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G.R. No. 155736. March 31, 2005

SPOUSES DANILO and CRISTINA DECENA, Petitioners, vs.
SPOUSES PEDRO and VALERIA PIQUERO, Respondents.

b. Defendants, and all persons claiming right under them, be ordered to

immediately vacate the subject property and turnover its possession to
the plaintiffs;

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

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

On September 7, 1997, the petitioners and the respondents, the Spouses

Pedro and Valeria Piquero, executed a Memorandum of Agreement
(MOA)2 in which the former sold the property to the latter for the price
of P940,250.00 payable in six (6) installments via postdated checks. The
vendees forthwith took possession of the property.
It appears in the MOA that the petitioners obliged themselves to transfer
the property to the respondents upon the execution of the MOA with the
condition that if two of the postdated checks would be dishonored by the
drawee bank, the latter would be obliged to reconvey the property to the
petitioners.
On May 17, 1999, the petitioners, then residents of Malolos, Bulacan,
filed a Complaint3 against the respondents with the Regional Trial Court
(RTC) of Malolos, Bulacan, for the annulment of the sale/MOA, recovery
of possession and damages. The petitioners alleged therein that, they did
not transfer the property to and in the names of the respondents as
vendees because the first two checks drawn and issued by them in
payment for the purchase price of the property were dishonored by the
drawee bank, and were not replaced with cash despite demands therefor.
The petitioners prayed that, after due proceedings, judgment be rendered
in their favor, thus:
a. The sale/Memorandum of Agreement (Annex "A," supra) be declared
null and void, rescinded and with no further force and effect;

i. P10,000.00 monthly, starting 01 October 1997 until complete turnover

of the subject property to the plaintiffs, as reasonable compensation for
its continued unlawful use and occupation by the defendants;
ii. P200,000.00 moral damages;
iii. P200,000.00 exemplary damages;
iv. P250,000.00 attorneys fees and litigation related expenses; and
v. the costs of suit.
Other reliefs just and equitable are, likewise, prayed for.4
The petitioners declared in their complaint that the property subject of the
complaint was valued at P6,900,000.00. They appended copies of the
MOA and TCT No. 134391 to their complaint. The case was eventually
raffled to Branch 13 of the RTC of Malolos, Bulacan.
The respondents filed a motion to dismiss the complaint on the
ground, inter alia, of improper venue and lack of jurisdiction over the
property subject matter of the action.
On the first ground, the respondents averred that the principal action of
the petitioners for the rescission of the MOA, and the recovery of the
possession of the property is a real action and not a personal one; hence,
it should have been brought in the RTC of Paraaque City, where the
property subject matter of the action was located, and not in the RTC of
Malolos, Bulacan, where the petitioners resided. The respondents posited
that the said court had no jurisdiction over the property subject matter of
the action because it was located in Paraaque City.5

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

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

By way of reply, the respondents averred that Section 5(c), Rule 2 of the
Rules of Court applies only when one or more of multiple causes of
action falls within the exclusive jurisdiction of the first level courts, and the
other or others are within the exclusive jurisdiction of the RTC, and the
venue lies therein.
On February 9, 2000, the trial court issued an Order 7 denying the motion
for lack of merit. It found merit in the petitioners contention that Section
5(c), Rule 2 was applicable.
Meanwhile, the case was re-raffled to Branch 10 of the RTC of Malolos,
Bulacan. In a Motion8 dated December 20, 2000, the respondents prayed
for the reconsideration of the trial courts February 9, 2000 Order. On
October 16, 2001, the court issued an Order 9 granting the motion and
ordered the dismissal of the complaint. It ruled that the principal action of
the petitioners was a real action and should have been filed in the RTC of
Paraaque City where the property subject matter of the complaint was
located. However, since the case was filed in the RTC of Bulacan where
the petitioners reside, which court had no jurisdiction over the subject
matter of the action, it must be dismissed.
Hence, the present recourse.
The petition has no merit.
The sole issue is whether or not venue was properly laid by the
petitioners in the RTC of Malolos, Bulacan. The resolution of this issue is,
in turn, anchored on whether Section 5, Rule 2 of the Rules of Court
invoked by the petitioners is applicable in this case.

(c) Where the causes of action are between the same parties but pertain
to different venues or jurisdiction, the joinder may be allowed in the
Regional Trial Court provided one of the causes of action falls within the
jurisdiction of said court and the venue lies therein;
Explaining the aforequoted condition, Justice Jose Y. Feria declared:
(c) Under the third condition, if one cause of action falls within the
jurisdiction of the Regional Trial Court and the other falls within the
jurisdiction of a Municipal Trial Court, the action should be filed in the
Regional Trial Court. If the causes of action have different venues, they
may be joined in any of the courts of proper venue. Hence, a real action
and a personal action may be joined either in the Regional Trial Court of
the place where the real property is located or where the parties reside. 10
A cause of action is an act or omission of one party in violation of the
legal right of the other which causes the latter injury. The essential
elements of a cause of action are the following: (1) the existence of a
legal right of the plaintiff; (2) a correlative legal duty of the defendant to
respect ones right; and (3) an act or omission of the defendant in
violation of the plaintiffs right.11 A cause of action should not be confused
with the remedies or reliefs prayed for. A cause of action is to be found in
the facts alleged in the complaint and not in the prayer for relief. It is the
substance and not the form that is controlling. 12 A party may have two or
more causes of action against another party.
A joinder of causes of action is the uniting of two or more demands or
right of action in a complaint. The question of the joinder of causes of
action involves in particular cases a preliminary inquiry as to whether two

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or more causes of action are alleged. 13 In declaring whether more than
one cause of action is alleged, the main thrust is whether more than one
primary right or subject of controversy is present. Other tests are whether
recovery on one ground would bar recovery on the other, whether the
same evidence would support the other different counts and whether
separate actions could be maintained for separate relief; 14 or whether
more than one distinct primary right or subject of controversy is alleged
for enforcement or adjudication.15
A cause of action may be single although the plaintiff seeks a variety of
remedies. The mere fact that the plaintiff prays for multiple reliefs does
not indicate that he has stated more than one cause of action. The prayer
may be an aid in interpreting the petition and in determining whether or
not more than one cause of action is pleaded. 16 If the allegations of the
complaint show one primary right and one wrong, only one cause of
action is alleged even though other matters are incidentally involved, and
although different acts, methods, elements of injury, items of claims or
theories of recovery are set forth. 17 Where two or more primary rights and
wrongs appear, there is a joinder of causes of action.
After due consideration of the foregoing, we find and so rule that Section
5(c), Rule 2 of the Rules of Court does not apply. This is so because the
petitioners, as plaintiffs in the court a quo, had only one cause of action
against the respondents, namely, the breach of the MOA upon the latters
refusal to pay the first two installments in payment of the property as
agreed upon, and turn over to the petitioners the possession of the real
property, as well as the house constructed thereon occupied by the
respondents. The claim for damages for reasonable compensation for the
respondents use and occupation of the property, in the interim, as well as
moral and exemplary damages suffered by the petitioners on account of
the aforestated breach of contract of the respondents are merely
incidental to the main cause of action, and are not independent or
separate causes of action.18
The action of the petitioners for the rescission of the MOA on account of
the respondents breach thereof and the latters failure to return the
premises subject of the complaint to the petitioners, and the respondents
eviction therefrom is a real action.19 As such, the action should have been
filed in the proper court where the property is located, namely, in

Paraaque City, conformably with Section 1, Rule 4 of the Rules of Court

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

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Counterclaim. On 17 January 2000, respondent Hermano filed a "Motion
with Leave to Dismiss the Complaint or Ordered Severed for Separate
Trial" which was granted by the trial court in an Order dated 28 February
2000.
This Order was received by petitioners on 21 March 2000. On 23 March
2000, petitioners moved for reconsideration which was denied by the trial
court on 25 May 2000 and received by petitioners on 18 June 2000. On
17 August 2000, petitioners filed an original action for certiorari before the
Court of Appeals imputing grave abuse of discretion on the part of the
trial court in dismissing the complaint against respondent Hermano.
On 19 October 2000, the Court of Appeals rendered the first assailed
Resolution dismissing the petition for certiorari "for having been filed
beyond the reglementary period pursuant to Section 4, Rule 65 of the
1997 Rules on Civil Procedure, as amended." On 02 March 2001, the
second assailed Resolution was promulgated dismissing petitioners
motion for reconsideration, the Court of Appeals holding that:
G.R. No. 147417 July 8, 2005
SPS. VICTOR & MILAGROS PEREZ and CRISTINA AGRAVIADOR
AVISO, Petitioners, vs. ANTONIO HERMANO, Respondent.
This is a petition for review on certiorari under Rule 45 of the Rules of
Court assailing the Resolution 1 of the Court of Appeals dismissing
petitioners original action for certiorari under Rule 65 for being filed out of
time. Assailed as well is the Resolution 2 dismissing petitioners motion for
reconsideration.
The pertinent facts of the case are as follows:
On 27 April 1998, petitioners Cristina Agraviador Aviso and spouses
Victor and Milagros Perez filed a civil case for Enforcement of Contract
and Damages with Prayer for the Issuance of a Temporary Restraining
Order (TRO) and/or Preliminary Injunction against Zescon Land, Inc.
and/or its President Zenie Sales-Contreras, Atty. Perlita Vitan-Ele and
against respondent herein Antonio Hermano before the Regional Trial
Court (RTC) of Quezon City, Branch 224. 3 On 15 May 1998, respondent
(then defendant) Hermano filed his Answer with Compulsory

From the time petitioners received the assailed Order on March 21, 2000
and filed their motion for reconsideration, four (4) days had elapsed. On
June 18, 2000, petitioners received the denial of their motion for
reconsideration. When the instant petition was filed on August 17, 2000,
a total of 63 days had elapsed.
A.M. No. 00-2-03-50 further amending Section 4, Rule 65 of the New
Rules on Civil Procedure states that the petition shall be filed not later
than sixty (60) days from notice of the judgment, Order or Resolution and
in case a motion for reconsideration or new trial is timely filed, whether
such motion is required or not, the 60-day period shall be counted from
notice of the denial of said motion.
Viewed from its light, the assailed Orders had already attained finality,
and are now beyond the power of this Court to review.4
Aggrieved by the foregoing ruling, petitioners are now before us
assigning the following

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MANIFEST AND/OR SERIOUS ERROR COMMITTED BY THE
HONORABLE COURT OF APPEALS IN THE COMPUTATION OF THE
PERIOD WITHIN WHICH THE PETITIONERS FILED THEIR PETITION
FOR CERTIORARI BEFORE IT AND CONSEQUENTLY COMMITTED
GRAVE ABUSE OF DISCRETION IN THE APPRECIATION OF FACTS
AND/OR MISAPPREHENSION OF FACTS, WITH ITS FINDING OF
FACT NOT BEING BORNE BY THE RECORD OR EVIDENCE, AND
THUS ITS CONCLUSION IS ENTIRELY BASELESS.5

be less than five (5) days in any event, reckoned from notice of such
denial. No extension of time to file the petition shall be granted except for
the most compelling reason and in no case to exceed fifteen (15) days.
(Emphasis supplied)

According to petitioners, following the amendment introduced by A.M. No.

00-2-03-SC to Section 4, Rule 65 of the 1997 Rules on Civil Procedure,
their petition was filed on the 60th day, thus, within the reglementary
period. Respondent insists, on the other hand, that the petition was filed
on the 61st day while the Court of Appeals had declared that the petition
was filed on the 63rd day.

Sec. 4. When and where petition filed. The petition shall be filed not
later than sixty (60) days from notice of the judgment, order or
resolution. In case a motion for reconsideration or new trial is timely
filed, whether such motion is required or not, the sixty (60) day
period shall be counted from notice of the denial of said motion.

We agree in the position taken by petitioners.

Admittedly, at the time petitioners filed their petition for certiorari on 17
August 2000, the rule then prevailing was Section 4, Rule 65 of the 1997
Rules on Civil Procedure, as amended by Circular No. 39-98 effective 01
September 1998, which provides:
Sec. 4. Where petition filed. The petition shall be filed not later than
sixty (60) days from notice of the judgment, order or resolution sought to
be assailed in the Supreme Court, or if it relates to the acts or omissions
of a lower court or of a corporation, board, officer or person in the
Regional Trial Court exercising jurisdiction over the territorial area as
defined by the Supreme Court. It may also be filed in the Court of
Appeals whether or not the same is in aid of its appellate jurisdiction, or
in the Sandiganbayan if it is in aid of its jurisdiction. If it involves the acts
or omissions of a quasi-judicial agency, and unless otherwise provided by
law or these Rules, the petition shall be filed in and cognizable only by
the Court of Appeals.
If the petitioner had filed a motion for new trial or reconsideration in due
time after notice of said judgment, order, or resolution, the period herein
fixed shall be interrupted. If the motion is denied, the aggrieved party
may file the petition within the remaining period, but which shall not

However, on 01 September 2000, during the pendency of the case before

the Court of Appeals, Section 4 was amended anew by A.M. No. 00-2-03SC6 which now provides:

The petition shall be filed in the Supreme Court or, if it relates to the acts
or omissions of a lower court or of a corporation, board, officer or person,
in the Regional Trial Court exercising jurisdiction over the territorial area
as defined by the Supreme Court. It may also be filed in the Court of
Appeals whether or not the same is in aid of its appellate jurisdiction, or
in the Sandiganbayan if it is in aid of its appellate jurisdiction. If it involves
the acts or omissions of a quasi-judicial agency, unless otherwise
provided by law or these rules, the petition shall be filed in and
cognizable only by the Court of Appeals.
No extension of time to file the petition shall be granted except for
compelling reason and in no case exceeding fifteen (15) days. (Emphasis
supplied)
Under this amendment, the 60-day period within which to file the petition
starts to run from receipt of notice of the denial of the motion for
reconsideration, if one is filed.7
In Narzoles v. National Labor Relations Commission,8 we described this
latest amendment as curative in nature as it remedied the confusion
brought about by Circular No. 39-98 because, "historically, i.e., even
before the 1997 revision to the Rules of Civil Procedure, a party had a
fresh period from receipt of the order denying the motion for
reconsideration to file a petition for certiorari." Curative statutes, which

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are enacted to cure defects in a prior law or to validate legal proceedings
which would otherwise be void for want of conformity with certain legal
requirements, by their very essence, are retroactive. 9 And, being a
procedural rule, we held in Sps. Ma. Carmen and Victor Javellana v. Hon.
Presiding Judge Benito Legarda10 that "procedural laws are construed to
be applicable to actions pending and undetermined at the time of their
passage, and are deemed retroactive in that sense and to that extent."
Consequently, petitioners had a fresh period of 60 days from the time
they received the Order of the trial court denying their motion for
reconsideration on 18 June 2000. When they filed their petition with the
Court of Appeals on 17 August 2000, exactly 60 days had elapsed
following the rule that in computing a period, the first day shall be
excluded and the last day included. 11 Hence, there can be no doubt that
the petition was filed within the reglementary period for doing so and it
was reversible error on the part of the Court of Appeals in not giving said
petition due course. However, instead of remanding the case to the Court
of Appeals which would only unduly prolong the disposition of the
substantive issue raised, we shall resolve the petition originally filed
therein.
Petitioners brought to the Court of Appeals on petition for certiorari under
Rule 65 the lone issue of:
WHETHER OR NOT THE PUBLIC RESPONDENT [Hon. Emilio L.
Leachon, Jr., Presiding Judge, RTC, Branch 224, Quezon City] HAD
PLAINLY AND MANIFESTLY ACTED WITH GRAVE ABUSE OF
DISCRETION, IN EXCESS OF JURISDICTION, TANTAMOUNT TO
LACK OF JURISDICTION, IN DISMISSING THE COMPLAINT AS
AGAINST RESPONDENT ANTONIO HERMANO IN CIVIL CASE NO. Q98-34211.12
Petitioners assert that respondent Hermano should not have been
dismissed from the complaint because: (1) He did not file a motion to
dismiss under Rule 16 of the Rules of Court and, in fact, his "Motion with
Leave to Dismiss the Complaint or Ordered Severed for Separate Trial"
was filed almost two years after he filed his Answer to the complaint; (2)
There was no misjoinder of causes of action in this case; and (3) There
was no misjoinder of parties.

The case filed by petitioners against respondent Hermano and the other
defendants, namely Zescon Land, Inc. and/or its President Zenie SalesContreras and Atty. Perlita Vitan-Ele, was one for "Enforcement of
Contract and Damages with Prayer for the Issuance of a Temporary
Restraining Order (TRO) and/or Preliminary Injunction" docketed as Civil
Case No. Q-98-34211 and raffled to Branch 224.
Petitioners presented three causes of action in their complaint, the first
for enforcement of contract to sell entered into between petitioners and
Zescon Land, Inc., the second for annulment or rescission of two
contracts of mortgage entered into between petitioners and respondent
Hermano and the third for damages against all defendants.
For the first cause of action, petitioners allege that sometime in
November 1997, they entered into a Contract to Sell with Zescon Land,
Inc., through Zenie Sales-Contreras, for the purchase of five (5) parcels
of land in the total amount of Nineteen Million One Hundred Four
Thousand Pesos (P19,104,000.00). As part of their agreement, a portion
of the purchase price would be paid to them as down payment, another
portion to be given to them as cash advance upon the execution of the
contract and another portion to be used by the buyer, Zescon Land, Inc.,
to pay for loans earlier contracted by petitioners which loans were
secured by mortgages.
Re-pleading the foregoing in their second cause of action, petitioners
contend that "in a tricky machination and simultaneous with the execution
of the aforesaid Contract to Sell," they were made to sign other
documents, two of which were Mortgage deeds over the same five
properties in favor of respondent Hermano, whom they had never met. It
was allegedly explained to them by Sales-Contreras that the mortgage
contracts would merely serve to facilitate the payment of the price as
agreed upon in their Contract to Sell. Petitioners claim that it was never
their intention to mortgage their property to respondent Hermano and that
they have never received a single centavo from mortgaging their property
to him. Petitioners acknowledge, however, that respondent Hermano was
responsible for discharging their obligations under the first mortgage and
for having the titles over the subject lands released, albeit not to them but
to respondent Hermano. They seek a TRO against respondent Hermano

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who had informed them that he would be foreclosing the subject
properties.
In their third cause of action, petitioners pray for damages against all the
defendants alleging that:

defendant to annul and/or rescind the Real Estate Mortgages of subject

properties. There is a misjoinder of parties defendants under a different
transaction or cause of action; that under the said Rule 2, Section 6,
upon motion of defendant Hermano in the instant case, the complaint
against defendant Hermano can be severed and tried separately; . . . . 15

Due to the failure and refusal, without any valid justification and reason,
by defendants Zescon and Contreras to comply with their obligations
under the Contract to Sell, including their failure and refusal to pay the
sums stipulated therein, and in misleading and misrepresenting the
plaintiffs into mortgaging their properties to defendant Antonio Hermano,
who in turn had not paid the plaintiffs the proceeds thereof, putting them
in imminent danger of losing the same, plaintiffs had suffered, and
continue to suffer, sleepless nights .

Over petitioners opposition to said motion, the same was granted by the
trial court in its Order dated 28 February 2000 on the justification that:

By reason of defendants Zescon and Contrerass failure and refusal to

pay the sums stipulated in the Contract to Sell, and of defendant Antonio
Hermanos not having paid plaintiffs the proceeds of the mortgage
agreements, plaintiffs had been deprived of the beneficial use of the
proceeds and stood to lose, as they continue to lose, by way of unearned
profits at least P1,000,000.00.13

And, in an Order dated 25 May 2000, the trial court resolved petitioners
motion for reconsideration by dismissing the same, to wit:

In his Answer with (Compulsory) Counterclaim dated 15 May 1998,

respondent Hermano denied petitioners allegations.14 Then, on 19
February 1999, respondent Hermano filed a civil case entitled "Judicial
Foreclosure of Real Estate Mortgage" against petitioner Aviso docketed
as Civil Case No. Q-99-36914 and raffled to Branch 216 of the RTC of
Quezon City. On 17 January 2000, respondent Hermano filed a "Motion
With Leave To Dismiss The Complaint Against Defendant Antonio
Hermano, Or Ordered Severed For Separate Trial" before Branch 224. In
said motion, respondent Hermano argued that there was a mis-joinder of
causes of action under Rule 2, Section 6 of the Rules of Court. To quote
respondent Hermano:
3. In the instant case, the plaintiffs action for the Enforcement of Contract
and Damages with Prayer for The Issuance of a Temporary Restraining
Order And/Or Preliminary Injunction against Zescon Land, Inc., and/or its
President Zenie Sales Contreras, may not, under Rule 2, Section 6 of the
1997 Rules of Civil Procedure, join defendant Hermano as party

. . . [D]efendant having filed a special civil action for judicial foreclosure of

mortgage and now pending before RTC Branch 216, he should be
dropped as one of the defendants in this case and whatever claims
plaintiffs may have against defendant Hermano, they can set it up by way
of an answer to said judicial foreclosure.16

After going over the arguments of the parties, the Court believes that
defendant Hermano has nothing to do with the transaction which the
plaintiffs entered into with defendant Zescon Land, Inc. Besides, the said
motion raised matters and defenses previously considered and passed
upon by the Court.17
It is these two Orders that were brought up by petitioners to the Court of
Appeals on petition for Certiorari under Rule 65. The pivotal issue to be
resolved, therefore, is whether or not respondent trial court committed
grave abuse of discretion in dismissing the complaint against respondent
Hermano in Civil Case No. Q-98-34211.
As far as we can glean from the Orders of the trial court, respondent
Hermano was dropped from the complaint on the ground of misjoinder of
causes of action. Petitioners, on the other hand, insist that there was no
misjoinder in this case.
To better understand the present controversy, it is vital to revisit the rules
on joinder of causes of action as exhaustively discussed in Republic v.
Hernandez,18 thus:

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By a joinder of actions, or more properly, a joinder of causes of action, is
meant the uniting of two or more demands or rights of action in one
action; the statement of more than one cause of action in a declaration. It
is the union of two or more civil causes of action, each of which could be
made the basis of a separate suit, in the same complaint, declaration or
petition. A plaintiff may under certain circumstances join several distinct
demands, controversies or rights of action in one declaration, complaint
or petition.
As can easily be inferred from the above definitions, a party is generally
not required to join in one suit several distinct causes of action. The
joinder of separate causes of action, where allowable, is permissive and
not mandatory in the absence of a contrary statutory provision, even
though the causes of action arose from the same factual setting and
might under applicable joinder rules be joined. Modern statutes and rules
governing joinders are intended to avoid a multiplicity of suits and to
promote the efficient administration of justice wherever this may be done
without prejudice to the rights of the litigants. To achieve these ends, they
are liberally construed.

The statutory intent behind the provisions on joinder of causes of action

is to encourage joinder of actions which could reasonably be said to
involve kindred rights and wrongs, although the courts have not
succeeded in giving a standard definition of the terms used or in
developing a rule of universal application. The dominant idea is to permit
joinder of causes of action, legal or equitable, where there is some
substantial unity between them. While the rule allows a plaintiff to join as
many separate claims as he may have, there should nevertheless be
some unity in the problem presented and a common question of law and
fact involved, subject always to the restriction thereon regarding
jurisdiction, venue and joinder of parties. Unlimited joinder is not
authorized.
Our rule on permissive joinder of causes of action, with the proviso
subjecting it to the correlative rules on jurisdiction, venue and joinder of
parties and requiring a conceptual unity in the problems presented,
effectively disallows unlimited joinder.
Section 6, Rule 2 on misjoinder of causes of action provides:

While joinder of causes of action is largely left to the option of a party

litigant, Section 5, Rule 2 of our present Rules allows causes of action to
be joined in one complaint conditioned upon the following requisites: (a) it
will not violate the rules on jurisdiction, venue and joinder of parties; and
(b) the causes of action arise out of the same contract, transaction or
relation between the parties, or are for demands for money or are of the
same nature and character.

Sec. 6. Misjoinder of causes of action. - Misjoinder of causes of action is

not a ground for dismissal of an action. A misjoined cause of action may,
on motion of a party or on the initiative of the court, be severed and
proceeded with separately.

The objectives of the rule or provision are to avoid a multiplicity of suits

where the same parties and subject matter are to be dealt with by
effecting in one action a complete determination of all matters in
controversy and litigation between the parties involving one subject
matter, and to expedite the disposition of litigation at minimum cost. The
provision should be construed so as to avoid such multiplicity, where
possible, without prejudice to the rights of the litigants. Being of a
remedial nature, the provision should be liberally construed, to the end
that related controversies between the same parties may be adjudicated
at one time; and it should be made effectual as far as practicable, with
the end in view of promoting the efficient administration of justice.

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:

There is misjoinder of causes of action when the conditions for joinder

under Section 5, Rule 2 are not met. Section 5 provides:

(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;

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(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.
As far as can be gathered from the assailed Orders, it is the first
condition - on joinder of parties - that the trial court deemed to be lacking.
It is well to remember that the joinder of causes of action may involve the
same parties or different parties. If the joinder involves different parties,
as in this case, there must be a question of fact or of law common to both
parties joined, arising out of the same transaction or series of
transaction.19
In herein case, petitioners have adequately alleged in their complaint that
after they had already agreed to enter into a contract to sell with Zescon
Land, Inc., through Sales-Contreras, the latter also gave them other
documents to sign, to wit: A Deed of Absolute Sale over the same
properties but for a lower consideration, two mortgage deeds over the
same properties in favor of respondent Hermano with accompanying
notes and acknowledgment receipts for Ten Million pesos (P10,000,000)
each. Petitioners claim that Zescon Land, Inc., through Sales-Contreras,
misled them to mortgage their properties which they had already agreed
to sell to the latter.
From the above averments in the complaint, it becomes reasonably
apparent that there are questions of fact and law common to both Zescon
Land, Inc., and respondent Hermano arising from a series of transaction
over the same properties. There is the question of fact, for example, of
whether or not Zescon Land, Inc., indeed misled petitioners to sign the
mortgage deeds in favor of respondent Hermano. There is also the
question of which of the four contracts were validly entered into by the
parties. Note that under Article 2085 of the Civil Code, for a mortgage to
be valid, it is imperative that the mortgagor be the absolute owner of the
thing mortgaged. Thus, respondent Hermano will definitely be affected if
it is subsequently declared that what was entered into by petitioners and

Zescon Land, Inc., was a Contract of Sale (as evidenced by the Deed of
Absolute Sale signed by them) because this would mean that the
contracts of mortgage were void as petitioners were no longer the
absolute owners of the properties mortgaged. Finally, there is also the
question of whether or not Zescon Land, Inc., as represented by SalesContreras, and respondent Hermano committed fraud against petitioners
as to make them liable for damages.
Prescinding from the foregoing, and bearing in mind that the joinder of
causes of action should be liberally construed as to effect in one action a
complete determination of all matters in controversy involving one subject
matter, we hold that the trial court committed grave abuse of discretion in
severing from the complaint petitioners cause of action against
respondent Hermano.
WHEREFORE, premises considered, the Resolution of the Court of
Appeals dated 19 October 2000 dismissing petitioners petition
for certiorari and its Resolution dated 02 March 2001 denying petitioners
motion for reconsideration are REVERSED and SET ASIDE. The petition
for certiorari is hereby GRANTED. The Orders of the Regional Trial Court
of Quezon City, Branch 224, dated 28 February 2000 and 25 May 2000
are ANNULLED and SET ASIDE. The RTC is further ordered to reinstate
respondent Antonio Hermano as one of the defendants in Civil Case No.
Q-98-34211. No costs. SO ORDERED.

10

G.R. No. 164041. July 29, 2005

ROSENDO ALBA, minor, represented by his mother and natural
guardian, Armi A. Alba, and ARMI A. ALBA, in her personal
capacity, Petitioners, vs. COURT OF APPEALS and ROSENDO C.
HERRERA, Respondents.
Assailed in this petition for certiorari1 are the February 27, 2004
decision2 and the May 14, 2004 resolution3 of the Court of Appeals in CAG.R. SP No. 61883, which dismissed petitioners original action for
annulment of judgment4of the Regional Trial Court of Manila, Branch 37,
and denied the motion for reconsideration, respectively.
The antecedent facts show that on October 21, 1996, private respondent
Rosendo C. Herrera filed a petition 5 for cancellation of the following
entries in the birth certificate of "Rosendo Alba Herrera, Jr.", to wit: (1) the
surname "Herrera" as appended to the name of said child; (2) the
reference to private respondent as the father of Rosendo Alba Herrera,
Jr.; and (3) the alleged marriage of private respondent to the childs
mother, Armi A. Alba (Armi) on August 4, 1982 in Mandaluyong City. He
claimed that the challenged entries are false and that it was only
sometime in September 1996 that he learned of the existence of said
birth certificate.
Private respondent alleged that he married only once, i.e., on June 28,
1965 with Ezperanza C. Santos and never contracted marriage with Armi
nor fathered Rosendo Alba Herrera, Jr. In support thereof, he presented
certifications from the Civil Registrar of Mandaluyong City6 and the
National Statistics Office,7 both stating that they have no record of
marriage between private respondent and Armi.
On November 12, 1996, private respondent filed an amended
petition,8 impleading Armi and "all the persons who have or claim any
interest in th[e] petition."9
On November 27, 1996, the trial court issued an Order setting the petition
for hearing on January 24, 1997, and directed the publication and service
of said order to Armi at her address appearing in the birth certificate

11
which is No. 418 Arquiza St., Ermita, Manila, and to the Civil Registrar of
the City of Manila and the Solicitor General. The full text of the order,
reads:

issues. Copies thereof were also sent to Armi at No. 418 Arquiza St.,
Ermita, Manila, on January 17, 1997, the Local Civil Registrar of Manila
and the Solicitor General.

In a verified Amended Petition for Correction of Entry, the Petitioner

prays, inter alia, that the following entries appearing in the subject
Certificate of Live Birth be deleted:

At the scheduled hearing on February 26, 1997, the counsel from the
Office of the Solicitor General appeared but filed no opposition to the
petition. Armi, on the other hand was not present. The return of the notice
sent to her had the following notation:

1. All informations having reference to him as the father of the child

mentioned therein;
2. The surname "Herrera" appended to the childs name;
3. His alleged marriage with the natural mother of the child.
Finding the Petition to be sufficient in form and substance, let the Petition
be set for hearing on January 24, 1997 at nine oclock in the morning
before this Branch at Rooms 447-449, Fourth Floor, Manila City Hall. All
interested parties are hereby notified of the said hearing and are ordered
to show cause why the Petition should not be granted.
Let a copy of this Order be published at the expense of the Petitioner,
once a week for three (3) consecutive weeks, in a newspaper of general
circulation in the City of Manila, and raffled pursuant to P.D. 1079.
Furnish the Office of the Solicitor General and the Office of the Local Civil
Registrar of the City of Manila with copies of the Petition and of this
Order.
Let the same be likewise furnished the Private Respondent Armi Alba
Herrera at the address indicated in the subject Certificate of Live Birth.
SO ORDERED.10
On January 13, 1997, before the scheduled January 24, 1997 hearing,
the trial court issued an Amended Order 11with substantially the same
contents, except that the hearing was re-scheduled to February 26, 1997.
A copy of said Amended Order was published in "Today", a newspaper of
general circulation in Manila in its January 20, 27, and February 3, 1997

This is to certify that on January 17, 1997, the undersigned [process

server] personally served a copy of the Amended Order in Sp. Proc. No.
96-80512 dated January 13, 1997 to the private respondent, Armi Alba
Herrera at 418 Arquiza St., Ermita, Manila, but failed and unavailing
for reason that (sic), private respondent is no longer residing at said
given address.12
On April 1, 1997, the court a quo rendered a decision which became final
and executory on June 2, 1997.13 The dispositive portion thereof, states:
ACCORDINGLY, and pursuant to Rule 108 of the Revised Rules of Court,
judgment is hereby rendered ordering the correction of the entries in the
Certificate of Live Birth of Rosendo Alba Herrera, Jr., in such a way that
the entry under the name of the child, the surname Herrera, Jr.[,] is
ordered deleted, and the child shall be known as ROSENDO ALBA; and
that the entry under the date and place of marriage, the date August 4,
1982, Mandaluyong, MM is likewise ordered deleted or cancelled.
Let a copy of this Decision be furnished the Local Civil Registrar of
Manila for proper correction and entry. SO ORDERED.14
Private respondent filed a motion15 for amendment of the decretal portion
of the decision to include the cancellation of all entries having reference
to him as the father of petitioner minor. This was granted in the August
11, 1997 order of the trial court as follows:
ACCORDINGLY, and pursuant to Rule 108 of the Revised Rules of Court,
judgment is hereby rendered ordering the correction of the entries in the
Certificate of Live Birth of Rosendo Alba Herrera, Jr., in such a way that

12
the entries under the name of the child, the surname Herrera, Jr., and the
name of the father Rosendo Caparas Herrera are ordered deleted, and
the child shall be known as ROSENDO ALBA; and the entry under the
date and place of marriage, the date August 4, 1982, Mandaluyong, MM
is likewise ordered deleted or cancelled. SO ORDERED.16

Hence, the instant petition.

On November 24, 2000, Armi and petitioner minor filed a petition for
annulment of judgment before the Court of Appeals on the grounds of
extrinsic fraud and lack of jurisdiction over their person. She allegedly
came to know of the decision of the trial court only on February 26, 1998,
when San Beda College, where her son was enrolled as a high school
student, was furnished by private respondent with a copy of a court order
directing the change of petitioner minors surname from Herrera to Alba.

Whether or not the trial court acquired jurisdiction over the person of
petitioner and her minor child depends on the nature of private
respondents action, that is, in personam, in rem or quasi in rem. An
action in personam is lodged against a person based on personal liability;
an action in rem is directed against the thing itself instead of the person;
while an action quasi in rem names a person as defendant, but its object
is to subject that persons interest in a property to a corresponding lien or
obligation.20

Armi averred that private respondent was aware that her address is at
Unit 302 Plaza Towers Condominium, 1175 Lorenzo Guerrero St., Ermita,
Manila, because such was her residence when she and private
respondent cohabited as husband and wife from 1982 to 1988; and her
abode when petitioner minor was born on March 8, 1985. Even after their
separation, private respondent continued to give support to their son until
1998; and that Unit 302 was conveyed to her by private respondent on
June 14, 1991 as part of his support to petitioner minor. According to
Armi, her address i.e., No. 418 Arquiza St., Ermita, Manila, as appearing
in the birth certificate of their son, was entered in said certificate through
the erroneous information given by her sister, Corazon Espiritu. She
stressed that private respondent knew all along that No. 418 Arquiza St.,
is the residence of her sister and that he deliberately caused the service
of notice therein to prevent her from opposing the petition.
In his answer, private respondent denied paternity of petitioner minor and
his purported cohabitation with Armi. He branded the allegations of the
latter as "false statements coming from a polluted source." 17
On February 27, 2004, the Court of Appeals dismissed the petition
holding, among others, that petitioner failed to prove that private
respondent employed fraud and purposely deprived them of their day in
court. It further held that as an illegitimate child, petitioner minor should
bear the surname of his mother.18 Petitioners filed a motion for
reconsideration but was denied.

Under Section 2, Rule 47 of the 1997 Revised Rules of Civil Procedure,

judgments may be annulled on the grounds of lack of jurisdiction and
extrinsic fraud.19

Hence, petitions directed against the "thing" itself or the res,21 which
concerns the status of a person, 22 like a petition for adoption, 23 annulment
of marriage,24 or correction of entries in the birth certificate, 25 as in the
instant case, are actions in rem.
In an action in personam, jurisdiction over the person of the defendant is
necessary for the court to validly try and decide the case. In a
proceeding in rem or quasi in rem, jurisdiction over the person of the
defendant is not a prerequisite to confer jurisdiction on the court,
provided that the latter has jurisdiction over the res. Jurisdiction over
the res is acquired either (a) by the seizure of the property under legal
process, whereby it is brought into actual custody of the law; or (b) as a
result of the institution of legal proceedings, in which the power of the
court is recognized and made effective.26 The service of summons or
notice to the defendant is not for the purpose of vesting the court with
jurisdiction but merely for satisfying the due process requirements.27
In the case at bar, the filing with the trial court of the petition for
cancellation vested the latter jurisdiction over the res. Substantial
corrections or cancellations of entries in civil registry records affecting the
status or legitimacy of a person may be effected through the institution of
a petition under Rule 108 of the Revised Rules of Court, with the proper
Regional Trial Court.28 Being a proceeding in rem, acquisition of
jurisdiction over the person of petitioner is therefore not required in the

13
present case. It is enough that the trial court is vested with jurisdiction
over the subject matter.
The service of the order at No. 418 Arquiza St., Ermita, Manila and the
publication thereof in a newspaper of general circulation in Manila,
sufficiently complied with the requirement of due process, the essence of
which is an opportunity to be heard. Said address appeared in the birth
certificate of petitioner minor as the residence of Armi. Considering that
the Certificate of Birth bears her signature, the entries appearing therein
are presumed to have been entered with her approval. Moreover, the
publication of the order is a notice to all indispensable parties, including
Armi and petitioner minor, which binds the whole world to the judgment
that may be rendered in the petition. An in rem proceeding is validated
essentially through publication.29 The absence of personal service of the
order to Armi was therefore cured by the trial courts compliance with
Section 4, Rule 108, which requires notice by publication, thus:
SEC. 4. Notice and publication. Upon the filing of the petition, the court
shall, by an order, fix the time and place for the hearing of the same, and
cause reasonable notice thereof to be given to the persons named in the
petition. The court shall also cause the order to be published once a
week for three (3) consecutive weeks in a newspaper of general
circulation in the province.
In Barco v. Court of Appeals, the trial court granted a petition for
correction/change of entries in a minors birth certificate to reflect the
name of the minors real father as well as to effect the corresponding
change of her surname. In seeking to annul said decision, the other
children of the alleged father claimed that they are indispensable parties
to the petition for correction, hence, the failure to implead them is a
ground to annul the decision of the trial court. The Court of Appeals
denied the petition which was sustained by this Court on the ground, inter
alia, that while petitioner is indeed an indispensable party, the failure to
implead her was cured by the publication of the order of hearing. Thus
Undoubtedly, Barco is among the parties referred to in Section 3 of Rule
108. Her interest was affected by the petition for correction, as any
judicial determination that June was the daughter of Armando would
affect her wards share in the estate of her father. It cannot be established

whether Nadina knew of Mary Joys existence at the time she filed the
petition for correction. Indeed, doubt may always be cast as to whether a
petitioner under Rule 108 would know of all the parties whose interests
may be affected by the granting of a petition. For example, a petitioner
cannot be presumed to be aware of all the legitimate or illegitimate
offsprings of his/her spouse or paramour. The fact that Nadina amended
her petition to implead Francisco and Gustilo indicates earnest effort on
her part to comply with Section 3 as quoted above.
Yet, even though Barco was not impleaded in the petition, the Court of
Appeals correctly pointed out that the defect was cured by compliance
with Section 4, Rule 108, which requires notice by publication, thus:
Section 4. Upon the filing of the petition, the court shall, by order, fix the
time and place for the hearing of the same, and cause reasonable notice
thereof to be given to the persons named in the petition. The court shall
also cause the order to be published once a week for three (3)
consecutive weeks in a newspaper of general circulation in the province.
The purpose precisely of Section 4, Rule 108 is to bind the whole
world to the subsequent judgment on the petition. The sweep of the
decision would cover even parties who should have been impleaded
under Section 3, Rule 108, but were inadvertently left out. The Court
of Appeals correctly noted:
The publication being ordered was in compliance with, and borne out by
the Order of January 7, 1985. The actual publication of the September
22, 1983 Order, conferred jurisdiction upon the respondent court to try
and decide the case. While "nobody appeared to oppose the instant
petition" during the December 6, 1984 hearing, that did not divest the
court from its jurisdiction over the case and of its authority to continue
trying the case. For, the rule is well-settled, that jurisdiction, once
acquired continues until termination of the case.
Verily, a petition for correction is an action in rem, an action against a
thing and not against a person. The decision on the petition binds not
only the parties thereto but the whole world. An in rem proceeding is
validated essentially through publication. Publication is notice to the
whole world that the proceeding has for its object to bar indefinitely all

14
who might be minded to make an objection of any sort against the right
sought to be established. It is the publication of such notice that brings in
the whole world as a party in the case and vests the court with jurisdiction
to hear and decide it.30
Furthermore, extrinsic fraud, which was private respondents alleged
concealment of Armis present address, was not proven. Extrinsic fraud
exists when there is a fraudulent act committed by the prevailing party
outside of the trial of the case, whereby the defeated party was prevented
from presenting fully his side of the case by fraud or deception practiced
on him by the prevailing party. Here, Armi contended that private
respondent is aware of her present address because they lived together
as husband and wife in the condominium unit from 1982 to 1988 and
because private respondent continued to give support to their son until
1998. To prove her claim, she presented (1) private respondents title
over the condominium unit; (2) receipts allegedly issued to private
respondent for payment of homeowners or association dues; (2) a
photocopy of a January 14, 1991 deed of sale of the subject unit in favor
of Armi; and (3) the subsequent title issued to the latter. However, these
documents only tend to prove private respondents previous ownership of
the unit and the subsequent transfer thereof to Armi, but not the claimed
live-in relationship of the parties. Neither does the sale prove that the
conveyance of the unit was part of private respondents support to
petitioner minor. Indeed, intimate relationships and family relations
cannot be inferred from what appears to be an ordinary business
transaction.
Although the January 14, 1991 deed of sale 31 stated that Armi resides at
1175 L. Guerrero St., Ermita, Manila, the same is not sufficient to prove
that private respondent has knowledge of Armis address because the
former objected to the offer of the deed for being a mere photocopy.32 The
counsel for petitioners even admitted that they do not have the original of
the deed and that per certification of the Clerk of Court, the Notary Public
who notarized the deed of sale did not submit a copy of the notarized
document as required by the rules.33 The deed cannot thus be the basis
of ascribing knowledge of Armis address to private respondent inasmuch
as the authenticity thereof was neither admitted by private respondent
nor proven by petitioners.

While Armi presented the alleged love letters/notes from private

respondent, they were only attached as annexes to the petition and not
formally offered as evidence before the Court of Appeals. More
importantly, said letters/notes do not have probative value because they
were mere photocopies and never proven to be an authentic writing of
private respondent. In the same vein, the affidavits34 of Armi and her
sister, Corazon Espiritu, are of no evidentiary weight. The basic rule of
evidence is that unless the affiants themselves are placed on the witness
stand to testify on their affidavits, such affidavits must be rejected for
being hearsay. Stated differently, the declarants of written statements
pertaining to disputed facts must be presented at the trial for crossexamination.35Inasmuch as Armi and her sister were not presented before
the Court of Appeals to affirm the veracity of their affidavits, the same are
considered hearsay and without probative value.
Ei incumbit probotio qui dicit, non qui negat. He who asserts, not he who
denies, must prove.36 Armis claim that private respondent is aware of her
present address is anchored on the assertion of a live-in relationship and
support to her son. Since the evidence presented by Armi is not sufficient
to prove the purported cohabitation and support, it follows that private
respondents knowledge of Armis address was likewise not proven.
Thus, private respondent could not have deliberately concealed from the
court that which was not shown to be known to him. The Court of Appeals
therefore correctly dismissed the petition for annulment of judgment on
the ground of failure to establish extrinsic fraud.
The proper remedy of a party aggrieved by a decision of the Court of
Appeals in an action to annul a judgment of a Regional Trial Court is a
petition for review on certiorari under Rule 45 of the Revised Rules of
Civil Procedure, where only questions of law may be raised. The resort of
petitioner to the instant civil action for certiorari under Rule 65 is therefore
erroneous. The special civil action of certiorari will not be allowed as a
substitute for failure to timely file a petition for review under Rule 45,
which should be instituted within 15 days 37 from receipt of the assailed
decision or resolution. The wrong choice of remedy thus provides another
reason to dismiss this petition.38
Finally, petitioner failed to establish the merits of her petition to annul the
trial courts decision. In an action for annulment of judgment, the

15
petitioner must convince the court that something may indeed be
achieved should the assailed decision be annulled.39 Under Article
17640 of the Family Code as amended by Republic Act (RA) No. 9255,
which took effect on March 19, 2004, illegitimate children shall use the
surname of their mother, unless their father recognizes their filiation, in
which case they may bear the fathers surname. In Wang v. Cebu Civil
Registrar,41 it was held that an illegitimate child whose filiation is not
recognized by the father, bears only a given name and his mothers
surname. The name of the unrecognized illegitimate child identifies him
as such. It is only when said child is recognized that he may use his
fathers surname, reflecting his status as an acknowledged illegitimate
child.
In the present case, it is clear from the allegations of Armi that petitioner
minor is an illegitimate child because she was never married to private
respondent. Considering that the latter strongly asserts that he is not the
father of petitioner minor, the latter is therefore an unrecognized
illegitimate child. As such, he must bear the surname of his mother.
In sum, the substantive and procedural aspects of the instant controversy
do not warrant the annulment of the trial courts decision.
WHEREFORE, the petition is DISMISSED. The February 27, 2004
decision and the May 14, 2004 resolution of the Court of Appeals in CAG.R. SP No. 61883 are AFFIRMED. SO ORDERED.

