III.

Cause of Action (Rule 2)

G.R. No. 162467 May 8, 2009
MINDANAO TERMINAL AND BROKERAGE SERVICE, INC. Petitioner,
vs.
PHOENIX ASSURANCE COMPANY OF NEW YORK/MCGEE & CO., INC., Respondent.
DECISION
TINGA, J.:
Before us is a petition for review on certiorari1 under Rule 45 of the 1997 Rules of Civil Procedure of the 29 October
20032 Decision of the Court of Appeals and the 26 February 2004 Resolution 3 of the same court denying petitioner’s
motion for reconsideration.
The facts of the case are not disputed.
Del Monte Philippines, Inc. (Del Monte) contracted petitioner Mindanao Terminal and Brokerage Service, Inc. (Mindanao
Terminal), a stevedoring company, to load and stow a shipment of 146,288 cartons of fresh green Philippine bananas
and 15,202 cartons of fresh pineapples belonging to Del Monte Fresh Produce International, Inc. (Del Monte Produce)
into the cargo hold of the vessel M/V Mistrau. The vessel was docked at the port of Davao City and the goods were to
be transported by it to the port of Inchon, Korea in favor of consignee Taegu Industries, Inc. Del Monte Produce insured
the shipment under an "open cargo policy" with private respondent Phoenix Assurance Company of New York (Phoenix),
a non-life insurance company, and private respondent McGee & Co. Inc. (McGee), the underwriting manager/agent of
Phoenix.4
Mindanao Terminal loaded and stowed the cargoes aboard the M/V Mistrau. The vessel set sail from the port of Davao
City and arrived at the port of Inchon, Korea. It was then discovered upon discharge that some of the cargo was in bad
condition. The Marine Cargo Damage Surveyor of Incok Loss and Average Adjuster of Korea, through its representative
Byeong Yong Ahn (Byeong), surveyed the extent of the damage of the shipment. In a survey report, it was stated that
16,069 cartons of the banana shipment and 2,185 cartons of the pineapple shipment were so damaged that they no
longer had commercial value.5
Del Monte Produce filed a claim under the open cargo policy for the damages to its shipment. McGee’s Marine Claims
Insurance Adjuster evaluated the claim and recommended that payment in the amount of $210,266.43 be made. A
check for the recommended amount was sent to Del Monte Produce; the latter then issued a subrogation receipt 6 to
Phoenix and McGee.
Phoenix and McGee instituted an action for damages 7 against Mindanao Terminal in the Regional Trial Court (RTC) of
Davao City, Branch 12. After trial, the RTC,8 in a decision dated 20 October 1999, held that the only participation of
Mindanao Terminal was to load the cargoes on board the M/V Mistrau under the direction and supervision of the ship’s
officers, who would not have accepted the cargoes on board the vessel and signed the foreman’s report unless they
were properly arranged and tightly secured to withstand voyage across the open seas. Accordingly, Mindanao Terminal
cannot be held liable for whatever happened to the cargoes after it had loaded and stowed them. Moreover, citing the
survey report, it was found by the RTC that the cargoes were damaged on account of a typhoon which M/V Mistrau had
encountered during the voyage. It was further held that Phoenix and McGee had no cause of action against Mindanao
Terminal because the latter, whose services were contracted by Del Monte, a distinct corporation from Del Monte
Produce, had no contract with the assured Del Monte Produce. The RTC dismissed the complaint and awarded the
counterclaim of Mindanao Terminal in the amount of ₱83,945.80 as actual damages and ₱100,000.00 as attorney’s
fees.9 The actual damages were awarded as reimbursement for the expenses incurred by Mindanao Terminal’s lawyer
in attending the hearings in the case wherein he had to travel all the way from Metro Manila to Davao City.
Phoenix and McGee appealed to the Court of Appeals. The appellate court reversed and set aside 10 the decision of the
RTC in its 29 October 2003 decision. The same court ordered Mindanao Terminal to pay Phoenix and McGee "the total
amount of $210,265.45 plus legal interest from the filing of the complaint until fully paid and attorney’s fees of 20% of
the claim."11 It sustained Phoenix’s and McGee’s argument that the damage in the cargoes was the result of improper
stowage by Mindanao Terminal. It imposed on Mindanao Terminal, as the stevedore of the cargo, the duty to exercise
extraordinary diligence in loading and stowing the cargoes. It further held that even with the absence of a contractual
relationship between Mindanao Terminal and Del Monte Produce, the cause of action of Phoenix and McGee could be
based on quasi-delict under Article 2176 of the Civil Code.12
Mindanao Terminal filed a motion for reconsideration, 13 which the Court of Appeals denied in its 26 February
200414 resolution. Hence, the present petition for review.
Mindanao Terminal raises two issues in the case at bar, namely: whether it was careless and negligent in the loading
and stowage of the cargoes onboard M/V Mistrau making it liable for damages; and, whether Phoenix and McGee has
a cause of action against Mindanao Terminal under Article 2176 of the Civil Code on quasi-delict. To resolve the petition,
three questions have to be answered: first, whether Phoenix and McGee have a cause of action against Mindanao
Terminal; second, whether Mindanao Terminal, as a stevedoring company, is under obligation to observe the same
extraordinary degree of diligence in the conduct of its business as required by law for common carriers 15 and
warehousemen;16 and third, whether Mindanao Terminal observed the degree of diligence required by law of a
stevedoring company.
We agree with the Court of Appeals that the complaint filed by Phoenix and McGee against Mindanao Terminal, from
which the present case has arisen, states a cause of action. The present action is based on quasi-delict, arising from
the negligent and careless loading and stowing of the cargoes belonging to Del Monte Produce. Even assuming that
both Phoenix and McGee have only been subrogated in the rights of Del Monte Produce, who is not a party to the
contract of service between Mindanao Terminal and Del Monte, still the insurance carriers may have a cause of action
in light of the Court’s consistent ruling that the act that breaks the contract may be also a tort. 17 In fine, a liability for tort
may arise even under a contract, where tort is that which breaches the contract 18 . In the present case, Phoenix and
McGee are not suing for damages for injuries arising from the breach of the contract of service but from the alleged
negligent manner by which Mindanao Terminal handled the cargoes belonging to Del Monte Produce. Despite the
absence of contractual relationship between Del Monte Produce and Mindanao Terminal, the allegation of negligence
on the part of the defendant should be sufficient to establish a cause of action arising from quasi-delict.19
The resolution of the two remaining issues is determinative of the ultimate result of this case.
Article 1173 of the Civil Code is very clear that if the law or contract does not state the degree of diligence which is to
be observed in the performance of an obligation then that which is expected of a good father of a family or ordinary
diligence shall be required. Mindanao Terminal, a stevedoring company which was charged with the loading and stowing
the cargoes of Del Monte Produce aboard M/V Mistrau, had acted merely as a labor provider in the case at bar. There
is no specific provision of law that imposes a higher degree of diligence than ordinary diligence for a stevedoring
company or one who is charged only with the loading and stowing of cargoes. It was neither alleged nor proven by
Phoenix and McGee that Mindanao Terminal was bound by contractual stipulation to observe a higher degree of
diligence than that required of a good father of a family. We therefore conclude that following Article 1173, Mindanao
Terminal was required to observe ordinary diligence only in loading and stowing the cargoes of Del Monte Produce
aboard M/V Mistrau.
imposing a higher degree of diligence,21 on Mindanao Terminal in loading and stowing the cargoes. The case of Summa
Insurance Corporation v. CA, which involved the issue of whether an arrastre operator is legally liable for the loss of a
shipment in its custody and the extent of its liability, is inapplicable to the factual circumstances of the case at bar.
Therein, a vessel owned by the National Galleon Shipping Corporation (NGSC) arrived at Pier 3, South Harbor, Manila,
carrying a shipment consigned to the order of Caterpillar Far East Ltd. with Semirara Coal Corporation (Semirara) as
"notify party." The shipment, including a bundle of PC 8 U blades, was discharged from the vessel to the custody of the
private respondent, the exclusive arrastre operator at the South Harbor. Accordingly, three good-order cargo receipts
were issued by NGSC, duly signed by the ship's checker and a representative of private respondent. When Semirara
inspected the shipment at house, it discovered that the bundle of PC8U blades was missing. From those facts, the Court
observed:
x x x The relationship therefore between the consignee and the arrastre operator must be examined. This relationship
is much akin to that existing between the consignee or owner of shipped goods and the common carrier, or that between
a depositor and a warehouseman[22 ]. In the performance of its obligations, an arrastre operator should observe the
same degree of diligence as that required of a common carrier and a warehouseman as enunciated under Article
1733 of the Civil Code and Section 3(b) of the Warehouse Receipts Law, respectively. Being the custodian of the
goods discharged from a vessel, an arrastre operator's duty is to take good care of the goods and to turn them
over to the party entitled to their possession. (Emphasis supplied)23
There is a distinction between an arrastre and a stevedore.24 Arrastre, a Spanish word which refers to hauling of cargo,
comprehends the handling of cargo on the wharf or between the establishment of the consignee or shipper and the
ship's tackle. The responsibility of the arrastre operator lasts until the delivery of the cargo to the consignee. The service
is usually performed by longshoremen. On the other hand, stevedoring refers to the handling of the cargo in the holds
of the vessel or between the ship's tackle and the holds of the vessel. The responsibility of the stevedore ends upon the
loading and stowing of the cargo in the vessel.1avvphi1
It is not disputed that Mindanao Terminal was performing purely stevedoring function while the private respondent in
the Summa case was performing arrastre function. In the present case, Mindanao Terminal, as a stevedore, was only
charged with the loading and stowing of the cargoes from the pier to the ship’s cargo hold; it was never the custodian
of the shipment of Del Monte Produce. A stevedore is not a common carrier for it does not transport goods or
passengers; it is not akin to a warehouseman for it does not store goods for profit. The loading and stowing of cargoes
would not have a far reaching public ramification as that of a common carrier and a warehouseman; the public is
adequately protected by our laws on contract and on quasi-delict. The public policy considerations in legally imposing
upon a common carrier or a warehouseman a higher degree of diligence is not present in a stevedoring outfit which
mainly provides labor in loading and stowing of cargoes for its clients.
In the third issue, Phoenix and McGee failed to prove by preponderance of evidence25 that Mindanao Terminal had
acted negligently. Where the evidence on an issue of fact is in equipoise or there is any doubt on which side the evidence
preponderates the party having the burden of proof fails upon that issue. That is to say, if the evidence touching a
disputed fact is equally balanced, or if it does not produce a just, rational belief of its existence, or if it leaves the mind
in a state of perplexity, the party holding the affirmative as to such fact must fail. 261avvphi1
We adopt the findings27 of the RTC,28 which are not disputed by Phoenix and McGee. The Court of Appeals did not
make any new findings of fact when it reversed the decision of the trial court. The only participation of Mindanao Terminal
was to load the cargoes on board M/V Mistrau.29 It was not disputed by Phoenix and McGee that the materials, such as
ropes, pallets, and cardboards, used in lashing and rigging the cargoes were all provided by M/V Mistrau and these
materials meets industry standard.30
It was further established that Mindanao Terminal loaded and stowed the cargoes of Del Monte Produce aboard the M/V
Mistrau in accordance with the stowage plan, a guide for the area assignments of the goods in the vessel’s hold,
prepared by Del Monte Produce and the officers of M/V Mistrau.31 The loading and stowing was done under the direction
and supervision of the ship officers. The vessel’s officer would order the closing of the hatches only if the loading was
done correctly after a final inspection.32 The said ship officers would not have accepted the cargoes on board the vessel
if they were not properly arranged and tightly secured to withstand the voyage in open seas. They would order the
stevedore to rectify any error in its loading and stowing. A foreman’s report, as proof of work done on board the vessel,
was prepared by the checkers of Mindanao Terminal and concurred in by the Chief Officer of M/V Mistrau after they
were satisfied that the cargoes were properly loaded.33
Phoenix and McGee relied heavily on the deposition of Byeong Yong Ahn 34 and on the survey report35 of the damage
to the cargoes. Byeong, whose testimony was refreshed by the survey report, 36 found that the cause of the damage was
improper stowage37 due to the manner the cargoes were arranged such that there were no spaces between cartons,
the use of cardboards as support system, and the use of small rope to tie the cartons together but not by the negligent
conduct of Mindanao Terminal in loading and stowing the cargoes. As admitted by Phoenix and McGee in their
Comment38 before us, the latter is merely a stevedoring company which was tasked by Del Monte to load and stow the
shipments of fresh banana and pineapple of Del Monte Produce aboard the M/V Mistrau. How and where it should load
and stow a shipment in a vessel is wholly dependent on the shipper and the officers of the vessel. In other words, the
work of the stevedore was under the supervision of the shipper and officers of the vessel. Even the materials used for
stowage, such as ropes, pallets, and cardboards, are provided for by the vessel. Even the survey report found that it
was because of the boisterous stormy weather due to the typhoon Seth, as encountered by M/V Mistrau during its
voyage, which caused the shipments in the cargo hold to collapse, shift and bruise in extensive extent. 39 Even the
deposition of Byeong was not supported by the conclusion in the survey report that:
CAUSE OF DAMAGE
xxx
From the above facts and our survey results, we are of the opinion that damage occurred aboard the carrying vessel
during sea transit, being caused by ship’s heavy rolling and pitching under boisterous weather while proceeding
from 1600 hrs on 7th October to 0700 hrs on 12th October, 1994 as described in the sea protest.40
As it is clear that Mindanao Terminal had duly exercised the required degree of diligence in loading and stowing the
cargoes, which is the ordinary diligence of a good father of a family, the grant of the petition is in order.
However, the Court finds no basis for the award of attorney’s fees in favor of petitioner.lawphil.net None of the
circumstances enumerated in Article 2208 of the Civil Code exists. The present case is clearly not an unfounded civil
action against the plaintiff as there is no showing that it was instituted for the mere purpose of vexation or injury. It is not
sound public policy to set a premium to the right to litigate where such right is exercised in good faith, even if
erroneously.41 Likewise, the RTC erred in awarding ₱83,945.80 actual damages to Mindanao Terminal. Although actual
expenses were incurred by Mindanao Terminal in relation to the trial of this case in Davao City, the lawyer of Mindanao
Terminal incurred expenses for plane fare, hotel accommodations and food, as well as other miscellaneous expenses,
as he attended the trials coming all the way from Manila. But there is no showing that Phoenix and McGee made a false
claim against Mindanao Terminal resulting in the protracted trial of the case necessitating the incurrence of
expenditures.42
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 66121 is SET ASIDE
and the decision of the Regional Trial Court of Davao City, Branch 12 in Civil Case No. 25,311.97 is
hereby REINSTATED MINUS the awards of ₱100,000.00 as attorney’s fees and ₱83,945.80 as actual damages.
SO ORDERED.
G.R. No. 156375 May 30, 2011
DOLORES ADORA MACASLANG, Petitioner,
vs.
RENATO AND MELBA ZAMORA, Respondents.
DECISION
BERSAMIN, J.:
The Regional Trial Court (RTC) is not limited in its review of the decision of the Municipal Trial Court (MTC) to the issues
assigned by the appellant, but can decide on the basis of the entire records of the proceedings of the trial court and
such memoranda or briefs as may be submitted by the parties or required by the RTC.
The petitioner appeals the decision promulgated on July 3, 2002, 1 whereby the Court of Appeals (CA) reversed"for
having no basis in fact and in law" the decision rendered on May 18, 2000 2 by the Regional Trial Court, Branch 25, in
Danao City (RTC) thathad dismissed the respondents’ action
for ejectment against the petitioner, andreinstated the decision dated September 13, 1999 of the Municipal Trial Court
in Cities (MTCC) of DanaoCity (ordering the petitioner as defendant to vacate the premises and to pay attorney’s fees
of ₱10,000.00 and monthly rental of ₱5,000.00 starting December 1997 until they vacated the premises). 3
We grant the petition for review and rule that contrary to the CA’s conclusion, the RTCas an appellate court properly
considered and resolved issues even if not raised in the appeal from the decisionrendered in an ejectment case by the
MTCC.
ANTECEDENTS
On March 10, 1999, the respondents filed a complaint for unlawful detainer in the MTCC, alleging that "the [petitioner]
sold to [respondents] a residential land located in Sabang, DanaoCity" and that "the [petitioner] requested to be allowed
to live in the house" with a "promise to vacate as soon as she would be able to find a new residence." They further
alleged thatdespitetheir demand after a year, the petitioner failed or refused to vacate the premises.
Despite the due service of the summons and copy of the complaint, the petitioner did not file heranswer. The MTCC
declared her in defaultupon the respondents’ motion to declare her in default, and proceeded to receivethe
respondents’oral testimony and documentary evidence. Thereafter, on September 13, 1999, the MTCC rendered
judgment against her, disposing:
WHEREFORE, considering the foregoing, Judgment is hereby rendered in favor [of] plaintiffs (sic) spouses Renato
Zamora and Melba Zamora and against defendant Dolores AdoraMacaslang, ordering defendant to vacate the
properties in question, to pay to plaintiffs Attorney’s Fees in the sum of ₱10,000.00 and monthly rental of ₱5,000.00
starting December, 1997 until the time the defendant shall have vacated the properties in question.
SO ORDERED.4
The petitioner appealed to the RTC, averring the following as reversible errors, namely:
1. Extrinsic Fraud was practiced upon defendant-appellant which ordinary prudence could not have guarded
against and by reason of which she has been impaired of her rights.
2. Defendant-Appellant has a meritorious defense in that there was no actual sale considering that the absolute
deed of sale relied upon by the plaintiff-appell[ees] is a patent-nullity as her signature therein was procured
through fraud and trickery.5
and praying through her appeal memorandum as follows:
Wherefore, in view of the foregoing, it is most respectfully prayed for that judgment be rendered in favor of defendant-
appellant ordering that this case be remanded back to the Court of Origin, Municipal Trial Court of Danao City, for further
proceedings to allow the defendant to present her evidence, and thereafter, to render a judgment anew. 6
On May 18, 2000, the RTC resolved the appeal, to wit: 7
WHEREFORE,judgment is hereby rendered dismissing the complaint for failure to state a cause of action.
The same may, however, be refiled in the same Court, by alleging plaintiffs’ cause of action, if any.
Plaintiffs’ Motion for Execution of Judgment of the lower court is rendered moot by this judgment.
SO ORDERED.
The respondents appealed to the CA, assailing the RTC’s decision for "disregarding the allegations in the complaint" in
determining the existence or non-existence of a cause of action.
On July 3, 2002, the CA reversed and set aside the RTC’s decision and reinstated the MTCC’s decision in favor of the
respondents, disposing:
WHEREFORE,foregoing premises considered, the Petition is hereby GIVEN DUE COURSE. Resultantly, the impugned
decision of the Regional Trial Court is hereby REVERSED and SET ASIDE for having no basis in fact and in law, and
the Decision of the Municipal Trial Court in Cities REINSTATED and AFFIRMED. No costs.
SO ORDERED.8
The petitioner’smotion for reconsideration was denied onNovember 19, 2002.
ISSUES
Hence, the petitioner appeals the CA’s adverse decision, submitting legal issues, as follows:
1. Whether or not the Regional Trial Court in the exercise of its Appellate Jurisdiction is limited to the assigned
errors in the Memorandum or brief filed before it or whether it can decide the case based on the entire records
of the case, as provided for in Rule 40, Sec. 7. This is a novel issue which, we respectfully submit, deserves a
definitive ruling by this Honorable Supreme Court since it involves the application of a new provision, specifically
underlined now under the 1997 Revised Rules on Civil procedure.
2. Whether or not in an action for unlawful detainer, where there was no prior demand to vacate and comply
with the conditions of the lease made, a valid cause of action exists?
 3. Whether or not in reversing the Regional Trial Court Decision and reinstating and affirming the decision of
the Municipal Circuit Trial Court, which was tried and decided by the MCTC in violation of the Rules on Summary
Procedure, the Court of Appeals sanctioned a gross departure from the usual course of judicial proceedings? 9
The issues that this Court has to resolve are stated thuswise:
1. Whether or not the CA correctly found that the RTC committed reversible error in ruling on issues not raised
by the petitioner in her appeal;
2. Whether or not the CA correctly found that the complaint stated a valid cause of action;
3. Whether or not the CA erred in finding that there was a valid demand to vacate made by the respondents on
the petitioner; and
4. Whether or not the petitioner’s defense of ownership was meritorious.
RULING
We grant the petition for review.
A.
As an appellate court, RTC may rule
upon an issue notraised on appeal
In its decision, the CA ruled that the RTC could not resolve issues that were not assigned by the petitioner in her appeal
memorandum, explaining:
Indeed(,) We are rather perplexed why the Regional Trial Court, in arriving at its decision, discussed and ruled on issues
or grounds which were never raised, assigned, or argued on by the Defendant-appellee in her appeal to the former. A
careful reading of the Defendant-appellee’s appeal memorandum clearly shows that it only raised two (2) grounds,
namely (a) alleged extrinsic fraud, (b) meritorious defenses based on nullity of the Deed of Sale Instrument. And yet the
Trial Court, in its decision, ruled on issues not raised such as lack of cause of action and no prior demand to vacate
having been made.
Only errors assigned and properly argued on the brief and those necessarily related thereto, may be considered by the
appellate court in resolving an appeal in a civil case. Based on said clear jurisprudence, the court a quo committed
grave abuse of discretion amounting to lack of jurisdiction when it resolved Defendant-appellee’s appeal based on
grounds or issues not raised before it, much less assigned by Defendant-appellee as an error.
Not only that. It is settled that an issue which was not raised during the Trial in the court below would not be raised for
the first time on appeal as to do so would be offensive to the basic rules of fair play, justice and due process (Victorias
Milling Co., Inc. vs. CA, 333 SCRA 663). We can therefore appreciate Plaintiffs-appellants’ dismay caused by the
Regional Trial Court’s blatant disregard of a basic and fundamental right to due process. 10
The petitioner disagrees with the CA and contends that the RTC as an appellate courtcould rule on the failure of the
complaint to state a cause of action and the lack of demand to vacate even if not assigned in the appeal.
We concur with the petitioner’s contention.
