Tantuico, Jr.

vs Republic

FRANCISCO S. TANTUICO, JR., petitioner, vs. REPUBLIC OF THE PHILIPPINES,

PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, MATEO A. T.
CAPARAS, AND THE SANDIGANBAYAN, respondents.

G.R. No. 89114 December 2, 1991

TOPIC: Ultimate Facts

DOCTRINE: “The rules on pleading speak of two (2) kinds of facts: the first, the
"ultimate facts", and the second, the "evidentiary facts." The term "ultimate facts" as
used in Sec. 3, Rule 3 of the Rules of Court, means the essential facts constituting the
plaintiffs cause of action. A fact is essential if it cannot be stricken out without leaving
the statement of the cause of action insufficient. . . . Ultimate facts are important and
substantial facts which either directly form the basis of the primary right and duty, or
which directly make up the wrongful acts or omissions of the defendant. The term does
not refer to the details of probative matter or particulars of evidence by which these
material elements are to be established. It refers to principal, determinate, constitutive
facts, upon the existence of which, the entire cause of action rests.”

FACTS: Republic of the Philippines filed with the Sandiganbayan Civil Case No. 0035,
entitled "Republic of the Philippines vs. Benjamin (Kokoy) Romualdez, et al." for
reconveyance, reversion, accounting, restitution and damages. The principal defendants
are Benjamin (Kokoy) Romualdez, Ferdinand E. Marcos and Imelda R. Marcos.
Petitioner Francisco S. Tantuico, Jr. was included as defendant in Civil Case No. 0035 on
the theory that: (1) he acted in unlawful concert with the principal defendants in the
misappropriation and theft of public funds, plunder of the nation's wealth, extortion,
blackmail, bribery, embezzlement and other acts of corruption, betrayal of public trust
and brazen abuse of power; (2) he acted as dummy, nominee or agent, by allowing
himself to be incorporator, director, board member and/or stockholder of corporations
beneficially held and/or controlled by the principal defendants; (3) he acted singly or
collectively, and/or in unlawful concert with one another, in flagrant breach of public
trust and of their fiduciary obligations as public officers, with gross and scandalous
abuse of right and power and in brazen violation of the Constitution and laws of the
Philippines, embarked upon a systematic plan to accumulate ill-gotten wealth ; (4) he
(petitioner) taking undue advantage of his position as Chairman of the Commission on
Audit and with grave failure to perform his constitutional duties as such Chairman,
acting in concert with defendants Ferdinand E. Marcos and Imelda R. Marcos,
facilitated and made possible the withdrawals, disbursements and questionable use of
government funds; and (5) he acted as dummy, nominee and/or agent by allowing
himself to be used as instrument in accumulating ill-gotten wealth through government
concessions, orders and/or policies prejudicial to plaintiff, or to be incorporator,
director, or member of corporations beneficially held and/or controlled by defendants
Ferdinand E. Marcos, Imelda R. Marcos, Benjamin (Kokoy) Romualdez and Juliette
Gomez Romualdez in order to conceal and prevent recovery of assets illegally obtained.
After his motion for production and inspection of documents was denied by
respondent, petitioner filed a Motion for a Bill of Particulars. The Solicitor General
opposed the motion. Respondent Sandiganbayan promulgated a resolution denying the
petitioner's motion for a bill of particulars on the ground that the particulars sought by
petitioner are evidentiary in nature. Hence, petitioner filed the present petition.

ISSUE:
Whether or not the allegations of the Second Amended Complaint pertaining to him
state only conclusions of fact and law, inferences of facts from facts not pleaded and
mere presumptions, not ultimate facts as required by the Rules of Court.

RULING:
YES, the allegations of the Second Amended Complaint pertaining to him state only
conclusions of fact and law, inferences of facts from facts not pleaded and mere
presumptions, not ultimate facts as required by the Rules of Court. A complaint is
defined as a concise statement of the ultimate facts constituting the plaintiff's cause or
causes of action. Like all other pleadings allowed by the Rules of Court, 18 the
complaint shall contain in a methodical and logical form a plain, concise and direct
statement of the ultimate facts on which the plaintiff relies for his claim, omitting the
statement of mere evidentiary facts. The rules on pleading speak of two (2) kinds of
facts: the first, the "ultimate facts", and the second, the "evidentiary facts." The term
"ultimate facts" as used in Sec. 3, Rule 3 of the Rules of Court, means the essential facts
constituting the plaintiffs cause of action. A fact is essential if it cannot be stricken out
without leaving the statement of the cause of action insufficient. . . . Ultimate facts are
important and substantial facts which either directly form the basis of the primary right
and duty, or which directly make up the wrongful acts or omissions of the defendant.
The term does not refer to the details of probative matter or particulars of evidence by
which these material elements are to be established. It refers to principal, determinate,
constitutive facts, upon the existence of which, the entire cause of action rests. The
allegations in the complaint, above-referred to, pertaining to petitioner are, therefore,
deficient in that they merely articulate conclusions of law and presumptions
unsupported by factual premises. Hence, without the particulars prayed for in
petitioner's motion for a bill of particulars, it can be said the petitioner cannot
intelligently prepare his responsive pleading and for trial. Furthermore, the particulars
prayed for, such as, names of persons, names of corporations, dates, amounts involved,
specification of property for identification purposes, the particular transactions
involving withdrawals and disbursements, and a statement of other material facts as
would support the conclusions and inferences in the complaint, are not evidentiary in
nature. On the contrary, those particulars are material facts that should be clearly and
definitely averred in the complaint in order that the defendant may, in fairness, be
informed of the claims made against him to the end that he may be prepared to meet
the issues at the trial.

DISPOSITIVE PORTION: WHEREFORE, the petition is GRANTED and the resolutions

dated 21 April 1989 and 29 May 1989 are hereby ANNULLED and SET ASIDE. The
respondents are hereby ordered to PREPARE and FILE a Bill of Particulars containing
the facts prayed for by petitioner within TWENTY (20) DAYS from notice, and should
they fail to submit the said Bill of Particulars, respondent Sandiganbayan is ordered TO
EXCLUDE the herein petitioner as defendant in Civil Case No. 0035. SO ORDERED.

G.R. No. 89114 December 2, 1991

FRANCISCO S. TANTUICO, JR., petitioner,

vs.
REPUBLIC OF THE PHILIPPINES, PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT,
MATEO A. T. CAPARAS, AND THE SANDIGANBAYAN, respondents.

Kenny H. Tantuico for petitioner.

PADILLA, J.:

In this petition for certiorari, mandamus and prohibition with a prayer for the issuance of a writ of
preliminary injunction and/or restraining order, the petitioner seeks to annul and set aside the
resolution of the Sandiganbayan, dated 21 April 1989, denying his motion for a bill of particulars as
well as its resolution, dated 29 May 1989, which denied his motion for reconsideration; to compel the
respondent PCGG to prepare and file a bill of particulars, or that said respondent be ordered to
exclude petitioner as defendant in Civil Case No. 0035 should they fail to submit the said bill of
particulars; and to enjoin the respondent Sandiganbayan from further proceeding against petitioner
until the bill of particulars is submitted, claiming that the respondent Sandiganbayan acted with grave
abuse of discretion amounting to lack of jurisdiction in promulgating the aforesaid resolutions and
that there is no appeal, nor any plain, speedy and adequate remedy for him in the ordinary course of
law other than the present petition.
As prayed for, this Court issued on 1 August 1989 a temporary restraining order "effective
immediately and continuing until further orders from this Court, ordering the respondent
Sandiganbayan to CEASE and DESIST from further proceeding in Civil Case No. 0035 (PCGG 35),
entitled "Republic of the Philippines vs. Benjamin (Kokoy) Romualdez, et al." pending before it.  1

The antecedents are as follows:

On 31 July 1987, the Republic of the Philippines, represented by the PCGG, and assisted by the Office of the Solicitor General, filed with the Sandiganbayan Civil Case No. 0035, entitled "Republic of the Philippines vs. Benjamin (Kokoy) Romualdez, et al." for
reconveyance, reversion, accounting, restitution and damages. 2

The principal defendants in the said Civil Case No. 0035 are Benjamin (Kokoy) Romualdez, Ferdinand E. Marcos and Imelda R. Marcos.

Petitioner Francisco S. Tantuico, Jr. was included as defendant in Civil Case No. 0035 on the theory that: (1) he acted in unlawful concert with the principal defendants in the misappropriation and theft of public funds, plunder of the nation's wealth, extortion,

 (2) he acted as dummy, nominee or agent, by allowing

blackmail, bribery, embezzlement and other acts of corruption, betrayal of public trust and brazen abuse of power; 3

himself to be incorporator, director, board member and/or stockholder of corporations beneficially

held and/or controlled by the principal defendants;   (3) he acted singly or collectively, and/or in 4

unlawful concert with one another, in flagrant breach of public trust and of their fiduciary obligations
as public officers, with gross and scandalous abuse of right and power and in brazen violation of the
Constitution and laws of the Philippines, embarked upon a systematic plan to accumulate ill-gotten
wealth ;   (4) he (petitioner) taking undue advantage of his position as Chairman of the Commission
5

on Audit and with grave failure to perform his constitutional duties as such Chairman, acting in
concert with defendants Ferdinand E. Marcos and Imelda R. Marcos, facilitated and made possible
the withdrawals, disbursements and questionable use of government funds;   and (5) he acted as 6

dummy, nominee and/or agent by allowing himself to be used as instrument in accumulating ill-
gotten wealth through government concessions, orders and/or policies prejudicial to plaintiff, or to be
incorporator, director, or member of corporations beneficially held and/or controlled by defendants
Ferdinand E. Marcos, Imelda R. Marcos, Benjamin (Kokoy) Romualdez and Juliette Gomez
Romualdez in order to conceal and prevent recovery of assets illegally obtained.  7

 was denied by respondent court in its resolution   dated 9 March

On 11 April 1988, after his motion for production and inspection of documents 8 9

1988, petitioner filed a Motion for a Bill of Particulars,   alleging inter alia that he is sued for acts 10

allegedly committed by him as (a) a public officer-Chairman of the Commission on Audit, (b) as a
private individual, and (c) in both capacities, in a complaint couched in too general terms and shorn
of particulars that would inform him of the factual and legal basis thereof, and that to enable him to
understand and know with certainty the particular acts allegedly committed by him and which he is
now charged with culpability, it is necessary that plaintiff furnish him the particulars sought therein
relative to the averments in paragraphs 2, 9(a), 15, 7 and 17 of the Second Amended Complaint so
that he can intelligently prepare his responsive pleading and prepare for trial. The particulars sought
for in the said motion are as follows:

a. Relative to the averments in paragraphs 2, 9(a) and l5 of the Second Amended Complaint:
 i) What are the dates of the resolutions (if on appeal) or the acts (if otherwise) issued
or performed by herein defendant which allowed the facilitation of, and made
possible the, withdrawals, disbursements and questionable use of government funds;

ii) What ministries or Departments, offices or agencies of the government were

involved in these questionable use of government funds;

iii) What are the names of the auditors who had the original audit jurisdiction over the
said withdrawals, disbursements and questionable use of government funds;

iv) How much government funds were involved in these questionable-disbursements,

individually and in totally?

v) Were the disbursements brought to herein defendant for action on pre-audit, post-
audit or otherwise or where they initiated and/or allowed release by herein defendant
alone, without them undergoing usual governmental audit procedures, or in violation
thereof.?

vi) What were herein defendant's other acts or omission or participation in the matter
of allowing such disbursements and questionable use of government funds, if any?

b. Relative to paragraphs 7 and 17 of the Second Amended Complaint:

i) In what particular contract, dealing, transaction and/or relationship of any nature of

Ferdinand E. Marcos, Imelda R. Marcos, Juliette Gomez Romualdez or Benjamin T.
Romualdez did herein defendant act as dummy, nominee or agent? Please specify
the dealings, the dates, the corporations or entities involved, the government offices
involved and the private and public documents, if any, showing herein defendant's
complicity, since he is not aware of any such instance. More basically, please specify
whether the defendant is a dummy or nominee or agent and of which corporation or
transaction?

ii) What particular government concession, order and/or policy obtained by Ferdinand
E. Marcos, or Imelda R. Marcos, or Juliette Gomez Romualdez and/or Benjamin T.
Romualdez allowed them either singly or jointly to accumulate ill-gotten wealth by
using herein defendant as instrument for their accomplishment. Likewise please
identify the nature of the transactions, the dates and the document showing
complicity on the part of herein defendant; he is not aware of any such instance.

iii) Please specify the name or denominate the particular government concession,
order and/or policy prejudicial to the interest of the government which was obtained
by either of the above-named four defendants through the participation of herein
defendant as a dummy, nominee or agent of herein defendant. Please likewise
identify the government office involved, the dates and other particulars, likewise
defendant is not aware of any such instance.

iv) Please name and specify the corporation whether stock or non-stock, whether
government or private, beneficially held and/or controlled by either of the four above
defendants, where herein defendant is an incorporator, director or member and
where his inclusion as such incorporator, director or member of the corporation was
made in order to conceal and prevent recovery of assets illegally obtained by the
 aforementioned four defendants, how many shares are involved and what are their
values, how and when have they been acquired.

The Solicitor General, for and in behalf of respondents (except the respondent
Sandiganbayan), opposed the motion.   After the petitioner had filed his reply   thereto, the
11 12

respondent Sandiganbayan promulgated on 21 April 1990 a resolution   denying the 13

petitioner's motion for a bill of particulars on the ground that the particulars sought by
petitioner are evidentiary in nature, the pertinent part of which resolution reads, as follows:

We are of the considered opinion that the allegations in the Expanded Complaint are
quite clear and sufficient enough for defendant-movant to know the nature and scope
of the causes of action upon which plaintiff seeks relief. They provide the factual
scenario which, coupled with other allegations set forth in the "Common Averments"
and further specified in the "Specific Averments" of herein defendant-movant and his
co-defendants' illegal acts which are within defendant-movant's peculiar and intimate
knowledge as a government official and corporate executive, will enable him to make
the proper admission, denials or qualifications, set out affirmative and/or special
defenses and thereafter prepare for trial. Evidentiary facts or matters are not
essential in the pleading of the cause of action, nor to details or probative value or
particulars of evidence by which these material evidence are to be established
(Remitere vs. Yulu, 6 SCRA 251). The matters which he seeks are evidentiary in
nature and, being within his intimate or personal knowledge, may be denied or
admitted by him or if deemed necessary, be the subject of other forms of discovery.  14

 but this was denied by respondent Sandiganbayan in its resolution   dated

Petitioner moved for reconsideration 15 16

29 May 1990.

Hence, petitioner filed the present petition.

The principal issue to be resolved in the case at bar is whether or not the respondent
Sandiganbayan acted with grave abuse of discretion in issuing the disputed resolutions.

Petitioner argues that the allegations of the Second Amended Complaint in Civil Case No.
0035 (PCGG 35) pertaining to him state only conclusions of fact and law, inferences of facts
from facts not pleaded and mere presumptions, not ultimate facts as required by the Rules of
Court.

On the other hand, the respondent Sandiganbayan, by and through the Solicitor General,
contends that the essential elements of an action for recovery of ill-gotten wealth are: (1) an
accumulation of assets, properties and other possessions; (2) of former President Ferdinand
E. Marcos, Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business
associates, dummies, agents, or nominees; and (3) whose value is out of proportion to their
known lawful income, and that the ultimate facts establishing these three (3) essential
elements of an action for recovery of ill-gotten wealth are sufficiently alleged in the complaint.
Hence, petitioner is not entitled to a bill of particulars.

A complaint is defined as a concise statement of the ultimate facts constituting the plaintiff's
cause or causes of action.   Like all other pleadings allowed by the Rules of Court,   the
17 18

complaint shall contain in a methodical and logical form a plain, concise and direct statement
of the ultimate facts on which the plaintiff relies for his claim, omitting the statement of mere
evidentiary
facts.   Its office, purpose or function is to inform the defendant clearly and definitely of the
19
claims made against him so that he may be prepared to meet the issues at the trial. The
complaint should inform the defendant of all the material facts on which the plaintiff relies to
support his demand; it should state the theory of a cause of action which forms the bases of
the plaintiff's claim of liability.  20

The rules on pleading speak of two (2) kinds of facts: the first, the "ultimate facts", and the
second, the "evidentiary facts." In Remitere vs. Vda. de Yulo,   the term "ultimate facts" was 21

defined and explained as follows:

The term "ultimate facts" as used in Sec. 3, Rule 3 of the Rules of Court, means the
essential facts constituting the plaintiffs cause of action. A fact is essential if it cannot
be stricken out without leaving the statement of the cause of action insufficient. . . .
(Moran, Rules of Court, Vol. 1, 1963 ed., p. 213).

Ultimate facts are important and substantial facts which either directly form the basis
of the primary right and duty, or which directly make up the wrongful acts or
omissions of the defendant. The term does not refer to the details of probative matter
or particulars of evidence by which these material elements are to be established. It
refers to principal, determinate, constitutive facts, upon the existence of which, the
entire cause of action rests.

while the term "evidentiary fact" has been defined in the following tenor:

Those facts which are necessary for determination of the ultimate facts; they are the
premises upon which conclusions of ultimate facts are based. Womack v.
Industrial Comm., 168 Colo. 364,451 P. 2d 761, 764. Facts which furnish evidence of
existence of some other fact.  22

Where the complaint states ultimate facts that constitute the three (3) essential elements of a cause of action, namely: (1) the legal right of the plaintiff, (2) the correlative obligation of the defendant, and (3) the act or omission of the defendant

 However, where the

in violation of said legal right, the complaint states a cause of action, otherwise, the complaint must succumb to a motion to dismiss on that ground of failure to state a cause of action. 23

allegations of the complaint are vague, indefinite, or in the form of conclusions, the proper
recourse would be, not a motion to dismiss, but a motion for a bill of particulars.   Thus, 24

Section 1, Rule 12 of the Rules of Court provides:

Before responding to a pleading or, if no responsive pleading is permitted by these

rules, within ten (10) days after service of the pleading upon him, a party may move
for a more definite statement or for a bill of particulars of any matter which is not
averred with sufficient definiteness or particularity to enable him properly to prepare
his responsive pleading or to prepare for trial. Such motion shall point out the defects
complained of and the details desired.

In this connection, the following allegations have been held as mere conclusions of law,
inferences from facts not alleged or opinion of the pleader: (a) the allegations that
defendants appellees were "actuated by ulterior motives, contrary to law and morals, with
abuse of their advantageous position as employers, in gross and evident bad faith and
without giving plaintiff . . . his due, wilfully, maliciously, unlawfully, and in summary and
arbitrary manner", are conclusions of law, inferences from facts not alleged and expressions
of opinion unsupported by factual premises;   (b) an allegation of duty in terms 25

unaccompanied by a statement of facts showing the existence of the duty, is a mere

conclusion of law, unless there is a relation set forth from which the law raises the duty;   (c) 26

an averment . . . that an act was "unlawful" or "wrongful" is a mere legal conclusion or

opinion of the pleader;   (d) the allegation that there was a violation of trust was plainly a
27
conclusion of law, for "a mere allegation that it was the duty of a party to do this or that, or
that he was guilty of a breach of duty, is a statement of a conclusion, not of a fact;"   (e) an 28

allegation that a contract is valid or void, is a mere conclusion of law;   (f) the averment in the 29

complaint that "defendant usurped the office of Senator of the Philippines" is a conclusion of
law — not a statement of fact — inasmuch as the particular facts on which the alleged
usurpation is predicated are not set forth therein;   and (g) the averment that "with intent of30

circumventing the constitutional prohibition that 'no officer or employee in the civil service
shall be removed or suspended except for cause as provided by law', respondents
maliciously and illegally for the purpose of political persecution and political vengeance,
reverted the fund of the salary item . . . and furthermore eliminated or abolished the said
position effective 1 July 1960" is a mere conclusion of law unsupported by factual
premises.  31

Bearing in mind the foregoing rules on pleading and case law, let us now examine the allegations of the Second Amended Complaint against the petitioner to
determine whether or no they were averred with sufficient definiteness or particularity to enable him properly to prepare his responsive pleading or to prepare for
trial. If the allegations of the said complaint are vague, indefinite or in the form of conclusions, then petitioner is entitled to a bill of particulars.

The allegations in the complaint pertaining to the alleged culpable and unlawful acts of herein petitioner are quoted hereunder as follows:

GENERAL AVERMENTS

OF

DEFENDANTS' ILLEGAL ACTS

9. (a) From the early years of his presidency, Defendant Ferdinand E. Marcos took undue advantage of his powers as President. All throughout the
period from September 21, 1972 to February 25, 1986, he gravely abused his powers under martial law and ruled as Dictator under the 1973
Marcos-promulgated Constitution. Defendant Ferdinand E. Marcos, together with other Defendants, acting singly or collectively, and/or in unlawful
concert with one another, in flagrant breach of public trust and of their fiduciary obligations as public officers, with gross and scandalous abuse of
right and power and in brazen violation of the Constitution and laws of the Philippines, embarked upon a systematic plan to accumulate ill-gotten
wealth;

(b) Upon his unfettered discretion, and sole authority, for the purpose of implementing the plan referred to above, Defendant Ferdinand E. Marcos
ordered and caused, among others:

(b-i) the massive and unlawful withdrawal of funds, securities, reserves and other assets and property from the National Treasury, the
Central Bank, the other financial institutions and depositories of Plaintiff;

(b-ii) the transfer of such funds, securities, reserves and other assets and property to payees or transferees of his choice and whether
and in what manner such transactions should be recorded in the books and records of these institutions and other depositories of
Plaintiff;

10. Among others, in furtherance of the plan and acting in the manner referred to above, in unlawful concerted with one another and with gross
abuse of power and authority, Defendants Ferdinand E. Marcos and Imelda R. Marcos;

x x x           x x x          x x x

b. Converted government-owned and controlled corporations into private enterprises and appropriated them and/or their assets for
their own benefit and enrichment;
 c. Awarded contracts with the Government to their relatives, business associates, dummies, nominees, agents or persons who were
beholden to said Defendants, under terms and conditions grossly and manifestly disadvantageous to the Government;

d. Misappropriated, embezzled and/or converted to their own use funds of Government financial institutions, particularly those
allocated to the Office of the President and other ministries and agencies of the Government including, those conveniently
denominated as intelligence or counter-insurgency funds, as well as funds provided to Plaintiff by foreign countries, multinationals,
public and private financial institutions;

e. Raided Government financial and banking institutions of billions of pesos in loans, guarantees and other types of financial
accommodations to finance dubious and/or overpriced projects of favored corporations or individuals and misused and/or converted to
their own use and benefit deposits found therein to the financial ruin of Plaintiff and the Filipino people;

x x x           x x x          x x x

h. Sold, conveyed and/or transferred Government property, real and/or personal, to corporations beneficially held and/ or controlled by
them or through third persons, under such terms and conditions grossly and manifestly disadvantageous to the Government;

i. Engaged in other illegal and improper acts and practices designed to defraud Plaintiff and the Filipino people, or otherwise
misappropriated and converted to their own use, benefit and enrichment the lawful patrimony and revenues of Plaintiff and the Filipino
people.

11. Among the assets acquired by Defendants in the manner above-described and discovered by the Commission in the exercise of its official
responsibilities are funds and other property listed in Annex "A" hereof and made an integral part of this Complaint.

12. Defendants, acting singly or collectively, and/or in unlawful concert with one another, for the purpose of preventing disclosure and avoiding
discovery of their unmitigated plunder of the National Treasury and of their other illegal acts, and employing the services of prominent lawyers,
accountants, financial experts, businessmen and other persons, deposited, kept and invested funds, securities and other assets estimated at
billions of US dollars in various banks, financial institutions, trust or investment companies and with persons here and abroad.