G.R. No. 175799

November 28, 2011
NM ROTHSCHILD & SONS (AUSTRALIA) LIMITED, Petitioner, vs.
LEPANTO CONSOLIDATED MINING COMPANY, Respondent.
This is a Petition for Review on Certiorari assailing the Decision1 of the
Court of Appeals dated September 8, 2006 in CA-G.R. SP No. 94382 and
its Resolution2 dated December 12, 2006, denying the Motion for
Reconsideration.
On August 30, 2005, respondent Lepanto Consolidated Mining Company
filed with the Regional Trial Court (RTC) of Makati City a
Complaint3 against petitioner NM Rothschild & Sons (Australia) Limited
praying for a judgment declaring the loan and hedging contracts between
the parties void for being contrary to Article 2018 4 of the Civil Code of the
Philippines and for damages. The Complaint was docketed as Civil Case
No. 05-782, and was raffled to Branch 150. Upon respondents (plaintiffs)
motion, the trial court authorized respondents counsel to personally bring
the summons and Complaint to the Philippine Consulate General in

16
Sydney, Australia for the latter office to effect service of summons on
petitioner (defendant).
On October 20, 2005, petitioner filed a Special Appearance With Motion
to Dismiss5 praying for the dismissal of the Complaint on the following
grounds: (a) the court has not acquired jurisdiction over the person of
petitioner due to the defective and improper service of summons; (b) the
Complaint failed to state a cause of action and respondent does not have
any against petitioner; (c) the action is barred by estoppel; and (d)
respondent did not come to court with clean hands.
On November 29, 2005, petitioner filed two Motions: (1) a Motion for
Leave to take the deposition of Mr. Paul Murray (Director, Risk
Management of petitioner) before the Philippine Consul General; and (2)
a Motion for Leave to Serve Interrogatories on respondent.
On December 9, 2005, the trial court issued an Order 6 denying the
Motion to Dismiss. According to the trial court, there was a proper service
of summons through the Department of Foreign Affairs (DFA) on account
of the fact that the defendant has neither applied for a license to do
business in the Philippines, nor filed with the Securities and Exchange
Commission (SEC) a Written Power of Attorney designating some person
on whom summons and other legal processes maybe served. The trial
court also held that the Complaint sufficiently stated a cause of action.
The other allegations in the Motion to Dismiss were brushed aside as
matters of defense which can best be ventilated during the trial.
On December 27, 2005, petitioner filed a Motion for Reconsideration. 7 On
March 6, 2006, the trial court issued an Order denying the December 27,
2005 Motion for Reconsideration and disallowed the twin Motions for
Leave to take deposition and serve written interrogatories.8
On April 3, 2006, petitioner sought redress via a Petition for
Certiorari9 with the Court of Appeals, alleging that the trial court
committed grave abuse of discretion in denying its Motion to Dismiss.
The Petition was docketed as CA-G.R. SP No. 94382.
On September 8, 2006, the Court of Appeals rendered the assailed
Decision dismissing the Petition for Certiorari. The Court of Appeals ruled

that since the denial of a Motion to Dismiss is an interlocutory order, it

cannot be the subject of a Petition for Certiorari, and may only be
reviewed in the ordinary course of law by an appeal from the judgment
after trial. On December 12, 2006, the Court of Appeals rendered the
assailed Resolution denying the petitioners Motion for Reconsideration.
Meanwhile, on December 28, 2006, the trial court issued an Order
directing respondent to answer some of the questions in petitioners
Interrogatories to Plaintiff dated September 7, 2006.
Notwithstanding the foregoing, petitioner filed the present petition
assailing the September 8, 2006 Decision and the December 12, 2006
Resolution of the Court of Appeals. Arguing against the ruling of the
appellate court, petitioner insists that (a) an order denying a motion to
dismiss may be the proper subject of a petition for certiorari; and (b) the
trial court committed grave abuse of discretion in not finding that it had
not validly acquired jurisdiction over petitioner and that the plaintiff had no
cause of action.
Respondent, on the other hand, posits that: (a) the present Petition
should be dismissed for not being filed by a real party in interest and for
lack of a proper verification and certificate of non-forum shopping; (b) the
Court of Appeals correctly ruled that certiorari was not the proper remedy;
and (c) the trial court correctly denied petitioners motion to dismiss.
Our discussion of the issues raised by the parties follows:
Whether petitioner is a real party in interest
Respondent argues that the present Petition should be dismissed on the
ground that petitioner no longer existed as a corporation at the time said
Petition was filed on February 1, 2007. Respondent points out that as of
the date of the filing of the Petition, there is no such corporation that goes
by the name NM Rothschild and Sons (Australia) Limited. Thus,
according to respondent, the present Petition was not filed by a real party
in interest, citing our ruling in Philips Export B.V. v. Court of
Appeals,10 wherein we held:

17
A name is peculiarly important as necessary to the very existence of a
corporation (American Steel Foundries vs. Robertson, 269 US 372, 70 L
ed 317, 46 S Ct 160; Lauman vs. Lebanon Valley R. Co., 30 Pa 42; First
National Bank vs. Huntington Distilling Co., 40 W Va 530, 23 SE 792). Its
name is one of its attributes, an element of its existence, and essential to
its identity (6 Fletcher [Perm Ed], pp. 3-4). The general rule as to
corporations is that each corporation must have a name by which it is to
sue and be sued and do all legal acts. The name of a corporation in this
respect designates the corporation in the same manner as the name of
an individual designates the person (Cincinnati Cooperage Co. vs. Bate,
96 Ky 356, 26 SW 538; Newport Mechanics Mfg. Co. vs. Starbird, 10 NH
123); and the right to use its corporate name is as much a part of the
corporate franchise as any other privilege granted (Federal Secur. Co. vs.
Federal Secur. Corp., 129 Or 375, 276 P 1100, 66 ALR 934; Paulino vs.
Portuguese Beneficial Association, 18 RI 165, 26 A 36). 11
In its Memorandum12 before this Court, petitioner started to refer to itself
as Investec Australia Limited (formerly "NM Rothschild & Sons [Australia]
Limited") and captioned said Memorandum accordingly. Petitioner claims
that NM Rothschild and Sons (Australia) Limited still exists as a
corporation under the laws of Australia under said new name. It
presented before us documents evidencing the process in the Australian
Securities & Investment Commission on the change of petitioners
company name from NM Rothschild and Sons (Australia) Limited to
Investec Australia Limited.13
We find the submissions of petitioner on the change of its corporate
name satisfactory and resolve not to dismiss the present Petition for
Review on the ground of not being prosecuted under the name of the real
party in interest. While we stand by our pronouncement in Philips Export
on the importance of the corporate name to the very existence of
corporations and the significance thereof in the corporations right to sue,
we shall not go so far as to dismiss a case filed by the proper party using
its former name when adequate identification is presented. A real party in
interest is the party who stands to be benefited or injured by the judgment
in the suit, or the party entitled to the avails of the suit. 14 There is no doubt
in our minds that the party who filed the present Petition, having
presented sufficient evidence of its identity and being represented by the
same counsel as that of the defendant in the case sought to be

dismissed, is the entity that will be benefited if this Court grants the
dismissal prayed for.
Since the main objection of respondent to the verification and certification
against forum shopping likewise depends on the supposed inexistence of
the corporation named therein, we give no credit to said objection in light
of the foregoing discussion.
Propriety of the Resort to a Petition for Certiorari with the Court of
Appeals
We have held time and again that an order denying a Motion to Dismiss
is an interlocutory order which neither terminates nor finally disposes of a
case as it leaves something to be done by the court before the case is
finally decided on the merits. The general rule, therefore, is that the
denial of a Motion to Dismiss cannot be questioned in a special civil
action for Certiorari which is a remedy designed to correct errors of
jurisdiction and not errors of judgment. 15 However, we have likewise held
that when the denial of the Motion to Dismiss is tainted with grave abuse
of discretion, the grant of the extraordinary remedy of Certiorari may be
justified. By "grave abuse of discretion" is meant:
[S]uch capricious and whimsical exercise of judgment that is equivalent
to lack of jurisdiction. The abuse of discretion must be grave as where the
power is exercised in an arbitrary or despotic manner by reason of
passion or personal hostility, and must be so patent and gross as to
amount to an evasion of positive duty or to a virtual refusal to perform the
duty enjoined by or to act all in contemplation of law.16
The resolution of the present Petition therefore entails an inquiry into
whether the Court of Appeals correctly ruled that the trial court did not
commit grave abuse of discretion in its denial of petitioners Motion to
Dismiss. A mere error in judgment on the part of the trial court would
undeniably be inadequate for us to reverse the disposition by the Court of
Appeals.
Issues more properly ventilated during the trial of the case

18
As previously stated, petitioner seeks the dismissal of Civil Case No. 05782 on the following grounds: (a) lack of jurisdiction over the person of
petitioner due to the defective and improper service of summons; (b)
failure of the Complaint to state a cause of action and absence of a
cause of action; (c) the action is barred by estoppel; and (d) respondent
did not come to court with clean hands.
As correctly ruled by both the trial court and the Court of Appeals, the
alleged absence of a cause of action (as opposed to the failure to state a
cause of action), the alleged estoppel on the part of petitioner, and the
argument that respondent is in pari delicto in the execution of the
challenged contracts, are not grounds in a Motion to Dismiss as
enumerated in Section 1, Rule 16 17 of the Rules of Court. Rather, such
defenses raise evidentiary issues closely related to the validity and/or
existence of respondents alleged cause of action and should therefore
be threshed out during the trial.
As regards the allegation of failure to state a cause of action, while the
same is usually available as a ground in a Motion to Dismiss, said ground
cannot be ruled upon in the present Petition without going into the very
merits of the main case.
It is basic that "[a] cause of action is the act or omission by which a party
violates a right of another."18 Its elements are the following: (1) a right
existing in favor of the plaintiff, (2) a duty on the part of the defendant to
respect the plaintiff's right, and (3) an act or omission of the defendant in
violation of such right.19 We have held that to sustain a Motion to Dismiss
for lack of cause of action, the complaint must show that the claim for
relief does not exist and not only that the claim was defectively stated or
is ambiguous, indefinite or uncertain.20
The trial court held that the Complaint in the case at bar contains all the
three elements of a cause of action, i.e., it alleges that: (1) plaintiff has
the right to ask for the declaration of nullity of the Hedging Contracts for
being null and void and contrary to Article 2018 of the Civil Code of the
Philippines; (2) defendant has the corresponding obligation not to enforce
the Hedging Contracts because they are in the nature of wagering or
gambling agreements and therefore the transactions implementing those
contracts are null and void under Philippine laws; and (3) defendant

ignored the advice and intends to enforce the Hedging Contracts by

demanding financial payments due therefrom.21
The rule is that in a Motion to Dismiss, a defendant hypothetically admits
the truth of the material allegations of the ultimate facts contained in the
plaintiff's complaint.22 However, this principle of hypothetical admission
admits of exceptions. Thus, in Tan v. Court of Appeals, 23 we held:
The flaw in this conclusion is that, while conveniently echoing the general
rule that averments in the complaint are deemed hypothetically admitted
upon the filing of a motion to dismiss grounded on the failure to state a
cause of action, it did not take into account the equally established
limitations to such rule, i.e., that a motion to dismiss does not
admit the truth of mere epithets of fraud; nor allegations of legal
conclusions; nor an erroneous statement of law; nor mere inferences or
conclusions from facts not stated; nor mere conclusions of law; nor
allegations of fact the falsity of which is subject to judicial notice; nor
matters of evidence; nor surplusage and irrelevant matter; nor
scandalous matter inserted merely to insult the opposing party; nor to
legally impossible facts; nor to facts which appear unfounded by a record
incorporated in the pleading, or by a document referred to; and, nor to
general averments contradicted by more specific averments. A more
judicious resolution of a motion to dismiss, therefore, necessitates that
the court be not restricted to the consideration of the facts alleged in the
complaint and inferences fairly deducible therefrom. Courts may consider
other facts within the range of judicial notice as well as relevant laws and
jurisprudence which the courts are bound to take into account, and they
are also fairly entitled to examine records/documents duly
incorporated into the complaint by the pleader himself in ruling on
the demurrer to the complaint.24 (Emphases supplied.)
In the case at bar, respondent asserts in the Complaint that the Hedging
Contracts are void for being contrary to Article 2018 25 of the Civil Code.
Respondent claims that under the Hedging Contracts, despite the
express stipulation for deliveries of gold, the intention of the parties was
allegedly merely to compel each other to pay the difference between the
value of the gold at the forward price stated in the contract and its market
price at the supposed time of delivery.

19
Whether such an agreement is void is a mere allegation of a conclusion
of law, which therefore cannot be hypothetically admitted. Quite properly,
the relevant portions of the contracts sought to be nullified, as well as a
copy of the contract itself, are incorporated in the Complaint. The
determination of whether or not the Complaint stated a cause of action
would therefore involve an inquiry into whether or not the assailed
contracts are void under Philippine laws. This is, precisely, the very issue
to be determined in Civil Case No. 05-782. Indeed, petitioners defense
against the charge of nullity of the Hedging Contracts is the purported
intent of the parties that actual deliveries of gold be made pursuant
thereto. Such a defense requires the presentation of evidence on the
merits of the case. An issue that "requires the contravention of the
allegations of the complaint, as well as the full ventilation, in effect, of the
main merits of the case, should not be within the province of a mere
Motion to Dismiss."26 The trial court, therefore, correctly denied the
Motion to Dismiss on this ground.
It is also settled in jurisprudence that allegations of estoppel and bad faith
require proof. Thus, in Paraaque Kings Enterprises, Inc. v. Court of
Appeals,27 we ruled:
Having come to the conclusion that the complaint states a valid cause of
action for breach of the right of first refusal and that the trial court should
thus not have dismissed the complaint, we find no more need to pass
upon the question of whether the complaint states a cause of action for
damages or whether the complaint is barred by estoppel or laches. As
these matters require presentation and/or determination of facts,
they can be best resolved after trial on the merits.28 (Emphases
supplied.)
On the proposition in the Motion to Dismiss that respondent has come to
court with unclean hands, suffice it to state that the determination of
whether one acted in bad faith and whether damages may be awarded is
evidentiary in nature. Thus, we have previously held that "[a]s a matter of
defense, it can be best passed upon after a full-blown trial on the
merits."29
Jurisdiction over the person of petitioner

Petitioner alleges that the RTC has not acquired jurisdiction over its
person on account of the improper service of summons. Summons was
served on petitioner through the DFA, with respondents counsel
personally bringing the summons and Complaint to the Philippine
Consulate General in Sydney, Australia.
In the pleadings filed by the parties before this Court, the parties entered
into a lengthy debate as to whether or not petitioner is doing business in
the Philippines. However, such discussion is completely irrelevant in the
case at bar, for two reasons. Firstly, since the Complaint was filed on
August 30, 2005, the provisions of the 1997 Rules of Civil Procedure
govern the service of summons. Section 12, Rule 14 of said rules
provides:
Sec. 12. Service upon foreign private juridical entity. When the
defendant is a foreign private juridical entity which has transacted
business in the Philippines, service may be made on its resident agent
designated in accordance with law for that purpose, or, if there be no
such agent, on the government official designated by law to that effect, or
on any of its officers or agents within the Philippines. (Emphasis
supplied.)
This is a significant amendment of the former Section 14 of said rule
which previously provided:
Sec. 14. Service upon private foreign corporations. If the defendant is
a foreign corporation, or a nonresident joint stock company or
association, doing business in the Philippines, service may be made
on its resident agent designated in accordance with law for that purpose,
or if there be no such agent, on the government official designated by law
to that effect, or on any of its officers or agents within the Philippines.
(Emphasis supplied.)
The coverage of the present rule is thus broader.30 Secondly, the service
of summons to petitioner through the DFA by the conveyance of the
summons to the Philippine Consulate General in Sydney, Australia was
clearly made not through the above-quoted Section 12, but pursuant to
Section 15 of the same rule which provides:

20
Sec. 15. Extraterritorial service. When the defendant does not reside
and is not found in the Philippines, and the action affects the personal
status of the plaintiff or relates to, or the subject of which is property
within the Philippines, in which the defendant has or claims a lien or
interest, actual or contingent, or in which the relief demanded consists,
wholly or in part, in excluding the defendant from any interest therein, or
the property of the defendant has been attached within the Philippines,
service may, by leave of court, be effected out of the Philippines by
personal service as under section 6; or by publication in a newspaper of
general circulation in such places and for such time as the court may
order, in which case a copy of the summons and order of the court shall
be sent by registered mail to the last known address of the defendant, or
in any other manner the court may deem sufficient. Any order granting
such leave shall specify a reasonable time, which shall not be less than
sixty (60) days after notice, within which the defendant must answer.
Respondent argues31 that extraterritorial service of summons upon
foreign private juridical entities is not proscribed under the Rules of Court,
and is in fact within the authority of the trial court to adopt, in accordance
with Section 6, Rule 135:
Sec. 6. Means to carry jurisdiction into effect. When by law jurisdiction
is conferred on a court or judicial officer, all auxiliary writs, processes and
other means necessary to carry it into effect may be employed by such
court or officer; and if the procedure to be followed in the exercise of such
jurisdiction is not specifically pointed out by law or by these rules, any
suitable process or mode of proceeding may be adopted which appears
comformable to the spirit of said law or rules.
Section 15, Rule 14, however, is the specific provision dealing precisely
with the service of summons on a defendant which does not reside and is
not found in the Philippines, while Rule 135 (which is in Part V of the
Rules of Court entitled Legal Ethics) concerns the general powers and
duties of courts and judicial officers.
Breaking down Section 15, Rule 14, it is apparent that there are only four
instances wherein a defendant who is a non-resident and is not found in
the country may be served with summons by extraterritorial service, to
wit: (1) when the action affects the personal status of the plaintiffs; (2)

when the action relates to, or the subject of which is property, within the
Philippines, in which the defendant claims a lien or an interest, actual or
contingent; (3) when the relief demanded in such action consists, wholly
or in part, in excluding the defendant from any interest in property located
in the Philippines; and (4) when the defendant non-resident's property
has been attached within the Philippines. In these instances, service of
summons may be effected by (a) personal service out of the country, with
leave of court; (b) publication, also with leave of court; or (c) any other
manner the court may deem sufficient.32
Proceeding from this enumeration, we held in Perkin Elmer Singapore
Pte Ltd. v. Dakila Trading Corporation33 that:
Undoubtedly, extraterritorial service of summons applies only where
the action is in rem or quasi in rem, but not if an action is in
personam.
When the case instituted is an action in rem or quasi in rem, Philippine
courts already have jurisdiction to hear and decide the case because, in
actions in rem and quasi in rem, jurisdiction over the person of the
defendant is not a prerequisite to confer jurisdiction on the court,
provided that the court acquires jurisdiction over the res. Thus, in such
instance, extraterritorial service of summons can be made upon the
defendant. The said extraterritorial service of summons is not for the
purpose of vesting the court with jurisdiction, but for complying with the
requirements of fair play or due process, so that the defendant will be
informed of the pendency of the action against him and the possibility
that property in the Philippines belonging to him or in which he has an
interest may be subjected to a judgment in favor of the plaintiff, and he
can thereby take steps to protect his interest if he is so minded. On the
other hand, when the defendant or respondent does not reside and
is not found in the Philippines, and the action involved is in
personam, Philippine courts cannot try any case against him
because of the impossibility of acquiring jurisdiction over his
person unless he voluntarily appears in court.34 (Emphases supplied.)
In Domagas v. Jensen,35 we held that:

21
[T]he aim and object of an action determine its character. Whether a
proceeding is in rem, or in personam, or quasi in rem for that matter, is
determined by its nature and purpose, and by these only. A proceeding in
personam is a proceeding to enforce personal rights and obligations
brought against the person and is based on the jurisdiction of the person,
although it may involve his right to, or the exercise of ownership of,
specific property, or seek to compel him to control or dispose of it in
accordance with the mandate of the court. The purpose of a proceeding
in personam is to impose, through the judgment of a court, some
responsibility or liability directly upon the person of the defendant. Of this
character are suits to compel a defendant to specifically perform some
act or actions to fasten a pecuniary liability on him.36
It is likewise settled that "[a]n action in personam is lodged against a
person based on personal liability; an action in rem is directed against the
thing itself instead of the person; while an action quasi in rem names a
person as defendant, but its object is to subject that persons interest in a
property to a corresponding lien or obligation."37
The Complaint in the case at bar is an action to declare the loan and
Hedging Contracts between the parties void with a prayer for
damages. It is a suit in which the plaintiff seeks to be freed from its
obligations to the defendant under a contract and to hold said defendant
pecuniarily liable to the plaintiff for entering into such contract. It is
therefore an action in personam, unless and until the plaintiff attaches a
property within the Philippines belonging to the defendant, in which case
the action will be converted to one quasi in rem.
Since the action involved in the case at bar is in personam and since the
defendant, petitioner Rothschild/Investec, does not reside and is not
found in the Philippines, the Philippine courts cannot try any case against
it because of the impossibility of acquiring jurisdiction over its person
unless it voluntarily appears in court.38
In this regard, respondent vigorously argues that petitioner should be
held to have voluntarily appeared before the trial court when it prayed for,
and was actually afforded, specific reliefs from the trial
court.39 Respondent points out that while petitioners Motion to Dismiss
was still pending, petitioner prayed for and was able to avail of modes of

discovery against respondent, such as written interrogatories, requests

for admission, deposition, and motions for production of documents.40
Petitioner counters that under this Courts ruling in the leading case of La
Naval Drug Corporation v. Court of Appeals, 41 a party may file a Motion to
Dismiss on the ground of lack of jurisdiction over its person, and at the
same time raise affirmative defenses and pray for affirmative relief,
without waiving its objection to the acquisition of jurisdiction over its
person.42
It appears, however, that petitioner misunderstood our ruling in La Naval.
A close reading of La Naval reveals that the Court intended a distinction
between the raising of affirmative defenses in an Answer (which
would not amount to acceptance of the jurisdiction of the court) and the
prayer for affirmative reliefs (which would be considered acquiescence to
the jurisdiction of the court):
In the same manner that a plaintiff may assert two or more causes
of action in a court suit, a defendant is likewise expressly allowed,
under Section 2, Rule 8, of the Rules of Court, to put up his own
defenses alternatively or even hypothetically. Indeed, under Section
2, Rule 9, of the Rules of Court, defenses and objections not pleaded
either in a motion to dismiss or in an answer, except for the failure to
state a cause of action, are deemed waived. We take this to mean that a
defendant may, in fact, feel enjoined to set up, along with his objection to
the court's jurisdiction over his person, all other possible defenses. It thus
appears that it is not the invocation of any of such defenses, but the
failure to so raise them, that can result in waiver or estoppel. By
defenses, of course, we refer to the grounds provided for in Rule 16
of the Rules of Court that must be asserted in a motion to dismiss
or by way of affirmative defenses in an answer.
Mindful of the foregoing, in Signetics Corporation vs. Court of
Appeals and Freuhauf Electronics Phils., Inc. (225 SCRA 737, 738),
we lately ruled:
"This is not to say, however, that the petitioner's right to question
the jurisdiction of the court over its person is now to be deemed a
foreclosed matter. If it is true, as Signetics claims, that its only

22
involvement in the Philippines was through a passive investment in Sigfil,
which it even later disposed of, and that TEAM Pacific is not its agent,
then it cannot really be said to be doing business in the Philippines. It is a
defense, however, that requires the contravention of the allegations of the
complaint, as well as a full ventilation, in effect, of the main merits of the
case, which should not thus be within the province of a mere motion to
dismiss. So, also, the issue posed by the petitioner as to whether a
foreign corporation which has done business in the country, but which
has ceased to do business at the time of the filing of a complaint, can still
be made to answer for a cause of action which accrued while it was
doing business, is another matter that would yet have to await the
reception and admission of evidence. Since these points have
seasonably been raised by the petitioner, there should be no real
cause for what may understandably be its apprehension, i.e., that by
its participation during the trial on the merits, it may, absent an
invocation of separate or independent reliefs of its own, be
considered to have voluntarily submitted itself to the court's
jurisdiction."43 (Emphases supplied.)
In order to conform to the ruling in La Naval, which was decided by this
Court in 1994, the former Section 23, Rule 14 44 concerning voluntary
appearance was amended to include a second sentence in its equivalent
provision in the 1997 Rules of Civil Procedure:
SEC. 20. Voluntary appearance. The defendant's voluntary appearance
in the action shall be equivalent to service of summons. The inclusion in
a motion to dismiss of other grounds aside from lack of jurisdiction
over the person of the defendant shall not be deemed a voluntary
appearance. (Emphasis supplied.)
The new second sentence, it can be observed, merely mentions other
grounds in a Motion to Dismiss aside from lack of jurisdiction over the
person of the defendant. This clearly refers to affirmative defenses, rather
than affirmative reliefs.
Thus, while mindful of our ruling in La Naval and the new Section 20,
Rule 20, this Court, in several cases, ruled that seeking affirmative relief
in a court is tantamount to voluntary appearance therein. 45 Thus, in
Philippine Commercial International Bank v. Dy Hong Pi, 46 wherein

defendants filed a "Motion for Inhibition without submitting themselves to

the jurisdiction of this Honorable Court" subsequent to their filing of a
"Motion to Dismiss (for Lack of Jurisdiction)," we held:
Besides, any lingering doubts on the issue of voluntary appearance
dissipate when the respondents' motion for inhibition is considered. This
motion seeks a sole relief: inhibition of Judge Napoleon Inoturan from
further hearing the case. Evidently, by seeking affirmative relief other
than dismissal of the case, respondents manifested their voluntary
submission to the court's jurisdiction. It is well-settled that the active
participation of a party in the proceedings is tantamount to an invocation
of the court's jurisdiction and a willingness to abide by the resolution of
the case, and will bar said party from later on impugning the court's
jurisdiction.47 (Emphasis supplied.)
1wphi1

In view of the above, we therefore rule that petitioner, by seeking

affirmative reliefs from the trial court, is deemed to have voluntarily
submitted to the jurisdiction of said court. A party cannot invoke the
jurisdiction of a court to secure affirmative relief against his opponent and
after obtaining or failing to obtain such relief, repudiate or question that
same jurisdiction.48 Consequently, the trial court cannot be considered to
have committed grave abuse of discretion amounting to lack or excess of
jurisdiction in the denial of the Motion to Dismiss on account of failure to
acquire jurisdiction over the person of the defendant.
WHEREFORE, the Petition for Review on Certiorari is DENIED. The
Decision of the Court of Appeals dated September 8, 2006 and its
Resolution dated December 12, 2006 in CA-G.R. SP No. 94382 are
hereby AFFIRMED.No pronouncement as to costs.SO ORDERED.

23
It also defined a "futures contract" as a "contractual commitment to buy
and sell a standardized quantity of a particular item at a specified future
settlement date and at a price agreed upon, with the purchase or sale
being executed on a regulated futures exchange."
In its complaint ML FUTURES alleged the following:
1) that on September 28, 1983 it entered into a Futures Customer
Agreement with the defendant spouses (Account No. 138-12161), in
virtue of which it agreed to act as the latter's broker for the purchase and
sale of futures contracts in the U.S.;
G.R. No. 97816 July 24, 1992
MERRILL LYNCH FUTURES, INC., petitioner, vs. HON. COURT OF
APPEALS, and the SPOUSES PEDRO M. LARA and ELISA G.
LARA, respondents.
The capacity of a foreign corporation to maintain an action in the
Philippines against residents thereof, is the principal question in the
appellate proceedings at bar. The issue arises from the undisputed facts
now to be briefly narrated.
On November 23, 1987, Merrill Lynch Futures, Inc. (hereafter, simply ML
FUTURES) filed a complaint with the Regional Trial Court at Quezon City
against the Spouses Pedro M. Lara and Elisa G. Lara for the recovery of
a debt and interest thereon, damages, and attorney's fees. 1 In its
complaint ML FUTURES described itself as
a) a non-resident foreign corporation, not doing business in the
Philippines, duly organized and existing under and by virtue of the
laws of the state of Delaware, U.S.A.;" as well as
b) a "futures commission merchant" duly licensed to act as such
in the futures markets and exchanges in the United States, . .
essentially functioning as a broker . . (executing) orders to buy
and sell futures contracts received from its customers on U.S.
futures exchanges.

2) that pursuant to the contract, orders to buy and sell futures contracts
were transmitted to ML FUTURES by the Lara Spouses "through the
facilities of Merrill Lynch Philippines, Inc., a Philippine corporation and a
company servicing plaintiffs customers; 2
3) that from the outset, the Lara Spouses "knew and were duly advised
that Merrill Lynch Philippines, Inc. was not a broker in futures contracts,"
and that it "did not have a license from the Securities and Exchange
Commission to operate as a commodity trading advisor (i.e., 'an entity
which, not being a broker, furnishes advice on commodity futures to
persons who trade in futures contracts');
4) that in line with the above mentioned agreement and through said
Merrill Lynch Philippines, Inc., the Lara Spouses actively traded in futures
contracts, including "stock index futures" for four years or so, i.e., from
1983 to October, 1987, 3 there being more or less regular accounting and
corresponding remittances of money (or crediting or debiting) made between
the spouses and ML FUTURES;
5) that because of a loss amounting to US$160,749.69 incurred in
respect of three (3) transactions involving "index futures," and after
setting this off against an amount of US$75,913.42 then owing by ML
FUTURES to the Lara Spouses, said spouses became indebted to ML
FUTURES for the ensuing balance of US$84,836.27, which the latter
asked them to pay;

24
6) that the Lara Spouses however refused to pay this balance, "alleging
that the transactions were null and void because Merrill Lynch
Philippines, Inc., the Philippine company servicing accounts of plaintiff, . .
had no license to operate as a 'commodity and/or financial futures
broker.'"
On the foregoing essential facts, ML FUTURES prayed (1) for a
preliminary attachment against defendant spouses' properties "up to the
value of at least P2,267,139.50," and (2) for judgment, after trial,
sentencing the spouses to pay ML FUTURES:
a) the Philippine peso equivalent of $84,836.27 at the applicable
exchanged rate on date of payment, with legal interest from date
of demand until full payment;
b) exemplary damages in the sum of at least P500,000.00; and
c) attorney's fees and expenses of litigation as may be proven at
the trial.
Preliminary attachment issued ex parte on December 2, 1987, and the
defendant spouses were duly served with summons.
They then filed a motion to dismiss dated December 18, 1987 on the
grounds that:

suit or proceeding in any court or administrative agency of the

Philippines;" and
b) they had never been informed that Merrill Lynch Philippines, Inc. was
not licensed to do business in this country; and contrary to the allegations
of the complaint, all their transactions had actually been with MERRILL
LYNCH PIERCE FENNER & SMITH, INC., and not with ML
FUTURES (Merrill Lynch Futures, Inc.), in proof of which they attached to
their motion to dismiss copies of eight (8) agreements, receipts or
reminders, etc., executed on standard printed forms of said Merrill Lynch
Pierce Fenner & Smith Inc. 4
ML FUTURES filed an OPPOSITION to the defendant spouses' motion to
dismiss. In that motion
a) it drew attention to paragraph 4 of its complaint, admitted by
defendants, that the latter "have been actively trading in futures contracts
. . . in U.S. futures exchanges from 1983 to 1987," and ask, "If the trading
. . . (was) made in U.S., how could plaintiff be doing business in the
Philippines?"
b) it also drew attention to a printed form of "Merrill Lynch Futures, Inc."
filled out and signed by defendant spouses when they opened an
account with ML Futures, in order to supply information about
themselves, including their bank's name
(1) in which appear the following epigraph: "Account
introduced by Merrill Lynch International, Inc.," and the
following statements, to wit:

(1) plaintiff ML FUTURES had "no legal capacity to sue"

and
(2) its "complaint states no cause of action since . . (it) is
not the real party in interest."
In that motion to dismiss, the defendant spouses averred that:
a) although not licensed to do so, ML FUTURES had been doing
business in the Philippines "at least for the last four (4) years," this being
clear from the very allegations of the complaint; consequently, ML
FUTURES is prohibited by law "to maintain or intervene in any action,

This Commodity Trading Advisor (Merrill Lynch, Pierce, Fenner &

Smith Philippines, Inc.) is prohibited by the Philippine Securities
and Exchange Commission from accepting funds in the trading
advisor's name from a client of Merrill Lynch Futures, Inc. for
trading commodity interests. All funds in this trading program
must be placed with Merrill Lynch Futures, Inc.;
and

25
. . . It is agreed between MERRILL LYNCH, PIERCE, FENNER &
SMITH INC., and other account carrying MERRILL LYNCH
entities and their customers that all legal relationships between
them will be governed by applicable laws in countries outside the
Philippines where sale and purchase transactions take place.
c) and it argued that
(1) it is not permitted for defendant spouses to present "evidence"
in connection with a motion to dismiss based on failure of the
complaint to state a cause of action;
(2) even if the documents appended to the motion to dismiss be
considered as admissible "evidence," the same would be
immaterial since the documents refer to a different account
number: 138-12136, the defendants' account number with ML
FUTURES being 138-12161;
(3) it is a lie for the defendant spouses to assert that they were
never informed that Merrill Lynch Philippines, Inc. had not been
licensed to do business in the Philippines; and
(4) defendant spouses should not be allowed to "invoke the aid of
the court with unclean hands.
The defendant spouses filed a REPLY reaffirming their lack of awareness
that Merrill Lynch Philippines, Inc. (formerly registered as Merrill Lynch,
Pierce, Fenner & Smith Philippines, Inc.) 5 did not have a license, claiming
that they learned of this only from inquiries with the Securities and Exchange
Commission which elicited the information that it had denied said
corporation's application to operate as a commodity futures trading advisor
a denial subsequently affirmed by the Court of Appeals (Merrill Lynch
Philippines, Inc. v. Securities & Exchange Commission, CA-G.R. No. 10821SP, Nov. 19, 1987). The spouses also submitted additional documents
(Annexes J to R) involving transactions with Merrill Lynch Pierce Fenner &
Smith, Inc., dating back to 1980, stressing that all but one of the documents
"refer to Account No. 138-12161 which is the very account that is involved in
the instant complaint."

ML FUTURES filed a Rejoinder alleging it had given the spouses a

disclosure statement by which the latter were made aware that the
transactions they were agreeing on would take place outside of the
Philippines, and that "all funds in the trading program must be placed with
Merrill Lynch Futures, Inc."
On January 12, 1988, the Trial Court promulgated an Order sustaining
the motion to dismiss, directing the dismissal of the case and discharging
the writ of preliminary attachment. It later denied ML FUTURES's motion
for reconsideration, by Order dated February 29, 1988. ML FUTURES
appealed to the Court of Appeals. 6
In its own decision promulgated on November 27, 1990, 7 the Court of
Appeals affirmed the Trial Court's judgment. It declared that the Trial Court
had seen "through the charade in the representation of MLPI and the plaintiff
that MLPI is only a trading advisor and in fact it is a conduit in the plaintiff's
business transactions in the Philippines as a basis for invoking the provisions
of Section 133 of the Corporation Code," 8 viz.:
Sec. 133. Doing business without a license. No foreign
corporation transacting business in the Philippines without
a license, or its successors or assigns, shall be permitted
to maintain or intervene in any action, suit or proceeding
in any court or administrative agency in the Philippines;
but such corporation may be sued or proceeded against
before Philippine courts or administrative tribunals on any
valid cause of action recognized under Philippine laws.
It also declared that the evidence established that plaintiff had in
fact been "doing business" in this country in legal contemplation,
adverting to Mentholatum v. Mangaliman, 72 Phil. 524, 528-530,
and Section 1 of Republic Act No. 5455 reading as follows: 9
Sec. 1. Definition and scope of this ACT . (1) As used in this
Act, the term "investment" shall mean equity participation in
any enterprise formed, organized, or existing under the laws
of the Philippines; and the phrase "doing business" shall
INCLUDE soliciting orders, purchases, service contracts,
opening offices, whether called "liaison" offices or

26
branches; appointing representatives or distributors who are
domiciled in the Philippines or who in any calendar year stay
in the Philippines for a period or periods totalling one
hundred eighty days or more; participating in the
management, supervision or control of any domestic
business firm, entity or corporation in the Philippines; AND
ANY OTHER ACT OR ACTS THAT IMPLY A CONTINUITY
OF COMMERCIAL DEALINGS OR ARRANGEMENTS AND
CONTEMPLATE TO THAT EXTENT THE PERFORMANCE
OF ACTS OR WORKS, OR THE EXERCISE OF SOME
FUNCTIONS NORMALLY INCIDENT TO, AND IN
PROGRESSIVE PROSECUTION OF COMMERCIAL GAIN
OR OF THE PURPOSE AND OBJECT OF THE BUSINESS
ORGANIZATION.

As regards the claim that it was error for the Trial Court to place reliance
on the decision of the Court of Appeals in CA-G.R. No. 10821-SP
sustaining the finding of the Securities & Exchange Commission that ML
FUTURES was doing business in the Philippines since that judgment
was not yet final and ML FUTURES was not a party to that proceeding,
the Court of Appeals ruled that there was no need to belabor the point
considering that there was, in any event, "adequate proof of the activities
of MLPI . . . which manifestly show that the plaintiff (ML FUTURES)
performed a series of business acts, consummated contracts and
undertook transactions for the period from 1983 to October 1987," "and
because ML FUTURES had done so without license, it consequently had
"no legal personality to bring suit in Philippine courts."
Its motion for reconsideration having been denied, 10 ML FUTURES has
appealed to this Court on certiorari. Here, it submits the following issues for
resolution:
(a) Whether or not the annexes appended by the Laras to their
Motion to Dismiss and Reply filed with the Regional Trial Court,
but never authenticated or offered, constitute admissible
evidence.
(b) Whether or not in the proceedings below, ML FUTURES has
been accorded procedural due process.

(c) Whether or not the annexes, assuming them to be admissible,

established that ML FUTURES was doing business in the
Philippines without a license.
As just stated, the Lara Spouse's motion to dismiss was founded on two
(2) grounds: (a) that the plaintiff has no legal capacity to sue, and (b) that
the complaint states no cause of action (Sec. 1 [d], and [g], Rule 16,
Rules of Court).
As regards the second ground, i.e., that the complaint states no cause of
action, the settled doctrine of course is that said ground must appear on
the face of the complaint, and its existence may be determined only by
the allegations of the complaint, consideration of other facts being
proscribed, and any attempt to prove extraneous circumstances not
being allowed. 11 The test of the sufficiency of the facts alleged in a
complaint as constituting a cause of action is whether or not, admitting the
facts alleged, the court might render a valid judgment upon the same in
accordance with the prayer of the complaint. 12 Indeed, it is error for a judge
to conduct a preliminary hearing and receive evidence on the affirmative
defense of failure of the complaint to state a cause of action. 13
The other ground for dismissal relied upon, i.e., that the plaintiff has no
legal capacity to sue may be understood in two senses: one, that the
plaintiff is prohibited or otherwise incapacitated by law to institute suit in
Philippine Courts, 14 or two, although not otherwise incapacitated in the
sense just stated, that it is not a real party in interest. 15 Now, the Lara
Spouses contend that ML Futures has no capacity to sue them because the
transactions subject of the complaint were had by them, not with the plaintiff
ML FUTURES, but with Merrill Lynch Pierce Fenner & Smith, Inc. Evidence is
quite obviously needed in this situation, for it is not to be expected that said
ground, or any facts from which its existence may be inferred, will be found in
the averments of the complaint. When such a ground is asserted in a motion
to dismiss, the general rule governing evidence on motions applies. The rule
is embodied in Section 7, Rule 133 of the Rules of Court.
Sec. 7. Evidence on motion. When a motion is based on facts
not appearing of record the court may hear the matter on
affidavits or depositions presented by the respective parties, but

27
the court may direct that the matter be heard wholly or partly on
oral testimony or depositions.

evidence would be to give unwarranted importance to technicality and

make it prevail over the substance of the issue.

There was, to be sure, no affidavit or deposition attached to the Lara

Spouses' motion to dismiss or thereafter proffered in proof of the
averments of their motion. The motion itself was not verified. What the
spouses did do was to refer in their motion to documents which purported
to establish that it was not with ML FUTURES that they had theretofore
been dealing, but another, distinct entity, Merrill Lynch, Pierce, Fenner &
Smith, Inc., copies of which documents were attached to the motion. It is
significant that ML FUTURES raised no issue relative to the authenticity
of the documents thus annexed to the Laras' motion. In fact, its
arguments subsumed the genuineness thereof and even adverted to one
or two of them. Its objection was centered on the propriety of taking
account of those documents as evidence, considering the established
principle that no evidence should be received in the resolution of a
motion to dismiss based on an alleged failure of the complaint to state a
cause of action.

The first question then, is, as ML FUTURES formulates it, whether or not
the annexes, assuming them to be admissible, establish that (a) ML
FUTURES is prohibited from suing in Philippine Courts because doing
business in the country without a license, and that (b) it is not a real party
in interest since the Lara Spouses had not been doing business with it,
but with another corporation, Merrill Lynch, Pierce, Fenner & Smith, Inc.

There being otherwise no question respecting the genuineness of the

documents, nor of their relevance to at least one of the grounds for
dismissal i.e., the prohibition on suits in Philippine Courts by foreign
corporations doing business in the country without license it would
have been a superfluity for the Court to require prior proof of their
authenticity, and no error may be ascribed to the Trial Court in taking
account of them in the determination of the motion on the ground, not
that the complaint fails to state a cause of action as regards which
evidence is improper and impermissible but that the plaintiff has no
legal capacity to sue respecting which proof may and should be
presented.
Neither may ML FUTURES argue with any degree of tenability that it had
been denied due process in the premises. As just pointed out, it was very
clear from the outset that the claim of lack of its capacity to sue was
being made to rest squarely on the documents annexed thereto, and ML
FUTURES had more than ample opportunity to impugn those documents
and require their authentication, but did not do so. To sustain its theory
that there should have been identification and authentication, and formal
offer, of those documents in the Trial Court pursuant to the rules of

The Court is satisfied that the facts on record adequately establish that
ML FUTURES, operating in the United States, had indeed done business
with the Lara Spouses in the Philippines over several years, had done so
at all times through Merrill Lynch Philippines, Inc. (MLPI), a corporation
organized in this country, and had executed all these transactions without
ML FUTURES being licensed to so transact business here, and without
MLPI being authorized to operate as a commodity futures trading advisor.
These are the factual findings of both the Trial Court and the Court of
Appeals. These, too, are the conclusions of the Securities & Exchange
Commission which denied MLPI's application to operate as a commodity
futures trading advisor, a denial subsequently affirmed by the Court of
Appeals. Prescinding from the proposition that factual findings of the
Court of Appeals are generally conclusive this Court has been cited to no
circumstance of substance to warrant reversal of said Appellate Court's
findings or conclusions in this case.
The Court is satisfied, too, that the Laras did transact business with ML
FUTURES through its agent corporation organized in the Philippines, it
being unnecessary to determine whether this domestic firm was MLPI
(Merrill Lynch Philippines, Inc.) or Merrill Lynch Pierce Fenner & Smith
(MLPI's alleged predecessor). The fact is that ML FUTURES did deal with
futures contracts in exchanges in the United States in behalf and for the
account of the Lara Spouses, and that on several occasions the latter
received account documents and money in connection with those
transactions.
Given these facts, if indeed the last transaction executed by ML
FUTURES in the Laras's behalf had resulted in a loss amounting to US
$160,749.69; that in relation to this loss, ML FUTURES had credited the

28
Laras with the amount of US$75,913.42 which it (ML FUTURES) then
admittedly owed the spouses and thereafter sought to collect the
balance, US$84,836.27, but the Laras had refused to pay (for the
reasons already above stated), the crucial question is whether or not ML
FUTURES may sue in Philippine Courts to establish and enforce its
rights against said spouses, in light of the undeniable fact that it had
transacted business in this country without being licensed to do so. In
other words, if it be true that during all the time that they were transacting
with ML FUTURES, the Laras were fully aware of its lack of license to do
business in the Philippines, and in relation to those transactions had
made payments to, and received money from it for several years, the
question is whether or not the Lara Spouses are now estopped to impugn
ML FUTURES' capacity to sue them in the courts of the forum.
The rule is that a party is estopped to challenge the personality of a
corporation after having acknowledged the same by entering into a
contract with it. 16 And the "doctrine of estoppel to deny corporate existence
applies to foreign as well as to domestic corporations;" 17 "one who has dealt
with a corporation of foreign origin as a corporate entity is estopped to deny
its corporate existence and capacity." 18 The principle "will be applied to
prevent a person contracting with a foreign corporation from later taking
advantage of its noncompliance with the statutes, chiefly in cases where
such person has received the benefits of the contract (Sherwood v. Alvis, 83
Ala 115, 3 So 307, limited and distinguished in Dudley v. Collier, 87 Ala 431,
6 So 304; Spinney v. Miller, 114 Iowa 210, 86 NW 317), where such person
has acted as agent for the corporation and has violated his fiduciary
obligations as such, and where the statute does not provide that the contract
shall be void, but merely fixes a special penalty for violation of the
statute. . . ." 19
The doctrine was adopted by this Court as early as 1924 in Asia Banking
Corporation v. Standard Products Co., 20in which the following
pronouncement was made: 21
The general rule that in the absence of fraud of person who has
contracted or otherwise dealt with an association in such a way
as to recognize and in effect admit its legal existence as a
corporate body is thereby estopped to deny its corporate
existence in any action leading out of or involving such contract or

dealing, unless its existence is attacked for causes which have

arisen since making the contract or other dealing relied on as an
estoppel and this applies to foreign as well as domestic
corporations. (14 C.J .7; Chinese Chamber of Commerce vs. Pua
Te Ching, 14 Phil. 222).
There would seem to be no question that the Laras received benefits
generated by their business relations with ML FUTURES. Those
business relations, according to the Laras themselves, spanned a period
of seven (7) years; and they evidently found those relations to be of such
profitability as warranted their maintaining them for that not insignificant
period of time; otherwise, it is reasonably certain that they would have
terminated their dealings with ML FUTURES much, much earlier. In fact,
even as regards their last transaction, in which the Laras allegedly
suffered a loss in the sum of US$160,749.69, the Laras nonetheless still
received some monetary advantage, for ML FUTURES credited them
with the amount of US$75,913.42 then due to them, thus reducing their
debt to US$84,836.27. Given these facts, and assuming that the Lara
Spouses were aware from the outset that ML FUTURES had no license
to do business in this country and MLPI, no authority to act as broker for
it, it would appear quite inequitable for the Laras to evade payment of an
otherwise legitimate indebtedness due and owing to ML FUTURES upon
the plea that it should not have done business in this country in the first
place, or that its agent in this country, MLPI, had no license either to
operate as a "commodity and/or financial futures broker."
Considerations of equity dictate that, at the very least, the issue of
whether the Laras are in truth liable to ML FUTURES and if so in what
amount, and whether they were so far aware of the absence of the
requisite licenses on the part of ML FUTURES and its Philippine
correspondent, MLPI, as to be estopped from alleging that fact as
defense to such liability, should be ventilated and adjudicated on the
merits by the proper trial court.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No.
16478 dated November 27, 1990 and its Resolution of March 7, 1991 are
REVERSED and SET ASIDE, and the Regional Trial Court at Quezon
City, Branch 84, is ORDERED to reinstate Civil Case No. Q-52360 and

29
forthwith conduct a hearing to adjudicate the issues set out in the
preceding paragraph on the merits. SO ORDERED.