The CA might have been correct had the appeal been a first appeal from the RTC to the CA or another proper superior
court, in which instance Section 8 of Rule 51, which applies to appeals from the RTC to the CA,imposesthe express
limitation of the review to only those specified in the assignment of errorsor closely related to or dependent on an
assigned error and properly argued in the appellant’s brief, viz:
Section 8. Questions that may be decided. – No error which does not affect the jurisdiction over the subject matter or
the validity of the judgment appealed from or the proceeding therein will be considered unless stated in the
assignment of errors, or closely related to or dependent on an assigned error and properly argued in the
brief, save as the court may pass upon plain errors and clerical errors.
Butthe petitioner’s appeal herein,being taken from the decision of the MTCC to the RTC, was governed by a different
rule, specifically Section 18 of Rule 70 of the Rules of Court, to wit:
Section 18. xxx
xxx
The judgment or final order shall be appealable to the appropriate Regional Trial Court which shall decide the same on
the basis of the entire record of the proceedings had in the court of origin and such memoranda and/or briefs as may
be submitted by the parties or required by the Regional Trial Court. (7a)
As such,the RTC, in exercising appellate jurisdiction,was not limited to the errors assigned in the petitioner’s appeal
memorandum, but coulddecide on the basis of the entire record of the proceedingshad in the trial court and such
memoranda and/or briefs as may be submitted by the parties or required by the RTC.
The difference between the procedures for deciding on review is traceable to Section 22 of Batas PambansaBlg.
129,11which provides:
Section 22. Appellate Jurisdiction. – Regional Trial Courts shall exercise appellate jurisdiction over all cases decided by
Metropolitan Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts in their respective territorial
jurisdictions.Such cases shall be decided on the basis of the entire record of the proceedings had in the court
of origin [and] such memoranda and/or briefs as may be submitted by the parties or required by the Regional
Trial Courts. The decision of the Regional Trial Courts in such cases shall be appealable by petition for review to the
Court of Appeals which may give it due course only when the petition shows prima facie that the lower court has
committed an error of fact or law that will warrant a reversal or modification of the decision or judgment sought to be
reviewed.12
As its compliance with the requirement of Section 36 of Batas PambansaBlg. 129to "adopt special rules or procedures
applicable to such cases in order to achieve an expeditious and inexpensive determination thereof without regard to
technical rules," the Court promulgated the 1991 Revised Rules on Summary Procedure, whereby it institutionalized the
summary procedure for all the first level courts. Section 21 of the 1991 Revised Rules on Summary
Procedurespecifically stated:
Section 21. Appeal. – Thejudgment or final order shall be appealable to the appropriate Regional Trial Court which shall
decide the same in accordance with Section 22 of Batas PambansaBlg. 129. The decision of the Regional Trial Court
in civil cases governed by this Rule, including forcible entry and unlawful detainer shall be immediately executory,
without prejudice to a further appeal that may be taken therefrom. Section 10 of Rule 70 shall be deemed repealed.
Later on, the Court promulgated the 1997 Rules of Civil Procedure, effective on July 1, 1997, and incorporated in Section
7 of Rule 40 thereof the directive to the RTC to decide appealed cases"on the basis of the entire record of the
proceedings had in the court of origin and such memoranda as are filed,"viz:
Section 7. Procedure in the Regional Trial Court. –
(a) Upon receipt of the complete record or the record on appeal, the clerk of court of the Regional Trial Court
shall notify the parties of such fact.
(b) Within fifteen (15) days from such notice, it shall be the duty of the appellant to submit a memorandum which
shall briefly discuss the errors imputed to the lower court, a copy of which shall be furnished by him to the
adverse party. Within fifteen (15) days from receipt of the appellant’s memorandum, the appellee may file his
memorandum. Failure of the appellant to file a memorandum shall be a ground for dismissal of the appeal.
(c) Upon the filing of the memorandum of the appellee, or the expiration of the period to do so, the case shall
be considered submitted for decision. The Regional Trial Court shall decide the case on the basis of the entire
record of the proceedings had in the court of origin and such memoranda as are filed. (n)
As a result, the RTC presently decides all appeals from the MTC based on the entire record of the proceedings had in
the court of origin and such memoranda or briefs as are filed in the RTC.
Yet, even withoutthe differentiation in the procedures of deciding appeals, thelimitation of the review to onlythe errors
assigned and properly argued in the appeal brief or memorandum and the errors necessarily related to such assigned
errorsought not to have obstructed the CA from resolving the unassigned issues by virtue of their coming under one or
several of the following recognized exceptions to the limitation, namely:
(a) When the question affectsjurisdiction over the subject matter;
(b) Matters that are evidently plain or clerical errors within contemplation of law;
(c) Matters whose consideration is necessary in arriving at a just decision and complete resolution of the case
or in serving the interests of justice or avoiding dispensing piecemeal justice;
(d) Matters raised in the trial court and are of record having some bearing on the issue submitted that the parties
failed to raise or that the lower court ignored;
(e) Matters closely related to an error assigned; and
(f) Matters upon which the determination of a question properly assigned is dependent.13
Consequently, the CA improperly disallowed the consideration and resolution of the two errors despite their being:
(a)necessary in arriving at a just decision and acomplete resolution of the case; and (b) matters of record having some
bearing on the issues submitted that the lower court ignored.
B.
CA correctly delved into and determined
whether or not complaint stateda cause of action
The RTC opined that the complaint failed to state a cause of action because the evidence showed that there was no
demand to vacate made upon the petitioner.
The CA disagreed, observingin its appealed decision:
But what is worse is that a careful reading of Plaintiffs-appellants’ Complaint would readily reveal that they have
sufficiently established (sic) a cause of action against Defendant-appellee. It is undisputed that as alleged in the
complaint and testified to by Plaintiffs-appellants, a demand to vacate was made before the action for unlawful detainer
was instituted.
A complaint for unlawful detainer is sufficient if it alleges that the withholding of possession or the refusal is unlawful
without necessarily employing the terminology of the law (Jimenez vs. Patricia, Inc., 340 SCRA 525). In the case at
bench, par. 4 of the Complaint alleges, thus:
"4. After a period of one (1) year living in the aforementioned house, Plaintiff demanded upon defendant to vacate but
she failed and refused;"
From the foregoing allegation, it cannot be disputed that a demand to vacate has not only been made but that the same
was alleged in the complaint. How the Regional Trial Court came to the questionable conclusion that Plaintiffs-appellants
had no cause of action is beyond Us.14
We concur with the CA.
A complaint sufficiently alleges a cause of action for unlawful detainer if it states the following:
(a)Initially, the possession of the property by the defendant was by contract with or by tolerance of the plaintiff;
(b)Eventually, such possession became illegal upon notice by the plaintiff to the defendant about the termination
of the latter’s right of possession;
(c)Thereafter, the defendant remained in possession of the property and deprived the plaintiff of its enjoyment;
and
(d)Within one year from the making of the last demand to vacate the propertyon the defendant, the plaintiff
instituted the complaint for ejectment.15
In resolving whether the complaint states a cause of actionor not, only the facts alleged in the complaint are considered.
The test is whether the court can render a valid judgment on the complaint based on the facts alleged and the prayer
asked for.16 Only ultimate facts, not legal conclusions or evidentiary facts, are considered for purposes of applying the
test.17
To resolve the issue, therefore, a look at the respondents’ complaint is helpful:
2. On September 10, 1997, defendant sold to plaintiffs a residential land located in Sabang, Danao City, covered
by Tax Dec.0312417 RB with an area of 400 square meters, including a residential house where defendant was
then living covered by Tax Dec. 0312417 RB, a copy of the deed of absolute [sale] of these properties is hereto
attached as Annex "A";
3. After the sale, defendant requested to be allowed to live in the house which plaintiff granted on reliance of
defendant’s promise to vacate as soon as she would be able to find a new residence;
4. After a period of one (1) year living in the aforementioned house, plaintiffs demanded upon defendant to
vacate but she failed or refused.
5. Plaintiffs sought the aid of the barangay Lupon of Sabang, Danao City for arbitration but no settlement was
reached as shown by a certification to file action hereto attached as Annex "B";
6. Plaintiffs were compelled to file this action and hire counsel for ₱10,000 by way of attorney’s fee;
7. Defendant agreed to pay plaintiffs a monthly rental of ₱5,000 for the period of time that the former continued
to live in the said house in question.
WHEREFORE, it is respectfully prayed of this Honorable Court to render judgment ordering the defendant to vacate the
properties in question, ordering the defendant to pay plaintiffs attorney’s fees in the sum of ₱10,000, ordering the
defendant to pay the plaintiffs a monthly rental of ₱5,000 starting in October 1997, until the time that defendant vacates
the properties in question. Plaintiffs pray for such other refiefs consistent with justice and equity.18
Based on its allegations, the complaintsufficiently stated a cause of action for unlawful detainer. Firstly, it averred that
the petitioner possessed the property by the mere tolerance of the respondents. Secondly, the respondents demanded
that the petitioner vacate the property, thereby rendering her possession illegal. Thirdly,she remained in possession of
the property despite the demand to vacate. And, fourthly, the respondents instituted the complaint on March 10,
1999,which was well within a year after the demand to vacate was made around September of 1998 or later.
Yet, even as we rule that the respondents’ complaint stated a cause of action, we must find and hold that both the RTC
and the CA erroneously appreciatedthe real issue to be about the complaint’s failure to state a cause of action. It certainly
was not so, butthe respondents’ lack of cause of action. Their erroneous appreciationexpectedly prevented the correct
resolution of the action.
Failure to state a cause of action and lack of cause of action are really different from each other.On the one hand, failure
to state a cause of actionrefers to the insufficiency of the pleading, and is a ground for dismissal under Rule 16 of the
Rules of Court. On the other hand, lack of cause action refers to a situation where the evidence does not prove the
cause of action alleged in the pleading. Justice Regalado, a recognized commentator on remedial law, has explained
the distinction:19
xxx What is contemplated, therefore, is a failure to state a cause of action which is provided in Sec. 1(g) of Rule 16.
This is a matter of insufficiency of the pleading. Sec. 5 of Rule 10, which was also included as the last mode for raising
the issue to the court, refers to the situation where the evidence does not prove a cause of action. This is, therefore, a
matter of insufficiency of evidence. Failure to state a cause of action is different from failure to prove a cause of action.
The remedy in the first is to move for dismissal of the pleading, while the remedy in the second is to demur to the
evidence, hence reference to Sec. 5 of Rule 10 has been eliminated in this section. The procedure would consequently
be to require the pleading to state a cause of action, by timely objection to its deficiency; or, at the trial, to file a demurrer
to evidence, if such motion is warranted.
A complaint states a cause of action if it avers the existence of the three essential elements of a cause of action, namely:
(a) The legal right of the plaintiff;
(b) The correlative obligation of the defendant; and
(c) The act or omission of the defendant in violation of said legal right.
If the allegations of the complaint do not aver the concurrence of these elements, the complaint becomes vulnerable to
a motion to dismiss on the ground of failure to state a cause of action.Evidently, it is not the lack or absence of a cause
of action that is a ground for the dismissal of the complaint but the fact that the complaint states no cause of
action.Failure to state a cause of action may be raised at the earliest stages of an action through a motion to dismiss,
but lack of cause of action may be raised at any time after the questions of fact have been resolved on the basis of the
stipulations, admissions, or evidence presented.20
Having found that neither Exhibit C nor Exhibit E was a proper demand to vacate, 21 considering that Exhibit C (the
respondents’ letter dated February 11, 1998)demanded the payment of ₱1,101,089.90, and Exhibit E (theirletter dated
January 21, 1999) demandedthe payment of ₱1,600,000.00, the RTC concluded that the demand alleged in the
complaint did not constitute a demand to pay rent and to vacate the premises necessary in an action for unlawful
detainer. It was this conclusion that caused the RTC to confuse the defect as failure of the complaint to state a cause
of action for unlawful detainer.
The RTCerred even in that regard.
To begin with, it was undeniable that Exhibit D (the respondents’ letter dated April 28, 1998) constitutedthedemand to
vacate that validly supported their action for unlawful detainer, because of its unmistakable tenor as a demand to vacate,
which the following portion indicates:22
This is to give notice that since the mortgage to your property has long expired and that since the property is already in
my name, I will be taking over the occupancy of said property two (2) months from date of this letter.
Exhibit D, despite not explicitly using the wordvacate, relayed to the petitionerthe respondents’ desire to take over the
possession of the property by givingher no alternative exceptto vacate.The word vacate,according toGolden Gate Realty
Corporation v. Intermediate Appellate Court,23is not a talismanic word that must be employed in all notices to vacate.The
tenantsin Golden Gate Realty Corporationhad defaulted in the payment of rents, leading theirlessorto notify them to pay
with a warning that a case of ejectment would be filed against themshould they not do so. The Court held that the lessor
had thereby given strong notice that "you either pay your unpaid rentals or I will file a court case to have you thrown out
of my property,"for therewas no other interpretation of the import of the notice due to the alternatives being clear cut, in
that the tenants must pay rentals that had been fixed and had become payable in the past, failing in which they must
move out.24
Also, the demand not being to pay rent and to vacate did not render the cause of action deficient. Based on the
complaint, the petitioner’s possession was allegedly based on the respondents’ tolerance, not on any contract between
them. Hence, thedemand to vacate sufficed.
C.
Ejectment was not proper due
to defense of ownership being established
The respondents’ cause of action for unlawful detainer was based on their supposed right to possession resulting from
their having acquired it through sale.
The RTCdismissed the complaint based on its following findings, to wit:
In the case at bench, there is conflict between the allegation of the complaint and the document attached thereto.
Simply stated, plaintiff alleged that she bought the house of the defendant for ₱100,000.00 on September 10, 1997 as
stated in an alleged Deed of Absolute Sale marked as Exhibit "A" to the complaint. Insofar as plaintiff is concerned, the
best evidence is the said Deed of Absolute Sale.
The Court is surprised why in plaintiff’s letter dated February 11, 1998, marked as Exhibit "C" and attached to the same
complaint, she demanded from the defendant the whooping sum of ₱1,101,089.90. It must be remembered that this
letter was written five (5) months after the deed of absolute sale was executed.
The same letter (Exhibit "C") is not a letter of demand as contemplated by law and jurisprudence. The plaintiff simply
said that she will appreciate payment per notarized document. There is no explanation what this document is.
Plaintiff’s letter dated April 28, 1998 (Exhibit "D") contradicts her allegation that she purchased the house and lot
mentioned in the complaint. Exhibit "D", which is part of the pleading and a judicial admission clearly shows that the
house and lot of the defendant was not sold but mortgaged.
Again, for purposes of emphasis and clarity, a portion of the letter (Exhibit "D") reads:
‘This is to give notice that since the mortgage to your property has long expired and that since the property is already in
my name, I will be taking over the occupancy of said property two (2) months from date of this letter.’
x xxx
Exhibit "E", which is a letter dated January 21, 1999, shows the real transaction between the parties in their case. To
reiterate, the consideration in the deed of sale (Exhibit "A") is ₱100,000.00 but in their letter (Exhibit "E") she is already
demanding the sum of ₱1,600,000.00 because somebody was going to buy it for ₱2,000,000.00.
There are indications that point out that the real transaction between the parties is one of equitable mortgage and not
sale.25
Despite holding herein that the respondents’ demand to vacate sufficed, we uphold the result of the RTC decision in
favor of the petitioner. This we do,because therespondents’ Exhibit Cand Exhibit E, by demandingpayment from the
petitioner, respectively,of ₱1,101,089.90 and ₱1,600,000.00, revealedthe true nature of the transaction involving the
property in question as one of equitable mortgage, not a sale.
Our upholding of the result reached by the RTC rests on the following circumstancesthat tended to show that the
petitioner had not really sold the property to the respondents, contrary to the latter’s averments, namely:
(a)The petitioner, as the vendor, was paid the amount of only ₱100,000.00, 26 a price too inadequate in
comparison with the sum of ₱1,600,000.00 demanded in Exhibit E;27
(b) The petitioner retained possession of the property despite the supposed sale; and
(c) The deed of sale wasexecuted as a result or by reason of the loan the respondents extended to the
petitioner,because they still allowed the petitioner to "redeem" the property by paying her obligation under the
loan.28
Submissions of the petitioner further supported the findings of the RTCon the equitable mortgage. Firstly, there was the
earlier dated instrument (deed of pactode retro)involving the same property, albeit the consideration was only
₱480,000.00, executed between the petitioner as vendor a retro and the respondent Renato Zamora as vendee a
retro.29 Secondly, there were two receipts for the payments the petitioner had made to the respondentstotaling
₱300,000.00.30 And, thirdly, the former secretary of respondent Melba Zamora executed an affidavit acknowledging that
the petitioner had already paid a total of ₱500,000.00 to the respondents. 31 All these confirmed the petitioner’s claim
that she remained the owner of the property and was still entitled to its possession.
Article 1602 of the Civil Codeenumerates the instances when a contract, regardless of its nomenclature, may be
presumed to be an equitable mortgage, namely:
(a) When the price of a sale with right to repurchase is unusually inadequate;
(b) When the vendor remains in possession as lessee or otherwise;
(c) When upon or after the expiration of the right to repurchase another instrument extending the period of
redemption or granting a new period is executed;
(d)When the purchaser retains for himself a part of the purchase price;
(e)When the vendor binds himself to pay the taxes on the thing sold; and,
(f) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction
shall secure the payment of a debt or the performance of any other obligation.
The circumstances earlier mentioned were, indeed, badges of an equitable mortgage within the context ofArticle 1602
of the Civil Code.
Nonetheless, the findingsfavorable to the petitioner’s ownership are neitherfinally determinative of the title in the
property, nor conclusive in any other proceeding where ownership of the property involved herein may be more fittingly
adjudicated.Verily, where the cause of action in an ejectment suit is based on ownership of the property, the defense
that the defendantretainedtitle or ownership is a proper subject for determination by the MTC but only for the purpose
of adjudicating the rightful possessor of the property.32This is based on Rule 70 of the Rules of Court, viz:
Section 16. Resolving defense of ownership. — When the defendant raises the defense of ownership in his pleadings
and the question of possession cannot be resolved without deciding the issue of ownership, the issue of ownership shall
be resolved only to determine the issue of possession.(4a)1avvphi1
D.
MTC committed procedural lapses
that must be noted and corrected
The Court seizes theopportunity to note and to correctseveralnoticeable procedural lapses on the part of the MTCC, to
avoid the impression that the Court condones or tolerates the lapses.
The first lapse wasthe MTCC’s granting of the respondents’ motion to declare the petitioner in default following her
failure to file an answer. The proper procedurewas not for the plaintiffs to move for the declaration in default of the
defendant who failed to file the answer. Such a motion to declare in default has been expressly prohibited under Section
13, Rule 70 of
theRules of Court.33Instead, the trial court, either motuproprio or on motion of the plaintiff, should render judgment as
the facts alleged in the complaint might warrant.34In other words, the defendant’s failure to file an answer under Rule 70
of the Rules of Courtmight result to a judgment by default, not to a declaration of default.
The second lapse wasthe MTCC’sreception of the oral testimony of respondent Melba Zamora. Rule 70 of the Rules of
Courthas envisioned the submission only of affidavits of the witnesses (not oral testimony) and other proofs on the
factual issues defined in the order issued within five days from the termination of the preliminary conference; 35and has
permittedthe trial court, should it find the need to clarify material facts, to thereafterissue an order during the 30-day
period from submission of the affidavits and other proofs specifying the matters to be clarified, and requiring the parties
to submit affidavits or other evidence upon such matters within ten days from receipt of the order. 361avvphi1
The procedural lapses committed in this case are beyond comprehension.The MTCC judge could not have been
unfamiliar with the prevailing procedure, considering that therevised version of Rule 70, although taking effect only on
July 1, 1997,was derived from the 1991 Revised Rule on Summary Procedure, in effect since November 15, 1991. It
was not likely, therefore, that the MTCC judge committed the lapses out of his unfamiliarity with the relevant rule. We
discern thatthe cause of the lapses was his lack of enthusiasm in implementingcorrect procedures in this case. If that
was the true reason, the Court can only be alarmed and concerned, for a judge should not lack enthusiasm in applying
the rules of procedure lest the worthy objectives of their promulgation be unwarrantedly sacrificed and brushed aside.
The MTCC judge should not forget that the rules of procedure were always meant to be implemented deliberately, not
casually, and their non-compliance should only be excused in the higher interest of the administration of justice.
It is timely, therefore, to remind all MTC judges to display full and enthusiastic compliance with all the rules of procedure,
especially those intended for expediting proceedings.
WHEREFORE,we grant the petition for review on certiorari; set aside the decision promulgated on July 3, 2002 by the
Court of Appeals; and dismiss the complaint for unlawful detainer for lack of a cause of action.
The respondents shall pay the costs of suit.
SO ORDERED.
G.R. No. 157479 November 24, 2010
PHILIP TURNER and ELNORA TURNER, Petitioners,
vs.
LORENZO SHIPPING CORPORATION, Respondent.
DECISION
BERSAMIN, J.:
This case concerns the right of dissenting stockholders to demand payment of the value of their shareholdings.
In the stockholders’ suit to recover the value of their shareholdings from the corporation, the Regional Trial Court (RTC)
upheld the dissenting stockholders, herein petitioners, and ordered the corporation, herein respondent, to pay.
Execution was partially carried out against the respondent. On the respondent’s petition for certiorari, however, the
Court of Appeals (CA) corrected the RTC and dismissed the petitioners’ suit on the ground that their cause of action for
collection had not yet accrued due to the lack of unrestricted retained earnings in the books of the respondent.
Thus, the petitioners are now before the Court to challenge the CA’s decision promulgated on March 4, 2003 in C.A.-
G.R. SP No. 74156 entitled Lorenzo Shipping Corporation v. Hon. Artemio S. Tipon, in his capacity as Presiding Judge
of Branch 46 of the Regional Trial Court of Manila, et al.1
Antecedents
The petitioners held 1,010,000 shares of stock of the respondent, a domestic corporation engaged primarily in cargo
shipping activities. In June 1999, the respondent decided to amend its articles of incorporation to remove the
stockholders’ pre-emptive rights to newly issued shares of stock. Feeling that the corporate move would be prejudicial
to their interest as stockholders, the petitioners voted against the amendment and demanded payment of their shares
at the rate of ₱2.276/share based on the book value of the shares, or a total of ₱2,298,760.00.
