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Republic of the Philippines

Supreme Court
Manila Respondent, Brewmaster International, Inc., is a marketing company engaged
in selling and distributing beer and other products of Asia Brewery, Inc. On
SECOND DIVISION November 9, 2005, it filed a Complaint for Sum of Money against Prescillo
G. Lazaro (Prescillo) and petitioner, Victorina (also known as Victoria) Alice
VICTORINA (VICTORIA) ALICE LIM G.R. No. 182779
LAZARO, Lazaro, with the Metropolitan Trial Court (MeTC) of Makati City. The
Petitioner, Present: complaint alleged as follows:
6. During the period from February 2002 to May 2002,
CARPIO, J., defendants obtained on credit from plaintiff beer and other
Chairperson, products in the total amount of ONE HUNDRED THIRTY
- versus - NACHURA, EIGHT THOUSAND FIVE HUNDRED TWO PESOS AND
PERALTA, NINETY TWO CENTAVOS (Php 138,502.92), evidenced
ABAD, and by sales invoices photocopies of which are hereto attached as
MENDOZA, JJ. Annexes A, A-1 to A-11,
7. Despite repeated demands, defendants have failed and
BREWMASTER INTERNATIONAL, INC., Promulgated: refused, and up to now, still fail and refuse to pay their
Respondent. aforesaid obligation to plaintiff in the amount of ONE
August 23, 2010 HUNDRED THIRTY EIGHT THOUSAND FIVE
HUNDRED TWO PESOS AND NINETY TWO
x------------------------------------------------------------------------------------x CENTAVOS (Php 138,502.92) as evidenced by the demand
letters dated 21 April 2003, 12 May 2003, 5 August 2003 and
17 August 2005, photocopies of which are hereto attached as
Annexes B, C, C-1, D, D-1, D-2, and E, E-1,
RESOLUTION 8. Under the terms of the sales invoices, defendants agreed
that in case of litigation, the venue shall only be at the proper
NACHURA, J.: courts of Makati City and to pay 24% interest on all overdue
Before the Court is a petition for review on certiorari of the Court of Appeals accounts.
(CA) Decision[1] dated September 4, 2007 and Resolution dated January 31, WHEREFORE, it is respectfully prayed that judgment be
2008, which awarded the amount sought by respondent in its Complaint. As rendered in favor of plaintiff and against the defendants,
held by the CA, to grant the relief prayed for by respondent is, in the words ordering the latter to pay the sum of Php138,502.92
representing plaintiffs claim and the sum of Php33,240.00 as
of Section 6 of the Revised Rule on Summary Procedure, the judgment interest.
warranted by the facts alleged in the complaint.
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Plaintiff prays for such other or further relief and remedies beer and the other products were sold to Total and were received by a certain
that are just and equitable in the premises. [2]
Daniel Limuco; they did not indicate, in any way, that the goods were
received by petitioner or her husband.[7]
[3]
Annexes A, A-1 to A-11 are photocopies of sales invoices indicating the
amount of the goods purchased and showing that they were sold to TOTAL
and received by a certain Daniel Limuco.
Respondent elevated the case to the Regional Trial Court (RTC)
through a notice of appeal. Attached to its Memorandum was additional
Prescillo filed an answer with counterclaim, denying any knowledge
evidence, showing that it transacted with petitioner and her husband, who
of the obligation sued upon. According to Prescillo, he and petitioner had
were then the operators and franchisees of the Total gasoline station and
lived separately since January 15, 2002 and he never authorized petitioner to
convenience store where the subject goods were delivered, and that Daniel
purchase anything from respondent. He pointed out that the purchaser of the
Limuco was their employee.[8]
items, as borne out by the sales invoices attached to the complaint, was Total,
which should have been the one sued by respondent.[4]
Unmoved, the RTC found no reversible error in the assailed decision. It
agreed with the MeTC that respondent failed to submit any evidence proving
Petitioner, in her own answer with counterclaims, likewise denied having
that petitioner and her husband were liable for the obligation. The RTC
transacted with respondent, and averred that the documents attached to the
disregarded the documents attached to the memorandum on the ground that
complaint showed that it was Total which purchased goods from respondent.
[5] admission of such additional evidence would be offensive to the basic rule of
fair play and would violate the other partys right to due process. Thus, the
RTC affirmed the assailed decision in toto.[9]
On June 14, 2006, during the scheduled preliminary conference,
petitioner and her co-defendant did not appear. Hence, the MeTC declared
Respondent then went to the CA through a petition for review. There, it
the case submitted for decision.[6]
succeeded in obtaining a judgment in its favor. Applying Section 7 [10] of the
On August 22, 2006, the MeTC dismissed the complaint,
Revised Rule on Summary Procedure, in conjunction with Section
ratiocinating that respondent, as plaintiff, failed to meet the burden of proof
6[11] thereof, the CA held that judgment should have been rendered as may be
required to establish its claim by preponderance of evidence. The court a
warranted by the facts alleged in the complaint considering that both
quo noted that the sales invoices attached to the complaint showed that the
defendants failed to appear during the preliminary conference. The appellate
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court said that by instead referring to the sales invoices and bypassing [the] The respondents are also ORDERED to pay the costs of
suit.
ultimate facts [alleged in the complaint], the MeTC contravened the evident
purposes of the [Revised] Rule on Summary Procedure directing that the SO ORDERED.[12]
judgment be based on the allegations of the complaint, which were, firstly, to
avoid delay and, secondly, to consider the non-appearance at the preliminary
conference as an admission of the ultimate facts. The CA judiciously Petitioner filed a motion for reconsideration of the said Decision but
pronounced that: the same was denied by the CA in its January 31, 2008 Resolution. [13]

In fact, evidentiary matters (like the sales invoices


attached to the complaint) were not yet to be considered as Petitioner submits the following issues to this Court for resolution:
of that early stage of the proceedings known under the Rule
on Summary Procedure as the preliminary conference. The Petitioner respectfully submits that the Honorable Court of
evidentiary matters and facts are to be required only upon the Appeals erred in the interpretation of Section 6 of the
termination of the preliminary conference and only if further Revised Rules of Summary Procedure when it reversed the
proceedings become necessary to establish factual issues Decision of the RTC, Branch 162 of Makati in Civil Case
defined in the order issued by the court. (citing Section 9, [N]o. 06-944.
Rule on Summary Procedure)
Petitioner further submits that the Court of Appeals erred in
giving relief to the private respondent despite the lack of
cause of action in its complaint against the petitioner herein.
Thus, finding the amount claimed to be warranted by the allegations in the [14]

complaint, the CA, in its September 4, 2007 Decision, reversed the trial
courts decision and ordered petitioner and her husband to pay the said
Petitioner contends that the Revised Rule on Summary Procedure
amount plus interests, thus:
WHEREFORE, the DECISION DATED MARCH 12, does not warrant the automatic grant of relief in favor of the plaintiff when
2007 is REVERSED AND SET ASIDE. the complaint fails to state a cause of action. She avers that respondents

The respondents are ORDERED to pay, jointly and complaint fails to state a cause of action; hence, no relief can be given to
severally, to the petitioner the amount of P138,502.92, plus respondent. Petitioner points out that the sales invoices formed part of the
interest of 6% per annum from the filing of the complaint complaint and should be considered in determining whether respondent has a
until this judgment becomes final and executory, and
12% per annum upon finality of this judgment until full cause of action against her. Consideration of the said sales invoices, she
payment. avers, would show that there is no contractual relationship between her and

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respondent; the invoices did not indicate in any way that petitioner was liable documents should only be taken in the context of ascertaining the sufficiency
for the amount stated therein. of the allegations in the complaint.

Petitioner is correct in saying that no relief can be awarded to Petitioner argues that the complaint fails to state a cause of action
respondent if its complaint does not state a cause of action. Indeed, if the since reference to the sales invoices attached to and cited in paragraph six of
complaint does not state a cause of action, then no relief can be granted to the
plaintiff and it would necessarily follow that the allegations in the complaint the Complaint shows that it was not her who purchased and received the
would not warrant a judgment favorable to the plaintiff. goods from respondent.

The basic requirement under the rules of procedure is that a Contrary to petitioners stance, we find that the Complaint sufficiently
complaint must make a plain, concise, and direct statement of the ultimate states a cause of action. The following allegations in the complaint
facts on which the plaintiff relies for his claim. [15] Ultimate facts mean the adequately make up a cause of action for collection of sum of money against
important and substantial facts which either directly form the basis of the petitioner: (1) that petitioner and her husband obtained beer and other
plaintiffs primary right and duty or directly make up the wrongful acts or products worth a total of P138,502.92 on credit from respondent; and (2) that
[16]
omissions of the defendant. They refer to the principal, determinative, they refused to pay the said amount despite demand.
constitutive facts upon the existence of which the cause of action rests. The
term does not refer to details of probative matter or particulars of evidence As correctly held by the CA, the sales invoices are not actionable
which establish the material elements. [17] documents. They were not the bases of respondents action for sum of money
but were attached to the Complaint only to provide details on the alleged
The test of sufficiency of the facts alleged in a complaint to transactions. They were evidentiary in nature and not even necessary to be
constitute a cause of action is whether, admitting the facts alleged, the court stated or cited in the Complaint.
could render a valid judgment upon the same in accordance with the prayer
of the petition or complaint.[18] To determine whether the complaint states a At any rate, consideration of the attached sales invoices would not
cause of action, all documents attached thereto may, in fact, be considered, change our conclusion. The sales invoices, naming Total as the purchaser of
[19]
particularly when referred to in the complaint. We emphasize, however, the goods, do not absolutely foreclose the probability of petitioner being
that the inquiry is into the sufficiency, not the veracity of the material liable for the amounts reflected thereon. An invoice is nothing more than a
[20]
allegations in the complaint. Thus, consideration of the annexed detailed statement of the nature, quantity, and cost of the thing sold and has
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been considered not a bill of sale. [21] Had the case proceeded further,
respondent could have presented evidence linking these sales invoices to
petitioner.

In Pea v. Court of Appeals,[22] petitioners therein likewise argued that


the sales invoices did not show that they had any involvement in the
transactions covered by the same. What the Court said in reply to this
argument bolsters our view in this petition:

Although it appears in the other sales invoices that


the petitioners were the salespersons who brokered the sales
of the products covered by the said sales invoices to the
vendees therein named, the said entries are not conclusive of
the extent and the nature of the involvement of the
petitioners in the sales of the products under the said sales
invoices which are not absolutely binding. They may be
explained and put to silence by all the facts and
circumstances characterizing the true import of the dealings
to which they refer. The facts contained in the said sales
invoices may be contradicted by oral testimony. [23]

WHEREFORE, premises considered, the Court of Appeals


Decision dated September 4, 2007 and Resolution dated January 31, 2008
are AFFIRMED.

SO ORDERED.

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Mongao and respondent corporation executed a Memorandum of
Agreement[4] on December 20, 1993, wherein the former agreed to sell to
the latter for the total price of Five Million Twenty-Eight Thousand Eight
Hundred Pesos (P5,028,800.00) a parcel of land in Polomolok, South
SECOND DIVISION Cotabato covered by Transfer Certificate of Title (TCT) No. T-22186[5]
registered in the name of petitioner Mongao only. In accordance with the
[G.R. No. 156474. August 16, 2005] terms and conditions of the Memorandum of Agreement, respondent
corporation allegedly paid petitioners the sum of Five Hundred Fifty
PESANE ANIMAS MONGAO, joined by her husband BENHUR Thousand Pesos (P550,000.00) as earnest money considered as part of the
MONGAO, petitioners, vs. PRYCE PROPERTIES CORPORATION, purchase price. The complaint further alleged that after considerable delay,
respondent. respondent corporation offered to pay the balance of the purchase price by
issuing a check payable to petitioner Mongao and her mother, Nellie Animas,
DECISION which the former rejected. Allegedly, respondent corporation continuously
refused to heed petitioners written and oral demands to pay the balance solely
TINGA, J.: to petitioner Mongao.

Before the Court is a petition for review on certiorari under Rule 45 of the The complaint also denied that petitioner Mongao executed a Deed of
Rules of Civil Procedure assailing the Decision[1] of the Court of Appeals in Absolute Sale dated November 15, 1994 in favor of respondent corporation,
CA-G.R. CV No. 52753, which reversed the trial courts judgment on the the registration of which caused the cancellation of TCT No. T-22186 in the
pleadings and remanded the case thereto for trial on the merits, and the name of petitioner Mongao and the issuance of TCT No. T-62944. In addition
Resolution[2] denying petitioners motion for reconsideration. to petitioners prayer for the rescission of the Memorandum of Agreement and
the Deed of Absolute Sale and the forfeiture of the earnest money paid by
The instant petition originated from a complaint for rescission and damages respondent corporation, the complaint also asked for the award of moral and
filed on February 14, 1995 by petitioners, Spouses Pesane Animas Mongao exemplary damages and attorneys fees.
(hereafter referred to as petitioner Mongao) and Benhur Mongao, against
respondent Pryce Properties Corporation before the Regional Trial Court Respondent corporation filed an answer and refuted petitioners allegations
(RTC) in General Santos City.[3] The complaint alleged that petitioner with a narration of the factual antecedents leading to the perfection of the
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contract of sale.[6] It claimed that sometime in 1993, a certain Pedro Animas issuing a check in the amount of Three Million Three Hundred Fifty-Seven
IV approached Sonito N. Mole, an officer of respondent corporation, and Pesos and Eighty-Seven Centavos (P3,353,357.84) payable to the order of
negotiated the sale of properties belonging to the Animas family which were petitioner Mongao and her mother, Nellie Animas, which was however
on the verge of being foreclosed by the bank. Respondent corporation further refused by petitioner Mongao.
claimed that the subject property was one of the two parcels of land it
selected for purchase. Said property covered by TCT No. T-22186 allegedly The answer also admitted that due to the demands of both petitioner Mongao
belonged to petitioner Mongaos parents but was registered in petitioner and the Animas family, respondent corporation was constrained to deposit the
Mongaos name as a trustee thereof. payment with the Clerk of Court of the RTC of Davao City. By way of a
compulsory counterclaim, respondent corporation prayed that petitioners be
Respondent corporation averred that the true agreement between respondent adjudged liable for attorneys fees for their hasty and unjustified institution of
corporation and the Animas family was for the former to purchase the two the case.
parcels of land belonging to the late Pedro Animas, father of petitioner
Mongao. It admitted the execution of the Memorandum of Agreement but Petitioners moved for judgment on the pleadings on the ground that the
qualified that respondent corporation did not pay the earnest money directly answer admitted the material allegations of the complaint and, therefore,
and solely to petitioner Mongao. Said earnest money was allegedly part of failed to tender an issue.[7] In particular, the answer allegedly admitted the
the amount directly paid by respondent corporation to the Development Bank existence of the contract of sale and respondent corporations refusal to satisfy
of the Philippines in order to redeem certain properties of the Animas family the unpaid balance of the purchase price despite demand. Petitioners
which were foreclosed and sold at a public auction. contended that respondent corporation cannot avoid rescission by raising the
defense that it contracted with the Animas family and not solely with
Respondent corporation averred that petitioner Mongao and Pedro Animas, petitioner Mongao. Petitioners belied respondent corporations claim for
Jr., the registered owners of the subject properties, executed simultaneously consignation by attaching a letter from the Office of the Clerk of Court of the
the corresponding Deed of Sale and Memorandum of Agreement after RTC of Davao City to the effect that the court could not act on petitioners
respondent corporations representative delivered the checks to the bank as motion to deny consignation because the deposit was transmitted through a
payment for redemption of the properties. Controversy arose after respondent mere letter, hence, the case was not raffled to a particular branch of the court.
corporation had allegedly manifested its intent to complete payments but [8]
petitioner Mongao demanded that payment be made to her alone to the
exclusion of the rest of the Animas family. Respondent corporation admitted
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Respondent corporation opposed petitioners motion for judgment on the With the adverse decision, respondent corporation elevated the case to the
pleadings, arguing that two material allegations in the complaint, namely: Court of Appeals, which reversed the trial courts Decision and remanded the
that petitioner Mongao did not execute the Deed of Sale and that petitioner case for trial on the merits through its Decision promulgated on March 22,
Mongao was the owner of the subject property, were disputed in the answer. 2001.[12] On the main issue of whether or not judgment on the pleadings
[9] was proper, the Court of Appeals ruled in the negative, finding that there
were actual issues raised in the answer requiring the presentation and
The trial court granted petitioners motion for judgment on the pleadings and assessment of evidence. The appellate court opined that aside from the
considered the case submitted for decision. The trial court rendered a amount of damages claimed by both parties, the following were also put in
Decision[10] on November 13, 1995. The dispositive portion thereof reads: issue: (1) the genuineness of the Deed of Sale purportedly executed by
petitioner Mongao, and (2) the nature of petitioner Mongaos title to the
WHEREFORE, premises considered, the Memorandum of Agreement dated subject property. The Court of Appeals also ruled against the trial courts
20 December 1993, as well as the Deed of Absolute Sale entered into interference with the consignation case pending before the RTC of Davao
between plaintiff Pesane Animas Mongao and defendant Pryce Properties City but did not find petitioners guilty of forum-shopping in filing the action
Corporation dated November 15, 1994, are hereby declared rescinded. As a for rescission despite the pendency of the consignation case with the RTC of
consequence thereof, Pryce Properties Corporation is directed to execute a Davao City.
Deed of Reconveyance of the property covered by TCT No. T-62944 in favor
of Pesane Animas and to pay attorneys fees in the amount of P50,000.00 as Petitioners moved for the reconsideration of the Court of Appeals Decision
well as costs of suit, by way of damages. but the same was denied in a Resolution dated November 25, 2002. Hence,
this petition for review, raising the following issues:
On the other hand plaintiff Pesane Animas Mongao is likewise directed to
return to the defendant Pryce Properties Corporation, what she had received A. WHETHER OR NOT THE MERE DEPOSIT OF A CHECK PAYABLE
by virtue of the contract in the amount of P1,675,442.16, a portion of which TO TWO PERSONS, ONE OF WHOM IS A THIRD PARTY AND/OR A
may be compensated to the damages herein awarded pursuant to Article 1278 STRANGER TO THE TRANSACTION, AND THE RELEASE OF WHICH
of the New Civil Code. IS SUBJECT TO CERTAIN CONDITIONS CONSTITUTES
CONSIGNATION.
SO ORDERED.[11]

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B. WHETHER OR NOT JUDGMENT ON THE PLEADINGS IS PROPER
IN THIS CASE.[13] Thus, there is joinder of issues when the answer makes a specific denial of
the material allegations in the complaint or asserts affirmative defenses
The main issue for this Courts resolution is the propriety of the trial courts which would bar recovery by the plaintiff. Where there is proper joinder of
judgment on the pleadings on the ground that respondent corporations issues, the trial court is barred from rendering judgment based only on the
allegation did not tender an issue. pleadings filed by the parties and must conduct proceedings for the reception
of evidence. On the other hand, an answer fails to tender an issue where the
Judgment on the pleadings is governed by Section 1, Rule 34 of the 1997 allegations admit the allegations in support of the plaintiffs cause of action or
Rules of Civil Procedure, essentially a restatement of Section 1, Rule 19 of fail to address them at all. In either case, there is no genuine issue and
the 1964 Rules of Court then applicable to the proceedings before the trial judgment on the pleadings is proper.
court. Section 1, Rule 19 of the Rules of Court provides that where an answer
fails to tender an issue, or otherwise admits the material allegations of the Petitioners action for rescission is mainly based on the alleged breach by
adverse party's pleading, the court may, on motion of that party, direct respondent corporation of its contractual obligation under the Memorandum
judgment on such pleading. The answer would fail to tender an issue, of of Agreement when respondent refused to effect payment of the purchase
course, if it does not comply with the requirements for a specific denial set price solely to petitioner Mongao. The complaint pertinently alleged the
out in Section 10[14] (or Section 8)[15] of Rule 8; and it would admit the following:
material allegations of the adverse party's pleadings not only where it
expressly confesses the truthfulness thereof but also if it omits to deal with 4. Plaintiff Pesane Animas Mongao is the registered owner in fee simple of a
them at all.[16] parcel of land more particularly described as: . . . .

Now, if an answer does in fact specifically deny the material averments of the 5. In a Memorandum of Agreement dated 20 December 1993 and entered in
complaint in the manner indicated by said Section 10 of Rule 8, and/or the Notarial Register of Atty. Rosalio C. Cario, as Document No. 75, Page
asserts affirmative defenses (allegations of new matter which, while No. 15, Book No. II, Series of 1993; plaintiff Pesane Animas Mongao agreed
admitting the material allegations of the complaint expressly or impliedly, to sell the aforesaid parcel of land to defendant (copy of the Memorandum of
would nevertheless prevent or bar recovery by the plaintiff) in accordance Agreement is attached as Annex B);
with Sections 4[17] and 5[18] of Rule 6, a judgment on the pleadings would
naturally not be proper.[19]
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6. As earnest money, defendant paid to plaintiff Pesane Animas Mongao, and As to how respondent corporation allegedly breached its contractual
in her sole name, the amount of P550,000.00; obligation under the Memorandum of Agreement is illustrated by the
following averments in the complaint:
. . . .[20]
7. Subsequent to the execution of the Memorandum of Agreement, defendant
On the other hand, nothing from the allegations in respondent corporations corporation after considerable delay offered to pay the balance of the
answer makes out a proper joinder of issues. Petitioners cause of action for purchase price net of still undetermined and undisclosed deductions, this time
rescission is founded mainly on a perfected contract of sale allegedly entered in the name of both plaintiff Pesane Animas Mongao and that of her mother;
into between petitioners and respondent corporation as embodied in the
Memorandum of Agreement attached to the complaint. First, the allegations 8. Plaintiff Pesane Animas Mongao justifiably refused to accept payment
in respondent corporations answer do not make out a specific denial that a under the conditions unilaterally imposed by defendant corporation;
contract of sale was perfected between the parties. Second, respondent
corporation does not contest the due execution and/or genuineness of said 9. Several demands, both written and oral, were conveyed by plaintiffs to
Memorandum of Agreement. In fact, paragraph 1 of the answer categorically defendant corporation to pay the balance immediately, directly and solely to
admits paragraph 5 of the complaint, thus: plaintiff Pesane Animas Mongao, but defendant corporation, in patent breach
of its contractual obligation, refused;[23]
1. Paragraphs 1, 2, 3, and 5 of the Complaint are admitted.[21]
The answer denied the aforequoted allegations and asserted that there was an
Paragraph 5 of the complaint referred to above states: earlier understanding between the parties, the substance of which was not
clearly expressed in the following averments:
5. In a Memorandum of Agreement dated 20 December 1993 and entered in
the Notarial Register of Atty. Rosalio C. Cario, as Document No. 75, Page 4. Paragraph 7 of the Complaint is denied, the truth of the matter being those
No. 15, Book No. II, Series of 1993; plaintiff Pesane Animas Mongao agreed stated in the Special and Affirmative Defenses in this Answer.
to sell the aforesaid parcel of land to defendant (copy of the Memorandum of
Agreement is attached as Annex B);[22] 5. Paragraph 8 of the Complaint is denied, the truth of the matter being that
plaintiffs refusal to accept payment was not justified and was contrary to the
earlier understanding and agreement of the parties.
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defendant by way consignment with the Clerk of Court of the Regional
6. Paragraph 9 of the Complaint is admitted, except for the allegation that Court, 11th Judicial Region.[25]
defendant was in patent breach of its contractual obligation, the truth of the
matter being that defendants refusal was in accordance with its contractual Effectively, the aforequoted averments imply an admission by respondent
obligation.[24] corporation that it effected payment contrary to the express terms of the
contract of sale. Nowhere in the terms of the Memorandum of Agreement
Respondent corporation offered the affirmative defense that the separate does it state that the payment of the purchase price be tendered to any person
demands of petitioner Mongao and the Animas family compelled it to issue other than petitioner Mongao. The averment virtually admits petitioners
the check payable to both petitioner Mongao and her mother, to wit: allegation that respondent corporation committed a breach of its contractual
obligation to petitioners and supports their cause of action for rescission.
16. That in so far as Pedro Animas, Jr., was concerned, he did not object to Indeed, the drawing of the check payable to the order of petitioner Mongao
payment being made to his brother and/or mother, but with respect to and Nellie Vda. de Animas would deprive petitioner Mongao of the exclusive
plaintiff Pesane Animas Mongao, it was then that the controversy began since benefit of the payment, thereby sharply deviating from the terms of the
plaintiff now demanded that payment be given to her alone to the exclusion contract of sale.
of the rest of the Animas family.
As earlier stated, an answer may allege affirmative defenses which may
17. That in order to play safe, defendant issued the check in the amount of strike down the plaintiffs cause of action. An affirmative defense is one
P3,353,357.84, payable to the order of plaintiff Pesane Animas Mongao and which is not a denial of an essential ingredient in the plaintiffs cause of
the surviving matriarch of the Animas Family in the person of Nellie vda. de action, but one which, if established, will be a good defensei.e. an
Animas. Plaintiff resented this arrangement and refused to accept payment "avoidance" of the claim.[26] Affirmative defenses include fraud, statute of
unless the check was made out to her alone. limitations, release payment, illegality, statute of frauds, estoppel, former
recovery, discharge in bankruptcy, and any other matter by way of confession
18. That since defendant was now receiving demands from plaintiff and the and avoidance. When the answer asserts affirmative defenses, there is proper
rest of the Animas Family (through Nellie vda. de Animas), defendant joinder of issues which must be ventilated in a full-blown trial on the merits
became confused on which was the proper party to receive payment and, on and cannot be resolved by a mere judgment on the pleadings. Allegations
January 18, 1995, the amount of P3,353,357.84 was deposited by the presented in the answer as affirmative defenses are not automatically
characterized as such. Before an allegation qualifies as an affirmative
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defense, it must be of such nature as to bar the plaintiff from claiming on his to pay the Bank in order to redeem the Animas family lands from the Bank,
cause of action. For easy reference, respondent corporations affirmative the written agreements outlining the terms of the purchase by defendant of
defenses shall be laid out in full: the lands, and the deeds of absolute sale for the lands that defendant intended
to purchase.
SPECIAL AND AFFIRMATIVE DEFENSES
12. That upon delivery of the checks to the Bank, plaintiff (and her husband),
9. That, sometime in the latter half of 1993, defendants officer, Sonito N. as well as Pedro Animas, Jr. (the registered owner of the other land purchased
Mole, was approached by a real estate broker who introduced Pedro Animas by the defendant) signed the necessary memoranda of agreement, as well as
IV who disclosed that his family (referring to his mother, brothers and the deeds of conveyances (deeds of absolute sale).
sisters) was on the verge of permanently losing to the Bank all of their family
properties. The Animas family desperately needed to sell some of the 13. That, in the meantime, a Notice of Lis Pendens was annotated in TCT No.
properties so that the rest could be saved. Thus, S.N. Mole, as representative T-22186 regarding Civil Case No. 5195 FOR: PARTITION then pending . . .
of the defendant, and Pedro Animas IV, as representative of the Animas and entitled PEDRO ANIMAS VI, Plaintiff, versus NELLIE ANIMAS,
Family, discussed and negotiated on what properties would be purchased and BALDOMERO ANIMAS, EDUARDO ANIMAS, PEDRO ANIMAS, JR.,
the terms of the purchase. PEDRO ANIMAS IV, PEDRO ANIMAS V, MARIVIC ANIMAS,
MARINEL ANIMAS LIM and PESANE ANIMAS, Defendants and, on May
10. That defendant was shown a sketch plan of what was referred to therein 23, 1994, judgment was rendered approving the Compromise Agreement,
as the ANIMAS SUBDIVISION situated at Matinao, Polomolok, South wherein the defendants will give plaintiff the amount of ONE HUNDRED
Cotabato and its corresponding Development Permit No. 01835 issued on THOUSAND (P100,000.00) PESOS upon the sale of their Matinao
January 10, 1985, covering TCT Nos. T-22186 and T-22188, for a residential properties in favor of PRYCE INC.
subdivision in the name of applicant/owner PEDRO ANIMAS, the late father
of the Complainant Pesane Animas Mongao. Because of their potential as 14. That in the middle of November, 1995 the lands subject of the purchase
residential subdivision, these very same two (2) parcels of land at Matinao by the defendant were finally issued clearances for transfer of title in favor
were the ones defendant chose to purchase. and in the name of the defendant.

