G.R. No. 193753 : September 26, 2012 before its own liability as a surety attaches.
ty as a surety attaches. Hence, the instant complaint,
LIVING @ SENSE, INC., Petitioner, v. MALAYAN INSURANCE
COMPANY, INC., Respondent.
RESOLUTION
PERLAS-BERNABE, J.:
This Petition for Review on Certiorari assails, on pure question of law, the
Orders dated April 8, 20101ςrνlland August 25, 20102ςrνll of the
Regional Trial Court (RTC) of Parafiaque City, Branch 257 dismissing,
without prejudice, the complaint for specific performance and breach of
contract filed by petitioner Living @ Sense, Inc. (petitioner) for failure to
implead Dou Mac, Inc. (DMI) as an indispensable party.
The Factual Antecedents
Records show that petitioner was the main contractor of the FOC Network
Project of Globe Telecom in Mindanao. In connection with the project,
petitioner entered into a Sub-Contract Agreement3ςrνll(Agreement) with
DMI, under which the latter was tasked to undertake an underground open-
trench work. Petitioner required DMI to give a bond, in the event that DMI
fails to perform its obligations under the Agreement. Thus, DMI secured
surety4ςrνll and performance5ςrνll bonds, both in the amount
of P5,171,488.00, from respondent Malayan Insurance Company, Inc.
(respondent) to answer: (1) for the unliquidated portion of the
downpayment, and (2) for the loss and damage that petitioner may suffer,
respectively, should DMI fail to perform its obligations under the
Agreement. Under the bonds, respondent bound itself jointly and severally
liable with DMI.6ςrνll
During the course of excavation and restoration works, the Department of
Public Works and Highways (DPWH) issued a work-stoppage order
against DMI after finding the latters work unsatisfactory. Notwithstanding
the said order, however, DMI still failed to adopt corrective measures,
prompting petitioner to terminate7ςrνll the Agreement and
seek8ςrνll indemnification from respondent in the total amount
of P 1,040,895.34.
However, respondent effectively denied9ςrνll petitioners claim on the
ground that the liability of its principal, DMI, should first be ascertained
premised on respondents liability under the surety and performance bonds
secured by DMI.
Seeking the dismissal10ςrνll of the complaint, respondent claimed that
DMI is an indispensable party that should be impleaded and whose liability
should first be determined before respondent can be held liable.
On the other hand, petitioner asserted11ςrνll that respondent is a surety
who is directly and primarily liable to indemnify petitioner, and that the bond
is "callable on demand"12ςrνll in the event DMI fails to perform its
obligations under the Agreement.
The RTCs Ruling
In its April 8, 2010 Order,13ςrνll the RTC dismissed the complaint without
prejudice, for failure to implead DMI as a party defendant. It ruled that
before respondent could be held liable on the surety and performance
bonds, it must first be established that DMI, with whom petitioner had
originally contracted, had indeed violated the Agreement. DMI, therefore, is
an indispensable party that must be impleaded in the instant suit.
On August 25, 2010, the RTC denied14ςrνll petitioners motion for
reconsideration for failure to set the same for hearing as required under the
rules.
The Issue Before The Court
The sole issue to be resolved by the Court is whether DMI is an
indispensable party in this case.
The Court's Ruling
Petitioner maintains that the rule on solidary obligations permits it, as
creditor, to proceed against any of the solidary debtors, citing Article 1216
of the Civil Code which provides:chanroblesvirtuallawlibrary
Article 1216. The creditor may proceed against any one of the solidary
debtors or some or all of them simultaneously. The demand made against
one of them shall not be an obstacle to those which may subsequently be
directed against the others, so long as the debt has not been fully
collected.
1
The petition is meritorious.
Records show that when DMI secured the surety and performance bonds
from respondent in compliance with petitioners requirement, respondent
bound itself "jointly and severally" with DMI for the damages and actual
loss that petitioner may suffer should DMI fail to perform its obligations
under the Agreement, as follows:chanroblesvirtuallawlibrary
That we, DOU MAC INC. as Principal, and MALAYAN INSURANCE CO.,
INC., x xx are held firmly bound unto LIVING @ SENSE INC. in the sum of
FIVE MILLION ONE HUNDRED SEVENTY ONE THOUSAND FOUR
HUNDRED EIGHTY EIGHT AND 00/100 PESOS ONLY
(PHP ***5,171,488.00), PHILIPPINE Currency, for the payment of which
sum, well and truly to be made, we bind ourselves, our heirs, executors,
administrators, successors and assigns, jointly and severally, firmly by
these presents xxx15ςrνll (Emphasis Supplied)
court, on motion of the party or on its own initiative at any stage of the
action.19ςrνll
Accordingly, the Court finds that the RTC erred in holding that DMI Is an
indispensable party and, consequently, in dismissing the complaint filed by
petitioner without prejudice.ςηαοblενιrυαllαωlιbrαr
WHEREFORE, the assailed April 8, 2010 and August 25, 2010 Orders of
the Regional Trial Court (RTC) of Paraque City, Branch 257 are hereby
SET ASIDE. Petitioner's complaint is ordered REINSTATED and the case
remanded to the RTC for further proceedings.ςrαlαωlιbrαr
SO ORDERED.

The term "jointly and severally" expresses a solidary

obligation16ςrνll granting petitioner, as creditor, the right to proceed
against its debtors, i.e., respondent or DMI.

The nature of the solidary obligation under the surety does not make one
an indispensable party.17ςrνll An indispensable party is a party-in-interest
without whom no final determination can be had of an action, and who shall
be joined mandatorily either as plaintiffs or defendants. The presence of
indispensable parties is necessary to vest the court with jurisdiction, thus,
without their presence to a suit or proceeding, the judgment of a court
cannot attain real finality. The absence of an indispensable party renders
all subsequent actions of the court null and void for want of authority to act,
not only as to the absent parties but even as to those present.18ςrνll

In this case, DMI is not an indispensable party because petitioner can

claim indemnity directly from respondent, having made itself jointly and
severally liable with DMI for the obligation under the bonds. Therefore, the
failure to implead DMI is not a ground to dismiss the case, even if the same
was without prejudice.

Moreover, even on the assumption that DMI was, indeed, an indispensable

party, the RTC committed reversible error in dismissing the complaint.
Failure to implead an indispensable party is not a ground for the dismissal
of an action, as the remedy in such case is to implead the party claimed to
be indispensable, considering that parties may be added by order of the

2
 [G.R. No. 141538. March 23, 2004]
Hermana R. Cerezo, petitioner, vs. David Tuazon, respondent.
DECISION
CARPIO, J.:
The Case
This is a petition for review on certiorari[1] to annul the
Resolution[2] dated 21 October 1999 of the Court of Appeals in CA-G.R. SP
No. 53572, as well as its Resolution dated 20 January 2000 denying the
motion for reconsideration. The Court of Appeals denied the petition for
annulment of the Decision[3] dated 30 May 1995 rendered by
the Regional Trial Court ofAngeles City, Branch 56 (trial court), in Civil Case
No. 7415. The trial court ordered petitioner Hermana R. Cerezo (Mrs.
Cerezo) to pay respondent David Tuazon (Tuazon) actual damages, loss of
earnings, moral damages, and costs of suit.
Antecedent Facts
Around noontime of 26 June 1993, a Country Bus Lines passenger bus
with plate number NYA 241 collided with a tricycle bearing plate number TC
RV 126 along Captain M. Palo Street, Sta. Ines, Mabalacat,
Pampanga. On 1 October 1993, tricycle driver Tuazon filed a complaint for
damages against Mrs. Cerezo, as owner of the bus line, her husband
Attorney Juan Cerezo (Atty. Cerezo), and bus driver Danilo A. Foronda
(Foronda). The complaint alleged that:
7. At the time of the incident, plaintiff [Tuazon] was in his proper lane when
the second-named defendant [Foronda], being then the driver and person
in charge of the Country Bus with plate number NYA 241, did then and
there willfully, unlawfully, and feloniously operate the said motor vehicle in
a negligent, careless, and imprudent manner without due regard to traffic
rules and regulations, there being a Slow Down sign near the scene of the
incident, and without taking the necessary precaution to prevent loss of
lives or injuries, his negligence, carelessness and imprudence resulted to
severe damage to the tricycle and serious physical injuries to plaintiff thus
making him unable to walk and becoming disabled, with his thumb and
middle finger on the left hand being cut[.][4]
On 1 October 1993, Tuazon filed a motion to litigate as a
pauper. Subsequently, the trial court issued summons against Atty. Cerezo
and Mrs. Cerezo (the Cerezo spouses) at the Makati address stated in the
complaint. However, the summons was returned unserved on 10 November
1993 as the Cerezo spouses no longer held office nor resided
in Makati. On 18 April 1994, the trial court issued alias summons against the
Cerezo spouses at their address in Barangay Sta. Maria, Camiling,
Tarlac. The alias summons and a copy of the complaint were finally served
on 20 April 1994 at the office of Atty. Cerezo, who was then working as
Tarlac Provincial Prosecutor. Atty. Cerezo reacted angrily on learning of the
service of summons upon his person. Atty. Cerezo allegedly told Sheriff
William Canlas: Punyeta, ano ang gusto mong mangyari? Gusto mong hindi
ka makalabas ng buhay dito? Teritoryo ko ito. Wala ka sa teritoryo mo.[5]
The records show that the Cerezo spouses participated in the
proceedings before the trial court. The Cerezo spouses filed a comment with
motion for bill of particulars dated 29 April 1994 and a reply to opposition to
comment with motion dated 13 June 1994.[6] On 1 August 1994, the trial
court issued an order directing the Cerezo spouses to file a comment to the
opposition to the bill of particulars. Atty. Elpidio B. Valera (Atty. Valera)
of Valera and Valera Law Offices appeared on behalf of the Cerezo
spouses. On 29 August 1994, Atty. Valera filed an urgent ex-parte motion
praying for the resolution of Tuazons motion to litigate as a pauper and for
the issuance of new summons on the Cerezo spouses to satisfy proper
service in accordance with the Rules of Court.[7]
On 30 August 1994, the trial court issued an order resolving Tuazons
motion to litigate as a pauper and the Cerezo spouses urgent ex-parte
motion. The order reads:
At the hearing on August 30, 1994, the plaintiff [Tuazon] testified that he is
presently jobless; that at the time of the filing of this case, his son who is
working in Malaysia helps him and sends him once in a while P300.00 a
month, and that he does not have any real property. Attached to the Motion
to Litigate as Pauper are his Affidavit that he is unemployed; a Certification
by the Barangay Captain of his poblacion that his income is not enough for
his familys subsistence; and a Certification by the Office of the Municipal
Assessor that he has no landholding in
the Municipality of Mabalacat, Province of Pampanga.
3
The Court is satisfied from the unrebutted testimony of the plaintiff that he
is entitled to prosecute his complaint in this case as a pauper under
existing rules.
On the other hand, the Court denies the prayer in the Appearance and
Urgent Ex-Parte Motion requiring new summons to be served to the
defendants. The Court is of the opinion that any infirmity in the service of
the summons to the defendant before plaintiff was allowed to prosecute his
complaint in this case as a pauper has been cured by this Order.
If within 15 days from receipt of this Order, the defendants do not question
on appeal this Order of this Court, the Court shall proceed to resolve the
Motion for Bill of Particulars.[8]
On 27 September 1994, the Cerezo spouses filed an urgent ex-parte
motion for reconsideration. The trial court denied the motion for
reconsideration.
On 14 November 1994, the trial court issued an order directing the
Cerezo spouses to file their answer within fifteen days from receipt of the
order. The Cerezo spouses did not file an answer. On 27 January 1995,
Tuazon filed a motion to declare the Cerezo spouses in default. On 6
February 1995, the trial court issued an order declaring the Cerezo spouses
in default and authorizing Tuazon to present his evidence. [9]
On 30 May 1995, after considering Tuazons testimonial and
documentary evidence, the trial court ruled in Tuazons favor. The trial court
made no pronouncement on Forondas liability because there was no service
of summons on him. The trial court did not hold Atty. Cerezo liable as Tuazon
failed to show that Mrs. Cerezos business benefited the family, pursuant to
Article 121(3) of the Family Code. The trial court held Mrs. Cerezo solely
liable for the damages sustained by Tuazon arising from the negligence of
Mrs. Cerezos employee, pursuant to Article 2180 of the Civil Code. The
dispositive portion of the trial courts decision reads:
WHEREFORE, judgment is hereby rendered ordering the defendant
Hermana Cerezo to pay the plaintiff:
a) For Actual Damages
1) Expenses for operation and medical
Treatment - P69,485.35
2) Cost of repair of the tricycle - 39,921.00
b) For loss of earnings - 43,300.00
c) For moral damages - 20,000.00
d) And to pay the cost of the suit.
The docket fees and other expenses in the filing of this suit shall be lien on
whatever judgment may be rendered in favor of the plaintiff.
SO ORDERED.[10]
Mrs. Cerezo received a copy of the decision on 25 June 1995. On 10
July 1995, Mrs. Cerezo filed before the trial court a petition for relief from
judgment on the grounds of fraud, mistake or excusable
negligence. Testifying before the trial court, both Mrs. Cerezo and Atty.
Valera denied receipt of notices of hearings and of orders of the court. Atty.
Valera added that he received no notice before or during the 8 May
1995 elections, when he was a senatorial candidate for the KBL Party, and
very busy, using his office and residence as Party National
Headquarters. Atty. Valera claimed that he was able to read the decision of
the trial court only after Mrs. Cerezo sent him a copy.[11]
Tuazon did not testify but presented documentary evidence to prove
the participation of the Cerezo spouses in the case. Tuazon presented the
following exhibits:
Exhibit 1 - Sheriffs return and summons;
Exhibit 1-A - Alias summons dated April 20, 1994;
Exhibit 2 - Comment with Motion;
Exhibit 3 - Minutes of the hearing held on August 1, 1994;
Exhibit 3-A - Signature of defendants counsel;
Exhibit 4 - Minutes of the hearing held on August 30, 1994;
Exhibit 4-A - Signature of the defendants counsel;
Exhibit 5 - Appearance and Urgent Ex-Parte Motion;
Exhibit 6 - Order dated November 14, 1994;
Exhibit 6-A - Postal certification dated January 13, 1995;
Exhibit 7 - Order dated February [illegible];
Exhibit 7-A - Courts return slip addressed to Atty. Elpidio
Valera;
Exhibit 7-B - Courts return slip addressed to Spouses Juan
and Hermana Cerezo;
Exhibit 8 - Decision dated May [30], 1995
Exhibit 8-A - Courts return slip addressed to defendant Hermana
Cerezo;
Exhibit 8-B - Courts return slip addressed to defendants counsel,
Atty. Elpidio Valera;
Exhibit 9 - Order dated September 21, 1995;
4
 Exhibit 9-A - Second Page of Exhibit 9;
Exhibit 9-B - Third page of Exhibit 9;
Exhibit 9-C - Fourth page of Exhibit 9;
Exhibit 9-D - Courts return slip addressed to Atty. Elpidio Valera;
and
Exhibit 9-E - Courts return slip addressed to plaintiffs counsel,
Atty. Norman Dick de Guzman.[12]
On 4 March 1998, the trial court issued an order[13] denying the petition
for relief from judgment. The trial court stated that having received the
decision on 25 June 1995, the Cerezo spouses should have filed a notice of
appeal instead of resorting to a petition for relief from judgment. The trial
court refused to grant relief from judgment because the Cerezo spouses
could have availed of the remedy of appeal. Moreover, the Cerezo spouses
not only failed to prove fraud, accident, mistake or excusable negligence by
conclusive evidence, they also failed to prove that they had a good and
substantial defense. The trial court noted that the Cerezo spouses failed to
appeal because they relied on an expected settlement of the case.
The Cerezo spouses subsequently filed before the Court of Appeals a
petition for certiorari under Section 1 of Rule 65. The petition was docketed
as CA-G.R. SP No. 48132.[14] The petition questioned whether the trial court
acquired jurisdiction over the case considering there was no service of
summons on Foronda, whom the Cerezo spouses claimed was an
indispensable party. In a resolution[15] dated 21 January 1999, the Court of
Appeals denied the petition for certiorari and affirmed the trial courts order
denying the petition for relief from judgment. The Court of Appeals declared
that the Cerezo spouses failure to file an answer was due to their own
negligence, considering that they continued to participate in the proceedings
without filing an answer. There was also nothing in the records to show that
the Cerezo spouses actually offered a reasonable settlement to Tuazon. The
Court of Appeals also denied Cerezo spouses motion for reconsideration for
lack of merit.
The Cerezo spouses filed before this Court a petition for review
on certiorari under Rule 45. Atty. Cerezo himself signed the petition,
docketed as G.R. No. 137593. On 13 April 1999, this Court rendered a
resolution denying the petition for review on certiorari for failure to attach an
affidavit of service of copies of the petition to the Court of Appeals and to the
adverse parties. Even if the petition complied with this requirement, the
Court would still have denied the petition as the Cerezo spouses failed to
show that the Court of Appeals committed a reversible error. The Courts
resolution was entered in the Book of Entries and Judgments when it
became final and executory on 28 June 1999.[16]
Undaunted, the Cerezo spouses filed before the Court of Appeals on 6
July 1999 a petition for annulment of judgment under Rule 47 with prayer for
restraining order. Atty. Valera and Atty. Dionisio S. Daga (Atty. Daga)
represented Mrs. Cerezo in the petition, docketed as CA-G.R. SP No.
53572.[17] The petition prayed for the annulment of the 30 May 1995 decision
of the trial court and for the issuance of a writ of preliminary injunction
enjoining execution of the trial courts decision pending resolution of the
petition.
The Court of Appeals denied the petition for annulment of judgment in
a resolution dated 21 October 1999. The resolution reads in part:
In this case, records show that the petitioner previously filed with the lower
court a Petition for Relief from Judgment on the ground that they were
wrongfully declared in default while waiting for an amicable settlement of
the complaint for damages. The court a quo correctly ruled that such
petition is without merit. The defendant spouses admit that during the initial
hearing they appeared before the court and even mentioned the need for
an amicable settlement. Thus, the lower court acquired jurisdiction over the
defendant spouses.
Therefore, petitioner having availed of a petition for relief, the remedy of an
annulment of judgment is no longer available. The proper action for the
petitioner is to appeal the order of the lower court denying the petition for
relief.
Wherefore, the instant petition could not be given due course and should
accordingly be dismissed.
SO ORDERED.[18]
On 20 January 2000, the Court of Appeals denied the Cerezo spouses
motion for reconsideration.[19] The Court of Appeals stated:
A distinction should be made between a courts jurisdiction over a person
and its jurisdiction over the subject matter of a case. The former is acquired
by the proper service of summons or by the parties voluntary appearance;
while the latter is conferred by law.
Resolving the matter of jurisdiction over the subject matter, Section 19(1)
of B[atas] P[ambansa] 129 provides that Regional Trial Courts shall
exercise exclusive original jurisdiction in all civil actions in which the
5
subject of the litigation is incapable of pecuniary estimation. Thus it was
proper for the lower court to decide the instant case for damages.
Unlike jurisdiction over the subject matter of a case which is absolute and
conferred by law; any defects [sic] in the acquisition of jurisdiction over a
person (i.e., improper filing of civil complaint or improper service of
summons) may be waived by the voluntary appearance of parties.
The lower court admits the fact that no summons was served on defendant
Foronda. Thus, jurisdiction over the person of defendant Foronda was not
acquired, for which reason he was not held liable in this case. However, it
has been proven that jurisdiction over the other defendants was validly
acquired by the court a quo.
The defendant spouses admit to having appeared in the initial hearings
and in the hearing for plaintiffs motion to litigate as a pauper. They even
mentioned conferences where attempts were made to reach an amicable
settlement with plaintiff. However, the possibility of amicable settlement is
not a good and substantial defense which will warrant the granting of said
petition.
xxx
Assuming arguendo that private respondent failed to reserve his right to
institute a separate action for damages in the criminal action, the petitioner
cannot now raise such issue and question the lower courts jurisdiction
because petitioner and her husband have waived such right by voluntarily
appearing in the civil case for damages. Therefore, the findings and the
decision of the lower court may bind them.
Records show that the petitioner previously filed with the lower court a
Petition for Relief from Judgment on the ground that they were wrongfully
declared in default while waiting for an amicable settlement of the
complaint for damages. The court a quo correctly ruled that such petition is
without merit, jurisdiction having been acquired by the voluntary
appearance of defendant spouses.
Once again, it bears stressing that having availed of a petition for relief, the
remedy of annulment of judgment is no longer available.
Based on the foregoing, the motion for reconsideration could not be given
due course and is hereby DENIED.
SO ORDERED.[20]
The Issues
On 7 February 2000, Mrs. Cerezo, this time with Atty. Daga alone
representing her, filed the present petition for review on certiorari before this
Court. Mrs. Cerezo claims that:
1. In dismissing the Petition for Annulment of Judgment, the Court
of Appeals assumes that the issues raised in the petition for
annulment is based on extrinsic fraud related to the denied
petition for relief notwithstanding that the grounds relied upon
involves questions of lack of jurisdiction.
2. In dismissing the Petition for Annulment, the Court of Appeals
disregarded the allegation that the lower court[s] findings of
negligence against defendant-driver Danilo Foronda [whom]
the lower court did not summon is null and void for want of due
process and consequently, such findings of negligence which
is [sic] null and void cannot become the basis of the lower court
to adjudge petitioner-employer liable for civil damages.
3. In dismissing the Petition for Annulment, the Court of Appeals
ignored the allegation that defendant-driver Danilo A. Foronda
whose negligence is the main issue is an indispensable party
whose presence is compulsory but [whom] the lower court did
not summon.
4. In dismissing the Petition for Annulment, the Court of Appeals
ruled that assuming arguendo that private respondent failed to
reserve his right to institute a separate action for damages in
the criminal action, the petitioner cannot now raise such issue
and question the lower courts jurisdiction because petitioner
[has] waived such right by voluntarily appearing in the civil case
for damages notwithstanding that lack of jurisdiction cannot be
waived.[21]
6
 The Courts Ruling
The petition has no merit. As the issues are interrelated, we shall
discuss them jointly.
Remedies Available
to a Party Declared in Default
An examination of the records of the entire proceedings shows that
three lawyers filed and signed pleadings on behalf of Mrs. Cerezo, namely,
Atty. Daga, Atty. Valera, and Atty. Cerezo. Despite their number, Mrs.
Cerezos counsels failed to avail of the proper remedies. It is either by sheer
ignorance or by malicious manipulation of legal technicalities that they have
managed to delay the disposition of the present case, to the detriment of
pauper litigant Tuazon.
Mrs. Cerezo claims she did not receive any copy of the order declaring
the Cerezo spouses in default. Mrs. Cerezo asserts that she only came to
know of the default order on 25 June 1995, when she received a copy of the
decision. On 10 July 1995, Mrs. Cerezo filed before the trial court a petition
for relief from judgment under Rule 38, alleging fraud, mistake, or excusable
negligence as grounds. On 4 March 1998, the trial court denied Mrs.
Cerezos petition for relief from judgment. The trial court stated that Mrs.
Cerezo could have availed of appeal as a remedy and that she failed to
prove that the judgment was entered through fraud, accident, mistake, or
excusable negligence. Mrs. Cerezo then filed before the Court of Appeals a
petition for certiorari under Section 1 of Rule 65 assailing the denial of the
petition for relief from judgment. On 21 January 1999, the Court of Appeals
dismissed Mrs. Cerezos petition. On 24 February 1999, the appellate court
denied Mrs. Cerezos motion for reconsideration. On 11 March 1999, Mrs.
Cerezo filed before this Court a petition for review on certiorariunder Rule
45, questioning the denial of the petition for relief from judgment. We denied
the petition and our resolution became final and executory on 28 June 1999.
On 6 July 1999, a mere eight days after our resolution became final and
executory, Mrs. Cerezo filed before the Court of Appeals a petition for
annulment of the judgment of the trial court under Rule 47. Meanwhile, on 25
August 1999, the trial court issued over the objection of Mrs. Cerezo an order
of execution of the judgment in Civil Case No. 7415. On 21 October 1999,
the Court of Appeals dismissed the petition for annulment of
judgment. On 20 January 2000, the Court of Appeals denied Mrs. Cerezos
motion for reconsideration. On 7 February 2000, Mrs. Cerezo filed the
present petition for review on certiorari under Rule 45 challenging the
dismissal of her petition for annulment of judgment.
Lina v. Court of Appeals[22] enumerates the remedies available to a
party declared in default:
a) The defendant in default may, at any time after discovery
thereof and before judgment, file a motion under oath to set
aside the order of default on the ground that his failure to
answer was due to fraud, accident, mistake or excusable
negligence, and that he has a meritorious defense (Sec. 3,
Rule 18 [now Sec. 3(b), Rule 9]);
b) If the judgment has already been rendered when the defendant
discovered the default, but before the same has become final
and executory, he may file a motion for new trial under
Section 1 (a) of Rule 37;
c) If the defendant discovered the default after the judgment has
become final and executory, he may file a petition for
relief under Section 2 [now Section 1] of Rule 38; and
d) He may also appeal from the judgment rendered against him
as contrary to the evidence or to the law, even if no petition to
set aside the order of default has been presented by him (Sec.
2, Rule 41). (Emphasis added)
Moreover, a petition for certiorari to declare the nullity of a judgment by
default is also available if the trial court improperly declared a party in default,
or even if the trial court properly declared a party in default, if grave abuse
of discretion attended such declaration.[23]
Mrs. Cerezo admitted that she received a copy of the trial courts
decision on 25 June 1995. Based on this admission, Mrs. Cerezo had at
least three remedies at her disposal: an appeal, a motion for new trial, or a
petition for certiorari.
Mrs. Cerezo could have appealed under Rule 41[24] from the default
judgment within 15 days from notice of the judgment. She could have availed
of the power of the Court of Appeals to try cases and conduct hearings,
receive evidence, and perform all acts necessary to resolve factual issues
raised in cases falling within its appellate jurisdiction.[25]
Mrs. Cerezo also had the option to file under Rule 37[26] a motion for
new trial within the period for taking an appeal. If the trial court grants a new
trial, the original judgment is vacated, and the action will stand for trial de
novo. The recorded evidence taken in the former trial, as far as the same is
material and competent to establish the issues, shall be used at the new trial
without retaking the same.[27]
7
 Mrs. Cerezo also had the alternative of filing under Rule 65[28] a petition
for certiorari assailing the order of default within 60 days from notice of the
judgment. An order of default is interlocutory, and an aggrieved party may
file an appropriate special civil action under Rule 65.[29] In a petition
for certiorari, the appellate court may declare void both the order of default
and the judgment of default.
Clearly, Mrs. Cerezo had every opportunity to avail of these remedies
within the reglementary periods provided under the Rules of
Court. However, Mrs. Cerezo opted to file a petition for relief from judgment,
which is available only in exceptional cases. A petition for relief from
judgment should be filed within the reglementary period of 60 days from
knowledge of judgment and six months from entry of judgment, pursuant to
Rule 38 of the Rules of Civil Procedure.[30] Tuason v. Court of
Appeals[31] explained the nature of a petition for relief from judgment:
When a party has another remedy available to him, which may either be a
motion for new trial or appeal from an adverse decision of the trial court,
and he was not prevented by fraud, accident, mistake or excusable
negligence from filing such motion or taking such appeal, he cannot avail
himself of this petition. Indeed, relief will not be granted to a party who
seeks avoidance from the effects of the judgment when the loss of the
remedy at law was due to his own negligence; otherwise the petition for
relief can be used to revive the right to appeal which has been lost thru
inexcusable negligence.
Evidently, there was no fraud, accident, mistake, or excusable
negligence that prevented Mrs. Cerezo from filing an appeal, a motion for
new trial or a petition for certiorari. It was error for her to avail of a petition
for relief from judgment.
After our resolution denying Mrs. Cerezos petition for relief became final
and executory, Mrs. Cerezo, in her last ditch attempt to evade liability, filed
before the Court of Appeals a petition for annulment of the judgment of the
trial court. Annulment is available only on the grounds of extrinsic fraud and
lack of jurisdiction. If based on extrinsic fraud, a party must file the petition
within four years from its discovery, and if based on lack of jurisdiction,
before laches or estoppel bars the petition. Extrinsic fraud is not a valid
ground if such fraud was used as a ground, or could have been used as a
ground, in a motion for new trial or petition for relief from judgment.[32]
Mrs. Cerezo insists that lack of jurisdiction, not extrinsic fraud, was her
ground for filing the petition for annulment of judgment. However, a party
may avail of the remedy of annulment of judgment under Rule 47 only if the
ordinary remedies of new trial, appeal, petition for relief from judgment, or
other appropriate remedies are no longer available through no fault of the
party.[33] Mrs. Cerezo could have availed of a new trial or appeal but through
her own fault she erroneously availed of the remedy of a petition for relief,
which was denied with finality. Thus, Mrs. Cerezo may no longer avail of the
remedy of annulment.
In any event, the trial court clearly acquired jurisdiction over Mrs.
Cerezos person. Mrs. Cerezo actively participated in the proceedings before
the trial court, submitting herself to the jurisdiction of the trial court. The
defense of lack of jurisdiction fails in light of her active participation in the
trial court proceedings. Estoppel or laches may also bar lack of jurisdiction
as a ground for nullity especially if raised for the first time on appeal by a
party who participated in the proceedings before the trial court, as what
happened in this case.[34]
For these reasons, the present petition should be dismissed for utter
lack of merit. The extraordinary action to annul a final judgment is restricted
to the grounds specified in the rules.The reason for the restriction is to
prevent this extraordinary action from being used by a losing party to make
a complete farce of a duly promulgated decision that has long become final
and executory. There would be no end to litigation if parties who have
unsuccessfully availed of any of the appropriate remedies or lost them
through their fault could still bring an action for annulment of
judgment.[35] Nevertheless, we shall discuss the issues raised in the present
petition to clear any doubt about the correctness of the decision of the trial
court.
Mrs. Cerezos Liability and the
Trial Courts Acquisition of Jurisdiction
Mrs. Cerezo contends that the basis of the present petition for
annulment is lack of jurisdiction. Mrs. Cerezo asserts that the trial court could
not validly render judgment since it failed to acquire jurisdiction over
Foronda. Mrs. Cerezo points out that there was no service of summons on
Foronda. Moreover, Tuazon failed to reserve his right to institute a separate
civil action for damages in the criminal action. Such contention betrays a
faulty foundation. Mrs. Cerezos contention proceeds from the point of view
of criminal law and not of civil law, while the basis of the present action of
Tuazon is quasi-delict under the Civil Code, not delict under the Revised
Penal Code.
The same negligent act may produce civil liability arising from a delict
under Article 103 of the Revised Penal Code, or may give rise to an action
for a quasi-delict under Article 2180 of the Civil Code. An aggrieved party
8
may choose between the two remedies. An action based on a quasi-delict
may proceed independently from the criminal action.[36] There is, however, a
distinction between civil liability arising from a delict and civil liability arising
from a quasi-delict. The choice of remedy, whether to sue for a delict or a
quasi-delict, affects the procedural and jurisdictional issues of the action. [37]
Tuazon chose to file an action for damages based on a quasi-delict. In
his complaint, Tuazon alleged that Mrs. Cerezo, without exercising due care
and diligence in the supervision and management of her employees and
buses, hired Foronda as her driver. Tuazon became disabled because of
Forondas recklessness, gross negligence and imprudence, aggravated by
Mrs. Cerezos lack of due care and diligence in the selection and supervision
of her employees, particularly Foronda.[38]
The trial court thus found Mrs. Cerezo liable under Article 2180 of the
Civil Code. Article 2180 states in part:
Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even
though the former are not engaged in any business or industry.
Contrary to Mrs. Cerezos assertion, Foronda is not an indispensable
party to the case. An indispensable party is one whose interest is affected
by the courts action in the litigation, and without whom no final resolution of
the case is possible.[39] However, Mrs. Cerezos liability as an employer in an
action for a quasi-delict is not only solidary, it is also primary and
direct.Foronda is not an indispensable party to the final resolution of
Tuazons action for damages against Mrs. Cerezo.
The responsibility of two or more persons who are liable for a quasi-
delict is solidary.[40] Where there is a solidary obligation on the part of
debtors, as in this case, each debtor is liable for the entire obligation. Hence,
each debtor is liable to pay for the entire obligation in full. There is no merger
or renunciation of rights, but only mutual representation. [41] Where the
obligation of the parties is solidary, either of the parties is indispensable, and
the other is not even a necessary party because complete relief is available
from either.[42] Therefore, jurisdiction over Foronda is not even necessary as
Tuazon may collect damages from Mrs. Cerezo alone.
Moreover, an employers liability based on a quasi-delict is primary and
direct, while the employers liability based on a delict is merely
subsidiary.[43] The words primary and direct, as contrasted with subsidiary,
refer to the remedy provided by law for enforcing the obligation rather than
to the character and limits of the obligation.[44] Although liability under Article
2180 originates from the negligent act of the employee, the aggrieved party
may sue the employer directly. When an employee causes damage, the law
presumes that the employer has himself committed an act of negligence in
not preventing or avoiding the damage. This is the fault that the law
condemns. While the employer is civilly liable in a subsidiary capacity for the
employees criminal negligence, the employer is also civilly liable directly and
separately for his own civil negligence in failing to exercise due diligence in
selecting and supervising his employee. The idea that the employers liability
is solely subsidiary is wrong.[45]
The action can be brought directly against the person responsible (for
another), without including the author of the act. The action against the
principal is accessory in the sense that it implies the existence of a
prejudicial act committed by the employee, but it is not subsidiary in the
sense that it can not be instituted till after the judgment against the author
of the act or at least, that it is subsidiary to the principal action; the action
for responsibility (of the employer) is in itself a principal action. [46]
Thus, there is no need in this case for the trial court to acquire
jurisdiction over Foronda. The trial courts acquisition of jurisdiction over Mrs.
Cerezo is sufficient to dispose of the present case on the merits.
In contrast, an action based on a delict seeks to enforce the subsidiary
liability of the employer for the criminal negligence of the employee as
provided in Article 103 of the Revised Penal Code. To hold the employer
liable in a subsidiary capacity under a delict, the aggrieved party must initiate
a criminal action where the employees delict and corresponding primary
liability are established.[47] If the present action proceeds from a delict, then
the trial courts jurisdiction over Foronda is necessary. However, the present
action is clearly for the quasi-delict of Mrs. Cerezo and not for the delict of
Foronda.
The Cerezo spouses contention that summons be served anew on
them is untenable in light of their participation in the trial court
proceedings. To uphold the Cerezo spouses contention would make a fetish
of a technicality.[48] Moreover, any irregularity in the service of summons that
might have vitiated the trial courts jurisdiction over the persons of the Cerezo
spouses was deemed waived when the Cerezo spouses filed a petition for
relief from judgment.[49]
We hold that the trial court had jurisdiction and was competent to decide
the case in favor of Tuazon and against Mrs. Cerezo even in the absence of
Foronda. Contrary to Mrs. Cerezos contention, Foronda is not an
indispensable party to the present case. It is not even necessary for Tuazon
to reserve the filing of a separate civil action because he opted to file a civil
9
action for damages against Mrs. Cerezo who is primarily and directly liable
for her own civil negligence. The words of Justice Jorge Bocobo in Barredo
v. Garcia still hold true today as much as it did in 1942:

