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1. G.R. No.

L-33720-21 March 10, 1975

THE PHILIPPINE BRITISH CO., INC. and THE CIBELES INSURANCE CORPORATION, Petitioners,
vs.
THE HON. WALFRIDO DE LOS ANGELES in his capacity as Presiding Judge, Branch IV of the Court of
First Instance of Quezon City, THE HON. VICENTE S. OCOL in his capacity as Clerk of Court of First
Instance of Quezon City and Ex-Oficio Sheriff of Quezon City and MULTIFIELD ENTERPRISES and
MOISES M. TAPIA, Respondents.

Alfonso Felix, Jr., for Petitioners.


B.M. Grecia & Associates and D.G. Garin & Associates for Respondents.

SYNOPSIS
For filing belated joint answer by mail, petitioners were declared in default and private respondent’s evidence was received ex
parte. On April 28, 1971 default judgments against petitioners were rendered, and duly docketed, were released for service by
registered mail on May 17,1971 addressed to petitioner’s counsel, Felix, Jr. The postman delivered three notices to counsel’s
secretary, the first on May 19, 1971, the second on May 30,1971 and the last on June 15, 1971.

According to Felix , Jr., he examined the expedientes of the cases in May 24, 1971 and he did not find his joint answer therein
and instead saw that orders of default had been issued and that private respondent’s evidence had been ex parte. He claimed
that he did not find any copy of any decision. Two days later he filed a joint motion to lift the order of default, unverified and
unaccompanied by any affidavit of merit, which he set for hearing on June 1, 1971. This was declared a public holiday; and
according to Felix. Jr., the next day he went to court and the respondent judge advised him to set motion for hearing anew.

Felix, Jr. received a notice that his motion had been set for hearing on June 30, 1971, but on June 22, 1971, respondent judge
issued an order canceling this notice for the reason that the court can no longer set aside its order of default since petitioners
failed to comply with section 3 of Rule 18. On June 28, 1971, on private respondent’s motion, an order for the immediate
execution of the default judgments was issued. Petitioners filed a joint petition for relief from judgment but before said petition
could be acted upon by the trial court, the instant petition was filed and summons, together with the writ of preliminary
injunction, were served on respondents.

The Supreme Court gave due course to the present petition notwithstanding the fact that a petition for relief from judgment had
been filed with the trial court because the petition hinted possible irregularities in the actuations of the respondent judge and
his employees, and the Court felt it was in the best interest of justice to inquire into what actually happened. On this point, the
Court ruled that the official records and the affidavits of the employees of the trial court as well as those of the Bureau of Posts
conclusively belie counsel’s allegations.

Finding that there were enough incontrovertible facts in the record on the basis of which the litigation between the parties can
be terminated, the Court resolved the cases instead of remanding them to the trial court for further proceedings and final
determination of the issues. It compared the conflicting allegations of the parties in the light of their respective supporting
affidavits and documents and concluded that petitioners have not shown that they have good and valid defenses against the
claim of respondent Tapia.

The Court noted counsel’s failure to substantiate his charges against the actuation of the judge and his personnel and the fact
that he made positive allegations that his clients have good and valid defenses knowing the truth to be otherwise. He was made
to show cause why no administrative action should be taken against him as a member of the bar.

Petition dismissed.

SYLLABUS

1. SPECIAL CIVIL ACTION; CERTIORARI; PETITION GIVEN DUE COURSE DESPITE ADEQUATE REMEDY IN ORDINARY COURSE
OF LAW IF IT ASSAILS INTEGRITY OF JUDGE, PERSONNEL AND PROCEEDINGS. — Ordinarily, petition for relief from judgment
will be deemed as an adequate remedy in the ordinary course of law that constitutes a bar to a certiorari review or any other
kind of special civil action. But where the petition for certiorari strongly hints possible irregularities in the actuations of the judge
and the employees which could involve their honesty and good faith as well as the integrity of judicial and proceedings, the
Supreme Court, in the best interest of justice, will inquire into what actually happened and give the petition due course.

2. ID.; ID.; ID.; ACCUSATION OF IRREGULARITIES BELIED BY OFFICIAL RECORDS IN CASE AT BAR. — The official records and
the affidavits of the employees of the court as well as allegation that respondent judge connived with his co-respondents to
make it appear that proper judgments by default had been regularly rendered when in truth there was none.

3. ID.; ID.; SUPREME COURT WILL RESOLVE RATHER THAN REMAND CASE TO LOWER COURT IF THERE ARE ENOUGH FACTS
ON RECORD. — Where in a petition for certiorari, the Supreme Court finds that there are enough incontrovertible facts in the
record on the basis of which the litigation between the parties can be terminated, the Court will resolve the whole case instead
of returning the case to the trial court for further proceeding and final determination of the issues. It is a primordial principle
that the courts must always strive for a just, speedy and inexpensive determination of all actions and proceedings.

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4. ID.; ID.; ID.; PETITIONERS HAVE NOT SHOWN VALID DEFENSE AGAINST PRIVATE RESPONDENT’S CLAIM IN CASE AT BAR.
— In an unsworn memorandum, petitioners questioned the default judgments rendered against them on private respondent’s
insurance claims, stating that he was guilty of fraud and arson and because of this he availed of every means to secure
judgments without going to trial. In support of this allegation they presented the supposed expert opinion of the former’ Chief
of the PC crime laboratory regarding the gasoline traces found in private respondent’s premises. Private respondent replied that
the expert’s findings were worthless as the adjusters trusted by petitioners had investigated private respondent’s claim and
found no well-grounded reason to warrant non-payment and had recommended out-of-court settlement. Held: Comparing the
conflicting allegations, the Court concluded that petitioners have not shown that they have good and valid defenses against
private respondent’s claim.

5. DEFAULTS: DEFENDANTS DECLARED IN DEFAULT FOR FAILURE TO FILE ANSWER. — When the incontrovertible facts in the
record show that petitioner’s joint answer was undoubtedly filed out of time, their contention that they were erroneously
declared in default has no merit and they cannot justly say that the respondent judge committed a grave abuse of discretion in
making such declaration.

6. ID.; ID.; MOTION TO LIFT ORDER OF DEFAULT; MOTION MUST BE UNDER OATH, ACCOMPANIED BY AFFIDAVIT OF MERIT.
— A motion to lift an order of default should be under oath and accompanied by an affidavit of merit. These are substantial
requirements and the omission thereof justifies the denial of the motion.

7. ID.; ID.; ID.; OMISSION OF AFFIDAVIT OF MERIT; TRIAL COURT CANNOT CONSIDER MOTION. — The requirements of
Section 3 of Rule 18 (Relief from order of default) are practically identical to those of Section 3 of Rule 38 (Relief from
judgment) regarding the need to show the existence of fraud, accident, mistake or excusable negligence that caused the default
and to accompany the motion to set aside with affidavits of merit. The ruling which states that a petition to set aside a
judgment which is not accompanied by an affidavit of merit has no standing in court, is applicable to a motion to lift an order of
default. Thus, the trial court has no authority to consider a motion to lift an order of default if the affidavit of merit is omitted.

8. ID.; ID.; ID.; FATALLY DEFECTIVE MOTION CANNOT REVIVE RIGHT TO NOTICE OF FURTHER PROCEEDINGS. — The mere
filing of a fatally defective motion to set aside an order of default does not entitle the defaulting defendants to notice of all
subsequent proceedings. Section 9 of Rule 13 must be read in conjunction with section 3 of Rule 18. The motion to set aside
default, which effects the revival of the right to notice of further proceedings, referred to in Section 9 of Rule 13 must be one
the contents of which are precisely those provided for in Section 3 Rule 18. Thus, where the motion to lift the order of default
did not comply with section 3 of Rule 18, the movant cannot contend that the failure of the judge to notify him of the motions
for immediate execution of the default judgments fatally vitiated the order granting the same and the writs and levies pursuant
thereto.

9. JUDGMENTS; EXECUTION: PREVAILING PARTY CAN HAVE FINAL JUDGMENT EXECUTED AS A MATTER OF RIGHT. — Once a
judgment becomes final and executory, the prevailing party can have it executed as a matter of right and the granting of
execution becomes a ministerial duty of the court. In the case at bar, where it is indisputably borne by the records that the
impugned judgments became final and executory on June 23, 1971, the action taken by the trial court June 28, 1971 granting
respondents’ motion for immediate execution assumed the character of an order of execution of a final and executory judgment
and has therefore, become a matter of right to the prevailing party and ministerial on the court to grant.

10. ATTORNEY-AT-LAW; DISCIPLINE; COUNSEL IN CASE AT BAR ORDERED TO SHOW CAUSE WHY NO ADMINISTRATIVE
ACTION SHOULD BE TAKEN AGAINST HIM. — The court cannot begrudge any lawyer of his right to be assiduous and zealous,
even tenacious, in the prosecution or defense of the cause of his client. But when counsel fails to substantiate his charges
directly assailing the personal integrity of the judge and his personnel as well as that of the proceedings, and makes positive
allegations that his clients have good and valid defenses knowing the truth to be otherwise, he must be made to show cause
why no administrative action should be taken against him as a member of the bar.

DECISION

BARREDO, J.:

Petition for certiorari to annul and set aside the default proceedings, the judgments and the writs of execution of
respondent judge in Civil cases Nos. Q-15377-8 of the Court of First Instance of Quezon City entitled Multifield
Enterprises, Et. Al. v. Philippine British Assurance Co., Inc. and Multifield Enterprises Et. Al. v. Cibeles Insurance
Corporation, respectively, and for prohibition to enjoin the execution of said judgments. Upon the filing of the
petition, the Court issued the writ of preliminary injunction prayed for. Respondents were required to answer and
after issued were joined, the parties filed their respective memoranda in lieu of oral argument.

On June 12, 1970, a fire broke out in the premises of private respondents (Tapia, for short) at No. 245 Roosevelt
Avenue, San Francisco del Monte, Quezon City. Being holders of fire insurance policies from different companies,
among them the petitioners, and having failed to secure extrajudicial settlement of their claims, they filed
corresponding civil actions in the Court of First Instance of Quezon City. All of said cases, dealing as they did with
the same facts and issues, were assigned to respondent judge, to whom by raffle the first of them had fallen.

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Petitioner British (for short) was served summons in Civil Case No. Q-15377 on March 29, 1971 while petitioner
Cibeles (for short) was served theirs for Civil Case No. Q-15378 on April 2, 1971, hence their answers were due on
April 13 and 17, respectively.

On April 13, 1971, counsel for British filed by mail a motion asking for fifteen (15) days extension of its time to
answer, claiming that due to the intervening Holy Week and pressure of other works, he would be unable to
prepare his answer within the reglementary period. He was granted only five (5) days ending April 19. 1 No answer
came until April 28, 1971, albeit it was mailed by registered service on April 22, 1971. Cibeles in turn filed its own
motion for extension on April 19, 1971, two days after due date. Obviously, the period could not be extended
anymore. Just the same, it filed its answer on April 22, 1971, which was joint with that of British.

In the meanwhile, on April 24, 1971, Tapia filed separate motions in the two cases praying that petitioners be
declared in default. Not having received by then any answer of petitioners, (Petitioners did file a joint answer, but
as will be seen later, the same was actually received by respondent court only on April 28, 1971.) an order of
default was issued, directing at the same time that plaintiffs’ evidence be received by the clerk of court. This
reception of evidence was done on April 26 and 27, and on April 28, 1971, the judgments complained of herein
were rendered. After being duly docketed, these judgments were released for service by registered mail on May
17, 1971, addressed to petitioners’ counsel, Atty. Alfonso Felix, Jr. at his given address at Room 212 Lopez
Building, Aduana Street, Intramuros, Manila.

According to the postman assigned in that area, Alfredo E. Sugatan, the first registry notice of said mail matter,
Registered Mail No. 13648, was delivered by him actually to counsel’s secretary who was known to him personally,
a certain Miss Tuliao, in the morning of May 19, 1971, as he similarly delivered to her subsequently the second and
third notices on May 30, 1971 and June 15, 1971.

According to Atty. Felix, Jr., on May 24, 1971, the day he received the order of default in Q-13577 (Par. 12 and
Annex C-1 of Petition) he found himself in the respondent court and to his great surprise, in the corresponding
expedientes, he found neither (1) his motion for extension of time to file answer in Q-13577 nor (2) the
aforementioned joint answer he had filed on behalf of petitioners and that instead he saw therein that orders of
default had been issued in both cases and, further, that evidence of the plaintiffs had been received ex-parte on
April 26 and 27, 1971. 2 He claims also that on said occasion, when he examined the expedientes of the cases, he
did not find therein any copy of any decision. To be noted, however, he does not pretend that he made any inquiry
from any of the officials and employees of the court as to what was the exact status of his cases as of that date.

Two days later or on May 26, 1971, he filed a joint motion, dated May 25, 1971, to lift the order of default,
unverified and unaccompanied by any affidavit of merit, which he set for hearing on June 1, 1971. According to
him, "the motion to set aside the Order of Default could not be heard on June 1 the day on which it was set for
hearing for the reason that day had been declared a public holiday, undersigned counsel went to respondent court
the next day, June 2, 1971, consulted the expedientes and seeing respondent Judge de los Angeles showed him a
copy of the Joint Motion Annex `D’ to lift the Order of Default. Respondent Judge de los Angeles after reading in
the presence of undersigned counsel that Joint Motion Annex `D’ asked him to set it for hearing anew and told him
that it was always his practice to give parties a chance to present evidence." (Par. 17 of Petition). And so, counsel
did as told.

Thus, on June 10, 1971, a notice was received by Atty. Felix, Jr. Advising him that the motion had been set for
hearing on June 30, 1971, but on June 22, 1971, respondent judge issued an order cancelling this notice for the
reason that "for failure of defendants in the above-entitled cases to comply with the requirements imposed by
Section 3 of Rule 18, Rules of Court and pursuant to the decisions of the Supreme Court on the matter, this Court
can no longer set aside its order dated April 24, 1971." (Annex H of the Petition). And on June 28, 1971,
respondent judge issued the following order:jgc:chanrobles.com.ph

"Acting on the motion for immediate execution of judgments filed by the plaintiffs through counsel in the above-
entitled cases, this Court finds and the records of these cases bear out and show that the judgments adverted to
were rendered by this Court on April 28, 1971 and copies thereof were sent and posted as registered mail No.
13648 to the counsel for defendants on May 17, 1971 by the Clerk of this Court. The copies of the decisions as
registered mail No. 13648 were returned to this Court by the Post Office as unclaimed by the addressee, the
counsel for the defendants, on June 23, 1971.

"Both the certification (Annex "A" of the motion for immediate execution) and the proof of service of the notices
sent by the postmaster stamped on the envelop-cover of the decisions show that the first notice of this registered
mail was sent to the counsel for defendants at his office address on May 19, 1971 by the postmaster. Again, on
May 30, 1971, a notice was sent to him by the postmaster on these decisions as registered mail No. 13648. The

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last and third notice by the postmaster was sent to him by the postmaster on June 15, 1971. Still counsel for
defendants did not claim from the Post Office his copies of the decisions for which no less than three notices were
sent to him by the postmaster.

"Completeness of service of the decisions on defendants’ counsel was thus accomplished after the expiration of five
days from the date of the first notice which is May 19, 1971, pursuant to Section 8 of Rule 13, Rules of Court and
the numerous decisions of the Supreme Court on this particular matter. The period of thirty (30) day within which
to interpose an appeal from these decisions rendered by this Court in the above-entitled cases commenced on May
25, 1971 the day after the fifth day from May 19, 1971 and expired after June 23, 1971, the thirtieth day. From
May 25, 1971 to June 23, 1971, no appeal from these decisions was taken by the defendants. Considering that the
period of thirty (30) days has already expired and no appeal has been taken by the defendants from the decisions
rendered by this Court on April 28, 1971, they are by law now final, unappealable and, as matter of right, the
plaintiffs are entitled to their immediate execution.

"WHEREFORE, the immediate execution of the judgments in the above-entitled cases are hereby granted. Let the
corresponding writs of execution be issued.

SO ORDERED."

Pursuant to the writs issued under this order, the Hongkong & Shanghai Banking Corporation paid to respondent
Sheriff P294,750.00 for the account of British and the First National City Bank of New York the sum of P75,000 for
the account of Cibeles (Pars. 30 and 31, Petition), but all the amounts thus paid were returned to the respective
banks by virtue of the writ of preliminary injunction of this Court of July 9, 1971.

On July 1, 1971, petitioners filed a joint "Petition for Relief from Judgment." But before said petition could be acted
upon by the court, the instant petition was filed with this Court on July 2, 1971 and summons, together with the
writ of preliminary injunction was served on public respondents on July 10, 1971. (Annex N, Petition). In the
meantime, on the same day that the petition for relief was set for hearing, July 7, 1971, respondent judge found it
to be "sufficient in form and substance" and ordered the respondents "to answer the same within a period of
fifteen (15) days from receipt hereof." (Annex A, Respondents’ Motion to Dismiss of September 5, 1972.) Nothing
else developed in the trial court later because the injunction of this Court which was served on respondent judge
on July 10, 1971 enjoined him from "taking further action" in the two subject cases.

At this juncture, it becomes necessary to discuss and resolve a point of procedure before going any further. As may
be noted, We could have refused to give due course to the present petition when it was filed on July 2, 1971,
considering that it already avers that a petition for relief from judgment dated June 30, 1971 (Annex N of Petition)
had been filed by petitioners with the trial court on July 1, 1971, which, pursuant to the usual practice, We could
have deemed as an adequate remedy in the ordinary course of law that constitutes a bar to a certiorari review or
any other kind of special civil action. But the petition, on its face, presented the situation that obtained in the trial
court in such an alarming manner, to the point of strongly hinting possible irregularities in the actuations of the
respondent judge and the employees in his sala, which could involve their honesty and good faith as well as the
integrity of judicial records and proceedings, that the Court felt it was in the best interest of justice for the Court
itself to inquire without further loss of time into what actually happened. Indeed, even after the parties had filed
their respective memoranda and the Court had by resolution of October 21, 1971 declared these cases submitted
for decision, when the respondents filed their motion to dismiss of September 5, 1972, based precisely on the
ground that on July 7, 1971 the trial court had given due course to petitioners’ petition for relief, We resolved to
defer determination of the dismissal motion until this decision on the merits.

Now, having thus disregarded the existence of an ordinary remedy in the court below at the earlier stages of these
cases, it is but proper and logical for Us to pursue such course of action to its ultimate conclusion, since anyway,
counsel for petitioners has himself vehemently objected to said motion to dismiss, and, after all, as We see it, there
are enough incontrovertible facts in the record, furnished by both parties, on the basis of which the Court can put
an end to the litigation between the parties regarding the insurance claims of private respondents against
petitioners, the subject matter of the actions in the court below. To now confine Ourselves to holding that the trial
court should be accorded the opportunity to resolve the petition for relief of British and Cibeles therein pending
would serve no purpose than to proliferate proceedings, only to end in the same inevitable result which even here
is already obvious and unavoidable. That would be sacrificing substance to achieve nothing more than perfection of
form and procedure, which is inconsistent with the primordial principle that the courts must always strive for a just,
speedy and inexpensive determination of all actions and proceedings. And so, the Court has decided to determine
here even the question of whether the petition for relief filed by petitioners with the respondent court should be
granted or denied, thereby avoiding any possible doubt that petitioners might entertain as to the impartiality and
integrity of future actuations of the respondents. Indeed, petitioners have placed before Us by their petition,

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memorandum and subsequent pleadings, complete with appropriate annexes, consisting of affidavits, letters and
other documents, all the facts which they must believe are relevant, whereas respondents have duly joined issued
with them as to all said facts in their own answer, memorandum and other papers, complete also with similar
corresponding annexes, and there being no serious, much less any credible indication that any of the parties’
annexes are not authentic, We deem it unnecessary to prolong further the main controversy between the parties.
We will resolve the whole case here.

The contention of petitioners that they were erroneously declared in default has no merit. From the incontrovertible
facts in the record, We cannot see how it can be justly said that respondent judge committed a grave abuse of
discretion in making such declaration. As regards Cibeles, there can be no question that even its motion for
extension to file its answer was filed out of time. It was served summons on April 2, 1971, and it is not disputed
that its motion for extension was filed on April 19th, two days late. With respect to British, its answer was
admittedly due on April 13, 1971, and although it asked for an extension of fifteen (15) days, it was given only five
(5) days ending April 19, 1971; 3 consequently, its answer jointly filed with Cibeles on April 22, 1971 was
undoubtedly out of time.

Counsel suggests that he was not given enough time, considering that there was the Holy Week to take into
account, but His Honor ruled that precisely, counsel would have more time because of the holidays. Again, We
perceive no grave abuse of discretion in such a pragmatic ratiocination. Besides, it is settled that parties and
counsel should not assume that courts are bound to grant the time they ask for compliance with the rules, and,
therefore, the fact that counsel received the order of extension by mail only on April 26, 1971, is no reason for him
to complain. Likewise, that he was not notified of the motion to declare his clients in default is not against the
rules, for he had no right to such notice. (Pielago v. Generosa, 73 Phil. 654.)

Anent the motion to lift the orders of default, counsel invites attention to the alleged directive of respondent judge
to him to have the hearing of his said motion reset because it is the judge’s "practice to give parties a chance to
present evidence." We take it, however, that seemingly what happened then must have been that His Honor was
just trying to figure out how counsel could be helped out of his self-imposed predicament, but, evidently, upon
further reflection, he must have realized the legal obstacles on the way and consequently found no alternative than
to rule that the motion to lift did not have to be reset for hearing anymore. Upon perusing the motion when it was
filed, he must have noted that it did not comply, as he so stated in his order, with the requirements of Section 3 of
Rule 18.

As may be seen, petitioners’ joint motion to lift the order of default, Annex D of the Petition, the same is neither
under oath nor accompanied by any affidavit of merit. And in Ong Peng v. Custodio, 111 Phil. 382, We held as
follows:jgc:chanrobles.com.ph

". . . Upon examination of the motion to set aside the order of default, we find it to be lacking in the following
substantial requirements: it does not contain an affidavit of merits, the motion to set aside the default order is not
under oath and contains only a promise or an assurance, not an affidavit of merits, that defendant has a good
defense. The court was, therefore, fully justified in denying the motion to set aside the order of default."cralaw
virtua1aw library

In fact, in view of the omission of petitioners to accompany their motion with any affidavit of merit, the trial court
had no authority to consider the same. It is to be noted that the requirements of Section 3 of Rule 18 are
practically identical to those of Section 3 of Rule 38 regarding the need to show the existence of fraud, accident,
mistake or excusable negligence that caused the default and to accompany the motion to set aside with affidavits
of merit. Consequently, it is but proper to apply to such a motion the same ruling applicable to petitions for relief
under Rule 38, which is to the effect that:jgc:chanrobles.com.ph

"Furthermore, it appears that appellant’s petition to set aside the judgment and reopen the case, is grounded on
his alleged excusable negligence in failing to appear and testify during the hearing of the case on February 3,
1959, namely, his becoming ill with flu (influenza) on said date. We find, however, that appellant failed to
accompany said petition with affidavits of merit showing the excusable negligence relied upon, and the facts
constituting his good and substantial cause of action or defense, as expressly required under Section 3, Rule 38 of
the Rules of Court. We have repeatedly held that such a defect is fatal (Abao v. Virtucio, Et Al., 109 Phil., 821;
Price Stabilization Corporation v. Court of First Instance of Manila, Et Al., 97 Phil., 153) which warrants the denial
of the relief sought (Abao v. Virtucio, Et Al., supra, citing Coombs v. Santos, 24 Phil., 446; McGrath v. Del Rosario,
49 Phil., 330; Villanueva, Et. Al. v. Alcoba, 101 Phil., 277). The reason for the rule is that it is the affidavits of merit
which serve as jurisdictional basis for a court to entertain a petition for relief (Abao v. Virtucio, Et Al., supra;
Omandam v. Director of Lands, 95 Phil., 450; Off. Gaz., 4840). Stated differently, where a petition to set aside a
judgment or reopen a case pursuant to Rule 38 of the Rules of Court is not accompanied with said affidavits of

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merit, the court with which it is filed is not called upon to entertain the petition. Applied to the instant case,
appellant’s petition to set aside the judgment in question and reopen the case acquired no standing in court and,
consequently, it was rightly denied." (Fernandez v. Tan Tiong Tick, 111 Phil. 773 at pp. 780-781.)

Indeed, the identity of these two remedies is such that in Ong Peng, supra, We already expressed Our "doubt if the
same issue raised in the original motion to set aside the order of default, may again be raised in a petition for relief
under Rule 38 of the Rules of Court. The general rule is that once a matter in issue has been decided by the court,
it may no longer be brought again in the form of another objection, and in the guise of a motion under another
provision of the rules" (at p. 387). True it is that as a matter of form, under Section 3 of Rule 18 it is not essential
that the affidavit of merit be separate from the motion and may instead be incorporated therein, but in the instant
case of petitioners’ motion, even if it makes general allegations of merit, these allegations are not supported by
oath of anyone who has knowledge of the fact. As already stated, not even Atty. Felix Jr. swore to the truth
thereof. Accordingly, We find no error in the subsequent action of respondent judge of cancelling the notice of
hearing of the joint motion to lift the order of default.

Besides, the same section expressly provides that motions to lift orders of default may be filed only before
judgment, and petitioners’ joint motion was filed only on May 26, 1971, whereas the judgments in question were
rendered on April 28, 1971.

But counsel would attach importance to another aspect of his motion to lift the default orders, regardless of its
legal untenability. He contends that having filed such a motion, he became entitled under Section 9 of Rule 13 to
notice "of all further proceedings" and, therefore, the failure of respondents to notify him of the motions for
immediate execution of the default judgments fatally vitiated the order granting the same and the writs and levies
pursuant thereto.

It is quite obvious that counsel’s reliance on the provision cited by him is misplaced. Textually, the said section
reads thus:

"SEC. 9. Service upon party in default. — No service of papers other than substantially amended or supplemental
pleadings and final orders or judgments shall be necessary on a party in default unless he files a motion to set
aside the order of default, in which event he shall be entitled to notice of all further proceedings regardless of
whether the order of default is set aside or not."cralaw virtua1aw library

We are not prepared to agree with counsel that the right of a party in default to notice of further proceedings
which this rule revives as a result of the filing of a motion to set aside the default order is intended by the rule to
be so easily reacquired that just by the mere filing of any motion with a prayer to set aside the default, the
provision may be deemed as already complied with. Logic and principle dictate that the effects of default may not
be treated as lightly as if it were of no juridical essence. While the Court has generally been liberal in giving a party
in default a chance to participate in the trial, We cannot sanction any proposition that would so reduce the effect of
an order of default that to have it set aside all that has to be done is for the party concerned to file any perfunctory
motion therefor. A party who by inaction or negligence allows himself to be declared in default offends the rule
requiring him to answer the summons without unnecessary delay to the end that the issues may be duly joined
and the litigation be expeditiously terminated. To purge himself of the effects of such offense, it should not be
enough for him to just tell the court he has, after all, decided to wake up and take part in the proceedings. It is but
proper that he must justify his failure to comply with the rule before he is relieved from the adverse consequences
of his omission. Thus, Section 9 of Rule 13 must be read in conjunction with Section 3 of Rule 18. In other words,
the motion to set aside default referred to in Section 9 of Rule 13 must be one the contents of which are precisely
those provided for in Section 3 of Rule 18. Thus, the filing of such a motion to set aside short of the requirements
of this latter provision may not as it cannot produce the revival of the right to notice contemplated in Section 9 of
Rule 13. Any other construction in line with the position of petitioners would render the intent and purpose of the
pertinent provisions nugatory and ineffective. Considering, therefore, that counsel’s joint motion to lift the order of
default in the subject cases did not comply with Section 3 of Rule 18, there is no justification at all for his gripe that
he was not notified of further proceedings.

The next point raised by petitioners is more basic. They maintain that the circumstances related by their counsel
should prove to Us that there were in fact no judgments yet against them on June 2, 1971, the day when said
counsel verbally took up with respondent judge the matter of having the orders of default lifted. It is the emphatic
charge of counsel that when he examined the records of the subject cases on May 24, 1971 "no decision of any
sort appeared" therein. (Par. 11-d, Petition). He also "affirms under oath that on June 2, 1971, no decision of any
sort appeared in these expedientes nor did respondent Judge de los Angeles ever aver that any decision had been
rendered." (Par. 18, Petition). He further adds that "the clearest evidence that we can furnish the Supreme Court
that as late as June 3, 1971, no decision had (yet) been rendered" is that he had received on June 10, 1971 a

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notice setting his motion to lift the order of default for hearing on June 30, 1971, "for had any decision been
rendered, clearly the deputy clerk of court who is under the control and supervision of respondent judge and who
is doubtless familiar with the expedientes of these cases would have not set a Motion to Lift the Order of default
for hearing had any decision been rendered (already)" (Pars. 20 and 21, Petition). Additionally, he points out that
even in the order of June 22nd cancelling the notice of hearing issued by the clerk of court of the motion to lift, His
Honor made no hint that he had already decided counsel’s cases. Finally, counsel surmises that it is rather strange
that respondent judge had the material time to prepare his decisions on April 28, when the reception of the
evidence took place only on April 26 and 27.

In plain language, the accusation is that the decisions in question must have been prepared subsequent to June 3,
1971. Undoubtedly, the indictment is serious. It directly implies misfeasance on the part of the officials and
employees of the trial court, not excluding respondent judge. Upon the other hand, the rotund denial of the
respondents is coupled with their own counter-accusation that counsel is frantically but vainly trying only to make
up with his clients for his failure to act on their behalf on time. In the face of these sharply opposite positions, We
could do no less than scrutinize the record minutely and carefully, if only to be able to pin proper responsibility on
whosoever might be guilty of violating his sacred oath as functionary of the court, either as judge, clerk of court or
mere employee thereof or as counsel.

After a conscientious review of the pertinent facts extant in the record, it is our considered opinion that counsel’s
suspicion is unfounded. To begin with, respondents have in their favor the presumption heretofore invariably relied
upon by the Court in similar situations that official duty has been regularly performed by them and that they have
acted in good faith. It has been the constant ruling of this Court that this kind of presumption must stand, even
against the most well reasoned allegations seemingly pointing to some possible irregularity or anomaly. "In the
absence of a showing to the contrary, a judicial proceeding is presumed to be regular, and all steps required by law
to be taken before the Court may validly render judgment, had been so taken." (El Banco Español-Filipino v.
Palanca, 37 Phil. 921; Ongsiako v. Natividad, L-1371, Aug. 5, 1947; People v. Baco, L-2633, Feb. 23, 1958; Go Chi,
Et. Al. v. Go Chi, Et Al., L-5203, Feb. 23, 1955; People v. Nazario, L-7629, Sept. 29, 1955). And so far, We have not
seen anything in the record to support the charges of Atty. Felix Jr. beyond his own allegations which, considering
they do not necessarily belie the contrary representations of the adverse party, do not appear to Us to have any
added weight just because counsel has taken pains to emphasize he has made them "under oath."cralaw virtua1aw
library

As to the disputed existence of the judgments in question prior to June 3, 1971, or for that matter, before May 24,
1971, We are fully convinced that said judgments were entered in the docket on April 28, 1971. We do not feel
justified under the circumstances revealed in the record to say that such entry was made days before the
judgments were actually prepared and signed. The vital fact of such entry is borne out by the certification to such
effect of the respondent Clerk of Court Vicente S. Ocol, Annex 9 of the answer herein, and the affidavit of Branch
Clerk of Court Leon D. Paradero, Annex 9-B, attesting to the rendition of said judgments on the same date, the
truth of which can easily be checked with the regularity or irregularity of the entries in the docket of the trial court.
If the corresponding entries in the docket do not appear to be regular, Atty. Felix Jr. could have completely
rebutted these annexes with proof based on what appears in said docket itself. The utter silence of counsel in this
respect is eloquent evidence against him.

Besides, the apparent thrust of counsel’s theory is that respondents were in such hurry to make the impugned
judgments effective that they allegedly overlooked compliance with the rules cited by him, but, to Our mind, the
incontrovertible fact that it was not until May 17, 1971, or almost three weeks after April 28, 1971, that Jesus B.
Marzan, the Chief of the Civil Cases Section in the court below, released the said judgments, according to his
affidavit (Annex 9-A, id.), belies entirely such claim. This somewhat belated release is also proven by the evidence,
to be discussed anon, as to when the postal authorities got the decision for delivery to petitioners’ counsel. If it
were true that respondents were acting in haste, such release would have been immediate.

The reality of the existence of the judgments in controversy prior to the dates when counsel claims he did not see
them is corroborated by evidence coming from sources other than the office of respondent court. Annex 11-A of
the respondents’ answer herein is the certification of Mr. H. G. Guzman, Postmaster of the Port Area Post Office,
Manila, to the effect that Registered Letter No. 13648 of sender, "CFI Branch IV, Quezon City" was received by his
office on May 19, 1971 "and the corresponding Registry Notice was issued on said date, and sent to addressee on
same day," that "the succeeding second and third notices was (sic) issued after about weeks’ intervals (sic) the
exact date of which was noted on the envelope cover of the said letter" and further "that the Registered Letter was
return (sic) to the sender, it being (sic) remain(ed) unclaimed for more than thirty days, on June 22, 1971 under
our Registry Bill No. 199 for Quezon City line 1, page 1 as shown by our records." Annex 10 is the affidavit of
Alfredo E. Sugatan, the postman assigned to the Port Area Post Office, Manila, entrusted specifically with the
delivery of "letters, notices of mails and other mail matters" in the area "composed of Aduana and Arsobispo

7
Streets, Intramuros, City of Manila", stating in detail that in the morning of May 19, 1971 he personally delivered at
Room 212 Lopez Building, Aduana, Intramuros, Manila, to Miss Tuliao, known to him to be the secretary of Atty.
Alfonso Felix, Jr., also personally known to him, by reason of the performance of his duties for a "long period of
time" in that area, "the FIRST NOTICE on (sic) Registered Mail No. 13648" (the same number referred to in Annex
11-A above) and that he also delivered to her on May 31, 1971 and June 15, 1971, the second and third notices
corresponding to the same registered letter, respectively. Annex 11 is the photostat copy of the face and the dorsal
portion of the envelope addressed to "Atty. Alfonso Felix Jr., Rm. 212 Lopez Bldg., Intramuros, Manila", with
notations such as: the number 13648 enclosed in an oblong figure; "Q-15378-D and Q-15377-D" (which are
precisely the numbers of the subject cases); "Reg. Mail w/ return card" ; and "Republic of the Philippines, Court of
First Instance, Branch IV — Quezon City" ; and marked with rubber stamp data as follows: "Registered, Quezon
City, Philippines, May 17, 1971", "Port Area, Manila, Philippines received May 19, 1971" as well as "Second Notice,
5-30-71" and "Third Notice, 6-15-71."

Considered in the light of ordinary official practice and experience, all the foregoing prove that mail matter related
to Civil Cases Nos. Q-15377-D and Q-15378-D of Branch IV of the Court of First Instance of Quezon City duly
addressed to Atty. Alfonso Felix, Jr. was posted by registered mail, No. 13648, at the Quezon City Post Office on
May 17, 1971 and received by the Port Area Manila Post Office on May 19, 1971 and received back by the Quezon
City Post Office on June 23, 1971, unclaimed after a second notice on May 30, 1971 and a third notice on June 15,
1971. And since it has not been shown that any other notices referring to the same cases had proceeded from the
trial court on or about the dates mentioned, it stands to reason that what the envelope, Annex 10, contained were
precisely the judgments in question, as attested by the affidavit, Annex 9-A, of the mailing clerk of the respondent
court who released the same.

This telling mass of official evidence stands unrebutted in the record by any evidence legally worthy of
consideration. Atty. Felix, Jr. has not shown the Court any evidence which can effectively dent the effect thereof
other than his own allegations "under oath" and the inconclusive and general assertions in (1) the affidavit of Miss
Cleofe V. Tuliao, "in charge of the clerical work in the office including the issuance and receipt of the
correspondence" to the effect that "She knows in (sic) of her own knowledge that the (sic) matter of practice which
has never been deviated from (is that) the postman gives her the notice cards for registered mail, she then brings
these cards to Atty. Alfonso Felix, Jr., who signs them and these cards are then given to Carlos de la Cruz, the
office messenger who collects them" and that "on no occasion did she fail to present any of these notice cards to
Atty. Alfonso Felix, Jr. nor did she fail to deliver the cards thus signed to Carlos de la Cruz for collection", Annex A
of Annex 1 of Respondents’ Petition for dissolution of Writ of Preliminary Injunction dated July 13, 1971 4 and (2)
the affidavit of said Carlos de la Cruz stating that "he knows that it is the practice of the office which is never
deviated from that he receives the notice cards for registered mail from Miss Cleofe Tuliao either in hand or by
having them put on his desk and he then picks up all such registered mail at the proper post office" and that "on
no occasion whatsoever that he failed to collect registered mail covered by card notices." (Annex B, id.). At a
glance, anyone can see that these assertions do not disprove the facts evidenced by the official records just
referred to. It is not an exaggeration to say that the regularity of the actuations of the respondents in relation to
the declaration of default and rendition and execution of the judgment here in question has been proven by such
convincing evidence as to relieve Us from any doubt about it.

Now, very little needs be said as regards the contention that petitioners should have been notified of respondents’
motion for execution. Prescinding already from the consideration discussed above that the mere filing of
petitioners’ motion to set aside did not, because of the fatal defects of the same, have the effect of entitling them
to notice of all subsequent proceedings, with the regularity of the rendition of the impugned judgments as well as
the fact of their having become final and executory on June 23, 1971 5 being indisputably borne by the record, the
action taken by the trial court on June 28, 1971, Annex 12 of the Answer, of granting respondents’ motion for
immediate execution assumed the character of an order of execution of a final and executory judgment, as so
stated in the order itself, and has, therefore, become a matter of right to the prevailing party and ministerial on the
part of the court to grant. In Pamintuan v. Muñoz, 22 SCRA 1109, the Court held:jgc:chanrobles.com.ph

"Regarding the first point, it is by now axiomatic that a judgment on a compromise — like the one in the case at
bar — is at once final and Immediately executory. Also of the same stature is the rule that once a judgment
becomes final and executory, the prevailing party can have it executed as a matter of right and the granting of
execution becomes a ministerial duty of the court. Otherwise stated, once sought by the prevailing party, execution
of a final judgment will just follow as a matter of course. Hence, the judgment debtor need not be given advance
notice of the application for execution nor be afforded prior hearing. (Rule 39, Sec. 1, Rules of Court; Luther v.
Clay, 100 Ga. 236, 28 S. E. 46.) This renders of little significance then the fact alleged by petitioners that they
received copy of respondent’s motion for execution only on the afternoon of the day set for its hearing."cralaw
virtua1aw library

8
At this point, it should be noted that viewed strictly, petitioners’ fundamental pose rests exclusively on a claim of
denial of due process in that they have been improperly declared in default and that writs of execution were issued
against them without notice. Neither in the petition herein nor even earlier in the motion to lift the order of default,
Annex D, or the petition for relief from judgment, Annex N, filed with the court below, is there the adequate
showing required by the rules to make the Court inquire into the possible existence of good and valid defenses on
the part of petitioners so as to justify granting them an opportunity to prove them. To be sure, in the joint motion,
Annex D, counsel does make mention in paragraphs 4 and 9 thereof of "good and valid reasons for the denial of
plaintiff’s claim by defendant company" (British) and "good and valid defenses" of Cibeles. The trouble however is
that to support the same, counsel only makes reference to the joint answer, Annex B, he had filed on behalf of the
two petitioners but, neither the motion itself nor the joint answer is supported by any corresponding oath. The
same observations may be made with regard to the petition for relief, Annex N. And as to the allegations on the
point in question in the petition herein, all that is stated in paragraph 9 thereof is as follows:jgc:chanrobles.com.ph

"(9) In the meantime, undersigned counsel had on behalf of both petitioners filed a joint answer on April 22, 1971
which was received by the Court on April 28, 1971. This answer signed in behalf of both petitioners alleges
meritorious defenses. A copy of the Joint Answer is annexed to the present pleading as Annex "B" hereof."cralaw
virtua1aw library

While the petition appears to be verified by Atty. Felix Jr., it is obvious that said verification may not be deemed
sufficient for the purpose of attesting to the truth of the allegations of fact in the joint answer, Annex B, not only
because no direct reference is made to them by counsel but also because said counsel cannot pretend he has
adequate personal knowledge of said facts.