SPECIFIC AVERMENTS

OF

DEFENDANTS' ILLEGAL ACTS

x x x           x x x          x x x

14. Defendants Benjamin (Kokoy) Romualdez and Juliette Gomez Romualdez, acting by themselves and/or in unlawful concert with Defendants
Ferdinand E. Marcos and Imelda R. Marcos, and taking undue advantage of their relationship, influence and connection with the latter Defendant
spouses, engaged in devices, schemes and strategems to unjustly enrich themselves at the expense of Plaintiff and the Filipino people, among
others:

(a) obtained, with the active collaboration of Defendants Senen J. Gabaldon, Mario D. Camacho, Mamerto Nepomuceno, Carlos J. Valdes, Delia
Tantuico, Jovencio F. Cinco, Cesar C. Zalamea and Francisco Tantuico, control of some of the biggest business enterprises in the Philippines, such
as, the Manila Electric Company (MERALCO), Benguet Consolidated Mining Corporation (BENGUET) and the Pilipinas Shell Corporation, by
employing devious financial schemes and techniques calculated to require the massive infusion and hemmorrhage of government funds with
minimum or negligible "cashout" from Defendant Benjamin Romualdez. The following are the general features of a classic take-over bid by
Defendant Benjamin Romualdez:
 x x x           x x x          x x x

(ii) The shares were held in the name of corporations which were organized soldely (sic) for the purpose of holding title to them. These
corporations did not have any operating history nor any financial track record. Projected cash flow consisted almost solely of future
and contingent dividends on the shares held. In spite of these limitations, these companies enjoyed excellent credit lines from banks
and other financial institutions, as evidenced by the millions of pesos in loan and guarantees outstanding in their books;

(iii) The "seed money" used to wrest control came from government and taxpayers' money in the form of millions of pesos in loans,
guarantees and standby L/C's from government financial institutions, notably the DBP and PNB, which were in turn rediscounted with
the Central Bank;

(iv) Additional funding was provided from the related interests; and

(v) This intricate (sic) skein of inter-corporate dealings was controlled and administered by an exclusive and closely knit group of
interlocking directorate and officership

x x x           x x x          x x x

(g) Secured, in a veiled attempt to justify MERALCO's anomalous acquisition of the electric cooperatives, with the active collaborations of
Defendants Cesar E. A. Virata, Juanita R. Remulla, Isidro Rodriguez, Jose C. Hernandez, Pedro Dumol, Ricardo C. Galing, Francisco C.
Gatmaitan, Mario D. Camacho and the rest of the Defendants, the approval by Defendant Ferdinand E. Marcos and his cabinet of the so-called
"Three-Year Program for the Extension of MERALCO's Services to Areas Within The 60-kilometer Radius of Manila", which required government
capital investment amounting to millions of pesos;

x x x           x x x          x x x

(1) Caused the National Investment and Development Corporation (NIDC) to dispose of its interest in the oil plants located in Tanauan, Leyte, which
were owned and operated by its subsidiary, the NIDC Oil Mills, Inc., in favor of the SOLO II, Inc., a corporation beneficially held and controlled by
Defendant Benjamin Romualdez, with the active collaboration of Defendants Jose Sandejas, Francisco Tantuico and Dominador G. Ingco, under
terms and conditions grossly disadvantageous to NIDC, to the grave and irreparable damage of Plaintiff and the Filipino people.

(2) Defendant Francisco Tantuico, taking undue advantage of his position as Chairman of the Commission on Audit and with grave failure to
perform his constitutional duties as such Chairman, acting in concert with Defendants Ferdinand E. Marcos and Imelda R. Marcos, facilitated and
made possible the withdrawals, disbursements and questionable use of government funds as stated in the foregoing paragraphs to the grave and
irreparable damage and injury of Plaintiff and the entire Filipino people.

x x x           x x x          x x x

17. The following Defendants acted as dummies, nominees and/ or agents by allowing themselves (i) to be used as instruments in accumulating ill-
gotten wealth through government concessions, orders and/or policies prejudicial to Plaintiff, or (ii) to be incorporators, directors, or members of
corporations held and/or controlled by Defendants Ferdinand E. Marcos, Imelda R. Marcos, Benjamin (Kokoy) Romualdez, and Juliette Gomez
Romualdez in order conceal (sic) and prevent recovery of assets illegally obtained: Francisco Tantuico . . .

17.a. THE NAMES OF SOME OF THE CORPORATIONS BENEFICALLY HELD AND/OR CONTROLLED BY THE DEFENDANTS BENJAMIN
(KOKOY) ROMUALDEZ, FERDINAND E. MARCOS AND IMELDA R. MARCOS WHERE THE POSITIONS/PARTICIPATIONS AND/OR
INVOLVEMENTS OF SOME OF THE DEFENDANTS AS DUMMIES, NOMINEES AND/OR AGENTS ARE INDICATED ARE LISTED IN ANNEX
"B" HEREOF AND MADE AN INTEGRAL PART OF THIS COMPLAINT.

x x x           x x x          x x x
 18. The acts of Defendants, singly or collectively, and/or in unlawful concert with one another, constitute gross abuse of official position and
authority, flagrant breach of public trust and fiduciary obligations, acquisition of unexplained wealth, brazen abuse of official position and authority,
flagrant breach of public trust and fiduciary obligations, acquisition of unexplained wealth, brazen abuse of right and power, unjust enrichment,
violation of the Constitution and laws of the Republic of the Philippines, to the grave and irreparable damage of Plaintiff and the Filipino people.
(Emphasis supplied)

Let us now analyze and discuss the allegations of the complaint in relation to which the petitioner pleads for a bill of particulars.

As quoted above, paragraph 9(a) of the complaint alleges that "Defendant Ferdinand E. Marcos, together with other Defendants, acting singly or collectively,
and/or in unlawful concert with one another, in flagrant breach of public trust and of their fiduciary obligations as public officers, with gross and scandalous abuse
of right and power and in brazen violation of the Constitution and laws of the Philippines, embarked upon a systematic plan to accumulate ill-gotten wealth." In
the light of the rules on pleading and case law cited above, the allegations that defendant Ferdinand E. Marcos, together with the other defendants "embarked
upon a systematic plan to accumulate ill-gotten wealth" and that said defendants acted "in flagrant breach of public trust and of their fiduciary obligations as
public officers, with gross and scandalous abuse of right and in brazen violation of the Constitution and laws of the Philippines",  are conclusions of law
unsupported by factual premises.

Nothing is said in the complaint about the petitioner's acts in execution of the alleged "systematic plan to accumulate ill-gotten wealth", or which are supposed to
constitute "flagrant breach of public trust", "gross and scandalous abuse of right and power", and "violations of the Constitution and laws of the Philippines". The
complaint does not even allege what duties the petitioner failed to perform, or the particular rights he abused.

Likewise, paragraph 15 avers that "defendant Francisco Tantuico, taking undue advantage of his position as Chairman of the Commission on Audit and with
grave failure to perform his constitutional duties as such Chairman, acting in concert with Defendants Ferdinand E. Marcos and Imelda R. Marcos facilitated and
made possible the withdrawals, disbursements and questionable use of government funds as stated in the foregoing paragraphs to the grave and irreparable
damage and injury of Plaintiff and the entire Filipino people." In like manner, the allegation that petitioner "took undue advantage of his position as Chairman of
the Commission on Audit," that he "failed to perform his constitutional duties as such Chairman," and acting in concert with Ferdinand E. Marcos and Imelda R.
Marcos, "facilitated and made possible the withdrawals, disbursements, and questionable use of government funds as stated in the foregoing paragraphs, to the
grave and irreparable damage and injury of plaintiff and the entire Filipino people", are mere conclusions of law. Nowhere in the complaint is there any allegation
as to how such duty came about, or what petitioner's duties were, with respect to the alleged withdrawals and disbursements or how petitioner facilitated the
alleged withdrawals, disbursements, or conversion of public funds and properties, nor an allegation from where the withdrawals and disbursements came from,
except for a general allegation that they came from the national treasury. On top of that, the complaint does not even contain any factual allegation which would
show that whatever withdrawals, disbursements, or conversions were made, were indeed subject to audit by the COA.

In this connection, it may well be stated that the Commission on Audit (COA) is an independent, constitutional commission, which has no power or authority to withdraw, disburse, or use funds and property pertaining to other government

 The COA is merely

offices or agencies. This is done by the agency or office itself, the chief or head of which is primarily and directly responsible for the funds and property pertaining to such office or agency. 32

authorized to audit, examine and settle accounts of the various government offices or
agencies, and this task is performed not by the Chairman of the COA but by the COA
auditors assigned to the government office or agency subject to COA audit.

Thus, in each agency of the government, there is an auditing unit headed by an auditor,
whose duty is to audit and settle the accounts, funds, financial transactions, and resources of
the agency under his audit jurisdiction.   The decision of the auditor is appealable to the 33

Regional Director,   whose decision, is in turn, appealable to the COA Manager.   Any party
34 35

dissatisfied with the decision of the COA Manager may bring the matter on appeal to the
Commission proper, a collegiate body exercising quasi-judicial functions, composed of three
(3) COA Commissioners, with the COA Chairman as presiding officer.   It is only at this 36

stage that the COA Chairman would come to know of the matter and be called upon to act
on the same, and only if an aggrieved party brings the matter on appeal.

In other words, the Chairman of the COA does not participate or personally audit all
disbursements and withdrawals of government funds, as well as transactions involving
government property. The averments in the particular paragraph of the complaint merely
assume that petitioner participated in or personally audited all disbursements and
withdrawals of government funds, and all transactions involving government property.
Hence, the alleged withdrawals, disbursements and questionable use of government funds
could not have been, as held by respondent Sandiganbayan, "within the peculiar and
intimate knowledge of petitioner as Chairman of the COA."

The complaint further avers in paragraph 17 that "(t)he following Defendants acted as
dummies, nominees and/or agents by allowing themselves (i) to be instruments in
accumulating ill-gotten wealth through government concessions, order and/or policies
prejudicial to Plaintiff, or (ii) to be incorporators, directors, or members of corporations
beneficially held and/or controlled by Defendant Ferdinand E. Marcos, Imelda R. Marcos,
Benjamin (Kokoy) T. Romualdez and Juliette Gomez Romualdez in order to conceal and
prevent recovery of assets illegally obtained: Francisco Tantuico . . ."   Again, the allegation
37

that petitioner acted as dummy, nominee, or agent by allowing himself "to be used as
instrument in accumulating ill-gotten wealth through government concessions, orders and/or
policies prejudicial to Plaintiff" or "to be (an) incorporator, director, or member of corporations
beneficially held and/or controlled" by the Marcoses and Romualdezes, is a conclusion of
law without factual basis.

The complaint does not contain any allegation as to how petitioner became, or why he is
perceived to be, a dummy, nominee or agent. Besides, there is no averment in the complaint
how petitioner allowed himself to be used as instrument in the accumulation of ill-gotten
wealth, what the concessions, orders and/or policies prejudicial to plaintiff are, why they are
prejudicial, and what petitioner had to do with the granting, issuance, and or formulation of
such concessions, orders, and/or policies. Moreover, Annex "A" of the complaint lists down
sixty-one (61) corporations which are supposed to be beneficially owned or controlled by the
Marcoses and Romualdezes. However, the complaint does not state which corporations
petitioner is supposed to be a stockholder, director, member, dummy, nominee and/or agent.
More significantly, the petitioner's name does not even appear in Annex "B" of the complaint,
which is a listing of the alleged "Positions and Participations of Some Defendants".

The allegations in the complaint, above-referred to, pertaining to petitioner are, therefore,
deficient in that they merely articulate conclusions of law and presumptions unsupported by
factual premises. Hence, without the particulars prayed for in petitioner's motion for a bill of
particulars, it can be said the petitioner can not intelligently prepare his responsive pleading
and for trial.

Furthermore, the particulars prayed for, such as, names of persons, names of corporations,
dates, amounts involved, specification of property for identification purposes, the particular
transactions involving withdrawals and disbursements, and a statement of other material
facts as would support the conclusions and inferences in the complaint, are not evidentiary in
nature. On the contrary, those particulars are material facts that should be clearly and
definitely averred in the complaint in order that the defendant may, in fairness, be informed
of the claims made against him to the end that he may be prepared to meet the issues at the
trial.

Thus, it has been held that the purpose or object of a bill of particulars is —

. . . to amplify or limit a pleading, specify more minutely and particularly a claim or

defense set up and pleaded in general terms, give information, not contained in the
pleading, to the opposite party and the court as to the precise nature, character,
 scope, and extent of the cause of action or defense relied on by the pleader, and
apprise the opposite party of the case which he has to meet, to the end that the proof
at the trial may be limited to the matters specified, and in order that surprise at, and
needless preparation for, the trial may be avoided, and that the opposite party may
be aided in framing his answering pleading and preparing for trial. It has also been
stated that it is the function or purpose of a bill of particulars to define, clarify,
particularize, and limit or circumscribe the issues in the case, to expedite the trial,
and assist the court. A general function or purpose of a bill of particulars is to prevent
injustice or do justice in the case when that cannot be accomplished without the aid
of such a bill.  38

Anent the contention of the Solicitor General that the petitioner is not entitled to a bill of particulars because the ultimate facts constituting the three (3) essential
elements of a cause of action for recovery of ill-gotten wealth have been sufficiently alleged in the complaint, it would suffice to state that in a motion for a bill of
particulars, the only question to be resolved is whether or not the allegations of the complaint are averred with sufficient definiteness or particularity to enable the
movant properly to prepare his responsive pleading and to prepare for trial. As already discussed, the allegations of the complaint pertaining to the herein
petitioner are deficient because the averments therein are mere conclusions of law or presumptions, unsupported by factual premises.

In the light of the foregoing, the respondent Sandiganbayan acted with grave abuse of discretion amounting to lack or excess of jurisdiction in promulgating the
questioned resolutions.

WHEREFORE, the petition is GRANTED and the resolutions dated 21 April 1989 and 29 May 1989 are hereby ANNULLED and SET ASIDE. The respondents
are hereby ordered to PREPARE and FILE a Bill of Particulars containing the facts prayed for by petitioner within TWENTY (20) DAYS from notice, and should
they fail to submit the said Bill of Particulars, respondent Sandiganbayan is ordered TO EXCLUDE the herein petitioner as defendant in Civil Case No. 0035.

SO ORDERED.

GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), PETITIONER, VS.

HEIRS OF FERNANDO F. CABALLERO
(PERMISSIVE COUNTERCLAIM) G.R. No. 158090, October 04, 2010

FACTS:
Fernando and his wife, Sylvia Caballero, secured a mortgage secured by their
residential lot from petitioner Government Service Insurance System (GSIS) in the
amount of P20,000.00. However, Fernando defaulted on the payment of his loan with
the GSIS. GSIS wrote a letter to Fernando, Fernando, informing him him of the
consolidation consolidation of title in its favor, and requesting payment of monthly
rental in view of Fernando's continued occupancy occupancy of the subject property.
Negotiation as to repurchase repurchase also takes place. GSIS scheduled the subject
property for a 2nd public bidding after a failed negotiation with Fernando to buy back
his property. In this bidding, Jocelyn Caballero, Fernando’s daughter daughter
submitted a bid but unfortunately defeated by CMTC. With this, Fernando, filed with
the Regional Trial Court (RTC) of Kabacan, Cotabato a Complaint against CMTC, the
GSIS and its responsible officers Fernando prayed, among others, that judgment be
rendered: declaring GSIS Board of Trustees Resolution No. 199, dated May 16, 1989,
null and void for the irregularities in the conduct of the bidding. GSIS and its officers
filed their Answer with Affirmative Defenses and Counterclaim. GSIS alleged that
Fernando owed of P130,365.81, representing back rentals, including additional
additional interests from January 1973 to February 1987, and the additional amount of
P249,800.00. Caballero, on the other hand, alleged that GSIS's counterclaim
counterclaim is permissive and its failure to pay the prescribed docket fees results into
the dismissal of its claim. After trial, the RTC, in its Decision, 1994, ruled in favor of
GSIS and dismissed the complaint. In the same decision, the trial court granted GSIS's
counterclaim and directed Fernando to pay GSIS the rentals paid by CMTC in the
amount of  P249,800.00.

ISSUE: Whether or not the CA committed an error of law in holding that GSIS’s
counterclaim counterclaim of rentals collected by the Caballero’s against CMTC is in the
nature of  a permissive counterclaim which required required the payment of GSIS of
docket fees before the Trial Court can acquire jurisdiction over the said counterclaim.
HELD  YES. The test was also established established by the Supreme Supreme Court in
this this case to determine determine whether a counterclaim is compulsory or not. The
Court has devised the following tests: (a) Are the issues of fact and law raised by the
claim and by the counterclaim largely the same? (b) Would res judicata bar a
subsequent suit on defendant's claims, absent the compulsory counterclaim rule? (c)
Will substantially the same evidence support or refute plaintiff's claim as well as the
defendant's counterclaim? and (d) Is there any logical relation between the claim and
the counterclaim? A positive answer to all four questions would indicate that the
counterclaim is compulsory.  Tested against the above-mentioned criteria, the SC
agreed with the CA's view that GSIS's counterclaim for the recovery of the amount
representing rentals collected by Fernando from the CMTC is permissive. The evidence
needed by Fernando to cause the annulment of the bid award, deed of absolute sale and
TCT is different from that required to establish GSIS's claim for the recovery of rentals.
The issue in the main action, i.e., the nullity or validity of the bid award, deed of  
absolute sale and TCT in favor of CMTC, is entirely different from the issue in the
counterclaim, i.e., whether GSIS is entitled to receive the CMTC's rent payments over
the subject property when it (GSIS) became the owner of the subject property by virtue
of the consolidation of ownership of the property in its favor.  The rule in permissive
counterclaims is that for the trial court to acquire jurisdiction, the counterclaimant is
bound to pay the prescribed docket fees. This, GSIS did not do, because it asserted that
its claim for the collection of rental payments was a compulsory counterclaim. Since
petitioner failed to pay the docket fees, the RTC did not acquire jurisdiction over its
permissive counterclaim. The judgment rendered by the RTC, insofar as it ordered
Fernando to pay GSIS the rentals which he collected from CMTC, is considered null and
void. Any decision rendered without jurisdiction is a total nullity and may be struck
down at any time, even on appeal before this Court.

G.R. Nos. 158090               October 4, 2010

GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), Petitioner,

vs.
HEIRS OF FERNANDO F. CABALLERO, represented by his daughter, JOCELYN G.
CABALLERO, Respondents.

DECISION

PERALTA, J.:

Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to
set aside the Decision1 and the Resolution,2 dated December 17, 2002 and April 29, 2003,
respectively, of the Court of Appeals (CA) in CA-G.R. CV. No. 49300.

The antecedents are as follows:

Respondent Fernando C. Caballero (Fernando) was the registered owner of a residential lot
designated as Lot No. 3355, Ts-268, covered by TCT No. T-16035 of the Register of Deeds of
Cotabato, containing an area of 800 square meters and situated at Rizal Street, Mlang, Cotabato.
On the said lot, respondent built a residential/commercial building consisting of two (2) stories.

On March 7, 1968, Fernando and his wife, Sylvia Caballero, secured a loan from petitioner
Government Service Insurance System (GSIS) in the amount of ₱20,000.00, as evidenced by a
promissory note. Fernando and his wife likewise executed a real estate mortgage on the same date,
mortgaging the afore-stated property as security.

Fernando defaulted on the payment of his loan with the GSIS. Hence, on January 20, 1973, the
mortgage covering the subject property was foreclosed, and on March 26, 1973, the same was sold
at a public auction where the petitioner was the only bidder in the amount of ₱36,283.00. For failure
of Fernando to redeem the said property within the designated period, petitioner executed an
Affidavit of Consolidation of Ownership on September 5, 1975. Consequently, TCT No. T-16035 was
cancelled and TCT No. T-45874 was issued in the name of petitioner.

On November 26, 1975, petitioner wrote a letter to Fernando, informing him of the consolidation of
title in its favor, and requesting payment of monthly rental in view of Fernando's continued
occupancy of the subject property. In reply, Fernando requested that he be allowed to repurchase
the same through partial payments. Negotiation as to the repurchase by Fernando of the subject
property went on for several years, but no agreement was reached between the parties.

On January 16, 1989, petitioner scheduled the subject property for public bidding. On the scheduled
date of bidding, Fernando's daughter, Jocelyn Caballero, submitted a bid in the amount of
₱350,000.00, while Carmelita Mercantile Trading Corporation (CMTC) submitted a bid in the amount
of ₱450,000.00. Since CMTC was the highest bidder, it was awarded the subject property. On May
16, 1989, the Board of Trustees of the GSIS issued Resolution No. 199 confirming the award of the
subject property to CMTC for a total consideration of ₱450,000.00. Thereafter, a Deed of Absolute
Sale was executed between petitioner and CMTC on July 27, 1989, transferring the subject property
to CMTC. Consequently, TCT No. T-45874 in the name of GSIS was cancelled, and TCT No. T-
76183 was issued in the name of CMTC.

Due to the foregoing, Fernando, represented by his daughter and attorney-in-fact, Jocelyn
Caballero, filed with the Regional Trial Court (RTC) of Kabacan, Cotabato a Complaint3 against
CMTC, the GSIS and its responsible officers, and the Register of Deeds of Kidapawan, Cotabato.
Fernando prayed, among others, that judgment be rendered: declaring GSIS Board of Trustees
Resolution No. 199, dated May 16, 1989, null and void; declaring the Deed of Absolute Sale
between petitioner and CMTC null and void ab initio; declaring TCT No. 76183 of the Register of
Deeds of Kidapawan, Cotabato, likewise, null and void ab initio; declaring the bid made by Fernando
in the amount of ₱350,000.00 for the repurchase of his property as the winning bid; and ordering
petitioner to execute the corresponding Deed of Sale of the subject property in favor of Fernando.
He also prayed for payment of moral damages, exemplary damages, attorney's fees and litigation
expenses.

In his complaint, Fernando alleged that there were irregularities in the conduct of the bidding. CMTC
misrepresented itself to be wholly owned by Filipino citizens. It misrepresented its working capital. Its
representative Carmelita Ang Hao had no prior authority from its board of directors in an appropriate
board resolution to participate in the bidding. The corporation is not authorized to acquire real estate
or invest its funds for purposes other than its primary purpose. Fernando further alleged that the
GSIS allowed CMTC to bid despite knowledge that said corporation has no authority to do so. The
GSIS also disregarded Fernando's prior right to buy back his family home and lot in violation of the
laws. The Register of Deeds of Cotabato acted with abuse of power and authority when it issued the
TCT in favor of CMTC without requiring the CMTC to submit its supporting papers as required by the
law.

Petitioner and its officers filed their Answer with Affirmative Defenses and Counterclaim.4 The GSIS
alleged that Fernando lost his right of redemption. He was given the chance to repurchase the
property; however, he did not avail of such option compelling the GSIS to dispose of the property by
public bidding as mandated by law. There is also no "prior right to buy back" that can be exercised
by Fernando. Further, it averred that the articles of incorporation and other papers of CMTC were all
in order. In its counterclaim, petitioner alleged that Fernando owed petitioner the sum of
₱130,365.81, representing back rentals, including additional interests from January 1973 to
February 1987, and the additional amount of ₱249,800.00, excluding applicable interests,
representing rentals Fernando unlawfully collected from Carmelita Ang Hao from January 1973 to
February 1988.

After trial, the RTC, in its Decision5 dated September 27, 1994, ruled in favor of petitioner and
dismissed the complaint. In the same decision, the trial court granted petitioner's counterclaim and
directed Fernando to pay petitioner the rentals paid by CMTC in the amount of ₱249,800.00. The
foregoing amount was collected by Fernando from the CMTC and represents payment which was
not turned over to petitioner, which was entitled to receive the rent from the date of the consolidation
of its ownership over the subject property.

Fernando filed a motion for reconsideration, which was denied by the RTC in an Order dated March
27, 1995.

Aggrieved by the Decision, respondent filed a Notice of Appeal.6 The CA, in its Decision dated
December 17, 2002, affirmed the decision of the RTC with the modification that the portion of the
judgment ordering Fernando to pay rentals in the amount of ₱249,800.00, in favor of petitioner, be
deleted. Petitioner filed a motion for reconsideration, which the CA denied in a Resolution dated April
29, 2003. Hence, the instant petition.

An Ex Parte Motion for Substitution of Party,7 dated July 18, 2003, was filed by the surviving heirs of
Fernando, who died on February 12, 2002. They prayed that they be allowed to be substituted for
the deceased, as respondents in this case.

Petitioner enumerated the following grounds in support of its petition:

THE HONORABLE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN HOLDING

THAT GSIS' COUNTERCLAIM, AMONG OTHERS, OF ₱249,800.00 REPRESENTING
RENTALS COLLECTED BY PRIVATE RESPONDENT FROM CARMELITA MERCANTILE
TRADING CORPORATION IS IN THE NATURE OF A PERMISSIVE COUNTERCLAIM
WHICH REQUIRED THE PAYMENT BY GSIS OF DOCKET FEES BEFORE THE TRIAL
COURT CAN ACQUIRE JURISDICTION OVER SAID COUNTERCLAIM.