11. That, sometime in December, 1993, the defendant, through S.N. Mole
went to General Santos City, bringing with him the two (2) checks necessary
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15. That in early December, 1995, plaintiff Pesane Animas Mongao and the 20. That since the start of the negotiations for the purchase of the lands, it
rest of the Animas Family were advised that defendant was ready to complete was made clear to the defendant that the properties were part of the estate of
payments in accordance with their Memorandum of Agreement. the deceased Judge Pedro Animas and his surviving wife Nellie vda. de
Animas and that the registered owners (the children) were merely holding the
16. That in so far as Pedro Animas, Jr., was concerned, he did not object to same in trust for the estate and Nellie vda. de Animas.
payment being made to his brother and/or mother, but with respect to
plaintiff Pesane Animas Mongao, it was then that the controversy began since 21. That no factual nor legal ground exists to support plaintiffs claim for
plaintiff now demanded that payment be given to her alone to the exclusion rescission of contract.
of the rest of the Animas Family.
22. That the complaint states no cause of action against the defendant.
17. That in order to play safe, defendant issued the check in the amount of
P3,353,357.84, payable to the order of plaintiff Pesane Animas Mongao and 23. That this suit actually involves conflicting claims among members of the
the surviving matriarch of the Animas Family in the person of Nellie vda. de same family.[27]
Animas. Plaintiff resented this arrangement and refused to accept payment
unless the check was made out to her alone. In essence, respondent corporation justifies its refusal to tender payment of
the purchase price solely to petitioner Mongao by alleging that the latter was
18. That since defendant was now receiving demands from plaintiff and the a mere trustee and not the beneficial owner of the property subject of the sale
rest of the Animas Family (through Nellie vda. de Animas), defendant and therefore not the proper party to receive payment. Such defense cannot
became confused on which was the proper party to receive payment and, on prevent petitioners from seeking the rescission of the contract of sale. The
January 18, 1995, the amount of P3,353,357.84 was deposited by the express terms of the Memorandum of Agreement, the genuineness and due
defendant by way consignment with the Clerk of Court of the Regional execution of which are not denied, clearly show that the contract of sale was
Court, 11th Judicial Region. executed only between petitioner Mongao and respondent corporation.
Where there is an apparent repudiation of the trust by petitioner Mongao,
19. The defendant is still ready and willing to cause the release of said such claim or defense may properly be raised only by the parties for whose
consignment amount (less consignment fees of the court) to whomsoever that benefit the trust was created. Respondent corporation cannot assert said
the Court may adjudge to be the proper party entitled to the amount. defense in order to resist petitioners claim for rescission where it has been
sufficiently shown by the allegations of the complaint and answer that
13
respondent corporation has breached its contractual obligation to petitioners. On the second issue, the mere consignment or deposit of the check to the
There being no material allegation in the answer to resist petitioners claim, Clerk of Court without observing the mandatory provisions of Articles 1256
the trial court correctly rendered judgment based on the pleadings submitted to 1257 of the New Civil Code, does not produce the effect of payment in
by the parties. order that the obligor or the defendant herein shall be released from the
obligation, hence, no payment of the unpaid balance of P3,533,357.84 has
The Court of Appeals enumerated certain factual controversies, which it actually been made. In fact it was noted by the Court that the deposit is even
believed can only be resolved after presentation of evidence, and these are: conditional, i.e. it should not be released without a court order.[28]
(1) whether or not petitioner Mongao executed the Deed of Absolute Sale in
favor of respondent corporation, and (2) whether or not petitioner Mongao is The records reveal that respondent corporation did not file any formal
the sole owner of the subject property. complaint for consignation but merely deposited the check with the Clerk of
Court. A formal complaint must be commenced with the trial court to provide
The Court finds that the determination of these factual questions is the proper venue for the determination if there is a valid tender of payment.
immaterial to the resolution of the main issue of whether or not there is a Strictly speaking, without the institution of an action for tender of payment
valid cause for rescission in light of respondents implied admissions of and consignation, the trial court cannot rule on whether or not respondent
certain allegations and the weakness of the affirmative defenses in the was justified in not effecting payment solely to petitioner Mongao.
answer. At the risk of being repetitious, respondent corporations answer
admitted that there was a perfected contract of sale between respondent and WHEREFORE, the instant petition for review is GRANTED. The Decision
petitioner Mongao and that respondent corporation refused to tender payment of the Court of Appeals in CA-G.R. CV No. 52753 is REVERSED and SET
of the purchase price solely to petitioner Mongao. These admissions clearly ASIDE and the Decision of the Regional Trial Court, Branch 35, General
make out a case for rescission of contract. Santos City in Civil Case No. 5545 is hereby REINSATED. Costs against
respondent.
On the peripheral issue of whether or not there was proper consignation of
the purchase price with the RTC of Davao City, the Court adopts the trial SO ORDERED.
courts finding that respondent corporation did not follow the procedure
required by law, to wit: Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ.,
concur.

14
AND DEVELOPMENT Promulgated:
CORPORATION,
Respondent. April 19, 2010
x - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION

CARPIO, J.:

The Case

Before the Court is a petition for review [1] assailing the 21 November 2005
Decision[2] of the Court of Appeals in CA-G.R. CV No. 82415.

The Antecedent Facts

Manuel C. Bungcayao, Sr. (petitioner) claimed to be one of the two


SECOND DIVISION entrepreneurs who introduced improvements on the foreshore area of
Calayab Beach in 1978 when Fort Ilocandia Hotel started its construction in
MANUEL C. BUNGCAYAO, SR., G.R. No. 170483
the area. Thereafter, other entrepreneurs began setting up their own stalls in
represented in this case by his
Attorney-in-fact ROMEL R. Present: the foreshore area. They later formed themselves into the DSierto Beach
BUNGCAYAO, Resort Owners Association, Inc. (DSierto).
Petitioner, CARPIO, J., Chairperson,
BRION,
DEL CASTILLO, In July 1980, six parcels of land in Barrio Balacad (now Calayad) were
- versus - ABAD, and
PEREZ, JJ. transferred, ceded, and conveyed to the Philippine Tourism Authority (PTA)
pursuant to Presidential Decree No. 1704. Fort Ilocandia Resort Hotel was
FORT ILOCANDIA erected on the area. In 1992, petitioner and other DSierto members applied
PROPERTY HOLDINGS,
for a foreshore lease with the Community Environment and Natural
15
Resources Office (CENRO) and was granted a provisional permit. On 31
January 2002, Fort Ilocandia Property Holdings and Development Petitioner alleged that his son, Manuel Bungcayao, Jr., who attended the
Corporation (respondent) filed a foreshore application over a 14-hectare area meeting, manifested that he still had to consult his parents about the offer but
abutting the Fort Ilocandia Property, including the 5-hectare portion applied upon the undue pressure exerted by Atty. Marcos, he accepted the payment
for by DSierto members. The foreshore applications became the subject and signed the Deed of Assignment, Release, Waiver and Quitclaim [6] in
matter of a conflict case, docketed Department of Environment and Natural favor of respondent.
Resources (DENR) Case No. 5473, between respondent and DSierto
members. In an undated Order,[3] DENR Regional Executive Director Victor Petitioner then filed an action for declaration of nullity of contract before the
J. Ancheta denied the foreshore lease applications of the DSierto members, Regional Trial Court of Laoag, City, Branch 13 (trial court), docketed as
including petitioner, on the ground that the subject area applied for fell either Civil Case Nos. 12891-13, against respondent. Petitioner alleged that his son
within the titled property or within the foreshore areas applied for by had no authority to represent him and that the deed was void and not binding
respondent. The DSierto members appealed the denial of their upon him.
[4]
applications. In a Resolution dated 21 August 2003, then DENR Secretary
Elisea G. Gozun denied the appeal on the ground that the area applied for Respondent countered that the area upon which petitioner and the other
encroached on the titled property of respondent based on the final DSierto members constructed their improvements was part of its titled
verification plan. property under Transfer Certificate of Title No. T-31182. Respondent alleged
that petitioners sons, Manuel, Jr. and Romel, attended the luncheon meeting
In a letter dated 18 September 2003, [5] respondent, through its Public on their own volition and they were able to talk to their parents through a
Relations Manager Arlene de Guzman, invited the DSierto members to a cellular phone before they accepted respondents offer. As a counterclaim,
luncheon meeting to discuss common details beneficial to all parties respondent prayed that petitioner be required to return the amount
concerned. Atty. Liza Marcos (Atty. Marcos), wife of Governor Bongbong of P400,000 from respondent, to vacate the portion of the respondents
Marcos, was present as she was asked by Fort Ilocandia hotel officials to property he was occupying, and to pay damages because his continued
mediate over the conflict among the parties. Atty. Marcos offered P300,000 refusal to vacate the property caused tremendous delay in the planned
as financial settlement per claimant in consideration of the improvements implementation of Fort Ilocandias expansion projects.
introduced, on the condition that they would vacate the area identified as
respondents property. A DSierto member made a counter-offer of P400,000, In an Order[7] dated 6 November 2003, the trial court confirmed the
to which the other DSierto members agreed. agreement of the parties to cancel the Deed of Assignment, Release, Waiver
16
and Quitclaim and the return of P400,000 to respondent. Petitioners counsel, by petitioner was within the titled property of respondent. The dispositive
however, manifested that petitioner was still maintaining its claim for portion of the trial courts decision reads:
damages against respondent.
WHEREFORE, the Court hereby renders judgment
DISMISSING the claim of plaintiff for damages as it is
Petitioner and respondent agreed to consider the case submitted for resolution found to be without legal basis, and finding the counterclaim
on summary judgment. Thus, in its Order[8] dated 28 November 2003, the of the defendant for recovery of possession of the lot
occupied by the plaintiff to be meritorious as it is hereby
trial court considered the case submitted for resolution. Petitioner filed a GRANTED. Consequently, the plaintiff is hereby directed to
motion for reconsideration, alleging that he manifested in open court that he immediately vacate the premises administratively
adjudicated by the executive department of the government
was withdrawing his earlier manifestation submitting the case for
in favor of the defendant and yield its possession unto the
resolution. Respondent filed a Motion for Summary Judgment. defendant. No pronouncement is here made as yet of the
damages claimed by the defendant.

The trial court rendered a Summary Judgment[9] dated 13 February 2004. SO ORDERED.[10]

The Decision of the Trial Court Petitioner appealed from the trial courts decision.

The trial court ruled that the only issue raised by petitioner was his claim for The Decision of the Court of Appeals
damages while respondents issue was only his claim for possession of the
property occupied by petitioner and damages. The trial court noted that the In its 21 November 2005 Decision, the Court of Appeals affirmed the trial
parties already stipulated on the issues and admissions had been made by courts decision in toto.
both parties. The trial court ruled that summary judgment could be rendered
on the case. The Court of Appeals sustained the trial court in resorting to summary
judgment as a valid procedural device for the prompt disposition of actions
in which the pleadings raise only a legal issue and not a genuine issue as to
The trial court ruled that the alleged pressure on petitioners sons could not any material fact. The Court of Appeals ruled that in this case, the facts are
constitute force, violence or intimidation that could vitiate consent. As not in dispute and the only issue to be resolved is whether the subject
regards respondents counterclaim, the trial court ruled that based on the
pleadings and admissions made, it was established that the property occupied
17
property was within the titled property of respondent. Hence, summary 2. Whether summary judgment is appropriate in
judgment was properly rendered by the trial court. this case.

The Court of Appeals ruled that the counterclaims raised by respondent were The Ruling of this Court
compulsory in nature, as they arose out of or were connected with the
transaction or occurrence constituting the subject matter of the opposing The petition has merit.
partys claim and did not require for its adjudication the presence of third
parties of whom the court could not acquire jurisdiction. The Court of Compulsory Counterclaim
Appeals ruled that respondent was the rightful owner of the subject property
and as such, it had the right to recover its possession from any other person A compulsory counterclaim is any claim for money or any relief, which a
to whom the owner has not transmitted the property, including petitioner. defending party may have against an opposing party, which at the time of suit
arises out of, or is necessarily connected with, the same transaction or
The dispositive portion of the Court of Appeals decision reads: occurrence that is the subject matter of the plaintiffs complaint. [13] It is
compulsory in the sense that it is within the jurisdiction of the court, does not
WHEREFORE, the assailed decision dated February 13, require for its adjudication the presence of third parties over whom the court
2004 of the Regional Trial Court of Laoag City, Branch 13 is
hereby AFFIRMED in toto. cannot acquire jurisdiction, and will be barred in the future if not set up in

[11]
the answer to the complaint in the same case. [14] Any other counterclaim is
SO ORDERED.
permissive.[15]

Thus, the petition before this Court.


The Court has ruled that the compelling test of compulsoriness characterizes
a counterclaim as compulsory if there should exist a logical relationship
The Issues
between the main claim and the counterclaim. [16] The Court further ruled that
there exists such a relationship when conducting separate trials of the
Petitioner raises the following issues in his Memorandum: [12]
respective claims of the parties would entail substantial duplication of time
and effort by the parties and the court; when the multiple claims involve the
1. Whether respondents counterclaim is
same factual and legal issues; or when the claims are offshoots of the same
compulsory; and
basic controversy between the parties.[17]
18
Manuel, Jr. entered into an agreement with respondent since the agreement
The criteria to determine whether the counterclaim is compulsory or was null and void.
permissive are as follows:
Respondent filed three counterclaims. The first was for recovery of
(a) Are issues of fact and law raised by the claim and by the the P400,000 given to Manuel, Jr.; the second was for recovery of possession
counterclaim largely the same?
of the subject property; and the third was for damages. The first counterclaim
(b) Would res judicata bar a subsequent suit on defendants was rendered moot with the issuance of the 6 November 2003 Order
claim, absent the compulsory rule?
confirming the agreement of the parties to cancel the Deed of Assignment,
(c) Will substantially the same evidence support or Release, Waiver and Quitclaim and to return the P400,000 to
refute plaintiffs claim as well as defendants counterclaim?
respondent. Respondent waived and renounced the third counterclaim for
(d) Is there any logical relations between the claim damages.[19] The only counterclaim that remained was for the recovery of
and the counterclaim? possession of the subject property. While this counterclaim was an offshoot
of the same basic controversy between the parties, it is very clear that it will
A positive answer to all four questions would indicate that the counterclaim not be barred if not set up in the answer to the complaint in the same
is compulsory.[18] case.Respondents second counterclaim, contrary to the findings of the trial
court and the Court of Appeals, is only a permissive counterclaim. It is not a
In this case, the only issue in the complaint is whether Manuel, Jr. is compulsory counterclaim. It is capable of proceeding independently of the
authorized to sign the Deed of Assignment, Release, Waiver and Quitclaim in main case.
favor of respondent without petitioners express approval and authority. In an
Order dated 6 November 2003, the trial court confirmed the agreement of the The rule in permissive counterclaim is that for the trial court to acquire
parties to cancel the Deed of Assignment, Release, Waiver and Quitclaim and jurisdiction, the counterclaimant is bound to pay the prescribed docket fees.
[20]
the return of P400,000 to respondent. The only claim that remained was the Any decision rendered without jurisdiction is a total nullity and may be
claim for damages against respondent.The trial court resolved this issue by struck down at any time, even on appeal before this Court. [21] In this case,
holding that any damage suffered by Manuel, Jr. was personal to him. The respondent did not dispute the non-payment of docket fees. Respondent only
trial court ruled that petitioner could not have suffered any damage even if insisted that its claims were all compulsory counterclaims. As such, the
judgment by the trial court in relation to the second counterclaim is

19
considered null and void[22] without prejudice to a separate action which moving party is entitled to a judgment as a matter of law. A
summary judgment is proper if, while the pleadings on their
respondent may file against petitioner. face appear to raise issues, the affidavits, depositions, and
admissions presented by the moving party show that such
issues are not genuine.[23]
Summary Judgment

Since we have limited the issues to the damages claimed by the parties,
Section 1, Rule 35 of the 1997 Rules of Civil Procedure provides:
summary judgment has been properly rendered in this case.
Section 1. Summary Judgment for claimant. - A party
seeking to recover upon a claim, counterclaim, or cross- WHEREFORE, we MODIFY the 21 November 2005 Decision of the Court
claim or to obtain a declaratory relief may, at any time after
the pleading in answer thereto has been served, move with of Appeals in CA-G.R. CV No. 82415 which affirmed the 13 February 2004
supporting affidavits, depositions or admissions for a Decision of the Regional Trial Court of Laoag City, Branch 13, insofar as it
summary judgment in his favor upon all or any part thereof. ruled that respondents counterclaim for recovery of possession of the subject
property is compulsory in nature. We DISMISS respondents permissive
Summary judgment has been explained as follows: counterclaim without prejudice to filing a separate action against petitioner.

Summary judgment is a procedural device resorted to in


order to avoid long drawn out litigations and useless SO ORDERED.
delays. When the pleadings on file show that there are no
genuine issues of fact to be tried, the Rules allow a party to
obtain immediate relief by way of summary judgment, that
is, when the facts are not in dispute, the court is allowed to
decide the case summarily by applying the law to the
material facts. Conversely, where the pleadings tender a
genuine issue, summary judgment is not proper. A genuine
issue is such issue of fact which requires the presentation of
evidence as distinguished from a sham, fictitious, contrived
or false claim. Section 3 of the said rule provides two (2)
requisites for summary judgment to be proper: (1) there must
be no genuine issue as to any material fact, except for the
amount of damages; and (2) the party presenting the motion
for summary judgment must be entitled to a judgment as a
matter of law. A summary judgment is permitted only if
there is no genuine issue as to any material fact and a
20
GOVERNMENT SERVICE INSURANCE G.R. Nos. 158090
SYSTEM (GSIS),
Petitioner, Present:

VELASCO, JR.,*
- versus - NACHURA,** J., Acting
Chairperson,
PERALTA,
MENDOZA, and
HEIRS OF FERNANDO F. CABALLERO, SERENO,*** JJ.
represented by his daughter, JOCELYN G.
CABALLERO,
Respondents. Promulgated:
October 4, 2010
x-----------------------------------------------------------------------------------------x

Republic of the Philippines


DECISION
Supreme Court
Manila PERALTA, J.:

Before this Court is a petition for review on certiorari under Rule 45 of the
SECOND DIVISION
Rules of Court seeking to set aside the Decision[1] and the Resolution,[2] dated
December 17, 2002 and April 29, 2003, respectively, of the Court of Appeals
(CA) in CA-G.R. CV. No. 49300.

21
The antecedents are as follows: 1975. Consequently, TCT No. T-16035 was cancelled and TCT No. T-45874
was issued in the name of petitioner.

On November 26, 1975, petitioner wrote a letter to Fernando, informing him


Respondent Fernando C. Caballero (Fernando) was the registered owner of a
of the consolidation of title in its favor, and requesting payment of monthly
residential lot designated as Lot No. 3355, Ts-268, covered by TCT No. T-
rental in view of Fernando's continued occupancy of the subject property. In
16035 of the Register of Deeds of Cotabato, containing an area of 800 square
reply, Fernando requested that he be allowed to repurchase the same through
meters and situated at Rizal Street, Mlang, Cotabato. On the said lot,
partial payments. Negotiation as to the repurchase by Fernando of the subject
respondent built a residential/commercial building consisting of two (2)
property went on for several years, but no agreement was reached between
stories.
the parties.

On March 7, 1968, Fernando and his wife, Sylvia Caballero, secured a loan
On January 16, 1989, petitioner scheduled the subject property for public
from petitioner Government Service Insurance System (GSIS) in the amount
bidding. On the scheduled date of bidding, Fernando's daughter, Jocelyn
ofP20,000.00, as evidenced by a promissory note. Fernando and his wife
Caballero, submitted a bid in the amount of P350,000.00, while Carmelita
likewise executed a real estate mortgage on the same date, mortgaging the
Mercantile Trading Corporation (CMTC) submitted a bid in the amount
afore-stated property as security.
of P450,000.00. Since CMTC was the highest bidder, it was awarded the
Fernando defaulted on the payment of his loan with the GSIS. Hence, on subject property. On May 16, 1989, the Board of Trustees of the GSIS issued
January 20, 1973, the mortgage covering the subject property was foreclosed, Resolution No. 199 confirming the award of the subject property to CMTC
and on March 26, 1973, the same was sold at a public auction where the for a total consideration of P450,000.00. Thereafter, a Deed of Absolute Sale
petitioner was the only bidder in the amount of P36,283.00. For failure of was executed between petitioner and CMTC on July 27, 1989, transferring
Fernando to redeem the said property within the designated period, petitioner the subject property to CMTC. Consequently, TCT No. T-45874 in the name
executed an Affidavit of Consolidation of Ownership on September 5, of GSIS was cancelled, and TCT No. T-76183 was issued in the name of
CMTC.
22
than its primary purpose. Fernando further alleged that the GSIS allowed
CMTC to bid despite knowledge that said corporation has no authority to do
Due to the foregoing, Fernando, represented by his daughter and attorney-in-
so. The GSIS also disregarded Fernando's prior right to buy back his family
fact, Jocelyn Caballero, filed with the Regional Trial Court (RTC) of
home and lot in violation of the laws. The Register of Deeds of Cotabato
Kabacan, Cotabato a Complaint[3] against CMTC, the GSIS and its
acted with abuse of power and authority when it issued the TCT in favor of
responsible officers, and the Register of Deeds of Kidapawan,
CMTC without requiring the CMTC to submit its supporting papers as
Cotabato. Fernando prayed, among others, that judgment be rendered:
required by the law.
declaring GSIS Board of Trustees Resolution No. 199, dated May 16, 1989,
null and void; declaring the Deed of Absolute Sale between petitioner and
CMTC null and void ab initio; declaring TCT No. 76183 of the Register of
Petitioner and its officers filed their Answer with Affirmative Defenses and
Deeds of Kidapawan, Cotabato, likewise, null and void ab initio; declaring
Counterclaim.[4] The GSIS alleged that Fernando lost his right of
the bid made by Fernando in the amount of P350,000.00 for the repurchase
redemption. He was given the chance to repurchase the property; however, he
of his property as the winning bid; and ordering petitioner to execute the
did not avail of such option compelling the GSIS to dispose of the property
corresponding Deed of Sale of the subject property in favor of Fernando. He
by public bidding as mandated by law. There is also no prior right to buy
also prayed for payment of moral damages, exemplary damages, attorney's
back that can be exercised by Fernando. Further, it averred that the articles of
fees and litigation expenses.
incorporation and other papers of CMTC were all in order. In its
counterclaim, petitioner alleged that Fernando owed petitioner the sum
of P130,365.81, representing back rentals, including additional interests from
In his complaint, Fernando alleged that there were irregularities in the
January 1973 to February 1987, and the additional amount of P249,800.00,
conduct of the bidding. CMTC misrepresented itself to be wholly owned by
excluding applicable interests, representing rentals Fernando unlawfully
Filipino citizens. It misrepresented its working capital. Its representative
collected from Carmelita Ang Hao from January 1973 to February 1988.
Carmelita Ang Hao had no prior authority from its board of directors in an
appropriate board resolution to participate in the bidding. The corporation is
not authorized to acquire real estate or invest its funds for purposes other
23
After trial, the RTC, in its Decision [5] dated September 27, 1994, ruled in They prayed that they be allowed to be substituted for the deceased, as
favor of petitioner and dismissed the complaint. In the same decision, the respondents in this case.
trial court granted petitioner's counterclaim and directed Fernando to pay
petitioner the rentals paid by CMTC in the amount of P249,800.00. The
foregoing amount was collected by Fernando from the CMTC and represents Petitioner enumerated the following grounds in support of its petition:

payment which was not turned over to petitioner, which was entitled to
receive the rent from the date of the consolidation of its ownership over the I

subject property. THE HONORABLE COURT OF APPEALS COMMITTED


AN ERROR OF LAW IN HOLDING THAT GSIS'
Fernando filed a motion for reconsideration, which was denied by the RTC in COUNTERCLAIM, AMONG OTHERS, OF P249,800.00
REPRESENTING RENTALS COLLECTED BY PRIVATE
an Order dated March 27, 1995. RESPONDENT FROM CARMELITA MERCANTILE
TRADING CORPORATION IS IN THE NATURE OF A
PERMISSIVE COUNTERCLAIM WHICH REQUIRED
THE PAYMENT BY GSIS OF DOCKET FEES BEFORE
Aggrieved by the Decision, respondent filed a Notice of Appeal. [6] The CA, THE TRIAL COURT CAN ACQUIRE JURISDICTION
OVER SAID COUNTERCLAIM.
in its Decision dated December 17, 2002, affirmed the decision of the RTC
with the modification that the portion of the judgment ordering Fernando to
II
pay rentals in the amount of P249,800.00, in favor of petitioner, be deleted.
Petitioner filed a motion for reconsideration, which the CA denied in a THE HONORABLE COURT OF APPEALS COMMITTED
AN ERROR OF LAW IN HOLDING THAT GSIS'
Resolution dated April 29, 2003. Hence, the instant petition. DOCUMENTARY EVIDENCE SUPPORTING ITS CLAIM
OFP249,800.00 LACKS PROPER IDENTIFICATION.[8]

An Ex Parte Motion for Substitution of Party, [7] dated July 18, 2003, was
filed by the surviving heirs of Fernando, who died on February 12, 2002.

24
The petition of the GSIS seeks the review of the CA's Decision insofar as it discretionary appellate jurisdiction.[10] Said resolution became final and
deleted the trial court's award of P249,800.00 in its favor representing rentals executory on June 9, 2003.[11] Respondents attempt to re-
collected by Fernando from the CMTC. litigate claims already passed upon and resolved with finality by the Court in
G.R. No. 156609 cannot be allowed.