Fatal as such inadequacies are in the light of established jurisprudence too well known to need being cited, if only
to satisfy Our curiousity which was aroused by the alarming allegations of the petition, We have opted to look into
the purported defenses of the petitioners, on the basis of the allegations pertinent thereto in the memoranda of the
parties, to which are annexed, as noted earlier above, corresponding documents supposed to evidence the truth of
the facts stated in said allegations. After careful and mature consideration and evaluation of their respective
allegations, We are convinced that petitioners’ alleged defenses cannot stand close scrutiny.

Thus, counsel for petitioners opens his unsworn memorandum with the following "preliminary statement"
:jgc:chanrobles.com.ph

"In his memorandum of August 17, 1971 filed in these certiorari proceedings, Moises Tapia avers that we have
resorted to these proceedings purely to cause further delays for we have no real defense. This is not true. The
truth of the matter is that the evidence clearly shows Moises Tapia to be guilty of arson and fraud. It was because
of this respondent Moises Tapia availed himself of every means, even those frowned upon by law, in order to
secure judgment in his favor without going to trial. The evidence against Moises Tapia was such that be had to
avoid going to trial. In support of this averment, we now present the following documents:

1. A certification from Lt. Col. Jose Fernandez, former chief of the Philippine Constabulary Crime Laboratory
showing that there were gasoline residues in fourteen (14) different places of the burned bodega and that one of
these places was the steel cabinet presumably containing the company papers so that even these papers would
burn. All these places had been saturated with gasoline. (Annex A).

2. A sketch of the bodega premises showing the widespread distribution of the gasoline. (Annex B).

3. Twenty-two (22) photographs of the burned bodega. (Annexes C, D, E, F, G, H and I).

4. Chromatographic specimens of the fourteen (14) gasoline residues found in the fourteen (14) aforesaid areas.
(Annexes J, K, L and M).

"Moises Tapia claims that on occasion of the fire suffered by his bodega, be suffered damages in the amount of
five hundred thousand (P500,000.00) pesos. We have annexed twenty-two (22) photographs taken of his bodega
after the fire. (Annexes C, D, E, F G, H and I) showing that his bodega hardly contained anything. Please note that
the alleged contents of this bodega were iron and steel spare parts which do not burn. The conclusion to be drawn
from all these photographs, chemical analysis and chromatographic specimens is obvious. Moises Tapia having
withdrawn his merchandise from his bodega saturated fourteen (14) different places in his bodega with gasoline
including his steel cabinet so as to make sure that even his papers would burn and then caused his bodega to be
burned.

"Under these circumstances, it was imperative for Moises Tapia to avoid having to go to trial. It was imperative for

9
him also, that we, your petitioners herein should not be allowed to present evidence of these acts. That is why
Moises Tapia exerted every effort to avoid trial proceeding and that is why we submit to this Supreme Court it is in
the interest of justice for trial proceedings to be had.

"The foregoing statements are addressed to the equity of this Supreme Court. They have become particularly
necessary since Moises Tapia in his memorandum filed on August 17, 1971, before this Supreme Court has gone so
far as to allege that your petitioners are merely seeking to delay for they have no real defense. This Supreme Court
may now judge for itself." (Pp. 189-191, Record.)

and closes the same with "final remarks" thus:

"Should this Supreme Court be puzzled as to why all these unbecoming things were done, the answer is as we
have said in our opening statement that respondents could not afford the luxury of a trial. A trial with a
corresponding presentation of evidence, part of which is annexed to this present memorandum as Annexes A to M
would have shown respondent Tapia’s case to be baseless so that even a decision had been rendered in his favor
in the trial court, it would certainly have been reversed by this Supreme Court. It was necessary to declare your
petitioners in default so that your petitioners would not be around to present evidence, to adjudge the case in
secrecy so that your petitioners would not learn of the judgment, and to execute in haste so that your petitioners
would find themselves deprived of their property without due process of law and before they even knew what was
happening to them. Fortunately, this Supreme Court intervened. We rely on its continued intervention" (Pp. 209-
210, Record.)

The foregoing allegations are traversed squarely in respondents’ Reply Memorandum as follows:

"To give their cause some semblance of cogency, which it does not possess, petitioners would want this Honorable
Supreme Court to believe that they have a good defense. The alleged defense consists of a report made by one ex-
Lt. Col. Jose Fernandez and related papers attached as Annexes ‘A’ to ‘M’ to petitioners’ Memorandum. Petitioners’
purpose cannot prosper, for the following reasons:

1. The said Lt. Col. Jose Fernandez is a biased and unreliable source. He was hired and paid by petitioners to
conduct an analysis on specimens he himself did not gather. Naturally his findings had to tally with his employer’s
theory and must serve their purpose and interest. That was what he was paid for.

2. The falsity and baselessness of said findings are irrefutably proven by the fact that no criminal action was
instituted against respondent Tapia. Yet petitioners have the effrontery to assert before this Honorable Supreme
Court that "the evidence clearly shows Moises Tapia to be guilty of arson and fraud," for which reason he allegedly
wanted to avoid going to trial. If that was his intention he would not have filed the cases against petitioners in the
lower court.

As a matter of fact, in the two other cases filed by him against two other insurance companies (Civil Case No.
15376 — Multifield, et al v. Monarch Insurance Co., Inc., and Civil Case No. 15379 — Philippine Home Insurance
Corp.) for loss arising from the same conflagration, and involving the same evidence and proof of loss and with
which petitioners have a common adjuster and investigator, respondent Tapia has gone to trial. There, the
defendant insurance companies were not declared in default because they answered on time.

If petitioners herein were declared in default, it was because their counsel failed to observe the reglementary
period for answering and could not or failed to obtain relief from the order of default in accordance with the Rules
of Court. Now an attempt is being made to shift the blame to respondent Tapia by falsely attributing to him a
desire to avoid going to trial purportedly because the evidence will show he is guilty of arson and fraud’. Such foul
tactics are beneath the dignity of the Bench and Bar.

The Worthless Findings of Mr. Jose Fernandez:

3. The said findings were not even believed and accepted by the petitioners’ commissioned and employed
adjustment company which, after a thorough and careful investigation of respondent Tapia’s claim, had
recommended that petitioners better pay. The reports and findings of the petitioners’ adjuster are attached as
Annexes "A" and "B" and form integral parts of this reply. These reports completely refute the petitioners’
allegations that respondent Tapia is guilty of arson and that he fraudulently removed the contents from his bodega
before it was destroyed by fire.

Petitioners’ commissioned and employed investigator and adjuster, the Manila Adjustment Company, in its report
dated February 26, 1971 (Annex "A") to the four insurance companies, is very explicit in its findings and

10
recommendation that there is no basis to deny respondent Tapia’s claim on the ground of fraud. The petitioners’
hired investigator had examined respondent Tapia under the "Examination-under Oath-Clause" of the policies and
it was satisfied that no such fraud exists.

The same Adjustment Company to which the much vaunted report of the private chemist, Mr. Jose Fernandez, was
submitted, brushed aside the same and concluded, in its report of March 11, 1971, that the said findings are not
sufficient basis for denying the claim of respondent Tapia. Even this Honorable Supreme Court, in several cases,
has categorically ruled that the existence of traces of gasoline in the burned premises does not necessarily indicate
that there was arson. (Ya Hun & Co. v. British Traders Ins. Co., L-5719-25, May 18, 1954; Hua Chu Gan, v. Law
Union & Rock Ins. Co., Ltd., L-4611, Dec. 17, 1955.)

4. These reports conclusively prove that petitioners’ counsel told a brazen lie when he claimed that there were no
goods destroyed in the burned bodega. As said reports clearly indicate, the items therein inventoried after the fire
had a total value of P367,311.00. Respondent Tapia was able to prove, through the proofs of loss he submitted in
the lower court and which proofs were the same ones he submitted to the herein petitioners, that he suffered loss
and damage in the amount of P446,781.60.

Incidentally, both Monarch Insurance and Philippine Home Insurance, defendants in Civil Cases Nos. 15376 and
15379, for collection of insurance proceeds in the amounts of P100,000.00 and P50,000.00, respectively, have just
recently paid and satisfied respondent Tapia’s claim. In paving respondent Tapia, these two defendants also acted
upon the findings of the Manila Adjustment Company that there is neither fraud nor arson involved in the claim of
respondent Tapia. Dr. Alberto B. Guevarra, Jr., counsel for Monarch Insurance Company and Philippine Home
Insurance Company, was in full accord with the Adjustment Company’s findings and recommendation and he did
not hesitate to recommend to his clients full settlement of the claim of respondent Tapia. (Photostat copies of joint
motions to dismiss and corresponding orders of respondent judge granting said motions are attached as Annexes
"C", "C-1" and "D" - "D-1" and form integral parts of this reply).

5. Petitioners stand on quick-sand. Their counsel himself, Mr. Felix, in his letter to his clients, marked as Annex "7"
of respondents’ Answer to the instant petition, stated that their case is "far from strong." Hence, petitioners’ case is
not even strong. How can he say now that they have a good defense? And if the evidence did show that
respondent Tapia was guilty of arson and fraud, why does Mr. Felix consider petitioners’ case as `far from strong?’
6

"6. This contention should have been interposed in the lower court through the motion to lift the order of default,
by means of affidavits of merits. Had this been done, respondents could have opposed the same with counter
affidavits. That would have been the proper procedure. Apparently, petitioners’ counsel does not believe in the
Rules of Court. He would instead burden this Honorable Supreme Court with the task of hearing and deciding a
question which was not even raised in his petition. Respondents submit that this particular point has been raised by
petitioners rather too late. In one case, where a similar belated effort was attempted, this Honorable Supreme
Court made the following sagacious ruling:

‘We believe that this is a last minute attempt to defend a losing case. If defendants really had any valid defense,
this should have been brought at the first opportunity, that is, by the first motion to set aside the order of default.’
(Ong Peng v. Custodio, L-14911, March 25, 1961)." (Pp. 227-232, Record.)

Anyone would see from a simple comparison of the foregoing conflicting allegations of the parties in the light of
their respective supporting affidavits and documents that it is rather petitioners, not Tapia, who may have more
reason to avoid a full-blown trial, contrary to the charge made by Atty. Felix Jr. in all his papers filed with this
Tribunal and the court below. The attorney himself must have felt the subject cases of his clients to be weak when
he advised them in his letter, Annex 7 of respondents’ answer, that the same are "far from being strong." At the
time he wrote that letter, he was well aware of the various reports of his clients’ adjusters minimizing the
significance of the supposed expert opinion of Col. Fernandez regarding the gasoline traces found in Tapia’s
premises after the fire and referring to them as being innocuously insufficient to indicate arson. The attorney also
knew that said adjusters, the ones trusted by insurance companies to give them reliable advice on whether or not
insured persons making claims on their policies are more or less guilty of fraud and other improper schemes to
collect unjustified claims, had investigated Tapia’s claims thoroughly and had found no well-grounded reason to
warrant non-payment, and that, in fact, they had recommended out of court settlement. There is no showing at all
that Tapia has ever been criminally charged with arson. On the contrary, the record reveals that two other
insurance companies serviced by the same adjusting company as that of petitioners have already compromised
their cases with Tapia without the latter having them declared in default. In other words, in these cases against the
other two companies, Tapia was prepared to proceed to trial, and if he had secured default judgments against
petitioners, the cause was none other than counsel’s omissions already discussed earlier in this opinion.

11
We reiterate that these circumstances make it unnecessary for Us to adhere to the technical procedure of returning
these cases to the trial court for further proceedings and final determination of the issue of whether or not
petitioners’ petition for relief from judgment should be granted. We find all the proceedings leading to the rendition
of the impugned judgments and to the issuance of all the writs of execution thereunder to have been regular and
legal. And as to whether or not petitioners have been able to make the requisite showing that they have good and
valid defenses, We likewise hold that they have failed to do so. It would be idle ceremony to still require
respondent court to take further action on the petition for relief, Annex N. The order of respondent judge of July 7,
1971, giving due course to said petition has in effect become functus officio. We are persuaded that the respective
situations of the parties can no longer be possibly altered, should We prolong this judicial battle in any way.

What has been said so far should suffice to settle once and for all the litigation between petitioners and private
respondents. But there is another aspect of these cases which cannot be left unresolved, since it affects matters
related to the integrity of judicial proceedings and the attitude and conduct displayed by counsel for petitioners in
connection therewith. The Court cannot begrudge any lawyer of his right to be assiduous and zealous, even
tenacious, in the prosecution or defense of the cause of his client. But when, as in these cases, counsel makes
charges against the actuations of a judge and the personnel of his court directly assailing their personal integrity as
well as that of the proceedings by alleging irregularities implying bad faith and outright misfeasance, he should be
prepared to substantiate the same. This Court will be the last to overlook, much less to tolerate the kind of
misconduct alleged by counsel in his instant petition. This is not to say, however, that trial judges may be maligned
at random with accusations that cannot be proven. Anyone who deliberately moves this Court to act on such kind
of representations may do so only at his peril of being called to account therefor, should his charges turn out to be
a mere attempt to hide his own inadequacies and omissions in order to escape criticism of his clients.

We hold that Atty. Felix Jr.’s implied accusation that respondent judge connived with his co-respondents to make it
appear that proper judgments by default had been regularly rendered against petitioners on April 28, 1971, when
in truth there was no such judgments, has not been proven by him. On the contrary, the official records and the
affidavits of the employees of the trial court as well as those of the Bureau of Posts belie conclusively counsel’s
allegations, and the mere fact that he did not see said judgments and other pertinent pleadings and papers in the
corresponding expedientes on May 24, 1971, assuming the same to be true, cannot disprove their existence,
particularly, when it is considered that counsel has never pretended that he had actually made inquiries and asked
the proper personnel of the court about them, which he would naturally have done, considering that before then
he had filed motions for extension followed by the joint answer. It is particularly unfortunate that counsel made
positive allegations in his petition in the instant cases purporting to show that his clients have good and valid
defenses and that respondent Tapia’s insurance claim was fraudulent and maliciously exaggerated, when, as may
be readily seen from the communications of the petitioners’ own adjusting company, Annexes A and B of
respondents’ reply memorandum, of which communications counsel must have been, in the ordinary course of
client and lawyer relationship, duly informed, and from counsel’s own letter to his client, Annex 7 of respondent’s
answer, it is more than obvious that he knew the truth to be otherwise. It is indeed regrettable that on the basis of
such unjustified allegations, the Court had been induced to issue a writ of preliminary mandatory injunction
counter-manding the writ of execution issued by the court below, thereby causing undue prejudice to all parties
concerned. Such lack of candor bordering on conscious misstatements of fact which has actually misled the Court
calls for at least an appropriate explanation from counsel.

IN VIEW OF ALL, THE FOREGOING, judgment is hereby rendered dismissing the petition in these cases and setting
aside the writ of preliminary injunction issued on July 8, 1971, with the consequence that the executions enjoined
thereby may now proceed in accordance with law and the rules, with costs against petitioner. And for the reasons
above-stated, Atty. Alfonso Felix, Jr. is hereby ordered to show cause within ten (10) days from notice hereof why
no administrative action should be taken against him as a member of the Philippine Bar.

RESOLUTION: May 21, 1975

Submitted for the consideration of the Court is the Compliance and Explanation filed by Atty. Alfonso Felix, Jr.
pursuant to the dispositive portion of the decision in these cases requiring said counsel to show cause why he
should not be dealt with administratively in consequence of representations made by him in connection with the
merits of the cases of his client and with the actuations of the trial judge and the personnel of his court in these
cases.

After going over the said explanation, the Court notes that counsel has not been able to make it clear why there
was less than candor to the court in his allegations regarding the merits of his clients' cases, when it appears rather
evident that he was in possession of adverse information or knowledge in regard thereto. Besides, the contention

12
of counsel that he has not actually received the decision of the trial court, assuming it is factually true, is no
warrant for his insistence that it did not exist when the trial judge ordered execution thereof.

Considering, however, that counsel has expressed his regrets and this is the first occasion that he has allowed his
noted zeal in the protection of the interests of his clients to obscure his compliance with the duty to be strictly
candid with the courts and to accord good faith thereto unless he has clearly demonstrable cause to act otherwise,
the Court resolved to simply REMIND counsel to be more careful henceforth in his dealings with the courts.

Endnotes:
1. Actually it should have been April 18 because March has 31 days, but the trial court, in its order, Annex A of the petition,
expressly granted five (5) days from April 14, 1971.

2. There is no clarification as to whether counsel went to court precisely because he had received earlier Annex C-1 or he
received this later in the day.

3. See footnote (1).

4. It may be mentioned that the known usual practice in this respect among respectable law offices does not include signing by
the lawyer himself of the registry cards. Arrangements are made as to this small detail so that a subordinate may be authorized
to do it.

5. As clearly shown by the record, the first registry notice of the decisions was served on counsel’s office on May 19, 1971,
hence the service became complete on May 24, 1971 (See. 8, Rule 13) and the decision became final on June 23, 1971.

6. We have examined Annex 7 of Respondents’ Answer. It reads in its pertinent portion thus:

"In this case for instance, the fact that you are willing to compromise might be used as an argument to reduce my fees. On the
other hand, the fact that to say the least our case is far from strong as well as the fact that adverse counsel is a former fiscal of
Quezon City with considerable acquaintance with the trial judge may be used by me as an argument to demand a higher fee. . .
."
Atty. Felix, Jr. has not denied the authenticity of this document much less the truth of the representation made by him in the
statement quoted.

2. G.R. No. 73039 October 9, 1987


PERFECTA CAVILI, PRIMITIVO CAVILI and QUIRINO CAVILI, petitioners,
vs.
HON. TEODORO N. FLORENDO, Presiding Judge, Branch XXXVI, Regional Trial Court of Negros
Oriental, 7th Judicial Region, CLARITA CAVILI, ULPIANO CAVILI, ESTRELLA CAVILI, PLACIDA CAVILI,
ET AL., respondents.

No. L-68680 October 9, 1987

PERFECTA CAVILI, PRIMITIVO CAVILI and QUIRINO CAVILI, petitioners,


vs.
HON. TEODORO N. FLORENDO, Presiding Judge, Branch XXXVI, Regional Trial Court, 7th Judicial
Region, CLARITA CAVILI, ULPIANO CAVILI, ESTRELLA CAVILI, PLACIDA CAVILI, GREGORIA CAVILI,
FORTUNATA CAVILI, AMILITA CAVILI, APAD CAVILI, AQUILINA CAVILI, CRESENCIO CAVILI, ALMA
CAVILI, ET AL., respondents.

No. L-57771 October 9, 1987

QUIRINO CAVILI, PRIMITIVO, CAVILI, and PERFECTA CAVILI, petitioners,


vs.
HON. CIPRIANO VAMENTA, JR., as Presiding Judge, Branch III Court of First Instance of Negros
Oriental; ULPIANO CAVILI, CLARITA CAVILI, ESTRELLA CAVILI, RAMONA TAKANG COSME TAKANG
FABIAN TAKANG, LEODEGARIO TAKANG ET AL., respondents.

GUTIERREZ, JR., J.:

This is a petition to review and set aside two orders of the then Court of First Instance of Negros Oriental, namely:
(1) the order dated October 11, 1985, disqualifying Perfects Cavili dela Cruz as a witness in Civil Case No. 6880
entitled "Clarita Cavili, et al. v. Perfecta Cavili, Quirino Cavili, and Primitivo Cavili" and (2) the order dated
November 26, 1985, refusing to reconsider the previous orders of disqualification and resetting the reception of
evidence for the defendants to December 19 and 20, 1985 with a warning that should defendants' witnesses fail to
appear in court on said date, they will be deemed to have waived their right to be witnesses in this case.

13
The private respondents filed Civil Case No. 6880 with the Court of First Instance of Negros Oriental against herein
petitioners for Partition, Accounting, and Damages. After the case was raffled to Branch I presided over by Judge
Augusto S. Villarin, summons was issued to the three petitioners, all at Bayawan Negros Oriental which was the
address indicated in the complaint.

After trying to effect service, the process server went back to the court with the following return of service to
Quirino and Primitivo Cavili not contacted, according to Perfecta Cavili, subject persons is (sic) staying in
Kabangkalan, Negros Occidental."

Meanwhile, Atty. Jose P. Alamino filed a motion for extension to answer in behalf of the defendants, manifesting
the representation of his client Perfecta Cavili that she will inform her brothers Primitivo and Quirino about the
case.

The defendants, however, failed to file their answer within the request period and upon motion of the plaintiffs, the
defendants were declared in default, and on October 5, 1979, a judgment by default was promulgated by Judge
Augusto S. Villarin.

The records of the case, however, show that a Manifestation was filed by Atty. Jose P. Alamino informing the court
that since he never met Primitivo and Quirino Cavili, who are residents of another province, he desisted from
further appearing in the case in their behalf.

On November 7, 1979, Atty. Jose P. Alamillo received a copy of the decision. On December 7, 1979, he filed a
motion for new trial in behalf of the defendants on grounds of lack of jurisdiction and, with a meritorious defense
that the properties sought to be partitioned have already been the subject of a written partition agreement
between the direct heirs of the late Bernardo Cavili who are the predecessors of the parties in this case. In/an
order dated April 23, 1980, the court granted said motion.

The plaintiffs filed a motion for reconsideration of the order granting new trial and at the same time prayed that a
writ of execution be issued but only in so far as defendant Perfecta Cavili was concerned.

In an order dated July 21, 1981, Judge Cipriano Vamenta of Branch III of the Court of First Instance of Negros
Oriental to whom the case had been assigned after a re-raffle, set aside the order of April 23, 1980 and directed
the execution of the October 5, 1979 decision without qualification ruling that the petitioners' remedy should have
been appeal rather than new trial.

Their motion for reconsideration having been denied on August 11, 1981, the defendants, now petitioners, brought
the case to this Court through a petition for certiorari, G.R. No. 57771, entitled "Quirino Cavili, et al., Petitioners vs.
Hon. Cipriano Vamenta, et al., Respondents "

On May 31, 1982, this Court rendered a decision, the dispositive portion of which reads:

WHEREFORE, Our resolution dismissing the petition is hereby reconsidered; the petition is granted; and the order
dated July 21, 1981, is set aside while that of April 23, 1980, is revived. (No special pronouncement as to costs.
Rollo p. 21)

Thereafter, the pre-trial and trial of Civil Case No. 6880 was scheduled on October 9, 10, and 11, 1985 before
Branch XXXVI of the Regional Trial Court, presided by respondent Judge Teodoro N. Florendo. The defendants,
(now petitioners), presented Perfects Cavili dela Cruz as their first witness. The respondents, through counsel
moved for her disqualification as a witness on the ground that having been declared in default, Perfects Cavili has
lost her standing in court and she cannot be allowed to participate in all premise the even as a witness. The court,
through the respondent judge, sustained the respondents' contention and disqualified her from testifying.

The petitioners, through counsel, moved for a reconsideration of the ruling.

On November 26, 1985, the lower court issued an order denying reconsideration of its Order dated October 11,
1985 disqualifying Perfecta Cavili dela Cruz as a witness in Civil Case No. 6880.

Hence, this petition.

Petitioner Perfecta Cavili's competence as a witness is put in issue by the private respondents.

Section 18, Rule 130 of the Revised Rules of Court states who are qualified to be witnesses. It provides:

Section 18. Witnesses; their qualifications. — Except as provided in the next succeeding section, all persons who,
having organs of sense, can perceive, and perceiving, can make known their perception to others, may be
witnesses. Neither parties nor other persons interested in the outcome of a case shall be excluded; nor those who
have been convicted of crime; nor any person on account of his opinion on matters of religious belief.

14
The generosity with which the Rule allows people to testify is apparent. Interest in the outcome of a case,
conviction of a crime unless otherwise provided by law, and religious belief are not grounds for disqualification.

Sections 19 and 20 of Rule 130 provide for specific disqualifications. Section 19 disqualifies those who are mentally
incapacitated and children whose tender age or immaturity renders them incapable of being witnesses. Section 20
provides for disqualification based on conflicts of interest or on relationship. Section 21 provides for
disqualifications based on privileged communications. Section 15 of Rule 132 may not be a rule on disqualification
of witnesses but it states the grounds when a witness may be impeached by the party against whom he was called.

There is no provision of the Rules disqualifying parties declared in default from taking the witness stand for non-
disqualified parties. The law does not provide default as an exception. The specific enumeration of disqualified
witnesses excludes the operation of causes of disability other than those mentioned in the Rules. It is a maxim of
recognized utility and merit in the construction of statutes that an express exception, exemption, or saving clause
excludes other exceptions. (In Re Estate of Enriquez, 29 Phil. 167) As a general rule, where there are express
exceptions these comprise the only limitations on the operation of a statute and no other exception will be implied.
(Sutherland on Statutory Construction, Fourth Edition, Vol. 2A, p. 90) The Rules should not be interpreted to
include an exception not embodied therein.

The respondents, however, cite Section 2, Rule 18 on Defaults, to wit:

Section 2. Effect of order of default. — Except as provided in section 9 of Rule 13, a party declared in default shall
not be entitled to notice of subsequent proceedings nor to take part in the trial.

They advance the argument that to allow Perfecta Cavili to stand as witness would be to permit a party in default
"to take part in the trial."

An explanation of the Rule is in order.

Loss of standing in court is the consequence of an order of default. Thus, a party declared in default is considered
out of court and cannot appear therein, adduce evidence, and be heard and for that reason he is not entitled to
notice. (Rule 18, Rules of Court; Lim Toco v. Go Fay, 80 Phil. 166) However, "loss of pending" must be understood
to mean only the forfeiture of one's rights as a party litigant, contestant or legal adversary. A party in default loses
his right to present his defense, control the proceedings, and examine or cross-examine witnesses. He has no right
to expect that his pleadings would be acted upon by the court nor may he object to or refute evidence or motions
filed against him. There is nothing in the rule, however, which contemplates a disqualification to be a witness or a
opponent in a case. Default does not make him an incompetent.

As opposed to a party litigant, a witness is merely a beholder, a spectator or onlooker, called upon to testify to
what he has seen, heard, or observed. As such, he takes no active part in the contest of rights between the
parties. Cast in the cited role of witness, a party in default cannot be considered as " a part in the trial." He
remains suffering the effects of an order of default.

A party in default may thus be cited as a witness by his co-defendants who have the standing and the right to
present evidence which the former may provide. The incidental benefit giving the party in default the opportunity
to present evidence which may eventually redound to his advantage or bring about a desired result, through his
co-defendants, is of minor consequence.

Of greater concern or importance in allowing the presence of Perfecta Cavili as a witness in the case at bar, is the
preservation of the right of petitioners Quirino and Primitivo Cavili to secure the attendance of witnesses and the
production of evidence in their behalf. To reject Perfects Cavili's presentation of testimonial evidence would be to
treat Primitivo and Quirino, as if they too were in default. There is no reason why the latter should also be made to
bear the consequences of Perfecta's omission. Moreover, we cannot deprive Quirino and Primitivo of the only
instrument of proof available to them, as Perfecta alone has been in possession and administration of the claim.

WHEREFORE, in view of the foregoing, the petition is hereby GRANTED. The order of the respondent court
disqualifying. Perfects Cavili dela Cruz as a witness in Civil Case No. 6880 is hereby SET ASIDE. The case is
remanded to the court a quo for Wither proceedings. The temporary restraining order issued on January 6, 1986 is
LIFTED.

SO ORDERED.

3. G.R. No. 151098 March 21, 2006

ERLINDA GAJUDO, FERNANDO GAJUDO, JR., ESTELITA GAJUDO, BALTAZAR GAJUDO and DANILO
ARAHAN CHUA, Petitioners,

15
vs.
TRADERS ROYAL BANK,1Respondent.

DECISION

PANGANIBAN, CJ:

The mere fact that a defendant is declared in default does not automatically result in the grant of the prayers of
the plaintiff. To win, the latter must still present the same quantum of evidence that would be required if the
defendant were still present. A party that defaults is not deprived of its rights, except the right to be heard and to
present evidence to the trial court. If the evidence presented does not support a judgment for the plaintiff, the
complaint should be dismissed, even if the defendant may not have been heard or allowed to present any
countervailing evidence.

The Case

Before us is a Petition for Review2 under Rule 45 of the Rules of Court, assailing the June 29, 2001 Decision3 and
December 6, 2001 Resolution4 of the Court of Appeals (CA) in CA-GR CV No. 43889. The CA disposed as follows:

"UPON THE VIEW WE TAKE OF THIS CASE, THUS, the partial judgment appealed from, must be, as it hereby is,
VACATED and SET ASIDE, and another one entered DISMISSING the complaint at bench. Without costs."5

The assailed Resolution denied petitioners’ Motion for Reconsideration6 for lack of merit.

The Facts

The CA narrated the facts as follows:

"[Petitioners] filed a complaint before the Regional Trial Court of Quezon City, Branch 90, against [respondent]
Traders Royal Bank, the City Sheriff of Quezon City and the Register of Deeds of Quezon City. Docketed thereat as
Civil Case No. Q-41203, the complaint sought the annulment of the extra-judicial foreclosure and auction sale made
by [the] city sheriff of Quezon City of a parcel of land covered by TCT No. 16711 of the Register of Deeds of
Quezon City, the conventional redemption thereof, and prayed for damages and the issuance of a writ of
preliminary injunction.

"The complaint alleged that in mid 1977[, Petitioner] Danilo Chua obtained a loan from [respondent] bank in the
amount of P75,000.00 secured by a real estate mortgage over a parcel of land covered by TCT No. 16711, and
owned in common by the [petitioners]; that when the loan was not paid, [respondent] bank commenced extra-
judicial foreclosure proceedings on the property; that the auction sale of the property was set on 10 June 1981, but
was reset to 31 August 1981, on [Petitioner Chua’s] request, which, however, was made without the knowledge
and conformity of the other [petitioners]; that on the re-scheduled auction sale, [the] Sheriff of Quezon City sold
the property to the [respondent] bank, the highest bidder therein, for the sum of P24,911.30; that the auction sale
was tainted with irregularity because, amongst others, the bid price was shockingly or unconscionably, low; that
the other [petitioners] failed to redeem the property due to their lack of knowledge of their right of redemption,
and want of sufficient education; that, although the period of redemption had long expired, [Petitioner] Chua
offered to buy back, and [respondent] bank also agreed to sell back, the foreclosed property, on the understanding
that Chua would pay [respondent] bank the amount of P40,135.53, representing the sum that the bank paid at the
auction sale, plus interest; that [Petitioner] Chua made an initial payment thereon in the amount of P4,000.00,
covered by Interbank Check No. 09173938, dated 16 February 1984, duly receipted by [respondent] bank; that, in
a sudden change of position, [respondent] bank wrote Chua, on 20 February 1984, asking that he could
repurchase the property, but based on the current market value thereof; and that sometime later, or on 22 March
1984, [respondent] bank wrote Chua anew, requiring him to tender a new offer to counter the offer made thereon
by another buyer.

"Traversing [petitioners’] complaint, [respondent] bank, upon 05 July 1984, filed its answer with counterclaim,
thereunder asserting that the foreclosure sale of the mortgaged property was done in accordance with law; and
that the bid price was neither unconscionable, nor shockingly low; that [petitioners] slept on their rights when they
failed to redeem the property within the one year statutory period; and that [respondent] bank, in offering to sell
the property to [Petitioner] Chua on the basis of its current market price, was acting conformably with law, and
with legitimate banking practice and regulations.

"Pre-trial having been concluded, the parties entered upon trial, which dragged/lengthened to several months due
to postponements. Upon 11 June 1988, however, a big conflagration hit the City Hall of Quezon City, which
destroyed, amongst other things, the records of the case. After the records were reconstituted, [petitioners]
discovered that the foreclosed property was sold by [respondent] bank to the Ceroferr Realty Corporation, and that
the notice of lis pendens annotated on the certificate of title of the foreclosed property, had already been

16
cancelled. Accordingly, [petitioners], with leave of court, amended their complaint, but the Trial Court dismissed
the case ‘without prejudice’ due to [petitioners’] failure to pay additional filing fees.

"So, upon 11 June 1990, [petitioners] re-filed the complaint with the same Court, whereat it was docketed as Civil
Case No. 90-5749, and assigned to Branch 98: the amended complaint substantially reproduced the allegations of
the original complaint. But [petitioners] this time impleaded as additional defendants the Ceroferr Realty
Corporation and/or Cesar Roque, and Lorna Roque, and included an additional cause of action, to wit: that said
new defendants conspired with [respondent] bank in [canceling] the notice of lis pendens by falsifying a letter sent
to and filed with the office of the Register of Deeds of Quezon City, purportedly for the cancellation of said notice.

"Summons was served on [respondent] bank on 26 September 1990, per Sheriff’s Return dated 08 October 1990.
Supposing that all the defendants had filed their answer, [petitioners] filed, on 23 October 1991, a motion to set
case for pre-trial, which motion was, however, denied by the Trial Court in its Order of 25 October 1991, on the
ground that [respondent] bank has not yet filed its answer. On 13 November 1991[, petitioners] filed a motion for
reconsideration, thereunder alleging that they received by registered mail, on 19 October 1990, a copy of
[respondent] bank’s answer with counterclaim, dated 04 October 1990, which copy was attached to the motion. In
its Order of 14 November 1991, the trial Court denied for lack of merit, the motion for reconsideration, therein
holding that the answer with counterclaim filed by [respondent] bank referred to another civil case pending before
Branch 90 of the same Court.

"For this reason, [petitioners] filed on 02 December 1991 a motion to declare [respondent] bank in default,
thereunder alleging that no answer has been filed despite the service of summons on it on 26 September 1990.

"On 13 December 1991, the Trial Court declared the motion submitted for resolution upon submission by
[petitioners] of proof of service of the motion on [respondent] bank.

"Thus, on 16 January 1992, upon proof that [petitioners] had indeed served [respondent] bank with a copy of said
motion, the Trial Court issued an Order of default against [respondent] bank.

"Upon 01 December 1992, on [petitioners’] motion, they were by the Court allowed to present evidence ex parte
on 07 January 1993, insofar as [respondent] bank was concerned.

"Thereafter, or on 08 February 1993, the Trial Court rendered the new questioned partial decision.7

"Aggrieved, [respondent] bank filed a motion to set aside [the] partial decision by default against Traders Royal
Bank and admit [respondent] Traders Royal Bank’s x x x Answer with counterclaim: thereunder it averred, amongst
others, that the erroneous filing of said answer was due to an honest mistake of the typist and inadvertence of its
counsel.

"The [trial court] thumbed down the motion in its Order of 26 July 1993."8

Respondent bank appealed the Partial Decision9 to the CA. During the pendency of that appeal, Ceroferr Realty
Corporation and/or Cesar and/or Lorna Roque filed a Manifestation with Motion10 asking the CA to discharge them
as parties, because the case against them had already been dismissed on the basis of their Compromise
Agreement11 with petitioners. On May 14, 1996, the CA issued a Resolution12 granting Ceroferr et al.’s
Manifestation with Motion to discharge movants as parties to the appeal. The Court, though, deferred resolution of
the matters raised in the Comment13 of respondent bank. The latter contended that the Partial Decision had been
novated by the Compromise Agreement, whose effect of res judicata had rendered that Decision functus officio.

Ruling of the Court of Appeals

The CA ruled in favor of respondent bank. Deemed, however, to have rested on shaky ground was the latter’s
"Motion to Set Aside Partial Decision by Default Against Traders Royal Bank and Admit Defendant Traders Royal
Bank’s Answer."14 The reasons offered by the bank for failing to file an answer were considered by the appellate
court to be "at once specious, shallow and sophistical and can hardly be dignified as a ‘mistake’ or ‘excusable
negligence,’ which ordinary prudence could not have guarded against."15

In particular, the CA ruled that the erroneous docket number placed on the Answer filed before the trial court was
not an excusable negligence by the bank’s counsel. The latter had a bounden duty to be scrupulously careful in
reviewing pleadings. Also, there were several opportunities to discover and rectify the mistake, but these were not
taken. Moreover, the bank’s Motion to Set Aside the Partial Decision and to Admit [the] Answer was not
accompanied by an affidavit of merit. These mistakes and the inexcusable negligence committed by respondent’s
lawyer were binding on the bank.

On the issue of whether petitioners had convincingly established their right to relief, the appellate court held that
there was no ground to invalidate the foreclosure sale of the mortgaged property. First, under Section 3 of Act No.

17
3135, an extrajudicial foreclosure sale did not require personal notice to the mortgagor. Second, there was no
allegation or proof of noncompliance with the publication requirement and the public posting of the notice of sale,
provided under Act No. 3135, as amended. Third, there was no showing of inadequacy of price as no competent
evidence was presented to show the real market value of the land sold or the readiness of another buyer to offer a
price higher than that at which the property had been sold.

Moreover, petitioners failed to prove that the bank had agreed to sell the property back to them. After pointing out
that the redemption period had long expired, respondent’s written communications to Petitioner Chua only showed,
at most, that the former had made a proposal for the latter to buy back the property at the current market price;
and that Petitioner Chua was requested to make an offer to repurchase the property, because another buyer had
already made an offer to buy it. On the other hand, respondent noted that the Interbank check for P4,000 was for
"deposit only." Thus, there was no showing that the check had been issued to cover part of the repurchase price.

The appellate court also held that the Compromise Agreement had not resulted in the novation of the Partial
Decision, because the two were not incompatible. In fact, the bank was not even a party to the Agreement.
Petitioners’ recognition of Ceroferr’s title to the mortgaged property was intended to preclude future litigation
against it.

Hence this Petition.16

Issues

In their Memorandum, petitioners raise the following issues:

"1. Whether or not the Respondent Court of Appeals erred in failing to apply the provisions of Section 3, Rule 9 of
the 1997 Rules of Civil Procedure [and in applying instead] the rule on preponderance of evidence under Section 1,
Rule 133 of the Rules of Court.

