. It is
the substance and not the form that is controlling.12 A party may have two or more causes of
action against another party.

A joinder of causes of action is the uniting of two or more demands or right of action in a
complaint. The question of the joinder of causes of action involves in particular cases a
preliminary inquiry as to whether two or more causes of action are alleged.13 In declaring
whether more than one cause of action is alleged, the main thrust is whether more than one
primary right or subject of controversy is present. Other tests are whether recovery on one
ground would bar recovery on the other, whether the same evidence would support the other
different counts and whether separate actions could be maintained for separate relief;14 or
whether more than one distinct primary right or subject of controversy is alleged for enforcement
or adjudication.15

A cause of action may be single although the plaintiff seeks a variety of remedies. The mere fact
that the plaintiff prays for multiple reliefs does not indicate that he has stated more than one
cause of action. The prayer may be an aid in interpreting the petition and in determining whether
or not more than one cause of action is pleaded.16 If the allegations of the complaint show one
primary right and one wrong, only one cause of action is alleged even though other matters are
incidentally involved, and although different acts, methods, elements of injury, items of claims
or theories of recovery are set forth.17 Where two or more primary rights and wrongs appear,
there is a joinder of causes of action.

After due consideration of the foregoing, we find and so rule that Section 5(c), Rule 2 of the
Rules of Court does not apply. This is so because the petitioners, as plaintiffs in the court a quo,
had only one cause of action against the respondents, namely, the breach of the MOA upon the
latter's refusal to pay the first two installments in payment of the property as agreed upon, and
turn over to the petitioners the possession of the real property, as well as the house constructed
thereon occupied by the respondents. The claim for damages for reasonable compensation for the
respondents' use and occupation of the property, in the interim, as well as moral and exemplary
damages suffered by the petitioners on account of the aforestated breach of contract of the
respondents are merely incidental to the main cause of action, and are not independent or
separate causes of action.18

The action of the petitioners for the rescission of the MOA on account of the respondents' breach
thereof and the latter's failure to return the premises subject of the complaint to the petitioners,
and the respondents' eviction therefrom is a real action.19 As such, the action should have been
filed in the proper court where the property is located, namely, in Paraaque City, conformably
with Section 1, Rule 4 of the Rules of Court which reads:

SECTION 1. Venue of real actions. - Actions affecting title to or possession of real property, or
interest therein, shall be commenced and tried in the proper court which has jurisdiction over the
area wherein the real property involved, or a portion thereof, is situated.
Since the petitioners, who were residents of Malolos, Bulacan, filed their complaint in the said
RTC, venue was improperly laid; hence, the trial court acted conformably with Section 1(c),
Rule 16 of the Rules of Court when it ordered the dismissal of the complaint.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs
against the petitioners.

SO ORDERED.

G.R. NO. 201675, June 19, 2013

JUANITO ANG, FOR AND IN BEHALF OF SUNRISE MARKETING (BACOLOD),

INC.,*Petitioner, v. SPOUSES ROBERTO AND RACHEL ANG, Respondents.

DECISION

CARPIO, J.:

The Case

This petition for review1 assails the Decision2 of the Court of Appeals Cebu (CA-Cebu) dated 20
September 2011 in CA-G.R. SP No. 05546. The CA-Cebu reversed and set aside the Order3 of
the Regional Trial Court, Branch 53, Bacolod City (RTC Bacolod) dated 27 September 2010 in
Commercial Court Case No. OQ-070 entitled Sunrise Marketing (Bacolod), Inc., represented by
Juanito Ang v. Spouses Roberto and Rachel Ang. cralaw lawlibrary

The Facts

Sunrise Marketing (Bacolod), Inc. (SMBI) is a duly registered corporation owned by the Ang
family.4 Its current stockholders and their respective stockholdings are as follows:5 chanroblesvirtuallawlibrary

Stockholder Number of Shares

Juanito Ang 8,750
Anecita Ang 1,250
Jeannevie Ang 2,500
Roberto Ang 8,750
Rachel Ang 3,750
Total 25,000

Juanito Ang (Juanito) and Roberto Ang (Roberto) are siblings. Anecita Limoco-Ang (Anecita) is
Juanitos wife and Jeannevie is their daughter. Roberto was elected President of SMBI, while
Juanito was elected as its Vice President. Rachel Lu-Ang (Rachel) and Anecita are SMBIs
Corporate Secretary and Treasurer, respectively.