In their Memorandum, respondents claim that CMTC cannot purchase real


estate or invest its funds in any purpose other than its primary purpose for Going now to the first assigned error, petitioner submits that its counterclaim
which it was organized in the absence of a corporate board resolution; the bid for the rentals collected by Fernando from the CMTC is in the nature of a
award, deed of absolute sale and TCT No. T-76183, issued in favor of the compulsory counterclaim in the original action of Fernando against petitioner
CMTC, should be nullified; the trial court erred in concluding that GSIS for annulment of bid award, deed of absolute sale and TCT No. 76183.
personnel have regularly performed their official duty when they conducted Respondents, on the other hand, alleged that petitioner's counterclaim is
the public bidding; Fernando, as former owner of the subject property and permissive and its failure to pay the prescribed docket fees results into the
former member of the GSIS, has the preemptive right to repurchase the dismissal of its claim.
foreclosed property.
To determine whether a counterclaim is compulsory or not, the Court has
devised the following tests: (a) Are the issues of fact and law raised by the
claim and by the counterclaim largely the same? (b) Would res judicata bar a
These additional averments cannot be taken cognizance by the Court,
subsequent suit on defendants claims, absent the compulsory counterclaim
because they were substantially respondents arguments in their petition for
rule? (c) Will substantially the same evidence support or refute plaintiffs
review on certiorariearlier filed before Us and docketed as G.R. No. 156609.
claim as well as the defendants counterclaim? and (d) Is there any logical
Records show that said petition was denied by the Court in a
relation between the claim and the counterclaim? A positive answer to all
Resolution[9] dated April 23, 2003, for petitioners (respondents herein) failure
four questions would indicate that the counterclaim is compulsory. [12]
to sufficiently show that the Court of Appeals committed any reversible error
in the challenged decision as to warrant the exercise by this Court of its

25
Tested against the above-mentioned criteria, this Court agrees with the CA's
view that petitioner's counterclaim for the recovery of the amount Petitioner further argues that assuming that its counterclaim is permissive,
representing rentals collected by Fernando from the CMTC is the trial court has jurisdiction to try and decide the same, considering
permissive. The evidence needed by Fernando to cause the annulment of the petitioner's exemption from all kinds of fees.
bid award, deed of absolute sale and TCT is different from that required to
establish petitioner's claim for the recovery of rentals. In In Re: Petition for Recognition of the Exemption of the Government
Service Insurance System from Payment of Legal Fees,[15] the Court ruled that
The issue in the main action, i.e., the nullity or validity of the bid award, deed
the provision in the Charter of the GSIS, i.e., Section 39 of Republic Act No.
of absolute sale and TCT in favor of CMTC, is entirely different from the
8291, which exempts it from all taxes, assessments, fees, charges or duties of
issue in the counterclaim, i.e., whether petitioner is entitled to receive the
all kinds, cannot operate to exempt it from the payment of legal fees. This
CMTC's rent payments over the subject property when petitioner became the
was because, unlike the 1935 and 1973 Constitutions, which empowered
owner of the subject property by virtue of the consolidation of ownership of
Congress to repeal, alter or supplement the rules of the Supreme Court
the property in its favor.
concerning pleading, practice and procedure, the 1987 Constitution removed
The rule in permissive counterclaims is that for the trial court to acquire this power from Congress. Hence, the Supreme Court now has the sole
jurisdiction, the counterclaimant is bound to pay the prescribed docket fees. authority to promulgate rules concerning pleading, practice and procedure in
[13]
This, petitioner did not do, because it asserted that its claim for the all courts.
collection of rental payments was a compulsory counterclaim. Since
petitioner failed to pay the docket fees, the RTC did not acquire jurisdiction In said case, the Court ruled that:
over its permissive counterclaim. The judgment rendered by the RTC, insofar
as it ordered Fernando to pay petitioner the rentals which he collected from The separation of powers among the three co-equal
branches of our government has erected an impregnable wall
CMTC, is considered null and void. Any decision rendered without that keeps the power to promulgate rules of pleading,
jurisdiction is a total nullity and may be struck down at any time, even on practice and procedure within the sole province of this Court.
The other branches trespass upon this prerogative if they
appeal before this Court.[14] enact laws or issue orders that effectively repeal, alter or
26
modify any of the procedural rules promulgated by this the same has been left for determination by the court, the
Court. Viewed from this perspective, the claim of a additional filing fee therefor shall constitute a lien on the
legislative grant of exemption from the payment of legal fees judgment. It shall be the responsibility of the Clerk of Court
under Section 39 of RA 8291 necessarily fails. or his duly authorized deputy to enforce said lien and assess
and collect the additional fee.
Congress could not have carved out an exemption
for the GSIS from the payment of legal fees without In Ayala Corporation v. Madayag,[17] the Court, in interpreting the
transgressing another equally important institutional third rule laid down in Sun Insurance Office, Ltd. v. Judge
safeguard of the Court's independence − fiscal autonomy.
Fiscal autonomy recognizes the power and authority of the Asuncion regarding awards of claims not specified in the pleading, held that
Court to levy, assess and collect fees, including legal fees.
Moreover, legal fees under Rule 141 have two basic the same refers only to damages arising after the filing of the complaint or
components, the Judiciary Development Fund (JDF) and the similar pleading as to which the additional filing fee therefor shall constitute
Special Allowance for the Judiciary Fund (SAJF). The laws
which established the JDF and the SAJF expressly declare a lien on the judgment.
the identical purpose of these funds to "guarantee the
independence of the Judiciary as mandated by the The amount of any claim for damages, therefore,
Constitution and public policy." Legal fees therefore do not arising on or before the filing of the complaint or any
only constitute a vital source of the Court's financial pleading should be specified. While it is true that the
resources but also comprise an essential element of the determination of certain damages as exemplary or corrective
Court's fiscal independence. Any exemption from the damages is left to the sound discretion of the court, it is the
payment of legal fees granted by Congress to government- duty of the parties claiming such damages to specify the
owned or controlled corporations and local government units amount sought on the basis of which the court may make a
will necessarily reduce the JDF and the SAJF. Undoubtedly, proper determination, and for the proper assessment of the
such situation is constitutionally infirm for it impairs the appropriate docket fees. The exception contemplated as to
Court's guaranteed fiscal autonomy and erodes its claims not specified or to claims although specified are
independence. left for determination of the court is limited only to any
damages that may arise after the filing of the complaint
or similar pleading for then it will not be possible for the
Petitioner also invoked our ruling in Sun Insurance Office, Ltd. v. Judge claimant to specify nor speculate as to the amount
Asuncion,[16] where the Court held that: thereof. (Emphasis supplied.)

xxxx
Petitioner's claim for payment of rentals collected by Fernando from the
3. Where the trial court acquires jurisdiction over a
claim by the filing of the appropriate pleading and payment CMTC did not arise after the filing of the complaint; hence, the rule laid
of the prescribed filing fee but, subsequently, the judgment
awards a claim not specified in the pleading, or if specified down in Sun Insurance finds no application in the present case.
27
Due to the non-payment of docket fees on petitioner's counterclaim, the trial
court never acquired jurisdiction over it and, thus, there is no need to discuss \Republic of the Philippines
SUPREME COURT
the second issue raised by petitioner. Manila
WHEREFORE, the petition is DENIED. The Decision and the Resolution,
EN BANC
dated December 17, 2002 and April 29, 2003, respectively, of the Court of
G.R. No. L-22485 March 13, 1968
Appeals in CA-G.R. CV. No. 49300, are AFFIRMED.
CONSUELO V. CALO, doing business under the trade name CVC
Lumber Industries, assisted by MARCOS M. CALO, plaintiffs-
appellants,
vs.
AJAX INTERNATIONAL, INCORPORATED, defendant-appellee.

Tranquilino O. Calo, Jr. for plaintiffs-appellants.


Sergio P. Villareal for defendant-appellee.

BENGZON, J.P., J.:

Sometime on May 7, 1959, plaintiff-appellant Calo ordered from


defendant-appellee Ajax International, Inc., 1,200 ft. of John Shaw wire rope
at P2.85 per foot. The transaction was evidenced by Charge Order No.
37071, for P3,420.00.

According to plaintiff Calo, when the wire rope was delivered to


Butuan City, the same was found short of 300 ft. Plaintiff then wrote two
letters to defendant asking for either completion of delivery or account
adjustment of the alleged undelivered 300 ft. of wire rope.

On November 20, 1961, a complaint docketed as Civil Case No. IV-


93062 was filed in the Municipal Court of Manila by one Adolfo Benavides
who claimed to have acquired the outstanding credit account of Calo from
defendant Ajax International, Inc. Charge Order No. 37071 was among those
included in the assigned account. Subsequently, a judgment by default was
entered, and a writ of execution issued, against plaintiff Calo. The latter
28
resorted to this Court on a petition for certiorari, prohibition Besides, the reason underlying the rule, which is to settle all related
and mandamus.1 We set aside the judgment of default and writ of execution controversies in one sitting only, does not obtain. For, even if the
issued against plaintiff Calo and remanded the case for further proceedings. counterclaim in excess of the amount cognizable by the inferior court is set
up, the defendant cannot obtain positive relief. The Rules allow this only for
On January 23, 1962, plaintiff Calo, assisted by her husband, Marcos the defendant to prevent plaintiff from recovering from him. 4 This means that
Calo, filed in the Court of First Instance of Agusan a complaint against should the court find both plaintiff's complaint and defendant's counterclaim
defendant asking (1) that the latter either effect complete delivery of Charge (for an amount exceeding said court's jurisdiction) meritorious, it will simply
Order No. 37071 or that she be relieved from paying P855.00 and (2) that the dismiss the complaint on the ground that defendant has a bigger credit. Since
latter indemnify her for P12,000 as attorney's fees, damages and expenses of defendant still has to institute a separate action for the remaining balance of
litigation.2 The case was docketed as Civil Case No. 860. his counterclaim, the previous litigation did not really settle all related
controversies.
Instead of filing an answer, defendant moved for the dismissal of Civil
Case 860 on the ground, inter alia, that the subject thereof was involved and Plaintiff Calo's claim of P12,000.00 not being a compulsory
intimately related to that in Civil Case No. IV-93062 of the Municipal Court counterclaim in Civil Case No. VI-93062, it need not be filed there. The
of Manila. The court a quo sustained the motion and dismissed the case. pendency then of said civil case could not be pleaded in abatement of Civil
Case No. 860. Consequently, the lower court erred in dismissing plaintiff's
Plaintiff-appellant moved for reconsideration and new trial. When this complaint.
failed, she instituted the present appeal.1äwphï1.ñët
WHEREFORE, the order of dismissal appealed from is hereby
The dismissal of Civil Case No. 860 by the court a quo because of the reversed and the case remanded for further proceedings. Costs against
pendency of Civil Case No. IV-93062 in the municipal court of Manila is appellee Ajax International, Inc. So ordered.
predicated on the supposition that plaintiff's claim is a compulsory counter-
claim that should be filed in the latter case. There is no question that it arises Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and
out of the same transaction which is the basis of the complaint in Civil Case Fernando, JJ., concur.
No. IV-93062 and does not require the presence of third parties over whom Concepcion, C.J., is on leave.
the municipal court of Manila could not acquire jurisdiction.

However, plaintiff's claim is not a compulsory counterclaim in Civil


Case No. IV-93062 for the simple reason that the amount thereof exceeds the
jurisdiction of the municipal court. The rule that a compulsory counterclaim
not set up is barred, when applied to the municipal court, presupposes that
the amount involved is within the said court's jurisdiction. Otherwise, as this
Court had already noted in Yu Lay v. Galmes 3 we would come to the absurd
situation where a claim must be filed with the municipal court which it is
prohibited from taking cognizance of, being beyond its jurisdiction.

29
FIRST DIVISION

[G.R. No. 90530. October 7, 1992.]

INTERNATIONAL CONTAINER TERMINAL SERVICES,


INC., Petitioner, v. THE HON. COURT OF APPEALS, HON.
EDILBERTO G. SANDOVAL, Presiding Judge of Branch IX, Regional
Trial Court, National Capital Judicial Region, C.F. SHARP, INC. and
FIRST INTEGRATED BONDING & INSURANCE CO.,
INC., Respondents.

Bautista, Picaso, Buyco, Tan & Fider for Petitioner.

Sinco, Valdez & Associates for C.P. Sharp, Inc.

SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; COMPULSORY


COUNTERCLAIM; REQUIREMENTS. — We have consistently held that a
counterclaim is compulsory where: (1) it arises out of, or is necessarily
connected with, the transaction or occurrence that is the subject matter of the
opposing party’s claim; (2) it does not require for its adjudication the
presence of third parties of whom the court cannot acquire jurisdiction; and
(3) the court has jurisdiction to entertain the claim.

2. ID.; ID.; ID.; ID.; CASE AT BAR. — The Court notes that, to begin with,
the petitioner itself joined the PPA in moving for the dismissal of the
complaint; or put passively, it did not object to the dismissal of the private
respondent’s complaint. Secondly, the compulsory counterclaim was so
interwined with the complaint that it could not remain pending for
independent adjudication by the court after the dismissal of the complaint
which had provoked the counterclaim in the first place. As a consequence,
the dismissal of the complaint (on the petitioner’s own motion) operated to
also dismiss the counterclaim questioning that complaint. The petitioner is
30
correct in contending that the claim for damages caused by the wrongful forth the facts supporting the applicant’s right to damages and the amount
issuance of a preliminary injunction can be made in the form of a thereof under the bond is indispensable. No judgment for damages may be
counterclaim. entered and executed against the surety without giving it an opportunity to be
heard as to the reality or reasonableness of the damages resulting from the
3. ID.; ID.; ID.; ID.; RESERVATION OF RIGHT TO PROSECUTE wrongful issuance of the writ.
COUNTERCLAIM. — However, there is no glossing away the fact that it
was the petitioner itself that caused the dismissal of its counterclaim when it DECISION
not only did not object to, but actually moved for, the dismissal of the
complaint. The petitioner cannot undo that act. If it wanted the counterclaim
to subsist, it should have objected to the dismissal of the complaint or at least CRUZ, J.:
reserved its right to prosecute it, assuming this would still be possible. It did
neither of these. The petitioner now claims that there is no law requiring that
reservation, but there is no law presuming it either. The petitioner cannot What is the effect of the dismissal of a complaint ordered at the instance of
simply say now that it intended all the time to preserve its counterclaim when the defendant upon a compulsory counterclaim duly raised in its answer?
it knew that under Rule 17, Sec. 2 "if a counterclaim has been pleaded by a chanrobles virtual lawlibrary
defendant prior to the service upon him of a motion to dismiss, the action
shall not be dismissed against the defendant’s objection unless the On February 10, 1988, Sharp, Inc., the herein private respondent filed a
counterclaim can remain pending for independent adjudication by the complaint for prohibition with prayer for preliminary injunction against the
Court."cralaw virtua1aw library Secretary of Transportation and Communications, the Philippine Ports
Authority (PPA), E. Razon, Inc., and the International Container Terminal
4. ID.; ID.; PERMISSIVE COUNTERCLAIM; NOT BARRED EVEN IF Services Inc., the herein petitioner. The complaint was docketed as Civil
NOT SET UP IN ACTION. — A counterclaim is permissive if it does not Case No. 88-43616 in the Regional Trial Court of Manila, Branch 9.
arise out of nor is it necessarily connected with the subject matter of the
opposing party’s claim. It is not barred even if not set up in the action. The On March 7, 1988, the trial court issued a writ of preliminary injunction upon
petitioner’s counterclaim was within the jurisdiction of the trial court. Most the posting by Sharp of a bond issued by the Integrated Bonding and
importantly, it had no independent existence, being merely ancillary to the Insurance Co. in the sum of P10,000,000.00.
main action.
On that same day, the petitioner filed an answer with a compulsory
5. ID.; PROVISIONAL REMEDIES; PRELIMINARY INJUNCTION; counterclaim against Sharp for its "unfounded and frivolous action." The
CLAIM FOR DAMAGES; RULES. — The rules governing the application petitioner claimed that as a consequence of the complaint and the writ of
for damages against the surety bond posted in support of the application for a preliminary injunction, it had suffered injuries which "if monetized (would)
writ of preliminary attachment are also applicable by analogy to preliminary amount to more than P100,000,000.00."cralaw virtua1aw library
injunction. (Sec. 20 of Rule 57 of the Rules of Court.) A long line of cases
has held that these rules are mandatory and failure to observe them deprives On March 17, 1988, the writ of preliminary injunction was nullified by this
the aggrieved party of the right to proceed against the surety bond. Court in G.R. No. 82218. We held that Sharp was not a proper party to stop
the negotiation and awarding of the contract for the development,
6. ID.; ID.; ID.; ID.; NOTICE TO ADVERSE PARTY AND SURETY, management and operation of the Container Terminal at the Port of Manila.
INDISPENSABLE. — Due notice to the adverse party and its surety setting Moreover, the petition was premature because Sharp had not exhausted the
31
administrative remedies open to it from "the PPA, the Bidding Committee, application and after proper hearing, and shall be included in the final
and the Office of the President."cralaw virtua1aw library judgment. The application must be filed before the trial . . ., with due notice
to the attaching creditor and his surety or sureties, setting forth the facts
On March 25, 1988, the PPA, taking its cue from this decision, filed a motion showing his right to damages and the amount thereof.
to dismiss Sharp’s complaint on the above-stated grounds. This motion was
adopted by petitioner CCTSI in a manifestation dated April 8, 1988. The application contemplated in Sec. 20 is distinct and separate from the
compulsory counterclaim asserted in the answer.
On July 13, 1988, Judge Edilberto G. Sandoval dismissed the complaint as
well as the counterclaim. (4) The filing in court of claim against the injunction bond, with copy thereof
being furnished the surety, was not sufficient notice to the latter of an
On August 13, 1988, CCTSI filed a motion for reconsideration of the order application against it under this bond.
insofar as it dismissed its counterclaim. Meanwhile, it gave notice to the First
Integrated Bonding and Insurance Co., Inc. that it was claiming damages CCTSI has filed the present petition for review alleging that the order of the
against Sharp for the revoked injunction.chanrobles virtual lawlibrary trial court dismissing the counterclaim was issued with grave abuse of
discretion. Specifically, the petitioner contends that the respondent court
On November 10, 1988, the motion for reconsideration was denied. The trial erred in sustaining the said order because:chanrob1es virtual 1aw library
court declared in part:chanrob1es virtual 1aw library
(1) Dismissal of the complaint upon defendant’s motion did not necessarily
. . . indeed a compulsory counterclaim by the nature of its nomenclature entail dismissal of defendant’s compulsory counterclaim.
arises out of or is so intertwined with the transaction or occurrence that is the
subject matter of the complaint so that by the dismissal of the latter, the same (2) A claim for damages arising from a wrongfully obtained injunction may
has to be discarded, specially since the complaint was dismissed without any be made in a counterclaim.
trial.
(3) There is no rule requiring a particular form of notice to the surety of
The dismissal of the counterclaim was appealed to the respondent court, petitioner’s claim against the injunction bond.
which upheld the lower court on the following justifications:chanrob1es
virtual 1aw library For its part, the private respondent argues that the dismissal of the
compulsory counterclaim should be sustained because:chanrob1es virtual
(1) Compulsory counterclaims for actual damages are not the claims 1aw library
recoverable against the bond.
(1) The dismissal of the complaint upon petitioner’s motion necessarily
(2) Petitioner’s manifestation adopting Philippine Ports Authority’s motion to entailed the dismissal of the compulsory counterclaim.
dismiss did not contain any reservation. Hence, Sec. 2, Rule 17 of the Rules
of Court will not apply. The counterclaim for damages being compulsory in (2) The compulsory counterclaim raised by petitioner in its answer did not
nature, for which no filing fee has been paid, was correctly dismissed. partake of the nature of a claim for damages against the injunction bond.

(3) Sec. 20 of Rule 57 of the Rules of Court specifically provides that "such (3) The notice given by the petitioner to the surety was fatally defective and
damages (recoverable against the bond) may be awarded only upon did not comply with the requirements of the Rule of Court.
32
remain pending for independent adjudication by the court. Unless otherwise
d. Appeal, not certiorari, was the proper remedy of petitioner. specified in the order, a dismissal under this paragraph shall be without
prejudice.
The Court gave due course to this petition and required the parties to submit
simultaneous memoranda. After studying their respective arguments and the The Court notes that, to begin with, the petitioner itself joined the PPA in
pertinent law and jurisprudence, we have come to the conclusion that the moving for the dismissal of the complaint; or put passively, it did not object
petition cannot prosper. to the dismissal of the private respondent’s complaint. Secondly, the
compulsory counterclaim was so interwined with the complaint that it could
The counterclaim for damages alleged that the delay in the award of the not remain pending for independent adjudication by the court after the
MICT contract caused by Sharp’s complaint and writ of preliminary dismissal of the complaint which had provoked the counterclaim in the first
injunction jeopardized the petitioner’s timetable to attain the projected place. As a consequence, the dismissal of the complaint (on the petitioner’s
volumes in its winning bid and, as well, caused it to incur litigation expenses, own motion) operated to also dismiss the counterclaim questioning that
including attorney’s fees. complaint.cralawnad

We have consistently held that a counterclaim is compulsory where: (1) it The petitioner is correct in contending that the claim for damages caused by
arises out of, or is necessarily connected with, the transaction or occurrence the wrongful issuance of a preliminary injunction can be made in the form of
that is the subject matter of the opposing party’s claim; (2) it does not require a counterclaim. As we held in Raymundo v. Carpio: 2
for its adjudication the presence of third parties of whom the court cannot
acquire jurisdiction; and (3) the court has jurisdiction to entertain the claim. It would seem that the proper practice to be followed in cases where it is
1 desired to obtain damages by reason of the wrongful issuance of an
attachment in favor of plaintiff that an issue would be tendered on the subject
Tested by these requirements, the petitioner’s counterclaim was clearly by the defendant in his answer in the main case. Such a tender would present
compulsory. The petitioner itself so denominated it. There is no doubt that the question squarely in that court, and the parties having offered their
the same evidence needed to sustain it would also refute the cause of action evidence on the subject, the trial court could dispose of it along with the
alleged in the private respondent’s complaint; in other words, the principal action. It is not necessary that the defendant wait until it is
counterclaim would succeed only if the complaint did not. It is obvious from determined by a final decision in the main action that the plaintiff is not
the very nature of the counterclaim that it could not remain pending for entitled to recover in order to present the question of his right to damages. All
independent adjudication, that is, without adjudication by the court of the questions which are material to the main action or which are incidental
complaint itself on which the counterclaim was based. thereto but depending thereon should be presented and litigated at the same
time with the main action, so as to avoid the necessity of subsequent
Rule 17, Sec. 2 of the Rules of Court provides:chanrob1es virtual 1aw library litigation and consequent loss of time and money.

SECTION 2. Dismissal by order of the court. — Except as provided in the However, there is no glossing away the fact that it was the petitioner itself
preceding section, an action shall not be dismissed at the plaintiff’s instance that caused the dismissal of its counterclaim when it not only did not object
save upon order of the court and upon such terms and conditions as the court to, but actually moved for, the dismissal of the complaint. The petitioner
may deem proper. If a counterclaim has been pleaded by a defendant prior to cannot undo that act. If it wanted the counterclaim to subsist, it should have
the service upon him of the plaintiff’s motion to dismiss, the action shall not objected to the dismissal of the complaint or at least reserved its right to
be dismissed against the defendant’s objection unless the counterclaim can prosecute it, assuming this would still be possible. It did neither of these. The
33
petitioner now claims that there is no law requiring that reservation, but there pendency of the appeal by filing an application with notice to the party in
is no law presuming it either. The petitioner cannot simply say now that it whose favor the attachment was issued or his surety or sureties, before the
intended all the time to preserve its counterclaim when it knew that under judgment of the appellate court becomes executory. The appellate court may
Rule 17, Sec. 2 "if a counterclaim has been pleaded by a defendant prior to allow the application to be heard and decided by the trial court.
the service upon him of a motion to dismiss, the action shall not be dismissed
against the defendant’s objection unless the counterclaim can remain pending Interpreting this rule, the Court has laid down the following
for independent adjudication by the Court."cralaw virtua1aw library principles:chanrob1es virtual 1aw library

The counterclaim was not permissive. A counterclaim is permissive if it does (1) That damages resulting from preliminary attachment, preliminary
not arise out of nor is it necessarily connected with the subject matter of the injunction, the appointment of a receiver, or the seizure of personal property,
opposing party’s claim. It is not barred even if not set up in the action. 3 The the payment of which is secured by judicial bond, must be claimed and
petitioner’s counterclaim was within the jurisdiction of the trial court. Most ascertained in the same action with due notice to the surety:chanrob1es
importantly, it had no independent existence, being merely ancillary to the virtual 1aw library
main action. 4 The petitioner knew all this and did not object to the dismissal
of the complaint. On the contrary, it actually moved to dismiss that main (2) That if the surety is given such due notice, he is bound by the judgment
action, and in so doing also moved, in effect, for the dismissal of its that may be entered against the principal, and writ of execution may issue
counterclaim. against said surety to enforce the obligation of the bond; and

The Court can stop at this point. For clarification of certain issues raised by (3) That if no notice is given to the surety of the application for damages, the
the parties, however, the following reminders are made. judgment that may be entered against the principal cannot be executed
against the surety without giving the latter an opportunity to be heard as to
The rules governing the application for damages against the surety bond the reality or reasonableness of the alleged damages. In such case, upon
posted in support of the application for a writ of preliminary attachment are application of the prevailing party, the court must order the surety to show
also applicable by analogy to preliminary injunction. Sec. 20 of Rule 57 of cause why the bond should not respond for the judgment for damages. If the
the Rules of Court reads as follows:chanrob1es virtual 1aw library surety should contest the reality or reasonableness of the damages claimed by
the prevailing party, the court must set the application and answer for
Claim for damages on account of illegal attachment. — If the judgment on hearing. The hearing will be summary and will be limited to such new
the action be in favor of the party against whom attachment was issued. he defense, not previously set up by the principal, as the surety may allege and
may recover, upon the bond given or deposit made by the attaching creditor, offer to prove. 5
any damages resulting from the attachment. Such damages may be awarded
only upon application and after proper hearing, and shall be included in the A long line of cases has held that these rules are mandatory and failure to
final judgment. The application must be filed before the trial or before appeal observe them deprives the aggrieved party of the right to proceed against the
is perfected or before the judgment becomes executory, with due notice to the surety bond. 6
attaching creditor and his surety or sureties, setting forth the facts showing
his right to damages and the amount thereof.chanrobles virtual lawlibrary Due notice to the adverse party and its surety setting forth the facts
supporting the applicant’s right to damages and the amount thereof under the
If the judgment of the appellate court be favorable to the party against whom bond is indispensable. No judgment for damages may be entered and
the attachment was issued, he must claim damages sustained during the executed against the surety without giving it an opportunity to be heard as to
34
the reality or reasonableness of the damages resulting from the wrongful
issuance of the writ.
Republic of the Philippines
The herein petitioner contends that it complied with the requirements when it SUPREME COURT
served the bonding company with notice of its claim for damages on August Manila
31, 1988. It is correct. No particular form for such notice is required. The rule
also clearly says that the application for damages and the notice to the surety THRID DIVISION
may be made at any time before the judgment becomes final and executory.
CCTSI served the notice on the surety during the pendency of the motion for G.R. No. 76838 April 17, 1990
reconsideration, before the judgment dismissing the complaint and the
counterclaim had become final and executory.chanrobles virtual lawlibrary LUALHATI A. COJUANGCO, petitioner,
vs.
Had the counterclaim not been dismissed with the dismissal of the complaint, PURIFICACION VILLEGAS and the PRESIDING JUDGE,
the petitioner could have introduced evidence to show that it was prejudiced REGIONAL TRIAL COURT, BRANCH XVII, MALOLOS,
by the filing of the complaint and the obtention of the writ of preliminary BULACAN,respondents.
injunction by Sharp. But the petitioner itself aborted that effort when it joined
PPA in moving for the dismissal of Sharp’s complaint, knowing that it was
Eufracio S. Marquez for petitioner.
the basis of its own compulsory counterclaim. For failing to object when it
Carmelito M. Santoyo for private respondent.
should have, to keep its counterclaim alive, and instead moving to dismiss
the complaint from which the counterclaim derived its life, the petitioner
must now bear the consequences of its own negligence.

WHEREFORE, the petition is DENIED, with costs against the petitioner. It


is so ordered. FERNAN C.J.:

The instant petition for certiorari and prohibition raises the ultimate issue of
whether or not the execution of a final judgment in an ejectment case may be
stayed by a co-equal court in order that the light of indemnification and
retention of an alleged builder in good faith may not be rendered meaningless
or illusory in an independent civil action for specific performance.

Petitioner Lualhati Aldaba Cojuangco is the widow of Don Juan Cojuangco,


the registered owner of the disputed parcel of residential land containing an
area of 585 square meters and situated at San Agustin, Malolos, Bulacan.