"2. Whether or not the respondent appellate court failed to apply the conventional redemption rule provided for
under Article 1601 of the New Civil Code.

"3. Whether or not this Honorable Court can exercise its judicial prerogative to evaluate the findings of facts."17

The first issue is one of law and may be taken up by the Court without hindrance, pursuant to Section 1 of Rule 45
of the Rules of Court.18 The second and the third issues, however, would entail an evaluation of the factual
findings of the appellate court, a function ordinarily not assumed by this Court, unless in some excepted cases. The
Court will thus rule on the first issue before addressing the second and the third issues jointly.

The Court’s Ruling

The Petition has no merit.

First Issue: Quantum of Proof

Petitioners challenge the CA Decision for applying Section 3 of Rule 9 of the Rules of Court, rather than Section 1
of Rule 133 of the same Rules. In essence, petitioners argue that the quantum of evidence for judgments flowing
from a default order under Section 3 of Rule 9 is not the same as that provided for in Section 1 of Rule 133.

For ease of discussion, these two rules will be reproduced below, starting with Section 3 of Rule 9 of the Rules of
Court:

"Sec. 3. Default; declaration of. – If the defending party fails to answer within the time allowed therefor, the court
shall, upon motion of the claiming party with notice to the defending party, and proof of such failure, declare the
defending party in default. Thereupon, the court shall proceed to render judgment granting the claimant such relief
as his pleading may warrant, unless the court in its discretion requires the claimant to submit evidence. Such
reception of evidence may be delegated to the clerk of court.

"(a) Effect of order of default. – A party in default shall be entitled to notice of subsequent proceedings but not to
take part in the trial.

"(b) Relief from order of default. – A party declared in default may at any time after notice thereof and before
judgment file a motion under oath to set aside the order of default upon proper showing that his failure to answer
was due to fraud, accident, mistake or excusable negligence and that he has a meritorious defense. In such case,
the order of default may be set aside on such terms and conditions as the judge may impose in the interest of
justice.

18
"(c) Effect of partial default. – When a pleading asserting a claim states a common cause of action against several
defending parties, some of whom answer and the others fail to do so, the court shall try the case against all upon
the answers thus filed and render judgment upon the evidence presented.

"(d) Extent of relief to be awarded. – A judgment rendered against a party in default shall not exceed the amount
or be different in kind from that prayed for nor award unliquidated damages.

"(e) Where no defaults allowed. – If the defending party in an action for annulment or declaration of nullity of
marriage or for legal separation fails to answer, the court shall order the prosecuting attorney to investigate
whether or nor a collusion between the parties exists, and if there is no collusion, to intervene for the State in
order to see to it that the evidence submitted is not fabricated."

We now quote Section 1 of Rule 133:

"SECTION 1. Preponderance of evidence, how determined. – In civil cases, the party having the burden of proof
must establish his case by a preponderance of evidence. In determining where the preponderance or superior
weight of evidence on the issues involved lies, the court may consider all the facts and circumstances of the case,
the witnesses’ manner of testifying, their intelligence, their means and opportunity of knowing the facts to which
they are testifying, the nature of the facts to which they testify, the probability or improbability of their testimony,
their interest or want of interest, and also their personal credibility so far as the same may legitimately appear
upon the trial. The court may also consider the number of witnesses, though the preponderance is not necessarily
with the greater number."

Between the two rules, there is no incompatibility that would preclude the application of either one of them. To
begin with, Section 3 of Rule 9 governs the procedure which the trial court is directed to take when a defendant
fails to file an answer. According to this provision, the court "shall proceed to render judgment granting the
claimant such relief as his pleading may warrant," subject to the court’s discretion on whether to require the
presentation of evidence ex parte. The same provision also sets down guidelines on the nature and extent of the
relief that may be granted. In particular, the court’s judgment "shall not exceed the amount or be different in kind
from that prayed for nor award unliquidated damages."

As in other civil cases, basic is the rule that the party making allegations has the burden of proving them by a
preponderance of evidence.19 Moreover, parties must rely on the strength of their own evidence, not upon the
weakness of the defense offered by their opponent.20 This principle holds true, especially when the latter has had
no opportunity to present evidence because of a default order. Needless to say, the extent of the relief that may be
granted can only be as much as has been alleged and proved21 with preponderant evidence required under
Section 1 of Rule 133.

Regarding judgments by default, it was explained in Pascua v. Florendo22 that complainants are not automatically
entitled to the relief prayed for, once the defendants are declared in default. Favorable relief can be granted only
after the court has ascertained that the relief is warranted by the evidence offered and the facts proven by the
presenting party. In Pascua, this Court ruled that "x x x it would be meaningless to require presentation of
evidence if every time the other party is declared in default, a decision would automatically be rendered in favor of
the non-defaulting party and exactly according to the tenor of his prayer. This is not contemplated by the Rules nor
is it sanctioned by the due process clause."23

The import of a judgment by default was further clarified in Lim Tanhu v. Ramolete.24 The following disquisition is
most instructive:

"Unequivocal, in the literal sense, as these provisions [referring to the subject of default then under Rule 18 of the
old Rules of Civil Procedure] are, they do not readily convey the full import of what they contemplate. To begin
with, contrary to the immediate notion that can be drawn from their language, these provisions are not to be
understood as meaning that default or the failure of the defendant to answer should ‘be interpreted as an
admission by the said defendant that the plaintiff’s cause of action find support in the law or that plaintiff is entitled
to the relief prayed for.’ x x x.

xxxxxxxxx

"Being declared in default does not constitute a waiver of rights except that of being heard and of presenting
evidence in the trial court. x x x.

"In other words, a defaulted defendant is not actually thrown out of court. While in a sense it may be said that by
defaulting he leaves himself at the mercy of the court, the rules see to it that any judgment against him must be in
accordance with law. The evidence to support the plaintiff’s cause is, of course, presented in his absence, but the
court is not supposed to admit that which is basically incompetent. Although the defendant would not be in a

19
position to object, elementary justice requires that only legal evidence should be considered against him. If the
evidence presented should not be sufficient to justify a judgment for the plaintiff, the complaint must be dismissed.
And if an unfavorable judgment should be justifiable, it cannot exceed in amount or be different in kind from what
is prayed for in the complaint."25

In sum, while petitioners were allowed to present evidence ex parte under Section 3 of Rule 9, they were not
excused from establishing their claims for damages by the required quantum of proof under Section 1 of Rule 133.
Stated differently, any advantage they may have gained from the ex parte presentation of evidence does not lower
the degree of proof required. Clearly then, there is no incompatibility between the two rules.

Second and Third Issues:


Review of the Evidence

Petitioners urge this Court to depart from the general rule that the lower courts’ findings of fact are not reviewable
in a petition for review.26 In support of their plea, they cite the conflicting findings of the trial and the appellate
courts, as well as the alleged conjectures and surmises made by the CA in arriving at its Decision.

Indeed, the differences between the findings of the two courts a quo, leading to entirely disparate dispositions, is
reason enough for this Court to review the evidence in this case.27 Whether the CA indulged in surmises and
conjectures when it issued the assailed Decision will thus be determined.

At the outset, it behooves this Court to clarify the CA’s impression that no evidence was presented in the case
which might have contributed to petitioners’ challenge to its Decision. The appellate court’s observation was based
on the notation by the lower court’s clerk of court that there were no separate folders for exhibits and transcripts,
because "there was no actual hearing conducted in this case."28

True, there was no hearing conducted between petitioners and respondent, precisely because the latter had been
declared in default, and petitioners had therefore been ordered to present their evidence ex parte. But the absence
of a hearing did not mean that no evidence was presented. The Partial Decision dated February 8, 1993, in fact
clearly enumerated the pieces of evidence adduced by petitioners during the ex parte presentation on January 7,
1993. The documentary evidence they presented consisted of the following:

1. A copy of respondent bank’s Petition for the extrajudicial foreclosure and auction sale of the mortgaged parcel of
land29

2. The Certificate of Sale that was a consequence of the foreclosure sale30

3. A Statement of Account dated February 15, 1984, showing Petitioner Chua’s outstanding debt in the amount
of P40,135.5331

4. A copy of the Interbank check dated February 16, 1984, in the amount of P4,00032

5. The Official Receipt issued by the bank acknowledging the check33

6. The bank’s letter dated February 20, 1984, advising Petitioner Chua of the sale of the property at an extrajudicial
public auction; the lapse of the period of redemption; and an invitation to purchase the property at its current
market price34

7. Another letter from the bank dated March 22, 1984, inviting Petitioner Chua to submit, within five days, an offer
to buy the same property, which another buyer had offered to buy35

8. A copy of the Notice of Lis Pendens, the filing of which was done after that of the Amended Complaint36

9. A copy of the title showing the inscription of the Notice of Lis Pendens37

10. A copy of the Absolute Deed of Sale to Cerrofer38

11. A copy of a letter dated August 29, 1986, made and signed by petitioners’ counsel, requesting the cancellation
of the Notice of Lis Pendens39

12. A copy of a page of the Memorandum of Encumbrance from TCT No. (314341) 7778/T-3940

Having clarified this matter, we proceed to review the facts.

Petitioners do not deny that the one-year period for legal redemption had already lapsed when respondent bank
supposedly offered to sell the property in question. The records clearly show that the Certificate of Sale following
the extrajudicial public auction of the property was registered on June 21, 1982, the date from which the legal

20
redemption period was to be reckoned.41 Petitioners insist, though, that they had the right to repurchase the
property through conventional redemption, as provided under Article 1601 of the Civil Code, worded as follows:

"ART. 1601. Conventional redemption shall take place when the vendor reserves the right to repurchase the thing
sold, with the obligation to comply with the provisions of Article 1616 and other stipulations which may have been
agreed upon."

It is true that the one-year period of redemption provided in Act No. 3135, as amended -- the law under which the
property here was sold in a foreclosure sale -- is only directory and, as such can be extended by agreement of the
parties.42 However, it has also been held that for legal redemption to be converted into conventional redemption,
two requisites must be established: 1) voluntary agreement of the parties to extend the redemption period; and 2)
the debtor’s commitment to pay the redemption price on a fixed date.43 Thus, assuming that an offer was made to
Petitioner Chua to buy back the property after the lapse of the period of legal redemption, petitioners needed to
show that the parties had agreed to extend the period, and that Petitioner Chua had committed to pay the
redemption price on a fixed date.

The letters sent by the bank to Petitioner Chua on February 20 and March 22, 1984, do not convincingly show that
the parties arrived at a firm agreement for the repurchase of the property. What can be gleaned from the February
20 letter is that Petitioner Chua proposed to pay the redemption price for the property, but that the bank refused
to accede to his request, because the one-year redemption period had already lapsed.44 The bank, though, had
offered to sell back the property to him at the current market value. Indeed, an examination of his earlier letter of
February 17, 1984, readily reveals that he expressed willingness to settle his account with the bank, but that his
"present financial situation precludes [him] from effecting an immediate settlement x x x."45

On the other hand, the letter dated March 22, 1984, clearly states that "x x x the Bank rejected [his] request to
redeem said property due to [the] lapse of [the] one (1) year legal redemption period."46 Nonetheless, he was
"[invited] to submit an offer to buy the same property in five (5) days from receipt [of the letter]."47 Petitioner
Chua was also informed that the bank had received an offer to purchase the foreclosed property. As to the P4,000
check enclosed in his proposal dated February 17, 1984, as a token of his good faith, he was advised that the
amount was still outstanding in the books of the bank and could be claimed by him if he thought the invitation was
not feasible.

More important, there was no showing that petitioners had committed to pay the redemption price on a fixed date.
True, Petitioner Chua had attempted to establish a previous agreement to repurchase the property for less than its
fair market value. He had submitted in evidence a Statement of Account48 dated February 15, 1984, showing a
balance of P40,135.53; the Interbank check dated February 16, 1984 , for P4,000, which was deposited to the
account of respondent bank;49 and the Official Receipt for the check.50

Granting that these documents evinced an agreement, petitioners were still unable to establish a firm commitment
on their part to pay the redemption price on a fixed date. On the contrary, the February 17 letter of Petitioner Chua
to the bank clearly manifested that he was not capable of paying the account immediately. For this reason, he
proposed to pay in "three or four installments" without a specification of dates for the payments, but with a plea
for a reduction of the interest charges. That proposal was rejected.

Indeed, other than the Interbank check marked "for deposit" by respondent bank, no other evidence was
presented to establish that petitioners had offered to pay the alleged redemption price of P40,135.53 on a fixed
date. For that matter, petitioners have not shown that they tendered payment of the balance and/or consigned the
payment to the court, in order to fulfill their part of the purported agreement. These remedies are available to an
aggrieved debtor under Article 1256 of the Civil Code,51 when the creditor unjustly refuses to accept the payment
of an obligation.

The next question that presents itself for resolution is the propriety of the CA’s ruling vacating the Partial Decision
of the regional trial court (RTC) and dismissing the case. To recall, the RTC had resolved to withhold a ruling on
petitioners’ right to redeem conventionally and/or order the reconveyance of the property in question, pending a
determination of the validity of the sale to Cerrofer Realty Corporation and Spouses Cesar and Lorna Roque. The
trial court, however, granted the prayer for damages against respondent bank. The RTC ruled as follows:

"The evidence presented by [petitioners] in so far as the cause of action against [respondent] Traders Royal Bank
is concerned are preponderant to support the claims of the [petitioners]. However, in view of the fact that the
property subject matter of this case has already been conveyed to defendant Cerrofer Realty Corporation thus the
issue as to whether or not the said conveyance or sale is valid is sill pending between the [petitioners] and
[respondents] Cerrofer Realty Corporation and Cesar Roque and Lorna Roque. Hence, this Court resolves to grant
the prayer for damages against Traders Royal Bank.

21
"The claims of the [petitioners] as against [respondent] Traders Royal Bank having been established and proved by
evidence, judgment is hereby rendered ordering [respondent] Traders Royal Bank to pay [petitioners] actual
damage or the market value of the land in question in the sum of P500,000.00; the sum of P70,000.00 as
compensatory damages; the sum of P200,000.00 to the heirs of [petitioner] Danilo Chua; and attorney’s fees in the
sum of P30,000.00."52

In the light of the pending issue as to the validity of the sale of the property to the third parties (Cerrofer Realty
Corporation and Spouses Roque), the trial court properly withheld judgment on the matter and thus left the prayer
for damages as the sole issue for resolution.

To adjudge damages, paragraph (d) of Section 3 of Rule 9 of the Rules of Court provides that a judgment against a
party in default "shall not exceed the amount or be different in kind from that prayed for nor award unliquidated
damages." The proscription against the award of unliquidated damages is significant, because it means that the
damages to be awarded must be proved convincingly, in accordance with the quantum of evidence required in civil
cases.

Unfortunately for petitioners, the grant of damages was not sufficiently supported by the evidence for the following
reasons.

First, petitioners were not deprived of their property without cause. As correctly pointed out by the CA, Act No.
3135, as amended, does not require personal notice to the mortgagor.53 In the present case, there has been no
allegation -- much less, proof -- of noncompliance with the requirement of publication and public posting of the
notice of sale, as required by Áct No. 3135. Neither has there been competent evidence to show that the price paid
at the foreclosure sale was inadequate.54 To be sure, there was no ground to invalidate the sale.

Second, as previously stated, petitioners have not convincingly established their right to damages on the basis of
the purported agreement to repurchase. Without reiterating our prior discussion on this point, we stress that
entitlement to actual and compensatory damages must be proved even under Section 3 of Rule 9 of the Rules of
Court. The same is true with regard to awards for moral damages and attorney’s fees, which were also granted by
the trial court.

In sum, petitioners have failed to convince this Court of the cogency of their position, notwithstanding the
advantage they enjoyed in presenting their evidence ex parte. Not in every case of default by the defendant is the
complainant entitled to win automatically.

WHEREFORE, this Petition is hereby DENIED and the assailed Decision and Resolution AFFIRMED. Costs against
petitioners.

SO ORDERED.

4. G.R. NO. 83929 June 11, 1992


ANTONIO GARCIA, petitioner,
vs.
THE COURT OF APPEALS (FIFTH DIVISION) and SPS. WILLIAM UY and MA. JAJORIE UY, respondents.

PADILLA, J.:

The issue raised in this petition for review on certiorari is not new. It is whether or not a defendant declared in
default regains ipso facto his standing in court as to be entitled to notice of proceedings subsequent to a final
judgment or order rendered against him. More precisely, is a party who has been declared in default entitled to
notice of a motion for execution pending appeal of a judgment by default?

The undisputed facts, as culled from the decision of respondent court in CA-G.R. No. 12665, dated April 22,
1988, 1 are as follows:

In May 1987, petitioner Antonio Garcia filed an action for damages against private respondent spouses, William and
Ma. Jajorie Uy, before the RTC of Pasig, for padlocking the commercial stalls rented by petitioner from private
respondents at Virra Mall Shopping Center, Greenhills, San Juan.

For failure of private respondents to file their answer within the reglementary period, petitioner moved to declare
the former in default and for reception of his evidence ex-parte. In an order dated 7 July 1987, the trial court
granted petitioner's motion and set the reception of evidence on 9 July 1987. A copy of the order was served on
and received by private respondents on 14 July 1987.

On 1 July 1987, private respondents filed an appearance with motion for extension of time to file answer from said
date. The trial court denied the motion for having been filed out of time.

22
In the meantime, petitioner presented his evidence ex-parte. On 10 August 1987, the trial court issued a judgment
of default against private respondents, a copy of which was received by them on 18 August 1987. On 11 August
1987, petitioner filed an ex-parte motion for execution pending appeal which the trial court granted on 21 August
1987 and accordingly issued the writ upon petitioner's filing of a bond in the amount of P520,000.00.

Whereupon, private respondents appealed to respondent Court of Appeals, challenging the validity of the writ of
execution because it was granted without proper notice to them and without hearing.

On 22 April 1988, respondent Court of Appeals rendered a decision granting private respondents' petition
for certiorari and setting aside the order of the trial court dated 21 August 1987 granting the writ of execution. A
motion to reconsider the above decision was denied on 16 June 1988. Consequently, this petition.

Respondent court's decision holding that after the judgment by default was rendered, the defendants (private
respondent herein) automatically regained their standing and were entitled to notice of proceedings subsequent to
the final judgment by default, is here challenged by petitioner. Citing Section 2, Rule 18 of the Rules of Court which
provides that a party declared in default is not entitled to notice of subsequent proceedings nor to take part in the
trial, as well as Section 9, Rule 13 which states that the party in default is entitled to notice only of papers referring
to substantially amended or supplemental pleadings and final orders or judgments, or in cases where the defaulting
party files a motion to set aside the order of default, petitioner contends that nowhere in the Rules does it appear
that a party who defaults shall automatically regain his lost standing and right to notice after rendition of a
judgment by default.

Petitioner also assigns as error the finding of the respondent court that the ex parte motion for execution pending
appeal was inappropriate and that the order granting the same without hearing was rendered without jurisdiction.
Petitioner claims that Section 2, Rule 39 requiring notice to the adverse party is mandatory only in cases where the
defendant has not been declared in default.

We find the petition devoid of merit.

The issue at bar was squarely resolved in the case of S.C. Johnson & Son, Inc. vs. Court of Appeals, et al. 2

The facts in the aforesaid case are similar to those in the case at bar. In S.C. Johnson. petitioner therein (S.C.
Johnson) was declared in default for its failure to file a responsive pleading within the reglementary period. Therein
private respondent (as plaintiff) was allowed to present his evidence ex parte. Thereafter, a judgment by default
was rendered by the trial court in favor of the plaintiff. After the rendition of the judgment, the plaintiff filed an ex
parte motion to execute the judgment pending appeal, which motion was granted by the trial court. S C. Johnson
questioned before the Court of Appeals the failure of therein plaintiff to notify him of the motion for execution
pending appeal and the trial court's ex-parte proceedings in granting said motion.

The Court of Appeals in the S.C. Johnson case, dismissed S.C. Johnson's petition for lack of merit. Hence, S.C.
Johnson appealed to this Court raising the same issue raised in the instant petition.

This Court in the S.C. Johnson case categorically answered in the affirmative the question posed at the start of this
decision. Thus —

We hold that a party declared in default is entitled to notice of the motion for execution pending appeal. This
interpretation is consistent with the nature and effects of being in default as well as with what has been
jurisprudentially laid down with respect to executions pending appeal. 3

Petitioner's argument that notice to the adverse party becomes mandatory only in case the defendant has not been
declared in default utterly fails in the light of the ruling in the above-stated case, which states:

The remedy of the defaulted party is to file a motion to set aside the order of default if no judgment has been
rendered yet. If there is already judgment, the defendant's recourse is to file a motion for new trial, or a petition
for relief from judgment, or appeal the judgment, or file a special civil action for certiorari. This is the reason why a
defaulted defendant is entitled to notice of final orders or judgments.

Consistent with this right to notice of final order or judgment is the right to notice of the motion for execution
pending appeal of the default judgment. Without such notice, the various recourses available to the defaulted party
after judgment would be rendered illusory. For once a judgment has been executed, restitution, although provided
for in a case of reversal, is oftentimes incomplete and unsatisfactory as damages may arise which cannot be fully
compensated 4

Petitioner's citation of Section 2, Rule 39 of the Rules of Court to support his aforesaid argument cannot aid his
cause. We again cite the pertinent ruling in the S.C. Johnson case:

23
Moreover, in the same case of Aguilos vs. Barrios, this Court held that "a party has a right to rely upon the rules of
court and to expect that she would be given notice as required thereby. As being in default does not imply a waiver
of rights, as aforesaid, the defaulted party has the right to expect compliance with the requisites for executing a
judgment pending appeal under Section 2 of Rule 39, thus:

Sec. 2. Execution pending appeal. — On motion of the prevailing party with notice to the adverse party the court
may, in its discretion, order execution to issue even before the expiration of the time to appeal, upon good reasons
to be stated in a special order. If a record on appeal is filed thereafter, the motion and the special order shall be
included therein.

More so when we consider that as early as the case of Monteverde vs. Jaranilla, involving defaulted defendants,
this Court has ruled "that the court abuses its discretion in ordering the execution of a judgment from which an
appeal is pending, without previous notice to the adverse party and there being no special ground therefor." This
doctrine was restated in the subsequent case of Aguilos vs. Barrios where we emphatically said: "The requirement
about motion by the prevailing party and notice to the adverse party, which was not complied with in the instant
case, is mandatory and is precisely an innovation introduced in the new rules to remove the doubt suggested
in Gamay vs. Gutierrez David and to restate the doctrine laid down in Monteverde vs. Jaranilla. 5

As for private respondents' (defendants') loss of standing in court, by reason of having been declared in default,
again we rule that a party in default loses the right to present his defense and examine or cross-examine
witnesses. It does not mean that being declared in default, and thereby losing one's standing, constitutes a waiver
of all rights; what is waived only is the right to be heard and to present evidence during the trial while default
prevails. A party in default is still entitled to notice of final judgments land orders and proceedings taken
subsequent thereto.

WHEREFORE, the petition is DENIED. The decision appealed from is hereby AFFIRMED with costs against the
petitioner.

SO ORDERED.

5. G.R. No. 119657 February 7, 1997


UNIMASTERS CONGLOMERATION, INC., petitioner,
vs.
COURT OF APPEALS and KUBOTA AGRI MACHINERY PHILIPPINES, INC., respondents.

NARVASA, C.J.:

The appellate proceeding at bar turns upon the interpretation of a stipulation in a contract governing venue of
actions thereunder arising.

On October 8, 1988 Kubota Agri-Machinery Philippines, Inc. (hereafter, simply KUBOTA) and Unimasters
Conglomeration, Inc. (hereafter, simply UNIMASTERS) entered into a "Dealership Agreement for Sales and
Services" of the former's products in Samar and Leyte Provinces.1 The contract contained, among others:

1) a stipulation reading: ". . . All suits arising out of this Agreement shall be filed with/in the proper Courts of
Quezon City," and

2) a provision binding UNIMASTERS to obtain (as it did in fact obtain) a credit line with Metropolitan Bank and
Trust Co.-Tacloban Branch in the amount of P2,000,000.00 to answer for its obligations to KUBOTA.

Some five years later, or more precisely on December 24, 1993, UNIMASTERS filed an action in the Regional Trial
Court of Tacloban City against KUBOTA, a certain Reynaldo Go, and Metropolitan Bank and Trust Company-
Tacloban Branch (hereafter, simply METROBANK) for damages for breach of contract, and injunction with prayer
for temporary restraining order. The action was docketed as Civil Case No. 93-12-241 and assigned to Branch 6.

On the same day the Trial Court issued a restraining order enjoining METROBANK from "authorizing or effecting
payment of any alleged obligation of . . (UNIMASTERS) to defendant . . KUBOTA arising out of or in connection
with purchases made by defendant Go against the credit line caused to be established by . . (UNIMASTERS) for
and in the amount of P2 million covered by defendant METROBANK . . or by way of charging . . (UNIMASTERS) for
any amount paid and released to defendant . . (KUBOTA) by the Head Office of METROBANK in Makati, Metro-
Manila . . ." The Court also set the application for preliminary injunction for hearing on January 10, 1994 at 8:30
o'clock in the morning.

On January 4, 1994 KUBOTA filed-two motions. One prayed for dismissal of the case on the ground of improper
venue (said motion being set for hearing on January 11, 1994). The other prayed for the transfer of the injunction

24
hearing to January 11, 1994 because its counsel was not available on January 10 due to a prior commitment before
another court.

KUBOTA claims that notwithstanding that its motion to transfer hearing had been granted, the Trial Court went
ahead with the hearing on the injunction incident on January 10, 1994 during which it received the direct testimony
of UNIMASTERS' general manager, Wilford Chan; that KUBOTA's counsel was "shocked" when he learned of this on
the morning of the 11th, but was nonetheless instructed to proceed to cross-examine the witness; that when said
counsel remonstrated that this was unfair, the Court reset the hearing to the afternoon of that same day, at which
time Wilford Chan was recalled to the stand to repeat his direct testimony. It appears that cross-examination of
Chan was then undertaken by KUBOTA's lawyer with the "express reservation that . . (KUBOTA was) not (thereby)
waiving and/or abandoning its motion to dismiss;" and that in the course of the cross-examination, exhibits
(numbered from 1 to 20) were presented by said attorney who afterwards submitted a memorandum in lieu of
testimonial evidence.2

On January 13, 1994, the Trial Court handed down an Order authorizing the issuance of the preliminary injunction
prayed for, upon a bond of P2,000,000.00.3 And on February 3, 1994, the same Court promulgated an Order
denying KUBOTA's motion to dismiss. Said the Court:

The plaintiff UNIMASTERS Conglomeration is holding its principal place of business in the City of Tacloban while the
defendant . . (KUBOTA) is holding its principal place of business in Quezon City. The proper venue therefore
pursuant to Rules of Court would either be Quezon City or Tacloban City at the election of the plaintiff. Quezon City
and Manila (sic), as agreed upon by the parties in the Dealership Agreement, are additional places other than the
place stated in the Rules of Court. The filing, therefore, of this complaint in the Regional Trial Court in Tacloban
City is proper.

Both orders were challenged as having been issued with grave abuse of discretion by KUBOTA in a special civil
action of certiorari and prohibition filed with the Court of Appeals, docketed as CA-G.R. SP No. 33234. It
contended, more particularly, that (1) the RTC had "no jurisdiction to take cognizance of . . (UNIMASTERS') action
considering that venue was improperly laid," (2) UNIMASTERS had in truth "failed to prove that it is entitled to the
. . writ of preliminary injunction;" and (3) the RTC gravely erred "in denying the motion to dismiss."4

The Appellate Court agreed with KUBOTA that — in line with the Rules of Court5 and this Court's relevant
rulings6 — the stipulation respecting venue in its Dealership Agreement with UNIMASTERS did in truth limit the
venue of all suits arising thereunder only and exclusively to "the proper courts of Quezon City."7 The Court also
held that the participation of KUBOTA's counsel at the hearing on the injunction incident did not in the premises
operate as a waiver or abandonment of its objection to venue; that assuming that KUBOTA's standard printed
invoices provided that the venue of actions thereunder should be laid at the Court of the City of Manila, this was
inconsequential since such provision would govern "suits or legal actions between petitioner and its buyers" but not
actions under the Dealership Agreement between KUBOTA and UNIMASTERS, the venue of which was controlled
by paragraph No. 7 thereof; and that no impediment precludes issuance of a TRO or injunctive writ by the Quezon
City RTC against METROBANK-Tacloban since the same "may be served on the principal office of METROBANK in
Makati and would be binding on and enforceable against, METROBANK branch in Tacloban."

After its motion for reconsideration of that decision was turned down by the Court of Appeals, UNIMASTERS
appealed to this Court. Here, it ascribes to the Court of Appeals several errors which it believes warrant reversal of
the verdict, namely:8

1) "in concluding, contrary to decisions of this . . Court, that the agreement on venue between petitioner
(UNIMASTERS) and private respondent (KUBOTA) limited to the proper courts of Quezon City the venue of any
complaint filed arising from the dealership agreement between . . (them);"

2) "in ignoring the rule settled in Philippine Banking Corporation vs. Tensuan,9 that 'in the absence of qualifying or
restrictive words, venue stipulations in a contract should be considered merely as agreement on additional forum,
not as limiting venue to the specified place;" and in concluding, contrariwise, that the agreement in the case at bar
"was the same as the agreement on venue in the Gesmundo case," and therefore, the Gesmundo case was
controlling; and

3) "in concluding, based solely on the self-serving narration of . . (KUBOTA that its) participation in the hearing for
the issuance of a . . preliminary injunction did not constitute waiver of its objection to venue."

The issue last mentioned, of whether or not the participation by the lawyer of KUBOTA at the injunction hearing
operated as a waiver of its objection to venue, need not occupy the Court too long. The record shows that when
KUBOTA's counsel appeared before the Trial Court in the morning of January 11, 1994 and was then informed that
he should cross-examine UNIMASTERS' witness, who had testified the day before, said counsel drew attention to
the motion to dismiss on the ground of improper venue and insistently attempted to argue the matter and have it

25
ruled upon at the time; and when the Court made known its intention (a) "to (resolve first the) issue (of) the
injunction then rule on the motion to dismiss," and (b) consequently its desire to forthwith conclude the
examination of the witness on the injunction incident, and for that purpose reset the hearing in the afternoon of
that day, the 11th, so that the matter might be resolved before the lapse of the temporary restraining order on the
13th, KUBOTA's lawyer told the Court: "Your Honor, we are not waiving our right to submit the Motion to
Dismiss." 10 It is plain that under these circumstances, no waiver or abandonment can be imputed to KUBOTA.

The essential question really is that posed in the first and second assigned errors, i.e., what construction should be
placed on the stipulation in the Dealership Agreement that" (a)ll suits arising out of this Agreement shall be filed
with/in the proper Courts of Quezon City."

Rule 4 of the Rules of Court sets forth the principles generally governing the venue of actions, whether real or
personal, or involving persons who neither reside nor are found in the Philippines or otherwise. Agreements on
venue are explicitly allowed. "By written agreement of the parties the venue of an action may be changed or
transferred from one province to another." 11 Parties may by stipulation waive the legal venue and such waiver is
valid and effective being merely a personal privilege, which is not contrary to public policy or prejudicial to third
persons. It is a general principle that a person may renounce any right which the law gives unless such
renunciation would be against public policy. 12

Written stipulations as to venue may be restrictive in the sense that the suit may be filed only in the place agreed
upon, or merely permissive in that the parties may file their suit not only in the place agreed upon but also in the
places fixed by law (Rule 4, specifically). As in any other agreement, what is essential is the ascertainment of the
intention of the parties respecting the matter.

Since convenience is the raison d'etre of the rules of venue, 13 it is easy to accept the proposition that normally,
venue stipulations should be deemed permissive merely, and that interpretation should be adopted which most
serves the parties' convenience. In other words, stipulations designating venues other than those assigned by Rule
4 should be interpreted as designed to make it more convenient for the parties to institute actions arising from or
in relation to their agreements; that is to say, as simply adding to or expanding the venues indicated in said Rule 4.

On the other hand, because restrictive stipulations are in derogation of this general policy, the language of the
parties must be so clear and categorical as to leave no doubt of their intention to limit the place or places, or to fix
places other than those indicated in Rule 4, for their actions. This is easier said than done, however, as an
examination of precedents involving venue covenants will immediately disclose.

In at least thirteen (13) cases, this Court construed the venue stipulations involved as merely permissive. These
are:

1. Polytrade Corporation v. Blanco, decided in 1969. 14 In this case, the venue stipulation was as follows:

The parties agree to sue and be sued in the Courts of Manila.

This Court ruled that such a provision "does not preclude the filing of suits in the residence of the plaintiff or the
defendant. The plain meaning is that the parties merely consented to be sued in Manila. Qualifying or restrictive
words which would indicate that Manila and Manila alone is the venue are totally absent therefrom. It simply is
permissive. The parties solely agreed to add the courts of Manila as tribunals to which they may resort. They did
not waive their right to pursue remedy in the courts specifically mentioned in Section 2(b) of Rule 4."

The Polytrade doctrine was reiterated expressly or implicitly in subsequent cases, numbering at least ten (10).

2. Nicolas v. Reparations Commission, decided in 1975. 15 In this case, the stipulation on venue read:

. . . (A)ll legal actions arising out of this contract . . may be brought in and submitted to the jurisdiction of the
proper courts in the City of Manila.

This Court declared that the stipulation does not clearly show the intention of the parties to limit the venue of the
action to the City of Manila only. "It must be noted that the venue in personal actions is fixed for the convenience
of the plaintiff and his witnesses and to promote the ends of justice. We cannot conceive how the interest of
justice may be served by confining the situs of the action to Manila, considering that the residences or offices of all
the parties, including the situs of the acts sought to be restrained or required to be done, are all within the
territorial jurisdiction of Rizal. . . Such agreements should be construed reasonably and should not be applied in
such a manner that it would work more to the inconvenience of the parties without promoting the ends of justice.

3. Lamis Ents. v. Lagamon, decided in 1981. 16 Here, the stipulation in the promissory note and the chattel
mortgage specified Davao City as the venue.

26
The Court, again citing Polytrade, stated that the provision "does not preclude the filing of suits in the residence of
plaintiff or defendant under Section 2(b), Rule 4, Rules of Court, in the absence of qualifying or restrictive words in
the agreement which would indicate that the place named is the only venue agreed upon by the parties. The
stipulation did not deprive . . (the affected party) of his right to pursue remedy in the court specifically mentioned
in Section 2(b) of Rule 4, Rules of Court. Renuntiato non praesumitur."

4. Capati v. Ocampo, decided in 1982 17 In this case, the provision of the contract relative to venue was as
follows:

. . . (A)ll actions arising out, or relating to this contract may be instituted in the Court of First Instance of the City
of Naga.

The Court ruled that the parties "did not agree to file their suits solely and exclusively with the Court of First
Instance of Naga;" they "merely agreed to submit their disputes to the said court without waiving their right to
seek recourse in the court specifically indicated in Section 2 (b), Rule 4 of the Rules of Court."

5. Western Minolco v. Court of Appeals, decided in 1988. 18 Here, the provision governing venue read:

The parties stipulate that the venue of the actions referred to in Section 12.01 shall be in the City of Manila.

The court restated the doctrine that a stipulation in a contract fixing a definite place for the institution of an action
arising in connection therewith, does not ordinarily supersede the general rules set out in Rule 4, and should be
construed merely as an agreement on an additional forum, not as limiting venue to the specified place.

6. Moles v. Intermediate Appellate Court, decided in 1989. 19 In this proceeding, the Sales Invoice of a linotype
machine stated that the proper venue should be Iloilo.

This Court held that such an invoice was not the contract of sale of the linotype machine in question; consequently
the printed provisions of the invoice could not have been intended by the parties to govern the sale of the
machine, especially since said invoice was used for other types of transactions. This Court said: "It is obvious that a
venue stipulation, in order to bind the parties, must have been intelligently and deliberately intended by them to
exclude their case from the reglementary rules on venue. Yet, even such intended variance may not necessarily be
given judicial approval, as, for instance, where there are no restrictive or qualifying words in the agreement
indicating that venue cannot be laid in any place other than that agreed upon by the parties, and in contracts of
adhesion."

7. Hongkong and Shanghai Banking Corp. v. Sherman, decided in 1989. 20 Here the stipulation on venue read:

. . (T)his guarantee and all rights, obligations and liabilities arising hereunder shall be construed and determined
under and may be enforced in accordance with the laws of the Republic of Singapore. We hereby agree that the
Courts in Singapore shall have jurisdiction over all disputes arising under this guarantee. . .

This Court held that due process dictates that the stipulation be liberally construed. The parties did not thereby
stipulate that only the courts of Singapore, to the exclusion of all the others, had jurisdiction. The clause in
question did not operate to divest Philippine courts of jurisdiction.

8. Nasser v. Court of Appeals, decided in 1990, 21 in which the venue stipulation in the promissory notes in
question read:

. . (A)ny action involving the enforcement of this contract shall be brought within the City of Manila, Philippines.

The Court's verdict was that such a provision does not as a rule supersede the general rule set out in Rule 4 of the
Rules of Court, and should be construed merely as an agreement on an additional forum, not as limiting venue to
the specified place.

9. Surigao Century Sawmill Co., Inc. v. Court of Appeals, decided in 1993: 22 In this case, the provision concerning
venue was contained in a contract of lease of a barge, and read as follows:

. . . (A)ny disagreement or dispute arising out of the lease shall be settled by the parties in the proper court in the
province of Surigao del Norte.

The venue provision was invoked in an action filed in the Regional Trial Court of Manila to recover damages arising
out of marine subrogation based on a bill of lading. This Court declared that since the action did not refer to any
disagreement or dispute arising out of the contract of lease of the barge, the venue stipulation in the latter did not
apply; but that even assuming the contract of lease to be applicable, a statement in a contract as to venue does
not preclude the filing of suits at the election of the plaintiff where no qualifying or restrictive words indicate that
the agreed place alone was the chosen venue.

27
10. Philippine Banking Corporation, v. Hon. Salvador Tensuan, etc., Circle Financial Corporation, at al., decided in
1993. 23 Here, the stipulation on venue was contained in promissory notes and read as follows:

I/We hereby expressly submit to the jurisdiction of the courts of Valenzuela any legal action which may arise out of
this promissory note.

This Court held the stipulation to be merely permissive since it did not lay the venue in Valenzuela exclusively or
mandatorily. The plain or ordinary import of the stipulation is the grant of authority or permission to bring suit in
Valenzuela; but there is not the slightest indication of an intent to bar suit in other competent courts. The Court
stated that there is no necessary or customary connection between the words "any legal action" and an intent
strictly to limit permissible venue to the Valenzuela courts. Moreover, since the venue stipulations include no
qualifying or exclusionary terms, express reservation of the right to elect venue under the ordinary rules was
unnecessary in the case at bar. The Court made clear that "to the extent Bautista and Hoechst Philippines are
inconsistent with Polytrade (an en banc decision later in time than Bautista) and subsequent cases
reiterating Polytrade, Bautista and Hoechst Philippines have been rendered obsolete by the Polytrade line of cases."