G.R. No. 102223 August 22, 1996

COMMUNICATION MATERIALS AND DESIGN, INC., ASPAC MULTITRADE, INC., (formerly ASPAC-ITEC PHILIPPINES, INC.) and
FRANCISCO S. AGUIRRE, petitioners, vs. THE COURT OF APPEALS,
ITEC INTERNATIONAL, INC., and ITEC, INC., respondents.
Business Corporations, according to Lord Coke, "have no souls." They do
business peddling goods, wares or even services across national
boundaries in "souless forms" in quest for profits albeit at times,
unwelcomed in these strange lands venturing into uncertain markets and,
the risk of dealing with wily competitors.
This is one of the issues in the case at bar.
Contested in this petition for review on Certiorari is the Decision of the
Court of Appeals on June 7, 1991, sustaining the RTC Order dated
February 22, 1991, denying the petitioners' Motion to Dismiss, and
directing the issuance of a writ of preliminary injunction, and its
companion Resolution of October 9, 1991, denying the petitioners' Motion
for Reconsideration.
Petitioners COMMUNICATION MATERIALS AND DESIGN, INC., (CMDI,
for brevity) and ASPAC MULTI-TRADE INC., (ASPAC, for brevity) are
both domestic corporations, while petitioner Francisco S. Aguirre is their
President and majority stockholder. Private Respondents ITEC, INC.
and/or ITEC, INTERNATIONAL, INC. (ITEC, for brevity) are corporations
duly organized and existing under the laws of the State of Alabama,
United States of America. There is no dispute that ITEC is a foreign
corporation not licensed to do business in the Philippines.
On August 14, 1987, ITEC entered into a contract with petitioner ASPAC
referred to as "Representative Agreement". 1 Pursuant to the contract, ITEC
engaged ASPAC as its "exclusive representative" in the Philippines for the
sale of ITEC's products, in consideration of which, ASPAC was paid a
stipulated commission. The agreement was signed by G.A. Clark and

30
Francisco S. Aguirre, presidents of ITEC and ASPAC respectively, for and in
behalf of their companies. 2 The said agreement was initially for a term of
twenty-four months. After the lapse of the agreed period, the agreement was
renewed for another twenty-four months.

using in its corporate name, letter heads, envelopes, sign boards and
business dealings, plaintiff's trademark, internationally known as ITEC; and
the recovery from defendants in solidum, damages of at least P500,000.00,
attorney's fees and litigation expenses.

Through a "License Agreement" 3 entered into by the same parties on

November 10, 1988, ASPAC was able to incorporate and use the name
"ITEC" in its own name. Thus , ASPAC Multi-Trade, Inc. became legally and
publicly known as ASPAC-ITEC (Philippines).

In due time, defendants filed a motion to dismiss 7 the complaint on the

following grounds:

By virtue of said contracts, ASPAC sold electronic products, exported by

ITEC, to their sole customer, the Philippine Long Distance Telephone
Company, (PLDT, for brevity).
To facilitate their transactions, ASPAC, dealing under its new appellation,
and PLDT executed a document entitled "PLDT-ASPAC/ITEC
PROTOCOL" 4 which defined the project details for the supply of ITEC's
Interface Equipment in connection with the Fifth Expansion Program of
PLDT.
One year into the second term of the parties' Representative Agreement,
ITEC decided to terminate the same, because petitioner ASPAC allegedly
violated its contractual commitment as stipulated in their agreements. 5
ITEC charges the petitioners and another Philippine Corporation,
DIGITAL BASE COMMUNICATIONS, INC. (DIGITAL, for brevity), the
President of which is likewise petitioner Aguirre, of using knowledge and
information of ITEC's products specifications to develop their own line of
equipment and product support, which are similar, if not identical to
ITEC's own, and offering them to ITEC's former customer.
On January 31, 1991, the complaint 6 in Civil Case No. 91-294, was filed
with the Regional Trial Court of Makati, Branch 134 by ITEC, INC. Plaintiff
sought to enjoin, first, preliminarily and then, after trial, permanently; (1)
defendants DIGITAL, CMDI, and Francisco Aguirre and their agents and
business associates, to cease and desist from selling or attempting to sell to
PLDT and to any other party, products which have been copied or
manufactured "in like manner, similar or identical to the products, wares and
equipment of plaintiff," and (2) defendant ASPAC, to cease and desist from

(1) That plaintiff has no legal capacity to sue as it is a foreign corporation

doing business in the Philippines without the required BOI authority and
SEC license, and (2) that plaintiff is simply engaged in forum shopping
which justifies the application against it of the principle of "forum non
conveniens".
On February 8, 1991, the complaint was amended by virtue of which
ITEC INTERNATIONAL, INC. was substituted as plaintiff instead of ITEC,
INC. 8
In their Supplemental Motion to Dismiss, 9 defendants took note of the
amendment of the complaint and asked the court to consider in toto their
motion to dismiss and their supplemental motion as their answer to the
amended complaint.
After conducting hearings on the prayer for preliminary injunction, the
court a quo on February 22, 1991, issued its Order: 10 (1) denying the
motion to dismiss for being devoid of legal merit with a rejection of both
grounds relied upon by the defendants in their motion to dismiss, and (2)
directing the issuance of a writ of preliminary injunction on the same day.
From the foregoing order, petitioners elevated the case to the respondent
Court of Appeals on a Petition for Certiorari and Prohibition 11 under Rule
65 of the Revised Rules of Court, assailing and seeking the nullification and
the setting aside of the Order and the Writ of Preliminary Injunction issued by
the Regional Trial Court.
The respondent appellate court stated, thus:
We find no reason whether in law or from the facts of record, to
disagree with the (lower court's) ruling. We therefore are unable

31
to find in respondent Judge's issuance of said writ the grave
abuse of discretion ascribed thereto by the petitioners.

Petitioners filed a motion for reconsideration 13 on June 7, 1991, which was

likewise denied by the respondent court.

In that case, we ruled that respondent foreign corporations are doing

business in the Philippines because when the respondents entered into
the disputed contracts with the petitioner, they were carrying out the
purposes for which they were created, i.e., to manufacture and market
welding products and equipment. The terms and conditions of the
contracts as well as the respondents' conduct indicate that they
established within our country a continuous business, and not merely one
of a temporary character. The respondents could be exempted from the
requirements of Republic Act 5455 if the petitioner is an independent
entity which buys and distributes products not only of the petitioner, but
also of other manufacturers or transacts business in its name and for its
account and not in the name or for the account of the foreign principal. A
reading of the agreements between the petitioner and the respondents
shows that they are highly restrictive in nature, thus making the petitioner
a mere conduit or extension of the respondents.

WHEREFORE, the present motion for reconsideration should be,

as it is hereby, denied for lack of merit. For the same reason, the
motion to have the motion for reconsideration set for oral
argument likewise should be and is hereby denied.

It is alleged that certain provisions of the "Representative Agreement"

executed by the parties are similar to those found in the License
Agreement of the parties in the Top-Weld case which were considered as
"highly restrictive" by this Court. The provisions in point are:

In fine, We find that the petition prima facie does not show
that Certiorari lies in the present case and therefore, the petition
does not deserve to be given due course.
WHEREFORE, the present petition should be, as it is hereby,
denied due course and accordingly, is hereby dismissed. Costs
against the petitioners.
SO ORDERED. 12

SO ORDERED. 14
Petitioners are now before us via Petition for Review on Certiorari 15 under
Rule 45 of the Revised Rules of Court.
It is the petitioners' submission that private respondents are foreign
corporations actually doing business in the Philippines without the
requisite authority and license from the Board of Investments and the
Securities and Exchange Commission, and thus, disqualified from
instituting the present action in our courts. It is their contention that the
provisions of the Representative Agreement, petitioner ASPAC executed
with private respondent ITEC, are similarly "highly restrictive" in nature as
those found in the agreements which confronted the Court in the case
of Top-Weld Manufacturing, Inc. vs. ECED S.A. et al., 16 as to reduce
petitioner ASPAC to a mere conduit or extension of private respondents in
the Philippines.

2.0 Terms and Conditions of Sales.

2.1 Sale of ITEC products shall be at the purchase price set by
ITEC from time to time. Unless otherwise expressly agreed to in
writing by ITEC the purchase price is net to ITEC and does not
include any transportation charges, import charges or taxes into
or within the Territory. All orders from customers are subject to
formal acceptance by ITEC at its Huntsville, Alabama U.S.A.
facility.
xxx xxx xxx
3.0 Duties of Representative
3.1. REPRESENTATIVE SHALL:

32
3.1.1. Not represent or offer for sale within the Territory any
product which competes with an existing ITEC product or any
product which ITEC has under active development.
3.1.2. Actively solicit all potential customers within the Territory in
a systematic and business like manner.
3.1.3. Inform ITEC of all request for proposals, requests for bids,
invitations to bid and the like within the Territory.
3.1.4. Attain the Annual Sales Goal for the Territory established by
ITEC. The Sales Goals for the first 24 months is set forth on
Attachment two (2) hereto. The Sales Goal for additional twelve
month periods, if any, shall be sent to the Sales Agent by ITEC at
the beginning of each period. These Sales Goals shall be
incorporated into this Agreement and made a part hereof.
xxx xxx xxx
6.0. Representative as Independent Contractor
xxx xxx xxx
6.2. When acting under this Agreement REPRESENTATIVE is
authorized to solicit sales within the Territory on ITEC's behalf but
is authorized to bind ITEC only in its capacity as Representative
and no other, and then only to specific customers and on terms
and conditions expressly authorized by ITEC in writing. 17
Aside from the abovestated provisions, petitioners point out the following
matters of record, which allegedly bear witness to the respondents'
activities within the Philippines in pursuit of their business dealings:
a. While petitioner ASPAC was the authorized exclusive
representative for three (3) years, it solicited from and closed
several sales for and on behalf of private respondents as to their
products only and no other, to PLDT, worth no less than US $ 15
Million (p. 20, tsn, Feb. 18, 1991);

b. Contract No. 1 (Exhibit for Petitioners) which covered these

sales and identified by private respondents' sole witness, Mr.
Clarence Long, is not in the name of petitioner ASPAC as such
representative, but in the name of private respondent ITEC, INC.
(p. 20, tsn, Feb. 18, 1991);
c. The document denominated as "PLDT-ASPAC/ITEC
PROTOCOL (Annex C of the original and amended complaints)
which defined the responsibilities of the parties thereto as to the
supply, installation and maintenance of the ITEC equipment sold
under said Contract No. 1 is, as its very title indicates, in the
names jointly of the petitioner ASPAC and private respondents;
d. To evidence receipt of the purchase price of US $ 15 Million,
private respondent ITEC, Inc. issued in its letter head, a
Confirmation of payment dated November 13, 1989 and its
Invoice dated November 22, 1989 (Annexes 1 and 2 of the
Motion to Dismiss and marked as Exhibits 2 and 3 for the
petitioners), both of which were identified by private respondent's
sole witness, Mr. Clarence Long (pp. 25-27, tsn, Feb. 18, 1991). 18
Petitioners contend that the above acts or activities belie the supposed
independence of petitioner ASPAC from private respondents. "The
unrebutted evidence on record below for the petitioners likewise reveal
the continuous character of doing business in the Philippines by private
respondents based on the standards laid down by this Court in Wang
Laboratories, Inc. vs. Hon. Rafael T . Mendoza, et al. 19 and again in TOPWELD. (supra)" It thus appears that as the respondent Court of Appeals and
the trial court's failure to give credence on the grounds relied upon in support
of their Motion to Dismiss that petitioners ascribe grave abuse of discretion
amounting to an excess of jurisdiction of said courts.
Petitioners likewise argue that since private respondents have no
capacity to bring suit here, the Philippines is not the "most convenient
forum" because the trial court is devoid of any power to enforce its orders
issued or decisions rendered in a case that could not have been
commenced to begin with, such that in insisting to assume and exercise
jurisdiction over the case below, the trial court had gravely abused its
discretion and even actually exceeded its jurisdiction.

33
As against petitioner's insistence that private respondent is "doing
business" in the Philippines, the latter maintains that it is not.
We can discern from a reading of Section 1 (f) (1) and 1 (f) (2) of the
Rules and Regulations Implementing the Omnibus Investments Code of
1987, the following:
(1) A foreign firm is deemed not engaged in business in the
Philippines if it transacts business through middlemen, acting in
their own names, such as indebtors, commercial bookers
commercial merchants.
(2) A foreign corporation is deemed not "doing business" if its
representative domiciled in the Philippines has an independent
status in that it transacts business in its name and for its
account. 20
Private respondent argues that a scrutiny of its Representative
Agreement with the Petitioners will show that although ASPAC was
named as representative of ITEC., ASPAC actually acted in its own name
and for its own account. The following provisions are particularly
mentioned:
3.1.7.1. In the event that REPRESENTATIVE imports directly
from ITEC, REPRESENTATIVE will pay for its own account; all
customs duties and import fees imposed on any ITEC products;
all import expediting or handling charges and expenses imposed
on ITEC products; and any stamp tax fees imposed on ITEC.
xxx xxx xxx
4.1. As complete consideration and payment for acting as
representative under this Agreement, REPRESENTATIVE shall
receive a sales commission equivalent to a per centum of the
FOB value of all ITEC equipment sold to customers within the
territory as a direct result of REPRESENTATIVE's sales efforts. 21

More importantly, private respondent charges ASPAC of admitting its

independence from ITEC by entering and ascribing to provision No. 6 of
the Representative Agreement.
6.0 Representative as Independent Contractor
6.1. When performing any of its duties under this Agreement,
REPRESENTATIVE shall act as an independent contractor and
not as an employee, worker, laborer, partner, joint venturer of
ITEC as these terms are defined by the laws, regulations,
decrees or the like of any jurisdiction, including the jurisdiction of
the United States, the state of Alabama and the Territory. 22
Although it admits that the Representative Agreement contains provisions
which both support and belie the independence of ASPAC, private
respondent echoes the respondent court's finding that the lower court did
not commit grave abuse of discretion nor acted in excess of jurisdiction
when it found that the ground relied upon by the petitioners in their
motion to dismiss does not appear to be indubitable. 23
The issues before us now are whether or not private respondent ITEC is
an unlicensed corporation doing business in the Philippines, and if it is,
whether or not this fact bars it from invoking the injunctive authority of our
courts.
Considering the above, it is necessary to state what is meant by "doing
business" in the Philippines. Section 133 of the Corporation Code,
provides that "No foreign corporation, transacting business in the
Philippines without a license, or its successors or assigns, shall be
permitted to maintain or intervene in any action, suit or proceeding in any
court or administrative agency of the Philippines; but such corporation
may be sued or proceeded against before Philippine Courts or
administrative tribunals on any valid cause of action recognized under
Philippine laws." 24
Generally, a "foreign corporation" has no legal existence within the state
in which it is foreign. This proceeds from the principle that juridical
existence of a corporation is confined within the territory of the state
under whose laws it was incorporated and organized, and it has no legal

34
status beyond such territory. Such foreign corporation may be excluded
by any other state from doing business within its limits, or conditions may
be imposed on the exercise of such privileges. 25 Before a foreign
corporation can transact business in this country, it must first obtain a license
to transact business in the Philippines, and a certificate from the appropriate
government agency. If it transacts business in the Philippines without such a
license, it shall not be permitted to maintain or intervene in any action, suit, or
proceeding in any court or administrative agency of the Philippines, but it
may be sued on any valid cause of action recognized under Philippine
laws. 26
In a long line of decisions, this Court has not altogether prohibited foreign
corporation not licensed to do business in the Philippines from suing or
maintaining an action in Philippine Courts. What it seeks to prevent is a
foreign corporation doing business in the Philippines without a licensed
from gaining access to Philippine Courts. 27
The purpose of the law in requiring that foreign corporations doing
business in the Philippines be licensed to do so and that they appoint an
agent for service of process is to subject the foreign corporation doing
business in the Philippines to the jurisdiction of its courts. The object is
not to prevent the foreign corporation from performing single acts, but to
prevent it from acquiring a domicile for the purpose of business without
taking steps necessary to render it amenable to suit in the local
courts. 28 The implication of the law is that it was never the purpose of the
legislature to exclude a foreign corporation which happens to obtain an
isolated order for business from the Philippines, and thus, in effect, to permit
persons to avoid their contracts made with such foreign corporations. 29
There is no exact rule or governing principle as to what constitutes
"doing" or "engaging" or "transacting" business. Indeed, such case must
be judged in the light of its peculiar circumstances, upon its peculiar facts
and upon the language of the statute applicable. The true test, however,
seems to be whether the foreign corporation is continuing the body or
substance of the business or enterprise for which it was organized. 30
Article 44 of the Omnibus Investments Code of 1987 defines the phrase
to include:

soliciting orders, purchases, service contracts, opening offices,

whether called "liaison" offices or branches; appointing
representatives or distributors who are domiciled in the
Philippines or who in any calendar year stay in the Philippines for
a period or periods totalling one hundred eighty (180) days or
more; participating in the management, supervision or control of
any domestic business firm, entity or corporation in the
Philippines, and any other act or acts that imply a continuity or
commercial dealings or arrangements and contemplate to that
extent the performance of acts or works, or the exercise of some
of the functions normally incident to, and in progressive
prosecution of, commercial gain or of the purpose and object of
the business organization.
Thus, a foreign corporation with a settling agent in the Philippines which
issued twelve marine policies covering different shipments to the
Philippines 31 and a foreign corporation which had been collecting premiums
on outstanding policies 32 were regarded as doing business here.
The same rule was observed relating to a foreign corporation with an
"exclusive distributing agent" in the Philippines, and which has been
selling its products here since 1929, 33 and a foreign corporation engaged in
the business of manufacturing and selling computers worldwide, and had
installed at least 26 different products in several corporations in the
Philippines, and allowed its registered logo and trademark to be used and
made it known that there exists a designated distributor in the Philippines. 34
In Georg Grotjahn GMBH and Co. vs. Isnani, 35 it was held that the
uninterrupted performance by a foreign corporation of acts pursuant to its
primary purposes and functions as a regional area headquarters for its home
office, qualifies such corporation as one doing business in the country.
These foregoing instances should be distinguished from a single or
isolated transaction or occasional, incidental, or casual transactions,
which do not come within the meaning of the law, 36 for in such case, the
foreign corporation is deemed not engaged in business in the Philippines.
Where a single act or transaction, however, is not merely incidental or
casual but indicates the foreign corporation's intention to do other

35
business in the Philippines, said single act or transaction constitutes
"doing" or "engaging in" or "transacting" business in the Philippines. 37

monthly the materials and components needed to replace stock

consumed in the warranty repairs of the prior month.

In determining whether a corporation does business in the Philippines or

not, aside from their activities within the forum, reference may be made to
the contractual agreements entered into by it with other entities in the
country. Thus, in the Top-Weld case (supra), the foreign corporation's
LICENSE AND TECHNICAL AGREEMENT and DISTRIBUTOR
AGREEMENT with their local contacts were made the basis of their being
regarded by this Tribunal as corporations doing business in the country.
Likewise, in Merill Lynch Futures, Inc. vs. Court of Appeals, etc. 38 the
FUTURES CONTRACT entered into by the petitioner foreign corporation
weighed heavily in the court's ruling.

A perusal of the agreements between petitioner ASPAC and the

respondents shows that there are provisions which are highly restrictive
in nature, such as to reduce petitioner ASPAC to a mere extension or
instrument of the private respondent.

With the abovestated precedents in mind, we are persuaded to conclude

that private respondent had been "engaged in" or "doing business" in the
Philippines for some time now. This is the inevitable result after a scrutiny
of the different contracts and agreements entered into by ITEC with its
various business contacts in the country, particularly ASPAC and
Telephone Equipment Sales and Services, Inc. (TESSI, for brevity). The
latter is a local electronics firm engaged by ITEC to be its local technical
representative, and to create a service center for ITEC products sold
locally. Its arrangements, with these entities indicate convincingly ITEC's
purpose to bring about the situation among its customers and the general
public that they are dealing directly with ITEC, and that ITEC is actively
engaging in business in the country.
In its Master Service Agreement 39 with TESSI, private respondent required
its local technical representative to provide the employees of the technical
and service center with ITEC identification cards and business cards, and to
correspond only on ITEC, Inc., letterhead. TESSI personnel are instructed to
answer the telephone with "ITEC Technical Assistance Center.", such
telephone being listed in the telephone book under the heading of ITEC
Technical Assistance Center, and all calls being recorded and forwarded to
ITEC on a weekly basis.
What is more, TESSI was obliged to provide ITEC with a monthly report
detailing the failure and repair of ITEC products, and to requisition

The "No Competing Product" provision of the Representative Agreement

between ITEC and ASPAC provides: "The Representative shall not
represent or offer for sale within the Territory any product which competes
with an existing ITEC product or any product which ITEC has under
active development." Likewise pertinent is the following provision: "When
acting under this Agreement, REPRESENTATIVE is authorized to solicit
sales within the Territory on ITEC's behalf but is authorized to bind ITEC
only in its capacity as Representative and no other, and then only to
specific customers and on terms and conditions expressly authorized by
ITEC in writing."
When ITEC entered into the disputed contracts with ASPAC and TESSI,
they were carrying out the purposes for which it was created, i.e., to
market electronics and communications products. The terms and
conditions of the contracts as well as ITEC's conduct indicate that they
established within our country a continuous business, and not merely one
of a temporary character. 40
Notwithstanding such finding that ITEC is doing business in the country,
petitioner is nonetheless estopped from raising this fact to bar ITEC from
instituting this injunction case against it.
A foreign corporation doing business in the Philippines may sue in
Philippine Courts although not authorized to do business here against a
Philippine citizen or entity who had contracted with and benefited by said
corporation. 41 To put it in another way, a party is estopped to challenge the
personality of a corporation after having acknowledged the same by entering
into a contract with it. And the doctrine of estoppel to deny corporate
existence applies to a foreign as well as to domestic corporations. 42 One who
has dealt with a corporation of foreign origin as a corporate entity is estopped
to deny its corporate existence and capacity: The principle will be applied to

36
prevent a person contracting with a foreign corporation from later taking
advantage of its noncompliance with the statutes chiefly in cases where such
person has received the benefits of the contract. 43

The parties in this case being equally guilty of violating R.A. No. 5455,
they are in pari delicto, in which case it follows as a consequence that
petitioner is not entitled to the relief prayed for in this case.

The rule is deeply rooted in the time-honored axiom of Commodum ex

injuria sua non habere debet no person ought to derive any advantage
of his own wrong. This is as it should be for as mandated by law, "every
person must in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe honesty and
good faith." 44

The doctrine of lack of capacity to sue based on the failure to acquire a

local license is based on considerations of sound public policy. The
license requirement was imposed to subject the foreign corporation doing
business in the Philippines to the jurisdiction of its courts. It was never
intended to favor domestic corporations who enter into solitary
transactions with unwary foreign firms and then repudiate their
obligations simply because the latter are not licensed to do business in
this country. 45

Concededly, corporations act through agents, like directors and officers.

Corporate dealings must be characterized by utmost good faith and
fairness. Corporations cannot just feign ignorance of the legal rules as in
most cases, they are manned by sophisticated officers with tried
management skills and legal experts with practiced eye on legal
problems. Each party to a corporate transaction is expected to act with
utmost candor and fairness and, thereby allow a reasonable proportion
between benefits and expected burdens. This is a norm which should be
observed where one or the other is a foreign entity venturing in a global
market.
As observed by this Court in TOP-WELD (supra), viz:
The parties are charged with knowledge of the existing law at the time
they enter into a contract and at the time it is to become operative.
(Twiehaus v. Rosner, 245 SW 2d 107; Hall v. Bucher, 227 SW 2d 98).
Moreover, a person is presumed to be more knowledgeable about his
own state law than his alien or foreign contemporary. In this case, the
record shows that, at least, petitioner had actual knowledge of the
applicability of R.A. No. 5455 at the time the contract was executed and
at all times thereafter. This conclusion is compelled by the fact that the
same statute is now being propounded by the petitioner to bolster its
claim. We, therefore sustain the appellate court's view that "it was
incumbent upon TOP-WELD to know whether or not IRTI and ECED
were properly authorized to engage in business in the Philippines when
they entered into the licensing and distributorship agreements." The very
purpose of the law was circumvented and evaded when the petitioner
entered into said agreements despite the prohibition of R.A. No. 5455.

In Antam Consolidated Inc. vs. Court of Appeals, et al. 46 we expressed our

chagrin over this commonly used scheme of defaulting local companies
which are being sued by unlicensed foreign companies not engaged in
business in the Philippines to invoke the lack of capacity to sue of such
foreign companies. Obviously, the same ploy is resorted to by ASPAC to
prevent the injunctive action filed by ITEC to enjoin petitioner from using
knowledge possibly acquired in violation of fiduciary arrangements between
the parties.
By entering into the "Representative Agreement" with ITEC, Petitioner is
charged with knowledge that ITEC was not licensed to engage in
business activities in the country, and is thus estopped from raising in
defense such incapacity of ITEC, having chosen to ignore or even
presumptively take advantage of the same.
In Top-Weld, we ruled that a foreign corporation may be exempted from
the license requirement in order to institute an action in our courts if its
representative in the country maintained an independent status during
the existence of the disputed contract. Petitioner is deemed to have
acceded to such independent character when it entered into the
Representative Agreement with ITEC, particularly, provision 6.2 (supra).
Petitioner's insistence on the dismissal of this action due to the
application, or non application, of the private international law rule of
forum non conveniens defies well-settled rules of fair play. According to
petitioner, the Philippine Court has no venue to apply its discretion

37
whether to give cognizance or not to the present action, because it has
not acquired jurisdiction over the person of the plaintiff in the case, the
latter allegedly having no personality to sue before Philippine Courts. This
argument is misplaced because the court has already acquired
jurisdiction over the plaintiff in the suit, by virtue of his filing the original
complaint. And as we have already observed, petitioner is not at liberty to
question plaintiff's standing to sue, having already acceded to the same
by virtue of its entry into the Representative Agreement referred to earlier.
Thus, having acquired jurisdiction, it is now for the Philippine Court,
based on the facts of the case, whether to give due course to the suit or
dismiss it, on the principle of forum non convenience. 47 Hence, the
Philippine Court may refuse to assume jurisdiction in spite of its having
acquired jurisdiction. Conversely, the court may assume jurisdiction over the
case if it chooses to do so; provided, that the following requisites are met: 1)
That the Philippine Court is one to which the parties may conveniently resort
to; 2) That the Philippine Court is in a position to make an intelligent decision
as to the law and the facts; and, 3) That the Philippine Court has or is likely
to have power to enforce its decision. 48
The aforesaid requirements having been met, and in view of the court's
disposition to give due course to the questioned action, the matter of the
present forum not being the "most convenient" as a ground for the suit's
dismissal, deserves scant consideration.
IN VIEW OF THE FOREGOING PREMISES, the instant Petition is
hereby DISMISSED. The decision of the Court of Appeals dated June 7,
1991, upholding the RTC Order dated February 22, 1991, denying the
petitioners' Motion to Dismiss, and ordering the issuance of the Writ of
Preliminary Injunction, is hereby affirmed in toto. SO ORDERED.

38

G.R. No. 113074 January 22, 1997

ALFRED HAHN, petitioner, vs. COURT OF APPEALS and
BAYERSCHE MOTOREN WERKE AKTIENGSELLSCHAFT
(BMW), respondents.
This is a petition for review of the decision 1 of the Court of Appeals
dismissing a complaint for specific performance which petitioner had filed
against private respondent on the ground that the Regional Trial Court of
Quezon City did not acquire jurisdiction over private respondent, a
nonresident foreign corporation, and of the appellate court's order denying
petitioner's motion for reconsideration.
The following are the facts:
Petitioner Alfred Hahn is a Filipino citizen doing business under the name
and style "Hahn-Manila." On the other hand, private respondent
Bayerische Motoren Werke Aktiengesellschaft (BMW) is a nonresident
foreign corporation existing under the laws of the former Federal
Republic of Germany, with principal office at Munich, Germany.
On March 7, 1967, petitioner executed in favor of private respondent a
"Deed of Assignment with Special Power of Attorney," which reads in full
as follows:
WHEREAS, the ASSIGNOR is the present owner and holder of
the BMW trademark and device in the Philippines which
ASSIGNOR uses and has been using on the products
manufactured by ASSIGNEE, and for which ASSIGNOR is the
authorized exclusive Dealer of the ASSIGNEE in the Philippines,
the same being evidenced by certificate of registration issued by
the Director of Patents on 12 December 1963 and is referred to
as Trademark No. 10625;
WHEREAS, the ASSIGNOR has agreed to transfer and
consequently record said transfer of the said BMW trademark and
device in favor of the ASSIGNEE herein with the Philippines
Patent Office;

NOW THEREFORE, in view of the foregoing and in consideration

of the stipulations hereunder stated, the ASSIGNOR hereby
affirms the said assignment and transfer in favor of the
ASSIGNEE under the following terms and conditions:
1. The ASSIGNEE shall take appropriate steps against any user
other than ASSIGNOR or infringer of the BMW trademark in the
Philippines; for such purpose, the ASSIGNOR shall inform the
ASSIGNEE immediately of any such use or infringement of the
said trademark which comes to his knowledge and upon such
information the ASSIGNOR shall automatically act as Attorney-InFact of the ASSIGNEE for such case, with full power, authority
and responsibility to prosecute unilaterally or in concert with
ASSIGNEE, any such infringer of the subject mark and for
purposes hereof the ASSIGNOR is hereby named and constituted
as ASSIGNEE's Attorney-In-Fact, but any such suit without
ASSIGNEE's consent will exclusively be the responsibility and for
the account of the ASSIGNOR,
2. That the ASSIGNOR and the ASSIGNEE shall continue
business relations as has been usual in the past without a formal
contract, and for that purpose, the dealership of ASSIGNOR shall
cover the ASSIGNEE's complete production program with the
only limitation that, for the present, in view of ASSIGNEE's limited
production, the latter shall not be able to supply automobiles to
ASSIGNOR.
Per the agreement, the parties "continue[d] business relations as has
been usual in the past without a formal contract." But on February 16,
1993, in a meeting with a BMW representative and the president of
Columbia Motors Corporation (CMC), Jose Alvarez, petitioner was
informed that BMW was arranging to grant the exclusive dealership of
BMW cars and products to CMC, which had expressed interest in
acquiring the same. On February 24, 1993, petitioner received
confirmation of the information from BMW which, in a letter, expressed
dissatisfaction with various aspects of petitioner's business, mentioning
among other things, decline in sales, deteriorating services, and
inadequate showroom and warehouse facilities, and petitioner's alleged
failure to comply with the standards for an exclusive BMW

39
dealer. 2 Nonetheless, BMW expressed willingness to continue business
relations with the petitioner on the basis of a "standard BMW importer"
contract, otherwise, it said, if this was not acceptable to petitioner, BMW
would have no alternative but to terminate petitioner's exclusive dealership
effective June 30, 1993.

5. On March 7, 1967, Plaintiff executed in favor of defendant

BMW a Deed of Assignment with Special Power of Attorney
covering the trademark and in consideration thereof, under its first
whereas clause, Plaintiff was duly acknowledged as the
"exclusive Dealer of the Assignee in the Philippines. . . .

Petitioner protested, claiming that the termination of his exclusive

dealership would be a breach of the Deed of Assignment. 3 Hahn insisted
that as long as the assignment of its trademark and device subsisted, he
remained BMW's exclusive dealer in the Philippines because the assignment
was made in consideration of the exclusive dealership. In the same letter
petitioner explained that the decline in sales was due to lower prices offered
for BMW cars in the United States and the fact that few customers returned
for repairs and servicing because of the durability of BMW parts and the
efficiency of petitioner's service.

xxx xxx xxx

Because of Hahn's insistence on the former business relation, BMW

withdrew on March 26, 1993 its offer of a "standard importer contract"
and terminated the exclusive dealer relationship effective June 30,
1993. 4 At a conference of BMW Regional Importers held on April 26, 1993 in
Singapore, Hahn was surprised to find Alvarez among those invited from the
Asian region. On April 29, 1993, BMW proposed that Hahn and CMC jointly
import and distribute BMW cars and parts.
Hahn found the proposal unacceptable. On May 14, 1993, he filed a
complaint for specific performance and damages against BMW to compel
it to continue the exclusive dealership. Later he filed an amended
complaint to include an application for temporary restraining order and for
writs of preliminary, mandatory and prohibitory injunction to enjoin BMW
from terminating his exclusive dealership. Hahn's amended complaint
alleged in pertinent parts:
2. Defendant [BMW] is a foreign corporation doing business in the
Philippines with principal offices at Munich, Germany. It may be
served with summons and other court processes through the
Secretary of the Department of Trade and Industry of the
Philippines. . . .
xxx xxx xxx

8. From the time the trademark "BMW & DEVICE" was first used
by the Plaintiff in the Philippines up to the present, Plaintiff,
through its firm name "HAHN MANILA" and without any monetary
contribution from defendant BMW, established BMW's goodwill
and market presence in the Philippines. Pursuant thereto, Plaintiff
has invested a lot of money and resources in order to singlehandedly compete against other motorcycle and car companies. .
. . Moreover, Plaintiff has built buildings and other infrastructures
such as service centers and showrooms to maintain and promote
the car and products of defendant BMW.
xxx xxx xxx
10. In a letter dated February 24, 1993, defendant BMW advised
Plaintiff that it was willing to maintain with Plaintiff a relationship
but only "on the basis of a standard BMW importer contract as
adjusted to reflect the particular situation in the Philippines"
subject to certain conditions, otherwise, defendant BMW would
terminate Plaintiffs exclusive dealership and any relationship for
cause effective June 30, 1993. . . .
xxx xxx xxx
15. The actuations of defendant BMW are in breach of the
assignment agreement between itself and plaintiff since the
consideration for the assignment of the BMW trademark is the
continuance of the exclusive dealership agreement. It thus,
follows that the exclusive dealership should continue for so long
as defendant BMW enjoys the use and ownership of the
trademark assigned to it by Plaintiff.

40
The case was docketed as Civil Case No. Q-93-15933 and raffled to
Branch 104 of the Quezon City Regional Trial Court, which on June 14,
1993 issued a temporary restraining order. Summons and copies of the
complaint and amended complaint were thereafter served on the private
respondent through the Department of Trade and Industry, pursuant to
Rule 14, 14 of the Rules of Court. The order, summons and copies of
the complaint and amended complaint were later sent by the DTI to BMW
via registered mail on June 15, 1993 5 and received by the latter on June
24, 1993.
On June 17, 1993, without proof of service on BMW, the hearing on the
application for the writ of preliminary injunction proceeded ex parte, with
petitioner Hahn testifying. On June 30, 1993, the trial court issued an
order granting the writ of preliminary injunction upon the filing of a bond
of P100,000.00. On July 13, 1993, following the posting of the required
bond, a writ of preliminary injunction was issued.
On July 1, 1993, BMW moved to dismiss the case, contending that the
trial court did not acquire jurisdiction over it through the service of
summons on the Department of Trade and Industry, because it (BMW)
was a foreign corporation and it was not doing business in the
Philippines. It contended that the execution of the Deed of Assignment
was an isolated transaction; that Hahn was not its agent because the
latter undertook to assemble and sell BMW cars and products without the
participation of BMW and sold other products; and that Hahn was an
indentor or middleman transacting business in his own name and for his
own account.
Petitioner Alfred Hahn opposed the motion. He argued that BMW was
doing business in the Philippines through him as its agent, as shown by
the fact that BMW invoices and order forms were used to document his
transactions; that he gave warranties as exclusive BMW dealer; that
BMW officials periodically inspected standards of service rendered by
him; and that he was described in service booklets and international
publications of BMW as a "BMW Importer" or "BMW Trading Company" in
the Philippines.

The trial court 6 deferred resolution of the motion to dismiss until after trial on
the merits for the reason that the grounds advanced by BMW in its motion
did not seem to be indubitable.
Without seeking reconsideration of the aforementioned order, BMW filed
a petition for certiorari with the Court of Appeals alleging that:
I. THE RESPONDENT JUDGE ACTED WITH UNDUE HASTE
OR OTHERWISE INJUDICIOUSLY IN PROCEEDINGS
LEADING TOWARD THE ISSUANCE OF THE WRIT OF
PRELIMINARY INJUNCTION, AND IN PRESCRIBING THE
TERMS FOR THE ISSUANCE THEREOF.
II. THE RESPONDENT JUDGE PATENTLY ERRED IN
DEFERRING RESOLUTION OF THE MOTION TO DISMISS ON
THE GROUND OF LACK OF JURISDICTION, AND THEREBY
FAILING TO IMMEDIATELY DISMISS THE CASE A QUO.
BMW asked for the immediate issuance of a temporary restraining order
and, after hearing, for a writ of preliminary injunction, to enjoin the trial
court from proceeding further in Civil Case No. Q-93-15933. Private
respondent pointed out that, unless the trial court's order was set aside, it
would be forced to submit to the jurisdiction of the court by filing its
answer or to accept judgment in default, when the very question was
whether the court had jurisdiction over it.
The Court of Appeals enjoined the trial court from hearing petitioner's
complaint. On December 20, 1993, it rendered judgment finding the trial
court guilty of grave abuse of discretion in deferring resolution of the
motion to dismiss. It stated:
Going by the pleadings already filed with the respondent court
before it came out with its questioned order of July 26, 1993, we
rule and so hold that petitioner's (BMW) motion to dismiss could
be resolved then and there, and that the respondent judge's
deferment of his action thereon until after trial on the merit
constitutes, to our mind, grave abuse of discretion.
xxx xxx xxx

41
. . . [T]here is not much appreciable disagreement as regards the
factual matters relating to the motion to dismiss. What truly divide
(sic) the parties and to which they greatly differ is the legal
conclusions they respectively draw from such facts, (sic) with
Hahn maintaining that on the basis thereof, BMW is doing
business in the Philippines while the latter asserts that it is not.
Then, after stating that any ruling which the trial court might make on the
motion to dismiss would anyway be elevated to it on appeal, the Court of
Appeals itself resolved the motion. It ruled that BMW was not doing
business in the country and, therefore, jurisdiction over it could not be
acquired through service of summons on the DTI pursuant to Rule 14,
14. 'The court upheld private respondent's contention that Hahn acted in
his own name and for his own account and independently of BMW, based
on Alfred Hahn's allegations that he had invested his own money and
resources in establishing BMW's goodwill in the Philippines and on
BMW's claim that Hahn sold products other than those of BMW. It held
that petitioner was a mere indentor or broker and not an agent through
whom private respondent BMW transacted business in the Philippines.
Consequently, the Court of Appeals dismissed petitioner's complaint
against BMW.
Hence, this appeal. Petitioner contends that the Court of Appeals erred
(1) in finding that the trial court gravely abused its discretion in deferring
action on the motion to dismiss and (2) in finding that private respondent
BMW is not doing business in the Philippines and, for this reason,
dismissing petitioner's case.
Petitioner's appeal is well taken. Rule 14, 14 provides:
14. Service upon private foreign corporations. If the
defendant is a foreign corporation, or a nonresident joint stock
company or association, doing business in the Philippines,
service may be made on its resident agent designated in
accordance with law for that purpose, or, if there be no such
agent, on the government official designated by law to that effect,
or on any of its officers or agents within the Philippines.
(Emphasis added).

What acts are considered "doing business in the Philippines" are

enumerated in 3(d) of the Foreign Investments Act of 1991 (R.A. No.
7042) as follows: 7
d) the phrase "doing business" shall include soliciting orders, service
contracts, opening offices, whether called "liaison" offices or
branches; appointing representatives or distributors domiciled in the
Philippines or who in any calendar year stay in the country for a
period or periods totalling one hundred eighty (180) days or more;
participating in the management, supervision or control of any
domestic business, firm, entity or corporation in the Philippines; and
any other act or acts that imply a continuity of commercial dealings
or arrangements, and contemplate to that extent the performance of
acts or works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial gain or of
the purpose and object of the business organization: Provided,
however, That the phrase "doing business" shall not be deemed to
include mere investment as a shareholder by a foreign entity in
domestic corporations duly registered to do business, and/or the
exercise of rights as such investor; nor having a nominee director or
officer to represent its interests in such corporation; nor appointing a
representative or distributor domiciled in the Philippines which
transacts business in its own name and for its own account.
(Emphasis supplied)

Thus, the phrase includes "appointing representatives or distributors in

the Philippines" but not when the representative or distributor "transacts
business in its name and for its own account." In addition, 1(f)(1) of the
Rules and Regulations implementing (IRR) the Omnibus Investment
Code of 1987 (E.O. No. 226) provided:
(f) "Doing business" shall be any act or combination of acts,
enumerated in Article 44 of the Code. In particular, "doing
business" includes:
(1) . . . A foreign firm which does business through middlemen
acting in their own names, such as indentors, commercial brokers
or commission merchants, shall not be deemed doing business in
the Philippines. But such indentors, commercial brokers or

42
commission merchants shall be the ones deemed to be doing
business in the Philippines.
The question is whether petitioner Alfred Hahn is the agent or distributor
in the Philippines of private respondent BMW. If he is, BMW may be
considered doing business in the Philippines and the trial court acquired
jurisdiction over it (BMW) by virtue of the service of summons on the
Department of Trade and Industry. Otherwise, if Hahn is not the agent of
BMW but an independent dealer, albeit of BMW cars and products, BMW,
a foreign corporation, is not considered doing business in the Philippines
within the meaning of the Foreign Investments Act of 1991 and the IRR,
and the trial court did not acquire jurisdiction over it (BMW).
The Court of Appeals held that petitioner Alfred Hahn acted in his own
name and for his own account and not as agent or distributor in the
Philippines of BMW on the ground that "he alone had contacts with
individuals or entities interested in acquiring BMW vehicles.
Independence characterizes Hahn's undertakings, for which reason he is
to be considered, under governing statutes, as doing business." (p. 13) In
support of this conclusion, the appellate court cited the following
allegations in Hahn's amended complaint:
8. From the time the trademark "BMW & DEVICE" was first used
by the Plaintiff in the Philippines up to the present, Plaintiff,
through its firm name "HAHN MANILA" and without any monetary
contributions from defendant BMW, established BMW's goodwill
and market presence in the Philippines. Pursuant thereto, Plaintiff
invested a lot of money and resources in order to single-handedly
compete against other motorcycle and car companies. . . .
Moreover, Plaintiff has built buildings and other infrastructures
such as service centers and showrooms to maintain and promote
the car and products of defendant BMW.
As the above quoted allegations of the amended complaint show,
however, there is nothing to support the appellate court's finding that
Hahn solicited orders alone and for his own account and without
"interference from, let alone direction of, BMW." (p. 13) To the contrary,
Hahn claimed he took orders for BMW cars and transmitted them to
BMW. Upon receipt of the orders, BMW fixed the downpayment and

pricing charges, notified Hahn of the scheduled production month for the
orders, and reconfirmed the orders by signing and returning to Hahn the
acceptance sheets. Payment was made by the buyer directly to BMW.
Title to cars purchased passed directly to the buyer and Hahn never paid
for the purchase price of BMW cars sold in the Philippines. Hahn was
credited with a commission equal to 14% of the purchase price upon the
invoicing of a vehicle order by BMW. Upon confirmation in writing that the
vehicles had been registered in the Philippines and serviced by him,
Hahn received an additional 3% of the full purchase price. Hahn
performed after-sale services, including warranty services, for which he
received reimbursement from BMW. All orders were on invoices and
forms of BMW. 8
These allegations were substantially admitted by BMW which, in its
petition for certiorari before the Court of Appeals, stated: 9
9.4. As soon as the vehicles are fully manufactured and full payment
of the purchase prices are made, the vehicles are shipped to the
Philippines. (The payments may be made by the purchasers or thirdpersons or even by Hahn.) The bills of lading are made up in the
name of the purchasers, but Hahn-Manila is therein indicated as the
person to be notified.

9.5. It is Hahn who picks up the vehicles from the Philippine ports,
for purposes of conducting pre-delivery inspections. Thereafter,
he delivers the vehicles to the purchasers.
9.6. As soon as BMW invoices the vehicle ordered, Hahn is
credited with a commission of fourteen percent (14%) of the full
purchase price thereof, and as soon as he confirms in writing that
the vehicles have been registered in the Philippines and have
been serviced by him, he will receive an additional three percent
(3%) of the full purchase prices as commission.
Contrary to the appellate court's conclusion, this arrangement shows an
agency. An agent receives a commission upon the successful conclusion
of a sale. On the other hand, a broker earns his pay merely by bringing
the buyer and the seller together, even if no sale is eventually made.

43
As to the service centers and showrooms which he said he had put up at
his own expense, Hahn said that he had to follow BMW specifications as
exclusive dealer of BMW in the Philippines. According to Hahn, BMW
periodically inspected the service centers to see to it that BMW standards
were maintained. Indeed, it would seem from BMW's letter to Hahn that it
was for Hahn's alleged failure to maintain BMW standards that BMW was
terminating Hahn's dealership.

The Court of Appeals also found that petitioner Alfred Hahn dealt in other
products, and not exclusively in BMW products, and, on this basis, ruled
that Hahn was not an agent of BMW. (p. 14) This finding is based entirely
on allegations of BMW in its motion to dismiss filed in the trial court and
in its petition for certiorari before the Court of Appeals. 14 But this allegation
was denied by Hahn 15 and therefore the Court of Appeals should not have
cited it as if it were the fact.