II

THE HONORABLE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN HOLDING

THAT GSIS' DOCUMENTARY EVIDENCE SUPPORTING ITS CLAIM OF ₱249,800.00
LACKS PROPER IDENTIFICATION.8

The petition of the GSIS seeks the review of the CA's Decision insofar as it deleted the trial court's
award of ₱249,800.00 in its favor representing rentals collected by Fernando from the CMTC.

In their Memorandum, respondents’ claim that CMTC cannot purchase real estate or invest its funds
in any purpose other than its primary purpose for which it was organized in the absence of a
corporate board resolution; the bid award, deed of absolute sale and TCT No. T-76183, issued in
favor of the CMTC, should be nullified; the trial court erred in concluding that GSIS personnel have
regularly performed their official duty when they conducted the public bidding; Fernando, as former
owner of the subject property and former member of the GSIS, has the preemptive right to
repurchase the foreclosed property.

These additional averments cannot be taken cognizance by the Court, because they were
substantially respondents’ arguments in their petition for review on certiorari earlier filed before Us
and docketed as G.R. No. 156609. Records show that said petition was denied by the Court in a
Resolution9 dated April 23, 2003, for petitioners’ (respondents herein) failure to sufficiently show that
the Court of Appeals committed any reversible error in the challenged decision as to warrant the
exercise by this Court of its discretionary appellate jurisdiction.10 Said resolution became final and
executory on June 9, 2003.11 Respondents’ attempt to re-litigate claims already passed upon and
resolved with finality by the Court in G.R. No. 156609 cannot be allowed.

Going now to the first assigned error, petitioner submits that its counterclaim for the rentals collected
by Fernando from the CMTC is in the nature of a compulsory counterclaim in the original action of
Fernando against petitioner for annulment of bid award, deed of absolute sale and TCT No. 76183.
Respondents, on the other hand, alleged that petitioner's counterclaim is permissive and its failure to
pay the prescribed docket fees results into the dismissal of its claim.
To determine whether a counterclaim is compulsory or not, the Court has devised the following tests:
(a) Are the issues of fact and law raised by the claim and by the counterclaim largely the same? (b)
Would res judicata bar a subsequent suit on defendant’s claims, absent the compulsory
counterclaim rule? (c) Will substantially the same evidence support or refute plaintiff’s claim as well
as the defendant’s counterclaim? and (d) Is there any logical relation between the claim and the
counterclaim? A positive answer to all four questions would indicate that the counterclaim is
compulsory.12

Tested against the above-mentioned criteria, this Court agrees with the CA's view that petitioner's
counterclaim for the recovery of the amount representing rentals collected by Fernando from the
CMTC is permissive. The evidence needed by Fernando to cause the annulment of the bid award,
deed of absolute sale and TCT is different from that required to establish petitioner's claim for the
recovery of rentals.

The issue in the main action, i.e., the nullity or validity of the bid award, deed of absolute sale and
TCT in favor of CMTC, is entirely different from the issue in the counterclaim, i.e., whether petitioner
is entitled to receive the CMTC's rent payments over the subject property when petitioner became
the owner of the subject property by virtue of the consolidation of ownership of the property in its
favor.

The rule in permissive counterclaims is that for the trial court to acquire jurisdiction, the
counterclaimant is bound to pay the prescribed docket fees.13 This, petitioner did not do, because it
asserted that its claim for the collection of rental payments was a compulsory counterclaim. Since
petitioner failed to pay the docket fees, the RTC did not acquire jurisdiction over its permissive
counterclaim. The judgment rendered by the RTC, insofar as it ordered Fernando to pay petitioner
the rentals which he collected from CMTC, is considered null and void. Any decision rendered
without jurisdiction is a total nullity and may be struck down at any time, even on appeal before this
Court.14

Petitioner further argues that assuming that its counterclaim is permissive, the trial court has
jurisdiction to try and decide the same, considering petitioner's exemption from all kinds of fees.

In In Re: Petition for Recognition of the Exemption of the Government Service Insurance System
from Payment of Legal Fees,15 the Court ruled that the provision in the Charter of the GSIS, i.e.,
Section 39 of Republic Act No. 8291, which exempts it from "all taxes, assessments, fees, charges
or duties of all kinds," cannot operate to exempt it from the payment of legal fees. This was because,
unlike the 1935 and 1973 Constitutions, which empowered Congress to repeal, alter or supplement
the rules of the Supreme Court concerning pleading, practice and procedure, the 1987 Constitution
removed this power from Congress. Hence, the Supreme Court now has the sole authority to
promulgate rules concerning pleading, practice and procedure in all courts.

In said case, the Court ruled that:

The separation of powers among the three co-equal branches of our government has erected an
impregnable wall that keeps the power to promulgate rules of pleading, practice and procedure
within the sole province of this Court. The other branches trespass upon this prerogative if they
enact laws or issue orders that effectively repeal, alter or modify any of the procedural rules
promulgated by this Court. Viewed from this perspective, the claim of a legislative grant of exemption
from the payment of legal fees under Section 39 of RA 8291 necessarily fails.

Congress could not have carved out an exemption for the GSIS from the payment of legal fees
without transgressing another equally important institutional safeguard of the Court's independence
− fiscal autonomy. Fiscal autonomy recognizes the power and authority of the Court to levy, assess
and collect fees, including legal fees. Moreover, legal fees under Rule 141 have two basic
components, the Judiciary Development Fund (JDF) and the Special Allowance for the Judiciary
Fund (SAJF). The laws which established the JDF and the SAJF expressly declare the identical
purpose of these funds to "guarantee the independence of the Judiciary as mandated by the
Constitution and public policy." Legal fees therefore do not only constitute a vital source of the
Court's financial resources but also comprise an essential element of the Court's fiscal
independence. Any exemption from the payment of legal fees granted by Congress to government-
owned or controlled corporations and local government units will necessarily reduce the JDF and the
SAJF. Undoubtedly, such situation is constitutionally infirm for it impairs the Court's guaranteed fiscal
autonomy and erodes its independence.

Petitioner also invoked our ruling in Sun Insurance Office, Ltd. v. Judge Asuncion,16 where the Court
held that:

xxxx

3. Where the trial court acquires jurisdiction over a claim by the filing of the appropriate pleading and
payment of the prescribed filing fee but, subsequently, the judgment awards a claim not specified in
the pleading, or if specified the same has been left for determination by the court, the additional filing
fee therefor shall constitute a lien on the judgment. It shall be the responsibility of the Clerk of Court
or his duly authorized deputy to enforce said lien and assess and collect the additional fee.

In Ayala Corporation v. Madayag,17 the Court, in interpreting the third rule laid down in Sun Insurance
Office, Ltd. v. Judge Asuncion regarding awards of claims not specified in the pleading, held that the
same refers only to damages arising after the filing of the complaint or similar pleading as to which
the additional filing fee therefor shall constitute a lien on the judgment.

The amount of any claim for damages, therefore, arising on or before the filing of the complaint or
any pleading should be specified. While it is true that the determination of certain damages as
exemplary or corrective damages is left to the sound discretion of the court, it is the duty of the
parties claiming such damages to specify the amount sought on the basis of which the court may
make a proper determination, and for the proper assessment of the appropriate docket fees. The
exception contemplated as to claims not specified or to claims although specified are left for
determination of the court is limited only to any damages that may arise after the filing of the
complaint or similar pleading for then it will not be possible for the claimant to specify nor speculate
as to the amount thereof. (Emphasis supplied.) 1avvphi1

Petitioner's claim for payment of rentals collected by Fernando from the CMTC did not arise after the
filing of the complaint; hence, the rule laid down in Sun Insurance finds no application in the present
case.

Due to the non-payment of docket fees on petitioner's counterclaim, the trial court never acquired
jurisdiction over it and, thus, there is no need to discuss the second issue raised by petitioner.

WHEREFORE, the petition is DENIED. The Decision and the Resolution, dated December 17, 2002
and April 29, 2003, respectively, of the Court of Appeals in CA-G.R. CV. No. 49300, are AFFIRMED.

SO ORDERED
 PHILTRANCO SERVICE ENTERPRISES, INC., Petitioner, vs. FELIX PARAS AND
INLAND TRAILWAYS, INC., AND HON. COURT OF APPEALS, Respondents.

FACTS: Plaintiff-appellant [respondent] Felix Paras (Paras for brevity), who hails from
Cainta, Rizal is engaged in the buy and sell of fish products. Sometime on 08 February
1987, on his way home to Manila from Bicol Region, he boarded a bus with Body No.
101 and Plate No. EVE 508, owned and operated by Inland Trailways, Inc. (Inland for
brevity) and driven by its driver Calvin Coner (Coner for brevity). At approximately
3:50 o’clock in the morning of 09 February 1987, while the said bus was travelling along
Maharlika Highway, Tiaong, Quezon, it was bumped at the rear by another bus with
Plate No. EVB 259, owned and operated by Philtranco Service Enterprises, Inc.
(Philtranco for brevity). As a result of the strong and violent impact, the Inland bus was
pushed forward and smashed into a cargo truck parked along the outer right portion of
the highway and the shoulder thereof. Consequently, the said accident bought
considerable damage to the vehicles involved and caused physical injuries to the
passengers and crew of the two buses, including the death of Coner who was the driver
of the Inland Bus at the time of the incident. Paras was not spared from the pernicious
effects of the accident. Paras underwent two (2) operations affecting the fractured
portions of his body. Paras filed a complaint for damages based on breach of contract of
carriage against Inland. In its answer, defendant Inland denied responsibility, by
alleging , among others, that its driver Coner had observed an utmost and
extraordinary care and diligence that the Philtranco bus driver of [sic] Apolinar Miralles
was the one which violently bumped the rear portion of the Inland bus, and therefore,
the direct and proximate cause of Paras’ injuries. Inland filed a third-party complaint
against Philtranco and Apolinar Miralles (Third Party defendants)

RTC rendered its judgment on July 18, 1997,1 viz: WHEREFORE, third-party defendant
Philtranco and Apolinar Miralles are hereby ordered to pay plaintiff jointly and
severally, the following amounts: 1.₱54,000.00 as actual damages; 2.₱50,000.00 as moral
damages; 3.₱20,000.00 as attorney’s fees and costs.

CA Paras: that the RCT erred in not holding Inland as liable Inland: that the RTC erred
in not awarding damages to them Philtranco: that the RTC erred in awarding actual
damages greater than what is alleged in the complaint WHEREFORE, in consideration
of the foregoing premises, the assailed decision dated 18 July 19(9)7 is perforce affirmed
with the following modifications: 1. Third party defendants-appellants Philtranco and
Apolinar Miralles are ordered to pay plaintiffappellant Felix Paras jointly and severally
the following amounts: a) ₱1,397.95 as actual damages; b) ₱50,000.00 as temperate
damages; c) ₱50,000.00 as moral damages; and d) ₱20,000.00 as attorney’s fees and costs
of suit. 2. On the third party plaintiff-appellant Inland’s claims, the third party
defendant-appellants Philtranco and Apolinar Miralles are hereby ordered to pay the
former (Inland) jointly and severally the amount of ₱250,000.00 as and by way of
temperate damages

ISSUES 1. WON Paras is entitled to moral damages despite the fact that the complaint
had been anchored on breach of contract- YES

2. WON CA can award temperate dames despite the fact that it was not raised by the
claimants – YES

HELD
1. Although this action does not fall under either of the exceptions, the award of
moral damages to Paras was nonetheless proper and valid on the theory of
liability that the proximate cause of the collision between Inland’s bus and
Philtranco’s bus had been "the negligent, reckless and imprudent manner
defendant Apolinar Miralles drove and operated his driven unit, the Philtranco
Bus Impleading Philtranco and its driver through the third-party complaint filed
on March 2, 1990 was correct. The device of the third-party action, also known as
impleader, was in accord with Section 12, Rule 6 of the Revised Rules of Court
Paras’ cause of action against Inland (breach of contract of carriage) did not need
to be the same as the cause of action of Inland against Philtranco and its driver
(tort or quasi-delict) in the impleader. It is settled that a defendant in a contract
action may join as third-party defendants those who may be liable to him in tort
for the plaintiff’s claim against him, or even directly to the plaintiff.

2. In awarding temperate damages in lieu of actual damages, the CA did not err,
because Paras and Inland were definitely shown to have sustained substantial
pecuniary losses. There is no question that Article 2224 of the Civil Code
expressly authorizes the courts to award temperate damages despite the lack of
certain proof of actual damages, to wit:

Article 2224. Temperate or moderate damages, which are more than nominal but
less than compensatory damages, may be recovered when the court finds that
some pecuniary loss has been suffered but its amount cannot, from the nature of
the case, be proved with certainty. 3. Paras’ loss of earning capacity must be
compensated The omission should be rectified, for there was credible proof of
Paras’ loss of income during his disability. According to Article 2205, (1), of the
 Civil Code, damages may be recovered for loss or impairment of earning
capacity in cases of temporary or permanent personal injury. 4. Increase in award
of attorney’s fees having been compelled to litigate or to incur expenses to
protect their interests, 35 as well as by virtue of the Court now further deeming
attorney’s fees to be just and equitable.

G.R. No. 161909               April 25, 2012

PHILTRANCO SERVICE ENTERPRISES, INC., Petitioner,

vs.
FELIX PARAS AND INLAND TRAILWAYS, INC., AND HON. COURT OF
APPEALS, Respondents.

DECISION

BERSAMIN, J.:

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

Philtranco Service Enterprises, Inc. (Philtranco) appeals the affirmance with modifications by the
Court of Appeals (CA) of the decision of the Regional Trial Court (RTC) awarding moral, actual and
temperate damages, as well as attorney’s fees and costs of suit, to respondent Felix Paras (Paras),
and temperate damages to respondent Inland Trailways, Inc. (Inland), respectively the plaintiff and
the defendant/third-party plaintiff in this action for breach of contract of carriage, upon a finding that
the negligence of the petitioner and its driver had caused the serious physical injuries Paras
sustained and the material damage Inland’s bus suffered in a vehicular accident.

Antecedents

The antecedent facts, as summarized by the CA, are as follows:

Plaintiff-appellant [respondent] Felix Paras (Paras for brevity), who hails from Cainta, Rizal is
engaged in the buy and sell of fish products. Sometime on 08 February 1987, on his way home to
Manila from Bicol Region, he boarded a bus with Body No. 101 and Plate No. EVE 508, owned and
operated by Inland Trailways, Inc. (Inland for brevity) and driven by its driver Calvin Coner (Coner for
brevity).

At approximately 3:50 o’clock in the morning of 09 February 1987, while the said bus was travelling
along Maharlika Highway, Tiaong, Quezon, it was bumped at the rear by another bus with Plate No.
EVB 259, owned and operated by Philtranco Service Enterprises, Inc. (Philtranco for brevity). As a
result of the strong and violent impact, the Inland bus was pushed forward and smashed into a cargo
truck parked along the outer right portion of the highway and the shoulder thereof. Consequently, the
said accident bought considerable damage to the vehicles involved and caused physical injuries to
the passengers and crew of the two buses, including the death of Coner who was the driver of the
Inland Bus at the time of the incident.

Paras was not spared from the pernicious effects of the accident. After an emergency treatment at
the San Pablo Medical Center, San Pablo City, Laguna, Paras was taken to the National Orthopedic
Hospital. At the latter hospital, he was found and diagnosed by Dr. Antonio Tanchuling, Jr. to be
affected with the following injuries: a) contusion/hematoma; b) dislocation of hip upon fracture of the
fibula on the right leg; c) fractured small bone on the right leg; and d) close fracture on the tibial
plateau of the left leg. (Exh. "A", p. 157, record)

On 04 March 1987 and 15 April 1987, Paras underwent two (2) operations affecting the fractured
portions of his body. (Exhs. "A-2" and "A-3", pp. 159 and 160 respectively, record)

Unable to obtain sufficient financial assistance from Inland for the costs of his operations,
hospitalization, doctors’ fees and other miscellaneous expenses, on 31 July 1989, Paras filed a
complaint for damages based on breach of contract of carriage against Inland.

In its answer, defendant Inland denied responsibility, by alleging, among others, that its driver Coner
had observed an utmost and extraordinary care and diligence to ensure the safety of its passengers.
In support of its disclaimer of responsibility, Inland invoked the Police Investigation Report which
established the fact that the Philtranco bus driver of [sic] Apolinar Miralles was the one which
violently bumped the rear portion of the Inland bus, and therefore, the direct and proximate cause of
Paras’ injuries.

On 02 March 1990, upon leave of court, Inland filed a third-party complaint against Philtranco and
Apolinar Miralles (Third Party defendants). In this third-party complaint, Inland, sought for
exoneration of its liabilities to Paras, asserting that the latter’s cause of action should be directed
against Philtranco considering that the accident was caused by Miralles’ lack of care, negligence and
reckless imprudence. (pp. 50 to 56, records).

After trial, the RTC (Branch 71) in Antipolo, Rizal rendered its judgment on July 18, 1997, viz:
1 

WHEREFORE, third-party defendant Philtranco and Apolinar Miralles are hereby ordered to pay
plaintiff jointly and severally, the following amounts:

1.₱54,000.00 as actual damages;

2.₱50,000.00 as moral damages;

3.₱20,000.00 as attorney’s fees and costs.

SO ORDERED.

All the parties appealed to the CA on different grounds.

On his part, Paras ascribed the following errors to the RTC, to wit:

I. THE TRIAL COURT ERRED IN HOLDING THAT ONLY THIRD-PARTY DEFENDANT-

APPELLANT PHILTRANCO IS LIABLE FOR THE DAMAGES SUFFERED BY APPELLANT
PARAS.
 II. THE TRIAL COURT ERRED IN NOT HOLDING APPELLANT INLAND TRAILWAYS INC.
TO BE JOINTLY AND SEVERALLY LIABLE FOR THE DAMAGES SUFFERED BY PARAS.

III. THE TRIAL COURT ERRED IN NOT AWARDING UNEARNED INCOME AS

ADDITIONAL ACTUAL DAMAGES SUFFERED BY APPELLANT PARAS AS HIS
PHYSICAL DISABILITY IS PERMANENT IN NATURE.

IV. THE TRIAL COURT ERRED IN NOT AWARDING EXEMPLARY DAMAGES IN FAVOR
OF APPELLANT PARAS.

On the other hand, Inland assigned the following errors to the RTC, namely:

THE TRIAL COURT ERRED WHEN IT FAILED TO AWARD DAMAGES UNTO THE THIRD PARTY
PLAINTIFF NOTWITHSTANDING CLEAR FINDING THAT:

‘It is clear from the evidence that the plaintiff sustained injuries because of the reckless, negligence,
and lack of precaution of third party defendant Apolinar Miralles, an employee of Philtranco.’

AND, COMPLETELY DISREGARDED THE UNCONTROVERTED ORAL AND DOCUMENTARY

EVIDENCES ESTABLISHING THE EXTENT AND DEGREE OF DAMAGES SUSTAINED BY THE
THIRD PARTY PLAINTIFF.

Lastly, Philtranco stated that the RTC erred thuswise:

THE COURT A QUO MISERABLY ERRED IN AWARDING ACTUAL DAMAGES GREATER

THAN WHAT WAS ALLEGED IN THE COMPLAINT ITSELF, AND EVEN MUCH MORE
GREATER THAN WHAT WERE PROVED DURING THE TRIAL, HENCE, PERPETUATING
UNJUST ENRICHMENT.

II

THE COURT A QUO SERIOUSLY ERRED IN AWARDING MORAL DAMAGES TO A

CAUSE OF ACTION OF CULPA-CONTRACTUAL EVEN WITHOUT ANY EVIDENCE OF
GROSS BAD FAITH; HENCE, CONTRARY TO THE ESTABLISHED DOCTRINE IN THE
CASES OF PHIL. RABBIT BUS LINES VS. ESGUERRA; SOBERANO VS. BENGUET
AUTO LINE AND FLORES VS. MIRANDA.

III

THE COURT A QUO MISERABLY ERRED IN HOLDING THAT MIRALLES WAS THE ONE
AT FAULT MERELY ON THE STRENGHT OF THE TESTIMONY OF THE POLICE
INVESTIGATOR WHICH IS IN TURN BASED ON THE STATEMENTS OF ALLEGED
WITNESSES WHO WERE NEVER PRESENTED ON THE WITNESS STAND.

IV

THE COURT A QUO COMMITTED A GRIEVOUS ERROR IN DISREGARDING THE

TESTIMONY OF APPELLANTS’ WITNESSES WHO TESTIFIED AS TO THE DEFENSE OF
 EXERCISE OF DUE DILIGENCE IN THE SELECTION AND SUPERVISION OF
EMPLOYEES PURSUANT TO ART. 2180, LAST PARAGRAPH, NEW CIVIL CODE.

On September 25, 2002, the CA promulgated its decision, disposing:

2 

WHEREFORE, in consideration of the foregoing premises, the assailed decision dated 18 July
19(9)7 is perforce affirmed with the following modifications:

1. Third party defendants-appellants Philtranco and Apolinar Miralles are ordered to pay
plaintiff-appellant Felix Paras jointly and severally the following amounts:

a) ₱1,397.95 as actual damages;

b) ₱50,000.00 as temperate damages;

c) ₱50,000.00 as moral damages; and

d) ₱20,000.00 as attorney’s fees and costs of suit.

2. On the third party plaintiff-appellant Inland’s claims, the third party defendant-appellants
Philtranco and Apolinar Miralles are hereby ordered to pay the former (Inland) jointly and
severally the amount of ₱250,000.00 as and by way of temperate damages.

SO ORDERED.

The CA agreed with the RTC’s finding that no trace of negligence at the time of the accident was
attributable to Inland’s driver, rendering Inland not guilty of breach of contract of carriage; that faulty
brakes had caused Philtranco’s bus to forcefully bump Inland’s bus from behind, making it hit the
rear portion of a parked cargo truck; that the impact had resulted in considerable material damage to
the three vehicles; and that Paras and others had sustained various physical injuries.

Accordingly, the CA:– (a) sustained the award of moral damages of ₱50,000.00 in favor of Paras
pursuant to Article 2219 of the Civil Code based on quasi-delict committed by Philtranco and its
driver; (b) reduced the actual damages to be paid by Philtranco to Paras from ₱54,000.00 to
₱1,397.95 because only the latter amount had been duly supported by receipts; (c) granted
temperate damages of ₱50,000.00 (in lieu of actual damages in view of the absence of competent
proof of actual damages for his hospitalization and therapy) to be paid by Philtranco to Paras; and
(d) awarded temperate damages of ₱250,000.00 under the same premise to be paid by Philtranco to
Inland for the material damage caused to Inland’s bus.

Philtranco moved for reconsideration, but the CA denied its motion for reconsideration on January
3 

21, 2004. 4

Issues

Hence, this appeal, in which the petitioner submits that the CA committed grave abuse of discretion
amounting to lack of jurisdiction in awarding moral damages to Paras despite the fact that the
complaint had been anchored on breach of contract of carriage; and that the CA committed a
reversible error in substituting its own judgment by motu proprio awarding temperate damages of
₱250,000.00 to Inland and ₱50,000.00 to Paras despite the clear fact that temperate damages were
not raised on appeal by Paras and Inland.
 Ruling

The appeal lacks merit.

The Court does not disturb the unanimous findings by the CA and the RTC on the negligence of
Philtranco and its driver being the direct cause of the physical injuries of Paras and the material
damage of Inland.

Nonetheless, we feel bound to pass upon the disparate results the CA and the RTC reached on the
liabilities of Philtranco and its driver.

1.

Paras can recover moral damages

in this suit based on quasi-delict

Philtranco contends that Paras could not recover moral damages because his suit was based on
breach of contract of carriage, pursuant to which moral damages could be recovered only if he had
died, or if the common carrier had been guilty of fraud or bad faith. It argues that Paras had suffered
only physical injuries; that he had not adduced evidence of fraud or bad faith on the part of the
common carrier; and that, consequently, Paras could not recover moral damages directly from it
(Philtranco), considering that it was only being subrogated for Inland.

The Court cannot uphold the petitioner’s contention.