11. Philippine Banking Corporation v. Hon. Salvador Tensuan, etc., Brinell Metal Works Corp., et al., decided in
1994: 24 In this case the subject promissory notes commonly contained a stipulation reading:

I/we expressly submit to the jurisdiction of the courts of Manila, any legal action which may arise out of this
promissory note.

the Court restated the rule in Polytrade that venue stipulations in a contract, absent any qualifying or restrictive
words, should be considered merely as an agreement on additional forum, not limiting venue to the specified place.
They are not exclusive, but rather, permissive. For to restrict venue only to that place stipulated in the agreement
is a construction purely based on technicality; on the contrary, the stipulation should be liberally construed. The
Court stated: "The later cases of Lamis Ents v. Lagamon [108 SCRA 1981], Capati v. Ocampo [113 SCRA 794
[1982], Western Minolco v. Court of Appeals [167 SCRA 592 [1988], Moles v. Intermediate Appellate Court [169
SCRA 777 [1989], Hongkong and Shanghai Banking Corporation v. Sherman [176 SCRA 331], Nasser v. Court of
Appeals [191 SCRA 783 [1990] and just recently, Surigao Century Sawmill Co. v. Court of Appeals [218 SCRA 619
[1993], all treaded the path blazed by Polytrade. The conclusion to be drawn from all these is that the more recent
jurisprudence shall properly be deemed modificatory of the old ones."

The lone dissent observed: "There is hardly any question that a stipulation of contracts of adhesion, fixing venue to
a specified place only, is void for, in such cases, there would appear to be no valid and free waiver of the venue
fixed by the Rules of Courts. However, in cases where both parties freely and voluntarily agree on a specified place
to be the venue of actions, if any, between them, then the only considerations should be whether the waiver (of
the venue fixed by the Rules of Court) is against public policy and whether the parties would suffer, by reason of
such waiver, undue hardship and inconvenience; otherwise, such waiver of venue should be upheld as binding on
the parties. The waiver of venue in such cases is sanctioned by the rules on jurisdiction."

Still other precedents adhered to the same principle.

12. Tantoco v. Court of Appeals, decided in 1977. 25 Here, the parties agreed in their sales contracts that the
courts of Manila shall have jurisdiction over any legal action arising out of their transaction. This Court held that the
parties agreed merely to add the courts of Manila as tribunals to which they may resort in the event of suit, to
those indicated by the law: the courts either of Rizal, of which private respondent was a resident, or of Bulacan,
where petitioner resided.

13. Sweet Lines, Inc. v. Teves, promulgated in 1987. 26 In this case, a similar stipulation on venue, contained in
the shipping ticket issued by Sweet Lines, Inc. (as Condition 14) —

. . that any and all actions arising out or the condition and provisions of this ticket, irrespective of where it is
issued, shall be filed in the competent courts in the City of Cebu

— was declared unenforceable, being subversive of public policy. The Court explained that the philosophy on
transfer of venue of actions is the convenience of the plaintiffs as well as his witnesses and to promote the ends of
justice; and considering the expense and trouble a passenger residing outside of Cebu City would incur to
prosecute a claim in the City of Cebu, he would most probably decide not to file the action at all.

On the other hand, in the cases hereunder mentioned, stipulations on venue were held to be restrictive, or
mandatory.

1. Bautista vs. De Borja, decided in 1966. 27 In this case, the contract provided that in case of any litigation arising
therefrom or in connection therewith, the venue of the action shall be in the City of Manila. This Court held that
without either party reserving the right to choose the venue of action as fixed by law, it can reasonably be inferred

28
that the parties intended to definitely fix the venue of the action, in connection with the contract sued upon in the
proper courts of the City of Manila only, notwithstanding that neither party is a resident of Manila.

2. Gesmundo v. JRB Realty Corporation, decided in 1994. 28 Here the lease contract declared that

. . (V)enue for all suits, whether for breach hereof or damages or any cause between the LESSOR and LESSEE, and
persons claiming under each, . . (shall be) the courts of appropriate jurisdiction in Pasay City. . .

This Court held that: "(t)he language used leaves no room for interpretation. It clearly evinces the parties' intent to
limit to the 'courts of appropriate jurisdiction of Pasay City' the venue for all suits between the lessor and the lessee
and those between parties claiming under them. This means a waiver of their right to institute action in the courts
provided for in Rule 4, sec. 2(b)."

3. Hoechst Philippines, Inc. v. Torres, 29 decided much earlier, in 1978, involved a strikingly similar stipulation,
which read:

. . (I)n case of any litigation arising out of this agreement, the venue of any action shall be in the competent courts
of the Province of Rizal.

This Court held: "No further stipulations are necessary to elicit the thought that both parties agreed that any action
by either of them would be filed only in the competent courts of Rizal province exclusively."

4. Villanueva v. Mosqueda, decided in 1982. 30 In this case, it was stipulated that if the lessor violated the contract
of lease he could be sued in Manila, while if it was the lessee who violated the contract, the lessee could be sued in
Masantol, Pampanga. This Court held that there was an agreement concerning venue of action and the parties
were bound by their agreement. "The agreement as to venue was not permissive but mandatory."

5. Arquero v. Flojo, decided in 1988. 31 The condition respecting venue — that any action against RCPI relative to
the transmittal of a telegram must be brought in the courts of Quezon City alone — was printed clearly in the
upper front portion of the form to be filled in by the sender. This Court held that since neither party reserved the
right to choose the venue of action as fixed by Section 2 [b], Rule 4, as is usually done if the parties mean to retain
the right of election so granted by Rule 4, it can reasonably be inferred that the parties intended to definitely fix
the venue of action, in connection with the written contract sued upon, in the courts of Quezon City only.

An analysis of these precedents reaffirms and emphasizes the soundness of the Polytrade principle. Of the essence
is the ascertainment of the parties' intention in their agreement governing the venue of actions between them.
That ascertainment must be done keeping in mind that convenience is the foundation of venue regulations, and
that construction should be adopted which most conduces thereto. Hence, the invariable construction placed on
venue stipulations is that they do not negate but merely complement or add to the codal standards of Rule 4 of the
Rules of Court. In other words, unless the parties make very clear, by employing categorical and suitably limiting
language, that they wish the venue of actions between them to be laid only and exclusively at a definite place, and
to disregard the prescriptions of Rule 4, agreements on venue are not to be regarded as mandatory or restrictive,
but merely permissive, or complementary of said rule. The fact that in their agreement the parties specify only one
of the venues mentioned in Rule 4, or fix a place for their actions different from those specified by said rule, does
not, without more, suffice to characterize the agreement as a restrictive one. There must, to repeat, be
accompanying language clearly and categorically expressing their purpose and design that actions between them
be litigated only at the place named by them, 32 regardless of the general precepts of Rule 4; and any doubt or
uncertainty as to the parties' intentions must be resolved against giving their agreement a restrictive or mandatory
aspect. Any other rule would permit of individual, subjective judicial interpretations without stable standards, which
could well result in precedents in hopeless inconsistency.

The record of the case at bar discloses that UNIMASTERS has its principal place of business in Tacloban City, and
KUBOTA, in Quezon City. Under Rule 4, the venue of any personal action between them is "where the defendant or
any of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election
of the plaintiff." 33 In other words, Rule 4 gives UNIMASTERS the option to sue KUBOTA for breach of contract in
the Regional Trial Court of either Tacloban City or Quezon City.

But the contract between them provides that " . . All suits arising out of this Agreement shall be filed with / in the
proper Courts of Quezon City," without mention of Tacloban City. The question is whether this stipulation had the
effect of effectively eliminating the latter as an optional venue and limiting litigation between UNIMASTERS and
KUBOTA only and exclusively to Quezon City.

In light of all the cases above surveyed, and the general postulates distilled therefrom, the question should receive
a negative answer. Absent additional words and expressions definitely and unmistakably denoting the parties'
desire and intention that actions between them should be ventilated only at the place selected by them, Quezon

29
City — or other contractual provisions clearly evincing the same desire and intention — the stipulation should be
construed, not as confining suits between the parties only to that one place, Quezon City, but as allowing suits
either in Quezon City or Tacloban City, at the option of the plaintiff (UNIMASTERS in this case).

One last word, respecting KUBOTA's theory that the Regional Trial Court had "no jurisdiction to take cognizance of
. . (UNIMASTERS') action considering that venue was improperly laid." This is not an accurate statement of legal
principle. It equates venue with jurisdiction; but venue has nothing to do with jurisdiction, except in criminal
actions. This is fundamental. 34 The action at bar, for the recovery of damages in an amount considerably in
excess of P20,000,00, is assuredly within the jurisdiction of a Regional Trial Court. 35 Assuming that venue were
improperly laid in the Court where the action was instituted, the Tacloban City RTC, that would be a procedural,
not a jurisdictional impediment — precluding ventilation of the case before that Court of wrong
venue notwitstanding that the subject matter is within its jurisdiction. However, if the objection to venue is waived
by the failure to set it up in a motion to dismiss, 36 the RTC would proceed in perfectly regular fashion if it then
tried and decided the action.

This is true also of real actions. Thus, even if a case "affecting title to, or for recovery of possession, or for partition
or condemnation of, or foreclosure of mortgage on, real property" 37 were commenced in a province or city other
than that "where the property or any part thereof lies," 38 if no objection is seasonably made in a motion to
dismiss, the objection is deemed waived, and the Regional Trial Court would be acting entirely within its
competence and authority in proceeding to try and decide the suit. 39

WHEREFORE, the appealed judgment of the Court of Appeals is REVERSED, the Order of the Regional Trial Court
of Tacloban City, Branch 6, dated February 3, 1994, is REINSTATED and AFFIRMED, and said Court is DIRECTED to
forthwith proceed with Civil Case No. 93-12-241 in due course.

SO ORDERED.

6. G.R. Nos. 159669 & 163521 March 12, 2007


UNITED OVERSEAS BANK PHILS. (formerly WESTMONT BANK), Petitioner,
vs.
ROSEMOORE MINING & DEVELOPMENT CORP. and DRA. LOURDES PASCUAL, Respondents.

DECISION
TINGA, J.:

We resolve these two consolidated cases, which though with distinct courts of origin, pertain to issues stemming
from the same loan transaction.

The antecedent facts follow.

Respondent Rosemoor Mining and Development Corporation (Rosemoor), a Philippine mining corporation with
offices at Quezon City, applied for and was granted by petitioner Westmont Bank1 (Bank) a credit facility in the
total amount of ₱80 million consisting of ₱50,000,000.00 as long term loan and ₱30,000,000.00 as revolving credit
line.2

To secure the credit facility, a lone real estate mortgage agreement was executed by Rosemoor and Dr. Lourdes
Pascual (Dr. Pascual), Rosemoor’s president, as mortgagors in favor of the Bank as mortgagee in the City of
Manila.3 The agreement, however, covered six (6) parcels of land located in San Miguel, Bulacan4 (Bulacan
properties), all registered under the name of Rosemoor,5 and two (2) parcels of land6 situated in Gapan, Nueva
Ecija (Nueva Ecija properties), owned and registered under the name of Dr. Pascual.7

Rosemoor subsequently opened with the Bank four (4) irrevocable Letters of Credit (LCs) totaling
US$1,943,508.11.8 To cover payments by the Bank under the LCs, Rosemoor proceeded to draw against its credit
facility and thereafter executed promissory notes amounting collectively to ₱49,862,682.50.9 Two (2) other
promissory notes were also executed by Rosemoor in the amounts of ₱10,000,000.00 and ₱3,500,000.00,
respectively, to be drawn from its revolving credit line.10

Rosemoor defaulted in the payment of its various drawings under the LCs and promissory notes. In view of the
default, the Bank caused the extra-judicial foreclosure of the Nueva Ecija properties on 22 May 1998 and the
Bulacan properties on 10 August 1998. The Bank was the highest bidder on both occasions.11

On 8 October 1999, the Bank caused the annotation of the Notarial Certificate of Sale covering the Nueva Ecija
properties on the certificates of title concerned. Later, on 16 March 2001, the Notarial Certificate of Sale covering
the Bulacan properties was annotated on the certificates of title of said properties.12

30
The foregoing facts led to Rosemoor’s filing of separate complaints against the Bank, one before the Regional Trial
Court of Manila (Manila RTC) and the other before the Regional Trial Court of Malolos, Bulacan (Malolos RTC).

The Manila Case (G.R. No. 163521)

On 5 August 1998, Rosemoor and Dr. Pascual filed a Complaint, originally captioned as one for "Damages,
Accounting and Release of Balance of Loan and Machinery and for Injunction" before the Manila RTC.13 Impleaded
as defendants were the Bank and Notary Public Jose Sineneng, whose office was used to foreclose the
mortgage.14 The complaint was twice amended, the caption eventually reflecting an action for "Accounting,
Specific Performance and Damages."15 Through the amendments, Pascual was dropped as a plaintiff while several
officers of the Bank were included as defendants.16

The Bank moved for the dismissal of the original and amended complaints on the ground that the venue had been
improperly laid.17 The motion was denied by the trial court through an Omnibus Resolution dated 24 January
2000.18

Rosemoor’s prayer in the Second Amended Complaint, which was filed in November of 1999, reads as follows:

WHEREFORE, plaintiff Rosemoor Mining & Development Corporation respectfully prays that, after trial of the issues,
this court promulgate judgment –

1. Directing Westmont to render an accounting of the loan account of Rosemoor under the Long Term Loan Facility
and the Revolving Credit Line at least up to the dates of foreclosure of Rosemoor’s mortgaged properties on May
22, 1998 and August 18, 1998, showing among others (a) the sums of money paid by Rosemoor or otherwise
debited from its deposit account in payment of the loans it had obtained from Westmont to cover the cost of the
machinery to be imported under the Unpaid LCs and under LC No. 97-058 for the tiling plant, as well as for
working capital, and (b) all interests, penalties and charges imposed on the loans pertaining to the Unpaid LCs and
LC No. 97-058 and for which Westmont had foreclosed Rosemoor’s and Dra. Pascual’s real estate mortgage; (c)
the amount of import and customs duties, demurrage, storage and other fees which Rosemoor had paid or which
was otherwise debited from Rosemoor’s deposit account, in connection with the importation of the tiling plant and
as a consequence of the non-release thereof by Westmont;

2. Ordering all the defendants jointly and severally to pay to Rosemoor, by way of actual damages, the dollar
equivalent of the amounts in (1) (a), (b) and (c) at the exchange rate prevailing at the time of the opening of the
LCs;

3. Ordering defendants jointly and severally to pay to Rosemoor actual damages for operational losses suffered by
Rosemoor due to its failure to use the tiling plaint which Westmont had refused to release to Rosemoor, in such
amount as may be proven at the trial;

4. Directing the defendants jointly and severally to pay, by way of correction for the public good, exemplary
damages in the amount of ₱ 500,000.00 each;

5. Ordering defendants jointly and severally to indemnify Rosemoor in the sum of ₱350,000.00, representing
attorney’s fees and litigation expenses incurred by Rosemoor for the protection and enforcement of its rights and
interests.

Plaintiff prays for further and other relief as may be just and equitable under the circumstances. 19

On 15 August 2002, the Bank filed another motion to dismiss the Second Amended Complaint on the ground of
forum-shopping since, according to it, Rosemoor had filed another petition earlier on 11 March 2002 before the
Malolos RTC.20 The Bank contended that as between the action before the Manila RTC and the petition before the
Malolos RTC, there is identity of parties, rights asserted, and reliefs prayed for, the relief being founded on the
same set of facts. The Bank further claimed that any judgment that may be rendered in either case will amount
to res judicata in the other case.21 Still, the

Manila RTC denied the motion to dismiss.22 It also denied the

Bank’s motion for reconsideration of the order of denial.23

The Bank challenged the Manila RTC’s denial of the Bank’s second motion to dismiss before the Court of Appeals,
through a petition for certiorari. The appellate court dismissed the petition in a Decision dated 26 February
2004.24 The Bank filed a motion for reconsideration which, however, was denied through a Resolution dated 30
April 2004.25

31
In the Petition for Review on Certiorari in G.R. No. 163521, the Bank argues that the Court of Appeals erred in
holding that no forum-shopping attended the actions brought by Rosemoor.26

The Malolos Case (G.R. No. 159669)

After the complaint with the Manila RTC had been lodged, on 11 March 2002, Rosemoor and Dr. Pascual filed
another action against the Bank, this time before the Malolos RTC. Impleaded together with the Bank as
respondent was the Register of Deeds for the Province of Bulacan in the Petition for Injunction with Damages,

with Urgent Prayer for Temporary Restraining Order and/or Preliminary Injunction.27

In the Malolos case, Rosemoor and Dr. Pascual alleged that the redemption period for the Bulacan properties
would expire on 16 March 2002. They claimed that the threatened consolidation of titles by the Bank is illegal,
stressing that the foreclosure of the real estate mortgage by the Bank was fraudulent and without basis,28 as the
Bank had made them sign two blank forms of Real Estate Mortgage and several promissory notes also in blank
forms. It appeared later, according to Rosemoor and Dr. Pascual, that the two Real Estate Mortgage blank forms
were made as security for two loans, one for ₱80 million and the other for ₱48 million, when the total approved
loan was only for ₱80 million. The Bank later released only the amount of ₱10 million out of the ₱30 million
revolving credit line, to the prejudice of Rosemoor, they added.29

The Petition’s prayer reads as follows:

WHEREFORE, premises considered, it is most respectfully prayed that this Honorable Court –

1. Issue ex-parte a temporary restraining order before the matter could be heard on notice to restrain and enjoin
respondent BANK from proceeding with its threatened consolidation of its titles over the subject properties of
petitioner Rosemoor in San Miguel, Bulacan covered by TCT Nos. 42132; 42133; 42134; 42135; 42136 and RT
34569 (T-222448) on March 16, 2002 or at any time thereafter; that the respondent Register of Deeds for the
Province of Bulacan be enjoined and restrained from registering any document(s) submitted and/or to be
submitted by respondent BANK consolidating its titles over the above-named properties of petitioner Rosemoor in
San Miguel, Bulacan; and likewise, that the Register of Deeds for the province of Bulacan be restrained and
enjoined from canceling the titles of Rosemoor over its properties, namely, TCT Nos. 42132; 42133; 42134; 42135;
42136 and RT 34569 (T-222448);

2. That after due notice, a writ of preliminary injunction be issued upon the posting of a bond in such amount as
may be fixed by this Court;

3. That after due hearing and trial, judgment be rendered in favor of petitioners and against respondent BANK –

a. Permanently enjoining respondent BANK from proceeding with the consolidation of its titles to the subject
properties of Rosemoor covered by TCT Nos. 42132; 42133; 42134; 42135; 42136 and RT 34569 (T-222448); and
permanently restraining respondent Register of Deeds for the Province of Bulacan from registering any
document(s) submitted and/or to be submitted by respondent BANK consolidating its titles over the above-named
properties of petitioner Rosemoor in San Miguel, Bulacan; and likewise, that the Register of Deeds for the province
of Bulacan be restrained and enjoined from cancelling the titles of Rosemoor over its properties, namely, TCT Nos.
42132; 42133; 42134; 42135; 42136 and RT 34569 (T-222448);

b. Declaring the foreclosures of Real Estate Mortgages on the properties of petitioners Rosemoor and Dra. Pascual
to be null and void;

c. Recognizing the ownership in fee simple of the petitioners over their properties above-mentioned;

d. Awarding to petitioners the damages prayed for, including attorney’s fees and costs and expenses of litigation.

Petitioners pray for such other reliefs and remedies as may be deemed just and equitable in the premises.30

As it did before the Manila RTC, the Bank filed a motion to dismiss on 26 March 2002 on the ground that Rosemoor
had engaged in forum-shopping, adverting to the pending Manila case.31 The Bank further alleged that Dr. Pascual
has no cause of action since the properties registered in her name are located in Nueva Ecija. The Malolos RTC
denied the motion to dismiss in an Order dated 13 May 2002.32 In the same Order, the Malolos RTC directed the
Bank to file its answer to the petition within five (5) days from notice.33

Despite receipt of the Order on 21 May 2002, the Bank opted not to file its answer as it filed instead a motion for
reconsideration on 5 June 2002.34 Meanwhile, Rosemoor and Dr. Pascual moved to declare the Bank in default for
its failure to timely file its answer.35 On 10 September 2002, the Malolos RTC issued an order denying the Bank’s

32
motion for reconsideration for lack of merit and at the same time declaring the Bank in default for failure to file its
answer.36

Hence, the Bank filed a second petition for certiorari before the Court of Appeals, where it assailed the Orders
dated 13 May 2002 and 10 September 2002 of the Malolos RTC. During the pendency of this petition for certiorari,
the Malolos RTC decided the Malolos case on the merits in favor of Rosemoor.37 The decision in the Malolos case
was also appealed to the Court of Appeals.38 Based on these developments, the appellate court considered the
prayer for preliminary injunction as moot and academic and proceeded with the resolution of the petition, by then
docketed as CA-G.R. SP No.73358, on the merits. The appellate court dismissed the petition in a Decision dated 20
June 2003.39 Undaunted, the Bank filed the petition in G.R. No. 159669 before this Court.

The two petitions before this Court have been consolidated. We find one common issue in G.R. No. 159669 and
G.R. No. 163521 – whether Rosemoor committed forum-shopping in filing the two cases against the Bank. The
other issues for resolution were raised in G.R. No. 159669, pertaining as they do to the orders issued by the
Malolos RTC. These issues are whether the action to invalidate the foreclosure sale was properly laid with the
Malolos RTC even as regards the Nueva Ecija properties; whether it was proper for the Malolos RTC to declare the
Bank in default; and whether it was proper for the Malolos RTC to deny the Bank’s motion to dismiss through a
minute resolution.40

Forum-Shopping

The central issue in these consolidated cases is whether Rosemoor committed forum-shopping in filing the Malolos
case during the pendency of the Manila case.

The essence of forum-shopping is the filing of multiple suits involving the same parties for the same cause of
action, either simultaneously or successively, for the purpose of obtaining a favorable judgment.41 The elements of
forum-shopping are: (a) identity of parties, or at least such parties as represent the same interests in both actions;
(b) identity of rights asserted and reliefs prayed for, the reliefs being founded on the same facts; and (c) the
identity with respect to the two preceding particulars in the two cases is such that any judgment rendered in the
pending cases, regardless of which party is successful, amount to res judicata in the other case.42

As to the existence of identity of parties, several bank officers and employees impleaded in the Amended Complaint
in the Manila case were not included in the Malolos case. These bank officers and employees were sued in Manila
in their personal capacity. A finding of negligence or bad faith in their participation in the preparation and execution
of the loan agreement would render them personally liable. Dr. Pascual, on the other hand, was included as
petitioner only in the Malolos case because it involved properties registered in her name. As correctly pointed out
by the Court of Appeals, Dr. Pascual is a real party-in-interest in the Malolos case because she stood to benefit or
suffer from the judgment in the suit. Dr. Pascual, however, was not included as plaintiff in the Manila case because
her interest therein was not personal but merely in her capacity as officer of Rosemoor.

As regards the identity of rights asserted and reliefs prayed for, the main contention of Rosemoor in the Manila
case is that the Bank had failed to deliver the full amount of the loan, as a consequence of which Rosemoor
demanded the remittance of the unreleased portion of the loan and payment of damages consequent thereto.43 In
contrast, the Malolos case was filed for the purpose of restraining the Bank from proceeding with the consolidation
of the titles over the foreclosed Bulacan properties because the loan secured by the mortgage had not yet become
due and demandable.44 While the right asserted in the Manila case is to receive the proceeds of the loan, the right
sought in the Malolos case is to restrain the foreclosure of the properties mortgaged to secure a loan that was not
yet due.

Moreover, the Malolos case is an action to annul the foreclosure sale that is necessarily an action affecting the title
of the property sold.45 It is therefore a real action which should be commenced and

tried in the province where the property or part thereof lies.46 The Manila case, on the other hand, is a personal
action47 involving as it does the enforcement of a contract between Rosemoor, whose office is in Quezon City, and
the Bank, whose principal office is in Binondo, Manila.48 Personal actions may be commenced and tried where the
plaintiff or any of the principal plaintiffs resides, or where the defendants or any of the principal defendants
resides, at the election of the plaintiff.49

It was subsequent to the filing of the Manila case that Rosemoor and Dr. Pascual saw the need to secure a writ of
injunction because the consolidation of the titles to the mortgaged properties in favor of the Bank was in the
offing. But then, this action can only be commenced where the properties, or a portion thereof, is located.
Otherwise, the petition for injunction would be dismissed for improper venue. Rosemoor, therefore, was warranted
in filing the Malolos case and cannot in turn be accused of forum-shopping.

Clearly, with the foregoing premises, it cannot be said that respondents committed forum-shopping.

33
Action to nullify foreclosure sale of mortgaged properties in Bulacan and Nueva Ecija before the Malolos RTC

The Bank challenges the Malolos RTC’s jurisdiction over the action to nullify the foreclosure sale of the Nueva Ecija
properties along with the Bulacan properties. This question is actually a question of venue and not of
jurisdiction,50 which if improperly laid, could lead to the dismissal of the case.51

The rule on venue of real actions is provided in Section 1, Rule 4 of the 1997 Rules of Civil Procedure, which reads
in part:

Section 1. Venue of Real Actions. Actions affecting title to or possession of real property, or interest therein, shall
be commenced and tried in the proper court which has jurisdiction over the area wherein the real property
involved, or a portion thereof, is situated.

xxx

The venue of the action for the nullification of the foreclosure sale is properly laid with the Malolos RTC although
two of the properties together with the Bulacan properties are situated in Nueva Ecija. Following the above-quoted
provision of the Rules of Court, the venue of real actions affecting properties found in different provinces

is determined by the singularity or plurality of the transactions involving said parcels of land. Where said parcels
are the object of one and the same transaction, the venue is in the court of any of the provinces wherein a parcel
of land is situated.52

Ironically, the Bank itself correctly summarized the applicable jurisprudential rule in one of the pleadings before the
Court.53 Yet the Bank itself has provided the noose on which it would be hung. Resorting to deliberate
misrepresentation, the Bank stated in the same pleading that "the Bulacan and Nueva Ecija [p]roperties were not
the subject of one single real estate mortgage contract."54

In the present case, there is only one proceeding sought to be nullified and that is the extra-judicial mortgage
foreclosure sale. And there is only one initial transaction which served as the basis of the foreclosure sale and that
is the mortgage contract. Indeed, Rosemoor, through Dr. Pascual, executed a lone mortgage contract where it
undertook to "mortgage the land/real property situated in Bulacan and Nueva Ecija," with the list of mortgaged
properties annexed thereto revealing six (6) properties in Bulacan and two (2) properties in Nueva Ecija subject of
the mortgage.

This apparent deliberate misrepresentation cannot simply pass without action. The real estate mortgage form
supplied to Rosemoor is the Bank’s standard pre-printed form. Yet the Bank perpetrated the misrepresentation.
Blame must be placed on its doorstep. But as the Bank’s pleading was obviously prepared by its counsel, the latter
should also share the blame. A lawyer shall not do any falsehood, nor consent to the doing of any in court; nor
shall he mislead, or allow the Court to be misled by any artifice.55 Both the Bank’s president and counsel should be
made to explain why they should not be sanctioned for contempt of court.

Propriety of Default Order

The Court of Appeals did not touch upon the soundness or unsoundness of the order of default although it is one
of the orders assailed by the Bank. However, the silence of the appellate court on the issue does not improve the
legal situation of the Bank.

To recall, the Bank filed a motion to dismiss the Malolos case. The Malolos RTC denied the motion in an Order
dated 13 May 2002.56 In the same Order, the Malolos RTC directed the Bank to file

its answer to the petition within five (5) days from the receipt of the Order.57 The Bank received a copy of the
Order on 21 May 2002. Instead of filing an answer, the Bank filed a motion for reconsideration but only on 5 June
2002.58

The motion for reconsideration59 could not have tolled the running of the period to answer for two reasons. One, it
was filed late, nine (9) days after the due date of the answer. Two, it was a mere rehash of the motion to dismiss;
hence, pro forma in nature. Thus, the Malolos RTC did not err in declaring the Bank in default.

Deviation from the Prescribed Content of an Order Denying a Motion to Dismiss

Finally, the Bank questions the Malolos RTC’s Order dated 13 May 2002 denying its motion to dismiss on the
ground that it is contrary to law and jurisprudence because it had failed to apprise the Bank of the legal basis for
the denial.

The Bank adverts to the content requirement of an order denying a motion to dismiss prescribed by Sec. 3, Rule 16
of the Rules of Court. The Court in Lu Ym v. Nabua60 made a thorough discussion on the matter, to quote:

34
Sec. 3, Rule 16 of the Rules provides:

Sec. 3. Resolution of motion.—After the hearing, the court may dismiss the action or claim, deny the motion or
order the amendment of the pleading.

The court shall not defer the resolution of the motion for the reason that the ground relied upon is not indubitable.

In every case, the resolution shall state clearly and distinctly the reasons therefor.

xxxx

Further, it is now specifically required that the resolution on the motion shall clearly and distinctly state the reasons
therefor. This proscribes the common practice of perfunctorily dismissing the motion for "lack of merit." Such
cavalier dispositions can often pose difficulty and misunderstanding on the part of the aggrieved party in taking
recourse therefrom and likewise on the higher court called upon to resolve the same, usually on certiorari.61

The questioned order of the trial court denying the motion to dismiss with a mere statement that there are
justiciable questions which require a full blown trial falls short of the requirement of Rule 16 set forth above. Owing
to the terseness of its expressed justification, the challenged order ironically suffers from undefined breadth which
is a hallmark of imprecision. With its unspecific and amorphous thrust, the issuance is inappropriate to the grounds
detailed in the motion to dismiss.

While the requirement to state clearly and distinctly the reasons for the trial court’s resolutory order under Sec. 3,
Rule 16 of the Rules does call for a liberal interpretation, especially since jurisprudence dictates that it is decisions
on cases submitted for

decision that are subject to the stringent requirement of specificity of rulings under Sec. 1, Rule 3662 of the Rules,
the trial court’s order in this case leaves too much to the imagination. (Emphasis supplied.)63

The assailed order disposed of the motion to dismiss in this wise:

xxxx

After a careful scrutiny of the grounds cited in the Motion to Dismiss and the arguments en contra contained in the
Opposition thereto and finding the Motion to Dismiss to be not well taken as grounds cited are not applicable to the
case at bar, the Court hereby DENIES the instant Motion to Dismiss.

x x x x64

Clearly, the subject order falls short of the content requirement as expounded in Lu Ym v. Nabua. Despite the
aberration, however, the Bank was not misled, though it could have encountered difficulties or inconvenience
because of it. Comprehending, as it did, that the Malolos RTC did not share its position that Rosemoor had
engaged in forum-shopping, it went to great lengths to impress upon the Court of

Appeals that there was indeed forum-shopping on Rosemoor’s part. But the appellate court did not likewise agree
with the Bank as it soundly debunked the forum-shopping charge. In fact, the same forum-shopping argument has
been fully ventilated before the Court but we are utterly unimpressed as we made short shrift of the argument
earlier on. In the ultimate analysis, therefore, the trial court’s blunder may be overlooked as it proved to be
harmless.

WHEREFORE, considering the foregoing, the Decision of the Court of Appeals in G.R. 163521 dated 26 February
2004 and in G.R No. 159669 dated 20 June 2003 are AFFIRMED. Costs against petitioner. Petitioner, United
Overseas Bank, Phils. and its counsel, Siguion Reyna Montecillo & Ongsiako Law Offices, are given ten (10) days
from notice to EXPLAIN why they should not be held in contempt of court for making a misrepresentation before
the Court as adverted to in this Decision.

SO ORDERED.

7. G.R. No. 111401 October 17, 1996


ERIBERTO G. VALENCIA, substituted by his heirs: REBECCA S. VDA. DE VALENCIA, MA. CAROLINA S.
VALENCIA, MA. ANTONETTE S. VALENCIA, PETER GELVIC S. VALENCIA, JOSE THERONE S. VALENCIA
and MA. SOPHEA S. VALENCIA, petitioners,
vs.
COURT OF APPEALS, RICARDO BAGTAS and MIGUEL BUNYE, respondents.

PANGANIBAN, J.:

35
Should the action for rescission of a lease contract (commenced by petitioner-lessor against private respondents-
lessees) be deemed to bar — on the ground of litis pendentia — an action for damages brought by private
respondents by reason of petitioner's violation of the restraining orders issued by the Court of Appeals which
required the parties to maintain the status quo insofar as the lease relationship is concerned?

The Court answers this query in the negative while resolving the instant petition for review on certiorari, which
assails the Decision1 of the respondent Court of Appeals2 promulgated on February 18, 1993 in CA-G.R. CV No.
27590, affirming the decision3 of the trial court4 awarding moral and exemplary damages plus attorney's fees to
herein private respondents.

The Facts

The facts are not controverted by the parties, and therefore, the factual recitals in the trial court's decision, which
were quoted by the respondent appellate court in its own Decision, are hereinbelow reproduced: 5

The evidence shows that (private respondents) were lessees of a 24-hectare fishpond owned by (petitioner as
substituted by his heirs) located at Paombong, Bulacan. The lease is covered by a lease contract by and between
the said parties (Exh. A). The lease [executed on March 1, 1982] was supposed to have expired on May 1987, but
before the said date, (petitioner) filed [on June 25, 1984] a complaint against (private respondents) for the
rescission of the lease contract. The Regional Trial Court of Malolos, Bulacan which took cognizance of said case
issued a writ of preliminary Mandatory Injunction ordering (private respondents) to surrender to the (petitioner)
possession of the fishpond. In view whereof, (private respondents) filed a Petition for Certiorari with the
Intermediate Appellate Court. The said court on September 21, 1984 issued a restraining order enjoining
(petitioner) and the Regional Trial Court from enforcing the mandatory injunction (Exh. J of [private respondents]
and Exh. 11 of [petitioner]).

At the hearing in the Intermediate Appellate Court the parties agreed to maintain a status quo and the fishpond
hut would be utilized by (private respondents) until the case is resolved by the Regional Trial Court of Malolos (Exh.
N). However, despite this order of the Appellate Court (petitioner) filed an ex-parte motion for the designation of a
member of the Philippine Constabulary to maintain order in the place which the Regional Trial Court of Malolos
granted. With said order (petitioner) with the aid of PC men was able to eject plaintiffs from the main hut.
(Petitioner) and their men also dried up a portion of the leased property where (private respondents) have
previously scattered chemicals and fertilizer to grow fish food. As a result no fish food grew causing damage to
(private respondents).

(Private respondents) were also prevented from transferring the bigger fish to a more spacious portion of the
fishpond resulting in death to many fishes which again caused damages to (private respondents). Subsequently
another person came to the fishpond and introduced himself as the new lessee. The Regional Trial Court of Malolos
then issued another order (Exh. 5-2) declaring that all the fishes located in the fishpond remain the properties of
(private respondents) subject to their disposal, however the same was not honored by (petitioner).

(Private respondents) then appealed again to the IAC which issued a resolution enjoining (petitioner) to maintain
and observe status quo (Exh. V-VI), and subsequently another resolution categorically declaring (petitioner)
Valencia without right of possession under status quo, and to vacate the main hut of the fishpond (Exh. Y). It was
only then that (private respondents) gained complete and total control of the subject fishpond including its huts.

(Private respondents) are now asking [the Regional Trial Court of Manila] for exemplary damages worth
P400,000.00, moral damages of P400,000.00, attorney's fees of P100,000.00 and costs of suit.

A Motion to Dismiss was filed by (petitioner) on April 8, 1985 which was opposed by (private respondents). The
Motion to Dismiss was denied by the court on March 4, 1986. A Motion for Reconsideration was filed by (petitioner)
which was denied by the court.

After (petitioner) filed his Answer, pre-trial was set on November 14, 1986 and the same was terminated on
February 26, 1987. Trial on the merits was held on April 3, 1987.

The evidence for the prosecution was brought forth through the testimonies of Ricardo Bagtas and Miguel Bunye
and its Exhibits A to CC.

Instead of presenting evidence . . . , (petitioner) filed [on February 24, 1989] a Second Motion to Dismiss which
was opposed by counsel for (private respondents). The Second Motion to Dismiss was denied by the court [on April
13, 1989].6

On August 31, 1989, the (petitioner) Eriberto Valencia testified, however his testimony was not terminated in view
of the objection of counsel for the (private respondents) who claimed that the questions propounded to the witness
touched on matters which have been passed upon by the Regional Trial Court of Malolos.

36
(Petitioner) contended that proceedings in this court [RTC of Manila] should be suspended until after the case in
the Regional Trial Court of Malolos which was appealed to the Court of Appeals is resolved, and filed a Motion to
this effect, but the court denied the same.

The trial court gave counsel for petitioner time to file the necessary pleadings, as prayed for, but he failed to do so.
During the subsequent hearing, neither petitioner nor his counsel appeared. The trial court thus deemed petitioner
to have waived his right to present further evidence, and the case was considered submitted for decision. On
March 23, 1990, the trial court ruled in favor of private respondents, the fallo of its decision reading as follows:7

WHEREFORE, premises considered, the court orders defendant (petitioner herein) to pay the plaintiffs moral
damages in the amount of P30,000.00, exemplary damages in the amount of P20,000.00 and to pay plaintiffs
P10,000.00 as and for attorney's fees.

Petitioner and private respondents, being equally dissatisfied with the decision of the trial court, appealed to
respondent Court. Petitioner alleged litis pendentia and contested the award of damages by the trial court; private
respondents on the other hand were aggrieved that the trial court failed to award actual damages, and in addition
sought an increase in the amount of moral and exemplary damages granted.

On appeal, respondent Court affirmed the decision of the Manila RTC, and held that there was no litis pendentia:8

It is not disputed that there was another suit, Civil Case No. 7554-M, then pending before the Regional Trial Court
in Bulacan between plaintiffs-appellants and defendant-appellant. To be sure, that case involved the same
property. There, appellant Valencia sought the rescission of the lease contract he had entered into with plaintiffs on
March 1, 1982. He based his claim upon the alleged failure of plaintiffs to abide by the stipulations of their
agreement. In this case under consideration, plaintiffs Bagtas and Bunye are asking for compensation for the
damages that they had sustained by reason of Valencia's violation of certain resolutions issued by this Court in
(CA)-G.R. SP No. 04283 (Exhs. "J" & "N"). Clearly, the causes of action in the two cases are not the same; they are
founded on different acts; the rights violated are different; and the reliefs sought are also different. Consequently,
defendant-appellant's submission that lis pendens is a ground for dismissal of plaintiffs' suit is not valid.

The dispositive portion of the now-assailed Decision reads:9

WHEREFORE, judgment is hereby rendered affirming the appealed decision with the modification that plaintiffs-
appellants [private respondents herein] are hereby additionally awarded the sum of P50,000.00 as and for actual
damages. Costs against defendant-appellant [herein petitioner].

Petitioner's motion for reconsideration dated March 9, 1993 was denied by respondent Court. Thus he comes to us
seeking relief.