The fact that Hahn invested his own money to put up these service
centers and showrooms does not necessarily prove that he is not an
agent of BMW. For as already noted, there are facts in the record which
suggest that BMW exercised control over Hahn's activities as a dealer
and made regular inspections of Hahn's premises to enforce compliance
with BMW standards and specifications. 10 For example, in its letter to Hahn
dated February 23, 1996, BMW stated:

Indeed this is not the only factual issue raised, which should have
indicated to the Court of Appeals the necessity of affirming the trial court's
order deferring resolution of BMW's motion to dismiss. Petitioner alleged
that whether or not he is considered an agent of BMW, the fact is that
BMW did business in the Philippines because it sold cars directly to
Philippine buyers. 16 This was denied by BMW, which claimed that Hahn was
not its agent and that, while it was true that it had sold cars to Philippine
buyers, this was done without solicitation on its part. 17

In the last years we have pointed out to you in several

discussions and letters that we have to tackle the Philippine
market more professionally and that we are through your present
activities not adequately prepared to cope with the forthcoming
challenges. 11
In effect, BMW was holding Hahn accountable to it under the 1967
Agreement.
This case fits into the mould of Communications Materials, Inc. v. Court
of Appeals, 12 in which the foreign corporation entered into a "Representative
Agreement" and a "Licensing Agreement" with a domestic corporation, by
virtue of which the latter was appointed "exclusive representative" in the
Philippines for a stipulated commission. Pursuant to these contracts, the
domestic corporation sold products exported by the foreign corporation and
put up a service center for the products sold locally. This Court held that
these acts constituted doing business in the Philippines. The arrangement
showed that the foreign corporation's purpose was to penetrate the Philippine
market and establish its presence in the Philippines.
In addition, BMW held out private respondent Hahn as its exclusive
distributor in the Philippines, even as it announced in the Asian region
that Hahn was the "official BMW agent" in the Philippines. 13

It is not true then that the question whether BMW is doing business could
have been resolved simply by considering the parties' pleadings. There
are genuine issues of facts which can only be determined on the basis of
evidence duly presented. BMW cannot short circuit the process on the
plea that to compel it to go to trial would be to deny its right not to submit
to the jurisdiction of the trial court which precisely it denies. Rule 16, 3
authorizes courts to defer the resolution of a motion to dismiss until after
the trial if the ground on which the motion is based does not appear to be
indubitable. Here the record of the case bristles with factual issues and it
is not at all clear whether some allegations correspond to the proof.
Anyway, private respondent need not apprehend that by responding to
the summons it would be waiving its objection to the trial court's
jurisdiction. It is now settled that, for purposes of having summons served
on a foreign corporation in accordance with Rule 14, 14, it is sufficient
that it be alleged in the complaint that the foreign corporation is doing
business in the Philippines. The court need not go beyond the allegations
of the complaint in order to determine whether it has Jurisdiction. 18 A
determination that the foreign corporation is doing business is only tentative
and is made only for the purpose of enabling the local court to acquire
jurisdiction over the foreign corporation through service of summons
pursuant to Rule 14, 14. Such determination does not foreclose a contrary

44
finding should evidence later show that it is not transacting business in the
country. As this Court has explained:

This is not to say, however, that the petitioner's right to question

the jurisdiction of the court over its person is now to be deemed a
foreclosed matter. If it is true, as Signetics claims, that its only
involvement in the Philippines was through a passive investment
in Sigfil, which it even later disposed of, and that TEAM Pacific is
not its agent, then it cannot really be said to be doing business in
the Philippines. It is a defense, however, that requires the
contravention of the allegations of the complaint, as well as a full
ventilation, in effect, of the main merits of the case, which should
not thus be within the province of a mere motion to dismiss. So,
also, the issue posed by the petitioner as to whether a foreign
corporation which has done business in the country, but which
has ceased to do business at the time of the filing of a complaint,
can still be made to answer for a cause of action which accrued
while it was doing business, is another matter that would yet have
to await the reception and admission of evidence. Since these
points have seasonably been raised by the petitioner, there
should be no real cause for what may understandably be its
apprehension, i.e., that by its participation during the trial on the
merits, it may, absent an invocation of separate or independent
reliefs of its own, be considered to have voluntarily submitted
itself to the court's jurisdiction. 19
Far from committing an abuse of discretion, the trial court properly
deferred resolution of the motion to dismiss and thus avoided
prematurely deciding a question which requires a factual basis, with the
same result if it had denied the motion and conditionally assumed
jurisdiction. It is the Court of Appeals which, by ruling that BMW is not
doing business on the basis merely of uncertain allegations in the
pleadings, disposed of the whole case with finality and thereby deprived
petitioner of his right to be heard on his cause of action. Nor was there
justification for nullifying the writ of preliminary injunction issued by the
trial court. Although the injunction was issued ex parte, the fact is that
BMW was subsequently heard on its defense by filing a motion to
dismiss.

WHEREFORE, the decision of the Court of Appeals is REVERSED and

the case is REMANDED to the trial court for further proceedings. SO
ORDERED.

45
20, 2000 which reversed and set aside the decision of the National Labor
Relations Commission finding respondent guilty of abandonment and (2)
resolution2 dated June 19, 2000 denying petitioners motion for
reconsideration.
The factual backdrop as found by the respondent Court of Appeals is as
follows:3
"As to the factual milieu, the contending parties have diametrically
opposed versions. Vigan tells it this way; She was hired by the
Litonjua Group of Companies on February 2, 1979 as telex
operator. Later, she was assigned as accounting and payroll clerk
under the supervision of Danilo Litonjua. She had been
performing well until 1995, when Danilo Litonjua who was already
naturally a (sic) very ill-tempered, ill-mouthed and violent
employer, became more so due to business problems. In fact, a
complaint letter (Annex "I", p. 85, rollo) was sent by the Litonjua
Employees to the father and his junior regarding the boorishness
of their kin Danilo Litonjua but apparently the management just
glossed over this.
1wphi1.nt

G.R. No. 143723

June 28, 2001
LITONJUA GROUP OF COMPANIES, EDDIE LITONJUA and DANILO
LITONJUA, petitioners, vs. TERESITA VIGAN, respondent.
In this petition for review on certiorari, petitioners seek to annul and set
aside the (1) decision1 of the respondent Court of Appeals dated March

Danilo Litonjua became particularly angry with Vigan and threw a

stapler at her when she refused to give him money upon the
instructions of Eddie Litonjua. From then on, Danilo Litonjua had
been rabid towards her berated and bad-mouthed her, calling
her a "mental case" "psycho", "sira ulo", etc. and even threatened
to hit her for some petty matters. Danilo Litonjua even went so far
as to lock her up in the comfort room and preventing others to
help her out. Not contented, Danilo Litonjua would order the
security guards to forcibly eject her or prevent her entry in the
office premises whenever he was angry. This occurred twice in
July of 1995, first on the 5th then on the 7th. The incidents
prompted Vigan to write Danilo Litonjua letters asking why she
was treated so and what was her fault (Annexes "F", "G" & "K",
pp. 82, 83 & 87, rollo). She suspected that Danilo Litonjua wanted
her out for he would not let her inside the office such that even
while abroad he would order the guards by phone to bar her. She
pleaded for forgiveness or at least for explanation but it fell on
deaf ears.

46
Later, Danilo Litonjua changed tack and charged that Vigan had
been hysterical, emotional and created scenes at the office. He
even required her to secure psychiatric assistance. (Annexes "L"
to "N", pp. 88-90, rollo) But despite proof that she was not
suffering from psychosis or organic brain syndrome as certified to
by a Psychiatrist of Danilo Litonjuas choice (Annex "H", p. 84,
rollo), still she was denied by the guards entry to her work upon
instructions again of Danilo Litonjua. Left with no alternative,
Vigan filed this case for illegal dismissal, alleging she was
receiving a monthly salary of P8,000.00 at the time she was
unlawfully terminated.
The Litonjuas have a different version. They negate the existence
of the Litonjua Group of Companies and the connection of
Eduardo Litonjua thereto. They contend that Vigan was employed
by ACT Theater, Inc., where Danilo Litonjua is a Director. They
dispute the charge of illegal dismissal for it was Vigan who
ceased to report for work despite notices and likewise contest the
P8,000.00 monthly salary alleged by Vigan, claiming it was
merely P6,850.00.
They claim that Vigan was a habitual absentee specially on
Tuesdays that fell within three days before and after the "15th"
day and "30th" day of every month. Her performance had been
satisfactory, but then starting March 15, 1996 she had become
emotional, hysterical, uncontrollable and created disturbances at
the office with her crying and shouting for no reason at all. The
incident was repeated on April 3, 1996, May 24, 1996 and on
June 4, 1996. Thus alarmed, on July 24, 1996 Vigan was
required by management to undergo medical and psychological
examination at the companys expense and naming three doctors
to attend to her. Dr. Baltazar Reyes and Dr. Tony Perlas of the
Philippine General Hospital and Dr. Lourdes Ignacio of the
Medical Center Manila. But they claim that Vigan refused to
comply.
On August 2, 1996, Vigan again had another breakdown,
hysterical, shouting and crying as usual for about an hour, and
then she just left the premises without a word. The next day,
August 3, 1996, Saturday, she came to the office and explained
she was not feeling well the day before. After that Vigan went
AWOL and did not heed telegram notices from her employer

made on August 26, 1996 and on September 9, 1996 (Annexes

"1" & "2", pp. 108 to 109, rollo). She instead filed the instant suit
for illegal dismissal."
On June 10, 1997, Labor Arbiter Ernesto S. Dinopol rendered his
decision4 finding Vigan diseased and unfit for work under Article 284 of
the Labor Code5 and awarded the corresponding separation pay as
follows:6
"WHEREFORE, judgment is hereby rendered ordering
respondents LITONJUA GROUP OF COMPANIES, EDDIE K.
LITONJUA and DANILO LITONJUA to jointly and severally pay
complainant TERESITA Y. VIGAN, the following amounts:

Separation pay (P4,000 x 18) years.=

Proportionate
13th"
month
(P8,000 x 8 months over 12) =

TOTAL AWARD.

P72,000.00

pay

4,666.66

P76,666.66

All other causes of action are DISMISSED for lack of merit."

Vigan appealed the decision to the National Labor Relations Commission
which modified7 the arbiters decision by ruling that Art. 284 of the Labor
Code is inapplicable in the instant case but affirmed the legality of the
termination of the complainant based on her having effectively
abandoned her job; the rest of the decision was affirmed. Vigan moved
for a partial reconsideration which was denied in a resolution dated
August 7, 1998.
Dissatisfied, Vigan filed a petition for certiorari with the respondent Court
of Appeals which rendered its assailed decision dated March 20, 2000

47
reversing the NLRC Resolution. The dispositive portion of the decision
reads:8
"WHEREFORE, premises considered, the assailed NLRC
Decision and Resolution are hereby REVERSED and SET
ASIDE. In its stead judgment is rendered ordering the
respondents LITONJUA GROUP OF COMPANIES, EDDIE K.
LITONJUA and DANILO LITONJUA jointly and severally to:

GENERIC NAME TO DESCRIBE THE VARIOUS COMPANIES

WHICH THE LITONJUA FAMILY HAS INTERESTS, CAN BE
LEGALLY CONSTRUED AS RESPONDENTS EMPLOYER.
II
WHETHER OR NOT THE COURT OF APPEALS SERIOUSLY
ERRED AS A MATTER OF LAW IN HOLDING THAT
RESPONDENT WAS ILLEGALLY DISMISSED FROM HER
EMPLOYMENT, INSTEAD OF AFFIRMING THE DECISION OF
THE NATIONAL LABOR RELATIONS COMMISSION THAT SHE
HAD ABANDONED HER JOB OR THAT OF LABOR ARBITER
ERNESTO DINOPOL HOLDING THAT SHE SHOULD BE
SEPARATED ON THE GROUND OF DISEASE UNDER
ARTICLE 284 OF THE LABOR CODE, CONSIDERING THAT
SHE HAS EXHIBITED A PATTERN OF PSYCHOLOGICAL AND
MENTAL DISTURBANCE WHICH ADMITTEDLY NO LONGER
MADE HER PHYSICALLY FIT TO WORK.

(a) Reinstate complainant TERESITA Y. VIGAN if she so

desires;
or
(b) pay her separation compensation in the sum of
P8,000.00 multiplied by her years of service counted from
February 2, 1979 up to the time this Decision becomes
final; and in either case to pay Vigan;
(c) full back wages from the time she was illegally
dismissed up to the date of the finality of this Decision;

III
WHETHER OR NOT THE COURT OF APPEALS SERIOUSLY
ERRED AS A MATTER OF LAW IN DIRECTING
RESPONDENTS REINSTATEMENT AT HER OWN CHOICE OR
PAYMENT OF SEPARATION PAY OF ONE MONTH SALARY
FOR EVERY YEAR OF SERVICE AND BACKWAGES.

(d) moral damages in the amount of P40,000.00;

(e) exemplary damages in the amount of P15,000.00; and
(f) attorneys fees of P10,000.00.
SO ORDERED."
Litonjuas filed their motion for reconsideration which was denied in a
resolution dated June 19, 2000.
Petitioners Litonjuas filed the instant petition for review on certiorari
alleging the following grounds:
I
WHETHER OR NOT "LITONJUA GROUP OF COMPANIES",
WHICH HAS NO JURIDICAL PERSONALITY, BUT ONLY A

IV
THE COURT OF APPEALS SERIOUSLY ERRED AS A MATTER
OF LAW IN HOLDING PETITIONERS LIABLE FOR MORAL AND
EXEMPLARY DAMAGES AND ATTORNEYS FEES.
Anent the first assigned error, petitioners allege that the Litonjua group of
companies cannot be a party to this suit for it is not a legal entity with
juridical personality but is merely a generic name used to describe
collectively the various companies in which the Litonjua family has
business interest; that the real employer of respondent Vigan was the
ACT theater Incorporated where Danilo Litonjua is a member of the
Board of Directors while Eddie Litonjua was not connected in any
capacity.

48
Petitioners argument is meritorious. Only natural or juridical persons or
entities authorized by law may be parties to a civil action and every action
must be prosecuted and defended in the name of the real parties in
interest.9Petitioners claim that Litonjua Group of Companies is not a legal
entity with juridical personality hence cannot be a party to this suit
deserves consideration since respondent failed to prove otherwise. In
fact, respondent Vigans own allegation in her Memorandum supported
petitioners claim that Litonjua group of companies does not exist when
she stated therein that instead of naming each and every corporation of
the Litonjua family where she had rendered accounting and payroll
works, she simply referred to these corporations as the Litonjua group of
companies, thus, respondent merely used such generic name to describe
collectively the various corporations in which the Litonjua family has
business interest. Considering the non-existence of the Litonjua group of
companies as a juridical entity and petitioner Eddie Litonjuas denial of
his connection in any capacity with the ACT Theater, the supposed
company where Vigan was employed, petitioner Eddie Litonjuas should
also be excluded as a party in this case since respondent Vigan failed to
prove Eddie Litonjuas participation in the instant case. It is respondent
Vigan, being the party asserting a fact, who has the burden of proof as to
such fact10 which however, she failed to discharge.
Next, petitioners claim that the complaint for illegal dismissal was
prematurely filed since Vigan was not dismissed, actual or constructive,
from her employment as the records show that despite being absent
without official leave since August 5, 1996 and her receipt of two telegram
notices sent to her by petitioners on August 26, and September 9, 1996
for her to report for work, she failed to do so and yet petitioners had not
done any act to dismiss her. Petitioners deny Vigans claim that she had
been physically barred from entering the work premises.
Petitioners thus contend that since respondent Vigan was not illegally
dismissed from employment, the respondent courts order reinstating the
latter, awarding her separation pay equivalent to one month salary per
year of service as well as backwages, damages and attorneys fees have
no factual and legal basis.
We are not persuaded.
The above arguments relate mainly to the correctness of the factual
findings of the Court of Appeals and the award of damages. This Court

has consistently affirmed that the findings of fact of the Court of Appeals
are as a rule binding upon it, subject to certain exceptions, one of which
is when the factual findings of the Court of Appeals are contrary to those
of the trial court (or administrative body, as the case may be). 11 However,
it bears emphasizing that mere disagreement between the Court of
Appeals and the trial court as to the facts of a case does not of itself
warrant this Court's review of the same. It has been held that the doctrine
that the findings of fact made by the Court of Appeals, being conclusive in
nature, are binding on this Court, applies even if the Court of Appeals
was in disagreement with the lower court as to the weight of evidence
with a consequent reversal of its findings of fact, so long as the findings
of the Court of Appeals are borne out by the record or based on
substantial evidence.12
We have gone over the records of this case and found no cogent reason
to disagree with the respondent courts findings that respondent Vigan did
not abandon her job but was illegally dismissed. Petitioners claim that
despite two (2) telegram notices dated August 26 and September 9, 1996
respectively sent to respondent Vigan to report for work, the latter did not
heed the demands and absented herself since August 5, 1996 was belied
by the respondents evidence, as it was upon instructions of petitioner
Danilo Litonjua to the guards on duty that she could not enter the
premises of her workplace. In fact, in her letter dated August 30, 1996
addressed to petitioner Danilo Litonjua, respondent Vigan had
complained of petitioner Danilos inhumane treatment in barring her from
entering her workplace, to wit:
"Sukdulan na po ang pang-aaping dinaranas ko sa inyo, sir.
Since August 5 etc. I was always approached by your guard
Batutay and harassed by your men to vacate my cubicle as per
your strict order. Only this August 7 that you succeeded as you
order the door locked for me only. As per our agreement Aug. 27
at Jollibee (sic) gave me assurance that I willingly undergo
psychiatric test I could freely report for work without intimidating
me, you wont anymore charge me of insubordination. You wont
disturb my family anymore, so why do you advice to try to go
back Aug. 30 but as always to be barred by guard Batutay? Sir,
with my 18 years of loyal service, all I need is a little respect. Tao
ako sir, hindi hayop. Malaki ang nawawala sa akin."
Notwithstanding the fact the she was refused entrance to her workplace,
respondent Vigan, to show her earnest desire to report for work, would

49
sneak her way into the premises and punched her time card but she
could not resume work as the guards in the company gate would prevent
her per petitioner Danilo Litonjuas instructions. It appears also that
respondent Vigan wrote petitioner Danilo a letter dated September 9,
1996 notifying him that per his instructions, she had made an
appointment for a psychiatric test on September 11, 1996 and requested
him to make a check payable to Dr. Lourdes Ladrido-Ignacio in the
amount of P800.00 consultation fee as they agreed upon. She underwent
a psychiatric examination as a result of which Dr. Ignacio issued a
medical certificate as follows:13

"To constitute abandonment two elements must concur

(1) the failure to report for work or absence without valid
or justifiable reason, and (2) a clear intention to sever the
employer-employee relationship, with the second element
as the more determinative factor and being manifested by
some overt acts. Abandoning ones job means the
deliberate, unjustified refusal of the employee to resume
his employment and the burden of proof is on the
employer to show a clear and deliberate intent on the part
of the employee to discontinue employment.

"This is to certify that MISS TERESITA VIGAN has come for

psychiatric evaluation on September 11 and 17, 1996. The
psychiatric interview and mental status examination did not reveal
any symptoms of psychosis or organic brain syndrome. She
showed anxiety but this was deemed a realistic reaction to her
present job difficulties."

Abandonment is a matter of intention and cannot be

lightly inferred, much less legally presumed from certain
equivocal acts. (Shin Industrial v. National Labor
Relations Commission, 164 SCRA 8).

Respondents actuations militate against petitioners claim that she did

not heed the notices to return to work and abandoned her job. She had
been going to her workplace to report for work but was prevented from
resuming her work upon the instructions of petitioner Danilo Litonjua. It
would be the height of injustice to allow an employee to claim as a
ground for abandonment a situation which he himself had brought
about.14
We fully agree with the respondent courts ratiocination on the illegality of
Vigans dismissal, to wit:15
"The basic issue is whether Vigans employment was terminated
by illegal dismissal or by abandonment of work, and We hold that
this was a case of illegal dismissal.
Shopworn is the rule on abandonment that the immediate filing of
a case for illegal dismissal negates the same. Mark that Vigan
promptly filed this suit for illegal dismissal when her attempts to
enter the premises of her workplace became futile and the efforts
to bar and eject her became unmistakable. In the more recent
case of Rizada vs. NLRC (G.R. No. 96982, September 21, 1999),
the Supreme Court reiterated anew the hoary rule that:

An employee who forthwith took steps to protest his

dismissal cannot be said to have abandoned his work."
(Toogue v. National Labor Relations Commission, 238
SCRA 241), as where the employee immediately filed a
complaint for illegal dismissal to seek reinstatement
(Tolong Aqua Culture Corp., et al. V. National Labor
Relations Commission, G.R. 122268, November 12,
1996) (emphasis supplied).
Note that in the instant case Vigan was even pleading to be
allowed to work but she was prevented by the guards thereat
upon the orders of Danilo Litonjua. These are disclosed by her
letters (Annexes "F", "G", "K", "Q", "R" and "U", pp. 82, 83, 87, 93,
94 & 97, rollo), the entries in her time cards (Annexes "P", "S",
"W" and "X", pp. 92, 95, 99 & 100, rollo) and her compliance
when required to see a psychiatrist (Annex "H", p. 84, rollo). On
the other hand there is complete silence from the Litonjuas on
these matters, including on the collective manifesto of several
employees against Danilo Litonjua and his highhanded ways
(Annex "I", p. 85). They chose to ignore material and telling
points. They even alleged that Vigan refused to comply with their
request for her to have medical examination (Comment, pp. 164171, rollo and Memorandum for the Respondents, pp. 215-222,
rollo), an unmitigated falsity in the face of clear proofs that she
complied with their directive and was given a clean bill of mental
health by a reputable psychiatrist of their choice.

50
For emphasis, We shall quote with seeming triteness the dictum
laid down in Mendoza vs. NLRC (supra) regarding the unflinching
rule in illegal dismissal cases:
"that the employer bears the burden of proof. To establish
a case of abandonment, the employer must prove the
employees deliberate and unjustified refusal to resume
employment without any intention of returning. . .
mere absence from work, especially where the employee
has been verbally told not to report, cannot by itself
constitute abandonment. To repeat, the employer has the
burden of proving overt acts on the employees part which
demonstrate a desire or intention to abandon her work"
The NLRC had erred in shifting the onus probandi to Vigan in the
charge of abandonment against her, while the Litonjuas failed to
discharge their burden. Though they may not have verbally told
Vigan not to report for work but the act of ordering the guards not
to let her in was just as clear a notice. Vigans plight was akin to
that of the truck helper in the case of Masagana Concrete
Products, et al. vs. NLRC (G.R. No. 106916, September 3, 1999)
who was likewise prevented from coming to work.
While there was no formal termination of his services,
Marias, was constructively dismissed when he was
accused of tampering the "vale sheet" and prevented
from returning to work. Constructive dismissal does not
always involve forthright dismissal or diminution in rank,
compensation, benefit and privileges. For an act of clear
discrimination insensibility or disdain by an employer may
become so unbearable on the part of the employee that it
could foreclose any choice by him except to forego his
continued employment. In this case, Marias had to
resign from his job because he was prevented from
returning back to work unless he admitted his mistake in
writing and he was not given any opportunity to contest
the charge against him. It is a rule often repeated that
unsubstantiated accusation without anything more are not
synonymous with guilt and unless a clear, valid, just or
authorized ground for dismissing an employee is

established by the employer the dismissal shall be

considered unfounded.
Similarly, Vigan was accused of having mental, emotional and
physical disorders (Annex "M", p. 89, rollo), but per medical
examination it was proven that hers was pure anxiety as a
realistic reaction to her present job difficulties. She was charged
of habitual absenteeism on Tuesdays that fell within three days
before and after the "15th" day and "30th" day of every month
(Litonjuas Position Paper, pp. 101-107, rollo). This is
preposterous for how many Tuesdays in a year would fall within
three days before and after the "15th" day and "30th" day of every
month? By no extrapolation can this be habitual absenteeism."
Since respondent Vigan was illegally dismissed from her employment,
she is entitled to: (1) either reinstatement, if viable, or separation pay if
reinstatement is no longer viable, and (2) backwages. 16 As correctly
disposed by the respondent Court:17
"Thus finding that Vigan was illegally dismissed, she is entitled to
the following:
1) Either reinstatement, if viable, or separation pay if
reinstatement is no longer viable; and 2) Backwages, Backwages
and separation pay are distinct relief given to alleviate the
economic damage by an illegally dismissed employee. Hence, an
award of separation pay in lieu of reinstatement does not bar an
award of backwages, computed from the time of illegal
dismissal up to the date of the finality of the Decision... without
qualification or deduction. Separation pay, equivalent to one
months salary for every year of service, is awarded as an
alternative to reinstatement when the latter is no longer an option.
Separation pay is computed from the commencement of
employment up to the time of termination, including the imputed
service for which the employee is entitled to backwages, with the
salary rate prevailing at the end of the period of putative service
being the basis for computation (Masagana Concrete Products, et
al. vs. NLRC, supra). In case of a fraction of at least six (6)
months in the length of service, the same shall be considered as
one year in computing the separation pay. With regard to
backwages, it meant literal "full backwages" that is inclusive of

51
allowances and other benefits or their monetary equivalent
computed from the time her compensation was withheld from her
up to the time of her actual reinstatement, if it is still viable or up
to the time the Decision in her favor becomes final without
deducting from back wages the earning derived elsewhere, if
there is any, by Vigan during the period of her illegal dismissal.
(Lopez vs. NLRC, 297 SCRA 508).
In other words, Vigan is entitled to reinstatement, which perhaps
is no longer viable due to the strained relations between the
parties, or separation pay of P8,000.00 for every year of service
and backwages of another P8,000 per month reckoned from the
time she last received salary from the Litonjuas up to the date of
the finality of this Decision. Mark again that We allowed the
P8,000.00 claim of Vigan as her last salary received for again the
Litonjuas failed to validly refute the same."
We likewise affirm respondent courts award of moral and exemplary
damages to the respondent. As a rule, moral damages are recoverable
only where the dismissal of the employee was attended by bad faith or
fraud or constituted an act oppressive to labor, or was done in a manner
contrary to morals, good customs or public policy. We find that bad faith
attended respondents dismissal from her employment. Bad faith involves
a state of mind dominated by ill will or motive. It implies a conscious and
intentional design to do a wrongful act for a dishonest purpose or some
moral obliquity.18 Petitioner Danilo Litonjua showed ill will in treating
respondent Vigan in a very unfair and cruel manner which made her
suffer anxieties by reason of such job difficulties. The report to work
notices sent by petitioners to respondent Vigan was just part of the ploy
to make it appear that the latter abandoned her work but in reality, Vigan
was barred from entering her work premises. We fully subscribe to
respondents position that petitioners action was for the purpose of
removing her from her employment. Respondent Vigan is also entitled to
exemplary damages as her dismissal was effected in an oppressive and
malevolent manner.19
We also find that there is a basis for the award of attorneys fees. It is
settled that in actions for recovery of wages or where an employee was
forced to litigate and incur expenses to protect his rights and interest, he
is entitled to an award of attorneys fees.20

WHEREFORE, premises considered, the decision of the respondent

Court of Appeals dated March 20, 2000 is hereby AFFIRMED with the
MODIFICATION that Litonjua Group of Companies and Eddie Litonjua
are dropped as parties in the instant case. SO ORDERED.
1wphi1.nt

52
G.R. No. 106436 December 3, 1994
VIRGILIO D. IMSON, petitioner, vs. HON. COURT OF APPEALS,
HOLIDAY HILLS STOCK AND BREEDING FARM CORPORATION,
FNCB FINANCE CORPORATION, respondents.
The case at bench arose from a vehicular collision on December 11,
1983, involving petitioner's Toyota Corolla and a Hino diesel truck
registered under the names of private respondents FNCB Finance
Corporation and Holiday Hills Stock and Breeding Farm Corporation. The
collision seriously injured petitioner and totally wrecked his car.
On January 6, 1984, petitioner filed with the RTC Baguio City 1 a
Complaint for Damages 2 Sued were private respondents as registered
owners of the truck; truck driver Felix B. Calip, Jr.; the beneficial owners of
the truck, Gorgonio Co Adarme, Felisa T. Co (also known as Felisa Tan), and
Cirilia Chua Siok Bieng, and the truck insurer, Western Guaranty
Corporation.
The Complaint prayed that defendants be ordered to pay, jointly and
severally, two hundred seventy thousand pesos (P270,000.00) as
compensatory damages, fifty thousand pesos (P50,000.00) each as
moral and exemplary damages, and attorney's fees, litigation expenses,
and cost of suit. 8
Defendants driver and beneficial owners failed to answer and were
declared in default. 4 On May 29, 1987, however, petitioner and defendant
insurer, entered into a compromise agreement which provided, inter alia:
1. Defendant Western Guaranty Corporation (Western Guaranty
for short) admits that its total liability under the laws and the
insurance contract sued upon is P70,000.00;
2. In full settlement of its liability under the laws and the said
insurance contract, defendant Western Guaranty shall pay
plaintiff (herein petitioner) the amount of P70,000.00 upon the
signing of this compromise agreement;

53
3. This compromise agreement shall in no way waive nor
prejudice plaintiffs (herein petitioner's) rights to proceed against
the other defendants with respect the remainder of his claims;
4. This compromise agreement shall be a full and final settlement
of the issues between plaintiff (herein petitioner) and defendant
Western Guaranty in their complaint and answer and, from now
on, they shall have no more right against one another except the
enforcement of this compromise agreement.
In consequence of the compromise agreement, the trial court dismissed
the Complaint for Damages against Western Guaranty Corporation on
June 16, 1987. 8 A copy of the Order of dismissal was received by private
respondent Holiday Hills Stock and Breeding Farm Corporation on July 13,
1987. Nearly eighteen (18) months later, said private respondent moved to
dismiss the case against all the other defendants. It argued that since they
are all indispensable parties under a common cause of action, the dismissal
of the case against defendant insurer must result in the dismissal of the suit
against all of them. The trial court denied the motion.
Private respondent Holiday Hills Stock and Breeding Farm Corporation
assailed the denial order through a Petition for Certiorari, Prohibition
and Mandamus With Restraining Order filed with respondent Court of
Appeals. The Petition was docketed as CA-G.R. SP No. 17651. On July
10, 1992, the Court of Appeals, 7 through its Special Sixth
Division, 8 reversed the trial court, as it ruled:
The petitioner (herein private respondent Holiday Hills Stock and
Breeding Farm Corporation) cites the doctrine laid down in Lim Tanhu v.
Hon. Ramolete, 66 SCRA 425, as applied later in Co v. Acosta, 134
SCRA 185, to support its averment that the court a quo gravely abused
its discretion in refusing to dismiss the case.
Essentially, the doctrine adverted to essays that in a common cause of
action where all the defendants are indispensable parties, the court's
power to act is integral and cannot be split, such that it cannot relieve any
of them and at the same time render judgment against the rest.
We find applicability of the doctrine to the case at bar.

A cursory reading of the complaint . . . reveals that the cause of action

was the alleged bad faith and gross negligence of the defendants
resulting in the injuries complained of and for which the action for
damages was filed. The inclusion of Western Guaranty Corporation was
vital to the claim, it being the insurer of the diesel truck without which, the
claim could be set for naught. Stated otherwise, it is an indispensable
party as the petitioner (herein private respondent stock and breeding
farm corporation) . . . . Private respondent's (herein petitioner's argument
that the said insurance company was sued on a different cause of action,
i.e., its bounden duty under the insurance law to pay or settle claims
arising under its policy coverage, is untenable, for the cited law perceives
the existence of a just cause, and according to the answer filed by the
Western Guaranty Corporation . . . the proximate cause of the accident
was the fault of the plaintiff (herein petitioner), hence it was not liable for
damages. There is in fact a congruence of affirmative defense among the
answering defendants.
Moreover, it is undisputed that the injury caused is covered by the
insurance company concerned. Thus, when the said insurer settled its
liability with the private respondent (petitioner herein) . . . , the other
defendants, as the insured and indispensable parties to a common cause
of action, necessarily benefited from such settlement including the
defaulted defendants, for as stated in the aforecited cases, it is deemed
that anything done by or for the answering defendant is done by or for the
ones in default since it is implicit in the rule that default is in essence a
mere formality that deprives them of no more than to take part in the trial,
but if the complaint is dismissed as to the answering defendant, it should
also be dismissed as to them. 9 (Citations omitted.)
Petitioner now comes to this Court with the following assignments of
error:
A.
RESPONDENT COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR IN RULING THAT THE DEFENDANTS IN
CIVIL CASE NO. 248-R ARE INDISPENSABLE PARTIES;
B.

54
RESPONDENT COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR IN RULING THAT IN CIVIL CASE NO.
248-R THERE IS A COMMON CAUSE OF ACTION AGAINST
THE DEFENDANTS THEREIN;
C.
RESPONDENT COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR IN RULING THAT IN CIVIL CASE NO.
248-R THE RULING OF THIS HONORABLE COURT IN LIM TAN
HU VS. RAMOLETE IS APPLICABLE;
D.
RESPONDENT COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR IN RULING THAT THE DOCTRINE OF
ESTOPPEL AND LACHES ON MATTERS OF JURISDICTION IS
NOT APPLICABLE IN CIVIL CASE NO. 248-R.
There is merit to the petition,.
In the case of Lim Tanhu v. Ramolete, 66 SCRA 425, 458-459 (1975) this
court held that:
. . . (I)n all instances where a common cause of action is alleged
against several defendants, some of whom answer and the
others do not, the latter or those in default acquire a vested right
not only to own the defense interposed in the answer of their codefendant or co-defendants not in default but also to expect a
result of the litigation totally common with them in kind and in
amount whether favorable or unfavorable. The substantive unity
of the plaintiffs cause against all the defendants is carried through
to its adjective phase as ineluctably demanded by the
homogeneity and indivisibility of justice itself. . . . The integrity of
the common cause of action against all the defendants and the
indispensability of all of them in the proceedings do not permit
any possibility of waiver of the plaintiffs right only as to one or
some of them, without including all of them, and so, as a rule,

withdrawal must be deemed to be a confession of weakness as to

all. . . . . Where all the defendants are indispensable parties, for
which reason the absence of any of them in the case would result
in the court losing its competency to act validly, any compromise
that the plaintiff might wish to make with any of them must, as a
matter of correct procedure, have to await until after the rendition
of the judgment, at which stage the plaintiff may then treat the
matter of its execution and the satisfaction of his claim as variably
as he might please. Accordingly, in the case now before Us
together with the dismissal of the complaint against the nondefaulted defendants, the court should have ordered also the
dismissal thereof as to petitioner (referring to the defaulting
defendants in the case).
In sum, Lim Tanhu states that where a complaint alleges a common
cause of action against defendants who are all indispensable parties to
the case, its dismissal against any of them by virtue of a compromise
agreement with the plaintiff necessarily results in the dismissal of the
case against the other defendants, including those in default. The ruling
is rooted on the rationale that the court's power to act in a case involving
a common cause of action against indispensable parties "is integral and
cannot be split such that it cannot relieve any of them and at the same
time render judgment against the rest. 10
For Lim Tanhu to apply to the case at bench, it must be established that:
(1) petitioner has common cause of action against private respondents
and the other defendants in Civil Case No. 248-R; and (2) all the
defendants are indispensable parties to the case.
Cause of action has a fixed meaning in this jurisdiction. It is the delict or
wrong by which the right of the plaintiff is violated by the defendant. 11 The
question as to whether a plaintiff has a cause of action is determined by the
averments in the pleadings pertaining to the acts of the defendant. Whether
such acts give him a right of action is determined by substantive law. 12
In the case at bench, it is clear that petitioner has different and separate
causes of action against the defendants in the case. The allegations in
the Complaint show that petitioner seeks to recover from the truck driver
for his wrong which caused injury to petitioner and his car. The cause of

55
action against him is based on quasi-delict under Article 2176 of the New
Civil Code. Quasi-delict, too, is the basis of the cause of action against
defendants beneficial and registered owners. But in their case, it is Article
2180 of the same Code which governs the rights of the parties.
However, with respect to defendant Western Guaranty Corporation,
petitioner's cause of action is based on contract. He seeks to recover
from the insurer on the basis of the third party liability clause of its
insurance contract with the owners of the truck. This is acknowledged by
the second paragraph of the compromise agreement between petitioner
and defendant insurer, thus:
2. In full settlement of its liability under the laws and the
said insurance contract, defendant Western Guaranty
shall pay plaintiff (herein petitioner) the amount of
P70,000.00 upon the signing of this compromise
agreement.
Quite clearly then, Lim Tanhu will not apply to the case at bench
for there is no showing that petitioner has a common cause of
action against the defendants in Civil Case No. 248-R.
But this is not all. Defendants in Civil Case No. 248-R are not all
indispensable parties. An indispensable party is one whose interest will
be affected by the court's action in the litigation, and without whom no
final determination of the case can be had. The party's interest in the
subject matter of the suit and in the relief sought are so inextricably
intertwined with the other parties' that his legal presence as a party to the
proceeding is an absolute necessity. 13In his absence there cannot be a
resolution of the dispute of the parties before the court which is effective,
complete, or equitable. 14
Conversely, a party is not indispensable to the suit if his interest in the
controversy or subject matter is distinct and divisible from the interest of
the other parties and will not necessarily be prejudiced by a judgment
which does complete justice to the parties in court. 15 He is not
indispensable if his presence would merely permit complete relief between
him and those already parties to the action, or will simply avoid multiple
litigation. 16

It is true that all of petitioner's claims in Civil Case No. 248-R is premised
on the wrong committed by defendant truck driver. Concededly, the truck
driver is an indispensable party to the suit. The other defendants,
however, cannot be categorized as indispensable parties. They are
merely proper parties to the case. Proper parties have been described as
parties whose presence is necessary in order to adjudicate the whole
controversy, but whose interests are so far separable that a final decree
can be made in their absence without affecting them. 17 It is easy to see
that if any of them had not been impleaded as defendant, the case would still
proceed without prejudicing the party not impleaded. Thus, if petitioner did
not sue Western Guaranty Corporation, the omission would not cause the
dismissal of the suit against the other defendants. Even without the insurer,
the trial court would not lose its competency to act completely and validly on
the damage suit. The insurer, clearly, is not an indispensable party in Civil
Case No. 248-R.
IN VIEW WHEREOF, the instant petition is GRANTED. The Decision,
dated July 10, 1992, of the Court of Appeals in CA-G.R. SP No. 17651 is
REVERSED AND SET ASIDE. The Complaint in Civil Case No. 248-R is
REINSTATED and REMANDED to the trial court for further proceedings.
No costs. SO ORDERED.

56

G.R. No. 103301 December 8, 1995

SERVICEWIDE SPECIALISTS INCORPORATED, petitioner, vs. HON.
COURT OF APPEALS and ARMANDO CUSTODIO, JR., respondents.
This petition of Servicewide Specialists, Incorporated, seeks a review
on certiorari of the 30th August 1991 decision of the Court of Appeals 1 in
CA-G.R. CV No. 20289 setting aside the judgment of the Regional Trial Court
of Manila, Branch 19, 2 which disposed of then Civil Case No. 83-18536, a
suit for replevin and damages, as follows:
WHEREFORE, judgment is hereby rendered, in favor of plaintiff
and against the defendant Armando Custodio, Jr., ordering him to
deliver and return the motor vehicle in question, complete with
accessories and equipment; and in the event that manual delivery
of the said meter vehicle cannot be effected, ordering said
defendant to pay the sum of P54,642.50, plus interest at the rate
of 14% per annum, from June 18, 1983 until fully paid, and to pay
the costs. SO ORDERED. 3
The litigation concerns a motor vehicle, a Colt Galant Sigma 1600E, 1977
model, 4-door sedan, colored Baikal White, with Serial No. A-121-UL-493
and Engine No. 2G-171-34. The decisions of both the appellate court and
the trial court rest on the following representation of the facts:
Plaintiff's evidence shows that, on August 29, 1977, Eleuterio
Bondoc executed and delivered to Carmark Philippines a

57
promissory note in the sum of P66,119.04, payable in
installments, Exhibit A, and in order to secure payment, a chattel
mortgage was executed in favor of Carmark Philippines over the
aforementioned motor vehicle, Exhibit B, which was subsequently
assigned in favor of Filinvest Corporation, with the conformity of
Eleuterio Bondoc, Exhibit C.
On July 27, 1979, Eleuterio Bondoc, as vendor, executed a deed
of sale with assumption of mortgage of the balance of the account
in favor of Cesar Dollente, Exhibits D and D-1, which, upon
approval by Filinvest Corporation, Cesar Dollente executed and
delivered to Filinvest Corporation a promissory note in the
amount of P37,528.83, payable in installments, Exhibit E. On
October 26, 1979, Cesar Dollente, as vendor, executed a deed of
sale with assumption of mortgage over the aforementioned
vehicle for the balance of his account in favor of Ernesto Dollente,
Exhibit E. On September 28, 1979, Ernesto Dollente executed
and delivered to Filinvest Corporation a promissory note for the
sum of P37,528.83, payable in monthly installments. This
obligation was secured by a chattel mortgage executed between
Cesar Dollente and Ernesto Dollente, which was annotated and
registered, Exhibit B-1. Subsequently, Filinvest Corporation
assigned all its rights and interests on the promissory note and
chattel mortgage to plaintiff, with notice to Ernesto Dollente. The
original defendant Ernesto Dollente, having defaulted in the
payment of the monthly installments which fell due on June 15,
1979 up to September 15, 1981, plaintiff demanded from said
defendant the payment of the entire balance, which includes
interest thereon and to return the motor vehicle in question. By
reason of the refusal of the original defendant to pay the entire
balance and to surrender possession of the subject motor vehicle,
this case was filed and, upon its filing, upon motion, a writ of
seizure was issued and the same was implemented by the sheriff.
A counter-replevin bond having been filed, defendant Armando
Custodio, Jr. had obtained possession of the mortgaged vehicle.
Traversing the plaintiffs claim, defendant's evidence shows that,
on September 8, 1978, defendant Armando Custodio, Jr. obtained
the motor vehicle in question by purchase from Ernesto Dollente,
Exhibit 1. Ernesto Dollente bought the same on April 14, 1978
from Venus Motor Sales, Exhibits 2 and 3. When defendant
bought the said vehicle from Ernesto Dollente, he was issued a

clearance from the Constabulary Highway Patrol Group, Exhibits

4 and 4-A. Since then defendant has been possessing the vehicle
in question. This vehicle was previously registered at Urdaneta,
Pangasinan. 4
Finding preponderance of the evidence in favor of herein petitioner, the
lower court ruled:
The claim of herein defendant that, Ernesto Dollente's breach of
the chattel mortgage should not bind him, because he is not a
privy to such contract, is hardly acceptable, for the reason that
the registration of the chattel mortgage is an effective and binding
notice to him of its existence. The transaction of Ernesto Dollente,
which led to the transfer of the registration of this motor vehicle in
favor of defendant Armando Custodio, Jr., is doubtful and must
have been conveniently arranged or manipulated to effect this
transfer. It is settled that once a mortgage is registered with the
Register of Deeds and in the Land Transportation Commission, it
is binding against anybody, including defendant Armando
Custodio, Jr. As correctly pointed out, in purchasing the motor
vehicle in question, defendant Armando Custodio, Jr. knew or, at
least, was presumed to know, by the mere fact that the mortgage
was registered in the Office of the Register of Deeds, as in this
case, the said chattel mortgage was subject to a mortgage lien. 5
On appeal to it, the Court of Appeals saw merit in the contention of
private respondent that the dismissal at the instance of petitioner himself
of the amended complaint against Ernesto Dollente after a failure of
summons on him, was "fatal to the entire action" Dollente being, in the
considered view of the appellate court, an indispensable party to the
proceedings. The appellate court elaborated:
. . . it is abundantly clear that the dismissal of the complaint as
against the principal defendant Dollente has robbed the action of
any cause for survival. The replevin suit owed its existence to an
alleged right to possession of the motor vehicle, which right in
turn was founded on the alleged default of Dollente. Now, since
"the case against Ernesto Dollente" was dismissed, albeit without
prejudice, there remains no cause of action against said
defendant in the case. And since, there is no distinct cause of
action against the remaining defendant, herein appellant

58
Custodio, there remains no provable cause in the action. The
plaintiff's right to possession of the car in case which is
"conditioned upon the fact of actual default on the part of the
principal obligor" the existence of which fact "may naturally be the
subject of controversy" could not properly be established in the
absence, and after the plaintiff-initiated exclusion, of the principal
obligor and principal defendant. There is no question, under the
circumstances, that Dollente was an indispensable party in the
action. His presence is indispensable, essential and compulsory if
a final determination of the action should be achieved (Sec. 7,
Rule 3).
It was clearly an error for the trial court to have proceeded with
the case without the indispensable Dollente. The judgment
rendered by the trial court following such flawed proceedings is
therefore ineffectual and ineffective. 6
While, in its present petition for review on certiorari, Servicewide has
raised a number of points, the crucial issue still remains, however, to be
whether or not an action filed by the mortgagee for replevin to effect a
foreclosure of the property covered by the chattel mortgage would require
that the mortgagor be so impleaded as an indispensable party thereto.
Rule 60 of the Rules of Court allows a plaintiff, in an action for the
recovery of possession of personal property, to apply for a writ of replevin
if it can be shown that he is "the owner of the property claimed . . . or
is entitled to the possession thereof." 7 The plaintiff need not be the owner
so long as he is able to specify his right to the possession of the property and
his legal basis therefor. The question then, insofar as the matter finds relation
to the instant case, is whether or not the plaintiff (herein petitioner) who has
predicated his right on being the mortgagee of a chattel mortgage should
implead the mortgagor in his complaint that seeks to recover possession of
the encumbered property in order to effect its foreclosure.
The answer has to be in the affirmative. 8 In a suit for replevin, a clear right
of possession must be established. A foreclosure under a chattel mortgage
may properly be commenced only once there is default on the part of the
mortgagor of his obligation secured by the mortgage. The replevin in the
instant case has been sought to pave the way for the foreclosure of the
object covered by the chattel mortgage. The conditions essential for that
foreclosure would be to show, firstly, the existence of the chattel mortgage
and, secondly, the default of the mortgagor. These requirements must be

established since the validity of the plaintiffs exercise of the right of

foreclosure are inevitably dependent thereon. It would thus seem,
considering particularly an adverse and independent claim of ownership by
private respondent, that the lower court acted improvidently when it granted
the dismissal of the complaint against Dollente, albeit on petitioner's (then
plaintiff) plea, on the ground that the "non-service of summons upon Ernesto
Dollente (would) only delay the determination of the merits of the case, to the
prejudice of the parties." 9 In Imson v. Court of Appeals, we have explained:

. . . An indispensable party is one whose interest will be affected

by the court's action in the litigation, and without whom no final
determination of the case can be had. The party's interest in the
subject matter of the suit and in the relief sought are so
inextricably intertwined with the other parties' that his legal
presence as a party to the proceeding is an absolute necessity. In
his absence there cannot be a resolution of the dispute of the
parties before the court which is effective, complete, or equitable.
Conversely, a party is not indispensable to the suit if his interest
in the controversy or subject matter is distinct and divisible from
the interest of the other parties and will not necessarily be
prejudiced by a judgment which does complete justice to the
parties in court. He is not indispensable if his presence would
merely permit complete relief between him and those already
parties to the action or will simply avoid multiple litigation. 10
Without the presence of indispensable parties to a suit or
proceeding, a judgment of a court cannot attain real finality. 11
Having arrived at the foregoing conclusion, the Court need not take up
the other issues raised by petitioner.
In passing, the failure of summons upon Ernesto Dollente, per the
Sheriffs Return dated July 19, 1983, 12 is said to have been due to
defendant's being no longer a resident "at the given address as per
information gathered from the present occupant of the premises." It appears
that the remedial measures provided in Rule 14 of the Rules of Court
regrettably have not been properly availed of; for instance, substitute service
of summons under Section 8 thereof could have been resorted to. 13
WHEREFORE, the decision of the Court of Appeals is AFFIRMED. Costs
against petitioner. SO ORDERED.