As a general rule, indeed, moral damages are not recoverable in an action predicated on a breach of
contract. This is because such action is not included in Article 2219 of the Civil Code as one of the
5 

actions in which moral damages may be recovered. By way of exception, moral damages are
recoverable in an action predicated on a breach of contract: (a) where the mishap results in the
death of a passenger, as provided in Article 1764, in relation to Article 2206, (3), of the Civil Code;
6  7 

and (b) where the common carrier has been guilty of fraud or bad faith, as provided in Article
8 

2220 of the Civil Code.

9 

Although this action does not fall under either of the exceptions, the award of moral damages to
Paras was nonetheless proper and valid. There is no question that Inland filed its third-party
complaint against Philtranco and its driver in order to establish in this action that they, instead of
Inland, should be directly liable to Paras for the physical injuries he had sustained because of their
negligence. To be precise, Philtranco and its driver were brought into the action on the theory of
liability that the proximate cause of the collision between Inland’s bus and Philtranco’s bus had been
"the negligent, reckless and imprudent manner defendant Apolinar Miralles drove and operated his
driven unit, the Philtranco Bus with Plate No. 259, owned and operated by third-party defendant
Philtranco Service Enterprises, Inc." The apparent objective of Inland was not to merely subrogate
10 

the third-party defendants for itself, as Philtranco appears to suggest, but, rather, to obtain a
11 

different relief whereby the third-party defendants would be held directly, fully and solely liable to
Paras and Inland for whatever damages each had suffered from the negligence committed by
Philtranco and its driver. In other words, Philtranco and its driver were charged here as joint
tortfeasors who would be jointly and severally be liable to Paras and Inland.

Impleading Philtranco and its driver through the third-party complaint filed on March 2, 1990 was
correct. The device of the third-party action, also known as impleader, was in accord with Section
12, Rule 6 of the Revised Rules of Court, the rule then applicable, viz:
Section 12. Third-party complaint. – A third-party complaint is a claim that a defending party may,
with leave of court, file against a person not a party to the action, called the third-party defendant, for
contribution, indemnity, subrogation or any other relief, in respect of his opponent’s claim. 12

Explaining the application of Section 12, Rule 6, supra, the Court said in Balbastro v. Court of
Appeals, to wit:
13 

Section 12 of Rule 6 of the Revised Rules of Court authorizes a defendant to bring into a lawsuit any
person "not a party to the action . . . for contribution, indemnity, subrogation or any other relief in
respect of his opponent's claim." From its explicit language it does not compel the defendant to bring
the third-parties into the litigation, rather it simply permits the inclusion of anyone who meets the
standard set forth in the rule. The secondary or derivative liability of the third-party is central —
whether the basis is indemnity, subrogation, contribution, express or implied warranty or some other
theory. The impleader of new parties under this rule is proper only when a right to relief exists under
the applicable substantive law. This rule is merely a procedural mechanism, and cannot be utilized
unless there is some substantive basis under applicable law.

Apart from the requirement that the third-party complainant should assert a derivative or secondary
claim for relief from the third-party defendant there are other limitations on said party’s ability to
implead. The rule requires that the third-party defendant is "not a party to the action" for otherwise
the proper procedure for asserting a claim against one who is already a party to the suit is by means
of counterclaim or cross-claim under sections 6 and 7 of Rule 6. In addition to the aforecited
requirement, the claim against the third-party defendant must be based upon plaintiff's claim against
the original defendant (third-party claimant). The crucial characteristic of a claim under section 12 of
Rule 6, is that the original "defendant is attempting to transfer to the third-party defendant the liability
asserted against him by the original plaintiff."

Accordingly, the requisites for a third-party action are, firstly, that the party to be impleaded must not
yet be a party to the action; secondly, that the claim against the third-party defendant must belong to
the original defendant; thirdly, the claim of the original defendant against the third-party defendant
must be based upon the plaintiff’s claim against the original defendant; and, fourthly, the defendant
is attempting to transfer to the third-party defendant the liability asserted against him by the original
plaintiff.
14

As the foregoing indicates, the claim that the third-party complaint asserts against the third-party
defendant must be predicated on substantive law. Here, the substantive law on which the right of
Inland to seek such other relief through its third-party complaint rested were Article 2176 and Article
2180 of the Civil Code, which read:

Article 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-
existing contractual relation between the parties, is called a quasi-delict and is governed by the
provisions of this chapter. (1902a)

Article 2180. The obligation imposed by article 2176 is demandable not only for one’s own acts or
omissions, but also for those of persons for whom one is responsible.

xxx

Employers shall be liable for the damages caused by their employees and household helpers acting
within the scope of their assigned tasks, even though the former are not engaged in any business or
industry.
 xxx

The responsibility treated of in this article shall cease when the persons herein mentioned prove that
they observed all the diligence of a good father of a family to prevent damage. (1903a)

Paras’ cause of action against Inland (breach of contract of carriage) did not need to be the same as
the cause of action of Inland against Philtranco and its driver (tort or quasi-delict) in the impleader. It
is settled that a defendant in a contract action may join as third-party defendants those who may be
liable to him in tort for the plaintiff’s claim against him, or even directly to the plaintiff. Indeed, Prof.
15 

Wright, et al., commenting on the provision of the Federal Rules of Procedure of the United States
from which Section 12, supra, was derived, observed so, to wit: 16

The third-party claim need not be based on the same theory as the main claim. For example, there
are cases in which the third-party claim is based on an express indemnity contract and the original
complaint is framed in terms of negligence. Similarly, there need not be any legal relationship
between the third-party defendant and any of the other parties to the action. Impleader also is proper
even though the third party’s liability is contingent, and technically does not come into existence until
the original defendant’s liability has been established. In addition, the words ‘is or may be liable’ in
Rule 14(a) make it clear that impleader is proper even though the third-party defendant’s liability is
not automatically established once the third-party plaintiff’s liability to the original plaintiff has been
determined.

Nor was it a pre-requisite for attachment of the liability to Philtranco and its driver that Inland be first
declared and found liable to Paras for the breach of its contract of carriage with him. As the Court
17 

has cogently discoursed in Samala v. Judge Victor: 18

Appellants argue that since plaintiffs filed a complaint for damages against the defendants on a
breach of contract of carriage, they cannot recover from the third-party defendants on a cause of
action based on quasi-delict. The third party defendants, they allege, are never parties liable with
respect to plaintiff s claim although they are with respect to the defendants for indemnification,
subrogation, contribution or other reliefs. Consequently, they are not directly liable to the plaintiffs.
Their liability commences only when the defendants are adjudged liable and not when they are
absolved from liability as in the case at bar.

Quite apparent from these arguments is the misconception entertained by appellants with respect to
the nature and office of a third party complaint.

Section 16, Rule 6 of the Revised Rules of Court defines a third party complaint as a "claim that a
defending party may, with leave of court, file against a person not a party to the action, called the
third-party defendant, for contribution, indemnification, subrogation, or any other relief, in respect of
his opponent’s claim." In the case of Viluan vs. Court of Appeals, et al., 16 SCRA 742 [1966], this
Court had occasion to elucidate on the subjects covered by this Rule, thus:

... As explained in the Atlantic Coast Line R. Co. vs. U.S. Fidelity & Guaranty Co., 52 F. Supp. 177
(1943:)

‘From the sources of Rule 14 and the decisions herein cited, it is clear that this rule, like the
admiralty rule, ‘covers two distinct subjects, the addition of parties defendant to the main cause of
action, and the bringing in of a third party for a defendant’s remedy over’. xxx
‘If the third party complaint alleges facts showing a third party’s direct liability to plaintiff on the claim
set out in plaintiff’s petition, then third party ‘shall’ make his defenses as provided in Rule 12 and his
counterclaims against plaintiff as provided in Rule 13. In the case of alleged direct liability, no
amendment (to the complaint) is necessary or required. The subject-matter of the claim is contained
in plaintiff's complaint, the ground of third party’s liability on that claim is alleged in third party
complaint, and third party’s defense to set up in his answer to plaintiff's complaint. At that point and
without amendment, the plaintiff and third party are at issue as to their rights respecting the claim.

The provision in the rule that, ‘The third-party defendant may assert any defense which the third-
party plaintiff may assert to the plaintiffs claim,’ applies to the other subject, namely, the alleged
liability of third party defendant. The next sentence in the rule, ‘The third-party defendant is bound by
the adjudication of the third party plaintiffs liability to the plaintiff, as well as of his own to the plaintiff
or to the third-party plaintiff applies to both subjects. If third party is brought in as liable only to
defendant and judgment is rendered adjudicating plaintiff's right to recover against defendant and
defendant’s rights to recover against third party, he is bound by both adjudications.That part of the
sentence refers to the second subject. If third party is brought in as liable to plaintiff, then third party
is bound by the adjudication as between him and plaintiff. That refers to the first subject. If third party
is brought in as liable to plaintiff and also over to defendant, then third party is bound by both
adjudications. xxx

Under this Rule, a person not a party to an action may be impleaded by the defendant either (a) on
an allegation of liability to the latter; (b) on the ground of direct liability to the plaintiff-; or, (c) both (a)
and (b). The situation in (a) is covered by the phrase "for contribution, indemnity or subrogation;"
while (b) and (c) are subsumed under the catch all "or any other relief, in respect of his opponent’s
claim."

The case at bar is one in which the third party defendants are brought into the action as directly
liable to the plaintiffs upon the allegation that "the primary and immediate cause as shown by the
police investigation of said vehicular collision between (sic) the above-mentioned three vehicles was
the recklessness and negligence and lack of imprudence (sic) of the third-party defendant Virgilio
(should be Leonardo) Esguerra y Ledesma then driver of the passenger bus." The effects are that
"plaintiff and third party are at issue as to their rights respecting the claim" and "the third party is
bound by the adjudication as between him and plaintiff." It is not indispensable in the premises that
the defendant be first adjudged liable to plaintiff before the third-party defendant may be held liable
to the plaintiff, as precisely, the theory of defendant is that it is the third party defendant, and not he,
who is directly liable to plaintiff. The situation contemplated by appellants would properly pertain to
situation (a) above wherein the third party defendant is being sued for contribution, indemnity or
subrogation, or simply stated, for a defendant's "remedy over". 19

It is worth adding that allowing the recovery of damages by Paras based on quasi-delict, despite his
complaint being upon contractual breach, served the judicial policy of avoiding multiplicity of suits
and circuity of actions by disposing of the entire subject matter in a single litigation. 20

2.

Award of temperate damages was in order

Philtranco assails the award of temperate damages by the CA considering that, firstly, Paras and
Inland had not raised the matter in the trial court and in their respective appeals; secondly, the CA
could not substitute the temperate damages granted to Paras if Paras could not properly establish
his actual damages despite evidence of his actual expenses being easily available to him; and,
thirdly, the CA gravely abused its discretion in granting motu proprio the temperate damages of
₱250,000.00 to Inland although Inland had not claimed temperate damages in its pleading or during
trial and even on appeal.

The Court cannot side with Philtranco.

Actual damages, to be recoverable, must not only be capable of proof, but must actually be proved
with a reasonable degree of certainty. The reason is that the court "cannot simply rely on
speculation, conjecture or guesswork in determining the fact and amount of damages," but "there
must be competent proof of the actual amount of loss, credence can be given only to claims which
are duly supported by receipts."21

The receipts formally submitted and offered by Paras were limited to the costs of medicines
purchased on various times in the period from February 1987 to July 1989 (Exhibits E to E-35,
inclusive) totaling only ₱1,397.95. The receipts by no means included hospital and medical
22 

expenses, or the costs of at least two surgeries as well as rehabilitative therapy. Consequently, the
CA fixed actual damages only at that small sum of ₱1,397.95. On its part, Inland offered no definite
proof on the repairs done on its vehicle, or the extent of the material damage except the testimony of
its witness, Emerlinda Maravilla, to the effect that the bus had been damaged beyond economic
repair. The CA rejected Inland’s showing of unrealized income worth ₱3,945,858.50 for 30 months
23 

(based on alleged average weekly income of ₱239,143.02 multiplied by its guaranteed revenue
amounting to 55% thereof, then spread over a period of 30 months, the equivalent to the remaining
40% of the vehicle’s un-depreciated or net book value), finding such showing arbitrary, uncertain and
speculative. As a result, the CA allowed no compensation to Inland for unrealized income.
24 

Nonetheless, the CA was convinced that Paras should not suffer from the lack of definite proof of his
actual expenses for the surgeries and rehabilitative therapy; and that Inland should not be deprived
of recourse to recover its loss of the economic value of its damaged vehicle. As the records
indicated, Paras was first rushed for emergency treatment to the San Pablo Medical Center in San
Pablo City, Laguna, and was later brought to the National Orthopedic Hospital in Quezon City where
he was diagnosed to have suffered a dislocated hip, fracture of the fibula on the right leg, fracture of
the small bone of the right leg, and closed fracture on the tibial plateau of the left leg. He underwent
surgeries on March 4, 1987 and April 15, 1987 to repair the fractures. Thus, the CA awarded to him
25 

temperate damages of ₱50,000.00 in the absence of definite proof of his actual expenses towards
that end. As to Inland, Maravilla’s testimony of the bus having been damaged beyond economic
repair showed a definitely substantial pecuniary loss, for which the CA fixed temperate damages of
₱250,000.00. We cannot disturb the CA’s determination, for we are in no position today to judge its
reasonableness on account of the lapse of a long time from when the accident occurred. 26

In awarding temperate damages in lieu of actual damages, the CA did not err, because Paras and
Inland were definitely shown to have sustained substantial pecuniary losses. It would really be a
travesty of justice were the CA now to be held bereft of the discretion to calculate moderate or
temperate damages, and thereby leave Paras and Inland without redress from the wrongful act of
Philtranco and its driver. We are satisfied that the CA exerted effort and practiced great care to
27 

ensure that the causal link between the physical injuries of Paras and the material loss of Inland, on
the one hand, and the negligence of Philtranco and its driver, on the other hand, existed in fact. It
also rejected arbitrary or speculative proof of loss. Clearly, the costs of Paras’ surgeries and
consequential rehabilitation, as well as the fact that repairing Inland’s vehicle would no longer be
economical justly warranted the CA to calculate temperate damages of ₱50,000.00 and
₱250,000.00 respectively for Paras and Inland.

There is no question that Article 2224 of the Civil Code expressly authorizes the courts to award
temperate damages despite the lack of certain proof of actual damages, to wit:
Article 2224. Temperate or moderate damages, which are more than nominal but less than
compensatory damages, may be recovered when the court finds that some pecuniary loss has been
suffered but its amount cannot, from the nature of the case, be proved with certainty.

The rationale for Article 2224 has been stated in Premiere Development Bank v. Court of Appeals in 28 

the following manner:

Even if not recoverable as compensatory damages, Panacor may still be awarded damages in the
concept of temperate or moderate damages. When the court finds that some pecuniary loss has
been suffered but the amount cannot, from the nature of the case, be proved with certainty,
temperate damages may be recovered. Temperate damages may be allowed in cases where from
the nature of the case, definite proof of pecuniary loss cannot be adduced, although the court is
convinced that the aggrieved party suffered some pecuniary loss.

The Code Commission, in explaining the concept of temperate damages under Article 2224, makes
the following comment:

In some States of the American Union, temperate damages are allowed. There are cases where
from the nature of the case, definite proof of pecuniary loss cannot be offered, although the court is
convinced that there has been such loss. For instance, injury to one’s commercial credit or to the
goodwill of a business firm is often hard to show with certainty in terms of money. Should damages
be denied for that reason? The judge should be empowered to calculate moderate damages in such
cases, rather than that the plaintiff should suffer, without redress from the defendant’s wrongful act.

3.

Paras’ loss of earning capacity

must be compensated

In the body of its decision, the CA concluded that considering that Paras had a minimum monthly
income of ₱8,000.00 as a trader he was entitled to recover compensation for unearned income
during the 3-month period of his hospital confinement and the 6-month period of his recovery and
rehabilitation; and aggregated his unearned income for those periods to ₱72,000.00. Yet, the CA
29 

omitted the unearned income from the dispositive portion.

The omission should be rectified, for there was credible proof of Paras’ loss of income during his
disability. According to Article 2205, (1), of the Civil Code, damages may be recovered for loss or
impairment of earning capacity in cases of temporary or permanent personal injury. Indeed,
indemnification for damages comprehends not only the loss suffered (actual damages or damnum
emergens) but also the claimant’s lost profits (compensatory damages or lucrum cessans). Even so,
30 

the formula that has gained acceptance over time has limited recovery to net earning capacity;
hence, the entire amount of ₱72,000.00 is not allowable. The premise is obviously that net earning
capacity is the person’s capacity to acquire money, less the necessary expense for his own
living. To simplify the determination, therefore, the net earning capacity of Paras during the 9-month
31 

period of his confinement, surgeries and consequential therapy is pegged at only half of his
unearned monthly gross income of ₱8,000.00 as a trader, or a total of ₱36,000.00 for the 9-month
period, the other half being treated as the necessary expense for his own living in that period.

It is relevant to clarify that awarding the temperate damages (for the substantial pecuniary losses
corresponding to Paras’s surgeries and rehabilitation and for the irreparability of Inland’s damaged
bus) and the actual damages to compensate lost earnings and costs of medicines give rise to no
incompatibility. These damages cover distinct pecuniary losses suffered by Paras and Inland, and 32 
do not infringe the statutory prohibition against recovering damages twice for the same act or
omission. 33

4.

Increase in award of attorney’s fees

Although it is a sound policy not to set a premium on the right to litigate, we consider the grant to
34 

Paras and Inland of reasonable attorney’s fees warranted. Their entitlement to attorney’s fees was
by virtue of their having been compelled to litigate or to incur expenses to protect their interests, as
35 

well as by virtue of the Court now further deeming attorney’s fees to be just and equitable. 36

In view of the lapse of a long time in the prosecution of the claim, the Court considers it reasonable
37 

and proper to grant attorney’s fees to each of Paras and Inland equivalent to 10% of the total
amounts hereby awarded to them, in lieu of only ₱20,000.00 for that purpose granted to Paras.

5.

Legal interest on the amounts awarded

Pursuant to Eastern Shipping Lines, Inc. v. Court of Appeals, legal interest at the rate of 6% per
38 

annum accrues on the amounts adjudged reckoned from July 18, 1997, the date when the RTC
rendered its judgment; and legal interest at the rate of 12% per annum shall be imposed from the
finality of the judgment until its full satisfaction, the interim period being regarded as the equivalent of
a forbearance of credit.

WHEREFORE, the Court AFFIRMS WITH MODIFICATION the decision of the Court of Appeals
promulgated on September 25, 2002, by ordering PHILTRANCO SERVICE ENTERPRISES, INC.
and APOLINAR MIRALLES to pay, jointly and severally, as follows:

1. To Felix Paras:

(a) ₱1,397.95, as reimbursement for the costs of medicines purchased between

February 1987 and July 1989;

(b) ₱50,000.00 as temperate damages;

(c) ₱50,000.00 as moral damages;

(d) ₱36,000.00 for lost earnings;

(e) 10% of the total of items (a) to (d) hereof as attorney’s fees; and

(f) Interest of 6% per annum from July 18, 1997 on the total of items (a) to (d) hereof
until finality of this decision, and 12% per annum thereafter until full payment.

2. To Inland Trailways, Inc.:

(a) ₱250,000.00 as temperate damages;

 (b) 10% of item (a) hereof; and

(c) Interest of 6% per annum on item (a) hereof from July 18, 1997 until finality of this
decision, and 12% per annum thereafter until full payment.

3. The petitioner shall pay the costs of suit.

SO ORDERED

Toribio vs. Bidin

SEGUNDINO TORIBIO, EUSEBIA TORIBIO, and the HEIRS OF OLEGARIO TORIBIO,

represented by his widow, ADELA DE LOS REYES, petitioners, vs. THE HON. JUDGE
ABDULWAHID A. BIDIN, in his capacity as Presiding Judge, Branch I,
Court of First Instance, City of Zamboanga, DALMACIO RAMOS, and JUANITO
CAMACHO, respondents.
G.R. No. L-57821 January 17, 1985

FACTS: The present controversy stems from a complaint filed by the petitioners against
private respondents Dalmacio Ramos and Juanita Camacho. Engracio Francisco and
Juliana Esteban were the registered owners of the parcel of land Zamboanga. At the
death of said spouses, they were survived by their ten (10) children who inherited their
state in equal pro indiviso shares. Subsequently, the property was subdivided among
the heirs and a portion designated as Lot No. 1943-B was allotted to the Justa Francisco.
Justa died and was survived among by eight (8) children namely: Dionoso, Eufremia,
Alfonso, Rafael, Petrona, Olegario, Segundino and Eusebia, all surnamed Toribio, who
eight heirs, Eufremia, Alfonso and Petrona, sold their in the property to Ramon
Ledesma. Rafael also sold his share to Dionisio who, in turn, sold the same to Ramon
Ledesma. Thus, the latter acquired four (4) shares out of eight (8) shares, or a pro
indiviso share of Lot 1943-B. Subsequently, Dionisio sold his own hereditary share in
the aforesaid estate of his mother to Juanito Camacho, who by said sale acquired a 1/8
pro indiviso share of the property. Petitioners, Segundino Eusebia and Olegario alleged
that their shares had never been sold nor in any wise transferred or disposed to others
filed a case against herein private respondents for recovery of hereditary rights. Herein,
respondents then filed an answer alleging that Dioniso executed 2 deeds of sale in favor
of herein private respondents of which the trial court sustained its objection. Petitioners,
thereupon, filed a motion for reconsideration which was denied by the court. Hence,
this present petition for review on certiorari.

ISSUE:
1. WON THE DOCUMENT IS INCLUDED AS A NECESSARY PART OF THE
DEFENSE ASTO MAKE IT ACTIONABLE.
2. WON THE GENUINENESS AND DUE EXECUTION OF THE DEEDS EVIDENCING
THETWO TRANSACTIONS HAVE TO BE DENIED UNDER OATH?

HELD:
1. Yes. It is clear that the respondents anchor their defense on the deeds of sale by virtue
of which the hereditary rights of all the petitioners over Lot 1943-B were sold,
transferred, and conveyed in favor of their brother, Dionisio Toribio, who in turn sold
the same to herein respondents. The deed of sale executed by the petitioners in favor of
their brother Dionisio is an essential and indispensable part of their defense to the
allegation that the petitioners had never disposed of their property.
2. Yes. The petitioners are themselves parties to the deeds of sale which are sought to be
enforced against them. The complaint was filed by the petitioners. They filed suit to
recover their hereditary properties. The new owners introduced deeds of sale as their
main defense. In other words, the petitioners brought the issue upon themselves. They
should meet it properly according to the Rules of Court. Sections 7 and 8 of Rule 8,
therefore, apply.

G.R. No. L-57821 January 17, 1985

SEGUNDINO TORIBIO, EUSEBIA TORIBIO, and the HEIRS OF OLEGARIO TORIBIO,

represented by his widow, ADELA DE LOS REYES, petitioners,
vs.
THE HON. JUDGE ABDULWAHID A. BIDIN, in his capacity as Presiding Judge, Branch I,
Court of First Instance, City of Zamboanga, DALMACIO RAMOS, and JUANITO
CAMACHO, respondents.

GUTIERREZ, J.:

This petition is premised on the interpretation and application of Sections 7 and 8, Rule 8 of the
Revised Rules of Court on actionable documents, which state:

SEC. 7. Action or defense based on document. — Whenever an action or defense is

based upon a written instrument or document, the substance of such instrument or
document shall be set forth in the pleading, and the original or a copy thereof shall be
attached to the pleading as an exhibit, which shall be deemed to be a part of the
pleading, or said copy may with like effect be set forth in the pleading.

SEC. 8. How to contest genuineness of such documents. — When an action or

defense is founded upon a written instrument, copied in or attached to the
 corresponding pleading as provided in the preceding section, the genuineness and
due execution of the instrument shall be deemed admitted unless the adverse party,
under oath, specifically denies them, and sets forth what he claims to be the facts;
but this provision does not apply when the adverse party does not appear to be a
party to the instrument or when compliance with an order for an inspection of the
original instrument is refused.

The present controversy stems from a complaint filed by the petitioners against private respondents
Dalmacio Ramos and Juanita Camacho.