The Issue

Petitioner raises the following lone "legal issue:" 10

THE DENIAL ORDERS AND THE DECISION OF THE MANILA COURT IN CIVIL CASE NO. 85-29514 AND THE
DECISION OF RESPONDENT COURT IN CA-G.R. CV NO. 27590 ARE NOT IN ACCORD WITH THE LAW AND THE
DECISIONS ON LITIS PENDENTIA.

Petitioner contends that the error in the Decision lies in its failure to properly appreciate the complaint filed with
the Manila court, which, when taken together with private respondents' documentary and testimonial evidence,
discloses that the alleged wrongful acts for which they claimed damages arose out of, were connected with, and/or
were incidents of the proceedings in the action for rescission before the Bulacan court. Petitioner claims that the
action for damages commenced by private respondents constitutes splitting of a single cause of action which is
prohibited by the Revised Rules of Court. 11

Petitioner argues that, for the aforesaid reasons, if indeed private respondents suffered any damage, they should
have filed a compulsory counterclaim or supplemental pleading for the alleged acts of violation of restraining orders
which are "transactions, occurrence or event which have happened since the date of the pleading sought to be
supplemented. 12 He insists that the filing of a compulsory counterclaim is the proper recourse considering that
petitioner had posted a bond in the rescission case to answer for damages that private respondents might suffer by
reason of the issuance of the preliminary mandatory injunction.13 He also ventures to say that the case filed with
the Manila court can even be considered as a form of "forum shopping."14

In fine, petitioner asserts that under the rule on litis pendentia the action for rescission filed with the Bulacan
court bars the action for damages filed in Manila. It is interesting to note that petitioner does not contest the
correctness of the award of damages made by respondent Court; he merely insists on the dismissal (?) of the case
for damages on the ground of litis pendentia, there being a pending case for rescission in which private

37
respondents could have asserted their claim for damages. This being his lone assigned issue, the clear and
unavoidable implication is that if his contention is struck down, he is deemed to have waived any objection against
the award of damages by respondent Court.

The Court's Ruling

Petitioner's arguments are legally tenuous and patently unmeritorious.

Litis Pendencia and Splitting of a Single Cause of Action

Before discussing the petition on the merits, it is well to clarify certain concepts at the outset. If a party-litigant
splits his single cause of action, the other action or actions filed may be dismissed by invoking litis pendentia,
pursuant to Section 1(e), Rule 16 of the Revised Rules of Court. A party who splits his single cause of action cannot
be accused of also "violating the rule against litis pendentia" as the former, a malpractice, gives rise to the latter, a
ground for a motion to dismiss. This is made clear by Section 4, Rule 2 of the Rules, which speaks of cause and
effect:

Sec. 4. Effect of splitting a single cause of action. — If two or more complaints are brought for different parts of a
single cause of action, the filing of the first may be pleaded in abatement of the other or others, in accordance with
section 1 (e) of Rule 16, and a judgment upon the merits in any one is available as a bar in the others.

Now, to the main issues.

No Litis Pendentia

This Court has consistently held, in a long line of cases, that the requisites for the existence of litis pendentia as a
ground for dismissal of an action are as follows:

1) identity of parties, or at least such parties as represent the same interests in both actions;

2) identity of rights asserted and relief prayed for, the relief being founded on the same facts; and

3) the identity with respect to the two preceding particulars in the two cases is such that any judgment that may
be rendered in the pending case, regardless of which party is successful, would amount to res adjudicata in the
other case.16

There may have been identity of parties in the two actions, but the other two requisites are not similarly satisfied.
The case in Bulacan was of course founded upon alleged violations by the private respondents as lessees of certain
stipulations in their lease contract with petitioner, and therefore, it cannot be gainsaid that the rights asserted (by
petitioner as lessor) and relief sought therein (i.e., rescission of the lease contract) were entirely different from
those asserted in Manila. The latter case stemmed from the prejudice suffered by private respondents due to
petitioner's violation of the IAC's restraining orders for the observance of status quo between the parties, the relief
demanded therein consisting of actual, moral and exemplary damages. Thus, the respondent Court committed no
reversible error in holding that "the causes of action in the two cases are not the same; they are founded on
different acts; the rights violated are different; and the reliefs sought are also different."

The third requisite constitutes the test of identity in the aforestated particulars, and in connection therewith, this
Court quoted 1 Cyc., 2817 thus

A plea of the pendency of a prior action is not available unless the prior action is of such a character that, had a
judgment been rendered therein on the merits, such a judgment would be conclusive between the parties and
could be pleaded in bar of the second action. (emphasis supplied)

The res judicata test when applied to the two cases in question indicate in no uncertain terms that regardless of
whoever will ultimately prevail in the Bulacan case, the final judgment therein — whether granting or denying
rescission of the lease contract — will not be conclusive between the parties in the Manila case, and vice versa. In
other words, to our mind, the outcome of the Bulacan case has nothing to do with whether petitioner should be
held liable for the damage inflicted upon private respondents as a result of his violating the IAC restraining orders,
the two cases having arisen from different acts and environmental circumstances.

No Forum-Shopping

Petitioner's allegations to the contrary notwithstanding, forum-shopping is not present in the case at bar. The
established rule is that for forum-shopping to exist, both actions must involve the same transactions, same
essential facts and circumstances and must raise identical causes of actions, subject matter, and issues.18 As held
by this Court in a recent case:19

38
The test for determining whether a party violated the rule against forum shopping has been laid down in the 1986
case of Buan vs. Lopez (145 SCRA 34, October 13, 1986), also by Chief Justice Narvasa, and that
is, forum shopping exists where the elements of litis pendentia are present or where a final judgment in one case
will amount to res judicata in the other . . . (emphasis supplied)

We have already established that litis pendentia could not have been properly pleaded to abate the second action
brought in Manila, and that a final judgment in either case would not be res judicata with respect to the other.
Thus, the allegation of forum-shopping must fail.

In Jose Cuenco Borromeo, et al., vs. Hon. Intermediate Appellate Court, et al.,20 this Court capsulized the essence
of what is abhorrent in the malpractice of forum-shopping, and the following excerpt shows why there can be no
forum-shopping in this case:

Ultimately, what is truly important to consider in determining whether forum-shopping exists or not is the vexation
caused the courts and parties-litigant by a party who asks different courts to rule on the same or related causes
and/or to grant the same or substantially the same reliefs, in the process creating the possibility of conflicting
decisions being rendered by the different for a upon the same issue.

Claim for Damages


Not A Compulsory Counterclaim

Petitioner erroneously insists that private respondents' claim for damages should have been made through a
compulsory counterclaim in the same action for rescission. This could not have been done as the same cannot be
considered or treated as a compulsory counterclaim in the Bulacan case. This Court, in an early case,21 stated
certain criteria or tests by which the compulsory or permissive nature of specific counterclaims can be determined,
summarized as follows:

1. Are the issues of fact and law raised by the claim and counterclaim largely the same?

2. Would res judicata bar a subsequent suit on defendant's claim absent the compulsory counterclaim rule?

3. Will substantially the same evidence support or refute plaintiffs claim as well as defendant's counterclaim?

4. Is there any logical relation between the claim and the counterclaim?

In this instance, the answers to all four queries are in the negative.

Was Injunction Bond Sufficient Protection?

Petitioner's argument that the bond he posted for the issuance by the Bulacan trial court of the writ of preliminary
mandatory injunction could have answered for the damages claimed by private respondents is untenable. Such
bond was required for a specific purpose, to wit:22

(b) The plaintiff files with the clerk or judge of the court in which the action is pending a bond executed to the
party enjoined, in an amount to be fixed by the court, to the effect that the plaintiff will pay to such party all
damages which he may sustain by reason of the injunction if the court should finally decide that the plaintiff was
not entitled thereto.

No further scrutiny is necessary. The said bond was supposed to answer only for damages which may be sustained
by private respondents, against whom the mandatory injunction was issued, by reason of the issuance thereof, and
not to answer for damages caused by the actuations of petitioner, which may or may not be related at all to the
implementation of the mandatory injunction. The purpose of the injunction bond is to protect the defendant
against loss or damage by reason of the injunction in case the court finally decides that the plaintiff was not
entitled to it, and the bond is usually conditioned accordingly. Thus, the bondsmen are obligated to account to the
defendant in the injunction suit for all damages, or costs and reasonable counsel's fees, incurred or sustained by
the latter in case it is determined that the injunction was wrongfully issued.23

In the case at bar, the damages and expenses sustained by private respondents were a result of the willful
contravention by petitioner of the IAC restraining orders, and thus, outside the coverage of the injunction bond.

WHEREFORE, in view of the foregoing, the instant petition is hereby DENIED and the appealed Decision and
Resolution are AFFIRMED. Costs against petitioner.

SO ORDERED.

39
8. G.R. No. 159912 August 17, 2007
UNITED COCONUT PLANTERS BANK, Petitioner,
vs.
SPOUSES SAMUEL and ODETTE BELUSO, Respondents.

DECISION
CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, which seeks to annul the Court of
Appeals Decision1 dated 21 January 2003 and its Resolution2 dated 9 September 2003 in CA-G.R. CV No. 67318.
The assailed Court of Appeals Decision and Resolution affirmed in turn the Decision3 dated 23 March 2000 and
Order4 dated 8 May 2000 of the Regional Trial Court (RTC), Branch 65 of Makati City, in Civil Case No. 99-314,
declaring void the interest rate provided in the promissory notes executed by the respondents Spouses Samuel and
Odette Beluso (spouses Beluso) in favor of petitioner United Coconut Planters Bank (UCPB).

The procedural and factual antecedents of this case are as follows:

On 16 April 1996, UCPB granted the spouses Beluso a Promissory Notes Line under a Credit Agreement whereby
the latter could avail from the former credit of up to a maximum amount of ₱1.2 Million pesos for a term ending on
30 April 1997. The spouses Beluso constituted, other than their promissory notes, a real estate mortgage over
parcels of land in Roxas City, covered by Transfer Certificates of Title No. T-31539 and T-27828, as additional
security for the obligation. The Credit Agreement was subsequently amended to increase the amount of the
Promissory Notes Line to a maximum of ₱2.35 Million pesos and to extend the term thereof to 28 February 1998.

The spouses Beluso availed themselves of the credit line under the following Promissory Notes:

PN # Date of PN Maturity Date Amount Secured

8314-96-00083-3 29 April 1996 27 August 1996 ₱ 700,000

8314-96-00085-0 2 May 1996 30 August 1996 ₱ 500,000

8314-96-000292-2 20 November 1996 20 March 1997 ₱ 800,000

The three promissory notes were renewed several times. On 30 April 1997, the payment of the principal and
interest of the latter two promissory notes were debited from the spouses Beluso’s account with UCPB; yet, a
consolidated loan for ₱1.3 Million was again released to the spouses Beluso under one promissory note with a due
date of 28 February 1998.

To completely avail themselves of the ₱2.35 Million credit line extended to them by UCPB, the spouses Beluso
executed two more promissory notes for a total of ₱350,000.00:

PN # Date of PN Maturity Date Amount Secured

97-00363-1 11 December 1997 28 February 1998 ₱ 200,000

98-00002-4 2 January 1998 28 February 1998 ₱ 150,000

However, the spouses Beluso alleged that the amounts covered by these last two promissory notes were never
released or credited to their account and, thus, claimed that the principal indebtedness was only ₱2 Million.

In any case, UCPB applied interest rates on the different promissory notes ranging from 18% to 34%. From 1996
to February 1998 the spouses Beluso were able to pay the total sum of ₱763,692.03.

From 28 February 1998 to 10 June 1998, UCPB continued to charge interest and penalty on the obligations of the
spouses Beluso, as follows:

PN # Amount Secured Interest Penalty Total

97-00363-1 ₱ 200,000 31% 36% ₱ 225,313.24

40
97-00366-6 ₱ 700,000 30.17% 32.786% ₱ 795,294.72
(7 days) (102 days)

97-00368-2 ₱ 1,300,000 28% 30.41% ₱ 1,462,124.54


(2 days) (102 days)

98-00002-4 ₱ 150,000 33% 36% ₱ 170,034.71


(102 days)

The spouses Beluso, however, failed to make any payment of the foregoing amounts.

On 2 September 1998, UCPB demanded that the spouses Beluso pay their total obligation of ₱2,932,543.00 plus
25% attorney’s fees, but the spouses Beluso failed to comply therewith. On 28 December 1998, UCPB foreclosed
the properties mortgaged by the spouses Beluso to secure their credit line, which, by that time, already ballooned
to ₱3,784,603.00.

On 9 February 1999, the spouses Beluso filed a Petition for Annulment, Accounting and Damages against UCPB
with the RTC of Makati City.

On 23 March 2000, the RTC ruled in favor of the spouses Beluso, disposing of the case as follows:

PREMISES CONSIDERED, judgment is hereby rendered declaring the interest rate used by [UCPB] void and the
foreclosure and Sheriff’s Certificate of Sale void. [UCPB] is hereby ordered to return to [the spouses Beluso] the
properties subject of the foreclosure; to pay [the spouses Beluso] the amount of ₱50,000.00 by way of attorney’s
fees; and to pay the costs of suit. [The spouses Beluso] are hereby ordered to pay [UCPB] the sum of
₱1,560,308.00.5

On 8 May 2000, the RTC denied UCPB’s Motion for Reconsideration,6 prompting UCPB to appeal the RTC Decision
with the Court of Appeals. The Court of Appeals affirmed the RTC Decision, to wit:

WHEREFORE, premises considered, the decision dated March 23, 2000 of the Regional Trial Court, Branch 65,
Makati City in Civil Case No. 99-314 is hereby AFFIRMED subject to the modification that defendant-appellant UCPB
is not liable for attorney’s fees or the costs of suit.7

On 9 September 2003, the Court of Appeals denied UCPB’s Motion for Reconsideration for lack of merit. UCPB thus
filed the present petition, submitting the following issues for our resolution:

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN
IT AFFIRMED THE DECISION OF THE TRIAL COURT WHICH DECLARED VOID THE PROVISION ON INTEREST
RATE AGREED UPON BETWEEN PETITIONER AND RESPONDENTS

II

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN
IT AFFIRMED THE COMPUTATION BY THE TRIAL COURT OF RESPONDENTS’ INDEBTEDNESS AND ORDERED
RESPONDENTS TO PAY PETITIONER THE AMOUNT OF ONLY ONE MILLION FIVE HUNDRED SIXTY THOUSAND
THREE HUNDRED EIGHT PESOS (₱1,560,308.00)

III

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN
IT AFFIRMED THE DECISION OF THE TRIAL COURT WHICH ANNULLED THE FORECLOSURE BY PETITIONER OF
THE SUBJECT PROPERTIES DUE TO AN ALLEGED "INCORRECT COMPUTATION" OF RESPONDENTS’
INDEBTEDNESS

IV

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN
IT AFFIRMED THE DECISION OF THE TRIAL COURT WHICH FOUND PETITIONER LIABLE FOR VIOLATION OF THE
TRUTH IN LENDING ACT

41
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN
IT FAILED TO ORDER THE DISMISSAL OF THE CASE BECAUSE THE RESPONDENTS ARE GUILTY OF FORUM
SHOPPING8

Validity of the Interest Rates

The Court of Appeals held that the imposition of interest in the following provision found in the promissory notes of
the spouses Beluso is void, as the interest rates and the bases therefor were determined solely by petitioner UCPB:

FOR VALUE RECEIVED, I, and/or We, on or before due date, SPS. SAMUEL AND ODETTE BELUSO (BORROWER),
jointly and severally promise to pay to UNITED COCONUT PLANTERS BANK (LENDER) or order at UCPB Bldg.,
Makati Avenue, Makati City, Philippines, the sum of ______________ PESOS, (P_____), Philippine Currency, with
interest thereon at the rate indicative of DBD retail rate or as determined by the Branch Head.9

UCPB asserts that this is a reversible error, and claims that while the interest rate was not numerically quantified in
the face of the promissory notes, it was nonetheless categorically fixed, at the time of execution thereof, at the
"rate indicative of the DBD retail rate." UCPB contends that said provision must be read with another stipulation in
the promissory notes subjecting to review the interest rate as fixed:

The interest rate shall be subject to review and may be increased or decreased by the LENDER considering among
others the prevailing financial and monetary conditions; or the rate of interest and charges which other banks or
financial institutions charge or offer to charge for similar accommodations; and/or the resulting profitability to the
LENDER after due consideration of all dealings with the BORROWER.10

In this regard, UCPB avers that these are valid reference rates akin to a "prevailing rate" or "prime rate" allowed by
this Court in Polotan v. Court of Appeals.11 Furthermore, UCPB argues that even if the proviso "as determined by
the branch head" is considered void, such a declaration would not ipso facto render the connecting clause
"indicative of DBD retail rate" void in view of the separability clause of the Credit Agreement, which reads:

Section 9.08 Separability Clause. If any one or more of the provisions contained in this AGREEMENT, or documents
executed in connection herewith shall be declared invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired.12

According to UCPB, the imposition of the questioned interest rates did not infringe on the principle of mutuality of
contracts, because the spouses Beluso had the liberty to choose whether or not to renew their credit line at the
new interest rates pegged by petitioner.13 UCPB also claims that assuming there was any defect in the mutuality
of the contract at the time of its inception, such defect was cured by the subsequent conduct of the spouses Beluso
in availing themselves of the credit line from April 1996 to February 1998 without airing any protest with respect to
the interest rates imposed by UCPB. According to UCPB, therefore, the spouses Beluso are in estoppel.14

We agree with the Court of Appeals, and find no merit in the contentions of UCPB.

Article 1308 of the Civil Code provides:

Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of
one of them.

We applied this provision in Philippine National Bank v. Court of Appeals,15 where we held:

In order that obligations arising from contracts may have the force of law between the parties, there must be
mutuality between the parties based on their essential equality. A contract containing a condition which makes its
fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties, is void (Garcia vs.
Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming that the P1.8 million loan agreement between the PNB
and the private respondent gave the PNB a license (although in fact there was none) to increase the interest rate
at will during the term of the loan, that license would have been null and void for being violative of the principle of
mutuality essential in contracts. It would have invested the loan agreement with the character of a contract of
adhesion, where the parties do not bargain on equal footing, the weaker party's (the debtor) participation being
reduced to the alternative "to take it or leave it" (Qua vs. Law Union & Rock Insurance Co., 95 Phil. 85). Such a
contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and
imposition.

The provision stating that the interest shall be at the "rate indicative of DBD retail rate or as determined by the
Branch Head" is indeed dependent solely on the will of petitioner UCPB. Under such provision, petitioner UCPB has
two choices on what the interest rate shall be: (1) a rate indicative of the DBD retail rate; or (2) a rate as
determined by the Branch Head. As UCPB is given this choice, the rate should be categorically determinable in both
choices. If either of these two choices presents an opportunity for UCPB to fix the rate at will, the bank can easily

42
choose such an option, thus making the entire interest rate provision violative of the principle of mutuality of
contracts.

Not just one, but rather both, of these choices are dependent solely on the will of UCPB. Clearly, a rate "as
determined by the Branch Head" gives the latter unfettered discretion on what the rate may be. The Branch Head
may choose any rate he or she desires. As regards the rate "indicative of the DBD retail rate," the same cannot be
considered as valid for being akin to a "prevailing rate" or "prime rate" allowed by this Court in Polotan. The
interest rate in Polotan reads:

The Cardholder agrees to pay interest per annum at 3% plus the prime rate of Security Bank and Trust Company.
x x x.16

In this provision in Polotan, there is a fixed margin over the reference rate: 3%. Thus, the parties can easily
determine the interest rate by applying simple arithmetic. On the other hand, the provision in the case at bar does
not specify any margin above or below the DBD retail rate. UCPB can peg the interest at any percentage above or
below the DBD retail rate, again giving it unfettered discretion in determining the interest rate.

The stipulation in the promissory notes subjecting the interest rate to review does not render the imposition by
UCPB of interest rates on the obligations of the spouses Beluso valid. According to said stipulation:

The interest rate shall be subject to review and may be increased or decreased by the LENDER considering among
others the prevailing financial and monetary conditions; or the rate of interest and charges which other banks or
financial institutions charge or offer to charge for similar accommodations; and/or the resulting profitability to the
LENDER after due consideration of all dealings with the BORROWER.17

It should be pointed out that the authority to review the interest rate was given UCPB alone as the lender.
Moreover, UCPB may apply the considerations enumerated in this provision as it wishes. As worded in the above
provision, UCPB may give as much weight as it desires to each of the following considerations: (1) the prevailing
financial and monetary condition; (2) the rate of interest and charges which other banks or financial institutions
charge or offer to charge for similar accommodations; and/or (3) the resulting profitability to the LENDER (UCPB)
after due consideration of all dealings with the BORROWER (the spouses Beluso). Again, as in the case of the
interest rate provision, there is no fixed margin above or below these considerations.

In view of the foregoing, the Separability Clause cannot save either of the two options of UCPB as to the interest to
be imposed, as both options violate the principle of mutuality of contracts.

UCPB likewise failed to convince us that the spouses Beluso were in estoppel.

Estoppel cannot be predicated on an illegal act. As between the parties to a contract, validity cannot be given to it
by estoppel if it is prohibited by law or is against public policy.18

The interest rate provisions in the case at bar are illegal not only because of the provisions of the Civil Code on
mutuality of contracts, but also, as shall be discussed later, because they violate the Truth in Lending Act. Not
disclosing the true finance charges in connection with the extensions of credit is, furthermore, a form of deception
which we cannot countenance. It is against the policy of the State as stated in the Truth in Lending Act:

Sec. 2. Declaration of Policy. – It is hereby declared to be the policy of the State to protect its citizens from a lack
of awareness of the true cost of credit to the user by assuring a full disclosure of such cost with a view of
preventing the uninformed use of credit to the detriment of the national economy.19

Moreover, while the spouses Beluso indeed agreed to renew the credit line, the offending provisions are found in
the promissory notes themselves, not in the credit line. In fixing the interest rates in the promissory notes to cover
the renewed credit line, UCPB still reserved to itself the same two options – (1) a rate indicative of the DBD retail
rate; or (2) a rate as determined by the Branch Head.

Error in Computation

UCPB asserts that while both the RTC and the Court of Appeals voided the interest rates imposed by UCPB, both
failed to include in their computation of the outstanding obligation of the spouses Beluso the legal rate of interest
of 12% per annum. Furthermore, the penalty charges were also deleted in the decisions of the RTC and the Court
of Appeals. Section 2.04, Article II on "Interest and other Bank Charges" of the subject Credit Agreement,
provides:

Section 2.04 Penalty Charges. In addition to the interest provided for in Section 2.01 of this ARTICLE, any principal
obligation of the CLIENT hereunder which is not paid when due shall be subject to a penalty charge of one percent
(1%) of the amount of such obligation per month computed from due date until the obligation is paid in full. If the

43
bank accelerates teh (sic) payment of availments hereunder pursuant to ARTICLE VIII hereof, the penalty charge
shall be used on the total principal amount outstanding and unpaid computed from the date of acceleration until
the obligation is paid in full.20

Paragraph 4 of the promissory notes also states:

In case of non-payment of this Promissory Note (Note) at maturity, I/We, jointly and severally, agree to pay an
additional sum equivalent to twenty-five percent (25%) of the total due on the Note as attorney’s fee, aside from
the expenses and costs of collection whether actually incurred or not, and a penalty charge of one percent (1%)
per month on the total amount due and unpaid from date of default until fully paid.21

Petitioner further claims that it is likewise entitled to attorney’s fees, pursuant to Section 9.06 of the Credit
Agreement, thus:

If the BANK shall require the services of counsel for the enforcement of its rights under this AGREEMENT, the
Note(s), the collaterals and other related documents, the BANK shall be entitled to recover attorney’s fees
equivalent to not less than twenty-five percent (25%) of the total amounts due and outstanding exclusive of costs
and other expenses.22

Another alleged computational error pointed out by UCPB is the negation of the Compounding Interest agreed
upon by the parties under Section 2.02 of the Credit Agreement:

Section 2.02 Compounding Interest. Interest not paid when due shall form part of the principal and shall be subject
to the same interest rate as herein stipulated.23 and paragraph 3 of the subject promissory notes:

Interest not paid when due shall be added to, and become part of the principal and shall likewise bear interest at
the same rate.24

UCPB lastly avers that the application of the spouses Beluso’s payments in the disputed computation does not
reflect the parties’ agreement.1avvphi1 The RTC deducted the payment made by the spouses Beluso amounting to
₱763,693.00 from the principal of ₱2,350,000.00. This was allegedly inconsistent with the Credit Agreement, as
well as with the agreement of the parties as to the facts of the case. In paragraph 7 of the spouses Beluso’s
Manifestation and Motion on Proposed Stipulation of Facts and Issues vis-à-vis UCPB’s Manifestation, the parties
agreed that the amount of ₱763,693.00 was applied to the interest and not to the principal, in accord with Section
3.03, Article II of the Credit Agreement on "Order of the Application of Payments," which provides:

Section 3.03 Application of Payment. Payments made by the CLIENT shall be applied in accordance with the
following order of preference:

1. Accounts receivable and other out-of-pocket expenses


2. Front-end Fee, Origination Fee, Attorney’s Fee and other expenses of collection;
3. Penalty charges;
4. Past due interest;
5. Principal amortization/Payment in arrears;
6. Advance interest;
7. Outstanding balance; and
8. All other obligations of CLIENT to the BANK, if any.25

Thus, according to UCPB, the interest charges, penalty charges, and attorney’s fees had been erroneously excluded
by the RTC and the Court of Appeals from the computation of the total amount due and demandable from spouses
Beluso.

The spouses Beluso’s defense as to all these issues is that the demand made by UCPB is for a considerably bigger
amount and, therefore, the demand should be considered void. There being no valid demand, according to the
spouses Beluso, there would be no default, and therefore the interests and penalties would not commence to run.
As it was likewise improper to foreclose the mortgaged properties or file a case against the spouses Beluso,
attorney’s fees were not warranted.

We agree with UCPB on this score. Default commences upon judicial or extrajudicial demand.26 The excess
amount in such a demand does not nullify the demand itself, which is valid with respect to the proper amount. A
contrary ruling would put commercial transactions in disarray, as validity of demands would be dependent on the
exactness of the computations thereof, which are too often contested.

There being a valid demand on the part of UCPB, albeit excessive, the spouses Beluso are considered in default
with respect to the proper amount and, therefore, the interests and the penalties began to run at that point.

44
As regards the award of 12% legal interest in favor of petitioner, the RTC actually recognized that said legal
interest should be imposed, thus: "There being no valid stipulation as to interest, the legal rate of interest shall be
charged."27 It seems that the RTC inadvertently overlooked its non-inclusion in its computation.

The spouses Beluso had even originally asked for the RTC to impose this legal rate of interest in both the body and
the prayer of its petition with the RTC:

12. Since the provision on the fixing of the rate of interest by the sole will of the respondent Bank is null and void,
only the legal rate of interest which is 12% per annum can be legally charged and imposed by the bank, which
would amount to only about P599,000.00 since 1996 up to August 31, 1998.

xxxx

WHEREFORE, in view of the foregoing, petiitoners pray for judgment or order:

xxxx

2. By way of example for the public good against the Bank’s taking unfair advantage of the weaker party to their
contract, declaring the legal rate of 12% per annum, as the imposable rate of interest up to February 28, 1999 on
the loan of 2.350 million.28

All these show that the spouses Beluso had acknowledged before the RTC their obligation to pay a 12% legal
interest on their loans. When the RTC failed to include the 12% legal interest in its computation, however, the
spouses Beluso merely defended in the appellate courts this non-inclusion, as the same was beneficial to them. We
see, however, sufficient basis to impose a 12% legal interest in favor of petitioner in the case at bar, as what we
have voided is merely the stipulated rate of interest and not the stipulation that the loan shall earn interest.

We must likewise uphold the contract stipulation providing the compounding of interest. The provisions in the
Credit Agreement and in the promissory notes providing for the compounding of interest were neither nullified by
the RTC or the Court of Appeals, nor assailed by the spouses Beluso in their petition with the RTC. The
compounding of interests has furthermore been declared by this Court to be legal. We have held in Tan v. Court of
Appeals,29 that:

Without prejudice to the provisions of Article 2212, interest due and unpaid shall not earn interest. However, the
contracting parties may by stipulation capitalize the interest due and unpaid, which as added principal, shall earn
new interest.

As regards the imposition of penalties, however, although we are likewise upholding the imposition thereof in the
contract, we find the rate iniquitous. Like in the case of grossly excessive interests, the penalty stipulated in the
contract may also be reduced by the courts if it is iniquitous or unconscionable.30

We find the penalty imposed by UCPB, ranging from 30.41% to 36%, to be iniquitous considering the fact that this
penalty is already over and above the compounded interest likewise imposed in the contract. If a 36% interest in
itself has been declared unconscionable by this Court,31 what more a 30.41% to 36% penalty, over and above the
payment of compounded interest? UCPB itself must have realized this, as it gave us a sample computation of the
spouses Beluso’s obligation if both the interest and the penalty charge are reduced to 12%.

As regards the attorney’s fees, the spouses Beluso can actually be liable therefor even if there had been no
demand. Filing a case in court is the judicial demand referred to in Article 116932 of the Civil Code, which would
put the obligor in delay.

The RTC, however, also held UCPB liable for attorney’s fees in this case, as the spouses Beluso were forced to
litigate the issue on the illegality of the interest rate provision of the promissory notes. The award of attorney’s
fees, it must be recalled, falls under the sound discretion of the court.33 Since both parties were forced to litigate
to protect their respective rights, and both are entitled to the award of attorney’s fees from the other, practical
reasons dictate that we set off or compensate both parties’ liabilities for attorney’s fees. Therefore, instead of
awarding attorney’s fees in favor of petitioner, we shall merely affirm the deletion of the award of attorney’s fees
to the spouses Beluso.

In sum, we hold that spouses Beluso should still be held liable for a compounded legal interest of 12% per annum
and a penalty charge of 12% per annum. We also hold that, instead of awarding attorney’s fees in favor of
petitioner, we shall merely affirm the deletion of the award of attorney’s fees to the spouses Beluso.

Annulment of the Foreclosure Sale

45
Properties of spouses Beluso had been foreclosed, titles to which had already been consolidated on 19 February
2001 and 20 March 2001 in the name of UCPB, as the spouses Beluso failed to exercise their right of redemption
which expired on 25 March 2000. The RTC, however, annulled the foreclosure of mortgage based on an alleged
incorrect computation of the spouses Beluso’s indebtedness.

UCPB alleges that none of the grounds for the annulment of a foreclosure sale are present in the case at bar.
Furthermore, the annulment of the foreclosure proceedings and the certificates of sale were mooted by the
subsequent issuance of new certificates of title in the name of said bank. UCPB claims that the spouses Beluso’s
action for annulment of foreclosure constitutes a collateral attack on its certificates of title, an act proscribed by
Section 48 of Presidential Decree No. 1529, otherwise known as the Property Registration Decree, which provides:

Section 48. Certificate not subject to collateral attack. – A certificate of title shall not be subject to collateral attack.
It cannot be altered, modified or cancelled except in a direct proceeding in accordance with law.

The spouses Beluso retort that since they had the right to refuse payment of an excessive demand on their
account, they cannot be said to be in default for refusing to pay the same. Consequently, according to the spouses
Beluso, the "enforcement of such illegal and overcharged demand through foreclosure of mortgage" should be
voided.

We agree with UCPB and affirm the validity of the foreclosure proceedings. Since we already found that a valid
demand was made by UCPB upon the spouses Beluso, despite being excessive, the spouses Beluso are considered
in default with respect to the proper amount of their obligation to UCPB and, thus, the property they mortgaged to
secure such amounts may be foreclosed. Consequently, proceeds of the foreclosure sale should be applied to the
extent of the amounts to which UCPB is rightfully entitled.

As argued by UCPB, none of the grounds for the annulment of a foreclosure sale are present in this case. The
grounds for the proper annulment of the foreclosure sale are the following: (1) that there was fraud, collusion,
accident, mutual mistake, breach of trust or misconduct by the purchaser; (2) that the sale had not been fairly and
regularly conducted; or (3) that the price was inadequate and the inadequacy was so great as to shock the
conscience of the court.34

Liability for Violation of Truth in Lending Act

The RTC, affirmed by the Court of Appeals, imposed a fine of ₱26,000.00 for UCPB’s alleged violation of Republic
Act No. 3765, otherwise known as the Truth in Lending Act.

UCPB challenges this imposition, on the argument that Section 6(a) of the Truth in Lending Act which mandates
the filing of an action to recover such penalty must be made under the following circumstances:

Section 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any person any
information in violation of this Act or any regulation issued thereunder shall be liable to such person in the amount
of ₱100 or in an amount equal to twice the finance charge required by such creditor in connection with such
transaction, whichever is greater, except that such liability shall not exceed ₱2,000 on any credit transaction. Action
to recover such penalty may be brought by such person within one year from the date of the occurrence of the
violation, in any court of competent jurisdiction. x x x (Emphasis ours.)

According to UCPB, the Court of Appeals even stated that "[a]dmittedly the original complaint did not explicitly
allege a violation of the ‘Truth in Lending Act’ and no action to formally admit the amended petition [which
expressly alleges violation of the Truth in Lending Act] was made either by [respondents] spouses Beluso and the
lower court. x x x."35

UCPB further claims that the action to recover the penalty for the violation of the Truth in Lending Act had been
barred by the one-year prescriptive period provided for in the Act. UCPB asserts that per the records of the case,
the latest of the subject promissory notes had been executed on 2 January 1998, but the original petition of the
spouses Beluso was filed before the RTC on 9 February 1999, which was after the expiration of the period to file
the same on 2 January 1999.

On the matter of allegation of the violation of the Truth in Lending Act, the Court of Appeals ruled:

Admittedly the original complaint did not explicitly allege a violation of the ‘Truth in Lending Act’ and no action to
formally admit the amended petition was made either by [respondents] spouses Beluso and the lower court. In
such transactions, the debtor and the lending institutions do not deal on an equal footing and this law was
intended to protect the public from hidden or undisclosed charges on their loan obligations, requiring a full
disclosure thereof by the lender. We find that its infringement may be inferred or implied from allegations that
when [respondents] spouses Beluso executed the promissory notes, the interest rate chargeable thereon were left

46
blank. Thus, [petitioner] UCPB failed to discharge its duty to disclose in full to [respondents] Spouses Beluso the
charges applicable on their loans.36

We agree with the Court of Appeals. The allegations in the complaint, much more than the title thereof, are
controlling. Other than that stated by the Court of Appeals, we find that the allegation of violation of the Truth in
Lending Act can also be inferred from the same allegation in the complaint we discussed earlier:

b.) In unilaterally imposing an increased interest rates (sic) respondent bank has relied on the provision of their
promissory note granting respondent bank the power to unilaterally fix the interest rates, which rate was not
determined in the promissory note but was left solely to the will of the Branch Head of the respondent Bank, x x
x.37

The allegation that the promissory notes grant UCPB the power to unilaterally fix the interest rates certainly also
means that the promissory notes do not contain a "clear statement in writing" of "(6) the finance charge expressed
in terms of pesos and centavos; and (7) the percentage that the finance charge bears to the amount to be
financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation."38 Furthermore,
the spouses Beluso’s prayer "for such other reliefs just and equitable in the premises" should be deemed to include
the civil penalty provided for in Section 6(a) of the Truth in Lending Act.

UCPB’s contention that this action to recover the penalty for the violation of the Truth in Lending Act has already
prescribed is likewise without merit. The penalty for the violation of the act is ₱100 or an amount equal to twice
the finance charge required by such creditor in connection with such transaction, whichever is greater, except that
such liability shall not exceed ₱2,000.00 on any credit transaction.39 As this penalty depends on the finance charge
required of the borrower, the borrower’s cause of action would only accrue when such finance charge is required.
In the case at bar, the date of the demand for payment of the finance charge is 2 September 1998, while the
foreclosure was made on 28 December 1998. The filing of the case on 9 February 1999 is therefore within the one-
year prescriptive period.

UCPB argues that a violation of the Truth in Lending Act, being a criminal offense, cannot be inferred nor implied
from the allegations made in the complaint.40 Pertinent provisions of the Act read:

Sec. 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any person any
information in violation of this Act or any regulation issued thereunder shall be liable to such person in the amount
of ₱100 or in an amount equal to twice the finance charge required by such creditor in connection with such
transaction, whichever is the greater, except that such liability shall not exceed ₱2,000 on any credit transaction.
Action to recover such penalty may be brought by such person within one year from the date of the occurrence of
the violation, in any court of competent jurisdiction. In any action under this subsection in which any person is
entitled to a recovery, the creditor shall be liable for reasonable attorney’s fees and court costs as determined by
the court.

xxxx

(c) Any person who willfully violates any provision of this Act or any regulation issued thereunder shall be fined by
not less than ₱1,000 or more than ₱5,000 or imprisonment for not less than 6 months, nor more than one year or
both.

As can be gleaned from Section 6(a) and (c) of the Truth in Lending Act, the violation of the said Act gives rise to
both criminal and civil liabilities. Section 6(c) considers a criminal offense the willful violation of the Act, imposing
the penalty therefor of fine, imprisonment or both. Section 6(a), on the other hand, clearly provides for a civil
cause of action for failure to disclose any information of the required information to any person in violation of the
Act. The penalty therefor is an amount of ₱100 or in an amount equal to twice the finance charge required by the
creditor in connection with such transaction, whichever is greater, except that the liability shall not exceed
₱2,000.00 on any credit transaction. The action to recover such penalty may be instituted by the aggrieved private
person separately and independently from the criminal case for the same offense.

In the case at bar, therefore, the civil action to recover the penalty under Section 6(a) of the Truth in Lending Act
had been jointly instituted with (1) the action to declare the interests in the promissory notes void, and (2) the
action to declare the foreclosure void. This joinder is allowed under Rule 2, Section 5 of the Rules of Court, which
provides:

SEC. 5. Joinder of causes of action.—A party may in one pleading assert, in the alternative or otherwise, as many
causes of action as he may have against an opposing party, subject to the following conditions:

(a) The party joining the causes of action shall comply with the rules on joinder of parties;

(b) The joinder shall not include special civil actions or actions governed by special rules;

47
(c) Where the causes of action are between the same parties but pertain to different venues or jurisdictions, the
joinder may be allowed in the Regional Trial Court provided one of the causes of action falls within the jurisdiction
of said court and the venue lies therein; and

(d) Where the claims in all the causes of action are principally for recovery of money, the aggregate amount
claimed shall be the test of jurisdiction.