59

G.R. No. 140746

March 16, 2005
PANTRANCO NORTH EXPRESS, INC., and ALEXANDER
BUNCAN, Petitioner, vs. STANDARD INSURANCE COMPANY, INC.,
and MARTINA GICALE, Respondents.
Before us is a petition for review on certiorari assailing the
Decision1 dated July 23 1999 and Resolution 2 dated November 4, 1999 of
the Court of Appeals in CA-G.R. CV No. 38453, entitled "Standard
Insurance Company, Inc., and Martina Gicale vs. PANTRANCO North
Express, Inc., and Alexander Buncan."
In the afternoon of October 28, 1984, Crispin Gicale was driving the
passenger jeepney owned by his mother Martina Gicale, respondent
herein. It was then raining. While driving north bound along the National
Highway in Talavera, Nueva Ecija, a passenger bus, owned by Pantranco
North Express, Inc., petitioner, driven by Alexander Buncan, also a
petitioner, was trailing behind. When the two vehicles were negotiating a
curve along the highway, the passenger bus overtook the jeepney. In so
doing, the passenger bus hit the left rear side of the jeepney and sped
away.

60
Crispin reported the incident to the Talavera Police Station and
respondent Standard Insurance Co., Inc. (Standard), insurer of the
jeepney. The total cost of the repair was P21,415.00, but respondent
Standard paid only P8,000.00. Martina Gicale shouldered the balance
of P13,415.00.
Thereafter,
Standard
and
Martina,
respondents,
demanded
reimbursement from petitioners Pantranco and its driver Alexander
Buncan, but they refused. This prompted respondents to file with the
Regional Trial Court (RTC), Branch 94, Manila, a complaint for sum of
money.

On appeal, the Court of Appeals, in a Decision 4 dated July 23, 1999,

affirmed the trial courts ruling, holding that:
"The appellants argue that appellee Gicales claim of P13,415.00
and appellee insurance companys claim of P8,000.00 individually
fell under the exclusive original jurisdiction of the municipal trial
court. This is not correct because under the Totality Rule provided
for under Sec. 19, Batas Pambansa Bilang 129, it is the sum of
the two claims that determines the jurisdictional amount.
xxx

In their answer, both petitioners specifically denied the allegations in the

complaint and averred that it is the Metropolitan Trial Court, not the RTC,
which has jurisdiction over the case.

In the case at bench, the total of the two claims is definitely more
than P20,000.00 which at the time of the incident in question was
the jurisdictional amount of the Regional Trial Court.

On June 5, 1992, the trial court rendered a Decision 3 in favor of

respondents Standard and Martina, thus:

Appellants contend that there was a misjoinder of parties.

Assuming that there was, under the Rules of Court (Sec. 11, Rule
7) as well as under the Rules of Civil Procedure (ditto), the same
does not affect the jurisdiction of the court nor is it a ground to
dismiss the complaint.

"WHEREFORE, and in view of the foregoing considerations,

judgment is hereby rendered in favor of the plaintiffs, Standard
Insurance Company and Martina Gicale, and against defendants
Pantranco Bus Company and Alexander Buncan, ordering the
latter to pay as follows:
(1) to pay plaintiff Standard Insurance the amount of P8,000.00
with interest due thereon from November 27, 1984 until fully paid;
(2) to pay plaintiff Martina Gicale the amount of P13,415.00 with
interest due thereon from October 22, 1984 until fully paid;

xxx
It does not need perspicacity in logic to see that appellees
Gicales and insurance companys individual claims against
appellees (sic) arose from the same vehicular accident on
October 28, 1984 involving appellant Pantrancos bus and
appellee Gicales jeepney. That being the case, there was a
question of fact common to all the parties: Whose fault or
negligence caused the damage to the jeepney?

(3) to pay the sum of P10,000.00 for attorneys fees;

(4) to pay the expenses of litigation and the cost of suit.
SO ORDERED."

Appellants submit that they were denied their day in court

because the case was deemed submitted for decision "without
even declaring defendants in default or to have waived the
presentation of evidence." This is incorrect. Of course, the court
did not declare defendants in default because that is done only
when the defendant fails to tender an answer within the

61
reglementary period. When the lower court ordered that the case
is deemed submitted for decision that meant that the defendants
were deemed to have waived their right to present evidence. If
they failed to adduce their evidence, they should blame nobody
but themselves. They failed to be present during the scheduled
hearing for the reception of their evidence despite notice and
without any motion or explanation. They did not even file any
motion for reconsideration of the order considering the case
submitted for decision.
Finally, contrary to the assertion of the defendant-appellants, the
evidence preponderantly established their liability for quasi-delict
under Article 2176 of the Civil Code."
Petitioners filed a motion for reconsideration but was denied by the
Appellate Court in a Resolution dated November 4, 1999.
Hence, this petition for review on certiorari raising the following
assignments of error:
"I
WHETHER OR NOT THE TRIAL COURT HAS JURISDICTION
OVER THE SUBJECT OF THE ACTION CONSIDERING THAT
RESPONDENTS RESPECTIVE CAUSE OF ACTION AGAINST
PETITIONERS DID NOT ARISE OUT OF THE SAME
TRANSACTION NOR ARE THERE QUESTIONS OF LAW AND
FACTS
COMMON
TO
BOTH
PETITIONERS
AND
RESPONDENTS.
II
WHETHER OR NOT PETITIONERS ARE LIABLE TO
RESPONDENTS CONSIDERING THAT BASED ON THE
EVIDENCE ADDUCED AND LAW APPLICABLE IN THE CASE
AT BAR, RESPONDENTS HAVE NOT SHOWN ANY RIGHT TO
THE RELIEF PRAYED FOR.

III
WHETHER OR NOT PETITIONERS WERE DEPRIVED OF
THEIR RIGHT TO DUE PROCESS."
For their part, respondents contend that their individual claims arose out
of the same vehicular accident and involve a common question of fact
and law. Hence, the RTC has jurisdiction over the case.
I
Petitioners insist that the trial court has no jurisdiction over the case since
the cause of action of each respondent did not arise from the same
transaction and that there are no common questions of law and fact
common to both parties. Section 6, Rule 3 of the Revised Rules of
Court,5 provides:
"Sec. 6. Permissive joinder of parties. All persons in whom or
against whom any right to relief in respect to or arising out of the
same transaction or series of transactions is alleged to exist,
whether jointly, severally, or in the alternative, may, except as
otherwise provided in these Rules, join as plaintiffs or be joined
as defendants in one complaint, where any question of law or fact
common to all such plaintiffs or to all such defendants may arise
in the action; but the court may make such orders as may be just
to prevent any plaintiff or defendant from being embarrassed or
put to expense in connection with any proceedings in which he
may have no interest."
Permissive joinder of parties requires that: (a) the right to relief arises out
of the same transaction or series of transactions; (b) there is a question
of law or fact common to all the plaintiffs or defendants; and (c) such
joinder is not otherwise proscribed by the provisions of the Rules on
jurisdiction and venue.6
In this case, there is a single transaction common to all, that is,
Pantrancos bus hitting the rear side of the jeepney. There is also a
common question of fact, that is, whether petitioners are negligent. There

62
being a single transaction common to both respondents, consequently,
they have the same cause of action against petitioners.
To determine identity of cause of action, it must be ascertained whether
the same evidence which is necessary to sustain the second cause of
action would have been sufficient to authorize a recovery in the
first.7 Here, had respondents filed separate suits against petitioners, the
same evidence would have been presented to sustain the same cause of
action. Thus, the filing by both respondents of the complaint with the
court below is in order. Such joinder of parties avoids multiplicity of suit
and ensures the convenient, speedy and orderly administration of justice.
Corollarily, Section 5(d), Rule 2 of the same Rules 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:
xxx
(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."
The above provision presupposes that the different causes of action
which are joined accrue in favor of the same plaintiff/s and against the
same defendant/s and that no misjoinder of parties is involved. 8 The
issue of whether respondents claims shall be lumped together is
determined by paragraph (d) of the above provision. This paragraph
embodies the "totality rule" as exemplified by Section 33 (1) of B.P. Blg.
1299 which states, among others, that "where there are several claims or
causes of action between the same or different parties, embodied in the
same complaint, the amount of the demand shall be the totality of the
claims in all the causes of action, irrespective of whether the causes of
action arose out of the same or different transactions."

As previously stated, respondents cause of action against petitioners

arose out of the same transaction. Thus, the amount of the demand shall
be the totality of the claims.
Respondent Standards claim is P8,000.00, while that of respondent
Martina Gicale is P13,415.00, or a total of P21,415.00. Section 19 of B.P.
Blg. 129 provides that the RTC has "exclusive original jurisdiction over all
other cases, in which the demand, exclusive of interest and cost or the
value of the property in controversy, amounts to more than twenty
thousand pesos (P20,000.00)." Clearly, it is the RTC that has jurisdiction
over the instant case. It bears emphasis that when the complaint was
filed, R.A. 7691 expanding the jurisdiction of the Metropolitan, Municipal
and Municipal Circuit Trial Courts had not yet taken effect. It became
effective on April 15, 1994.
II
The finding of the trial court, affirmed by the Appellate Court, that
petitioners are negligent and thus liable to respondents, is a factual
finding which is binding upon us, a rule well-established in our
jurisprudence. It has been repeatedly held that the trial court's factual
findings, when affirmed by the Appellate Court, are conclusive and
binding upon this Court, if they are not tainted with arbitrariness or
oversight of some fact or circumstance of significance and influence.
Petitioners have not presented sufficient ground to warrant a deviation
from this rule.10
III
There is no merit in petitioners contention that they were denied due
process. Records show that during the hearing, petitioner Pantrancos
counsel filed two motions for resetting of trial which were granted by the
trial court. Subsequently, said counsel filed a notice to withdraw. After
respondents had presented their evidence, the trial court, upon
petitioners motion, reset the hearing to another date. On this date,
Pantranco failed to appear. Thus, the trial court warned Pantranco that
should it fail to appear during the next hearing, the case will be submitted
for resolution on the basis of the evidence presented. Subsequently,
Pantrancos new counsel manifested that his client is willing to settle the

63
case amicably and moved for another postponement. The trial court
granted the motion. On the date of the hearing, the new counsel
manifested that Pantrancos employees are on strike and moved for
another postponement. On the next hearing, said counsel still failed to
appear. Hence, the trial court considered the case submitted for decision.
We have consistently held that the essence of due process is simply an
opportunity to be heard, or an opportunity to explain ones side or an
opportunity to seek for a reconsideration of the action or ruling
complained of.11
Petitioner Pantranco filed an answer and participated during the trial and
presentation of respondents evidence. It was apprised of the notices of
hearing issued by the trial court. Indeed, it was afforded fair and
reasonable opportunity to explain its side of the controversy. Clearly, it
was not denied of its right to due process. What is frowned upon is the
absolute lack of notice and hearing which is not present here.
WHEREFORE, the petition is DENIED. The assailed Decision dated July
23 1999 and Resolution dated November 4, 1999 of the Court of Appeals
in CA-G.R. CV No. 38453 are hereby AFFIRMED. Costs against
petitioners. SO ORDERED.

G.R. No. 162575

December 15, 2010
BEATRIZ SIOK PING TANG, Petitioner, vs. SUBIC BAY
DISTRIBUTION, INC., Respondent.

64
Before us is a petition for review on certiorari filed by petitioner Beatriz
Siok Ping Tang seeking to annul and set aside the Decision 1 dated
October 17, 2003 and the Resolution2 dated March 5, 2004 of the Court
of Appeals (CA) in CA-G.R. SP No. 74629.
The antecedent facts are as follows:
Petitioner is doing business under the name and style of Able Transport.
Respondent Subic Bay Distribution, Inc. (SBDI) entered in two
Distributorship Agreements with petitioner and Able Transport in April
2002. Under the Agreements, respondent, as seller, will sell, deliver or
procure to be delivered petroleum products, and petitioner, as distributor,
will purchase, receive and pay for its purchases from respondent. The
two Agreements had a period of one year, commencing on October 2001
to October 2002, which shall continue on an annual basis unless
terminated by either party upon thirty days written notice to the other prior
to the expiration of the original term or any extension thereof.
Section 6.3 of the Distributorship Agreement provides that respondent
may require petitioner to put up securities, real or personal, or to furnish
respondent a performance bond issued by a bonding company chosen
by the latter to secure and answer for petitioner's outstanding account,
and or faithful performance of her obligations as contained or arising out
of the Agreement. Thus, petitioner applied for and was granted a credit
line by the United Coconut Planters Bank (UCPB), International
Exchange Bank (IEBank), and Security Bank Corporation (SBC).
Petitioner also applied with the Asia United Bank (AUB) an irrevocable
domestic standby letter of credit in favor of respondent. All these banks
separately executed several undertakings setting the terms and
conditions governing the drawing of money by respondent from these
banks.
Petitioner allegedly failed to pay her obligations to respondent despite
demand, thus, respondent tried to withdraw from these bank
undertakings.
Petitioner then filed with the Regional Trial Court (RTC) of Quezon City
separate petitions3 against the banks for declaration of nullity of the
several bank undertakings and domestic letter of credit which they issued

with the application for the issuance of a temporary restraining order

(TRO) and writ of preliminary injunction. The cases were later
consolidated and were assigned to Branch 101. Petitioner asked for the
annulment of the bank undertakings/letter of credit which she signed on
the ground that the prevailing market rate at the time of respondent's
intended drawings with which petitioner will be charged of as interests
and penalties is oppressive, exorbitant, unreasonable and
unconscionable rendering it against public morals and policy; and that to
make her automatically liable for millions of pesos on the bank
undertakings, these banks merely required the submission of a mere
certification from the company (respondent) that the customer (petitioner)
has not paid its account (and its statement of account of the client)
without first verifying the truthfulness of the alleged petitioner's total
liability to the drawer thereon. Therefore, such contracts are oppressive,
unreasonable and unconscionable as they would result in her obtaining
several millions of liability.
On November 28, 2002, a hearing was conducted for the issuance of the
TRO and the writ of preliminary injunction wherein the petitioner and the
bank representatives were present. On query of the respondent Judge
Normandie Pizarro (Judge Pizarro) to the bank representatives with
regard to the eventual issuance of the TRO, the latter all replied that they
will abide by the sound judgment of the court. The court then issued an
Order4granting the TRO and requiring petitioner to implead respondent as
an indispensable party and for the latter to submit its position paper on
the matter of the issuance of the injunction. Petitioner and respondent
submitted their respective position papers.
On December 17, 2002, the RTC rendered an Order,5 the dispositive
portion of which reads:
ACCORDINGLY, let a Writ of Preliminary Injunction be issued restraining
and enjoining herein Respondent UCPB, IEB, SB and AUB from
releasing any funds to SBDI, pursuant to the Bank Undertakings and/or
Domestic Standby Letter of Credit until further orders from this Court.
Consequently, Petitioner is hereby DIRECTED to post a bond in the
amount of TEN MILLION PESOS (P10,000,000.00), to answer for
whatever damages respondent banks and SBDI may suffer should this
Court finally decide that petitioner was not entitled thereto. 6

65
The RTC found that both respondent and petitioner have reasons for the
enforcement or non-enforcement of the bank undertakings, however, as
to whether said reasons were justifiable or not, in view of the attending
circumstances, the RTC said that these can only be determined after a
full blown trial. It ruled that the outright denial of petitioner's prayer for the
issuance of injunction, even if the evidence warranted the reasonable
probability that real injury will occur if the relief for shall not be granted in
favor of petitioner, will not serve the ends of justice.
Respondent filed with the CA a petition for certiorari with prayer for the
issuance of a TRO and writ of preliminary injunction against respondent
Judge Pizarro and petitioner. Subsequently, petitioner filed her Comment
and respondent filed its Reply.
On July 4, 2003, the CA issued a Resolution7 granting the TRO prayed for
by respondent after finding that it was apparent that respondent has a
legal right under the bank undertakings issued by UCPB, SBC, and
IEBank; and that until those undertakings were nullified, respondent's
rights under the same should be maintained.
On July 11, 2003, the CA issued a Supplemental Resolution 8 wherein the
Domestic Standby Letter of Credit issued by AUB was ordered included
among the bank undertakings, to which respondent has a legal right.
On October 17, 2003, the CA rendered its assailed Decision, the decretal
portion of which reads:
WHEREFORE, the petition is hereby GRANTED. The Order dated
December 17, 2002 is hereby ANNULLED AND SET ASIDE. The writ of
preliminary injunction issued by the lower court is hereby LIFTED.9
In so ruling, the CA said that the grant or denial of an injunction rests on
the sound discretion of the RTC which should not be intervened, except
in clear cases of abuse. Nonetheless, the CA continued that the RTC
should avoid issuing a writ of preliminary injunction which would, in effect,
dispose of the main case without trial. It found that petitioner was
questioning the validity of the bank undertakings and letter of credit for
being oppressive, unreasonable and unconscionable. However, as
provided under the law, private transactions are presumed to be fair and

regular and that a person takes ordinary care of his concerns. The CA
ruled that the RTC's issuance of the injunction, which was premised on
the abovementioned justification, would be a virtual acceptance of
petitioner's claim, thus, already a prejudgment of the main case. It also
said that contracts are presumed valid until they are voided by a court of
justice, thus, until such time that petitioner has presented sufficient
evidence to rebut such presumption, her legal right to the writ is doubtful.
As to petitioner's claim of respondent's non-filing of a motion for
reconsideration before resorting to a petition for certiorari, the CA said
that it is not a rigid rule, as jurisprudence had said, that when a definite
question has been properly raised, argued and submitted in the RTC and
the latter had decided the question, a motion for reconsideration is no
longer necessary before filing a petition for certiorari. The court found that
both parties had fully presented their sides on the issuance of the writ of
preliminary injunction and that the RTC had squarely resolved the issues
presented by both parties. Thus, respondent could not be faulted for not
filing a motion for reconsideration.
In a Resolution dated March 5, 2004, petitioner's motion for
reconsideration was denied.
Hence, this petition, wherein petitioner raises the following assignment of
errors:
I.
THE
HONORABLE
COURT
OF
APPEALS A
QUO COMMITTED A SERIOUS AND REVERSIBLE ERROR IN
GIVING DUE COURSE AND GRANTING THE PETITION
FOR CERTIORARI FILED BY PRIVATE RESPONDENT SBDI,
DESPITE THE FACT THAT THE ORIGINAL PARTIES IN THE
TRIAL COURT, WHO ARE EQUALLY MANDATED BY THE
QUESTIONED ORDER OF THE TRIAL COURT, NAMELY;
UCPB, IEBANK, SBC AND AUB, AS DEFENDANTS IN THE
MAIN CASE, WERE NOT IMPLEADED AS INDISPENSABLE
PARTIES IN THE PETITION.
II.
THE
HONORABLE
COURT
OF
APPEALS A
QUO COMMITTED A SERIOUS AND REVERSIBLE ERROR IN
GIVING
DUE
COURSE
AND
GRANTING
PRIVATE

66
RESPONDENT SBDI'S PETITION WHEN THE LATTER
ADMITTEDLY FAILED TO FILE A PRIOR MOTION FOR
RECONSIDERATION BEFORE THE TRIAL COURT, MORESO
WHEN INDISPENSABLE PARTIES WERE NOT IMPLEADED
WHICH SHOULD HAVE RENDERED THE COURT OF
APPEALS IN WANT OF JURISDICTION TO ACT.10
Petitioner claims that the CA decision is void for want of authority of the
CA to act on the petition as the banks should have been impleaded for
being indispensable parties, since they are the original party respondents
in the RTC; that the filing with the CA of respondent's petition
for certiorari emanated from the RTC Order wherein the banks were the
ones against whom the questioned Order was issued; that the banks are
the ones who stand to release hundred millions of pesos which
respondent sought to draw from the questioned bank undertakings and
domestic standby letter of credit through the certiorari proceedings, thus,
they should be given an opportunity to be heard. Petitioner claims that
even the CA recognized the banks' substantial interest over the subject
matter of the case when, despite not being impleaded as parties in the
petition filed by respondent, the CA also notified the banks of its decision.
Petitioner argues that a petition for certiorari filed without a prior motion
for reconsideration is a premature action and such omission constitutes a
fatal infirmity; that respondent explained its omission only when petitioner
already brought the same to the attention of the CA, thus, a mere
afterthought and an attempt to cure the fatal defects of its petition.
In its Comment, respondent contends that the banks which issued the
bank undertakings and letter of credit are not indispensable parties in the
petition for certiorari filed in the CA. Respondent argues that while the
RTC preliminarily resolved the issue of whether or not petitioner was
entitled to an injunctive relief, and the enforcement of any decision
granting such would necessarily involve the banks, the resolution of the
issue regarding the injunction does not require the banks' participation.
This is so because on one hand the entitlement or non-entitlement to an
injunction is a matter squarely between petitioner and respondent, the
latter being the party that is ultimately enjoined from benefiting from the
banks' undertakings. On the other hand, respondent contends that the
issue resolved by the CA was whether or not the RTC gravely abused its

discretion in granting the injunctive relief to respondent; that while the

enforcement of any decision enjoining the implementation of the
injunction issued by the RTC would affect the banks, the resolution of
whether there is grave abuse of discretion committed by the RTC does
not require the banks' participation.
Respondent claims that while as a rule, a motion for reconsideration is
required before filing a petition for certiorari, the rule admits of
exceptions, which are, among others: (1) when the issues raised in
the certiorari proceedings have been duly raised and passed upon by the
RTC or are the same as those raised and passed upon in the RTC; (2)
there is an urgent necessity and time is of the essence for the resolution
of the issues raised and any further delay would prejudice the interests of
the petitioner; and (3) the issue raised is one purely of law, which are
present in respondent's case.
In her Reply, petitioner claims that the decree that will compel and order
the banks to release any funds to respondent pending the resolution of
her petition in the RTC will have an injurious effect upon her rights and
interest. She reiterates her arguments in her petition.
Respondent filed a Rejoinder saying that it is misleading for petitioner to
allege that the decree sought by respondent before the CA is directed
against the banks; that even the dispositive portion of the CA decision did
not include any express directive to the banks; that there was nothing in
the CA decision which compelled and ordered the banks to release funds
in favor of respondent as the CA decision merely annulled the RTC Order
and lifted the writ of preliminary injunction. Respondent contends that the
banks are not persons interested in sustaining the RTC decision as this
was obvious from the separate answers they filed in the RTC wherein
they uniformly maintained that the bank undertakings/letter of credit are
not oppressive, unreasonable and unconscionable. Respondent avers
that petitioner is the only person interested in upholding the injunction
issued by the RTC, since it will enable her to prevent the banks from
releasing funds to respondent. Respondent insists that petitioner's
petition before the RTC and the instant petition have caused and
continues to cause respondent grave and irreparable damage.

67
Both parties were then required to file their respective memoranda, in
which they complied.
Petitioner's insistence that the banks are indispensable parties, thus,
should have been impleaded in the petition for certiorari filed by
respondent in the CA, is not persuasive.
In Arcelona v. Court of Appeals, we stated the nature of indispensable
party, thus:
11

An indispensable party is a party who has such an interest in the

controversy or subject matter that a final adjudication cannot be made, in
his absence, without injuring or affecting that interest, a party who has not
only an interest in the subject matter of the controversy, but also has an
interest of such nature that a final decree cannot be made without
affecting his interest or leaving the controversy in such a condition that its
final determination may be wholly inconsistent with equity and good
conscience. It has also been considered that an indispensable party is a
person in whose absence there cannot be a determination between the
parties already before the court which is effective, complete, or equitable.
Further, an indispensable party is one who must be included in an action
before it may properly go forward.
A person is not an indispensable party, however, if his interest in the
controversy or subject matter is separable from the interest of the other
parties, so that it will not necessarily be directly or injuriously affected by
a decree which does complete justice between them. Also, a person is
not an indispensable party if his presence would merely permit complete
relief between him and those already parties to the action, or if he has no
interest in the subject matter of the action. It is not a sufficient reason to
declare a person to be an indispensable party that his presence will avoid
multiple litigation.12
Applying the foregoing, we find that the banks are not indispensable
parties in the petition for certiorari which respondent filed in the CA
assailing the RTC Order dated December 17, 2002. In fact, several
circumstances would show that the banks are not parties interested in the
matter of the issuance of the writ of preliminary injunction, whether in the
RTC or in the CA.

First. During the hearing of petitioner's prayer for the issuance of a TRO,
the RTC, in open court, elicited from the lawyer-representatives of the
four banks their position in the event of the issuance of the TRO, and all
these representatives invariably replied that they will abide and/or submit
to the sound judgment of the court.13
Second. When the RTC issued its Order dated December 17, 2002
granting the issuance of the writ of preliminary injunction, the banks could
have challenged the same if they believe that they were aggrieved by
such issuance. However, they did not, and such actuations were in
consonance with their earlier position that they would submit to the sound
judgment of the RTC.
Third. When respondent filed with the CA the petition for certiorari with
prayer for the issuance of a TRO and writ of preliminary injunction, and a
TRO was subsequently issued, copies of the resolution were also
sent14 to the banks, although not impleaded, yet the latter took no action
to question their non-inclusion in the petition. Notably, the SBC filed an
Urgent Motion for Clarification15 on whether or not the issuance of the
TRO has the effect of restraining the bank from complying with the writ of
preliminary injunction issued by the RTC or nullifying /rendering
ineffectual the said writ. In fact, SBC even stated that the motion was filed
for no other purpose, except to seek proper guidance on the issue at
hand so that whatever action or position it may take with respect to the
CA resolution will be consistent with its term and purposes.
Fourth. When the CA rendered its assailed Decision nullifying the
injunction issued by the RTC, and copies of the decision were furnished
these banks, not one of these banks ever filed any pleading to assail their
non-inclusion in the certiorari proceedings.
Indeed, the banks have no interest in the issuance of the injunction, but
only the petitioner. The banks' interests as defendants in the petition for
declaration of nullity of their bank undertakings filed against them by
petitioner in the RTC are separable from the interests of petitioner for the
issuance of the injunctive relief.
Moreover, certiorari, as a special civil action, is an original action invoking
the original jurisdiction of a court to annul or modify the proceedings of a

68
tribunal, board or officer exercising judicial or quasi-judicial functions. 16 It
is an original and independent action that is not part of the trial or the
proceedings on the complaint filed before the trial court. 17 Section 5, Rule
65 of the Rules of Court provides:
Section 5. Respondents and costs in certain cases. - When the petition
filed relates to the acts or omissions of a judge, court, quasi-judicial
agency, tribunal, corporation, board, officer or person, the petitioner shall
join, as private respondent or respondents with such public respondent or
respondents. the person or persons interested in sustaining the
proceedings in the court; and it shall be the duty of such private
respondents to appear and defend, both in his or their own behalf and in
behalf of the public respondent or respondents affected by the
proceedings, and the costs awarded in such proceedings in favor of the
petitioner shall be against the private respondents only, and not against
the judge, court, quasi-judicial agency, tribunal, corporation, board, officer
or person impleaded as public respondent or respondents.
xxxx
Clearly, in filing the petition for certiorari, respondent should join as party
defendant with the court or judge, the person interested in sustaining the
proceedings in the court, and it shall be the duty of such person to
appear and defend, both in his own behalf and in behalf of the court or
judge affected by the proceedings. In this case, there is no doubt that it is
only the petitioner who is the person interested in sustaining the
proceedings in court since she was the one who sought for the issuance
of the writ of preliminary injunction to enjoin the banks from releasing
funds to respondent. As earlier discussed, the banks are not parties
interested in the subject matter of the petition. Thus, it is only petitioner
who should be joined as party defendant with the judge and who should
defend the judge's issuance of injunction.
Notably, the dispositive portion of the assailed CA Decision declared the
annulment of the Order dated December 17, 2002 and lifted the writ of
preliminary injunction issued by the RTC. The decision was directed
against the order of the judge. There was no order for the banks to
release the funds subject of their undertakings/letter of credit although

such order to lift the injunction would ultimately result to the release of
funds to respondent.
Petitioner contends that respondent filed its petition for certiorari in the
CA without a prior motion for reconsideration, thus, constitutes a fatal
infirmity.
We do not agree.
Concededly, the settled rule is that a motion for reconsideration is a
condition sine qua non for the filing of a petition for certiorari.18 Its
purpose is to grant an opportunity for the court to correct any actual or
perceived error attributed to it by the re-examination of the legal and
factual circumstances of the case.19 The rule is, however, circumscribed
by well-defined exceptions, such as (a) where the order is a patent nullity,
as where the court a quo had no jurisdiction; (b) where the questions
raised in the certiorari proceeding have been duly raised and passed
upon by the lower court, or are the same as those raised and passed
upon in the lower court; (c) where there is an urgent necessity for the
resolution of the question and any further delay would prejudice the
interests of the Government or of the petitioner or the subject matter of
the action is perishable; (d) where, under the circumstances, a motion for
reconsideration would be useless; (e) where petitioner was deprived of
due process and there is extreme urgency for relief; (f) where, in a
criminal case, relief from an order of arrest is urgent and the granting of
such relief by the trial court is improbable; (g) where the proceedings in
the lower court are a nullity for lack of due process; (h) where the
proceedings were ex parte, or in which the petitioner had no opportunity
to object; and (i) where the issue raised is one purely of law or where
public interest is involved.20
Respondent explained their omission of filing a motion for reconsideration
before resorting to a petition for certiorari based on exceptions (b), (c)
and (i). The CA brushed aside the filing of the motion for reconsideration
based
on
the
ground
that
the
questions
raised
in
the certiorari proceedings have been duly raised and passed upon by the
lower court, or are the same as those raised and passed upon in the
lower court. We agree.
lawp++!1

69
Respondent had filed its position paper in the RTC stating the reasons
why the injunction prayed for by petitioner should not be granted.
However, the RTC granted the injunction. Respondent filed a petition
for certiorari with the CA and presented the same arguments which were
already passed upon by the RTC. The RTC already had the opportunity
to consider and rule on the question of the propriety or impropriety of the
issuance of the injunction. We found no reversible error committed by the
CA for relaxing the rule since respondent's case falls within the
exceptions.
Petitioner's reliance on Philippine National Construction Corporation v.
National Labor Relations Commission,21where we required the filing of a
motion for reconsideration before the filing of a petition
for certiorari notwithstanding petitioner's invocation of the recognized
exception, i.e., the same questions raised before the public respondent
were to be raised before us, is not applicable. In said case, we ruled that
petitioner failed to convince us that his case falls under the recognized
exceptions as the basis was only petitioner's bare allegation. In this case
before us, the CA found, and to which we agree, that both parties have
fully presented their respective arguments in the RTC on petitioner's
prayer for the issuance of the writ of preliminary injunction, and that
respondent's argument that petitioner is not entitled to the injunctive relief
had been squarely resolved by the RTC.
WHEREFORE, the petition is DENIED. The Decision dated October 17,
2003 and the Resolution dated March 5, 2004 of the Court of Appeals, in
CA-G.R. SP No. 74629, are hereby AFFIRMED. SO ORDERED.

70
Court 2 spanning from 1970 to 1993, the trial court rendered its joint
decision 3 in favor of private respondents. An appeal 4 therefrom was
interposed in the name of petitioner's deceased husband on the ground that
private respondents herein failed to satisfy the requirements pertaining to
personal cultivation and conversion of the landholdings into non-agricultural
uses. The Court of Appeals rejected such contention upon finding that the
record was replete with evidence justifying private respondents' assertion of
their right of cultivation and conversion of their landholdings. 5

Almost a year after the termination of that appeal, the same trial court
decision subject thereof was once again assailed before the Court of
Appeals through a petition 6 for annulment of judgment. Herein petitioner
assailed the same trial court decision as having been rendered by a court
that did not have jurisdiction over her and the other heirs of her deceased
husband because notwithstanding the fact that her husband had already died
on October 3, 1991, the trial court still proceeded to render its decision on
August 23, 1993 without effecting the substitution of heirs in accordance with
Section 17, Rule 3, of the Rules of Court thereby depriving her of her day in
court.

G.R. No. 121510 November 23, 1995

FABIANA C. VDA. DE SALAZAR, petitioner, vs. COURT OF APPEALS,
PRIMITIVO NEPOMUCENO and EMERENCIANA
NEPOMUCENO, respondents.
Where the defendant in an ejectment case dies before the rendition by
the trial court of its decision therein, does the trial court's failure to
effectuate a substitution of heirs before its rendition of judgment render
such judgment jurisdictionally infirm?
On July 23, 1970, both private respondents Primitive Nepomuceno and
Emerenciana Nepomuceno filed separate complaints 1 with the then Court
of Agrarian Relations of Malolos, Bulacan, for ejectment on the ground of
personal cultivation and conversion of land for useful non-agricultural
purposes against petitioner's deceased husband, Benjamin Salazar. After
protracted proceedings in the agrarian court and then the Regional Trial

Petitioner, not having asserted the matter of fraud or collusion in her

petition for annulment of judgment, the Court of Appeals decided the
same on the basis of the sole issue of non-jurisdiction resulting from the
alleged deprivation of petitioner's right to due process and ruled in favor
of the validity of the challenged decision. 7Petitioner filed a motion for
reconsideration of the decision of the appellate court reiterating the trial
court's lack of jurisdiction over the heirs of petitioner's deceased husband as
a consequence of the failure of the trial court to effectuate a valid substitution
of heirs. Said motion was denied in a resolution promulgated on August 14,
1995. Hence this petition.
The petition is bereft of merit.
The need for substitution of heirs is based on the right to due process
accruing to every party in any proceeding. 8The rationale underlying this
requirement in case a party dies during the pendency of proceedings of a
nature not extinguished by such death, is that
. . . the exercise of judicial power to hear and determine a
cause implicitly presupposes in the trial court, amongst

71
other essentials, jurisdiction over the persons of the
parties. That jurisdiction was inevitably impaired upon the
death of the protestee pending the proceedings below
such that unless and until a legal representative is for him
duly named and within the jurisdiction of the trial court, no
adjudication in the cause could have been accorded any
validity or binding effect upon any party, in representation
of the deceased, without trenching upon the fundamental
right to a day in court which is the very essence of the
constitutionally enshrined guarantee of due process. 9
We are not unaware of several cases 10 where we have ruled that a
party having died in an action that survives, the trial held by the court
without appearance of the deceased's legal representative or
substitution of heirs and the judgment rendered after such trial, are
null and void because the court acquired no jurisdiction over the
persons of the legal representatives or of the heirs upon whom the
trial and the judgment would be binding. This general rule
notwithstanding, in denying petitioner's motion for reconsideration,
the Court of Appeals correctly ruled that formal substitution of heirs is
not necessary when the heirs themselves voluntarily appeared,
participated in the case and presented evidence in defense of
deceased defendant. Attending the case at bench, after all, are these
particular circumstances which negate petitioner's belated and
seemingly ostensible claim of violation of her rights to due process.
We should not lose sight of the principle underlying the general rule
that formal substitution of heirs must be effectuated for them to be
bound by a subsequent judgment. Such had been the general rule
established not because the rule on substitution of heirs and that on
appointment of a legal representative are jurisdictional
requirements per se but because non-compliance therewith results in
the undeniable violation of the right to due process of those who,
though not duly notified of the proceedings, are substantially affected
by the decision rendered therein. Viewing the rule on substitution of
heirs in this light, the Court of Appeals, in the resolution denying
petitioner's motion for reconsideration, thus expounded:
Although the jurisprudential rule is that failure to make the
substitution is a jurisdictional defect, it should be noted
that the purpose of this procedural rule is to comply with

due process requirements. The original party having died,

he could not continue to defend himself in court despite
the fact that the action survived him. For the case to
continue, the real party in interest must be substituted for
the deceased. The real party in interest is the one who
would be affected by the judgment. It could be the
administrator or executor or the heirs. In the instant case,
the heirs are the proper substitutes. Substitution gives
them the opportunity to continue the defense for the
deceased. Substitution is important because such
opportunity to defend is a requirement to comply with due
process. Such substitution consists of making the proper
changes in the caption of the case which may be called
the formal aspect of it. Such substitution also includes the
process of letting the substitutes know that they shall be
bound by any judgment in the case and that they should
therefore actively participate in the defense of the
deceased. This part may be called the substantive
aspect. This is the heart of the procedural rule because
this substantive aspect is the one that truly embodies and
gives effect to the purpose of the rule. It is this court's
view that compliance with the substantive aspect of the
rule despite failure to comply with the formal aspect may
be considered substantial compliance. Such is the
situation in the case at bench because the only inference
that could be deduced from the following facts was that
there was active participation of the heirs in the defense
of the deceased after his death:
1. The original lawyer did not stop representing the
deceased. It would be absurd to think that the lawyer
would continue to represent somebody if nobody is
paying him his fees. The lawyer continued to represent
him in the litigation before the trial court which lasted for
about two more years. A dead party cannot pay him any
fee. With or without payment of fees, the fact remains that
the said counsel was allowed by the petitioner who was
well aware of the instant litigation to continue appearing

72
as counsel until August 23, 1993 when the challenged
decision was rendered;
2. After the death of the defendant, his wife, who is the
petitioner in the instant case, even testified in the court
and declared that her husband is already deceased. She
knew therefore that there was a litigation against her
husband and that somehow her interest and those of her
children were involved;
3. This petition for annulment of judgment was filed only
after the appeal was decided against the defendant on
April 3, 1995, more than one and a half year (sic) after the
decision was rendered (even if we were to give credence
to petitioner's manifestation that she was not aware that
an appeal had been made);
4. The Supreme Court has already established that there
is such a thing as jurisdiction by estoppel. This principle
was established even in cases where jurisdiction over the
subject matter was being questioned. In the instant case,
only jurisdiction over the person of the heirs is in issue.
Jurisdiction over the person may be acquired by the court
more easily than jurisdiction over the subject matter.
Jurisdiction over the person may be acquired by the
simple appearance of the person in court as did herein
petitioner appear;
5. The case cited by the herein petitioner (Ferreria et al.
vs. Manuela Ibarra vda. de Gonzales, et al.) cannot be
availed of to support the said petitioner's contention
relative to non-acquisition of jurisdiction by the court. In
that case, Manolita Gonzales was not served notice and,
more importantly, she never appeared in court, unlike
herein petitioner who appeared and even testified
regarding the death of her husband. 11
Consequently, we rule that, as in the case at bench, the
defendant in an ejectment case having died before the rendition

by the trial court of its decision therein, its failure to effectuate a

formal substitution of heirs before its rendition of judgment, does
not invalidate such judgment where the heirs themselves
appeared before the trial court, participated in the proceedings
therein, and presented evidence in defense of deceased
defendant, it undeniably being evident that the heirs themselves
sought their day in court and exercised their right to due process.
Respondent Court of Appeals also correctly ruled that ejectment, being
an action involving recovery of real property, is a real action which as
such, is not extinguished by the defendant's death.
. . . The question as to whether an action survives or not
depends on the nature of the action and the damage sued
for. In the causes of action which survive, the wrong
complained affects primarily and principally property and
property rights, the injuries to the person being merely
incidental, while in the causes of action which do not
survive, the injury complained of is to the person, the
property and rights of property affected being incidental. 12
There is no dispute that an ejectment case survives the death of
a party, which death did not extinguish the deceased's civil
personality. 13 More significantly, a judgment in an ejectment case is
conclusive between the parties and their successors in interest by
title subsequent to the commencement of the action. 14 Thus, we
have held that:
. . . In such a case and considering that the supervening
death of appellant did not extinguish her civil personality,
the appellate court was well within its jurisdiction to
proceed as it did with the case. There is no showing that
the appellate court's proceedings in the case were tainted
with irregularities.
It appears that petitioners are heirs of Adela Salindon. In
fact, it was because of this relationship that the petitioners
were able to transfer the title of Adela Salindon over the
subject lot to their names. . . . Considering all this, the

73
appellate decision is binding and enforceable against the
petitioners as successors-in-interest by title subsequent to
the commencement of the action (Section 49 [b] Rule 39,
Rules of Court). Furthermore, . . . judgment in an
ejectment case may be enforced not only against
defendants therein but also against the members of their
family, their relatives, or privies who derive their right of
possession from the defendants (Ariem v. De los Angeles,
49 SCRA 343). Under the circumstances of this case, the
same rule should apply to the successors-ininterest . . . . 15
While it is true that a decision in an action for ejectment is enforceable
not only against the defendant himself but also against members of his
family, his relatives, and his privies who derived their right of possession
from the defendant and his successors-in-interest, 16 it had been
established that petitioner had, by her own acts, submitted to the jurisdiction
of the trial court. She is now estopped to deny that she had been heard in
defense of her deceased husband in the proceedings therein. As such, this
petition evidently has no leg to stand on.
WHEREFORE, the instant petition is dismissed for lack of merit. Costs
against petitioner. SO ORDERED.

G.R. No. 106795 November 16, 1999

STATE INVESTMENT HOUSE, INC., petitioner, vs. COURT OF
APPEALS and ALLIED BANKING CORPORATION, respondents.

