Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. L-8437 November 28, 1956
ESTATE OF K. H. HEMADY, deceased,
vs.
LUZON SURETY CO., INC., claimant-appellant.

D E C I S I O N
REYES, J. B. L., J.:
Appeal by Luzon Surety Co., Inc., from an order of the Court of First Instance of Rizal, presided by Judge
Hermogenes Caluag, dismissing its claim against the Estate of K. H. Hemady (Special Proceeding No. Q-
293) for failure to state a cause of action.
The Luzon Surety Co. had filed a claim against the Estate based on twenty different indemnity
agreements, or counter bonds, each subscribed by a distinct principal and by the deceased K. H.
Hemady, a surety solidary guarantor) in all of them, in consideration of the Luzon Surety Co.s of having
guaranteed, the various principals in favor of different creditors. The twenty counterbonds, or indemnity
agreements, all contained the following stipulations:
Premiums. As consideration for this suretyship, the undersigned jointly and severally, agree to pay
the COMPANY the sum of ________________ (P______) pesos, Philippines Currency, in advance as
premium there of for every __________ months or fractions thereof, this ________ or any renewal or
substitution thereof is in effect.
Indemnity. The undersigned, jointly and severally, agree at all times to indemnify the COMPANY and
keep it indemnified and hold and save it harmless from and against any and all damages, losses, costs,
stamps, taxes, penalties, charges, and expenses of whatsoever kind and nature which the COMPANY
shall or may, at any time sustain or incur in consequence of having become surety upon this bond or any
extension, renewal, substitution or alteration thereof made at the instance of the undersigned or any of
them or any order executed on behalf of the undersigned or any of them; and to pay, reimburse and
make good to the COMPANY, its successors and assigns, all sums and amount of money which it or its
representatives shall pay or cause to be paid, or become liable to pay, on account of the undersigned or
any of them, of whatsoever kind and nature, including 15% of the amount involved in the litigation or
other matters growing out of or connected therewith for counsel or attorneys fees, but in no case less
than P25. It is hereby further agreed that in case of extension or renewal of this ________ we equally
bind ourselves for the payment thereof under the same terms and conditions as above mentioned
without the necessity of executing another indemnity agreement for the purpose and that we hereby
equally waive our right to be notified of any renewal or extension of this ________ which may be
granted under this indemnity agreement.
Interest on amount paid by the Company. Any and all sums of money so paid by the company shall
bear interest at the rate of 12% per annum which interest, if not paid, will be accummulated and added
to the capital quarterly order to earn the same interests as the capital and the total sum thereof, the
capital and interest, shall be paid to the COMPANY as soon as the COMPANY shall have become liable
therefore, whether it shall have paid out such sums of money or any part thereof or not.
xxx xxx xxx
Waiver. It is hereby agreed upon by and between the undersigned that any question which may arise
between them by reason of this document and which has to be submitted for decision to Courts of
Justice shall be brought before the Court of competent jurisdiction in the City of Manila, waiving for this
purpose any other venue. Our right to be notified of the acceptance and approval of this indemnity
agreement is hereby likewise waived.
xxx xxx xxx
Our Liability Hereunder. It shall not be necessary for the COMPANY to bring suit against the principal
upon his default, or to exhaust the property of the principal, but the liability hereunder of the
undersigned indemnitor shall be jointly and severally, a primary one, the same as that of the principal,
and shall be exigible immediately upon the occurrence of such default. (Rec. App. pp. 98- 102.)
The Luzon Surety Co., prayed for allowance, as a contingent claim, of the value of the twenty bonds it
had executed in consideration of the counterbonds, and further asked for judgment for the unpaid
premiums and documentary stamps affixed to the bonds, with 12 per cent interest thereon.
Before answer was filed, and upon motion of the administratrix of Hemadys estate, the lower court, by
order of September 23, 1953, dismissed the claims of Luzon Surety Co., on two grounds: (1) that the
premiums due and cost of documentary stamps were not contemplated under the indemnity
agreements to be a part of the undertaking of the guarantor (Hemady), since they were not liabilities
incurred after the execution of the counterbonds; and (2) that whatever losses may occur after
Hemadys death, are not chargeable to his estate, because upon his death he ceased to be guarantor.
Taking up the latter point first, since it is the one more far reaching in effects, the reasoning of the court
below ran as follows:
The administratrix further contends that upon the death of Hemady, his liability as a guarantor
terminated, and therefore, in the absence of a showing that a loss or damage was suffered, the claim
cannot be considered contingent. This Court believes that there is merit in this contention and finds
support in Article 2046 of the new Civil Code. It should be noted that a new requirement has been
added for a person to qualify as a guarantor, that is: integrity. As correctly pointed out by the
Administratrix, integrity is something purely personal and is not transmissible. Upon the death of
Hemady, his integrity was not transmitted to his estate or successors. Whatever loss therefore, may
occur after Hemadys death, are not chargeable to his estate because upon his death he ceased to be a
guarantor.
Another clear and strong indication that the surety company has exclusively relied on the personality,
character, honesty and integrity of the now deceased K. H. Hemady, was the fact that in the printed
form of the indemnity agreement there is a paragraph entitled Security by way of first mortgage, which
was expressly waived and renounced by the security company. The security company has not demanded
from K. H. Hemady to comply with this requirement of giving security by way of first mortgage. In the
supporting papers of the claim presented by Luzon Surety Company, no real property was mentioned in
the list of properties mortgaged which appears at the back of the indemnity agreement. (Rec. App., pp.
407-408).
We find this reasoning untenable. Under the present Civil Code (Article 1311), as well as under the Civil
Code of 1889 (Article 1257), the rule is that -
Contracts take effect only as between the parties, their assigns and heirs, except in the case where the
rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or
by provision of law.
While in our successional system the responsibility of the heirs for the debts of their decedent cannot
exceed the value of the inheritance they receive from him, the principle remains intact that these heirs
succeed not only to the rights of the deceased but also to his obligations. Articles 774 and 776 of the
New Civil Code (and Articles 659 and 661 of the preceding one) expressly so provide, thereby confirming
Article 1311 already quoted.
ART. 774. Succession is a mode of acquisition by virtue of which the property, rights and obligations
to the extent of the value of the inheritance, of a person are transmitted through his death to another
or others either by his will or by operation of law.
ART. 776. The inheritance includes all the property, rights and obligations of a person which are not
extinguished by his death.
In Mojica vs. Fernandez, 9 Phil. 403, this Supreme Court ruled:
Under the Civil Code the heirs, by virtue of the rights of succession are subrogated to all the rights and
obligations of the deceased (Article 661) and can not be regarded as third parties with respect to a
contract to which the deceased was a party, touching the estate of the deceased (Barrios vs. Dolor, 2
Phil. 44).
xxx xxx xxx
The principle on which these decisions rest is not affected by the provisions of the new Code of Civil
Procedure, and, in accordance with that principle, the heirs of a deceased person cannot be held to be
third persons in relation to any contracts touching the real estate of their decedent which comes in to
their hands by right of inheritance; they take such property subject to all the obligations resting thereon
in the hands of him from whom they derive their rights.
(See also Galasinao vs. Austria, 51 Off. Gaz. (No. 6) p. 2874 and de Guzman vs. Salak, 91 Phil., 265)
The binding effect of contracts upon the heirs of the deceased party is not altered by the provision in
our Rules of Court that money debts of a deceased must be liquidated and paid from his estate before
the residue is distributed among said heirs (Rule 89). The reason is that whatever payment is thus made
from the estate is ultimately a payment by the heirs and distributees, since the amount of the paid claim
in fact diminishes or reduces the shares that the heirs would have been entitled to receive.
Under our law, therefore, the general rule is that a partys contractual rights and obligations are
transmissible to the successors. The rule is a consequence of the progressive depersonalization of
patrimonial rights and duties that, as observed by Victorio Polacco, has characterized the history of
these institutions. From the Roman concept of a relation from person to person, the obligation has
evolved into a relation from patrimony to patrimony, with the persons occupying only a representative
position, barring those rare cases where the obligation is strictly personal, i.e., is contracted intuitu
personae, in consideration of its performance by a specific person and by no other. The transition is
marked by the disappearance of the imprisonment for debt.
Of the three exceptions fixed by Article 1311, the nature of the obligation of the surety or guarantor
does not warrant the conclusion that his peculiar individual qualities are contemplated as a principal
inducement for the contract. What did the creditor Luzon Surety Co. expect of K. H. Hemady when it
accepted the latter as surety in the counterbonds? Nothing but the reimbursement of the moneys that
the Luzon Surety Co. might have to disburse on account of the obligations of the principal debtors. This
reimbursement is a payment of a sum of money, resulting from an obligation to give; and to the Luzon
Surety Co., it was indifferent that the reimbursement should be made by Hemady himself or by some
one else in his behalf, so long as the money was paid to it.
The second exception of Article 1311, p. 1, is intransmissibility by stipulation of the parties. Being
exceptional and contrary to the general rule, this intransmissibility should not be easily implied, but
must be expressly established, or at the very least, clearly inferable from the provisions of the contract
itself, and the text of the agreements sued upon nowhere indicate that they are non-transferable.
(b) Intransmisibilidad por pacto. Lo general es la transmisibilidad de darechos y obligaciones; le
excepcion, la intransmisibilidad. Mientras nada se diga en contrario impera el principio de la
transmision, como elemento natural a toda relacion juridica, salvo las personalisimas. Asi, para la no
transmision, es menester el pacto expreso, porque si no, lo convenido entre partes trasciende a sus
herederos.
Siendo estos los continuadores de la personalidad del causante, sobre ellos recaen los efectos de los
vinculos juridicos creados por sus antecesores, y para evitarlo, si asi se quiere, es indespensable
convension terminante en tal sentido.
Por su esencia, el derecho y la obligacion tienden a ir ms all de las personas que les dieron vida, y a
ejercer presion sobre los sucesores de esa persona; cuando no se quiera esto, se impone una
estipulacion limitativa expresamente de la transmisibilidad o de cuyos tirminos claramente se deduzca la
concresion del concreto a las mismas personas que lo otorgon. (Scaevola, Codigo Civil, Tomo XX, p.
541-542) ( emphasis supplied.)
Because under the law (Article 1311), a person who enters into a contract is deemed to have contracted
for himself and his heirs and assigns, it is unnecessary for him to expressly stipulate to that effect;
hence, his failure to do so is no sign that he intended his bargain to terminate upon his death. Similarly,
that the Luzon Surety Co., did not require bondsman Hemady to execute a mortgage indicates nothing
more than the companys faith and confidence in the financial stability of the surety, but not that his
obligation was strictly personal.
The third exception to the transmissibility of obligations under Article 1311 exists when they are not
transmissible by operation of law. The provision makes reference to those cases where the law
expresses that the rights or obligations are extinguished by death, as is the case in legal support (Article
300), parental authority (Article 327), usufruct (Article 603), contracts for a piece of work (Article 1726),
partnership (Article 1830 and agency (Article 1919). By contract, the articles of the Civil Code that
regulate guaranty or suretyship (Articles 2047 to 2084) contain no provision that the guaranty is
extinguished upon the death of the guarantor or the surety.
The lower court sought to infer such a limitation from Art. 2056, to the effect that one who is obliged
to furnish a guarantor must present a person who possesses integrity, capacity to bind himself, and
sufficient property to answer for the obligation which he guarantees. It will be noted, however, that
the law requires these qualities to be present only at the time of the perfection of the contract of
guaranty. It is self-evident that once the contract has become perfected and binding, the supervening
incapacity of the guarantor would not operate to exonerate him of the eventual liability he has
contracted; and if that be true of his capacity to bind himself, it should also be true of his integrity,
which is a quality mentioned in the article alongside the capacity.
The foregoing concept is confirmed by the next Article 2057, that runs as follows:
ART. 2057. If the guarantor should be convicted in first instance of a crime involving dishonesty or
should become insolvent, the creditor may demand another who has all the qualifications required in
the preceding article. The case is excepted where the creditor has required and stipulated that a
specified person should be guarantor.
From this article it should be immediately apparent that the supervening dishonesty of the guarantor
(that is to say, the disappearance of his integrity after he has become bound) does not terminate the
contract but merely entitles the creditor to demand a replacement of the guarantor. But the step
remains optional in the creditor: it is his right, not his duty; he may waive it if he chooses, and hold the
guarantor to his bargain. Hence Article 2057 of the present Civil Code is incompatible with the trial
courts stand that the requirement of integrity in the guarantor or surety makes the latters undertaking
strictly personal, so linked to his individuality that the guaranty automatically terminates upon his death.
The contracts of suretyship entered into by K. H. Hemady in favor of Luzon Surety Co. not being
rendered intransmissible due to the nature of the undertaking, nor by the stipulations of the contracts
themselves, nor by provision of law, his eventual liability thereunder necessarily passed upon his death
to his heirs. The contracts, therefore, give rise to contingent claims provable against his estate under
section 5, Rule 87 (2 Moran, 1952 ed., p. 437; Gaskell & Co. vs. Tan Sit, 43 Phil. 810, 814).
The most common example of the contigent claim is that which arises when a person is bound as
surety or guarantor for a principal who is insolvent or dead. Under the ordinary contract of suretyship
the surety has no claim whatever against his principal until he himself pays something by way of
satisfaction upon the obligation which is secured. When he does this, there instantly arises in favor of
the surety the right to compel the principal to exonerate the surety. But until the surety has contributed
something to the payment of the debt, or has performed the secured obligation in whole or in part, he
has no right of action against anybody no claim that could be reduced to judgment. (May vs. Vann, 15
Pla., 553; Gibson vs. Mithell, 16 Pla., 519; Maxey vs. Carter, 10 Yarg. [Tenn.], 521 Reeves vs. Pulliam, 7
Baxt. *Tenn.+, 119; Ernst vs. Nou, 63 Wis., 134.)
For defendant administratrix it is averred that the above doctrine refers to a case where the surety files
claims against the estate of the principal debtor; and it is urged that the rule does not apply to the case
before us, where the late Hemady was a surety, not a principal debtor. The argument evinces a
superficial view of the relations between parties. If under the Gaskell ruling, the Luzon Surety Co., as
guarantor, could file a contingent claim against the estate of the principal debtors if the latter should
die, there is absolutely no reason why it could not file such a claim against the estate of Hemady, since
Hemady is a solidary co-debtor of his principals. What the Luzon Surety Co. may claim from the estate of
a principal debtor it may equally claim from the estate of Hemady, since, in view of the existing
solidarity, the latter does not even enjoy the benefit of exhaustion of the assets of the principal debtor.
The foregoing ruling is of course without prejudice to the remedies of the administratrix against the
principal debtors under Articles 2071 and 2067 of the New Civil Code.
Our conclusion is that the solidary guarantors liability is not extinguished by his death, and that in such
event, the Luzon Surety Co., had the right to file against the estate a contingent claim for
reimbursement. It becomes unnecessary now to discuss the estates liability for premiums and stamp
taxes, because irrespective of the solution to this question, the Luzon Suretys claim did state a cause of
action, and its dismissal was erroneous.
WHEREFORE, the order appealed from is reversed, and the records are ordered remanded to the court
of origin, with instructions to proceed in accordance with law. Costs against the Administratrix-
Appellee. So ordered.
Paras, C.J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia and Felix,
JJ., concur.