Engracio Francisco and Juliana Esteban were the registered owners of the parcel of land
Zamboanga. At the death of said spouses, they were survived by their ten (10) children who
inherited their state in equal pro indiviso shares. Subsequently, the property was subdivided among
the heirs and a portion designated as Lot No. 1943-B was allotted to the Justa Francisco. Justa died
and was survived among by eight (8) children namely: Dionoso, Eufremia, Alfonso, Rafael, Petrona,
Olegario, Segundino and Eusebia, all surnamed Toribio, who eight heirs, Eufremia, Alfonso and
Petrona, sold their in the property to Ramon Ledesma. Rafael also sold his share to Dinisio who, in
turn, sold the same to Ramon Ledesma. Thus, the latter acquired four (4) shares out of eight (8)
shares, or a ½ pro indiviso share of Lot 1943-B.

Subsequently, Dionisio sold his own hereditary share in the aforesaid estate of his mother to Juanito
Camacho, who by said sale acquired a 1/8 pro indiviso share of the property.

The three other heirs, petitioners Segundino Eusebia and Olegario alleging that their shares had
never been sold nor in any wise transferred or disposed to others filed a case against herein private
respondents for recovery of hereditary rights. How Juanito Camacho, who was entitled to only a total
area of 931 square meters, nor, how one Dalmacio Ramos, Jr., acquired ¼ share of the property
was allegedly not known to them.

In their answer, the defendants-respondents alleged that the shares of plaintiffs-petitioners had
likewise been sold to Dionisio Toribio, their brother, who, in turn, sold the same to Juanito Camacho
and Dalmacio Ramos. The alleged sale from petitioners to Dionisio and the sale from Dionisio to the
respondents were evidenced by deeds of sale, xerox copies of which were appended to and made
an integral part of the respondents' partition agreement between the respondents and also a xerox
copy of the respondents' transfer certificates of title.

While testifying during the trial, Eusebia Toribio was asked whether she executed any sale of her
share in the parcel of land in litigation. The counsel for private respondents objected, raising the
proper mode of contesting the genuineness of an actionable document pursuant to Sections 7 and 8,
Rule 8 of the Revised Rules of Court. The trial court sustained the objection.

Petitioners, thereupon, filed a constancia with a motion for reconsideration stating that the
documents submitted by the respondents were merely evidentiary in nature, not a cause of action or
defense, the due execution and genuineness of which they had to prove. They alleged that the
subject of litigation was the hereditary shares of plaintiffs-petitioners, not any document. They stated
that the defense consisting mainly of transfer certificates of titles in the respondents' names
originating from the sale from petitioners to Dionisio and from the latter to the respondents were
merely evidentiary in nature. They argued that a simple specific denial without oath is sufficient. The
court denied the motion for reconsideration. The documents attached to the respondents' answer
and made an integral part thereof were declared to be the very foundation or basis of the
respondents' defense and not merely evidentiary in nature. Hence, this petition for review on
certiorari.
The initial issue brought before us is whether or not the deeds of sale allegedly executed by the
petitioners in favor of their brother Dionisio Toribio and appended to the respondents' answer are
merely evidentiary in nature or the very foundation of their defense which must be denied under oath
by the petitioner.

The records show that the deeds of sale are actionable documents.

Jurisprudence has centered mainly on a discussion of actionable documents as basis of a plaintiff's

cause of action. Little has been said of actionable documents being the foundation of a defense. The
Rule, however, covers both an action or a defense based on documents.

The situation obtaining in the case at bar is not a common one. The usual case is between plaintiff
and defendant where, the latter, as his defense, would present a document to which both parties are
parties and which states that the former relinquishes his rights to the defendant. In the case at bar,
we have a situation where the defendant presented a document in his defense, a document to which
the plaintiff is a party but to which defendant is not. Thus, the question arises as to whether or not
the document is included as a necessary part of the defense so as to make it actionable.

The petitioners alleged in their complaint that their shares in the inheritance left by their mother were
never sold nor in any wise transferred or disposed to others.

The defendants, in their answers, declare:

xxx xxx xxx

... that the hereditary shares of plaintiffs OLEGARIO TORIBIO, SEGUNDINO

TORIBIO and EUSEBIA TORIBIO were likewise sold, transferred and conveyed, first
in favor of DIONISIO TORIBIO by virtue of two (2) deeds of sale executed in due
form on October 24, 1964 and November 2, 1964, respectively, and thereafter, by
DIONISIO TORIBIO in favor of defendants JUANITO A. CAMACHO and DALMACIO
C. RAMOS, JR., on November 11, 1964 as adverted to in the preceding paragraph,
as will be discussed further in the specific and/or affirmative defenses hereunder; ...

As heretofore alleged, the hereditary shares of all the plaintiffs herein in and over Lot
1943-B were all sold, transferred and conveyed in favor of DIONISIO TORIBIO
plaintiffs OLEGARIO TORIBIO and SEGUNDINO TORIBIO on October 24, 1964 and
that of plaintiff EUSEBIA TORIBIO on November 2, 1964, by virtue of two (2) deeds
of sale all of which were acknowledged before Notary Public for and within the City of
Zamboanga, Atty. Armando B. Torralba and entered as Doc. No. 6, Page No. 3,
Book No. IX, Series of 1964, respectively, in his notarial register, xerox copies of
which are appended hereto to form integral part hereof as Annexes "1" & "2",
respectively.

From the foregoing, it is clear that the respondents anchor their defense on the deeds of sale by
virtue of which the hereditary rights of all the petitioners over Lot 1943-B were sold, transferred, and
conveyed in favor of their brother, Dionisio Toribio, who in turn sold the same to herein respondents.
The deed of sale executed by the petitioners in favor of their brother Dionisio is an essential and
indispensable part of their defense to the allegation that the petitioners had never disposed of their
property.
The following question furnishes an absolute test as to the essentiality of any allegation: Can it be
made the subject of a material issue? In other words, if it be denied, win the failure to prove it decide
the case in whole or in part? If it will not, the fact is not essential. It is not one of those which
constitute the cause of action, defense, or reply (Sutherland's Code of Pleading, Practice and Forms,
p. 82). A fact is essential if it cannot be stricken out without leaving the statement of the cause of
action or defense insufficient.

Apart from alleging that the documents in this case are merely evidentiary, the petitioners also point
out that the deeds of sale purportedly executed by them were in favor of their brother, Dionisio, who
in turn executed deeds of sale in favor of the respondents. Under this circumstance, does the
genuineness and due execution of the deeds evidencing the two transactions have to be denied
under oath?

The deed of sale executed by Dionisio Toribio in favor of the respondents, by itself, would be
insufficient to establish a defense against the petitioners' claims. If the petitioners deny that they ever
sold their shares in the inherited lot to their brother Dionisio, a failure to prove the sale would be
decisive. For if it can be shown that no conveyance of the property was executed by the petitioners,
then Dionisio Toribio had no right to convey what did not belong to him. The respondents could
acquire only the rights that Dionisio had over the disputed property. The genuineness and due
execution of the deed between the co-heirs is also elemental to the defense of the respondents. The
first deeds of sale, to which the respondents were not parties but which they seek to enforce against
the parties are also actionable documents.

The petitioners further alleged that this case falls under the exception to Section 8, Rule 8 which
provides:

SECTION 8. ... but this provision does not apply when the adverse party does not
appear to be a party to the instrument.

As early as Lim-Chingco v. Terariray (5 Phil. 120), this Court gave the reason for the rule on
contesting actionable documents. The purpose is:

Reasonably construed, the purpose of the enactment (sec. 103) appears to have
been to relieve a party of the trouble and expense of proving in the first instance an
alleged fact, the existence or nonexistence of which is necessarily within the
knowledge of the adverse party, and of the necessity (to his opponent's case) of
establishing which such adverse party is notified by his opponent's pleading.

This being so, the documents have to be treated in like manner. The petitioners are themselves
parties to the deeds of sale which are sought to be enforced against them. The complaint was filed
by the petitioners. They filed suit to recover their hereditary properties. The new owners introduced
deeds of sale as their main defense. In other words, the petitioners brought the issue upon
themselves. They should meet it properly according to the Rules of Court.

Sections 7 and 8 of Rule 8, therefore, apply. The proper procedure was for the petitioners to
specifically deny under oath the genuineness and due execution of the questioned deeds of sale and
to set forth what they claim to be the facts. However, the oversight or negligence of petitioners'
counsel in not properly drafting a reply to the answer and an answer to the counter claim is not
necessarily fatal to their cause.

The facts of the case and equitable considerations constrain us to grant the petition and to set aside
the questioned order of the respondent court.
As stated earlier, the reason for the rule is to enable the adverse party to know beforehand whether
he will have to meet the issue of genuineness or due execution of the document during trial. (In re
Dick's Estate, 235 N.W. 401). While mandatory, the rule is a discovery procedure and must be
reasonably construed to attain its purpose, and in a way as not to effect a denial of substantial
justice. The interpretation should be one which assist the parties in obtaining a speedy, inexpensive,
and most important, a just determination of the disputed issues.

Paragraphs 11 and 13 of the petitioners' complaint reads:

xxx xxx xxx

11. That the share of herein Plaintiffs were never sold or in any wise transferred or
disposed to others;

xxx xxx xxx

13. That just how and by what means Defendant, JUANITO CAMACHO was able to
acquire the total area of 931 square meters, is not known; however, the acquisition
might have been effected, the same was in fraud of herein plaintiffs; and so with the
share of Defendant, DALMACIO C. RAMOS, Jr., herein Plaintiffs, jointly and/or
severally, do not know the person; and, however he might have acquired the said
share of ONE FOURTH (¼) of the property, was not from either, much less all of the
Plaintiffs;

xxx xxx xxx

The complaint was verified under oath by the petitioners.

The petitioners' counsel was obviously lulled into complacency by two factors. First, the plaintiffs,
now petitioners, had already stated under oath that they never sold, transferred, or disposed of their
shares in the inheritance to others. Second, the usual procedure is for a defendant to specifically
deny under oath the genuineness and due execution of documents set forth in and annexed to
the complaint. Somehow, it skipped counsel's attention that the rule refers to either an action or
a defense based upon a written instrument or document. It applies to both plaintiffs and defendants.

Under the facts of this case, the private respondents were placed on adequate notice by Paragraph
11 of the verified complaint that they would be caned upon during trial to prove the genuineness or
due execution of the disputed deeds of sale.

Moreover, the heirs of Olegario Toribio, his widow and minor children represented by their mother,
are among the plaintiffs-petitioners. They are not parties to the deeds of sale allegedly executed by
their father, aunt, and uncle. They are not required to deny the deeds of sale under oath. The private
respondents will still have to introduce evidence to establish that the deeds of sale are genuine and
that they were truly executed by the parties with authority to dispose of the disputed property.

It bears repeating that rules of procedure should be liberally construed to the end that substantial
justice may be served. As stated in Pongasi v. Court of Appeals (71 SCRA 614):

We repeat what We said in Obut v. Court of Appeals, et al., supra, that 'what should
guide judicial action is the principle that a party-litigant is to be given the fullest
 opportunity to establish the merits of his complaint or defense rather than for him to
lose life, liberty, honor or property on technicalities.

In dispensing justice Our action must reflect a deep insight into the failings of human
nature, a capability for making allowances for human error and/or negligence, and
the ability to maintain the scales of justice happily well-balanced between these
virtues and the application of the law.

An interpretation of a rule of procedure which would not deny to the petitioners their rights to their
inheritance is warranted by the circumstances of this case.

WHEREFORE, the order of the respondent court dated July 20, 1981 is hereby REVERSED and
SET ASIDE. The Regional Trial Court which took over the cases of the respondent court is ordered
to receive the petitioners' evidence regarding the genuineness and due execution of the disputed
deeds of sale.

SO ORDERED.

BOSTON EQUITY RESOURCES v. CA,

GR No. 173946, 2013-06-19

Facts:
Petition for Review on Certiorari seeking to reverse and set aside: (1) the Decision,[1]
dated 28 February 2006 and (2) the Resolution,[2] dated 1 August 2006 of the Court of
Appeals
The challenged decision granted herein respondent's petition for certiorari upon a
finding that the trial court committed grave abuse of discretion in denying respondent's
motion to dismiss the complaint against her.
the Court of Appeals reversed and set aside the Orders, dated 8 November 2004[4] and
22 December 2004,[5] respectively, of the Regional Trial Court (RTC)... petitioner filed a
complaint for sum of money with a prayer for the issuance of a writ of preliminary
attachment against the spouses Manuel and Lolita Toledo.
Herein respondent filed an Answer... in which she alleged, among others, that her
husband and co-defendant, Manuel Toledo (Manuel), is already dead.
petitioner filed a motion, dated 5 August 1999, to require respondent to disclose the
heirs of Manuel.
respondent submitted the required names and addresses of the heirs.[11] Petitioner then
filed a Motion for Substitution,[12] dated 18 January 2000, praying that Manuel be
substituted by his children as party-defendants. It appears that... this motion was
granted by the trial court in an Order dated 9 October 2000.
The trial of the case then proceeded.
the reception of evidence for herein respondent was cancelled upon agreement of the
parties.
respondent was given a period of fifteen days within which to file a demurrer to
evidence.
respondent instead filed a motion to dismiss the complaint, citing the following as
grounds: (1) that the complaint failed to implead an indispensable party or a real party
in interest; hence, the case must be dismissed for failure to state a cause of action; (2)...
that the trial court did not acquire jurisdiction over the person of Manuel pursuant to
Section 5, Rule 86 of the Revised Rules of Court; (3) that the trial court erred in ordering
the substitution of the deceased Manuel by his heirs; and (4) that the court must also
dismiss the... case against Lolita Toledo in accordance with Section 6, Rule 86 of the
Rules of Court.
The trial court, in an Order dated 8 November 2004, denied the motion to dismiss for
having been filed out of time, citing Section 1, Rule 16 of the 1997 Rules of Court
Respondent's motion for reconsideration of the order of denial was likewise denied on
the ground that "defendants' attack on the jurisdiction of this Court is now barred by
estoppel by laches" since... respondent failed to raise the issue despite several chances to
do so.
respondent filed a petition for certiorari with the Court of Appeals alleging that the trial
court seriously erred and gravely abused its discretion in denying her motion to dismiss
despite discovery, during the trial of the case, of evidence that would... constitute a
ground for dismissal of the case.
The Court of Appeals granted the petition
In this case, it is undisputed that when
[petitioner] Boston filed the complaint on December 24, 1997, defendant Manuel S.
Toledo was already dead, x x x. Such being the case, the court a quo could not have
acquired jurisdiction over the person of defendant Manuel S. Toledo.
However, x x x it is well-settled that issue on jurisdiction may be raised at any stage of
the proceeding, even for the first time on appeal. By timely raising the issue on
jurisdiction in her motion to dismiss x x x [respondent] is not estopped [from] raising
the question on jurisdiction. Moreover, when issue on jurisdiction was raised by
[respondent], the court a quo had not yet decided the case, hence, there is no basis for
the court a quo to invoke estoppel to justify its denial of the motion for...
reconsideration;
The complaint should have impleaded the estate of Manuel S. Toledo as defendant, not
only the wife, considering that the estate of Manuel S. Toledo is an... indispensable
party, which stands to be benefited or be injured in the outcome of the case. x x x
The Court of Appeals denied petitioner's motion for reconsideration.
Issues:
what is at issue here is the correctness of the trial court's orders denying respondent's
motion to dismiss
Ruling:
We find merit in the petition... the Court of Appeals erred in granting the writ of
certiorari in favor of respondent. Well settled is the rule that the special civil action for
certiorari is not the proper remedy to assail the denial by the trial court of a motion to
dismiss. The... order of the trial court denying a motion to dismiss is merely
interlocutory, as it neither terminates nor finally disposes of a case and still leaves
something to be done by the court before a case is finally decided on the merits.[21]
Therefore, "the... proper remedy in such a case is to appeal after a decision has been
rendered."[22]
A writ of certiorari is not intended to correct every controversial interlocutory ruling... it
is resorted only to correct a grave abuse of discretion or a whimsical exercise of
judgment equivalent to lack of jurisdiction
It is not designed to correct erroneous findings and conclusions made by the courts.
Even assuming that certiorari is the proper remedy, the trial court did not commit grave
abuse of discretion in denying respondent's motion to dismiss. It, in fact, acted correctly
when it issued the questioned orders as respondent's motion to dismiss was filed SIX
YEARS
AND FIVE MONTHS AFTER SHE FILED HER AMENDED ANSWER.
respondent's motion to dismiss was filed after petitioner has completed the presentation
of its evidence in the trial court,[25] giving credence to petitioner's and the trial court's
conclusion that the filing of the motion to dismiss was... a mere ploy on the part of
respondent to delay the prompt resolution of the case against her.
Also worth mentioning is the fact that respondent's motion to dismiss under
consideration herein is not the first motion to dismiss she filed in the trial court. It
appears that she had filed an earlier motion to dismiss[26] on the sole ground of the...
unenforceability of petitioner's claim under the Statute of Frauds, which motion was
denied by the trial court.
Respondent's act of filing multiple motions, such as the first and earlier motion to
dismiss and then the motion to dismiss at issue here, as well as several motions for
postponement, lends credibility to the position taken by petitioner, which is shared by
the trial court, that... respondent is deliberately impeding the early disposition of this
case.
jurisdiction over the person of Manuel should not be an issue in this case.
the concept of jurisdiction has several aspects, namely: (1) jurisdiction over the subject
matter; (2) jurisdiction over the parties; (3) jurisdiction over the issues of the case; and
(4) in cases involving... property, jurisdiction over the res or the thing which is the
subject of the litigation.
The aspect of jurisdiction which may be barred from being assailed as a result of
estoppel by laches is jurisdiction over the subject matter.
In all of these cases, the Supreme Court barred the attack on the jurisdiction of the
respective courts concerned over the subject matter of the case based on estoppel by
laches, declaring that parties cannot be allowed to belatedly adopt an inconsistent
posture by attacking the... jurisdiction of a court to which they submitted their cause
voluntarily.
Here, what respondent was questioning in her motion to dismiss before the trial court
was that court's jurisdiction over the person of defendant Manuel. Thus, the principle of
estoppel by laches finds no application in this case. Instead, the principles relating to
jurisdiction... over the person of the parties are pertinent herein.
the "objection on jurisdictional grounds which is not waived even if not alleged in a
motion to dismiss or the answer is lack of jurisdiction over the subject matter. x x x Lack
of jurisdiction over the subject matter can always be... raised anytime, even for the first
time on appeal, since jurisdictional issues cannot be waived x x x subject, however, to
the principle of estoppel by laches."
Since the defense of lack of jurisdiction over the person of a party to a case is not one of
those defenses which are not deemed waived under Section 1 of Rule 9, such defense
must be invoked when an answer or a motion to dismiss is filed in order to prevent a
waiver of... the defense.
The Court of Appeals, therefore, erred when it made a sweeping pronouncement in its
questioned decision, stating that "issue on jurisdiction may be raised at any stage of the
proceeding, even for the first time on appeal"... e "lack of jurisdiction over the person,
being subject to waiver, is a personal defense which can only be asserted by the party
who can thereby waive it by silence."
In the first place, jurisdiction over the person of Manuel was never acquired by the trial
court. A defendant is informed of a case against him when he receives summons.
In the case at bar, the trial court did not acquire jurisdiction over the person of Manuel
since there was no valid service of summons upon him, precisely because he was
already dead even before the complaint against him and his wife was filed in the trial
court.
The court's failure to acquire jurisdiction over one's... person is a defense which is
personal to the person claiming it.
Based on the foregoing pronouncements, there is no basis for dismissing the complaint
against respondent herein. Thus, as already emphasized above, the trial court correctly
denied her motion to dismiss.
An indispensable party is one who has such an interest in the controversy or subject
matter of a case that a final adjudication cannot be made in his or her absence, without
injuring or affecting that interest. He or she is a party who has not only an interest in the
subject... matter of the controversy, but "an interest of such nature that a final decree
cannot be made without affecting [that] interest or leaving the controversy in such a
condition that its final determination may be wholly inconsistent with equity and good
conscience.
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 proceed.
On the other hand, a "person is not an indispensable party if his interest in the
controversy or subject matter is separable from the interest of the other parties... a
person is not an indispensable party if his presence would merely permit complete
relief between him or her and those already parties to the action, or if he or she 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 simply
because his or her presence will avoid multiple litigations.
it is clear that the estate of Manuel is not an indispensable party to the collection case,
for the simple reason that the obligation of Manuel and his wife, respondent herein, is
solidary.
The provisions and stipulations of the contract were then followed by the respective
signatures of respondent as "MAKER" and her husband as "CO-MAKER."
In other words, the collection case can proceed and the demands of petitioner can be
satisfied by respondent only, even without impleading the estate of Manuel.
Consequently, the estate of Manuel is not an indispensable party to petitioner's
complaint for sum of money.
the estate of Manuel is not an indispensable party and the case can proceed as against
respondent only.
In this case, therefore, the inclusion of Manuel in the... complaint cannot be considered a
misjoinder, as in fact, the action would have proceeded against him had he been alive at
the time the collection case was filed by petitioner.
As a result, the case, as against Manuel, must be dismissed.
Since the proper course of action against the wrongful inclusion of Manuel as party-
defendant is the dismissal of the case as against him, thus did the trial court err when it
ordered the substitution of Manuel by his heirs. Substitution is proper only where the
party to be... substituted died during the pendency of the case,... WHEREFORE, the
petition is GRANTED.

G.R. No. 173946               June 19, 2013

BOSTON EQUITY RESOURCES, INC., Petitioner,

vs.
COURT OF APPEALS AND LOLITA G. TOLEDO, Respondents.

DECISION

PEREZ, J.:
Before the Court is a Petition for Review on Certiorari seeking to reverse and set aside: (1) the
Decision,1 dated 28 February 2006 and (2) the Resolution,2 dated 1 August 2006 of the Court of
Appeals in CA-G.R. SP No. 88586. The challenged decision granted herein respondent's petition for
certiorari upon a finding that the trial court committed grave abuse of discretion in denying
respondent's motion to dismiss the complaint against her.3 Based on this finding, the Court of
Appeals reversed and set aside the Orders, dated 8 November 20044 and 22 December
2004,5 respectively, of the Regional Trial Court (RTC) of Manila, Branch 24.

The Facts

On 24 December 1997, petitioner filed a complaint for sum of money with a prayer for the issuance
of a writ of preliminary attachment against the spouses Manuel and Lolita Toledo.6 Herein
respondent filed an Answer dated 19 March 1998 but on 7 May 1998, she filed a Motion for Leave to
Admit Amended Answer7 in which she alleged, among others, that her husband and co-defendant,
Manuel Toledo (Manuel), is already dead.8 The death certificate9 of Manuel states "13 July 1995" as
the date of death. As a result, petitioner filed a motion, dated 5 August 1999, to require respondent
to disclose the heirs of Manuel.10 In compliance with the verbal order of the court during the 11
October 1999 hearing of the case, respondent submitted the required names and addresses of the
heirs.11 Petitioner then filed a Motion for Substitution,12 dated 18 January 2000, praying that Manuel
be substituted by his children as party-defendants. It appears that this motion was granted by the
trial court in an Order dated 9 October 2000.13

Pre-trial thereafter ensued and on 18 July 2001, the trial court issued its pre-trial order containing,
among others, the dates of hearing of the case.14

The trial of the case then proceeded. Herein petitioner, as plaintiff, presented its evidence and its
exhibits were thereafter admitted.