On 31 July 1995, Nancy Ang (Nancy), the sister of Juanito and Roberto, and her husband,
Theodore Ang (Theodore), agreed to extend a loan to settle the obligations of SMBI and other
corporations owned by the Ang family, specifically Bayshore Aqua Culture Corporation,
Oceanside Marine Resources and JR Aqua Venture.6 Nancy and Theodore issued a check in the
amount of $1,000,000.00 payable to Juanito Ang and/or Anecita Ang and/or Roberto Ang
and/or Rachel Ang. Nancy was a former stockholder of SMBI, but she no longer appears in
SMBIs General Information Sheets as early as 1996.7 Nancy and Theodore are now currently
residing in the United States. There was no written loan agreement, in view of the close
relationship between the parties. Part of the loan was also used to purchase real properties for
SMBI, for Juanito, and for Roberto.8 chanroblesvirtuallawlibrary

On 22 December 2005, SMBI increased its authorized capital stock to P10,000,000.00. The
Certificate of Increase of Capital Stock was signed by Juanito, Anecita, Roberto, and Rachel as
directors of SMBI.9 Juanito claimed, however, that the increase of SMBIs capital stock was
done in contravention of the Corporation Code.10 According to Juanito, when he and Anecita left
for Canada:chanrobles virtualawlibrary

x x x Sps. Roberto and Rachel Ang took over the active management of [SMBI]. Through the
employment of sugar coated words[,] they were able to successfully manipulate the stocks
sharings between themselves at 50-50 under the condition that the procedures mandated by the
Corporation Code on increase of capital stock be strictly observed (valid Board Meeting). No
such meeting of the Board to increase capital stock materialized. It was more of an
accommodation to buy peace x x x.11

Juanito claimed that payments to Nancy and Theodore ceased sometime after 2006. On 24
November 2008, Nancy and Theodore, through their counsel here in the Philippines, sent a
demand letter to Spouses Juanito L. Ang/Anecita L. Ang and Spouses Roberto L. Ang/Rachel
L. Ang for payment of the principal amounting to $1,000,000.00 plus interest at ten percent
(10%) per annum, for a total of $2,585,577.37 within ten days from receipt of the letter.12
Roberto and Rachel then sent a letter to Nancy and Theodores counsel on 5 January 2009,
saying that they are not complying with the demand letter because they have not personally
contracted a loan from Nancy and Theodore.

On 8 January 2009, Juanito and Anecita executed a Deed of Acknowledgment and Settlement
Agreement (Settlement Agreement) and an Extra-Judicial Real Estate Mortgage (Mortgage).
Under the foregoing instruments, Juanito and Anecita admitted that they, together with Roberto
and Rachel, obtained a loan from Nancy and Theodore for $1,000,000.00 on 31 July 1995 and
such loan shall be secured by: chanroblesvirtualawlibrary

a) Juanito and Anecitas fifty percent share over a parcel of land registered in the name of
SMBI;
b) a parcel of land registered in the name of Juanito Ang;
c) Juanitos fifty percent share in 7 parcels of land registered in his and Robertos name;
d) a parcel of land registered in the name of Roberto;
e) a parcel of land registered in the name of Rachel; and
f) Roberto and Rachels fifty percent share in 2 parcels of land registered in the name of their
son, Livingstone L. Ang (Livingstone), and in another lot registered in the name of
Livingstone and Alvin Limoco Ang.13

A certain Kenneth C. Locsin (Locsin) signed on behalf of Nancy and Theodore, under a Special
Power of Attorney which was not attached as part of the Settlement Agreement or the Mortgage,
nor included in the records of this case.

Thereafter, Juanito filed a Stockholder Derivative Suit with prayer for an ex-parte Writ of
Attachment/Receivership (Complaint) before the RTC Bacolod on 29 January 2009. He alleged
that the intentional and malicious refusal of defendant Sps. Roberto and Rachel Ang to [settle]
their 50% share x x x [of] the total obligation x x x will definitely affect the financial viability of
plaintiff SMBI.14 Juanito also claimed that he has been illegally excluded from the
management and participation in the business of [SMBI through] force, violence and
intimidation and that Rachel and Roberto have seized and carted away SMBIs records from its
office.15
chanroblesvirtuallawlibrary