Civil Law Wills and Succession Transmissible Obligations
Luzon Surety filed a claim against the estate of K.H. Hemady based on indemnity agreements
(counterbonds) subscribed by distinct principals and by the deceased K.H. Hemady as surety (solidary
guarantor). As a contingent claim, Luzon Surety prayed for the allowance of the value of the indemnity
agreements it had executed. The lower court dismissed the claim of Luzon Surety on the ground that
whatever losses may occur after Hemadys death, are not chargeable to his estate, because upon his
death he ceased to be a guarantor.
ISSUES: What obligations are transmissible upon the death of the decedent? Are contingent claims
chargeable against the estate?
HELD: Under the present Civil Code (Article 1311), the rule is that Contracts take effect only as between
the parties, their assigns and heirs, except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by provision of law. While in our
successional system the responsibility of the heirs for the debts of their decedent cannot exceed the
value of the inheritance they receive from him, the principle remains intact that these heirs succeed not
only to the rights of the deceased but also to his obligations. Articles 774 and 776 of the New Civil Code
expressly so provide, thereby confirming Article 1311.
In Mojica v. Fernandez, the Supreme Court ruled Under the Civil Code the heirs, by virtue of the
rights of succession are subrogated to all the rights and obligations of the deceased (Article 661) and
can not be regarded as third parties with respect to a contract to which the deceased was a party,
touching the estate of the deceased x x x which comes in to their hands by right of inheritance; they take
such property subject to all the obligations resting thereon in the hands of him from whom they derive
their rights. The third exception to the transmissibility of obligations under Article 1311 exists when
they are not transmissible by operation of law. The provision makes reference to those cases where the
law expresses that the rights or obligations are extinguished by death, as is the case in legal support,
parental authority, usufruct, contracts for a piece of work, partnership and agency. By contrast, the
articles of the Civil Code that regulate guaranty or suretyship contain no provision that the guaranty is
extinguished upon the death of the guarantor or the surety.
The contracts of suretyship in favor of Luzon Surety Co. not being rendered intransmissible due to the
nature of the undertaking, nor by stipulations of the contracts themselves, nor by provision of law, his
eventual liability therefrom necessarily passed upon his death to his heirs. The contracts, therefore,
give rise to contingent claims provable against his estate. A contingent liability of a deceased person is
part and parcel of the mass of obligations that must be paid if and when the contingent liability is
converted into a real liability. Therefore, the settlement or final liquidation of the estate must be
deferred until such time as the bonded indebtedness is paid.


Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-41715 June 18, 1976
ROSALIO BONILLA (a minor) SALVACION BONILLA (a minor) and PONCIANO BONILLA (their father)
who represents the minors, petitioners,
vs.
LEON BARCENA, MAXIMA ARIAS BALLENA, ESPERANZA BARCENA, MANUEL BARCENA, AGUSTINA
NERI, widow of JULIAN TAMAYO and HON. LEOPOLDO GIRONELLA of the Court of First Instance of
Abra,respondents.
Federico Paredes for petitioners.
Demetrio V. Pre for private respondents.

MARTIN, J:
This is a petition for review
1
of the Order of the Court of First Instance of Abra in Civil Case No. 856,
entitled Fortunata Barcena vs. Leon Barcena, et al., denying the motions for reconsideration of its order
dismissing the complaint in the aforementioned case.
On March 31, 1975 Fortunata Barcena, mother of minors Rosalio Bonilla and Salvacion Bonilla and wife
of Ponciano Bonilla, instituted a civil action in the Court of First Instance of Abra, to quiet title over
certain parcels of land located in Abra.
On May 9, 1975, defendants filed a written motion to dismiss the complaint, but before the hearing of
the motion to dismiss, the counsel for the plaintiff moved to amend the complaint in order to include
certain allegations therein. The motion to amend the complaint was granted and on July 17, 1975,
plaintiffs filed their amended complaint.
On August 4, 1975, the defendants filed another motion to dismiss the complaint on the ground that
Fortunata Barcena is dead and, therefore, has no legal capacity to sue. Said motion to dismiss was heard
on August 14, 1975. In said hearing, counsel for the plaintiff confirmed the death of Fortunata Barcena,
and asked for substitution by her minor children and her husband, the petitioners herein; but the court
after the hearing immediately dismissed the case on the ground that a dead person cannot be a real
party in interest and has no legal personality to sue.
On August 19, 1975, counsel for the plaintiff received a copy of the order dismissing the complaint and
on August 23, 1975, he moved to set aside the order of the dismissal pursuant to Sections 16 and 17 of
Rule 3 of the Rules of Court.
2

On August 28, 1975, the court denied the motion for reconsideration filed by counsel for the plaintiff for
lack of merit. On September 1, 1975, counsel for deceased plaintiff filed a written manifestation praying
that the minors Rosalio Bonilla and Salvacion Bonilla be allowed to substitute their deceased mother,
but the court denied the counsel's prayer for lack of merit. From the order, counsel for the deceased
plaintiff filed a second motion for reconsideration of the order dismissing the complaint claiming that
the same is in violation of Sections 16 and 17 of Rule 3 of the Rules of Court but the same was denied.
Hence, this petition for review.
The Court reverses the respondent Court and sets aside its order dismissing the complaint in Civil Case
No. 856 and its orders denying the motion for reconsideration of said order of dismissal. While it is true
that a person who is dead cannot sue in court, yet he can be substituted by his heirs in pursuing the case
up to its completion. The records of this case show that the death of Fortunata Barcena took place on
July 9, 1975 while the complaint was filed on March 31, 1975. This means that when the complaint was
filed on March 31, 1975, Fortunata Barcena was still alive, and therefore, the court had acquired
jurisdiction over her person. If thereafter she died, the Rules of Court prescribes the procedure whereby
a party who died during the pendency of the proceeding can be substituted. Under Section 16, Rule 3 of
the Rules of Court "whenever a party to a pending case dies ... it shall be the duty of his attorney to
inform the court promptly of such death ... and to give the name and residence of his executor,
administrator, guardian or other legal representatives." This duty was complied with by the counsel for
the deceased plaintiff when he manifested before the respondent Court that Fortunata Barcena died on
July 9, 1975 and asked for the proper substitution of parties in the case. The respondent Court,
however, instead of allowing the substitution, dismissed the complaint on the ground that a dead
person has no legal personality to sue. This is a grave error. Article 777 of the Civil Code provides "that
the rights to the succession are transmitted from the moment of the death of the decedent." From the
moment of the death of the decedent, the heirs become the absolute owners of his property, subject to
the rights and obligations of the decedent, and they cannot be deprived of their rights thereto except by
the methods provided for by law.
3
The moment of death is the determining factor when the heirs
acquire a definite right to the inheritance whether such right be pure or contingent.
4
The right of the
heirs to the property of the deceased vests in them even before judicial declaration of their being heirs
in the testate or intestate proceedings.
5
When Fortunata Barcena, therefore, died her claim or right to
the parcels of land in litigation in Civil Case No. 856, was not extinguished by her death but was
transmitted to her heirs upon her death. Her heirs have thus acquired interest in the properties in
litigation and became parties in interest in the case. There is, therefore, no reason for the respondent
Court not to allow their substitution as parties in interest for the deceased plaintiff.
Under Section 17, Rule 3 of the Rules of Court "after a party dies and the claim is not thereby
extinguished, the court shall order, upon proper notice, the legal representative of the deceased to
appear and be substituted for the deceased, within such time as may be granted ... ." The question as to
whether an action survives or not depends on the nature of the action and the damage sued for.
6
In the
causes of action which survive the wrong complained affects primarily and principally property and
property rights, the injuries to the person being merely incidental, while in the causes of action which do
not survive the injury complained of is to the person, the property and rights of property affected being
incidental.
7
Following the foregoing criterion the claim of the deceased plaintiff which is an action to
quiet title over the parcels of land in litigation affects primarily and principally property and property
rights and therefore is one that survives even after her death. It is, therefore, the duty of the respondent
Court to order the legal representative of the deceased plaintiff to appear and to be substituted for her.
But what the respondent Court did, upon being informed by the counsel for the deceased plaintiff that
the latter was dead, was to dismiss the complaint. This should not have been done for under the same
Section 17, Rule 3 of the Rules of Court, it is even the duty of the court, if the legal representative fails to
appear, to order the opposing party to procure the appointment of a legal representative of the
deceased. In the instant case the respondent Court did not have to bother ordering the opposing party
to procure the appointment of a legal representative of the deceased because her counsel has not only
asked that the minor children be substituted for her but also suggested that their uncle be appointed as
guardian ad litem for them because their father is busy in Manila earning a living for the family. But the
respondent Court refused the request for substitution on the ground that the children were still minors
and cannot sue in court. This is another grave error because the respondent Court ought to have known
that under the same Section 17, Rule 3 of the Rules of Court, the court is directed to appoint a
guardian ad litem for the minor heirs. Precisely in the instant case, the counsel for the deceased plaintiff
has suggested to the respondent Court that the uncle of the minors be appointed to act as guardian ad
litem for them. Unquestionably, the respondent Court has gravely abused its discretion in not complying
with the clear provision of the Rules of Court in dismissing the complaint of the plaintiff in Civil Case No.
856 and refusing the substitution of parties in the case.
IN VIEW OF THE FOREGOING, the order of the respondent Court dismissing the complaint in Civil Case
No. 856 of the Court of First Instance of Abra and the motions for reconsideration of the order of
dismissal of said complaint are set aside and the respondent Court is hereby directed to allow the
substitution of the minor children, who are the petitioners therein for the deceased plaintiff and to
appoint a qualified person as guardian ad litem for them. Without pronouncement as to costs.
SO ORDERED.
Teehankee (Chairman), Makasiar, Esguerra and Muoz Palma, JJ., concur.


Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-770 April 27, 1948
ANGEL T. LIMJOCO, petitioner,
vs.
INTESTATE ESTATE OF PEDRO O. FRAGRANTE, deceased, respondent.
Angel Limjoco, Jr. and Delfin L. Gonzales for petitioner.
Bienvenido A. Tan for respondent.
HILADO, J.:
Under date of May 21, 1946, the Public Service Commission, through Deputy Commissioner Fidel Ibaez,
rendered its decision in case No. 4572 of Pedro O. Fragante, as applicant for a certificate of public
convenience to install, maintain and operate an ice plant in San Juan, Rizal, whereby said commission
held that the evidence therein showed that the public interest and convenience will be promoted in a
proper and suitable manner "by authorizing the operation and maintenance of another ice plant of two
and one-half (2-) tons in the municipality of San Juan; that the original applicant Pedro O. Fragante was
a Filipino Citizen at the time of his death; and that his intestate estate is financially capable of
maintaining the proposed service". The commission, therefore, overruled the opposition filed in the
case and ordered "that under the provisions of section 15 of Commonwealth Act No. 146, as amended a
certificate of public convenience be issued to the Intestate Estate of the deceased Pedro Fragante,
authorizing said Intestate Estate through its Special or Judicial Administrator, appointed by the proper
court of competent jurisdiction, to maintain and operate an ice plant with a daily productive capacity of
two and one-half (2-1/2) tons in the Municipality of San Juan and to sell the ice produced from said plant
in the said Municipality of San Juan and in the Municipality of Mandaluyong, Rizal, and in Quezon City",
subject to the conditions therein set forth in detail (petitioner's brief, pp. 33-34).
Petitioner makes four assignments of error in his brief as follows:
1. The decision of the Public Service Commission is not in accordance with law.
2. The decision of the Public Service Commission is not reasonably supported by evidence.
3. The Public Service Commission erred in not giving petitioner and the Ice and Cold Storage
Industries of the Philippines, Inc., as existing operators, a reasonable opportunity to meet the
increased demand.
4. The decision of the Public Service Commission is an unwarranted departure from its
announced policy with respect to the establishment and operation of ice plant. (Pp. 1-2,
petitioner's brief.)
In his argument petitioner contends that it was error on the part of the commission to allow the
substitution of the legal representative of the estate of Pedro O. Fragante for the latter as party
applicant in the case then pending before the commission, and in subsequently granting to said estate
the certificate applied for, which is said to be in contravention of law.
If Pedro O. Fragante had not died, there can be no question that he would have had the right to
prosecute his application before the commission to its final conclusion. No one would have denied him
that right. As declared by the commission in its decision, he had invested in the ice plant in question P
35,000, and from what the commission said regarding his other properties and business, he would
certainly have been financially able to maintain and operate said plant had he not died. His
transportation business alone was netting him about P1,440 a month. He was a Filipino citizen and
continued to be such till his demise. The commission declared in its decision, in view of the evidence
before it, that his estate was financially able to maintain and operate the ice plant. The aforesaid right of
Pedro O. Fragante to prosecute said application to its conclusion was one which by its nature did not
lapse through his death. Hence, it constitutes a part of the assets of his estate, for which a right was
property despite the possibility that in the end the commission might have denied application, although
under the facts of the case, the commission granted the application in view of the financial ability of the
estate to maintain and operate the ice plant. Petitioner, in his memorandum of March 19, 1947, admits
(page 3) that the certificate of public convenience once granted "as a rule, should descend to his estate
as an asset". Such certificate would certainly be property, and the right to acquire such a certificate, by
complying with the requisites of the law, belonged to the decedent in his lifetime, and survived to his
estate and judicial administrator after his death.
If Pedro O. Fragrante had in his lifetime secured an option to buy a piece of land and during the life of
the option he died, if the option had been given him in the ordinary course of business and not out of
special consideration for his person, there would be no doubt that said option and the right to exercise
it would have survived to his estate and legal representatives. In such a case there would also be the
possibility of failure to acquire the property should he or his estate or legal representative fail to comply
with the conditions of the option. In the case at bar Pedro O. Fragrante's undoubted right to apply for
and acquire the desired certificate of public convenience the evidence established that the public
needed the ice plant was under the law conditioned only upon the requisite citizenship and economic
ability to maintain and operate the service. Of course, such right to acquire or obtain such certificate of
public convenience was subject to failure to secure its objective through nonfulfillment of the legal
conditions, but the situation here is no different from the legal standpoint from that of the option in the
illustration just given.
Rule 88, section 2, provides that the executor or administrator may bring or defend actions, among
other cases, for the protection of the property or rights of the deceased which survive, and it says that
such actions may be brought or defended "in the right of the deceased".
Rule 82, section 1, paragraph (a), mentions among the duties of the executor or administrator, the
making of an inventory of all goods, chattels, rights, credits, and estate of the deceased which shall
come to his possession or knowledge, or to the possession of any other person for him.
In his commentaries on the Rules of Court (Volume II, 2nd ed., pages 366, 367) the present chief Justice
of this Court draws the following conclusion from the decisions cited by him:
Therefore, unless otherwise expressly provided by law, any action affecting the property
or rights (emphasis supplied) of a deceased person which may be brought by or against him if he
were alive, may likewise be instituted and prosecuted by or against the administrator, unless the
action is for recovery of money, debt or interest thereon, or unless, by its very nature, it cannot
survive, because death extinguishes the right . . . .
It is true that a proceeding upon the application for a certificate of public convenience before the Public
Service Commission is not an "action". But the foregoing provisions and citations go to prove that the
decedent's rights which by their nature are not extinguished by death go to make up a part and parcel of
the assets of his estate which, being placed under the control and management of the executor or
administrator, can not be exercised but by him in representation of the estate for the benefit of the
creditors, devisees or legatees, if any, and the heirs of the decedent. And if the right involved happens to
consist in the prosecution of an unfinished proceeding upon an application for a certificate of public
convenience of the deceased before the Public Service Commission, it is but logical that the legal
representative be empowered and entitled in behalf of the estate to make the right effective in that
proceeding.
Manresa (Vol. III, 6th ed., p. 11) says that No. 10 of article 334 and article 336 of the Civil Code,
respectively, consider as immovable and movable things rights which are not material. The same
eminent commentator says in the cited volume (p. 45) that article 336 of the Civil Code has been
deficiently drafted in that it is not sufficiently expressive of all incorporeal rights which are
also property for juridical purposes.
Corpus Juris (Vol. 50, p. 737) states that in the broad sense of the term, property includes, among other
things, "an option", and "the certificate of the railroad commission permitting the operation of a bus
line", and on page 748 of the same volume we read:
However, these terms (real property, as estate or interest) have also been declared to include
every species of title, inchoate or complete, and embrace rights which lie in contract, whether
executory or executed. (Emphasis supplied.)
Another important question raised by petitioner is whether the estate of Pedro O. Fragrante is a
"person" within the meaning of the Public Service Act.
Words and Phrases, First Series, (Vol. 6, p, 5325), states the following doctrine in the jurisdiction of the
State of Indiana:
As the estate of the decedent is in law regarded as a person, a forgery committed after the
death of the man whose name purports to be signed to the instrument may be prosecuted as
with the intent to defraud the estate. Billings vs. State, 107 Ind., 54, 55, 6 N. E. 914, 7 N. E. 763,
57 Am. Rep. 77.
The Supreme Court of Indiana in the decision cited above had before it a case of forgery committed
after the death of one Morgan for the purpose of defrauding his estate. The objection was urged that
the information did not aver that the forgery was committed with the intent to defraud any person. The
Court, per Elliott, J., disposed of this objection as follows:
. . . The reason advanced in support of this proposition is that the law does not regard the estate
of a decedent as a person. This intention (contention) cannot prevail. The estate of the decedent
is a person in legal contemplation. "The word "person" says Mr. Abbot, "in its legal signification,
is a generic term, and includes artificial as well as natural persons," 2 Abb. Dict. 271; Douglas vs.
Pacific, etc. Co., 4 Cal. 304; Planters', etc., Bank vs. Andrews, 8 Port. (Ala.) 404. It said in another
work that 'persons are of two kinds: natural and artificial. A natural person is a human being.
Artificial persons include (1) a collection or succession of natural persons forming a corporation;
(2) a collection of property to which the law attributes the capacity of having rights and duties.
The latter class of artificial persons is recognized only to a limited extent in our law. "Examples
are the estate of a bankrupt or deceased person." 2 Rapalje & L. Law Dict. 954. Our own cases
inferentially recognize the correctness of the definition given by the authors from whom we
have quoted, for they declare that it is sufficient, in pleading a claim against a decedent's estate,
to designate the defendant as the estate of the deceased person, naming him. Ginn vs. Collins,
43 Ind. 271. Unless we accept this definition as correct, there would be a failure of justice in
cases where, as here, the forgery is committed after the death of a person whose name is
forged; and this is a result to be avoided if it can be done consistent with principle. We perceive
no difficulty in avoiding such a result; for, to our minds, it seems reasonable that the estate of a
decedent should be regarded as an artificial person. It is the creation of law for the purpose of
enabling a disposition of the assets to be properly made, and, although natural persons as heirs,
devises, or creditors, have an interest in the property, the artificial creature is a distinct legal
entity. The interest which natural persons have in it is not complete until there has been a due
administration; and one who forges the name of the decedent to an instrument purporting to
be a promissory note must be regarded as having intended to defraud the estate of the
decedent, and not the natural persons having diverse interests in it, since ha cannot be
presumed to have known who those persons were, or what was the nature of their respective
interest. The fraudulent intent is against the artificial person, the estate and not the
natural persons who have direct or contingent interest in it. (107 Ind. 54, 55, 6 N.E. 914-915.)
In the instant case there would also be a failure of justice unless the estate of Pedro O. Fragrante is
considered a "person", for quashing of the proceedings for no other reason than his death would entail
prejudicial results to his investment amounting to P35,000.00 as found by the commission, not counting
the expenses and disbursements which the proceeding can be presumed to have occasioned him during
his lifetime, let alone those defrayed by the estate thereafter. In this jurisdiction there are ample
precedents to show that the estate of a deceased person is also considered as having legal personality
independent of their heirs. Among the most recent cases may be mentioned that of "Estate of Mota vs.
Concepcion, 56 Phil., 712, 717, wherein the principal plaintiff was the estate of the deceased Lazaro
Mota, and this Court gave judgment in favor of said estate along with the other plaintiffs in these words:
. . . the judgment appealed from must be affirmed so far as it holds that defendants Concepcion
and Whitaker are indebted to he plaintiffs in the amount of P245,804.69 . . . .
Under the regime of the Civil Code and before the enactment of the Code of Civil Procedure, the heirs of
a deceased person were considered in contemplation of law as the continuation of his personality by
virtue of the provision of article 661 of the first Code that the heirs succeed to all the rights and
obligations of the decedent by the mere fact of his death. It was so held by this Court in Barrios vs.
Dolor, 2 Phil., 44, 46. However, after the enactment of the Code of Civil Procedure, article 661 of the
Civil Code was abrogated, as held in Suiliong & Co. vs. Chio-Taysan, 12 Phil., 13, 22. In that case, as well
as in many others decided by this Court after the innovations introduced by the Code of Civil Procedure
in the matter of estates of deceased persons, it has been the constant doctrine that it is the estate or
the mass of property, rights and assets left by the decedent, instead of the heirs directly, that becomes
vested and charged with his rights and obligations which survive after his demise.
The heirs were formerly considered as the continuation of the decedent's personality simply by legal
fiction, for they might not have been flesh and blood the reason was one in the nature of a legal
exigency derived from the principle that the heirs succeeded to the rights and obligations of the
decedent. Under the present legal system, such rights and obligations as survive after death have to be
exercised and fulfilled only by the estate of the deceased. And if the same legal fiction were not
indulged, there would be no juridical basis for the estate, represented by the executor or administrator,
to exercise those rights and to fulfill those obligations of the deceased. The reason and purpose for
indulging the fiction is identical and the same in both cases. This is why according to the Supreme Court
of Indiana in Billings vs. State, supra, citing 2 Rapalje & L. Dictionary, 954, among the artificial persons
recognized by law figures "a collection of property to which the law attributes the capacity of having
rights and duties", as for instance, the estate of a bankrupt or deceased person.
Petitioner raises the decisive question of whether or not the estate of Pedro O. Fragrante can be
considered a "citizen of the Philippines" within the meaning of section 16 of the Public Service Act, as
amended, particularly the proviso thereof expressly and categorically limiting the power of the
commission to issue certificates of public convenience or certificates of public convenience and
necessity "only to citizens of the Philippines or of the United States or to corporations, copartnerships,
associations, or joint-stock companies constituted and organized under the laws of the Philippines", and
the further proviso that sixty per centum of the stock or paid-up capital of such entities must belong
entirely to citizens of the Philippines or of the United States.
Within the Philosophy of the present legal system, the underlying reason for the legal fiction by which,
for certain purposes, the estate of the deceased person is considered a "person" is the avoidance of
injustice or prejudice resulting from the impossibility of exercising such legal rights and fulfilling such
legal obligations of the decedent as survived after his death unless the fiction is indulged. Substantially
the same reason is assigned to support the same rule in the jurisdiction of the State of Indiana, as
announced in Billings vs. State, supra, when the Supreme Court of said State said:
. . . It seems reasonable that the estate of a decedent should be regarded as an artificial person.
it is the creation of law for the purpose of enabling a disposition of the assets to be properly
made . . . .
Within the framework and principles of the constitution itself, to cite just one example, under the bill of
rights it seems clear that while the civil rights guaranteed therein in the majority of cases relate to
natural persons, the term "person" used in section 1 (1) and (2) must be deemed to include artificial or
juridical persons, for otherwise these latter would be without the constitutional guarantee against being
deprived of property without due process of law, or the immunity from unreasonable searches and
seizures. We take it that it was the intendment of the framers to include artificial or juridical, no less
than natural, persons in these constitutional immunities and in others of similar nature. Among these
artificial or juridical persons figure estates of deceased persons. Hence, we hold that within the
framework of the Constitution, the estate of Pedro O. Fragrante should be considered an artificial or
juridical person for the purposes of the settlement and distribution of his estate which, of course,
include the exercise during the judicial administration thereof of those rights and the fulfillment of those
obligations of his which survived after his death. One of those rights was the one involved in his pending
application before the Public Service Commission in the instant case, consisting in the prosecution of
said application to its final conclusion. As stated above, an injustice would ensue from the opposite
course.
How about the point of citizenship? If by legal fiction his personality is considered extended so that any
debts or obligations left by, and surviving, him may be paid, and any surviving rights may be exercised
for the benefit of his creditors and heirs, respectively, we find no sound and cogent reason for denying
the application of the same fiction to his citizenship, and for not considering it as likewise extended for
the purposes of the aforesaid unfinished proceeding before the Public Service Commission. The
outcome of said proceeding, if successful, would in the end inure to the benefit of the same creditors
and the heirs. Even in that event petitioner could not allege any prejudice in the legal sense, any more
than he could have done if Fragrante had lived longer and obtained the desired certificate. The fiction of
such extension of his citizenship is grounded upon the same principle, and motivated by the same
reason, as the fiction of the extension of personality. The fiction is made necessary to avoid the injustice
of subjecting his estate, creditors and heirs, solely by reason of his death to the loss of the investment
amounting to P35,000, which he has already made in the ice plant, not counting the other expenses
occasioned by the instant proceeding, from the Public Service Commission of this Court.
We can perceive no valid reason for holding that within the intent of the constitution (Article IV), its
provisions on Philippine citizenship exclude the legal principle of extension above adverted to. If for
reasons already stated our law indulges the fiction of extension of personality, if for such reasons the
estate of Pedro O. Fragrante should be considered an artificial or juridical person herein, we can find no
justification for refusing to declare a like fiction as to the extension of his citizenship for the purposes of
this proceeding.
Pedro O. Fragrante was a Filipino citizen, and as such, if he had lived, in view of the evidence of record,
he would have obtained from the commission the certificate for which he was applying. The situation
has suffered but one change, and that is, his death. His estate was that of a Filipino citizen. And its
economic ability to appropriately and adequately operate and maintain the service of an ice plant was
the same that it received from the decedent himself. In the absence of a contrary showing, which does
not exist here, his heirs may be assumed to be also Filipino citizens; and if they are not, there is the
simple expedient of revoking the certificate or enjoining them from inheriting it.
Upon the whole, we are of the opinion that for the purposes of the prosecution of said case No. 4572 of
the Public Service Commission to its final conclusion, both the personality and citizenship of Pedro O.
Fragrante must be deemed extended, within the meaning and intent of the Public Service Act, as
amended, in harmony with the constitution: it is so adjudged and decreed.
Decision affirmed, without costs. So ordered.
Moran, C.J., Pablo, Bengzon, Briones, Padilla and Tuason, JJ., concur.
Paras, J., I hereby certify that Mr. Justice Feria voted with the majority.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
February 27, 1953
G.R. No. L-5064
BIENVENIDO A. IBARLE, plaintiff-appellant,
vs.
ESPERANZA M. PO, defendant-appellant.
Quirico del Mar for appellant.
Daniel P. Tumulak and Conchita F. Miel appellee.
TUASON, J.:
This action commenced in the Court of First Instance of Cebu to annul a deed of sale conveying to the
defendant, in consideration of P1,700, one undivided half of a parcel of land which previously had been
sold, along with the other half, by the same vendor to the plaintiff's grantors. judgment was against the
plaintiff.
The case was submitted for decision upon an agreed statement of facts, the pertinent parts of which are
thus summarized in the appealed decision:
1st. That Leonard j. Winstanley and Catalina Navarro were husband and wife, the former having died
on June 6, 1946 leaving heir the surviving spouse and some minor children;
2nd. hat upon the death of L.J. Winstanley, he left a parcel of land described under Transfer
Certificate of title No. 2391 of the Registry of Deeds of the Province of Cebu;
3rd. That the above mentioned property was a conjugal property;
4th. That on April 15, 1946, the surviving spouse Catalina Navarro Vda. de Winstanley sold the entire
parcel of land to the spouses Maria Canoy, alleging among other things, that she needed money for the
support of her children;
5th. That on May 24, 1947, the spouses Maria Canoy and Roberto Canoy sold the same parcel of land
to the plaintiff in this case named Bienvenido A. Ebarle;
6th. That the two deeds of sale referred to above were not registered and have never been registered
up to the date;
7th. That on January 17, 1948 surviving spouse Catalina Navarro Vda. de Winstanley, after her
appointment as guardian of her children by this court (Special proceeding no. 212-R) sold one-half of the
land mentioned above to Esperanza M. Po, defendant in the instant case, which portion belongs to the
children of the above named spouses.
As stated by the trial Judge, the sole question for determination is the validity of the sale to Esperanza
M. Po, the last purchaser. This question in turn depends upon the validity of the prior ale to Maria Canoy
and Roberto Canoy.
Article 657 of the old Civil Code provides: "The rights to the succession of a person are transmitted from
the moment of his death." in a slightly different language, this article is incorporated in the new Civil
Code as article 777.
Manresa, commending on article 657 of the Civil Code of Spain, says:
The moment of death is the determining factor when the heirs acquire a definite right to the
inheritance, whether such right be pure or contingent. It is immaterial whether a short or long period of
time lapses between the death of the predecessor and the entry into possession of the property of the
inheritance because the right is always deemed to be retroactive from the moment of death. (5
Manresa, 317.)
The above provision and comment make it clear that when Catalina Navarro Vda. de Winstanley sold the
entire parcel to the Canoy spouses, one-half of it already belonged to the seller's children. No formal or
judicial declaration being needed to confirm the children's title, it follows that the first sale was null and
void in so far as it included the children's share.
On the other hand, the sale to the defendant having been made by authority of the competent court
was undeniably legal and effective. The fact that it has not been recorded is of no consequence. If
registration were necessary, still the non-registration would not avail the plaintiff because it was due to
no other cause than his own opposition.
The decision will be affirmed subject to the reservation, made in said decision, of the right of the
plaintitff and/or the Canoy spouses to bring such action against Catalina Navarro Vda. de Winstanley as
may be appropriate for such damages as they may have incurred by reason of the voiding of the sale in
their favor.
Paras, C.J., Feria, Pablo, Bengzon, Padilla, Montemayor, Reyes, Jugo, Bautista Angelo and Labrador, JJ.,
concur.