The respondent found the fair value of the shares demanded by the petitioners unacceptable. It insisted that the market
value on the date before the action to remove the pre-emptive right was taken should be the value, or ₱0.41/share (or
a total of ₱414,100.00), considering that its shares were listed in the Philippine Stock Exchange, and that the payment
could be made only if the respondent had unrestricted retained earnings in its books to cover the value of the shares,
which was not the case.
The disagreement on the valuation of the shares led the parties to constitute an appraisal committee pursuant to Section
82 of the Corporation Code, each of them nominating a representative, who together then nominated the third member
who would be chairman of the appraisal committee. Thus, the appraisal committee came to be made up of Reynaldo
Yatco, the petitioners’ nominee; Atty. Antonio Acyatan, the respondent’s nominee; and Leo Anoche of the Asian
Appraisal Company, Inc., the third member/chairman.
On October 27, 2000, the appraisal committee reported its valuation of ₱2.54/share, for an aggregate value of
₱2,565,400.00 for the petitioners.2
Subsequently, the petitioners demanded payment based on the valuation of the appraisal committee, plus 2%/month
penalty from the date of their original demand for payment, as well as the reimbursement of the amounts advanced as
professional fees to the appraisers.3
In its letter to the petitioners dated January 2, 2001,4 the respondent refused the petitioners’ demand, explaining that
pursuant to the Corporation Code, the dissenting stockholders exercising their appraisal rights could be paid only when
the corporation had unrestricted retained earnings to cover the fair value of the shares, but that it had no retained
earnings at the time of the petitioners’ demand, as borne out by its Financial Statements for Fiscal Year 1999 showing
a deficit of ₱72,973,114.00 as of December 31, 1999.
Upon the respondent’s refusal to pay, the petitioners sued the respondent for collection and damages in the RTC in
Makati City on January 22, 2001. The case, docketed as Civil Case No. 01-086, was initially assigned to Branch 132.5
On June 26, 2002, the petitioners filed their motion for partial summary judgment, claiming that:
7) xxx the defendant has an accumulated unrestricted retained earnings of ELEVEN MILLION NINE HUNDRED
SEVENTY FIVE THOUSAND FOUR HUNDRED NINETY (P11,975,490.00) PESOS, Philippine Currency,
evidenced by its Financial Statement as of the Quarter Ending March 31, 2002; xxx
8) xxx the fair value of the shares of the petitioners as fixed by the Appraisal Committee is final, that the same
cannot be disputed xxx
9) xxx there is no genuine issue to material fact and therefore, the plaintiffs are entitled, as a matter of right, to
a summary judgment. xxx 6
The respondent opposed the motion for partial summary judgment, stating that the determination of the unrestricted
retained earnings should be made at the end of the fiscal year of the respondent, and that the petitioners did not have
a cause of action against the respondent.
During the pendency of the motion for partial summary judgment, however, the Presiding Judge of Branch 133
transmitted the records to the Clerk of Court for re-raffling to any of the RTC’s special commercial courts in Makati City
due to the case being an intra-corporate dispute. Hence, Civil Case No. 01-086 was re-raffled to Branch 142.
Nevertheless, because the principal office of the respondent was in Manila, Civil Case No. 01-086 was ultimately
transferred to Branch 46 of the RTC in Manila, presided by Judge Artemio Tipon, 7 pursuant to the Interim Rules of
Procedure on Intra-Corporate Controversies (Interim Rules) requiring intra-corporate cases to be brought in the RTC
exercising jurisdiction over the place where the principal office of the corporation was found.
After the conference in Civil Case No. 01-086 set on October 23, 2002, which the petitioners’ counsel did not attend,
Judge Tipon issued an order,8 granting the petitioners’ motion for partial summary judgment, stating:
As to the motion for partial summary judgment, there is no question that the 3-man committee mandated to appraise
the shareholdings of plaintiff submitted its recommendation on October 27, 2000 fixing the fair value of the shares of
stocks of the plaintiff at P2.54 per share. Under Section 82 of the Corporation Code:
"The findings of the majority of the appraisers shall be final, and the award shall be paid by the corporation within thirty
(30) days after the award is made."
"The only restriction imposed by the Corporation Code is–"
"That no payment shall be made to any dissenting stockholder unless the corporation has unrestricted retained earning
in its books to cover such payment."
The evidence submitted by plaintiffs shows that in its quarterly financial statement it submitted to the Securities and
Exchange Commission, the defendant has retained earnings of P11,975,490 as of March 21, 2002. This is not disputed
by the defendant. Its only argument against paying is that there must be unrestricted retained earning at the time the
demand for payment is made.
This certainly is a very narrow concept of the appraisal right of a stockholder. The law does not say that the unrestricted
retained earnings must exist at the time of the demand. Even if there are no retained earnings at the time the demand
is made if there are retained earnings later, the fair value of such stocks must be paid. The only restriction is that there
must be sufficient funds to cover the creditors after the dissenting stockholder is paid. No such allegations have been
made by the defendant.9
On November 12, 2002, the respondent filed a motion for reconsideration.
On the scheduled hearing of the motion for reconsideration on November 22, 2002, the petitioners filed a motion for
immediate execution and a motion to strike out motion for reconsideration. In the latter motion, they pointed out that the
motion for reconsideration was prohibited by Section 8 of the Interim Rules. Thus, also on November 22, 2002, Judge
Tipon denied the motion for reconsideration and granted the petitioners’ motion for immediate execution. 10
Subsequently, on November 28, 2002, the RTC issued a writ of execution. 11
Aggrieved, the respondent commenced a special civil action for certiorari in the CA to challenge the two aforecited
orders of Judge Tipon, claiming that:
A.
 JUDGE TIPON GRAVELY ABUSED HIS DISCRETION IN GRANTING SUMMARY JUDGMENT TO THE
SPOUSES TURNER, BECAUSE AT THE TIME THE "COMPLAINT" WAS FILED, LSC HAD NO RETAINED
EARNINGS, AND THUS WAS COMPLYING WITH THE LAW, AND NOT VIOLATING ANY RIGHTS OF THE
SPOUSES TURNER, WHEN IT REFUSED TO PAY THEM THE VALUE OF THEIR LSC SHARES. ANY
RETAINED EARNINGS MADE A YEAR AFTER THE "COMPLAINT" WAS FILED ARE IRRELEVANT TO THE
SPOUSES TURNER’S RIGHT TO RECOVER UNDER THE "COMPLAINT", BECAUSE THE WELL-SETTLED
RULE, REPEATEDLY BROUGHT TO JUDGE TIPON’S ATTENTION, IS "IF NO RIGHT EXISTED AT THE
TIME (T)HE ACTION WAS COMMENCED THE SUIT CANNOT BE MAINTAINED, ALTHOUGH SUCH RIGHT
OF ACTION MAY HAVE ACCRUED THEREAFTER.
B.
JUDGE TIPON IGNORED CONTROLLING CASE LAW, AND THUS GRAVELY ABUSED HIS DISCRETION,
WHEN HE GRANTED AND ISSUED THE QUESTIONED "WRIT OF EXECUTION" DIRECTING THE
EXECUTION OF HIS PARTIAL SUMMARY JUDGMENT IN FAVOR OF THE SPOUSES TURNER, BECAUSE
THAT JUDGMENT IS NOT A FINAL JUDGMENT UNDER SECTION 1 OF RULE 39 OF THE RULES OF
COURT AND THEREFORE CANNOT BE SUBJECT OF EXECUTION UNDER THE SUPREME COURT’S
CATEGORICAL HOLDING IN PROVINCE OF PANGASINAN VS. COURT OF APPEALS.
Upon the respondent’s application, the CA issued a temporary restraining order (TRO), enjoining the petitioners, and
their agents and representatives from enforcing the writ of execution. By then, however, the writ of execution had been
partially enforced.
The TRO lapsed without the CA issuing a writ of preliminary injunction to prevent the execution. Thereupon, the sheriff
resumed the enforcement of the writ of execution.
The CA promulgated its assailed decision on March 4, 2003,12 pertinently holding:
However, it is clear from the foregoing that the Turners’ appraisal right is subject to the legal condition that no payment
shall be made to any dissenting stockholder unless the corporation has unrestricted retained earnings in its books to
cover such payment. Thus, the Supreme Court held that:
The requirement of unrestricted retained earnings to cover the shares is based on the trust fund doctrine which means
that the capital stock, property and other assets of a corporation are regarded as equity in trust for the payment of
corporate creditors. The reason is that creditors of a corporation are preferred over the stockholders in the distribution
of corporate assets. There can be no distribution of assets among the stockholders without first paying corporate
creditors. Hence, any disposition of corporate funds to the prejudice of creditors is null and void. Creditors of a
corporation have the right to assume that so long as there are outstanding debts and liabilities, the board of directors
will not use the assets of the corporation to purchase its own stock.
In the instant case, it was established that there were no unrestricted retained earnings when the Turners filed their
Complaint. In a letter dated 20 August 2000, petitioner informed the Turners that payment of their shares could only be
made if it had unrestricted earnings in its books to cover the same. Petitioner reiterated this in a letter dated 2 January
2001 which further informed the Turners that its Financial Statement for fiscal year 1999 shows that its retained earnings
ending December 31, 1999 was at a deficit in the amount of ₱72,973,114.00, a matter which has not been disputed by
private respondents. Hence, in accordance with the second paragraph of sec. 82, BP 68 supra, the Turners’ right to
payment had not yet accrued when they filed their Complaint on January 22, 2001, albeit their appraisal right already
existed.
In Philippine American General Insurance Co. Inc. vs. Sweet Lines, Inc., the Supreme Court declared that:
Now, before an action can properly be commenced all the essential elements of the cause of action must be in existence,
that is, the cause of action must be complete. All valid conditions precedent to the institution of the particular action,
whether prescribed by statute, fixed by agreement of the parties or implied by law must be performed or complied with
before commencing the action, unless the conduct of the adverse party has been such as to prevent or waive
performance or excuse non-performance of the condition.
It bears restating that a right of action is the right to presently enforce a cause of action, while a cause of action consists
of the operative facts which give rise to such right of action. The right of action does not arise until the performance of
all conditions precedent to the action and may be taken away by the running of the statute of limitations, through
estoppel, or by other circumstances which do not affect the cause of action. Performance or fulfillment of all conditions
precedent upon which a right of action depends must be sufficiently alleged, considering that the burden of proof to
show that a party has a right of action is upon the person initiating the suit.
The Turners’ right of action arose only when petitioner had already retained earnings in the amount of ₱11,975,490.00
on March 21, 2002; such right of action was inexistent on January 22, 2001 when they filed the Complaint.
In the doctrinal case of Surigao Mine Exploration Co. Inc., vs. Harris, the Supreme Court ruled:
Subject to certain qualifications, and except as otherwise provided by law, an action commenced before the cause of
action has accrued is prematurely brought and should be dismissed. The fact that the cause of action accrues after the
action is commenced and while it is pending is of no moment. 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.
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 as yet no cause of action should not be summoned before the public tribunals
to answer complaints which are groundless. An action prematurely brought is a groundless suit. Unless the plaintiff has
a valid and subsisting cause of action at the time his action iscommenced, 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.
The afore-quoted ruling was reiterated in Young vs Court of Appeals and Lao vs. Court of Appeals.
The Turners’ apprehension that their claim for payment may prescribe if they wait for the petitioner to have unrestricted
retained earnings is misplaced. It is the legal possibility of bringing the action that determines the starting point for the
computation of the period of prescription. Stated otherwise, the prescriptive period is to be reckoned from the accrual of
their right of action.
Accordingly, We hold that public respondent exceeded its jurisdiction when it entertained the herein Complaint and
issued the assailed Orders. Excess of jurisdiction is the state of being beyond or outside the limits of jurisdiction, and
as distinguished from the entire absence of jurisdiction, means that the act although within the general power of the
judge, is not authorized and therefore void, with respect to the particular case, because the conditions which authorize
the exercise of his general power in that particular case are wanting, and hence, the judicial power is not in fact lawfully
invoked.
We find no necessity to discuss the second ground raised in this petition.
WHEREFORE, upon the premises, the petition is GRANTED. The assailed Orders and the corresponding Writs of
Garnishment are NULLIFIED. Civil Case No. 02-104692 is hereby ordered DISMISSED without prejudice to refiling by
the private respondents of the action for enforcement of their right to payment as withdrawing stockholders.
SO ORDERED.
The petitioners now come to the Court for a review on certiorari of the CA’s decision, submitting that:
I.
THE COURT OF APPEALS COMMITTED SERIOUS ERRORS OF LAW WHEN IT GRANTED THE PETITION FOR
CERTIORARI WHEN THE REGIONAL TRIAL COURT OF MANILA DID NOT ACT BEYOND ITS JURISDICTION
AMOUNTING TO LACK OF JURISDICTION IN GRANTING THE MOTION FOR PARTIAL SUMMARY JUDGMENT
AND IN GRANTING THE MOTION FOR IMMEDIATE EXECUTION OF JUDGMENT;
II.
THE COURT OF APPEALS COMMITTED SERIOUS ERRORS OF LAW WHEN IT ORDERED THE DISMISSAL OF
THE CASE, WHEN THE PETITION FOR CERTIORARI MERELY SOUGHT THE ANNULMENT OF THE ORDER
GRANTING THE MOTION FOR PARTIAL SUMMARY JUDGMENT AND OF THE ORDER GRANTING THE MOTION
FOR IMMEDIATE EXECUTION OF THE JUDGMENT;
III.
THE HONORABLE COURT OF APPEALS HAS DECIDED QUESTIONS OF SUBSTANCE NOT THEREFORE
DETERMINED BY THIS HONORABLE COURT AND/OR DECIDED IT IN A WAY NOT IN ACCORD WITH LAW OR
WITH JURISPRUDENCE.
Ruling
The petition fails.
The CA correctly concluded that the RTC had exceeded its jurisdiction in entertaining the petitioners’ complaint in Civil
Case No. 01-086, and in rendering the summary judgment and issuing writ of execution.
A.
Stockholder’s Right of Appraisal, In General
A stockholder who dissents from certain corporate actions has the right to demand payment of the fair value of his or
her shares. This right, known as the right of appraisal, is expressly recognized in Section 81 of the Corporation Code,
to wit:
Section 81. Instances of appraisal right. - Any stockholder of a corporation shall have the right to dissent and demand
payment of the fair value of his shares in the following instances:
1. In case any amendment to the articles of incorporation has the effect of changing or restricting the rights of
any stockholder or class of shares, or of authorizing preferences in any respect superior to those of outstanding
shares of any class, or of extending or shortening the term of corporate existence;
2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of
the corporate property and assets as provided in the Code; and
3. In case of merger or consolidation. (n)
Clearly, the right of appraisal may be exercised when there is a fundamental change in the charter or articles of
incorporation substantially prejudicing the rights of the stockholders. It does not vest unless objectionable corporate
action is taken.13 It serves the purpose of enabling the dissenting stockholder to have his interests purchased and to
retire from the corporation.141avvphil
Under the common law, there were originally conflicting views on whether a corporation had the power to acquire or
purchase its own stocks. In England, it was held invalid for a corporation to purchase its issued stocks because such
purchase was an indirect method of reducing capital (which was statutorily restricted), aside from being inconsistent
with the privilege of limited liability to creditors.15 Only a few American jurisdictions adopted by decision or statute the
strict English rule forbidding a corporation from purchasing its own shares. In some American states where the English
rule used to be adopted, statutes granting authority to purchase out of surplus funds were enacted, while in others,
shares might be purchased even out of capital provided the rights of creditors were not prejudiced.16 The reason
underlying the limitation of share purchases sprang from the necessity of imposing safeguards against the depletion by
a corporation of its assets and against the impairment of its capital needed for the protection of creditors. 17
Now, however, a corporation can purchase its own shares, provided payment is made out of surplus profits and the
acquisition is for a legitimate corporate purpose.18 In the Philippines, this new rule is embodied in Section 41 of the
Corporation Code, to wit:
Section 41. Power to acquire own shares. - A stock corporation shall have the power to purchase or acquire its own
shares for a legitimate corporate purpose or purposes, including but not limited to the following cases: Provided, That
the corporation has unrestricted retained earnings in its books to cover the shares to be purchased or acquired:
1. To eliminate fractional shares arising out of stock dividends;
2. To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription, in a
delinquency sale, and to purchase delinquent shares sold during said sale; and
3. To pay dissenting or withdrawing stockholders entitled to payment for their shares under the provisions of
this Code. (n)
The Corporation Code defines how the right of appraisal is exercised, as well as the implications of the right of appraisal,
as follows:
1. The appraisal right is exercised by any stockholder who has voted against the proposed corporate action by making
a written demand on the corporation within 30 days after the date on which the vote was taken for the payment of the
fair value of his shares. The failure to make the demand within the period is deemed a waiver of the appraisal right. 19
2. If the withdrawing stockholder and the corporation cannot agree on the fair value of the shares within a period of 60
days from the date the stockholders approved the corporate action, the fair value shall be determined and appraised by
three disinterested persons, one of whom shall be named by the stockholder, another by the corporation, and the third
by the two thus chosen. The findings and award of the majority of the appraisers shall be final, and the corporation shall
pay their award within 30 days after the award is made. Upon payment by the corporation of the agreed or awarded
price, the stockholder shall forthwith transfer his or her shares to the corporation.20
3. All rights accruing to the withdrawing stockholder’s shares, including voting and dividend rights, shall be suspended
from the time of demand for the payment of the fair value of the shares until either the abandonment of the corporate
action involved or the purchase of the shares by the corporation, except the right of such stockholder to receive payment
of the fair value of the shares.21
4. Within 10 days after demanding payment for his or her shares, a dissenting stockholder shall submit to the corporation
the certificates of stock representing his shares for notation thereon that such shares are dissenting shares. A failure to
do so shall, at the option of the corporation, terminate his rights under this Title X of the Corporation Code. If shares
represented by the certificates bearing such notation are transferred, and the certificates are consequently canceled,
the rights of the transferor as a dissenting stockholder under this Title shall cease and the transferee shall have all the
rights of a regular stockholder; and all dividend distributions that would have accrued on such shares shall be paid to
the transferee.22
5. If the proposed corporate action is implemented or effected, the corporation shall pay to such stockholder, upon the
surrender of the certificates of stock representing his shares, the fair value thereof as of the day prior to the date on
which the vote was taken, excluding any appreciation or depreciation in anticipation of such corporate action. 23
Notwithstanding the foregoing, no payment shall be made to any dissenting stockholder unless the corporation has
unrestricted retained earnings in its books to cover the payment. In case the corporation has no available unrestricted
retained earnings in its books, Section 83 of the Corporation Code provides that if the dissenting stockholder is not paid
the value of his shares within 30 days after the award, his voting and dividend rights shall immediately be restored.
The trust fund doctrine backstops the requirement of unrestricted retained earnings to fund the payment of the shares
of stocks of the withdrawing stockholders. Under the doctrine, the capital stock, property, and other assets of a
corporation are regarded as equity in trust for the payment of corporate creditors, who are preferred in the distribution
of corporate assets.24 The creditors of a corporation have the right to assume that the board of directors will not use the
assets of the corporation to purchase its own stock for as long as the corporation has outstanding debts and
liabilities.25 There can be no distribution of assets among the stockholders without first paying corporate debts. Thus,
any disposition of corporate funds and assets to the prejudice of creditors is null and void.26
B.
Petitioners’ cause of action was premature
That the respondent had indisputably no unrestricted retained earnings in its books at the time the petitioners
commenced Civil Case No. 01-086 on January 22, 2001 proved that the respondent’s legal obligation to pay the value
of the petitioners’ shares did not yet arise. Thus, the CA did not err in holding that the petitioners had no cause of action,
and in ruling that the RTC did not validly render the partial summary judgment.
A cause of action is the act or omission by which a party violates a right of another. 27 The essential elements of a cause
of action are: (a) the existence of a legal right in favor of the plaintiff; (b) a correlative legal duty of the defendant to
respect such right; and (c) an act or omission by such defendant in violation of the right of the plaintiff with a resulting
injury or damage to the plaintiff for which the latter may maintain an action for the recovery of relief from the
defendant.28 Although the first two elements may exist, a cause of action arises only upon the occurrence of the last
element, giving the plaintiff the right to maintain an action in court for recovery of damages or other appropriate relief. 29
Section 1, Rule 2, of the Rules of Court requires that every ordinary civil action must be based on a cause of action.
Accordingly, Civil Case No. 01-086 was dismissible from the beginning for being without any cause of action.
The RTC concluded that the respondent’s obligation to pay had accrued by its having the unrestricted retained earnings
after the making of the demand by the petitioners. It based its conclusion on the fact that the Corporation Code did not
provide that the unrestricted retained earnings must already exist at the time of the demand.
The RTC’s construal of the Corporation Code was unsustainable, because it did not take into account the petitioners’
lack of a cause of action against the respondent. In order to give rise to any obligation to pay on the part of the
respondent, the petitioners should first make a valid demand that the respondent refused to pay despite having
unrestricted retained earnings. Otherwise, the respondent could not be said to be guilty of any actionable omission that
could sustain their action to collect.
Neither did the subsequent existence of unrestricted retained earnings after the filing of the complaint cure the lack of
cause of action in Civil Case No. 01-086. The petitioners’ right of action could only spring from an existing cause of
action. Thus, a complaint whose cause of action has not yet accrued cannot be cured by an amended or supplemental
pleading alleging the existence or accrual of a cause of action during the pendency of the action. 30For, only when there
is an invasion of primary rights, not before, does the adjective or remedial law become operative.31 Verily, a premature
invocation of the court’s intervention renders the complaint without a cause of action and dismissible on such
ground.32 In short, Civil Case No. 01-086, being a groundless suit, should be dismissed.
Even the fact that the respondent already had unrestricted retained earnings more than sufficient to cover the petitioners’
claims on June 26, 2002 (when they filed their motion for partial summary judgment) did not rectify the absence of the
cause of action at the time of the commencement of Civil Case No. 01-086. The motion for partial summary judgment,
being a mere application for relief other than by a pleading, 33 was not the same as the complaint in Civil Case No. 01-
086. Thereby, the petitioners did not meet the requirement of the Rules of Court that a cause of action must exist at the
commencement of an action, which is "commenced by the filing of the original complaint in court." 34
The petitioners claim that the respondent’s petition for certiorari sought only the annulment of the assailed orders of the
RTC (i.e., granting the motion for partial summary judgment and the motion for immediate execution); hence, the CA
had no right to direct the dismissal of Civil Case No. 01-086.