x x x [T]o hold that there is only one way to make defendants liability
effective, and that is, to sue the driver and exhaust his (the latters) property
first, would be tantamount to compelling the plaintiff to follow a devious and
cumbersome method of obtaining relief. True, there is such a remedy
under our laws, but there is also a more expeditious way, which is based
on the primary and direct responsibility of the defendant under article
[2180] of the Civil Code. Our view of the law is more likely to facilitate
remedy for civil wrongs, because the procedure indicated by the defendant
is wasteful and productive of delay, it being a matter of common knowledge
that professional drivers of taxis and other similar public conveyances do
not have sufficient means with which to pay damages. Why, then, should
the plaintiff be required in all cases to go through this roundabout,
unnecessary, and probably useless procedure? In construing the laws,
courts have endeavored to shorten and facilitate the pathways of right and
justice.[50]

Interest at the rate of 6% per annum is due on the amount of damages

adjudged by the trial court.[51] The 6% per annum interest shall commence
from 30 May 1995, the date of the decision of the trial court. Upon finality of
this decision, interest at 12% per annum, in lieu of 6% per annum, is due on
the amount of damages adjudged by the trial court until full payment.
WHEREFORE, we DENY the instant petition for review. The
Resolution dated 21 October 1999 of the Court of Appeals in CA-G.R. SP
No. 53572, as well as its Resolution dated 20 January 2000 denying the
motion for reconsideration, is AFFIRMED with the MODIFICATION that the
amount due shall earn legal interest at 6% per annum computed from 30
May 1995, the date of the trial courts decision. Upon finality of this decision,
the amount due shall earn interest at 12% per annum, in lieu of 6% per
annum, until full payment.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, and Azcuna,
JJ., concur.
Panganiban, J., on official leave.