SECOND DIVISION
[G.R. No. 122249. January 29, 2004]
REYNALDO, TELESFORO, REMEDIOS, ALFREDO and BELEN, all surnamed AGUIRRE, VICENTA, HORACIO
and FLORENCIO, all surnamed MAGTIBAY and LEONILA, CECILIA, ANTONIO, and VENANCIO, all
surnamed MEDRANO, and ZOSIMA QUIAMBAO, petitioners, vs. COURT OF APPEALS and ELIAS,
JOSE, ARSENIA and ROGELIO, all surnamed BALITAAN, and MARIA ROSALES, respondents.
D E C I S I O N
AUSTRIA-MARTINEZ, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court seeking the
reversal of the Decision
[1]
dated July 26, 1995 rendered by the Court of Appeals in CA-G.R. CV No. 42350
which set aside the Decision
[2]
dated April 28, 1992 of the Regional Trial Court of Batangas City (Branch
2) in Civil Case No. 202,
[3]
and declared private respondents Heirs of Tiburcio Balitaan, as owners of the
parcel of unregistered land with an approximate area of 1,695 square meters, located at Aplaya, Bauan,
Batangas.
The facts of the case are as follows:
In his lifetime, Leocadio Medrano was the owner and possessor of a parcel of residential land,
situated in Aplaya, Bauan, Batangas, containing an area of 2,611 square meters.
[4]
The parcel of land was
conjugal property, having been acquired by Leocadio during his first marriage with one Emiliana Narito.
Their union begot four children, namely: (a) Gertrudes Medrano, now deceased, represented in this case
by her children, herein petitioners Telesforo, Reynaldo, Remedios, Alfredo, and Belen, all surnamed
Aguirre; (b) Isabel Medrano, likewise deceased, represented by her children, herein petitioners Vicenta,
Horacio, and Florencio, all surnamed Magtibay; (c) Placido Medrano, also deceased, represented by his
only child, herein petitioner Zosima Quiambao; and (d) Sixto Medrano.
After the death of his first wife, Leocadio contracted a second marriage with Miguela Cario. Their
union bore four children, herein co-petitioners, namely: Venancio, Leonila, Antonio and Cecilia, all
surnamed Medrano.
Upon the death of Leocadio on March 19, 1945, the surviving heirs agreed that Sixto should
manage and administer the subject property.
Sixto died on May 17, 1974. It was only after his death that petitioners heard rumors that Sixto
had, in fact, sold significant portions of the estate of Leocadio. It appears that on September 7, 1953,
Sixto, without the knowledge and consent of the petitioners, executed an Affidavit of Transfer of Real
Property stating therein that he was the only heir of Leocadio.
[5]
Sixto declared that Leocadio died on
September 16, 1949, instead of the actual date of his death on March 19, 1945. With the use of said
affidavit and a survey plan,
[6]
Tax Declaration No. 40105 in the name of Leocadio was cancelled and Tax
Declaration No. 44984 was issued in the name of Sixto.
[7]
On August 29, 1957, Sixto sold to Maria Bacong
a 160- square meter portion of the subject land.
[8]
On September 28, 1959, Sixto sold to Tiburcio
Balitaan a 1,695 square meter portion of the same land.
[9]
Sometime in November 1967, Maria Bacong
sold her property to Rosendo Bacong.
[10]

Petitioners demanded the reconveyance of the portions sold by Sixto but Tiburcio Balitaan, Maria
Bacong and Rosendo Bacong refused to do so. Hence, petitioners filed against them before the Regional
Trial Court of Batangas (Branch 2), a complaint for Declaration of Nullity of Documents, Partition,
Malicious Prosecution and Damages, docketed as Civil Case No. 202.
[11]

In their Answer, Maria Bacong and Rosendo Bacong contend that petitioners have no cause of
action because they acquired their property thru a valid deed of sale dated August 29, 1957, executed
by Sixto and, alternatively, petitioners cause of action, if any, was barred by prescription and laches.
[12]

In his Answer, Tiburcio Balitaan contends that petitioners have no cause of action since petitioners
were well-aware of the sale of the property to him by Sixto; and that he was an innocent purchaser for
value, in possession and enjoyment of the land in the concept of absolute owner, peacefully and
publicly. He further echoed the contention of Maria and Rosendo Bacong that any cause of action
petitioners may have was barred by prescription and laches.
[13]

Maria Bacong died during the pendency of the suit in the trial court and she was substituted by her
surviving heirs, namely, Lorenza, Elena, Felipa, Manuel, Marilou, Ricardo, Medel, Monchito and Milag, all
surnamed Medrano.
[14]
Tiburcio Balitaan also died and was substituted by his heirs, herein private
respondents, namely: his wife, Maria Rosales and their four children: Elias, Jose, Arsenia and Rogelio, all
surnamed Balitaan.
[15]

On July 28, 1989, petitioners and Rosendo Bacong, for himself and as attorney-in-fact of the heirs of
Maria Bacong, entered into a compromise agreement to settle the case between them.
[16]
The
compromise agreement, as approved by the trial court, provided that Rosendo Bacong and the heirs of
Maria Bacong agreed to pay P30,000.00 to petitioners in recognition of petitioners ownership of a 269-
square meter portion
[17]
and in consideration of which, petitioners recognized the full ownership, rights,
interest and participation of the former over said land.
[18]
The area of the subject land is thus reduced
to 2,342 square meters (2,611 square meters minus 269 square meters).
After trial on the merits, the trial court rendered judgment dated April 28, 1992, ruling that private
respondents did not dispute, by any evidence, the falsity of the Affidavit of Transfer, as well as the fact
that Sixto had co-owners to the property. It found that private respondents affirmative defense of
laches and/or prescription are unavailing against a property held in co-ownership as long as the state of
co-ownership is recognized. Consequently, the trial court upheld the sale made by Sixto in favor of
private respondents only to the extent that Sixto is entitled to by virtue of his being a co-owner.
[19]