Many years back (about sixty years, according to the municipal trial court)
the parents of private respondent Purificacion Villegas, with the acquiescence
of Don Juan Cojuangco, constructed a residential house and later a structure
35
housing a bakery on the aforesaid lot. It was understood that they could where she filed a motion for execution of the judgment, which the court
remain on the land with his blessings and without paying rentals on condition granted on June 30, 1986. On July 29, 1986, a writ of demolition was issued
that they would vacate the premises when needed by the owner. against Villegas, who did not oppose the ordered demolition but instead
asked the lower court to give her more time (forty days from August 7, 1986)
After her parent's death, Villegas remained in the property, renovating the to effect the transfer of her personal properties and to remove the
same and spending P300,000.00 in the process. She also leased out a portion improvements on the subject lot to which motion the court acceded.
of the land to Siapno Appliances at P600.00 a month without the knowledge
and consent of Don Juan Cojuangco This latter act apparently destroyed her On September 16, 1986, before the lapse of the grace period, Villegas filed a
congenial relations with the landowner because soon thereafter, Don Juan separate civil action docketed as Civil Case No. 9094-M against petitioner
Cojuangco, through his attorney in fact, demanded that she leave the Cojuangco and the provincial sheriff "for specific performance with urgent
property. Despite his repeated written demands for her to surrender prayer for issuance of a temporary restraining order and preliminary
possession of the property, Villegas refused, prompting Cojuangco to institute injunction." This case, instead of being referred to Branch XV which had
ejectment proceedings against her before the Municipal Trial Court (MTC) of earlier issued the writ of demolition, was raffled to another Malolos branch
Malolos, Bulacan, Branch I on August 23, 1978. 1 of the Bulacan Trial Court, specifically Branch XVII which issued on the
same day, September 16, 1986, a temporary restraining order enjoining
On February 5, 1979, Don Juan Cojuangco died intestate. In the trial court's Cojuangco and particularly the sheriff "from enforcing or implementing the
order of October 22, 1979, his wife Lualhati, herein petitioner, together with Order of Demolition issued in Civil Case No. 7042-M . . . 5 This was
nephews and nieces, were sub-constituted as parties-plaintiffs. 2 followed by another order dated October 6, 1986 granting a writ of
preliminary injunction. 6 The twin orders are now the subject of the instant
In its decision dated June 30, 1983, the inferior court dismissed the action for petition for certiorari on the ground that they have been issued with grave
ejectment for lack of jurisdiction. It cited the unassailable fact that Villegas abuse of discretion amounting to lack of jurisdiction.
and her predecessors-in-interest had been in actual possession of the subject
land for no less than sixty years and that in addition, Villegas asserted an Petitioner Cojuangco contends that the assailed orders constituted an undue
adverse claim of ownership, thus transforming the suit into an accion interference by the respondent court with a final and executory decision of a
publiciana which is properly cognizable by courts of first instance (now co-equal court which is anathema in our judicial system.
regional trial courts).
The argument is impressed with merit. As early as 1922 in the case
On appeal to the then Court of First Instance (CFI) of Malolos, Branch XV, of Cabigao v. Del Rosario, this Court laid down the doctrine that "no court
the inferior court was reversed insofar as it had erroneously denied has power to interfere by injunction with the judgments or decrees of a court
jurisdiction over the ejectment case.3 The trial court then ordered Villegas to of concurrent or coordinate jurisdiction having power to grant the relief
vacate the premises and to surrender possession thereof to herein petitioner sought by injunction." 7
Cojuangco. 4
The various branches of the court of first instance of a province or city,
The case was elevated to the appellate court and to the Supreme Court and in having as they have the same or equal authority and exercising as they do
both instances, herein petitioner Cojuangco's right of possession over the concurrent and coordinate jurisdiction, should not, cannot and are not
land was upheld. After entry of judgment was made on November 20, 1985, permitted to interfere with their respective cases, much less with their orders
herein petitioner went to the Regional Trial Court of Malolos, Branch XV, or judgments. A contrary rule would obviously lead to confusion and
seriously hamper the administration of justice. 8
36
Based on the foregoing, it is plainly evident that the injunction was lived there all her life and that in the honest belief that the land had been
improperly issued by the respondent court. "donated" to her parents by her "Aunt Tecla", she made various
improvements and renovation thereon. Obviously, such declarations on the
Petitioner Cojuangco has further raised the issue of whether Villegas can still part of Villegas completely negate her absurd claim that the factual basis for
legally institute a separate independent action against the adjudged owner of her subsequent action arose after the ejectment suit became final.1âwphi1
the disputed lot on the ground that Villegas and her predecessors-in-interest
are builders in good faith and are therefore entitled to recover the value of the Thus, Villegas should have set forth, simultaneously with the assertion that
improvements they had introduced on the lot. she was entitled to the parcel of land by right of inheritance, the alternative
claim that assuming she was not legally entitled to the disputed lot, at least as
Rule 9, Section 4 of the Revised Rules of Court on compulsory counterclaim a builder in good faith, she has the right to the value of the buildings and
provides the answer.1âwphi1 It states: improvements which she and her parents had introduced on the land. 11 And
while it may be argued that the defense of being a builder in good faith would
A counterclaim or cross-claim not set up shall be barred if it arises have been inconsistent with her claim of ownership, in the case of Castle
out of or is necessarily connected with, the transaction or occurrence Bros., Wolf and Sons v. Go-Juno 12 the Court held that a party may set forth
that is the subject-matter of the opposing party's or co-party's claim as many defenses and counterclaims as he may have, whatever be their
and does not require for its adjudication the presence of third parties nature. These may even be inconsistent with each other because what is
of whom the court cannot acquire jurisdiction. sufficient is that each is consistent with itself.

Villegas' claim to recover compensation for improvements made on the land Since Villegas failed to set up such alternative defense (i.e. a builder in good
is essentially in the nature of a counterclaim since it is inter-woven with the faith is entitled to recover the value of improvements) and instead relied on
fact of possession. Said claim for compensation should have been presented the sole defense that she inherited the land from her parents, the rejection
as a counterclaim in the ejectment suit. It is deemed barred if not raised on thereof was a complete resolution of the controversy between the parties
time and the party in error is precluded from setting it up in a subsequent which bars a later case based upon the unpleaded defense. The adjudication
litigation. 9 The rule on compulsory counter-claim is designed to enable the of the issue joined by the parties in the earlier case constitutes res
disposition of the entire conflict at one time and in one action. The judicata,the theory being that what is barred by prior judgment are not only
philosophy of the rule is to discourage multiplicity of suits. 10 the matters actually raised and litigated upon, but also such other matters as
could have been raised but were not. 13
According to Villegas, the reason why the counterclaim for indemnification
was not made in the original action was because it became a "ripe issue" only It bears emphasizing that in ejectment cases, the rule is explicit that the
after the ejectment proceedings. Villegas contended that the estoppel of judgment must be executed immediately when it is in favor of the plaintiff to
judgment could only extend to those facts and conditions existing at the time prevent further damages to him arising from the loss of possession. 14 The
the judgment was rendered and not to those which supervened before the sense of urgency is more pronounced in the case at bar where the ejectment
second suit. case in favor of Cojuangco was decided in 1978 and subsequently appealed
all the way to the Supreme Court. But the final victory continues to elude
The argument is untenable. In her pleadings, Villegas repeatedly stressed that Cojuangco to this day due to a large extent to the legal maneuvers utilized by
the residential house which her parents had constructed was already there on Villegas to forestall the inevitable.
the questioned lot for as long as she could remember, that she herself has

37
For its part, respondent trial court has attempted to justify its writ of Republic of the Philippines
injunction by stating that the impending demolition of Villegas' house and Supreme Court
other buildings on the disputed property would render inutile her right as a Baguio City
builder in good faith. We cannot agree. The loss to Villegas is not sufficient FIRST DIVISION
to warrant a blatant disregard of established precedents especially when it is
borne in mind that for more than half a century, Villegas and her family have PHILTRANCO SERVICE ENTERPRISES, G.R. No. 161909
enjoyed the fruits of the land without paying a single centavo in return. INC.,
Surely, the equities are more in favor of Cojuangco, the landowner. Petitioner, Present:

In sum, the Court finds that in taking cognizance of the action for specific CORONA, C.J. Chairperson,
performance and in issuing the questioned orders which interfered with the LEONARDO-DE CASTRO,
final judgment of a coordinate court, respondent trial court committed grave -versus- BERSAMIN,
abuse of discretion amounting to lack of jurisdiction which is correctible by a DEL CASTILLO, and
writ of certiorari. VILLARAMA, JR., JJ.

WHEREFORE, the petition is granted. The respondent court is hereby FELIX PARAS AND INLAND Promulgated:
ordered to DISMISS Civil Case No, 9094-M and all proceedings held therein TRAILWAYS, INC., AND HON. COURT April 25, 2012
are declared null and void. The Regional Trial Court of Malolos, Bulacan, OF APPEALS,
Branch XV is ordered to immediately execute the decision in the ejectment Respondents.
case. Civil Case No. 7042-M. Costs against private respondent Villegas. This x-----------------------------------------------------------------------------------------x
decision is immediately executory.
DECISION
SO ORDERED.

BERSAMIN, J.:

In an action for breach of contract of carriage commenced by a


passenger against his common carrier, the plaintiff can recover damages from
a third-party defendant brought into the suit by the common carrier upon a
claim based on tort or quasi-delict. The liability of the third-party defendant
is independent from the liability of the common carrier to the passenger.

Philtranco Service Enterprises, Inc. (Philtranco) appeals the


affirmance with modifications by the Court of Appeals (CA) of the decision
38
of the Regional Trial Court (RTC) awarding moral, actual and temperate involved and caused physical injuries to the passengers and
crew of the two buses, including the death of Coner who was
damages, as well as attorneys fees and costs of suit, to respondent Felix Paras the driver of the Inland Bus at the time of the incident.
(Paras), and temperate damages to respondent Inland Trailways, Inc.
Paras was not spared from the pernicious effects of
(Inland), respectively the plaintiff and the defendant/third-party plaintiff in the accident. After an emergency treatment at the San
this action for breach of contract of carriage, upon a finding that the Pablo Medical Center, San Pablo City, Laguna, Paras was
taken to the National Orthopedic Hospital. At the latter
negligence of the petitioner and its driver had caused the serious physical
hospital, he was found and diagnosed by Dr. Antonio
injuries Paras sustained and the material damage Inlands bus suffered in a Tanchuling, Jr. to be affected with the following injuries: a)
vehicular accident. contusion/hematoma; b) dislocation of hip upon fracture of
the fibula on the right leg; c) fractured small bone on the
right leg; and d) close fracture on the tibial plateau of the left
Antecedents leg. (Exh. A, p. 157, record)

On 04 March 1987 and 15 April 1987, Paras


The antecedent facts, as summarized by the CA, are as follows: underwent two (2) operations affecting the fractured portions
of his body. (Exhs. A-2 and A-3, pp. 159 and 160
respectively, record)
Plaintiff-appellant [respondent] Felix Paras (Paras
for brevity), who hails from Cainta, Rizal is engaged in the
Unable to obtain sufficient financial assistance from
buy and sell of fish products. Sometime on 08 February
Inland for the costs of his operations, hospitalization, doctors
1987, on his way home to Manila from Bicol Region, he
fees and other miscellaneous expenses, on 31 July 1989,
boarded a bus with Body No. 101 and Plate No. EVE 508,
Paras filed a complaint for damages based on breach of
owned and operated by Inland Trailways, Inc. (Inland for
contract of carriage against Inland.
brevity) and driven by its driver Calvin Coner (Coner for
brevity).
In its answer, defendant Inland denied responsibility,
by alleging, among others, that its driver Coner had observed
At approximately 3:50 oclock in the morning of 09
an utmost and extraordinary care and diligence to ensure the
February 1987, while the said bus was travelling
safety of its passengers. In support of its disclaimer of
along Maharlika Highway, Tiaong, Quezon, it was bumped
responsibility, Inland invoked the Police Investigation
at the rear by another bus with Plate No. EVB 259, owned
Report which established the fact that the Philtranco bus
and operated by Philtranco Service Enterprises, Inc.
driver of [sic] Apolinar Miralles was the one which violently
(Philtranco for brevity). As a result of the strong and violent
bumped the rear portion of the Inland bus, and therefore, the
impact, the Inland bus was pushed forward and smashed into
direct and proximate cause of Paras injuries.
a cargo truck parked along the outer right portion of the
highway and the shoulder thereof. Consequently, the said
On 02 March 1990, upon leave of court, Inland filed
accident bought considerable damage to the vehicles
a third-party complaint against Philtranco and Apolinar
39
Miralles (Third Party defendants). In this third-party JOINTLY AND SEVERALLY LIABLE FOR THE
complaint, Inland, sought for exoneration of its liabilities to DAMAGES SUFFERED BY PARAS.
Paras, asserting that the latters cause of action should be
directed against Philtranco considering that the accident was III. THE TRIAL COURT ERRED IN NOT AWARDING
caused by Miralles lack of care, negligence and reckless UNEARNED INCOME AS ADDITIONAL ACTUAL
imprudence. (pp. 50 to 56, records). DAMAGES SUFFERED BY APPELLANT PARAS AS HIS
PHYSICAL DISABILITY IS PERMANENT IN NATURE.

After trial, the RTC (Branch 71) in Antipolo, Rizal rendered its IV. THE TRIAL COURT ERRED IN NOT AWARDING
EXEMPLARY DAMAGES IN FAVOR OF APPELLANT
judgment on July 18, 1997,[1] viz: PARAS.

WHEREFORE, third-party defendant Philtranco and


Apolinar Miralles are hereby ordered to pay plaintiff jointly
and severally, the following amounts: On the other hand, Inland assigned the following errors to the RTC,
namely:
1.P54,000.00 as actual damages;

2.P50,000.00 as moral damages; THE TRIAL COURT ERRED WHEN IT FAILED TO


AWARD DAMAGES UNTO THE THIRD PARTY
3.P20,000.00 as attorneys fees and costs. PLAINTIFF NOTWITHSTANDING CLEAR FINDING
THAT:
SO ORDERED.
It is clear from the evidence that the plaintiff
All the parties appealed to the CA on different grounds. sustained injuries because of the reckless,
negligence, and lack of precaution of third party
defendant Apolinar Miralles, an employee of
On his part, Paras ascribed the following errors to the RTC, to wit: Philtranco.

AND, COMPLETELY DISREGARDED THE


1. THE TRIAL COURT ERRED IN HOLDING THAT
UNCONTROVERTED ORAL AND DOCUMENTARY
ONLY THIRD-PARTY DEFENDANT-APPELLANT
EVIDENCES ESTABLISHING THE EXTENT AND
PHILTRANCO IS LIABLE FOR THE DAMAGES
DEGREE OF DAMAGES SUSTAINED BY THE THIRD
SUFFERED BY APPELLANT PARAS.
PARTY PLAINTIFF.
II. THE TRIAL COURT ERRED IN NOT HOLDING
APPELLANT INLAND TRAILWAYS INC. TO BE Lastly, Philtranco stated that the RTC erred thuswise:

40
On September 25, 2002, the CA promulgated its decision,
[2]
I disposing:
THE COURT A QUO MISERABLY ERRED IN
AWARDING ACTUAL DAMAGES GREATER THAN WHEREFORE, in consideration of the foregoing
WHAT WAS ALLEGED IN THE COMPLAINT ITSELF, premises, the assailed decision dated 18 July 19(9)7 is
AND EVEN MUCH MORE GREATER THAN WHAT perforce affirmed with the following modifications:
WERE PROVED DURING THE TRIAL, HENCE,
PERPETUATING UNJUST ENRICHMENT. 1. Third party defendants-appellants Philtranco and
Apolinar Miralles are ordered to pay plaintiff-appellant Felix
II Paras jointly and severally the following amounts:
THE COURT A QUO SERIOUSLY ERRED IN
AWARDING MORAL DAMAGES TO A CAUSE OF a) P1,397.95 as actual damages;
ACTION OF CULPA-CONTRACTUAL EVEN WITHOUT b) P50,000.00 as temperate damages;
ANY EVIDENCE OF GROSS BAD FAITH; HENCE, c) P50,000.00 as moral damages; and
CONTRARY TO THE ESTABLISHED DOCTRINE IN d) P20,000.00 as attorneys fees and costs of
THE CASES OF PHIL. RABBIT BUS LINES VS. suit.
ESGUERRA; SOBERANO VS. BENGUET AUTO LINE
AND FLORES VS. MIRANDA. 2. On the third party plaintiff-appellant Inlands
claims, the third party defendant-appellants Philtranco and
III Apolinar Miralles are hereby ordered to pay the former
THE COURT A QUO MISERABLY ERRED IN HOLDING (Inland) jointly and severally the amount of P250,000.00 as
THAT MIRALLES WAS THE ONE AT FAULT MERELY and by way of temperate damages.
ON THE STRENGHT OF THE TESTIMONY OF THE
POLICE INVESTIGATOR WHICH IS IN TURN BASED SO ORDERED.
ON THE STATEMENTS OF ALLEGED WITNESSES
WHO WERE NEVER PRESENTED ON THE WITNESS
STAND.
The CA agreed with the RTCs finding that no trace of negligence at
IV the time of the accident was attributable to Inlands driver, rendering Inland
THE COURT A QUO COMMITTED A GRIEVOUS
ERROR IN DISREGARDING THE TESTIMONY OF not guilty of breach of contract of carriage; that faulty brakes had caused
APPELLANTS WITNESSES WHO TESTIFIED AS TO Philtrancos bus to forcefully bump Inlands bus from behind, making it hit the
THE DEFENSE OF EXERCISE OF DUE DILIGENCE IN
rear portion of a parked cargo truck; that the impact had resulted in
THE SELECTION AND SUPERVISION OF EMPLOYEES
PURSUANT TO ART. 2180, LAST PARAGRAPH, NEW considerable material damage to the three vehicles; and that Paras and others
CIVIL CODE. had sustained various physical injuries.

41
Accordingly, the CA: (a) sustained the award of moral damages
of P50,000.00 in favor of Paras pursuant to Article 2219 of the Civil The appeal lacks merit.
Code based on quasi-delict committed by Philtranco and its driver; (b)
reduced the actual damages to be paid by Philtranco to Paras The Court does not disturb the unanimous findings by the CA and the RTC
from P54,000.00 to P1,397.95 because only the latter amount had been duly on the negligence of Philtranco and its driver being the direct cause of the
supported by receipts; (c) granted temperate damages of P50,000.00 (in lieu physical injuries of Paras and the material damage of Inland.
of actual damages in view of the absence of competent proof of actual
damages for his hospitalization and therapy) to be paid by Philtranco to Nonetheless, we feel bound to pass upon the disparate results the CA
Paras; and (d) awarded temperate damages of P250,000.00 under the same and the RTC reached on the liabilities of Philtranco and its driver.
premise to be paid by Philtranco to Inland for the material damage caused to
1.
Inlands bus. Paras can recover moral damages
in this suit based on quasi-delict
Philtranco moved for reconsideration,[3] but the CA denied its motion Philtranco contends that Paras could not recover moral damages
for reconsideration on January 21, 2004.[4] because his suit was based on breach of contract of carriage, pursuant
to which moral damages could be recovered only if he had died, or if the
Issues common carrier had been guilty of fraud or bad faith. It argues that Paras had
suffered only physical injuries; that he had not adduced evidence of fraud or
Hence, this appeal, in which the petitioner submits that the CA bad faith on the part of the common carrier; and that, consequently, Paras
committed grave abuse of discretion amounting to lack of jurisdiction in could not recover moral damages directly from it (Philtranco), considering
awarding moral damages to Paras despite the fact that the complaint had been that it was only being subrogated for Inland.
anchored on breach of contract of carriage; and that the CA committed a
reversible error in substituting its own judgment by motu proprio awarding The Court cannot uphold the petitioners contention.
temperate damages of P250,000.00 to Inland and P50,000.00 to Paras despite As a general rule, indeed, moral damages are not recoverable in an
the clear fact that temperate damages were not raised on appeal by Paras and action predicated on a breach of contract. This is because such action is not
Inland. included in Article 2219 of the Civil Code[5] as one of the actions in which
moral damages may be recovered. By way of exception, moral damages are
Ruling recoverable in an action predicated on a breach of contract: ( a) where the
42
mishap results in the death of a passenger, as provided in Article 1764, [6] in known as impleader, was in accord with Section 12, Rule 6 of
relation to Article 2206, (3),[7] of theCivil Code; and (b) where the common the Revised Rules of Court, the rule then applicable, viz:
[8] [9]
carrier has been guilty of fraud or bad faith, as provided in Article 2220 of
the Civil Code. Section 12. Third-party complaint. A third-party
complaint is a claim that a defending party may, with leave
Although this action does not fall under either of the exceptions, the of court, file against a person not a party to the action, called
award of moral damages to Paras was nonetheless proper and valid. There is the third-party defendant, for contribution, indemnity,
subrogation or any other relief, in respect of his opponents
no question that Inland filed its third-party complaint against Philtranco and claim.[12]
its driver in order to establish in this action that they, instead of Inland,
should be directly liable to Paras for the physical injuries he had sustained
Explaining the application of Section 12, Rule 6, supra, the Court
because of their negligence. To be precise, Philtranco and its driver were
said in Balbastro v. Court of Appeals,[13] to wit:
brought into the action on the theory of liability that the proximate cause of
the collision between Inlands bus and Philtrancos bus had been the negligent,
Section 12 of Rule 6 of the Revised Rules of Court
reckless and imprudent manner defendant Apolinar Miralles drove and authorizes a defendant to bring into a lawsuit any person not
operated his driven unit, the Philtranco Bus with Plate No. 259, owned and a party to the action . . . for contribution, indemnity,
subrogation or any other relief in respect of his opponent's
operated by third-party defendant Philtranco Service Enterprises, Inc. [10] The claim. From its explicit language it does not compel the
apparent objective of Inland was not to merely subrogate the third-party defendant to bring the third-parties into the litigation, rather
it simply permits the inclusion of anyone who meets the
defendants for itself, as Philtranco appears to suggest, [11] but, rather, to obtain standard set forth in the rule. The secondary or derivative
a different relief whereby the third-party defendants would be held directly, liability of the third-party is central whether the basis is
indemnity, subrogation, contribution, express or implied
fully and solely liable to Paras and Inland for whatever damages each had
warranty or some other theory. The impleader of new
suffered from the negligence committed by Philtranco and its driver. In other parties under this rule is proper only when a right to
words, Philtranco and its driver were charged here as joint tortfeasors who relief exists under the applicable substantive law. This
rule is merely a procedural mechanism, and cannot be
would be jointly and severally be liable to Paras and Inland. utilized unless there is some substantive basis under
applicable law.

Impleading Philtranco and its driver through the third-party complaint filed Apart from the requirement that the third-party
complainant should assert a derivative or secondary
on March 2, 1990 was correct. The device of the third-party action, also
claim for relief from the third-party defendant there are
other limitations on said partys ability to implead. The

43
rule requires that the third-party defendant is not a party called a quasi-delict and is governed by the provisions of this
to the action for otherwise the proper procedure for chapter. (1902a)
asserting a claim against one who is already a party to
the suit is by means of counterclaim or cross-claim under Article 2180. The obligation imposed by article 2176
sections 6 and 7 of Rule 6. In addition to the aforecited is demandable not only for ones own acts or omissions, but
requirement, the claim against the third-party defendant also for those of persons for whom one is responsible.
must be based upon plaintiff's claim against the original xxx
defendant (third-party claimant). The crucial Employers shall be liable for the damages caused by their
characteristic of a claim under section 12 of Rule 6, is employees and household helpers acting within the scope of
that the original defendant is attempting to transfer to their assigned tasks, even though the former are not engaged
the third-party defendant the liability asserted against in any business or industry.
him by the original plaintiff. xxx
The responsibility treated of in this article shall cease when
the persons herein mentioned prove that they observed all
Accordingly, the requisites for a third-party action are, firstly, that the diligence of a good father of a family to prevent damage.
(1903a)
the party to be impleaded must not yet be a party to the action; secondly, that
the claim against the third-party defendant must belong to the original
Paras cause of action against Inland (breach of contract of carriage) did not
defendant; thirdly, the claim of the original defendant against the third-party
need to be the same as the cause of action of Inland against Philtranco and its
defendant must be based upon the plaintiffs claim against the original
driver (tort or quasi-delict) in the impleader. It is settled that a defendant in a
defendant; and, fourthly, the defendant is attempting to transfer to the third-
contract action may join as third-party defendants those who may be liable to
party defendant the liability asserted against him by the original plaintiff. [14]
him in tort for the plaintiffs claim against him, or even directly to the
plaintiff.[15] Indeed, Prof. Wright, et al., commenting on the provision of
As the foregoing indicates, the claim that the third-party complaint
the Federal Rules of Procedure of the United States from which Section
asserts against the third-party defendant must be predicated on substantive
12, supra, was derived, observed so, to wit:[16]
law. Here, the substantive law on which the right of Inland to seek such other
relief through its third-party complaint rested were Article 2176 and Article The third-party claim need not be based on the same
2180 of the Civil Code, which read: theory as the main claim. For example, there are cases in
which the third-party claim is based on an express indemnity
contract and the original complaint is framed in terms of
Article 2176. Whoever by act or omission causes negligence. Similarly, there need not be any legal
damage to another, there being fault or negligence, is obliged relationship between the third-party defendant and any of the
to pay for the damage done. Such fault or negligence, if there other parties to the action. Impleader also is proper even
is no pre-existing contractual relation between the parties, is though the third partys liability is contingent, and technically
44
does not come into existence until the original defendants this Court had occasion to elucidate on the subjects covered
liability has been established. In addition, the words is or by this Rule, thus:
may be liable in Rule 14(a) make it clear that impleader is
proper even though the third-party defendants liability is not ... As explained in the Atlantic Coast
automatically established once the third-party plaintiffs Line R. Co. vs. U.S. Fidelity & Guaranty
liability to the original plaintiff has been determined. Co., 52 F. Supp. 177 (1943:)

From the sources of Rule 14 and the


Nor was it a pre-requisite for attachment of the liability to Philtranco decisions herein cited, it is clear that this
and its driver that Inland be first declared and found liable to Paras for the rule, like the admiralty rule, covers two
distinct subjects, the addition of parties
breach of its contract of carriage with him. [17] As the Court has cogently defendant to the main cause of action, and
discoursed in Samala v. Judge Victor:[18] the bringing in of a third party for a
defendants remedy over. xxx
Appellants argue that since plaintiffs filed a
If the third party complaint alleges
complaint for damages against the defendants on a breach of
facts showing a third partys direct
contract of carriage, they cannot recover from the third-party
liability to plaintiff on the claim set out in
defendants on a cause of action based on quasi-delict. The
plaintiffs petition, then third party shall
third party defendants, they allege, are never parties liable
make his defenses as provided in Rule 12
with respect to plaintiff s claim although they are with
and his counterclaims against plaintiff as
respect to the defendants for indemnification, subrogation,
provided in Rule 13. In the case of alleged
contribution or other reliefs. Consequently, they are not
direct liability, no amendment (to the
directly liable to the plaintiffs. Their liability commences
complaint) is necessary or required. The
only when the defendants are adjudged liable and not when
subject-matter of the claim is contained in
they are absolved from liability as in the case at bar.
plaintiff's complaint, the ground of third
partys liability on that claim is alleged in
Quite apparent from these arguments is the
third party complaint, and third partys
misconception entertained by appellants with respect to the
defense to set up in his answer to
nature and office of a third party complaint.
plaintiff's complaint. At that point and
without amendment, the plaintiff and
Section 16, Rule 6 of the Revised Rules of Court
third party are at issue as to their rights
defines a third party complaint as a claim that a defending
respecting the claim.
party may, with leave of court, file against a person not a
party to the action, called the third-party defendant, for
The provision in the rule that, The
contribution, indemnification, subrogation, or any other
third-party defendant may assert any defense
relief, in respect of his opponents claim. In the case
which the third-party plaintiff may assert to
of Viluan vs. Court of Appeals, et al., 16 SCRA 742 [1966],
the plaintiffs claim, applies to the other
45
subject, namely, the alleged liability of third Ledesma then driver of the passenger bus. The effects are
party defendant. The next sentence in the that plaintiff and third party are at issue as to their rights
rule, The third-party defendant is bound by respecting the claim and the third party is bound by the
the adjudication of the third party plaintiffs adjudication as between him and plaintiff. It is not
liability to the plaintiff, as well as of his own indispensable in the premises that the defendant be first
to the plaintiff or to the third-party plaintiff adjudged liable to plaintiff before the third-party
applies to both subjects. If third party is defendant may be held liable to the plaintiff, as precisely,
brought in as liable only to defendant and the theory of defendant is that it is the third party
judgment is rendered adjudicating plaintiff's defendant, and not he, who is directly liable to plaintiff.
right to recover against defendant and The situation contemplated by appellants would properly
defendants rights to recover against third pertain to situation (a) above wherein the third party
party, he is bound by both defendant is being sued for contribution, indemnity or
adjudications.That part of the sentence refers subrogation, or simply stated, for a defendant's remedy
to the second subject. If third party is over.[19]
brought in as liable to plaintiff, then third
party is bound by the adjudication as
between him and plaintiff. That refers to the
first subject. If third party is brought in as It is worth adding that allowing the recovery of damages by Paras
liable to plaintiff and also over to defendant, based on quasi-delict, despite his complaint being upon contractual breach,
then third party is bound by both
adjudications. xxx served the judicial policy of avoiding multiplicity of suits and circuity of
actions by disposing of the entire subject matter in a single litigation. [20]
Under this Rule, a person not a party to an action
may be impleaded by the defendant either (a) on an 2.
allegation of liability to the latter; (b) on the ground of direct Award of temperate damages was in order
liability to the plaintiff-; or, (c) both (a) and (b). The situation
in (a) is covered by the phrase for contribution, indemnity or
subrogation; while (b) and (c) are subsumed under the catch
all or any other relief, in respect of his opponents claim. Philtranco assails the award of temperate damages by the CA considering
The case at bar is one in which the third party that, firstly, Paras and Inland had not raised the matter in the trial court and in
defendants are brought into the action as directly liable their respective appeals; secondly, the CA could not substitute the temperate
to the plaintiffs upon the allegation that the primary and
immediate cause as shown by the police investigation of damages granted to Paras if Paras could not properly establish his actual
said vehicular collision between (sic) the above- damages despite evidence of his actual expenses being easily available to
mentioned three vehicles was the recklessness and
him; and, thirdly, the CA gravely abused its discretion in granting motu
negligence and lack of imprudence (sic) of the third-party
defendant Virgilio (should be Leonardo) Esguerra y proprio the temperate damages of P250,000.00 to Inland although Inland had
46
not claimed temperate damages in its pleading or during trial and even on book value), finding such showing arbitrary, uncertain and speculative. [24] As
appeal. a result, the CA allowed no compensation to Inland for unrealized income.