In attacking the RTC’s disposition on the violation of the Truth in Lending Act since the same was not alleged in the
complaint, UCPB is actually asserting a violation of due process. Indeed, due process mandates that a defendant
should be sufficiently apprised of the matters he or she would be defending himself or herself against. However, in
the 1 July 1999 pre-trial brief filed by the spouses Beluso before the RTC, the claim for civil sanctions for violation
of the Truth in Lending Act was expressly alleged, thus:

Moreover, since from the start, respondent bank violated the Truth in Lending Act in not informing the borrower in
writing before the execution of the Promissory Notes of the interest rate expressed as a percentage of the total
loan, the respondent bank instead is liable to pay petitioners double the amount the bank is charging petitioners by
way of sanction for its violation.41

In the same pre-trial brief, the spouses Beluso also expressly raised the following issue:

b.) Does the expression indicative rate of DBD retail (sic) comply with the Truth in Lending Act provision to express
the interest rate as a simple annual percentage of the loan?42

These assertions are so clear and unequivocal that any attempt of UCPB to feign ignorance of the assertion of this
issue in this case as to prevent it from putting up a defense thereto is plainly hogwash.

Petitioner further posits that it is the Metropolitan Trial Court which has jurisdiction to try and adjudicate the
alleged violation of the Truth in Lending Act, considering that the present action allegedly involved a single credit
transaction as there was only one Promissory Note Line.

We disagree. We have already ruled that the action to recover the penalty under Section 6(a) of the Truth in
Lending Act had been jointly instituted with (1) the action to declare the interests in the promissory notes void, and
(2) the action to declare the foreclosure void. There had been no question that the above actions belong to the
jurisdiction of the RTC. Subsection (c) of the above-quoted Section 5 of the Rules of Court on Joinder of Causes of
Action provides:

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

Furthermore, opening a credit line does not create a credit transaction of loan or mutuum, since the former is
merely a preparatory contract to the contract of loan or mutuum. Under such credit line, the bank is merely
obliged, for the considerations specified therefor, to lend to the other party amounts not exceeding the limit
provided. The credit transaction thus occurred not when the credit line was opened, but rather when the credit line
was availed of. In the case at bar, the violation of the Truth in Lending Act allegedly occurred not when the parties
executed the Credit Agreement, where no interest rate was mentioned, but when the parties executed the
promissory notes, where the allegedly offending interest rate was stipulated.

UCPB further argues that since the spouses Beluso were duly given copies of the subject promissory notes after
their execution, then they were duly notified of the terms thereof, in substantial compliance with the Truth in
Lending Act.

Once more, we disagree. Section 4 of the Truth in Lending Act clearly provides that the disclosure statement must
be furnished prior to the consummation of the transaction:

SEC. 4. Any creditor shall furnish to each person to whom credit is extended, prior to the consummation of the
transaction, a clear statement in writing setting forth, to the extent applicable and in accordance with rules and
regulations prescribed by the Board, the following information:

(1) the cash price or delivered price of the property or service to be acquired;

(2) the amounts, if any, to be credited as down payment and/or trade-in;

(3) the difference between the amounts set forth under clauses (1) and (2)

(4) the charges, individually itemized, which are paid or to be paid by such person in connection with the
transaction but which are not incident to the extension of credit;

48
(5) the total amount to be financed;

(6) the finance charge expressed in terms of pesos and centavos; and

(7) the percentage that the finance bears to the total amount to be financed expressed as a simple annual rate on
the outstanding unpaid balance of the obligation.

The rationale of this provision is to protect users of credit from a lack of awareness of the true cost thereof,
proceeding from the experience that banks are able to conceal such true cost by hidden charges, uncertainty of
interest rates, deduction of interests from the loaned amount, and the like. The law thereby seeks to protect
debtors by permitting them to fully appreciate the true cost of their loan, to enable them to give full consent to the
contract, and to properly evaluate their options in arriving at business decisions. Upholding UCPB’s claim of
substantial compliance would defeat these purposes of the Truth in Lending Act. The belated discovery of the true
cost of credit will too often not be able to reverse the ill effects of an already consummated business decision.

In addition, the promissory notes, the copies of which were presented to the spouses Beluso after execution, are
not sufficient notification from UCPB. As earlier discussed, the interest rate provision therein does not sufficiently
indicate with particularity the interest rate to be applied to the loan covered by said promissory notes.

Forum Shopping

UCPB had earlier moved to dismiss the petition (originally Case No. 99-314 in RTC, Makati City) on the ground that
the spouses Beluso instituted another case (Civil Case No. V-7227) before the RTC of Roxas City, involving the
same parties and issues. UCPB claims that while Civil Case No. V-7227 initially appears to be a different action, as it
prayed for the issuance of a temporary restraining order and/or injunction to stop foreclosure of spouses Beluso’s
properties, it poses issues which are similar to those of the present case.43 To prove its point, UCPB cited the
spouses Beluso’s Amended Petition in Civil Case No. V-7227, which contains similar allegations as those in the
present case. The RTC of Makati denied UCPB’s Motion to Dismiss Case No. 99-314 for lack of merit. Petitioner
UCPB raised the same issue with the Court of Appeals, and is raising the same issue with us now.

The spouses Beluso claim that the issue in Civil Case No. V-7227 before the RTC of Roxas City, a Petition for
Injunction Against Foreclosure, is the propriety of the foreclosure before the true account of spouses Beluso is
determined. On the other hand, the issue in Case No. 99-314 before the RTC of Makati City is the validity of the
interest rate provision. The spouses Beluso claim that Civil Case No. V-7227 has become moot because, before the
RTC of Roxas City could act on the restraining order, UCPB proceeded with the foreclosure and auction sale. As the
act sought to be restrained by Civil Case No. V-7227 has already been accomplished, the spouses Beluso had to file
a different action, that of Annulment of the Foreclosure Sale, Case No. 99-314 with the RTC, Makati City.

Even if we assume for the sake of argument, however, that only one cause of action is involved in the two civil
actions, namely, the violation of the right of the spouses Beluso not to have their property foreclosed for an
amount they do not owe, the Rules of Court nevertheless allows the filing of the second action. Civil Case No. V-
7227 was dismissed by the RTC of Roxas City before the filing of Case No. 99-314 with the RTC of Makati City,
since the venue of litigation as provided for in the Credit Agreement is in Makati City.

Rule 16, Section 5 bars the refiling of an action previously dismissed only in the following instances:

SEC. 5. Effect of dismissal.—Subject to the right of appeal, an order granting a motion to dismiss based on
paragraphs (f), (h) and (i) of section 1 hereof shall bar the refiling of the same action or claim. (n)

Improper venue as a ground for the dismissal of an action is found in paragraph (c) of Section 1, not in paragraphs
(f), (h) and (i):

SECTION 1. Grounds.—Within the time for but before filing the answer to the complaint or pleading asserting a
claim, a motion to dismiss may be made on any of the following grounds:

(a) That the court has no jurisdiction over the person of the defending party;
(b) That the court has no jurisdiction over the subject matter of the claim;
(c) That venue is improperly laid;
(d) That the plaintiff has no legal capacity to sue;
(e) That there is another action pending between the same parties for the same cause;
(f) That the cause of action is barred by a prior judgment or by the statute of limitations;
(g) That the pleading asserting the claim states no cause of action;
(h) That the claim or demand set forth in the plaintiff’s pleading has been paid, waived, abandoned, or otherwise
extinguished;
(i) That the claim on which the action is founded is unenforceable under the provisions of the statute of
frauds; and

49
(j) That a condition precedent for filing the claim has not been complied with.44 (Emphases supplied.)

When an action is dismissed on the motion of the other party, it is only when the ground for the dismissal of an
action is found in paragraphs (f), (h) and (i) that the action cannot be refiled. As regards all the other grounds, the
complainant is allowed to file same action, but should take care that, this time, it is filed with the proper court or
after the accomplishment of the erstwhile absent condition precedent, as the case may be.

UCPB, however, brings to the attention of this Court a Motion for Reconsideration filed by the spouses Beluso on 15
January 1999 with the RTC of Roxas City, which Motion had not yet been ruled upon when the spouses Beluso filed
Civil Case No. 99-314 with the RTC of Makati. Hence, there were allegedly two pending actions between the same
parties on the same issue at the time of the filing of Civil Case No. 99-314 on 9 February 1999 with the RTC of
Makati. This will still not change our findings. It is indeed the general rule that in cases where there are two
pending actions between the same parties on the same issue, it should be the later case that should be dismissed.
However, this rule is not absolute. According to this Court in Allied Banking Corporation v. Court of Appeals45 :

In these cases, it is evident that the first action was filed in anticipation of the filing of the later action and the
purpose is to preempt the later suit or provide a basis for seeking the dismissal of the second action.

Even if this is not the purpose for the filing of the first action, it may nevertheless be dismissed if the later action is
the more appropriate vehicle for the ventilation of the issues between the parties. Thus, in Ramos v. Peralta, it was
held:

[T]he rule on litis pendentia does not require that the later case should yield to the earlier case. What is required
merely is that there be another pending action, not a prior pending action. Considering the broader scope of
inquiry involved in Civil Case No. 4102 and the location of the property involved, no error was committed by the
lower court in deferring to the Bataan court's jurisdiction.

Given, therefore, the pendency of two actions, the following are the relevant considerations in determining which
action should be dismissed: (1) the date of filing, with preference generally given to the first action filed to be
retained; (2) whether the action sought to be dismissed was filed merely to preempt the later action or to
anticipate its filing and lay the basis for its dismissal; and (3) whether the action is the appropriate vehicle for
litigating the issues between the parties.

In the case at bar, Civil Case No. V-7227 before the RTC of Roxas City was an action for injunction against a
foreclosure sale that has already been held, while Civil Case No. 99-314 before the RTC of Makati City includes an
action for the annulment of said foreclosure, an action certainly more proper in view of the execution of the
foreclosure sale. The former case was improperly filed in Roxas City, while the latter was filed in Makati City, the
proper venue of the action as mandated by the Credit Agreement. It is evident, therefore, that Civil Case No. 99-
314 is the more appropriate vehicle for litigating the issues between the parties, as compared to Civil Case No. V-
7227. Thus, we rule that the RTC of Makati City was not in error in not dismissing Civil Case No. 99-314.

WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED with the following MODIFICATIONS:

1. In addition to the sum of ₱2,350,000.00 as determined by the courts a quo, respondent spouses Samuel and
Odette Beluso are also liable for the following amounts:

a. Penalty of 12% per annum on the amount due46 from the date of demand; and

b. Compounded legal interest of 12% per annum on the amount due47 from date of demand;

2. The following amounts shall be deducted from the liability of the spouses Samuel and Odette Beluso:

a. Payments made by the spouses in the amount of ₱763,692.00. These payments shall be applied to the date of
actual payment of the following in the order that they are listed, to wit:

i. penalty charges due and demandable as of the time of payment;

ii. interest due and demandable as of the time of payment;

iii. principal amortization/payment in arrears as of the time of payment;

iv. outstanding balance.

b. Penalty under Republic Act No. 3765 in the amount of ₱26,000.00. This amount shall be deducted from the
liability of the spouses Samuel and Odette Beluso on 9 February 1999 to the following in the order that they are
listed, to wit:

50
i. penalty charges due and demandable as of time of payment;

ii. interest due and demandable as of the time of payment;

iii. principal amortization/payment in arrears as of the time of payment;

iv. outstanding balance.

3. The foreclosure of mortgage is hereby declared VALID. Consequently, the amounts which the Regional Trial
Court and the Court of Appeals ordered respondents to pay, as modified in this Decision, shall be deducted from
the proceeds of the foreclosure sale.

SO ORDERED.

9. G.R. No. 156224 February 19, 2008


HEIRS OF PANFILO F. ABALOS,1 petitioners,
vs.
AURORA A. BUCAL, DEMETRIO BUCAL, ARTEMIO F. ABALOS, LIGAYA U. ABALOS, ROMULO F. ABALOS,
JESUSA O. ABALOS, MAURO F. ABALOS and LUZVIMINDA R. ABALOS, respondents.

DECISION
AZCUNA, J.:

This petition for review on certiorari under Rule 45 of the Rules on Civil Procedure assails the August 31, 2001
Decision2 and November 20, 2002 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 39138, which
affirmed with modification the May 25, 1992 Decision4 of the Regional Trial Court (RTC) of Lingayen, Pangasinan,
Branch 39, in Civil Case No. 16289.

Prologue

On October 30, 1978, petitioners' father, Panfilo Abalos, filed before the RTC of Lingayen, Pangasinan, a
complaint5 docketed as Civil Case No. 15465 for Partition, Annulment of Certain Documents, Accounting and
Damages against Faustino Abalos, his brother, and Danilo Abalos, his nephew and the only surviving heir of his
brother Pedro Abalos. In the amended complaint,6 Panfilo alleged that their father/grandfather, Francisco Abalos,
died intestate and was survived by his wife, Teodorica, and their children, namely: Maria, Faustino, Pedro, Roman
and Panfilo; that at the time of his death, Francisco left the following real properties:

xxx xxx xxx

a.) A parcel of residential land situated in Linoc, Binmaley, Pangasinan, containing an area of 1,020 sq. meters,
bounded on the North by Leoncio Dalmacio; On the East by Dimas Perez; On the South by Callejon; And on the
West by Magno Dalmacio; declared under Tax Declaration No. 121 in the name of Francisco Abalos and assessed
at P255.50; [n]ot registered under Act 496 [or] under the Spanish [M]ortgaged Law[;]

b.) A parcel of unirrigated riceland situated in Linoc, Binmaley, Pangasinan, containing an area of 841 sq. meters,
bounded on the North by Callejon; On the South by Roberto Aquino; On the East by Eulalio Javier; And on the
West by Hipolito Perez. It is originally covered by Tax Declaration in the name of Francisco Abalos now covered by
Tax Declaration No. 14457 in the name of Faustino Abalos and assessed at P20.00[;] [n]ot registered under Act
496 [or] under the Spanish [M]ortgaged Law;

c.) A parcel of unirrigated riceland situated in Linoc, Binmaley, Pangasinan, containing an area of 1,196 sq. meters,
bounded on the North by Callejon; On the East by Estanislao Ferrer; On the South by Saturnino Aquino; And on the
West by Hipolito Perez[.] It is originally declared in the name of Francisco Abalos and now covered by Tax
Declaration No. 14458 in the name of Faustino Abalos and assessed at P30.00;

d.) A parcel of fishpond situated in Linoc, Binmaley, Pangasinan, containing an area of 1,158 sq. meters, bounded
on the North by Doyao River; On the East by Hipolito Perez; On the South by Leoncio Dalmacio; And on the West
by Teodoro Abalos. It is originally declared in the [name] of Francisco Abalos and now covered by Tax Declaration
No. 21592 in the name of Faustino Abalos and assessed at P370.00;

e.) A parcel of fishpond situated in Linoc, Binmaley, Pangasinan, containing an area of 1,158 sq. meters, bounded
on the North by Leoncio Dalmacio; On the East by Teodoro Abalos; On the South by Leoncio Dalmacio; And on the
West by Evaristo Dalmacio. It is originally declared in the name of Francisco Abalos and now covered by Tax
Declaration No. 21591 in the name of Faustino Abalos and assessed at P370.00;

51
f.) A parcel of unirrigated riceland situated in Linoc, Binmaley, Pangasinan, containing an area of 950 sq. meters[,]
bounded on the North by Liberato Gonzalo; On the East by Severina Catalan; On the South by Severina Catalan;
And on the West by Barrio Road of Linoc[;] [d]eclared under Tax Declaration No. 124 in the [name] of Francisco
Abalos and [a]ssessed at P20.00;

g.) A parcel of fishpond situated in Canaoalan, Binmaley, Pangasinan, containing an area of 2,480 sq. meters,
bounded on the North by Francisco Deogracias; On the East by a Path; On the South by Ponciano Cayabyab; And
on the West by Ponciano Cayabyab[;] [d]eclared under Tax Declaration No. 122 in the name of Francisco Abalos
and assessed at P70.00;

h.) A parcel of fishpond situated in Canaoalan, Binmaley, Pangasinan, containing an area of 1,585 sq. meters,
bounded on the North by Adriano Gonzalo; On the East by Florencio Perez; On the South by Pioquinto Ferrer; And
on the West by Pator Terrado[;] [d]eclared under Tax Declaration No. 123 in the name of Francisco Abalos and
assessed at P60.00;

i.) A parcel of little fishpond adjoining and North of the land described in paragraph 4 sub-paragraph (a) of this
complaint whose Tax Declaration could not be produced by the plaintiff;7

xxx xxx xxx

that said properties were administered by Teodorica; that following their mother's death, there was a verbal
agreement among Faustino, Pedro and Panfilo that Faustino would administer all the properties left by their
parents except those given by Teodorica to each of the siblings as their partial advance inheritance; that taking
undue advantage of his position and in clear breach of the trust and confidence reposed on him, Faustino, by
means of fraud and machination, took possession of the properties given to Maria and Roman upon their death and
transferred some of the administered properties in his name and/or in the name of his heirs or disposed of them in
favor of third parties; that since his administration of the properties, Faustino has not made any accounting of the
produce, appropriating them almost to himself; and that Panfilo repeatedly demanded the partition of the
properties but Faustino refused to do so despite earnest efforts towards amicable settlement.

After Panfilo rested his case and following the postponements at the instance of defendants, the trial court, upon
motion, declared that Faustino and Danilo were deemed to have waived their right to present evidence.8 On
February 21, 1984, RTC Branch 37 of Lingayen, Pangasinan, rendered its Decision,9 the dispositive portion of
which stated:

WHEREFORE, judgment is hereby rendered ordering:

i. the partition of the intestate estate of the deceased Francisco Abalos in the following manner

a. to the plaintiff, Panfilo Abalos, is the fishpond, Parcel D referred to as "Duyao"; and ½ of fishpond, Parcel H
referred to as "Pinirat" plus his advance inheritance, Parcel F referred to as "Manga";

b. to defendant, Faustino Abalos, is the residential land where his house stands and parcels A to I, plus his advance
inheritance, Parcels [B] and C;

c. to defendant, Danilo Abalos, is that fishpond, parcel E referred to as "Emong," and the ½ portion of the
fishpond, Parcel H referred to as "Pinirat" and his advance inheritance of his father Pedro Abalos, Parcel G.

ii. the defendant Faustino Abalos to reimburse to plaintiff the total amount of P19,580.00, Philippine Currency, as
plaintiff's lawful share from 1944;

iii. the annulment of all documents and/or instruments which transferred said properties and are considered
inconsistent with the above partition;

iv. the dismissal of defendants' counterclaim;

v. the defendants to pay the costs of the suit.

SO ORDERED.10

Despite the filing of a notice of appeal beyond the reglementary period, the trial court still gave due course to the
appeal of Faustino and Danilo; thus, Panfilo filed a petition for certiorari before this Court, which subsequently
referred the case to the Intermediate Appellate Court (IAC, now the Court of Appeals).11 The IAC granted the
petition and denied the motion for reconsideration.12 On October 30, 1985, this Court affirmed the
Decision.13 Upon the issuance of an entry of judgment on November 4, 1985, the IAC ordered the remand of the
case to the RTC.14 Thereafter, on December 11, 1985, the trial court issued a writ of execution in favor of
Panfilo.15

52
The Case

The instant case arose when petitioners' father, Panfilo, began to execute the Decision in Civil Case No. 15465. In
opposition, respondents, who are children and in-laws of the now deceased Faustino, filed on January 8, 1986 a
case for Quieting of Title, Possession, Annulment of Document and Damages with Preliminary
Injunction.16 Docketed as Civil Case No. 16289, the complaint alleged, among others, that:

xxx xxx xxx

III

Plaintiffs are the absolute owners and in actual possession of the following parcels of land more particularly
described, to wit:

(a.) A parcel of land (fishpond) with an approximate area of 289.5 square meters, more or less, located at Linoc,
Binmaley, Pangasinan. Bounded on the North by the Duyao River; on the East by Faustino Abalos before, now
Romulo Abalos; on the South by Leoncio Dalmacio; and on the West by Romulo Abalos. Declared in the name of
Aurora A. Bucal under Tax [Dec.] No. 1568 of the current land records of Binmaley, Pangasinan; assessed value -
P150.00;

(b.) A parcel of riceland located at Linoc, Binmaley, Pangasinan, containing an area of 1,196 square meters, more
or less. Bounded on the North by Callejon; on the East by Estanislao Ferrer; on the South by Saturnino Aquino; and
on the West by Hipolito Ferrer. Declared in the names of Artemio F. Abalos and Mauro F. Abalos under Tax [Dec.]
No. 1007 of the land records of Binmaley, Pangasinan; assessed value - P260.00;

(c.) A parcel of residential land located at Linoc, Binmaley, Pangasinan, with an area of 1,029 square meters, more
or less. Bounded on the North by Leoncio Dalmacio; on the East by Dimas Perez; on the South by Callejon; and on
the West by Magno Dalmacio. Declared in the name of Romulo F. Abalos under Tax [Dec.] No. 35 of the current
land records of Binmaley, Pangasinan; assessed value - P6,120.00;

(d.) A portion of fishpond located at Linoc, Binmaley, Pangasinan, with an area of 289.5 square meters, more or
less. Bounded on the North by the Duyao River; on the East by Faustino Abalos; on the South by Leoncio
Dalmacio; and on the West by Teodoro Abalos. Declared in the name of Romulo F. Abalos under Tax [Dec.] No. 33
of the current land records of Binmaley, Pangasinan; assessed value - P180.00;

(e.) A portion (eastern) of fishpond located at Linoc, Binmaley, Pangasinan, with an area of 579 square meters,
more or less. Bounded on the North by Leoncio Dalmacio; on the East by Teodoro Abalos; on the South by Leoncio
Abalos; and on the West by Evaristo Dalmacio. Declared in the names of Artemio F. Abalos and Mauro F. Abalos
under Tax [Dec.] No. 1009 of the land records of Binmaley, Pangasinan; assessed value - P340.00;

(f.) A parcel of fishpond located at Canaoalan, Binmaley, Pangasinan, with an area of 1,506 square meters, more
or less. Bounded on the North by Adriano Gonzalo; on the East by Florencio Perez; on the South by Pioquinto
Ferrer; and on the West by Pastor Terrado. Declared in the names of Romulo F. Abalos and Mauro F. Abalos under
Tax [Dec.] No. 1314 of the land records of Binmaley, Pangasinan; assessed value - P970.00;

IV

Parcel (a) above-described belongs in absolute ownership to spouses Aurora A. Bucal and Demetrio Bucal who are
in actual possession thereof as such, having acquired the same by absolute sale from Romulo F. Abalos who in turn
bought the same from Maria Abalos; that the latter in turn acquired the same by inheritance from her deceased
parents, Francisco Abalos and Teodorica Ferrer, who died on May 4, 1928 and June 2, 1945, respectively. A copy
of the sale from Maria Abalos to Romulo F. Abalos is hereto attached as ANNEX "A" while the sale by Romulo F.
Abalos to Aurora A. Bucal is hereto attached as ANNEX "B". A copy of Tax [Dec.] No. 1568 covering said land is
hereto attached as ANNEX "C";

Parcel (b) above-described belongs in absolute common ownership to the spouses Artemio F. Abalos and Ligaya U.
Abalos and spouses Mauro F. Abalos and Luzviminda R. Abalos who acquired the same by absolute sale in 1978
from Faustino Abalos as shown by a deed a copy of which is hereto attached as ANNEX "D"; that the latter
acquired the same by absolute sale from Bernardo Victorio in 1914, and that Faustino Abalos donated the same in
consideration of his marriage with Teodora Ferrer as shown by a deed a copy of which is hereto attached as
ANNEX "E". A copy of Tax [Dec.] No. 1007 is hereto attached as ANNEX "F";

VI

53
Parcel (c) above-described belongs in absolute ownership to the spouses Romulo F. Abalos and Jesusa O. Abalos
and are in actual possession as such having acquired the same by absolute sale from Aurora A. Bucal as shown by
a deed a copy of which is hereto attached as ANNEX "G"; that Aurora A. Bucal in turn bought the same from Maria
Abalos as shown by a deed a copy of which is hereto attached as ANNEX "H"; and that Maria Abalos inherited the
same land from her deceased parents;

VII

Parcel (d) above-described belongs in absolute ownership to spouses Romulo F. Abalos and Jesusa O. Abalos
having acquired the same in 1978 by means of a deed of quitclaim and renunciation of rights a copy of which is
hereto attached as ANNEX "I"; that Romulo F. Abalos declared the same for taxation purposes as shown by Tax
[Dec.] No. 33 a copy of which is hereto attached as ANNEX "J";

VIII

Parcel (e) above-described belongs in common absolute ownership to the spouses Artemio F. Abalos and Ligaya U.
Abalos and spouses Mauro F. Abalos and Luzviminda R. Abalos having acquired the same from Maria Abalos as
shown by two (2) documents copies of which are hereto attached as ANNEXES "K" and "L"; that Faustino and
Maria bought the same from Genoveva Perez as shown by a deed a copy of which is hereto attached as ANNEX
"M"; that Genoveva Perez in turn bought the same from Teodoro Abalos as shown by a deed a copy of which is
hereto attached as ANNEX "N"; that Mauro F. Abalos and Artemio F. Abalos have declared the land in their names
for taxation purposes as shown by Tax [Dec.] No. 1009 a copy of which is hereto attached as ANNEX "O";

IX

Parcel (f) above-described belongs in absolute common ownership to spouses Romulo F. Abalos and Jesusa O.
Abalos and spouses Mauro F. Abalos and Luzviminda R. Abalos and are in actual possession as such having
acquired the same by absolute sale in 1978 as shown by a deed a copy of which is hereto attached as ANNEX "P";
that Faustino in turn inherited the same from his deceased parents; and that the present owners have declared the
same for taxation purposes as shown by Tax [Dec.] No. 1314 a copy of which is hereto attached as ANNEX "Q";

The possession of the present owners as well as their predecessors-in-interest have always been in good faith,
peaceful, public, exclusive, adverse, continuous and in the concept of absolute owners since their respective
acquisition [up to] the present without question from anyone, much less from the defendant herein. Said owners
have likewise religiously paid the taxes due on the lands [up to] the current year;17

xxx xxx xxx

Respondents claimed that on two separate occasions in December 1985 Panfilo sought to execute the decision by
attempting to take possession of the lands in question through the use of force, threat, violence and intimidation.
In addition, to satisfy the damages awarded to Panfilo, the deputy sheriff also levied upon parcels (b) and (c)
above-described for the purpose of selling the same at public auction, in regard to which they also filed their
respective notice of third-party claim. Respondents argued that to compel them to abide by the writ of execution
and notice of levy issued by the court in Civil Case No. 15465 would amount to deprivation of property without due
process of law because the decision rendered in said case is not binding upon them as they were not made parties
thereto and they became owners thereof prior to the institution of the case.

On January 8, 1986, the trial court directed the parties to maintain the status quo pending the resolution on the
motion for the issuance of the writ of preliminary injunction.1819

In the Objection to the Issuance of Writ of Preliminary Injunction,20 Answer,21 and Memorandum of
Authorities22 filed by Panfilo, he stressed that the title, right or interest of respondents with respect to the
fishponds mentioned in sub-paragraphs (a), (d), and (f) of paragraph III of the Complaint had already been
declared null and void in Civil Case No. 15465 by a co-equal and competent court and affirmed with finality by this
Court. It was averred that respondents were never in possession of the fishponds as he was the one peacefully
placed in its possession by the deputy sheriff. For failing to intervene in Civil Case No. 15465, Panfilo asserted that
respondents are now barred by the principles of res judicata and estoppel in pais.

On July 21, 1986, however, the trial court ordered the issuance of a writ of preliminary injunction.23 Concurring
with the position of respondents, it held that the principle of res judicata does not apply since there is no identity of
parties, subject matter, and causes of action between Civil Case No. 15465 and the present case. In Civil Case No.
15465, the parties are Panfilo, as plaintiff, and Faustino Abalos and Danilo Abalos, as defendants, while in the
present case, the parties are the children of Faustino Abalos and their respective spouses, as plaintiffs, and Panfilo,
as defendant; in the former, the principal action is for partition while in the latter, the suit is for quieting of title,

54
possession, annulment of document and damages. The trial court opined that while it is true that respondents
Aurora, Artemio, Romulo, and Mauro are legitimate children and compulsory heirs of Faustino Abalos, the
documents showing their acquisition of the properties in question revealed that they became owners thereof not
through their father alone but also by way of third persons who were not parties in Civil Case No. 15465. Moreover,
they acquired their ownership prior to the institution of said case.

Assailing the aforesaid Order, Panfilo filed a petition for certiorari before this Court. In a Resolution, the petition
was referred to the CA, which later dismissed the same for lack of merit .24 The CA ruled that, for not being
impleaded as parties, respondents are considered as "third persons" in Civil Case No. 15465 since they did not in
any way participate or intervene in the partition. Neither did the trial court violate the principle that no court has
the power to interfere by injunction with the judgments or decrees of a court of concurrent or coordinate
jurisdiction having equal power. The CA viewed that the writ of execution was issued for the specific purpose of
levying upon the properties of Faustino Abalos, not that of respondents, as the judgment debtor in Civil Case No.
15465.

On December 16, 1987, this Court, in G.R. No. 77965 entitled "Panfilo Abalos v. Aurora Bucal, et al. and Court of
Appeals," affirmed the CA decision, which resolution became final and executory on August 2, 1988.25

Upon motion of respondents, the trial court ordered the issuance of an alias writ of preliminary injunction on March
14, 1989.26 Again, Panfilo challenged the order via petition for certiorari with prohibition before the CA but the
same was denied.27 When the incident was elevated to this Court, it was dismissed on November 15, 1989. The
resolution became final and executory on February 9, 1990.28

Meanwhile, in the proceedings before the trial court, Panfilo and respondents submitted their respective pre-trial
briefs.29 On October 23, 1989, the trial court issued the Pre-trial Order.30 Taking into account the admissions
made by the parties, particularly the fact that Panfilo claimed proprietary rights only with respect to parcels (a), (d)
and (f) mentioned in the complaint, the court delimited the issues for resolution as follows:

The factual issues are: (1) With respect to parcels A, D, and F, whether or not the plaintiffs claiming ownership and
possession over said parcels are the lawful owners and possessors thereof by virtue of genuine and duly executed
documents of sale, quitclaim and renunciation of rights; (2) Whether or not plaintiffs' predecessors-in-interest were
the lawful owners and possessors of parcels A, D and F; (3) Whether or not Faustino Abalos and his wife
[Teodorica] Ferrer were awarded the properties subject of partition proceedings in Civil Case No. 15465; (4)
Whether or not by virtue of the decision rendered in that partition proceedings, the fishpond referred to as Duyao
which is parcel A, D and F was awarded; (5) Whether or not pursuant to the decision of the Supreme Court in
appealed case No. 713355 the defendant Panfilo Abalos was placed in possession by the Deputy Sheriff Romulo
Jimenez duly assisted by the members of the police force of Binmaley, sometime on or about the last part of
December 1985.

The legal issues are: (1) Whether or not the decision in Civil Case No. 15465 entitled "Panfilo Abalos versus
Faustino Abalos["] is binding upon the plaintiffs who were not impleaded as party litigants either as plaintiffs or
defendants; (2) What is the legal basis of the plaintiffs to file action to quiet title against the defendant?31

Likewise, in the course of the trial and in their respective memoranda,32 the parties admitted that parcels (a) and
(d) are portions of a fishpond locally known as Duyao33 and are parts of parcel (d) stated in the Complaint of Civil
Case No. 15465, which was to be held in common pro-indiviso by the heirs of Francisco Abalos.

Thus, the controversy was narrowed down to only two (2) properties, namely: the fishpond located at Linoc,
Binmaley, Pangasinan, locally known as Duyao, and the fishpond located at Canaoalan, Binmaley, Pangasinan,
locally known as Pinirat.

On May 25, 1992, RTC Branch 39 of Lingayen, Pangasinan, rendered its Decision,34 ordering thus:

WHEREFORE, judgment is hereby rendered declaring:

1. That the plaintiffs-spouses Aurora Bucal and Demetrio Bucal are the absolute owners of one-fourth (¼) portion
pro-indiviso of that fishpond which is locally known as Duyao;

2. That the defendant Panfilo Abalos is the absolute owner of three-fourth (¾) portion pro-indiviso of that fishpond
locally known as "Duyao";

3. That the plaintiffs have no right whatsoever over the fishpond locally known as "Pinirat" and confirming the
adjudication thereof in Civil Case No. 15465; [and]

4. No award of damages, and no costs.

55
SO ORDERED.35

The trial court made the following factual findings: that the original owners of the two fishponds were spouses
Francisco Abalos and Teodorica Ferrer, who died on May 4, 1928 and June 2, 1945, respectively; that the spouses
had five (5) children, namely: (a) Maria, who died single on March 20, 1972; (b) Roman, who died single on June
10, 1944; (c) Panfilo, petitioner herein; (d) Pedro, who died on May 11, 1971 and was survived by his only child,
Danilo; and (e) Faustino, whose children Aurora, Artemio, Romulo and Mauro are among the respondents herein;
that Roman predeceased his mother, hence, when the latter died only four of the siblings inherited the Duyao,
becoming its pro-indiviso co-owners; that on November 11, 1968, Maria sold her ¼ share to Romulo, who, in turn,
sold the same to Aurora; that in view of the sale, the said portion of the Duyao should have been excluded from
the Decision in Civil Case No. 15465 for the reason that said case refers to the partition of the estate only of
spouses Francisco and Teodorica; that Romulo is not the owner the other ¼ portion of the Duyao for failure to
establish his ownership thereon and also considering that it could have been the same ¼ portion that he sold to
Aurora; and that the Decision in Civil Case No. 15465 has res judicata effect with respect to the Pinirat since the
deed of sale executed by Faustino in favor of Romulo and Mauro was simulated and employed merely to defraud
the other heirs.

Both Panfilo and respondents elevated the case to the CA, assigning the alleged errors of the trial court:

As to Panfilo -

1. THE LOWER COURT ERRED IN ADJUDICATING ONE-FOURTH PORTION OF THE FISHPOND KNOWN AS
"DUYAO" TO PLAINTIFFS DEMETRIO BUCAL AND AURORA ABALOS- BUCAL, NOTWITHSTANDING THAT SAID
ENTIRE FISHPOND WAS AWARDED TO DEFENDANT PANFILO ABALOS IN CIVIL CASE NO. 15465, ENTITLED
"PANFILO ABALOS VS. FAUSTINO ABALOS & DANILO ABALOS."

2. THE LOWER COURT ERRED IN ADJUDICATING ONE-FOURTH PORTION OF THE FISHPOND KNOWN AS
"DUYAO" TO PLAINTIFFS DEMETRIO BUCAL AND AURORA ABALOS-BUCAL, AS ALLEGED INHERITANCE OF MARIA
ABALOS FROM HER LATE PARENTS, NOTWITHSTANDING THAT MARIA ABALOS ALREADY INHERITED FROM HER
LATE PARENTS THE PARCEL OF RESIDENTIAL LAND DESCRIBED AS PARCEL (C) IN PLAINTIFF'S COMPLAINT.

3. THE LOWER COURT ERRED IN ADJUDICATING ONE-FOURTH PORTION OF THE FISHPOND KNOWN AS
"DUYAO" TO PLAINTIFFS DEMETRIO BUCAL AND AURORA ABALOS-BUCAL, NOTWITHSTANDING THAT THE FINAL
DECISION IN CIVIL CASE [15465] EXPRESSLY ANNULLED ALL DOCUMENTS AND INSTRUMENTS WHICH
TRANSFERRED SAID PROPERTIES AND ARE CONSIDERED INCONSISTENT WITH THE PARTITION ORDERED IN
SAID CIVIL CASE.

4. THE LOWER COURT ERRED IN NOT TREATING THE PLAINTIFFS AS IN ESTOPPEL.

5. THE LOWER COURT HAD NO JURISDICTION OVER THE SUBJECT MATTER OF THE PRESENT CASE.36

As to respondents -

1. THE TRIAL COURT ERRED IN NOT FINDING THAT THE LATE SPOUSES FRANCISCO ABALOS AND TEODORICA
FERRER LEFT AN INTESTATE ESTATE CONSISTING OF FIVE PARCELS OF LAND ONLY.

2. THE TRIAL COURT ERRED IN NOT FINDING THAT ONE-FOURTH PRO INDIVISO OF THE LAND KNOWN AS
["DUYAO"] WAS THE SHARE OF FAUSTINO ABALOS, WHICH HE QUITCLAIMED IN FAVOR OF HIS SON ROMULO
ABALOS, AND IN APPLYING RES JUDICATA.

3. THE TRIAL COURT ERRED IN NOT FINDING THAT THE LAND KNOWN AS "PINIRAT" WAS THE SHARE OF
FAUSTINO ABALOS, WHICH HE SOLD TO HIS SONS, THE PLAINTIFFS ROMULO AND MAURO ABALOS, AND IN
APPLYING RES JUDICATA.

4. THE TRIAL COURT ERRED IN VOIDING THE INSTRUMENTS OF TRANSFER EXECUTED BY FAUSTINO ABALOS IN
FAVOR OF ROMULO ABALOS OF HIS ¼ SHARE OF THE ["DUYAO"] LOT AND IN FAVOR OF MAURO ABALOS AND
ROMULO ABALOS OF THE "PINIRAT" LOT.

5. THE TRIAL COURT ERRED IN NOT UPHOLDING THE CLAIM OF PLAINTIFF ROMULO ABALOS OVER ¼ OF THE
["DUYAO"] LOT AND THE CLAIM OF PLAINTIFFS MAURO ABALOS AND ROMULO ABALOS OVER THE ["PINIRAT"]
LOT.37

On August 31, 2001, the CA rendered its Decision.38 According to the appellate court, the first and second
assigned errors of Panfilo are unmeritorious on the ground that the disposition of the trial court in Civil Case No.
15465 insofar as the Duyao is concerned has no factual and legal basis. It also held untenable his third and fourth
assigned errors, noting that the principles of res judicata and estoppel are not applicable in this case since

56
respondents were not made parties to Civil Case No. 15465 despite their acquisition of the contested parcels prior
to the commencement of said case. Finally, Panfilo's fifth assigned error was rejected, saying that this Court
already settled the issue of res judicata in G.R. No. 77965 when petitioner questioned the propriety of the issuance
of the writ of preliminary injunction.

On the other hand, the CA ruled that the first assigned error of respondents was rendered moot and academic
since it was stipulated and agreed upon during the pre-trial of the present case that the dispute covers only parcels
(a), (d) and (f). The second assigned error, nonetheless, was affirmed, observing that the Duyao property was co-
owned pro-indiviso by the four remaining children of spouses Francisco and Teodorica; hence, Faustino's transfer
of his ¼ share during his lifetime in favor of his son Romulo is perfectly legal. However, the CA denied the third
assigned error as it found that the Pinirat was Roman Abalos' advance legitime, which, upon his death, was
inherited by his remaining siblings. Since Maria subsequently died without transferring her share, her part of
the Pinirat should be divided among Pedro (which is transmitted to Danilo), Faustino and Panfilo. As Faustino's
share over the Pinirat is with respect to 1/3 portion thereof, he could validly convey only such part to Romulo and
Mauro.