In determining the area that Sixto could have validly sold to private respondents, the trial court, in
its decision, provided for the manner of partition among the parties, based on the memorandum
submitted by petitioners, thus:
For the four (4) children of the first marriage, namely:
(1) Gertrudes, who is already dead represented by her children Tefesforo, Reynaldo,
Remedios, Alfredo and Belen, all surnamed Aguirre 399.42 square meters;
(2) Isabel Medrano, who is already dead, represented by the plaintiffs, her children
Vicenta, Horacio and Florencio, all surnamed Magtibay 399.42 square meters;
(3) Placido Medrano (dead), represented by his only child Zosima Medrano 399.42
square meters; and
(4) Sixto Medrano 399.42 square meters only which he had the right to dispose of in
favor of Tiburcio Balitaan and Maria Rosales.
The above consist of undivided interest, shares and participations from the inheritance or succession to
the conjugal estate of Leocadio Medrano and Emiliana Narito.
For the children of the second marriage their shares in the inheritance from the property of Leocadio
Medrano are as follows:
(1) To Venancio Medrano - 138.32 square meters
(2) To Leonila Medrano - 138.32 square meters
(3) To Antonio Medrano - 138.32 square meters
(4) To Cecilia Medrano - 138.32 square meters
with all the above consisting of undivided shares, interest and participation in the estate.
For the defendants Maria Rosales, surviving spouse of the deceased Tiburcio Balitaan and their Children,
an area of 399.42 square meters, the only area and extent which Sixto Medrano could have legally
dispensed of in their favor.
[20]

Thus, the dispositive portion of the trial courts decision reads as follows:
WHEREFORE, in view of the foregoing, the Court renders judgment in favor of the plaintiffs and against
the defendants, to wit:
(a) Ordering the partition of the property in question among the plaintiffs and the defendants; and
(b) Ordering the parties, plaintiffs and defendants, to make a partition among themselves by proper
instruments of conveyance and to submit before this Court a project of partition should the parties be
able to agree for the confirmation of the Court within two (2) months upon receipt of this decision,
otherwise this Court will be constrained to appoint commissioners to make the partition in accordance
with law.
All other claims not having been duly proved are ordered dismissed.
SO ORDERED.
[21]

Aggrieved, private respondents appealed to the Court of Appeals.
[22]

On July 26, 1995, the appellate court rendered judgment recognizing the validity of the sale only
with respect to the undivided share of Sixto Medrano as co-owner; but nonetheless, declaring
respondents as absolute owners of 1,695 square meters of the subject property, reasoning that:
. . . Defendants-appellees have been in possession, in the concept of owner, of the entire parcel of land
sold to Tiburcio Balitaan by Sixto Medrano for more than ten years, seventeen years to be exact (1958-
1975). Relying on the affidavit of transfer (Exhibit B) the tax declaration (Exhibit C) and the survey
plan (Exhibit D) shown to him by Sixto Medrano which indicate the latter as owner of the property in
dispute, Tiburcio Balitaan believed transfer to him was effected. (TSN, April 17, 1991, pp. 14-17) and
thus, entered the property as owner (Ibid. at p. 13) Tiburcio Balitaan, believing himself as the lawful
transferee, in addition, caused Tax Declaration No. 51038 to be issued in his name (Exhibits 6, 6-A,
6-B, and 6-C). Thus, although the sale of the co-owned property is only valid as to the undivided
share of Sixto Medrano, defendants, by virtue of their open, adverse and uninterrupted possession from
1958 (Exhibit G) to 1975, obtained title to the entire property and not just Sixtos undivided
share. This is pursuant to Article 1134 (1957a) of the New Civil Code which provides that:
Ownership and other real rights over immovable property are acquired by ordinary prescription through
possession of ten years.
. . .
Plaintiffs did not at all inquire as to the status of their property all this time and thus have been remiss
of their duties as owners of the property. Plaintiffs waited until Sixtos death to learn more about their
property. Even though the co-ownership is to be preserved in accordance with the wishes of the
deceased, the plaintiffs should have taken it upon themselves to look into the status of the property
once in a while, to assure themselves that it is managed well and that they are receiving what is due
them as co-owners of the parcel of land or to at least manifest their continued interest in the property
as normal owners would do. But the plaintiffs did not show any interest in the way Sixto Medrano was
managing the property which in effect gave the latter carte blanche powers over the same. Such
passivity is aggravated by the fact that one of the plaintiffs resides a mere 600 meters away from the
disputed property (TSN, April 17, 1991, p. 13). By not showing any interest, the plaintiffs have, in fact,
slept on their rights and thus, cannot now exercise a stale right.
[23]

Petitioners sought reconsideration
[24]
but the appellate court denied it in a Resolution dated
October 5, 1995.
[25]

In their present recourse, petitioners take exception from the appellate courts findings that
respondents have been in possession, in the concept of owner of the entire parcel of land sold to
Tiburcio Balitaan by Sixto Medrano for seventeen years (1958-1975), relying on the Affidavit of Transfer
and Tax Declaration No. 51038 in the name of Sixto; and that Tiburcio acquired ownership of the whole
property from Sixto through ordinary prescription for ten years.
Petitioners submit that Tiburcio Balitaan was not a purchaser in good faith and for value since there
are enough circumstances which should have put him on guard and prompted him to be more
circumspect and inquire further about the true status of Sixto Medranos ownership; that during his
lifetime, Tiburcio was a neighbor of petitioners and was well-aware that Sixto had other siblings but
Tiburcio chose to rely on the Affidavit of Transfer executed by Sixto Medrano declaring that he was the
only heir of Leocadio; that the Court of Appeals should not have faulted them for failing to inquire about
the status of the disputed property until after the death of Sixto Medrano; that they are not guilty of
laches.
It is settled that in the exercise of the Supreme Courts power of review, the findings of facts of the
Court of Appeals are conclusive and binding on the Supreme Court.
[26]
The exceptions to this rule are: (1)
when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference
made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when
the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6)
when in making its findings the Court of Appeals went beyond the issues of the case, or its findings are
contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to
the trial court; (8) when the findings are conclusions without citation of specific evidence on which they
are based; (9) when the facts set forth in the petition as well as in the petitioners main and reply briefs
are not disputed by the respondent; (10) when the findings of fact are premised on the supposed
absence of evidence and contradicted by the evidence on record; and (11) when the Court of Appeals
manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered,
would justify a different conclusion.
[27]
Exceptions (4), (7), (10) and (11) are present in the instant case.
We find the petition meritorious.
[28]
We agree with the petitioners that the Court of Appeals
committed a reversible error in upholding the claim of petitioners that they acquired ownership of the
subject property through prescription.
Acquisitive prescription of real rights may be ordinary or extraordinary. Ordinary acquisitive
prescription requires possession of things in good faith and with just title for the time fixed by
law;
[29]
without good faith and just title, acquisitive prescription can only be extraordinary in
character. Regarding real or immovable property, ordinary acquisitive prescription requires a period of
possession of ten years,
[30]
while extraordinary acquisitive prescription requires an uninterrupted
adverse possession of thirty years.
[31]

Ordinary acquisitive prescription demands that possession be in good faith, which consists in the
reasonable belief that the person from whom the thing is received has been the owner thereof and
could thereby transmit that ownership.
[32]
There is just title when the adverse claimant comes into
possession of the property through any of the modes recognized by law for the acquisition of ownership
or other real rights, but that the grantor is neither the owner nor in a position to transmit the right.
[33]

Article 1130 of the Civil Code states that the title for prescription must be true and valid.
In Doliendo vs. Biarnesa,
[34]
we elucidated on this provision, thus:
We think that this contention is based on a misconception of the scope and effect of the provisions of
this article of the Code in its application to ordinary prescription. It is evident that by a titulo
verdadero y valido in this connection we are not to understand a titulo que por si solo tiene fuerza de
transferir el dominio sin necesidad de la prescricion (a title which of itself is sufficient to transfer the
ownership without the necessity of the lapse of the prescription period); and we accept the opinion of a
learned Spanish law writer who holds that the titulo verdadero y valido as used in this article of the
code prescribes a titulo Colorado and not merely putativo; a titulo Colorado being one which a
person has when he buys a thing, in good faith, from one whom he believes to be the owner, and a
titulo putativo being one which is supposed to have preceded the acquisition of a thing, although in
fact it did not, as might happen when one is in possession of a thing in the belief that it had been
bequeathed to him. (Viso Derecho Civil, Parte Segunda, p. 541)
[35]

The requirements for ordinary acquisitive prescription as hereinabove described have not been met
in this case.
It must be remembered that the burden of proving the status of a purchaser in good faith lies upon
him who asserts that status. It is not sufficient to invoke the ordinary presumption of good faith, that is,
that everyone is presumed to have acted in good faith, since the good faith that is here essential is
integral with the very status that must be established.
[36]

After a careful examination of the records, we find that private respondents failed to discharge the
burden of proof that Tiburcio Balitaan was a purchaser in good faith. It is undisputed that Tiburcio
practically lived his entire lifetime in the area where the property in dispute is located and had been a
neighbor of petitioners. He knew that Sixto Medrano had other siblings because his son, Dr. Elias
Balitaan, is the godson by baptism of spouses Jose Aguirre and Gertrudes Medrano, the latter being a
deceased sister of Sixto. Thus, Tiburcio was not a complete stranger to the Medrano clan. Yet, he
deliberately chose to close his eyes to said facts and despite his personal knowledge to the contrary, he
purchased the disputed property from Sixto on the basis of the misrepresentation of the latter in his
Affidavit of Transfer that he is the sole surviving heir of Leocadio. A purchaser cannot close his eyes to
facts which should put a reasonable man upon his guard, and then claim that he acted in good faith
under the belief that there was no defect in the title of the vendor.
[37]

Since the disputed property is an unregistered land, Tiburcio as buyer thereof did so at his
peril. Private respondents claim that Tiburcio bought the land in good faith, that is, without notice that
some other person has a right to or interest in the property, would not protect them if it turns out, as it
actually did in this case, that the seller, Sixto Medrano, did not own the entire property at the time of
the sale, but only an undivided portion of the land as a co-owner. Private respondents failed to show
that the petitioners were notified of the subject sale or that respondents gave their consent to the
sale. Not being in good faith, the ten-year period required for ordinary acquisitive prescription does
not apply.
Even the thirty-year period under extraordinary acquisitive prescription has not been met in this
case. Private respondents claim to have been in possession, in the concept of owner, of the entire
parcel of land sold to Tiburcio Balitaan by Sixto Medrano for only seventeen years (1958-1975).
In addition, as we have enunciated in Salvador vs. Court of Appeals,
[38]
to wit:
This Court has held that the possession of a co-owner is like that of a trustee and shall not be regarded
as adverse to the other co-owners but in fact as beneficial to all of them. Acts which may be considered
adverse to strangers may not be considered adverse insofar as co-owners are concerned. A mere
silent possession by a co-owner, his receipt of rents, fruits or profits from the property, the erection of
buildings and fences and the planting of trees thereon, and the payment of land taxes, cannot serve as
proof of exclusive ownership, if it is not borne out by clear and convincing evidence that he exercised
acts of possession which unequivocably constituted an ouster or deprivation of the rights of the other
co-owners.
Thus, in order that a co-owners possession may be deemed adverse to the cestui que trust or the other
co-owners, the following elements must concur: (1) that he has performed unequivocal acts of
repudiation amounting to an ouster of the cestui que trust or the other co-owners; (2) that such
positive acts of repudiation have been made known to the cestui que trust or the other co-owners;
and (3) that the evidence thereon must be clear and convincing.
[39]
(Emphasis supplied)
Tested against these guidelines, respondents failed to present competent evidence that the acts of
Sixto adversely and clearly repudiated the existing co-ownership among the heirs of Leocadio Medrano.
Private respondents reliance on the tax declaration in the name of Sixto Medrano is unworthy of
credit since we have held on several occasions that tax declarations by themselves do not conclusively
prove title to land.
[40]
Further, private respondents failed to show that the Affidavit executed by Sixto to
the effect that he is the sole owner of the subject property was known or made known to the other co-
heirs of Leocadio Medrano.
Neither can we subscribe to the appellate courts view that petitioners are guilty of laches. Laches
is the negligence or omission to assert a right within a reasonable time, warranting a presumption that
the party entitled to assert it has abandoned it or declined to assert it.
[41]
It does not involve mere lapse
or passage of time, but is principally an impediment to the assertion or enforcement of a right, which
has become under the circumstances inequitable or unfair to permit.
[42]
The rule that each co-owner
may demand at any time the partition of the common property implies that an action to demand
partition is imprescriptible or cannot be barred by laches.
[43]