10

G.R. No. 168979 December 2, 2013
REBECCA PACAÑA-CONTRERAS and ROSALIE
PACAÑA, Petitioners,
vs.
ROVILA WATER SUPPLY, INC., EARL U KOKSENG, LILIA TORRES,
DALLA P. ROMANILLOS and MARISSA GABUYA, Respondents.
DECISION
BRION, J.:
Before the Court is a petition for review on certiorari1 under Rule 4 of the
Rules of Court seeking the reversal of the decision2 dated January 27,
2005 and the resolution3 dated June 6, 2005 of the Courts of Appeals (CA)
in CA-G.R. SP No. 71551. The CA set aside the orders dated February 28,
20024 and April 1, 20025 of the Regional Trial Court (RTC), Branch 8, Cebu
City, which denied the motion to dismiss for reconsideration respectively, of
respondents Rovila Water Supply, Inc. (Rovilla, Inc.), Earl U. Kokseng,
Lialia Torres, Dalla P. Romanillos and Marissa Gabuya.
THE FACTUAL ANTECEDENTS
Petitioners Rebecca Pacaña-Contreras and Rosalie Pacaña, children of
Lourdes Teves Pacaña and Luciano Pacaña, filed the present case against
Rovila Inc., Earl, Lilia, Dalla and Marisa for accounting and damages. 6
The petitioners claimed that their family has long been known in the
community to be engaged in the water supply business; they operated the
"Rovila Water Supply" from their family residence and were engaged in the
distribution of water to customers in Cebu City. The petitioners alleged that
Lilia was a former trusted employee in the family business who hid
business records and burned and ransacked the family files. Lilia also
allegedly posted security guards and barred the members of the Pacaña
family from operating their business. She then claimed ownership over the
family business through a corporation named "Rovila Water Supply, Inc."
(Rovila Inc.) Upon inquiry with the Securities and Exchange Commission
(SEC), the petitioners claimed that Rovila Inc. was surreptitiously formed
with the respondents as the majority stockholders. The respondents did so
by conspiring with one another and forming the respondent corporation to
takeover and illegally usurp the family business’ registered name.7
In forming the respondent corporation, the respondents allegedly used the
name of Lourdes as one of the incorporators and made it appear in the
SEC documents that the family business was operated in a place other
than the Pacaña residence. Thereafter, the respondents used the Pacaña
family’s receipts and the deliveries and sales were made to appear as
those of the respondent Rovila Inc. Using this scheme, the respondents
fraudulently appropriated the collections and payments. 8
The petitioners filed the complaint in their own names although Rosalie
was authorized by Lourdes through a sworn declaration and special power
of attorney (SPA). The respondents filed a first motion to dismiss on the
ground that the RTC had no jurisdiction over an intra-corporate
controversy.9
The RTC denied the motion. On September 26, 2000, Lourdes died10 and
the petitioners amended their complaint, with leave of court, on October 2,
2000 to reflect this development.11
They still attached to their amended complaint the sworn declaration with
SPA, but the caption of the amended complaint remained the same.12
On October 10, 2000, Luciano also died.13
The respondents filed their Answer on November 16, 2000.14
The petitioners’ sister, Lagrimas Pacaña-Gonzales, filed a motion for leave
to intervene and her answer-in-intervention was granted by the trial court.
At the subsequent pre-trial, the respondents manifested to the RTC that a
substitution of the parties was necessary in light of the deaths of Lourdes
and Luciano. They further stated that they would seek the dismissal of the
complaint because the petitioners are not the real parties in interest to
prosecute the case. The pre-trial pushed through as scheduled and the
RTC directed the respondents to put into writing their earlier manifestation.
The RTC issued a pre-trial order where one of the issues submitted was
whether the complaint should be dismissed for failure to comply with
Section 2, Rule 3 of the Rules of Court which requires that every action
must be prosecuted in the name of the real party in interest.15
11
On January 23, 2002,16 the respondents again filed a motion to dismiss on
the grounds, among others, that the petitioners are not the real parties in
interest to institute and prosecute the case and that they have no valid
cause of action against the respondents.
THE RTC RULING
The RTC denied the respondents’ motion to dismiss. It ruled that, save for
the grounds for dismissal which may be raised at any stage of the
proceedings, a motion to dismiss based on the grounds invoked by the
respondents may only be filed within the time for, but before, the filing of
their answer to the amended complaint. Thus, even granting that the
defenses invoked by the respondents are meritorious, their motion was
filed out of time as it was filed only after the conclusion of the pre-trial
conference. Furthermore, the rule on substitution of parties only applies
when the parties to the case die, which is not what happened in the
present case.17
The RTC likewise denied the respondents’ motion for reconsideration.18
The respondents filed a petition for certiorari under Rule 65 of the Rules of
Court with the CA, invoking grave abuse of discretion in the denial of their
motion to dismiss. They argued that the deceased spouses Luciano and
Lourdes, not the petitioners, were the real parties in interest. Thus, the
petitioners violated Section 16, Rule 3 of the Rules of Court on the
substitution of parties.19
Furthermore, they seasonably moved for the dismissal of the case20 and
the RTC never acquired jurisdiction over the persons of the petitioners as
heirs of Lourdes and Luciano.21
THE CA RULING
The CA granted the petition and ruled that the RTC committed grave abuse
of discretion as the petitioners filed the complaint and the amended
complaint as attorneys-in-fact of their parents. As such, they are not the
real parties in interest and cannot bring an action in their own names; thus,
the complaint should be dismissed22 pursuant to the Court’s ruling in
Casimiro v. Roque and Gonzales.23
Neither are the petitioners suing as heirs of their deceased
parents.1awp++i1 Pursuant to jurisprudence,24 the petitioners should first
be declared as heirs before they can be considered as the real parties in
interest. This cannot be done in the present ordinary civil case but in a
special proceeding for that purpose. The CA agreed with the respondents
that they alleged the following issues as affirmative defenses in their
answer: 1) the petitioners are not the real parties in interest; and 2) that
they had no legal right to institute the action in behalf of their parents. 25
That the motion to dismiss was filed after the period to file an answer has
lapsed is of no moment. The RTC judge entertained it and passed upon its
merit. He was correct in doing so because in the pre-trial order, one of the
submitted issues was whether the case must be dismissed for failure to
comply with the requirements of the Rules of Court. Furthermore, in
Dabuco v. Court of Appeals,26 the Court held that the ground of lack of
cause of action may be raised in a motion to dismiss at anytime.27
The CA further ruled that, in denying the motion to dismiss, the RTC judge
acted contrary to established rules and jurisprudence which may be
questioned via a petition for certiorari. The phrase "grave abuse of
discretion" which was traditionally confined to "capricious and whimsical
exercise of judgment" has been expanded to include any action done
"contrary to the Constitution, the law or jurisprudence[.]"28
THE PARTIES’ ARGUMENTS
The petitioners filed the present petition and argued that, first, in annulling
the interlocutory orders, the CA unjustly allowed the motion to dismiss
which did not conform to the rules.29
Specifically, the motion was not filed within the time for, but before the filing
of, the answer to the amended complaint, nor were the grounds raised in
the answer. Citing Section 1, Rule 9 of the Rules of Court, the respondents
are deemed to have waived these grounds, as correctly held by the RTC. 30
Second, even if there is non-joinder and misjoinder of parties or that the
suit is not brought in the name of the real party in interest, the remedy is
not outright dismissal of the complaint, but its amendment to include the
real parties in interest.31
Third, the petitioners sued in their own right because they have actual and
substantial interest in the subject matter of the action as heirs or co-
owners, pursuant to Section 2, Rule 3 of the Rules of Court.32
12
Their declaration as heirs in a special proceeding is not necessary,
pursuant to the Court’s ruling in Marabilles, et al. v. Quito. 33
Finally, the sworn declaration is evidentiary in nature which remains to be
appreciated after the trial is completed.34
The respondents reiterated in their comment that the petitioners are not the
real parties in interest.35
They likewise argued that they moved for the dismissal of the case during
the pre-trial conference due to the petitioners’ procedural lapse in refusing
to comply with a condition precedent, which is, to substitute the heirs as
plaintiffs. Besides, an administrator of the estates of Luciano and Lourdes
has already been appointed.36
The respondents also argued that the grounds invoked in their motion to
dismiss were timely raised, pursuant to Section 2, paragraphs g and i, Rule
18 of the Rules of Court. Specifically, the nature and purposes of the pre-
trial include, among others, the dismissal of the action, should a valid
ground therefor be found to exist; and such other matters as may aid in the
prompt disposition of the action. Finally, the special civil action of certiorari
was the proper remedy in assailing the order of the RTC.37
THE COURT’S RULING
We find the petition meritorious.
Petition for certiorari under Rule 65 is a proper remedy for a denial of a
motion to dismiss attended by grave abuse of discretion
In Barrazona v. RTC, Branch 61, Baguio City,38 the Court held that while
an order denying a motion to dismiss is interlocutory and non-appealable,
certiorari and prohibition are proper remedies to address an order of denial
made without or in excess of jurisdiction. The writ of certiorari is granted to
keep an inferior court within the bounds of its jurisdiction or to prevent it
from committing grave abuse of discretion amounting to lack or excess of
jurisdiction.
The history and development of the ground "fails to state a cause of action"
in the 1940, 1964 and the present 1997 Rules of Court Preliminarily, a suit
that is not brought in the name of the real party in interest is dismissible on
the ground that the complaint "fails to state a cause of action."39
Pursuant to jurisprudence,40 this is also the ground invoked when the
respondents alleged that the petitioners are not the real parties in interest
because: 1) the petitioners should not have filed the case in their own
names, being merely attorneys-in-fact of their mother; and 2) the
petitioners should first be declared as heirs. A review of the 1940, 1964
and the present 1997 Rules of Court shows that the fundamentals of the
ground for dismissal based on "failure to state a cause of action" have
drastically changed over time. A historical background of this particular
ground is in order to preclude any confusion or misapplication of
jurisprudence decided prior to the effectivity of the present Rules of Court.
The 1940 Rules of Court provides under Section 10, Rule 9 that:
Section 10. Waiver of defenses- Defenses and objections not pleaded
either in a motion to dismiss or in the answer are deemed waived; except
the defense of failure to state a cause of action, which may be alleged in a
later pleading, if one is permitted, or by motion for judgment on the
pleadings, or at the trial on the merits; but in the last instance, the motion
shall be disposed of as provided in section 5 of Rule 17 in the light of any
evidence which may have been received. Whenever it appears that the
court has no jurisdiction over the subject-matter, it shall dismiss the action.
[underscoring supplied]
This provision was essentially reproduced in Section 2, Rule 9 of the 1964
Rules of Court, and we quote:
Section 2. Defenses and objections not pleaded deemed waived. —
Defenses and objections not pleaded either in a motion to dismiss or in the
answer are deemed waived; except the failure to state a cause of action
which may be alleged in a later pleading, if one is permitted, or by motion
for judgment on the pleadings, or at the trial on the merits; but in the last
instance, the motion shall be disposed of as provided in section 5 of Rule
10 in the light of any evidence which may have been received. Whenever it
appears that the court has no jurisdiction over the subject-matter, it shall
dismiss the action. [underscoring supplied]
Under the present Rules of Court, this provision was reflected in Section 1,
Rule 9, and we quote:
Section 1. Defenses and objections not pleaded. — Defenses and
objections not pleaded either in a motion to dismiss or in the answer are
deemed waived. However, when it appears from the pleadings or the
evidence on record that the court has no jurisdiction over the subject
matter, that there is another action pending between the same parties for
13
the same cause, or that the action is barred by a prior judgment or by
statute of limitations, the court shall dismiss the claim. [underscoring
supplied]
Notably, in the present rules, there was a deletion of the ground of "failure
to state a cause of action" from the list of those which may be waived if not
invoked either in a motion to dismiss or in the answer. Another novelty
introduced by the present Rules, which was totally absent in its two
precedents, is the addition of the period of time within which a motion to
dismiss should be filed as provided under Section 1, Rule 16 and we
quote:
Section 1. Grounds. — Within the time for but before filing the answer to
the complaint or pleading asserting a claim, a motion to dismiss may be
made on any of the following grounds: xxx [underscoring supplied]
All these considerations point to the legal reality that the new Rules
effectively restricted the dismissal of complaints in general, especially
when what is being invoked is the ground of "failure to state a cause of
action." Thus, jurisprudence governed by the 1940 and 1964 Rules of
Court to the effect that the ground for dismissal based on failure to state a
cause of action may be raised anytime during the proceedings, is already
inapplicable to cases already governed by the present Rules of Court
which took effect on July 1, 1997. As the rule now stands, the failure to
invoke this ground in a motion to dismiss or in the answer would result in
its waiver. According to Oscar M. Herrera,41 the reason for the deletion is
that failure to state a cause of action may be cured under Section 5, Rule
10 and we quote:
Section 5. Amendment to conform to or authorize presentation of evidence.
— When issues not raised by the pleadings are tried with the express or
implied consent of the parties they shall be treated in all respects as if they
had been raised in the pleadings. Such amendment of the pleadings as
may be necessary to cause them to conform to the evidence and to raise
these issues may be made upon motion of any party at any time, even
after judgment; but failure to amend does not effect the result of the trial of
these issues. If evidence is objected to at the trial on the ground that it is
not within the issues made by the pleadings, the court may allow the
pleadings to be amended and shall do so with liberality if the presentation
of the merits of the action and the ends of substantial justice will be
subserved thereby. The court may grant a continuance to enable the
amendment to be made.
With this clarification, we now proceed to the substantial issues of the
petition.1âwphi1
The motion to dismiss in the present case based on failure to state a cause
of action was not timely filed and was thus waived
Applying Rule 16 of the Rules of Court which provides for the grounds for
the dismissal of a civil case, the respondents’ grounds for dismissal fall
under Section 1(g) and (j), Rule 16 of the Rules of Court, particularly,
failure to state a cause of action and failure to comply with a condition
precedent (substitution of parties), respectively. The first paragraph of
Section 1,42
Rule 16 of the Rules of Court provides for the period within which to file a
motion to dismiss under the grounds enumerated. Specifically, the motion
should be filed within the time for, but before the filing of, the answer to the
complaint or pleading asserting a claim. Equally important to this provision
is Section 1,43
Rule 9 of the Rules of Court which states that defenses and objections not
pleaded either in a motion to dismiss or in the answer are deemed waived,
except for the following grounds: 1) the court has no jurisdiction over the
subject matter; 2) litis pendencia; 3) res judicata; and 4) prescription.
Therefore, the grounds not falling under these four exceptions may be
considered as waived in the event that they are not timely invoked. As the
respondents’ motion to dismiss was based on the grounds which should be
timely invoked, material to the resolution of this case is the period within
which they were raised. Both the RTC and the CA found that the motion to
dismiss was only filed after the filing of the answer and after the pre-trial
had been concluded. Because there was no motion to dismiss before the
filing of the answer, the respondents should then have at least raised these
grounds as affirmative defenses in their answer. The RTC’s assailed
orders did not touch on this particular issue but the CA ruled that the
respondents did, while the petitioners insist that the respondents did not. In
the present petition, the petitioners reiterate that there was a blatant non-
observance of the rules when the respondents did not amend their answer
to invoke the grounds for dismissal which were raised only during the pre-
trial and, subsequently, in the subject motion to dismiss.44
The divergent findings of the CA and the petitioners’ arguments are
essentially factual issues. Time and again, we have held that the
jurisdiction of the Court in a petition for review on certiorari under Rule 45,
such as the present case, is limited only to questions of law, save for
14
certain exceptions. One of these is attendant herein, which is, when the
findings are conclusions without citation of specific evidence on which they
are based.45
In the petition filed with the CA, the respondents made a passing allegation
that, as affirmative defenses in their answer, they raised the issue that the
petitioners are not the real parties in interest.46
On the other hand, the petitioners consistently argued otherwise in their
opposition47 to the motion to dismiss, and in their comment48 and in their
memorandum49 on the respondents’ petition before the CA. Our
examination of the records shows that the CA had no basis in its finding
that the respondents alleged the grounds as affirmative defenses in their
answer. The respondents merely stated in their petition for certiorari that
they alleged the subject grounds in their answer. However, nowhere in the
petition did they support this allegation; they did not even attach a copy of
their answer to the petition. It is basic that the respondents had the duty to
prove by substantial evidence their positive assertions. Considering that
the petition for certiorari is an original and not an appellate action, the CA
had no records of the RTC’s proceedings upon which the CA could refer to
in order to validate the respondents’ claim. Clearly, other than the
respondents’ bare allegations, the CA had no basis to rule, without proof,
that the respondents alleged the grounds for dismissal as affirmative
defenses in the answer. The respondents, as the parties with the burden of
proving that they timely raised their grounds for dismissal, could have at
least attached a copy of their answer to the petition. This simple task they
failed to do. That the respondents did not allege in their answer the subject
grounds is made more apparent through their argument, both in their
motion to dismiss50 and in their comment,51 that it was only during the pre-
trial stage that they verbally manifested and invited the attention of the
lower court on their grounds for dismissal. In order to justify such late
invocation, they heavily relied on Section 2(g) and (i), Rule 1852 of the
Rules of Court that the nature and purpose of the pre-trial include, among
others, the propriety of dismissing the action should there be a valid ground
therefor and matters which may aid in the prompt disposition of the action.
The respondents are not correct. The rules are clear and require no
interpretation. Pursuant to Section 1, Rule 9 of the Rules of Court, a motion
to dismiss based on the grounds invoked by the respondents may be
waived if not raised in a motion to dismiss or alleged in their answer. On
the other hand, "the pre-trial is primarily intended to make certain that all
issues necessary to the disposition of a case are properly raised. The
purpose is to obviate the element of surprise, hence, the parties are
expected to disclose at the pre-trial conference all issues of law and fact
which they intend to raise at the trial, except such as may involve privileged
or impeaching matter."53
The issues submitted during the pre-trial are thus the issues that would
govern the trial proper. The dismissal of the case based on the grounds
invoked by the respondents are specifically covered by Rule 16 and Rule 9
of the Rules of Court which set a period when they should be raised;
otherwise, they are deemed waived.
The Dabuco ruling is inapplicable in the present case; the ground for
dismissal "failure to state a cause of action" distinguished from "lack of
cause of action"
To justify the belated filing of the motion to dismiss, the CA reasoned out
that the ground for dismissal of "lack of cause of action" may be raised at
any time during the proceedings, pursuant to Dabuco v. Court of Appeals.54
This is an erroneous interpretation and application of Dabuco as will be
explained below.
First, in Dabuco, the grounds for dismissal were raised as affirmative
defenses in the answer which is in stark contrast to the present case.
Second, in Dabuco, the Court distinguished between the dismissal of the
complaint for "failure to state a cause of action" and "lack of cause of
action." The Court emphasized that in a dismissal of action for lack of
cause of action, "questions of fact are involved, [therefore,] courts hesitate
to declare a plaintiff as lacking in cause of action. Such declaration is
postponed until the insufficiency of cause is apparent from a
preponderance of evidence.
Usually, this is done only after the parties have been given the opportunity
to present all relevant evidence on such questions of fact."55
In fact, in Dabuco, the Court held that even the preliminary hearing on the
propriety of lifting the restraining order was declared insufficient for
purposes of dismissing the complaint for lack of cause of action. This is so
because the issues of fact had not yet been adequately ventilated at that
preliminary stage. For these reasons, the Court declared in Dabuco that
the dismissal by the trial court of the complaint was premature. In the case
of Macaslang v. Zamora,56 the Court noted that the incorrect appreciation
by both the RTC and the CA of the distinction between the dismissal of an
15
action, based on "failure to state a cause of action" and "lack of cause of
action," prevented it from properly deciding the case, and we quote:
Failure to state a cause of action and lack of cause of action are really
different from each other. On the one hand, failure to state a cause of
action refers to the insufficiency of the pleading, and is a ground for
dismissal under Rule 16 of the Rules of Court. On the other hand, lack of
cause [of] action refers to a situation where the evidence does not prove
the cause of action alleged in the pleading. Justice Regalado, a recognized
commentator on remedial law, has explained the distinction: xxx What is
contemplated, therefore, is a failure to state a cause of action which is
provided in Sec. 1(g) of Rule 16. This is a matter of insufficiency of the
pleading. Sec. 5 of Rule 10, which was also included as the last mode for
raising the issue to the court, refers to the situation where the evidence
does not prove a cause of action. This is, therefore, a matter of
insufficiency of evidence. Failure to state a cause of action is different from
failure to prove a cause of action. The remedy in the first is to move for
dismissal of the pleading, while the remedy in the second is to demur to the
evidence, hence reference to Sec. 5 of Rule 10 has been eliminated in this
section. The procedure would consequently be to require the pleading to
state a cause of action, by timely objection to its deficiency; or, at the trial,
to file a demurrer to evidence, if such motion is warranted. [italics supplied]
Based on this discussion, the Court cannot uphold the dismissal of the
present case based on the grounds invoked by the respondents which they
have waived for failure to invoke them within the period prescribed by the
Rules. The Court cannot also dismiss the case based on "lack of cause of
action" as this would require at least a preponderance of evidence which is
yet to be appreciated by the trial court. Therefore, the RTC did not commit
grave abuse of discretion in issuing the assailed orders denying the
respondents’ motion to dismiss and motion for reconsideration. The Court
shall not resolve the merits of the respondents’ grounds for dismissal which
are considered as waived.
Other heirs of the spouses Pacaña to be impleaded in the case.
It should be emphasized that insofar as the petitioners are concerned, the
respondents have waived the dismissal of the complaint based on the
ground of failure to state a cause of action because the petitioners are not
the real parties in interest. At this juncture, a distinction between a real
party in interest and an indispensable party is in order. In Carandang v.
Heirs of de Guzman, et al.,57 the Court clarified these two concepts and
held that "[a] real party in interest is the party who stands to be benefited or
injured by the judgment of the suit, or the party entitled to the avails of the
suit. On the other hand, an indispensable party is a party in interest without
whom no final determination can be had of an action, in contrast to a
necessary party, which is one who is not indispensable but who ought to
be joined as a party if complete relief is to be accorded as to those already
parties, or for a complete determination or settlement of the claim subject
of the action. xxx If a suit is not brought in the name of or against the real
party in interest, a motion to dismiss may be filed on the ground that the
complaint states no cause of action. However, the dismissal on this ground
entails an examination of whether the parties presently pleaded are
interested in the outcome of the litigation, and not whether all persons
interested in such outcome are actually pleaded. The latter query is
relevant in discussions concerning indispensable and necessary parties,
but not in discussions concerning real parties in interest. Both
indispensable and necessary parties are considered as real parties in
interest, since both classes of parties stand to be benefited or injured by
the judgment of the suit."
At the inception of the present case, both the spouses Pacaña were not
impleaded as parties-plaintiffs. The Court notes, however, that they are
indispensable parties to the case as the alleged owners of Rovila Water
Supply. Without their inclusion as parties, there can be no final
determination of the present case. They possess such an interest in the
controversy that a final decree would necessarily affect their rights, so that
the courts cannot proceed without their presence. Their interest in the
subject matter of the suit and in the relief sought is inextricably intertwined
with that of the other parties.58
Jurisprudence on the procedural consequence of the inclusion or non-
inclusion of an indispensable party is divided in our jurisdiction. Due to the
non-inclusion of indispensable parties, the Court dismissed the case in
Lucman v. Malawi, et al.59 and Go v. Distinction Properties Development
Construction, Inc.,60 while in Casals, et al. v. Tayud Golf and Country Club
et al.,61 the Court annulled the judgment which was rendered without the
inclusion of the indispensable parties. In Arcelona et al. v. Court of
Appeals62 and Bulawan v. Aquende,63 and Metropolitan Bank & Trust
Company v. Alejo et al.64 the Court ruled that the burden to implead or
order the impleading of an indispensable party rests on the plaintiff and on
the trial court, respectively. Thus, the non-inclusion of the indispensable
parties, despite notice of this infirmity, resulted in the annulment of these
cases. In Plasabas, et al. v. Court of Appeals, et al.,65 the Court held that
the trial court and the CA committed reversible error when they summarily
dismissed the case, after both parties had rested their cases following a
16
protracted trial, on the sole ground of failure to implead indispensable
parties. Non-joinder of indispensable parties is not a ground for the
dismissal of an action. The remedy is to implead the non-party claimed to
be indispensable. However, in the cases of Quilatan, et al. v. Heirs of
Quilatan, et al.66 and Lagunilla, et al. v. Monis, et al.,67 the Court remanded
the case to the RTC for the impleading of indispensable parties. On the
other hand, in Lotte Phil. Co., Inc. v. Dela Cruz,68PepsiCo, Inc. v. Emerald
Pizza, 69 and Valdez Tallorin, v. Heirs of Tarona, et al., 70 the Court directly
ordered that the indispensable parties be impleaded. Mindful of the
differing views of the Court as regards the legal effects of the non-inclusion
of indispensable parties, the Court clarified in Republic of the Philippines v.
Sandiganbayan, et al.,71that the failure to implead indispensable parties is
a curable error and the foreign origin of our present rules on indispensable
parties permitted this corrective measure. This cited case held:
Even in those cases where it might reasonably be argued that the failure of
the Government to implead the sequestered corporations as defendants is
indeed a procedural aberration xxx, slight reflection would nevertheless
lead to the conclusion that the defect is not fatal, but one correctible under
applicable adjective rules – e.g., Section 10, Rule 5 of the Rules of Court
[specifying the remedy of amendment during trial to authorize or to conform
to the evidence]; Section 1, Rule 20 [governing amendments before trial],
in relation to the rule respecting omission of so-called necessary or
indispensable parties, set out in Section 11, Rule 3 of the Rules of Court. It
is relevant in this context to advert to the old familiar doctrines that the
omission to implead such parties "is a mere technical defect which can be
cured at any stage of the proceedings even after judgment"; and that,
particularly in the case of indispensable parties, since their presence and
participation is essential to the very life of the action, for without them no
judgment may be rendered, amendments of the complaint in order to
implead them should be freely allowed, even on appeal, in fact even after
rendition of judgment by this Court, where it appears that the complaint
otherwise indicates their identity and character as such indispensable
parties." Although there are decided cases wherein the non-joinder of
indispensable parties in fact led to the dismissal of the suit or the
annulment of judgment, such cases do not jibe with the matter at hand.
The better view is that non-joinder is not a ground to dismiss the suit or
annul the judgment. The rule on joinder of indispensable parties is founded
on equity. And the spirit of the law is reflected in Section 11, Rule 3 of the
1997 Rules of Civil Procedure. It prohibits the dismissal of a suit on the
ground of non-joinder or misjoinder of parties and allows the amendment of
the complaint at any stage of the proceedings, through motion or on order
of the court on its own initiative. Likewise, jurisprudence on the Federal
Rules of Procedure, from which our Section 7, Rule 3 on indispensable
parties was copied, allows the joinder of indispensable parties even after
judgment has been entered if such is needed to afford the moving party full
relief. Mere delay in filing the joinder motion does not necessarily result in
the waiver of the right as long as the delay is excusable.
In Galicia, et al. v. Vda. De Mindo, et al.,72 the Court ruled that in line with
its policy of promoting a just and inexpensive disposition of a case, it
allowed the intervention of the indispensable parties instead of dismissing
the complaint. Furthermore, in Commissioner Domingo v. Scheer,73 the
Court cited Salvador, et al. v. Court of Appeals, et al.74 and held that the
Court has full powers, apart from that power and authority which are
inherent, to amend the processes, pleadings, proceedings and decisions
by substituting as party-plaintiff the real party in interest. The Court has the
power to avoid delay in the disposition of this case, and to order its
amendment in order to implead an indispensable party. With these
discussions as premises, the Court is of the view that the proper remedy in
the present case is to implead the indispensable parties especially when
their non-inclusion is merely a technical defect. To do so would serve
proper administration of justice and prevent further delay and multiplicity of
suits. Pursuant to Section 9, Rule 3 of the Rules of Court, parties may be
added by order of the court on motion of the party or on its own initiative at
any stage of the action. If the plaintiff refuses to implead an indispensable
party despite the order of the court, then the court may dismiss the
complaint for the plaintiff’s failure to comply with a lawful court order. 75
The operative act that would lead to the dismissal of the case would be the
refusal to comply with the directive of the court for the joinder of an
indispensable party to the case.76
Obviously, in the present case, the deceased Pacañas can no longer be
included in the complaint as indispensable parties because of their death
during the pendency of the case. Upon their death, however, their
ownership and rights over their properties were transmitted to their heirs,
including herein petitioners, pursuant to Article 77477 in relation with Article
77778 of the Civil Code.
In Orbeta, et al. v. Sendiong,79 the Court acknowledged that the heirs,
whose hereditary rights are to be affected by the case, are deemed
indispensable parties who should have been impleaded by the trial court.
Therefore, to obviate further delay in the proceedings of the present case
and given the Court’s authority to order the inclusion of an indispensable
party at any stage of the proceedings, the heirs of the spouses Pacaña,
except the petirioners who are already parties to the case are Lagrimas
17
Pacaña-Gonzalez who intervened in the case, are hereby ordered
impleaded as parties-plaintiffs.

WHEREFORE, the petition is GRANTED. The decision dated January 27,

2005 and the resolution date June 6, 2005 of the Court of Appeals in CA-
G.R. SP No. 71551 are REVERSED and SET ASIDE. The heirs of the
spouses Luciano and Lourdes Pacaña, except herein petitioner and
Lagrimas Pacaña-Gonzalez, are ORDERED IMPLEADED as parties
plaintiffs and the RTC is directed tp proceed with the trial of the case with
DISPATCH.

SO ORDERED.