The Complaint sought the following reliefs: chanroblesv irtualawlibrary

a) Issuance of an ex-parte Writ of Attachment and/or Garnishment, with a Break Open Order
covering the assets of the spouses Roberto and Rachel Ang, or any interest they may have
against third parties;
b) Placement of SMBI under Receivership pending resolution of the case;
c) Enforcement of Juanitos right to actively participate in the management of SMBI;
d) Issuance of an Order compelling the Spouses Roberto and Rachel Ang to:
i. Render an accounting of the utilization of the loan amounting to $2,585,577.37 or
P120,229,347.26;
ii. Pay fifty percent of the aforementioned loan, amounting to P60,114,673.62;
iii. Explain why Nancy was removed as a stockholder as far as SMBIs reportorial
requirements with the SEC are concerned;
iv. Restore Juanitos right to actively manage the affairs of the corporation; and
v. Pay attorneys fees amounting to P20,000.00.

On 29 January 2009, the RTC Bacolod issued an Order16 granting the application for an ex-parte
writ of attachment and break open order. Atty. Jerry Basiao, who filed an application for
appointment as Receiver of SMBI, was directed by the RTC Bacolod to furnish the required
Receivership Bond.17 On the same date, Roberto and Rachel moved to quash the writ of
attachment and set aside the break open order and appointment of receiver.18 They claimed that
these were issued in violation of their right to due process: chanroblesvirtualawlibrary

Records of this case would show that the complaint was filed before [the RTC Bacolod] at 2:50
p.m. of January 29, 2009. x x x

xxxx

[C]ounsel for the defendant-spouses went to [the RTC Bacolod] at around 3:00 p.m. on January
29, 2009 [to inquire on] the status of the case and was informed that the last pleading on record is
his entry of appearance with the conformity of the defendant Rachel Ang. Counsel was however
informed by the clerk of court that the Honorable Judge has already issued an order directing the
issuance of the writ of preliminary attachment, receivership and break open order but said order
was not officially released yet x x x. Due to the undersigned counsels insistence, however, said
clerk of court of this Honorable Court furnished him a copy of said order x x x. [T]he clerk of
court and the clerk in charge of civil cases assured [counsel] that no writ of preliminary
attachment was prepared or issued x x x. Despite [such] assurance x x x [and counsels advice
that they shall move to quash the order the following morning], that afternoon, the clerk of court
x x x clandestinely, hurriedly and surreptitiously, for reasons known only [to] her, x x x prepared
the writ of attachment x x x.19

In her Verified Answer Ad Cautelam which was filed on 10 February 2009, Rachel prayed that
the Complaint be dismissed as it was not a bona fide derivative suit as defined under the Interim
Rules of Procedure for Intra-Corporate Controversies20 (Interim Rules). According to Rachel, the
Complaint, although labelled as a derivative suit, is actually a collection suit since the real party
in interest is not SMBI, but Nancy and Theodore: chanroblesv irtu alawlibrary

[T]he cause of action does not devolve on the corporation as the alleged harm or wrong pertains
to the right of the Sps. Theodore and Nancy Ang, as creditors, to collect the amount allegedly
owed to them. x x x

xxxx

That the instant suit is for the benefit of a non-stockholder and not the corporation is obvious
when the primary relief prayed for in the Complaint which is for the defendants to pay the
amount of Php 60,114,673.62 plus interest which is 50% of the loan obligations of plaintff
[SMBI] to its creditor Sps. Theodore and Nancy Ang. Otherwise stated, the instant suit is
nothing but a complaint for sum of money shamelessly masked as a derivative suit.21

Rachel also argued that the Complaint failed to allege that Juanito exerted all reasonable efforts
to exhaust all intra-corporate remedies available under the articles of incorporation, by-laws,
laws or rules governing the corporation to obtain the relief he desires, as required by the Interim
Rules.