We have consistently held that if a co-owner sells the whole property as his, the sale will affect only
his own share but not those of the other co-owners who did not consent to the sale.
[44]
Article 493 of the
Civil Code provides:
Art. 493. Each co-owner shall have the full ownership of his part and the fruits and benefits pertaining
thereto, and he may therefore alienate, assign or mortgage it, and even substitute another person in its
enjoyment, except when personal rights are involved. But the effect of the alienation or the mortgage,
with respect to the co-owners, shall be limited to the portion which may be allotted to him in the
division upon the termination of the co-ownership.
It clearly provides that the sale or other disposition affects only the sellers share pro indiviso, and
the transferee gets only what corresponds to his grantors share in the partition of the property owned
in common. Since a co-owner is entitled to sell his undivided share, a sale of the entire property by one
co-owner without the consent of the other co-owners is not null and void; only the rights of the co-
owner/seller are transferred, thereby making the buyer a co-owner of the property.
[45]
Accordingly, we
held in Bailon-Casilao vs. Court of Appeals:
From the foregoing, it may be deduced that since a co-owner is entitled to sell his undivided share, a
sale of the entire property by one-co-owner without the consent of the other co-owners is not null and
void. However, only the rights of the co-owner-seller are transferred, thereby making the buyer a co-
owner of the property.
The proper action in cases like this is not for the nullification of the sale or for the recovery of possession
of the thing owned in common from the third person who substituted the co-owner or co-owners who
alienated their shares, but the DIVISION of the common property as if it continued to remain in the
possession of the co-owners who possessed and administered it [Mainit v. Bandoy, supra].
Thus, it is now settled that the appropriate recourse of co-owners in cases where their consent were not
secured in a sale of the entire property as well as in a sale merely of the undivided shares of some of the
co-owners is an action for PARTITION under Rule 69 of the Revised Rules of Court. Neither recovery of
possession nor restitution can be granted since the defendant buyers are legitimate proprietors and
possessors in joint ownership of the common property claimed [Ramirez v. Bautista, supra].
[46]

It is clear therefore that the deed of sale executed by Sixto Medrano in favor of Tiburcio Balitaan is
a valid conveyance only insofar as the share of Sixto Medrano in the co-ownership is concerned. Thus,
the respondent court erred in declaring the ownership of the entire 1,695-square meter property sold
by Sixto, in favor of the private respondents.
The next question is what is the area of the pro indiviso share pertaining to Sixto Medrano that was
sold to private respondents? The trial court endeavored to determine the same by ascertaining the
inheritance of each of the heirs of Leocadio. However, the manner of partition as set out by the trial
court in the text of its decision needs to be amended so as to conform to the laws on intestate
succession under the Old Civil Code absent any allegation or showing that Leocadio left any last will and
testament.
It is not disputed that the 2,342-square meter property was a conjugal property of Leocadio and
Emiliana. Upon the death of Emiliana, which occurred many years before the death of Leocadio in 1945,
both deaths occurring before the enactment of the New Civil Code in 1950, all the four children of the
first marriage and the four children of the second marriage shall share equally. The subject property
should have been divided into eight equal parts, pursuant to Articles 921 and 931 of the old Civil
Code,
[47]
or 292.75 square meters each. The respective heirs of the now deceased children of Leocadio
inherit by way of representation the respective shares of their respective parents, pursuant to Articles
933 and 934 of the Old Civil Code.
[48]

At the time of death of Leocadio in 1945, Miguela was entitled only to the usufruct of the land
pursuant to Article 834 of the Old Civil Code,
[49]
which provides that *i]f only one legitimate child or
descendant survives, the widower or widow shall have the usufruct of the third available for
betterment, such child or descendant to have the naked ownership until, on the death of the surviving
spouse, the whole title is merged in him.
Thus, to recapitulate, each of the heirs of Leocadio should inherit 292.75 square meters, pro-
indiviso (2,342 square meters 8 = 292.75 square meters) after deducting from the original 2,611 square
meters of the subject property the 269 square meters ceded to the heirs of Maria Bacong in a
compromise agreement among the petitioners and the heirs of Maria Bacong. The deceased children of
Leocadio are represented by their respective heirs by right of representation under Articles 933 and 934
of the Old Civil Code.
Accordingly, the undivided shares of Leocadios eight children or their heirs by right of
representation, upon the death of Leocadio in 1945 are as follows:
(1) Venancio Medrano - 292.75 square meters
(2) Leonila Medrano - 292.75 square meters
(3) Antonio Medrano - 292.75 square meters
(4) Cecilia Medrano - 292.75 square meters
(5) Heirs of Gertrudes M. Aguirre,
Telesforo, Reynaldo, Remedios,
Alfredo and Belen, all surnamed
Aguirre- -
292.75 square meters
(6) Heirs of Isabel M. Magtibay, Vicenta,
Horacio and Florencio, all surnamed
Magtibay - 292.75 square
meters
(7) Heirs of Placido Medrano, plaintiff
Zosima Medrano
Quimbao -
292.75 square meters
(8) Sixto Medrano - 292.75 square meters
During the pendency of the case in the trial court but after the death of Sixto, petitioners sold 460
square meters to one Mateo Castillo. Consequently, the 460 square meters should be charged against
the shares of petitioners only and should not affect the 292.75 square meters undivided share of Sixto
Medrano which he had sold in 1959.
[50]
Accordingly, 460 square meters divided by 7 equals 65.71 square
meters. Deducting said area from 292.75 square meters, the final undivided share of each of the seven
heirs of Leocadio should be 227.04 square meters (292.75 - 65.71 = 227.04) and that pertaining to Sixto
in 292.75 square meters.
Thus, the manner of partition set forth by the trial court in its decision should be amended, as
follows:
(1) Gertrudes M. Aguirre, deceased,
represented by her children, herein
petitioners Telesforo, Reynaldo, Remedios,
Alfredo and Belen, all surnamed
Aguirre -
227.04
square meters
(2) Isabel M. Magtibay, deceased, represented
by her children, herein petitioners Vicenta,
Horacio and Florencio, all surnamed
Magtibay -
227.04
square meters
(3) Placido Medrano, deceased, represented by
his only child, Placido
Medrano -
227.04 square
meters
(4) Private respondents Maria Rosales and
heirs of Tiburcio Balitaan, namely: Elias,
Jose, Arsenia and Rogelio all surnamed
Balitaan (in lieu of Sixto
Medrano) -
292.75 square
meters
(5) Venancio Medrano - 227.04 square meters
(6) Leonila Medrano - 227.04 square meters
(7) Antonio Medrano - 227.04 square meters
(8) Cecilia Medrano - 227.04 square meters
(9) Rosendo Bacong - 269 square meters
(10) Mateo Castillo - 460 square meters
WHEREFORE, we GRANT the petition. The assailed decision of the Court of Appeals in CA-G.R. CV
No. 42350, dated July 26, 1995, isREVERSED and SET ASIDE. The decision of the Regional Trial Court is
REINSTATED with the following MODIFICATIONS:
The sale in favor of private respondents is declared VALID but only insofar as the 292.75 square
meters undivided share of Sixto Medrano in the subject property is concerned.
Let the parcel of land, located at Aplaya, Bauan, Batangas, consisting of 2,611 square meters, be
partitioned and distributed as determined by the Court in the text of herein decision. Accordingly, let
the records of the case be remanded to the Regional Trial Court of Batangas City (Branch 2) in Civil Case
No. 202 for further appropriate proceedings under Rule 69 of the Rules of Court.
No pronouncement as to costs.
SO ORDERED.
Puno, (Chairman), Quisumbing, Callejo Sr. and Tinga, JJ., concur.


Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 149351 March 17, 2004
SPEED DISTRIBUTING CORP., LITA MARCELO, IRENEO MARCELO and PEDRO AQUINO, petitioners,
vs.
COURT OF APPEALS and RUFINA LIM, respondents.


D E C I S I O N


CALLEJO, SR., J.:
This is a petition for review of the Decision
1
of the Court of Appeals in CA-G.R. No. 52214 (CV) reversing
the November 21, 1995 Order
2
of the Regional Trial Court of Quezon City, Branch 222, dismissing the
complaint in Civil Case No. Q-95-24588, and its August 8, 2001 Resolution denying the Motion for
Reconsideration of the aforesaid decision.
The Antecedents
On September 20, 1953, Pastor Y. Lim married private respondent Rufina Luy Lim.
3
During the early part
of their marriage, Pastor organized some family corporations using their conjugal funds. Among these
corporations was Skyline International Corporation (Skyline, for brevity) which was engaged in the
importation and sale of Hankook Brand Korean Tires and the acquisition of real estate. The couple were
incorporators and major stockholders of the corporation and were also employed therein.
Pastor and the private respondent did not have a child. They decided to "adopt" Leonard Lim and
petitioner Lita Lim Marcelo, who were children of their distant poor relatives in Zamboanga City. There
was, however, no formal court adoption. Sometime thereafter, marital problems arose, as a result of
which the private respondent stopped working at Skyline. As the domestic problems remained
unresolved, Pastor and the private respondent jointly filed on August 13, 1968 a Petition before the
Juvenile and Domestic Relations Court of Quezon City, for voluntary dissolution of conjugal properties.
As their differences worsened, the private respondent filed on January 27, 1971 a petition for legal
separation against Pastor on the ground of infidelity before the then Juvenile and Domestic Relations
Court of Quezon City. The petition was amended into one for Support with Alimony and the case was
docketed as Civil Case No. QE-0030.
On February 17, 1972, the court rendered a decision, awarding P3,000 monthly support to the private
respondent and the children, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered:
1. Ordering defendant to pay plaintiff monthly support of P3,000.00 effective as of
February, 1971;
2. Ordering defendant to pay plaintiff attorneys fees in the sum of P2,000.00, plus the
cost of this suit.
4

On June 24, 1975, the private respondent filed a motion for execution. The court issued an order
granting the motion and the sheriff levied on the properties of Skyline. The latter filed, on December 19,
1975, a third-party claim, alleging that the properties levied were its personal properties and not those
of Pastor, who was only one of its stockholders. The private respondent filed a motion to quash Skylines
claim, which the court granted.
Skyline filed a petition for certiorari with prayer for temporary restraining order before the Court of
Appeals for the nullification of the order of the trial court quashing the third-party claim. The case was
docketed as CA-G.R. No. 05312 (SP). The appellate court issued a temporary restraining order on April
27, 1976. On June 23, 1976, the Court of Appeals rendered a decision dismissing the petition, thus,
lifting the restraining order.
5
The appellate court ruled as follows:
While it is recognized as "lawful to obtain a corporation charter, even with a single substantial
stockholder, to engage in a specific activity, and such activity may co-exist with other private
activities of the stockholder" (Liddel & Co., Inc. vs. Collector of Internal Revenue, L-9687, June
30, 1961, 2 SCRA 632), the corporations distinct personality will be disregarded when it is so
"controlled and its affairs so conducted as to make it merely an instrumentality, agency or
conduit of another" (NAMARCO vs. Associated Finance Company, supra).
It is not disputed that petitioner Skyline International, Inc. was a conjugal enterprise (p. 2,
Decision) before its incorporation in December 1970 (p. 10, id.), when it was still a
proprietorship. Petitioner Skyline International, Inc. is still engaged in the sale of automotive
parts and dealership of Firestone Rubber and Tires which business it was already doing when it
was still a proprietorship. Respondent Court found that the only assets of petitioner corporation
are the conjugal properties. Thus, respondent Court concludes that "it is safe to assume that
Skyline International Corporation is another name for Mr. and Mrs. Pastor Y. Lim in person." In
fact, Pastor Y. Lim admitted that the other incorporators are their former employees and their
respective shares are nominal (Decision, pp. 14-15).
The above facts are more than enough justification for respondent Court to pierce the veil of
corporate fiction. Consequently, we find the questioned orders to be in order.
6

Skyline, then, filed a petition for review before this Court, but the petition was dismissed in a Resolution
dated August 6, 1976.
7

On August 21, 1987, the Speed Distributing Corporation (Speed, for brevity), was registered with the
Securities and Exchange Commission, with Pastor Lim as one of the incorporators. He owned ten shares,
valued at P100.00 per share. The following were the names of the incorporators, the number of shares
respectively subscribed to by them and the amount paid up:
Shares Subscribed Paid
Lita T. Lim 11,200 P 1,120,000.00 P 280,000.00
Leonard L. Lim 1,000 100,000.00 25,000.00
Lina S. Lim 150 15,000.00 3,750.00
Larry S. Lim 140 14,000.00 3,500.00
Pastor Y. Lim 10 1,000.00 250.00
12,500 P1,250,000.00 P 312,500.00
8

Petitioner Lita Lim-Marcelo was elected treasurer of the corporation.
On June 21, 1991, the Leslim Corporation (Leslim, for brevity), was registered with the Securities and
Exchange Commission with a capital stock of P12,000,000.00, divided into 120,000 shares at par value of
P100.00 per share. Pastor Lim subscribed to 95,700 shares valued at P9,570,000.00. The incorporators,
the number of shares they subscribed to and the amounts paid for were indicated in the articles of
incorporation as follows:
Name No. of Share Amount Subscribed
Teresa T. Lim 24,000 P2,400,000.00
Leonard L. Lim 100 10,000.00
Larry S. Lim 100 10,000.00
Lina L. Lim 100 10,000.00
Pastor Y. Lim 95,700 9,570,000.00
120,000 P12,000,000.00