ARTURO D. BRION
Associate Justice

18
G.R. No. 174353 September 10, 2014
NESTOR CHING and ANDREW WELLINGTON, Petitioners,
vs.
SUBIC BAY GOLF AND COUNTRY CLUB, INC., HU HO HSIU LIEN
alias SUSAN HU, HU TSUNG CHIEH alias JACK HU, HU TSUNG HUI,
HU TSUNG TZU and REYNALD R. SUAREZ, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court seeking the review of the Decision1dated October 27, 2005 of the
Court of Appeals in CA-G.R. CV No. 81441, which affirmed the
Order2 dated July 8, 2003 of the Regional Trial Court (RTC), Branch 72 of
Olongapo City in Civil Case No. 03-001 dismissing the Complaint filed by
herein petitioners.
On February 26, 2003, petitioners Nestor Ching and Andrew Wellington
filed a Complaint3 with the RTC of Olongapo City on behalf of the members
of Subic Bay Golf and Country Club, Inc. (SBGCCI) against the said
country club and its Board of Directors and officers under the provisions of
Presidential Decree No. 902-A in relation to Section 5.2 of the Securities
Regulation Code. The Subic Bay Golfers and Shareholders Incorporated
(SBGSI), a corporation composed of shareholders of the defendant
corporation, was also named as plaintiff. The officers impleaded as
defendants were the following: (1) itsPresident, Hu Ho Hsiu Lien alias
Susan Hu; (2) its treasurer, Hu Tsung Chieh alias Jack Hu; (3) corporate
secretary Reynald Suarez; and (4) directors Hu Tsung Hui and Hu Tsung
Tzu. The case was docketed as Civil Case No. 03-001. The complaint
alleged that the defendant corporation sold shares to plaintiffs at
US$22,000.00 per share, presenting to them the Articles of Incorporation
which contained the following provision:
No profit shall inure to the exclusive benefit of any of its shareholders,
hence, no dividends shall be declared in their favor. Shareholders shall be
entitled only to a pro-rata share of the assets of the Club at the time of its
dissolution or liquidation.4
However, on June 27, 1996, an amendment to the Articles of Incorporation
was approved by the Securities and Exchange Commission (SEC),
wherein the above provision was changed as follows:
No profit shall inure to the exclusive benefit of any of its shareholders,
hence, no dividends shall be declared in their favor. In accordance with the
Lease and Development Agreement by and between Subic Bay
Metropolitan Authority and The Universal International Group of Taiwan,
where the golf courseand clubhouse component thereof was assigned to
the Club, the shareholders shall not have proprietary rights or interests
over the properties of the Club.5x x x. (Emphasis supplied.)
Petitioners claimed in the Complaint that defendant corporation did not
disclose to them the above amendment which allegedly makes the shares
non-proprietary, as it takes away the rightof the shareholders to participate
in the pro-rata distribution of the assets of the corporation after its
dissolution. According to petitioners, this is in fraud of the stockholders who
only discovered the amendment when they filed a case for injunction to
restrain the corporation from suspending their rights to use all the facilities
of the club. Furthermore, petitioners alleged that the Board of Directors and
officers of the corporation did not call any stockholders’ meeting from the
time of the incorporation, in violation of Section 50 of the Corporation Code
and the By-Laws of the corporation. Neither did the defendant directors
and officers furnish the stockholders with the financial statements of the
corporation nor the financial report of the operation of the corporation in
violation of Section 75 of the Corporation Code. Petitioners also claim that
on August 15, 1997, SBGCCI presented to the SEC an amendment to the
By-Laws of the corporation suspending the voting rights of the
shareholders except for the five founders’ shares. Said amendment was
allegedly passed without any stockholders’ meeting or notices to the
stockholders in violation of Section 48 of the Corporation Code.
The Complaint furthermore enumerated several instances of fraud in the
management of the corporation allegedly committed by the Board of
Directors and officers of the corporation, particularly:
a. The Board of Directors and the officers of the corporation did not
indicate in its financial report for the year 1999 the amount of
₱235,584,000.00 collected from the subscription of 409
shareholders who paid U.S.$22,000.00 for one (1) share of stock
at the then prevailing rate of ₱26.18 to a dollar. The stockholders
were not informed how these funds were spent or its whereabouts.
19
 b. The Corporation has been collecting green fees from the
patrons of the golf course at an average sum of ₱1,600.00 per
eighteen (18) holes but the income is not reported in their yearly
report. The yearly report for the year 1999 contains the report of
the Independent Public Accountant who stated that the company
was incorporated on April 1, 1996 but has not yet started its
regular business operation. The golf course has been in operation
since 1997 and as such has collected green fees from non-
members and foreigners who played golf in the club. There is no
financial report as to the income derived from these sources.
c. There is reliable information that the Defendant Corporation has
not paid its rentals to the Subic Bay Metropolitan Authority which
up to the present is estimated to be not less than one (1) million
U.S. Dollars. Furthermore, the electric billings of the corporation
[have] not been paid which amounts also to several millions of
pesos.
d. That the Supreme Court sustained the pre-termination of its
contract with the SBMA and presently the club is operating without
any valid contract with SBMA. The defendant was ordered by the
Supreme Court to yield the possession, the operation and the
management of the golf course to SBMA. Up to now the
defendants [have] defied this Order.
e. That the value of the shares of stock of the corporation has
drastically declined from its issued value of U.S.$22,000.00 to only
Two Hundred Thousand Pesos, (₱200,000.00) Philippine
Currency. The shareholders [have] lost in terms ofinvestment the
sum estimated to be more than two hundred thousand pesos.This
loss is due to the fact that the Club is mismanaged and the golf
course is poorly maintained. Other amenities of the Club has (sic)
not yet been constructed and are not existing despite the lapse of
morethan five (5) years from the time the stocks were offered for
sale to the public. The cause of the decrease in value of the
sharesof stocks is the fraudulent mismanagement of the club.6
Alleging that the stockholders suffered damages as a result of the
fraudulent mismanagement of the corporation, petitioners prayed in their
Complaint for the following:
WHEREFORE, it is most respectfully prayed that upon the filing of this
case a temporary restraining order be issued enjoining the defendants from
acting as Officers and Board of Directors of the Corporation. After
hearing[,] a writ of preliminary injunction be issued enjoining defendants to
act as Board of Directors and Officers of the Corporation. In the meantime
a Receiver be appointed by the Court to act as such until a duly constituted
Board of Directors and Officers of the Corporation be elected and qualified.
That defendants be ordered to pay the stockholders damages in the sum of
Two Hundred Thousand Pesos each representing the decrease in value of
their shares of stocks plus the sum of ₱100,000.00 as legal expense and
attorney’s fees, as well as appearance fee of ₱4,000.00 per hearing.7
In their Answer, respondents specifically denied the allegations of the
Complaint and essentially averred that:
(a) The subscriptions of the 409 shareholders were paid to
Universal International Group Development Corporation (UIGDC),
the majority shareholder of SBGCCI, from whom plaintiffs and
other shareholders bought their shares;8
(b) Contrary to the allegations in the Complaint, said subscriptions
were reflected inSBGCCI’s balance sheets for the fiscal years
1998 and 1999;9
(c) Plaintiffs were never presented the original Articles of
Incorporation of SBGCCI since their shares were purchased after
the amendment of the Articles of Incorporation and such
amendment was publicly known to all members prior and
subsequent to the said amendment;10
(d) Shareholders’ meetingshad been held and the corporate acts
complained of were approved at shareholders’ meetings;11
(e) Financial statements of SBGCCI had always been presented to
shareholders justifiably requesting copies;12
(f) Green fees collected were reported in SBGCCI’s audited
financial statements;13
(g) Any unpaid rentals are the obligation of UIGDC with SBMA and
SBGCCI continued to operate under a valid contract with the
SBMA;14 and
20
 (h) SBGCCI’s Board of Directors was not guilty of any
mismanagement and in fact the value of members’ shares have
increased.15
Respondents further claimed by way ofdefense that petitioners failed (a) to
show that it was authorized by SBGSI to file the Complaint on the said
corporation’s behalf; (b) to comply with the requisites for filing a derivative
suit and an action for receivership; and (c) to justify their prayer for
injunctive relief since the Complaint may be considered a nuisance or
harassment suit under Section 1(b), Rule1 of the Interim Rules of
Procedure for Intra-Corporate Controversies.16 Thus, they prayed for the
dismissal of the Complaint.
On July 8, 2003, the RTC issued an Order dismissing the Complaint. The
RTC held that the action is a derivative suit, explaining thus:
The Court finds that this case is intended not only for the benefit of the two
petitioners. This is apparentfrom the caption of the case which reads
Nestor Ching, Andrew Wellington and the Subic Bay Golfers and
Shareholders, Inc., for and in behalf of all its members as petitioners. This
is also shown in the allegations of the petition[.] x x x.
On the bases of these allegations of the petition, the Court finds that the
case is a derivative suit. Being a derivative suit in accordance with Rule 8
of the Interim Rules, the stockholders and members may bring an action in
the name of the corporation or association provided that he (the minority
stockholder) exerted all reasonable efforts and allege[d] the same with
particularity in the complaint to exhaust of (sic) all remedies available under
the articles of incorporation, by-laws or rules governing the corporation or
partnership to obtain the reliefs he desires. An examination of the petition
does not show any allegation that the petitioners applied for redress to the
Board of Directors of respondent corporation there being no demand,
oralor written on the respondents to address their complaints. Neither did
the petitioners appl[y] for redress to the stockholders of the respondent
corporation and ma[k]e an effort to obtain action by the stockholders as a
whole. Petitioners should have asked the Board of Directors of the
respondent corporation and/or its stockholders to hold a meeting for the
taking up of the petitioners’ rights in this petition.17
The RTC held that petitioners failed to exhaust their remedies within the
respondent corporation itself. The RTC further observed that petitioners
Ching and Wellington were not authorized by their co-petitioner Subic Bay
Golfers and Shareholders Inc. to filethe Complaint, and therefore had no
personality to file the same on behalf ofthe said shareholders’ corporation.
According to the RTC, the shareholdings of petitioners comprised of two
shares out of the 409 alleged outstanding shares or 0.24% is an indication
that the action is a nuisance or harassment suit which may be dismissed
either motu proprio or upon motion in accordance with Section 1(b) of the
Interim Rules of Procedure for Intra-Corporate Controversies.18
Petitioners Ching and Wellington elevated the case to the Court of
Appeals, where it was docketed as CA-G.R. CV No. 81441. On October
27, 2005, the Court of Appeals rendered the assailed Decision affirming
that of the RTC.
Hence, petitioners resort to the present Petition for Review, wherein they
argue that the Complaint they filed with the RTC was not a derivative suit.
They claim that they filed the suit in their own right as stockholders against
the officers and Board of Directors of the corporation under Section 5(a) of
Presidential DecreeNo. 902-A, which provides:
Sec. 5. In addition tothe regulatory and adjudicative functions of the
Securities and Exchange Commission over corporations, partnerships and
other forms of associations registered with it as expressly granted under
existing laws and decrees, it shall have original and exclusive jurisdiction to
hear and decide cases involving:
(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 of the stockholders, partners, members
of associations or organizations registered with the Commission.
According to petitioners, the above provision (which should be read in
relation to Section 5.2 of the Securities Regulation Code which transfers
jurisdiction over such cases to the RTC) allows any stockholder to file a
complaint against the Board of Directors for employing devices or schemes
amounting to fraud and misrepresentation which is detrimental to the
interest of the public and/or the stockholders.
In the alternative, petitioners allege that if this Court rules that the
Complaint is a derivative suit, it should nevertheless reverse the RTC’s
dismissal thereof on the ground of failure to exhaust remedies within the
corporation. Petitioners cite Republic Bank v. Cuaderno19 wherein the
Court allowed the derivative suit even without the exhaustion of said
21
remedies as it was futile to do so since the Board ofDirectors were all
members of the same family. Petitioners also point out that in Cuadernothis
Court held that the fact that therein petitioners had only one share of stock
does not justify the denial of the relief prayed for.
To refute the lower courts’ ruling that there had been non-exhaustion of
intra-corporate remedies on petitioners’ part, they claim that they filed in
Court a case for Injunction docketed as Civil Case No. 103-0-01, to restrain
the corporation from suspending their rights to use all the facilities of the
club, on the ground that the club cannot collect membership fees until they
have completed the amenities as advertised when the shares of stock were
sold to them. They allegedly asked the Club to produce the minutes of the
meeting of the Board of Directors allowing the amendments of the Articles
of Incorporation and By-Laws. Petitioners likewise assail the dismissal of
the Complaint for being a harassment ornuisance suit before the
presentation of evidence. They claim that the evidence they were
supposed to present will show that the members of the Board of Directors
are not qualified managers of a golf course.
We find the petition unmeritorious.
At the outset, it should be noted thatthe Complaint in question appears to
have been filed only by the two petitioners, namely Nestor Ching and
Andrew Wellington, who each own one stock in the respondent corporation
SBGCCI. While the caption of the Complaint also names the "Subic Bay
Golfers and Shareholders Inc. for and in behalf of all its members,"
petitioners did not attach any authorization from said alleged corporation or
its members to file the Complaint. Thus, the Complaint is deemed filed only
by petitioners and not by SBGSI.
On the issue of whether the Complaint is indeed a derivative suit, we are
mindful of the doctrine that the nature of an action, as well as which court
or body has jurisdiction over it, isdetermined based on the allegations
contained in the complaint of the plaintiff, irrespective of whether or not the
plaintiff is entitled to recover upon all or some of the claims asserted
therein.20
We have also held that the body rather than the title of the complaint
determines the nature of an action.21
In Cua, Jr. v. Tan,22 the Court previously elaborated on the distinctions
among a derivative suit, anindividual suit, and a representative or class
suit:
A derivative suit must be differentiated from individual and representative
or class suits, thus:
"Suits by stockholders or members of a corporation based on wrongful or
fraudulent acts of directors or other persons may be classified
intoindividual suits, class suits, and derivative suits. Where a stockholder or
member is denied the right of inspection, his suit would be individual
because the wrong is done to him personally and not to the other
stockholders or the corporation. Where the wrong is done to a group of
stockholders, as where preferred stockholders’ rights are violated, a class
or representative suitwill be proper for the protection of all stockholders
belonging to the same group. But where the acts complained of constitute
a wrong to the corporation itself, the cause of action belongs to the
corporation and not to the individual stockholder or member. Although in
most every case of wrong to the corporation, each stockholder is
necessarily affected because the value of his interest therein would be
impaired, this fact of itself is not sufficient to give him an individual cause of
action since the corporation is a person distinct and separate from him, and
can and should itself sue the wrongdoer. Otherwise, not only would the
theory of separate entity be violated, but there would be multiplicity of suits
as well as a violation of the priority rights of creditors. Furthermore,there is
the difficulty of determining the amount of damages that should be paid to
each individual stockholder.
However, in cases of mismanagement where the wrongful acts are
committed by the directors or trustees themselves, a stockholder or
member may find that he has no redress because the former are vested by
law with the right to decide whether or notthe corporation should sue, and
they will never be willing to sue themselves. The corporation would thus be
helpless to seek remedy. Because of the frequent occurrence of such a
situation, the common law gradually recognized the right of a stockholder
to sue on behalf of a corporation in what eventually became known as a
"derivative suit." It has been proven to be an effective remedy of the
minority against the abuses of management. Thus, an individual
stockholder is permitted to institute a derivative suit on behalf of the
corporation wherein he holds stock in order to protect or vindicate
corporate rights, whenever officials of the corporation refuse to sue orare
the ones to be sued or hold the control of the corporation. In such actions,
22
the suing stockholder is regarded as the nominal party, with the corporation
as the party in interest."
xxxx
Indeed, the Court notes American jurisprudence to the effect that a
derivative suit, on one hand, and individual and class suits, on the other,
are mutually exclusive, viz.:
"As the Supreme Court has explained: "A shareholder’s derivative suit
seeks to recover for the benefit of the corporation and its whole body of
shareholders when injury is caused to the corporation that may not
otherwise be redressed because of failureof the corporation to act. Thus,
‘the action is derivative, i.e., in the corporate right, if the gravamen of the
complaint is injury to the corporation, or to the whole body of its stock and
property without any severance or distribution among individual holders, or
it seeks to recover assets for the corporation or to prevent the dissipation
of its assets.’ x x x. In contrast, "a directaction [is one] filed by the
shareholder individually (or on behalf of a classof shareholders to which he
or she belongs) for injury to his or her interestas a shareholder. x x x. [T]he
two actions are mutually exclusive: i.e., the right of action and recovery
belongs to either the shareholders (direct action) *651 or the
corporation(derivative action)." x x x.
Thus, in Nelson v. Anderson(1999), x x x, the **289 minority shareholder
alleged that the other shareholder of the corporation negligently managed
the business, resulting in its total failure. x x x. The appellate court
concluded that the plaintiff could not maintain the suit as a direct action:
"Because the gravamen of the complaint is injury to the whole body of its
stockholders, it was for the corporation to institute and maintain a remedial
action. x x x. A derivative action would have been appropriate if its
responsible officials had refused or failed to act." x x x. The court wenton to
note that the damages shown at trial were the loss of corporate profits. x x
x. Since "[s]hareholders own neither the property nor the earnings of the
corporation," any damages that the plaintiff alleged that resulted from such
loss of corporate profits "were incidental to the injury to the corporation."
(Citations omitted.)
The reliefs sought in the Complaint, namely that of enjoining defendants
from acting as officers and Board of Directors of the corporation, the
appointment of a receiver, and the prayer for damages in the amount of the
decrease in the value of the sharesof stock, clearly show that the
Complaint was filed to curb the alleged mismanagement of SBGCCI. The
causes of action pleaded by petitioners do not accrue to a single
shareholder or a class of shareholders but to the corporation itself.
However, as minority stockholders, petitioners do not have any statutory
right to override the business judgments of SBGCCI’s officers and Board of
Directors on the ground of the latter’s alleged lackof qualification to
manage a golf course. Contraryto the arguments of petitioners, Presidential
Decree No. 902-A, which is entitled REORGANIZATION OF THE
SECURITIES AND EXCHANGE COMMISSION WITH ADDITIONAL
POWERS AND PLACING THE SAID AGENCY UNDER THE
ADMINISTRATIVE SUPERVISION OF THE OFFICE OF THE
PRESIDENT, does not grant minority stockholders a cause of action
against waste and diversion by the Board of Directors, but merely identifies
the jurisdiction of the SEC over actionsalready authorized by law or
jurisprudence. It is settled that a stockholder’s right to institute a derivative
suit is not based on any express provisionof the Corporation Code, or even
the Securities Regulation Code, but is impliedly recognized when the said
laws make corporate directors or officers liable for damages suffered by
the corporation and its stockholders for violation of their fiduciary duties. 23
At this point, we should take note that while there were allegations in the
Complaint of fraud in their subscription agreements, such as the
misrepresentation of the Articles of Incorporation, petitioners do not pray
for the rescission of their subscription or seekto avail of their appraisal
rights. Instead, they ask that defendants be enjoined from managing the
corporation and to pay damages for their mismanagement. Petitioners’ only
possible cause of action as minority stockholders against the actions of the
Board of Directors is the common law right to file a derivative suit. The
legal standing of minority stockholders to bring derivative suits is not a
statutory right, there being no provision in the Corporation Code or related
statutes authorizing the same, but is instead a product of jurisprudence
based on equity. However, a derivative suit cannot prosper without first
complying with the legal requisites for its institution.24
Section 1, Rule 8 of the Interim Rules of Procedure Governing
IntraCorporate Controversies imposes the following requirements for
derivative suits:
(1) He was a stockholder or member at the time the acts or
transactions subject of the action occurred and at the time the
action was filed;
23
 (2) He exerted all reasonable efforts, and alleges the same with
particularity in the complaint, to exhaust all remedies available
under the articles of incorporation, by-laws, laws or rules governing
the corporation or partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts complained
of; and
the final recourse of the stockholder, after all other remedies to obtain the
relief sought had failed.
WHEREFORE, the Petition for Review is hereby DENIED. The Decision of
the Court of Appeals in CA-G.R. CV No. 81441 which affirmed the Order of
the Regional Trial Court (RTC) of Olongapo City dismissing the Complaint
filed thereon by herein petitioners is AFFIRMED.

(4) The suit is not a nuisance or harassment suit. SO ORDERED.

The RTC dismissed the Complaint for failure to comply with the second TERESITA J.LEONARDO-DE CASTRO**
and fourth requisites above. Acting Chairperson, Associate Justice

Upon a careful examination of the Complaint, this Court finds that the same
should not have been dismissed on the ground that it is a nuisance or
harassment suit. Although the shareholdings of petitioners are indeed only
two out of the 409 alleged outstanding shares or 0.24%, the Court has held
that it is enough that a member or a minority of stockholders file a
derivative suit for and in behalf of a corporation.25

With regard, however, to the second requisite, we find that petitioners

failed to state with particularity in the Complaint that they had exerted all
reasonable efforts to exhaust all remedies available under the articles of
incorporation, by-laws, and laws or rules governing the corporation to
obtain the relief they desire. The Complaint contained no allegation
whatsoever of any effort to avail of intra-corporate remedies. Indeed, even
if petitioners thought it was futile to exhaust intra-corporate remedies, they
should have stated the same in the Complaint and specified the reasons
for such opinion. Failure to do so allows the RTC to dismiss the Complaint,
even motu proprio, in accordance with the Interim Rules. The requirement
of this allegation in the Complaint is not a useless formality which may be
disregarded at will.1âwphi1 We ruled in Yu v. Yukayguan26:

The wordings of Section 1, Rule8 of the Interim Rules of Procedure

Governing Intra-Corporate Controversies are simple and do not leave room
for statutory construction. The second paragraph thereof requires that the
stockholder filing a derivative suit should have exerted all reasonable
efforts to exhaust all remedies availableunder the articles of incorporation,
by-laws, laws or rules governing the corporation or partnership to obtain
the relief he desires; and to allege such fact with particularityin the
complaint. The obvious intent behind the rule is to make the derivative suit

24
 CHARLES LIMBAUAN, G.R. No. 148606 Decision[1] dated June 26, 2001 rendered by the Court of Appeals (CA),
Petitioner, Thirteenth Division, in CA-G.R. SP No. 49144.

Present: The CA decision affirmed an earlier decision[2] of the Regional Trial Court
(RTC) of Caloocan City, Branch 125, dated March 12, 1998 which also
affirmed the decision[3]dated December 29, 1997 of the Metropolitan Trial
PUNO, C.J., Chairperson, Court (MTC), Caloocan City, Branch 52, ordering herein petitioner to
surrender possession of the property in question and pay the unpaid monthly
CARPIO, rentals thereon.
- versus - CORONA,
AZCUNA, and The pertinent facts, as found by the CA, are quoted hereunder:
LEONARDO-DE
CASTRO, JJ.
Sometime in 1938, the Government acquired the
Tala Estate consisting of 808 hectares, located in Kalookan,
primarily for a leprosarium. However, the State utilized only
one-fifth of the property for the purpose. More, under
Promulgated: Republic Act 4085, it was no longer mandatory for the
FAUSTINO ACOSTA,
segregation of hansenites. Consequently, the State needed
Respondent.
a lesser portion of the property for the leprosarium. In the
June 30, 2008 meantime, the State found it necessary to establish new
residential areas within a 20-kilometer radius from the
center of the Metropolitan Manila and/or utilizing
inexpensive land in order to serve low-income families
whose housing needs can only be met by the
x------------------------------------------------------------------------------------------ x Government. On April 26, 1971, President Ferdinand E.
Marcos issued Proclamation No. 843 allocating the property
to the Department of Health, the National Housing
DECISION Corporation, the PHHC and Department of Social Welfare
and Development xxx.