The claim of the petitioners cannot stand.
Although the respondent’s petition for certiorari targeted only the RTC’s orders granting the motion for partial summary
judgment and the motion for immediate execution, the CA’s directive for the dismissal of Civil Case No. 01-086 was not
an abuse of discretion, least of all grave, because such dismissal was the only proper thing to be done under the
circumstances. According to Surigao Mine Exploration Co., Inc. v. Harris:35
Subject to certain qualification, and except as otherwise provided by law, an action commenced before the cause of
action has accrued is prematurely brought and should be dismissed. The fact that the cause of action accrues
after the action is commenced and while the case is pending is of no moment. It is a rule of law to which there is, perhaps
no exception, either in law or in equity, that to recover at all there must be some cause of action at the commencement
of the suit. 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 as yet no cause of action should not be summoned before the
public tribunals to answer complaints which are groundless. An action prematurely brought is a groundless suit. 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.
Lastly, the petitioners argue that the respondent’s recourse of a special action for certiorari was the wrong remedy, in
view of the fact that the granting of the motion for partial summary judgment constituted only an error of law correctible
by appeal, not of jurisdiction.
The argument of the petitioners is baseless. The RTC was guilty of an error of jurisdiction, for it exceeded its jurisdiction
by taking cognizance of the complaint that was not based on an existing cause of action.
WHEREFORE, the petition for review on certiorari is denied for lack of merit.
We affirm the decision promulgated on March 4, 2003 in C.A.-G.R. SP No. 74156 entitled Lorenzo Shipping Corporation
v. Hon. Artemio S. Tipon, in his capacity as Presiding Judge of Branch 46 of the Regional Trial Court of Manila, et al.
Costs of suit to be paid by the petitioners.
SO ORDERED.
G.R. No. 182311 August 19, 2009
FIDEL O. CHUA and FILIDEN REALTY AND DEVELOPMENT CORPORATION, Petitioners,
vs.
METROPOLITAN BANK & TRUST COMPANY, ATTY. ROMUALDO CELESTRA, ATTY. ANTONIO V. VIRAY, ATTY.
RAMON MIRANDA and ATTY. POMPEYO MAYNIGO, Respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the Decision,1 dated 31 January
2008, later upheld in a Resolution2 dated 28 March 2008, both rendered by the Court of Appeals in CA-G.R. CV No.
88087. The Court of Appeals, in its assailed Decision, affirmed the Order 3 dated 3 July 2006 of Branch 258 of the
Regional Trial Court of Parañaque City (RTC-Branch 258), dismissing the action for damages, docketed as Civil Case
No. CV-05-0402, filed by petitioners Fidel O. Chua (Chua) and Filiden Realty and Development Corporation (Filiden),
on the ground of forum shopping.
Petitioner Chua is president of co-petitioner Filiden, a domestic corporation, engaged in the realty business. 4Respondent
Metropolitan Bank and Trust Co. (respondent Metrobank) is a domestic corporation and a duly licensed banking
institution.5
Sometime in 1988, petitioners obtained from respondent Metrobank a loan of ₱4,000,000.00, which was secured by a
real estate mortgage (REM) on parcels of land covered by Transfer Certificates of Title (TCTs) No. (108020)1148, No.
93919, and No. 125185, registered in petitioner Chua’s name (subject properties).6 Since the value of the collateral was
more than the loan, petitioners were given an open credit line for future loans. On 18 September 1995, 17 January 1996,
31 July 1996, 21 January 1997, and 12 October 1998, petitioners obtained other loans from respondent Metrobank, and
the real estate mortgages were repeatedly amended in accordance with the increase in petitioners’ liabilities. 7
Having failed to fully pay their obligations, petitioners entered into a Debt Settlement Agreement 8 with respondent
Metrobank on 13 January 2000, whereby the loan obligations of the former were restructured. The debt consisted of a
total principal amount of ₱79,650,000.00, plus unpaid interest of ₱7,898,309.02, and penalty charges of ₱552,784.96.
Amortization payments were to be made in accordance with the schedule attached to the agreement.
In a letter9 dated 28 February 2001, the lawyers of respondent Metrobank demanded that petitioners fully pay and settle
their liabilities, including interest and penalties, in the total amount of ₱103,450,391 as of 16 January 2001, as well as
the stipulated attorney’s fees, within three days from receipt of said letter.
When petitioners still failed to pay their loans, respondent Metrobank sought to extra-judicially foreclose the REM
constituted on the subject properties. Upon a verified Petition for Foreclosure filed by respondent Metrobank on 25 April
2001, respondent Atty. Romualdo Celestra (Atty. Celestra) issued a Notice of Sale dated 26 April 2001, wherein the
mortgage debt was set at ₱88,101,093.98, excluding unpaid interest and penalties (to be computed from 14 September
1999), attorney’s fees, legal fees, and other expenses for the foreclosure and sale. The auction sale was scheduled on
31 May 2001.10 On 4 May 2001, petitioners received a copy of the Notice of Sale.11
On 28 May 2001, petitioner Chua, in his personal capacity and acting on behalf of petitioner Filiden, filed before Branch
257 of the Regional Trial Court of Parañaque (RTC-Branch 257), a Complaint for Injunction with Prayer for Issuance of
Temporary Restraining Order (TRO), Preliminary Injunction and Damages, 12 against respondents Atty. Celestra,
docketed as Civil Case No. CV-01-0207. Upon the motion of petitioners, RTC-Branch 257 issued a TRO enjoining
respondents Metrobank and Atty. Celestra from conducting the auction sale of the mortgaged properties on 31 May
2001.13
After the expiration of the TRO on 18 June 2001, and no injunction having been issued by RTC-Branch 257, respondent
Atty. Celestra reset the auction sale on 8 November 2001. On 8 November 2001, the rescheduled date of the auction
sale, RTC-Branch 257 issued an Order directing that the said sale be reset anew after 8 November 2001. The Order
was served on 8 November 2001, on respondent Atty. Celestra’s daughter, Arlene Celestra, at a coffee shop owned by
the former’s other daughter, Grace Celestra Aguirre. The auction sale, however, proceeded on 8 November 2001, and
a Certificate of Sale was accordingly issued to respondent Metrobank as the highest bidder of the foreclosed
properties. 14
On 13 February 2002, petitioners filed with RTC-Branch 257 a Motion to Admit Amended Complaint15 in Civil Case No.
CV-01-0207. The Amended Verified Complaint,16 attached to the said Motion, impleaded as additional defendant the
incumbent Register of Deeds of Parañaque City. Petitioners alleged that the Certificate of Sale was a falsified document
since there was no actual sale that took place on 8 November 2001. And, even if an auction sale was conducted, the
Certificate of Sale would still be void because the auction sale was done in disobedience to a lawful order of RTC-
Branch 257. Relevant portions of the Amended Complaint of petitioners read:
12-E. There was actually no auction sale conducted by [herein respondent] Atty. Celestra on November 8, 2001 and
the CERTIFICATE OF SALE (Annex "K-2") is therefore a FALSIFIED DOCUMENT and for which the appropriate
criminal complaint for falsification of official/public document will be filed against the said [respondent] Celestra and the
responsible officers of [herein respondent] Metrobank, in due time;
12-F. But even granting that an auction sale was actually conducted and that the said Certificate of Sale is not a falsified
document, the same document is a nullity simply because the auction sale was done in disobedience to a lawful order
of this Court and that therefore the auction sale proceeding is null and void ab initio. 17
Petitioners additionally prayed in their Amended Complaint for the award of damages given the abuse of power of
respondent Metrobank in the preparation, execution, and implementation of the Debt Settlement Agreement with
petitioners; the bad faith of respondent Metrobank in offering the subject properties at a price much lower than its
assessed fair market value; and the gross violation by respondents Metrobank and Atty. Celestra of the injunction.
Petitioners also sought, in their Amended Complaint, the issuance of a TRO or a writ of preliminary injunction to enjoin
respondent Atty. Celestra and all other persons from proceeding with the foreclosure sale, on the premise that no auction
sale was actually held on 8 November 2001.
In an Order dated 6 March 2002, RTC-Branch 257 denied petitioners’ application for injunction on the ground that the
sale of the foreclosed properties rendered the same moot and academic. The auction sale, which was conducted by
respondents Metrobank and Atty. Celestra, after the expiration of the TRO, and without knowledge of the Order dated
8 November 2001 of RTC-Branch 257, was considered as proper and valid. 18
Petitioners filed a Motion for Reconsideration of the 6 March 2002 Order of RTC-Branch 257. When RTC-Branch 257
failed to take any action on said Motion, petitioners filed with the Court of Appeals a Petition for Certiorari, docketed as
CA-G.R. No. 70208. In a Decision dated 26 July 2002, the Court of Appeals reversed the 6 March 2002 Order of RTC-
Branch 257 and remanded the case for further proceedings. The Supreme Court dismissed the appeal of respondents
with finality. Thus, on 27 September 2005, RTC-Branch 257 set the hearing for the presentation of evidence by
respondent Metrobank for the application for preliminary injunction on 9 November 2005. 19
On 2 November 2005, petitioners sought the inhibition of Acting Executive Judge Rolando How of RTC-Branch 257,
who presided over Civil Case No. CV-01-0207. Their motion was granted and the case was re-raffled to RTC-Branch
258.20
On 28 October 2005, petitioners filed with Branch 195 of the Regional Trial Court of Parañaque (RTC-Branch 195) a
Verified Complaint for Damages against respondents Metrobank, Atty. Celestra, and three Metrobank lawyers, namely,
Atty. Antonio Viray, Atty. Ramon Miranda and Atty. Pompeyo Maynigo. The Complaint was docketed as Civil Case No.
CV-05-0402. Petitioners sought in their Complaint the award of actual, moral, and exemplary damages against the
respondents for making it appear that an auction sale of the subject properties took place, as a result of which, the
prospective buyers of the said properties lost their interest and petitioner Chua was prevented from realizing a profit of
₱70,000,000.00 from the intended sale.21
Petitioners filed with RTC-Branch 195 a Motion to Consolidate22 dated 27 December 2005, seeking the consolidation of
Civil Case No. CV-05-0402, the action for damages pending before said court, with Civil Case No. CV-01-0207, the
injunction case that was being heard before RTC-Branch 258, based on the following grounds:
2. The above-captioned case is a complaint for damages as a result of the [herein respondents’] conspiracy to
make it appear as if there was an auction sale conducted on November 8, 2001 when in fact there was none.
The properties subject of the said auction sale are the same properties subject of Civil Case No. 01-0207.
3. Since the subject matter of both cases are the same properties and the parties of both cases are almost the
same, and both cases have the same central issue of whether there was an auction sale, then necessarily, both
cases should be consolidated.
On 3 January 2006, respondents filed with RTC-Branch 195 an Opposition to Motion to Consolidate with Prayer for
Sanctions, praying for the dismissal of the Complaint for Damages in Civil Case No. CV-05-0402, on the ground of forum
shopping.23
In an Order dated 23 January 2006, RTC-Branch 195 granted the Motion to Consolidate, and ordered that Civil Case
No. CV-05-0402 be transferred to RTC-Branch 258, which was hearing Civil Case No. 01-0207.24
After the two cases were consolidated, respondents filed two motions before RTC-Branch 258: (1) Motion for
Reconsideration of the Order dated 23 January 2006 of RTC-Branch 195, which granted the Motion to Consolidate of
petitioners; and (2) Manifestation and Motion raising the ground of forum shopping, among the affirmative defenses of
respondents.25 RTC-Branch 258 issued an Order on 3 July 2006, granting the first Motion of respondents, thus,
dismissing Civil Case No. CV-05-0402 on the ground of forum shopping,26 and consequently, rendering the second
Motion of respondents moot. RTC-Branch 258 declared that the facts or claims submitted by petitioners, the rights
asserted, and the principal parties in the two cases were the same. RTC-Branch 258 held in its 3 July 2006 Order27 that:
It is, therefore, the honest belief of the Court that since there is identity of parties and the rights asserted, the allegations
of the defendant are found meritorious and with legal basis, hence, the motion is GRANTED and this case is DISMISSED
due to forum shopping.
As regards the second motion, the same has already been mooted by the dismissal of this case.
WHEREFORE, premises considered, the Motion for Reconsideration filed by the defendants whereby this case is
DISMISSED due to forum shopping and the Manifestation and Motion likewise filed by the defendants has already been
MOOTED by the said dismissal.
From the foregoing Order of RTC-Branch 258, petitioners filed a Petition for Review on Certiorari with the Court of
Appeals, docketed as CA-G.R. CV No. 88087.
In a Decision dated 31 January 2008, the Court of Appeals affirmed the 3 July 2006 Order of RTC-Branch 258. The
appellate court observed that although the defendants in the two cases were not identical, they represented a community
of interest. It also declared that the cause of action of the two cases, upon which the recovery of damages was based,
was the same, i.e., the feigned auction sale, such that the nullification of the foreclosure of the subject properties, which
petitioners sought in Civil Case No. CV-01-0207, would render proper the award for damages, claimed by petitioners in
Civil Case No. CV-05-0402. Thus, judgment in either case would result in res judicata. The Court of Appeals additionally
noted that petitioners admitted in their Motion for Consolidation that Civil Case No. CV-01-0207 and Civil Case No. CV-
05-0402 involved the same parties, central issue, and subject properties.28 In its Decision,29 the appellate court decreed:
All told, the dismissal by the RTC-Br. 258 of the "second" case, Civil Case No. CV-05-0402, on the ground of forum
shopping should be upheld as it is supported by law and jurisprudence.
WHEREFORE, the assailed order is AFFIRMED. Costs against the [herein petitioners].
Petitioners filed a Motion for Reconsideration of the afore-mentioned Decision, which the Court of Appeals denied in a
Resolution dated 28 March 2008.30
Hence, the present Petition, in which the following issues are raised31:
I
WHETHER OR NOT THE "FIRST" AND THE "SECOND" CASES HAVE THE SAME ULTIMATE OBJECTIVE,
I.E., TO HAVE THE AUCTION SALE BE DECLARED AS NULL AND VOID.
II
WHETHER OR NOT THE OUTCOME OF THE "FIRST" CASE WOULD AFFECT THE "SECOND" CASE.
The only issue that needs to be determined in this case is whether or not successively filing Civil Case No. CV-01-0207
and Civil Case No. CV-05-0402 amounts to forum shopping.
The Court answers in the affirmative.
The proscription against forum shopping is found in Section 5, Rule 7 of the 1997 Rules of Court, which provides that:
SEC. 5. Certification against forum shopping.—The plaintiff or principal party shall certify under oath in the complaint or
other initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto and simultaneously filed
therewith: (a) that he has not theretofore commenced any action or filed any claim involving the same issues in any
court, tribunal or quasi-judicial agency and, to the best of his knowledge, no such other action or claim is pending therein;
(b) if there is such other pending action or claim, a complete statement of the present status thereof; and (c) if he should
thereafter learn that the same or similar action or claim has been filed or is pending, he shall report that fact within five
(5) days therefrom to the court wherein his aforesaid complaint or initiatory pleading has been filed.
Failure to comply with the foregoing requirements shall not be curable by mere amendment of the complaint or other
initiatory pleading but shall be cause for the dismissal of the case without prejudice, unless otherwise provided, upon
motion and after hearing. The submission of a false certification or non-compliance with any of the undertakings therein
shall constitute indirect contempt of court, without prejudice to the corresponding administrative and criminal actions. If
the acts of the party or his counsel clearly constitutes willful and deliberate forum shopping, the same shall be ground
for summary dismissal with prejudice and shall constitute direct contempt, as well as a cause for administrative
sanctions.
Forum shopping exists when a party repeatedly avails himself of several judicial remedies in different courts,
simultaneously or successively, all substantially founded on the same transactions and the same essential facts and
circumstances, and all raising substantially the same issues either pending in or already resolved adversely by some
other court.32
Ultimately, what is truly important in determining whether forum shopping exists or not is the vexation caused the courts
and party-litigant by a party who asks different courts to rule on the same or related causes and/or to grant the same or
substantially the same reliefs, in the process creating the possibility of conflicting decisions being rendered by the
different fora upon the same issue.33
Forum shopping can be committed in three ways: (1) filing multiple cases based on the same cause of action and with
the same prayer, the previous case not having been resolved yet (where the ground for dismissal is litis pendentia); (2)
filing multiple cases based on the same cause of action and the same prayer, the previous case having been finally
resolved (where the ground for dismissal is res judicata); and (3) filing multiple cases based on the same cause of
action, but with different prayers (splitting of causes of action, where the ground for dismissal is also either litis pendentia
or res judicata).34
In the present case, there is no dispute that petitioners failed to state in the Certificate of Non-Forum Shopping, attached
to their Verified Complaint in Civil Case No. CV-05-0402 before RTC-Branch 195, the existence of Civil Case No. CV-
01-0207 pending before RTC-Branch 258. Nevertheless, petitioners insist that they are not guilty of forum shopping,
since (1) the two cases do not have the same ultimate objective – Civil Case No. CV-01-0207 seeks the annulment of
the 8 November 2001 public auction and certificate of sale issued therein, while Civil Case No. CV-05-0402 prays for
the award of actual and compensatory damages for respondents’ tortuous act of making it appear that an auction sale
actually took place on 8 November 2001; and (2) the judgment in Civil Case No. CV-01-0207, on the annulment of the
foreclosure sale, would not affect the outcome of Civil Case No. CV-05-0402, on the entitlement of petitioners to
damages. The Court, however, finds these arguments refuted by the allegations made by petitioners themselves in their
Complaints in both cases.
Petitioners committed forum shopping by filing multiple cases based on the same cause of action, although with different
prayers.
Sections 3 and 4, Rule 2 of the Rules of Court proscribe the splitting of a single cause of action:
Section 3. A party may not institute more than one suit for a single cause of action.
Section 4. Splitting a single cause of action; effect of.—If two or more suits are instituted on the basis of the same cause
of action, the filing of one or a judgment upon the merits in any one is available as a ground for the dismissal of the
others.
Forum shopping occurs although the actions seem to be different, when it can be seen that there is a splitting of a cause
of action. 35 A cause of action is understood to be the delict or wrongful act or omission committed by the defendant in
violation of the primary rights of the plaintiff. It is true that a single act or omission can violate various rights at the same
time, as when the act constitutes juridically a violation of several separate and distinct legal obligations. However, where
there is only one delict or wrong, there is but a single cause of action regardless of the number of rights that may have
been violated belonging to one person.36
Petitioners would like to make it appear that Civil Case No. CV-01-0207 was solely concerned with the nullification of
the auction sale and certification of sale, while Civil Case No. CV-05-0402 was a totally separate claim for damages.
Yet, a review of the records reveals that petitioners also included an explicit claim for damages in their Amended
Complaint37 in Civil Case No. CV-01-0207, to wit:
20-A. The abovementioned acts of [herein respondents] Metrobank and Atty. Celestra are in gross violation of the
injunction made under Article 19 of the Civil Code, thereby entitling the [herein petitioners] to recover damages from the
said [respondents] in such amount as may be awarded by the Court. (Emphasis ours.)
The "abovementioned acts" on which petitioners anchored their claim to recover damages were described in the
immediately preceding paragraph in the same Amended Complaint, as follows 38:
20. To reiterate, the [herein respondent] is fully aware that the assessed fair market value of the real properties they
seek to foreclose and sell at public auction yet they have knowingly offered the said properties for sale at the amount of
EIGHTY EIGHT MILLION ONE HUNDRED ONE THOUSAND NINETY THREE PESOS AND 98/100
(PhP88,101,093.98), obviously because they know that the [petitioners] or any other third person would not be able to
seasonably raise the said amount and that said [respondent] Bank would be the winner by default at the said sale at
public auction.
Petitioners averred in their Amended Complaint in Civil Case No. CV-01-0207 that the assessed fair market value of
the subject properties was ₱176,117,000.00.39
The Court observes that the damages being claimed by petitioners in their Complaint in Civil Case No. CV-05-0402
were also occasioned by the supposedly fictitious 8 November 2001 foreclosure sale, thus 40:
24. The acts of [herein respondents] in making it appear that there was an auction sale conducted on 8
November 2001 and the subsequent execution of the fictitious Certificate of Sale is TORTIOUS, which entitles
the [herein petitioners] to file this instant action under the principles of Human Relations, more particularly
Articles 19, 20 and 21 of the Civil Code which provide that:
xxxx
25. As a result of the aforesaid acts of the [respondents], [petitioner’s] buyers of the mortgaged properties had
lost their interest anymore (sic) in buying the said mortgaged properties for not less than ₱175,000,000.00 as
per appraisal report of the Philippine Appraisal Co., Inc., a copy of which is hereto attached as Annex "R" and
made an integral part hereof;
26. The aborted sale of the [petitioner’s] mortgaged properties for the said amount of not less than
₱175,000,000.00 could have paid off [petitioners’] loan obligation with [respondent] Metrobank for the principal
amount of ₱79,650,000.00 or even the contested restructured amount of ₱103,450,391.84 (as stated in the
petition for foreclosure), which would have thus enabled the plaintiff to realize a net amount of not less than
SEVENTY MILLION PESOS, more or less;
27. By reason of the aforesaid acts of [respondents], [petitioners] suffered and will continue to suffer actual or
compensatory, moral and exemplary or corrective damages, the nature, extent and amount of compensation of
which will (sic) proven during the trial but not less than SEVENTY MILLION PESOS.
There is no question that the claims of petitioners for damages in Civil Case No. CV-01-0207 and Civil Case No. CV-
05-0402 are premised on the same cause of action, i.e., the purportedly wrongful conduct of respondents in connection
with the foreclosure sale of the subject properties.