Petitioner State Investment House, Inc. ("SIHI") appeals from the

Decision dated June 11, 1992 and the Resolution dated August 21, 1992
rendered by the Court of Appeals in CA-G.R. SP No. 27142 entitled
"Allied Banking Corp. vs. Hon. Martin S. Villarama, Jr., et al."
SIHI is the plaintiff in Civil Case No. 59449 entitled "State Investment
House, Inc. vs. Cheng Ban Yek Co., Inc. et al.", an action for foreclosure
of mortgage.
The antecedents are recited in the questioned decision as follows:
(1) Defendant CBY is a domestic corporation engaged in the
business of manufacturing edible oil bearing the brand "Baguio
Oil", and in the conduct of its business, it has incurred millions of
pesos of obligations with plaintiff SIHI and many other creditors,
including defendant Allied Banking Corporation (ALLIED for short)
who is the creditor of SIHI in the principal amount of P10 million,
exclusive of interests, service charges, penalties, and attorney's
fees.
(2) On December 28, 1982, defendant CBY, plaintiff SIHI, and
other creditors of CBY entered into an Agreement for the
restructuring of CBY's existing obligations to its creditors, but
excluding defendant ALLIED and several other creditors who did
not sign said Agreement (pp. 72-72, Rollo).
(3) To secure the prompt and full payment of all amounts owed by
CBY to its creditors who participated in said Agreement and as
required thereunder, the parties thereto executed a Mortgage
Indenture dated December 28, 1982 with CBY and FOUR SEAS
as Mortgagors and SIHI and 15 other creditors of CBY as
mortgagees involving 23 parcels of registered lands and the
improvements therein (pp. 17-19, id.), which Mortgage Indenture
was subsequently modified several times (pp. 19-20, id.).
Moreover, as additional security to said Agreement, the parties
also agreed that the Existing Comprehensive Surety Agreement
previously executed by defendant Alfredo Ching would continue
to subsist and that he would remain jointly and severally liable
with CBY for the payment of the amounts owed by the latter to

74
the creditors who were parties to the aforesaid Agreement (p.
20, id.).
(4) On June 28, 1986, CBY defaulted in the payment of its
obligations, and in a letter dated August 8, 1988, the CBY
Creditors' Committee, pursuant to the aforesaid Agreement and
Mortgage Indenture, declared all of CBY's obligations due and
payable (p. 24, id.). This letter was followed by a letter dated
August 9, 1989 of plaintiff SIHI likewise declaring all of CBY's
particular obligations to it immediately due and payable (id.).
Then on April 16, 1990, SIHI notified the Creditors' Committee of
CBY that it would institute proceedings for the enforcement of the
remedies granted under the Mortgage Indenture earlier
mentioned, and in a resolution dated April 20, 1990, said
Creditors' Committee authorized SIHI to institute the appropriate
foreclosure proceedings provided that the proceeds of the
foreclosure sale would be distributed and applied to all of CBY's
obligations under the terms of the Agreement previously
mentioned (p. 25, id.).
(5) Hence, plaintiff SIHI filed on May 10, 1990, C.C. No. 59559
with the respondent court against CBY, FOUR SEAS, and Alfredo
Ching, and impleading twenty-two (22) other creditors of CBY
including herein petitioner ALLIED, allegedly because they hold
inferior or subordinate mortgage rights to the properties sought to
be foreclosed (pp. 8-28, id.).
(6) On January 31, 1991, defendant ALLIED filed its Answer to
the complaint, denying that its interests in the mortgaged
properties in question are subordinate in right to that of plaintiff
SIHI; alleging that it was not a party to the Agreement attached to
the complaint as Annex "B" and, therefore, not bound by its
provisions; likewise denying that it was a party to the Fourth
Amendatory Agreement also attached to the complaint as its
Annex "S" which it claimed "was never valid, binding and effective
for lack of consent on the part of the other creditors as shown by
the fact that they did not sign the same"; claiming that defendant
CBY owes it the principal amount P10 million, exclusive of
interest, service charges, penalties, and attorneys fees; alleging

that as defendant CBY's biggest, single, creditor, plaintiff SIHI

"was able to work its way and secure for its
representatives/nominees/designees key positions in defendant
CBY, including but not limited to seats with full voting rights in
defendant CBY's Board of Directors, Executive Committee, and
Creditors' Committee, and that in taking control and management
of CBY's operations, it "committed irregularities, abuses
excesses, and other acts inimical to defendant CBY draining its
resources and driving the latter to the financial quagmire it now
faces, to the prejudice of herein defendant creditors", as a
consequence of which acts, CBY allegedly suffered losses of not
less than P50 million or such amount as may be proved at the
trial, which losses it claims represent assets of CBY answerable
to its creditors other than plaintiff SIHI; and that plaintiff should be
held liable for such losses, as well as for defendant ALLIED's
moral damages and attorney's fees which it alleged in its
counterclaim (pp. 29-33, id.). Defendant ALLIED thus prayed for
the dismissal of the complaint or, in the alternative, for plaintiff to
be ordered to pay CBY's creditors including ALLIED the amount
of P50 million to be deducted from the proceeds of the
foreclosure sale of the mortgaged properties in question to be
distributed among CBY's creditors, and that plaintiff be also
ordered to pay ALLIED moral damages and attorney's fees (2934, id.).
(7) However, on January 31, 1991, plaintiff SIHI, for the
consideration of P33 million, entered into a Deed of Assignment
with FIL-NIPPON transferring to the latter all its rights, interests,
claims, and causes of action arising out of the Agreement
mentioned in and annexed to its complaint in C. C. No. 59449
and certain promissory notes and mortgages contracts upon
which said civil case was brought, and in which Deed of
Assignment FIL-NIPPON also agreed to assume all the
obligations of SIHI as party-plaintiff in said civil case (pp. 40-44,
64, id.).
(8) Thereafter, FIL-NIPPON filed in C. C. No. 59449 on April 16,
1991 a "Motion for Substitution of Party Plaintiff" in lieu of plaintiff
SIHI (pp. 35-39, id.), which motion was opposed by defendant

75
ALLIED on the grounds that it has a counterclaim against SIHI
arising from irregularities, excesses, abuses and inimical acts
committed by it in managing defendant CBY; that as long as said
counterclaim has not been finally resolved, the substitution of
plaintiff SIHI would be improper; and that if at all, FIL-NIPPON
can intervene and be a co-plaintiff in C. C. No. 59449 (pp. 4546, id.).
(9) On July 4, 1991, the respondent court, finding no legal basis
for the objections of ALLIED and another defendant, Producers
Bank of the Philippines, to the motion for substitution of movant
Fil-NIPPON for plaintiff SIHI, granted the motion for substitution
(p. 8, id.). and when defendant ALLIED moved for a
reconsideration of said order, it denied the motion for
reconsideration on August 22, 1991 (p. 9, id.)." 1
Allied Banking Corp. ("Allied") filed a petition for certiorari in the Court of
Appeals assailing the above mentioned orders of the Regional Trial Court
granting Fil-Nippon's motion for substitution of SIHI as plaintiff in Civil
Case No. 59449.
The Court of Appeals granted the petition and ordered SIHI to continue
as plaintiff. The dispositive portion of the decision, now assailed in the
instant petition, reads:
WHEREFORE, the instant petition is GRANTED; the respondent
court's orders of July 4, 1991 and August 22, 1991 are hereby
SET ASIDE; and herein private respondent State Investment
House, Inc. (SIHI) shall continue to be the plaintiff in C. C. No.
59449 before the respondent court, with the other private
respondent herein Fil-Nippon Holdings, Inc. (FIL-NIPPON)
ordered impleaded therein as co-plaintiff. 2
In this petition for review on certiorari, SIHI submits the following
grounds:
(1)

THE CA ERRED IN FINDING THAT ALLIED'S PERMISSIVE

COUNTERCLAIMS
CREATE
A
DEBTOR-CREDITOR
RELATIONSHIP BETWEEN SIHI AND ALLIED; ALLIED IS NOT
SIHI'S CREDITOR.
(2)
THE CA ERRED IN FINDING THAT A WITNESS WHO MAY BE
CALLED TO TESTIFY HAS A MATERIAL INTEREST IN CASE
AS TO MAKE HIM A PARTY-LITIGANT.
(3)
THE CA ERRED IN NOT FINDING THAT SUBSTITUTION OF A
PARTY-PLAINTIFF PENDENTE LITE IS ALLOWED AND IS
LARGELY A MATTER OF DISCRETION; THE LOWER COURT
DID NOT COMMIT ARBITRARINESS OR GRAVE ABUSE OF
DISCRETION IN ALLOWING THE SUBSTITUTION. 3
We find no merit in the petition.
The issue is whether respondent court erred in ruling that the substitution
of SIHI by its assignee Fil-Nippon in C. C. No. 59449 is improper.
Respondent court ruled that even without substitution Fil-Nippon, as
assignee of all of SIHI's rights, interests claims and causes of action
arising out of the Agreement, would be bound by any judgment for or
against SIHI. Moreover, Allied had a counterclaim for damages against
SIHI of not less than P50 million allegedly caused by SIHI's taking over
the control and management of defendant CBY (Cheng Ban Yek Co. Inc.)
through its men which it had put in key positions in the latter's Board of
Directors, Executive Committee and Creditors Committee, and who
allegedly committed gross mismanagement, nepotism, irregularities,
abuses, excesses and other acts inimical to CBY which drained the
latter's resources and drove it to the financial quagmire that now faces it
to the prejudice of all its creditors. Such acts of SIHI do not arise out of
the foreclosure of mortgage which is the subject of C. C. No. 59449 but
constitute a permissive counterclaim. Moreover, SIHI had no choice but

76
to actively participate in C. C. No. 59449 in order to defend its assignee
Fil-Nippon against Allied's permissive counterclaim. Finally, Fil-Nippon
cannot be substituted as debtor under said counterclaim without its
consent in view of Article 1293 of the Civil Code which provides that
novation which consists in substituting a new debtor in the place of the
original one cannot be made without the consent of the creditor.
It is petitioner's position, in defending the substitution of parties ordered
by the trial court, that Allied is not SIHI's creditor; what Allied admitted is
that it is a creditor of CBY for P10 million. Equally important is that Allied's
permissive counterclaim for damages does not make SIHI a
debtor/obligor of Allied, as a counterclaim is not a source of obligation
until a judgment is issued upholding it. Petitioner also submits that even
assuming that SIHI, or its officers or employees, can be compelled to be
witnesses regarding Allied's permissive counterclaim, the same does not
justify the retention of SIHI as party plaintiff below. In fine, petitioner SIHI
contends that the trial court did not commit grave abuse of discretion in
allowing the substitution of parties that should be corrected by certiorari.
On the other hand, respondent Allied submits that the substitution was
improper; for as long as the counterclaim is not finally resolved, the
substitution of party plaintiff despite the objection of private respondent
and which may result in the discharge of the petitioner as original plaintiff,
would be improper. If at all, Fil-Nippon can intervene in the case below
and be co-plaintiff with SIHI. Allied also points out that the counterclaim
for damages is based on quasi-delict, which is a legal source of
obligation.
The rule on substitution of parties in case of transfer of interest is found in
Section 19, Rule 3, which states:
Sec. 19. Transfer of Interest In case of any transfer of interest,
the action may be continued by or against the original party,
unless the court upon motion directs the person to whom the
interest is transferred to be substituted in the action or joined with
the original party.
It has been held that a transferee pendente lite does not have to be
included or impleaded by name in order to be bound by the judgment

because the action or suit may be continued for or against the original
party or the transferor and still be binding on the transferee. 4
More specifically , this Court has ruled that a transferee pendente lite is a
proper party in the case but it is not an indispensable party. 5
Respondent court did not err in ruling that SIHI should continue to be the
plaintiff, and Fil-Nippon should be impleaded as co-plaintiff. The order of
the trial court authorizing the substitution of parties failed to take into
account the fact that there is a counterclaim for damages contained in
Allied Bank's Answer arising from the alleged inimical acts committed by
SIHI in manipulating the operations of CBY that drained the latter's
resources to the prejudice of its creditors. The counterclaim for damages
is severable and independent of SIHI's cause of action under the
Agreement dated December 28, 1982 entered into by SIHI, CBY and
other creditors of CBY for the restructuring of CBY's existing obligations.
As aptly ruled by the Court of Appeals, the alleged acts of SIHI that gave
rise to the complaint (counterclaim) for damages do not arise out of the
foreclosure of mortgage which is the subject of C. C. No. 59449. Thus
Upon the other hand, if the substitution of party-plaintiff sought by
FIL-NIPPON is granted, what would happen to petitioner
ALLIED's claim for damages of not less than P50 million in its
answer allegedly caused by plaintiff SIHI's taking over the control
and management of defendant CBY's through its men which it
had put in key positions in the latter's Board of Directors,
Executive Committee, and Creditors' Committee, and who
allegedly
committed
gross
mismanagement,
nepotism,
irregularities, abuses, excesses and other acts inimical to
defendant CBY which drained its resources and drove it to the
financial quagmire that its faces at present, to the prejudice of all
its creditors? Can petitioner ALLIED still prove and recover these
damages against FIL-NIPPON if the latter is substituted as partyplaintiff in C. C. No. 59449? We do not think so, for the subjectmatter of the Deed of Assignment between plaintiff SIHI and FILNIPPON (see pp. 40-44, 64, Rollo) are certain credits, rights,
claims and interests which SIHI has against the principal
defendants CBY, FOUR SEAS, and Alfredo Ching in C. C. No.
59449, and its SIHI's right to foreclose certain mortgages in favor

77
of SIHI and other creditors of CBY arising out of the agreement
between CBY and its creditors, including SIHI, attached to the
complaint in C. C. No. 59449. True that SIHI's assignee FILNIPPON also assumed all the risks attendant to said civil case
and agreed not to have any recourse or claim against SIHI
regardless of the outcome of said case or if it is prevented for any
reason from foreclosing the properties subject-matter of the case,
but such assumption of risk clearly does not include liability for
the purely personal acts of abuses, irregularities, nepotism, etc.
which petitioner ALLIED charged plaintiff SIHI to have committed
while managing and taking over the control of the business of
defendant CBY which acts do not arise out of the foreclosure of
mortgage which is the subject-matter of C. C. No. 59449, but
which constitute, as even private respondent FIL-NIPPON
admitted in its Comment to the instant petition, a permissive
counterclaim in said civil case (p. 61, Rollo). Respondent FILNIPPON, impliedly recognizing that it cannot be liable for said
alleged acts of SIHI, even suggests that after plaintiff SIHI is
dropped from C. C. No. 59449, petitioner ALLIED can bring
original plaintiff SIHI back into said case by filing a third-party
complaint against the latter. But why should petitioner ALLIED
resort to such a run-about process to hold SIHI liable for the
aforementioned alleged personal acts of mismanagement and
abuses while in the control of defendant CBY, when it has already
claimed the damages supposedly arising from said acts in a
permissive counterclaim in its answer to SIHI's complaint and the
Rules allow it to do so? 6

But there is yet still another reason why the respondent court
should not have allowed the substitution of plaintiff SIHI's
assignee Fil-Nippon as party-plaintiff in C. C. No. 59449, and it is
petitioner ALLIED's contention, which we find valid and tenable,
that plaintiff SIHI is its debtor/obligor as far as its permissive
counterclaim for damages in its answer is concerned, and that
FIL-NIPPON cannot be substituted as its debtor under said
counterclaim without its consent, in view of Art. 1293 of the Civil
Code
of
the
Philippines
providing
that

Thus, although Fil-Nippon became an assignee of all of SIHI's rights,

interests, claims, and causes of action arising out of the Agreement, the
counterclaim for actual and moral damages and attorney's fees filed by
Allied Bank was in no way contemplated in the assignment. It was
accordingly error to discharge SIHI as original plaintiff from the case.

As stated earlier, Fil-Nippon, as transferee of SIHI's interests pendente

lite, is not even an indispensable party in the case.

The Court of Appeals also correctly pointed out that Fil-Nippon could not
be substituted as debtor of Allied with respect to the counterclaim for
damages without the latter's consent; thus:

Novation which consists in substituting a new debtor in

the place of the original one, may be made even without
the knowledge or against the will of the latter but not
without the consent of the creditor. . . ." (Emphasis ours)
Private respondent SIHI answers this argument in its Comment to
the instant petition by saying that the above-quoted article finds
no application to this case because Sec. 17.7 of the Agreement
which it and its creditors had executed expressly allows the
assignment which it had made in favor of FIL-NIPPON (p.
67, Rollo). But as pointed out by petitioner ALLIED in its Reply to
SIHI's aforesaid Comment, it was not a party to the Agreement in
question as shown by the fact that it never signed the same (see
p. 82, Rollo); hence, it is not bound by said Agreement including
the provision therein allowing the parties to assign their
respective rights thereunder. 7

It bears emphasis that Allied claims to be not a party to the Agreement

dated December 28, 1982 and therefore not bound by it. Even assuming
that Fil-Nippon agreed to assume all the obligations of SIHI in the case
and not only those arising under the said Agreement, the assignment
cannot bind or prejudice Allied who did not consent to the assignment. It
was improvident for the trial court to discharge SIHI on the basis alone of
the transfer of its interests under the Agreement to Fil-Nippon. The
counterclaim for actual, moral and other damages should be pursued and

78
enforced against the real party-in-interest, which is SIHI, which cannot be
discharged from the case over the opposition of Allied.
WHEREFORE, there being no reversible error in the decision and
resolution appealed from, the instant petition is denied. No
pronouncement as to costs.SO ORDERED.

G.R. No. 117355

April 5, 2002
RIVIERA FILIPINA, INC., petitioner, vs. COURT OF APPEALS, JUAN L.
REYES, (now deceased), substituted by his heirs, namely, Estefania B.
Reyes, Juanita R. de la Rosa, Juan B. Reyes, Jr. and Fidel B.
Reyes, PHILIPPINE CYPRESS CONSTRUCTION & DEVELOPMENT
CORPORATION, CORNHILL TRADING CORPORATION and URBAN
DEVELOPMENT BANK, respondents.
Before us is a petition for review on certiorari of the Decision 1 of the Court
of Appeals2 dated June 6, 1994 in CA-G.R. CV No. 26513 affirming the
Decision3 dated March 20, 1990 of the Regional Trial Court of Quezon
City, Branch 89 dismissing Civil Case No. Q-89-3371.
Civil Case No. Q-89-3371 is a suit instituted by Riviera Filipina, Inc.
(Riviera) on August 31, 19894 to compel the defendants therein Juan L.
Reyes, now deceased, Philippine Cypress Construction & Development
Corporation (Cypress), Cornhill Trading Corporation (Cornhill) and Urban
Development Bank to transfer the title covering a 1,018 square meter
parcel of land located along EDSA, Quezon City for alleged violation of
Rivieras right of first refusal.

79
It appears that on November 23, 1982, respondent Juan L. Reyes
(Reyes, for brevity) executed a Contract of Lease with Riviera. The tenyear (10) renewable lease of Riviera, which started on August 1, 1982,
involved a 1,018 square meter parcel of land located along Edsa,
Quezon City, covered and described in Transfer Certificate of Title No.
186326 of the Registry of Deeds of Quezon City in the name of Juan L.
Reyes.5
The said parcel of land was subject of a Real Estate Mortgage executed
by Reyes in favor of Prudential Bank. Since the loan with Prudential Bank
remained unpaid upon maturity, the mortgagee bank extrajudicially
foreclosed the mortgage thereon. At the public auction sale, the
mortgagee bank emerged as the highest bidder. The redemption period
was set to expire on March 7, 1989. Realizing that he could not possibly
raise in time the money needed to redeem the subject property, Reyes
decided to sell the same.6
Since paragraph 11 of the lease contract expressly provided that the
"LESSEE shall have the right of first refusal should the LESSOR decide
to sell the property during the term of the lease,"7 Reyes offered to sell
the subject property to Riviera, through its President Vicente C. Angeles,
for Five Thousand Pesos (P5,000.00) per square meter. However,
Angeles bargained for Three Thousand Five Hundred Pesos (P3,500.00)
per square meter. Since Reyes was not amenable to the said price and
insisted on Five Thousand Pesos (P5,000.00) per square meter, Angeles
requested Reyes to allow him to consult the other members of the Board
of Directors of Riviera.8
Seven (7) months later, or sometime in October 1988, Angeles
communicated with Reyes Rivieras offer to purchase the subject
property for Four Thousand Pesos (P4,000.00) per square meter.
However, Reyes did not accept the offer. This time he asked for Six
Thousand Pesos (P6,000.00) per square meter since the value of the
property in the area had appreciated in view of the plans of Araneta to
develop the vicinity.9
In a letter dated November 2, 1988, Atty. Irineo S. Juan, acting as
counsel for Reyes, informed Riviera that Reyes was selling the subject
property for Six Thousand Pesos (P6,000.00) per square meter, net of

capital gains and transfer taxes, registration fees, notarial fees and all
other attendant charges. He further stated therein that:
In this connection, conformably to the provisions stipulated in
Paragraph/Item No. 11 of your CONTRACT OF LEASE (Doc. No.
365, Page No. 63, Book No. X, Series of 1982, of the Notarial
Registry of Notary Public Leovillo S. Agustin), notice is served
upon your goodselves for you to exercise "the right of first refusal"
in the sale of said property, for which purpose you are hereby
given a period of ten (10) days from your receipt hereof within
which to thus purchase the same under the terms and conditions
aforestated, and failing which you shall be deemed to have
thereby waived such pre-emptive right and my client shall
thereafter be absolutely free to sell the subject property to
interested buyers.10
To answer the foregoing letter and confirm their telephone conversation
on the matter, Riviera sent a letter dated November 22, 1988 to Atty.
Juan, counsel for Reyes, expressing Rivieras interest to purchase the
subject property and that Riviera is already negotiating with Reyes which
will take a couple of days to formalize. 11 Riviera increased its offer to Five
Thousand Pesos (P5,000.00) per square meter but Reyes did not accede
to said price as it was still lower than his quoted price of Six Thousand
Pesos (P6,000.00) per square meter.12 Angeles asked Reyes to give him
until the end of November 1988 for Rivieras final decision.
1wphi1.nt

In a letter dated December 2, 1988, Angeles wrote Reyes confirming

Rivieras intent to purchase the subject property for the fixed and
final13 price of Five Thousand Pesos (P5,000.00) per square meter,
complete payment within sixty (60) to ninety (90) days which "offer is
what we feel should be the market price of your property." Angeles asked
that the decision of Reyes and his written reply to the offer be given
within fifteen (15) days since there are also other properties being offered
to them at the moment.14
In response to the foregoing letter, Atty. Juan sent a letter to Riviera dated
December 5, 1988 informing Riviera that Rivieras offer is not acceptable
to his client. He further expressed, "let it be made clear that, much as it is
the earnest desire of my client to really give you the preference to

80
purchase the subject property, you have unfortunately failed to take
advantage of such opportunity and thus lost your right of first refusal in
sale of said property."15
Meanwhile, on December 4, 1988, Reyes confided to Rolando P.
Traballo, a close family friend and President of Cypress, his predicament
about the nearing expiry date of the redemption period of the foreclosed
mortgaged property with Prudential Bank, the money for which he could
not raise on time thereby offering the subject property to him for Six
Thousand Pesos (P6,000.00) per square meter. Traballo expressed
interest in buying the said property, told Reyes that he will study the
matter and suggested for them to meet the next day.16
They met the next day, December 5, 1988, at which time Traballo
bargained for Five Thousand Three Hundred Pesos (P5,300.00) per
square meter. After considering the reasons cited by Traballo for his
quoted price, Reyes accepted the same. However, since Traballo did not
have the amount with which to pay Reyes, he told the latter that he will
look for a partner for that purpose.17 Reyes told Traballo that he had
already afforded Riviera its right of first refusal but they cannot agree
because Rivieras final offer was for Five Thousand Pesos (P5,000.00)
per square meter.18

in three (3) days, the balance payable in five (5) years in equal monthly
installments at twelve percent (12%) interest in diminishing
balance.20 With the terms of this second offer, Angeles admittedly
downgraded the previous offer of Riviera on December 2, 1988. 21
Atty. Alinea conveyed to Reyes Rivieras offer of Five Thousand Pesos
(P5,000.00) per square meter but Reyes did not agree. Consequently,
Atty. Alinea contacted again Angeles and asked him if he can increase his
price. Angeles, however, said he cannot add anymore. 22 Reyes did not
expressly offer his subject property to Riviera at the price of Five
Thousand Three Hundred Pesos (P5,300.00) per square meter.23
Sometime in February 1989, Cypress and its partner in the venture,
Cornhill Trading Corporation, were able to come up with the amount
sufficient to cover the redemption money, with which Reyes paid to the
Prudential Bank to redeem the subject property.24 On May 1, 1989, a
Deed of Absolute Sale covering the subject property was executed by
Reyes in favor of Cypress and Cornhill for the consideration of Five
Million Three Hundred Ninety Five Thousand Four Hundred Pesos
(P5,395,400.00).25 On the same date, Cypress and Cornhill mortgaged
the subject property to Urban Development Bank for Three Million Pesos
(P3,000,000.00).26

Sometime in January 1989, apprehensive of the impending expiration in

March 1989 of the redemption period of the foreclosed mortgaged
property with Prudential Bank and the deal between Reyes and Traballo
was not yet formally concluded, Reyes decided to approach anew
Riviera. For this purpose, he requested his nephew, Atty. Estanislao
Alinea, to approach Angeles and find out if the latter was still interested in
buying the subject property and ask him to raise his offer for the purchase
of the said property a little higher. As instructed, Atty. Alinea met with
Angeles and asked the latter to increase his offer of Five Thousand
Pesos (P5,000.00) per square meter but Angeles said that his offer is
Five Thousand Pesos (P5,000.00) per square meter.19

Thereafter, Riviera sought from Reyes, Cypress and Cornhill a resale of

the subject property to it claiming that its right of first refusal under the
lease contract was violated. After several unsuccessful attempts, 27 Riviera
filed the suit to compel Reyes, Cypress, Cornhill and Urban Development
Bank to transfer the disputed title to the land in favor of Riviera upon its
payment of the price paid by Cypress and Cornhill.

Following the meeting, Angeles sent a letter dated February 4, 1989 to

Reyes, through Atty. Alinea, that his offer is Five Thousand Pesos
(P5,000.00) per square meter payment of which would be fifty percent
(50%) down within thirty (30) days upon submission of certain documents

Resolving the first issue, this Court takes note that since the
beginning of the negotiation between the plaintiff and defendant
Reyes for the purchase of the property, in question, the plaintiff
was firm and steadfast in its position, expressed in writing by its

Following trial on the merits, the trial court dismissed the complaint of
Riviera as well as the counterclaims and cross-claims of the other
parties.28 It ruled that the defendants therein did not violate Rivieras right
of first refusal, ratiocinating in this wise:

81
President Vicente Angeles, that it was not willing to buy the said
property higher than P5,000.00, per square meter, which was far
lower than the asking price of defendant Reyes for P6,000.00, per
square meter, undoubtedly, because, in its perception, it would be
difficult for other parties to buy the property, at a higher price than
what it was offering, since it is in occupation of the property, as
lessee, the term of which was to expire after about four (4) years
more.
On the other hand, it was obvious, upon the basis of the last ditch
effort of defendant Reyes, thru his nephew, Atty. Alinea, to have
the plaintiff buy the property, in question, that he was willing to
sell the said property at a price less than P6,000.00 and a little
higher than P5,000.00, per square meter, precisely, because Atty.
Alinea, in behalf of his uncle, defendant Reyes, sought plaintiffs
Angeles and asked him to raise his price a little higher, indicating
thereby the willingness of defendant Reyes to sell said property at
less than his offer of P6,000.00, per square meter.
This being the case, it can hardly be validly said by the plaintiff
that he was deprived of his right of first refusal to buy the subject
property at a price of P5,300.00, per square meter which is the
amount defendants Cypress/Cornhill bought the said property
from defendant Reyes. For, it was again given such an
opportunity to exercise its right of first refusal by defendant Reyes
had it only signified its willingness to increase a little higher its
purchase price above P5,000.00, per square meter, when its
President, Angeles, was asked by Atty. Alinea to do so, instead of
adamantly sticking to its offer of only P5,000.00 per square meter,
by reason of which, therefore, the plaintiff had lost, for the second
time, its right of first refusal, even if defendant Reyes did not
expressly offer to sell to it the subject land at P5,300.00, per
square meter, considering that by the plea of Atty. Alinea, in
behalf of defendant Reyes, for it to increase its price a little, the
plaintiff is to be considered as having forfeited again its right of
first refusal, it having refused to budged from its regid (sic) offer to
buy the subject property at no more than P5,000.00, per square
meter.

As such, this Court holds that it was no longer necessary for the
defendant Reyes to expressly and categorically offer to the
plaintiff the subject property at P5,300.00, per square meter, in
order that he can comply with his obligation to give first refusal to
the plaintiff as stipulated in the Contract of Lease, the plaintiff
having had already lost its right of first refusal, at the first
instance, by refusing to buy the said property at P6,000.00, per
square meter, which was the asking price of defendant Reyes,
since to do so would be a useless ceremony and would only be
an exercise in futility, considering the firm and unbending position
of the plaintiff, which defendant Reyes already knew, that the
plaintiff, at any event, was not amenable to increasing its price at
over P5,000.00, per square meter.
Dissatisfied with the decision of the trial court, both parties appealed to
the Court of Appeals.29 However, the appellate court, through its Special
Seventh Division, rendered a Decision dated June 6, 1994 which affirmed
the decision of the trial court in its entirety.30 In sustaining the decision of
the trial court, the Court of Appeals adopted the above-quoted
ratiocination of the trial court and further added:
To put things in its proper perspective in accordance with the
peculiar attendant circumstances herein, particular stress should
be given to RIVIERAs uncompromising counter offer of
only P5,000.00 per square meter on all the occasions when
REYES offered the subject property to it. RIVIERA, in its letter to
REYES dated December 2, 1988 (Exhibit "D", p. 68, Rollo)
justified its rigid offer by saying that "the above offer is what we
feel should be the market price of your property." If that be the
case, We are convinced, the same manner that REYES was, that
RIVIERA was unwilling to increase its counter offer at any present
or future time. RIVIERAs unilateral valuation of the subject
property thus binds him, it cannot now be heard to claim that it
could have upped its offer had it been informed of CYPRESS and
CORNHILLS offer of P5,000.00 (sic) per square meter.
Defendants CYPRESS and CORNHILL were therefore right in
saying that:

82
On the basic assumption that RIVIERA really meant what
it said in its letter, DR. REYES could not be faulted for
believing that RIVIERA was definitely NOT WILLING TO
PAY MORE THAN P5,000.00 PER SQUARE METER ON
HIS PROPERTY. The fault lies with the deceptive and
insincere words of RIVIERA. Injustice (sic) and equity,
RIVIERA must be deemed in estoppel in now belatedly
asserting that it would have been willing to pay a price
higher than P5,000.00 x x x." (Defendants-Appellees
Cypress and Cornhills Brief, p. 8)
For this reason, no adverse inference can be drawn from REYES
failure to disclose to RIVIERA the intervening counter-offer of
CYPRESS and CORNHILL.
It would have been far different had REYES non-disclosure of
CYPRESS and CORNHILLs counter-offer to RIVIERA resulted in
the sale of the subject property at equal or less than RIVIERAs
offer; in which case, REYES would have been rightly accused of
cunningly circumventing RIVIERAs right of first refusal. But the
incontrovertible antecedents obtaining here clearly reveal
REYES earnest efforts in respecting RIVIERAs contractual right
to initially purchase the subject property. Not only once but
twice did REYES approach RIVIERA, the last one being the
most telling indication of REYES sincerest intention in RIVIERA
eventually purchasing the subject property if only the latter would
increase a little its offer of P5,000.00 per square meter. And to
this REYES was desperately willing to accede to despite the
financial quandary he was then in as the expiration of the
redemption period drew closer and closer, and despite the better
offer of CYPRESS and CORNHILL. REYES unquestionably had
displayed good faith. Can the same be said of RIVIERA? We do
not think so. It appears that RIVIERA all along was trying to push
REYES back against the wall, for RIVIERA was well-aware of
REYES precarious financial needs at that time, and by clinging to
its offer, REYES might eventually succumb to its offer out of
sheer desperation. RIVIERA was, to be frank, whimsically
exercising its contractual right to the prejudice of REYES who had
commendably given RIVIERA extra leeway in exercising it. And to

this We say that no amount of jurisprudence RIVIERA might avail

of for the purpose of construing the right of first refusal, however
enlightening and persuasive they may be, will cover-up for its
arrogant exercise of its right as can be gleaned from the factual
premises. Equity in this case tilts in favor of defendants REYES,
CYPRESS and CORNHILL that the consummated sale between
them concerning the subject property be given this Courts
imprimatur, for if RIVIERA lost its opportunity to acquire it, it has
only itself to blame. For after all, REYES fundamental and
intrinsic right of ownership which necessarily carries with it the
exclusive right to dispose of it to whoever he pleases, must
ultimately prevail over RIVIERAs right of first refusal which it
unscrupulously tried to exercise.
From this decision, Riviera filed a motion for reconsideration, 31 but the
appellate court denied the same in a Resolution dated September 22,
1994.32
Hence, Riviera interposed the instant petition anchored on the following
errors:33
I
THE HONORABLE COURT OF APPEALS COMMITTED A
GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR
EXCESS OF ITS JURISDICTION IN RULING THAT
PETITIONER RIVIERA FILIPINA, INC. ALREADY LOST ITS
RIGHT OF FIRST REFUSAL.
II
THE HONORABLE COURT OF APPEALS COMMITTED A
GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR
EXCESS OF ITS JURISDICTION IN NOT FINDING THAT IT
WAS THE PETITIONER, NOT RESPONDENT JUAN L. REYES,
WHICH HAD BEEN THOROUGHLY DECEIVED BY THE
LATTER OUT OF ITS RIGHTS TO ITS CONTINUING
PREJUDICE.

83
III
THE HONORABLE COURT OF APPEALS COMMITTED A
GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR
EXCESS
OF
ITS
JURISDICTION
IN
DENYING
RECONSIDERATION.
IV
THE HONORABLE COURT OF APPEALS COMMITTED A
GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR
EXCESS OF ITS JURISDICTION IN DECIDING PETITIONERS
APPEAL AT A TIME WHEN THE PRINCIPAL APPELLEE IS
ALLEGEDLY DEAD AND NO PROPER SUBSTITUTION OF THE
ALLEGED DECEASED PARTY HAS BEEN MADE; HENCE, THE
DECISION OF THE COURT OF APPEALS AND ITS
RESOLUTION DENYING RECONSIDERATION, IS NULL AND
VOID.
At the outset, we note that, while Riviera alleges that the Court of
Appeals committed grave abuse of discretion amounting to lack or
excess of jurisdiction, the instant petition is, as it should be, treated as a
petition for review under Rule 45 and not as a special civil action for
certiorari under Rule 65 of the Revised Rules of Court, now the 1997
Rules of Civil Procedure.

The distinctions between Rule 45 and 65 are far and wide, the most
notable of which is that errors of jurisdiction are best reviewed in a
special civil action for certiorari under Rule 65, while errors of judgment
are correctible only by appeal in a petition for review under Rule 45. 34 The
rationale for the distinction is simple. When a court exercises its
jurisdiction an error committed while so engaged does not deprive it of
the jurisdiction being exercised when the error is committed. If it did,
every error committed by a court would deprive it of its jurisdiction and
every erroneous judgment would be a void judgment. This cannot be
allowed. The administration of justice would not countenance such a rule.
Thus, an error of judgment that the court may commit in the exercise of
its jurisdiction is not correctible through the original special civil action of
certiorari.35 Appeal from a final disposition of the Court of Appeals, as in
the case at bar, is by way of a petition for review under Rule 45.36
In the petition at bar, Riviera posits the view that its right of first refusal
was totally disregarded or violated by Reyes by the latters sale of the
subject property to Cypress and Cornhill. It contends that the right of first
refusal principally amounts to a right to match in the sense that it needs
another offer for the right to be exercised.
The concept and interpretation of the right of first refusal and the
consequences of a breach thereof evolved in Philippine juristic sphere
only within the last decade. It all started in 1992 with Guzman, Bocaling
& Co. v. Bonnevie37 where the Court held that a lease with a proviso
granting the lessee the right of first priority "all things and conditions
being equal" meant that there should be identity of the terms and
conditions to be offered to the lessee and all other prospective buyers,
with the lessee to enjoy the right of first priority. A deed of sale executed
in favor of a third party who cannot be deemed a purchaser in good faith,
and which is in violation of a right of first refusal granted to the lessee is
not voidable under the Statute of Frauds but rescissible under Articles
1380 to 1381 (3) of the New Civil Code.
Subsequently in 1994, in the case of Ang Yu Asuncion v. Court of
Appeals,38 the Court en banc departed from the doctrine laid down
in Guzman, Bocaling & Co. v. Bonnevie and refused to rescind a
contract of sale which violated the right of first refusal. The Court held
that the so-called "right of first refusal" cannot be deemed a perfected

84
contract of sale under Article 1458 of the New Civil Code and, as such, a
breach thereof decreed under a final judgment does not entitle the
aggrieved party to a writ of execution of the judgment but to an action for
damages in a proper forum for the purpose.
In the 1996 case of Equatorial Realty Development, Inc. v. Mayfair
Theater, Inc.,39 the Court en banc reverted back to the doctrine
in Guzman Bocaling & Co. v. Bonnevie stating that rescission is a relief
allowed for the protection of one of the contracting parties and even third
persons from all injury and damage the contract may cause or to protect
some incompatible and preferred right by the contract.
Thereafter in 1997, in Paraaque Kings Enterprises, Inc. v. Court of
Appeals,40 the Court affirmed the nature of and the concomitant rights
and obligations of parties under a right of first refusal. The Court,
summarizing the rulings in Guzman, Bocaling & Co. v.
Bonnevie and Equatorial Realty Development, Inc. v. Mayfair
Theater, Inc., held that in order to have full compliance with the
contractual right granting petitioner the first option to purchase, the sale
of the properties for the price for which they were finally sold to a third
person should have likewise been first offered to the former. Further,
there should be identity of terms and conditions to be offered to the buyer
holding a right of first refusal if such right is not to be rendered illusory.
Lastly, the basis of the right of first refusal must be the current offer to sell
of the seller or offer to purchase of any prospective buyer.
Thus, the prevailing doctrine is that a right of first refusal means identity
of terms and conditions to be offered to the lessee and all other
prospective buyers and a contract of sale entered into in violation of a
right of first refusal of another person, while valid, is rescissible.
However, we must remember that general propositions do not decide
specific cases. Rather, laws are interpreted in the context of the peculiar
factual situation of each proceeding. Each case has its own flesh and
blood and cannot be ruled upon on the basis of isolated clinical
classroom principles.41 Analysis and construction should not be limited to
the words used in the contract, as they may not accurately reflect the
parties true intent.42 The court must read a contract as the average

person would read it and should not give it a strained or forced

construction.43
In the case at bar, the Court finds relevant and significant the cardinal
rule in the interpretation of contracts that the intention of the parties shall
be accorded primordial consideration and in case of doubt, their
contemporaneous and subsequent acts shall be principally
considered.44 Where the parties to a contract have given it a practical
construction by their conduct as by acts in partial performance, such
construction may be considered by the court in construing the contract,
determining its meaning and ascertaining the mutual intention of the
parties at the time for contracting. The parties practical construction of
their contract has been characterized as a clue or index to, or as
evidence of, their intention or meaning and as an important, significant,
convincing, persuasive, or influential factor in determining the proper
construction of the contract.45
An examination of the attendant particulars of the case do not persuade
us to uphold Rivieras view. As clearly shown by the records and
transcripts of the case, the actions of the parties to the contract of lease,
Reyes and Riviera, shaped their understanding and interpretation of the
lease provision "right of first refusal" to mean simply that should the
lessor Reyes decide to sell the leased property during the term of the
lease, such sale should first be offered to the lessee Riviera. And that is
what exactly ensued between Reyes and Riviera, a series of negotiations
on the price per square meter of the subject property with neither party,
especially Riviera, unwilling to budge from his offer, as evidenced by the
exchange of letters between the two contenders.
It can clearly be discerned from Rivieras letters dated December 2, 1988
and February 4, 1989 that Riviera was so intractable in its position and
took obvious advantage of the knowledge of the time element in its
negotiations with Reyes as the redemption period of the subject
foreclosed property drew near. Riviera strongly exhibited a "take-it or
leave-it" attitude in its negotiations with Reyes. It quoted its "fixed and
final" price as Five Thousand Pesos (P5,000.00) and not any peso more.
It voiced out that it had other properties to consider so Reyes should
decide and make known its decision "within fifteen days." Riviera, in its
letter dated February 4, 1989, admittedly, even downgraded its offer

85
when Reyes offered anew the property to it, such that whatever amount
Reyes initially receives from Riviera would absolutely be insufficient to
pay off the redemption price of the subject property. Naturally, Reyes had
to disagree with Rivieras highly disadvantageous offer.
Nary a howl of protest or shout of defiance spewed forth from Rivieras
lips, as it were, but a seemingly whimper of acceptance when the counsel
of Reyes strongly expressed in a letter dated December 5, 1989 that
Riviera had lost its right of first refusal. Riviera cannot now be heard that
had it been informed of the offer of Five Thousand Three Hundred Pesos
(P5,300.00) of Cypress and Cornhill it would have matched said price. Its
stubborn approach in its negotiations with Reyes showed crystal-clear
that there was never any need to disclose such information and doing so
would be just a futile effort on the part of Reyes. Reyes was under no
obligation to disclose the same. Pursuant to Article 1339 46 of the New
Civil Code, silence or concealment, by itself, does not constitute fraud,
unless there is a special duty to disclose certain facts, or unless
according to good faith and the usages of commerce the communication
should be made.47 We apply the general rule in the case at bar since
Riviera failed to convincingly show that either of the exceptions are
relevant to the case at bar.
In sum, the Court finds that in the interpretation of the right of first refusal
as understood by the parties herein, the question as to what is to be
included therein or what is meant by the same, as in all other provisions
of the contract, is for the parties and not for the court to determine, and
this question may not be resolved by what the parties might have
provided had they thought about it, which is evident from Riviera claims,
or by what the court might conclude regarding abstract fairness.48
The Court would be rewriting the contract of Reyes and Riviera under the
guise of construction were we to interpret the right of first refusal as
Riviera propounds it, despite a contrary construction as exhibited by its
actions. A court, even the Supreme Court, has no right to make new
contracts for the parties or ignore those already made by them, simply to
avoid seeming hardships. Neither abstract justice nor the rule of liberal
construction justifies the creation of a contract for the parties which they
did not make themselves or the imposition upon one party to a contract of
an obligation not assumed.49

On the last error attributed to the Court of Appeals which is the effect on
the jurisdiction of the appellate court of the non-substitution of Reyes,
who died during the pendency of the appeal, the Court notes that when
Riviera filed its petition with this Court and assigned this error, it later filed
on October 27, 1994 a Manifestation 50 with the Court of Appeals stating
that it has discovered that Reyes is already dead, in view of which the
appellate court issued a Resolution dated December 16, 1994 which
noted the manifestation of Riviera and directed the counsel of Reyes to
submit a copy of the latters death certificate and to file the proper motion
for substitution of party.51 Complying therewith, the necessary motion for
substitution of deceased Reyes, who died on January 7, 1994, was filed
by the heirs, namely, Estefania B. Reyes, Juanita R. de la Rosa, Juan B.
Reyes, Jr. and Fidel B. Reyes. 52 Acting on the motion for substitution, the
Court of Appeals granted the same.53
Notwithstanding the foregoing, Section 1654 and 1755 of Rule 3 of the
Revised Rules of Court, upon which Riviera anchors its argument, has
already been amended by the 1997 Rules of Civil Procedure. 56 Even
applying the old Rules, the failure of a counsel to comply with his duty
under Section 16 of Rule 3 of the Revised Rules of Court, to inform the
court of the death of his client and no substitution of such is effected, will
not invalidate the proceedings and the judgment thereon if the action
survives the death of such party,57 as this case does, since the death of
Reyes did not extinguish his civil personality. The appellate court was
well within its jurisdiction to proceed as it did with the case since the
death of a party is not subject to its judicial notice. Needless to stress, the
purpose behind the rule on substitution of parties is the protection of the
right of every party to due process. This purpose has been adequately
met in this case since both parties argued their respective positions
through their pleadings in the trial court and the appellate court. Besides,
the Court has already acquired jurisdiction over the heirs of Reyes by
voluntarily submitting themselves to our jurisdiction. 58
In view of all the foregoing, the Court is convinced that the appellate court
committed no reversible error in its challenged Decision.
1wphi1.nt

WHEREFORE, the instant petition is hereby DENIED, and the Decision

of the Court of Appeals dated June 6, 1994 in CA-G.R. CV No. 26513
is AFFIRMED. No pronouncement as to costs. SO ORDERED.

86
petitioners wherein they promised to pay the latter the said amount, with
interest at the rate of ten percent (10%) per annum, upon demand.
However, despite repeated demands, the respondents failed to pay the
petitioners.
Thus, on August 28, 2006, the petitioners sent the respondents a
demand letter asking them to pay their outstanding debt which, at that
time, already amounted to Seven Hundred Nineteen Thousand, Six
Hundred Seventy-One U.S. Dollars and Twenty-Three Cents
(US$719,671.23), inclusive of the ten percent (10%) annual interest that
had accumulated over the years. Notwithstanding the receipt of the said
demand letter, the respondents still failed to settle their loan obligation.

G.R. No. 186993

August 22, 2012
THEODORE and NANCY ANG, represented by ELDRIGE MARVIN B.
ACERON, Petitioners, vs. SPOUSES ALAN and EM
ANG, Respondents.
Before this Court is a petition for review on certiorari under Rule 45 of the
Rules of Court seeking to annul and set aside the Decision 1 dated August
28, 2008 and the Resolution2 dated February 20, 2009 rendered by the
Court of Appeals (CA) in CA-G.R. SP No. 101159. The assailed decision
annulled and set aside the Orders dated April 12, 2007 3 and August 27,
20074 issued by the Regional Trial Court (RTC) of Quezon City, Branch
81 in Civil Case No. Q-06-58834.
The Antecedent Facts
On September 2, 1992, spouses Alan and Em Ang (respondents)
obtained a loan in the amount of Three Hundred Thousand U.S. Dollars
(US$300,000.00) from Theodore and Nancy Ang (petitioners). On even
date, the respondents executed a promissory note 5 in favor of the

On August 6, 2006, the petitioners, who were then residing in Los

Angeles, California, United States of America (USA), executed their
respective Special Powers of Attorney6 in favor of Attorney Eldrige Marvin
B. Aceron (Atty. Aceron) for the purpose of filing an action in court against
the respondents. On September 15, 2006, Atty. Aceron, in behalf of the
petitioners, filed a Complaint7 for collection of sum of money with the RTC
of Quezon City against the respondents.
On November 21, 2006, the respondents moved for the dismissal of the
complaint filed by the petitioners on the grounds of improper venue and
prescription.8 Insisting that the venue of the petitioners action was
improperly laid, the respondents asserted that the complaint against them
may only be filed in the court of the place where either they or the
petitioners reside. They averred that they reside in Bacolod City while the
petitioners reside in Los Angeles, California, USA. Thus, the respondents
maintain, the filing of the complaint against them in the RTC of Quezon
City was improper.
The RTC Orders
On April 12, 2007, the RTC of Quezon City issued an Order 9 which, inter
alia, denied the respondents motion to dismiss. In ruling against the
respondents claim of improper venue, the court explained that:
Attached to the complaint is the Special Power of Attorney x x x which
clearly states that plaintiff Nancy Ang constituted Atty. Eldrige Marvin

87
Aceron as her duly appointed attorney-in-fact to prosecute her claim
against herein defendants. Considering that the address given by Atty.
Aceron is in Quezon City, hence, being the plaintiff, venue of the action
may lie where he resides as provided in Section 2, Rule 4 of the 1997
Rules of Civil Procedure.10
The respondents sought reconsideration of the RTC Order dated April 12,
2007, asserting that there is no law which allows the filing of a complaint
in the court of the place where the representative, who was appointed as
such by the plaintiffs through a Special Power of Attorney, resides.11
The respondents motion for reconsideration was denied by the RTC of
Quezon City in its Order12 dated August 27, 2007.
The respondents then filed with the CA a petition for certiorari13 alleging in
the main that, pursuant to Section 2, Rule 4 of the Rules of Court, the
petitioners complaint may only be filed in the court of the place where
they or the petitioners reside. Considering that the petitioners reside in
Los Angeles, California, USA, the respondents assert that the complaint
below may only be filed in the RTC of Bacolod City, the court of the place
where they reside in the Philippines.

As maybe clearly gleaned from the foregoing, the place of residence of

the plaintiffs attorney-in-fact is of no moment when it comes to
ascertaining the venue of cases filed in behalf of the principal since what
should be considered is the residence of the real parties in interest, i.e.,
the plaintiff or the defendant, as the case may be. Residence is the
permanent home the place to which, whenever absent for business or
pleasure, one intends to return. Residence is vital when dealing with
venue. Plaintiffs, herein private respondents, being residents of Los
Angeles, California, U.S.A., which is beyond the territorial jurisdiction of
Philippine courts, the case should have been filed in Bacolod City where
the defendants, herein petitioners, reside. Since the case was filed in
Quezon City, where the representative of the plaintiffs resides, contrary to
Sec. 2 of Rule 4 of the 1997 Rules of Court, the trial court should have
dismissed the case for improper venue.15
The petitioners sought a reconsideration of the Decision dated August 28,
2008, but it was denied by the CA in its Resolution dated February 20,
2009.16
Hence, the instant petition.
Issue

The respondents further claimed that, the petitioners grant of Special

Power of Attorney in favor of Atty. Aceron notwithstanding, the said
complaint may not be filed in the court of the place where Atty. Aceron
resides, i.e., RTC of Quezon City. They explained that Atty. Aceron, being
merely a representative of the petitioners, is not the real party in interest
in the case below; accordingly, his residence should not be considered in
determining the proper venue of the said complaint.