It was also decreed that, more precise identities of

LEONARDO-DE CASTRO, J.:
In this petition for review on certiorari under Rule 45 of the 1997 Rules of
Civil Procedure, petitioner seeks to set aside and annul the
the parcels of land allocated to the government will be made
only after a final survey shall have been completed. A joint
PHHC-Bureau of Lands team was tasked to undertake
the necessary segregation survey and inquiries on
private rights within the Estate. In the Interim, it was
decreed that no transfer of title shall be made until the
enactment of a law allowing the use of the site for purposes
other than that of a leprosarium.
25
 In the meantime, Faustino Acosta took possession
of a vacant portion of the Tala Estate and constructed his
house thereon, bearing address No. 786, Barrio San
Roque, Barangay 187, Tala, Caloocan City. In August,
1982, Faustino Acosta, who was then a Barangay
Councilman, executed a deed styled Registration of
Property, attested by the Barangay Captain,
over another vacant portion of the Estate, west of the
Barangay Hall, with an area of 150 square meters, bearing
the following boundaries:
NORTH: WAITING SHEDSOUTH: JUAN DAMIAN
WEST: NITA CRUZ, RESTAURANT..EAST:
BRGY. HALL187 (at page 7, Records)
Faustino Acosta then took possession of the
property, constructed a fence around the perimeter of the
property and planted vegetables thereon. However, in
1984, Paulino Calanday took possession of the said
property without the consent of Faustino, constructed an
edifice thereon and used the same as a beerhouse. When
Faustino remonstrated, Paulino filed two (2) criminal
complaints against Faustino with the Metropolitan Trial
Court, entitled and docketed People versus Faustino
Acosta, Criminal Case Nos. 143550-51, for Malicious
Michief and Unjust Vexation. However, on September 27,
1985, the Court issued an Order dismissing the cases for
failure of Paulino to comply with PD 1508.
Paulino, in the meantime, conveyed the beerhouse
to Juanita Roces. The latter and Faustino entered into an
oral contract of lease over the parcel of land for a monthly
rental of P60.00.About a year thereafter, Juanita suddenly
stopped paying to Faustino her rentals for the property. It
turned out that Juanita conveyed the beerhouse to her
nephew, Charles Limbauan, who forthwith assumed the
lease from his aunt and who, thenceforth, paid the monthly
rentals for the property in the amount of P60.00 to
Faustino. However, in November, 1987, Charles stopped
paying rentals to Faustino claiming that, since the property
was government property, Faustino had no right to lease the
same and collect the rentals therefore. However, Faustino
did not file any complaint nor unlawful detainer against
Charles.
Sometime in February, 1995, Congress approved
Republic Act 7999 under which the State converted a
portion of the Estate, with a total area of 120 hectares, for
use as a housing site for residents and employees of the
Department of Health, with the National Housing Authority
as the leading implementing agency:
(a) Seventy (70) hectares of the
one hundred thirty (130) hectares reserved
for the leprosarium and settlement site of
the hansenites and their families under
Proclamation No. 843 are hereby declared
alienable and disposable for use as a
housing site for the bona fide residents,
hansenites and their immediate families
and for qualified employees of the
Department of Health: Provided, That if the
said beneficiary is an employee of the
Deparment of Health, the said employee
must have been assigned in the Tala
Leprosarium and must have been a
resident thereat for at least five (5)
years: Provided, further, That the
residential lot awarded to the beneficiaries
under this Act shall not be transferred,
conveyed or assigned to any other person
for a period of twenty-five (25) years,
except to legal heirs by way of succession;
and
(b) The fifty (50) hectares reserved
for the plants, installations and pilot
housing project of the National Housing
Corporation, as provided in the same
proclamation, are hereby declared as
alienable and disposable: Provided, That
twenty-nine (29) hectares of the said fifty
(50) hectares shall be converted into a
housing site exclusively for the bona fide
and qualified residents of the area. (idem,
supra)
After the passage by Congress of Republic Act
7999, Faustino filed a complaint against Charles with the
26
Lupon for ejectment for failure of Charles to pay his rentals
from October, 1987. On April 15, 1995, the Lupon issued
a Certification to File Action (at page 9,
Records). Republic Act 7999 became law on April 22,
1995, without the signature of the President.
On January 2, 1996, Faustino, through Law Interns
in the office of Legal Aid of the University of the Philippines,
sent a letter to Charles demanding that the latter vacate the
property within five (5) days from notice for his failure to pay
the monthly rentals in the amount of P60.00 a month since
October, 1987. Charles Limbauan ignored the letter and
refused to vacate the property.
Faustino, forthwith, filed, on February 7, 1996, a
complaint for Unlawful Detainer against Charles with the
Metropolitan Trial Court, entitled and docketed Faustino
Acosta versus Charles Limbauan, Civil Case No. 22521,
praying that, after due proceedings, judgment be rendered
in his favor as follows:
PRAYER
WHEREFORE, it is respectfully
prayed of this Honorable Court that
judgment be rendered in favor of plaintiff
and against the defendant as follows:
1. To order the immediate
restoration of the premises to plaintiff in
accordance with Rule 70, Sec. 3 of the
Rules of Court;
2. Ordering the defendants to pay
to plaintiff the sum of P60.00 a month plus
interest from November 1987 until they
vacate the premises;
2.(sic) Ordering defendant to pay
plaintiff the sum of P10,000.00 by way of
moral damages;
3. Such other remedies as may be
just and equitable under the premises. (at
page 4, Records)
Upon suggestion of the Court, Faustino Acosta,
through the Law Interns, sent another letter of demand to
Charles Limbauan, dated March 7, 1996, demanding that
the latter vacate the property this time within fifteen (15)
days from notice, otherwise, Faustino will institute the
appropriate action for his eviction from the property. Charles
Limbauan received the letter, on March 13, 1996, but
refused to vacate the property. Faustino forthwith filed
a Motion to Approve Attached Amended Complaint with
the Court which was granted by the Court.
In his Answer to the Complaint, Charles
alleged, inter alia that Faustino had no cause of action
against him because the property on which the beerhouse
was constructed is owned by the government since the
government is the owner of the property, Faustino had no
right of possession over the property and collect rentals
therefore. Besides, it was unfair for Faustino, who was
already in possession of the lot at No. 786 B. San Roque,
Barangay 187 to still claim possession over the subject
property. The Defendant interposed the defense that the
Court had no jurisdiction over the action of the Plaintiff as it
was one of accion publiciana and not one for unlawful
detainer.
On December 29, 1997, the Court promulgated a
Decision in favor of the Plaintiff and against the Defendant,
the decretal portion of which reads as follows:
DISPOSITION BY THE COURT:
Premises considered, decision is
rendered for the plaintiff, Faustino Acosta,
and against the defendant, Charles
Limbauan, directing the latter and all those
claiming under him to vacate the premises
specifically described as the parcel of
commercial land located at the west portion
of the barangay hall, barangay 187, Zone
16, B. Sto. Nino, Tala, Caloocan City, to
27
 surrender peaceful possession of the same
to the former, and to pay him the following
amounts: On June 26, 2001, the CA dismissed the aforementioned Petition
for Review and affirmed the decision of the RTC.
a. P60.00 monthly from November, 1987,
as reasonable compensation for the use
and occupancy of the parcel of land subject
matter of this case with legal interests from Hence, this petition for review which seeks the reversal of the said
today up to the actual surrender of the CA decision on the basis of the issues quoted hereunder:
same.

b. P130.00 by way of reimbursement for

costs of suit as shown by the receipts on
record.
Given in Chambers. (at page 79, Records)
a) DID THE HONORABLE COURT OF APPEALS IN
RENDERING THE ASSAILED DECISION COMMIT
GRAVE ABUSE OF DISCRETION AMOUNTING TO
EXCESS OF JURISDICTION?

b) WHETHER OR NOT THE CASE IS RENDERED MOOT

The Court found and declared that the Plaintiff AND ACADEMIC ON ACCOUNT OF THE DEATH OF THE
adduced evidence that the Defendant was the lessee of the RESPONDENT.[4]
Plaintiff over the property and, hence, the latter was
estopped from assailing Plaintiffs title over the property.
In relation to the aforequoted issues, the petitioner adduces the following
The Defendant interposed an appeal from said
arguments:
Decision to the Regional Trial Court which, on August 28,
1998, rendered a Decision affirming the Decision of the
Court a quo.
(1) The right application of laws under Rule 70 and
The Petitioner forthwith filed a Petition for Rule 10 in relation with the law on jurisdiction over
Review with this Court (Court of Appeals), under Rule 42 of the case was ignored.
the 1997 Rules of Civil Procedure, and posed, for our
resolution, the following issues: (a) whether or not the (2) The amendment under Section 2, Rule 10,
remedy of the Respondent in the Metropolitan Trial Court Rules of Court is a futile remedy when the Court
for unlawful detainer was proper; (b) the subject property has no jurisdiction over the case.
was government property and, hence, cannot be the lawful
subject of a lease contract between the Petitioner and (3) The alleged existence of lessor-lessee
Respondent and, hence, the latter had no right to have the relationship between the parties had not been
Petitioner evicted from the property and to collect rentals sufficiently established.
from him. It was inappropriate for the trial court, and the
Regional Trial Court, to apply and rely on Section 2(b), Rule (4) The fact of death of respondent rendered the
131 of the Rules of Evidence. case moot and academic.[5]

28

The first and second arguments advanced by petitioner are interrelated.
Thus, they shall be discussed jointly. Petitioner argues that there must be a
prior demand to vacate the leased premises and pay the rent and a 15-day
period from the time of demand must have lapsed before a complaint for
unlawful detainer may be commenced pursuant to Section 2, Rule 70.
According to petitioner, respondents demand letter gave the petitioner a five-
day period only instead of fifteen (15) days within which to comply with the
demand to vacate. A jurisdictional requisite, not having been complied with,
the MTC did not acquire jurisdiction over the case.
Section 2, Rule 70 of the Revised Rules of Court provides as
follows:
Sec. 2. Lessor to proceed against lessee only after
demand. Unless otherwise stipulated, such action by the
lessor shall be commenced only after demand to pay or
comply with the conditions of the lease and to vacate is
made upon the lessee, or by serving written notice of such
demand upon the person found on the premises, or by
posting such notice on the premises if no person be found
thereon, and the lessee fails to comply therewith after fifteen
(15) days in the case of land or five (5) days in the case of
buildings.
As contemplated in the aforecited rule, the demand to pay rent and vacate
is necessary if the action for unlawful detainer is anchored on the non-
payment of rentals, as in the instant case. The same rule explicitly provides
that the unlawful detainer suit must be commenced only if the lessee fails to
comply after the lapse or expiration of fifteen (15) days in case of lands and
five (5) days in case of buildings, from the time the demand is made upon
the lessee. The demand required and contemplated in Section 2 of Rule 70
is a jurisdictional requirement for the purpose of bringing an unlawful
detainer suit for failure to pay rent. It partakes of an extrajudicial remedy that
must be pursued before resorting to judicial action such that full compliance
with the demand would render unnecessary a court action. [6]
Hence, it is settled that for the purpose of bringing an ejectment suit, two
requisites must concur, namely: (1) there must be failure to pay rent or to
comply with the conditions of the lease and (2) there must be demand both
to pay or to comply and vacate within the periods specified in Section 2,
particularly, 15 days in the case of land and 5 days in the case of buildings.
The first requisite refers to the existence of the cause of action for unlawful
detainer while the second refers to the jurisdictional requirement of demand
in order that said cause of action may be pursued.[7]
As the subject matter of the instant case is a parcel of land, the
expiration of the aforesaid fifteen-day period is a prerequisite to the filing of
an action for unlawful detainer. As to whether respondent observed this
fifteen-day period, an affirmative answer can be gleaned from the evidence
on record. Respondents first demand letter dated January 2, 1996 gave
petitioner five (5) days from receipt within which to pay the unpaid rentals
and vacate the premises. Petitioner received the demand letter on January
10, 1996 while respondent brought the action for unlawful detainer on
February 7, 1996, which was clearly more than 15 days from the time
petitioner received the demand letter on January 10, 1996 and well within
the one-year period set forth by Section 1, Rule 70.[8] Thus, the fact that
respondents demand letter granted petitioner five (5) days to pay and to
vacate the subject property is of no moment because what is important and
required under Section 2 of Rule 70 is for the lessor to allow a period of
fifteen (15) days to lapse before commencing an action for unlawful detainer.
Evidently, respondent actually complied with this requirement. For this
reason, we find no error in the MTC assuming jurisdiction over respondents
complaint and in not dismissing the same.
Moreover, upon the advice of the MTC, respondent sent another
demand letter dated March 7, 1996 to petitioner, this time giving the latter
fifteen (15) days within which to vacate the subject property and when
petitioner still refused, respondent was compelled to file a Motion to Approve
Attached Amended Complaint. The said motion was rightly granted by the
MTC in accordance with Section 2, Rule 10 of the Revised Rules of Court,
to wit:
Sec. 2. Amendments as a matter of right. A party
may amend his pleading once as a matter of course at any
time before a responsive pleading is served or, in the
29
 case of a reply, at any time within ten (10) days after it is
served.
Under this provision, a party has the absolute right to amend his pleading
whether a new cause of action or change in theory is introduced, at any time
before the filing of any responsive pleading.[9] Undoubtedly, when
respondent filed his Amended Complaint on May 16, 1996,[10] no responsive
pleading had yet been filed by petitioner, thus, the MTC validly admitted the
said amended complaint.
It is well-settled that amendment of pleadings is favored and should
be liberally allowed in the furtherance of justice in order to determine every
case as far as possible on its merits without regard to technicalities. This
principle is generally recognized in order that the real controversies
between the parties are presented, their rights determined and the case
decided on the merits without unnecessary delay to prevent circuity of
action and needless expense.[11]
Petitioner also contends that the MTCs purpose for admitting the
amended complaint was to eliminate the jurisdictional defect of the original
complaint. Petitioner cites the cases of Rosario v. Carandang[12] and Gaspar
v. Dorado[13] which declared that the amendment of the complaint could not
be allowed when its purpose is to confer jurisdiction upon the court, since
the court must first acquire jurisdiction over the case in order to act validly
therein. Petitioners contention is devoid of merit. As earlier discussed,
respondents original complaint was free from any jurisdictional flaw and the
MTC had jurisdiction over the case to begin with. Thus, the cited cases are
not applicable in the instant case. Hence, the MTC was correct in allowing
the amendment.
Furthermore, it is a well-settled rule that what determines the nature
of an action as well as which court has jurisdiction over it are the allegations
of the complaint and the character of the relief sought.[14] A complaint for
unlawful detainer is deemed sufficient if it alleges that the withholding of the
possession or the refusal to vacate is unlawful, without necessarily
employing the terminology of the law.[15] Here, respondent alleged that he
acquired possessory rights over the subject property by virtue of a
government grant. He leased the property to petitioner for a monthly rental
of P60.00. When petitioner failed to pay the rentals, respondent eventually
sent two demand letters asking petitioner to pay and vacate the
premises. Petitioner refused, thereby depriving respondent of possession
of the subject property. Clearly, the complaint alleges the basic elements of
an unlawful detainer case, which are sufficient for the purpose of vesting
jurisdiction over it in the MTC.
Likewise, petitioners allegation in his petition that he received
respondents second demand letter on May 8, 1996 was belied by the
records of this case, the truth being that, the said demand letter dated March
7, 1996 was received by petitioner on March 13, 1996.[16] The letter granted
petitioner fifteen (15) days within which to pay and vacate the subject
property. Respondents Amended Complaint was filed on May 16,
1996 which was obviously two (2) months from the time petitioner had notice
of the demand, and again more than 15 days as required by Section 2, Rule
70.
In sum, respondent clearly satisfied the jurisdictional requirement of
prior demand to vacate within the period set by the rules. The MTC validly
acquired jurisdiction over both the original complaint and the amended
complaint.
Petitioner next argues that no lessor-lessee relationship existed
between him and respondent. This argument clearly deals with a question
of fact. In petitions for review on certiorari under Rule 45 of the Rules of
Court, only questions of law may be put in issue. Questions of fact cannot
be entertained.[17] The issue of whether or not a lessor-lessee relationship
existed between the herein parties is a question of fact which we cannot
pass upon as it would entail a re-evaluation of the evidence and a review of
the factual findings thereon of the courts a quo. As a rule, factual findings of
the trial court, especially those affirmed by the CA, are conclusive on this
Court when supported by the evidence on record.[18] We find no cogent
reason to disturb the findings of the MTC and the RTC, which the Court of
Appeals had affirmed.
Lastly, petitioner capitalizes on the failure of respondents counsel to
inform the court of the death of his client, Faustino Acosta, who passed away
on October 22, 2000[19] while the case was pending appeal with the CA. He
30
avers that such failure rendered the case moot and academic as no proper WHEREFORE, the petition for review is hereby DENIED. The assailed
substitution of a party was effected in compliance with Rule 3, Section 16 of decision of the Court of Appeals in CA-G.R. SP No. 49144 is
the Rules of Court. hereby AFFIRMED.

Section 16, Rule 3 of the Revised Rules of Court provides that: SO ORDERED.

Sec. 16. Death of party; duty of counsel. Whenever

a party to a pending action dies, and the claim is not thereby
extinguished, it shall be the duty of his counsel to inform the
court within thirty (30) days after such death of the fact
thereof, and to give the name and address of his legal
representative or representatives. Failure of counsel to
comply with this duty shall be a ground for disciplinary
action.

The heirs of the deceased may be allowed to be

substituted for the deceased, without first requiring the
appointment of an executor or administrator and the court
may appoint a guardian ad litem for the minor heirs.

The court shall forthwith order said legal

representative or representatives to appear and be
substituted within a period of thirty (30) days from notice.
xxx.

It is well settled that the failure of counsel to comply with his duty
under Section 16 to inform the court of the death of his client and no
substitution of such party is effected, will not invalidate the proceedings and
the judgment thereon if the action survives the death of such party.
Moreover, the decision rendered shall bind his successor-in-interest.[20] The
instant action for unlawful detainer, like any action for recovery of real
property, is a real action and as such survives the death of Faustino Acosta.
His heirs have taken his place and now represent his interests in the instant
petition.[21] Hence, the present case cannot be rendered moot despite the
death of respondent.

31
G.R. No. 121510 November 23, 1995 Petitioner, not having asserted the matter of fraud or collusion in her
petition for annulment of judgment, the Court of Appeals decided the same
FABIANA C. VDA. DE SALAZAR, petitioner, on the basis of the sole issue of non-jurisdiction resulting from the alleged
vs. deprivation of petitioner's right to due process and ruled in favor of the
COURT OF APPEALS, PRIMITIVO NEPOMUCENO and EMERENCIANA validity of the challenged decision.7 Petitioner filed a motion for
NEPOMUCENO, respondents. reconsideration of the decision of the appellate court reiterating the trial
court's lack of jurisdiction over the heirs of petitioner's deceased husband
as a consequence of the failure of the trial court to effectuate a valid
substitution of heirs. Said motion was denied in a resolution promulgated
on August 14, 1995. Hence this petition.
HERMOSISIMA, JR., J.:
The petition is bereft of merit.
Where the defendant in an ejectment case dies before the rendition by the
trial court of its decision therein, does the trial court's failure to effectuate a
The need for substitution of heirs is based on the right to due process
substitution of heirs before its rendition of judgment render such judgment
accruing to every party in any proceeding.8The rationale underlying this
jurisdictionally infirm?
requirement in case a party dies during the pendency of proceedings of a
nature not extinguished by such death, is that
On July 23, 1970, both private respondents Primitive Nepomuceno and
Emerenciana Nepomuceno filed separate complaints1 with the then Court
. . . the exercise of judicial power to hear and determine a
of Agrarian Relations of Malolos, Bulacan, for ejectment on the ground of
cause implicitly presupposes in the trial court, amongst
personal cultivation and conversion of land for useful non-agricultural
other essentials, jurisdiction over the persons of the
purposes against petitioner's deceased husband, Benjamin Salazar. After
parties. That jurisdiction was inevitably impaired upon the
protracted proceedings in the agrarian court and then the Regional Trial
death of the protestee pending the proceedings below
Court2 spanning from 1970 to 1993, the trial court rendered its joint
such that unless and until a legal representative is for him
decision3 in favor of private respondents. An appeal4 therefrom was
duly named and within the jurisdiction of the trial court, no
interposed in the name of petitioner's deceased husband on the ground
adjudication in the cause could have been accorded any
that private respondents herein failed to satisfy the requirements pertaining
validity or binding effect upon any party, in representation
to personal cultivation and conversion of the landholdings into non-
of the deceased, without trenching upon the fundamental
agricultural uses. The Court of Appeals rejected such contention upon
right to a day in court which is the very essence of the
finding that the record was replete with evidence justifying private
constitutionally enshrined guarantee of due process.9
respondents' assertion of their right of cultivation and conversion of their
landholdings.5
We are not unaware of several cases10 where we have ruled that a
party having died in an action that survives, the trial held by the
Almost a year after the termination of that appeal, the same trial court
court without appearance of the deceased's legal representative or
decision subject thereof was once again assailed before the Court of
substitution of heirs and the judgment rendered after such trial, are
Appeals through a petition6 for annulment of judgment. Herein petitioner
null and void because the court acquired no jurisdiction over the
assailed the same trial court decision as having been rendered by a court
persons of the legal representatives or of the heirs upon whom the
that did not have jurisdiction over her and the other heirs of her deceased
trial and the judgment would be binding. This general rule
husband because notwithstanding the fact that her husband had already
notwithstanding, in denying petitioner's motion for reconsideration,
died on October 3, 1991, the trial court still proceeded to render its decision
the Court of Appeals correctly ruled that formal substitution of heirs
on August 23, 1993 without effecting the substitution of heirs in accordance
is not necessary when the heirs themselves voluntarily appeared,
with Section 17, Rule 3, of the Rules of Court thereby depriving her of her
participated in the case and presented evidence in defense of
day in court.
deceased defendant. Attending the case at bench, after all, are
32
these particular circumstances which negate petitioner's belated
and seemingly ostensible claim of violation of her rights to due
process. We should not lose sight of the principle underlying the
general rule that formal substitution of heirs must be effectuated for
them to be bound by a subsequent judgment. Such had been the
general rule established not because the rule on substitution of
heirs and that on appointment of a legal representative are
jurisdictional requirements per se but because non-compliance
therewith results in the undeniable violation of the right to due
process of those who, though not duly notified of the proceedings,
are substantially affected by the decision rendered therein. Viewing
the rule on substitution of heirs in this light, the Court of Appeals, in
the resolution denying petitioner's motion for reconsideration, thus
expounded:
Although the jurisprudential rule is that failure to make the
substitution is a jurisdictional defect, it should be noted that
the purpose of this procedural rule is to comply with due
process requirements. The original party having died, he
could not continue to defend himself in court despite the
fact that the action survived him. For the case to continue,
the real party in interest must be substituted for the
deceased. The real party in interest is the one who would
be affected by the judgment. It could be the administrator
or executor or the heirs. In the instant case, the heirs are
the proper substitutes. Substitution gives them the
opportunity to continue the defense for the deceased.
Substitution is important because such opportunity to
defend is a requirement to comply with due process. Such
substitution consists of making the proper changes in the
caption of the case which may be called the formal aspect
of it. Such substitution also includes the process of letting
the substitutes know that they shall be bound by any
judgment in the case and that they should therefore
actively participate in the defense of the deceased. This
part may be called the substantive aspect. This is the heart
of the procedural rule because this substantive aspect is
the one that truly embodies and gives effect to the purpose
of the rule. It is this court's view that compliance with the
substantive aspect of the rule despite failure to comply
with the formal aspect may be considered substantial
compliance. Such is the situation in the case at bench
because the only inference that could be deduced from the
following facts was that there was active participation of
the heirs in the defense of the deceased after his death:
1. The original lawyer did not stop representing the
deceased. It would be absurd to think that the lawyer
would continue to represent somebody if nobody is paying
him his fees. The lawyer continued to represent him in the
litigation before the trial court which lasted for about two
more years. A dead party cannot pay him any fee. With or
without payment of fees, the fact remains that the said
counsel was allowed by the petitioner who was well aware
of the instant litigation to continue appearing as counsel
until August 23, 1993 when the challenged decision was
rendered;
2. After the death of the defendant, his wife, who is the
petitioner in the instant case, even testified in the court and
declared that her husband is already deceased. She knew
therefore that there was a litigation against her husband
and that somehow her interest and those of her children
were involved;
3. This petition for annulment of judgment was filed only
after the appeal was decided against the defendant on
April 3, 1995, more than one and a half year (sic) after the
decision was rendered (even if we were to give credence
to petitioner's manifestation that she was not aware that an
appeal had been made);
4. The Supreme Court has already established that there
is such a thing as jurisdiction by estoppel. This principle
was established even in cases where jurisdiction over the
subject matter was being questioned. In the instant case,
only jurisdiction over the person of the heirs is in issue.
Jurisdiction over the person may be acquired by the court
more easily than jurisdiction over the subject matter.
Jurisdiction over the person may be acquired by the simple
appearance of the person in court as did herein petitioner
appear;
5. The case cited by the herein petitioner (Ferreria et al.
vs. Manuela Ibarra vda. de Gonzales, et al.) cannot be
availed of to support the said petitioner's contention
33
 relative to non-acquisition of jurisdiction by the court. In
that case, Manolita Gonzales was not served notice and,
more importantly, she never appeared in court, unlike
herein petitioner who appeared and even testified
regarding the death of her husband.11
Consequently, we rule that, as in the case at bench, the defendant
in an ejectment case having died before the rendition by the trial
court of its decision therein, its failure to effectuate a formal
substitution of heirs before its rendition of judgment, does not
invalidate such judgment where the heirs themselves appeared
before the trial court, participated in the proceedings therein, and
presented evidence in defense of deceased defendant, it
undeniably being evident that the heirs themselves sought their
day in court and exercised their right to due process.
Respondent Court of Appeals also correctly ruled that ejectment, being an
action involving recovery of real property, is a real action which as such, is
not extinguished by the defendant's death.
. . . The question as to whether an action survives or not
depends on the nature of the action and the damage sued
for. In the causes of action which survive, the wrong
complained affects primarily and principally property and
property rights, the injuries to the person being merely
incidental, while in the causes of action which do not
survive, the injury complained of is to the person, the
property and rights of property affected being incidental.12
There is no dispute that an ejectment case survives the death of a
party, which death did not extinguish the deceased's civil
personality.13 More significantly, a judgment in an ejectment case
is conclusive between the parties and their successors in interest
by title subsequent to the commencement of the action.14 Thus, we
have held that:
. . . In such a case and considering that the supervening
death of appellant did not extinguish her civil personality,
the appellate court was well within its jurisdiction to
proceed as it did with the case. There is no showing that
the appellate court's proceedings in the case were tainted
with irregularities.
It appears that petitioners are heirs of Adela Salindon. In
fact, it was because of this relationship that the petitioners
were able to transfer the title of Adela Salindon over the
subject lot to their names. . . . Considering all this, the
appellate decision is binding and enforceable against the
petitioners as successors-in-interest by title subsequent to
the commencement of the action (Section 49 [b] Rule 39,
Rules of Court). Furthermore, . . . judgment in an
ejectment case may be enforced not only against
defendants therein but also against the members of their
family, their relatives, or privies who derive their right of
possession from the defendants (Ariem v. De los Angeles,
49 SCRA 343). Under the circumstances of this case, the
same rule should apply to the successors-in-interest . . . .15
While it is true that a decision in an action for ejectment is enforceable not
only against the defendant himself but also against members of his family,
his relatives, and his privies who derived their right of possession from the
defendant and his successors-in-interest,16 it had been established that
petitioner had, by her own acts, submitted to the jurisdiction of the trial
court. She is now estopped to deny that she had been heard in defense of
her deceased husband in the proceedings therein. As such, this petition
evidently has no leg to stand on.
WHEREFORE, the instant petition is dismissed for lack of merit. Costs
against petitioner.
SO ORDERED.
Padilla, Davide, Jr., Bellosillo and Kapunan, JJ., concur.
34
 SPOUSES HERMES P. OCHOA and ARACELI G.R. No. 192877
D. OCHOA,
Petitioners insist that it was error for the CA to rule that the stipulated
Petitioners, exclusive venue of Makati City is binding only on petitioners complaint
Present: for Annulment of Foreclosure, Sale, and Damages filed before
the Regional Trial Court of Paraaque City, but not on respondent
banks Petition for Extrajudicial Foreclosure of Mortgage, which was filed
CARPIO, J., with the same court.