The following persons have paid on the shares of the capital stock for which they have subscribed the
amount set after their names respectively:
Name Amount Paid
Teresa T. Lim P600,000.00
Leonard L. Lim 2,500.00
Larry S. Lim 2,500.00
Lina L. Lim 2,500.00
Pastor Y. Lim P2,392,500.00
P3,000,000.00
9

Under the articles of incorporation, Pastor Lim was the treasurer-in-trust of the corporation.
10
The Vice-
President and Treasurer of the corporation was petitioner Lita Lim-Marcelo, now married to petitioner
Ireneo Marcelo.
On August 26, 1994, Leslim Corporation executed a deed of absolute sale in favor of the Speed,
represented by its Vice-President, petitioner Ireneo Marcelo, over the parcel of lot located at Diliman
Quezon City, covered by TCT No. 36617 for the price of P3,900,000.00.
11
Petitioner Lita Lim-Marcelo, the
Vice-President of Leslim
12
signed in the deed for and in behalf of the corporation. She was authorized by
the Board of Directors in a Resolution August 19, 1994 to sign the said deed and to receive the purchase
price for and in behalf of Leslim. The said Resolution was certified by corporate secretary Pedro Aquino
on August 22, 1994.
13
Consequently, TCT No. 36617 which was in the name of Leslim, was cancelled and
a new one, TCT No. T-116716, was issued to and in the name of Speed.
14

On June 11, 1994, Pastor Lim died intestate and was survived by his wife, the private respondent. On
March 17, 1995, the private respondent, through her nephew and attorney-in-fact George Luy, filed a
petition for the administration of the estate of her deceased husband before the Regional Trial Court of
Quezon City, docketed as Special Proceedings No. Q-95-23334.
15
The case was raffled to Branch 93. The
private respondent filed a motion praying for the annotation of a notice of lis pendens at the dorsal
portion of all titles over the properties in the name of Pastor. Included in the said properties were those
registered in the name of other corporations of which Pastor was a stockholder, including that parcel of
land covered by TCT No. T-116717 registered under the name of Speed. The court granted the motion.
The affected corporations, including Speed, filed motions to cancel the notices of lis pendens and
motions for exclusion of certain properties from Pastors estate. On June 8, 1995, the Court granted the
motions and ordered the exclusion of certain properties from the estate of Pastor and the cancellation
of the notices of lis pendens on properties registered in the name of the said corporations, including that
covered by TCT No. T-116716 under the name of Speed.
On June 27, 1995, the private respondent filed a verified amended petition in SP No. Q-95-23334
alleging, among others, that during his lifetime, Pastor substantially owned the following business
entities: Skyline Sales Corporation, Speed Distributing, Inc., and Leslim Corporation:
5. That the following real properties, although registered in the name of the above entities,
were actually acquired by Pastor Y. Lim during his marriage with petitioner, to wit:
CORPORATION TITLE LOCATION
b. Leslim Corp. TCT No. 36617 Quezon City
but now illegally transferred to and registered in the name of Speed Distributing, Inc. under TCT
No. 116716.
16

On July 4, 1995, the probate court issued an Order setting aside its June 8, 1995 Order and directed the
Register of Deeds to reinstate the notice of lis pendens on TCT No. T-116716. The court denied the
motion for the reconsideration of the said order.
Speed filed a petition for certiorari with the Court of Appeals for the nullification of the July 4, 1995 and
September 12, 1995 Orders of the trial court, docketed as CA-G.R. No. 38617 (SP).
Meanwhile, on August 1, 1995, the private respondent filed a complaint against Speed, and the
petitioners with the RTC of Quezon City, for the nullification of the Deed of Absolute Sale executed by
Leslim in favor of Speed over the property covered by TCT No. T-36617, and the cancellation of TCT No.
T-11676, with damages before the RTC of Quezon City. The case was raffled to Branch 222, and was
docketed as Q-95-24588. The private respondent alleged, inter alia, that:
. . .
6. Plaintiff is the surviving spouse of the late Pastor Y. Lim who died intestate on June 11, 1994,
but leaving several properties, real and personal, situated in Quezon City, Makati City, Rizal
Province, Las Pias, Valenzuela, Manila, Cavite, Masbate and other parts of the country.
7. During the existence of the marriage of plaintiff and Pastor Y. Lim, the latter formed, among
others, Leslim Corporation, and he actually owned the same as in fact he had in his name 95,700
out of the 120,000 shares of the authorized capital stock. The remaining shares of stocks were
listed in the name of some persons who were actually his dummies, and were made to appear
as stockholders of Leslim Corporation only for purposes of registration with the Securities and
Exchange Commission.
8. Leslim Corporation, in turn, is a registered owner of a certain parcel of land located in
Diliman, Quezon City, as evidenced by TCT No. 36617, issued by defendant Register of Deeds,
copy of which is hereto attached as Annex "C."
9. Plaintiff initiated an intestate proceedings on the estate of her deceased husband in order to
lay claim on her conjugal share thereon. She then started to verify the various TCTs of the real
property in the name of her deceased husband, including those in the name of Leslim
Corporation, and she discovered that TCT No. 36617 had already been canceled and in lieu
thereof, TCT No. 116716 was issued by defendant Register of Deeds in the name of defendant
Corporation
10. Upon further verification, plaintiff discovered that the basis of the cancellation of TCT No.
36617 in favor of TCT No. 116716 is a Deed of Sale signed and executed by defendant Lita
Marcelo who misrepresented herself as Vice President of Leslim Corporation and as such she
was purportedly authorized to dispose of the property in question in favor of defendant
corporation, which latter corporation was allegedly represented in the transaction by her
husband, herein defendant Ireneo Marcelo who claimed himself as the Vice President of
defendant corporation.
11. To give a semblance of legality to the feigned transaction of sale, defendant Pedro Aquino,
misrepresenting himself as the corporate secretary of Leslim Corporation, executed a
simulated/falsified secretarys certificate, wherein he stated that in an alleged special meeting
of the Board of Directors of Leslim Corporation held on August 19, 1994 in its office at 1006
Quezon Avenue, Quezon City, defendant Lita Marcelo was allegedly authorized by the Board to
enter into the transaction in question.
12. The transfer of the property from Leslim to defendant corporation is imaginary, the deed of
sale and the secretarys certificate are simulated, hence, null and void, as shown below:
13. First of all, there was no such special meeting of the board of directors of Leslim Corporation
on August 19, 1994, contrary to the allegation in the secretarys certificate. No notices to that
effect were ever sent to Pastor Lim, a director and owner of 79.75 per cent of the capital stock
of Leslim Corporation. Secondly, there was never a meeting of the stockholders wherein more
than two-thirds of the stocks were present in order to approve the sale of all or substantially all
of the assets consisting of real properties of Leslim Corporation. Indeed, no such meeting could
have been held because Pastor Lim, who owned practically two-thirds of the total capital stock,
had already died on June 11, 1994. The last meeting of stockholders of Leslim Corporation was
held in January, 1994. Since then up to the present, no other stockholders meeting, special or
otherwise, was ever held by Leslim Corporation.
14. Thirdly, the place of the alleged special stockholders meeting could not have occurred in the
place where it was purportedly held, namely, 1006 Quezon Avenue, Quezon City. This place is
the address of Accurate Distributing, Inc., which had been under the control of the group of
Estrelita Cabarles since August 1994 up to the present. On the other hand, defendants Lita
Marcelo, Ireneo Marcelo, and Pedro Aquino and their cohorts are the adversaries of Estrelita
Cabarles in several cases, civil and criminal, pending before various courts in Metro Manila and
suburbs. The control and possession by the group of Cabarles of the premises ineluctably shows
that no meeting was ever held thereon by their adversaries. Fourthly, there was never any
payment made to Leslim Corporation respecting the alleged purchase price.
15. As a consequence of the above, defendant Lita Marcelo could not have been the Vice
President of Leslim Corporation at the time the simulated deed of sale in question was
executed, contrary to her claim thereon. Besides, defendant Lita Marcelo has never been a
stockholder, much less a director of Leslim Corporation. Hence, it follows that the subject deed
of absolute sale and the secretarys certificate are both simulated, and TCT No. 116716 of no
force and effect, necessitating as it does its cancellation. The imaginary transaction of sale was
clearly resorted to by defendants after the August 19, 1994 special stockholders meeting of
Accurate Distributing Inc., where in the ground of Estrelita Cabarles were elected as Board of
Directors and corporate officers and in order to deprive plaintiff of her conjugal share and the
other heirs of Pastor Y. Lim of their shares in his estate. In fact, all the real property registered in
the name of Leslim Corporation and in Nellmart Corporation wherein Pastor Lim is also the
majority stockholder had been transferred by defendants and their cohorts to themselves or to
entities controlled by them, all at practically the same time. Thus:
a. TCT No. 36617 Deed of Sale dated August 22, 1994 from Leslim to defendant
Corporation. Amount P3,400,000.00.
b. TCT No. 66001 Deed of Sale dated August 26, 1994 from Leslim to Auto Truck TBA.
Amount P10,500,000.00.
c. TCT No. 101730 Deed of Sale dated August 26, 1994 from Leslim to Skyline Sales
Corporation. Amount P15,500,00.00.
d. TCT No. T-48028 in the name of Nellmart but illegally transferred to defendant
corporation under TCT No. 116718.
e. TCT No. 236236 in the name of Nellmart but illegally transferred to Alliance
Marketing, Inc., under TCT No. 285400.
f. TCT No. 236237 in the name of Nellmart but illegally transferred to Alliance
Marketing, Inc. under TCT No. 285399.
16. The same scheme was resorted to by defendants and their cohorts in divesting other
corporations of all real property, where Pastor Lim is the stockholder. Thus, the motives of
defendants in conspiracy with each other and with several other persons and entities are one
and the same, namely: to monopolize the control, possession, enjoyment and ownership of all
the estate of Pastor Lim, thereby depriving plaintiff of her conjugal share as well as her own
share in her husbands own estate.
17. By reason of these acts of defendants, plaintiff was constrained to hire the services of
counsel for a fee of P50,000.00 and appearance fee of P1,500.00 per hearing. She likewise
suffered sleepless nights and wounded feelings, which if converted into its monetary equivalent
would be P100,000.00, more or less.
18. In order to prevent defendants from repeating the unlawful acts, they should be condemned
by pay exemplary damages in the amount of P100,000.00.
17

The private respondent prayed that, after due proceedings, judgment be rendered in her favor, thus :
WHEREFORE, premises considered, it is respectfully prayed of this Honorable Court that after
notice and hearing, judgment be rendered:
a. declaring the secretarys certificate and the deed of sale under question null and void;
b. cancelling TCT No. 116716 issued in the name of defendant Speed Distributing Corporation
for being without basis in fact and in law;
c. ordering defendants to pay jointly and severally the amount of P100,000.00 exemplary
damages;
d. ordering defendants to play (sic) plaintiff jointly and severally the amount of P50,000.00
attorneys fees and P1,000.00 appearance fee per hearing.
e. Ordering defendants to pay the cost of suit.
18

In their answer with compulsory counterclaim, the petitioners specifically denied the material
allegations of the complaint, and by way of special and affirmative defenses, alleged that the private
respondent (the plaintiff therein), was not privy to the deed of sale executed by Leslim and Speed. As
such, she was not the real party-in-interest and had no cause of action against the defendants. Pursuant
to Presidential Decree No. 902-A, the SEC, not the RTC, had jurisdiction over the complaint, as it was
evident that the complaint involved an intra-corporate controversy.
19

In her reply, the private respondent alleged that even if she was not privy to the deed of sale over the
subject property, she was entitled to its income, and her right accrued at the time of Pastors death on
June 11, 1994.
On September 4, 1995, the RTC issued an Order in Special Proceedings No. 95-2334 granting the petition
and appointed the private respondent as the co-administrator of Miguel Lim, with Atty. Donald Lee as
special administrator.
20

The court held a hearing on the special and affirmative defenses of the defendants (the petitioners
herein) in Civil Case No. 95-24588. On November 25, 1995, the RTC issued an order dismissing the
complaint, real party-in-interest. According to the court, she had no cause of action against the
petitioners as she was not privy to the contract of sale between Leslim and Speed. Neither was she a
stockholder of the defendant corporation; as such, she could not sue for the corporation. According to
the court, the private respondent could not file the complaint in behalf of her deceased husband Pastor
as she was unable to show that she was the authorized representative of his estate; even if she was so
authorized, her claim was limited to the shares owned by Pastor, which could not extend to the
properties of Leslim. The court also ruled that the action involved intra-corporate controversies over
which the SEC had original and exclusive jurisdiction.
Aggrieved, the private respondent filed a motion for reconsideration of the order which was denied on
February 9, 1996.
21
Dissatisfied, she appealed the order to the Court of Appeals,
22
docketed as CA-G.R.
CV No. 52214. She ascribed the following errors to the court a quo:
I
THE LOWER COURT ERRED IN RULING THAT THE PLAINTIFF-APPELLANT IS NOT A REAL PARTY-IN-
INTEREST TO FILE THE "COMPLAINT" BEFORE THE COURT A QUO.
II
THE LOWER COURT ERRED IN RULING THAT IT HAD NO JURISDICTION OVER THE "COMPLAINT"
IN CIVIL CASE NO. Q-95-24588.
III.
THE LOWER COURT ERRED IN DISMISSING THE PLAINTIFF-APPELLANTS "COMPLAINANT" IN
CIVIL CASE NO. Q-95-24588.
23