In the instant petition, the petitioners submit this lone issue for this
Courts resolution:
WHETHER OR NOT THE COURT OF APPEALS COMMITTED
REVERSIBLE ERROR OF LAW WHEN IT RULED THAT THE
COMPLAINT MUST BE DISMISSED ON THE GROUND THAT VENUE
WAS NOT PROPERLY LAID.17

The CA Decision
The Courts Ruling
On August 28, 2008, the CA rendered the herein Decision, 14 which
annulled and set aside the Orders dated April 12, 2007 and August 27,
2007 of the RTC of Quezon City and, accordingly, directed the dismissal
of the complaint filed by the petitioners. The CA held that the complaint
below should have been filed in Bacolod City and not in Quezon City.
Thus:

The petition is denied.

Contrary to the CAs disposition, the petitioners maintain that their
complaint for collection of sum of money against the respondents may be
filed in the RTC of Quezon City. Invoking Section 3, Rule 3 of the Rules

88
of Court, they insist that Atty. Aceron, being their attorney-in-fact, is
deemed a real party in interest in the case below and can prosecute the
same before the RTC. Such being the case, the petitioners assert, the
said complaint for collection of sum of money may be filed in the court of
the place where Atty. Aceron resides, which is the RTC of Quezon City.
On the other hand, the respondents in their Comment 18 assert that the
petitioners are proscribed from filing their complaint in the RTC of
Quezon City. They assert that the residence of Atty. Aceron, being merely
a representative, is immaterial to the determination of the venue of the
petitioners complaint.
The
petitioners
complaint
have
been
filed
in
the
RTC
Bacolod
City,
the
court
of
the
where
the
respondents
reside,
not in RTC of Quezon City.

should
of
place
and

case, the complaint may only be filed in the court of the place where the
defendant resides. Thus:
Section 377 provides that actions of this character "may be brought in
any province where the defendant or any necessary party defendant may
reside or be found, or in any province where the plaintiff or one of the
plaintiffs resides, at the election of the plaintiff." The plaintiff in this action
has no residence in the Philippine Islands. Only one of the parties to the
action resides here. There can be, therefore, no election by plaintiff as to
the place of trial. It must be in the province where the defendant resides.
x x x.22 (Emphasis ours)
Here, the petitioners are residents of Los Angeles, California, USA while
the respondents reside in Bacolod City. Applying the foregoing principles,
the petitioners complaint against the respondents may only be filed in the
RTC of Bacolod City the court of the place where the respondents
reside. The petitioners, being residents of Los Angeles, California, USA,
are not given the choice as to the venue of the filing of their complaint.

It is a legal truism that the rules on the venue of personal actions are
fixed for the convenience of the plaintiffs and their witnesses. Equally
settled, however, is the principle that choosing the venue of an action is
not left to a plaintiffs caprice; the matter is regulated by the Rules of
Court.19

Thus, the CA did not commit any reversible error when it annulled and set
aside the orders of the RTC of Quezon City and consequently dismissed
the petitioners complaint against the respondents on the ground of
improper venue.

The petitioners complaint for collection of sum of money against the

respondents is a personal action as it primarily seeks the enforcement of
a contract. The Rules give the plaintiff the option of choosing where to file
his complaint. He can file it in the place (1) where he himself or any of
them resides, or (2) where the defendant or any of the defendants
resides or may be found. The plaintiff or the defendant must be residents
of the place where the action has been instituted at the time the action is
commenced.20

In this regard, it bears stressing that the situs for bringing real and
personal civil actions is fixed by the Rules of Court to attain the greatest
convenience possible to the litigants and their witnesses by affording
them maximum accessibility to the courts. 23 And even as the regulation of
venue is primarily for the convenience of the plaintiff, as attested by the
fact that the choice of venue is given to him, it should not be construed to
unduly deprive a resident defendant of the rights conferred upon him by
the Rules of Court.24

However, if the plaintiff does not reside in the Philippines, the complaint in
such case may only be filed in the court of the place where the defendant
resides. In Cohen and Cohen v. Benguet Commercial Co., Ltd., 21 this
Court held that there can be no election as to the venue of the filing of a
complaint when the plaintiff has no residence in the Philippines. In such

Atty.
Aceron
is
not
interest
in
the
case
residence
is
immaterial
of the filing of the complaint.

real
below;
to

party
in
thus,
his
the
venue

89
Contrary to the petitioners claim, Atty. Aceron, despite being the attorneyin-fact of the petitioners, is not a real party in interest in the case below.
Section 2, Rule 3 of the Rules of Court reads:
Sec. 2. Parties in interest. A real party in interest is the party who
stands to be benefited or injured by the judgment in the suit, or the party
entitled to the avails of the suit. Unless otherwise authorized by law or
these Rules, every action must be prosecuted or defended in the name of
the real party in interest. (Emphasis ours)
Interest within the meaning of the Rules of Court means material interest
or an interest in issue to be affected by the decree or judgment of the
case, as distinguished from mere curiosity about the question
involved.25 A real party in interest is the party who, by the substantive law,
has the right sought to be enforced.26
Applying the foregoing rule, it is clear that Atty. Aceron is not a real party
in interest in the case below as he does not stand to be benefited or
injured by any judgment therein. He was merely appointed by the
petitioners as their attorney-in-fact for the limited purpose of filing and
prosecuting the complaint against the respondents. Such appointment,
however, does not mean that he is subrogated into the rights of
petitioners and ought to be considered as a real party in interest.
Being merely a representative of the petitioners, Atty. Aceron in his
personal capacity does not have the right to file the complaint below
against the respondents. He may only do so, as what he did, in behalf of
the petitioners the real parties in interest. To stress, the right sought to
be enforced in the case below belongs to the petitioners and not to Atty.
Aceron. Clearly, an attorney-in-fact is not a real party in interest.27
The petitioners reliance on Section 3, Rule 3 of the Rules of Court to
support their conclusion that Atty. Aceron is likewise a party in interest in
the case below is misplaced. Section 3, Rule 3 of the Rules of Court
provides that:
Sec. 3. Representatives as parties. Where the action is allowed to be
prosecuted and defended by a representative or someone acting in a
fiduciary capacity, the beneficiary shall be included in the title of the case

and shall be deemed to be the real property in interest. A representative

may be a trustee of an expert trust, a guardian, an executor or
administrator, or a party authorized by law or these Rules. An agent
acting in his own name and for the benefit of an undisclosed principal
may sue or be sued without joining the principal except when the contract
involves things belonging to the principal. (Emphasis ours)
Nowhere in the rule cited above is it stated or, at the very least implied,
that the representative is likewise deemed as the real party in interest.
The said rule simply states that, in actions which are allowed to be
prosecuted or defended by a representative, the beneficiary shall be
deemed the real party in interest and, hence, should be included in the
title of the case.
Indeed, to construe the express requirement of residence under the rules
on venue as applicable to the attorney-in-fact of the plaintiff would
abrogate the meaning of a "real party in interest", as defined in Section 2
of Rule 3 of the 1997 Rules of Court vis--vis Section 3 of the same
Rule.28
On this score, the CA aptly observed that:
As may be unerringly gleaned from the foregoing provisions, there is
nothing therein that expressly allows, much less implies that an action
may be filed in the city or municipality where either a representative or an
attorney-in-fact of a real party in interest resides. Sec. 3 of Rule 3 merely
provides that the name or names of the person or persons being
represented must be included in the title of the case and such person or
persons shall be considered the real party in interest. In other words, the
principal remains the true party to the case and not the representative.
Under the plain meaning rule, or verba legis, if a statute is clear, plain
and free from ambiguity, it must be given its literal meaning and applied
without interpretation. xxx29 (Citation omitted)
At this juncture, it bears stressing that the rules on venue, like the other
procedural rules, are designed to insure a just and orderly administration
of justice or the impartial and even-handed determination of every action
and proceeding. Obviously, this objective will not be attained if the plaintiff
is given unrestricted freedom to choose the court where he may file his

90
complaint or petition. The choice of venue should not be left to the
plaintiff's whim or caprice. He may be impelled by some ulterior
motivation in choosing to file a case in a particular court even if not
allowed by the rules on venue.30
WHEREFORE, in consideration of the foregoing disquisitions, the petition
is DENIED. The Decision dated August 28, 2008 and Resolution dated
February 20, 2009 rendered by the Court of Appeals in CA-G.R. SP No.
101159 are AFFIRMED. SO ORDERED.

This is a petition for review on certiorari seeking the reversal of: (a) the
July 30, 1986 decision of the Court of Appeals in AC-G.R. SP No. 09255
entitled "Metropolitan Bank & Trust Co. v. Hon. Herminio C. Mariano, et
al." dismissing Civil Case No. 8533218 entitled "Fortune Motors (Phils.)
Inc. v. Metropolitan Bank & Trust Co." filed in the Regional Trial Court of
Manila, Branch IV for improper venue and (b) the resolution dated
October 30, 1986 denying petitioner's motion for reconsideration.
The undisputed facts of the case are as follows:
On March 29,1982 up to January 6,1984, private respondent
Metropolitan Bank extended various loans to petitioner Fortune Motors in
the total sum of P32,500,000.00 (according to the borrower; or
P34,150,000.00 according to the Bank) which loan was secured by a real
estate mortgage on the Fortune building and lot in Makati, Rizal. (Rollo,
pp. 60-62)
Due to financial difficulties and the onslaught of economic recession, the
petitioner was not able to pay the loan which became due. (Rollo, p. 62)
For failure of the petitioner to pay the loans, the respondent bank initiated
extrajudicial foreclosure proceedings. After notices were served, posted,
and published, the mortgaged property was sold at public auction for the
price of P47,899,264.91 to mortgagee Bank as the highest bidder. (Rollo,
p. 11)
The sheriff's certificate of sale was registered on October 24, 1984 with
the one-year redemption period to expire on October 24,1985. (Rollo, p.
12)

G. R. No. 76431 October 16, 1989FORTUNE MOTORS, (PHILS.)

INC., petitioner, vs.THE HONORABLE COURT OF APPEALS,
METROPOLITAN BANK and TRUST COMPANY, respondents.

On October 21, 1985, three days before the expiration of the redemption
period, petitioner Fortune Motors filed a complaint for annulment of the
extrajudicial foreclosure sale alleging that the foreclosure was premature
because its obligation to the Bank was not yet due, the publication of the
notice of sale was incomplete, there was no public auction, and the price
for which the property was sold was "shockingly low". (Rollo, pp. 60-68)
Before summons could be served private respondent Bank filed a motion
to dismiss the complaint on the ground that the venue of the action was
improperly laid in Manila for the realty covered by the real estate
mortgage is situated in Makati, therefore the action to annul the

91
foreclosure sale should be filed in the Regional Trial Court of Makati.
(Rollo, pp. 67-71-A )
The motion was opposed by petitioner Fortune Motors alleging that its
action "is a personal action" and that "the issue is the validity of the
extrajudicial foreclosure proceedings" so that it may have a new one year
period to redeem. (Rollo, pp. 72-73)
On January 8, 1986 an order was issued by the lower court reserving the
resolution of the Bank's motion to dismiss until after the trial on the merits
as the grounds relied upon by the defendant were not clear and
indubitable. (Rollo, p. 81)
The Bank filed a motion for reconsideration of the order dated January 8,
1986 but it was denied by the lower court in its order dated May 28, 1986.
(Rollo, Annex "L" pp. 93-96; Annex "N" p. 99)
On June 11, 1986 the respondent Bank filed a petition for certiorari and
prohibition in the Court of Appeals. (Rollo, Annex "O" pp. 100-115)
And on July 30, 1986, a decision was issued by the Court of Appeals, the
dispositive part of which reads as follows:
WHEREFORE, the petition for certiorari and prohibition is granted. The
complaint in the Civil Case No. 85-33218 is dismissed without prejudice
to its being filed in the proper venue. Costs against the private
respondent. SO ORDERED. (Rollo, p. 15)
A motion for reconsideration was filed on August 11, 1986 on the said
decision and on October 30, 1986 a resolution was issued denying such
motion for reconsideration. (Rollo, Annex "O" pp. 121-123; Annex "S" p.
129)
Hence, the petition for review on certiorari.
On June 10, 1987 the Court gave due course to the petition, required the
parties to file their respective memoranda within twenty (20) days from
the notice hereof, and pay deposit for costs in the amount of P80.40.

Both parties have filed their respective memoranda, and the case was
submitted for Court's resolution in the resolution dated December 14,
1987. (Rollo,Metrobank's Memorandum pp. 45-59; petitioner's
memorandum pp.130-136; Res. p. 138)
The only issue in this case is whether petitioner's action for annulment of
the real estate mortgage extrajudicial foreclosure sale of Fortune Building
is a personal action or a real action for venue purposes.
In a real action, the plaintiff seeks the recovery of real property, or as
indicated in Sec. 2 (a) of Rule 4, a real action is an action affecting title to
real property, or for the recovery of possession, or for the partition or
condemnation of, or foreclosure of a mortgage on real property.
(Comments on the Rules of Court by Moran, Vol. 1, p. 122)
Real actions or actions affecting title to, or for the recovery of possession,
or for the partition or condemnation of, or foreclosure of mortgage on real
property, must be instituted in the Court of First Instance of the province
where the property or any part thereof lies. (Enriquez v. Macadaeg, 84
Phil. 674,1949; Garchitorena v. Register of Deeds, 101 Phil. 1207, 1957)
Personal actions upon the other hand, may be instituted in the Court of
First Instance 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 (Sec. 1, Rule 4, Revised Rules of Court).
A prayer for annulment or rescission of contract does not operate to
efface the true objectives and nature of the action which is to recover real
property. (Inton, et al., v. Quintan, 81 Phil. 97, 1948)
An action for the annulment or rescission of a sale of real property is a
real action. Its prime objective is to recover said real property. (Gavieres
v. Sanchez, 94 Phil. 760,1954)
An action to annul a real estate mortgage foreclosure sale is no different
from an action to annul a private sale of real property. (Munoz v. Llamas,
87 Phil. 737,1950)
While it is true that petitioner does not directly seek the recovery of title or
possession of the property in question, his action for annulment of sale
and his claim for damages are closely intertwined with the issue of

92
ownership of the building which, under the law, is considered immovable
property, the recovery of which is petitioner's primary objective. The
prevalent doctrine is that an action for the annulment or rescission of a
sale of real property does not operate to efface the fundamental and
prime objective and nature of the case, which is to recover said real
property. It is a real action. Respondent Court, therefore, did not err in
dismissing the case on the ground of improper venue (Sec. 2, Rule 4)
which was timely raised (Sec. 1, Rule 16). (Punzalan, Jr. v. Vda. de
Lacsamana, 121 SCRA 336, [1983]).
Thus, as aptly decided by the Court of Appeals in a decision penned by
then Court of Appeals Associate Justice now Associate Justice of the
Supreme Court Carolina C. Grio-Aquino, the pertinent portion reads:
"Since an extrajudicial foreclosure of real property results in a
conveyance of the title of the property sold to the highest bidder at the
sale, an action to annul the foreclosure sale is necessarily an action
affecting the title of the property sold. It is therefore a real action which
should be commenced and tried in the province where the property or
part thereof lies."
PREMISES CONSIDERED, the instant petition is DENIED for lack of
merit and the assailed decision of the respondent Court of Appeals is
AFFIRMED. SO ORDERED.

AGUSTIN ANTILLON, as City Judge of the Municipal Court of

Cagayan de Oro City
and NEW CAGAYAN GROCERY, respondents-appellees.
This is an appeal from an order of the Court of First Instance of Misamis
Oriental dismissing the petition of the Clavecilla Radio System to prohibit
the City Judge of Cagayan de Oro from taking cognizance of Civil Case
No. 1048 for damages.
It appears that on June 22, 1963, the New Cagayan Grocery filed a
complaint against the Clavecilla Radio System alleging, in effect, that on
March 12, 1963, the following message, addressed to the former, was
filed at the latter's Bacolod Branch Office for transmittal thru its branch
office at Cagayan de Oro:
NECAGRO CAGAYAN DE ORO (CLAVECILLA)
REURTEL WASHED NOT AVAILABLE REFINED TWENTY
FIFTY IF AGREEABLE SHALL SHIP LATER REPLY POHANG
The Cagayan de Oro branch office having received the said
message omitted, in delivering the same to the New Cagayan
Grocery, the word "NOT" between the words "WASHED" and
"AVAILABLE," thus changing entirely the contents and purport of
the same and causing the said addressee to suffer damages.
After service of summons, the Clavecilla Radio System filed a
motion to dismiss the complaint on the grounds that it states no
cause of action and that the venue is improperly laid. The New
Cagayan Grocery interposed an opposition to which the
Clavecilla Radio System filed its rejoinder. Thereafter, the City
Judge, on September 18, 1963, denied the motion to dismiss for
lack of merit and set the case for hearing.
1wph1.t

G.R. No. L-22238

February 18, 1967
CLAVECILLIA RADIO SYSTEM, petitioner-appellant, vs. HON.

Hence, the Clavecilla Radio System filed a petition for prohibition with
preliminary injunction with the Court of First Instance praying that the City
Judge, Honorable Agustin Antillon, be enjoined from further proceeding
with the case on the ground of improper venue. The respondents filed a
motion to dismiss the petition but this was opposed by the petitioner.
Later, the motion was submitted for resolution on the pleadings.

93
In dismissing the case, the lower court held that the Clavecilla Radio
System may be sued either in Manila where it has its principal office or in
Cagayan de Oro City where it may be served, as in fact it was served,
with summons through the Manager of its branch office in said city. In
other words, the court upheld the authority of the city court to take
cognizance of the case.

It is important to remember, as was stated by this Court in Evangelista

vs. Santos, et al., supra, that the laying of the venue of an action is not
left to plaintiff's caprice because the matter is regulated by the Rules of
Court. Applying the provision of the Rules of Court, the venue in this case
was improperly laid.

1wph1.t

In appealing, the Clavecilla Radio System contends that the suit against it
should be filed in Manila where it holds its principal office.
It is clear that the case for damages filed with the city court is based upon
tort and not upon a written contract. Section 1 of Rule 4 of the New Rules
of Court, governing venue of actions in inferior courts, provides in its
paragraph (b) (3) that when "the action is not upon a written contract,
then in the municipality where the defendant or any of the defendants
resides or may be served with summons." (Emphasis supplied)
Settled is the principle in corporation law that the residence of a
corporation is the place where its principal office is established. Since it is
not disputed that the Clavecilla Radio System has its principal office in
Manila, it follows that the suit against it may properly be filed in the City of
Manila.
The appellee maintain, however, that with the filing of the action in
Cagayan de Oro City, venue was properly laid on the principle that the
appellant may also be served with summons in that city where it
maintains a branch office. This Court has already held in the case
of Cohen vs. Benguet Commercial Co., Ltd., 34 Phil. 526; that the term
"may be served with summons" does not apply when the defendant
resides in the Philippines for, in such case, he may be sued only in the
municipality of his residence, regardless of the place where he may be
found and served with summons. As any other corporation, the Clavecilla
Radio System maintains a residence which is Manila in this case, and a
person can have only one residence at a time (See Alcantara vs.
Secretary of the Interior, 61 Phil. 459; Evangelists vs. Santos, 86 Phil.
387). The fact that it maintains branch offices in some parts of the country
does not mean that it can be sued in any of these places. To allow an
action to be instituted in any place where a corporate entity has its
branch offices would create confusion and work untold inconvenience to
the corporation.

The order appealed from is therefore reversed, but without prejudice to

the filing of the action in Which the venue shall be laid properly. With
costs against the respondents-appellees.

94
G.R. No. 104175 June 25, 1993
YOUNG AUTO SUPPLY CO. AND NEMESIO GARCIA, petitioners, vs.
THE HONORABLE COURT OF APPEALS (THIRTEENTH DIVISION)
AND GEORGE CHIONG ROXAS, respondents.
Petitioners seek to set aside the decision of respondent Court of Appeals
in CA-G.R. SP No. 25237, which reversed the Order dated February 8,
1991 issued by the Regional Trial Court, Branch 11, Cebu City in Civil
Case No. CEB 6967. The order of the trial court denied the motion to
dismiss filed by respondent George C. Roxas of the complaint for
collection filed by petitioners.
It appears that sometime on October 28, 1987, Young Auto Supply Co.
Inc. (YASCO) represented by Nemesio Garcia, its president, Nelson
Garcia and Vicente Sy, sold all of their shares of stock in Consolidated
Marketing & Development Corporation (CMDC) to Roxas. The purchase
price was P8,000,000.00 payable as follows: a downpayment of
P4,000,000.00 and the balance of P4,000,000.00 in four post dated
checks of P1,000,000.00 each.
Immediately after the execution of the agreement, Roxas took full control
of the four markets of CMDC. However, the vendors held on to the stock
certificates of CMDC as security pending full payment of the balance of
the purchase price.
The first check of P4,000,000.00, representing the down-payment, was
honored by the drawee bank but the four other checks representing the
balance of P4,000,000.00 were dishonored. In the meantime, Roxas sold
one of the markets to a third party. Out of the proceeds of the sale,
YASCO received P600,000.00, leaving a balance of P3,400,000.00
(Rollo, p. 176).
Subsequently, Nelson Garcia and Vicente Sy assigned all their rights and
title to the proceeds of the sale of the CMDC shares to Nemesio Garcia.
On June 10, 1988, petitioners filed a complaint against Roxas in the
Regional Trial Court, Branch 11, Cebu City, praying that Roxas be
ordered to pay petitioners the sum of P3,400,00.00 or that full control of
the three markets be turned over to YASCO and Garcia. The complaint
also prayed for the forfeiture of the partial payment of P4,600,000.00 and
the payment of attorney's fees and costs (Rollo, p. 290).

95
Roxas filed two motions for extension of time to submit his answer. But
despite said motion, he failed to do so causing petitioners to file a motion
to have him declared in default. Roxas then filed, through a new counsel,
a third motion for extension of time to submit a responsive pleading.
On August 19, 1988, the trial court declared Roxas in default. The order
of default was, however, lifted upon motion of Roxas.
On August 22, 1988, Roxas filed a motion to dismiss on the grounds that:
1. The complaint did not state a cause of action due to nonjoinder of indispensable parties;
2. The claim or demand set forth in the complaint had been
waived, abandoned or otherwise extinguished; and
3. The venue was improperly laid (Rollo, p. 299).
After a hearing, wherein testimonial and documentary evidence were
presented by both parties, the trial court in an Order dated February 8,
1991 denied Roxas' motion to dismiss. After receiving said order, Roxas
filed another motion for extension of time to submit his answer. He also
filed a motion for reconsideration, which the trial court denied in its Order
dated April 10, 1991 for being pro-forma (Rollo, p. 17). Roxas was again
declared in default, on the ground that his motion for reconsideration did
not toll the running of the period to file his answer.
On May 3, 1991, Roxas filed an unverified Motion to Lift the Order of
Default which was not accompanied with the required affidavit or merit.
But without waiting for the resolution of the motion, he filed a petition
for certiorari with the Court of Appeals.
The Court of Appeals sustained the findings of the trial court with regard
to the first two grounds raised in the motion to dismiss but ordered the
dismissal of the complaint on the ground of improper venue (Rollo, p. 49).
A subsequent motion for reconsideration by petitioner was to no avail.
Petitioners now come before us, alleging that the Court of Appeals
erred in:

1. holding the venue should be in Pasay City, and not in Cebu

City (where both petitioners/plaintiffs are residents;
2. not finding that Roxas is estopped from questioning the choice
of venue (Rollo, p. 19).
The petition is meritorious.
In holding that the venue was improperly laid in Cebu City, the Court of
Appeals relied on the address of YASCO, as appearing in the Deed of
Sale dated October 28, 1987, which is "No. 1708 Dominga Street, Pasay
City." This was the same address written in YASCO's letters and several
commercial documents in the possession of Roxas (Decision, p.
12; Rollo, p. 48).
In the case of Garcia, the Court of Appeals said that he gave Pasay City
as his address in three letters which he sent to Roxas' brothers and
sisters (Decision, p. 12; Rollo, p. 47). The appellate court held that Roxas
was led by petitioners to believe that their residence is in Pasay City and
that he had relied upon those representations (Decision, p. 12, Rollo, p.
47).
The Court of Appeals erred in holding that the venue was improperly laid
in Cebu City.
In the Regional Trial Courts, all personal actions are commenced and
tried in the province or city 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 [Sec. 2(b) Rule 4, Revised Rules of
Court].
There are two plaintiffs in the case at bench: a natural person and a
domestic corporation. Both plaintiffs aver in their complaint that they are
residents of Cebu City, thus:
1.1. Plaintiff Young Auto Supply Co., Inc., ("YASCO") is a
domestic corporation duly organized and existing under Philippine
laws with principal place of business at M. J. Cuenco Avenue,
Cebu City. It also has a branch office at 1708 Dominga Street,
Pasay City, Metro Manila.

96
Plaintiff Nemesio Garcia is of legal age, married, Filipino citizen
and with business address at Young Auto Supply Co., Inc., M. J.
Cuenco Avenue, Cebu City. . . . (Complaint, p. 1; Rollo, p. 81).
The Article of Incorporation of YASCO (SEC Reg. No. 22083) states:
THIRD That the place where the principal office of the corporation
is to be established or located is at Cebu City, Philippines (as
amended on December 20, 1980 and further amended on
December 20, 1984) (Rollo, p. 273).
A corporation has no residence in the same sense in which this term is
applied to a natural person. But for practical purposes, a corporation is in
a metaphysical sense a resident of the place where its principal office is
located as stated in the articles of incorporation (Cohen v. Benguet
Commercial Co., Ltd., 34 Phil. 256 [1916] Clavecilla Radio System v.
Antillon, 19 SCRA 379 [1967]). The Corporation Code precisely requires
each corporation to specify in its articles of incorporation the "place
where the principal office of the corporation is to be located which must
be within the Philippines" (Sec. 14 [3]). The purpose of this requirement is
to fix the residence of a corporation in a definite place, instead of allowing
it to be ambulatory.
In Clavencilla Radio System v. Antillon, 19 SCRA 379 ([1967]), this Court
explained why actions cannot be filed against a corporation in any place
where the corporation maintains its branch offices. The Court ruled that to
allow an action to be instituted in any place where the corporation has
branch offices, would create confusion and work untold inconvenience to
said entity. By the same token, a corporation cannot be allowed to file
personal actions in a place other than its principal place of business
unless such a place is also the residence of a co-plaintiff or a defendant.
If it was Roxas who sued YASCO in Pasay City and the latter questioned
the venue on the ground that its principal place of business was in Cebu
City, Roxas could argue that YASCO was in estoppel because it misled
Roxas to believe that Pasay City was its principal place of business. But
this is not the case before us.
With the finding that the residence of YASCO for purposes of venue is in
Cebu City, where its principal place of business is located, it becomes
unnecessary to decide whether Garcia is also a resident of Cebu City

and whether Roxas was in estoppel from questioning the choice of Cebu
City as the venue.
WHEREFORE, the petition is GRANTED. The decision of the Court of
Appeals appealed from is SET ASIDE and the Order dated February 8,
1991 of the Regional Trial Court is REINSTATED.
SO ORDERED.

97
G.R. No. L-17699
March 30, 1962
DR. ANTONIO A. LIZARES, INC., petitioner, vs. HON. HERMOGENES
CALUAG, as Judge of the Court of First Instance of Quezon City,
and FLAVIANO CACNIO, respondents.
Appeal by certiorari from a decision of the Court of Appeals dismissing
the petition of Dr. Antonio A. Lizares & Co., Inc., for a writ of prohibition,
with costs against said petitioner.
On or about June 14, 1960, Flaviano Cacnio instituted Civil Case No. Q5197 of the Court of First Instance of Rizal, Quezon City Branch, against
said petitioner. In his complaint, Cacnio alleged that on April 20, 1955, he
bought from petitioner, on installment, Lot 4, Block 1 of the Sinkang
Subdivision in Bacolod City, making therefor a downpayment of P1,206,
the balance of P10,858 to be paid in ten (10) yearly installments of
P1,085.80 each, with interest thereon at the rate of 6% per annum; that
on March 25, 1960, Cacnio received from petitioner a letter demanding
payment of P7,324.69, representing arrears in the payment of
installments up to April 20, 1960, plus "regular and overdue" interest, as
well as "land taxes up to 70% of 1960"; that the sum then due from
Cacnio by way of arrears amounted only to P5,824.69, he having paid
P1,500 to petitioner "sometime in 1958"; that in view of the
aforementioned demand of petitioner, Cacnio sent thereto a check for
P5,824.69, dated May 26, 1960, drawn by one Antonino Bernardo in
favor of said petitioner, in payment of the amount due from Cacnio by
way of arrears; that "without legal and equitable grounds" therefor,
petitioner returned said check and "refused the tender of payment"
aforementioned; that by reason of said illegal act of petitioner, Cacnio is
entitled to compensatory damages in the sum of P5,000, plus P2,000 by
way of attorney's fees, Cacnio having been constrained to engage the
services of counsel and bring the action; and that petitioner "is doing
threatens, or is about to do, or is procuring or suffering to be done some
act in violation of" Cacnio's rights respecting the subject of the action, viz.
the repossession of the lot bought by" the latter, who, accordingly, prayed
that petitioner be ordered "to accept the payment being made" by him
(Cacnio) and to pay him P5,000 as compensatory damages and P2,000
as attorney's fees, and that, upon the filing of a bond to be fixed by the
court, a writ of preliminary injunction enjoining petitioner and its agents or
representatives from repossessing the lot adverted to above be issued.
Said writ of preliminary injunction was issued on June 16, 1960.

98
On July 5, 1960, petitioner moved to dismiss the complaint upon the
ground that "venue is improperly laid," for the action affects the title to or
possession of real property located in Bacolod City, which was the
subject matter of a contract, between petitioner and Cacnio, made in said
City. The motion having been denied by the Court of First Instance of
Rizal, Quezon City Branch, by an order of July 9, 1960, upon the ground
that the action was in personam, petitioner filed with the Court of Appeals
a petition, which was docketed as Civil Case CA-G.R. No. 28013-R,
praying that said order be set aside and that a writ of prohibition be
issued commanding respondent Hon. Hermogenes Caluag, as Judge of
said Court, to desist from taking cognizance of said Civil Case No. Q5197. In due course, the Court of Appeals rendered a decision on
October 27, 1960, dismissing said petition. Hence, this appeal by
certiorari taken by petitioner herein.
The issue is whether or not the main case falls under section 3 of Rule 5
of the Rules of Court, reading:
"Actions affecting title to, or for recovery of possession, or for partition or
condemnation of, or foreclosure of mortgage on, real property, shall be
commenced and tried in the province where the property or any part
thereof lies."
The Court of Appeals and the Court of First Instance of Rizal, Quezon
City Branch, held that Civil Case No. Q-5197 of the latter court is an
action in personam, and that, as such, it does not fall within the purview
of said section 3, and was properly instituted in the court of first instance
of the province in which Cacnio, as plaintiff in said case, resided,
pursuant to section 1 of said rule 5.
We are unable to share such view. Although the immediate remedy
sought by Cacnio is to compel petitioner to accept the tender of payment
allegedly made by the former, it is obvious that this relief is merely the
first step to establish Cacnio's title to the real property adverted to above.
Moreover, Cacnio's complaint is a means resorted to by him in order that
he could retain the possession of said property. In short, venue in the
main case was improperly laid and the Court of First Instance of Rizal,
Quezon City Branch, should have granted the motion to dismiss.
1wph1.t

WHEREFORE, the decision appealed from is hereby reversed and

another one shall be entered directing respondent Judge to desist from
taking further cognizance of Civil Case No. Q-5197 of said court, with
costs against respondent Flaviano Cacnio. It is so ordered.

99
G.R. No. L-53485
February 6, 1991
PATRIA ESUERTE and HERMINIA JAYME, petitioners, vs.HON.
COURT OF APPEALS (Eleventh Division), HON. RAFAEL T.
MENDOZA, Judge, Branch VI, Court of First Instance of Cebu and
MA. BEVERLY TAN, respondents.
This petition for certiorari with a prayer for preliminary injunction seeks to
set aside the decision of the Court of Appeals in CA G.R. No. SP-08999R, involving the same parties.
An action for damages was filed by private respondent Beverly Tan
against herein petitioners Patria Esuerte and Herminia Jayme with the
Court of First Instance (now Regional Trial Court) of Cebu and docketed
as Civil Case No. R-17584. The claim for damages arose from an
incident involving the parties and summarized by the Court of Appeals, as
follows:
. . . that on September 22, 23 and 27, 1978, private respondent
Ma. Beverly Tan, a Junior Resident Physician of Corazon LocsinMontelibano Memorial Hospital, Bacolod City, without any
justifiable reason shouted at, humiliated and insulted the
petitioner, Patria Esuerte, Head Nurse, Medicare Department of
the said hospital and as a result of the said incident, said
petitioner complained to the Chief of the Hospital, Dr. Teodoro P.
Motus, in writing. The other petitioner, Herminia Jayme, who was
one of those who were present at the time of the incident also
sent a letter to the Chief of the Hospital, Dr. Teodoro Motus,
informing the latter of what she had witnessed. As a result
thereof, private respondent was advised to explain in writing by
the Chief of the Hospital, but private respondent instead of
explaining only her side of the incident also complained against
the petitioners. The Discipline and Grievance Committee,
Corazon Locsin-Montelibano Memorial Hospital, conducted a
fact-finding investigation and later, the Chief of the Hospital, Dr.
Teodoro P. Motus, issued a resolution dated November 8, 1978,
transmitting the records of the case to the Regional Health Office,
No. 6, Jaro, Iloilo City for appropriate action; . . . . (pp. 9192, Rollo)

100
Esuerte and Jayme filed a motion to dismiss the complaint on the ground
of improper venue and for being premature for failure of Tan to exhaust
administrative remedies.
On January 2, 1979, the trial court denied the motion to dismiss. The
motion for reconsideration of the denial was likewise denied by the court
on February 16, 1979.
Esuerte and Jayme filed a petition for certiorari and prohibition with a
prayer for preliminary injunction with the Court of Appeals. On September
18, 1979, the petition was dismissed without pronouncement as to costs.
The motion for reconsideration of the decision was likewise denied for
lack of merit on February 18, 1980.
The following reasons were advanced by petitioners for the allowance of
this petition:
1) The Court of Appeals committed gross error and grave abuse
of discretion when it dismissed the petition despite petitioners'
overwhelming evidence showing that the venue of private
respondent's action (Civil Case No. R-17584) was improperly
laid.
2) The Court of Appeals committed gross error and grave abuse
of discretion when it dismissed the petition despite petitioners'
overwhelming evidence showing that the filing of Civil Case No.
R-17584 is premature due to non-exhaustion of administrative
remedies.
It is the contention of petitioners that the proper venue of the action filed
by Tan should be Bacolod City and not Cebu City. At the time of the filing
of her action in court, Tan was actually residing and may be found in
Bacolod City. In fact, in her "Statement of Assets and Liabilities,"
submitted by Tan to her employer, the Corazon Locsin Montelibano
Memorial Hospital, she declared that she is a resident of FRAYU
INTERIOR, 6th Street, Bacolod City.
Section 2(b), Rule 4 of the Rules of Court provides:
Sec. 2. Venue in Courts of First Instance.

xxx

xxx

xxx

(b) Personal Actions. All other actions may be commenced and

tried where the defendants 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.
The choice of venue for personal actions cognizable by the Regional Trial
Court is given to the plaintiff but not to the plaintiff's caprice because the
matter is regulated by the Rules of Court (see Clavecilla Radio System v.
Antillon, 19 SCRA 379). The rule on venue, like other procedural rules,
are designed to insure a just and orderly administration of justice or the
impartial and evenhanded determination of every action and proceeding
(Sy v. Tyson Enterprises Inc., 19 SCRA 367). The option of the plaintiff in
personal actions cognizable by the Regional Trial Court is either the
place where the defendant resides or may be found or the place where
the plaintiff resides. If plaintiff opts for the latter, he is limited to that place.
"Resides" in the rules on venue on personal actions means the place of
abode, whether permanent or temporary, of the plaintiff or defendants as
distinguished from "domicile" which denotes a fixed permanent residence
(Dangwa Transportation Co., Inc. v. Sarmiento, G.R. No. L-22795,
January 31, 1977, 75 SCRA 124). And, in Hernandez v. Rural Bank of
Lucena, Inc., G.R. No. L-29791, January 10, 1978, 81 SCRA 75), venue
of personal actions should be at the place of abode or place where
plaintiffs actually reside, not in domicile or legal residence.
In Koh v. CA, L-40428, December 17, 1975, 70 SCRA 298; 305, We
ruled:
Applying the foregoing observation to the present case, We are
fully convinced that private respondent Coloma's protestations of
domicile in San Nicolas, Ilocos Norte, based on his manifested
intention to return there after the retirement of his wife from
government service to justify his bringing of an action for
damages against petitioner in the C.F.I. of Ilocos Norte, is entirely
of no moment since what is of paramount importance is where he
actually resided or where he may be found at the time he brought
the action, to comply substantially with the requirements of Sec.
2(b) of Rule 4, Rules of Court, on venue of personal actions. . ..

101
As perspicaciously observed by Justice Moreland, the purpose of
procedure is not to restrict the court's jurisdiction over the subject matter
but to give it effective facility "in righteous action," "to facilitate and
promote the administration of justice" or to insure "just judgments" by
means of a fair hearing. If the objective is not achieved, then "the
administration of justice becomes incomplete and unsatisfactory and lays
itself open to criticism." (Manila Railroad Co. v. Attorney General, 20 Phil.
523, 530).
There is no question that private respondent as plaintiff in the Civil Case
is a legal resident of Cebu City. Her parents live there. However, it
cannot also be denied that at the time of her filing of the complaint
against petitioners, she was a temporary resident of Bacolod City. She
was then employed with the Corazon Locsin Montelibano Memorial
Hospital, Bacolod City, as resident physician. Moreover, the acts
complained of were committed in Bacolod City. The private respondents
were all residents of Bacolod City at the time of the bringing of the action.
Though Tan's employment was only temporary there was no showing
when this employment will end. Justice would be better served if the
complaint were heard and tried in Bacolod City where all the parties
resided.
1wphi1

The second ground raised by petitioners is devoid of merit. The alleged

need by private respondent Tan to exhaust administrative remedies
before filing the complaint for damages does not apply to the instant
case. Private respondent as plaintiff in the civil Case for damages has no
administrative remedy available to her. It is true that the same incident
complained of in the administrative case filed by petitioners against Tan is
the subject of the action for damages filed by Tan against the petitioners
in the trial court. However, the cause of action in the administrative case
is different from that of the civil case for damages. While the complainant
in the administrative case may be a private person, it is the government
who is the aggrieved party and no award for damages may be granted in
favor of private persons. In the civil action for damages, the trial court's
concern is whether or not damages, personal to the plaintiff, were caused
by the acts of the defendants. The civil action for damages can proceed
notwithstanding the pendency of the administrative action.
WHEREFORE, the position is GRANTED. The questioned decision of the
Court of Appeals is SET ASIDE. Civil Case No. R-17584 is DISMISSED
for improper venue. SO ORDERED.

G.R. No. L-28742 April 30, 1982

VIRGILIO CAPATI, plaintiff-appellant, vs. DR. JESUS P.
OCAMPO, defendant-appellee.
We set aside the order of the Court of First Instance of Pampanga in Civil
Case No. 3188 which dismissed the plaintiff's complaint on ground of
improper venue.
Plaintiff Virgilio Capati a resident of Bacolor, Pampanga, was the
contractor of the Feati Bank for the construction of its building in Iriga,
Camarines Sur. On May 23, 1967, plaintiff entered into a sub-contract
with the defendant Dr. Jesus Ocampo, a resident of Naga City, whereby
the latter, in consideration of the amount of P2,200.00, undertook to
construct the vault walls, exterior walls and columns of the said Feati
building in accordance with the specifications indicated therein.
Defendant further bound himself to complete said construction on or
before June 5, 1967 and, to emphasize this time frame for the completion
of the construction job, defendant affixed his signature below the
following stipulation written in bold letters in the sub-contract: "TIME IS
ESSENTIAL, TO BE FINISHED 5 JUNE' 67."
Claiming that defendant finished the construction in question only on
June 20, 1967, plaintiff filed in the Court of First Instance of Pampanga
an action for recovery of consequential damages in the sum of
P85,000.00 with interest, plus attorney's fees and costs. The complaint
alleged inter alia that "due to the long unjustified delay committed by
defendant, in open violation of his express written agreement with
plaintiff, the latter has suffered great irreparable loss and damage ... "
Defendant filed a motion to dismiss the complaint on the ground that
venue of action was improperly laid. The motion was premised on the
stipulation printed at the back of the contract which reads:
14. That all actions arising out, or relating to this contract
may be instituted in the Court of First Instance of the City
of Naga.
Plaintiff filed an opposition to the motion, claiming that their agreement to
hold the venue in the Court of First Instance of Naga City was merely
optional to both contracting parties. In support thereof, plaintiff cited the

102
use of the word "may " in relation with the institution of any action arising
out of the contract.
The lower court, in resolving the motion to dismiss, ruled that "there was
no sense in providing the aforequoted stipulation, pursuant to Sec. 3 of
Rule 4 of the Revised Rules of Court, if after all, the parties are given the
discretion or option of filing the action in their respective residences," and
thereby ordered the dismissal of the complaint.
Hence, this appeal.
The rule on venue of personal actions cognizable by the courts of first
instance is found in Section 2 (b), Rule 4 of the Rules of Court, which
provides that such "actions may be commenced and tried where the
defendant or any of the defendants resides or may be found, or where
the plaintiff or any of the plaintiffs resides, at the election of the plaintiff."
The said section is qualified by the following provisions of Section 3 of
the same rule:
By written agreement of the parties the venue of an action may
be changed or transferred from one province to another.
Defendant stands firm on his contention that because of the
aforequoted covenant contained in par. 14 of the contract, he
cannot be sued in any court except the Court of First Instance of
Naga City. We are thus called upon to rule on the issue as to
whether the stipulation of the parties on venue is restrictive in the
sense that any litigation arising from the contract can be filed only
in the court of Naga City, or merely permissive in that the parties
may submit their disputes not only in Naga City but also in the
court where the defendant or the plaintiff resides, at the election
of the plaintiff, as provided for by Section 2 (b) Rule 4 of the
Rules of Court.
It is well settled that the word "may" is merely permissive and
operates to confer discretion upon a party. Under ordinary
circumstances, the term "may be" connotes possibility; it does not
connote certainty. "May" is an auxillary verb indicating liberty,
opportunity, permission or possibility. 1

In Nicolas vs. Reparations Commission 2, a case involving the

interpretation of a stipulation as to venue along lines similar to the present
one, it was held that the agreement of the parties which provided that "all
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," is not mandatory.
We hold that the stipulation as to venue in the contract in question is
simply permissive. By the said stipulation, 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.
Since the complaint has been filed in the Court of First Instance of
Pampanga, where the plaintiff resides, the venue of action is properly laid
in accordance with Section 2 (b), Rule 4 of the Rules of Court.
WHEREFORE, the order appealed from is hereby set aside. Let the
records be returned to the court of origin for further proceedings. Costs
against defendant-appellee. SO ORDERED.

103
G.R. No. 119657 February 7, 1997
UNIMASTERS CONGLOMERATION, INC., petitioner, vs. COURT OF
APPEALS and KUBOTA AGRI MACHINERY PHILIPPINES,
INC., respondents.
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.

104
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 hearing to January 11, 1994 because its counsel was not
available on January 10 due to a prior commitment before another court.

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

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 crossexamine 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

The Appellate Court agreed with KUBOTA that in line with the Rules of
Court 5 and this Court's relevant rulings 6 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."

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

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

105
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."

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.

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
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.

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.

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."

1. Polytrade Corporation v. Blanco, decided in 1969. 14 In this case, the

venue stipulation was as follows:

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

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."

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

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:

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

The Polytrade doctrine was reiterated expressly or implicitly in

subsequent cases, numbering at least ten (10).

106
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.
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

107
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.

I/We hereby expressly submit to the jurisdiction of the courts of

Valenzuela any legal action which may arise out of this
promissory note.

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.

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."

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:

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:

. . . (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.

I/we expressly submit to the jurisdiction of the courts of Manila,

any legal action which may arise out of this promissory note.

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 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.
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:

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

108
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.

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 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)."

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)

3. Hoechst Philippines, Inc. v. Torres, 29 decided much earlier, in 1978,

involved a strikingly similar stipulation, which read:

. . 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

. . (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.

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.

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

109
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 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

110
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. 93-12241 in due course. SO ORDERED.

G.R. No. 74854

April 2, 1991
JESUS DACOYCOY, petitioner, vs. HON. INTERMEDIATE APPELLATE
COURT, HON. ANTONIO V. BENEDICTO, Executive Judge, Regional
Trial Court, Branch LXXI, Antipolo, Rizal, and RUFINO DE
GUZMAN, respondents.
May the trial court motu proprio dismiss a complaint on the ground of
improper venue? This is the issue confronting the Court in the case at
bar.
On March 22, 1983, petitioner Jesus Dacoycoy, a resident of Balanti,
Cainta, Rizal, filed before the Regional Trial Court, Branch LXXI, Antipolo,
Rizal, a complaint against private respondent Rufino de Guzman praying
for the annulment of two (2) deeds of sale involving a parcel of riceland
situated in Barrio Estanza, Lingayen, Pangasinan, the surrender of the
produce thereof and damages for private respondent's refusal to have
said deeds of sale set aside upon petitioner's demand.
On May 25, 1983, before summons could be served on private
respondent as defendant therein, the RTC Executive Judge issued an
order requiring counsel for petitioner to confer with respondent trial judge
on the matter of venue. After said conference, the trial court dismissed
the complaint on the ground of improper venue. It found, based on the
allegations of the complaint, that petitioner's action is a real action as it
sought not only the annulment of the aforestated deeds of sale but also
the recovery of ownership of the subject parcel of riceland located in
Estanza, Lingayen, Pangasinan, which is outside the territorial jurisdiction
of the trial court.
Petitioner appealed to the Intermediate Appellate Court, now Court of
Appeals, which in its decision of April 11, 1986, affirmed the order of
dismissal of his complaint.
1

In this petition for review, petitioner faults the appellate court in affirming
what he calls an equally erroneous finding of the trial court that the venue
was improperly laid when the defendant, now private respondent, has not
even answered the complaint nor waived the venue.
2

111
Petitioner claims that the right to question the venue of an action belongs
solely to the defendant and that the court or its magistrate does not
possess the authority to confront the plaintiff and tell him that the venue
was improperly laid, as venue is waivable. In other words, petitioner
asserts, without the defendant objecting that the venue was improperly
laid, the trial court is powerless to dismiss the case motu proprio.
Private respondent, on the other hand, maintains that the dismissal of
petitioner's complaint is proper because the same can "readily be
assessed as (a) real action." He asserts that "every court of justice before
whom a civil case is lodged is not even obliged to wait for the defendant
to raise that venue was improperly laid. The court can take judicial notice
and motu proprio dismiss a suit clearly denominated as real action and
improperly filed before it. . . . the location of the subject parcel of land is
controlling pursuant to Sec. 2, par. (a), Rule 4 of the New Rules of Court .
..

complaint said trial court dismissed for lack of jurisdiction over the leased
land, we emphasized:
(1) A Court of First Instance has jurisdiction over suits involving
title to, or possession of, real estate wherever situated in the
Philippines, subject to the rules on venue of actions (Manila
Railroad Company vs. Attorney General, etc., et al., 20 Phil. 523;
Central Azucarera de Tarlac vs. De Leon, et al., 56 Phil. 169;
Navarro vs. Aguila, et al., 66 Phil. 604; Lim Cay, et al. vs. Del
Rosario, etc., et al., 55 Phil. 692);
(2) Rule 4, Section 2, of the Rules of Court requiring that an
action involving real property shall be brought in the Court of First
Instance of the province where the land lies is a rule on venue of
actions, which may be waived expressly or by implication.