On 26 May 2004, the reception of evidence for herein respondent was cancelled upon agreement of
the parties. On 24 September 2004, counsel for herein respondent was given a period of fifteen days
within which to file a demurrer to evidence.15 However, on 7 October 2004, respondent instead filed a
motion to dismiss the complaint, citing the following as grounds: (1) that the complaint failed to
implead an indispensable party or a real party in interest; hence, the case must be dismissed for
failure to state a cause of action; (2) that the trial court did not acquire jurisdiction over the person of
Manuel pursuant to Section 5, Rule 86 of the Revised Rules of Court; (3) that the trial court erred in
ordering the substitution of the deceased Manuel by his heirs; and (4) that the court must also
dismiss the case against Lolita Toledo in accordance with Section 6, Rule 86 of the Rules of Court.16

The trial court, in an Order dated 8 November 2004, denied the motion to dismiss for having been
filed out of time, citing Section 1, Rule 16 of the 1997 Rules of Court which states that: "Within the
time for but before filing the answer to the complaint or pleading asserting a claim, a motion to
dismiss may be made x x x."17 Respondent’s motion for reconsideration of the order of denial was
likewise denied on the ground that "defendants’ attack on the jurisdiction of this Court is now barred
by estoppel by laches" since respondent failed to raise the issue despite several chances to do so.18

Aggrieved, respondent filed a petition for certiorari with the Court of Appeals alleging that the trial
court seriously erred and gravely abused its discretion in denying her motion to dismiss despite
discovery, during the trial of the case, of evidence that would constitute a ground for dismissal of the
case.19

The Court of Appeals granted the petition based on the following grounds:
It is elementary that courts acquire jurisdiction over the person of the defendant x x x only when the
latter voluntarily appeared or submitted to the court or by coercive process issued by the court to
him, x x x. In this case, it is undisputed that when petitioner Boston filed the complaint on December
24, 1997, defendant Manuel S. Toledo was already dead, x x x. Such being the case, the court a
quo could not have acquired jurisdiction over the person of defendant Manuel S. Toledo.

x x x the court a quo’s denial of respondent’s motion to dismiss was based on its finding that
respondent’s attack on the jurisdiction of the court was already barred by laches as respondent
failed to raise the said ground in its [sic] amended answer and during the pre-trial, despite her active
participation in the proceedings.

However, x x x it is well-settled that issue on jurisdiction may be raised at any stage of the
proceeding, even for the first time on appeal. By timely raising the issue on jurisdiction in her motion
to dismiss x x x respondent is not estopped from raising the question on jurisdiction.

Moreover, when issue on jurisdiction was raised by respondent, the court a quo had not yet decided
the case, hence, there is no basis for the court a quo to invoke estoppel to justify its denial of the
motion for reconsideration;

It should be stressed that when the complaint was filed, defendant Manuel S. Toledo was already
dead. The complaint should have impleaded the estate of Manuel S. Toledo as defendant, not only
the wife, considering that the estate of Manuel S. Toledo is an indispensable party, which stands to
be benefited or be injured in the outcome of the case. x x x

xxxx

Respondent’s motion to dismiss the complaint should have been granted by public respondent judge
as the same was in order. Considering that the obligation of Manuel S. Toledo is solidary with
another debtor, x x x, the claim x x x should be filed against the estate of Manuel S. Toledo, in
conformity with the provision of Section 6, Rule 86 of the Rules of Court, x x x.20

The Court of Appeals denied petitioner’s motion for reconsideration. Hence, this petition.

The Issues

Petitioner claims that the Court of Appeals erred in not holding that:

1. Respondent is already estopped from questioning the trial court’s jurisdiction;

2. Petitioner never failed to implead an indispensable party as the estate of Manuel is not an
indispensable party;

3. The inclusion of Manuel as party-defendant is a mere misjoinder of party not warranting

the dismissal of the case before the lower court; and

4. Since the estate of Manuel is not an indispensable party, it is not necessary that petitioner
file its claim against the estate of Manuel.

In essence, what is at issue here is the correctness of the trial court’s orders denying respondent’s
motion to dismiss.
 The Ruling of the Court

We find merit in the petition.

Motion to dismiss filed out of time

To begin with, the Court of Appeals erred in granting the writ of certiorari in favor of respondent. Well
settled is the rule that the special civil action for certiorari is not the proper remedy to assail the
denial by the trial court of a motion to dismiss. The order of the trial court denying a motion to
dismiss is merely interlocutory, as it neither terminates nor finally disposes of a case and still leaves
something to be done by the court before a case is finally decided on the merits.21 Therefore, "the
proper remedy in such a case is to appeal after a decision has been rendered."22

As the Supreme Court held in Indiana Aerospace University v. Comm. on Higher Education:23

A writ of certiorari is not intended to correct every controversial interlocutory ruling; it is resorted only
to correct a grave abuse of discretion or a whimsical exercise of judgment equivalent to lack of
jurisdiction. Its function is limited to keeping an inferior court within its jurisdiction and to relieve
persons from arbitrary acts – acts which courts or judges have no power or authority in law to
perform. It is not designed to correct erroneous findings and conclusions made by the courts.
(Emphasis supplied)

Even assuming that certiorari is the proper remedy, the trial court did not commit grave abuse of
discretion in denying respondent’s motion to dismiss. It, in fact, acted correctly when it issued the
questioned orders as respondent’s motion to dismiss was filed SIX YEARS AND FIVE MONTHS
AFTER SHE FILED HER AMENDED ANSWER. This circumstance alone already warranted the
outright dismissal of the motion for having been filed in clear contravention of the express mandate
of Section 1, Rule 16, of the Revised Rules of Court. Under this provision, a motion to dismiss shall
be filed within the time for but before the filing of an answer to the complaint or pleading asserting a
claim.24

More importantly, respondent’s motion to dismiss was filed after petitioner has completed the
presentation of its evidence in the trial court, giving credence to petitioner’s and the trial court’s
conclusion that the filing of the motion to dismiss was a mere ploy on the part of respondent to delay
the prompt resolution of the case against her.

Also worth mentioning is the fact that respondent’s motion to dismiss under consideration herein is
not the first motion to dismiss she filed in the trial court. It appears that she had filed an earlier
motion to dismiss26 on the sole ground of the unenforceability of petitioner’s claim under the Statute
of Frauds, which motion was denied by the trial court. More telling is the following narration of the
trial court in its Order denying respondent’s motion for reconsideration of the denial of her motion to
dismiss:

As can be gleaned from the records, with the admission of plaintiff’s exhibits, reception of
defendants’ evidence was set on March 31, and April 23, 2004 x x x . On motion of the defendants,
the hearing on March 31, 2004 was cancelled.

On April 14, 2004, defendants sought the issuance of subpoena ad testificandum and duces tecum
to one Gina M. Madulid, to appear and testify for the defendants on April 23, 2004. Reception of
defendants’ evidence was again deferred to May 26, June 2 and June 30, 2004, x x x.
On May 13, 2004, defendants sought again the issuance of a subpoena duces tecum and ad
testificandum to the said Gina Madulid. On May 26, 2004, reception of defendants [sic] evidence
was cancelled upon the agreement of the parties. On July 28, 2004, in the absence of defendants’
witness, hearing was reset to September 24 and October 8, 2004 x x x.

On September 24, 2004, counsel for defendants was given a period of fifteen (15) days to file a
demurrer to evidence. On October 7, 2004, defendants filed instead a Motion to Dismiss x x x.27

Respondent’s act of filing multiple motions, such as the first and earlier motion to dismiss and then
the motion to dismiss at issue here, as well as several motions for postponement, lends credibility to
the position taken by petitioner, which is shared by the trial court, that respondent is

deliberately impeding the early disposition of this case. The filing of the second motion to dismiss
was, therefore, "not only improper but also dilatory."28 Thus, the trial court, "far from deviating or
straying off course from established jurisprudence on the matter, x x x had in fact faithfully observed
the law and legal precedents in this case."29 The Court of Appeals, therefore, erred not only in
entertaining respondent’s petition for certiorari, it likewise erred in ruling that the trial court committed
grave abuse of discretion when it denied respondent’s motion to dismiss.

On whether or not respondent is estopped from

questioning the jurisdiction of the trial court

At the outset, it must be here stated that, as the succeeding discussions will demonstrate,
jurisdiction over the person of Manuel should not be an issue in this case. A protracted discourse on
jurisdiction is, nevertheless, demanded by the fact that jurisdiction has been raised as an issue from
the lower court, to the Court of Appeals and, finally, before this Court. For the sake of clarity, and in
order to finally settle the controversy and fully dispose of all the issues in this case, it was deemed
imperative to resolve the issue of jurisdiction.

1. Aspects of Jurisdiction

Petitioner calls attention to the fact that respondent’s motion to dismiss questioning the trial court’s
jurisdiction was filed more than six years after her amended answer was filed. According to
petitioner, respondent had several opportunities, at various stages of the proceedings, to assail the
trial court’s jurisdiction but never did so for six straight years. Citing the doctrine laid down in the
case of Tijam, et al. v. Sibonghanoy, et al.30 petitioner claimed that respondent’s failure to raise the
question of jurisdiction at an earlier stage bars her from later questioning it, especially since she
actively participated in the proceedings conducted by the trial court.

Petitioner’s argument is misplaced, in that, it failed to consider that the concept of jurisdiction has
several aspects, namely: (1) jurisdiction over the subject matter; (2) jurisdiction over the parties; (3)
jurisdiction over the issues of the case; and (4) in cases involving property, jurisdiction over the res
or the thing which is the subject of the litigation.31

The aspect of jurisdiction which may be barred from being assailed as a result of estoppel by laches
is jurisdiction over the subject matter. Thus, in Tijam, the case relied upon by petitioner, the issue
involved was the authority of the then Court of First Instance to hear a case for the collection of a
sum of money in the amount of ₱1,908.00 which amount was, at that time, within the exclusive
original jurisdiction of the municipal courts.
In subsequent cases citing the ruling of the Court in Tijam, what was likewise at issue was the
jurisdiction of the trial court over the subject matter of the case. Accordingly, in Spouses Gonzaga v.
Court of Appeals,32 the issue for consideration was the authority of the regional trial court to hear and
decide an action for reformation of contract and damages involving a subdivision lot, it being argued
therein that jurisdiction is vested in the Housing and Land Use Regulatory Board pursuant to PD 957
(The Subdivision and Condominium Buyers Protective Decree). In Lee v. Presiding Judge, MTC,
Legaspi City,33 petitioners argued that the respondent municipal trial court had no jurisdiction over
the complaint for ejectment because the issue of ownership was raised in the pleadings. Finally, in
People v. Casuga,34 accused-appellant claimed that the crime of grave slander, of which she was
charged, falls within the concurrent jurisdiction of municipal courts or city courts and the then courts
of first instance, and that the judgment of the court of first instance, to which she had appealed the
municipal court's conviction, should be deemed null and void for want of jurisdiction as her appeal
should have been filed with the Court of Appeals or the Supreme Court.

In all of these cases, the Supreme Court barred the attack on the jurisdiction of the respective courts
concerned over the subject matter of the case based on estoppel by laches, declaring that parties
cannot be allowed to belatedly adopt an inconsistent posture by attacking the jurisdiction of a court
to which they submitted their cause voluntarily.35

Here, what respondent was questioning in her motion to dismiss before the trial court was that
court’s jurisdiction over the person of defendant Manuel. Thus, the principle of estoppel by laches
finds no application in this case. Instead, the principles relating to jurisdiction over the person of the
parties are pertinent herein.

The Rules of Court provide:

RULE 9
EFFECT OF FAILURE TO PLEAD

Section 1. Defenses and objections not pleaded. – Defenses and objections not pleaded either in a
motion to dismiss or in the answer are deemed waived. However, when it appears from the
pleadings or the evidence on record that the court has no jurisdiction over the subject matter, that
there is another action pending between the same parties for the same cause, or that the action is
barred by a prior judgment or by statute of limitations, the court shall dismiss the claim.

RULE 15
MOTIONS

Sec. 8. Omnibus motion. – Subject to the provisions of Section 1 of Rule 9, a motion attacking a
pleading, order, judgment, or proceeding shall include all objections then available, and all
objections not so included shall be deemed waived.

Based on the foregoing provisions, the "objection on jurisdictional grounds which is not waived even
if not alleged in a motion to dismiss or the answer is lack of jurisdiction over the subject matter. x x x
Lack of jurisdiction over the subject matter can always be raised anytime, even for the first time on
appeal, since jurisdictional issues cannot be waived x x x subject, however, to the principle of
estoppel by laches."36

Since the defense of lack of jurisdiction over the person of a party to a case is not one of those
defenses which are not deemed waived under Section 1 of Rule 9, such defense must be invoked
when an answer or a motion to dismiss is filed in order to prevent a waiver of the defense.37 If the
objection is not raised either in a motion to dismiss or in the answer, the objection to the jurisdiction
over the person of the plaintiff or the defendant is deemed waived by virtue of the first sentence of
the above-quoted Section 1 of Rule 9 of the Rules of Court.38

The Court of Appeals, therefore, erred when it made a sweeping pronouncement in its questioned
decision, stating that "issue on jurisdiction may be raised at any stage of the proceeding, even for
the first time on appeal" and that, therefore, respondent timely raised the issue in her motion to
dismiss and is, consequently, not estopped from raising the question of jurisdiction. As the question
of jurisdiction involved here is that over the person of the defendant Manuel, the same is deemed
waived if not raised in the answer or a motion to dismiss. In any case, respondent cannot claim the
defense since "lack of jurisdiction over the person, being subject to waiver, is a personal defense
which can only be asserted by the party who can thereby waive it by silence."39

2. Jurisdiction over the person of a defendant is acquired through a valid service of summons; trial
court did not acquire jurisdiction over the person of Manuel Toledo

In the first place, jurisdiction over the person of Manuel was never acquired by the trial court. A
defendant is informed of a case against him when he receives summons. "Summons is a writ by
which the defendant is notified of the action brought against him. Service of such writ is the means
by which the court acquires jurisdiction over his person."40

In the case at bar, the trial court did not acquire jurisdiction over the person of Manuel since there
was no valid service of summons upon him, precisely because he was already dead even before the
complaint against him and his wife was filed in the trial court. The issues presented in this case are
similar to those in the case of Sarsaba v. Vda. de Te.41

In Sarsaba, the NLRC rendered a decision declaring that Patricio Sereno was illegally dismissed
from employment and ordering the payment of his monetary claims. To satisfy the claim, a truck in
the possession of Sereno’s employer was levied upon by a sheriff of the NLRC, accompanied by
Sereno and his lawyer, Rogelio Sarsaba, the petitioner in that case. A complaint for recovery of
motor vehicle and damages, with prayer for the delivery of the truck pendente lite was eventually
filed against Sarsaba, Sereno, the NLRC sheriff and the NLRC by the registered owner of the truck.
After his motion to dismiss was denied by the trial court, petitioner Sarsaba filed his answer. Later
on, however, he filed an omnibus motion to dismiss citing, as one of the grounds, lack of jurisdiction
over one of the principal defendants, in view of the fact that Sereno was already dead when the
complaint for recovery of possession was filed.

Although the factual milieu of the present case is not exactly similar to that of Sarsaba, one of the
issues submitted for resolution in both cases is similar: whether or not a case, where one of the
named defendants was already dead at the time of its filing, should be dismissed so that the claim
may be pursued instead in the proceedings for the settlement of the estate of the deceased
defendant. The petitioner in the Sarsaba Case claimed, as did respondent herein, that since one of
the defendants died before summons was served on him, the trial court should have dismissed the
complaint against all the defendants and the claim should be filed against the estate of the deceased
defendant. The petitioner in Sarsaba, therefore, prayed that the complaint be dismissed, not only
against Sereno, but as to all the defendants, considering that the RTC did not acquire jurisdiction
over the person of Sereno.42 This is exactly the same prayer made by respondent herein in her
motion to dismiss.

The Court, in the Sarsaba Case, resolved the issue in this wise:

x x x We cannot countenance petitioner’s argument that the complaint against the other defendants
should have been dismissed, considering that the RTC never acquired jurisdiction over the person of
Sereno. The court’s failure to acquire jurisdiction over one’s person is a defense which is personal to
the person claiming it. Obviously, it is now impossible for Sereno to invoke the same in view of his
death. Neither can petitioner invoke such ground, on behalf of Sereno, so as to reap the benefit of
having the case dismissed against all of the defendants. Failure to serve summons on Sereno’s
person will not be a cause for the dismissal of the complaint against the other defendants,
considering that they have been served with copies of the summons and complaints and have long
submitted their respective responsive pleadings. In fact, the other defendants in the complaint were
given the chance to raise all possible defenses and objections personal to them in their respective
motions to dismiss and their subsequent answers.43 (Emphasis supplied.)

Hence, the Supreme Court affirmed the dismissal by the trial court of the complaint against Sereno
only.

Based on the foregoing pronouncements, there is no basis for dismissing the complaint against
respondent herein. Thus, as already emphasized above, the trial court correctly denied her motion to
dismiss.

On whether or not the estate of Manuel

Toledo is an indispensable party

Rule 3, Section 7 of the 1997 Rules of Court states:

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

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

An indispensable party is one who has such an interest in the controversy or subject matter of a
case that a final adjudication cannot be made in his or her absence, without injuring or affecting that
interest. He or she is a party who has not only an interest in the subject matter of the controversy,
but "an interest of such nature that a final decree cannot be made without affecting that 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 proceed.44

On the other hand, a "person is not an indispensable party 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 or her and
those already parties to the action, or if he or she 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 simply because his or
her presence will avoid multiple litigations.45

Applying the foregoing pronouncements to the case at bar, it is clear that the estate of Manuel is not
an indispensable party to the collection case, for the simple reason that the obligation of Manuel and
his wife, respondent herein, is solidary.

The contract between petitioner, on the one hand and respondent and respondent’s husband, on the
other, states:
FOR VALUE RECEIVED, I/We jointly and severally46 (in solemn) promise to pay BOSTON EQUITY
RESOURCES, INC. x x x the sum of PESOS: [ONE MILLION FOUR HUNDRED (₱1,400,000.00)] x
x x.47

The provisions and stipulations of the contract were then followed by the respective signatures of
respondent as "MAKER" and her husband as "CO-MAKER."48 Thus, pursuant to Article 1216 of the
Civil Code, petitioner may collect the entire amount of the obligation from respondent only. The
aforementioned provision states: "The creditor may proceed against any one of the solidary debtors
or some or all of them simultaneously. The demand made against one of them shall not be an
obstacle to those which may subsequently be directed against the others, so long as the debt has
not been fully collected."

In other words, the collection case can proceed and the demands of petitioner can be satisfied by
respondent only, even without impleading the estate of Manuel. Consequently, the estate of Manuel
is not an indispensable party to petitioner’s complaint for sum of money.

However, the Court of Appeals, agreeing with the contention of respondent, held that the claim of
petitioner should have been filed against the estate of Manuel in accordance with Sections 5 and 6
of Rule 86 of the Rules of Court. The aforementioned provisions provide:

SEC. 5. Claims which must be filed under the notice. If not filed, barred; exceptions. All claims for
money against the decedent, arising from contract, express or implied, whether the same be due,
not due, or contingent, all claims for funeral expenses and judgment for money against the
decedent, must be filed within the time limited in the notice; otherwise, they are barred forever,
except that they may be set forth as counterclaims in any action that the executor or administrator
may bring against the claimants. x x x.

SEC. 6. Solidary obligation of decedent. Where the obligation of the decedent is solidary with
another debtor, the claim shall be filed against the decedent as if he were the only debtor, without
prejudice to the right of the estate to recover contribution from the other debtor. x x x.

The Court of Appeals erred in its interpretation of the above-quoted provisions.

In construing Section 6, Rule 87 of the old Rules of Court, the precursor of Section 6, Rule 86 of the
Revised Rules of Court, which latter provision has been retained in the present Rules of Court
without any revisions, the Supreme Court, in the case of Manila Surety & Fidelity Co., Inc. v.
Villarama, et. al.,49 held:50

Construing Section 698 of the Code of Civil Procedure from whence [Section 6, Rule 87] was taken,
this Court held that where two persons are bound in solidum for the same debt and one of them
dies, the whole indebtedness can be proved against the estate of the latter, the decedent’s liability
being absolute and primary; x x x. It is evident from the foregoing that Section 6 of Rule 87 provides
the procedure should the creditor desire to go against the deceased debtor, but there is certainly
nothing in the said provision making compliance with such procedure a condition precedent before
an ordinary action against the surviving solidary debtors, should the creditor choose to demand
payment from the latter, could be entertained to the extent that failure to observe the same would
deprive the court jurisdiction to take cognizance of the action against the surviving debtors. Upon the
other hand, the Civil Code expressly allows the creditor to proceed against any one of the solidary
debtors or some or all of them simultaneously. There is, therefore, nothing improper in the creditor’s
filing of an action against the surviving solidary debtors alone, instead of instituting a proceeding for
the settlement of the estate of the deceased debtor wherein his claim could be filed.
The foregoing ruling was reiterated and expounded in the later case of Philippine National Bank v.
Asuncion51 where the Supreme Court pronounced:

A cursory perusal of Section 6, Rule 86 of the Revised Rules of Court reveals that nothing therein
prevents a creditor from proceeding against the surviving solidary debtors. Said provision merely
sets up the procedure in enforcing collection in case a creditor chooses to pursue his claim against
the estate of the deceased solidary debtor. The rule has been set forth that a creditor (in a solidary
obligation) has the option whether to file or not to file a claim against the estate of the solidary
debtor. x x x

xxxx

It is crystal clear that Article 1216 of the New Civil Code is the applicable provision in this matter.
Said provision gives the creditor the right to "proceed against anyone of the solidary debtors or some
or all of them simultaneously." The choice is undoubtedly left to the solidary creditor to determine
against whom he will enforce collection. In case of the death of one of the solidary debtors, he (the
creditor) may, if he so chooses, proceed against the surviving solidary debtors without necessity of
filing a claim in the estate of the deceased debtors. It is not mandatory for him to have the case
dismissed as against the surviving debtors and file its claim against the estate of the deceased
solidary debtor, x x x. For to require the creditor to proceed against the estate, making it a condition
precedent for any collection action against the surviving debtors to prosper, would deprive him of his
substantive rightsprovided by Article 1216 of the New Civil Code. (Emphasis supplied.)

As correctly argued by petitioner, if Section 6, Rule 86 of the Revised Rules of Court were applied
literally, Article 1216 of the New Civil Code would, in effect, be repealed since under the Rules of
Court, petitioner has no choice but to proceed against the estate of [the deceased debtor] only.
Obviously, this provision diminishes the [creditor’s] right under the New Civil Code to proceed
against any one, some or all of the solidary debtors. Such a construction is not sanctioned by
principle, which is too well settled to require citation, that a substantive law cannot be amended by a
procedural rule. Otherwise stated, Section 6, Rule 86 of the Revised Rules of Court cannot be made
to prevail over Article 1216 of the New Civil Code, the former being merely procedural, while the
latter, substantive.

Based on the foregoing, the estate of Manuel is not an indispensable party and the case can
proceed as against respondent only. That petitioner opted to collect from respondent and not from
the estate of Manuel is evidenced by its opposition to respondent’s motion to dismiss asserting that
the case, as against her, should be dismissed so that petitioner can proceed against the estate of
Manuel.

On whether or not the inclusion of Manuel as

party defendant is a misjoinder of party

Section 11 of Rule 3 of the Rules of Court states that "neither misjoinder nor non-joinder of parties is
ground for dismissal of an action. Parties may be dropped or added by order of the court on motion
of any party or on its own initiative at any stage of the action and on such terms as are just. Any
claim against a misjoined party may be severed and proceeded with separately."

Based on the last sentence of the afore-quoted provision of law, a misjoined party must have the
capacity to sue or be sued in the event that the claim by or against the misjoined party is pursued in
a separate case. In this case, therefore, the inclusion of Manuel in the complaint cannot be
considered a misjoinder, as in fact, the action would have proceeded against him had he been alive
at the time the collection case was filed by petitioner. This being the case, the remedy provided by
Section 11 of Rule 3 does not obtain here. The name of Manuel as party-defendant cannot simply be
dropped from the case. Instead, the procedure taken by the Court in Sarsaba v. Vda. de Te,52 whose
facts, as mentioned earlier, resemble those of this case, should be followed herein. There, the
Supreme Court agreed with the trial court when it resolved the issue of jurisdiction over the person of
the deceased Sereno in this wise:

As correctly pointed by defendants, the Honorable Court has not acquired jurisdiction over the
person of Patricio Sereno since there was indeed no valid service of summons insofar as Patricio
Sereno is concerned. Patricio Sereno died before the summons, together with a copy of the
complaint and its annexes, could be served upon him.

However, the failure to effect service of summons unto Patricio Sereno, one of the defendants
herein, does not render the action DISMISSIBLE, considering that the three (3) other defendants, x x
x, were validly served with summons and the case with respect to the answering defendants may
still proceed independently. Be it recalled that the three (3) answering defendants have previously
filed a Motion to Dismiss the Complaint which was denied by the Court.