Chairperson,
NACHURA, We disagree.
- versus -
BRION,*
PERALTA, and The extrajudicial foreclosure sale of a real estate mortgage is governed by
Act No. 3135, as amended by Act No. 4118, otherwise known as "An Act to
ABAD, JJ. Regulate the Sale of Property Under Special Powers Inserted In or Annexed
to Real-Estate Mortgages." Sections 1 and 2 thereof clearly state:

Promulgated:
CHINA BANKING CORPORATION, Section 1. When a sale is made under a special
power inserted in or attached to any real-estate mortgage
Respondent.
March 23, 2011 hereafter made as security for the payment of money or the
fulfillment of any other obligation, the provisions of the
following sections shall govern as to the manner in which
the sale and redemption shall be effected, whether or not
x------------------------------------------------------------------------------------x provision for the same is made in the power.

Sec. 2. Said sale cannot be made legally outside of

RESOLUTION the province in which the property sold is situated; and in
case the place within said province in which the sale is to
be made is the subject of stipulation, such sale shall be
made in said place or in the municipal building of the
NACHURA, J.: municipality in which the property or part thereof is
situated.[5]

For resolution is petitioners motion for reconsideration [1] of our January 17, The case at bar involves petitioners mortgaged real property located
2011 Resolution[2] denying their petition for review on certiorari[3] for failing in Paraaque City over which respondent bank was granted a special power
to sufficiently show any reversible error in the assailed judgment [4] of the to foreclose extra-judicially. Thus, by express provision of Section 2, the sale
Court of Appeals (CA). can only be made in Paraaque City.

35
The exclusive venue of Makati City, as stipulated by the parties[6] and
sanctioned by Section 4, Rule 4 of the Rules of Court, [7] cannot be made to
apply to the Petition for Extrajudicial Foreclosure filed by respondent bank
because the provisions of Rule 4 pertain to venue of actions, which an
extrajudicial foreclosure is not.
Pertinent are the following disquisitions in Supena v. De la Rosa:[8]
Section 1, Rule 2 [of the Rules of Court] defines an action in
this wise:
"Action means an ordinary suit in a
court of justice, by which one party
prosecutes another for the enforcement or
protection of a right, or the prevention or
redress of a wrong."
Hagans v. Wislizenus does not depart from this definition
when it states that "[A]n action is a formal demand of one's
legal rights in a court of justice in the manner prescribed by
the court or by the law. x x x." It is clear that the
determinative or operative fact which converts a claim into
an "action or suit" is the filing of the same with a "court of
justice." Filed elsewhere, as with some other body or office
not a court of justice, the claim may not be categorized
under either term. Unlike an action, an extrajudicial
foreclosure of real estate mortgage is initiated by filing a
petition not with any court of justice but with the office of the
sheriff of the province where the sale is to be made. By no
stretch of the imagination can the office of the sheriff come
under the category of a court of justice. And as aptly
observed by the complainant, if ever the executive judge
comes into the picture, it is only because he exercises
administrative supervision over the sheriff. But this
administrative supervision, however, does not change the
fact that extrajudicial foreclosures are not judicial
proceedings, actions or suits.[9]
These pronouncements were confirmed on August 7, 2001 through
A.M. No. 99-10-05-0, entitled Procedure in Extra-Judicial Foreclosure of
Mortgage, the significant portions of which provide:
In line with the responsibility of an Executive
Judge under Administrative Order No. 6, date[d] June 30,
1975, for the management of courts within his
administrative area, included in which is the task of
supervising directly the work of the Clerk of Court, who
is also the Ex-Office Sheriff, and his staff, and the
issuance of commissions to notaries public and
enforcement of their duties under the law, the following
procedures are hereby prescribed in extra-judicial
foreclosure of mortgages:
1. All applications for extrajudicial
foreclosure of mortgage whether under the
direction of the sheriff or a notary public,
pursuant to Act 3135, as amended by Act
4118, and Act 1508, as amended, shall be
filed with the Executive Judge, through the
Clerk of Court who is also the Ex-Officio
Sheriff.
Verily then, with respect to the venue of extrajudicial foreclosure
sales, Act No. 3135, as amended, applies, it being a special law dealing
particularly with extrajudicial foreclosure sales of real estate mortgages, and
not the general provisions of the Rules of Court on Venue of Actions.
Consequently, the stipulated exclusive venue of Makati City is
relevant only to actions arising from or related to the mortgage, such as
petitioners complaint for Annulment of Foreclosure, Sale, and Damages.
36
 The other arguments raised in the motion are a mere reiteration of
those already raised in the petition for review. As declared in this Courts
Resolution on January 17, 2011, the same failed to show any sufficient
ground to warrant the exercise of our appellate jurisdiction.

WHEREFORE, premises considered, the motion for reconsideration

is hereby DENIED.
SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice

37
 D.M. FERRER & G.R. No. 189496 damages against herein respondent UST and USTHI when the latter failed
ASSOCIATES to pay petitioner despite repeated demands.
CORPORATION, Present:
Petitioner, In impleading respondent UST, petitioner alleged that the former
CARPIO, J., Chairperson, took complete control over the business and operation of USTHI, as well as
- BRION, the completion of the construction project.
versus- PERALTA,*
PEREZ, and It also pointed out that the Articles of Incorporation of USTHI
SERENO, JJ. provided that, upon dissolution, all of the latters assets shall be transferred
without any consideration and shall inure to the benefit of UST. It appears
UNIVERSITY OF Promulgated: that USTHI passed a Resolution on 10 January 2008 dissolving the
SANTO TOMAS, corporation by shortening its corporate term of existence from 16 March
Respondent. February 1, 2012 2057 to 31 May 2008.

Finally, petitioner alleged that respondent, through its rector, Fr.

SECOND DIVISION Dela Rosa, O.P., verbally assured the former of the payment of USTHIs
outstanding obligations.
x--------------------------------------------------x
Thus, petitioner posited in part that UST may be impleaded in the
DECISION case under the doctrine of piercing the corporate veil, wherein respondent
UST and USTHI would be considered to be acting as one corporate entity,
SERENO, J.: and UST may be held liable for the alleged obligations due to petitioner.

Before us is a Petition for Review on Certiorari under Rule 45 of the
Revised Rules of Court. Petitioner assails the Court of Appeals (CA)
Resolution[1] promulgated on 26 June 2009 dismissing the formers Petition
for Certiorari, and the Resolution[2] dated 3 September 2009 denying the
subsequent Motion for Reconsideration.
The facts are undisputed:
On 25 November 2005, petitioner and University of Santo Tomas
Hospital, Inc. (USTHI) entered into a Project Management Contract for the
renovation of the 4th and 5thfloors of the Clinical Division Building, Nurse Call
Room and Medical Records, Medical Arts Tower, Diagnostic Treatment
Building and Pay Division Building.
On various dates, petitioner demanded from USTHI the payment of
the construction costs amounting to P17,558,479.39. However, on 16 April
2008, the University of Santo Tomas (UST), through its rector, Fr. Rolando
V. Dela Rosa, wrote a letter informing petitioner that its claim for payment
had been denied, because the Project Management Contract was without
the required prior approval of the board of trustees. Thus, on 23 May 2008,
petitioner filed a Complaint[3] for sum of money, breach of contract and
Subsequently, respondent filed its Motion to Dismiss dated 12 June
2008.[4] It alleged that the Complaint failed to state a cause of action, and
that the claim was unenforceable under the provisions of the Statute of
Frauds.
On 4 August 2008, Judge Bernelito R. Fernandez of Branch 97 of
the Regional Trial Court (RTC) of Quezon City granted the motion and
dismissed the Complaint insofar as respondent UST was concerned.[5]
First, basing its findings on the documents submitted in support of
the Complaint, the RTC held that respondent was not a real party-in-interest,
and that it was not privy to the contract executed between USTHI and
petitioner. Second, the court pointed out that the alleged verbal assurances
of Fr. Dela Rosa should have been in writing to make these assurances
binding and demandable.
Petitioner sought a reconsideration of the RTC Order and asserted
that only allegations of the Complaint, and not the attached documents,
should have been the basis of the trial courts ruling, consistent with the rule
that the cause of action can be determined only from the facts alleged in the
Complaint. It also insisted that the Statute of Frauds was inapplicable, since
USTHIs obligation had already been partially executed.[6]
38
 On 5 October 2008, petitioner filed an Urgent Motion for Voluntary
Inhibition[7] on the ground that Judge Fernandez was an alumnus of
respondent UST.
Thereafter, Judge Fernandez issued an Order [8] inhibiting himself
from the case, which was consequently re-raffled to Branch 76 presided by
Judge Alexander S. Balut.
On 16 April 2009, Judge Balut dismissed the Motion for
Reconsideration filed by petitioner,[9] upholding the initial findings of Judge
Fernandez declaring that respondent UST was not a real party-in-interest,
and that Fr. Dela Rosas alleged assurances of payment were
unenforceable.
Subsequently, petitioner filed a Petition for Certiorari under Rule 65
with the CA.[10] Petitioner alleged that the trial court committed grave abuse
of discretion when it granted respondents Motion to Dismiss on the basis of
the documents submitted in support of the Complaint, and not solely on the
allegations stated therein. Petitioner pointed out that the allegations raised
questions of fact and law, which should have been threshed out during trial,
when both parties would have been given the chance to present evidence
supporting their respective allegations.
However, on 26 June 2009, the CA issued the assailed Resolution
and dismissed the Petition on the ground that a petition under Rule 65 is the
wrong remedy to question the RTCs Order that completely disposes of the
case. Instead, petitioner should have availed itself of an appeal under Rule
41 of the Rules of Court.
Petitioner moved for a reconsideration of the Resolution.[11] It
pointed out that the present case falls under the enumerated exceptions of
Rule 41, in particular, while the main case is still pending, no appeal may be
made from a judgment or final order for or against one or more of several
parties or in separate claims, counterclaims, cross-claims and third-party
complaints.
On 3 September 2009, the CA denied the Motion for
Reconsideration through its second assailed Resolution, holding that the
motion raised no new issues or substantial grounds that would merit the
reconsideration of the court.
Hence this Petition.
Petitioner raises two grounds in the present Petition: first, whether
the CA erred in dismissing the Petition for Certiorari by failing to consider the
exception in Sec. 1(g) of Rule 41 of the Rules of Court; second, whether the
trial court committed grave abuse of discretion when it held that the
Complaint stated no cause of action.
We rule for petitioner.
Respondent insists that petitioner should have first filed a notice of
appeal before the RTC, and the appeal should have been subsequently
denied before recourse to the CA was made. This contention holds no water.
In Jan-Dec Construction Corp. v. Court of Appeals,[12] we held that
a petition for certiorari under Rule 65 is the proper remedy to question the
dismissal of an action against one of the parties while the main case is still
pending. This is the general rule in accordance with Rule 41, Sec. 1(g). In
that case, ruled thus:
Evidently, the CA erred in dismissing petitioner's
petition for certiorari from the Order of the RTC dismissing
the complaint against respondent. While Section 1, Rule 41
of the 1997 Rules of Civil Procedure states that an appeal
may be taken only from a final order that completely
disposes of the case, it also provides several exceptions to
the rule, to wit: (a) an order denying a motion for new trial
or reconsideration; (b) an order denying a petition for relief
or any similar motion seeking relief from judgment; (c) an
interlocutory order; (d) an order disallowing or dismissing an
appeal; (e) an order denying a motion to set aside a
judgment by consent, confession or compromise on the
ground of fraud, mistake or duress, or any other ground
vitiating consent; (f) an order of execution; (g) a judgment or
final order for or against one or more of several parties or in
separate claims, counterclaims, cross-claims and third-
party complaints, while the main case is pending, unless the
court allows an appeal therefrom; and (h) an order
dismissing an action without prejudice. In the foregoing
instances, the aggrieved party may file an appropriate
special civil action for certiorari under Rule 65.
In the present case, the Order of the RTC
dismissing the complaint against respondent is a final
order because it terminates the proceedings against
respondent but it falls within exception (g) of the Rule
since the case involves two defendants, Intermodal and
herein respondent and the complaint against
39
 Intermodal is still pending. Thus, the remedy of a WHEREFORE, in view of the foregoing, the Petition is GRANTED.
special civil action for certiorari availed of by petitioner Branch 76 of the Regional Trial Court of Quezon City is hereby ordered
before the CA was proper and the CA erred in to REINSTATErespondent University of Santo Tomas as a defendant in
dismissing the petition. (Emphasis supplied) C.C. No. 0862635.

Clearly, in the case at bar, the CA also erred when it dismissed the
Petition filed before it.
SO ORDERED.
Anent the second issue, we also agree with petitioner that the
Complaint states a cause of action against respondent UST. In Abacan v.
Northwestern University, Inc.,[13]we said:

It is settled that the existence of a cause of action is

MARIA LOURDES P. A. SERENO
determined by the allegations in the complaint. In resolving
a motion to dismiss based on the failure to state a cause of
action, only the facts alleged in the complaint must be
considered. The test is whether the court can render a valid
judgment on the complaint based on the facts alleged and
the prayer asked for. Indeed, the elementary test for failure
to state a cause of action is whether the complaint alleges
facts which if true would justify the relief demanded. Only
ultimate facts and not legal conclusions or evidentiary
facts, which should not be alleged in the complaint in
the first place, are considered for purposes of applying
the test. (Emphasis supplied)

While it is admitted that respondent UST was not a party to the

contract, petitioner posits that the former is nevertheless liable for the
construction costs. In support of its position, petitioner alleged that (1) UST
and USTHI are one and the same corporation; (2) UST stands to benefit
from the assets of USTHI by virtue of the latters Articles of Incorporation; (3)
respondent controls the business of USTHI; and (4) USTs officials have
performed acts that may be construed as an acknowledgement of
respondents liability to petitioner.

Obviously, these issues would have been best resolved during trial.
The RTC therefore committed grave abuse of discretion when it dismissed
the case against respondent for lack of cause of action. The trial court relied
on the contract executed between petitioner and USTHI, when the court
should have instead considered merely the allegations stated in the
Complaint.