We grant the petition.

The motu proprio dismissal of petitioner's complaint by respondent trial
court on the ground of improper venue is plain error, obviously
attributable to its inability to distinguish between jurisdiction and venue.
Questions or issues relating to venue of actions are basically governed
by Rule 4 of the Revised Rules of Court. It is said that the laying of venue
is procedural rather than substantive. It relates to the jurisdiction of the
court over the person rather than the subject matter. Provisions relating
to venue establish a relation between the plaintiff and the defendant and
not between the court and the subject matter. Venue relates to trial not to
jurisdiction, touches more of the convenience of the parties rather than
the substance of the case.
4

Jurisdiction treats of the power of the court to decide a case on the

merits; while venue deals on the locality, the place where the suit may be
had.
5

In Luna vs. Carandang, involving an action instituted before the then

Court of First Instance of Batangas for rescission of a lease contract over
a parcel of agricultural land located in Calapan, Oriental Mindoro, which
6

In the instant case, even granting for a moment that the action of
petitioner is a real action, respondent trial court would still have
jurisdiction over the case, it being a regional trial court vested with the
exclusive original jurisdiction over "all civil actions which involve the title
to, or possession of, real property, or any interest therein . . ." in
accordance with Section 19 (2) of Batas Pambansa Blg. 129. With
respect to the parties, there is no dispute that it acquired jurisdiction over
the plaintiff Jesus Dacoycoy, now petitioner, the moment he filed his
complaint for annulment and damages. Respondent trial court could have
acquired jurisdiction over the defendant, now private respondent, either
by his voluntary appearance in court and his submission to its authority,
or by the coercive power of legal process exercised over his person.
7

Although petitioner contends that on April 28, 1963, he requested the City
Sheriff of Olongapo City or his deputy to serve the summons on
defendant Rufino de Guzman at his residence at 117 Irving St., Tapinac,
Olongapo City, it does not appear that said service had been properly
effected or that private respondent had appeared voluntarily in court or
filed his answer to the complaint. At this stage, respondent trial court
should have required petitioner to exhaust the various alternative modes
of service of summons under Rule 14 of the Rules of Court, i.e., personal
service under Section 7, substituted service under Section 8, or service
8

10

112
by publication under Section 16 when the address of the defendant is
unknown and cannot be ascertained by diligent inquiry.
Dismissing the complaint on the ground of improper venue is certainly not
the appropriate course of action at this stage of the proceeding,
particularly as venue, in inferior courts as well as in the courts of first
instance (now RTC), may be waived expressly or impliedly. Where
defendant fails to challenge timely the venue in a motion to dismiss as
provided by Section 4 of Rule 4 of the Rules of Court, and allows the trial
to be held and a decision to be rendered, he cannot on appeal or in a
special action be permitted to challenge belatedly the wrong venue,
which is deemed waived.
11

Thus, unless and until the defendant objects to the venue in a motion to
dismiss, the venue cannot be truly said to have been improperly laid, as
for all practical intents and purposes, the venue, though technically
wrong, may be acceptable to the parties for whose convenience the rules
on venue had been devised. The trial court cannot pre-empt the
defendant's prerogative to object to the improper laying of the venue
by motu proprio dismissing the case.
Indeed, it was grossly erroneous for the trial court to have taken a
procedural short-cut by dismissing motu proprio the complaint on the
ground of improper venue without first allowing the procedure outlined in
the Rules of Court to take its proper course. Although we are for the
speedy and expeditious resolution of cases, justice and fairness take
primary importance. The ends of justice require that respondent trial court
faithfully adhere to the rules of procedure to afford not only the defendant,
but the plaintiff as well, the right to be heard on his cause.
WHEREFORE, in view of the foregoing, the decision of the Intermediate
Appellate Court, now Court of Appeals, dated April 11, 1986, is hereby
nullified and set aside. The complaint filed by petitioner before the
Regional Trial Court of Antipolo, Branch LXXI is revived and reinstated.
Respondent court is enjoined to proceed therein in accordance with law.
SO ORDERED.

G.R. No. 111685

August 20, 2001
DAVAO LIGHT & POWER CO., INC., petitioner, vs. THE HON. COURT
OF APPEALS, HON. RODOLFO M. BELLAFLOR, Presiding Judge of
Branch 11, RTC-Cebu and FRANCISCO TESORERO, respondents.
Before us is a petition for review on certiorari assailing the Decision dated
August 31, 1993 rendered by the Sixteenth Division 1 of the Court of
Appeals in CA-G.R. SP No. 29996, the dispositive portion of which
states:
WHEREFORE, the petition for review filed by Davao Light &
Power Co., Inc. is hereby DENIED DUE COURSE and the same
is DISMISSED. IT IS SO ORDERED.
The antecedent facts are:
On April 10, 1992, petitioner Davao Light & Power Co., Inc. filed a
complaint for damages2 against private respondent Francisco Tesorero
before the Regional Trial Court of Cebu City, Branch 11. Docketed as
CEB-11578, the complaint prayed for damages in the amount of
P11,000,000.00.
In lieu of an answer, private respondent filed a motion to
dismiss3 claiming that: (a) the complaint did not state a cause of action;
(b) the plaintiff's claim has been extinguished or otherwise rendered moot
and academic; (c) there was non-joinder of indispensable parties; and (d)
venue was improperly laid. Of these four (4) grounds, the last mentioned
is most material in this case at bar.

113
On August 3, 1992, the trial court issued a Resolution 4 dismissing
petitioner's complaint on the ground of improper venue. The trial court
stated that:

The motion on the ground of improper venue is granted and the

complaint DISMISSED on that ground.
SO ORDERED.

The plaintiff being a private corporation undoubtedly Banilad,

Cebu City is the plaintiff's principal place of business as alleged in
the complaint and which for purposes of venue is considered as
its residence. x x x.
However, in defendant's motion to dismiss, it is alleged and
submitted that the principal office of plaintiff is at "163-165 P.
Reyes Street, Davao City as borne out by the Contract of Lease
(Annex 2 of the motion) and another Contract of Lease of
Generating Equipment (Annex 3 of the motion) executed by the
plaintiff with the NAPOCOR.
The representation made by the plaintiff in the 2 aforementioned
Lease Contracts stating that its principal office is at "163-165 P.
Reyes Street, Davao City" bars the plaintiff from denying the
same.
The choice of venue should not be left to plaintiff's whim or
caprises [sic]. He may be impelled by some ulterior motivation in
choosing to file a case in a court even if not allowed by the rules
of venue.
Another factor considered by the Courts in deciding controversies
regarding venue are considerations of judicial economy and
administration, as well as the convenience of the parties for which
the rules of procedure and venue were formulated x x x.
Considering the foregoing, the Court is of the opinion that the
principal office of plaintiff is at Davao City which for purposes of
venue is the residence of plaintiff.

Petitioner's motion for reconsideration 5 was denied in an Order 6 dated

October 1, 1992.
From the aforesaid resolution and order, petitioner originally filed before
this Court on November 20, 1992 a petition for review on certiorari
docketed as G.R. No. 107381. 7 We declined to take immediate
cognizance of the case, and in a Resolution dated January 11,
1993,8 referred the same to the Court of Appeals for resolution. The
petition was docketed in the appellate court as CA-G.R. SP No. 29996.
On August 31, 1993, the Court of Appeals rendered the assailed
judgment9 denying due course and dismissing the petition. Counsel for
petitioner received a copy of the decision on September 6,
1993.10 Without filing a motion for reconsideration, petitioner filed the
instant petition, assailing the judgment of the Court of Appeals on the
following grounds:
5.01. Respondent Court of Appeals denied petitioner procedural
due process by failing to resolve the third of the above-stated
issues.
5.02. Petitioner's right to file its action for damages against
private respondent in Cebu City where its principal office is
located, and for which it paid P55,398.50 in docket fees, may not
be negated by a supposed estoppel absent the essential
elements of the false statement having been made to private
respondent and his reliance on good faith on the truth thereof,
and private respondent's action or inaction based thereon of such
character as to change his position or status to his injury,
detriment or prejudice.

Hence, the case should be filed in Davao City.

The principal issue in the case at bar involves a question of venue. It is to
be distinguished from jurisdiction, as follows:

114
Venue and jurisdiction are entirely distinct matters. Jurisdiction
may not be conferred by consent or waiver upon a court which
otherwise would have no jurisdiction over the subject-matter of an
action; but the venue of an action as fixed by statute may be
changed by the consent of the parties and an objection that the
plaintiff brought his suit in the wrong county may be waived by the
failure of the defendant to make a timely objection. In either case,
the court may render a valid judgment. Rules as to jurisdiction
can never be left to the consent or agreement of the parties,
whether or not a prohibition exists against their alteration.11
It is private respondent's contention that the proper venue is Davao City,
and not Cebu City where petitioner filed Civil Case No. CEB-11578.
Private respondent argues that petitioner is estopped from claiming that
its residence is in Cebu City, in view of contradictory statements made by
petitioner prior to the filing of the action for damages. First, private
respondent adverts to several contracts 12 entered into by petitioner with
the National Power Corporation (NAPOCOR) where in the description of
personal circumstances, the former states that its principal office is at
"163-165 P. Reyes St., Davao City." According to private respondent the
petitioner's address in Davao City, as given in the contracts, is an
admission which should bind petitioner.
In addition, private respondent points out that petitioner made several
judicial admissions as to its principal office in Davao City consisting
principally of allegations in pleadings filed by petitioner in a number of
civil cases pending before the Regional Trial Court of Davao in which it
was either a plaintiff or a defendant.13
Practically the same issue was addressed in Young Auto Supply Co. v.
Court of Appeals.14 In the aforesaid case, the defendant therein sought
the dismissal of an action filed by the plaintiff, a corporation, before the
Regional Trial Court of Cebu City, on the ground of improper venue. The
trial court denied the motion to dismiss; on certiorari before the Court of
Appeals, the denial was reversed and the case was dismissed. According
to the appellate tribunal, venue was improperly laid since the address of
the plaintiff was supposedly in Pasay City, as evidenced by a contract of
sale, letters and several commercial documents sent by the plaintiff to the
defendant, even though the plaintiff's articles of incorporation stated that

its principal office was in Cebu City. On appeal, we reversed the Court of
Appeals. We reasoned out thus:
In the Regional Trial Courts, all personal actions are commenced
and tried in the province or city 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 x x x.
There are two plaintiffs in the case at bench: a natural person and
a domestic corporation. Both plaintiffs aver in their complaint that
they are residents of Cebu City, thus:
xxx

xxx

xxx

The Article of Incorporation of YASCO (SEC Reg. No. 22083)

states:
"THIRD. That the place where the principal office of the
corporation is to be established or located is at Cebu City,
Philippines (as amended on December 20, 1980 and further
amended on December 20, 1984)" x x x.
A corporation has no residence in the same sense in which this
term is applied to a natural person. But for practical purposes, a
corporation is in a metaphysical sense a resident of the place
where its principal office is located as stated in the articles of
incorporation (Cohen v. Benguet Commercial Co., Ltd., 34 Phil.
526 [1916] Clavecilla Radio System v. Antillo, 19 SCRA 379
[1967]). The Corporation Code precisely requires each
corporation to specify in its articles of incorporation the "place
where the principal office of the corporation is to be located which
must be within the Philippines" (Sec. 14[3]). The purpose of this
requirement is to fix the residence of a corporation in a definite
place, instead of allowing it to be ambulatory.
In Clavecilla Radio System v. Antillon, 19 SCRA 379 ([1967]), this
Court explained why actions cannot be filed against a corporation
in any place where the corporation maintains its branch offices.

115
The Court ruled that to allow an action to be instituted in any
place where the corporation has branch offices, would create
confusion and work untold inconvenience to said entity. By the
same token, a corporation cannot be allowed to file personal
actions in a place other than its principal place of business unless
such a place is also the residence of a co-plaintiff or a defendant.
If it was Roxas who sued YASCO in Pasay City and the latter
questioned the venue on the ground that its principal place of
business was in Cebu City, Roxas could argue that YASCO was
in estoppel because it misled Roxas to believe that Pasay City
was its principal place of business. But this is not the case before
us.

that the allegation or representation made by petitioner in either the

complaints or answers it filed in several civil cases that its residence is in
Davao City should estop it from filing the damage suit before the Cebu
courts. Besides there is no showing that private respondent is a party in
those civil cases or that he relied on such representation by petitioner.
WHEREFORE, the instant petition is hereby GRANTED. The appealed
decision is hereby REVERSED and SET ASIDE. The Regional Trial Court
of Cebu City, Branch 11 is hereby directed to proceed with Civil Case No.
CEB-11578 with all deliberate dispatch. No pronouncement as to costs.
WE CONCUR: SO ORDERED.

With the finding that the residence of YASCO for purposes of

venue is in Cebu City, where its principal place of business is
located, it becomes unnecessary to decide whether Garcia is also
a resident of Cebu City and whether Roxas was in estoppel from
questioning the choice of Cebu City as the venue. [emphasis
supplied]
The same considerations apply to the instant case. It cannot be disputed
that petitioner's principal office is in Cebu City, per its amended articles of
incorporation15 and by-laws.16 An action for damages being a personal
action,17venue is determined pursuant to Rule 4, section 2 of the Rules of
Court, to wit:
Venue of personal actions. All other actions may be
commenced and tied where the plaintiff or any of the principal
plaintiffs resides, or where the defendant or any of the principal
defendants resides, or in the case of a non-resident defendant
where he may be found, at the election of the plaintiff.18
Private respondent is not a party to any of the contracts presented before
us. He is a complete stranger to the covenants executed between
petitioner and NAPOCOR, despite his protestations that he is privy
thereto, on the rather flimsy ground that he is a member of the public for
whose benefit the electric generating equipment subject of the contracts
were leased or acquired. We are likewise not persuaded by his argument

G.R. No. 125027

August 12, 2002
ANITA MANGILA, petitioner, vs. COURT OF APPEALS and LORETA
GUINA, respondents.
The Case
This is a petition fore review on certiorari under Rule 45 of the Rules of
Court, seeking to set aside the Decision 1 of the Court of Appeals affirming
the Decision2 of the Regional Trial Court, Branch 108, Pasay City. The
trial court upheld the writ of attachment and the declaration of default on
petitioner while ordering her to pay private respondent P109,376.95 plus
18 percent interest per annum, 25 percent attorneys fees and costs of
suit.
The Facts
Petitioner Anita Mangila ("petitioner" for brevity) is an exporter of sea
foods and doing business under the name and style of Seafoods

116
Products. Private respondent Loreta Guina ("private respondent" for
brevity) is the President and General Manager of Air Swift International, a
single registered proprietorship engaged in the freight forwarding
business.
Sometime in January 1988, petitioner contracted the freight forwarding
services of private respondent for shipment of petitioners products, such
as crabs, prawns and assorted fishes, to Guam (USA) where petitioner
maintains an outlet. Petitioner agreed to pay private respondent cash on
delivery. Private respondents invoice stipulates a charge of 18 percent
interest per annum on all overdue accounts. In case of suit, the same
invoice stipulates attorneys fees equivalent to 25 percent of the amount
due plus costs of suit.3
On the first shipment, petitioner requested for seven days within which to
pay private respondent. However, for the next three shipments, March
17, 24 and 31, 1988, petitioner failed to pay private respondent shipping
charges amounting to P109, 376.95.4
Despite several demands, petitioner never paid private respondent. Thus,
on June 10, 1988, private respondent filed Civil Case No. 5875 before
the Regional Trial Court of Pasay City for collection of sum of money.
On August 1, 1988, the sheriff filed his Sheriffs Return showing that
summons was not served on petitioner. A woman found at petitioners
house informed the sheriff that petitioner transferred her residence to Sto.
Nio, Guagua, Pampanga. The sheriff found out further that petitioner
had left the Philippines for Guam.5
Thus, on September 13, 1988, construing petitioners departure from the
Philippines as done with intent to defraud her creditors, private
respondent filed a Motion for Preliminary Attachment. On September 26,
1988, the trial court issued an Order of Preliminary Attachment 6 against
petitioner. The following day, the trial court issued a Writ of Preliminary
Attachment.
The trial court granted the request of its sheriff for assistance from their
counterparts in RTC, Pampanga. Thus, on October 28, 1988, Sheriff
Alfredo San Miguel of RTC Pampanga served on petitioners household
help in San Fernando, Pampanga, the Notice of Levy with the Order,
Affidavit and Bond.7

On November 7, 1988, petitioner filed an Urgent Motion to Discharge

Attachment8 without submitting herself to the jurisdiction of the trial court.
She pointed out that up to then, she had not been served a copy of the
Complaint and the summons. Hence, petitioner claimed the court had not
acquired jurisdiction over her person.9
In the hearing of the Urgent Motion to Discharge Attachment on
November 11, 1988, private respondent sought and was granted a resetting to December 9, 1988. On that date, private respondents counsel
did not appear, so the Urgent Motion to Discharge Attachment was
deemed submitted for resolution.10
The trial court granted the Motion to Discharge Attachment on January
13, 1989 upon filing of petitioners counter-bond. The trial court, however,
did not rule on the question of jurisdiction and on the validity of the writ of
preliminary attachment.
On December 26, 1988, private respondent applied for an alias
summons, which the trial court issued on January 19, 1989. 11 It was only
on January 26, 1989 that summons was finally served on petitioner.12
On February 9, 1989, petitioner filed a Motion to Dismiss the Complaint
on the ground of improper venue. Private respondents invoice for the
freight forwarding service stipulates that "if court litigation becomes
necessary to enforce collection xxx the agreed venue for such action is
Makati, Metro Manila."13 Private respondent filed an Opposition asserting
that although "Makati" appears as the stipulated venue, the same was
merely an inadvertence by the printing press whose general manager
executed an affidavit14 admitting such inadvertence. Moreover, private
respondent claimed that petitioner knew that private respondent was
holding office in Pasay City and not in Makati. 15 The lower court, finding
credence in private respondents assertion, denied the Motion to Dismiss
and gave petitioner five days to file her Answer. Petitioner filed a Motion
for Reconsideration but this too was denied.
Petitioner filed her Answer16 on June 16, 1989, maintaining her contention
that the venue was improperly laid.
On June 26, 1989, the trial court issued an Order setting the pre-trial for
July 18, 1989 at 8:30 a.m. and requiring the parties to submit their pre-

117
trial briefs. Meanwhile, private respondent filed a Motion to Sell Attached
Properties but the trial court denied the motion.
On motion of petitioner, the trial court issued an Order resetting the pretrial from July 18, 1989 to August 24, 1989 at 8:30 a.m..
On August 24, 1989, the day of the pre-trial, the trial court issued an
Order17 terminating the pre-trial and allowing the private respondent to
present evidence ex-parte on September 12, 1989 at 8:30 a.m.. The
Order stated that when the case was called for pre-trial at 8:31 a.m., only
the counsel for private respondent appeared. Upon the trial courts
second call 20 minutes later, petitioners counsel was still nowhere to be
found. Thus, upon motion of private respondent, the pre-trial was
considered terminated.
On September 12, 1989, petitioner filed her Motion for Reconsideration of
the Order terminating the pre-trial. Petitioner explained that her counsel
arrived 5 minutes after the second call, as shown by the transcript of
stenographic notes, and was late because of heavy traffic. Petitioner
claims that the lower court erred in allowing private respondent to present
evidence ex-parte since there was no Order considering the petitioner as
in default. Petitioner contends that the Order of August 24, 1989 did not
state that petitioner was declared as in default but still the court allowed
private respondent to present evidence ex-parte.18

The Ruling of the Court of Appeals

On December 15, 1995, the Court of Appeals rendered a decision
affirming the decision of the trial court. The Court of Appeals upheld the
validity of the issuance of the writ of attachment and sustained the filing
of the action in the RTC of Pasay. The Court of Appeals also affirmed the
declaration of default on petitioner and concluded that the trial court did
not commit any reversible error.
Petitioner filed a Motion for Reconsideration on January 5, 1996 but the
Court of Appeals denied the same in a Resolution dated May 20, 1996.
Hence, this petition.
The Issues
The issues raised by petitioner may be re-stated as follows:
I.
WHETHER RESPONDENT COURT ERRED IN NOT HOLDING
THAT THE WRIT OF ATTACHMENT WAS IMPROPERLY
ISSUED AND SERVED;

On October 6, 1989, the trial court denied the Motion for Reconsideration
and scheduled the presentation of private respondents evidence exparte on October 10, 1989.

II.

On October 10, 1989, petitioner filed an Omnibus Motion stating that the
presentation of evidence ex-parte should be suspended because there
was no declaration of petitioner as in default and petitioners counsel was
not absent, but merely late.

III.

1wphi1.nt

WHETHER THERE WAS A VALID DECLARATION OF DEFAULT;

WHETHER THERE WAS IMPROPER VENUE.

IV.

On October 18, 1989, the trial court denied the Omnibus Motion.19
On November 20, 1989, the petitioner received a copy of the Decision of
November 10, 1989, ordering petitioner to pay respondent P109,376.95
plus 18 percent interest per annum, 25 percent attorneys fees and costs
of suit. Private respondent filed a Motion for Execution Pending Appeal
but the trial court denied the same.

WHETHER RESPONDENT COURT ERRED IN DECLARING

THAT PETITIONER IS OBLIGED TO PAY P109, 376.95, PLUS
ATTORNEYS FEES.20
The Ruling of the Court

118
Improper Issuance and Service of Writ of Attachment
Petitioner ascribes several errors to the issuance and implementation of
the writ of attachment. Among petitioners arguments are: first, there was
no ground for the issuance of the writ since the intent to defraud her
creditors had not been established; second, the value of the properties
levied exceeded the value of private respondents claim. However, the
crux of petitioners arguments rests on the question of the validity of the
writ of attachment. Because of failure to serve summons on her before or
simultaneously with the writs implementation, petitioner claims that the
trial court had not acquired jurisdiction over her person and thus the
service of the writ is void.
As a preliminary note, a distinction should be made between issuance
and implementation of the writ of attachment. It is necessary to
distinguish between the two to determine when jurisdiction over the
person of the defendant should be acquired to validly implement the writ.
This distinction is crucial in resolving whether there is merit in petitioners
argument.
This Court has long settled the issue of when jurisdiction over the person
of the defendant should be acquired in cases where a party resorts to
provisional remedies. A party to a suit may, at any time after filing the
complaint, avail of the provisional remedies under the Rules of Court.
Specifically, Rule 57 on preliminary attachment speaks of the grant of the
remedy "at the commencement of the action or at any time
thereafter."21 This phrase refers to the date of filing of the complaint
which is the moment that marks "the commencement of the action." The
reference plainly is to a time before summons is served on the defendant,
or even before summons issues.
In Davao Light & Power Co., Inc. v. Court of Appeals, 22 this Court
clarified the actual time when jurisdiction should be had:
"It goes without saying that whatever be the acts done by the
Court prior to the acquisition of jurisdiction over the person of
defendant - issuance of summons, order of attachment and writ
of attachment - these do not and cannot bind and affect the
defendant until and unless jurisdiction over his person is
eventually obtained by the court, either by service on him of
summons or other coercive process or his voluntary submission

to the courts authority. Hence, when the sheriff or other proper

officer commences implementation of the writ of attachment, it is
essential that he serve on the defendant not only a copy of the
applicants affidavit and attachment bond, and of the order of
attachment, as explicitly required by Section 5 of Rule 57, but
also the summons addressed to said defendant as well as a
copy of the complaint xxx." (Emphasis supplied.)
Furthermore, we have held that the grant of the provisional remedy of
attachment involves three stages: first, the court issues the order granting
the application; second, the writ of attachment issues pursuant to the
order granting the writ; and third, the writ is implemented. For the initial
two stages, it is not necessary that jurisdiction over the person of
the defendant be first obtained. However, once the implementation
of the writ commences, the court must have acquired jurisdiction over
the defendant for without such jurisdiction, the court has no power and
authority to act in any manner against the defendant. Any order issuing
from the Court will not bind the defendant.23
In the instant case, the Writ of Preliminary Attachment was issued on
September 27, 1988 and implemented on October 28, 1988. However,
the alias summons was served only on January 26, 1989 or almost
three months after the implementation of the writ of attachment.
The trial court had the authority to issue the Writ of Attachment on
September 27 since a motion for its issuance can be filed "at the
commencement of the action." However, on the day the writ was
implemented, the trial court should have, previously or simultaneously
with the implementation of the writ, acquired jurisdiction over the
petitioner. Yet, as was shown in the records of the case, the summons
was actually served on petitioner several months after the writ had been
implemented.
Private respondent, nevertheless, claims that the prior or
contemporaneous service of summons contemplated in Section 5 of Rule
57 provides for exceptions. Among such exceptions are "where the
summons could not be served personally or by substituted service
despite diligent efforts or where the defendant is a resident temporarily
absent therefrom x x x." Private respondent asserts that when she
commenced this action, she tried to serve summons on petitioner but the
latter could not be located at her customary address in Kamuning,

119
Quezon
City
or
at
her
new
address
in
Guagua,
Pampanga.24 Furthermore, respondent claims that petitioner was not
even in Pampanga; rather, she was in Guam purportedly on a business
trip.
Private respondent never showed that she effected substituted service on
petitioner after her personal service failed. Likewise, if it were true that
private respondent could not ascertain the whereabouts of petitioner after
a diligent inquiry, still she had some other recourse under the Rules of
Civil Procedure.
The rules provide for certain remedies in cases where personal service
could not be effected on a party. Section 14, Rule 14 of the Rules of
Court provides that whenever the defendants "whereabouts are unknown
and cannot be ascertained by diligent inquiry, service may, by leave of
court, be effected upon him by publication in a newspaper of general
circulation x x x." Thus, if petitioners whereabouts could not be
ascertained after the sheriff had served the summons at her given
address, then respondent could have immediately asked the court for
service of summons by publication on petitioner.25
Moreover, as private respondent also claims that petitioner was abroad at
the time of the service of summons, this made petitioner a resident who
is temporarily out of the country. This is the exact situation contemplated
in Section 16,26 Rule 14 of the Rules of Civil Procedure, providing for
service of summons by publication.
In conclusion, we hold that the alias summons belatedly served on
petitioner cannot be deemed to have cured the fatal defect in the
enforcement of the writ. The trial court cannot enforce such a coercive
process on petitioner without first obtaining jurisdiction over her person.
The preliminary writ of attachment must be served after or simultaneous
with the service of summons on the defendant whether by personal
service, substituted service or by publication as warranted by the
circumstances of the case.27 The subsequent service of summons does
not confer a retroactive acquisition of jurisdiction over her person
because the law does not allow for retroactivity of a belated service.
Improper Venue

Petitioner assails the filing of this case in the RTC of Pasay and points to
a provision in private respondents invoice which contains the following:
"3. If court litigation becomes necessary to enforce collection, an
additional equivalent (sic) to 25% of the principal amount will be
charged. The agreed venue for such action is Makati, Metro
Manila, Philippines."28
Based on this provision, petitioner contends that the action should have
been instituted in the RTC of Makati and to do otherwise would be a
ground for the dismissal of the case.
We resolve to dismiss the case on the ground of improper venue but not
for the reason stated by petitioner.
The Rules of Court provide that parties to an action may agree in writing
on the venue on which an action should be brought. 29 However, a mere
stipulation on the venue of an action is not enough to preclude parties
from bringing a case in other venues. 30 The parties must be able to show
that such stipulation is exclusive. Thus, absent words that show the
parties intention to restrict the filing of a suit in a particular place, courts
will allow the filing of a case in any venue, as long as jurisdictional
requirements are followed. Venue stipulations in a contract, while
considered valid and enforceable, do not as a rule supersede the general
rule set forth in Rule 4 of the Revised Rules of Court. 31 In the absence of
qualifying or restrictive words, they should be considered merely as an
agreement on additional forum, not as limiting venue to the specified
place.32
In the instant case, the stipulation does not limit the venue exclusively to
Makati. There are no qualifying or restrictive words in the invoice that
would evince the intention of the parties that Makati is the "only or
exclusive" venue where the action could be instituted. We therefore
agree with private respondent that Makati is not the only venue where
this case could be filed.
Nevertheless, we hold that Pasay is not the proper venue for this case.
Under the 1997 Rules of Civil Procedure, the general rule is venue in
personal actions is "where the defendant or any of the defendants
resides or may be found, or where the plaintiff or any of the plaintiffs

120
resides, at the election of the plaintiff."33 The exception to this rule is when
the parties agree on an exclusive venue other than the places mentioned
in the rules. But, as we have discussed, this exception is not applicable in
this case. Hence, following the general rule, the instant case may be
brought in the place of residence of the plaintiff or defendant, at the
election of the plaintiff (private respondent herein).
In the instant case, the residence of private respondent (plaintiff in the
lower court) was not alleged in the complaint. Rather, what was alleged
was the postal address of her sole proprietorship, Air Swift International.
It was only when private respondent testified in court, after petitioner was
declared in default, that she mentioned her residence to be in Better
Living Subdivision, Paraaque City.
In the earlier case of Sy v. Tyson Enterprises, Inc.,34 the reverse
happened. The plaintiff in that case was Tyson Enterprises, Inc., a
corporation owned and managed by Dominador Ti. The complaint,
however, did not allege the office or place of business of the corporation,
which was in Binondo, Manila. What was alleged was the residence of
Dominador Ti, who lived in San Juan, Rizal. The case was filed in the
Court of First Instance of Rizal, Pasig. The Court there held that the
evident purpose of alleging the address of the corporations president and
manager was to justify the filing of the suit in Rizal, Pasig instead of in
Manila. Thus, the Court ruled that there was no question that venue was
improperly laid in that case and held that the place of business of Tyson
Enterpises, Inc. is considered as its residence for purposes of venue.
Furthermore, the Court held that the residence of its president is not the
residence of the corporation because a corporation has a personality
separate and distinct from that of its officers and stockholders.
In the instant case, it was established in the lower court that petitioner
resides in San Fernando, Pampanga35 while private respondent resides in
Paraaque City.36 However, this case was brought in Pasay City, where
the business of private respondent is found. This would have been
permissible had private respondents business been a corporation, just
like the case in Sy v. Tyson Enterprises, Inc. However, as admitted by
private respondent in her Complaint37 in the lower court, her business is a
sole proprietorship, and as such, does not have a separate juridical
personality that could enable it to file a suit in court. 38 In fact, there is no
law authorizing sole proprietorships to file a suit in court. 39

A sole proprietorship does not possess a juridical personality separate

and distinct from the personality of the owner of the enterprise. 40 The law
merely recognizes the existence of a sole proprietorship as a form of
business organization conducted for profit by a single individual and
requires its proprietor or owner to secure licenses and permits, register
its business name, and pay taxes to the national government. 41 The law
does not vest a separate legal personality on the sole proprietorship or
empower it to file or defend an action in court.42
Thus, not being vested with legal personality to file this case, the sole
proprietorship is not the plaintiff in this case but rather Loreta Guina in her
personal capacity. In fact, the complaint in the lower court acknowledges
in its caption that the plaintiff and defendant are Loreta Guina and Anita
Mangila, respectively. The title of the petition before us does not state,
and rightly so, Anita Mangila v. Air Swift International, but rather Anita
Mangila v. Loreta Guina. Logically then, it is the residence of private
respondent Guina, the proprietor with the juridical personality, which
should be considered as one of the proper venues for this case.
All these considered, private respondent should have filed this case
either in San Fernando, Pampanga (petitioners residence) or Paraaque
(private respondents residence). Since private respondent (complainant
below) filed this case in Pasay, we hold that the case should be
dismissed on the ground of improper venue.
Although petitioner filed an Urgent Motion to Discharge Attachment in the
lower court, petitioner expressly stated that she was filing the motion
without submitting to the jurisdiction of the court. At that time, petitioner
had not been served the summons and a copy of the
complaint.43 Thereafter, petitioner timely filed a Motion to Dismiss 44 on the
ground of improper venue. Rule 16, Section 1 of the Rules of Court
provides that a motion to dismiss may be filed "[W]ithin the time for but
before filing the answer to the complaint or pleading asserting a claim."
Petitioner even raised the issue of improper venue in his Answer 45 as a
special and affirmative defense. Petitioner also continued to raise the
issue of improper venue in her Petition for Review 46 before this Court. We
thus hold that the dismissal of this case on the ground of improper venue
is warranted.
The rules on venue, like other procedural rules, are designed to insure a
just and orderly administration of justice or the impartial and evenhanded

121
determination of every action and proceeding. Obviously, this objective
will not be attained if the plaintiff is given unrestricted freedom to choose
where to file the complaint or petition.47
We find no reason to rule on the other issues raised by petitioner.

1wphi1.nt

WHEREFORE, the petition is GRANTED on the grounds of improper

venue and invalidity of the service of the writ of attachment. The decision
of the Court of Appeals and the order of respondent judge denying the
motion to dismiss are REVERSED and SET ASIDE. Civil Case No. 5875
is hereby dismissed without prejudice to refiling it in the proper venue.
The attached properties of petitioner are ordered returned to her
immediately. SO ORDERED.

G.R. No. 152808 September 30, 2005

ANTONIO T. CHUA, Petitioners, vs. TOTAL OFFICE PRODUCTS AND
SERVICES (TOPROS), INC., Respondent.
For review on certiorari is the decision1 dated November 28, 2001 of the
Court of Appeals and its resolution 2 of April 1, 2002 in CA-G.R. SP No.
62592. The assailed decision and resolution dismissed the special civil
action for certiorari against the orders of August 9, 20003 and October 6,
20004 issued by Judge Lorifel Lacap Pahimna in Civil Case No. 67736.
The pertinent facts, based on the records, are as follows:
On December 28, 1999, respondent Total Office Products and Services,
Inc., (TOPROS) lodged a complaint for annulment of contracts of loan
and real estate mortgage against herein petitioner Antonio T. Chua before
the Regional Trial Court of Pasig City. The case was docketed as Civil
Case No. 67736 and was raffled to the sala of Judge Lorifel Lacap
Pahimna.

122
The said suit sought to annul a loan contract allegedly extended by
petitioner to respondent TOPROS in the amount of ten million four
hundred thousand pesos (P10,400,000) and the accessory real estate
mortgage contract covering two parcels of land situated in Quezon City
as collateral.

applied Hernandez v. Rural Bank of Lucena, Inc.8 wherein we ruled that

an action for the cancellation of a real estate mortgage is a personal
action if the mortgagee has not foreclosed the mortgage and the
mortgagor is in possession of the premises, as neither the mortgagors
title to nor possession of the property is disputed.

It appeared on the face of the subject contracts that TOPROS was

represented by its president John Charles Chang, Jr. However, TOPROS
alleged that the purported loan and real estate mortgage contracts were
fictitious, since it never authorized anybody, not even its president, to
enter into said transaction.

Dissatisfied, petitioner filed a motion for reconsideration, which the Court

of Appeals denied for lack of merit in its resolution of April 1, 2002.

On February 28, 2000, petitioner filed a motion to dismiss on the ground

of improper venue. He contended that the action filed by TOPROS affects
title to or possession of the parcels of land subject of the real estate
mortgage. He argued that it should thus have been filed in the Regional
Trial Court of Quezon City where the encumbered real properties are
located, instead of Pasig City where the parties reside.

WHETHER AN ACTION TO ANNUL A LOAN AND MORTGAGE

CONTRACT DULY ALLEGED AS FICTITIOUS FOR BEING WITH
ABSOLUTELY NO CONSIDERATION IS A PERSONAL ACTION OR
REAL ACTION?

On August 9, 2000, Judge Pahimna issued an order denying the motion

to dismiss. She reasoned that the action to annul the loan and mortgage
contracts is a personal action and thus, the venue was properly laid in the
RTC of Pasig City where the parties reside.
Petitioner moved for a reconsideration of the said order, which Judge
Pahimna denied in its order of October 6, 2000. Hence, petitioner filed
with the Court of Appeals a special civil action for certiorari alleging:
THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF
DISCRETION IN DISREGARDING THE RULING OF THE SUPREME
COURT IN PASCUAL VS. PASCUAL REGARDING THE RULE ON
PROPER VENUE, AND CONSEQUENTLY ADJUDGING TO BE A
PERSONAL ACTION A CIVIL COMPLAINT FOR THE ANNULMENT OF
AN ALLEGEDLY FICTITIOUS CONTRACT.5
The Court of Appeals dismissed said petition in its decision dated
November 28, 2001. It held that the authorities relied upon by petitioner,
namely Pascual v. Pascual6 and Banco Espaol-Filipino v. Palanca,7 are
inapplicable in the instant case. The appellate court instead

Undeterred, petitioner now comes to us on a petition for review raising

the following issues:

WHETHER IN AN ACTION TO ANNUL A LOAN AND MORTGAGE

CONTRACT DULY ALLEGED AS FICTITIOUS FOR BEING WITH
ABSOLUTELY NO CONSIDERATION, THE PERSON ALLEGED TO
HAVE [LACKED] AUTHORITY TO ENTER INTO SAID CONTRACTS IS
AN INDISPENSABLE PARTY?9
Petitioner contends that Hernandez should not be applied here because
in the said case: (1) venue was improperly laid at the outset; (2) the
complaint recognized the validity of the principal contract involved; and
(3) the plaintiff sought to compel acceptance by the defendant of
plaintiffs payment of the latters mortgage debt. He insists that
the Pascual case should be applied instead. He invokes our
pronouncement in Pascual, to wit:
It appearing, however, that the sale is alleged to be fictitious, with
absolutely no consideration, it should be regarded as a non-existent, not
merely null, contract. And there being no contract between the
deceased and the defendants, there is in truth nothing to annul by action.
The action brought cannot thus be for annulment of contract, but is one
for recovery of a fishpond, a real action that should be, as it has been,
brought in Pampanga, where the property is located. 10

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Petitioner likewise cites the Banco Espaol-Filipino case, thus:
Where the defendant in a mortgage foreclosure lives out of the Islands
and refuses to appear or otherwise submit himself to the authority of the
court, the jurisdiction of the latter is limited to the mortgaged property,
with respect to which the jurisdiction of the court is based upon the fact
that the property is located within the district and that the court, under the
provisions of law applicable in such cases, is vested with the power to
subject the property to the obligation created by the mortgage. In such
case personal jurisdiction over the nonresident defendant is nonessential
and in fact cannot be acquired.11
Petitioner also alleges that John Charles Chang, Jr., the president of
TOPROS, who allegedly entered into the questioned loan and real estate
mortgage contracts, is an indispensable party who has not been properly
impleaded.
TOPROS, however, maintains that the appellate court correctly sustained
the lower courts finding that the instant complaint for annulment of loan
and real estate mortgage contracts is a personal action. TOPROS points
out that a complaint for the declaration of nullity of a loan contract for lack
of consent and consideration remains a personal action even if the said
action will necessarily affect the accessory real estate mortgage.
TOPROS argues that Pascual is inapplicable because the subject
contract therein was a contract of sale of a parcel of land where title and
possession were already transferred to the defendant. TOPROS further
contends that Banco Espaol-Filipino is also inapplicable since the
personal action filed therein was one which affected the personal status
of a nonresident defendant.

(a), Rule 4 of the then Rules of Court, a real action is an action affecting
title to real property or for the recovery of possession, or for partition or
condemnation of, or foreclosure of mortgage on, real property.13
In the Pascual case, relied upon by petitioner, the contract of sale of the
fishpond was assailed as fictitious for lack of consideration. We held that
there being no contract to begin with, there is nothing to annul. Hence,
we deemed the action for annulment of the said fictitious contract therein
as one constituting a real action for the recovery of the fishpond subject
thereof.
We cannot, however, apply the foregoing doctrine to the instant case.
Note that in Pascual, title to and possession of the subject fishpond had
already passed to the vendee. There was, therefore, a need to recover
the said fishpond. But in the instant case, ownership of the parcels of
land subject of the questioned real estate mortgage was never
transferred to petitioner, but remained with TOPROS. Thus, no real action
for the recovery of real property is involved. This being the case,
TOPROS action for annulment of the contracts of loan and real estate
mortgage remains a personal action.
Petitioners reliance on the Banco Espaol-Filipino case is likewise
misplaced. That case involved a foreclosure of real estate mortgage
against a nonresident. We held therein that jurisdiction is determined by
the place where the real property is located and that personal jurisdiction
over the nonresident defendant is nonessential and, in fact, cannot be
acquired.

Considering the facts and the submission of the parties, we find the
petition bereft of merit.

Needless to stress, the instant case bears no resemblance to the Banco

Espaol-Filipino case. In the first place, this is not an action involving
foreclosure of real estate mortgage. In the second place, none of the
parties here is a nonresident. We find no reason to apply here our ruling
in Banco Espaol-Filipino.

Well-settled is the rule that an action to annul a contract of loan and its
accessory real estate mortgage is a personal action. In a personal action,
the plaintiff seeks the recovery of personal property, the enforcement of a
contract or the recovery of damages.12 In contrast, in a real action, the
plaintiff seeks the recovery of real property, or, as indicated in Section 2

The Court of Appeals finds that Hernandez v. Rural Bank of Lucena,

Inc. provides the proper precedent in this case. In Hernandez, appellants
contended that the action of the Hernandez spouses for the cancellation
of the mortgage on their lots was a real action affecting title to real
property, which should have been filed in the place where the mortgaged

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lots were situated. Rule 4, Section 2 (a), of the then Rules of Court, was
applied, to wit:
SEC. 2. Venue in Courts of First Instance. (a) Real actions. Actions
affecting title to, or for recovery of possession, or for partition or
condemnation of, or foreclosure of mortgage on, real property, shall be
commenced and tried in the province where the property or any part
thereof lies.
The Court pointed out in the Hernandez case that with respect to
mortgage, the rule on real actions only mentions an action
for foreclosure of a real estate mortgage. It does not include an action for
the cancellation of a real estate mortgage. Exclusio unios est inclusio
alterius. The latter thus falls under the catch-all provision on personal
actions under paragraph (b) of the above-cited section, to wit:
SEC. 2 (b) Personal actions. All other actions may be commenced and
tried where the defendant or any of the defendants resides or may be
found, or where the plaintiff or any of the plaintiffs resides, at the election
of the plaintiff.
In the same vein, the action for annulment of a real estate mortgage in
the present case must fall under Section 2 of Rule 4, to wit:
SEC. 2. Venue of personal actions. All other actions may be
commenced and tried where the plaintiff or any of the principal plaintiffs
resides, or where the defendant or any of the principal defendants
resides, or in the case of a non-resident defendant where he may be
found, at the election of the plaintiff.14
Thus, Pasig City, where the parties reside, is the proper venue of the
action to nullify the subject loan and real estate mortgage contracts. The
Court of Appeals committed no reversible error in upholding the orders of
the Regional Trial Court denying petitioners motion to dismiss the case
on the ground of improper venue.
Anent the second issue, Section 7, Rule 3 of the Revised Rules of Court
provides:

SEC. 7. Compulsory joinder of indispensable parties. Parties in interest

without whom no final determination can be had of an action shall be
joined either as plaintiffs or defendants. (Emphasis ours)
The presence of indispensable parties is necessary to vest the court with
jurisdiction. The absence of an indispensable party renders all
subsequent actuations of the court null and void, because of that courts
want of authority to act, not only as to the absent parties but even as to
those present.15 Thus, whenever it appears to the court in the course of a
proceeding that an indispensable party has not been joined, it is the duty
of the court to stop the trial and order the inclusion of such party.16
A person is not an indispensable party, however, if his interest in the
controversy or subject matter is separable from the interest of the other
parties, so that it will not necessarily be directly or injuriously affected by
a decree which does complete justice between them.17
Is John Charles Chang, Jr., the president of TOPROS who allegedly
entered into the disputed contracts of loan and real estate mortgage, an
indispensable party in this case?
We note that although it is Changs signature that appears on the
assailed real estate mortgage contract, his participation is limited to being
a representative of TOPROS, allegedly without authority. The
document18 which constitutes as the contract of real estate mortgage
clearly points to petitioner and TOPROS as the sole parties-in-interest to
the agreement as mortgagee and mortgagor therein, respectively. Any
rights or liabilities arising from the said contract would therefore bind only
the petitioner and TOPROS as principal parties. Chang, acting as mere
representative of TOPROS, acquires no rights whatsoever, nor does he
incur any liabilities, arising from the said contract between petitioner and
TOPROS. Certainly, in our view, the only indispensable parties to the
mortgage contract are petitioner and TOPROS alone.
We thus hold that John Charles Chang, Jr., is not an indispensable party
in Civil Case No. 67736. This is without prejudice to any separate action
TOPROS may institute against Chang, Jr., in a proper proceeding.

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WHEREFORE, the petition is DENIED. The assailed decision dated
November 28, 2001 and resolution dated April 1, 2002 of the Court of
Appeals upholding the Orders of Judge Lorifel Lacap Pahimna
are AFFIRMED. No pronouncement as to costs. SO ORDERED.