During cross-examination, Juanito admitted that there was no prior demand for accounting or
liquidation nor any written objection to SMBIs increase of capital stock. He also conceded that
the loan was extended by persons who are not stockholders of SMBI. Thus, Rachel filed a
Motion for Preliminary Hearing on Affirmative Defenses on 27 November 2009, arguing that in
view of Juanitos admissions, the Complaint should be dismissed pursuant to Section 1 of the
Interim Rules. Juanito filed his Opposition thereto on 8 January 2010,22 arguing that applying
this Courts ruling in Hi-Yield Realty, Inc. v. Court of Appeals,23 the requirement for exhaustion
of intra-corporate remedies is no longer needed when the corporation itself is under the
complete control of the persons against whom the suit is filed. Juanito also alleged that he and
Anecita were deceived into signing checks to pay off bogus loans purportedly extended by
Rachels relatives in favor of SMBI. Some of the checks were payable to cash, and were
allegedly deposited in Rachels personal account.24 He also claimed that Rachels Motion is
disallowed under the Interim Rules.
On 9 February 2009, Juanito moved that Rachel and her daughter, Em Ang (Em), as well as their
counsel, Atty. Filomeno Tan, Jr. (Atty. Tan) be held in contempt. Juanito claimed that on the
date the writ of attachment and break open order were issued, Atty. Tan, accompanied by Rachel
and Em, arrogantly demanded from the Clerk in charge of Civil Cases that he be furnished a
copy of the [said orders] x x x otherwise he will tear the records of the subject commercial case.
Juanito also accused Atty. Tan of surreptitiously photocopying the said orders prior to service of
the summons, Complaint, Writ of Attachment and Attachment Bond. According to Juanito, the
purpose of obtaning a copy of the orders was to thwart its implementation. Thus, when the
authorities proceeded to the SMBI premises to enforce the orders, they found that the place was
padlocked, and that all corporate documents and records were missing. On 14 December 2010,
the Sheriff and other RTC Bacolod employees then filed a Verified Complaint against Atty. Tan
before this Court, which also contained the foregoing allegations.25 chanroblesvirtuallawlibrary

Rachel then filed a Reply on 27 January 2010, claiming that Juanitos reliance on the Hi-Yield
case is misplaced:chanroblesv irtualawlibrary

The facts x x x of this case are strikingly different from that in Hi-Yield Realty. In that case, the
Supreme Court noted that the complaining stockholder was a minority stockholder. However, in
the case at bar, Juanito Ang is one of the biggest stockholders of [SMBI]. x x x [H]e is a member
of [SMBIs] Board of Directors and is even the vice-president thereof. Furthermore, in Hi-Yield
Realty, the Supreme Court noted that the complaining stockholder was excluded from the affairs
of the corporation. However, the evidence thus far presented, particularly Juanito Angs
admission, show that he and his wife, Anecita, participate in the disbursement of [SMBIs] funds
x x x.26

Juanito filed his Rejoinder on 2 March 2010. cralaw lawlibrary

The Ruling of the RTC Bacolod

On 27 September 2010, the RTC Bacolod issued an Order which stated that: chanroblesvirtualawlibrary

WHEREFORE, premises considered[,] the court hereby rules that the present action is a
DERIVATIVE SUIT and [the] Motion to Dismiss based on Affirmative Defenses raised by
defendants is DENIED for lack of merit.27

The RTC Bacolod found that the issuance of the checks to settle the purported obligations to
Rachels relatives, as well as the removal of Nancy as a stockholder in SMBIs records as filed
with the SEC, shows that Rachel and Roberto committed fraud. The Order likewise stated that
the requirement of exhaustion of intra-corporate remedies is no longer necessary since Rachel
and Roberto exercised complete control over SMBI.

Aggrieved, Rachel filed a Petition for Certiorari with the CA-Cebu. cralaw lawlibrary

The Ruling of the CA-Cebu

On 20 September 2011, the CA-Cebu promulgated its Decision which reversed and set aside the
Order of the RTC Bacolod dated 27 September 2010. According to the CA-Cebu, the Complaint
filed by Juanito should be dismissed because it is a harassment suit, and not a valid derivative
suit as defined under the Interim Rules. The CA-Cebu also found that Juanito failed to exhaust
intra-corporate remedies and that the loan extended by Nancy and Theodore was not SMBIs
corporate obligation. There is nothing on record to show that non-payment of the loan will result
in any damage or prejudice to SMBI.

Juanito then filed a Motion for Reconsideration with Prayer for Voluntary Inhibition on 28
October 2011. In his Motion, Juanito pointed out that Rachel filed her Petition for Certiorari
without previously filing a Motion for Reconsideration, warranting the dismissal of the said
Petition. The CA-Cebu denied the Motion.

Hence, this petition. cralaw lawlibrary

The Issues

The issues raised in the instant petition are: chanroblesvirtualawlibrary

I. Whether based on the allegations of the complaint, the nature of the case is one of a derivative
suit or not.

Corollary to the above, whether the Honorable Court of Appeals erred x x x in ordering the
dismissal of the Complaint on the ground that the case is not a derivative suit.