The Court cannot side with Philtranco. Nonetheless, the CA was convinced that Paras should not suffer from
the lack of definite proof of his actual expenses for the surgeries and
Actual damages, to be recoverable, must not only be capable of proof, but rehabilitative therapy; and that Inland should not be deprived of recourse to
must actually be proved with a reasonable degree of certainty. The reason is recover its loss of the economic value of its damaged vehicle. As the records
that the court cannot simply rely on speculation, conjecture or guesswork in indicated, Paras was first rushed for emergency treatment to the San Pablo
determining the fact and amount of damages, but there must be competent Medical Center in San Pablo City, Laguna, and was later brought to the
proof of the actual amount of loss, credence can be given only to claims National Orthopedic Hospital in Quezon City where he was diagnosed to
[21]
which are duly supported by receipts. have suffered a dislocated hip, fracture of the fibula on the right leg, fracture
of the small bone of the right leg, and closed fracture on the tibial plateau of
The receipts formally submitted and offered by Paras were limited to the left leg. He underwent surgeries on March 4, 1987 and April 15, 1987 to
the costs of medicines purchased on various times in the period from repair the fractures.[25] Thus, the CA awarded to him temperate damages
February 1987 to July 1989 (Exhibits E to E-35, inclusive) totaling of P50,000.00 in the absence of definite proof of his actual expenses towards
only P1,397.95.[22] The receipts by no means included hospital and medical that end. As to Inland, Maravillas testimony of the bus having been damaged
expenses, or the costs of at least two surgeries as well as rehabilitative beyond economic repair showed a definitely substantial pecuniary loss, for
therapy. Consequently, the CA fixed actual damages only at that small sum which the CA fixed temperate damages of P250,000.00. We cannot disturb
of P1,397.95. On its part, Inland offered no definite proof on the repairs done the CAs determination, for we are in no position today to judge its
on its vehicle, or the extent of the material damage except the testimony of its reasonableness on account of the lapse of a long time from when the accident
witness, Emerlinda Maravilla, to the effect that the bus had been damaged occurred.[26]
beyond economic repair.[23] The CA rejected Inlands showing of unrealized
income worth P3,945,858.50 for 30 months (based on alleged average In awarding temperate damages in lieu of actual damages, the CA did
weekly income of P239,143.02 multiplied by its guaranteed not err, because Paras and Inland were definitely shown to have sustained
revenue amounting to 55% thereof, then spread over a period of 30 months, substantial pecuniary losses. It would really be a travesty of justice were the
the equivalent to the remaining 40% of the vehicles un-depreciated or net CA now to be held bereft of the discretion to calculate moderate or temperate
damages, and thereby leave Paras and Inland without redress from the
47
wrongful act of Philtranco and its driver. [27] We are satisfied that the definite proof of pecuniary loss cannot be adduced, although
the court is convinced that the aggrieved party suffered some
CA exerted effort and practiced great care to ensure that the causal link pecuniary loss.
between the physical injuries of Paras and the material loss of Inland, on the
The Code Commission, in explaining the concept of
one hand, and the negligence of Philtranco and its driver, on the other hand, temperate damages under Article 2224, makes the following
existed in fact. It also rejected arbitrary or speculative proof of loss. Clearly, comment:
the costs of Paras surgeries and consequential rehabilitation, as well as the
In some States of the American
fact that repairing Inlands vehicle would no longer be economical justly Union, temperate damages are allowed.
warranted the CA to calculate temperate damages of P50,000.00 There are cases where from the nature of the
case, definite proof of pecuniary loss cannot
and P250,000.00 respectively for Paras and Inland. be offered, although the court is convinced
that there has been such loss. For instance,
injury to ones commercial credit or to the
There is no question that Article 2224 of the Civil Code expressly goodwill of a business firm is often hard to
authorizes the courts to award temperate damages despite the lack of certain show with certainty in terms of money.
Should damages be denied for that reason?
proof of actual damages, to wit:
The judge should be empowered to calculate
moderate damages in such cases, rather than
Article 2224. Temperate or moderate damages, that the plaintiff should suffer, without
which are more than nominal but less than compensatory redress from the defendants wrongful act.
damages, may be recovered when the court finds that some
pecuniary loss has been suffered but its amount cannot, from
3.
the nature of the case, be proved with certainty.
Paras loss of earning capacity
must be compensated
The rationale for Article 2224 has been stated in Premiere Development Bank
v. Court of Appeals[28] in the following manner: In the body of its decision, the CA concluded that considering that
Paras had a minimum monthly income of P8,000.00 as a trader he was
Even if not recoverable as compensatory damages,
entitled to recover compensation for unearned income during the 3-month
Panacor may still be awarded damages in the concept of
temperate or moderate damages. When the court finds that period of his hospital confinement and the 6-month period of his recovery
some pecuniary loss has been suffered but the amount and rehabilitation; and aggregated his unearned income for those periods
cannot, from the nature of the case, be proved with certainty,
temperate damages may be recovered. Temperate damages to P72,000.00.[29] Yet, the CA omitted the unearned income from the
may be allowed in cases where from the nature of the case, dispositive portion.
48
Increase in award of attorneys fees

The omission should be rectified, for there was credible proof of


Paras loss of income during his disability. According to Article 2205, (1), of
the Civil Code, damages may be recovered for loss or impairment of earning Although it is a sound policy not to set a premium on the right to litigate,
[34]
capacity in cases of temporary or permanent personal injury. Indeed, we consider the grant to Paras and Inland of reasonable attorneys fees

indemnification for damages comprehends not only the loss suffered (actual warranted. Their entitlement to attorneys fees was by virtue of their having

damages or damnum emergens) but also the claimants lost profits been compelled to litigate or to incur expenses to protect their interests, [35] as

(compensatory damages or lucrum cessans).[30] Even so, the formula that has well as by virtue of the Court now further deeming attorneys fees to be just

gained acceptance over time has limited recovery to net earning capacity; and equitable.[36]

hence, the entire amount of P72,000.00 is not allowable. The premise is


obviously that net earning capacity is the persons capacity to acquire money, In view of the lapse of a long time in the prosecution of the claim, [37] the

less the necessary expense for his own living. [31] To simplify the Court considers it reasonable and proper to grant attorneys fees to each of

determination, therefore, the net earning capacity of Paras during the 9- Paras and Inland equivalent to 10% of the total amounts hereby awarded to

month period of his confinement, surgeries and consequential therapy is them, in lieu of only P20,000.00 for that purpose granted to Paras.

pegged at only half of his unearned monthly gross income of P8,000.00 as a 5.


trader, or a total of P36,000.00 for the 9-month period, the other half being Legal interest on the amounts awarded
treated as the necessary expense for his own living in that period.
Pursuant to Eastern Shipping Lines, Inc. v. Court of Appeals, [38] legal interest
It is relevant to clarify that awarding the temperate damages (for the at the rate of 6% per annum accrues on the amounts adjudged reckoned from
substantial pecuniary losses corresponding to Parass surgeries and July 18, 1997, the date when the RTC rendered its judgment; and legal
rehabilitation and for the irreparability of Inlands damaged bus) and the interest at the rate of 12% per annum shall be imposed from the finality of
actual damages to compensate lost earnings and costs of medicines give rise the judgment until its full satisfaction, the interim period being regarded as
to no incompatibility. These damages cover distinct pecuniary losses suffered the equivalent of a forbearance of credit.
by Paras and Inland,[32] and do not infringe the statutory prohibition against
recovering damages twice for the same act or omission. [33] WHEREFORE, the Court AFFIRMS WITH
MODIFICATION the decision of the Court of Appeals promulgated on
4.
49
September 25, 2002, by ordering PHILTRANCO SERVICE SO ORDERED.
ENTERPRISES, INC. and APOLINAR MIRALLES to pay, jointly and
severally, as follows:

1. To Felix Paras:
Republic of the Philippines
(a) P1,397.95, as reimbursement for the costs of medicines SUPREME COURT
purchased between February 1987 and July 1989; Manila

(b) P50,000.00 as temperate damages; THIRD DIVISION

(c) P50,000.00 as moral damages;

(d) P36,000.00 for lost earnings; G.R. No. 107356 March 31, 1995

(e) 10% of the total of items (a) to (d) hereof as attorneys SINGAPORE AIRLINES LIMITED, petitioner,
fees; and vs.
THE COURT OF APPEALS and PHILIPPINE AIRLINES, respondents.
(f) Interest of 6% per annum from July 18, 1997 on the total
of items (a) to (d) hereof until finality of this decision,
and 12% per annum thereafter until full payment.
ROMERO, J.:
2. To Inland Trailways, Inc.:
Sancho Rayos was an overseas contract worker who had a renewed contract
with the Arabian American Oil Company (Aramco) for the period covering
(a) P250,000.00 as temperate damages;
April 16, 1980, to April 15, 1981. As part of Aramco's policy, its employees
returning to Dhahran, Saudi Arabia from Manila are allowed to claim
(b) 10% of item (a) hereof; and
reimbursement for amounts paid for excess baggage of up to 50 kilograms, as
long as it is properly supported by receipt. On April 1980, Rayos took a
(c) Interest of 6% per annum on item (a) hereof from July
Singapore Airlines (SIA) flight to report for his new assignment, with a 50-
18, 1997 until finality of this decision, and 12% per
kilogram excess baggage for which he paid P4,147.50. Aramco reimbursed
annum thereafter until full payment.
said. amount upon presentation of the excess baggage ticket.

3. The petitioner shall pay the costs of suit. In December 1980, Rayos learned that he was one of several employees
being investigated by Aramco for fraudulent claims. He immediately asked

50
his wife Beatriz in Manila to seek a written confirmation from SIA that he rate of interest from the filing of the complaint until paid in
indeed paid for an excess baggage of 50 kilograms. On December 10, 1980, full;
SIA's manager, Johnny Khoo, notified Beatriz of their inability to issue the
certification requested because their records showed that only three 3. The sum of Fifty Thousand Pesos (P50,000.00) as moral
kilograms were entered as excess and accordingly charged. SIA issued the damages;
certification requested by the spouses Rayos only on April 8, 1981, after its
investigation of the anomaly and after Beatriz, assisted by a lawyer, 4. The sum equivalent to ten Per Cent (10th) of the total
threatened it with a lawsuit. On April 14, 1981, Aramco gave Rayos his travel amount due as and for attorney's fees; and
documents without a return visa. His employment contract was not renewed.
5. The cost of suit.
On August 5, 1981, the spouses Rayos, convinced that SIA was responsible
for the non-renewal of Rayos' employment contract with Aramco, sued it for The defendant's counterclaim is hereby dismissed.
damages. SIA claimed that it was not liable to the Rayoses because the
tampering was committed by its handling agent, Philippine Airlines (PAL). It ON THE THIRD PARTY COMPLAINT, the third-party
then filed a third-party complaint against PAL. PAL, in turn, countered that defendant PAL is ordered to pay defendant and third-party
its personnel did not collect any charges for excess baggage; that it had no plaintiff SIA whatever the latter has paid the plaintiffs.
participation in the tampering of any excess baggage ticket; and that if any
tampering was made, it was done by SIA's personnel.
SO ORDERED.
Judge Jesus O. Ibay of the Regional Trial Court of Manila, Branch 30,
In so ruling, the court a quo concluded that the excess baggage ticket of
rendered judgment on September 9, 1988, in favor of the plaintiffs, the
Rayos was tampered with by the employees of PAL and that the fraud was
dispositive portion of which reads thus:
the direct and proximate cause of the non-renewal of Rayos' contract with
Aramco.
WHEREFORE, judgment is hereby rendered in favor of the
plaintiffs and against the defendant Singapore Airlines
All parties appealed to the Court of Appeals. SIA's appeal was dismissed for
Limited, sentencing the latter to pay the former the
non-payment of docket fees, which dismissal was eventually sustained by
following:
this Court. The Rayos spouses withdrew their appeal when SIA satisfied the
judgment totaling P802,435.34.
1. The sum of Four Hundred Thirty Thousand Nine Hundred
Pesos and Eighty Centavos (P430,900.80) as actual damages,
In its appeal, PAL claimed that the spouses Rayos had no valid claim against
with interest at the legal rate from the date of the filing of the
SIA because it was the inefficiency of Rayos which led to the non-renewal of
complaint until fully paid.
his contract with Aramco, and not the alleged tampering of his excess bagged
ticket On the other hand, SIA argued that the only issue in the said appeal is
2. The sum of Four Thousand One Hundred Forty-Seven whether or not it was entitled to reimbursement from PAL, citing
Pesos and Fifty Centavos (P4,147.50) as reimbursement for the case of Firestone Tire and Rubber Company of the Philippines
the amount deducted from Mr. Rayos' salary, also with legal v. Tempongko.1

51
The appellate court disagreed with SIA's contention that PAL could no longer same case, one on the plaintiff's complaint and the other on
raise the issue of SIA's liability to the Rayoses and opined "that SIA's answer the third-party complaint. When he finds favorably on both
to the complaint should inure to the benefit of PAL, and the latter may complaints, as in this case, he renders judgment on the
challenge the lower court's findings against SIA in favor of plaintiffs- principal complaint in favor of plaintiff against defendant
appellees (the Rayos spouses) for the purpose of defeating SIA's claim and renders another judgment on the third-party complaint in
against it, and not for the purpose of altering in any way the executed favor of defendant as third-party plaintiff, ordering the third-
judgment against SIA." In its answer to the main complaint, SIA set up the party defendant to reimburse the defendant whatever amount
defense that the excess baggage ticket was indeed tampered with but it was said defendant is ordered to pay plaintiff in the case. Failure
committed by PAL's personnel. On September 21, 1992, the appellate court of any of said parties in such a case to appeal the judgment
granted PAL's appeal and absolved it from any liability to SIA. as against him makes such judgment final and executory. By
the same token, an appeal by one party from such judgment
In this petition for review, SIA argues that PAL cannot validly assail for the does not inure to the benefit of the other party who has not
first time on appeal the trial court's decision sustaining the validity of appealed nor can it be deemed to be an appeal of such other
plaintiff's complaint against SIA if PAL did not raise this issue in the lower party from the judgment against him.
court. It added that the appellate court should have restricted its ruling on the
right of SIA to seek reimbursement from PAL, as this was the only issue It must be noted that in the proceedings below, PAL disclaimed any liability
raised by SIA in its third-party complaint against PAL. to the Rayoses and imputed the alleged tampering to SIA's personnel. On
appeal, however, PAL changed its theory and averred that the spouses Rayos
The instant appeal is impressed with merit. had no valid claim against SIA on the around that the non-renewal of
Sancho's contract with Aramco was his unsatisfactory performance rather
The petitioner correctly pointed out that the case of Firestone squarely than the alleged tampering of his excess baggage ticket. In response to PAL's
applies to the case at bench. In said case, the Court expounded on the nature appeal, SIA argued that it was improper for PAL to question SIA's liability to
of a third-party complaint and the effect of a judgment in favor of the the plaintiff, since this was no longer an issue on account of the finality and,
plaintiff against the defendant and in favor of such defendant as third-party in fact, satisfaction of the judgment.
plaintiff against, ultimately, the third-party defendant. Speaking through then
Justice and later Chief Justice Claudio Teehankee, the Court stated: Surprisingly, the appellate court ignored the Court's pronouncements
in Firestone and declared:
The third-party complaint is, therefore, a procedural device
whereby a "third party" who is neither a party nor privy to [T]here is nothing in the citation which would suggest that
the act or deed complained of by the plaintiff, may be the appellant cannot avail of the defenses which would have
brought into the case with leave of court, by the defendant, been available to the non-appealing party against the
who acts as third-party plaintiff to enforce against such third- prevailing party which would be beneficial to the appellant.
party defendant a right for contribution, indemnity, After all, PAL's liability here is premised on the liability of
subrogation or any other relief, in respect of the plaintiff's SIA to plaintiffs-appellees, In its own defense, it should have
claim. The third-party complaint is actually independent of the right to avail of defenses of SIA against plaintiffs-
and separate and distinct from the plaintiff's complaint. . . . appellees which would redound to its benefit. This is
When leave to file the third-party complaint is properly especially true here where SIA lost the capability to defend
granted, the Court renders in effect two judgments in the itself on the technicality of failure to pay docket fee, rather
52
than on the merits of its appeal. To hold otherwise would be The judgment, therefore, as far as the Rayoses and SIA are concerned, has
to open the door to a possible collusion between the plaintiff already gained finality. What remains to be resolved, as correctly pointed out
and defendant which would leave the third-party defendant by petitioner, is whether it is entitled to reimbursement from PAL,
holding the bag. considering that PAL appealed that part of the decision to the appellate court.
This is where the rule laid down in Firestone becomes applicable.
There is no question that a third-party defendant is allowed to set up in his
answer the defenses which the third-party plaintiff (original defendant) has or The trial court's decision, although adverse to SIA as defendant, made PAL
may have to the plaintiff's claim. There are, however, special circumstances ultimately answerable for the judgment by ordering the latter to reimburse
present in this case which preclude third-party defendant PAL from the former for the entire monetary award. On appeal, PAL tried to exonerate
benefiting from the said principle. itself by arguing that the Rayoses had no valid claim against SIA. From
PAL's viewpoint, this seemed to be the only way to extricate itself from a
One of the defenses available to SIA was that the plaintiffs had no cause of mess which the court a quo ascribed to it. This cannot, however, be allowed
action, that is, it had no valid claim against SIA. SIA investigated the matter because it was neither raised by SIA in its answer to the main complaint nor
and discovered that tampering was, indeed, committed, not by its personnel by PAL in its answer to the third-party complaint. The prudent thing that PAL
but by PAL's. This became its defense as well as its main cause of action in should have done was to state in its answer to the third-party complaint filed
the third-party complaint it filed against PAL. For its part, PAL could have by SIA against it everything that it may conceivably interpose by way of its
used the defense that the plaintiffs had no valid claim against it or against defense, including specific denials of allegations in the main complaint
SIA. This could be done indirectly by adopting such a defense in its answer which implicated it along with SIA.
to the third-party complaint if only SIA had raised the same in its answer to
the main complaint, or directly by so stating in unequivocal terms in its The appellate court was in error when it opined that SIA's answer inured to
answer to SIA's complaint that SIA and PAL were both blameless. Yet, PAL the benefit of PAL for the simple reason that the complaint and the third-
opted to deny any liability which it imputed to SIA's personnel. It was only party complaint are actually two separate cases involving the same set of
on appeal — in a complete turn around of theory — that PAL raised the issue facts which is allowed by the court to be resolved in a single proceeding only
of no valid claim by the plaintiff against SIA. This simply cannot be allowed. to avoid a multiplicity of actions. Such a proceeding obviates the need of
trying two cases, receiving the same or similar evidence for both, and
While the third-party defendant; would benefit from a victory by the third- enforcing separate judgments therefor. This situation is not, as claimed by the
party plaintiff against the plaintiff, this is true only when the third-party appellate court, analogous to a case where there are several defendants
plaintiff and third-party defendant have non-contradictory defenses. Here, the against whom a complaint is filed stating a common cause of action, where
defendant and third-party defendant had no common defense against the the answer of some of the defendants inures to the benefit of those who did
plaintiffs' complaint, and they were even blaming each other for the fiasco. not file an answer. While such a complaint speaks of a single suit, a third-
party complaint involves an action separate and distinct from, although
Fear of collusion between the third-party plaintiff and the plaintiffs aired by related to the main complaint. A third-party defendant who feels aggrieved by
the appellate court is misplaced if not totally unfounded. The stand of SIA as some allegations in the main complaint should, aside from answering the
against the plaintiffs' claim was transparent from the beginning. PAL was third-party complaint, also answer the main complaint.
aware of SIA's defense, and if it was convinced that SIA should have raised
the defense of no valid claim by the plaintiffs, it should have so stated in its We do not, however, agree with the petitioner that PAL is solely liable for the
answer as one of its defenses, instead of waiting for an adverse judgment and satisfaction of the judgment. While the trial court found, and this has not
raising it for the first time on appeal. been adequately rebutted by PAL, that the proximate cause of the non-
53
renewal of Rayos' employment contract with Aramco was the tampering of SO ORDERED
his excess baggage ticket by PAL's personnel, it failed to consider that the
immediate cause of such non-renewal was SIA's delayed transmittal of the Republic of the Philippines
certification needed by Rayos to prove his innocence to his employer. SUPREME COURT
Manila
SIA was informed of the anomaly in December 1980 but only issued the
certification four months later or, more specifically, on April 8, 1981, a few SECOND DIVISION
days before the expiration of Rayos' contract. Surely, the investigation
conducted by SIA could not have lasted for four months as the information G.R. No. 189532 June 11, 2014
needed by the Rayoses could easily be verified by comparing the duplicate
excess baggage tickets which they and their handling agent, PAL, kept the VIRGINIA S. DIO and H.S. EQUITIES, LTD., Petitioners,
record purposes. The fact that the Rayos spouses had to be assisted by vs.
counsel who threatened to file a damage suit against SIA if the certification SUBIC BAY MARINE EXPLORATORIUM, INC., represented by its
they urgently needed was not immediately issued only strengthens the Chairman and Chief Executive Officer, TIMOTHY
suspicion that SIA was not dealing with them in utmost good faith. The effect DESMOND, Respondents.
of SIA's mishandling of Beatriz Rayos' request became instantly apparent
when her husband's contract was not renewed in spite of his performance DECISION
which was constantly "highly regarded" by the manager of Aramco's
equipment services department.
PEREZ, J.:
Former Chief Justice and noted remedial law expert Manuel V. Moran opined
This is a Petition for Review on Certiorari1 pursuant to Rule 45 of the
that "in an action upon a tort, the defendant may file a third-party complaint
Revised Rules of Court, assailing the 3 April 2009 Order2 of the Regional
against a joint tort-feasor for contribution."2
Trial Court (RTC) of Balanga City, Bataan, on pure question of law. In its
assailed Order, the RTC denied the motion filed by petitioners to set their
The non-renewal of Rayos employment contract was the natural and probable counterclaims for hearing on the ground that the main case was already
consequence of the separate tortious acts of SIA and PAL. Under mandate of dismissed with finality by the Court of Appeals in CA-G.R. CV No. 87117.
Article 2176 of the Civil Code, Rayos is entitled to be compensated for such
damages. Inasmuch as the responsibility of two or more persons, or tort-
In an Order3 dated 26 August 2009, the RTC refused to reconsider its earlier
feasors, liable for a quasi-delict is joint and several, 3 and the sharing as
disposition.
between such solidary debtors is pro-rata,4 it is but logical, fair, and equitable
to require PAL to contribute to the amount awarded to the Rayos spouses and
already paid by SIA, instead of totally indemnifying the The Facts
latter.WHEREFORE, the decision of the respondent Court of Appeals in CA-
G.R. CV No. 20488 dated September 21, 1992, is hereby REVERSED and a Petitioner H.S. Equities, Ltd., (HSE) is a foreign corporation duly organized
new one is entered ordering private respondent Philippine Airlines to pay, by and existing under the laws of the British Virgin Islands, with registered
way of contribution, petitioner Singapore Airlines one-half (1/2) of the address at Akara Building, 24 De Castro Street, Wickhams Cay I, Road
amount it actually paid to Sancho and Beatriz Rayos in satisfaction of the Town, Tortola, British Virgin Islands. It entered into an isolated transaction
judgment in Civil Case No. 142252, dated September 9, 1988.
54
subject of the instant case. It is represented in this action by petitioner To refute the claims of respondents, petitioners maintained in their Answer
Virginia S. Dio (Dio). with Compulsory Counterclaim6 that it would be highly preposterous for
them to dissuade investors and banks from putting in money to SBME
Respondent Subic Bay Marine Exploratorium, Inc. (SBME) is a domestic considering that HSE and Dio are stakeholders of the company with
corporation, duly organized and existing under the Philippine laws and is substantial investments therein. In turn, petitioners countered that their
represented in this action by its Chief Executive Officer, respondent Timothy reputation and good name in the business community were tarnished as a
Desmond (Desmond). result of the filing of the instant complaint, and thus prayed that they be
indemnified in the amount of US$2,000,000.00 as moral damages.
In 2002, SBME decided to expand its business by operating a beach resort Constrained to litigate to protect their rights, petitioners asked that they be
inside the property administered by the Subic Bay Metropolitan Authority indemnified in the amount of₱1,000,000.00 in litigation expenses. Petitioners
(SBMA). For the business venture to take off, SBME needed to solicit likewise sought to recover their investment of US$1,500,000.00 since they
investors who are willing to infuse funds for the construction and operation were purportedly inveigled by Desmond into putting in money to SBME
of the beach resort project. HSE (formerly known as Westdale Assets under the pretext that they will be accorded with minority protection rights. It
Limited) thru its authorized director, Dio, agreed to invest the amount of was alleged that after the filing of the instant complaint, Desmond, in
US$2,500,000.00 with SBME by purchasing 750,000 common shares with a collusion with other Board of Directors of SBME, managed to unjustly deny
par value of ₱100 per share from the increase in its authorized capital stock. HSE and Dio their rights under the Subscription Agreement. To curb similar
The agreement was reduced into writing wherein HSE, in order to protect its socially abhorrent actions, petitioners prayed that SBME and its Board of
interest in the company, was afforded minority protection rights such as the Directors, namely, Desmond, John Corcoran, Gaile Laule and Gregorio
right to appoint a member of the board of directors and the right to veto Magdaraog, be jointly and severally held liable to pay exemplary damages in
certain board resolutions. After HSE initially paid US$200,000.00 for its the amount of US$2,000,000.00.
subscription, it refused to further lay out money for the expansion project of
the SBME due to the alleged mismanagement in the handling of corporate After petitioners filed their Answer with Compulsory Counterclaim, the RTC,
funds. instead of setting the case for pre-trial, issued an Order 7 dated 15 August
2005 motu proprio dismissing Civil Case No. 7572. The dismissal was
Consequently, SBME initiated an intra-corporate dispute before the RTC of grounded on the defective certificate of non-forum shopping which was
Balanga City, Bataan against petitioners HSE and Dio. 4 Before petitioners signed by Desmond without specific authority from the Board of Directors of
could file their answer to the complaint, respondents impleaded its Corporate SBME.
Secretary, Atty. Winston Ginez, as additional defendant. In their Amended
Complaint5 docketed as Civil Case No. 7572, SBME essentially alleged that Armed with a board resolution specifically authorizing Desmond to sign the
HSE unjustly refused to pay the balance of its unpaid subscription effectively certificate of non-forum shopping on behalf of SBME, respondents moved
jeopardizing the company’s expansion project. Apart from their refusal to that Civil Case No. 7572 be reinstated and further proceedings thereon be
honor their obligation under the subscription contract, it was further alleged conducted. A copy of such authority was attached by respondents to their
by SBME that Dio tried to dissuade local investors and financial institutions Motion for Reconsideration.
from putting in capital to SBME by imputing defamatory acts against
Desmond. To protect the interest of the corporation and its stockholders, For lack of merit, RTC denied respondents’ motion and affirmed the
SBME sought that petitioners be enjoined from committing acts inimical to dismissal in an Order8 dated 22 September 2005. In refusing to reinstate
the interest of the company. respondents’ complaint, the court a quo ruled that the belated submission of a
board resolution evidencing Desmond’s authority to bind the corporation did
55
not cure the initial defect in the complaint and declared that strict compliance THE TRIAL COURT COMMITTED AN ERROR OF LAW WHEN IT
with procedural rules is enjoined for the orderly administration of justice. REFUSED TO SET [PETITIONERS’] COUNTERCLAIMS FOR
HEARING ON THE GROUND THATTHE CASE WAS DEEMED
Aggrieved by the lower court’s refusal to reinstate their complaint, "CLOSED AND TERMINATED" BYTHE COURT OF APPEALS AFTER
respondents elevated the matter before the Court of Appeals assailing the THE LATTER DISMISSED RESPONDENTS’ APPEAL BECAUSE OF
propriety of the 15 August 2005 and 22 September 2005 RTC Orders via THEIR FAILURE TOFILE THEIR APPELLANTS’ BRIEF.16
Petition for Review which was docketed as CA-G.R. CV No. 87117.
The Court’s Ruling
For failure of the respondents to file their appellants’ brief, the appellate court
proceeded to dismiss CA-G.R.CV No. 87117 and considered the case closed Petitioners argue that despite the dismissal of the main case, the counterclaim
and terminated in its Resolution9 dated 2 January 2007. may still remain for independent adjudication under Section 6, Rule 16 of the
Revised Rules of Court.17 Petitioners pointed out that while the dismissal of
After respondents failed to seasonably move for the reconsideration of the respondents’ complaint is a confirmation of Desmonds’ lack of legal
aforementioned Resolution, the dismissal of CA-G.R. CV No. 87117 became personality to file the case, this does not, however, mean that they also do not
final and executory, as shown in the Entry of Judgment 10 dated 3 May 2007. have the qualification to pursue their counterclaim. To fault petitioners for
the fatal infirmity in the respondents’ complaint would not only work
The procedural incidents before the appellate court having been resolved injustice to the former but would result to an absurd situation where the fate
with finality, petitioners went back to the RTC to file a motion to set their of their counterclaims is placed entirely in the hands of the respondents.
counterclaims for hearing11 which was opposed by the respondents on the
ground that the filing of the compulsory counterclaims was not accompanied For their part, respondents posit that, in directly assailing the adverse RTC
by payment of the required docket fees precluding the court from acquiring Orders before the Court, petitioners erroneously availed themselves of an
jurisdiction over the case.12 erroneous remedy arguing that this petition should have been initially filed
with the appellate court. By seeking relief directly from the Court, petitioners
Acting on the motions filed by the opposing parties, the RTC, in an ignored the judicial hierarchy warranting the peremptory dismissal of their
Order13 dated 3 April 2009 granted the motion of the respondents, thereby petition. Unless special and important reasons were clearly and specifically
directing the dismissal of petitioners’ counterclaims but not on the ground of set out in the petition, and in this case it was not, a direct invocation of this
non-payment of docket fees. In disallowing petitioners’ counterclaims to Court’s original jurisdiction may not be allowed.
proceed independently of respondents’ complaint, the lower court pointed out
that in view of the dismissal of the main case, which has already been The established policy of strict observance of the judicial hierarchy of courts,
affirmed with finality by the appellate court, it has already lost its jurisdiction as a rule, requires that recourse must first be made to the lower ranked court
to act on petitioners’ counterclaim, the compulsory counterclaim being exercising concurrent jurisdiction with a higher court. A regard for judicial
merely ancillary to the principal controversy. hierarchy clearly indicates that petitions for the issuance of extraordinary
writs against first level courts should be filed in the RTC and those against
In an Order14 dated 26 August 2009, the RTC refused to reconsider its earlier the latter should be filed in the Court of Appeals. The rule is not iron-clad,
disposition. Petitioners filed this instant Petition for Review on however, as it admits of certain exceptions.18
Certiorari15 on pure question of law seeking the reversal of the 3 April 2009
and 26 August 2009 RTC Orders on the ground that:

56
Thus, a strict application of the rule is unnecessary when cases brought dismissal of the counterclaim, in turn, erroneously proceeded from the ratio
before the appellate courts do not involve factual but purely legal that since the main action has already been dismissed with finality by the
questions.19 In fact, Rule 41, Section 2(c)20 of the Revised Rules of Court appellate court, the lower court has lost its jurisdiction to grant any relief
provides that a decision or order of the RTC may as it was done in the instant under the counterclaim.
case, be appealed to the Supreme Court by petition for review on certiorari
under Rule 45, provided that such petition raises only questions of law. In the significant case of Pinga v. Heirs of German Santiago, 23 this Court
speaking through Justice Dante Tinga, resolved the nagging question as to
A question of law exists when the doubt or controversy concerns the correct whether or not the dismissal of the complaint carries with it the dismissal of
application of law or jurisprudence to a certain set of facts; or when the issue the counterclaim. Putting to rest the remaining confusion occasioned by
does not call for the examination of the probative value of the evidence Metals Engineering Resources Corp. v. Court of Appeals 24 and BA Finance
presented, the truth or falsehood of facts being admitted. A question of fact Corporation v. Co,25 the Court articulated that, in light of the effectivity of the
exists when the doubt or difference arises as to the truth or falsehood of facts 1997 Rules of Civil Procedure, the correct and prevailing doctrine is as
or when the query invites calibration of the whole evidence considering follows:
mainly the credibility of the witnesses, the existence and relevancy of
specific surrounding circumstances, as well as their relation to each other and To be certain, when the Court promulgated the 1997 Rules of Civil
to the whole, and the probability of the whole situation. 21 Thus, the test of Procedure, including the amended Rule17, those previous jural doctrines that
whether a question is one of law or of fact is not the appellation given to such were inconsistent with the new rules incorporated in the 1997 Rules of Civil
question by the party raising the same; rather, it is whether the appellate court Procedure were implicitly abandoned insofar as incidents arising after the
can determine the issue raised without reviewing or evaluating the evidence, effectivity of the new procedural rules on 1 July 1997. BA Finance, or even
in which case, it is a question of law; otherwise it is a question of fact. 22 the doctrine that a counterclaim may be necessarily dismissed along with the
complaint, clearly conflicts with the 1997 Rules of Civil Procedure. The
Petitioners here raise the solitary issue of the propriety of the dismissal of abandonment of BA Finance as doctrine extends as far back as 1997, when
their counterclaim on the basis of the reasoning of the lower court that the the Court adopted the new Rules of Civil Procedure. If, since then, such
counterclaim derives its jurisdictional support from the complaint which has abandonment has not been affirmed in jurisprudence, it is only because no
already been dismissed. Petitioners maintain that the court a quo erred in proper case has arisen that would warrant express confirmation of the new
arriving at the legal conclusion that the counterclaim can no longer stand for rule. That opportunity is here and now, and we thus rule that the dismissal of
independent adjudication after the main case was already dismissed with a complaint due to fault of the plaintiff is without prejudice to the right of the
finality. In order to resolve this issue, the Court need only to look into the defendant to prosecute any pending counterclaims of whatever nature in the
pleadings, depositions, admissions, and affidavits submitted by the respective same or separate action. We confirm that BA Finance and all previous rulings
parties without going into the truth or falsity of such documents. of the Court that are inconsistent with this present holding are now
Consequently, the petitioners’ remedy for assailing the correctness of the abandoned.
dismissal of their counterclaims, involving as it does a pure question of law,
indeed lies with this Court. Now to the issue of the propriety of the dismissal xxxx
of the counterclaim.
Thus, the present rule embodied in Sections 2 and 3 of Rule 17 ordains a
The dismissal of the complaint resulted from respondents’ failure to append more equitable disposition of the counterclaims by ensuring that any
to the complaint a copy of the board resolution authorizing Desmond to sign judgment thereon is based on the merit of the counterclaim itself and not on
the certificate of non-forum shopping on behalf of SBME. The subsequent the survival of the main complaint. Certainly, if the counterclaim is palpably
57
without merit or suffers jurisdictional flaws which stand independent of the counterclaim is auxiliary to the proceeding in the original suit and merely
complaint, the trial court is not precluded from dismissing it under the derives its jurisdictional support therefrom.
amended rules, provided that the judgment or order dismissing the
counterclaim is premised on those defects. At the same time, if the Thus, it necessarily follows that if the trial court no longer possesses
counterclaim is justified, the amended rules now unequivocally protect such jurisdiction to entertain the main action of the case, as when it dismisses the
counterclaim from peremptory dismissal by reason of the dismissal of the same, then the compulsory counterclaim being ancillary to the principal
complaint.26 Reviewing the vacated position, in Metals Engineering controversy, must likewise be similarly dismissed since no jurisdiction
Resources Corp., severance of causes of action was not be permitted in order remains for the grant of any relief under the counterclaim. 28
to prevent circuity of suits and to avert the possibility of inconsistent rulings
based on the same set of facts, viz: As the rule now stands, the nature of the counterclaim notwithstanding, the
dismissal of the complaint does not ipso jure result in the dismissal of the
For all intents and purposes, such proposition runs counter to the nature of a counterclaim, and the latter may remain for independent adjudication of the
compulsory counterclaim in that it cannot remain pending for independent court, provided that such counterclaim, states a sufficient cause of action and
adjudication by the court. This is because a compulsory counterclaim is does not labor under any infirmity that may warrant its outright dismissal.
auxiliary to the proceeding in the original suit and derives its jurisdictional Stated differently, the jurisdiction of the court over the counterclaim that
support therefrom, inasmuch as it arises out of or is necessarily connected appears to be valid on its face, including the grant of any relief thereunder, is
with the transaction or occurrence that is the subject matter of the complaint. not abated by the dismissal of the main action. The court’s authority to
It follows that if the court does not have jurisdiction to entertain the main proceed with the disposition of the counterclaim independent of the main
action of the case and dismisses the same, then the compulsory counterclaim, action is premised on the fact that the counterclaim, on its own, raises a novel
being ancillary to the principal controversy, must likewise be dismissed since question which may be aptly adjudicated by the court based on its own merits
no jurisdiction remained for any grant of relief under the counterclaim. and evidentiary support.

The aforementioned doctrine is in consonance with the primary objective of a In Perkin Elmer Singapore Pte Ltd. v. Dakila Trading Corporartion, 29 a case
counterclaim which is to avoid and prevent circuity of action by allowing the on all fours with the present one, we expounded our ruling in Pinga and
entire controversy between the parties to be litigated and finally determined pointed out that the dismissal of the counterclaim due to the fault of the
in one action, wherever this can be done with entire justice to all parties plaintiff is without prejudice to the right of the defendant to prosecute any
before the court. The philosophy of the rule is to discourage multiplicity of pending counterclaims of whatever nature in the same or separate action,
suits.1âwphi1 It will be observed that the order of the trial court allowing thus: Based on the aforequoted ruling of the Court, if the dismissal of the
herein private respondent to proceed with the presentation of his evidence in complaint somehow eliminates the cause of the counterclaim, then the
support of the latter's counterclaim is repugnant to the very purpose and counterclaim cannot survive. Conversely, if the counterclaim itself states
intent of the rule on counterclaims.27 sufficient cause of action then it should stand independently of and survive
the dismissal of the complaint. Now, having been directly confronted with
In BA Finance Corporation, we likewise refused to entertain the compulsory the problem of whether the compulsory counterclaim by reason of the
counterclaim after the trial court lost its jurisdiction in the main case, thus: unfounded suit may prosper even if the main complaint had been dismissed,
we rule in the affirmative.
The rule is that a compulsory counterclaim cannot "remain pending for
independent adjudication by the court." This is because a compulsory It bears to emphasize that petitioner's counterclaim against respondent is for
damages and attorney's fees arising from the unfounded suit. While
58
respondent's Complaint against petitioner is already dismissed, petitioner Republic of the Philippines
may have very well already incurred damages and litigation expenses such as SUPREME COURT
attorney's fees since it was forced to engage legal representation in the Manila
Philippines to protect its rights and to assert lack of jurisdiction of the courts
over its person by virtue of the improper service of summons upon it. Hence, FIRST DIVISION
the cause of action of petitioner's counterclaim is not eliminated by the mere
dismissal of respondent's complaint.30 (Emphasis theirs). G.R. No. 207376 August 6, 2014

Once more, we allow the counterclaim of the petitioners to proceed AIDA PADILLA, Petitioner,
independently of the complaint of the respondents. vs.
GLOBE ASIATIQUE REALTY HOLDINGS CORPORATION,
WHEREFORE, premises considered, the petition is GRANTED. The FILMAL REALTY CORPORATION, DELFIN S. LEE and DEXTER L.
assailed R TC Orders dated 3 April 2009 and 26 August 2009 are hereby LEE, Respondents.
REVERSED and SET ASIDE. The case is REMANDED to the Regional
Trial Court of Balanga City, Bataan for further proceedings, on the matter of DECISION
petitioners Virginia S. Dio and H.S. Equities, Ltd. 's counterclaims. No
pronouncement as to costs. VILLARAMA, JR., J.:

SO ORDERED. Assailed in this petition for review under Rule 45 are the Orders 1 dated
November 12, 2012 denying the motion to set the counterclaim for pre-trial
and May 8, 2013 denying petitioner's motion for reconsideration, issued by
the Regional Trial Court (RTC) of Pasig City, Branch 155 in Civil Case No.
73132.

Factual Antecedents

From the years 2005 to 2008, Philippine National Bank (PNB) entered into
several Contracts to Sell (CTS) Facility Agreements 2 with respondents Globe
Asiatique Realty Holdings Corporation (Globe Asiatique) and Filmal Realty
Corporation (Filmal) represented by Delfin S. Lee and Dexter L. Lee,
President and Vice-President, respectively, of the two corporations. PNB
thereby agreed to make available toGlobe Asiatique and Filmal CTS Facility
in the amount not exceeding Two Hundred Million Pesos (₱200,000,000.00)
to finance the purchase of certain Accounts Receivables or the in-house
installment receivables of respondents arising from the sale of subdivision
houses in their real estate/housing projects as evidenced by contracts to sell.

59
These availments werelater increased to a total amount of One Billion Two to the CTS Facility Agreements and the release of various sums to
Hundred Million Pesos (₱1,200,000,000.00).3 respondents in the total amountof ₱974,377,159.10. PNB accused
respondents of falsely representing that they have valid and subsisting
Pursuant to and as a condition for the CTS Facility availments, respondents contracts to sell, which evidently showed they had no intention to pay their
executed in favor of PNB several Deeds of Assignment 4 covering accounts loan obligations. The Verification and Certification of Non-Forum Shopping
receivables in the aggregate amount of One Billion One Hundred Ninety- attached to the complaint was signed byPNB’s Senior Vice-president of the
Five Million Nine Hundred Twenty-Six Thousand Three Hundred Ninety Remedial Management Group, Aida Padilla, who likewise executed an
Pesos and Seventy-two centavos (₱1,195,926,390.72). In the said "Affidavit in Support of the Application for the Issuance of the Writ of
instruments, respondents acknowledged the total amount of One Billion Preliminary Attachment."
Three Hundred Ninety FiveMillion Six Hundred Sixty-Five Thousand Five
Hundred Sixty-FourPesos and Sixty-nine centavos (₱1,395,665,564.69) Proceedings in the Pasay
released to themby PNB in consideration of the aforesaid accounts City RTC (Civil Case No.
receivables.5 R-PSY-10-04228-CV)

Sometime in the first quarter of 2010, respondents defaulted in the payment On August 25, 2010, the Pasay City RTC issued an Order7 granting PNB’s
of their outstanding balance and delivery to PNB of transfer certificates of application for issuance of preliminary attachment after finding that
title corresponding to the assigned accounts receivables, for which PNB defendants Globe Asiatique and Filmal "through the active participation or
declared them in default under the CTS Facility Agreements. Subsequently, connivance/conspiracy of defendants Delfin and Dexter Lee from the
respondents made partial payments and made proposals for paying in full its revealing evidence presented by plaintiff are guilty of fraud in contracting
obligation to PNB as shown in the exchange of correspondence between their outstanding loan applications to plaintiff Philippine National Bank
respondents and PNB. (PNB)."8 The writ of preliminary attachment was accordingly issued on
August 27, 2010 after PNB complied withthe posting of attachment bond as
In a letter dated August 5, 2010,6 PNB made a formal and final demand upon ordered by the court.9
respondents to pay/settle the total amount of ₱974,377,159.10 representing
their outstanding obligation.In the course of credit monitoring and Defendants Delfin Lee and DexterLee filed their Answer with Counterclaim
verification, PNB claimed it discovered 231 out of 240 Contracts to Sell to with motion to dismiss,arguing that PNB has no cause of action against them
have either inexistent addresses ofbuyers or the names of the buyers are non- as there is nothing in the CTS Facility Agreements that suggest they are
existent or both. personally liable or serve as guarantors for Globe Asiatique and Filmal, and
that they were just sued as signatories of the CTS Facility Agreements. They
Thereafter, PNB instituted Civil Case No. R-PSY-10-04228-CV (Philippine likewise filed a motion to discharge preliminary attachment. 10
National Bank v. Globe Asiatique Realty Holdings Corporation, Filmal
Realty Corporation, Delfin S. Lee and Dexter L. Lee) for recovery of sum of Defendants Globe Asiatique and Filmalalso filed their Answer with
money and damages with prayerfor writ of preliminary attachment before the Counterclaim denying PNB’s allegationsof fraud and misrepresentation
RTC of Pasay City. particularly after PNB had accepted payments from the corporations. In their
motion to discharge preliminary attachment, Globe Asiatique and Filmal
In their complaint, PNB alleged in detail the fraudulent acts and asserted that the allegations of fraud in the complaint are without basis and
misrepresentations committed by respondents in obtaining PNB’s conformity no proof was presented by plaintiff on the existence of preconceived fraud
and lack of intention to pay their obligations, citing their timely payments
60
made to PNB. They further assailed the affidavit executed by Aida Padilla 8) Plaintiff’s Motion to Expunge defendants’ Reply (on defendants’
who they claimed has no personal knowledge of the subject transactions and motion to set hearing) filed on April 30, 2012.
there being no allegation of threat or possibility that defendant corporations
will dispose oftheir properties in fraud of their creditors. 11 Meanwhile, and before the Pasay City RTC could act upon the foregoing
motions, defendants Globe Asiatique, Filmal, Delfin S. Lee and Dexter L.
In its Order12 dated April 29, 2011, the Pasay City RTC denied defendants’ Lee filed on August 10, 2011 a complaint13 for Damages in the RTC of Pasig
motion to dismiss, motions to discharge preliminary attachment and to City, Branch 155 docketed as Civil Case No. 73132.
expunge or suspend proceedings, as well as PNB’s motion to expunge.
On May 18, 2012, the Pasay City RTC issued an Order14 resolving the
In succession, the parties in Civil Case No. R-PSY-10-04228-CV filed the pending motions, as follows:
following motions:
WHEREFORE, the motion for reconsideration of the Order dated 27 May
1) Defendants’ Motion for Reconsideration of the Order dated April 2011 is denied insofar as the prayer to reconsider denial of the motion to
29, 2011 filed on May 27, 2011; dismiss. However, the prayer to expunge the Manifestation filed on 26
November 2010 is granted thus, the Manifestation is expunged.
2) Plaintiff’s Motion to Set Case for Pre-trial Conference filed on
June 8, 2011; The motion for leave and to admit amended answer is denied. The motion for
reconsideration of the Order dated 29 July 2011 is likewise denied. The other
3) Plaintiff’s Motion for Summary Judgment filed on June 28, 2011; prayers in the omnibus motion to set preliminary hearing of affirmative
defenses in the amended answer, issuance of preliminary attachment based
4) Defendants’ Motion for Leave to Admit Attached Amended thereon and for partial summary judgment on the compulsory counterclaims
Answer with Compulsory Counterclaim filed on July 12, 2011; in the amended answer are denied. Plaintiff’s motion to expunge defendants’
reply is likewise denied.
5) Defendants’ Omnibus Motion (a) to discharge the writ of
attachment on the ground of newly discovered evidence; (b) set Hearing on plaintiff’s motion for summary judgment is set on 19 June 2012
preliminary hearing on affirmative defenses pleaded in the amended at 8:30 a.m., while hearing on defendants’ motion to discharge the writ of
answer; (c) issue preliminary attachment against plaintiff on account preliminary attachmentis set on 26 June 2012 at 8:30 a.m.
of fraud in incurring the obligation as alleged in the amended
answer; and (d) render partial summary judgment on the compulsory Action on plaintiff’s motion to set the case for pre-trial is deferred until after
counterclaim, filed on July 26, 2011; resolution of the motion for summary judgment.

6) Defendants’ Motion for Reconsideration of the Order dated July SO ORDERED.15


29, 2011, with Motion to Continue with the Proceedings Involving
Defendants’ Omnibus Motion, filed on August 31, 2011; 7) Pasig City RTC Case
Defendants’ Motion to Set for Hearing their earlier motion to (Civil Case No. 73132)
discharge the writ of attachment filed on January 24, 2012; and

61
In their Complaint against Judge Pedro De Leon Gutierrez and Aida Padilla shopping (respondents failed to disclose a criminal complaint entitled
(both sued in their personal capacity), respondents claimed that Globe "Tbram Cuyugan v. Aida Padilla and Members of the Board of Directors of
Asiatique and Filmal are well-known and successful real estate developers PNB", docketed as I.S. No. XV-13-INV-11-H-01208 pending before the
whose projects were "being continuously supported by various banks and office of the CityProsecutor of Pasay City); (2) litis pendentia; (3)
other financial institutions prior to the malicious and devastating unfounded respondents’ failure to attach the alleged actionable document, i.e.the
civil action" filed by AidaPadilla (petitioner) which wrought havoc to their supposed "new term loan", inviolation of Section 7, Rule 8 of the Rules of
businesses and lives. As to the CTS Facility Agreements with PNB, Court; (4) failure to state a cause of action against petitioner; and (5)
respondents alleged that these were already novated by the parties who petitioner cannot be held personally liable for her official acts done for and in
agreed upon a term loan starting May 31, 2010 and to expire on April 30, behalf of PNB.
2012. But despite her knowledge of such novation and that the obligation
was not yet due and demandable, petitioner with malice and evident bad faith On January 5, 2012, petitioner filed a motion for preliminary hearing on
still executed a "perjured" Affidavit in support of the application for writ of affirmative defenses, contending that respondents are parroting the very same
preliminary attachment before the Pasay City RTC. Respondents likewise arguments raised and relying on the same evidence they presented before the
sought to hold Judge Gutierrez personally liable for issuing the writ of Pasay City RTC to establish the alleged novation and purported insufficiency
preliminary attachment in favor of PNB notwithstanding that the obligation of the attachment bond,which issues are still pending in the said court. It was
subject of PNB’s complaint was sufficiently secured by the value of thus stressed that respondents are evidently guilty of forum shopping. 18
realproperties sold to it by virtue of the CTS Facility Agreements and deeds
ofassignment of accounts receivables. Respondents filed their Comment/Opposition,19 arguing that there is nothing
in their complaint that would slightly suggest they are asking the Pasig City
They further contended that Judge Gutierrez blindly approved the attachment RTC to issue any injunction or otherwise issue an order setting aside the writ
bond offered by PNB’s sister company, PNB General Insurers Company, Inc. of preliminary attachmentissued by the Pasay City RTC, and neither did they
despite the fact that from its submitted documents, said insurer’s authorized ask for a ruling on whether said writ is illegal or whether Judge Gutierrez
capital stock isonly ₱400 million while its paid-up capital is only ₱312.6 committed a grave abuse of discretion.They asserted that what they seek
million, which is way below the ₱974,377,159.10 attachment bond it issued. from the Pasig City RTC is to allow them to recover damages from Judge De
Leon for his tortious action in approving PNB’s attachment bond. They also
Respondents thus prayed for a judgment ordering petitioner and Judge insisted that forum shopping and litis pendentiaare absent in this case,
Gutierrez to pay moral damages, exemplary damages, litigation expenses, contrary to petitioner’s claims. Respondents likewise opposed 20 the motion to
attorney’s fees and cost of suit. dismiss filed by Judge Gutierrez, citing this Court’s ruling in J. King & Sons
Company, Inc. v. JudgeAgapito L. Hontanosas, Jr.21 in support of their
Judge Gutierrez moved to dismiss16 the complaint against him on the position that the separate complaint before another forum against the judge
following grounds: (1) respondents haveno cause of action against him; and for his actionable wrong in a pending case before him can proceed
(2) the Pasig City court has no jurisdiction over the case and his person, independently without necessarily interfering with the court’s jurisdiction, as
movant being of co-equal and concurrent jurisdiction. what happened in the said case where the judge was merely penalized for
gross misconduct and gross ignorance of the law without actually
Petitioner filed her Answer With Compulsory Counterclaims, 17 praying for invalidating the judge’s order approving the counter-bond without reviewing
the dismissal of respondents’ complaint on the following grounds: (1) the documents presented.
submission of a false certification of non-forum shopping by respondents and
their blatant commission of willful, deliberate and contumacious forum
62
In her Reply,22 petitioner reiterated her previous arguments and additionally or vacate the said order is not only possessed but is restricted to the court in
contended that in any event, there is no basis for respondents’ claim for which the judgment or order is rendered or issued. (Cojuangco vs. Villegas,
damages arising from the issuance of the writ of preliminary attachment 184 SCRA 374)
before the Pasay City RTC considering that PNBGEN Bond No. SU-JC14-
HO-10-0000001-00 is valid and sufficient to secure and answer for whatever The foregoing principles are equally applicable to the counterclaims of Aida
damages respondents may have suffered by reason of such issuance should it Padilla. Indeed, to hear the counterclaims of defendant Aida Padilla will open
be finally decided that PNB was not entitled to the said bond. the door, so to speak, for the plaintiffs to interpose as ostensibledefenses its
claims regarding the alleged illegality of the aforesaid orders and writ of
On April 2, 2012, the RTC of Pasig City issued an Order23 dismissing Civil attachment issued by the RTC of Pasay City. In effect this Court will be
Case No. 73132 for lack of jurisdiction. forced to dwell upon issues involving the pending civil case in the RTC
Branch 199, Pasay City, thereby interfering, albeit indirectly, with said
On May 7, 2012, petitioner filed a Motion to Set Counterclaims for Pre-Trial issues.This is precisely the very evil which the Court sought to avoid when it
Conference.24 dismissed the plaintiffs’ complaint. Therefore, upholding once more the
principle of judicial stability, this Court is impelled to refuse to hear the
On October 22, 2012, the Pasig CityRTC denied respondents’ motion for counterclaims of defendant Padilla.
reconsideration of the April 2, 2012 Order dismissing their
complaint.25 Respondents filed a Notice of Appeal26 under Section 1(a), Rule WHEREFORE, premises considered, the instant Motion filed by defendant
41 of the Rules of Court. Aida Padilla is DENIED without prejudice to the re-filing of defendant Aida
Padilla’s causes of action against herein plaintiffs after final resolution of
On November 12, 2012, the Pasig City RTC issued the first questioned Civil Case No. R-PSY-10-04228 entitled "Philippine National Bank vs.
Order, which reads: Globe Asiatique Realty Holdings Corp, et al."

xxxx SO ORDERED. (Emphasis supplied.)