Hence, only the case against Patricio Sereno will be DISMISSED and the same may be filed as a
claim against the estate of Patricio Sereno, but the case with respect to the three (3) other accused
[sic] will proceed. (Emphasis supplied.)53

As a result, the case, as against Manuel, must be dismissed.

In addition, the dismissal of the case against Manuel is further warranted by Section 1 of Rule 3 of
the Rules of Court, which states that: only natural or juridical persons, or entities authorized by law
may be parties in a civil action." Applying this provision of law, the Court, in the case of Ventura v.
Militante,54 held:

Parties may be either plaintiffs or defendants. x x x. In order to maintain an action in a court of

justice, the plaintiff must have an actual legal existence, that is, he, she or it must be a person in law
and possessed of a legal entity as either a natural or an artificial person, and no suit can be lawfully
prosecuted save in the name of such a person.

The rule is no different as regards party defendants. It is incumbent upon a plaintiff, when he
institutes a judicial proceeding, to name the proper party defendant to his cause of action. In a suit or
proceeding in personam of an adversary character, the court can acquire no jurisdiction for the
purpose of trial or judgment until a party defendant who actually or legally exists and is legally
capable of being sued, is brought before it. It has even been held that the question of the legal
personality of a party defendant is a question of substance going to the jurisdiction of the court and
not one of procedure.

The original complaint of petitioner named the "estate of Carlos Ngo as represented by surviving
spouse Ms. Sulpicia Ventura" as the defendant.  Petitioner moved to dismiss the same on the
1âwphi1

ground that the defendant as named in the complaint had no legal personality. We agree.

x x x. Considering that capacity to be sued is a correlative of the capacity to sue, to the same extent,
a decedent does not have the capacity to be sued and may not be named a party defendant in a
court action. (Emphases supplied.)

Indeed, where the defendant is neither a natural nor a juridical person or an entity authorized by law,
the complaint may be dismissed on the ground that the pleading asserting the claim states no cause
of action or for failure to state a cause of action pursuant to Section 1(g) of Rule 16 of the Rules of
Court, because a complaint cannot possibly state a cause of action against one who cannot be a
party to a civil action.55

Since the proper course of action against the wrongful inclusion of Manuel as party-defendant is the
dismissal of the case as against him, thus did the trial court err when it ordered the substitution of
Manuel by his heirs. Substitution is proper only where the party to be substituted died during the
pendency of the case, as expressly provided for by Section 16, Rule 3 of the Rules of Court, which
states:

Death of party;duty of counsel. – Whenever a party to a pending action dies, and the claim is not
thereby extinguished, it shall be the duty of his counsel to inform the court within thirty (30) days
after such death of the fact thereof, and to give the name and address of his legal representative or
representatives. x x x

The heirs of the deceased may be allowed to be substituted for the deceased, without requiring the
appointment of an executor or administrator x x x.

The court shall forthwith order said legal representative or representatives to appear and be
substituted within a period of thirty (30) days from notice. (Emphasis supplied.)

Here, since Manuel was already dead at the time of the filing of the complaint, the court never
acquired jurisdiction over his person and, in effect, there was no party to be substituted.

WHEREFORE, the petition is GRANTED. The Decision dated 28 February 2006 and the Resolution
dated 1 August 2006 of the Court of Appeals in CA-G.R. SP No. 88586 are REVERSED and SET
ASIDE. The Orders of the Regional Trial Court dated 8 November 2004 and 22 December 2004,
respectively, in Civil Case No. 97-86672, are REINSTATED. The Regional Trial Court, Branch 24,
Manila is hereby DIRECTED to proceed with the trial of Civil Case No. 97-86672 against respondent
Lolita G. Toledo only, in accordance with the above pronouncements of the Court, and to decide the
case with dispatch.

SO ORDERED.

ALBA v. MALAPAJO
G.R. No. 198752, January 13, 2016

DOCTRINE: Counterclaims. Compulsory or Permissive: A counterclaim is any claim

which a defending party may have against an opposing party. A compulsory
counterclaim is one which, being cognizable by the regular courts of justice, arises out
of or is connected with the transaction or occurrence constituting the subject matter of
the opposing party's claim and does not require for its adjudication the presence of
third parties of whom the court cannot acquire jurisdiction. Such a counterclaim must
be within the jurisdiction of the court both as to the amount and the nature thereof,
except that in an original action before the Regional Trial Court, necessarily connected
with the subject matter of the opposing party's claim or even where there is such a
connection, the Court has no jurisdiction to entertain the claim or it requires for
adjudication the presence of third persons over whom the court acquire jurisdiction. A
compulsory counterclaim is barred if not set up in the same action. On the other hand, a
counterclaim is permissive if it does not arise out of or is not necessarily connected with
the subject matter of the opposing party's claim. It is essentially an independent claim
that may be filed separately in another case.

FACTS: On October 19, 2009, petitioner Arturo C. Alba, Jr., duly represented by his
attorneys-in-fact, Arnulfo B. Alba and Alexander C. Alba, filed with the RTC of Roxas
City, a Complaint against respondents Raymund D. Malapajo, Ramil D. Malapajo and
the Register of Deeds of Roxas City for recovery of ownership and/or declaration of
nullity or cancellation of title and damages alleging, among others, that he was the
previous registered owner of a parcel of land situated in Bolo, Roxas City, covered by
TCT No. T-22345; that his title was subsequently canceled by virtue of a deed of sale he
allegedly executed in favor of respondents Malapajo for a consideration of P500,000.00;
that new TCT No. T-56840 was issued in the name of respondents Malapajo; that the
deed of sale was a forged document which respondents Malapajo were the co-authors
of.

Respondents Malapajo filed their Answer with Counterclaim contending that they were
innocent purchasers for value and that the deed was a unilateral document which was
presented to them already prepared and notarized; that before the sale, petitioner had,
on separate occasions, obtained loans from them and their mother which were secured
by separate real estate mortgages covering the subject property; that the two real estate
mortgages had never been discharged. Respondents counterclaimed for damages and
for reimbursement of petitioner's loan from them plus the agreed monthly interest in
the event that the deed of sale is declared null and void on the ground of forgery.

Petitioner filed a Reply to Answer and Answer to (Permissive) Counterclaim stating,

among others, that the court had not acquired jurisdiction over the nature of
respondents' permissive counterclaim; and, that assuming without admitting that the
two real estate mortgages are valid, the rate of 5% per month uniformly stated therein is
unconscionable and must be reduced. Respondents filed their Rejoinder thereto.

Petitioner filed a Motion to Set the Case for Preliminary Hearing as if a Motion to
Dismiss had been Filed alleging that respondents’ counterclaims are in the nature of a
permissive counterclaim, thus, there must be payment of docket fees and filing of a
certification against forum shopping; and, that the supposed loan extended by
respondents’ mother to petitioner, must also be dismissed as respondents are not the
real parties-in-interest. Respondents filed their Opposition thereto.
The RTC issued an Order denying petitioner's motion finding that respondents’
counterclaims are compulsory. Petitioner’s motion for reconsideration was denied in an
Order. Petitioner filed a petition for certiorari with the CA which sought the annulment
of the RTC Orders.CA dismissed the petition for certiorari. Motion for Reconsideration
was likewise dismissed.

ISSUE: Whether or not respondents’ counterclaim, i.e., reimbursement of the loan

obtained from them in case the deed of absolute sale is declared null and void on the
ground of forgery, is permissive in nature which requires the payment of docket fees
and a certification against forum shopping for the trial court to acquire jurisdiction over
the same?

HELD: No. While the plaintiff claims that his signature on the instrument is forged, he
never questioned the genuineness of the signatures of his instrumental witnesses, his
parents Arturo P. Alba, Sr. and Norma C. Alba, who signed the said instrument below
the words "SIGNED IN THE PRESENCE OF" and above the words "Father" and
"Mother," respectively. Furthermore, plaintiff acknowledged in par. 7 of his Complaint
that the stated consideration in the Deed of Absolute Sale is P500,000.00 and he never
categorically denied having received the same.

Before the plaintiff sold the property to the defendants, he secured a loan from them in
the sum of P600,000.00 payable on or before November 10, 2008. Prior to this, or as early
as July 25, 2008, the plaintiff also obtained a loan payable on or before September 6,
2008 from defendants' mother, Alma D. David. Both loans were evidenced by a
Promissory Note and a Real Estate Mortgage, both of which were executed by plaintiff.
Like the Deed of Absolute Sale, the Real Estate Mortgage is a unilateral instrument, was
signed solely by the plaintiff, and furthermore, his parents affixed their signatures
thereon under the heading "WITH MY PARENTAL CONSENT", and above the words,
"Father" and "Mother," respectively.

The plaintiff's allegation that his signature on the Deed of Absolute Sale was forged,
and that the defendants are the "co-authors" of the said forgery, are absolutely false and
baseless.

Petitioner seeks to recover the subject property by assailing the validity of the deed of
sale on the subject property which he allegedly executed in favor of respondents
Malapajo on the ground of forgery. Respondents counterclaimed that, in case the deed
of sale is declared null and void, they be paid the loan petitioner obtained from them
plus the agreed monthly interest which was covered by a real estate mortgage on the
subject property executed by petitioner in favor of respondents. There is a logical
relationship between the claim and the counterclaim, as the counterclaim is connected
with the transaction or occurrence constituting the subject matter of the opposing
party's claim. Notably, the same evidence to sustain respondents' counterclaim would
disprove petitioner's case. In the event that respondents could convincingly establish
that petitioner actually executed the promissory note and the real estate mortgage over
the subject property in their favor then petitioner's complaint might fail. Petitioner's
claim is so related logically to respondents' counterclaim, such that conducting separate
trials for the claim and the counterclaim would result in the substantial duplication of
the time and effort of the court and the parties.

Since respondents' counterclaim is compulsory, it must be set up in the same action;

otherwise, it would be barred forever. If it is filed concurrently with the main action but
in a different proceeding, it would be abated on the ground of litis pendentia; if filed
subsequently, it would meet the same fate on the ground of res judicata. There is,
therefore, no need for respondents to pay docket fees and to file a certification against
forum shopping for the court to acquire jurisdiction over the said counterclaim.

the court agree with the RTC’s disquisition in finding that respondents’ counterclaim is
compulsory.

G.R. No. 198752

ARTURO C. ALBA, JR., duly represented by his attorneys-in-fact, ARNULFO B. ALBA and
ALEXANDER C. ALBA, Petitioner,
vs.
RAYMUND D. MALAPAJO, RAMIL D. MALAPAJO and the Register of Deeds for the City of
Roxas, Respondents.

DECISION

PERALTA, J.:

Assailed in this petition for review on certiorari are the Resolution  dated February 28, 2011 and the
1

Resolution  dated August 31, 2011 issued by the Court of Appeals (CA) Cebu City, in CA-G.R. SP
2

No. 05594.

The antecedents are as follows:

On October 19, 2009, petitioner Arturo C. Alba, Jr., duly represented by his attorneys-in-fact, Arnulfo
B. Alba and Alexander C. Alba, filed with the Regional Trial Court (RTC) of Roxas City, Branch 15, a
Complaint  against respondents Raymund D. Malapajo, Ramil D. Malapajo and the Register of
3

Deeds of Roxas City for recovery of ownership and/or declaration of nullity or cancellation of title and
damages alleging, among others, that he was the previous registered owner of a parcel of land
consisting of 98,146 square meters situated in Bolo, Roxas City, covered by TCT No. T-22345; that
his title was subsequently canceled by virtue of a deed of sale he allegedly executed in favor of
respondents Malapajo for a consideration of Five Hundred Thousand Pesos (P500,000.00); that new
TCT No. T-56840 was issued in the name of respondents Malapajo; that the deed of sale was a
forged document which respondents Malapajo were the co-authors of.

Respondents Malapajo filed their Answer with Counterclaim  contending that they were innocent
4

purchasers for value and that the deed was a unilateral document which was presented to them
already prepared and notarized; that before the sale, petitioner had, on separate occasions,
obtained loans from them and their mother which were secured by separate real estate mortgages
covering the subject property; that the two real estate mortgages had never been discharged.
Respondents counterclaimed for damages and for reimbursement of petitioner's loan from them plus
the agreed monthly interest in the event that the deed of sale is declared null and void on the ground
of forgery.

Petitioner filed a Reply to Answer and Answer to (Permissive) Counterclaim  stating, among others,
5

that the court had not acquired jurisdiction over the nature of respondents' permissive counterclaim;
and, that assuming without admitting that the two real estate mortgages are valid, the rate of five
percent (5%) per month uniformly stated therein is unconscionable and must be reduced.
Respondents filed their Rejoinder  thereto.
6

Petitioner filed a Motion to Set the Case for Preliminary Hearing as if a Motion to Dismiss had been
Filed  alleging that respondents’ counterclaims are in the nature of a permissive counterclaim, thus,
7

there must be payment of docket fees and filing of a certification against forum shopping; and, that
the supposed loan extended by respondents’ mother to petitioner, must also be dismissed as
respondents are not the real parties-in-interest. Respondents filed their Opposition  thereto.
8

On June 4, 2010, the RTC issued an Order  denying petitioner's motion finding that respondents’
9

counterclaims are compulsory. Petitioner’s motion for reconsideration was denied in an Order  dated
10

September 30, 2010.

Petitioner filed a petition for certiorari with the CA which sought the annulment of the RTC Orders
dated June 4, 2010 and September 30, 2010.

In a Resolution dated February 28, 2011, the CA dismissed the petition for certiorari saying that
there was no proper proof of service of the petition to the respondents, and that only the last page of
the attached copy of the RTC Order was signed and certified as a true copy of the original while the
rest of the pages were mere machine copies.

Petitioner filed a motion for reconsideration which the CA denied in a Resolution dated August 31,
2011 based on the following findings:

Nevertheless, while petitioner filed with the Petition his Affidavit of Service and incorporated the
registry receipts, petitioner still failed to comply with the requirement on proper proof of service. Post
office receipt is not the required proof of service by registered mail. Section 10, Rule 13 of the 1997
Rules of Civil Procedure specifically stated that service by registered mail is complete upon actual
receipt by the addressee, or after five (5) days from the date he received the first notice of the
postmaster, whichever is earlier. Verily, registry receipts cannot be considered sufficient proof of
service; they are merely evidence of the mail matter with the post office of the sender, not the
delivery of said mail matter by the post office to the addressee. Moreover, Section 13, Rule 13 of the
1997 Rules of Civil Procedure specifically stated that the proof of personal service in the form of an
affidavit of the party serving shall contain a full statement of the date, place and manner of service,
which was not true in the instant petition.11

Petitioner filed the instant petition for review raising the following assignment of errors:

I. CONTRARY TO THE ERRONEOUS RULING OF THE COURT A QUO, THE COUNTERCLAIMS

INTERPOSED BY RESPONDENTS MALAPAJO IN THEIR ANSWER WITH COUNTERCLAIM ARE,
BASED ON APPLICABLE LAW AND JURISPRUDENCE, PERMISSIVE IN NATURE, NOT
COMPULSORY, AND THEREFORE, SUCH ANSWER WITH RESPECT TO SUCH
COUNTERCLAIMS IS IN REALITY AN INITIATORY PLEADING WHICH SHOULD HAVE BEEN
ACCOMPANIED BY A CERTIFICATION AGAINST FORUM SHOPPING AND CORRESPONDING
DOCKET FEES, THEREFORE, SHOULD HAVE BEEN PAID, FAILING IN WHICH THE
COUNTERCLAIMS SHOULD HAVE BEEN ORDERED DISMISSED. MOREOVER, AS REGARDS
THE LOAN ALLEGEDLY EXTENDED BY THEIR MOTHER TO PETITIONER, WHICH UP TO NOW
IS SUPPOSEDLY STILL UNPAID, RESPONDENTS MALAPAJO ARE NOT THE REAL PARTIES-
IN-INTEREST AND IS, THEREFORE, DISMISSIBLE ON THIS ADDITIONAL GROUND; and

II. THE HONORABLE COURT OF APPEALS COMMITTED A VERY SERIOUS ERROR WHEN IT
DISMISSED THE PETITION FOR CERTIORARI BASED ON PURE TECHNICALITY, THEREBY
GIVING MORE PREMIUM AND MORE WEIGHT ON TECHNICALITIES RATHER THAN
SUBSTANCE AND DISREGARDING THE MERITS OF THE PETITION. 12

We find that the CA erred in denying petitioner's petition for certiorari after the latter had clearly
shown compliance with the proof of service of the petition as required under Section 13 of Rule 13 of
the 1997 Rules of Civil Procedure, which provides:

Sec.13. Proof of service.

Proof of personal service shall consist of a written admission of the party served, or the official return
of the server, or the affidavit of the party serving, containing a full statement of the date, place and
manner of service. If the service is by ordinary mail, proof thereof shall consist of an affidavit of the
person mailing of facts showing compliance with section 7 of this Rule. If service is made by
registered mail, proof shall be made by such affidavit and the registry receipt issued by the mailing
office. The registry return card shall be filed immediately upon its receipt by the sender, or in lieu
thereof the unclaimed letter together with the certified or sworn copy of the notice given by the
postmaster to the addressee.

Clearly, service made through registered mail is proved by the registry receipt issued by the mailing
office and an affidavit of the person mailing of facts showing compliance with the rule. In this case,
Nerissa Apuyo, the secretary of petitioner’s counsel, had executed an affidavit  of personal service
13

and service by registered mail which she attached to the petition marked as original filed with the
CA. She stated under oath that she personally served a copy of the petition to the RTC of Roxas
City on December 6, 2010, as evidenced by a stamp mark of the RTC on the corresponding page of
the petition; that she also served copies of the petition by registered mail to respondents' counsels
on December 6, 2010 as evidenced by registry receipts numbers "PST 188" and "PST 189", both
issued by the Roxas City Post Office. The registry receipts issued by the

post office were attached to the petition filed with the CA. Petitioner had indeed complied with the
rule on proof of service.
Since the case was dismissed outright on technicality, the arguments raised in the petition
for certiorari were not at all considered. However, we will now resolve the issue on the merits so as
not to delay further the disposition of the case instead of remanding it to the CA.

The issue for resolution is whether respondents’ counterclaim, i.e., reimbursement of the loan
obtained from them in case the deed of absolute sale is declared null and void on the ground of
forgery, is permissive in nature which requires the payment of docket fees and a certification against
forum shopping for the trial court to acquire jurisdiction over the same.

A counterclaim is any claim which a defending party may have against an opposing party.  A 14

compulsory counterclaim is one which, being cognizable by the regular courts of justice, arises out of
or is connected with the transaction or occurrence constituting the subject matter of the opposing
party's claim and does not require for its adjudication the presence of third parties of whom the court
cannot acquire jurisdiction. Such a counterclaim must be within the jurisdiction of the court both as to
the amount and the nature thereof, except that in an original action before the Regional Trial Court,
necessarily connected with the subject matter of the opposing party's claim or even where there is
such a connection, the Court has no jurisdiction to entertain the claim or it requires for adjudication
the presence of third persons over whom the court acquire jurisdiction.  A compulsory counterclaim
15

is barred if not set up in the same action.

A counterclaim is permissive if it does not arise out of or is not necessarily connected with the
subject matter of the opposing party's claim.  It is essentially an independent claim that may be filed
16

separately in another case.

To determine whether a counterclaim is compulsory or permissive, we have devised the following

tests: (a) Are the issues of fact and law raised by the claim and by the counterclaim largely the
same? (b) Would res judicata bar a subsequent suit on defendants’ claims, absent the compulsory
counterclaim rule? (c) Will substantially the same evidence support or refute plaintiffs’ claim as well
as the defendants’ counterclaim? and (d) Is there any logical relation between the claim and the
counterclaim?  A positive answer to all four questions would indicate that the counterclaim is
17

compulsory. 18

Based on the above-mentioned tests, we shall determine the nature of respondents’ counterclaim.
Respondents anchored their assailed counterclaim on the following allegations in their affirmative
defenses in their Answer with Counterclaim, thus:

xxxx

10. The plaintiff's cause of action is based on his allegation that his signature on the Deed of
Absolute Sale was forged.

The Deed of Absolute Sale is a unilateral instrument, i.e., it was signed only by the vendor, who is
the plaintiff in this case and his instrumental witnesses, who are his parents in this case. It was
presented to defendants already completely prepared, accomplished and notarized. Defendants had
no hand in its preparation, accomplishment and notarization.

While the plaintiff claims that his signature on the instrument is forged, he never questioned the
genuineness of the signatures of his instrumental witnesses, his parents Arturo P. Alba, Sr. and
Norma C. Alba, who signed the said instrument below the words "SIGNED IN THE PRESENCE OF"
and above the words "Father" and "Mother," respectively.
Furthermore, plaintiff acknowledged in par. 7 of his Complaint that the stated consideration in the
Deed of Absolute Sale is P500,000.00 and he never categorically denied having received the same.

11. Before the plaintiff sold the property to the defendants, he secured a loan from them in the sum
of Six Hundred Thousand Pesos (P600,000.00) payable on or before November 10, 2008. The loan
is evidenced by a Promissory Note and secured by a Real Estate Mortgage dated September 11,
2008, both executed by him, covering the parcel of land subject of this case, Lot 2332-D, Psd 06-
000738. Like the Deed of Absolute Sale, the Real Estate Mortgage is a unilateral instrument, was
signed solely by the plaintiff, and furthermore, his parents affixed their signatures thereon under the
heading "WITH MY PARENTAL CONSENT", and above the words, "Father" and "Mother,"
respectively.

Prior to this, or as early as July 25, 2008, the plaintiff also obtained a loan payable on or before
September 6, 2008 from defendants' mother, Alma D. David, and already mortgaged to her Lot
2332-D, Psd 06-000738. The loan is evidenced by a Promissory Note and a Real Estate Mortgage,
both of which were executed by plaintiff. Again, the Real Estate Mortgage is an unilateral instrument,
was signed solely by the plaintiff and furthermore, his parents also affixed their signatures thereon
under the heading, "WITH MY PARENTAL CONSENT " and above the words, "Father" and
"Mother," respectively.

In both instances, the plaintiff was always represented by his parents, who always manifested their
authority to transact in behalf of their son the plaintiff.
1âwphi1

As in the case with the Deed of Absolute Sale, the defendants or their mother did not have any hand
in the preparation, accomplishment or notarization of the two Promissory Notes with accompanying
Real Estate Mortgages, x x x.

Neither of the two Real Estate Mortgages have been discharged or extinguished.

12. Considering the foregoing, the plaintiff's allegation that his signature on the Deed of Absolute
Sale was forged, and that the defendants are the "co-authors" of the said forgery, are absolutely
false and baseless.

13. If the Deed of Absolute Sale is declared null and void on the ground of forgery, then the plaintiff
should reimburse the defendants the loan he obtained from them, which he did not deny having
obtained, plus the agreed monthly interest. 19

Petitioner seeks to recover the subject property by assailing the validity of the deed of sale on the
subject property which he allegedly executed in favor of respondents Malapajo on the ground of
forgery. Respondents counterclaimed that, in case the deed of sale is declared null and void, they be
paid the loan petitioner obtained from them plus the agreed monthly interest which was covered by a
real estate mortgage on the subject property executed by petitioner in favor of respondents. There is
a logical relationship between the claim and the counterclaim, as the counterclaim is connected with
the transaction or occurrence constituting the subject matter of the opposing party's claim. Notably,
the same evidence to sustain respondents' counterclaim would disprove petitioner's case. In the
event that respondents could convincingly establish that petitioner actually executed the promissory
note and the real estate mortgage over the subject property in their favor then petitioner's complaint
might fail. Petitioner's claim is so related logically to respondents' counterclaim, such that conducting
separate trials for the claim and the counterclaim would result in the substantial duplication of the
time and effort of the court and the parties.
20
Since respondents' counterclaim is compulsory, it must be set up in the same action; otherwise, it
would be barred forever.  If it is filed concurrently with the main action but in a different proceeding, it
21

would be abated on the ground of litis pendentia; if filed subsequently, it would meet the same fate
on the ground of res judicata.  There is, therefore, no need for respondents to pay docket fees and
22

to file a certification against forum shopping for the court to acquire jurisdiction over the said
counterclaim.

We agree with the RTC’s disquisition in finding that respondents’ counterclaim is compulsory, to wit:

The arguments of the plaintiffs that this transaction is a permissive counterclaim do not convince.