At first glance, said claims for damages may appear different. In Civil Case No. CV-01-0207, the damages purportedly
arose from the bad faith of respondents in offering the subject properties at the auction sale at a price much lower than
the assessed fair market value of the said properties, said to be ₱176,117,000.00. On the other hand, the damages in
Civil Case No. CV-05-0402, allegedly resulted from the backing out of prospective buyers, who had initially offered to
buy the subject properties for "not less than ₱175,000,000.00," because respondents made it appear that the said
properties were already sold at the auction sale. Yet, it is worthy to note that petitioners quoted closely similar values
for the subject properties in both cases, against which they measured the damages they supposedly suffered. Evidently,
this is due to the fact that petitioners actually based the said values on the single appraisal report of the Philippine
Appraisal Company on the subject properties. Even though petitioners did not specify in their Amended Complaint in
Civil Case No. CV-01-0207 the exact amount of damages they were seeking to recover, leaving the same to the
determination of the trial court, and petitioners expressly prayed that they be awarded damages of not less than
₱70,000,000.00 in their Complaint in Civil Case No. CV-05-0402, petitioners cannot deny that all their claims for
damages arose from what they averred was a fictitious public auction sale of the subject properties.1avvphi1
Petitioners’ contention that the outcome of Civil Case No. CV-01-0207 will not determine that of Civil Case No. CV-05-
0402 does not justify the filing of separate cases. Even if it were assumed that the two cases contain two separate
remedies that are both available to petitioners, these two remedies that arose from one wrongful act cannot be pursued
in two different cases. The rule against splitting a cause of action is intended to prevent repeated litigation between the
same parties in regard to the same subject of controversy, to protect the defendant from unnecessary vexation; and to
avoid the costs and expenses incident to numerous suits. It comes from the old maxim nemo debet bis vexari, pro una
et eadem causa (no man shall be twice vexed for one and the same cause). 41
Moreover, petitioners admitted in their Motion to Consolidate 42 dated 27 December 2005 before RTC-Branch 195 that
both cases shared the same parties, the same central issue, and the same subject property, viz:
2. The above-captioned case is a complaint for damages as a result of the [herein respondents’] conspiracy to
make it appear as if there was an auction sale conducted on November 8, 2001 when in fact there was none.
The properties subject of the said auction sale are the same properties subject of Civil Case No. 01-0207.
3. Since the subject matter of both cases are the same properties and the parties of both cases are almost the
same, and both cases have the same central issue of whether there was an auction sale, then necessarily, both
cases should be consolidated.
If the forum shopping is not considered willful and deliberate, the subsequent case shall be dismissed without prejudice,
on the ground of either litis pendentia or res judicata. However, if the forum shopping is willful and deliberate, both (or
all, if there are more than two) actions shall be dismissed with prejudice..43 In this case, petitioners did not deliberately
file Civil Case No. CV-05-0402 for the purpose of seeking a favorable decision in another forum. Otherwise, they would
not have moved for the consolidation of both cases. Thus, only Civil Case No. CV-05-0402 is dismissed and the hearing
of Civil Case No. CV-01-0207 before RTC-Branch 258 will be continued.
IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The Decision dated 31 January 2008 and Resolution
dated 28 March 2008 of the Court of Appeals in CA-G.R. CV No. 88087, affirming the Order dated 3 July 2006 of Branch
258 of the Regional Trial Court of Parañaque City, dismissing Civil Case No. CV-05-0402, is AFFIRMED, without
prejudice to the proceedings in Civil Case No. CV-01-0207. Costs against petitioners.
SO ORDERED.
G.R. No. 156185 September 12, 2011
CATALINA B. CHU, THEANLYN B. CHU, THEAN CHING LEE B. CHU, THEAN LEEWN B. CHU, and MARTIN
LAWRENCE B. CHU, Petitioners,
vs.
SPOUSES FERNANDO C. CUNANAN and TRINIDAD N. CUNANAN, BENELDA ESTATE DEVELOPMENT
CORPORATION, and SPOUSES AMADO E. CARLOS and GLORIA A. CARLOS, Respondents.
DECISION
BERSAMIN, J.:
If two or more suits are instituted on the basis of the same cause of action, the filing of one or a judgment upon the
merits in any one is available as a ground for the dismissal of the others. 1
We review the decision promulgated on November 19, 2002, 2 whereby the Court of Appeals (CA) dismissed the
petitioners’ amended complaint in Civil Case No. 12251 of the Regional Trial Court, Branch 41, in San Fernando City,
Pampanga (RTC) for being barred by res judicata.
Antecedents
On September 30, 1986, Spouses Manuel and Catalina Chu (Chus) executed a deed of sale with assumption of
mortgage3 involving their five parcels of land situated in Saguin, San Fernando City, Pampanga, registered under
Transfer Certificate of Title (TCT) No. 198470-R, TCT No. 198471-R, TCT No. 198472-R, TCT No. 198473-R, and TCT
No. 199556-R, all of the Office of the Registry of Deeds of the Province of Pampanga, in favor of Trinidad N. Cunanan
(Cunanan) for the consideration of₱5,161,090.00. They also executed a so-called side agreement, whereby they
clarified that Cunanan had paid only ₱1,000,000.00 to the Chus despite the Chus, as vendors, having acknowledged
receiving ₱5,161,090.00; that the amount of ₱1,600,000.00 was to be paid directly to Benito Co and to Security Bank
and Trust Company (SBTC) in whose favor the five lots had been mortgaged; and that Cunanan would pay the balance
of ₱2,561.90.00 within three months, with a grace period of one month subject to 3%/month interest on any remaining
unpaid amount. The parties further stipulated that the ownership of the lots would remain with the Chus as the vendors
and would be transferred to Cunanan only upon complete payment of the total consideration and compliance with the
terms of the deed of sale with assumption of mortgage.4
Thereafter, the Chus executed a special power of attorney authorizing Cunanan to borrow ₱5,161,090.00 from any
banking institution and to mortgage the five lots as security, and then to deliver the proceeds to the Chus net of the
balance of the mortgage obligation and the downpayment.5
Cunanan was able to transfer the title of the five lots to her name without the knowledge of the Chus, and to borrow
money with the lots as security without paying the balance of the purchase price to the Chus. She later transferred two
of the lots to Spouses Amado and Gloria Carlos (Carloses) on July 29, 1987. As a result, on March 18, 1988, the Chus
caused the annotation of an unpaid vendor’s lien on three of the lots. Nonetheless, Cunanan still assigned the remaining
three lots to Cool Town Realty on May 25, 1989 despite the annotation. 6
In February 1988, the Chus commenced Civil Case No. G-1936 in the RTC to recover the unpaid balance from Spouses
Fernando and Trinidad Cunanan (Cunanans). Five years later, on April 19, 1993, the Chus amended the complaint to
seek the annulment of the deed of sale with assumption of mortgage and of the TCTs issued pursuant to the deed, and
to recover damages. They impleaded Cool Town Realty and Development Corporation (Cool Town Realty), and the
Office of the Registry of Deeds of Pampanga as defendants in addition to the Cunanans. 7
Considering that the Carloses had meanwhile sold the two lots to Benelda Estate Development Corporation (Benelda
Estate) in 1995, the Chus further amended the complaint in Civil Case No. G-1936 to implead Benelda Estate as
additional defendant. In due course, Benelda Estate filed its answer with a motion to dismiss, claiming, among others,
that the amended complaint stated no cause of action because it had acted in good faith in buying the affected lots,
exerting all efforts to verify the authenticity of the titles, and had found no defect in them. After the RTC denied its motion
to dismiss, Benelda Estate assailed the denial on certiorari in the CA, which annulled the RTC’s denial for being tainted
with grave abuse of discretion and dismissed Civil Case No. G-1936 as against Benelda Estate. On March 1, 2001, the
Court upheld the dismissal of Civil Case No. G-1936 in G.R. No. 142313 entitled Chu, Sr. v. Benelda Estate
Development Corporation.8
On December 2, 1999, the Chus, the Cunanans, and Cool Town Realty entered into a compromise agreement, 9whereby
the Cunanans transferred to the Chus their 50% share in "all the parcels of land situated in Saguin, San Fernando,
Pampanga" registered in the name of Cool Town Realty "for and in consideration of the full settlement of their case."
The RTC approved the compromise agreement in a partial decision dated January 25, 2000.10
Thereafter, on April 30, 2001, the petitioners herein (i.e., Catalina Chu and her children) brought another suit, Civil Case
No. 12251, against the Carloses and Benelda Estate,11 seeking the cancellation of the TCTs of the two lots in the name
of Benelda Estate, and the issuance of new TCTs in their favor, plus damages.
The petitioners amended their complaint in Civil Case No. 12251 on February 4, 2002 to implead the Cunanans as
additional defendants.12
The Cunanans moved to dismiss the amended complaint based on two grounds, namely: (a) bar by prior judgment, and
(b) the claim or demand had been paid, waived, and abandoned. Benelda Estate likewise moved to dismiss the
amended complaint, citing as grounds: (a) forum shopping; (b) bar by prior judgment, and (c) failure to state a cause of
action. On their part, the Carloses raised affirmative defenses in their answer, namely: (a) the failure to state a cause of
action; (b) res judicata or bar by prior judgment; and (c) bar by statute of limitations.
On April 25, 2002, the RTC denied both motions to dismiss, 13 holding that the amended complaint stated a cause of
action against all the defendants; that the action was not barred by res judicata because there was no identity of parties
and subject matter between Civil Case No.12251 and Civil Case No. G-1936; and that the Cunanans did not establish
that the petitioners had waived and abandoned their claim or that their claim had been paid by virtue of the compromise
agreement, pointing out that the compromise agreement involved only the three parcels of land registered in the name
of Cool Town Realty.14
The Cunanans sought reconsideration, but their motion was denied on May 31, 2002. 15
On September 2, 2002, the Cunanans filed a petition for certiorari in the CA (SP-72558), assailing the RTC’s denial of
their motion to dismiss and motion for reconsideration.16
On November 19, 2002, the CA promulgated its decision, 17 granting the petition for certiorari and nullifying the
challenged orders of the RTC. The CA ruled that the compromise agreement had ended the legal controversy between
the parties with respect to the cause of action arising from the deed of sale with assumption of mortgage covering all
the five parcels of land; that Civil Case No. G-1936 and Civil Case No.12251 involved the violation by the Cunanans of
the same legal right under the deed of sale with assumption of mortgage; and that the filing of Civil Case No.12251
contravened the rule against splitting of a cause of action, and rendered Civil Case No.12251 subject of a motion to
dismiss based on bar by res judicata. The CA disposed thusly:
WHEREFORE, premises considered, the present petition for certiorari is hereby GIVEN DUE COURSE and the writ
prayed for, accordingly GRANTED. Consequently, the challenged Orders of the respondent court denying the motions
to dismiss are hereby ANNULLED and SET ASIDE and a new one is hereby rendered DISMISSING the Amended
Complaint in Civil Case No. 12251.
No costs.
SO ORDERED.18
Hence, this appeal.
Issue
Was Civil Case No. 12251 barred by res judicata although the compromise agreement did not expressly include Benelda
Estate as a party and although the compromise agreement made no reference to the lots now registered in Benelda
Estate’s name?
Ruling
We deny the petition for review.
I
The petitioners contend that the compromise agreement did not apply or extend to the Carloses and Benelda Estate;
hence, their Civil Case No. 12251 was not barred by res judicata.
We disagree.
A compromise agreement is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put
an end to one already commenced.19 It encompasses the objects specifically stated therein, although it may include
other objects by necessary implication,20 and is binding on the contracting parties, being expressly acknowledged as a
juridical agreement between them.21 It has the effect and authority of res judicata upon the parties.22
In the construction or interpretation of a compromise agreement, the intention of the parties is to be ascertained from
the agreement itself, and effect should be given to that intention. 23 Thus, the compromise agreement must be read as
a whole.
The following pertinent portions of the compromise agreement indicate that the parties intended to thereby settle alltheir
claims against each other, to wit:
1. That the defendants SPOUSES TRINIDAD N.CUNANAN and FERNANDO C.CUNANAN for and in consideration of
the full settlement of their case in the above-entitled case, hereby TRANSFER, DELIVER, and CONVEY unto the
plaintiffs all their rights, interest, benefits, participation, possession and ownership which consists of FIFTY (50%)
percent share on all the parcels of land situated in Saguin, San Fernando Pampanga now registered in the name of
defendant, COOL TOWN REALTY & DEVELOPMENT CORPORATION, as particularly evidenced by the corresponding
Transfer Certificates of Titles xxx
xxxx
6. That the plaintiffs and the defendant herein are waiving, abandoning, surrendering, quitclaiming, releasing,
relinquishing any and all their respective claims against each other as alleged in the pleadings they respectively filed in
connection with this case.24 (bold emphasis supplied)
The intent of the parties to settle all their claims against each other is expressed in the phrase any and all their respective
claims against each other as alleged in the pleadings they respectively filed in connection with this case, which was
broad enough to cover whatever claims the petitioners might assert based on the deed of sale with assumption of
mortgage.
There is no question that the deed of sale with assumption of mortgage covered all the five lots, to wit:
WHEREAS, the VENDORS are willing to sell the above-described properties and the VENDEE is willing to buy the
same at FIFTY FIVE (₱55.00) PESOS, Philippine Currency, per square meter, or a total consideration of FIVE MILLION
ONE HUNDRED SIXTY ONE THOUSAND and NINETY (₱5,161,090.00) PESOS, Philippine Currency. 25
To limit the compromise agreement only to the three lots mentioned therein would contravene the avowed objective of
Civil Case No. G-1936 to enforce or to rescind the entire deed of sale with assumption of mortgage. Such interpretation
is akin to saying that the Cunanans separately sold the five lots, which is not the truth. For one, Civil Case No. G-1936
did not demand separate amounts for each of the purchased lots. Also, the compromise agreement did not state that
the value being thereby transferred to the petitioners by the Cunanans corresponded only to that of the three lots.
Apparently, the petitioners were guilty of splitting their single cause of action to enforce or rescind the deed of sale with
assumption of mortgage. Splitting a single cause of action is the act of dividing a single or indivisible cause of action
into several parts or claims and instituting two or more actions upon them. 26 A single cause of action or entire claim or
demand cannot be split up or divided in order to be made the subject of two or more different actions.27Thus, Section 4,
Rule 2 of the Rules of Court expressly prohibits splitting of a single cause of action, viz:
Section 4. Splitting a single cause of action; effect of. — If two or more suits are instituted on the basis of the same
cause of action, the filing of one or a judgment upon the merits in any one is available as a ground for the dismissal of
the others. (4a)1avvphi1
The petitioners were not at liberty to split their demand to enforce or rescind the deed of sale with assumption of
mortgage and to prosecute piecemeal or present only a portion of the grounds upon which a special relief was sought
under the deed of sale with assumption of mortgage, and then to leave the rest to be presented in another suit; otherwise,
there would be no end to litigation.28 Their splitting violated the policy against multiplicity of suits, whose primary
objective was to avoid unduly burdening the dockets of the courts. Their contravention of the policy merited the dismissal
of Civil Case No. 12251 on the ground of bar by res judicata.1âwphi1
Res judicata means a matter adjudged, a thing judicially acted upon or decided; a thing or matter settled by
judgment.29 The doctrine of res judicata is an old axiom of law, dictated by wisdom and sanctified by age, and founded
on the broad principle that it is to the interest of the public that there should be an end to litigation by the same parties
over a subject once fully and fairly adjudicated. It has been appropriately said that the doctrine is a rule pervading every
well-regulated system of jurisprudence, and is put upon two grounds embodied in various maxims of the common law:
the one, public policy and necessity, which makes it to the interest of the State that there should be an end to litigation
–interest reipublicae ut sit finis litium; the other, the hardship on the individual that he should be vexed twice for one and
the same cause – nemo debet bis vexari pro una et eadem causa. A contrary doctrine would subject the public peace
and quiet to the will and neglect of individuals and prefer the gratification of the litigious disposition on the part of suitors
to the preservation of the public tranquillity and happiness.30
Under the doctrine of res judicata, a final judgment or decree on the merits rendered by a court of competent jurisdiction
is conclusive of the rights of the parties or their privies in all later suits and on all points and matters determined in the
previous suit.31 The foundation principle upon which the doctrine rests is that the parties ought not to be permitted to
litigate the same issue more than once; that when a right or fact has been judicially tried and determined by a court of
competent jurisdiction, so long as it remains unreversed, should be conclusive upon the parties and those in privity with
them in law or estate.32
Yet, in order that res judicata may bar the institution of a subsequent action, the following requisites must concur:– (a)
the former judgment must be final; (b) it must have been rendered by a court having jurisdiction of the subject matter
and the parties; (c) it must be a judgment on the merits; and (d) there must be between the first and second actions (i)
identity of parties, (ii) identity of the subject matter, and (iii) identity of cause of action. 33
The first requisite was attendant. Civil Case No. G-1936 was already terminated under the compromise agreement, for
the judgment, being upon a compromise, was immediately final and unappealable. As to the second requisite, the RTC
had jurisdiction over the cause of action in Civil Case No. G-1936 for the enforcement or rescission of the deed of sale
with assumption of mortgage, which was an action whose subject matter was not capable of pecuniary estimation. That
the compromise agreement explicitly settled the entirety of Civil Case No. G-1936 by resolving all the claims of the
parties against each other indicated that the third requisite was also satisfied. 34
But was there an identity of parties, of subject matter, and of causes of action between Civil Case No.G-1936 and Civil
Case No. 12251?
There is identity of parties when the parties in both actions are the same, or there is privity between them, or they are
successors-in-interest by title subsequent to the commencement of the action litigating for the same thing and under
the same title and in the same capacity. 35 The requirement of the identity of parties was fully met, because the Chus,
on the one hand, and the Cunanans, on the other hand, were the parties in both cases along with their respective privies.
The fact that the Carloses and Benelda Estate, defendants in Civil Case No. 12251, were not parties in the compromise
agreement was inconsequential, for they were also the privies of the Cunanans as transferees and successors-in-
interest. It is settled that the absolute identity of parties was not a condition sine qua non for res judicata to apply,
because a shared identity of interest sufficed.36 Mere substantial identity of parties, or even community of interests
between parties in the prior and subsequent cases, even if the latter were not impleaded in the first case, was sufficient.37
As to identity of the subject matter, both actions dealt with the properties involved in the deed of sale with assumption
of mortgage. Identity of the causes of action was also met, because Case No. G-1936 and Civil Case No. 12251 were
rooted in one and the same cause of action – the failure of Cunanan to pay in full the purchase price of the five lots
subject of the deed of sale with assumption of mortgage. In other words, Civil Case No. 12251 reprised Civil Case No.
G-1936, the only difference between them being that the petitioners alleged in the former that Benelda Estate was "not
also a purchaser for value and in good faith."38
In fine, the rights and obligations of the parties vis-à-vis the five lots were all defined and governed by the deed of sale
with assumption of mortgage, the only contract between them. That contract was single and indivisible, as far as they
were concerned. Consequently, the Chus could not properly proceed against the respondents in Civil Case No. 12251,
despite the silence of the compromise agreement as to the Carloses and Benelda Estate, because there can only be
one action where the contract is entire, and the breach total, and the petitioners must therein recover all their claims
and damages.39 The Chus could not be permitted to split up a single cause of action and make that single cause of
action the basis of several suits.40
WHEREFORE, we deny the petition for review on certiorari, and affirm the decision promulgated in CA-G.R. SP No.
72558.
The petitioners shall pay the costs of suit.
SO ORDERED.
G.R. No. 175799 November 28, 2011
NM ROTHSCHILD & SONS (AUSTRALIA) LIMITED, Petitioner,
vs.
LEPANTO CONSOLIDATED MINING COMPANY, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
This is a Petition for Review on Certiorari assailing the Decision 1 of the Court of Appeals dated September 8, 2006 in
CA-G.R. SP No. 94382 and its Resolution2 dated December 12, 2006, denying the Motion for Reconsideration.
On August 30, 2005, respondent Lepanto Consolidated Mining Company filed with the Regional Trial Court (RTC) of
Makati City a Complaint3 against petitioner NM Rothschild & Sons (Australia) Limited praying for a judgment declaring
the loan and hedging contracts between the parties void for being contrary to Article 2018 4 of the Civil Code of the
Philippines and for damages. The Complaint was docketed as Civil Case No. 05-782, and was raffled to Branch 150.
Upon respondent’s (plaintiff’s) motion, the trial court authorized respondent’s counsel to personally bring the summons
and Complaint to the Philippine Consulate General in Sydney, Australia for the latter office to effect service of summons
on petitioner (defendant).
On October 20, 2005, petitioner filed a Special Appearance With Motion to Dismiss 5 praying for the dismissal of the
Complaint on the following grounds: (a) the court has not acquired jurisdiction over the person of petitioner due to the
defective and improper service of summons; (b) the Complaint failed to state a cause of action and respondent does
not have any against petitioner; (c) the action is barred by estoppel; and (d) respondent did not come to court with clean
hands.
On November 29, 2005, petitioner filed two Motions: (1) a Motion for Leave to take the deposition of Mr. Paul Murray
(Director, Risk Management of petitioner) before the Philippine Consul General; and (2) a Motion for Leave to Serve
Interrogatories on respondent.
On December 9, 2005, the trial court issued an Order6 denying the Motion to Dismiss. According to the trial court, there
was a proper service of summons through the Department of Foreign Affairs (DFA) on account of the fact that the
defendant has neither applied for a license to do business in the Philippines, nor filed with the Securities and Exchange
Commission (SEC) a Written Power of Attorney designating some person on whom summons and other legal processes
maybe served. The trial court also held that the Complaint sufficiently stated a cause of action. The other allegations in
the Motion to Dismiss were brushed aside as matters of defense which can best be ventilated during the trial.
On December 27, 2005, petitioner filed a Motion for Reconsideration. 7 On March 6, 2006, the trial court issued an Order
denying the December 27, 2005 Motion for Reconsideration and disallowed the twin Motions for Leave to take deposition
and serve written interrogatories.8
On April 3, 2006, petitioner sought redress via a Petition for Certiorari 9 with the Court of Appeals, alleging that the trial
court committed grave abuse of discretion in denying its Motion to Dismiss. The Petition was docketed as CA-G.R. SP
No. 94382.
On September 8, 2006, the Court of Appeals rendered the assailed Decision dismissing the Petition for Certiorari. The
Court of Appeals ruled that since the denial of a Motion to Dismiss is an interlocutory order, it cannot be the subject of
a Petition for Certiorari, and may only be reviewed in the ordinary course of law by an appeal from the judgment after
trial. On December 12, 2006, the Court of Appeals rendered the assailed Resolution denying the petitioner’s Motion for
Reconsideration.
Meanwhile, on December 28, 2006, the trial court issued an Order directing respondent to answer some of the questions
in petitioner’s Interrogatories to Plaintiff dated September 7, 2006.