The CA disposed:

WHEREFORE, premises considered, the assailed Decision of the court a quo in Civil Case No. 16289 is
hereby modified, as follows:

1. Being co-owners of Duyao Fishpond, plaintiffs-appellants Spouses Aurora Bucal and Demetrio Bucal, plaintiffs-
appellants Spouses Romulo Abalos and Jesusa O. Abalos, defendant-appellant Panfilo Abalos and Danilo Abalos, in
representation of his deceased father, Pedro Abalos, should divide and distribute the same equally;

2. One-third of the Pinirat Fishpond is co-owned by plaintiffs-appellants Spouses Romulo Abalos and Jesus Abalos,
and Spouses Mauro Abalos and Luzviminda R. Abalos; That defendant-appellant Panfilo Abalos is the sole owner of
another 1/3 portion of the Pinirat fishpond; While the remaining 1/3 portion is for Danilo Abalos, in representation
of his deceased father Pedro Abalos;

3. No pronouncement as to cost.

SO ORDERED.39

Panfilo moved for reconsideration of the Decision but was denied.40

Hence this petition.

Echoing the same grounds relied upon by their father, petitioners now claim that the CA seriously erred in failing to
consider the finality of the Decision in Civil Case No. 15465. According to them, the finding that respondents
became owners of the subject properties prior to the institution of said case in effect modified the disposition and
distribution previously ordered. Petitioners opine that when the CA ruled that respondents have acquired ownership
of the questioned parcels prior to the commencement of Civil Case No. 15465 it had disregarded the
conclusiveness of a final judgment rendered in said case which decreed the annulment of all documents and/or
instruments transferring said properties and were considered inconsistent with the order of partition. They contend
that sustaining the conclusion of the CA would allow the re-opening of the factual issue of whether the documents,
which were the source of respondents' alleged title, were valid - an issue that was dealt with in an extensive
hearing on the merits conducted in said case and supported by testimonial and documentary evidence for the
purpose. Being the prevailing party in Civil Case No. 15465, in regard to which respondents had remained silent
and did not even care to intervene or question, petitioners assert that they already acquired a vested right over the
entire Duyao and ½ portion of the Pinirat. They also oppose the CA's failure to recognize that estoppel and laches
have already set in to bar respondents from further pursuing their claims.

The petition is not meritorious.

Res judicata means "a matter adjudged; a thing judicially acted upon or decided; a thing or matter settled by
judgment." It lays the rule that an existing final judgment or decree rendered on the merits, without fraud or
collusion, by a court of competent jurisdiction, upon any matter within its jurisdiction, is conclusive of the rights of
the parties or their privies, in all other actions or suits in the same or any other judicial tribunal of concurrent
jurisdiction on the points and matters in issue in the first suit.41

For the preclusive effect of res judicata to be enforced, however, the following requisites must be present: (1) the
judgment or order sought to bar the new action must be final; (2) the decision must have been rendered by a
court having jurisdiction over the subject matter and the parties; (3) the disposition of the first case must be a
judgment on the merits; and (4) there must be between the first and second action, identity of parties, subject
matter and causes of action.42

57
In the instant case, the fourth requisite, in particular the identity of parties, is clearly wanting.

As found by the CA, this Court, through our earlier resolution in G.R. No. 77965, already settled that res
judicata does not apply in this case. In G.R. No. 77965, which Panfilo instituted to challenge the propriety of the
writ of preliminary injunction issued by the trial court, this Court agreed with the CA's disposition that respondents
are considered as third persons with respect to Civil Case No. 15465 since they were not impleaded as defendants
therein. This Court held as in accordance with law and jurisprudence the CA's opinion that all those who did not in
any way participate or intervene in the partition case are considered third persons within the contemplation of
Article 499 of the Civil Code.43

The foregoing rule still stands.

Indeed, Panfilo, the father of petitioners, should have impleaded respondents when he filed Civil Case No. 15465
since at that time the latter were already claiming ownership over the subject fishponds, which were transferred in
their names prior to the commencement of the case. Petitioners cannot shift to respondents the burden of joining
the case because they are not duty bound to intervene therein and they have every right to institute an
independent action: First, intervention is not compulsory or mandatory but merely optional and
permissive;44 and Second, as the persons who are in actual possession of the fishponds they claim to own,
respondents may wait until their possession are in fact disturbed before taking steps to vindicate their rights.
Understandably, at the time of the institution and pendency of Civil Case No. 15465, respondents still had no
definite idea as to how the very nature of the partition case could actually affect their possession.

On the other hand, Panfilo had personal knowledge that respondents acquired ownership of the properties prior to
the filing of Civil Case No. 15465, that they are in actual possession thereof, and that they have declared the lands
in their names for taxation purposes. Panfilo could not be ignorant of these because he resided in the same locality
where the properties are found.45 Quite startling, however, is that he did not bother to implead respondents in the
partition case despite all these and the fact that the defendants therein raised the point that Faustino was not the
owner of some of the lands in question and that they belong to others not parties to the case.46 As his successors-
in-interest, petitioners must suffer from Panfilo's evident omission.

Even if res judicata requires not absolute but substantial identity of parties, still there exists substantial identity
only when the "additional" party acts in the same capacity or is in privity with the parties in the former action.47 In
this case, while it is true that respondents are legitimate children and relatives by affinity of Faustino it is more
important to remember that, as shown by their documents of acquisition, they became owners of the subject
fishponds not through Faustino alone but also from a third person (i.e., Maria Abalos). Respondents are asserting
their own rights and interests which are distinct and separate from those of Faustino's claim as a hereditary heir of
Francisco Abalos. Hence, they cannot be considered as privies to the judgment rendered in Civil Case No. 15465.
Unfortunately for petitioners, they relied solely on their untenable defense of res judicata instead of contesting the
genuineness and due execution of respondents' documentary evidence.

Moreover, Panfilo erred in repeatedly believing that there was no necessity to implead respondents as defendants
in Civil Case No. 15465 since, according to him, the necessary parties in a partition case are only the co-owners or
co-partners in the inheritance of Francisco Abalos. On the contrary, the Rules of Court provides that in an action for
partition, all other persons interested in the property shall be joined as defendants.48 Not only the co-heirs but
also all persons claiming interests or rights in the property subject of partition are indispensable parties.49 In the
instant case, it is the responsibility of Panfilo as plaintiff in Civil Case No. 15465 to implead all indispensable parties,
that is, not only Faustino and Danilo but also respondents in their capacity as vendees and donees of the subject
fishponds. Without their presence in the suit the judgment of the court cannot attain real finality against them.
Being strangers to the first case, they are not bound by the decision rendered therein; otherwise, they would be
deprived of their constitutional right to due process.50

Finally, it must be stressed that in a complaint for partition, the plaintiff seeks, first, a declaration that he is a co-
owner of the subject properties; and second, the conveyance of his lawful shares. An action for partition is at once
an action for declaration of co-ownership and for segregation and conveyance of a determinate portion of the
properties involved.51

Reyes-de Leon v. Del Rosario52 held:

The issue of ownership or co-ownership, to be more precise, must first be resolved in order to effect a partition of
properties. This should be done in the action for partition itself. As held in the case of Catapusan v. Court of
Appeals:

'In actions for partition, the court cannot properly issue an order to divide the property unless it first makes a
determination as to the existence of co-ownership. The court must initially settle the issue of ownership, the first
stage in an action for partition. Needless to state, an action for partition will not lie if the claimant has no rightful

58
interest over the subject property. In fact, Section 1 of Rule 69 requires the party filing the action to state in his
complaint the 'nature and the extent of his title' to the real estate. Until and unless the issue of ownership is
definitely resolved, it would be premature to effect a partition of the properties. x x x' (citations omitted)53

It is only properties owned in common that may be the object of an action for partition; it will not lie if the claimant
has no rightful interest over the subject property. Thus, in this case, only the shares in the lots which are
determined to have been co-owned by Panfilo, Faustino and Danilo could be included in the order of partition and,
conversely, shares in the lots which were validly disposed of in favor of respondents must be excluded therefrom.
In this connection, the Court sees no reason to depart from the findings of fact and the partition ordered by the
appellate court as these are amply supported by evidence on record. Furthermore, the rule is that factual issues
are beyond our jurisdiction to resolve since in a petition for review under Rule 45 of the 1997 Rules of Civil
Procedure this Court's power is limited only to review questions of law - when there is doubt or difference as to
what the law is on a certain state of facts.54

WHEREFORE, the petition is DENIED and the August 31, 2001 Decision and November 20, 2002 Resolution of the
Court of Appeals in CA-G.R. CV No. 39138 are AFFIRMED.

No costs.

SO ORDERED.

10. G.R. No. 124326 January 22, 1998


BOYET SEMPIO, petitioner,
vs.
HON. COURT OF APPEALS and AURELIA L. TUAZON, respondents.

PUNO, J.:

Petitioner implores this court to set aside the Decision1 of respondent Court of Appeals dated November 29, 1993
and its Resolution 2 dated March 21, 1996 denying petitioner's Motion for Reconsideration in CA-G.R. CV No.
32744 3 Respondent court found the dismissal, on the ground of litis pendentia, of respondent Aurelia L. Tuazon's
complaint for injunction and damages in Civil Case No. 681-M-90 against petitioner, to be reversible error and
accordingly ordered the remand of the case to the Regional Trial Court, Branch 6, Bulacan, for further proceedings.

The facts. Petitioner is the son of spouses Bernardo Sempio and Genoveva Ligot in whose name, the parcel of land
subject of the instant case, is registered as evidenced by Transfer Certificate of Title No. T-6263. The land is
situated in San Miguel, Bulacan and contains an area of approximately Three Thousand One Hundred Ninety-two
(3,192) square meters.

Sometime before 1982, said spouses mortgaged the land to the Development Bank of the Philippines (DBP) to
secure a loan of One Hundred Sixteen Thousand Seven Hundred Pesos (P11,700.00).4 This loan was not fully paid;
consequently, the DBP extrajudicially foreclosed the mortgage. At the public auction sale, the DBP emerged as the
highest bidder and was correspondingly issued a Certificate of Sale dated March 1, 1982.5

On October 17, 1989, the DBP filed a Petition for Issuance of Writ of Possession Ex-Parte in the Regional Trial
Court, Branch 15, Bulacan.6 (Docketed as Civil Case No. P-1787-89, said petition was opposed by Bernardo Sempio
in an appropriate pleading filed on February 28, 1990. 7 Subsequently, respondent Tuazon filed a Complaint in
Intervention claiming that she was the new owner of the land, having already purchased the same, albeit in the
name of her daughter, Jeanette T. Baylon, from the DBP.8

On March 8, 1990, the Sempio spouses filed a Complaint for Annulment of Foreclosure, Reconveyance of Title and
Damages in the Regional Trial Court, Branch 19, Bulacan. They contended, among others, that they were not
notified of the foreclosure sale in violation of the notice, posting and publication requirements under Act No.
3135.9 Said complaint was docketed as Civil Case No. 181-M-90.

In the same year, 1990, respondent Tuazon filed in the Regional Trial Court, Branch 6, Bulacan, a Complaint for
Injunction and Damages, docketed as Civil Case No. 681-M-90. She invoked her exclusive right to the land as
owner and accordingly asked the trial court to enjoin petitioner from digging any portion of the land and to assess
against the latter the damages warranted under such circumstances.

On September 24, 1990, the extrajudicial foreclosure proceedings instituted by the DBP upon the land, were
nullified by the trial court in Civil Case No. 181-M-90.

On December 21, 1990, the trial court ordered the dismissal of Civil Case No. 681-M-90 on the ground of lis
pendens or auter action pendant, specifically, the pendency of Civil Case No. P-1787-89 for issuance of writ of

59
possession filed by the DBP. The trial court also ratiocinated that respondent Tuazon should have sought protection
of her right as new owner of the land in Civil Case No. 181-M-90 where the validity of the foreclosure proceedings
undertaken by the DBP, her predecessor-in-interest, was at issue.

On October 21, 1991, DBP's Petition for Issuance of Writ of Possession Ex-parte was denied in Civil Case No. P-
1787-89. Respondent Tuazon's Complaint in Intervention was also dismissed.

The DBP sought relief from the Court of Appeals: in Civil Case No. P1787-89, through ordinary appeal; and in Civil
Case No. 181-M-90, through a Petition for Certiorari.

In a Decision dated November 26, 1993, the Court of Appeals affirmed the trial court in its refusal to issue a writ of
possession in favor of the DBP or respondent Tuazon as plaintiff in intervention in Civil Case No. P-1787-89.

In contrast, the Court of Appeals annulled and set aside the decision of the trial court in Civil Case No. 181-M-90.
We, however, reversed said appellate court in our Decision 10 dated October 28, 1996 in G.R. No. 115953. The
dispositive portion of that decision states:

WHEREFORE, the Resolution of the Court of Appeals of 15 February 1994 reversing its Decision of 19 February
1991 is REVERSED and SET ASIDE. Consequently, the Decision of the RTC — Br. 19, of Malolos, Bulacan, dated 24
September 1990 (in its Civil Case No. 181-M-90) (a) declaring null and void the extrajudicial foreclosure, the
Sheriff's Certificate of Sale, and all consequent proceedings over the parcel of land covered by TCT No. T-6263 of
the Registry of Deeds of Bulacan; (b) directing herein petitioners Genoveva Ligot and the Heirs of Bernardo Sempio
to pay respondent Development Bank of the Philippines P119,320.00 with legal rate of interest effective 1 March
1982 minus P30,301.00; (c) ordering respondent Development Bank of the Philippines to cancel the mortgage
upon full payment of the loan; and (d) further ordering respondent Development Bank of the Philippines to pay
petitioners P5,000.00 for attorney's fees, is AFFIRMED, with the MODIFICATION that the "legal rate of interest" is
increased to eighteen percent (18%) per annum as stipulated by the parties.

SO ORDERED. 11

In the meantime, from the decision of the trial court dismissing Civil Case No. 681-M-90, respondent Tuazon filed
an appeal to respondent Court of Appeals, which docketed the same as CA-G.R. CV No. 32744.

On November 29, 1993, respondent court promulgated the Decision 12 setting aside the dismissal order of, and
remanding the case to, the court a quo for further proceedings.

Petitioner Boyet Sempio, one among those substituted as heirs in place of Bernardo Sempio who died during the
pendency of the instant proceedings, filed a Motion for Reconsideration 13 on January 3, 1994. In the
Resolution 14 dated March 21, 1996, however, respondent Court of Appeals denied the motion.

Hence, this petition for review on certiorari.

Petitioner ascribes reversible error to respondent court for ruling that neither identity of parties nor identity of
causes of action attends Civil Case No. 681-M-90 vis-a-vis Civil Cases Nos. P-1787-89 and 181-M-90 as to warrant
the dismissal of the former on the ground of either litis pendentia or res judicata.

In her Comment 15 dated December 19, 1996, respondent Tuazon echoed the overriding concern of respondent
Court of Appeals in the fact that the issue of whether or not she were a purchaser in good faith and for value, was
never passed upon in both Civil Cases Nos. P-1787-89 and 181-M-90. Respondent court postulated:

. . . [T]here is no identity of parties. The fact that Aurelia L. Tuazon is purported to be the successor of
Development Bank of the Philippines is not enough to detract from our original pronouncement. An innocent
purchaser for value may set up defenses not available to its predecessor-in-interest. The former does not
necessarily step into the shoes of the latter.

Similarly, we find no identity of causes of action between the two. Civil Case No. 181-M-90 is an action for
annulment of foreclosure, reconveyance of title and damages, while the instant case is an action for damages
against the defendants who remain in possession of a property she purchased and who are digging the premises to
the damage of the plaintiff appellant. 16

On September 11, 1997, petitioner, by way of a Reply to Comment, 17 exhorted us to forthwith grant the instant
petition in view of our Decision dated October 28, 1996, in G.R. No. 115953, ultimately upholding the nullification
of the foreclosure proceedings as ordered by the Regional Trial Court, Branch 19, Bulacan, in Civil Case No. 181-M-
90. No less than this court having restored the Sempios to their pre-foreclosure status as exclusive owners of the
land, petitioner submits that the issue of ownership ought not to be re-litigated in Civil Case No. 681-M-90.

60
In our Resolution 18 dated October 6, 1997, we gave due course to the instant petition.

Indeed, in the light of the foregoing circumstances and more, the grant of this petition is in order.

The requisites for lis pendens are: (1) identity of parties, or at least such as representing the same interests in both
actions; (2) identity of rights asserted and reliefs prayed for, the reliefs being founded on the same facts; and (3)
identity in both cases is such that the judgment that may be rendered in the pending case would, regardless of
which party is successful, amount to res judicata in the other. 19

All these concur in the instant case.

First. Respondent Tuazon contends that there is no identity of parties to justify the application of the doctrine of lis
pendens, considering that while she is the plaintiff in Civil Case No. 681-M-90, she was only an intervenor in Civil
Case No. P-1787-89 and was never at all a party in Civil Case No. 181-M-90.

The foregoing argument is, however, premised on the wrong notion that identity of parties is calibrated by their
strict sameness or a total lack of differentiation among them.

Well-settled is the rule that only substantial, and not absolute, identity of parties is required for lis pendens, or in
any case, res judicata, to lie. 20 There is substantial identity of parties when there is a community of interest
between a party in the first case and a party in the second case albeit the latter was not impleaded in the first
case. 21

Respondent Tuazon, concededly, was not impleaded as party-defendant in Civil Case No. 181-M-90. This court,
however, is not oblivious to the fact that she purchased the land from the DBP at a time when the latter, despite
non-redemption by the Sempios of the land within the applicable period, had not as yet effectuated the
cancellation of TCT No. T-6263 and the issuance of a certificate of title in the name of the DBP. Respondent
Tuazon apparently bought the land with the actual knowledge, or at least, she ought to have known, that the DBP
was not the registered owner thereof. As such, respondent Tuazon cannot invoke the protection accorded by the
law to purchasers of real property in good faith and for value. 22 Moreover, respondent Tuazon should also be
taken to task for failing to make inquiry concerning the rights of the Sempios who were then and are until now, in
possession of the land. Such failure to take the ordinary precautions which a prudent person would have taken
under the circumstances, specially in buying a piece of land in the actual, visible and public possession of persons
other than the vendor, constitutes gross negligence amounting to bad faith. 23

Considering the foregoing, it cannot be denied that the interests of respondent Tuazon are inextricably intertwined
with those of the DBP such that the former's exercise of her rights as purchaser-transferee of the land foreclosed
by the DBP, is conditioned on the latter's successful defense of the validity of its foreclosure procedures in Civil
Case No. 181-M-90. Thus, a community of interest, and corollarily, substantial identity of parties, exist between
respondent Tuazon and the DBP insofar as Civil Cases Nos. 181-M-90 and 681-M-90 are concerned.

Likewise, substantial identity of parties obtains between Civil Cases Nos. P-1787-89 and 681-M-90. That
respondent Tuazon was a mere intervenor in Civil Case No. P-1787-89 should not preclude us from appreciating
the existence of identity of parties as a requisite of lis pendens because no less indubitable is the uniform interest
of respondent Tuazon as new owner of the land in both cases. Be it as intervenor seeking to obtain possession of
the land in Civil Case No. P-1787-89 or as plaintiff seeking to enjoin others from using the same and to collect the
appropriate damages in Civil Case No. 681-M-90, respondent Tuazon, in both cases, asserted what she believed to
be vested in her: that single, indivisible right as exclusive owner of the land.

Second. Respondent Tuazon adopts the posture of respondent Court of Appeals that different causes of action
underlie Civil Cases Nos. P-1787-89, 181-M-90 and 681-M-90, which involve issuance of a writ of possession,
annulment of foreclosure, and injunction with damages, respectively.

What impresses us as dissimilar, however, is only the form by which respondent Tuazon has sought to enforce her
right as new owner of the land, following its sale to her by the DBP. In Civil Case No. P-1787-89, she intervened,
anchoring her possessory claim on her right as new owner of the land. Invoking the same right, respondent
Tuazon herself filed Civil Case No. 681-M-90 to enjoin the Sempios from digging portions of the land which she
claims to be hers in exclusive ownership and to collect from them the appropriate damages for violation of her
ownership rights. It is this same right that stood to be defeated in Civil Case No. 181-M-90, should the foreclosure
proceedings be voided and DBP's title to the land, annulled, considering that respondent Tuazon purchased the
same from the DBP with notice that the DBP was neither the registered owner nor the actual possessor thereof,
rendering her a purchaser in bad faith not entitled to any protection under the law.

Thus, whether we inquire into the unity of rights asserted in the various actions filed on the basis of an identical
set of facts involving respondent Tuazon, or we apply the true test of identity of causes of action that transcends

61
the form of the action and rather evaluates whether or not the same evidence would support and establish the
several actions pending, 24 there is no denying that identity of causes of action lies in the instant case.

There is only one cause of action running through respondent Tuazon's litigious undertakings: the continued
violation of what she believes to be her right to exclusive possession and enjoyment of the land. Therefore,
evidence of her exclusive ownership of the land is indispensable in prosecuting her claims in both Civil Cases Nos.
P-1787-89 and 681-M-90. Although respondent Tuazon could not have proffered such evidence in Civil Case No.
181-M-90 where she was not impleaded, her rights are inherently contingent on those of the DBP since she may
not be deemed a purchaser in good faith and accorded legal protection as such. At any rate, the parties are bound
not only as regards every matter offered and received to sustain or defeat their claims or demand but as to any
other admissible matter which might have been offered for that purpose and of all other matters that could have
been adjudged in that case. 25

Finally, respondent Tuazon cannot innocently pretend insulation from the legal effects of the non-issuance of a writ
of possession in favor of the DBP and the nullification of its foreclosure proceedings. The DBP having been legally
declared non-owner of the land and the Sempios, including petitioner, having been restored by no less than this
court to full ownership thereof, respondent Tuazon is perforce bound thereby, and Civil Case No. 681-M-90 was
therefore correctly-dismissed by the court a quo on the ground of lis pendens, although too, the additional ground
of res judicata now obtains.

IN VIEW WHEREOF, the petition is GRANTED. The Decision of respondent Court of Appeals dated November 29,
1993 and its Resolution dated March 21, 1996 are hereby SET ASIDE and the Decision of the Regional Trial Court,
Branch 6, Bulacan, in Civil Case No. 681-M-90, is hereby REINSTATED. No costs.

SO ORDERED.

11. G.R. No. 81190 May 9, 1988


SPOUSES MATIAS B. AZNAR III and ELEONOR S. AZNAR, petitioners,
vs.
HON. JUANITO A. BERNAD, In His Capacity as Presiding Judge of Branch XXI, RTC, Cebu, and the
SPOUSES NICOLAS L. KINTANAR and REDEMPTA C. KINTANAR, respondents.
Eustaqio Ch. Veloso for petitioners.
Roseller B. Amazons for private respondents.

SARMIENTO, J.:

Squarely presented for our consideration in this case, certified to us by the Court of Appeals 1 as involving purely
question of law, is whether or not the affirmative defense of prescription may be validly set up for the first time in
an amended answer.

We rule in the affirmative.

Briefly, it appears that on September 15, 1986, the private respondents, the spouses Nicolas and Redempta
Kintanar, as plaintiffs, filed in the Regional Trail Court of Cebu, a civil action against the defendants-spouses, the
herein petitioners, praying for the annulment of a Sheriffs Certificate of Sale, damages, and attorney's fees with
preliminary injunction. The petitioners, on October 13, 1986, timely filed their answer specifically denying the
allegations in the complaint. Seven days later, or on October 20, 1986, the petitioners submitted 'Motion For Leave
to Amend Answer Or To File Supplemental Pleading," alleging in the first five paragraphs thereof the following:

1. That this case has not yet been placed in the calendar ;

2. That no responsive pleading has yet been filed with respect to the answer

3. That from the evidences already admitted it is now clear that plaintiffs are assailing the validity of the mortgage
contract (Exh. "C') with respect to the P 60,000.00 portion, as well as the validity of the handwritten certificate
they signed (Exh. '3'). Although defendant Redempta C. Kintanar testified that said exhibit was dictated by
defendants through counsel, she did not say that the statements therein are not true and correct.

4. That in short, as the Court had observed in its order of October 13, 1986, "plaintiffs are assailing the documents
relied upon by the defendants in the foreclosure as not being an expression of the true intent and agreement of
the parties;

62
5. That in order that the actual merits of the controversy may speedily be determined, without regard to
technicalities, and in the most expeditious and inexpensive manner, defendants respectfully beg leave to amend
their answer. 2

Attached to the motion was a copy of the amended answer which contained additional paragraph alleging, for the
first time, the affirmative defense of prescription. Averred the petitioners:

7.A. That by way of affirmative defense, the cause or causes of action alleged in the complaint have already
prescribed. The Real Estate Mortgage, Annex "B' of the complaint, alleged to be fraudulent, was executed on July
17, 1978, and was registered with the Cebu City Registry of Deeds on July 21, 1978. The complaint for fraud,
based on said Real Estate Mortgage, was filed only in September, 1986, or more than eight (8) years since the
date of registration. Under Article 1391 of the Civil Code, the action for annulment shall be brought within four (4)
years; 3

The trial court, acting through the respondent Judge, issued on November 4, 1986, an order denying the
petitioner's motion. The respondent Judge based his order on a strict or literal construction of section 2, Rule 9, of
the Revised Rules of Court which, in essence, provides that defenses or objections, except the failure to state a
cause of action, if not pleaded in a motion to dismiss or in an answer, are deemed waived. The assailed order
states:

ORDER

Pending consideration is a motion to amend the answer which seeks to incorporate prescription as a defense.

The applicable provision is section 2, Rule 9 of the Rules of Court which provides that defenses and objections not
pleaded either in a motion to dismiss or in an answer are deemed waived except the failure to state a cause of
action.

This is the rule provided or in our Rules of Court and in the absence of sufficient reason why this rule should be
relaxed, the same must be sustained if only to give meaning and effect to our procedural rules. Defendants have
not given any reason at all why their defense of prescription assuming that the same is tenable was not invoked
earlier when the basis thereof was already existing aid evident even before the filing of the original answer.
Consequently, a supplemental pleading cannot also be allowed.

WHEREFORE, the motion to amend or to allow defendants to file a supplemental pleading on the ground of
prescription is hereby denied.

SO ORDERED. 4

The petitioners moved for a reconsideration of the order but it proved to be of no avail as the same was denied on
December 10, 1986. Said the trial court:

ORDER

Pending consideration is a motion for reconsideration of the order denying amendment of the answer.

The court reiterates its stand that the motion be denied. In the case of Torreda vs. Boncaros, the Supreme Court
said:

... Under the peculiar circumstances of the case, where the petitioner would be left without a remedy should
respondents be excused for belatedly invoking prescription, equity and substantial justice make it preferable to
apply Section 2 of Rule 9 which provides that defenses and objections not pleaded either in a motion to dismiss or
in the answer are deemed waived. While there may be instances and situations justifying a relaxation of this rule,
our considered view is that in the circumstances instances of the instant case, the ends of justice would be better
served by applying the general rule, considering further that respondents have not given any reason at all as to
why their defense of prescription was not invoked earlier, instead of in a supplemental motion, when the basis
thereof was already existing and evident even before the filing of the original motion. (Torreda vs. Boncaros, 69
SCRA 247).

In the case, plaintiffs are faced with a similar predicament and they would be left without adequate remedy if
defendants be allowed to plead prescription at this stage.

WHEREFORE, the motion for reconsideration is hereby deried.

SO ORDERED. 5

63
On appeal by certiorari to the Court of Appeals, the case, as stated at the outset, was certified to this Court for
resolution '(S)ince the instant petition involves a pure question of law on the correct interpretation of section 2,
Rule 9 of the Rules of the correct Court." 6

The petition is meritorious.

The general rule, it is true, is that the affirmative defense of prescription when not seasonably raised in either a
motion to dismiss or in the answer, is deemed waived.7 This case, however, does not fall under the cited rule. It
cannot be said that the petitioners failed to allege the defense of prescription in their answer. Precisely, the
amended answer is being submitted to take the place of the original one. Once the amended answer is admitted,
the original answer passes into oblivion and ceases to exist with its former place entirely taken over by the
amended answer. It is clear, therefore, that the reliance of the trial court on the case of Torreda vs. Boncaros 8 is
misplaced. 'That case involved a supplemental motion to dismiss alleging the defense of prescription and not an
amended answer as in ere is a whale of a difference between the this instance And that two. First, a supplemental
motion to dismiss, strictly speaking, is not a pleading. 9 Further, as differentiated from an amended pleading
which, as aforestated, takes the place of the original pleading, a supplemental pleading does not extinguish the
existence of the original. As its very name denotes, it only serves to bolster or adds something to the primary
pleading. A supplement exists side by side with the original. It does not replace that which it supplements.

It must be stressed that our decision in Torreda is based on equitable reasons and the "peculiar circumstances" of
that case — the herein petitioner, whose husband died as a result of the negligence of the therein private
respondents' employee, would be left with no other remedy by which she could claim for damages if the belated
defense of prescription was allowed — which we do not find obtaining here. The supplemental motion to dismiss
in Torreda was submitted more than six months after the original motion to dismiss was filed, while here, the
petitioners moved to have their amended answer admitted by the trial court with barely seven days having passed
since the filing of their original answer.

Moreover, at the time the petitioners moved to have their original answer amended, they still had the right to do
so. The records do not show that a responsive pleading, like a reply, to the original answer, has already been
served to the petitioners by the private respondents. Neither is there any showing that the case has already been
calendared for hearing. On this score, Section 2, Rule 10 of the Revised Rules of Court supports the petitioners'
contention.

SEC. 2. When amendments allowed as a matter of right. — A party may amend his pleading once as a matter of
course at any time before a responsive pleading is served or, if the pleading is one to which no responsive pleading
is permitted and the action has not been placed upon the trial calendar, he may so amend it at any time within ten
(10) days after it is served.

There is, therefore, no procedural impediment for the petitioners to amend their original answer. This being so, the
affirmative defense of prescription has been validly pleaded for resolution in due course. For the amended answer,
which would replace the original answer, certainly would cure the lapse or error committed by the petitioners in not
alleging the defense of prescription in the first place — in a motion to dismiss or in the original answer.

We have repeatedly held that the rules of procedure should be viewed as mere tools designed to facilitate the
attainment of justice. Their strict and rigid application, which would result in technicalities that tend to frustrate
rather than promote substantial justice, must always be avoided.10 Even the rules of sion this liberality.

SEC. 2. Construction. — These rules shall be liberally construed in order to promote their object and to assist the
parties in obtaining just, speedy, and inexpensive determination of every action and proceeding. 11

Lastly, even assuming that the petitioners had indeed failed to raise the affirmative defense of prescription in a
motion to dismiss or in an appropriate pleading (answer, or amended or supplemental answer) and an amendment
would no longer be feasible, still prescription, if apparent on the faceof the complaint, may be favorably
considered. In the xase at bar, the private respondents admit in their complaint that the contract of real estate
mortgage which they alleged to be fraudulent and which had been foreclosed, giving rise to this controversy with
the petitioners, was executed on July 17, 1978, 12 or more than eight long years before the commencement of the
suit in the court a quo, on September 15,1986. And an action to declare a contract nuf1 and void on the ground of
fraud must be instituted within four years. 13 Extinctive prescription is thus apparent on the face of the complaint
itself as resolved by the Court. 14

WHEREFORE, the petition is GRANTED; the Order of the Regional Trial Court dated November 4, 1986 and
December 10, 1986 denying the petitioners' motion to amend their Answer are hereby ANNULLED and SET ASIDE;
and the petitioners' Amended Answer is ADMITTED. No pronouncement as to costs.

SO ORDERED.

64
12. G.R. No. 62650 June 27, 1991
SPOUSES MARIANO CASTILLO AND PILAR CASTILLO in their own behalf and in representation of
HEIRS OF EDUARDO CASTILLO, petitioners,
vs.
HEIRS OF VICENTE MADRIGAL AND/OR SUSANA REALTY, INC. AND THE REGISTER OF DEEDS OF THE
CITY OF MANILA, respondents.
D. T. Reyes & Associates and Bernardo D. Calderon for petitioners.
Ramon A. Barcelona for private respondents.

MEDIALDEA, J.:

This is a petition for review on certiorari seeking reversal of the decision of the Court of Appeals dated August 5,
1982 in CA-G.R. No. 66849-R entitled "Spouses Mariano Castillo, et al., Plaintiffs-Appellants v. Heirs of Vicente
Madrigal, et al., Defendants-Appellees."

The antecedent facts are as follows:

On December 17, 1979, petitioners spouses Mariano Castillo and Pilar Castillo, in their own behalf and in
representation of the heirs of Eduardo Castillo, filed a verified complaint before the Court of First Instance (now
Regional Trial Court) of Manila for annulment of contract and transfer certificate of title and/or reconveyance with
damages against private respondents heirs of Vicente Madrigal and/or Susana Realty, Inc. and public respondent
Register of Deeds of the City of Manila. The complaint contained the following pertinent allegations (pp. 105-
108, Rollo):

xxx xxx xxx

4. That plaintiff spouses and their brother, Eduardo Castillo (herein represented by his legal heirs Paula Castillo and
Antonio Castillo), are registered co-owners of a parcel of land situated in Ermita, Manila, which property is more
particularly described and bounded as follows:

Lot 20 of Block 362 of the Cadastral Survey of the City of Manila Cadastral Case No. 53 G.L.R.C. Cadastral Record
No. 515 with a chalet of strong materials existing thereon, situated on the NE line of Calle M.H. del Pilar, District of
Ermita. Bounded on the NE by Lots Nos. 18 and 8 of Block No. 12; on the SE by Lots Nos. 3, 4 and 7 of Block No.
362; on the SW by Lots Nos. 7 and 19 of Block 362 and Calle M.H. del Pilar; and on the NW by Lots Nos. 19, 17
and 12 of Block No. 362 containing an area of SEVEN HUNDRED AND TWENTY EIGHT (728) SQUARE METERS,
more or less, Date of Survey, December 18, 1925 (Full technical description appear on tct no. 29454)

That the plaintiffs' ownership over the property above-described is evidenced by Transfer Certificate of Title No.
623597 issued in their name and that of their brother Eduardo Castillo on August 11, 1941, . . .;

5. That the immediate origin of the above property is Transfer Certificate of Title No. 28454 in the name of
Petronila Vda. de Castillo, plaintiffs' mother, and from whom they acquired the realty by way of inheritance in equal
share with Eduardo Castillo entered in the Registration Book in 1927 yet, . . .

6. That plaintiffs' mother aforesaid as predessor-in-interest (sic) declared the property for taxation purposes for the
year 1940 under Tax Dec. No. 531 and paid taxes thereon in 1941 under official receipt No. 571689, . . .

7. That after the transfer of the property in their own name and their brother aforesaid, the property was
mortgaged by plaintiffs in favor of the Agricultural and Industrial Bank and due to the existing war conditions at the
time, the possession, management and supervision of the land was entrusted to Eduardo Castillo reposing in him
the (sic) full trust and confidence;

8. That beginning the year 1941 up to the year 1977, plaintiff spouses left Manila and engaged in several business
ventures in the provinces and stayed for so long a time in Cagayan Valley in northern Luzon and often times (sic)
traveled to far-away places thereby allowing his (sic) brother Eduardo Castillo herein to manage the same and
collect the rentals due upon the understanding that once accumulated said amount be utilized to redeem the
mortgaged property from the Bank which their brother did;

9. That during and after the effectivity of the mortgage with the aforesaid Bank, plaintiffs herein never gave their
brother Eduardo Castillo authority to sell their undivided property neither were there transactions entered into by
plaintiffs with any person or persons, natural or juridical with respect to their undivided halfportion;

10. That after plaintiffs have returned from the provinces and upon arrival from abroad later in 1977, they decided
to get their share from their brother Eduardo Castillo as he was entrusted but the latter being sickly then could not

65
give the explanation and after conference with his wife, Paula Castillo, the latter told the plaintiffs that she and her
husband Castillo (Eduardo) did not know the mysterious transactions that transpired in the transfer or registration
of the above property to Vicente Madrigal (under Transfer Certificate of Title No. 72066) and upon verification
thereof, an alleged deed of sale executed by plaintiffs and Eduardo Castillo appears on the back of the title but in
truth and in fact, plaintiffs had never signed any document in favor of Vicente Madrigal contrary to what appears
thereon; . . . and subsequently transferred by Vicente Madrigal to Susana Realty Inc., under TCT No. 36280, . . .;

11. That plaintiffs exerted serious efforts in recovering his property (Mariano Castillo) in his capacity as a registered
co-owner peacefully but of (sic) no avail for the defendant Susana Realty Inc. refused to heed to the inquiry and
hence this present action;

12. That the transfer of the property under litigation in favor of the late Vicente Madrigal was done thru fraud,
simulation, illegality and serious irregularity equivalent to nullity and inexistence of contract and follows that the
Transfer Certificate of Title No. 36280 under the name of defendant Susana Realty Inc. is null and void and without
any effect whatsoever either under the Civil Code or under the Land Registration Act especially so that the
transactions entered on the title took place during war time and without supporting papers or documents available
up to the present time;

xxx xxx xxx

14. That under the aforesaid facts and circumstances, the remedy of reconveyance is feasible considering that the
falidity (sic) of the title from plaintiffs' mother to them is not affected and without flaw;

xxx xxx xxx

16. That the plaintiffs herein suffered damages for the reason that they were deprived of the possession,
ownership and fruits or income of the property in question and to which they demand from the herein defendant
heirs of Vicente Madrigal and/or Susana Realty Inc. in such amount as may be proved during the trial. (Emphasis
supplied)

On February 4, 1980, private respondents filed a motion to dismiss on the ground that: (a) the complaint states no
cause of action; and (b) the cause of action is barred by the statute of limitations.

On March 25, 1980, the trial court dismissed the complaint (pp. 120-126, Rollo). On appeal to the Court of Appeals,
the decision was affirmed in toto on August 5, 1982 (pp. 44-52, Rollo). Hence, the present petition.

The issues raised by petitioners may be grouped into: whether or not (1) petitioners' action for annulment of
contract and transfer certificate of title and/or reconveyance with damages is subject to prescription; and (2) the
complaint states a cause of action against private respondents.

Petitioners allege that a reading of paragraphs 9 and 10 of their complaint reveals that they impugn the existence
and validity of the alleged deed of sale. As contained therein, petitioners never entered into any transaction with
any person conveying the subject property. They did not sign any document in favor of any one neither did they
give any one authorization for that purpose. Therefore, consent and cause did not exist in the execution of the
deed of sale, invoking Articles 13181, 13522 and 1409 (3),3 of the Civil Code. And, pursuant to Article 1410 of the
Civil Code, an action for the declaration of the inexistence of a contract does not prescribe.

In dismissing petitioners' complaint on the ground of prescription, the trial court opined (p. 123, Rollo):

. . ., any action for annulment of the deed and TCT 72066 should have been instituted within ten (10) years from
the accrual of the cause of action, that, (sic) is, ten years from 1943 when the deed was executed at the earliest,
or ten years from 1944 at the latest. This action was filed on December 17, 1979, or after more than 30 years from
1943 and 1944. The action, therefore, has long prescribed. . . .