40
 [G.R. No. 140777. April 8, 2005]
ANTONIO ABACAN, JR., RUFO C. VENUS, JR., ENRIQUETO I.
MAGPANTAY and MARIETA Y. PALANCA, petitioners,
vs. NORTHWESTERN UNIVERSITY, INC., respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a petition for review on certiorari seeking the annulment of
the Court of Appeals (CAs) Decision[1] dated July 22, 1999 and the
Resolution[2] dated November 12, 1999, denying the motion for
reconsideration.
The facts are as follows:
Two opposing factions within respondent Northwestern University, Inc.
(NUI), the Castro and the Nicolas factions, seek control as the legitimate
board thereof.[3] These two factions are parties to Securities and Exchange
Commission (SEC) Case No. 12-96-5469[4] which is an action filed by the
Nicolas faction to nullify the election of the directors of NUI belonging to the
Castro faction and SEC Case No. 12-96-5511[5] which is a counter-suit
initiated by the Castro faction seeking the nullification of several board
resolutions passed by the Nicolas faction.[6] On December 19, 1996, SEC
Hearing Officer Rolando G. Andaya, Jr., pursuant to SEC Case No. 12-96-
5511, issued an Order authorizing the Castro faction and the Metropolitan
Bank (Metrobank) Laoag City branch to withdraw the amount
of P2,555,274.99 from the account of NUI with said bank. [7] Metrobank
complied and released P1.4 M[8] in favor of the Castro faction. The Nicolas
faction then initiated a criminal complaint for estafa against the Castro
faction as well as the petitioners herein who are officers of Metrobank, to wit:
Antonio Abacan, Jr., President; Rufo C. Venus, Jr. and Enriqueto I.
Magpantay, legal officers; and Marieta Y. Palanca, assistant branch
manager of its Laoag City branch. The criminal case was later dismissed
insofar as petitioners are concerned.[9]
On July 16, 1997, NUI, through Roy A. Nicolas of the Nicolas faction,
filed a complaint, docketed as Civil Case No. 11296-14, before the Regional
Trial Court (RTC) of Laoag, for damages with application for attachment
against petitioners together with the employees of NUI belonging to the
Castro faction, namely: Jose G. Castro, Ernesto B. Asuncion, Gervacio A.
Velasco, Mariel S. Hernando and Virginio C. Rasos as well as their counsel,
Edgar S. Asuncion, and SEC Hearing Officer Rolando G. Andaya, Jr. NUI
claims that between December 16 and December 20, 1996, defendants from
the Castro faction, acting together, and helping one another, with herein
petitioners taking undue and unlawful advantage of their respective positions
in Metrobank, withdrew and released to themselves, for their own personal
gain and benefit, corporate funds of NUI deposited with said bank in the sum
of P1.4 M without the knowledge, consent or approval of NUI to the grave
and serious damage and prejudice of the latter. NUI also claims that
defendants have not accounted for the said amount despite several
demands for them to do so.[10]
On September 15, 1997, defendant, herein petitioner, Marieta Y.
Palanca filed a motion to dismiss alleging that: (1) the complaint fails to state
a cause of action against her since she is not a real party in interest; (2)
plaintiff has no legal capacity to sue; and (3) the complaint is dismissible
under Section 5, Rule 7 of the New Rules of Civil Procedure on the
certification against forum shopping.[11] She likewise pointed out that SEC
Case No. 12-96-5469 must take precedence over the civil case since it is a
logical antecedent to the issue of standing in said case.[12]
On April 28, 1998, the RTC issued an Order, denying Palancas motion
and ordering her and her co-defendants to file their respective
answers.[13] Pertinent portions of the Order read as follows:
At first impression, the controversy commenced by the complaint appears
to be one involving an intra-corporate dispute. A closer scrutiny of the
allegations in the complaint, however, shows otherwise. Considering the
doctrine that a motion to dismiss hypothetically admits the allegations in
the complaint, what is admitted is that the action is one for a sum of
money. The Court examined Exhibit C of movant and found out that it
refers to a case in the Securities and Exchange Commission docketed as
Sec. Case No. 12-96-5511 where the petitioners in said SEC case (some
are defendants in the instant case) were authorized to withdraw from
Metrobank (Laoag City Branch) the amount of P2,555,274.99 from the
Bank account of Northwestern University, Inc. . . . On the other hand, the
herein complaint avers that plaintiff Northwestern University, Inc. seeks
recovery of the amount of P1,600,000.00[14] allegedly withdrawn by the
herein defendants during the period from December 16 to December 20,
1996 from the corporate funds of plaintiff deposited with Metrobank Laoag
City Branch under Current Account No. 7-140-525096 and Savings
Account No. 3-140-52509. The SEC Order (Exhibit C) was issued
December 19, 1996. There is, therefore, an inference that the withdrawal
referred to in the complaint as having been effected between December 16
to 20, 1996, could possibly be the withdrawal in consequence of the SEC
41
Order of December 19, 1996. However, the inference remains as such and
cannot ripen to a legal conclusion because the evidence on hand does not
sufficiently preponderate to warrant such a conclusion. In the first place,
there is no evidence adduced that the purported withdrawal, if ever made,
was drawn against the current/savings accounts mentioned in the
complaint. In the second place, the amount authorized to be withdrawn
was P2,555,274.99 while the amount sought to be recovered
is P1,600,000.00.[15] The Court cannot rely on inference or speculation to
cogently resolve a matter. While it appears that movants are invoking
the issue of forum-shopping, they cannot overcome the issues raised
in the complaint, which as earlier stated, have been hypothetically
admitted, and which issues have to be joined by the filing of the
answer by the defendants. The Court notes that in the instant case,
plaintiff is a corporation and is not a respondent in SEC Case No. 12-
96-5511. Moreover, the issues raised therein and in the instant case
are entirely different. There is also no showing that there is legal
basis to pierce the veil of corporate fiction. In the other case (SEC
Case No. 12-96-5469), while it appears that Northwestern University,
Inc. is one of the plaintiffs therein, the complaint refers to a
declaration of nullity of the special stockholders meeting of 3 October
1996 of the election of directors and of the October 3, 1996 amended
by-laws, and is essentially an action for damages. The complaint in
this case, for a sum of money, is also far removed from the nature of
the action in the said SEC Case. Thus, it is clear that there are
genuine issues to be tried in this case, which calls for a trial on the
merits. The motion to dismiss must, perforce, be denied. (Emphasis
supplied)
...
As above shown, the alleged fraud is stated in generalities. In this
jurisdiction, fraud is never presumed (Benitez vs. IAC, 154 SCRA 41).
Instead of filing their answers or a motion for reconsideration of the said
Order, herein petitioners Abacan, Magpantay, Venus and Palanca went to
the CA on a petition for certiorari and prohibition raising the same issues.[16]
On July 22, 1999, the CA rendered the herein assailed decision which
dismissed the petition explaining thus:
A careful review and consideration of the records of the case, reveal that
petitioner failed to comply with a condition sine qua non for the filing of the
Petition, which is to file a motion for reconsideration. In Tan vs. CA, 275
SCRA 568 the Supreme Court specifically ruled that: The special civil
action of certiorari will not lie unless a motion for reconsideration is first
filed before the respondent court to allow it an opportunity to correct its
errors.
In filing this instant petition before Us, petitioners in its petition, while
admitting failure to file a Motion for Reconsideration, justified the same,
when it alleged thus:
13.01 Under the circumstances, the filing of a motion for reconsideration
may be dispensed with. All issues are essentially legal and have been
squarely raised and passed upon by the lower court. [Klaveness Maritime
Agency, Inc. vs. Palmos, 232 SCRA 448.]
Regrettably, however, the case relied upon by petitioner, a 1994 decision,
is the exception to the rule, and not applicable to the case at Bench. In the
said case the Supreme Court said and We quote a prior Motion for
Reconsideration is not indispensable for commencement
of certiorari proceedings if the errors sought to be corrected in said
proceedings had been duly heard and passed upon or were similar to the
issue/s resolved by the tribunal or agency below. (underlining for
emphasis) A reading of the Order of public respondent clearly shows that
no hearing on the issues was had. The penultimate paragraph of the Order
of public respondent judge states:
WHEREFORE, in view of the foregoing, the Court hereby denies:
1. The motion to dismiss;
2. The application for a writ of preliminary attachment;
and
3. The appointment of a special sheriff.
Defendant Jose G. Castro is hereby given eleven (11) days from receipt of
a copy of this denial within which to file his answer; defendant Marietta [sic]
Young Palanca and the other defendants who have not filed their answer
are given five (5) days from receipt of the Order to file their respective
answers.
SO ORDERED.
As it was, the only thing resolved by the court a quo was in relation to the
motion to dismiss the application for a writ of preliminary attachment and
42
the appointment of a special sheriff. Petitioner has not filed any answer
which would outline the issues that he would want the court a quo to
resolve.
Under such situation, therefore, since no proceedings were done to hear
and pass upon the issues to be raised by petitioner, then the general rule
that a motion for reconsideration must first be filed before a petition under
Sec. 1 of Rule 65 must be applied. Having failed to do so, petitioners
petition must be, as it is hereby DENIED.[17]
A motion for reconsideration was thereafter filed by petitioners but was
denied by the CA on November 12, 1999.[18]
Hence the present petition.
Petitioners argue that: (1) following the case of Klaveness Maritime
Agency, Inc. vs. Palmos,[19] prior resort to a motion for reconsideration
before the filing of a petition for certiorari or prohibition is not a mandatory
rule and may be dispensed with in this case since the issues involved herein
are purely legal and have already been passed upon; (2) it is contrary to the
policy against judicial delay and multiplicity of suits for a higher court to
remand the case to the trial court when the former is in a position to resolve
the dispute based on the records before it; (3) the impleaded bank officers
are not real parties-in-interest since they are not privy to the contract of
deposit between NUI and Metrobank, and they merely complied with the
SEC Order authorizing the release of funds from the account of NUI with
Metrobank; (4) the Nicolas faction has no legal capacity to sue in behalf of
NUI not being the de jure board of trustees; and (5) intra-corporate case No.
12-96-5469, lodged before the SEC, must take precedence over the damage
suit pending before the trial court.[20]
Petitioners then prayed for the dismissal of the complaint in Civil Case
No. 11296-14 against them, or in the alternative, to hold in abeyance the
proceedings therein until after the final determination of SEC Case No. 12-
96-5469.[21]
NUI in its Comment contends that: the Klaveness case does not apply
in the case at bar since the issues raised herein are dependent upon facts
the proof of which have neither been entered into the records of the case
nor admitted by the parties; petitioners cannot, on their bare and self-serving
representation that reconsideration is unnecessary, unilaterally disregard
what the law requires and deny the trial court its right to review its
pronouncements before being hailed to a higher court to account therefor;
and contrary to petitioners assertion, no hearing for the presentation of
evidence was had before the trial court on the factual matters raised in
petitioners motion to dismiss.[22]
NUI further argues: it did not fail to state a cause of action; the complaint
alleged that petitioners acted in connivance with their co-defendants and as
joint tortfeasors, are solidarily liable with their principal for the wrongful act;
as officers and employees of the bank, they are also considered agents
thereof who are liable for fraud and negligence; the complaint charged the
perpetration of the unlawful and unjust deprivation by the petitioners of NUIs
right to its property for which petitioners may be held liable for damages
making them real parties-in-interest; petitioners, as officers and employees
of Metrobank had an obligation to protect the funds of NUI and it was the
petitioners act of conniving to unlawfully withdraw NUIs funds which violated
NUIs legal right, thus entitling the latter to sue for such tortuous act; it is also
not true that petitioners could not be held liable for damages since they
merely complied with the order of the SEC; as pointed out in the Order dated
April 28, 1998, the amount allegedly authorized to be withdrawn
was P2,555,274.99 while the amount sought to be recovered in the
complaint was P1.6 M; it cannot be inferred conclusively therefore that the
amount subject of the complaint refers to the same amount authorized by
the SEC to be withdrawn; in any case, such argument is more a subject of
defense rather than a proper ground for a motion to dismiss.[23]
NUI disagrees with the contention of petitioners that it has no legal
capacity to sue, stating that NUI had already conducted subsequent
elections wherein Roy A. Nicolas was elected as member of the board of
directors and concurrently the administrator of NUI.[24]
NUI further avers that: there is no merit to the claim of petitioners that
there exists a prejudicial question which should prompt the trial court to
suspend its proceedings; the rule on prejudicial question finds no application
between the civil complaint below and the case before the SEC as the rule
presupposes the pendency of a civil action and a criminal action; and even
assuming arguendo that the issues pending before the SEC bear a similarity
to the cause of action below, the complaint of NUI can stand and proceed
separately from the SEC case inasmuch as there is no identity in the reliefs
prayed for.[25]
Evaluating the issues raised, it is clear that the only questions that need
to be answered in order to resolve the present petition are the following: (1)
Whether the complaint states a cause of action; (2) Whether a motion for
reconsideration of the order of the RTC dismissing a motion to dismiss prior
to the filing of a petition for certiorari before the CA is dispensable; and (3)
Whether the proceedings in Civil Case No. 11296-14 must be held in
abeyance pending resolution of SEC Case No. 12-96-5469.
43
 First issue. Whether the complaint states a cause of action against
petitioners. We rule in the affirmative.
It is settled that the existence of a cause of action is determined by the
allegations in the complaint. In resolving a motion to dismiss based on the
failure to state a cause of action, only the facts alleged in the complaint must
be considered. The test is whether the court can render a valid judgment on
the complaint based on the facts alleged and the prayer asked for.[26]Indeed,
the elementary test for failure to state a cause of action is whether the
complaint alleges facts which if true would justify the relief demanded. Only
ultimate facts and not legal conclusions or evidentiary facts, which should
not be alleged in the complaint in the first place, are considered for purposes
of applying the test. [27]
In this case the complaint alleges that:
...
10. Between December 16 and December 20, 1996, the defendants, acting
together and helping one another, with defendants Andaya, Abacan,
Magpantay, Venus and Palanca taking undue and unlawful advantage of
their respective positions, withdrew and released to themselves, for their
own personal gain and benefit, the corporate funds of plaintiff deposited
with Metrobank Laoag City Branch under Current Account No. 7-140-
525096 and Savings Account No. 3 140 52509 in the sum
of P1,400,000.00 without the knowledge, consent or approval of plaintiff to
the grave and serious damage and prejudice of the latter.[28]
From this statement alone, it is clear that a cause of action is present
in the complaint filed a quo. NUI has specifically alleged an act, that is, the
undue withdrawal of funds from its account with Metrobank, which the
petitioners and the other defendants committed, to the prejudice of NUIs
rights.
Petitioners argue that as mere officers and employees of Metrobank,
they are not privy to the contract of deposit between their bank and NUI, thus
they cannot be held liable for any erroneous withdrawal made in NUIs
account with their bank. They also do not stand to be benefited or injured by
the judgment, i.e., they are not real parties-in-interest, thus the complaint a
quo is dismissible on the ground of failure to state a cause of action.
We are not persuaded.
As aptly explained by respondent NUI in its comment, petitioners are
being sued and held liable for their alleged participation in the wrongdoing
of the other defendants. The complaint is not based on the contract of
deposit between Metrobank and NUI but on the alleged tortuous act of
defendants of wrongfully withdrawing NUIs funds. As contracts are not the
only sources of obligations, petitioners cannot escape responsibility on the
bare assertion that the have no contract with NUI.
Second issue. Whether a motion for reconsideration is dispensable in
the case at bar. We rule in the affirmative.
Indeed, it is settled that the filing of a motion for reconsideration is a
prerequisite to the filing of a special civil action for certiorari. This is to give
the lower court the opportunity to correct itself.[29] It is also the rule that since
an order denying a motion to dismiss is only interlocutory, which is neither
appealable until final judgment nor could it generally be assailed
on certiorari, the remedy of the aggrieved party is to file an answer and
interpose as defenses the objections raised in his motion to dismiss. [30]
However, the following have been recognized as exceptions to the
general rule:
(a) where the order is a patent nullity, as where the court a quo has no
jurisdiction;
(b) where the questions raised in the certiorari proceedings have
been duly raised and passed upon by the lower court, or are the same
as those raised and passed upon in the lower court;
(c) where there is an urgent necessity for the resolution of the question and
any further delay would prejudice the interests of the Government or of the
petitioner or the subject matter of the action is perishable;
(d) where, under the circumstances, a motion for reconsideration
would be useless;
(e) where petitioner was deprived of due process and there is extreme
urgency for relief;
(f) where, in a criminal case, relief from an order of arrest is urgent and the
granting of such relief by the trial court is improbable;
(g) where the proceedings in the lower court are a nullity for lack of due
process;
44
(h) where the proceeding was ex parte or in which the petitioner had no
opportunity to object; and
(i) where the issue raised is one purely of law or where public interest is
involved.[31] (Emphasis supplied)
Circumstances (b) and (d) above are present in this case.
In Klaveness Maritime Agency, Inc. vs. Palmos,[32] which is being
invoked by petitioners, we held that:
A prior motion for reconsideration is not indispensable for commencement
of certiorari proceedings if the errors sought to be corrected in such
proceedings had been duly heard and passed upon, or were similar to the
issues already resolved by the tribunal or agency below. Accordingly, the
Court has excused the non-filing of a motion for reconsideration when such
a motion would be basically pro forma in nature and content, and where, as
in the present Petition, the questions raised are essentially legal in
nature.[33]
We agree with the argument of petitioners that a motion for
reconsideration of the order of the trial court, prior to the filing of their petition
for certiorari before the CA, was dispensable since the questions involved
are essentially legal in nature and the errors sought to be corrected had
already been heard and passed upon. One of the errors sought to be
corrected is the ruling of the trial court that there exists a cause of action
against petitioners. This issue that was raised in the motion to dismiss has
been heard and passed upon by the trial court.
The other crucial issue that has been raised in the motion to dismiss
and duly passed upon by the trial court is the question whether the case
before the trial court should be held in abeyance until resolution of SEC Case
No. 12-96-5469. Palanca pointed out in her motion that said SEC case,
which is an action to nullify the election of the directors of NUI belonging to
the Castro faction, must take precedence over Civil Case No. 11296-14
before the trial court since it is determinative of whether or not Roy Nicolas
has the legal standing to file the suit in behalf of NUI. The trial court ruled in
the negative and held that the civil and the SEC cases can proceed
independently of each other since they involve different parties and issues.
Thus, inasmuch as this issue has already been raised and passed upon in
the trial court, we agree with petitioners that motion for reconsideration in
this instance may be dispensed with.
Third issue. Whether the proceedings in Civil Case No. 11296-14 must
be held in abeyance pending resolution of SEC Case No. 12-96-5469. We
rule in the affirmative.
Petitioners argue that SEC Case No. 12-96-5469, which is an action to
nullify the election of the directors of NUI belonging to the Castro faction, is
a necessary and logical antecedent of the issue of whether the withdrawal
of P1.4 M or P1.6 M, as the case may be, as well as the institution of this
suit for the recovery thereof was authorized by the NUI.
Technically, there would be no prejudicial question to speak of in this
case, if we are to consider the general rule that a prejudicial question comes
into play in a situation where a civil action and a criminal action are both
pending and there exists in the former an issue which must be preemptively
resolved before the criminal action may proceed, because howsoever the
issue in the civil action is resolved would be determinative juris et de jure of
the guilt or innocence of the accused in the criminal case. [34] However,
considering the rationale behind the principle of prejudicial question, being
to avoid two conflicting decisions,[35] prudence dictates that we apply the
principle underlying the doctrine to the case at bar.
A prejudicial question is that which arises in a case, the resolution of
which is a logical antecedent of the issue involved therein and the
cognizance of which pertains to another tribunal.[36] The prejudicial question
must be determinative of the case before the court but the jurisdiction to try
and resolve it must be lodged in another court or tribunal.[37]
In the present case, the question of which between the Castro and the
Nicolas factions are the de jure board of directors of NUI is lodged before
the SEC. The complaint before the RTC of Laoag meanwhile alleges that
petitioners, together with their co-defendants, comprised of the Castro
faction, wrongfully withdrew the amount of P1.4 M from the account of NUI
with Metrobank. Moreover, whether or not Roy Nicolas of the Nicolas faction
is a duly elected member of the Board of NUI and thus with capacity to
institute the herein complaint in behalf of the NUI depends on the findings of
the SEC in the case pending before it. It would finally determine whether
Castro, et al. legally withdrew the subject amount from the bank and whether
Nicolas lawfully initiated the complaint in behalf of herein respondent NUI. It
is petitioners claim, and we agree, that the presence or absence of their
liability for allowing the withdrawal of P1.4 M from the account of NUI with
Metrobank in favor of the Castro faction is reliant on the findings of the SEC
as to which of the two factions is the de jure board. Since the determination
of the SEC as to which of the two factions is the de jure board of NUI is
crucial to the resolution of the case before the RTC, we find that the trial
45
court should suspend its proceedings until the SEC comes out with its
findings.
We apply by analogy our pronouncement in Quiambao vs. Osorio,[38] to
wit:

Faced with these distinct possibilities, the more prudent course for the trial
court to have taken is to hold the ejectment proceedings in abeyance until
after a determination of the administrative case. Indeed, logic and
pragmatism, if not jurisprudence, dictate such move. To allow the parties to
undergo trial notwithstanding the possibility of petitioners right of
possession being upheld in the pending administrative case is to
needlessly require not only the parties but the court as well to expend time,
effort and money in what may turn out to be a sheer exercise in futility.
Thus, 1 Am Jur 2d tells us:

The court in which an action is pending may, in the exercise of a sound

discretion, upon proper application for a stay of that action, hold the action
in abeyance to abide the outcome of another pending in another court,
especially where the parties and the issues are the same, for there is
power inherent in every court to control the disposition of causes on its
dockets with economy of time and effort for itself, for counsel, and for
litigants. Where the rights of parties to the second action cannot be
properly determined until the questions raised in the first action are settled
the second action should be stayed.

While this rule is properly applicable to instances involving two [2] court
actions, the existence in the instant case of the same considerations of
identities of parties and issues, economy of time and effort for the court,
the counsels and the parties as well as the need to resolve the parties right
of possession before the ejectment case may be properly determined,
justifies the rules analogous application to the case at bar. [39]

WHEREFORE, the petition is GRANTED. The Court of Appeals

Decision dated July 22, 1999 and Resolution dated November 12, 1999 are
SET ASIDE. The RTC of Laoag City, Branch 14, is hereby DIRECTED to
suspend further proceedings in Civil Case No. 11296-14 until after a final
determination is made in SEC Case No. 12-96-5469.
No costs.
SO ORDERED.

46
 PHILTRANCO SERVICE ENTERPRISES, G.R. No. 161909 buy and sell of fish products. Sometime on 08 February
INC., 1987, on his way home to Manila from Bicol Region, he
Petitioner, Present: boarded a bus with Body No. 101 and Plate No. EVE 508,
owned and operated by Inland Trailways, Inc. (Inland for
CORONA, C.J. Chairperson, brevity) and driven by its driver Calvin Coner (Coner for
LEONARDO-DE CASTRO, brevity).
-versus- BERSAMIN,
DEL CASTILLO, and At approximately 3:50 oclock in the morning of 09
VILLARAMA, JR., JJ. February 1987, while the said bus was travelling
along Maharlika Highway, Tiaong, Quezon, it was bumped
FELIX PARAS AND INLAND TRAILWAYS, Promulgated: at the rear by another bus with Plate No. EVB 259, owned
INC., AND HON. COURT OF APPEALS, April 25, 2012 and operated by Philtranco Service Enterprises, Inc.
Respondents. (Philtranco for brevity). As a result of the strong and violent
impact, the Inland bus was pushed forward and smashed
x-----------------------------------------------------------------------------------------x
into a cargo truck parked along the outer right portion of the
highway and the shoulder thereof. Consequently, the said
DE CI S IO N
accident bought considerable damage to the vehicles
involved and caused physical injuries to the passengers and
crew of the two buses, including the death of Coner who
BERSAMIN, J.:
was the driver of the Inland Bus at the time of the incident.
In an action for breach of contract of carriage commenced by a
Paras was not spared from the pernicious effects of
passenger against his common carrier, the plaintiff can recover damages
the accident. After an emergency treatment at the San
from a third-party defendant brought into the suit by the common carrier upon
Pablo Medical Center, San Pablo City, Laguna, Paras was
a claim based on tort or quasi-delict. The liability of the third-party defendant
taken to the National Orthopedic Hospital. At the latter
is independent from the liability of the common carrier to the passenger.
hospital, he was found and diagnosed by Dr. Antonio
Tanchuling, Jr. to be affected with the following injuries: a)
Philtranco Service Enterprises, Inc. (Philtranco) appeals the
contusion/hematoma; b) dislocation of hip upon fracture of
affirmance with modifications by the Court of Appeals (CA) of the decision
the fibula on the right leg; c) fractured small bone on the
of the Regional Trial Court (RTC) awarding moral, actual and temperate
right leg; and d) close fracture on the tibial plateau of the left
damages, as well as attorneys fees and costs of suit, to respondent Felix
leg. (Exh. A, p. 157, record)
Paras (Paras), and temperate damages to respondent Inland Trailways, Inc.
(Inland), respectively the plaintiff and the defendant/third-party plaintiff in this
On 04 March 1987 and 15 April 1987, Paras
action for breach of contract of carriage, upon a finding that the negligence
underwent two (2) operations affecting the fractured
of the petitioner and its driver had caused the serious physical injuries Paras
portions of his body. (Exhs. A-2 and A-3, pp. 159 and 160
sustained and the material damage Inlands bus suffered in a vehicular
respectively, record)
accident.
Unable to obtain sufficient financial assistance from
Antecedents
Inland for the costs of his operations, hospitalization,
doctors fees and other miscellaneous expenses, on 31 July
The antecedent facts, as summarized by the CA, are as follows:
1989, Paras filed a complaint for damages based on breach
of contract of carriage against Inland.
Plaintiff-appellant [respondent] Felix Paras (Paras
for brevity), who hails from Cainta, Rizal is engaged in the

47
 In its answer, defendant Inland denied IS LIABLE FOR THE DAMAGES SUFFERED BY
responsibility, by alleging, among others, that its driver APPELLANT PARAS.
Coner had observed an utmost and extraordinary care and
diligence to ensure the safety of its passengers. In support II. THE TRIAL COURT ERRED IN NOT HOLDING
of its disclaimer of responsibility, Inland invoked the Police APPELLANT INLAND TRAILWAYS INC. TO BE JOINTLY
Investigation Report which established the fact that the AND SEVERALLY LIABLE FOR THE DAMAGES
Philtranco bus driver of [sic] Apolinar Miralles was the one SUFFERED BY PARAS.
which violently bumped the rear portion of the Inland bus,
and therefore, the direct and proximate cause of Paras III. THE TRIAL COURT ERRED IN NOT AWARDING
injuries. UNEARNED INCOME AS ADDITIONAL ACTUAL
DAMAGES SUFFERED BY APPELLANT PARAS AS HIS
On 02 March 1990, upon leave of court, Inland filed PHYSICAL DISABILITY IS PERMANENT IN NATURE.
a third-party complaint against Philtranco and Apolinar
Miralles (Third Party defendants). In this third-party IV. THE TRIAL COURT ERRED IN NOT AWARDING
complaint, Inland, sought for exoneration of its liabilities to EXEMPLARY DAMAGES IN FAVOR OF APPELLANT
Paras, asserting that the latters cause of action should be PARAS.
directed against Philtranco considering that the accident
was caused by Miralles lack of care, negligence and
reckless imprudence. (pp. 50 to 56, records). On the other hand, Inland assigned the following errors to the RTC,
namely:

After trial, the RTC (Branch 71) in Antipolo, Rizal rendered its
judgment on July 18, 1997,[1] viz:
WHEREFORE, third-party defendant Philtranco
and Apolinar Miralles are hereby ordered to pay plaintiff
jointly and severally, the following amounts:
1.P54,000.00 as actual damages;
2.P50,000.00 as moral damages;
THE TRIAL COURT ERRED WHEN IT FAILED TO
AWARD DAMAGES UNTO THE THIRD PARTY
PLAINTIFF NOTWITHSTANDING CLEAR FINDING THAT:
It is clear from the evidence that the plaintiff
sustained injuries because of the reckless,
negligence, and lack of precaution of third party
defendant Apolinar Miralles, an employee of
Philtranco.

3.P20,000.00 as attorneys fees and costs. AND, COMPLETELY DISREGARDED THE

UNCONTROVERTED ORAL AND DOCUMENTARY
SO ORDERED. EVIDENCES ESTABLISHING THE EXTENT AND
DEGREE OF DAMAGES SUSTAINED BY THE THIRD
All the parties appealed to the CA on different grounds. PARTY PLAINTIFF.