Notwithstanding the foregoing, petitioner filed the present petition assailing the September 8, 2006 Decision and the
December 12, 2006 Resolution of the Court of Appeals. Arguing against the ruling of the appellate court, petitioner
insists that (a) an order denying a motion to dismiss may be the proper subject of a petition for certiorari; and (b) the
trial court committed grave abuse of discretion in not finding that it had not validly acquired jurisdiction over petitioner
and that the plaintiff had no cause of action.
Respondent, on the other hand, posits that: (a) the present Petition should be dismissed for not being filed by a real
party in interest and for lack of a proper verification and certificate of non-forum shopping; (b) the Court of Appeals
correctly ruled that certiorari was not the proper remedy; and (c) the trial court correctly denied petitioner’s motion to
dismiss.
Our discussion of the issues raised by the parties follows:
Whether petitioner is a real party in interest
Respondent argues that the present Petition should be dismissed on the ground that petitioner no longer existed as a
corporation at the time said Petition was filed on February 1, 2007. Respondent points out that as of the date of the filing
of the Petition, there is no such corporation that goes by the name NM Rothschild and Sons (Australia) Limited. Thus,
according to respondent, the present Petition was not filed by a real party in interest, citing our ruling in Philips Export
B.V. v. Court of Appeals,10 wherein we held:
A name is peculiarly important as necessary to the very existence of a corporation (American Steel Foundries vs.
Robertson, 269 US 372, 70 L ed 317, 46 S Ct 160; Lauman vs. Lebanon Valley R. Co., 30 Pa 42; First National Bank
vs. Huntington Distilling Co., 40 W Va 530, 23 SE 792). Its name is one of its attributes, an element of its existence, and
essential to its identity (6 Fletcher [Perm Ed], pp. 3-4). The general rule as to corporations is that each corporation must
have a name by which it is to sue and be sued and do all legal acts. The name of a corporation in this respect designates
the corporation in the same manner as the name of an individual designates the person (Cincinnati Cooperage Co. vs.
Bate, 96 Ky 356, 26 SW 538; Newport Mechanics Mfg. Co. vs. Starbird, 10 NH 123); and the right to use its corporate
name is as much a part of the corporate franchise as any other privilege granted (Federal Secur. Co. vs. Federal Secur.
Corp., 129 Or 375, 276 P 1100, 66 ALR 934; Paulino vs. Portuguese Beneficial Association, 18 RI 165, 26 A 36). 11
In its Memorandum12 before this Court, petitioner started to refer to itself as Investec Australia Limited (formerly "NM
Rothschild & Sons [Australia] Limited") and captioned said Memorandum accordingly. Petitioner claims that NM
Rothschild and Sons (Australia) Limited still exists as a corporation under the laws of Australia under said new name. It
presented before us documents evidencing the process in the Australian Securities & Investment Commission on the
change of petitioner’s company name from NM Rothschild and Sons (Australia) Limited to Investec Australia Limited. 13
We find the submissions of petitioner on the change of its corporate name satisfactory and resolve not to dismiss the
present Petition for Review on the ground of not being prosecuted under the name of the real party in interest. While we
stand by our pronouncement in Philips Export on the importance of the corporate name to the very existence of
corporations and the significance thereof in the corporation’s right to sue, we shall not go so far as to dismiss a case
filed by the proper party using its former name when adequate identification is presented. A real party in interest is the
party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the
suit.14 There is no doubt in our minds that the party who filed the present Petition, having presented sufficient evidence
of its identity and being represented by the same counsel as that of the defendant in the case sought to be dismissed,
is the entity that will be benefited if this Court grants the dismissal prayed for.
Since the main objection of respondent to the verification and certification against forum shopping likewise depends on
the supposed inexistence of the corporation named therein, we give no credit to said objection in light of the foregoing
discussion.
Propriety of the Resort to a Petition for Certiorari with the Court of Appeals
We have held time and again that an order denying a Motion to Dismiss is an interlocutory order which neither terminates
nor finally disposes of a case as it leaves something to be done by the court before the case is finally decided on the
merits. The general rule, therefore, is that the denial of a Motion to Dismiss cannot be questioned in a special civil action
for Certiorari which is a remedy designed to correct errors of jurisdiction and not errors of judgment. 15 However, we have
likewise held that when the denial of the Motion to Dismiss is tainted with grave abuse of discretion, the grant of the
extraordinary remedy of Certiorari may be justified. By "grave abuse of discretion" is meant:
[S]uch capricious and whimsical exercise of judgment that is equivalent to lack of jurisdiction. The abuse of discretion
must be grave as where the power is exercised in an arbitrary or despotic manner by reason of passion or personal
hostility, and must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform
the duty enjoined by or to act all in contemplation of law.16
The resolution of the present Petition therefore entails an inquiry into whether the Court of Appeals correctly ruled that
the trial court did not commit grave abuse of discretion in its denial of petitioner’s Motion to Dismiss. A mere error in
judgment on the part of the trial court would undeniably be inadequate for us to reverse the disposition by the Court of
Appeals.
Issues more properly ventilated during the trial of the case
As previously stated, petitioner seeks the dismissal of Civil Case No. 05-782 on the following grounds: (a) lack of
jurisdiction over the person of petitioner due to the defective and improper service of summons; (b) failure of the
Complaint to state a cause of action and absence of a cause of action; (c) the action is barred by estoppel; and (d)
respondent did not come to court with clean hands.
As correctly ruled by both the trial court and the Court of Appeals, the alleged absence of a cause of action (as opposed
to the failure to state a cause of action), the alleged estoppel on the part of petitioner, and the argument that respondent
is in pari delicto in the execution of the challenged contracts, are not grounds in a Motion to Dismiss as enumerated in
Section 1, Rule 1617 of the Rules of Court. Rather, such defenses raise evidentiary issues closely related to the validity
and/or existence of respondent’s alleged cause of action and should therefore be threshed out during the trial.
As regards the allegation of failure to state a cause of action, while the same is usually available as a ground in a Motion
to Dismiss, said ground cannot be ruled upon in the present Petition without going into the very merits of the main case.
It is basic that "[a] cause of action is the act or omission by which a party violates a right of another." 18 Its elements are
the following: (1) a right existing in favor of the plaintiff, (2) a duty on the part of the defendant to respect the plaintiff's
right, and (3) an act or omission of the defendant in violation of such right. 19 We have held that to sustain a Motion to
Dismiss for lack of cause of action, the complaint must show that the claim for relief does not exist and not only that the
claim was defectively stated or is ambiguous, indefinite or uncertain. 20
The trial court held that the Complaint in the case at bar contains all the three elements of a cause of action, i.e., it
alleges that: (1) plaintiff has the right to ask for the declaration of nullity of the Hedging Contracts for being null and void
and contrary to Article 2018 of the Civil Code of the Philippines; (2) defendant has the corresponding obligation not to
enforce the Hedging Contracts because they are in the nature of wagering or gambling agreements and therefore the
transactions implementing those contracts are null and void under Philippine laws; and (3) defendant ignored the advice
and intends to enforce the Hedging Contracts by demanding financial payments due therefrom.21
The rule is that in a Motion to Dismiss, a defendant hypothetically admits the truth of the material allegations of the
ultimate facts contained in the plaintiff's complaint.22 However, this principle of hypothetical admission admits of
exceptions. Thus, in Tan v. Court of Appeals, 23 we held:
The flaw in this conclusion is that, while conveniently echoing the general rule that averments in the complaint are
deemed hypothetically admitted upon the filing of a motion to dismiss grounded on the failure to state a cause of action,
it did not take into account the equally established limitations to such rule, i.e., that a motion to dismiss does not
admit the truth of mere epithets of fraud; nor allegations of legal conclusions; nor an erroneous statement of law; nor
mere inferences or conclusions from facts not stated; nor mere conclusions of law; nor allegations of fact the falsity
of which is subject to judicial notice; nor matters of evidence; nor surplusage and irrelevant matter; nor scandalous
matter inserted merely to insult the opposing party; nor to legally impossible facts; nor to facts which appear unfounded
by a record incorporated in the pleading, or by a document referred to; and, nor to general averments contradicted by
more specific averments. A more judicious resolution of a motion to dismiss, therefore, necessitates that the court be
not restricted to the consideration of the facts alleged in the complaint and inferences fairly deducible therefrom. Courts
may consider other facts within the range of judicial notice as well as relevant laws and jurisprudence which the courts
are bound to take into account, and they are also fairly entitled to examine records/documents duly incorporated
into the complaint by the pleader himself in ruling on the demurrer to the complaint.24 (Emphases supplied.)
In the case at bar, respondent asserts in the Complaint that the Hedging Contracts are void for being contrary to Article
201825 of the Civil Code. Respondent claims that under the Hedging Contracts, despite the express stipulation for
deliveries of gold, the intention of the parties was allegedly merely to compel each other to pay the difference between
the value of the gold at the forward price stated in the contract and its market price at the supposed time of delivery.
Whether such an agreement is void is a mere allegation of a conclusion of law, which therefore cannot be hypothetically
admitted. Quite properly, the relevant portions of the contracts sought to be nullified, as well as a copy of the contract
itself, are incorporated in the Complaint. The determination of whether or not the Complaint stated a cause of action
would therefore involve an inquiry into whether or not the assailed contracts are void under Philippine laws. This is,
precisely, the very issue to be determined in Civil Case No. 05-782. Indeed, petitioner’s defense against the charge of
nullity of the Hedging Contracts is the purported intent of the parties that actual deliveries of gold be made pursuant
thereto. Such a defense requires the presentation of evidence on the merits of the case. An issue that "requires the
contravention of the allegations of the complaint, as well as the full ventilation, in effect, of the main merits of the case,
should not be within the province of a mere Motion to Dismiss."26 The trial court, therefore, correctly denied the Motion
to Dismiss on this ground.
It is also settled in jurisprudence that allegations of estoppel and bad faith require proof. Thus, in Parañaque Kings
Enterprises, Inc. v. Court of Appeals,27 we ruled:
Having come to the conclusion that the complaint states a valid cause of action for breach of the right of first refusal and
that the trial court should thus not have dismissed the complaint, we find no more need to pass upon the question of
whether the complaint states a cause of action for damages or whether the complaint is barred by estoppel or laches.
As these matters require presentation and/or determination of facts, they can be best resolved after trial on the
merits.28 (Emphases supplied.)
On the proposition in the Motion to Dismiss that respondent has come to court with unclean hands, suffice it to state
that the determination of whether one acted in bad faith and whether damages may be awarded is evidentiary in nature.
Thus, we have previously held that "[a]s a matter of defense, it can be best passed upon after a full-blown trial on the
merits."29
Jurisdiction over the person of petitioner
Petitioner alleges that the RTC has not acquired jurisdiction over its person on account of the improper service of
summons. Summons was served on petitioner through the DFA, with respondent’s counsel personally bringing the
summons and Complaint to the Philippine Consulate General in Sydney, Australia.
In the pleadings filed by the parties before this Court, the parties entered into a lengthy debate as to whether or not
petitioner is doing business in the Philippines. However, such discussion is completely irrelevant in the case at bar, for
two reasons. Firstly, since the Complaint was filed on August 30, 2005, the provisions of the 1997 Rules of Civil
Procedure govern the service of summons. Section 12, Rule 14 of said rules provides:
Sec. 12. Service upon foreign private juridical entity. – When the defendant is a foreign private juridical entity which
has transacted business in the Philippines, service may be made on its resident agent designated in accordance
with law for that purpose, or, if there be no such agent, on the government official designated by law to that effect, or on
any of its officers or agents within the Philippines. (Emphasis supplied.)
This is a significant amendment of the former Section 14 of said rule which previously provided:
Sec. 14. Service upon private foreign corporations. — If the defendant is a foreign corporation, or a nonresident joint
stock company or association, doing business in the Philippines, service may be made on its resident agent
designated in accordance with law for that purpose, or if there be no such agent, on the government official designated
by law to that effect, or on any of its officers or agents within the Philippines. (Emphasis supplied.)
The coverage of the present rule is thus broader.30 Secondly, the service of summons to petitioner through the DFA by
the conveyance of the summons to the Philippine Consulate General in Sydney, Australia was clearly made not through
the above-quoted Section 12, but pursuant to Section 15 of the same rule which provides:
Sec. 15. Extraterritorial service. – When the defendant does not reside and is not found in the Philippines, and the action
affects the personal status of the plaintiff or relates to, or the subject of which is property within the Philippines, in which
the defendant has or claims a lien or interest, actual or contingent, or in which the relief demanded consists, wholly or
in part, in excluding the defendant from any interest therein, or the property of the defendant has been attached within
the Philippines, service may, by leave of court, be effected out of the Philippines by personal service as under section
6; or by publication in a newspaper of general circulation in such places and for such time as the court may order, in
which case a copy of the summons and order of the court shall be sent by registered mail to the last known address of
the defendant, or in any other manner the court may deem sufficient. Any order granting such leave shall specify a
reasonable time, which shall not be less than sixty (60) days after notice, within which the defendant must answer.
Respondent argues31 that extraterritorial service of summons upon foreign private juridical entities is not proscribed
under the Rules of Court, and is in fact within the authority of the trial court to adopt, in accordance with Section 6, Rule
135:
Sec. 6. Means to carry jurisdiction into effect. – When by law jurisdiction is conferred on a court or judicial officer, all
auxiliary writs, processes and other means necessary to carry it into effect may be employed by such court or officer;
and if the procedure to be followed in the exercise of such jurisdiction is not specifically pointed out by law or by these
rules, any suitable process or mode of proceeding may be adopted which appears comformable to the spirit of said law
or rules.
Section 15, Rule 14, however, is the specific provision dealing precisely with the service of summons on a defendant
which does not reside and is not found in the Philippines, while Rule 135 (which is in Part V of the Rules of Court entitled
Legal Ethics) concerns the general powers and duties of courts and judicial officers.
Breaking down Section 15, Rule 14, it is apparent that there are only four instances wherein a defendant who is a non-
resident and is not found in the country may be served with summons by extraterritorial service, to wit: (1) when the
action affects the personal status of the plaintiffs; (2) when the action relates to, or the subject of which is property,
within the Philippines, in which the defendant claims a lien or an interest, actual or contingent; (3) when the relief
demanded in such action consists, wholly or in part, in excluding the defendant from any interest in property located in
the Philippines; and (4) when the defendant non-resident's property has been attached within the Philippines. In these
instances, service of summons may be effected by (a) personal service out of the country, with leave of court; (b)
publication, also with leave of court; or (c) any other manner the court may deem sufficient. 32
Proceeding from this enumeration, we held in Perkin Elmer Singapore Pte Ltd. v. Dakila Trading Corporation 33 that:
Undoubtedly, extraterritorial service of summons applies only where the action is in rem or quasi in rem, but
not if an action is in personam.
When the case instituted is an action in rem or quasi in rem, Philippine courts already have jurisdiction to hear and
decide the case because, in actions in rem and quasi in rem, jurisdiction over the person of the defendant is not a
prerequisite to confer jurisdiction on the court, provided that the court acquires jurisdiction over the res. Thus, in such
instance, extraterritorial service of summons can be made upon the defendant. The said extraterritorial service of
summons is not for the purpose of vesting the court with jurisdiction, but for complying with the requirements of fair play
or due process, so that the defendant will be informed of the pendency of the action against him and the possibility that
property in the Philippines belonging to him or in which he has an interest may be subjected to a judgment in favor of
the plaintiff, and he can thereby take steps to protect his interest if he is so minded. On the other hand, when the
defendant or respondent does not reside and is not found in the Philippines, and the action involved is in
personam, Philippine courts cannot try any case against him because of the impossibility of acquiring
jurisdiction over his person unless he voluntarily appears in court.34 (Emphases supplied.)
In Domagas v. Jensen,35 we held that:
[T]he aim and object of an action determine its character. Whether a proceeding is in rem, or in personam, or quasi in
rem for that matter, is determined by its nature and purpose, and by these only. A proceeding in personam is a
proceeding to enforce personal rights and obligations brought against the person and is based on the jurisdiction of the
person, although it may involve his right to, or the exercise of ownership of, specific property, or seek to compel him to
control or dispose of it in accordance with the mandate of the court. The purpose of a proceeding in personam is to
impose, through the judgment of a court, some responsibility or liability directly upon the person of the defendant. Of
this character are suits to compel a defendant to specifically perform some act or actions to fasten a pecuniary liability
on him.36
It is likewise settled that "[a]n action in personam is lodged against a person based on personal liability; an action in rem
is directed against the thing itself instead of the person; while an action quasi in rem names a person as defendant, but
its object is to subject that person’s interest in a property to a corresponding lien or obligation." 37
The Complaint in the case at bar is an action to declare the loan and Hedging Contracts between the parties void
with a prayer for damages. It is a suit in which the plaintiff seeks to be freed from its obligations to the defendant under
a contract and to hold said defendant pecuniarily liable to the plaintiff for entering into such contract. It is therefore an
action in personam, unless and until the plaintiff attaches a property within the Philippines belonging to the defendant,
in which case the action will be converted to one quasi in rem.
Since the action involved in the case at bar is in personam and since the defendant, petitioner Rothschild/Investec, does
not reside and is not found in the Philippines, the Philippine courts cannot try any case against it because of the
impossibility of acquiring jurisdiction over its person unless it voluntarily appears in court. 38
In this regard, respondent vigorously argues that petitioner should be held to have voluntarily appeared before the trial
court when it prayed for, and was actually afforded, specific reliefs from the trial court. 39 Respondent points out that
while petitioner’s Motion to Dismiss was still pending, petitioner prayed for and was able to avail of modes of discovery
against respondent, such as written interrogatories, requests for admission, deposition, and motions for production of
documents.40
Petitioner counters that under this Court’s ruling in the leading case of La Naval Drug Corporation v. Court of Appeals, 41 a
party may file a Motion to Dismiss on the ground of lack of jurisdiction over its person, and at the same time raise
affirmative defenses and pray for affirmative relief, without waiving its objection to the acquisition of jurisdiction over its
person.42
It appears, however, that petitioner misunderstood our ruling in La Naval. A close reading of La Naval reveals that the
Court intended a distinction between the raising of affirmative defenses in an Answer (which would not amount to
acceptance of the jurisdiction of the court) and the prayer for affirmative reliefs (which would be considered
acquiescence to the jurisdiction of the court):
In the same manner that a plaintiff may assert two or more causes of action in a court suit, a defendant is
likewise expressly allowed, under Section 2, Rule 8, of the Rules of Court, to put up his own defenses
alternatively or even hypothetically. Indeed, under Section 2, Rule 9, of the Rules of Court, defenses and objections
not pleaded either in a motion to dismiss or in an answer, except for the failure to state a cause of action, are deemed
waived. We take this to mean that a defendant may, in fact, feel enjoined to set up, along with his objection to the court's
jurisdiction over his person, all other possible defenses. It thus appears that it is not the invocation of any of such
defenses, but the failure to so raise them, that can result in waiver or estoppel. By defenses, of course, we refer to
the grounds provided for in Rule 16 of the Rules of Court that must be asserted in a motion to dismiss or by
way of affirmative defenses in an answer.
Mindful of the foregoing, in Signetics Corporation vs. Court of Appeals and Freuhauf Electronics Phils., Inc.
(225 SCRA 737, 738), we lately ruled:
"This is not to say, however, that the petitioner's right to question the jurisdiction of the court over its person
is now to be deemed a foreclosed matter. If it is true, as Signetics claims, that its only involvement in the Philippines
was through a passive investment in Sigfil, which it even later disposed of, and that TEAM Pacific is not its agent, then
it cannot really be said to be doing business in the Philippines. It is a defense, however, that requires the contravention
of the allegations of the complaint, as well as a full ventilation, in effect, of the main merits of the case, which should not
thus be within the province of a mere motion to dismiss. So, also, the issue posed by the petitioner as to whether a
foreign corporation which has done business in the country, but which has ceased to do business at the time of the filing
of a complaint, can still be made to answer for a cause of action which accrued while it was doing business, is another
matter that would yet have to await the reception and admission of evidence. Since these points have seasonably
been raised by the petitioner, there should be no real cause for what may understandably be its apprehension,
i.e., that by its participation during the trial on the merits, it may, absent an invocation of separate or
independent reliefs of its own, be considered to have voluntarily submitted itself to the court's
jurisdiction."43 (Emphases supplied.)
In order to conform to the ruling in La Naval, which was decided by this Court in 1994, the former Section 23, Rule
1444 concerning voluntary appearance was amended to include a second sentence in its equivalent provision in the
1997 Rules of Civil Procedure:
SEC. 20. Voluntary appearance. – The defendant's voluntary appearance in the action shall be equivalent to service of
summons. The inclusion in a motion to dismiss of other grounds aside from lack of jurisdiction over the person
of the defendant shall not be deemed a voluntary appearance. (Emphasis supplied.)
The new second sentence, it can be observed, merely mentions other grounds in a Motion to Dismiss aside from lack
of jurisdiction over the person of the defendant. This clearly refers to affirmative defenses, rather than affirmative reliefs.
Thus, while mindful of our ruling in La Naval and the new Section 20, Rule 20, this Court, in several cases, ruled that
seeking affirmative relief in a court is tantamount to voluntary appearance therein. 45 Thus, in Philippine Commercial
International Bank v. Dy Hong Pi,46 wherein defendants filed a "Motion for Inhibition without submitting themselves to
the jurisdiction of this Honorable Court" subsequent to their filing of a "Motion to Dismiss (for Lack of Jurisdiction)," we
held:
Besides, any lingering doubts on the issue of voluntary appearance dissipate when the respondents' motion for inhibition
is considered. This motion seeks a sole relief: inhibition of Judge Napoleon Inoturan from further hearing the
case. Evidently, by seeking affirmative relief other than dismissal of the case, respondents manifested their
voluntary submission to the court's jurisdiction. It is well-settled that the active participation of a party in the
proceedings is tantamount to an invocation of the court's jurisdiction and a willingness to abide by the resolution of the
case, and will bar said party from later on impugning the court's jurisdiction. 47 (Emphasis supplied.)1âwphi1
In view of the above, we therefore rule that petitioner, by seeking affirmative reliefs from the trial court, is deemed to
have voluntarily submitted to the jurisdiction of said court. A party cannot invoke the jurisdiction of a court to secure
affirmative relief against his opponent and after obtaining or failing to obtain such relief, repudiate or question that same
jurisdiction.48 Consequently, the trial court cannot be considered to have committed grave abuse of discretion amounting
to lack or excess of jurisdiction in the denial of the Motion to Dismiss on account of failure to acquire jurisdiction over
the person of the defendant.