II. Whether the Honorable Court of Appeals x x x seriously erred in considering evidence
aliunde, that is, other than the four corners of the complaint, in determining the nature of the
complaint, in utter violation of the doctrine that the jurisdiction is determined by law and
allegations of the complaint alone.

III. Granting arguendo, but without necessarily admitting that the complaint is not one of a
derivative suit, but only an ordinary civil action, whether the Honorable Court of Appeals x x x
gravely erred in dismissing the petition entirely, when the Regional Trial Court a quo has
jurisdiction also over the case as an ordinary civil action, and can just proceed to hear the same
as such.28

The Ruling of this Court

The petition has no merit.

We uphold the CA-Cebus finding that the Complaint is not a derivative suit. A derivative suit is
an action brought by a stockholder on behalf of the corporation to enforce corporate rights
against the corporations directors, officers or other insiders.29 Under Sections 2330 and 3631of
the Corporation Code, the directors or officers, as provided under the by-laws,32 have the right to
decide whether or not a corporation should sue. Since these directors or officers will never be
willing to sue themselves, or impugn their wrongful or fraudulent decisions, stockholders are
permitted by law to bring an action in the name of the corporation to hold these directors and
officers accountable.33 In derivative suits, the real party in interest is the corporation, while the
stockholder is a mere nominal party.

This Court, in Yu v. Yukayguan,34 explained: chanroblesvirtualawlibrary

The Court has recognized that a stockholders right to institute a derivative suit is not based on
any express provision of the Corporation Code, or even the Securities Regulation Code, but is
impliedly recognized when the said laws make corporate directors or officers liable for damages
suffered by the corporation and its stockholders for violation of their fiduciary duties. Hence, a
stockholder may sue for mismanagement, waste or dissipation of corporate assets because of a
special injury to him for which he is otherwise without redress. In effect, the suit is an action
for specific performance of an obligation owed by the corporation to the stockholders to assist its
rights of action when the corporation has been put in default by the wrongful refusal of the
directors or management to make suitable measures for its protection. The basis of a
stockholders suit is always one in equity. However, it cannot prosper without first complying
with the legal requisites for its institution. (Emphasis in the original)

Section 1, Rule 8 of the Interim Rules imposes the following requirements for derivative suits: chanroblesvirtualawlibrary

(1) [The person filing the suit must be] a stockholder or member at the time the acts or
transactions subject of the action occurred and the time the action was filed; nadcralavvonlinelawlibrary

(2) [He must have] exerted all reasonable efforts, and alleges the same with particularity in the
complaint, to exhaust all remedies available under the articles of incorporation, by-laws, laws or
rules governing the corporation or partnership to obtain the relief he desires; nadcralavvonlinelawlibrary

(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit.

Applying the foregoing, we find that the Complaint is not a derivative suit. The Complaint failed
to show how the acts of Rachel and Roberto resulted in any detriment to SMBI. The CA-Cebu
correctly concluded that the loan was not a corporate obligation, but a personal debt of the Ang
brothers and their spouses. The check was issued to Juanito Ang and/or Anecita Ang and/or
Roberto Ang and/or Rachel Ang and not SMBI. The proceeds of the loan were used for
payment of the obligations of the other corporations owned by the Angs as well as the purchase
of real properties for the Ang brothers. SMBI was never a party to the Settlement Agreement or
the Mortgage. It was never named as a co-debtor or guarantor of the loan. Both instruments were
executed by Juanito and Anecita in their personal capacity, and not in their capacity as directors
or officers of SMBI. Thus, SMBI is under no legal obligation to satisfy the obligation.

The fact that Juanito and Anecita attempted to constitute a mortgage over their share in a
corporate asset cannot affect SMBI. The Civil Code provides that in order for a mortgage to be
valid, the mortgagor must be the absolute owner of the thing x x x mortgaged.35 Corporate
assets may be mortgaged by authorized directors or officers on behalf of the corporation as
owner, as the transaction of the lawful business of the corporation may reasonably and
necessarily require.36 However, the wording of the Mortgage reveals that it was signed by
Juanito and Anecita in their personal capacity as the owners of a pro-indiviso share in SMBIs
land and not on behalf of SMBI: chanrobles virtualawlibrary
This [Mortgage] is made and executed by and between: chanroblesvirtualawlibrary

Spouses JUANITO and ANECITA ANG, of legal age, Filipino citizens, resident[s] of Sunrise
Marketing Building at Hilado Street, Capitol Shopping Center, Bacolod City, hereinafter referred
to as the MORTGAGOR[S]; nadcralavvonlinelawlibrary