The Court of Appeals expressed the same opinion (p. 51, Rollo):

. . . , even as We consider that there was fraud in the registration and the issuance of title in favor of defendant
Madrigal creating thereby a constructive trust in favor of the plaintiffs, the remedy of the plaintiffs is an action for
reconveyance within ten (10) years from the registration of the property in the name of defendant Madrigal (Alzona
v. Capunitan, 4 SCRA 450; Gonzales v. Jimenez 13 SCRA, 80), Again, the filing of the complaint was way beyond
the ten-year period of limitation.

Both courts ruled incorrectly. It is evident in paragraphs 9, 10 and 12 of the complaint, supra, that petitioners
sought the declaration of the inexistence of the deed of sale because of the absence of their consent. Thus,
following the provision of Article 1410 of the Civil Code, this kind of action is imprescriptible. The action for
reconveyance is likewise imprescriptible because its basis is the alleged void contract of sale. This pronouncement

66
is certainly far from novel. We have encountered similar situations in the past which We resolved in the same
manner. One of these is the case of Baranda, et al., v. Baranda, et al., G.R. No. 73275, May 20, 1987, 150 SCRA
59, 73:

. . . In the instant case, however, we are dealing not with a voidable contract tainted with fraud, mistake, undue
influence, violence or intimidation that can justify its nullification, but with a contract that is null and void ab initio.

Paulina Baranda declared under oath in her complaint that she signed the deeds of sale without knowing what they
were, which means that her consent was not merely marred by the above-stated vices, so as to make the contracts
voidable, but that she had not given her consent at all. . . . Lack of consent . . . made the deeds of sale void
altogether [Salonga vs. Females, 105 SCRA 359] and rendered them subject to attack at any time, conformably to
the rule in Article 1410 that an action to declare the inexistence of void contracts 'does not prescribe.

. . . We have consistently ruled that when there is a showing of such illegality, the property registered is deemed to
be simply held in trust for the real owner by the person in whose name it is registered, and the former then has
the right to sue for the reconveyance of the property. The action for the purpose is also imprescriptible.

However, there should be no debate that the action for damages against private respondents has already
prescribed.1avvphi1 In accordance with Article 1144 of the Civil Code4 it should have been brought within ten (10)
years from the date of the sale to Vicente Madrigal and the issuance of Transfer Certificate of Title No. 72066 in his
name on July 12, 1943, if against the heirs of Vicente Madrigal; or within ten (10) years from the date of the
issuance of Transfer Certificate of Title No. 36280 in the name of Susana Realty, Inc. on May 12, 1954, if against
the firm.

Notwithstanding the discussion on the imprescriptibility of petitioners' action for annulment of contract and transfer
certificate of title and/or reconveyance, the dismissal of their complaint by the trial court and the Court of Appeals
on the ground of failure to state a cause of action was correct. It was also Our ruling in the Baranda case, supra,
(and in other previous cases) that only as long as the property is still in the name of the person who caused the
wrongful registration and has not passed to an innocent third person for value will an action lie to compel that
person to reconvey the property to the real owner. In this regard, We are in conformity with the Court of Appeals
that (p. 52, Rollo):

. . . the property subject of the alleged fraudulent registration had already been conveyed to an innocent party for
value which is defendant Susana Realty, Inc. The claim of plaintiffs that said defendant is not an innocent
purchaser for value is not borne by the allegations of the complaint. . . .

Where the complaint for recovery of ownership and possession of a parcel of land alleges that some of the
defendants bought said land from their co-defendants who had a defective title thereto but does not allege that the
purchasers were purchasers in bad faith or with notice of the defect in the title of their vendors, there is a failure to
state a cause of action (Galvez, et al. v. Tuazon y de la Paz, et al., 119 Phil. 612). By reason of this failure, private
respondent Susana Realty, Inc. is presumed to be an innocent purchaser for value and in good faith, entitled to
protection under the law (see Tiburcio, et al. v. People's Homesite and Housing Corporation, et al., 106 Phil. 477).

ACCORDINGLY, the petition is hereby DENIED.1âwphi1 The decision of the Court of Appeals dated August 5, 1982
is AFFIRMED, subject to the modification regarding the issue on prescription.

SO ORDERED.

13. G.R. No. 108017 April 3, 1995


MARIA BENITA A. DULAY, in her own behalf and in behalf of the minor children KRIZTEEN
ELIZABETH, BEVERLY MARIE and NAPOLEON II, all surnamed DULAY, petitioners,
vs.
THE COURT OF APPEALS, Former Eighth Division, HON. TEODORO P. REGINO, in his capacity as
Presiding Judge of the Regional Trial Court National Capital Region, Quezon City, Br. 84, SAFEGUARD
INVESTIGATION AND SECURITY CO., INC., and SUPERGUARD SECURITY
CORPORATION, respondents.

BIDIN, J.:

This petition for certiorari prays for the reversal of the decision of the Court of Appeals dated October 29, 1991 in
CA-G.R. CV No. 24646 which affirmed the order of the Regional Trial Court dismissing Civil Case No. Q-89-1751,
and its resolution dated November 17, 1991 denying herein, petitioner's motion for reconsideration.

The antecedent facts of the case are as follows:

67
On December 7, 1988, an altercation between Benigno Torzuela and Atty. Napoleon Dulay occurred at the "Big
Bang Sa Alabang," Alabang Village, Muntinlupa as a result of which Benigno Torzuela, the security guard on duty at
the said carnival, shot and killed Atty. Napoleon Dulay.

Herein petitioner Maria Benita A. Dulay, widow of the deceased Napoleon Dulay, in her own behalf and in behalf of
her minor children, filed on February 8, 1989 an action for damages against Benigno Torzuela and herein private
respondents Safeguard Investigation and Security Co., Inc., ("SAFEGUARD") and/or Superguard Security Corp.
("SUPERGUARD"), alleged employers of defendant Torzuela. The complaint, docketed as Civil Case No. Q-89-1751
among others alleges the following:

1. . . .

Defendants SAFEGUARD INVESTIGATION AND SECURITY CO., INC., (Defendant Safeguard) and SUPERGUARD
SECURITY CORPORATION (Defendant Superguard) are corporations duly organized and existing in accordance with
Philippine laws, with offices at 10th Floor, Manufacturers Building, Inc., Plaza Santa Cruz, Manila. They are
impleaded as alternative defendants for, while the former appears to be the employer of defendant BENIGNO
TORZUELA (defendant TORZUELA), the latter impliedly acknowledged responsibility for the acts of defendant
TORZUELA by extending its sympathies to plaintiffs.

Defendant BENIGNO TORZUELA is of legal age, an employee of defendant SAFEGUARD and/or defendant
SUPERGUARD and, at the time of the incident complained of, was under their control and supervision. . . .

3. On December 7, 1988 at around 8:00 a.m., defendant TORZUELA, while he was on duty as security guard at the
"Big Bang sa Alabang," Alabang Village, Muntinlupa, Metro Manila shot and killed NAPOLEON V. DULAY with a .38
caliber revolver belonging to defendant SAFEGUARD, and/or SUPERGUARD (per Police Report dated January 7,
1989, copy attached as Annex A);

4. The incident resulting in the death of NAPOLEON V. DULAY was due to the concurring negligence of the
defendants. Defendant TORZUELA'S wanton and reckless discharge of the firearm issued to him by defendant
SAFEGUARD and/or SUPERGUARD was the immediate and proximate cause of the injury, while the negligence of
defendant SAFEGUARD and/or SUPERGUARD consists in its having failed to exercise the diligence of a good father
of a family in the supervision and control of its employee to avoid the injury.

xxx xxx xxx

(Rollo, pp. 117-118)

Petitioners prayed for actual, compensatory, moral and exemplary damages, and attorney's fees. The said Civil
Case No. Q-89-1751 was raffled to Branch 84 of the Regional Trial Court of Quezon City, presided by respondent
Judge Teodoro Regino.

On March 2, 1989, private respondent SUPERGUARD filed a Motion to Dismiss on the ground that the complaint
does not state a valid cause of action. SUPERGUARD claimed that Torzuela's act of shooting Dulay was beyond the
scope of his duties, and that since the alleged act of shooting was committed with deliberate intent (dolo), the civil
liability therefor is governed by Article 100 of the Revised Penal Code, which states:

Art. 100. Civil liability of a person guilty of a felony. — Every person criminally liable for a felony is also civilly liable.

Respondent SUPERGUARD further alleged that a complaint for damages based on negligence under Article 2176 of
the New Civil Code, such as the one filed by petitioners, cannot lie, since the civil liability under Article 2176 applies
only to quasi-offenses under Article 365 of the Revised Penal Code. In addition, the private respondent argued that
petitioners' filing of the complaint is premature considering that the conviction of Torzuela in a criminal case is a
condition sine qua non for the employer's subsidiary liability (Rollo, p. 55-59).

Respondent SAFEGUARD also filed a motion praying that it be excluded as defendant on the ground that defendant
Torzuela is not one of its employees (Rollo, p. 96).

Petitioners opposed both motions, stating that their cause of action against the private respondents is based on
their liability under Article 2180 of the New Civil Code, which provides:

Art. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions, but also
for those of persons for whom one is responsible.

xxx xxx xxx

Employers shall be liable for the damages caused by their employees and household helpers acting within the
scope of their assigned tasks, even though the former are not engaged in any business or an industry.

68
xxx xxx xxx

(Emphasis supplied)

Petitioners contended that a suit against alternative defendants is allowed under Rule 3, Section 13 of the Rules of
Court. Therefore, the inclusion of private respondents as alternative defendants in the complaint is justified by the
following: the Initial Investigation Report prepared by Pat. Mario Tubon showing that Torzuela is an employee of
SAFEGUARD; and through overt acts, SUPERGUARD extended its sympathies to petitioners (Rollo, pp. 64 and 98).

Meanwhile, an Information dated March 21, 1989 charging Benigno Torzuela with homicide was filed before the
Regional Trial Court of Makati and was docketed as Criminal Case No. 89-1896.

On April 13, 1989, respondent Judge Regino issued an order granting SUPERGUARD'S motion to dismiss and
SAFEGUARD'S motion for exclusion as defendant. The respondent judge held that the complaint did not state facts
necessary or sufficient to constitute a quasi-delict since it does not mention any negligence on the part of Torzuela
in shooting Napoleon Dulay or that the same was done in the performance of his duties. Respondent judge ruled
that mere allegations of the concurring negligence of the defendants (private respondents herein) without stating
the facts showing such negligence are mere conclusions of law (Rollo, p. 106). Respondent judge also declared
that the complaint was one for damages founded on crimes punishable under Articles 100 and 103 of the Revised
Penal Code as distinguished from those arising from, quasi-delict. The dispositive portion of the order dated April
13, 1989 states:

WHEREFORE, this Court holds that in view of the material and ultimate facts alleged in the verified complaint and
in accordance with the applicable law on the matter as well as precedents laid down by the Supreme Court, the
complaint against the alternative defendants Superguard Security Corporation and Safeguard Investigation and
Security Co., Inc., must be and (sic) it is hereby dismissed. (Rollo, p. 110)

The above order was affirmed by the respondent court and petitioners' motion for reconsideration thereof was
denied.

Petitioners take exception to the assailed decision and insist that quasi-delicts are not limited to acts of negligence
but also cover acts that are intentional and voluntary, citing Andamo v. IAC (191 SCRA 195 [1990]). Thus,
petitioners insist that Torzuela' s act of shooting Napoleon Dulay constitutes a quasi-delict actionable under Article
2176 of the New Civil Code.

Petitioners further contend that under Article 2180 of the New Civil Code, private respondents are primarily liable
for their negligence either in the selection or supervision of their employees. This liability is independent of the
employee's own liability for fault or negligence and is distinct from the subsidiary civil liability under Article 103 of
the Revised Penal Code. The civil action against the employer may therefore proceed independently of the criminal
action pursuant to Rule 111 Section 3 of the Rules of Court. Petitioners submit that the question of whether
Torzuela is an employee of respondent SUPERGUARD or SAFEGUARD would be better resolved after trial.

Moreover, petitioners argue that Torzuela's act of shooting Dulay is also actionable under Article 33 of the New Civil
Code, to wit:

Art. 33. In cases of defamation, fraud, and physical injuries, a civil action for damages, entirely separate and
distinct from the criminal action, may be brought by the injured party. Such civil action shall proceed independently
of the criminal prosecution, and shall require only a preponderance of evidence. (Emphasis supplied)

In the same vein, petitioners cite Section 3, Rule 111 of the Rules of Court which provides:

Rule 111. . . . .

Sec. 3. When civil action may proceed independently — In the cases provided for in Articles 32, 33, 34 and 2176 of
the Civil Code of the Philippines, the independent civil action which has been reserved may be brought by the
offended party, shall proceed independently of the criminal action, and shall require only a preponderance of
evidence. (Emphasis supplied)

The term "physical injuries" under Article 33 has been held to include consummated, frustrated and attempted
homicide. Thus, petitioners maintain that Torzuela's prior conviction is unnecessary since the civil action can
proceed independently of the criminal action. On the other hand, it is the private respondents' argument that since
the act was not committed with negligence, the petitioners have no cause of action under Articles 2116 and 2177
of the New Civil Code. The civil action contemplated in Article 2177 is not applicable to acts committed with
deliberate intent, but only applies to quasi-offenses under Article 365 of the Revised Penal Code. Torzuela's act of
shooting Atty. Dulay to death, aside from being purely personal, was done with deliberate intent and could not

69
have been part of his duties as security guard. And since Article 2180 of the New Civil Code covers only: acts done
within the scope of the employee's assigned tasks, the private respondents cannot be held liable for damages.

We find for petitioners.

It is undisputed that Benigno Torzuela is being prosecuted for homicide for the fatal shooting of Napoleon Dulay.
Rule 111 of the Rules on Criminal Procedure provides:

Sec. 1. Institution of criminal and civil actions. When a criminal action is instituted, the civil action for the recovery
of civil liability is impliedly instituted with the criminal action, unless the offended party waives the civil action ,
reserves his right to institute it separately or institutes the civil action prior to the criminal action.

Such civil action includes recovery of indemnity under the Revised Penal Code, and damages under Articles 32, 33,
34, and 2176 of the Civil Code of the Philippines arising from the same act or omission of the accused. (Emphasis
supplied)

It is well-settled that the filing of an independent civil action before the prosecution in the criminal action presents
evidence is even far better than a compliance with the requirement of express reservation (Yakult Philippines v.
Court of Appeals, 190 SCRA 357 [1990]). This is precisely what the petitioners opted to do in this case. However,
the private respondents opposed the civil action on the ground that the same is founded on a delict and not on a
quasi-delict as the shooting was not attended by negligence. What is in dispute therefore is the nature of the
petitioner's cause of action.

The nature of a cause of action is determined by the facts alleged in the complaint as constituting the cause of
action (Republic v. Estenzo, 158 SCRA 282 [1988]). The purpose of an action or suit and the law to govern it is to
be determined not by the claim of the party filing the action, made in his argument or brief, but rather by the
complaint itself, its allegations and prayer for relief. (De Tavera v. Philippine Tuberculosis Society, 112 SCRA 243
[1982]). An examination of the complaint in the present case would show that the plaintiffs, petitioners herein, are
invoking their right to recover damages against the private respondents for their vicarious responsibility for the
injury caused by Benigno Torzuela's act of shooting and killing Napoleon Dulay, as stated in paragraphs 1 and 2 of
the complaint.

Article 2176 of the New Civil Code provides:

Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay
for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties is
called a quasi-delict and is governed by the provisions of this Chapter.

Contrary to the theory of private respondents, there is no justification for limiting the scope of Article 2176 of the
Civil Code to acts or omissions resulting from negligence. Well-entrenched is the doctrine that article 2176 covers
not only acts committed with negligence, but also acts which are voluntary and intentional. As far back as the
definitive case of Elcano v. Hill (77 SCRA 98 [1977]), this Court already held that:

. . . Article 2176, where it refers to "fault or negligence," covers not only acts "not punishable by law" but also acts
criminal in character; whether intentional and voluntary or negligent. Consequently, a separate civil action against
the offender in a criminal act, whether or not he is criminally prosecuted and found guilty or acquitted, provided
that the offended party is not allowed, if he is actually charged also criminally, to recover damages on both scores,
and would be entitled in such eventuality only to the bigger award of the two, assuming the awards made in the
two cases vary. In other words, the extinction of civil liability referred to in Par. (e) of Section 3, Rule 111, refers
exclusively to civil liability founded on Article 100 of the Revised Penal Code, whereas the civil liability for the same
act considered as quasi-delict only and not as a crime is not extinguished even by a declaration in the criminal case
that the criminal act charged has not happened or has not been committed by the accused. Briefly stated, We here
hold, in reiteration of Garcia, that culpa aquiliana includes voluntary and negligent acts which may be punishable
by law. (Emphasis supplied)

The same doctrine was echoed in the case of Andamo v. Intermediate Appellate Court (191 SCRA 195 [1990]),
wherein the Court held:

Article 2176, whenever it refers to "fault or negligence," covers not only acts criminal in character, whether
intentional and voluntary or negligent. Consequently, a civil action lies against the offender in a criminal act,
whether or not he is prosecuted or found guilty or acquitted, provided that the offended party is not allowed, (if
the tortfeasor is actually also charged criminally), to recover damages on both scores, and would be entitled in
such eventuality only to the bigger award of the two, assuming the awards made in the two cases vary. [citing
Virata v. Ochoa, 81 SCRA 472] (Emphasis supplied)

70
Private respondents submit that the word "intentional" in the Andamo case is inaccurate obiter, and should be read
as "voluntary" since intent cannot be coupled with negligence as defined by Article 365 of the Revised Penal Code.
In the absence of more substantial reasons, this Court will not disturb the above doctrine on the coverage of Article
2176.

Private respondents further aver that Article 33 of the New Civil Code applies only to injuries intentionally
committed pursuant to the ruling in Marcia v. CA (120 SCRA 193 [1983]), and that the actions for damages allowed
thereunder are ex-delicto. However, the term "physical injuries" in Article 33 has already been construed to include
bodily injuries causing death (Capuno v. Pepsi-Cola Bottling Co. of the Philippines, 121 Phil. 638 [1965); Carandang
v. Santiago, 97 Phil. 94 [1955]). It is not the crime of physical injuries defined in the Revised Penal Code. It
includes not only physical injuries but also consummated, frustrated, and attempted homicide (Madeja v. Caro, 126
SCRA 293 [1983]). Although in the Marcia case (supra), it was held that no independent civil action may be filed
under Article 33 where the crime is the result of criminal negligence, it must be noted however, that Torzuela, the
accused in the case at bar, is charged with homicide, not with reckless imprudence, whereas the defendant
in Marcia was charged with reckless imprudence. Therefore, in this case, a civil action based on Article 33 lies.

Private respondents also contend that their liability is subsidiary under the Revised Penal Code; and that they are
not liable for Torzuela's act which is beyond the scope of his duties as a security guard. It having been established
that the instant action is not ex-delicto, petitioners may proceed directly against Torzuela and the private
respondents. Under Article 2180 of the New Civil Code as aforequoted, when an injury is caused by the negligence
of the employee, there instantly arises a presumption of law that there was negligence on the part of the master or
employer either in the selection of the servant or employee, or in supervision over him after selection or both
(Layugan v. Intermediate Appellate Court, 167 SCRA 363 [1988]). The liability of the employer under Article 2180
is direct and immediate; it is not conditioned upon prior recourse against the negligent employee and a prior
showing of the insolvency of such employee (Kapalaran Bus Lines v. Coronado, 176 SCRA 792 [1989]). Therefore,
it is incumbent upon the private respondents to prove that they exercised the diligence of a good father of a family
in the selection and supervision of their employee.

Since Article 2176 covers not only acts of negligence but also acts which are intentional and voluntary, it was
therefore erroneous on the part of the trial court to dismiss petitioner's complaint simply because it failed to make
allegations of attendant negligence attributable to private respondents.

With respect to the issue of whether the complaint at hand states a sufficient cause of action, the general rule is
that the allegations in a complaint are sufficient to constitute a cause of action against the defendants if, admitting
the facts alleged, the court can render a valid judgment upon the same in accordance with the prayer therein. A
cause of action exist if the following elements are present, namely: (1) a right in favor of the plaintiff by whatever
means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to
respect or not to violate such right; and (3) an act or omission on the part of such defendant violative of the right
of the plaintiff or constituting a breach of the obligation of the defendant to the plaintiff for which the latter may
maintain an action for recovery of damages (Del Bros Hotel Corporation v. CA, 210 SCRA 33 [1992]); Development
Bank of the Philippines v. Pundogar, 218 SCRA 118 [1993])

This Court finds, under the foregoing premises, that the complaint sufficiently alleged an actionable breach on the
part of the defendant Torzuela and respondents SUPERGUARD and/or SAFEGUARD. It is enough that the complaint
alleged that Benigno Torzuela shot Napoleon Dulay resulting in the latter's death; that the shooting occurred while
Torzuela was on duty; and that either SUPERGUARD and/or SAFEGUARD was Torzuela's employer and responsible
for his acts. This does not operate however, to establish that the defendants below are liable. Whether or not the
shooting was actually reckless and wanton or attended by negligence and whether it was actually done within the
scope of Torzuela's duties; whether the private respondents SUPERGUARD and/or SAFEGUARD failed to exercise
the diligence of a good father of a family; and whether the defendants are actually liable, are questions which can
be better resolved after trial on the merits where each party can present evidence to prove their respective
allegations and defenses. In determining whether the allegations of a complaint are sufficient to support a cause of
action, it must be borne in mind that the complaint does not have to establish or allege the facts proving the
existence of a cause of action at the outset; this will have to be done at the trial on the merits of the case (Del
Bros Hotel Corporation v. CA, supra). If the allegations in a complaint can furnish a sufficient basis by which the
complaint can be maintained, the same should not be dismissed regardless of the defenses that may be assessed
by the defendants (Rava Dev't. Corp. v. CA, 211 SCRA 152 [1992] citing Consolidated Bank & Trust Corporation v.
Court of Appeals, 197 SCRA 663 [1991]). To sustain a motion to dismiss for lack of cause of action, the complaint
must show that the claim for relief does not exist rather than that a claim has been defectively stated, is
ambiguous, indefinite or uncertain (Azur v. Provincial Board, 27 SCRA 50 [1969]). Since the petitioners clearly
sustained an injury to their rights under the law, it would be more just to allow them to present evidence of such
injury.

71
WHEREFORE, premises considered, the petition for review is hereby GRANTED. The decision of the Court of
Appeals as well as the Order of the Regional Trial Court dated April 13, 1989 are hereby REVERSED and SET
ASIDE. Civil Case No. Q-89-1751 is remanded to the Regional Trial Court for trial on the merits. This decision is
immediately executory.

SO ORDERED.

14. G.R. No. L-24488 December 28, 1925


ASIA BANKING CORPORATION, plaintiff-appellee,
vs.
WALTER E. OLSEN & CO. INC., ET AL., defendants. WALTER E. OLSEN, appellant.
Ross, Lawrence & Selph and Antonio T. Carrascoso, Jr., for appellant.
Gibbs & McDonough for appellee.

AVANCEÑA, C.J.:

About February 6, 1920 the defendant Walter E. Olsen & Co., Inc. obtained a loan of P200,00 from the plaintiff for
the purpose of purchasing a piece of land in Tondo. On account of this loan the other defendant and Mr. A. D.
Gibbs — all stockholders of the defendant corporation — executed jointly and severally a promissory note for the
amount of P200,00 in favor of the plaintiff. After the land had been purchased, the defendant corporation, Walter
E. Olsen & Co., Inc. executed in favor of its codefendants and of Mr. A. D. Gibbs a promissory note for the amount
of P200,00 and a mortgage upon the land to secure the payment of the P200,000 and a mortgage upon the secure
of payment of the P200,00 or any such part thereof as any of them might be compelled to pay the plaintiff upon
the promissory note subscribe by them.

On April 25, 1921, the defendant corporation Walter E. Olsen & Co., Inc. through its president and treasurer, Mr.
Walter E. Olsen, one of the defendants, mortgaged the same land to the plaintiff to secure the payment of the loan
of P200,000. Due to the fact that this land, as already stated, was mortgaged by the defendant corporation, Water
E. Olsen & Co., Inc., to its codefendants and to Mr. A. D. Gibbs, the mortgage in favor of the plaintiff has not been
paid until this date. These are the facts appearing from the record and the documents accompanying he complaint
as a part thereof.

The complaint prays that judgment be rendered against defendants and each and every one of them jointly and
severally for the sum of P200,000, with interest at the rate of 9 per cent per annum from November 4, 1920; that
the plaintiff be subrogated in the place of the defendants, except Walter E. Olsen & Co., Inc., as to the mortgage
be cancelled; and should the amount of P200,00 not be paid to the plaintiff, that the land mortgaged be sold in
order to pay the amount of this loan.

All the defendants, except Mr. Walter E. Olsen, subscribed a document wherein they agreed that a judgment be
rendered prayed for in complaint.itc@a1f

The judgment appealed form dismisses the complaint as to the defendants Walter E. Olsen John W. Marker, Louis
McCall, B. A. Green and Theobald Diehl, sentencing the defendant Walter E. Olsen & Co., Inc. to pay the plaintiff
within three months the sum of P200,000, with interest at 9 percent per annum from November 4, 1920, and
ordering, in default of said payment, hat the mortgaged land be sold in order to apply its proceeds to the amount
of the judgment. The judgment appealed from further orders excepts Walter E. Olsen & Co., Inc., be cancelled
subrogating the plaintiff there into. From this judgment Walter E. Olsen appealed.

Appellant alleges that the lower court erred in cancelling the mortgage in favor of the defendants. Appellant cannot
object to this cancellation. As president and treasurer of the defendant corporation, Walter E. Olsen & Co., Inc. he
mortgaged this land unto the plaintiff. This mortgage cannot be recorded, and thus acquire full efficacy, without
first cancelling the mortgage upon the same land executed in favor of the appellant and of his codefendants.
Appellant cannot now refuse to do that which is necessary for the efficacy of the mortgage he made in favor of the
plaintiff in behalf of Walter E. Olsen & Co., Inc. On the other hand, the mortgage in favor of the defendant, in view
solely for the purpose of securing the reimbursement of any amount that they may have had to pay to the plaintiff
on account of the loan of P220,000 which they guaranteed. Since they have been absolved from all liability on
account of this loan, that mortgage has no longer any purpose.

Another error assigned by the appellant is the fact that the lower court took into consideration the documents
attached to the complaint as a part thereof, without having been expressly introduced in evidence. This was no
error. In the answer of the defendants there was no denial under oath of the authenticity of these documents.
Under section 103 of the Code of Civil Procedure, the authenticity be deemed admitted. The effect of this to relieve
the plaintiff from the duty of expressly presenting such documents as evidence. The court, for the proper decision

72
of the case, may and should consider, without the introduction of evidence , the facts admitted by the parties. The
judgment appealed from is affirmed with costs against the appellant.

So ordered.

15. G.R. No. L-12602 April 25, 1961


LUIS PINEDA, plaintiff-appellee,
vs.
COURT OF FIST INSTANCE OF DAVAO, ERIBERTO UNSON, in his capacity as Provincial Sheriff Ex-
Oficio of Davao and POTENCIANA PLANDO, defendants-appellants.
Zuno and Catil for plaintiff-appellee.
Rodolfo A. Ta-asan for defendants-appellants.
CONCEPCION, J.:

Appeal by the defendants from a decision of the Court of First Instance of Davao, the dispositive part of which
reads:

IN VIEW OF THE FOREGOING, this Court annuls that portion of the decision of this Court in Civil Case No. 959
dated June 16, 1953, declaring the plaintiff therein as lawful owner of the property under litigation together with
the improvements thereon, subject to the final disposition of the same by the Bureau of Lands and the Department
of Agriculture and Natural Resources in accordance with the provisions of law, without special pronouncement as to
costs.

Consequently, the execution of the decision insofar as that part of the same where the plaintiff was declared owner
in that Civil Case No. 959, is hereby nullified.

It appears that on or about November 29, 1952, Potenciana Plando filed with the Court of First Instance of Davao a
complaint (Exhibits C-4 to C-6), which was docketed as Civil Case No. 959 of said court, against Luis Pineda and
Bruno Ramirez. Potenciana Plando alleged in said pleading that she was the surviving spouse and only heir of the
deceased Domingo Ramirez, who, in life, was the actual possessor of a parcel of land situated in Lasang, formerly
municipality of Tagum, now Panabo, Province of Davao, and more particularly described in the complaint; that said
land was covered by Homestead Application No. 166166 (E-77371), in the name of said deceased, which had been
approved by the Director of Lands on December 18, 1930; that, by virtue of an order of this officer, dated
November 18, 1932, for the "issuance of patent", the rights to and interests in said land became definitely vested
in Domingo Ramirez; that upon his death, such rights and interests were transmitted, by operation of law, to
Potenciana Plando; that said land had been jointly occupied and cultivated by her and Domingo Ramirez, during his
lifetime, since early in 1930 until sometime in 1948, and had become improved and productive through their
common efforts; that, in 1948, Luis Pineda and Bruno Ramirez took material possession of said land illegally and in
bad faith, thereby excluding her from the possession and enjoyment thereof, despite her repeated demands that
they vacate said property, which they refused to do; and that she thereby suffered the damages specified in the
complaint. Accordingly, she prayed that judgment be rendered:

(a) Declaring the plaintiff the lawful owner and possessor of The land and improvements described in the
complaint;

(b) Ordering the defendants to vacate the premises in question and to restore the possession thereof to the
plaintiff;

(c) Condemning and ordering the defendants to pay jointly and severally, the plaintiff the sum of P5,000.00,
representing the fruits of the land due the plaintiff;

(d) Condemning and ordering the defendants to pay, jointly and severally, the plaintiff the sum of P2,000.00, in
concept of damages;

(e) Condemning and ordering the defendant to pay the costs of this suit; and

(f) Granting the plaintiff such and other relief consonant with law, justice and equity.

Although the court had denied a motion to dismiss filed by Luis Pineda and Bruno Ramirez, neither answered the
plaintiff because of which they were declared in default, at the instance of Potenciana Plando, who, thereafter,
presented her evidence. Based upon the same, decision was rendered on June 16, 1953, finding that the
allegations of the complaint had been proven and declaring Potenciana Plando "the lawful owner and possessor of
the land and improvements described in H.A. No. 166166 (E-77371)" and ordering Luis Pineda and Bruno Ramirez
"(1) to vacate the premises in question and restore the possession thereof to" her; "(2) to pay, jointly and
severally", to her "the sum of P1,000 representing the fruits of the land due" to her "and for attorney's fees; and

73
(3) to pay the costs". On July 16, 1953, Luis Pineda and Bruno Ramirez moved to "set aside the judgment by
default", but the motion was denied by an order dated August 4, 1953. A reconsideration of this order, sought by
them on August 17, 1953, was denied on November 16, 1953.

Soon later, or on December 4, 1953, they filed with the Court of Appeals a petition, docketed therein as CA-G.R.
No. 12164-A, for a writ of certiorari with preliminary injunction against the Judge of First Instance of Davao and
Potenciana Plando, upon the ground that the former had acted with grave abuse of discretion in denying the
motion to dismiss the complaint in said Civil Case No. 959, and the motion for relief of judgment by default therein
rendered. In a reasoned resolution, dated May 19, 1954, the Third Division of the Court of Appeals dismissed the
petition upon the ground that no abuse of discretion had been committed in denying the aforesaid motion to
dismiss; that the order denying relief of judgment by default was a final order and, as such, appealable; and that,
having failed to appeal therefrom, Luis Pineda and Bruno Ramirez were not entitled to the writ of certiorari prayed
for.

On October 4, 1954, Luis Pineda and Bruno Ramir sought from the Supreme Court, in case G.R. No. L-8357
thereof, a review by certiorari of said resolution of t Court of Appeals, but their petition for review was, minute
resolution, dated November 18, 1954, dismiss for lack of merit.

Subsequently, or on January 27, 1955, Luis Pineda instituted the present action against the Court of First Instance
of Davao, Eriberto Unson as Provincial Sheriff Ex-Oficio of Davao and Potenciana Plando. After making pertinent
averments about the filing of Civil Case N 959 of said court, the denial of his motion to dismiss the complaint
therein, the order declaring him in default, the decision therein rendered declaring Potenciana Plando the lawful
owner and possessor of the land in dispute and of the improvements thereon, and the final and executory nature
of said decision, Pineda alleged in his complaint that said declaration of ownership of a homestead and the
improvements thereon is a function exclusively belonging to the Bureau of Lands, before which there was a
pending controversy between the parties, which the Director o Lands decided, on March 6, 1954, in his (Pineda's)
favor although Potenciana Plando had moved for a reconsideration of said decision, which was still pending
determination Plaintiff prayed that judgment be rendered "annulling partially the decision by default in Civil Case
14o. 959, particularly the portion ... adjudicating the ownership of the land in question and improvements thereon
and to suspend the execution of said decision during the pendency of the case and pending the result of the
controversy between the parties now in the Bureau of Lands."

Their motion to dismiss the complaint having been denied the defendants filed an answer maintaining that the
decision rendered in Civil Case No. 959 is valid and in accordance with law. After appropriate proceedings, the
lower court rendered the decision appealed from, which appears to be based upon the following predicates,
namely: (1) that Civil Case No. 959 was merely one for the "recovery of possession and damages" and did not
involve the title to the land in question; and (2) that "the Supreme Court has set the doctrine ... that courts of
justice have no jurisdiction to determine the ownership and disposition of agricultural lands."

The first predicate is false, for Potenciana Plando had, not only alleged in her complaint in said case that she had
acquired the proprietary rights of Domingo Ramirez on the land in dispute, but, also, prayed specifically that she be
declared "the lawful owner", aside from "possessor of the land and the improvements described in" said pleading.

With respect to the second predicate, relative to the jurisdiction of the Court of First Instance of Davao to pass
upon the title to the land in dispute, it should be noted that jurisdiction over the subject matter of a case is
determined by the pleadings therein.

According to the complaint in Civil Case No. 959, said land was covered by a homestead application of Domingo
Ramirez, approved by the Director of Lands way back on December 18, 1930. On November 18, 1932, said officer
had ordered the issuance of the corresponding patent in favor of Domingo Ramirez, thus indicating that he had
submitted final proof, which was found satisfactory by the Director of Lands, of compliance with the requirements
of our laws for the issuance of such patent. Hence, Domingo Ramirez had acquired a vested property right in said
land and the equitable ownership thereof, which may be conveyed or inherited, unaffected by the fact that the
paramount title thereto was still in the hands of the government (Balboa v. Farrales 51 Phil., 498). Upon the death
of Domingo Ramirez, said property right and equitable ownership passed to this surviving spouse and only heir,
Potenciana Plando, who had occupied and cultivated said land jointly with him, during his lifetime, from 1930 to
1948, and had improved it and made it productive through their common efforts, according to said pleading.
Inasmuch as Luis Pineda and Bruno Ramirez had, allegedly, taken possession of said land in 1948, excluding her
illegally and in bad faith from such possession and from the enjoyment thereof, Potenciana Plando sought a judicial
declaration of her title, as the basis for her right of possession.

No answer having been filed by Luis Pineda and Bruno Ramirez both were declared in default. Thus, the only issue
for determination by the court in Civil Case No. 959 was the truth of the allegations in said complaint, which was

74
established by the evidence introduction by Potenciana Plando, so that the court had, not on the authority, but the
duty to render the disputed decision holding that Potenciana Plando is the lawful owner of the land in litigation.

Again, the petition for relief of judgment by default filed by Luis Pineda and Bruno Ramirez did not question the
title of Domingo Ramirez to the land in dispute. What is more, in such petition and in the answer thereto attached
they relied upon said title of Domingo Ramirez, for Luis Pineda claimed to have acquired it by purchase an they
alleged that Potenciana Plando was merely a common-law wife of Domingo Ramirez, without any right to succeed
him. In other words, the records of Civil Case No 959, showed that the equitable title of Domingo Ramirez in and
to the disputed land was uncontested. The only issued raised after the rendition of the decision therein, was "Who
succeeded to such equitable property rights? Was it Potenciana Plando or Luis Pineda?" Obviously this question
was within the competence of the Court of First Instance of Davao to settle.

Regardless of the foregoing, it is true that, subject to the authority of the Secretary of Agriculture and Natural
Resources, the Director of Lands has, by law, direct control over the sale or any other form of concession or
disposition and the management of the public domain (Commonwealth Act No. 141, sections 4 and 5) and that,
accordingly, said officers are clothed with authority to decide, inter alia, conflicts between applicants for
homestead. It is, likewise, settled that, until such controversy has been decided by the Director of Lands and/or the
Secretary of Agriculture and Natural Resources — or, to put it differently, until all administrative remedies have
been exhausted — a judicial recourse for the settlement of said controversy has generally been held to be
"premature" (Municipality of Hinabañgan vs. Municipality of Wright and Julian Abegonia L-12603, March 25, 1960).
The rule to the effect that administrative remedies must "first" be exhausted merely implies, however, the absence
of a "cause of action" (M. Vda. de Villanueva v. Ortiz, L-11412, May 28, 1958; Lubugan v. Castrillo, L-10521, May
29, 1957), and does not affect the "jurisdiction" of the court, either over the parties, if they have been properly
summoned, or over the subject matter of the case.

Luis Pineda does not claim that he had not been properly summoned in Civil Case No. 959. Upon the other hand,
courts of first instance are, and have been, expressly vested with original jurisdiction "in all civil actions which
involve the title to or possession of real property, or any interest therein ..." (Republic Act No. 296, Section 44).
Accordingly, even if the issue in Civil Case No. 959 had been who, as between the parties therein, had a better title
to a given public land, the court would have retained its jurisdiction to hear and decide the case, although, had its
attention had been called to the proceedings then pending in the Bureau of Lands — which were not disclosed by
the record when the decision was rendered — it should have dismissed the case, not for want of jurisdiction, but
for lack of "cause of action" on the part of Potenciana Plando.

At most, therefore, said court erred in refusing to grant the motion for relief of judgment by default, and, had an
appeal been taken from the order denying said motion, it would have been proper for the appellate court to
reverse said order and set it aside. But, no such appeal was taken, and the decision in Civil Case No. 959 was thus
allowed to become final and executory. Inasmuch as the court had jurisdiction to render it, said decision is valid
and binding upon the parties therein, no matter how erroneous it might have been.

Moreover, plaintiff herein sought to annul the pertinent portion of the aforementioned decision by applying from
the Court of Appeals for a writ of certiorari upon the ground of nullity of said portion for alleged lack of jurisdiction,
and not only was the writ prayed for denied by the Court of Appeals, by resolution dated November 18, 1954, but,
we, likewise, refused to review by certiorari said resolution of the Court of Appeals. Since the jurisdiction of the
Court of First Instance of Davao to make the disputed pronouncement in its decision in Civil Case No. 959 was the
main issue in the certiorari case aforementioned, the aforementioned resolution of the Court of Appeals and that of
this Court refusing to review said resolution constitute another bar to the present action seeking to revive said
issue.

It is, therefore, our considered opinion, and we so hold, that the lower court erred in rendering the decision
appealed from, and that the same should, accordingly, be, as it is hereby, reversed, and the complaint herein
dismissed, with costs against plaintiff Luis Pineda. It is so ordered.

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