WHEREFORE, the Petition for Review on Certiorari is DENIED. The Decision of the Court of Appeals dated September
8, 2006 and its Resolution dated December 12, 2006 in CA-G.R. SP No. 94382 are hereby AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 180064 September 16, 2013
JOSE U. PUA and BENJAMIN HANBEN U. PUA, Petitioners,
vs.
CITIBANK, N. A., Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated May 21, 2007 and Resolution3 dated October
16, 2007 of the Court of Appeals (CA) in CA-G.R. SP No. 79297, which reversed and set aside the Orders dated May
14, 20034 and July 16, 20035 of the Regional Trial Court of Cauayan City, Isabela, Branch 19 (RTC), dismissing
petitioners Jose(Jose) and Benjamin Hanben U. Pua's (petitioners) complaint against respondent Citibank, N. A.
(respondent).
The Facts
On December 2, 2002, petitioners filed before the RTC a Complaint 6 for declaration of nullity of contract and sums of
money with damages against respondent,7 docketed as Civil Case No. 19-1159.8 In their complaint, petitioners alleged
that they had been depositors of Citibank Binondo Branch (Citibank Binondo) since 1996. Sometime in 1999, Guada
Ang, Citibank Binondo’s Branch Manager, invited Jose to a dinner party at the Manila Hotel where he was introduced
to several officers and employees of Citibank Hongkong Branch (Citibank Hongkong). 9 A few months after, Chingyee
Yau (Yau), Vice-President of Citibank Hongkong, came to the Philippines to sell securities to Jose. They averred that
Yau required Jose to open an account with Citibank Hongkong as it is one of the conditions for the sale of the
aforementioned securities.10 After opening such account, Yau offered and sold to petitioners numerous
securities11 issued by various public limited companies established in Jersey, Channel I sands. The offer, sale, and
signing of the subscription agreements of said securities were all made and perfected at Citibank Binondo in the
presence of its officers and employees.12 Later on, petitioners discovered that the securities sold to them were not
registered with the Securities and Exchange Commission (SEC)and that the terms and conditions covering the
subscription were not likewise submitted to the SEC for evaluation, approval, and registration. 13 Asserting that
respondent’s actions are in violation of Republic Act No.8799, entitled the "Securities Regulation Code" (SRC), they
assailed the validity of the subscription agreements and the terms and conditions thereof for being contrary to law and/or
public policy.14
For its part, respondent filed a motion to dismiss 15 alleging, inter alia, that petitioners’ complaint should be dismissed
outright for violation of the doctrine of primary jurisdiction. It pointed out that the merits of the case would largely depend
on the issue of whether or not there was a violation of the SRC, in particular, whether or not there was a sale of
unregistered securities. In this regard, respondent contended that the SRC conferred upon the SEC jurisdiction to
investigate compliance with its provisions and thus, petitioners’ complaint should be first filed with the SEC and not
directly before the RTC.16
Petitioners opposed17 respondent’s motion to dismiss, maintaining that the RTC has jurisdiction over their complaint.
They asserted that Section 63of the SRC expressly provides that the RTC has exclusive jurisdiction to hear and decide
all suits to recover damages pursuant to Sections 56 to 61 of the same law.18
The RTC Ruling
In an Order19 dated May 14, 2003, the RTC denied respondent’s motion to dismiss. It noted that petitioners’ complaint
is for declaration of nullity of contract and sums of money with damages and, as such, it has jurisdiction to hear and
decide upon the case even if it involves the alleged sale of securities. It ratiocinated that the legal questions or issues
arising from petitioners’ causes of action against respondent are more appropriate for the judiciary than for an
administrative agency to resolve.20
Respondent filed an omnibus motion21 praying, among others, for there consideration of the aforesaid ruling, which
petitioners, in turn, opposed.22 In an Order23 dated July 16, 2003, the RTC denied respondent’s omnibus motion with
respect to its prayer for reconsideration. Dissatisfied, respondent filed a petition for certiorari before the CA. 24
The CA Ruling
In a Decision25 dated May 21, 2007, the CA reversed and set aside the RTC’s Orders and dismissed petitioners’
complaint for violation of the doctrine of primary jurisdiction. The CA agreed with respondent’s contention that since the
case would largely depend on the issue of whether or not the latter violated the provisions of the SRC, the matter is
within the special competence or knowledge of the SEC. Citing the case of Baviera v. Paglinawan 26(Baviera), the CA
opined that all complaints involving violations of the SRC should be first filed before the SEC.27
Aggrieved, petitioners moved for reconsideration,28 which was, however, denied by the CA in a Resolution29 dated
October 16, 2007.Hence, this petition.
The Issue Before the Court
The essential issue in this case is whether or not petitioners’ action falls within the primary jurisdiction of the SEC.
Petitioners reiterate their original position that the SRC itself provides that civil cases for damages arising from violations
of the same law fall within the exclusive jurisdiction of the regional trial courts.30
On the contrary, respondent maintains that since petitioners’ complaint would necessarily touch on the issue of whether
or not the former violated certain provisions of the SRC, then the said complaint should have been first filed with the
SEC which has the technical competence to resolve such dispute. 31
The Court’s Ruling
The petition is meritorious.
At the outset, the Court observes that respondent erroneously relied on the Baviera ruling to support its position that all
complaints involving purported violations of the SRC should be first referred to the SEC. A careful reading of the Baviera
case would reveal that the same involves a criminal prosecution of a purported violator of the SRC, and not a civil suit
such as the case at bar. The pertinent portions of the Baviera ruling thus read:
A criminal charge for violation of the Securities Regulation Code is a specialized dispute. Hence, it must first be referred
to an administrative agency of special competence, i.e., the SEC. Under the doctrine of primary jurisdiction, courts will
not determine a controversy involving a question within the jurisdiction of the administrative tribunal, where the question
demands the exercise of sound administrative discretion requiring the specialized knowledge and expertise of said
administrative tribunal to determine technical and intricate matters of fact. The Securities Regulation Code is a special
law. Its enforcement is particularly vested in the SEC.
Hence, all complaints for any violation of the Code and its implementing rules and regulations should be filed with the
SEC. Where the complaint is criminal in nature, the SEC shall indorse the complaint to the DOJ for preliminary
investigation and prosecution as provided in Section 53.1 earlier quoted.
We thus agree with the Court of Appeals that petitioner committed a fatal procedural lapse when he filed his criminal
complaint directly with the DOJ. Verily, no grave abuse of discretion can be ascribed to the DOJ in dismissing petitioner’s
complaint.32 (Emphases and underscoring supplied)
Records show that petitioners’ complaint constitutes a civil suit for declaration of nullity of contract and sums of money
with damages, which stemmed from respondent’s alleged sale of unregistered securities, in violation of the various
provisions of the SRC and not a criminal case such as that involved in Baviera.
In this light, when the Court ruled in Baviera that "all complaints for any violation of the [SRC] x x x should be filed with
the SEC,"33 it should be construed as to apply only to criminal and not to civil suits such as petitioners’ complaint.
Moreover, it is a fundamental rule in procedural law that jurisdiction is conferred by law; 34 it cannot be inferred but must
be explicitly stated therein. Thus, when Congress confers exclusive jurisdiction to a judicial or quasi-judicial entity over
certain matters by law, this, absent any other indication to the contrary, evinces its intent to exclude other bodies from
exercising the same.
It is apparent that the SRC provisions governing criminal suits are separate and distinct from those which pertain to civil
suits. On the one hand, Section 53 of the SRC governs criminal suits involving violations of the said law, viz.:
SEC. 53. Investigations, Injunctions and Prosecution of Offenses. –
53.1. The Commission may, in its discretion, make such investigations as it deems necessary to determine whether any
person has violated or is about to violate any provision of this Code, any rule, regulation or order thereunder, or any rule
of an Exchange, registered securities association, clearing agency, other self-regulatory organization, and may require
or permit any person to file with it a statement in writing, under oath or otherwise, as the Commission shall determine,
as to all facts and circumstances concerning the matter to be investigated. The Commission may publish information
concerning any such violations, and to investigate any fact, condition, practice or matter which it may deem necessary
or proper to aid in the enforcement of the provisions of this Code, in the prescribing of rules and regulations thereunder,
or in securing information to serve as a basis for recommending further legislation concerning the matters to which this
Code relates: Provided, however, That any person requested or subpoenaed to produce documents or testify in any
investigation shall simultaneously be notified in writing of the purpose of such investigation: Provided, further, That all
criminal complaints for violations of this Code, and the implementing rules and regulations enforced or administered by
the Commission shall be referred to the Department of Justice for preliminary investigation and prosecution before the
proper court:
Provided, furthermore, That in instances where the law allows independent civil or criminal proceedings of violations
arising from the same act, the Commission shall take appropriate action to implement the same: Provided, finally, That
the investigation, prosecution, and trial of such cases shall be given priority.
On the other hand, Sections 56, 57, 58, 59, 60, 61, 62, and 63 of the SRC pertain to civil suits involving violations of the
same law. Among these, the applicable provisions to this case are Sections 57.1 and 63.1 of the SRC which provide:
SEC. 57. Civil Liabilities Arising in Connection With Prospectus, Communications and Reports.
– 57.1. Any person who:
(a) Offers to sell or sells a security in violation of Chapter III;
or
 (b) Offers to sell or sells a security, whether or not exempted by the provisions of this Code, by the use of any
means or instruments of transportation or communication, by means of a prospectus or other written or oral
communication, which includes an untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements, in the light of the circumstances under which they were made, not misleading
(the purchaser not knowing of such untruth or omission), and who shall fail in the burden of proof that he did not
know, and in the exercise of reasonable care could not have known, of such untruth or omission, shall be liable
to the person purchasing such security from him, who may sue to recover the consideration paid for such
security with interest thereon, less the amount of any income received thereon, upon the tender of such security,
or for damages if he no longer owns the security.
xxxx
SEC. 63. Amount of Damages to be Awarded. – 63.1. All suits to recover damages pursuant to Sections 56, 57, 58, 59,
60 and 61 shall be brought before the Regional Trial Court which shall have exclusive jurisdiction to hear and decide
such suits. The Court is hereby authorized to award damages in an amount not exceeding triple the amount of the
transaction plus actual damages.
x x x x (Emphases and underscoring supplied)
Based on the foregoing, it is clear that cases falling under Section 57of the SRC, which pertain to civil liabilities arising
from violations of the requirements for offers to sell or the sale of securities, as well as other civil suits under Sections
56, 58, 59, 60, and 61 of the SRC shall be exclusively brought before the regional trial courts. It is a well-settled rule in
statutory construction that the term "shall" is a word of command, and one which has always or which must be given a
compulsory meaning, and it is generally imperative or mandatory. 35 Likewise, it is equally revelatory that no SRC
provision of similar import is found in its sections governing criminal suits; quite the contrary, the SRC states that criminal
cases arising from violations of its provisions should be first referred to the SEC.1âwphi1
Therefore, based on these considerations, it stands to reason that civil suits falling under the SRC are under the
exclusive original jurisdiction of the regional trial courts and hence, need not be first filed before the SEC, unlike criminal
cases wherein the latter body exercises primary jurisdiction.
All told, petitioners' filing of a civil suit against respondent for purported violations of the SRC was properly filed directly
before the RTC.
WHEREFORE, the petition is GRANTED. Accordingly, the Court of Appeals' Decision dated May 21, 2007 and
Resolution dated October 16,2007 in CA-G.R. SP No. 79297 are hereby REVERSED and SET ASIDE. Let Civil Case
No. 19-1159 be REINSTATED and REMANDED to the Regional Trial Court of Cauayan City, Isabela, Branch 19 for
further proceedings.
SO ORDERED.
G.R. No. 201248 March 11, 2015
LETICIA NAGUIT AQUINO, MELVIN NAGUIT, ROMMEL NAGUIT, ELMA NAGUIT TAYAG, YSSEL L. NAGUIT,
ROSALINA NAGUIT AUMENTADO, RIZEL NAGUIT CUNANAN, CARIDAD NAGUIT PARAJAS, MILLIE NAGUIT
FLORENDO, MARNEL NAGUIT, EDUARDO NAGUIT, JOSE NAGUIT, ZOILO NAGUIT, AND AMELIA NAGUIT
DIZON, represented by YSSEL L. NAGUIT, Petitioners,
vs.
CESAR B. QUIAZON, AMANDA QUIAZON, JOSE B. QUIAZON AND REYNALDO B. QUIAZON, represented by
JAIME B. QUIAZON, Respondents.
DECISION
MENDOZA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the March 13, 2012
Decision1 of the Court of Appeals (CA), in CA-G.R. CV No. 92887, which affirmed the Orders2 of the Regional Trial
Court (RTC), Angeles City, Branch 59, in SP Civil Case No. 05-076, dismissing the complaint for quieting of title filed by
the petitioners.
The Facts
On December 16, 2005, a complaint3 for Annulment and Quieting of Title was filed before the RTC-Branch59 by the
petitioners, namely, Leticia Naguit Aquino, Melvin Naguit, Rommel Naguit, Elma Naguit Tayag, Yssel L. Naguit, Rosalina
Naguit Aumentado, Rizel Naguit Cunanan, Caridad Naguit Parajas, Millie Naguit Florendo, Marnel Naguit, Eduardo
Naguit, Jose Naguit, Zoilo Naguit, and AmeliaNaguit Dizon, represented by Yssel L. Naguit (petitioners). They alleged
that they were the heirs of the late Epifanio Makam and Severina Bautista, who acquired a house and lot situated in
Magalang, Pampanga, consisting of 557 square meters, by virtue of a Deed of Sale, dated April 20, 1894; that since
then, they and their predecessors-in-interest had been in open, continuous, adverse, and notorious possession for more
than a hundred years, constructing houses and paying real estate taxes on the property;that sometime in June 2005,
they received various demand letters from the respondents, namely, Cesar B. Quiazon, Amanda Quiazon, Jose B.
Quiazon, and Reynaldo B. Quiazon, represented by Jaime B. Quiazon (respondents), claiming ownership over the
subject property and demanding that they vacate the same; that upon inquiry with the Register of Deeds of San
Fernando, Pampanga, they confirmed that the property had been titled in the name of respondents under Transfer
Certificate of Title (TCT) No. 213777-R; that the said title was invalid, ineffective, voidable or unenforceable; and that
they were the true owners of the property.
Hence, they prayed that the title be cancelled and a new title be issued in their favor.
In their Answer,4 respondents asserted that they were the absolute owners of the subject land as per TCT No. 213777-
R; that they had inherited the same from their predecessor-in-interest, Fausta Baluyut, one of the registered owners
under Original Certificate of Title (OCT) No. RO-1138 (11376), as per the Project of Partition and Deed of Agreement,
dated January 2, 1974; and that petitioners had been occupying the property by mere tolerance. They denied the
allegations in the complaint and proffered affirmative defenses with counterclaims.
They argued that: First, the petitioners "have no valid, legal and sufficient cause of action" 5 against them, because their
deed of sale was spurious and could not prevail over Land Registration Decree No. 122511 issued on June 28, 1919 in
Land Registration Case No. 5, LRC Records No. 128, by the Court of First Instance of Pampanga, in favor of their
predecessor-in-interest. The predecessors-in-interest of petitioners were among the oppositors in the land registration
proceeding but, nevertheless, after the trial, the subject lot was awarded, decreed and titled in favor of respondents’
predecessor-in-interest, as per OCT No. RO-1138 (11376) of the Registry of Deeds of Pampanga. Second, the action
was barred by prescription and that petitioners were guilty of laches in asserting their interest over the subject lot,
considering that Land Registration Decree No. 122511 was issued on June 28, 1919 and OCT No. RO-1138 (11376)
was issued on May 12, 1922. Hence, it was much too late for petitioners to institute the action after more than 80 years.
They also raised the settled rule that a title registered under the Torrens system could not be defeated by adverse, open
and notorious possession, or by prescription. Third, the action was also barred by res judicata and violated the
prohibition against forum shopping, considering that petitioners had earlier filed a similar case for quieting of title against
respondents, docketed as Civil Case No. 5487, which the RTC-Br. 56 dismissed. Petitioners filed their Comment to
Defendant’s Affirmative Defenses.6 Anent the alleged lack of cause of action due to the spurious deed of sale, petitioners
argued that this contention was a matter of evidence which might only be resolved in a full-blown trial. They insisted that
the deed of sale was genuine and authentic and was issued and certified by the Deputy Clerk of Court of the RTC. They
added that the settled rule was that to determine the sufficiency of the cause of action, only the facts alleged in the
complaint should be considered, and that the allegations in their complaint sufficiently stated a cause of action.
As regards the allegation of prescription, the petitioners countered that an action to quiet title did not prescribe if the
plaintiffs were in possession of the property in question. They argued that they were neither guilty of laches nor were
they in possession of the property by mere tolerance, their possession being in the concept of owner for more than a
hundred years.
Lastly, regarding the argument on res judicata, petitioners explained that they were not the same plaintiffs in Civil Case
No. 5487 and that the case was dismissed without prejudice.
The RTC set a preliminary hearing on the affirmative defenses.
Respondents presented Atty. Charlemagne Tiqui Calilung, RTC Clerk of Court of San Fernando, Pampanga, who
presented the record of Cadastral Case No. 5, dated June 28, 1919, as well as Decree No. 122511. They also presented
Luis Samuel Ragodon, the Registration Examiner of the Registry of Deeds of San Fernando, Pampanga, who presented
the original copy of OCT No. 11376, reconstituted as RO-1138, and testified that the title was derived from Decree No.
122511. He further testified that the original title had been cancelled pursuant to a project of partition, which was
registered on December 17, 1984, and in lieu thereof, TCT Nos. 213775, 213776, 213777, 213778, 213779, 213780,
and 213781 were issued. He presented the original copy of TCT No. 213777-R issued in the names of respondents.
Henry Y. Bituin, the court interpreter who translated the June 28, 1919 decision of the Court of First Instance of
Pampanga in Land Registration Case No. 5 from Spanish to English, also testified.
Petitioners manifested that they were opting to submit the incident for resolution without presenting evidence, relying on
their position that only the facts alleged in the complaint should be considered.
In their formal offer of evidence,7 respondents offered the following documents: (1) the June 28, 1919 Decision and its
English translation; (2) Transmittal Letter, dated May 6, 1922; (3) Decree No. 122511; (4) OCT No. RO-1138; (5) TCT
No. 213777-R; (6) the petition, dated July 29, 1988, and its annexes in Civil Case No. 5487;(7) the September 7, 1990
Order dismissing Civil Case No. 5487, without prejudice; and (8) the July 29, 1916 Decision in Expediente No. 132,
G.L.R.O. Record No. 11958 and its English translation.
In their comment/opposition8 to the formal offer of evidence, petitioners argued (1) that the claims of Epifanio Makam
and Severina Bautista, their predecessors-in-interest, were not adjudicated in the June 28, 1919 decision and, thus, res
judicata was inapplicable; (2) that Civil Case No. 5487 was dismissed without prejudice and that they were not the
plaintiffs therein; (3) that the allegedly spurious nature of the deed of sale and the supposed in defeasibility of
respondents’ title were matters of evidence to be resolved in a full-blown trial and the trial court was only confined to the
allegations in the complaint; (4) that their action was not barred by prescription because an action toquiet title did not
prescribe if the plaintiffs were in possession of the subject property and that they had been in possession in the concept
of owner for more than 100 years; and (5) that respondents were guilty of laches having taken more than 80 years to
attempt to enforce their claimed title to the property.
Ruling of the RTC
On July 14, 2008, the RTC-Br. 59 issued the Order dismissing petitioners’ complaint. It found that based on the decision,
dated June 28, 1919, in Cadastral Case No. 5, the Baluyut siblings, respondents’ predecessors-in-interest, were
declared the absolute owners of the subject property, over the claim of Jose Makam, the predecessor-in-interest of
petitioners, who was one of the oppositors in the said case. From this decision, OCT No. RO-1138 (11376) was derived,
which later became the subject of a project of partition and deed of agreement among the Baluyut siblings, dated January
2, 1972, which, in turn, was annotated on the OCT as Entry No. 8132. TCT No. 213777-R, covering the subject lot, was
later derived from the partition. The RTC-Br. 59 also noted that it was stated in the said decision that in 1907, a
warehouse was constructed on the subject lot by virtue of an agreement between the Chairman of Magalang and
Enrique Baluyut, with no objection from the Makams. It was further noted that the deed of sale being asserted by
petitioners was not mentioned in the 1919 decision despite the claim of their predecessors-in-interest.
The RTC-Br. 59, thus, ruled that the deed of sale had become invalid by virtue of the June 28, 1919 decision. It held
that although the deed of sale dated, April 20, 1894, was never challenged, it was nevertheless unenforceable by virtue
of the June 28, 1919 decision. It found that petitioners had lost whatever right they had on the property from the moment
the said decision was rendered and an OCT was issued. Finding that petitioners were not holders of any legal title over
the property and were bereft of any equitable claim thereon, the RTC-Branch 59 stated that the first requisite of an
action to quiet title was miserably wanting. It also found the second requisite to be wanting because respondents had
proved that the TCT registered in their names was valid.
Anent petitioners’ argument that only the complaint may be considered in determining the sufficiency of the cause of
action, the RTC Br. 59 ruled that under Section 2 in relation to Section 6, Rule 16 of the Rules of Court, a preliminary
hearing on the affirmative defense in the answer might be had at the discretion of the court, during which the parties
could present their arguments and their evidence.
On December 22, 2008, the RTC-Br. 59 denied petitioners’ motion for reconsideration. It stated that the court may
consider evidence presented in hearings related to the case, which was an exception to the general rule that only the
complaint should be taken into consideration. It stated that petitioners were without legal or equitable title to the subject
property, thus, lacking the legal personality to file an action for quieting of title and, therefore, "the complaint was properly
dismissed for failing to state a cause of action."9
Ruling of the CA
In the assailed Decision, dated March 13, 2012, the CA dismissed petitioners’ appeal. It explained that under Section
6, Rule 16 of the Rules of Court, a court is allowed to conduct a preliminary hearing, motu proprio, on the defendant’s
affirmative defenses, including the ground of "lack of cause of action or failure to state a cause of action." 10 It gave the
reason that because the rule spoke in general terms, its manifest intention was to apply it to all grounds for a motion to
dismiss under the rules which were pleaded as affirmative defenses in the responsive pleading. Thus, it held that the
trial court might consider other evidence aside from the averments in the complaint in determining the sufficiency of the
cause of action. The CA explained:
But as shown in the foregoing rule, the holding of a preliminary hearing on any of the grounds for a motion to dismiss
which is pleaded as an affirmative defense is within the full discretion of the trial court. The rule speaks of affirmative
defenses that are grounds for a motion to dismiss. Indubitably, lack of cause of action or failure to state a cause of
action, being one of the grounds for a motion to dismiss, is included thereby.