On April 18, 1996, the Court of Appeals rendered judgment in CA-G.R. SP No. 38617 nullifying the
assailed orders. The CA ruled that the private respondent failed to prove that Pastor Lim, not Speed,
owned the property. It also ruled that the finding of the probate court that the property belonged to
Pastor Lim was only provisional in nature. The private respondent then filed a petition for review on
certiorari with this Court, docketed as G.R. No. 124715. On January 24, 2000, this Court rendered a
Decision dismissing the petition.
On September 15, 2000, the CA rendered a decision in CA-G.R. CV No. 52214 setting aside the assailed
orders and ordering the RTC to hear Civil Case No. Q-95-24588, thus:
WHEREFORE, premises considered, the Regional Trial Court, National Capital Judicial Region,
Quezon City, Branch 222 is hereby ORDERED to try Civil Case No. Q-95-24588 without costs to
plaintiff-appellant.
24

The CA ruled that, as gleaned from the pleadings of the parties, the action involved intra-corporate
controversies as defined in Section 5 of Presidential Decree (PD) No. 902-A; as such, the RTC had no
jurisdiction over the action. However, in light of Rep. Act No. 8799 which transferred to courts of general
jurisdiction or the appropriate RTC cases over which the SEC had jurisdiction, the CA ordered the
remand of the case to the RTC, for the determination, among others, of the resolution of the issue of
whether or not the private respondent was the real party-in-interest. The Court of Appeals stated, thus:
However, viewed in the light of Republic Act No. 8799, otherwise known as the Securities
Regulation Code, approved on July 19, 2000 which has effectively divested the Securities and
Exchange Commission of its quasi-judicial functions and transferred them to the Regional Trial
Court, We rule that the latter may take cognizance of the instant case so as not to roundabout
the judicial process, without prejudiced (sic) to its being ventilated as to whether or not
appellant The private respondent Lim is a real party in interest to be determined during the trial
on the merits before the appropriate court who has now the jurisdiction over the case at bar.
25

The motion for reconsideration of the petitioners was denied by the CA, per its Resolution dated August
8, 2001.
In their petition at bar, the petitioners argue that
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE TRIAL COURT HAS
JURISDICTION OVER THE SUBJECT CASE BY VIRTUE OF THE EFFECTIVITY OF RA 8799 KNOWN AS
SECURITIES REGULATION CODE.
26

The petitioners contend that the RTC had no jurisdiction over the private respondents complaint
because the case involved intra-corporate controversies. Since Rep. Act No. 8799 took effect only on
August 8, 2000, while the private respondents appeal in the CA was pending, it should not be given
retroactive effect. Furthermore, Section 5.2 of RA 8799 proscribes the transfer of cases to the RTC; as
such, the CA should have dismissed the private respondents appeal without prejudice to her right to
refile her complaint in the RTC. The petitioners argue that the CA cannot order the case remanded to
the RTC for the sake of convenience.
For her part, the private respondent asserts that the complaint does not involve intra-corporate
controversies and the RTC had jurisdiction over the action and the issues raised by the parties in their
pleadings. The private respondent, likewise, opines that there is nothing wrong with the CAs ruling
directing the RTC to hear the case to avoid any consequent delay.
The sole issue in this case is whether or not the CA erred in remanding the case to the RTC and directing
it to decide and hear the complaint on its merits, in view of Rep. Act No. 8799 which took effect on
August 8, 2000, during the pendency of the case before it, effectively transferring jurisdiction over cases
involving intra-corporate controversies from the SEC to the RTC.
The Private Respondents Action in the RTC Does Not Involve an Intra- Corporate Dispute.
Jurisdiction over the subject matter is conferred by law.
27
The nature of an action, as well as which court
or body has jurisdiction over it, is determined based on the allegations contained in the complaint of the
plaintiff, irrespective of whether or not plaintiff is entitled to recover upon all or some of the claims
asserted therein.
28
It cannot depend on the defenses set forth in the answer, in a motion to dismiss, or
in a motion for reconsideration by the defendant.
29

Section 5 of P.D. No. 902-A provides that the SEC shall have original and exclusive jurisdiction over
complaints, to hear and decide cases involving the following:
(a) Devices or schemes employed by or any acts of the board of directors, business associates,
its officers or partners, amounting to fraud and misrepresentation which may be detrimental to
the interest of the public and/or stockholders, partners, members of associations registered
with the Commission;
(b) Controversies arising out of intra-corporate or partnership relations, between and among
stockholders, members, or associates; between any or all of them and the corporation,
partnership or association and the State insofar as it concerns their individual franchise or right
as such entity;
(c) Controversies in the election or appointment of directors, trustees, officers or managers of
such corporations, partnership or associations;
(d) Petitioners of corporations, partnerships or associations to be declared in the state of
suspension of payment in cases where the corporation, partnership or association possesses
sufficient property to cover all its debts but foresees the impossibility of meeting them when
they fall due or in cases where the corporation, partnership or assciation has no sufficient assets
to cover its liabilities but is under the management of a rehabilitation receiver or management
committee created pursuant to this Decree.
30

However, Section 5.2
31
of Rep. Act No. 8799, transferred the erstwhile exclusive and original jurisdiction
of the SEC over actions involving intra-corporate controversies to the courts of general jurisdiction, or
the appropriate RTC. All intra-corporate cases pending in the SEC were to be transferred to the
appropriate RTC. Congress thereby recognized the expertise and competence of the RTC to take
cognizance of and resolve cases involving intra-corporate controversies. In compliance with the law, the
Court issued, on November 21, 2000 a Resolution designating certain branches of the RTC in the
National Capital Region to try and decide cases enumerated in Section 5 of P.D. No. 902-A. For Quezon
City cases, the Court designated Branches 46 and 93 of the RTC. Branch 222 of the Quezon City RTC,
which dismissed the complaint of the private respondent, was not so designated by the Court. On March
13, 2001, the Court approved the Interim Rules of Procedure for Intra-Corporate Controversies, which
took effect on April 1, 2001.
To determine whether a case involves an intra-corporate controversy, and is to be heard and decided by
the Branches of the RTC specifically designated by the Court to try and decide such cases, two elements
must concur: (a) the status or relationship of the parties; and (2) the nature of the question that is the
subject of their controversy.
32

The first element requires that the controversy must arise out of intra-corporate or partnership relations
between any or all of the parties and the corporation, partnership or association of which they are
stockholders, members or associates; between any or all of them and the corporation, partnership or
association of which they are stockholders, members or associates, respectively; and between such
corporation, partnership or association and the State insofar as it concerns their individual franchises.
The second element requires that the dispute among the parties be intrinsically connected with the
regulation of the corporation.
33
If the nature of the controversy involves matters that are purely civil in
character, necessarily, the case does not involve an intra-corporate controversy. The determination of
whether a contract is simulated or not is an issue that could be resolved by applying pertinent provisions
of the Civil Code.
34

In the present recourse, it is clear that the private respondents complaint in the RTC is not an intra-
corporate case. For one thing, the private respondent has never been a stockholder of Leslim, or of
Speed for that matter. The complaint is one for the nullification of the deed of absolute sale executed by
Leslim in favor of Speed over the property covered by TCT No. T-36617 in the name of Leslim, the
cancellation of TCT No. T-116716 in the name of Speed, as well as the Secretarys Certificate dated
August 22, 1994. The private respondent alleged that since her deceased husband, Pastor Lim, acquired
the property during their marriage, the said property is conjugal in nature, although registered under
the name of Leslim under TCT No. T-36617. She asserted that the petitioners connived to deprive the
estate of Pastor Lim and his heirs of their possession and ownership over the said property using a
falsified Secretarys Certificate stating that the Board of Directors of Leslim had a meeting on August 19,
1995, when, in fact, no such meeting was held. Petitioner Lita Lim was never a stockholder of Leslim or a
member of its Board of Directors; her husband, petitioner Ireneo Marcelo was the Vice-President of
Speed; and, petitioner Pedro Aquino was Leslims corporate secretary. The private respondent further
averred that the amount of P3,900,000.00, the purchase price of the property under the deed of
absolute sale, was not paid to Leslim, and that petitioners Spouses Marcelo and petitioner Pedro Aquino
contrived the said deed to consummate their devious scheme and chicanery. The private respondent
concluded that the Deed of Absolute Sale was simulated; hence, null and void.
We are convinced that on the basis of the material allegations of the complaint, the court a quo had
jurisdiction over the case.
The Private Respondent is a Real Party-in-Interest as Plaintiff.
Rule 3, Section 2 of the Rules of Court, as amended, provides as follows:
SEC. 2. Parties in interest. A real party in interest is the party who stands to be benefited or
injured by the judgment in the suit, or the party entitled to the avails of the suit. Unless
otherwise authorized by law or these Rules, every action must be prosecuted or defended in the
name of the real party in interest.
The private respondent filed the complaint as one of the heirs of Pastor Lim, who died intestate on June
11, 1994. She was, in fact, the surviving spouse of the deceased, a compulsory heir by operation of law.
The general rule under the law on succession is that successional rights are transmitted from the
moment of death of the decedent and compulsory heirs are called upon to succeed by operation of law
to the inheritance without the need of further proceedings. Under Article 776 of the New Civil Code,
inheritance includes all the properties, rights and obligations of a party, not extinguished by his
death.
35
Although the private respondent was appointed by the probate court as a special administratrix
of the estate of Pastor Lim, she had the right, apart from her being a special administratrix, to file the
complaint against the petitioners for the nullification of the deed of absolute sale, and TCT Nos. T-36617
and T-116716. Indeed, in Emnace vs. Court of Appeals, et al.,
36
we held that:
On the third issue, petitioner asserts that the surviving spouse of Vicente Tabanao has no legal
capacity to sue since she was never appointed as administratrix or executrix of his estate.
Petitioners objection in this regard is misplaced. The surviving spouse does not need to be
appointed as executrix or administratrix of the estate before she can file the action. She and her
children are complainants in their own right as successors of Vicente Tabanao. From the very
moment of Vicente Tabanaos death, his rights insofar as the partnership was concerned were
transmitted to his heirs, for rights to the succession are transmitted from the moment of death
of the decedent.
Whatever claims and rights Vicente Tabanao had against the partnership and petitioner were
transmitted to respondents by operation of law, more particularly by succession, which is a
mode of acquisition by virtue of which the property, rights and obligations to the extent of the
value of the inheritance of a person are transmitted. Moreover, respondents became owners of
their respective hereditary shares from the moment Vicente Tabanao died.
A prior settlement of the estate, or even the appointment of Salvacion Tabanao as executrix or
administratrix, is not necessary for any of the heirs to acquire legal capacity to sue. As
successors who stepped into the shoes of their decedent upon his death, they can commence
any action originally pertaining to the decedent. From the moment of his death, his rights as a
partner and to demand fulfillment of petitioners obligations as outlined in their dissolution
agreement were transmitted to respondents. They, therefore, had the capacity to sue and seek
the courts intervention to compel petitioner to fulfill his obligations.
37

All the Compulsory Heirs of the Decedent and Leslim Corporation are Indispensable Parties.
In her complaint, the private respondent sought the nullification of the Deed of Absolute Sale executed
by Leslim Corporation in favor of Speed, as well as TCT No. T-36617 under its name. Thus, Leslim
Corporation is an indispensable party, and should be impleaded as a party-defendant conformably to
Section 7, Rule 3 of the Rules of Court, as amended.
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.
As Leslim Corporation was a party to the deed, its interests in the subject of the action and the outcome
thereof is such that the trial court could not proceed without its presence. All actuations of the trial
court subsequent to the filing of the complaint are null and void, not only as to Leslim Corporation, but
also as to the present parties.
38
All the compulsory heirs of the deceased must also be impleaded as
plaintiffs, being indispensable parties.
39
Thus, the private respondent needs to amend her complaint in
the court a quo to include all indispensable parties; otherwise, her claim would be dismissed.
IN LIGHT OF ALL THE FOREGOING, the petition is DISMISSED. The records are remanded to the Regional
Trial Court of Quezon City, Branch 222, for further proceedings on the merits of the case.
SO ORDERED.
Quisumbing, (Acting Chairman), Austria-Martinez, and Tinga, JJ., concur.
Puno, (Chairman), J., on leave.