Records show that this Court, through then Acting Presiding Judge Amorfina Petitioner’s motion for reconsideration was likewise denied under the second
Cerrado-Cezar, issued an Order dated April 2, 2012, dismissing the case on assailed Order27 dated May 8, 2013, as follows:
the ground that issues involved in this case already impinge upon the validity
of the Order dated August 25, 2010 and Writ of Attachment dated August 27, xxxx
2010 issued by the Regional Trial Court, Branch 119, Pasay City, a court of
concurrent and coordinate jurisdiction, in Civil Case No. R-PSY-10-04228 Defendant Padilla argues that this Court has jurisdictional competence and
entitled "Philippine National Bank vs. Globe Asiatique Realty Holdings authority to resolve her counterclaims notwithstanding the dismissal of the
Corp. et al." The ruling in said Order dated April 2, 2012, was affirmed by Complaint dated August 10, 2011 for violation of the principle of judicial
this Court per its Order dated October 22, 2012, whereby it reiterated that stability. The resolution of her compulsory counterclaims will not require this
acting on the plaintiffs’ Complaint is a brazen violation of the principle of Court to look into or pass upon the validity of the acts of the Regional Trial
judicial stability, which essentially states that the judgment or order of a court Court of Pasay City, Branch 119 in issuing the Writ of Attachment dated
of competent jurisdiction may not be interfered with by any court of August 27, 2010. Defendant Padilla’s counterclaims arose directly from the
concurrent jurisdiction for the simple reason that the power to open, modify malicious filing by the plaintiffs of the Complaint and are compulsory

63
counterclaims which must be raised and resolved in the same action as the despite the fact that the corresponding complaint was dismissed for lack of
Complaint. jurisdiction.

The Court remains unpersuaded of the propriety of proceeding to hear The present petition was de-consolidated from seven other petitions
defendant Padilla’s counterclaims. involving respondents and their transactions with Home Development
Mutual Fund, as well as the pending criminal complaints arising therefrom. 28
As movant herself stated, the grant of her counterclaim calls for the
determination of the issue of whether or not herein plaintiffs had maliciously The Court’s Ruling
filed the above-entitled Complaint against defendants. Necessarily, the Court
in threshing out such issue would be constrained to rule on whether the Before we resolve the legal question presented, we first address the issue of
plaintiffs filed their complaint with a sinister design knowing fully wellthat propriety of petitioner’s resort to Rule 45.
their cause of action was baseless. Thus, the Court would have to pass upon
the veracity or genuineness of plaintiffs’ claims thatthey were unjustly Respondents are incorrect in arguing that petitioner adopted the wrong mode
injured by the orders and processes issued by RTC Branch 119, Pasay City, in of appeal, stating that the remedy from the dismissal of her counterclaims
Civil Case No. R-PSY-10-04228entitled "Philippine National Bank vs. Globe without prejudice is a petition for certiorari under Rule 65 and not an appeal
Asiatique Realty Holdings Corp. et al." Hence, whatever ruling this Court under Rule 45.
may arrive at on said issues would inevitably impinge upon matters already
pending before the RTC Branch 119, Pasay City. There is no dispute with respect to the fact that when an appeal raises only
pure questions of law, this Court has jurisdiction to entertain the
Once more, under the principle of juridical stability, the Court is constrained same.29 Section 1, Rule 45 of the 1997 Rules of Civil Procedure, as amended,
to refuse to hear defendant Padilla’s counterclaims. Verily, this Court cannot provides:
allow itself to interfere – either directly, as desired by plaintiff, or indirectly,
as defendant Padilla would have it – with the acts of a co-equal court. SECTION 1. Filing of petition with Supreme Court. – A party desiring to
appeal by certiorari from a judgment or final order or resolution of the Court
WHEREFORE, premises considered, the instant Motion for Reconsideration of Appeals,the Sandiganbayan, the Regional Trial Court or other courts
filed by defendant Aida Padilla is hereby DENIED without prejudice to the whenever authorized by law, may file with the Supreme Court a verified
re-filing of defendant Aida Padilla’s causes of action against herein plaintiffs petition for review on certiorari. The petition shall raise only questions of law
after resolution of Civil Case No. R-PSY-10-04228 entitled "Philippine which must be distinctly set forth.
National Bank vs. Globe Asiatique Realty Holdings Corp. et al."
In Republic v. Sunvar Realty Development Corporation,30 this Court held:
SO ORDERED. (Emphasis supplied.)
Respondent Sunvar argued that petitioners’ resort to a Rule 45 Petition for
The Petition Review on Certioraribefore this Court is an improper mode of review of the
assailed RTC Decision. Allegedly, petitioners should have availed themselves
Petitioner came directly to this Court raising the primordial legal issue of of a Rule 65 Petition instead, since the RTC Decision was an order of
whether or not a court can take cognizance of a compulsory counterclaim dismissal of the Complaint, from which no appeal can be taken except by a
certiorari petition.
64
The Court is unconvinced of the arguments of respondent Sunvar and holds Summary Procedure. Therefore, the instant Rule 45 Petition has been
that the resortby petitioners to the present Rule 45 Petition is perfectly within properly lodged with this Court.
the bounds of our procedural rules.
In this case, petitioner raises the lone issue of whether the Pasig City RTC
As respondent Sunvar explained, noappeal may be taken from an order of the was correct in refusing to hear her counterclaims after the dismissal of
RTC dismissing an action without prejudice, but the aggrieved party may file respondents’ complaint for lack of jurisdiction. Said issue involves the proper
a certiorari petition under Rule 65. Nevertheless, the Rules do not prohibit interpretation of the 1997 Rules of Civil Procedure, as amended, specifically
any of the parties fromfiling a Rule 45 Petition with this Court, in case only on whether the dismissal of the complaint automatically results in the
questions of law are raised or involved. This latter situation was one that dismissal of counterclaims pleaded by the defendant. Since this is clearly a
petitioners found themselves in when they filed the instant Petition to raise question of law, petitioner appropriately filed in thisCourt a Rule 45 petition.
only questions of law. In Republic v. Malabanan, the Court clarified the three
modes of appeal from decisions of the RTC, to wit: (1) by ordinary appeal or On the lone issue raised in the petition, we rule for the petitioner.
appeal by writ of error under Rule 41, whereby judgment was rendered in a
civil or criminal action by the RTC in the exercise of its original jurisdiction; A counterclaim is any claim which a defending party may have against an
(2) by a petition for review under Rule 42, whereby judgment was rendered opposing party.31 It is in the nature of a cross-complaint; a distinct and
by the RTC in the exercise of its appellate jurisdiction; and (3) by a petition independent cause of action which, though alleged in the answer, is not part
for review on certioraribefore the Supreme Court under Rule 45. "The first of the answer.32
mode of appeal istaken to the [Court of Appeals] on questions of fact or
mixed questions of fact and law. The second mode of appeal is brought to the Counterclaims may be either compulsory or permissive. Section 7, Rule 6 of
CA on questions of fact, of law, or mixed questions of fact and law. The third the 1997 Rules of Civil Procedure provides:
mode of appeal is elevated to the Supreme Court only on questions of law."
(Emphasis supplied.) SEC. 7. Compulsory counterclaim.– A compulsory counterclaim is one
which, being cognizable by the regular courts of justice, arises out of or is
There is a question of law when the issue does not call for an examination of connected with the transaction or occurrence constituting the subject matter
the probative value of the evidence presented or of the truth or falsehood of of the opposing party’s claim and does not require for its adjudication the
the facts being admitted, and the doubt concerns the correct application of presence of third parties of whom the court cannot acquire jurisdiction. Such
law and jurisprudence on the matter. The resolution of the issue must rest a counterclaim must be within the jurisdiction of the court both as to the
solely on what the law provides on the given set of circumstances. amount and the nature thereof, except that in an original action before the
Regional Trial Court, the counterclaim may be considered compulsory
In the instant case, petitioners raise only questions of law with respect to the regardless of the amount.
jurisdiction of the RTC to entertain a certioraripetition filed against the
interlocutory order of the MeTC in an unlawful detainer suit. At issue in the In this case, petitioner’s counterclaim for damages raised in her answer
present case is the correct application of the Rules on Summary Procedure; before the Pasig City RTC iscompulsory, alleging suffering and injury caused
or, more specifically, whether the RTC violated the Rules when it took to her as a consequence of the unwarranted filing of the baseless complaint
cognizance and granted the certioraripetition against the denial by the MeTC filed byrespondents. Said court, however, dismissed her counterclaim upon
of the Motion to Dismiss filed by respondent Sunvar. This is clearly a the same ground of lackof jurisdiction as its resolution supposedly would
question of law that involves the proper interpretation of the Rules on entail passing upon the validity of orders and processes still pending before

65
the Pasay City RTC. In Metals Engineering Resources Corp. v. Court of the Court adopted the new Rules of Civil Procedure. … we thus rule that the
Appeals,33 we reversed the trial court’s order allowing private respondent to dismissal of a complaint due to fault of the plaintiff is without prejudice to
proceed with the presentation of his evidence in support of his counterclaim the right of the defendant to prosecute any pending counterclaims ofwhatever
after the complaint was dismissed for not paying the correct docket fee and nature in the same or separate action. We confirm that BA Financeand all
hence the trial court did not acquire jurisdiction over the case. We held that if previous rulings of the Court that are inconsistent with this present holding
the court does not have jurisdiction to entertain the main action of the case are now abandoned. (Emphasis supplied.)
and dismisses the same, then the compulsorycounterclaim, being ancillary to
the principal controversy, must likewise be dismissed since no jurisdiction Subsequently, in Perkin Elmer Singapore Pte Ltd. v. Dakila Trading
remained for any grant of relief under the counterclaim. 34 Corporation37 this Court held that while the declaration in Pinga refers to
instances covered by Section 3, Rule 17 on dismissal of complaints due to the
Under the 1997 Rules of Civil Procedure, it is now explicitly provided that fault of plaintiff, it does not preclude the application of the same rule when
the dismissal of the complaint due tofailure of the plaintiff to prosecute his the dismissal was upon the instance of defendant who correctly argued lack
case is "without prejudice to the rightof the defendant to prosecute his of jurisdiction over its person.Further, in stark departure from Metals
counterclaim in the same or in a separate action." 35 The effect of this Engineering, we declared that the court’s jurisdiction over respondent’s
amendment on previous rulings on whether the dismissal of a complaint complaint is not to be confusedwith jurisdiction over petitioner’s
carries with it the dismissal of the counterclaims as well, was discussed in the counterclaim, viz:
case of Pinga v. The Heirs of German Santiago, 36 thus:
….Petitioner seeks to recover damages and attorney’s fees as a consequence
Similarly, Justice Feria notes that "the present rule reaffirms the right of the of the unfounded suitfiled by respondent against it. Thus, petitioner’s
defendant to move for the dismissal of the complaint and to prosecute his compulsory counterclaim isonly consistent with its position that the
counterclaim, as stated in the separate opinion [of Justice Regalado in BA respondent wrongfully filed a case against it and the RTC erroneously
Finance.] Retired Court of Appeals Justice Herrera pronounces that the exercised jurisdiction over its person.
amendment to Section 3, Rule 17 settles that "nagging question" whether the
dismissal of the complaint carries with it the dismissal of the counterclaim, Distinction must be made in Civil Case No. MC99-605 as to the jurisdiction
and opines that by reason of the amendments, the rulings in Metals of the RTC over respondent’s complaint and over petitioner’s counterclaim –
Engineering, International Container, and BA Finance"may be deemed while it may have no jurisdiction over the former, it may exercise jurisdiction
abandoned." On the effect of amendment to Section 3, Rule 17, the over the latter. The compulsory counterclaim attached to petitioner’s Answer
commentators are in general agreement, although there is less unanimity of ad cautelamcan be treated as a separate action, wherein petitioner is the
views insofar as Section 2, Rule 17 is concerned. plaintiff while respondent is the defendant. Petitioner could have instituted a
separate action for the very same claims but, for the sake of expediency and
To be certain, when the Court promulgated the 1997 Rules of Civil to avoid multiplicity of suits, it chose to demand the samein Civil Case No.
Procedure, including the amended Rule 17, those previous jural doctrines that MC99-605. Jurisdiction of the RTC over the subject matter and the parties in
were inconsistent with the new rules incorporated in the 1997 Rules of Civil the counterclaim must thus be determined separately and independently from
Procedure were implicitly abandoned insofar as incidents arising after the the jurisdiction of the samecourt in the same case over the subject matter and
effectivity of the new procedural rules on 1 July 1997. BA Finance, or even the parties in respondent’s complaint.38 (Emphasis supplied.)
the doctrine that a counterclaim may be necessarily dismissed along with the
complaint, clearly conflicts with the 1997 Rules of Civil Procedure. The Still anchored on the pronouncement in Pinga, we then categorically ruled
abandonment of BA Financeas doctrine extends as far back as 1997, when that a counterclaim arising from the unfounded suit may proceed despite the
66
dismissal of the complaint for lack of jurisdiction over the person of It bears to emphasize that petitioner’s counterclaim against respondent is for
defendant-counterclaimant, thus: damages and attorney’s fees arising from the unfounded suit. While
respondent’s Complaint against petitioner is already dismissed, petitioner
Also in the case of Pinga v. Heirs of German Santiago, the Court discussed may have very well already incurred damages and litigation expenses such as
the situation wherein the very filing of the complaint by the plaintiff against attorney’s fees since it was forced to engage legal representation in the
the defendant caused the violation of the latter’s rights. As to whether the Philippines to protect its rights and to assert lack of jurisdiction of the courts
dismissal of such a complaint should also include the dismissal of the over its person by virtue of the improper service of summons upon it. Hence,
counterclaim, the Court acknowledged that said matter is still debatable, viz: the cause of action of petitioner’s counterclaim is not eliminated by the mere
dismissal of respondent’s complaint.
Whatever the nature of the counterclaim, it bears the same integral
characteristics as a complaint; namely a cause (or causes) of action It may also do well to rememberthat it is this Court which mandated that
constituting an act or omission by which a party violates the right of another. claims for damages and attorney’s fees based on unfounded suit constitute
The main difference lies in that the cause of action in the counterclaim is compulsory counterclaim which must be pleaded in the same action or,
maintained bythe defendant against the plaintiff, while the converse holds otherwise, it shall be barred. It will then be iniquitous and the height of
true with the complaint. Yet, as with a complaint, a counterclaim without a injustice to require the petitioner to make the counterclaim in the present
cause of action cannot survive. action, under threat of losing his right to claim the same ever again in any
other court, yet make his right totally dependent on the fate of the
x x x if the dismissal of the complaint somehow eliminates the cause(s) of the respondent’s complaint.
counterclaim, then the counterclaim cannot survive. Yet that hardly is the
case, especially as a general rule. More often than not, the allegations that If indeed the Court dismisses petitioner’s counterclaim solely on the basis of
form the counterclaim are rooted in an act or omission of the plaintiff other the dismissal of respondent’s Complaint, then what remedy is left for the
than the plaintiff’s very act of filing the complaint. Moreover, such acts or petitioner? It can be said that he can still file a separate action to recover the
omissions imputed to the plaintiff are often claimed to have occurred prior to damages and attorney’s fees based on the unfounded suit for he cannot be
the filing of the complaint itself.The only apparent exception to barred from doing so since he did file the compulsory counterclaim in the
thiscircumstance is if it is alleged in the counterclaim that the very act of the present action, only that it was dismissed when respondent’s Complaint was
plaintiff in filing the complaint precisely causes the violation of the dismissed. However, this reasoning is highly flawed and irrational
defendant’s rights. Yet even in such an instance, it remains debatable whether considering that petitioner, already burdened by the damages and attorney’s
the dismissal or withdrawal of the complaint is sufficient to obviate the fees itmay have incurred in the present case, must again incur more damages
pending cause of action maintained by the defendant against the plaintiff. and attorney’s fees in pursuing a separate action, when, in the first place, it
should not have been involved in any case at all.
Based on the aforequoted ruling of the Court, if the dismissal of the
complaint somehow eliminates the cause of the counterclaim, then the Since petitioner’s counterclaim iscompulsory in nature and its cause of action
counterclaim cannot survive. Conversely, if the counterclaim itself states survives that of the dismissal of respondent’s complaint, then it should be
sufficient cause of action then it should stand independently of and survive resolved based on its own merits and evidentiary support. 39 (Additional
the dismissal of the complaint. Now, having been directly confronted with emphasis supplied.)
the problem of whether the compulsory counterclaim by reason of the
unfounded suit may prosper even if the maincomplaint had been dismissed, The above ruling was applied in Rizal Commercial Banking Corporation v.
we rule in the affirmative. Royal Cargo Corporation40 where we granted petitioner’s prayer for
67
attorney’s fees under its Compulsory Counterclaim notwithstanding the 5.95. In this regard, it must be noted that in filing the present suit, plaintiffs’
dismissal of the complaint. goal is to have the Honorable Court reexamine and review the
pronouncements made by defendant JudgeGutierrez in the Pasay case.
In the present case, the RTC of Pasig City should have allowed petitioner’s
counterclaim to proceed notwithstanding the dismissal of respondents’ With all due respect, the Honorable Court certainly has no such power over
complaint, the same being compulsory in nature and with its cause not the Pasay Court which is a co-equal court. While the power to determine
eliminated by such dismissal.It bears stressing that petitioner was hailed to a whether or not a judgment or order is unjust is a judicial function, the
separate court (Pasig City RTC) even while the dispute between PNB and hierarchy of courts should be respected:
respondents was still being litigated, and she already incurred expenses
defending herself, having beensued by respondents in her personal capacity. "To belabor the obvious, the determination of whether or not a judgment or
The accusations hurled against her were serious (perjury and order is unjust – or was (or was not) rendered within the scope of the issuing
misrepresentation in executing the affidavit in support of the application for judge’s authority, or that the judge had exceeded his jurisdiction and powers
writ of attachment before the Pasay City RTC) – with hints at possible or maliciously delayed the disposition of a case – is an essentially judicial
criminal prosecution apart from that criminal complaint already lodged in the function, lodged by existing law and immemorial practice in a hierarchy of
Pasig City Prosecutor’s Office. The Pasig City RTC clearly erred in refusing courts and ultimately in the highest court of the land. To repeat, no other
to hear the counterclaims upon the same ground for dismissal of the entity or official of the Government, not the prosecution or investigation
complaint, i.e.,lack of jurisdiction in strictobservance of the policy against service or any other branch, nor any functionary thereof, has competence to
interference with the proceedings of a co-equal court. review a judicial order or decision – whether final and executory or not – and
pronounce it erroneous soas to lay the basis for a criminal or administrative
Respondents contend that if petitioner is allowed to prove her counterclaims complaint for rendering an unjust judgment or order. That prerogative
before the Pasay City RTC, they have no choice but to justify their action in belongs to the courts alone." [Emphasis supplied]
filing their case beforethe Pasig City RTC by going back to the allegations in
their complaint that they are merely vindicating themselves against the 5.96. Accordingly, since there is no "final judicial pronouncement" yet on
perjured affidavit executed by petitioner which led to the issuance of the whether the filing of the PNB Complaintand the issuance of the writ of
illegal orders of the Pasay City RTC that resulted to the damage and injury preliminary attachment violate any law, neither is there any basis for
sustained by respondents. Obviously, respondents are invoking the same defendant Padilla to be held liable for damages on account of her official acts
principle of judicialstability which we find inapplicable insofar as as Head of the Remedial Management Group of PNB.1âwphi1
petitioner’s counterclaim arising from respondents’ unfounded suit. As
petitioner set forth in her Compulsory Counterclaim, there is actually no 5.97. Clearly, the filing of this baseless, if not contemptuous, suit is nothing
necessity for the Pasig City RTC, in ruling on the merits of the counterclaim, but a continuation of plaintiffs’ fraudulent attempt to evade the payment of
to pass upon the validity ofthe writ of attachment and related orders issued by undeniably due and demandable obligations. Accordingly, the complaint
the Pasay City RTC. Precisely, petitioner faulted the respondents in against defendant Padilla should be dismissed for utter lack of
prematurely, and in a contumacious act of forum shopping, filing a separate merit.41 (Emphasis supplied.)
damage suit when there is no final judicial determination yet of any
irregularity in the attachment proceedings before the Pasay City RTC. Ironically, while it is the respondents who erroneously and maliciously asked
the Pasig City RTC to pass upon these issues still pending in a co-equal
court, for which reason the said court dismissed their complaint, petitioner

68
was notallowed to prove her counterclaim by reason of the unfounded suit in Republic of the Philippines
the same case aspurportedly it will entail verifying respondents’ claim that SUPREME COURT
they were prejudiced by the orders and processes in the Pasay City RTC. This Manila
situation exemplifies the rationale in Perkin Elmer Singapore Pte Ltd. 42 on
requiring the petitioner to make the counterclaim in the present action, under FIRST DIVISION
threat of losing such right to claim the same ever again any other court, yet
make such right of the petitioner totally dependent on the fate of the G.R. No. 197380 October 8, 2014
respondents’ complaint.
ELIZA ZUNIGA-SANTOS,* represented by her Attorney-in Fact,
As fittingly expressed by petitioner in her Reply: NYMPHA Z. SALES, Petitioners,
vs.
Pertinently, it is relevant to note that respondents never denied in their MARIA DIVINA GRACIA SANTOS-GRAN** and REGISTER OF
Commentthat the institution of the case a quowas premature and violated the DEEDS OF MARIKINA CITY, Respondents.
principle of judicial stability. Stated otherwise, respondents admit that they
are the ones who have invited the court a quo to interfere with the rulings of DECISION
the Pasay Court, which fortunately, the former refused to do so. To allow the
respondents to cite their own unlawful actions as a shield against the harm PERLAS-BERNABE, J.:
that they have inflicted upon petitioner Padilla would indubitably allow the
respondents to profit from their own misdeeds. With due respect, this cannot Before the Court is a petition for review on certiorari 1 assailing the
be countenanced by the Honorable Court.43 WHEREFORE, the petition is Decision2 dated January 10, 2011 and the Resolution3 dated June 22, 2011 of
GRANTED. The Orders dated November 12, 2012 and May 8, 2013 of the the Court of Appeals (CA) in CA-G.R. CV No. 87849 which affirmed the
Regional Trial Court of Pasig City, Branch 155 in Civil Case No. 73132 are Order4dated July 6, 2006 of the Regional Trial Court of San Mateo, Rizal,
hereby REVERSED and SET ASIDE. Said court is hereby directed to Branch 76 (RTC) in Civil Case No. 2018-06, dismissing the Amended
proceed with the presentation of evidence in support of the compulsory Complaint for annulment of sale and revocation of title on the ground of
counterclaim of petitioner Aida Padilla. insufficiency of factual basis.
SO ORDERED. The Facts

On January 9, 2006, petitioner Eliza Zuñiga-Santos (petitioner), through her


authorized representative, Nympha Z. Sales, 5 filed a Complaint6 for
annulment of sale and revocation of title against respondents Maria Divina
Gracia Santos-Gran (Gran) and the Register of Deeds of Marikina City
before the RTC, docketed asCivil Case No. 2018-06. The said complaint was
later amended7 on March 10, 2006 (Amended Complaint).

In her Amended Complaint,8 petitioner alleged, among others, that: (a) she
was the registered owner of three (3) parcels of land located in the
69
Municipality of Montalban, Province of Rizal, covered by Transfer The CA Ruling
Certificate of Title (TCT) Nos. N-5500,9 224174,10 and N-423411 (subject
properties) prior to their transfer in the name of private respondent Gran; (b) In a Decision19 dated January 10, 2011, the CA sustained the dismissal of
she has a second husband by the name ofLamberto C. Santos (Lamberto), petitioner’s Amended Complaint buton the ground of insufficiency of factual
with whom she did not have any children; (c) she was forced to take care of basis. It disagreed with the RTC’s findingthat the said pleading failed to state
Lamberto’s alleged daughter, Gran, whose birth certificate was forged to a cause of action since it had averred that: (a) petitioner has a right over the
make it appear that the latter was petitioner’s daughter; (d) pursuant to void subject properties being the registered owner thereof prior to their transfer in
and voidable documents, i.e., a Deed of Sale, Lamberto succeeded in the name of Gran; (b) Lamberto succeeded in transferring the subject
transferring the subject properties in favor of and in the name of Gran; (e) properties to his daughter, Gran, through void and voidable documents; and
despite diligent efforts, said Deed of Sale could not be located; and (f) she (c) the latter’s refusal and failure to surrender to her the subject properties
discovered that the subject properties were transferred to Gran sometime in despite demands violated petitioner’s rights over them. 20 The CA likewise
November 2005. Accordingly, petitioner prayed, inter alia, that Gran ruled that the action has not yet prescribed since an action for nullity of void
surrender to her the subject properties and pay damages, including costs of deeds of conveyance is imprescriptible. 21 Nonetheless, it held that since the
suit.12 Deed of Sale sought to be annulled was not attached to the Amended
Complaint, it was impossible for the court to determine whether petitioner’s
For her part, Gran filed a Motion to Dismiss,13 contending, inter alia, that (a) signature therein was a forgery and thus, would have no basis to order the
the action filed by petitioner had prescribed since an action upon a written surrender or reconveyance of the subject properties. 22
contract must be brought within ten (10) years from the time the cause of
action accrues, or in this case, from the time of registration of the questioned Aggrieved, petitioner moved for reconsideration23 and attached, for the first
documents before the Registry of Deeds;14 and (b) the Amended Complaint time, a copy of the questioned Deed of Sale24 which she claimed to have
failed to state a cause of action as the void and voidable documents sought to recently recovered, praying that the order of dismissal be set aside and the
be nullified were not properly identified nor the substance thereof set forth, case be remanded to the RTC for further proceedings.
thus, precluding the RTC from rendering a valid judgment in accordance
withthe prayer to surrender the subject properties. 15 In a Resolution25 dated June 22, 2011, the CA denied petitioner’s motion and
held that the admission of the contested Deed of Sale at this late stage would
The RTC Ruling be contrary to Gran’s right to due process.