Lastly, Philtranco stated that the RTC erred thuswise:

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

I
1. THE TRIAL COURT ERRED IN HOLDING THAT ONLY
THE COURT A QUO MISERABLY ERRED IN AWARDING
THIRD-PARTY DEFENDANT-APPELLANT PHILTRANCO
ACTUAL DAMAGES GREATER THAN WHAT WAS
48
 ALLEGED IN THE COMPLAINT ITSELF, AND EVEN
MUCH MORE GREATER THAN WHAT WERE PROVED
DURING THE TRIAL, HENCE, PERPETUATING UNJUST
ENRICHMENT.
II
THE COURT A QUO SERIOUSLY ERRED IN AWARDING
MORAL DAMAGES TO A CAUSE OF ACTION OF CULPA-
CONTRACTUAL EVEN WITHOUT ANY EVIDENCE OF
GROSS BAD FAITH; HENCE, CONTRARY TO THE
ESTABLISHED DOCTRINE IN THE CASES OF PHIL.
RABBIT BUS LINES VS. ESGUERRA; SOBERANO VS.
BENGUET AUTO LINE AND FLORES VS. MIRANDA.
III
THE COURT A QUO MISERABLY ERRED IN HOLDING
THAT MIRALLES WAS THE ONE AT FAULT MERELY ON
THE STRENGHT OF THE TESTIMONY OF THE POLICE
INVESTIGATOR WHICH IS IN TURN BASED ON THE
STATEMENTS OF ALLEGED WITNESSES WHO WERE
NEVER PRESENTED ON THE WITNESS STAND.
IV
THE COURT A QUO COMMITTED A GRIEVOUS ERROR
IN DISREGARDING THE TESTIMONY OF APPELLANTS
WITNESSES WHO TESTIFIED AS TO THE DEFENSE OF
EXERCISE OF DUE DILIGENCE IN THE SELECTION
AND SUPERVISION OF EMPLOYEES PURSUANT TO
ART. 2180, LAST PARAGRAPH, NEW CIVIL CODE.
On September 25, 2002, the CA promulgated
decision,[2] disposing:
WHEREFORE, in consideration of the foregoing
premises, the assailed decision dated 18 July 19(9)7 is
perforce affirmed with the following modifications:
1. Third party defendants-appellants Philtranco and
Apolinar Miralles are ordered to pay plaintiff-appellant Felix
Paras jointly and severally the following amounts:
a) P1,397.95 as actual damages;
b) P50,000.00 as temperate damages;
c) P50,000.00 as moral damages; and
d) P20,000.00 as attorneys fees and costs
of suit.
2. On the third party plaintiff-appellant Inlands
claims, the third party defendant-appellants Philtranco and
Apolinar Miralles are hereby ordered to pay the former
(Inland) jointly and severally the amount of P250,000.00 as
and by way of temperate damages.
SO ORDERED.
The CA agreed with the RTCs finding that no trace of negligence at
the time of the accident was attributable to Inlands driver, rendering Inland
not guilty of breach of contract of carriage; that faulty brakes had caused
Philtrancos bus to forcefully bump Inlands bus from behind, making it hit the
rear portion of a parked cargo truck; that the impact had resulted in
considerable material damage to the three vehicles; and that Paras and
others had sustained various physical injuries.
Accordingly, the CA: (a) sustained the award of moral damages
of P50,000.00 in favor of Paras pursuant to Article 2219 of the Civil
Code based on quasi-delict committed by Philtranco and its driver; (b)
reduced the actual damages to be paid by Philtranco to Paras
from P54,000.00 to P1,397.95 because only the latter amount had been
duly supported by receipts; (c) granted temperate damages of P50,000.00
(in lieu of actual damages in view of the absence of competent proof of
actual damages for his hospitalization and therapy) to be paid by Philtranco
to Paras; and (d) awarded temperate damages of P250,000.00 under the
same premise to be paid by Philtranco to Inland for the material damage
its caused to Inlands bus.
Philtranco moved for reconsideration,[3] but the CA denied its motion
for reconsideration on January 21, 2004.[4]
Issues
Hence, this appeal, in which the petitioner submits that the CA
committed grave abuse of discretion amounting to lack of jurisdiction in
awarding moral damages to Paras despite the fact that the complaint had
been anchored on breach of contract of carriage; and that the CA committed
a reversible error in substituting its own judgment by motu proprio awarding
temperate damages of P250,000.00 to Inland and P50,000.00 to Paras
49
despite the clear fact that temperate damages were not raised on appeal by negligent, reckless and imprudent manner defendant Apolinar Miralles drove
Paras and Inland. and operated his driven unit, the Philtranco Bus with Plate No. 259, owned
and operated by third-party defendant Philtranco Service Enterprises,
Ruling Inc.[10] The apparent objective of Inland was not to merely subrogate the
third-party defendants for itself, as Philtranco appears to suggest, [11] but,
The appeal lacks merit. rather, to obtain a different relief whereby the third-party defendants would
be held directly, fully and solely liable to Paras and Inland for whatever
The Court does not disturb the unanimous findings by the CA and the RTC damages each had suffered from the negligence committed by Philtranco
on the negligence of Philtranco and its driver being the direct cause of the and its driver. In other words, Philtranco and its driver were charged here as
physical injuries of Paras and the material damage of Inland. joint tortfeasors who would be jointly and severally be liable to Paras and
Inland.
Nonetheless, we feel bound to pass upon the disparate results the
CA and the RTC reached on the liabilities of Philtranco and its driver.
Impleading Philtranco and its driver through the third-party complaint filed on
March 2, 1990 was correct. The device of the third-party action, also known
1.
as impleader, was in accord with Section 12, Rule 6 of the Revised Rules of
Paras can recover moral damages
Court, the rule then applicable, viz:
in this suit based on quasi-delict
Philtranco contends that Paras could not recover moral damages
Section 12. Third-party complaint. A third-party
because his suit was based on breach of contract of carriage, pursuant
complaint is a claim that a defending party may, with leave
to which moral damages could be recovered only if he had died, or if the
of court, file against a person not a party to the action, called
common carrier had been guilty of fraud or bad faith. It argues that Paras
the third-party defendant, for contribution, indemnity,
had suffered only physical injuries; that he had not adduced evidence of
subrogation or any other relief, in respect of his opponents
fraud or bad faith on the part of the common carrier; and that, consequently,
claim.[12]
Paras could not recover moral damages directly from it (Philtranco),
considering that it was only being subrogated for Inland.
Explaining the application of Section 12, Rule 6, supra, the Court
The Court cannot uphold the petitioners contention.
said in Balbastro v. Court of Appeals,[13] to wit:
As a general rule, indeed, moral damages are not recoverable in an
action predicated on a breach of contract. This is because such action is not
Section 12 of Rule 6 of the Revised Rules of Court
included in Article 2219 of the Civil Code[5] as one of the actions in which
authorizes a defendant to bring into a lawsuit any person
moral damages may be recovered. By way of exception, moral damages are
not a party to the action . . . for contribution, indemnity,
recoverable in an action predicated on a breach of contract: (a) where the
subrogation or any other relief in respect of his opponent's
mishap results in the death of a passenger, as provided in Article 1764, [6] in
claim. From its explicit language it does not compel the
relation to Article 2206, (3), [7] of the Civil Code; and (b) where the common
defendant to bring the third-parties into the litigation, rather
carrier has been guilty of fraud or bad faith,[8] as provided in Article 2220[9] of
it simply permits the inclusion of anyone who meets the
the Civil Code.
standard set forth in the rule. The secondary or derivative
Although this action does not fall under either of the exceptions, the
liability of the third-party is central whether the basis is
award of moral damages to Paras was nonetheless proper and valid. There
indemnity, subrogation, contribution, express or implied
is no question that Inland filed its third-party complaint against Philtranco
warranty or some other theory. The impleader of new
and its driver in order to establish in this action that they, instead of Inland,
parties under this rule is proper only when a right to
should be directly liable to Paras for the physical injuries he had sustained
relief exists under the applicable substantive law. This
because of their negligence. To be precise, Philtranco and its driver were
rule is merely a procedural mechanism, and cannot be
brought into the action on the theory of liability that the proximate cause of
the collision between Inlands bus and Philtrancos bus had been the
50
 utilized unless there is some substantive basis under
applicable law.
Apart from the requirement that the third-party
complainant should assert a derivative or secondary
claim for relief from the third-party defendant there are
other limitations on said partys ability to implead. The
rule requires that the third-party defendant is not a
party to the action for otherwise the proper procedure
for asserting a claim against one who is already a party
to the suit is by means of counterclaim or cross-claim
under sections 6 and 7 of Rule 6. In addition to the
aforecited requirement, the claim against the third-
party defendant must be based upon plaintiff's claim
against the original defendant (third-party claimant).
The crucial characteristic of a claim under section 12 of
Rule 6, is that the original defendant is attempting to
transfer to the third-party defendant the liability
asserted against him by the original plaintiff.
Accordingly, the requisites for a third-party action are, firstly, that the
party to be impleaded must not yet be a party to the action; secondly, that
the claim against the third-party defendant must belong to the original
defendant; thirdly, the claim of the original defendant against the third-party
defendant must be based upon the plaintiffs claim against the original
defendant; and, fourthly, the defendant is attempting to transfer to the third-
party defendant the liability asserted against him by the original plaintiff. [14]
As the foregoing indicates, the claim that the third-party complaint
asserts against the third-party defendant must be predicated on substantive
law. Here, the substantive law on which the right of Inland to seek such other
relief through its third-party complaint rested were Article 2176 and Article
2180 of the Civil Code, which read:
Article 2176. Whoever by act or omission causes
damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation
between the parties, is called a quasi-delict and is governed
by the provisions of this chapter. (1902a)
Article 2180. The obligation imposed by article 2176
is demandable not only for ones own acts or omissions, but
also for those of persons for whom one is responsible.
xxx
Employers shall be liable for the damages caused by their
employees and household helpers acting within the scope
of their assigned tasks, even though the former are not
engaged in any business or industry.
xxx
The responsibility treated of in this article shall cease when
the persons herein mentioned prove that they observed all
the diligence of a good father of a family to prevent damage.
(1903a)
Paras cause of action against Inland (breach of contract of carriage) did not
need to be the same as the cause of action of Inland against Philtranco and
its driver (tort or quasi-delict) in the impleader. It is settled that a defendant
in a contract action may join as third-party defendants those who may be
liable to him in tort for the plaintiffs claim against him, or even directly to the
plaintiff.[15] Indeed, Prof. Wright, et al., commenting on the provision of
the Federal Rules of Procedure of the United States from which Section
12, supra, was derived, observed so, to wit:[16]
The third-party claim need not be based on the
same theory as the main claim. For example, there are
cases in which the third-party claim is based on an express
indemnity contract and the original complaint is framed in
terms of negligence. Similarly, there need not be any legal
relationship between the third-party defendant and any of
the other parties to the action. Impleader also is proper even
though the third partys liability is contingent, and technically
does not come into existence until the original defendants
liability has been established. In addition, the words is or
may be liable in Rule 14(a) make it clear that impleader is
proper even though the third-party defendants liability is not
automatically established once the third-party plaintiffs
liability to the original plaintiff has been determined.
Nor was it a pre-requisite for attachment of the liability to Philtranco
and its driver that Inland be first declared and found liable to Paras for the
breach of its contract of carriage with him.[17] As the Court has cogently
discoursed in Samala v. Judge Victor:[18]
51
 Appellants argue that since plaintiffs filed a
complaint for damages against the defendants on a breach
of contract of carriage, they cannot recover from the third-
party defendants on a cause of action based on quasi-delict.
The third party defendants, they allege, are never parties
liable with respect to plaintiff s claim although they are with
respect to the defendants for indemnification, subrogation,
contribution or other reliefs. Consequently, they are not
directly liable to the plaintiffs. Their liability commences only
when the defendants are adjudged liable and not when they
are absolved from liability as in the case at bar.
Quite apparent from these arguments is the
misconception entertained by appellants with respect to the
nature and office of a third party complaint.
Section 16, Rule 6 of the Revised Rules of Court
defines a third party complaint as a claim that a defending
party may, with leave of court, file against a person not a
party to the action, called the third-party defendant, for
contribution, indemnification, subrogation, or any other
relief, in respect of his opponents claim. In the case
of Viluan vs. Court of Appeals, et al., 16 SCRA 742 [1966],
this Court had occasion to elucidate on the subjects covered
by this Rule, thus:
... As explained in the Atlantic Coast
Line R. Co. vs. U.S. Fidelity & Guaranty
Co., 52 F. Supp. 177 (1943:)
From the sources of Rule 14 and the
decisions herein cited, it is clear that this
rule, like the admiralty rule, covers two
distinct subjects, the addition of parties
defendant to the main cause of action, and
the bringing in of a third party for a
defendants remedy over. xxx
If the third party complaint alleges
facts showing a third partys direct
liability to plaintiff on the claim set out
in plaintiffs petition, then third party
shall make his defenses as provided in
Rule 12 and his counterclaims against
plaintiff as provided in Rule 13. In the
case of alleged direct liability, no
amendment (to the complaint) is
necessary or required. The subject-
matter of the claim is contained in
plaintiff's complaint, the ground of third
partys liability on that claim is alleged in
third party complaint, and third partys
defense to set up in his answer to
plaintiff's complaint. At that point and
without amendment, the plaintiff and
third party are at issue as to their rights
respecting the claim.
The provision in the rule that, The
third-party defendant may assert any
defense which the third-party plaintiff may
assert to the plaintiffs claim, applies to the
other subject, namely, the alleged liability
of third party defendant. The next sentence
in the rule, The third-party defendant is
bound by the adjudication of the third party
plaintiffs liability to the plaintiff, as well as of
his own to the plaintiff or to the third-party
plaintiff applies to both subjects. If third
party is brought in as liable only to
defendant and judgment is rendered
adjudicating plaintiff's right to recover
against defendant and defendants rights to
recover against third party, he is bound by
both adjudications.That part of the
sentence refers to the second subject. If
third party is brought in as liable to plaintiff,
then third party is bound by the adjudication
as between him and plaintiff. That refers to
the first subject. If third party is brought in
as liable to plaintiff and also over to
defendant, then third party is bound by both
adjudications. xxx
Under this Rule, a person not a party to an action
may be impleaded by the defendant either (a) on an
allegation of liability to the latter; (b) on the ground of direct
liability to the plaintiff-; or, (c) both (a) and (b). The situation
52
 in (a) is covered by the phrase for contribution, indemnity or
subrogation; while (b) and (c) are subsumed under the
catch all or any other relief, in respect of his opponents
claim.
The case at bar is one in which the third party
defendants are brought into the action as directly liable
to the plaintiffs upon the allegation that the primary and
immediate cause as shown by the police investigation
of said vehicular collision between (sic) the above-
mentioned three vehicles was the recklessness and
negligence and lack of imprudence (sic) of the third-
party defendant Virgilio (should be Leonardo) Esguerra
y Ledesma then driver of the passenger bus. The
effects are that plaintiff and third party are at issue as
to their rights respecting the claim and the third party
is bound by the adjudication as between him and
plaintiff. It is not indispensable in the premises that the
defendant be first adjudged liable to plaintiff before the
third-party defendant may be held liable to the plaintiff,
as precisely, the theory of defendant is that it is the
third party defendant, and not he, who is directly
liable to plaintiff. The situation contemplated by
appellants would properly pertain to situation (a) above
wherein the third party defendant is being sued for
contribution, indemnity or subrogation, or simply
stated, for a defendant's remedy over.[19]
It is worth adding that allowing the recovery of damages by Paras
based on quasi-delict, despite his complaint being upon contractual breach,
served the judicial policy of avoiding multiplicity of suits and circuity of
actions by disposing of the entire subject matter in a single litigation. [20]
2.
Award of temperate damages was in order
Philtranco assails the award of temperate damages by the CA considering
that, firstly, Paras and Inland had not raised the matter in the trial court and
in their respective appeals; secondly, the CA could not substitute the
temperate damages granted to Paras if Paras could not properly establish
his actual damages despite evidence of his actual expenses being easily
available to him; and, thirdly, the CA gravely abused its discretion in
granting motu proprio the temperate damages of P250,000.00 to Inland
although Inland had not claimed temperate damages in its pleading or during
trial and even on appeal.
The Court cannot side with Philtranco.
Actual damages, to be recoverable, must not only be capable of proof, but
must actually be proved with a reasonable degree of certainty. The reason
is that the court cannot simply rely on speculation, conjecture or guesswork
in determining the fact and amount of damages, but there must be
competent proof of the actual amount of loss, credence can be given only to
claims which are duly supported by receipts.[21]
The receipts formally submitted and offered by Paras were limited
to the costs of medicines purchased on various times in the period from
February 1987 to July 1989 (Exhibits E to E-35, inclusive) totaling
only P1,397.95.[22] The receipts by no means included hospital and medical
expenses, or the costs of at least two surgeries as well as rehabilitative
therapy. Consequently, the CA fixed actual damages only at that small sum
of P1,397.95. On its part, Inland offered no definite proof on the repairs done
on its vehicle, or the extent of the material damage except the testimony of
its witness, Emerlinda Maravilla, to the effect that the bus had been
damaged beyond economic repair.[23]The CA rejected Inlands showing
of unrealized income worth P3,945,858.50 for 30 months (based on
alleged average weekly income of P239,143.02 multiplied by its guaranteed
revenue amounting to 55% thereof, then spread over a period of 30 months,
the equivalent to the remaining 40% of the vehicles un-depreciated or net
book value), finding such showing arbitrary, uncertain and speculative.[24] As
a result, the CA allowed no compensation to Inland for unrealized income.
Nonetheless, the CA was convinced that Paras should not suffer
from the lack of definite proof of his actual expenses for the surgeries and
rehabilitative therapy; and that Inland should not be deprived of recourse to
recover its loss of the economic value of its damaged vehicle. As the records
indicated, Paras was first rushed for emergency treatment to the San Pablo
Medical Center in San Pablo City, Laguna, and was later brought to the
National Orthopedic Hospital in Quezon City where he was diagnosed to
have suffered a dislocated hip, fracture of the fibula on the right leg, fracture
of the small bone of the right leg, and closed fracture on the tibial plateau of
the left leg. He underwent surgeries on March 4, 1987 and April 15, 1987 to
repair the fractures.[25] Thus, the CA awarded to him temperate damages
of P50,000.00 in the absence of definite proof of his actual expenses
towards that end. As to Inland, Maravillas testimony of the bus having been
damaged beyond economic repair showed a definitely substantial pecuniary
53
loss, for which the CA fixed temperate damages of P250,000.00. We cannot
disturb the CAs determination, for we are in no position today to judge its
reasonableness on account of the lapse of a long time from when the
accident occurred.[26]
In awarding temperate damages in lieu of actual damages, the CA
did not err, because Paras and Inland were definitely shown to have
sustained substantial pecuniary losses. It would really be a travesty of justice
were the CA now to be held bereft of the discretion to calculate moderate or
temperate damages, and thereby leave Paras and Inland without redress
from the wrongful act of Philtranco and its driver.[27] We are satisfied that the
CA exerted effort and practiced great care to ensure that the causal link
between the physical injuries of Paras and the material loss of Inland, on the
one hand, and the negligence of Philtranco and its driver, on the other hand,
existed in fact. It also rejected arbitrary or speculative proof of loss. Clearly,
the costs of Paras surgeries and consequential rehabilitation, as well as the
fact that repairing Inlands vehicle would no longer be economical justly
warranted the CA to calculate temperate damages of P50,000.00
and P250,000.00 respectively for Paras and Inland.
There is no question that Article 2224 of the Civil Code expressly
authorizes the courts to award temperate damages despite the lack of
certain proof of actual damages, to wit:
Article 2224. Temperate or moderate damages,
which are more than nominal but less than compensatory
damages, may be recovered when the court finds that some
pecuniary loss has been suffered but its amount cannot,
from the nature of the case, be proved with certainty.
The rationale for Article 2224 has been stated in Premiere Development
Bank v. Court of Appeals[28] in the following manner:
Even if not recoverable as compensatory damages,
Panacor may still be awarded damages in the concept of
temperate or moderate damages. When the court finds that
some pecuniary loss has been suffered but the amount
cannot, from the nature of the case, be proved with
certainty, temperate damages may be recovered.
Temperate damages may be allowed in cases where from
the nature of the case, definite proof of pecuniary loss
cannot be adduced, although the court is convinced that the
aggrieved party suffered some pecuniary loss.
The Code Commission, in explaining the concept of
temperate damages under Article 2224, makes the
following comment:
In some States of the American
Union, temperate damages are allowed.
There are cases where from the nature of
the case, definite proof of pecuniary loss
cannot be offered, although the court is
convinced that there has been such loss.
For instance, injury to ones commercial
credit or to the goodwill of a business firm
is often hard to show with certainty in terms
of money. Should damages be denied for
that reason? The judge should be
empowered to calculate moderate
damages in such cases, rather than that
the plaintiff should suffer, without redress
from the defendants wrongful act.
3.
Paras loss of earning capacity
must be compensated
In the body of its decision, the CA concluded that considering that
Paras had a minimum monthly income of P8,000.00 as a trader he was
entitled to recover compensation for unearned income during the 3-month
period of his hospital confinement and the 6-month period of his recovery
and rehabilitation; and aggregated his unearned income for those periods
to P72,000.00.[29] Yet, the CA omitted the unearned income from the
dispositive portion.
The omission should be rectified, for there was credible proof of
Paras loss of income during his disability. According to Article 2205, (1), of
the Civil Code, damages may be recovered for loss or impairment of earning
capacity in cases of temporary or permanent personal injury. Indeed,
indemnification for damages comprehends not only the loss suffered (actual
damages or damnum emergens) but also the claimants lost profits
(compensatory damages or lucrum cessans).[30] Even so, the formula that
has gained acceptance over time has limited recovery to net earning
capacity; hence, the entire amount of P72,000.00 is not allowable. The
premise is obviously that net earning capacity is the persons capacity to
acquire money, less the necessary expense for his own living.[31] To simplify
the determination, therefore, the net earning capacity of Paras during the 9-
54
month period of his confinement, surgeries and consequential therapy is
pegged at only half of his unearned monthly gross income of P8,000.00 as 1. To Felix Paras:
a trader, or a total of P36,000.00 for the 9-month period, the other half being
treated as the necessary expense for his own living in that period. (a) P1,397.95, as reimbursement for the costs of medicines
purchased between February 1987 and July 1989;
It is relevant to clarify that awarding the temperate damages (for the
substantial pecuniary losses corresponding to Parass surgeries and (b) P50,000.00 as temperate damages;
rehabilitation and for the irreparability of Inlands damaged bus) and the
actual damages to compensate lost earnings and costs of medicines give (c) P50,000.00 as moral damages;
rise to no incompatibility. These damages cover distinct pecuniary losses
suffered by Paras and Inland,[32] and do not infringe the statutory prohibition (d) P36,000.00 for lost earnings;
against recovering damages twice for the same act or omission.[33]
(e) 10% of the total of items (a) to (d) hereof as attorneys
4. fees; and
Increase in award of attorneys fees
(f) Interest of 6% per annum from July 18, 1997 on the total
of items (a) to (d) hereof until finality of this decision,
Although it is a sound policy not to set a premium on the right to litigate,[34] we and 12% per annum thereafter until full payment.
consider the grant to Paras and Inland of reasonable attorneys fees
warranted. Their entitlement to attorneys fees was by virtue of their having 2. To Inland Trailways, Inc.:
been compelled to litigate or to incur expenses to protect their interests, [35] as
well as by virtue of the Court now further deeming attorneys fees to be just (a) P250,000.00 as temperate damages;
and equitable.[36]
(b) 10% of item (a) hereof; and
In view of the lapse of a long time in the prosecution of the claim,[37] the Court
considers it reasonable and proper to grant attorneys fees to each of Paras (c) Interest of 6% per annum on item (a) hereof from July
and Inland equivalent to 10% of the total amounts hereby awarded to them, 18, 1997 until finality of this decision, and 12% per
in lieu of only P20,000.00 for that purpose granted to Paras. annum thereafter until full payment.

5. 3. The petitioner shall pay the costs of suit.

Legal interest on the amounts awarded
SO ORDERED.
Pursuant to Eastern Shipping Lines, Inc. v. Court of Appeals,[38] legal
interest at the rate of 6% per annum accrues on the amounts adjudged
reckoned from July 18, 1997, the date when the RTC rendered its judgment;
and legal interest at the rate of 12% per annum shall be imposed from the
finality of the judgment until its full satisfaction, the interim period being
regarded as the equivalent of a forbearance of credit.

WHEREFORE, the Court AFFIRMS WITH MODIFICATION the

decision of the Court of Appeals promulgated on September 25, 2002, by
ordering PHILTRANCO SERVICE ENTERPRISES, INC. and APOLINAR
MIRALLES to pay, jointly and severally, as follows:
55