Since the rule allows the trial court to conduct a preliminary hearing on this kind of an affirmative defense, it follows then
that evidence could be submitted and received during the proceedings which the court may consider in forming its
decision. It would be plain absurdity if the evidence already presented therein would not be allowed to be considered in
resolving whether the case should be dismissed or not. To rule otherwise would render nugatory the provision of Section
6, Rule 16 and would make the holding of a preliminary hearing a plain exercise in futility. No well-meaning judge would
hold a preliminary hearing and receive evidence only to disregard later the evidence gathered in the course thereof. If
the intention of the rule is for the trial court to confine itself to the allegations in the complaint in determining the
sufficiency of the cause of action, as the plaintiffs-appellants would want to impress upon this Court, then it should have
been so expressly stated by barring the court from conducting a preliminary hearing based on the said ground. The fact,
however, that the said rule speaks in general terms, it is its manifest intention to apply it in all grounds for a motion to
dismiss under the rules which are pleaded as an affirmative defense in the responsive pleading. Thus, we find that that
trial court did not err in considering the evidence already presented and in not confining itself to the allegations in the
plaintiffs-appeallants’ complaint.11
The CA gave credence to the evidence presented by respondents and noted that, except for petitioners’ bare allegation
that respondents’ title was invalid, there was nothing more to support the same. It further noted that the deed of sale
was written in a local dialect without the translation and with no ascertainable reference to the area of the property being
conveyed. The CA, therefore, found that petitioners did not have the title required to avail of the remedy of quieting of
title, while respondents had sufficiently proven the validity of their Torrens title. Hence, the subject petition.
ISSUE
Whether the CA erred in affirming the dismissal of
petitioners’ complaint on the ground of lack of cause of
action or failure to state a cause of action.
Petitioners argue that the CA gravely erred in considering external factors beyond the allegations in the petition. They
aver that it is a settled rule that to determine the sufficiency of a cause of action, only facts alleged in the complaint shall
be considered, and it is error for the court to take cognizance of external facts or hold a preliminary hearing to determine
their existence. Respondents, on the other hand, echo the ruling of the CA that it was within the disrection of the trial
court to conduct a preliminary hearing on the affirmative defense of lack of cause of action or failure to state a cause of
action, where both parties were given the chance to submit arguments and evidence for or against the dismissal of the
complaint. Furthermore, they argue that the Court has previously upheld cases where the court took into account
external factors in the dismissal of the complaint on the ground of lack of cause of action. They assert that since
petitioners were given reasonable opportunity to present evidence to prove their cause of action, they are now estopped
from invoking the rule that only allegations in the complaint should be considered.12
Petitioners reiterate that they have been in possession of the property in the concept of owner for more than 119 years,
where they built their houses, reared their families, and paid realty taxes thereon. They point out that their possession
was never disputed by respondents, and that respondents had only attempted to enforce their supposed rights over the
property in 2005, or 86 years after the purported decree awarding the property to them. Petitioners argue that
respondents had abandoned their right to the subject property which, thus, rendered invalid whatever title they might
have had. They argue that it has been held that a registered owner’s right to recover possession and title to property
may be converted into a stale demand by virtue of laches. They also claim that the allegations contained in their
complaint sufficiently state a cause of action, and that it was an error for the trial court to declare it unenforceable
considering that the deed of sale should be considered hypothetically admitted when determining whether the complaint
sufficiently states a cause of action.13
Ruling of the Court
Preliminary matters
The Court notes that respondents raised the affirmative defense in their Answer that petitioners "have no valid, legal
and sufficient cause of action," raising factual matters,14 which is effectively the ground of "lack of cause of action."
Respondents’ arguments made no assertion that the complaint failed to state a cause of action. The ground of "lack of
cause of action" has been frequently confused with the ground of "failure to state a cause of action," and this is the
situation prevailing in the present case. The terms were, in fact, used interchangeably by both the respondents and the
lower courts.
The distinction between the grounds of "failure to state a cause of action" and "lack of cause of action" was aptly
discussed in Dabuco vs. Court of Appeals, to wit:
As a preliminary matter, we wish to stress the distinction between the two grounds for dismissal of an action: failure to
state a cause of action, on the one hand, and lack of cause of action, on the other hand. The former refers to the
insufficiency of allegation in the pleading, the latter to the insufficiency of factual basis for the action. Failure to state a
cause may be raised in a Motion to Dismiss under Rule 16, while lack of cause may be raised any time. Dismissal for
failure to state a cause can be made at the earliest stages of an action. Dismissal for lack of cause is usually made after
questions of fact have been resolved on the basis of stipulations, admissions or evidence presented. 15
Although the two grounds were used interchangeably, it can be gleaned from the decisions of both the trial court and
the CA that respondents’ defense of "lack of cause of action" was actually treated as a "failure to state a cause of action,"
which is a ground for a motion to dismiss under Rule 16. This is apparent from their reliance on Section 6 of Rule 16,
which pertains to grounds of a motion to dismiss raised as affirmative defenses; as well as the doctrines cited in resolving
the case. The CA even referred to both as one and the same ground for a motion to dismiss when it stated that:
"Indubitably, lack of cause of action or failure to state a cause of action, being one of the grounds for a motion to dismiss,
is included thereby."16
Also confused, respondents, on their part, asserted that "it is within the discretion of the Court a quo to conduct a
preliminary hearing on the affirmative defense of lack of cause of action or failure to state a cause of action,"17 the very
basis of their argument being hinged on the application of Section 6. They also insisted on the applicability of the
exceptions to the general rule that only averments in the complaint must be considered, which pertains to the ground of
"failure to state a cause of action."
The trial court held a preliminary hearing resolving the ground of "lack of cause of action" pursuant to Section 6 of Rule
16, which allows the court to hold a preliminary hearing on grounds for dismissal provided in the same rule that have
been raised as an affirmative defense in the answer. 18 The ground of "lack of cause of action," as already explained,
however, is not one of the grounds for a motion to dismiss under Rule 16, and hence, not proper for resolution during a
preliminary hearing held pursuant to Section 6. On this point alone, the trial court clearly erred in receiving evidence on
the ground of "lack of cause of action" during the preliminary hearing. The factual matters raised by respondents in their
affirmative defense arguing the non-existence of a cause of action, should have been duly resolved during a trial on the
merits of the case.
In any case, even if the Court were to treat respondents’ argument as a "failure to state a cause of action," their defense
would still fail. Court limited to averments in the complaint
Rule 16 of the Rules of Court enumerates the grounds for a motion to dismiss. The pertinent ground is found under
Section 1(g), which reads as follows:
xxxx
(g) That the pleading asserting the claim states no cause of action; xxxx (Emphasis supplied) The test for determining
the existence of a cause of action was amply discussed in Insular Investment and Trust Corporation v. Capital One
Equities Corporation,19 citing Perpetual Savings Bank v. Fajardo,20 to wit:
The familiar test for determining whether a complaint did or did not state a cause of action against the defendants is
whether or not, admitting hypothetically the truth of the allegations of fact made in the complaint, a judge may validly
grant the relief demanded in the complaint. In Rava Development Corporation v. Court of Appeals, the Court elaborated
on this established standard in the following manner:
"The rule is that a defendant moving to dismiss a complaint on the ground of lack of cause of action is regarded as
having hypothetically admitted all the averments thereof. The test of the sufficiency of the facts found in a petition as
constituting a cause of action is whether or not, admitting the facts alleged, the court can render a valid judgment upon
the same in accordance with the prayer thereof (Consolidated Bank and Trust Corp. v. Court of Appeals, 197 SCRA
663 [1991]).
In determining the existence of a cause of action, only the statements in the complaint may properly be considered. It
is error for the court to take cognizance of external facts or hold preliminary hearings to determine their existence. If the
allegation in a complaint furnish sufficient basis by which the complaint may be maintained, the same should not be
dismissed regardless of the defenses that may be assessed by the defendants (supra). 21
Thus, in determining the existence of a cause of action, only the allegations in the complaint may properly be considered.
For the court to do otherwise would be a procedural error and a denial of the plaintiff’s right to due process.22
In the case at bench, petitioners’ cause of action relates to an action to quiet title under Article 476 of the Civil Code,
which provides:
Article 476. Whenever there is a cloud on title to real property or any interest therein, by reason of any instrument,
record, claim, encumbrance or proceeding which is apparently valid or effective but is in truth and in fact invalid,
ineffective, voidable, or unenforceable, and may be prejudicial to said title, an action may be brought to remove such
cloud or to quiet title.
An action may also be brought to prevent a cloud from being cast upon title to real property or any interest therein.
A "cloud on title" is an outstanding instrument, record, claim, encumbrance or proceeding which is actually invalid or
inoperative, but which may nevertheless impair or affect injuriously the title to property. The matter complained of must
have a prima facie appearance of validity or legal efficacy. The cloud on title is a semblance of title which appears in
some legal form but which is in fact unfounded. The invalidity or in operativeness of the instrument is not apparent on
the face of such instrument, and it has to be proved by extrinsic evidence. 23
In order that an action for quieting of title may prosper, two requisites must concur: (1) the plaintiff or complainant has a
legal or equitable title or interest in the real property subject of the action; and (2) the deed, claim, encumbrance, or
proceeding claimed to be casting cloud on his title must be shown to be in fact invalid or inoperative despite its prima
facie appearance of validity or legal efficacy.24
Turning then to petitioners’ complaint, the relevant allegations as to the cause of action for quieting of title read as
follows:
3. Plaintiffs are the heirs of the late Epifanio Makam and Severina Bautista who acquired a house and lot on 20
April 1894 situated in Magalang, Pampanga, consisting of Five Hundred Seventy Seven (577) square meters
more or less, by virtue of a Deed of Sale, hereby quoted for ready reference:
xxx
4. From 1894 and up to the present, plaintiffs and through their predecessors-in-interest have been in open,
continuous, adverse and notorious possession for more than a hundred years of the piece of property mentioned
above, constructed their houses thereon and dutifully and faithfully paid the real estate taxes on the said
property;
5. That sometime in June 2005, plaintiffs received various demand letters from defendants demanding plaintiffs
to vacate the premises, claiming ownership of the subject property;
6. That when plaintiffs inquired from the Office of the Register of Deeds of San Fernando, Pampanga, they were
able to confirm that their property had been titled in the name of herein defendants under TCT No. 213777-R;
7. That the said title is in fact invalid, ineffective, voidable or unenforceable, the existence of which is pre-judicial
to the ownership and possession of plaintiffs who are the true owners and actual possessors of the above
described real property;
8. That equity demands that the said title be surrendered by defendants and cancelled as it is a cloud upon the
legal or equitable title to or interest of plaintiffs over the subject property. 25
It is readily apparent from the complaint that petitioners alleged that (1) they had an interest over the subject property
by virtue of a Deed of Sale, dated April 20, 1894; and that (2) the title of respondents under TCT No. 213777-R was
invalid, ineffective, voidable or unenforceable. Hypothetically admitting these allegations as true, as is required in
determining whether a complaint fails to state a cause of action, petitioners may be granted their claim. Clearly, the
complaint sufficiently stated a cause of action. In resolving whether or not the complaint stated a cause of action, the
trial court should have limited itself to examining the sufficiency of the allegations in the complaint. It was proscribed
from inquiring into the truth of the allegations in the complaint or the authenticity of any of the documents referred or
attached to the complaint, as these were deemed hypothetically admitted by the respondents.26
Evangelista v. Santiago elucidates:
The affirmative defense that the Complaint stated no cause of action, similar to a motion to dismiss based on the same
ground, requires a hypothetical admission of the facts alleged in the Complaint. In the case of Garcon v. Redemptorist
Fathers, this Court laid down the rules as far as this ground for dismissal of an action or affirmative defense is concerned:
It is already well-settled that in a motion to dismiss a complaint based on lack of cause of action, the question submitted
to the court for determination is the sufficiency of the allegations of fact made in the complaint to constitute a cause of
action, and not on whether these allegations of fact are true, for said motion must hypothetically admit the truth of the
facts alleged in the complaint; that the test of the sufficiency of the facts alleged in the complaint is whether or not,
admitting the facts alleged, the court could render a valid judgment upon the same in accordance with the prayer of said
complaint.1âwphi1 Stated otherwise, the insufficiency of the cause of action must appear in the face of the complaint in
order to sustain a dismissal on this ground, for in the determination of whether or not a complaint states a cause of
action, only the facts alleged therein and no other matter may be considered, and the court may not inquire into the truth
of the allegations, and find them to be false before a hearing is had on the merits of the case; and it is improper to inject
in the allegations of the complaint facts not alleged or proved, and use these as basis for said motion. 27 (Emphasis and
underscoring supplied)
Exceptions and Section 6 of Rule 16 not applicable
The Court does not discount, however, that there are exceptions to the general rule that allegations are hypothetically
admitted as true and inquiry is confined to the face of the complaint. First, there is no hypothetical admission of (a) the
veracity of allegations if their falsity is subject to judicial notice; (b) allegations that are legally impossible; (c) facts
inadmissible in evidence; and (d) facts which appear, by record or document included in the pleadings, to be
unfounded.28 Second, inquiry is not confined to the complaint if culled (a) from annexes and other pleadings submitted
by the parties;29 (b) from documentary evidence admitted by stipulation which disclose facts sufficient to defeat the
claim; or (c) from evidence admitted in the course of hearings related to the case. 30
Pointing to the exception that inquiry was not confined to the complaint if evidence had been presented in the course of
hearings related to the case, the CA ruled that it was within the trial court’s discretion to receive and consider other
evidence aside from the allegations in the complaint in resolving a party’s affirmative defense. It held that this discretion
was recognized under Section 6 of Rule 16 of the Rules of Court, which allowed the court to conduct a preliminary
hearing, motu proprio, on the defendant’s affirmative defense if no corresponding motion to dismiss was filed. This
section reads in part:
Section 6. Pleading grounds as affirmative defenses. – If no motion to dismiss has been filed, any of the grounds for
dismissal provided for in this Rule may be pleaded as an affirmative defense in the answer and, in the discretion of the
court, a preliminary hearing may be had thereon as if a motion to dismiss had been filed.
In their answer, respondents raised the affirmative defenses of "lack of cause of action, prescription, and res
judicata,"31 stated in the following manner:
xxxx
6. Plaintiffs have no valid, legal and sufficient cause of action against the defendants. The alleged "deed of sale" (Annex
"B" – Amended Complaint) is spurious and the same cannot prevail over the Land Registration Decree No. 122511
issued on June 28, 1919 in Land Registration Case No. 5, LRC Record No. 128, by the Court of First Instance of
Pampanga, in favor of defendants’ predecessor-in-interest. In fact, plaintiffs’ predecessors-in-interest were among the
oppositors in that land registration proceeding but after trial the lot in question was awarded, decreed and titled in favor
and in the names of defendants’ predecessors-in-interest, as per Original Certificate of Title No. RO-1138 (11376) of
the Registry of Deeds of Pampanga;
7. The instant action, which is actually an action of reconveyance, is already barred by prescription. Moreover, plaintiffs
are guilty of laches in asserting their alleged title or interest over the subject lot. Said Land Registration Decree No.
122511 was issued on June 28, 1919 and OCT No. RO 1138 (11376) was issued on May 12, 1922. Clearly, it is much
too late for the plaintiffs, after more than eighty (80) long years to institute this action against the defendants;
xxxx
9. The present action is also barred by res judicata and violates the prohibition against forum shopping. There was
already a prior similar case for quieting of title filed by plaintiffs’ predecessor-in-interest against defendant Jaime Quiazon
and his co-owners, before Branch 56 of this Honorable Court, docketed as Civil Case No. 5487, which was
dismissed;32 x x x x (Emphases supplied)
A review of the first ground under paragraph 6 of the answer reveals that respondents alleged that "[p]laintiffs have no
valid, legal and sufficient cause of action against the defendants." It is at this point that it must again be emphasized
that it is not "lack or absence of cause of action" that is a ground for dismissal of the complaint under Rule 16, but rather,
that "the complaint states no cause of action."33 The issue submitted to the court was, therefore, the determination of
the sufficiency of the allegations in the complaint to constitute a cause of action and not whether those allegations of
fact were true, as there was a hypothetical admission of facts alleged in the complaint. 34 An affirmative defense, raising
the ground that there is no cause of action as against the defendants poses a question of fact that should be resolved
after the conduct of the trial on the merits.35 A reading of respondents’ arguments in support of this ground readily
reveals that the arguments relate not to the failure to state a cause of action, but to the existence of the cause of action,
which goes into the very crux of the controversy and is a matter of evidence for resolution after a full-blown hearing.
The trial court may indeed elect to hold a preliminary hearing on affirmative defenses as raised in the answer under
Section 6 of Rules 16 of the Rules of Court. It has been held, however, that such a hearing is not necessary when the
affirmative defense is failure to state a cause of action,36 and that it is, in fact, error for the court to hold a preliminary
hearing to determine the existence of external facts outside the complaint.37 The reception and the consideration of
evidence on the ground that the complaint fails to state a cause of action, has been held to be improper and
impermissible.38 Thus, in a preliminary hearing on a motion to dismiss or on the affirmative defenses raised in an answer,
the parties are allowed to present evidence except when the motion is based on the ground of insufficiency of the
statement of the cause of action which must be determined on the basis only of the facts alleged in the complaint and
no other.39 Section 6, therefore, does not apply to the ground that the complaint fails to state a cause of action. The trial
court, thus, erred in receiving and considering evidence in connection with this ground.
The lower courts also relied on the exception that external evidence may be considered when received "in the course
of hearings related to the case," which is rooted in the case of Tan v. Director of Forestry (Tan). 40 In said case, a hearing
was conducted on the prayer for preliminary injunction where evidence was submitted by the parties. In the meantime,
a motion to dismiss was filed by the defendant, citing as one of the grounds that the petition did not state a cause of
action. The trial court resolved the prayer for the issuance of a writ of preliminary injunction simultaneously with the
motion to dismiss. It dismissed the petition for failure to state a cause of action on the basis of the evidence presented
during the hearing for preliminary injuction. On appeal, this Court ruled that the trial court was correct in considering the
evidence already presented and in not confining itself to the allegations in the petition.
Tan, however, is not on all fours with the present case. First, the trial court therein considered evidence presented during
a preliminary hearing on an injunction and not during a hearing on a motion to dismiss. As discussed, a preliminary
hearing on a motion to dismiss is proscribed when the ground is failure to state a cause of action. The exception of
"hearings related to the case," therefore, pertains to hearings other than the hearing on a motion to dismiss on the
ground of failure to state a cause of action. To reiterate, the ground that the complaint fails to state a cause of action
should be tested only on the allegations of facts contained in the complaint, and no other. If the allegations show a
cause of action, or furnish sufficient basis by which the complaint can be maintained, the complaint should not be
dismissed regardless of the defenses averred by the defendants. 41 The trial court may not inquire into the truth of the
allegations, and find them to be false before a hearing is conducted on the merits of the case. 42 If the court finds the
allegations to be sufficient but doubts their veracity, the veracity of the assertions could be asserted during the trial on
the merits.43
Second, Tan noted that the plaintiff had readily availed of his opportunity to introduce evidence during the hearing and,
as a result, was estopped from arguing that the court is limited to the allegations in the complaint. 44 This is in contrast
to the present case, where petitioners steadfastly argued from the beginning that the trial court was limited to the
allegations in the complaint. Petitioners maintained their stance during the preliminary hearing on the affirmative
defenses, opting not to file rebuttal evidence and opposing respondents’ formal offer of evidence on the same ground.
Having been consistent in their position from the start, petitioners cannot be estopped from arguing that the trial court
was precluded from considering external evidence in resolving the motion to dismiss.
Third, it was noted in Tan that the documentary evidence given credence by the trial court had effectively been admitted
by stipulation during the hearing, 45 and another had been an annex to the complaint,46 both of which are exceptions to
the general rule that external facts cannot be considered. Neither of the said exceptions is availing in the present case.
The Court notes that only the OCT of respondents was attached as an annex to their answer. The June 28, 1919
Decision in the Cadastral case, which was given considerable weight by the trial court, was not attached and was only
presented during the preliminary hearing.
Fourth, Tanruled that the rigid application of the rules could not be countenanced considering the overriding public
interest involved, namely, the welfare of the inhabitants of the province whose lives and properties would be directly and
immediately imperilled by forest denudation.47 There appears to be no overriding public interest in the present case to
justify a similar relaxation of the rules.
It is of note that although the trial court might not have erred in holding a preliminary hearing on the affirmative defenses
of prescription and res judicata, it is readily apparent from the decisions of the lower courts that no disquisition
whatsoever was made on these grounds. It cannot be denied that evidence in support of the ground of "lack of cause
of action" was received and given great weight by the trial court. In fact, all the evidence given credence by the trial
court were only in support of the ground of "lack of cause of action." This all the more highlights that the trial court erred
in receiving evidence to determine whether the complaint failed to state a cause of action.
Although neither the RTC or the CA ruled on the affirmative defenses of prescription and res judicata, it appears that
this case could not have been dismissed on these grounds. First, an action to quiet title is imprescriptible if the plaintiffs
are in possession of the property,48 which is the situation prevailing in the present case. Second, there appears to be
no res judicata nor a violation of the prohibition against forum shopping considering that Civil Case No. 5487 had been
dismissed, without prejudice, years before petitioners initiated their complaint for quieting of title.
In sum, the trial court erred in dismissing the complaint on the ground of failure to state a cause of action. Evidence
should have been received not during a preliminary hearing under Section 6 of Rule 16, but should have been presented
during the course of the trial. The case should, thus, be remanded to the RTC-Br. 59 for trial on the merits.
WHEREFORE, the petition is GRANTED. The March 13, 2012 Decision of the Court of Appeals, in CA-G.R. CV No.
92887 is REVERSED and SET ASIDE. The