Spouses THEODORE and NANCY ANG, x x x hereinafter referred to as the MORTGAGEE[S]

represented in this instance through their attorney-in-fact, Mr. Kenneth Locsin; nadcralavvonlinelawlibrary

xxxx

In order to ensure payment x x x the MORTGAGORS hereby CONVEY unto the

MORTGAGEES by way of EXTRA-JUDICIAL REAL ESTATE MORTGAGE their 50%
rights and interests over the following real properties to wit: chanroblesvirtualawlibrary

a. Those registered in the name of SUNRISE MARKETING (BACOLOD), INC. x x x

x x x x37 (Emphasis supplied)

Juanito and Anecita, as stockholders of SMBI, are not co-owners of SMBI assets. They do not
own pro-indiviso shares, and therefore, cannot mortgage the same except in their capacity as
directors or officers of SMBI.

We also find that there is insufficient evidence to suggest that Roberto and Rachel fraudulently
and wrongfully removed Nancy as a stockholder in SMBIs reportorial requirements. As early as
2005, when SMBI increased its capital stock, Juanito and Anecita already knew that Nancy was
not listed as a stockholder of SMBI. However, they attempted to rectify the error only in 2009,
when the Complaint was filed. That it took four years for them to make any attempt to question
Nancys exclusion as stockholder negates their allegation of fraud.

Since damage to the corporation was not sufficiently proven by Juanito, the Complaint cannot be
considered a bona fide derivative suit. A derivative suit is one that seeks redress for injury to the
corporation, and not the stockholder. No such injury was proven in this case.

The Complaint also failed to allege that all available corporate remedies under the articles of
incorporation, by-laws, laws or rules governing the corporation were exhausted, as required
under the Interim Rules. The CA-Cebu, applying our ruling in the Yu case, pointed out: chanroblesvirtualawlibrary

x x x No written demand was ever made for the board of directors to address private respondent
Juanito Angs concerns.

The fact that [SMBI] is a family corporation does not exempt private respondent Juanito Ang
from complying with the [Interim] Rules. In the x x x Yu case, the Supreme Court held that a
family corporation is not exempt from complying with the clear requirements and formalities of
the rules for filing a derivative suit. There is nothing in the pertinent laws or rules [which state
that there is a] distinction between x x x family corporations x x x [and] other types of
corporations in the institution [by] a stockholder of a derivative suit.38
Furthermore, there was no allegation that there was an attempt to remove Rachel or Roberto as
director or officer of SMBI, as permitted under the Corporation Code and the by-laws of the
corporation. Thus, the Complaint failed to satisfy the requirements for a derivative suit under the
Interim Rules.

The CA-Cebu correctly ruled that the Complaint should be dismissed since it is a nuisance or
harassment suit under Section 1(b) of the Interim Rules. Section 1(b) thereof provides: chanroblesvirtualawlibrary

b) Prohibition against nuisance and harassment suits. - Nuisance and harassment suits are
prohibited. In determining whether a suit is a nuisance or harassment suit, the court shall
consider, among others, the following: chanroblesv irtualawlibrary

(1) The extent of the shareholding or interest of the initiating stockholder or member; nadcralavvonlinelawlibrary

(2) Subject matter of the suit;

nadcralavvonlinelawlibrary

(3) Legal and factual basis of the complaint; nadcralavvonlinelawlibrary

(4) Availability of appraisal rights for the act or acts complained of; and
(5) Prejudice or damage to the corporation, partnership, or association in relation to the relief
sought.

In case of nuisance or harassment suits, the court may, motu proprio or upon motion, forthwith
dismiss the case.

Records show that Juanito, apart from being Vice President, owns the highest number of shares,
equal to those owned by Roberto. Also, as explained earlier, there appears to be no damage to
SMBI if the loan extended by Nancy and Theodore remains unpaid. The CA-Cebu correctly
concluded that a plain reading of the allegations in the Complaint would readily show that the
case x x x was mainly filed [to collect] a debt allegedly extended by the spouses Theodore and
Nancy Ang to [SMBI]. Thus, the aggrieved party is not SMBI x x x but the spouses Theodore
and Nancy Ang, who are not even x x x stockholders."39 chanroblesvirtuallawlibrary

WHEREFORE, we DENY the petition. We AFFIRM the 20 September 2011 Decision of the
Court of Appeals-Cebu in CA-G.R. SP No. 05546.

SO ORDERED.