By the manner in which the answer pertaining to this transaction was phrased, the real estate
mortgage was the origin of the Deed of Absolute Sale after the loan of P600,000.00 using the same
property as security for the payment thereof was not settled. In short, it is one of defendants'
defenses and controverting evidence against plaintiffs' allegations of falsification of the Deed of
Absolute Sale, the property subject of the Deed of Sale being one and the same property subject of
the mortgage. 23

xxxx

Can the Court adjudicate upon the issues [of whether or not the plaintiff could recover ownership
and or whether or not the title to the property in question may be canceled or declared null and void,
and damages] without the presence of the mother of defendants in whose favor the Real Estate
Mortgage of the property subject of this action was executed?

Definitely, this Court can. That there was an allegation pertaining to the mortgage of the property in
question to defendants’ mother is only some sort of a backgrounder on why a deed of sale was
executed by plaintiff in defendants’ favor, the truth or falsity of which will have to be evidentiary on
the part of the parties hereto. In short, the Court does not need the presence of defendants’ mother
before it can adjudicate on whether or not the deed of absolute sale was genuine or falsified and
whether or not the title to the property may be cancelled. 24

WHEREFORE, premises considered, the instant petition is PARTIALLY GRANTED. The

Resolutions dated February 28, 2011 and August 31, 2011 issued by the Court of Appeals in CA-
G.R. SP No. 05594 dismissing the petition for certiorari and denying reconsideration thereof,
respectively, for failure to show proper proof of service of the petition to respondents, are SET
ASIDE. Acting on the petition for certiorari, we resolve to DENY the same and AFFIRM the Order
dated June 4, 2010 of the Regional Trial Court of Roxas City, Branch 15, denying petitioner's motion
to set the case for hearing as if a motion to dismiss had been filed, and the Order dated September
30, 2010 denying reconsideration thereof.

SO ORDERED.

ASIAN CONSTRUCTION AND DEVELOPMENT CORPORATION, petitioner,

vs.
COURT OF APPEALS and MONARK EQUIPMENT CORPORATION, respondents.
[G.R. No. 160242. May 17, 2005]
Facts:
Monark (MEC) filed a complaint for sum of money with damages against Asian
Construction (ACDC), alleging that ACDC leased Caterpillar generator sets and Amida
mobile floodlighting systems from MEC, but failed, despite demands, to pay the rentals
therefor; that various equipment from MEC were leased by ACDC for the latter’s power
plant; and, that ACDC also purchased and took custody of various equipment parts
from MEC, which, despite demands, MEC failed to pay.
ACDC filed a motion to file and admit answer with third-party complaint against
Becthel Overseas Corporation (Becthel). In its answer, ACDC admitted its
indebtedness to MEC, but alleged the following special and affirmative defenses: that
Becthel incurred an obligation with ACDC and refused to pay the overdue
obligation; and that the equipment covered by the lease were all used in Becthel’s
construction project.
MEC opposed the motion of ACDC to file a third-party complaint against Becthel on
the ground that ACDC had already admitted its principal obligation to MEC; that the
transaction between MEC and ACDC on one hand, and between ACDC and Becthel on
the other, were independent transactions.
In addition, MEC filed a motion for summary judgment, alleging that there was no
genuine issue as to ACDC’s obligation to MEC. ACDC opposed the motion, alleging
that there was a genuine issue with respect to the amount being claimed by MEC, and
that it had a third-party complaint against Becthel in connection with the reliefs sought
against it which had to be litigated. In its reply, MEC alleged that the demand of ACDC
in its special and affirmative defenses partook the nature of a negative pregnant, and
that there was a need for the hearing on its claim for damages.
RTC denied the motion of ACDC for leave to file a third-party complaint, and granted
the motion of MEC (which the RTC considered as a motion for a judgment on the
pleadings). It ordered ACDC to pay MEC the amount alleged.
CA affirmed the ruling, adding that since MEC prayed for judgment on the pleadings, it
waived its claim for damages other than the amount alleged; hence, there was no longer
a genuine issue to be resolved by the court. It also held that the transaction between
ACDC and Becthel did not arise out of the same transaction on which MEC’s claim was
based.
Issue:
Whether or not a third-party complaint is proper.
Held: NO.
Sec. 11, Rule 6 of the Rules of Court provides the discussion on third-party complaint.
Furthermore, Sec. 1, Rule 34 of the Rules of Court provides the instances where a court
may render judgment on the pleadings.
The purpose of Section 11, Rule 6 of the Rules of Court is to permit a defendant to assert
an independent claim against a third-party which he, otherwise, would assert in
another action, thus preventing multiplicity of suits. All the rights of the parties
concerned would then be adjudicated in one proceeding. This is a rule of procedure and
does not create a substantial right. Neither does it abridge, enlarge, or nullify the
substantial rights of any litigant. This right to file a third-party complaint against a
third-party rests in the discretion of the trial court. The third-party complaint is actually
independent of, separate and distinct from the plaintiff’s complaint, such that were it
not for the rule, it would have to be filed separately from the original complaint.
The defendant may implead another as third-party defendant (a) on an allegation of
liability of the latter to the defendant for contribution, indemnity, subrogation or any
other relief; (b) on the ground of direct liability of the third-party defendant to the
plaintiff; or (c) the liability of the third-party defendant to both the plaintiff and the
defendant. There must be a causal connection between the claim of the plaintiff in his
complaint and a claim for contribution, indemnity or other relief of the defendant
against the third-party defendant. In Capayas v. Court of First Instance, the Court made
out the following tests: (1) whether it arises out of the same transaction on which the
plaintiff’s claim is based; or whether the third-party claim, although arising out of
another or different contract or transaction, is connected with the plaintiffs claim; (2)
whether the third-party defendant would be liable to the plaintiff or to the defendant
for all or part of the plaintiffs claim against the original defendant, although the third-
party defendants liability arises out of another transaction; and (3) whether the third-
party defendant may assert any defenses which the third-party plaintiff has or may
have to the plaintiffs claim.
The third-party complaint does not have to show with certainty that there will be
recovery against the third-party defendant, and it is sufficient that pleadings show
possibility of recovery. In determining the sufficiency of the third-party complaint, the
allegations in the original complaint and the third-party complaint must be examined.
A third-party complaint must allege facts which prima facie show that the defendant is
entitled to contribution, indemnity, subrogation or other relief from the third-party
defendant.
It bears stressing that common liability is the very essence for contribution.
Contribution is a payment made by each, or by any of several having a common
liability of his share in the damage suffered or in the money necessarily paid by one of
the parties in behalf of the other or others. The rule on common liability is fundamental
in the action for contribution. The test to determine whether the claim for indemnity in
a third-party complaint is, whether it arises out of the same transaction on which the
plaintiff’s claim is based, or the third-party plaintiff’s claim, although arising out of
another or different contract or transaction, is connected with the plaintiff’s claim.
In this case, the claims of the MEC against ACDC arose out of the contracts of lease and
sale; such transactions are different and separate from those between Becthel and the
ACDC as third-party plaintiff for the construction of the latter’s. The controversy
between the ACDC and MEC on one hand, and that between the ACDC and Becthel on
the other, are thus entirely distinct from each other. There is no showing in the
proposed third-party complaint that the MEC knew or approved the use of the leased
equipment by the ACDC for the said project. Becthel cannot invoke any defense the
ACDC had or may have against the claims of the MEC in its complaint, because ACDC
had admitted its liabilities to the MEC for the amount of P5,075,335.86. The barefaced
fact that the ACDC used the equipment it leased from MEC in connection with its
project with Becthel does not provide a substantive basis for the filing of a third-party
complaint against the latter. There is no causal connection between the claim of MEC
for the rental and the balance of the purchase price of the equipment and parts sold
and leased to the ACDC, and the failure of Becthel to pay the balance of its account to
ACDC after the completion of the project.
Considering that the petitioner admitted its liability for the principal claim of the
respondent in its Answer with Third-Party Complaint, the trial court did not err in
rendering judgment on the pleadings against it.

[G.R. NO. 160242 : May 17, 2005]

ASIAN CONSTRUCTION AND DEVELOPMENT CORPORATION, Petitioner, v. COURT OF APPEALS

and MONARK EQUIPMENT CORPORATION, Respondents.

DECISION

CALLEJO, SR., J.:

On March 13, 2001, Monark Equipment Corporation (MEC) filed a Complaint1 for a sum of money with
damages against the Asian Construction and Development Corporation (ACDC) with the Regional Trial
Court (RTC) of Quezon City. The complaint alleged the following: ACDC leased Caterpillar generator
sets and Amida mobile floodlighting systems from MEC during the period of March 13 to July 15, 1998
but failed, despite demands, to pay the rentals therefor in the total amount of P4,313,935.00; from
July 14 to August 25, 1998, various equipments from MEC were, likewise, leased by ACDC for the
latter's power plant in Mauban, Quezon, and that there was still a balance of P456,666.67; and ACDC
also purchased and took custody of various equipment parts from MEC for the agreed price
of P237,336.20 which, despite demands, ACDC failed to pay.

MEC prayed that judgment be rendered in its favor, thus:

1. Ordering defendant to pay the plaintiff the total amount of FIVE MILLION SEVENTY-ONE THOUSAND

THREE HUNDRED THIRTY-FIVE [PESOS] & 86/100 (P5,071,335.86);

2. Ordering defendant to pay the plaintiff legal interest of 12% per annum on the principal obligations

in the total amount of FIVE MILLION SEVENTY-ONE THOUSAND THREE HUNDRED THIRTY-FIVE
[PESOS] & 86/100 (P5,071,335.86) computed from the date the obligations became due until fully

paid;

3. Ordering defendant to pay attorney's fees in the amount equivalent to 15% of the amount of claim;

4. Ordering defendant to pay all costs of litigation.

Plaintiff prays for such other reliefs as may be just and equitable under the premises.2

ACDC filed a motion to file and admit answer with third-party complaint against Becthel Overseas
Corporation (Becthel). In its answer, ACDC admitted its indebtedness to MEC in the amount
of P5,071,335.86 but alleged the following special and affirmative defenses:

5. Defendant has incurred an obligation with plaintiff, in the amount of P5,071,335.86. But third-party

defendant fails and refuses to pay its overdue obligation in connection with the leased equipment used

by defendant to comply with its contracted services;

6. The equipment covered by the lease were all used in the construction project of Becthel in Mauban,

Quezon, and Expo in Pampanga and defendant was not yet paid of its services that resulted to the

non-payment of rentals on the leased equipment.3

And by way of third-party complaint against Becthel as third-party defendant, ACDC alleged that:

7. Third-party plaintiff repleads the foregoing allegations in the preceding paragraphs as may be

material and pertinent hereto;

8. Third-party BECTHEL OVERSEAS CORPORATION (herein called "Becthel") is a corporation duly

organized and existing under the laws of the United States of America but may be served with

summons at Barangay Cagsiay I, Mauban, Quezon 4330, Philippines;

9. Third-party defendant Becthel contracted the services of third-party plaintiff to do construction work

at its Mauban, Quezon project using the leased equipment of plaintiff Monark;

10. With the contracted work, third-party plaintiff rented the equipment of the plaintiff Monark;

11. Third-party plaintiff rendered and complied with its contracted works with third-party defendant

using plaintiff's (Monark) rented equipment. But, third-party defendant BECTHEL did not pay for the

services of third-party plaintiff ASIAKONSTRUKT that resulted to the non-payment of plaintiff Monark's

claim;
12. Despite repeated demands, third-party defendant failed and refused to pay its overdue obligation

to third-party plaintiff ASIAKONSTRUKT, and third-party defendant needs to be impleaded in this case

for contribution, indemnity, subrogation or other reliefs to off-set or to pay the amount of money

claim of plaintiff Monark on the leased equipment used in the Mauban, Quezon project in the total

amount of P456,666.67;

13. By reason thereof, third-party plaintiff was compelled to prosecute its claim against third-party

defendant and hired the services of undersigned counsel for an attorney's fees of P500,000.00.4

ACDC prayed that judgment be rendered in its favor dismissing the complaint and ordering the third-
party defendant (Becthel) to pay P456,666.67 plus interest thereon and attorney's fees.5

MEC opposed the motion of ACDC to file a third-party complaint against Becthel on the ground that
the defendant had already admitted its principal obligation to MEC in the amount of P5,071,335.86;
the transaction between it and ACDC, on the one hand, and between ACDC and Becthel, on the other,
were independent transactions. Furthermore, the allowance of the third-party complaint would result
in undue delays in the disposition of the case.6

MEC then filed a motion for summary judgment, alleging therein that there was no genuine issue as to
the obligation of ACDC to MEC in the total amount of P5,071,335.86, the only issue for the trial court's
resolution being the amount of attorney's fees and costs of litigation.7

ACDC opposed the motion for summary judgment, alleging that there was a genuine issue with
respect to the amount of P5,071,335.86 being claimed by MEC, and that it had a third-party complaint
against Becthel in connection with the reliefs sought against it which had to be litigated.8

In its reply, MEC alleged that the demand of ACDC in its special and affirmative defenses partook of
the nature of a negative pregnant, and that there was a need for a hearing on its claim for damages.

On August 2, 2001, the trial court issued a Resolution denying the motion of ACDC for leave to file a
third-party complaint and granting the motion of MEC, which the trial court considered as a motion for
a judgment on the pleadings. The fallo of the resolution reads:

ACCORDINGLY, this Court finds defendant Asian Construction and Development Corporation liable to

pay plaintiff Monark Equipment Corporation and is hereby ordered to pay plaintiff the amount of FIVE

MILLION SEVENTY-ONE THOUSAND AND THREE HUNDRED THIRTY-FIVE & 86/100 PESOS

(P5,071,335.86) plus 12% interest from the filing of the complaint until fully paid.

SO ORDERED.9

ACDC appealed the resolution to the Court of Appeals (CA), alleging that '

I. THE LOWER COURT ERRED IN DENYING THE MOTION TO FILE AND ADMIT ANSWER WITH THIRD-

PARTY COMPLAINT;

II. THE LOWER COURT ERRED IN GRANTING THE MOTION FOR SUMMARY JUDGMENT;
III. THE LOWER COURT ERRED WHEN IT DENIED THE THIRD-PARTY COMPLAINT AND ORDERED

DEFENDANT TO PAY THE AMOUNT OF P5,071,335.86 PLUS INTEREST OF 12% PER ANNUM.10

On July 18, 2001, the CA rendered judgment dismissing the appeal and affirming the assailed
decision. The appellate court ruled that since MEC had prayed for judgment on the pleadings, it
thereby waived its claim for damages other than the amount of P5,071,335.86; hence, there was no
longer a genuine issue to be resolved by the court which necessitated trial. The appellate court
sustained the disallowance of the third-party complaint of ACDC against Becthel on the ground that
the transaction between the said parties did not arise out of the same transaction on which MEC's
claim was based.

Its motion for reconsideration of the decision having been denied, ACDC, now the petitioner, filed the
present Petition for Review on Certiorari, and raises the following issues:

I. WHETHER OR NOT A THIRD-PARTY COMPLAINT IS PROPER; AND

II. WHETHER OR NOT JUDGMENT ON THE PLEADINGS IS PROPER.11

Citing the rulings of this Court in Allied Banking Corporation v. Court of Appeals12 and British Airways
v. Court of Appeals,13 the petitioner avers that the CA erred in ruling that in denying its motion for
leave to file a third-party complaint, the RTC acted in accordance with the Rules of Court and case
law. The petitioner maintains that it raised genuine issues in its answer; hence, it was improper for
the trial court to render judgment on the pleadings:

With due respect, the judgment on the pleadings affirmed by the Court of Appeals is not, likewise,

proper considering that the Answer with Third-Party Complaint, although it admitted the obligation to

respondent, tendered an issue of whether the respondent's claim is connected with the third-party

claim.

As alleged in the Answer with Third-Party Complaint, it is admitted then by respondent, for purposes

of judgment on the pleadings, that failure to pay respondent was in connection of Becthel Overseas

Corporation's failure to pay its obligation to petitioner and that the equipment leased was used in

connection with the Becthel Overseas Corporation project.

This tendered issue could not just be disregarded in the light of the third-party complaint filed by

herein petitioner and third-party plaintiff which, as argued in the first discussion/argument, is proper

and should have been given due course.14

The petition is denied for lack of merit.

Section 11, Rule 6 of the Rules of Court provides:

Sec. 11. Third (fourth, etc.)-party complaint. - A third (fourth, etc.) - party complaint is a claim that a

defending party may, with leave of court, file against a person not a party to the action, called the
third (fourth, etc.) - party defendant, for contribution, indemnity, subrogation or any other relief, in

respect of his opponent's claim.

Furthermore, Section 1, Rule 34 of the Rules of Court provides that the Court may render judgment
on the pleadings, as follows:

Section 1. Judgment on the pleadings. - Where an answer fails to tender an issue, or, otherwise,

admits the material allegations of the adverse party's pleading, the court may, on motion of that

party, direct judgment on such pleading. However, in actions for declaration of nullity or annulment of

marriage or for legal separation, the material facts alleged in the complaint shall always be proved.

The purpose of Section 11, Rule 6 of the Rules of Court is to permit a defendant to assert an
independent claim against a third-party which he, otherwise, would assert in another action, thus
preventing multiplicity of suits. All the rights of the parties concerned would then be adjudicated in
one proceeding. This is a rule of procedure and does not create a substantial right. Neither does it
abridge, enlarge, or nullify the substantial rights of any litigant.15 This right to file a third-party
complaint against a third-party rests in the discretion of the trial court. The third-party complaint is
actually independent of, separate and distinct from the plaintiff's complaint, such that were it not for
the rule, it would have to be filed separately from the original complaint.16

A prerequisite to the exercise of such right is that some substantive basis for a third-party claim be
found to exist, whether the basis be one of indemnity, subrogation, contribution or other substantive
right.17 The bringing of a third-party defendant is proper if he would be liable to the plaintiff or to the
defendant or both for all or part of the plaintiff's claim against the original defendant, although the
third-party defendant's liability arises out of another transaction.18 The defendant may implead another
as third-party defendant (a) on an allegation of liability of the latter to the defendant for contribution,
indemnity, subrogation or any other relief; (b) on the ground of direct liability of the third-party
defendant to the plaintiff; or (c) the liability of the third-party defendant to both the plaintiff and the
defendant.19 There must be a causal connection between the claim of the plaintiff in his complaint and
a claim for contribution, indemnity or other relief of the defendant against the third-party defendant.
In Capayas v. Court of First Instance,20 the Court made out the following tests: (1) whether it arises
out of the same transaction on which the plaintiff's claim is based; or whether the third-party claim,
although arising out of another or different contract or transaction, is connected with the plaintiff's
claim; (2) whether the third-party defendant would be liable to the plaintiff or to the defendant for all
or part of the plaintiff's claim against the original defendant, although the third-party defendant's
liability arises out of another transaction; and (3) whether the third-party defendant may assert any
defenses which the third-party plaintiff has or may have to the plaintiff's claim.

The third-party complaint does not have to show with certainty that there will be recovery against the
third-party defendant, and it is sufficient that pleadings show possibility of recovery.21 In determining
the sufficiency of the third-party complaint, the allegations in the original complaint and the third-
party complaint must be examined.22 A third-party complaint must allege facts which prima facie show
that the defendant is entitled to contribution, indemnity, subrogation or other relief from the third-
party defendant.23

It bears stressing that common liability is the very essence for contribution. Contribution is a payment
made by each, or by any of several having a common liability of his share in the damage suffered or in
the money necessarily paid by one of the parties in behalf of the other or others.24 The rule on
common liability is fundamental in the action for contribution.25 The test to determine whether the
claim for indemnity in a third-party complaint is, whether it arises out of the same transaction on
which the plaintiff's claim is based, or the third-party plaintiff's claim, although arising out of another
or different contract or transaction, is connected with the plaintiff's claim.26
In this case, the claims of the respondent, as plaintiff in the RTC, against the petitioner as defendant
therein, arose out of the contracts of lease and sale; such transactions are different and separate from
those between Becthel and the petitioner as third-party plaintiff for the construction of the latter's
project in Mauban, Quezon, where the equipment leased from the respondent was used by the
petitioner. The controversy between the respondent and the petitioner, on one hand, and that
between the petitioner and Becthel, on the other, are thus entirely distinct from each other. There is
no showing in the proposed third-party complaint that the respondent knew or approved the use of
the leased equipment by the petitioner for the said project in Quezon. Becthel cannot invoke any
defense the petitioner had or may have against the claims of the respondent in its complaint, because
the petitioner admitted its liabilities to the respondent for the amount of P5,075,335.86. The
barefaced fact that the petitioner used the equipment it leased from the respondent in connection with
its project with Becthel does not provide a substantive basis for the filing of a third-party complaint
against the latter. There is no causal connection between the claim of the respondent for the rental
and the balance of the purchase price of the equipment and parts sold and leased to the petitioner,
and the failure of Becthel to pay the balance of its account to the petitioner after the completion of the
project in Quezon.27

We note that in its third-party complaint, the petitioner alleged that Becthel should be ordered to pay
the balance of its account of P456,666.67, so that the petitioner could pay the same to the
respondent. However, contrary to its earlier plea for the admission of its third-party complaint against
Becthel, the petitioner also sought the dismissal of the respondent's complaint. The amount
of P456,666.67 it sought to collect from Becthel would not be remitted to the respondent after all.

The rulings of this Court in Allied Banking Corporation and British Airways are not applicable in this
case since the factual backdrops in the said cases are different.

In Allied Banking Corporation, Joselito Yujuico obtained a loan from General Bank and Trust Company.
The Central Bank of the Philippines ordered the liquidation of the Bank. In a Memorandum Agreement
between the liquidation of the Bank and Allied Banking Corporation, the latter acquired the receivables
from Yujuico. Allied Banking Corporation then sued Yujuico for the collection of his loan, and the latter
filed a third-party complaint against the Central Bank, alleging that by reason of its tortious
interference with the affairs of the General Bank and Trust Company, he was prevented from
performing his obligation under the loan. This Court allowed the third-party complaint based on the
claim of the defendant therein, thus:

'In the words of private respondent, he "[s]eeks to transfer liability for the default imputed against

him by the petitioner to the proposed third-party defendants because of their tortious acts which

prevented him from performing his obligations." Thus, if at the outset the issue appeared to be a

simple maker's liability on a promissory note, it became complex by the rendition of the aforestated

decision.28

In British Airways, the Court allowed the third-party complaint of British Airways against its agent, the
Philippine Airlines, on the plaintiff's complaint regarding his luggage, considering that a contract of
carriage was involved. The Court ruled, thus:

Undeniably, for the loss of his luggage, Mahtani is entitled to damages from BA, in view of their

contract of carriage. Yet, BA adamantly disclaimed its liability and instead imputed it to PAL which the

latter naturally denies. In other words, BA and PAL are blaming each other for the incident.

In resolving this issue, it is worth observing that the contract of air transportation was exclusively

between Mahtani and BA, the latter merely endorsing the Manila to Hongkong leg of the former's
journey to PAL, as its subcontractor or agent. In fact, the fourth paragraph of the "Conditions of

Contracts" of the ticket issued by BA to Mahtani confirms that the contract was one of continuous air

transportation from Manila to Bombay.

"4. xxx carriage to be performed hereunder by several successive carriers is regarded as a single

operation."

Prescinding from the above discussion, it is undisputed that PAL, in transporting Mahtani from Manila

to Hongkong acted as the agent of BA.

Parenthetically, the Court of Appeals should have been cognizant of the well-settled rule that an agent

is also responsible for any negligence in the performance of its function and is liable for damages

which the principal may suffer by reason of its negligent act. Hence, the Court of Appeals erred when

it opined that BA, being the principal, had no cause of action against PAL, its agent or sub-contractor.

Also, it is worth mentioning that both BA and PAL are members of the International Air Transport

Association (IATA), wherein member airlines are regarded as agents of each other in the issuance of

the tickets and other matters pertaining to their relationship. Therefore, in the instant case, the

contractual relationship between BA and PAL is one of agency, the former being the principal, since it

was the one which issued the confirmed ticket, and the latter the agent.29

It goes without saying that the denial of the petitioner's motion with leave to file a third-party
complaint against Becthel is without prejudice to its right to file a separate complaint against the
latter.

Considering that the petitioner admitted its liability for the principal claim of the respondent in its
Answer with Third-Party Complaint, the trial court did not err in rendering judgment on the pleadings
against it.

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

SO ORDERED.