In an Order16 dated July 6, 2006, the RTC granted Gran’s motion and Hence, the instant petition.
dismissed the Amended Complaint for its failure to state a cause of action,
considering that the deed of sale sought to be nullified – an "essential and The Issue Before the Court
indispensable part of [petitioner’s] cause of action" 17 – was not attached. It
likewise held that the certificates oftitle covering the subject properties The primordial issue for the Court’s resolution is whether or not the dismissal
cannot be collaterally attacked and that since the action was based on a of petitioner’s Amended Complaint should be sustained.
written contract, the same had already prescribed under Article 1144 of the
Civil Code.18 The Court’s Ruling
Dissatisfied, petitioner elevated the matter to the CA.

70
Failure to state a cause of action and lack of cause of action are distinct after the plaintiff’s presentation of evidence. This parameter is clear under
grounds to dismiss a particularaction. The former refers to the insufficiency Rule 33 of the Rules of Court: RULE 33
of the allegations in the pleading, while the latter to the insufficiency of the
factual basis for the action. Dismissal for failure to state a cause of action Demurrer to Evidence
may be raised at the earliest stages of the proceedings through a motion to
dismiss under Rule16 of the Rules of Court, while dismissal for lack of cause Section 1. Demurrer to evidence. — After the plaintiff has completed the
of action may be raised any time after the questions of fact have been presentation of his evidence, the defendant may move for dismissal on the
resolved on the basis of stipulations, admissions or evidence presented by the ground that upon the facts and the law the plaintiff has shown no right to
plaintiff.26 In Macaslang v. Zamora,27 the Court, citing the commentary of relief. If his motion isdenied he shall have the right to present evidence. If the
Justice Florenz D. Regalado, explained: motion is granted but on appeal the order of dismissal is reversed he shall be
deemed to have waived the right to present evidence.
Justice Regalado, a recognized commentator on remedial law, has explained
the distinction: At the preliminary stages of the proceedings, without any presentation of
evidence even conducted, it is perceptibly impossible to assess the
x x x What is contemplated, therefore, is a failure to statea cause of action insufficiency of the factual basis on which the plaintiff asserts his cause of
which is provided in Sec. 1(g) of Rule 16. This is a matter of insufficiency of action, as in this case. Therefore, that ground could not be the basis for the
the pleading. Sec. 5 of Rule 10, which was also included as the last mode for dismissal of the action.
raising the issue to the court, refers to the situation where the evidence does
not provea cause of action. This is, therefore, a matter of insufficiency of However, the Amended Complaint is still dismissible but on the ground of
evidence. Failure to state a cause of action is different from failure to prove a failure to state a cause of action, as correctly held by the RTC. Said ground
cause of action. The remedy in the first is to move for dismissal of the was properly raised by Granin a motion to dismiss pursuant to Section 1,
pleading, whilethe remedy in the second is to demur to the evidence, hence Rule 16 of the Rules of Court:
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 RULE 16
action, by timely objection to its deficiency; or, at the trial, to file a demurrer Motion to Dismiss
to evidence, if such motion is warranted. 28
Section 1. Grounds. — Within the time for but before filing the answer to the
In the case at bar, both the RTC and the CA were one in dismissing complaint or pleading asserting a claim, a motion to dismiss may be made on
petitioner’s Amended Complaint, but varied on the grounds thereof – that is, any of the following grounds:
the RTC held that there was failure tostate a cause of action while the CA
ruled that there was insufficiency of factual basis. xxxx
At once, it is apparent that the CA based its dismissal on an incorrect ground. (g) That the pleading asserting the claim states no cause of action;
From the preceding discussion, it is clear that "insufficiency of factual basis"
is not a ground for a motion to dismiss. Rather, it is a ground which becomes
xxxx
available only after the questions of fact have been resolved on the basis of
stipulations, admissions or evidence presented by the plaintiff. The
procedural recourse to raise such ground is a demurrer to evidence taken only
71
A complaint states a cause of action if it sufficiently avers the existence of N-5500 and N-4234 only mention petitioner as the representative of Gran at
the three (3) essential elements of a cause of action, namely: (a) a right in the time of the covered property’s registration when she was a minor.
favor of the plaintiff by whatever means and under whatever law it arises or Nothing in the pleading, however, indicates that the former had become any
is created; (b) an obligation on the part of the named defendant to respect or of the properties’ owner. This leads to the logical conclusion that her right to
not to violate such right; and (c) an act or omission on the part of the named the properties in question – at least through the manner in which it was
defendant violative of the right of the plaintiff or constituting a breach of the alleged in the Amended Complaint – remains ostensibly unfounded. Indeed,
obligation of defendant tothe plaintiff for which the latter may maintain an while the facts alleged in the complaint are hypothetically admitted for
action for recovery of damages.29 If the allegations of the complaint do not purposes of the motion, it must, nevertheless, be remembered that the
state the concurrence of these elements, the complaint becomes vulnerable to hypothetical admission extends only to the relevant and material facts well
a motion to dismiss on the ground of failure to state a cause of action. 30 pleaded in the complaint as well as toinferences fairly deductible
therefrom.35 Verily, the filing of the motion to dismiss assailing the
It is well to point out that the plaintiff’s cause of action should not merely be sufficiency of the complaint does not hypothetically admit allegations of
"stated" but, importantly, the statement thereof should be "sufficient." This is which the court will take judicial notice ofto be not true, nor does the rule of
why the elementarytest in a motion to dismiss on such ground is whether or hypothetical admission apply to legallyimpossible facts, or to facts
not the complaint alleges facts which if true would justify the relief inadmissible in evidence, or to facts that appear to be unfounded by record or
demanded.31 As a corollary, it has been held that only ultimate facts and not document included in the pleadings.36
legal conclusions or evidentiary facts are considered for purposes of applying
the test.32 This is consistent with Section 1, Rule 8 of the Rules of Court Aside from the insufficiency of petitioner’s allegations with respect to her
which states that the complaint need only allege the ultimate facts or the right to the subject properties sought to be recovered, the ultimate facts
essential facts constituting the plaintiff’s cause of action. A fact is essential if supposedly justifying the "annulment of sale," by which the reconveyance of
they cannot be stricken out without leaving the statement of the cause of the subject properties is sought, were also insufficiently pleaded. The
action inadequate.33 Since the inquiry is into the sufficiency, not the veracity, following averments in the Amended Complaint betray no more than an
of the material allegations, it follows that the analysis should be confined to insufficient narration of facts:
the four corners of the complaint, and no other. 34
6. That pursuant to a voidable [sic] and void documents, the second husband
A judicious examination of petitioner’s Amended Complaint readily shows of the plaintiff succeed [sic] in transferring the above TITLES in the name of
its failure to sufficiently state a cause of action. Contrary to the findings of MARIA DIVINAGRACIA SANTOS, who is (sic) alleged daughter of
the CA, the allegations therein do not proffer ultimate facts which would LAMBERTO C. SANTOS in violation of Article 1409, Par. 2 of the Civil
warrant an action for nullification of the sale and recovery of the properties Code;
in controversy, hence,rendering the same dismissible.
7. That the said properties [were] transferred to the said defendant by a Deed
While the Amended Complaint does allege that petitioner was the registered of Sale (DOS) to the said MARIA DIVINA GRACIA SANTOS through a
owner of the subject properties in dispute, nothing in the said pleading or its void documents [sic] considering that the seller is the alleged mother of
annexes would show the basis of that assertion, either through defendant is also the buyer of the said properties in favor of defendant;
statements/documents tracing the rootof petitioner’s title or copies of
previous certificates of title registeredin her name. Instead, the certificates of 8. x x x.
title covering the said properties that were attached to the Amended
Complaint are in the name of Gran. At best, the attached copies of TCT Nos.
72
9. That the alleged sale and transfer of the said properties in favor of That a copy of the Deed of Saleadverted to in the Amended Complaint was
defendant was only discovered by [plaintiff’s] daughter CYNTHIA subsequently submitted by petitioner does not warrant a different course of
BELTRAN-LASMARIAS when [plaintiff] has been requesting for financial action.1âwphi1 The submission of that document was made, as it was
assistance, considering that the said mother of plaintiff [sic] has so many purportedly "recently recovered," only on reconsideration before the CA
properties which is now the subject of this complaint; which, nonetheless, ruled against the remand of the case. An examination of
the present petition, however, reveals no counter-argument against the
10. That plaintiff then return on [to] the Philippines sometime [in] November, foregoing actions; hence, the Court considers any objection thereto as
2005 and discovered that all [plaintiff’s] properties [had] been transferred to waived.
defendant MARIA DIVINA GRACIA SANTOS who is not a daughter either
by consanguinity or affinity to the plaintiff mother [sic]; In any event, the Court finds the Amended Complaint’s dismissal to be in
order considering that petitioner’s cause of action had already prescribed.
11. That the titles that [were] issued in the name of MARIA
DIVINAGRACIA SANTOS by virtue of the said alleged voidable and void It is evident that petitioner ultimately seeks for the reconveyance to her of the
documents, should be annulled and cancelled as the basis of the transfer is subject properties through the nullification of their supposed sale to Gran. An
through void and voidable documents; action for reconveyance is one that seeks to transfer property, wrongfully
registered by another, to its rightful and legal owner. 40 Having alleged the
x x x x37 commission of fraud by Gran in the transfer and registration of the subject
properties in her name, there was, in effect, an implied trust created by
Clearly, the claim that the sale was effected through "voidable and void operation of law pursuant to Article 1456 of the Civil Code which provides:
documents" partakes merely of a conclusion of law that is not supported by
any averment of circumstances that will show why or how such conclusion Art. 1456. If property is acquired through mistake or fraud, the person
was arrived at. In fact, what these "voidable and void documents" are were obtaining it is, by force of law, considered a trustee of an implied trust for the
not properly stated and/or identified. In Abad v. Court of First Instance of benefit of the person from whom the property comes.1âwphi1
Pangasinan,38 the Court pronounced that:
To determine when the prescriptive period commenced in an action for
A pleading should state the ultimate facts essential to the rights of action or reconveyance, the plaintiff’s possession of the disputed property is material.
defense asserted, as distinguished from mere conclusions of fact, or If there is an actual need to reconvey the property as when the plaintiff is not
conclusions of law. General allegations thata contract is valid or legal, or is in possession, the action for reconveyance based on implied trust prescribes
just, fair, and reasonable, are mere conclusions of law. Likewise, allegations in ten (10) years, the reference point being the date of registration of the deed
that a contract is void, voidable, invalid, illegal, ultra vires, or against public or the issuance of the title. On the other hand, if the real owner of the
policy, without stating facts showing its invalidity, are mere conclusions of property remains in possession of the property, the prescriptive period to
law.39 (Emphases supplied) recover titleand possession of the property does not run against him and in
such case,the action for reconveyance would be in the nature of a suit for
Hence, by merely stating a legal conclusion, the Amended Complaint quieting of title which is imprescriptible.41
presented no sufficient allegation upon which the Court could grant the relief
petitioner prayed for. Thus, said pleading should be dismissed on the ground In the case at bar, a reading ofthe allegations of the Amended Complaint
of failure to state cause of action, as correctly held by the RTC. failed to show that petitioner remained in possession of the subject properties

73
in dispute. On the contrary, it can be reasonably deduced that it was Gran FIRST DIVISION
who was in possession ofthe subject properties, there being an admission by
the petitioner that the property covered by TCT No. 224174 was being used April 19, 2016
by Gran’s mother-in-law.42 In fact, petitioner’s relief in the Amended
Complaint for the "surrender" of three (3) properties to her bolsters such G.R. No. 195728
stance.43 And since the new titles tothe subject properties in the name of Gran
were issued by the Registry of Deeds of Marikina on the following dates: PARAMOUNT LIFE & GENERAL INSURANCE
TCT No. 224174 on July 27, 1992,44 TCT No. N-5500 on January 29, CORPORATION, Petitioner,
1976,45 and TCT No. N-4234 on November 26, 1975,46 the filing of the vs.
petitioner’s complaint beforethe RTC on January 9, 2006 was obviously CHERRY T. CASTRO and GLENN ANTHONY T.
beyond the ten-year prescriptive period, warranting the Amended CASTRO, Respondents.
Complaint’s dismissal all the same.
x-----------------------x
WHEREFORE, the petition is DENIED. The Decision dated January 10,
2011 and the Resolution dated June 22, 2011 of the Court of Appeals in CA- G.R. No. 211329
G.R. CV No. 87849 are hereby AFFIRMEDwith MODIFICATION in that
the Amended Complaint be dismissed on the grounds of (a) failure to state a
CHERRY T. CASTRO and GLENN ANTHONY T.
cause of action, and (b) prescription as herein discussed.
CASTRO, Petitioners,
vs.
SO ORDERED. PARAMOUNT LIFE & GENERAL INSURANCE
CORPORATION, Respondent

DECISION

SERENO, CJ:

These Petitions for Review on Certiorari under Rule 45 of the Rules of Court
originate from a Complaint1 for Declaration of Nullity of Individual
Insurance Contract (Civil Case No. 09-5992). The Complaint was instituted
by Paramount Life and General Insurance Corporation (Paramount) against
Cherry T. Castro and Glenn Anthony T. Castro (Castro’s) and filed before the
Regional Trial Court, Makati City, Branch 61 (RTC), on 2 July 2009.

The Petition3 docketed as G.R. No. 195728 assails the Court of Appeals (CA)
Decision4 dated 4 October 2010 and Resolution5 dated 21 February 2011 in
CA-G.R. SP No. 113972. The CA remanded the case to the RTC for the

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admission of the Castro's Third-Party Complaint against the Philippine Postal ground of the failure of Virgilio to disclose material information, or material
Savings Bank, Incorporated (PPS BI). 6 concealment or misrepresentation.20 It said that when Virgilio submitted his
insurance application on 12 March 2008, he made some material
On the other hand, the Petition 7 docketed as G.R. No. 211329 assails the misrepresentations by answering "no" to questions on whether he had any
Resolution8 of the RTC in Civil Case No. 09-599 dated 11 February 2014. adverse health history and whether he had sought medical advice or
The trial court ordered that the Motion to Dismiss filed by the defendants consultation concerning it. Paramount learned that in 2005, Virgilio had
(the Castro’s) be deemed expunged from the records, as they had previously sought consultation in a private hospital after complaining of a dull pain in
been declared to be in default. Nonetheless, due to the protracted nature of his lumbosacral area. 21 Because of the alleged material concealment or
the proceedings, the RTC allowed the plaintiff no more than two settings for misrepresentation, it declared Virgilio's individual insurance certificate (No.
the presentation of evidence.9 041913) rescinded, null, and absolutely void from the very beginning. 22

These Petitions have been consolidated as they involve the same parties, arise On 2 July 2009, Paramount filed a Complaint23 with the RTC docketed as
from an identical set of facts, and raise interrelated issues. 10 The Court Civil Case No. 09-599. It prayed that Application and Insurance Certificate
resolves to dispose of these cases jointly. No. 041913 covering the individual insurance of Virgilio be declared null and
void by reason of material concealment and misrepresentation. It also prayed
FACTS OF THE CASE for attorney's fees and exemplary damages. 24

In 2004, the PPSBI applied for and obtained insurance from In their Answer with Counterclaim, 25 the Castro’s argued that Virgilio had
Paramount, 11 which accordingly issued Group Master Policy No. G- not made any material misrepresentation. They contended that he had
08612 effective 1 September 2004. Under Section 20, Article IV of the said submitted the necessary evidence of insurability to the satisfaction of
policy, "all death benefits shall be payable to the creditor, PPSBI, as its
interest may appeal." 13 Paramount. They further argued that by approving Virgilio's application,
Paramount was estopped from raising the supposed
Meanwhile, Virgilio J. Castro (Virgilio) - Cherry's husband and Glenn's misrepresentations. 26 The Castro’s made a counterclaim for actual and
father - obtained a housing loan from the PPSBI in the amount of Pl .5 exemplary damages, as well
million. 14 PPSBI required Virgilio to apply for a mortgage redemption
insurance (MRI) from Paramount to cover the loan. 15 In his application for as attorney's fees, for the alleged breach of contract by Paramount arising
the said insurance policy, Virgilio named Cherry and Glenn as from its refusal to honor its obligation as insurer of the Pl.5 million loan. 27
beneficiaries. 16 Paramount issued Certificate No. 041913 effective 12 March
2008 in his favor, subject to the terms and conditions of Group Master Policy STATEMENT OF THE CASES
No. G-086. 17
G.R. No. 195728
On 26 February 2009, Virgilio died of septic shock. 18 Consequently, a claim
was filed for death benefits under the individual insurance coverage issued On 29 October 2009, the Castros filed a motion28 to include the PPSBI as an
under the group policy. 19 Paramount however denied the claim, on the indispensible party-defendant. The RTC thereafter denied the motion,
reasoning that Paramount's Complaint could be fully resolved without the
PPSBI's participation. 29

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Consequently, the Castro’s filed a Motion for Leave to File a Third Party- Motion to Dismiss as a mere scrap of paper and expunged it from the
Complaint and to Admit Attached Third-Party Complaint.30 They argued that records.
due to the death of Virgilio, and by virtue of Group Policy No. G-086 in·
relation to Certificate No. 041913, PPSBI stepped into the shoes of Cherry The Castro’s come straight to this Court via a Petition for Review 42 under
and Glen under the principle of "indemnity, subrogation, or any other reliefs" Rule 45, assailing the RTC Resolution dated 11 February 2014.
found in Section 22, Rule 6 of the Rules of Court.31 This motion was likewise
denied, on the ground that "what the defendants herein want is the THE ISSUES
introduction of a controversy that is entirely foreign and distinct from the
main cause."32 The Castro’s Motion for Reconsideration was again denied in 1. Whether the CA erred in remanding the case to the R TC for the admission
a Resolution33 dated 19 April 2010 of the Third-Party Complaint against PPSBI

On 13 May 2010, the Castro’s assailed the RTC Resolutions through a 2. Whether the RTC erred in denying the Motion to Dismiss filed by the
Petition for Certiorari filed with the CA.34They likewise subsequently filed a Castro’s
Motion for Leave of Court to File and to Admit Attached Supplemental
Petition for Review.35 THE COURT'S RULING
In its Decision36 dated 4 October 2010, the CA partially granted the Petition G.R. No. 195728
by allowing a third-party complaint to be filed against the PPSBI. It ruled
that the Castro’s were freed from the obligation to pay the bank by virtue of
The Castro’s sought to implead the PPSBI as a third-party defendant in the
subrogation, as the latter would collect the loan amount pursuant to the MRI
nullification case instituted by Paramount. They theorized that by virtue of
issued by Paramount in Virgilio's favor. 37 Paramount moved for
the death of Virgilio and the mandate of the group insurance policy in
reconsideration, but the CA denied the motion through a Resolution 38 dated
relation to his individual insurance policy, the PPSBI stepped into the shoes
21 February 2011.
of Cherry and Glenn. According to the Castro’s, upon Virgilio's death, the
obligation to pay the third-party defendant (PPSBI) passed on to Paramount
On 11 April 2011, Paramount filed a Petition for Review under Rule 45, by virtue of the Mortgage Redemption Insurance, 43 and not to them as
arguing that the case could be fully appreciated and resolved without Virgilio's heirs.
involving the PPSBI as a third-party defendant in Civil Case No. 09-599. 39
In Great Pacific Life Assurance Corp. v. Court of Appeals, 44 we defined
G.R. No. 211329 mortgage redemption insurance as a device for the protection of both the
mortgagee and the mortgagor:
Meanwhile, on 7 January 2014, the Castro’s filed a Motion to Dismiss 40 the
Complaint on the ground of failure to prosecute for an unreasonable length of On the part of the mortgagee, it has to enter into such form of contract so that
time without justifiable cause and to present evidence ex parte pursuant to a in the event of the unexpected demise of the mortgagor during the
court order. In a Resolution41 dated 11 February 2014, the RTC denied the subsistence of the mortgage contract, the proceeds from such insurance will
motion. Owing to its previous Order dated 26 May 2010, which declared the
Castro’s as in default for failure to attend the pretrial, the RTC treated the
be applied to the payment of the mortgage debt, thereby relieving the heirs of
the mortgagor from paying the obligation. In a similar vein, ample protection
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is given to the mortgagor under such a concept so that in the event of death, Castro’s. The soundness of admitting a third-party complaint hinges on
the mortgage obligation will be extinguished by the application of the causal connection between the claim of the plaintiff in his complaint and a
insurance proceeds to the mortgage indebtedness. 45 claim for contribution, indemnity or other relief of the defendant against the
third-party defendant. 48 In this case, the Castro’s stand to incur a bad debt to
In this case, the PPSBI, as the mortgagee-bank, required Virgilio to obtain an the PPSBI - the exact event that is insured against by Group Master Policy
MRI from Paramount to cover his housing loan. The issuance of the MRI, as No. G-086 - in the event that Paramount succeeds in nullifying Virgilio's
evidenced by the Individual Insurance Certificate in Virgilio's favor, was Individual Insurance Certificate.
derived from the group insurance policy issued by Paramount in favor of the
PPSBI. Paramount undertook to pay the PPSBI "the benefits in accordance Paramount further argues that the propriety of a third-party complaint rests
with the Insurance Schedule, upon receipt and approval of due proof that the on whether the possible third-party defendant (in this case PPSBI) can raise
member has incurred a loss for which benefits are payable." 46 the same defenses that the third-party plaintiffs (the Castro’s) have against
the plaintiff. However, the Rules do not limit the third-party defendant's
Paramount, in opposing the PPSBI's inclusion as a third-party defendant, options to such a condition. Thus:
reasons that it is only seeking the nullification of Virgilio's individual
insurance certificate, and not the group insurance policy forged between it Section 13. Answer to third (fourth, etc.)-party complaint. – A third (fourth,
and the PPSBI. It concludes that the nullification action it filed has nothing to etc.)-party defendant may allege in his answer his defenses, counterclaims or
do with the PPSBI. cross-claims, including such defenses that the third (fourth, etc.)-party
plaintiff may have against the original plaintiffs claim. In proper cases, he
We disagree. may also assert a counterclaim against the original plaintiff in respect of the
latter's claim against the third-party plaintiff. 49
Should Paramount succeed in having the individual insurance certificate
nullified, the PPSBI shall then proceed against the Castro’s. This would As seen above, the same defenses the third-party plaintiff has against the
contradict the provisions of the group insurance policy that ensure the direct original plaintiff are just some of the allegations a third-party defendant may
payment by the insurer to the bank: raise in its answer. Section 13 even gives the third-party defendant the
prerogative to raise a counterclaim against the original plaintiff in respect of
Notwithstanding the provision on Section 22 "No Assignment" of Article IV the latter's original claim against the defendant/third-party plaintiff.
Benefit Provisions, and in accordance with provisions of Section 6
"Amendment of this Policy" under Article II General Provisions of the Group In Firestone Tire & Rubber Co. of the Phil. v. Tempongko, 50 We ruled that a
Policy, it is hereby agreed that all death benefits shall be payable to the defendant is permitted to bring in a third-party defendant to litigate a separate
Creditor, Philippine Postal Savings Bank as its interest may cause of action in respect of the plaintiffs claim against a third party in the
appeal.47 (Emphasis supplied.) original and principal case. The objective is to avoid circuitry of action and
unnecessary proliferation of lawsuits, as well as to expeditiously dispose of
In allowing the inclusion of the PPSBI as a third-party defendant, the Court the entire subject matter arising from one particular set of facts, in one
recognizes the inseparable interest of the bank (as policyholder of the group litigation.
policy) in the validity of the individual insurance certificates issued by
Paramount. The PPSBI need not institute a separate case, considering that its The CA correctly ruled that to admit the Castro’s Third-Party Complaint, in
cause of action is intimately related to that of Paramount as against the which they can assert against the PPSBI an independent claim they would

77
otherwise assert in another action, would prevent multiplicity of G.R. No. 211329
suits.51Considering also that the original case from which these. Present
Petitions arose has not yet been resolved, the Court deems it proper to have As regards G.R. No. 211329, this Court finds that outright denial of the
all the parties air all their possible grievances in the original case still Petition is warranted, pursuant to our ruling in Rayos v. City of Manila.56 In
pending with the RTC. that case, We ruled that an order denying a motion to dismiss is interlocutory
and, hence, not appealable. 57 That ruling was based on Section 1 (b), Rule 41
Finally, the Court resolves the legal issues allegedly ignored by the CA, to of the Rules of Court, as amended, which provides:
wit: 1) whether legal grounds exist for the inhibition of Judge Ruiz (the
presiding judge); and 2) whether the defendants were properly declared SECTION 1. Subject of appeal. - An appeal may be taken from a judgment or
final order that completely disposes of the case, or of a particular matter
as in default for failure to appear at pretrial. therein when declared by these Rules to be appealable.

The first issue is unmeritorious. Counsel for the Castro’s postulates that since No appeal may be taken from:
six rulings of the judge are being assailed for grave abuse of discretion, the
judge should inhibit himself.52 According to counsel, no judge shall sit in any xxxx
case if the latter's ruling is subject to review. The Court reminds counsel that
the rule contemplates a scenario in which judges are tasked to review their (b) An interlocutory order;
own decisions on appeal, not when their decisions are being appealed to
another tribunal. xxxx

With regard to the second issue, counsel apparently confuses a declaration of In all the above instances where the judgment or final order is not appealable,
default under Section 353 of Rule 9 with the effect of failure to appear under the aggrieved party may file an appropriate special civil action under Rule
Section 554 of Rule 18. Failure to file a responsive pleading within the 65.
reglementary period is the sole ground for an order of default under Rule
9.55 On the other hand, under Rule 18, failure of the defendant to appear at In the present case, the RTC's denial of the Motion to Dismiss was an
the pre-trial conference results in the plaintiff being allowed to present interlocutory order, as it did not finally dispose of the case. On the contrary;
evidence ex parte. The difference is that a declaration of default under Rule 9 the denial paved way for the case to proceed until final adjudication by the
allows the Court to proceed to render judgment granting the claimant such trial court.
relief as his pleading may warrant; while the effect of default under Rule 18
allows the plaintiff to present evidence ex parte and for the Court to render
Upon denial of their Motion to Dismiss, the Castro’s were not left without
judgment on the basis thereof. The lower com1 may have declared
any recourse. In such a situation, the aggrieved party's remedy is to file a
defendants therein as in default; however, it did not issue an order of default,
special civil action for certiorari under Rule 65 of the Rules of Court.
rather, it ordered the plaintiff to present evidence ex parte in accordance with
However, the aggrieved parties herein resorted to filing a Petition for Review
the Rules. In any case, the Castro’s could have availed themselves of
under Rule 45 before this Court. Even if the present Petition is treated as one
appropriate legal remedies when the CA failed to resolve the issue, but they
for certiorari under Rule 65, it must still be dismissed for violation of the
did not. They cannot now resurrect the issue through a Comment before this
principle of hierarchy of courts. This well-settled principle dictates that
Court.

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petitioners should have filed the Petition for Certiorari with the CA, and not
directly with this Court.

WHEREFORE, premises considered, the Petitions in G.R. Nos. 195728 and


211329 are DENIED.

SO ORDERED.

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