NELSIE B.

CAETE, RONA ANAS, MILAGROSA APUAN, ERLINDA AQUINO, GODOFREDO

AQUINO, CORITA BARREDO, TESSIE BARREDO, JESUS BATRINA, ALBERTO
BUENAVENTURA, BONIFACIO BUENAVENTURA, EUSEBIO CAPIRAL, MARIO CAPIRAL,
LOLITA CAPIRAL, ELENA CAPIRAL, LETICIA CAPIRAL, RENATO CAPIRAL, ELY CABANGON,
ERWIN CATALUNA, JESSIE CONRADO, JOEL CONRADO, NARCISIO CONRADO, RICARDO
CALAMPIANO, ALUMNIO CORSANES, NILO COLATOY, MARJETO DAYAN, HENRY DIAZ,
SALVACION ESMANDE, REYNALDO FUENTEBELLA, GERRY GEQUILLANA, DELSIE GARCIA,
NERISSA GONZALES, VISITACION JUNSAY, ESTELA JOVEN, JOSE LANZUELA, MARLON
MALANGAYON, RENATO MARCELO, ANITA MARZONIA, MARCELINO MONTALBO, AMADO
MULI, JR., LEONITA MULI, EDUARDO OLVIDO, ALMARIO PACON, ASUNCION PACON,
SALVACION PAGAYUNAN, ESTER PANTALEON, SHERLITA RABE, ANITA REYES, MEDELYN
RIOS, BERTITO RIVAS, ENGRACIA RIVERA, GERALYN RIVERA, ARMANDO RIVERA, MA.
MERCY SHERVA, ALEXANDER SANGALAN, ERNESTO SANTIAGO, JOY SANTIAGO, ELENA
TALION, JOE RANDY TRESVALLES, ELIAS VALENZUELA, GERRY VALENZUELA, LILIBETH
VALENZUELA, JOSEPHINE VICTORINO, JOJO VICTORINO, MAXIMINO VICTORINO, NOEL
VICTORINO, REYNANTE VICTORINO, ROBERTO VICTORINO and JOVITO VILLAREAL,
represented by NELSIE B. CAETE, petitioners,
vs.
GENUINO ICE COMPANY, INC., respondent.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari seeks to set aside the Decision 1 of the Court of Appeals dated
January 9, 2002 in CA-G.R. SP No. 64337 entitled "Genuino Ice Company, Inc. vs. Hon. Victorino P.
Evangelista, Nelsie B. Caete, et al.," and its Resolution2 dated June 26, 2002, dismissing
petitioners "Second Amended Complaint" in Civil Case No. Q-99-36483 filed in Branch 223 of the
Regional Trial Court of Quezon City.
Records show that on January 11, 1999, petitioners filed a complaint for cancellation of title to
property covered by Transfer Certificate of Title (TCT) Nos. N-140441; 3 14399;4 RT-94384
(292245);5 RT-94794 (292246);6 and 292247.7 Petitioners alleged that said titles are spurious,
fictitious and were issued "under mysterious circumstances," considering that the holders thereof
including their predecessors-in-interest were never in actual, adverse and physical possession of
the property, rendering them ineligible to acquire title to the said property under the Friar Lands
Act.8 Petitioners also sought to nullify Original Certificate of Title (OCT) No. 614 from which the
foregoing titles sought to be cancelled originated or were derived.
Respondent Genuino Ice Co., Inc. filed a motion to dismiss9 on the ground that the complaint states
no cause of action because petitioners are not real parties-in-interest; that no relief may be granted
as a matter of law; and that petitioners failed to exhaust administrative remedies, but it was denied
by the trial court. Respondent moved for reconsideration but the same was denied.
On November 4, 1999, petitioners filed a "Second Amended Complaint" 10 which sought to annul, in
addition to the titles already alleged in the original complaint, TCT Nos. 274095 and
274096;11 274097 and 274098;12 and 274099.13
The Second Amended Complaint alleged the following causes of action, as well as the remedy
sought to be obtained, thus:

4. That plaintiffs (petitioners) and their predecessors-in-interest are among those who have
been in actual, adverse, peaceful and continuous possession in concept of owners of
unregistered parcels of land situated at Sitio Mabilog, Barangay Culiat, Quezon City, Metro
Manila, which parcels of land are more particularly described as follows:
(1) "A parcel of unregistered land known as Lot 668, situated at Barangay Culiat,
Quezon City x x x."
(2) "A parcel of unregistered land known as Lot 669, situated at Barangay Culiat,
Quezon City x x x."
5. That the above-described real property is a portion of a friar land known as "Piedad
Estate," which property is intended for distribution among the bona fide occupants thereof
pursuant to the Friar Lands Act.
6. That transfer certificates of title allegedly having originated or derived from Original
Certificate of Title No. 614 were issued by the Register of Deeds of Quezon City, which
transfer certificates of title are in truth and in fact fictitious, spurious and null and void, for the
following reasons: (a) that no record of any agency of the government shows as to how and
in what manner was OCT 614 issued; (b) that no record of any proceedings whatsoever,
whether judicial or administrative, can support defendants claim that the above-described
property originated from OCT 614; and (c) that the transfer certificates of title over the abovedescribed property were issued under mysterious circumstances for the above-named
defendants and their so-called predecessors-in-interest never had any actual, adverse,
physical possession of the said property, thus, not allowed to acquire title over the property in
litigation pursuant to the Friar Lands Act.
7. That defendants are holders of transfer certificates of title of the above-described property,
which transfer certificates of title are null and void, for reasons specifically mentioned in
Paragraph 6 hereof x x x;
8. That the acts in acquiring and keeping the said transfer certificates of title in violation of
the Friar Lands Act and other existing laws are prejudicial to plaintiffs rights over the abovedescribed property.
9. That equity demands that defendants transfer certificates of title as specified in Paragraph
7 hereof be declared fictitious, spurious and null and void ab initio.
P R AY E R
WHEREFORE, premises considered, it is most respectfully prayed of this Honorable Court
that judgment be rendered in favor of plaintiffs and against defendants:
(1) Declaring as null and void ab initio OCT 614 and all transfer certificates of title derived
therefrom;
(2) Declaring as null and void defendants transfer certificates of title over the property in
litigation;
(3) Ordering defendant Register of Deeds of Quezon City to cancel defendants transfer
certificates of title and all transfer certificates of title derived therefrom;

(4) Declaring the plaintiffs as bona fide occupants of the property in litigation pursuant to the
provisions of the Friar Lands Act and other existing laws. 14
Respondent moved to dismiss the Second Amended Complaint on the following grounds:
a) The complaint states no cause of action because: (1) on the allegations alone, plaintiffs
(petitioners) are not real parties in interest who may bring suit to cancel defendants
(including respondent) titles; (2) based on the allegations and prayer of the complaint, no
relief, as a matter of law, may be granted;
b) Prescription has set in;
c) There are earlier similar complaints (Civil Case Nos. Q-95-22834 and Q-95-23111) filed by
a different set of plaintiffs against a different set of defendants but which involve the same
subject matter, cause of action and allegations of the plaintiffs, with respect to the
cancellation of OCT 614 and succeeding titles derived from it. Said complaints have since
been dismissed by Branch 93 of the Regional Trial Court of Quezon City, the dismissal of
which is the subject of a pending certiorari proceeding in the appellate court. 15
On January 3, 2001,16 the trial court denied respondents motion to dismiss the Second Amended
Complaint. Its motion for reconsideration was likewise denied hence respondent filed a petition for
certiorari with the Court of Appeals.
The appellate court granted respondents petition for certiorari and dismissed petitioners Second
Amended Complaint for failure to state a cause of action. Hence, the instant petition raising the
following issues:
A. THAT THE COURT OF APPEALS ERRED IN DECLARING THAT THE COMPLAINT
FILED BY THE PETITIONERS WITH THE REGIONAL TRIAL COURT OF QUEZON CITY IN
CIVIL CASE NO. Q-99-36483 DOES NOT STATE A VALID CAUSE OF ACTION;
B. THAT THE COURT OF APPEALS ERRED IN DECLARING THAT THE PETITIONERS
ARE NOT REAL PARTIES IN INTEREST;
C. THAT THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF
"EXHAUSTION OF ADMINISTRATIVE REMEDIES"; and,
D. THAT THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND
DENIED PETITIONERS RIGHT TO DUE PROCESS WHEN IT DISMISSED THEIR
COMPLAINT.17
We deny the petition.
The subject lots are part of the Piedad Estate, Quezon City, a Friar Land acquired on December 23,
1903 by the Philippine Government from the Philippine Sugar Estates Development Company, Ltd.,
La Sociedad Agricola de Ultramar, the British-Manila Estate Company, Ltd., and the Recoleto Order
of the Philippine Islands, as indicated in Public Act No. 1120 (Friar Lands Act) enacted on April 26,
1904.18
After the Piedad Estate was registered in OCT No. 614 in the name of the Philippine Government in
1910 under the provisions of Act 496, the area was subdivided originally into 874 lots. As a result of

subsequent surveys executed in the course of disposition, the number of lots increased to 1,305.
Disposition of these lots was made by the Bureau of Lands thru sales, under the Friar Lands Act, as
early as 1910 and records show that even before the Second World War, all lots in the Piedad Estate
have been disposed of.19 The Piedad Estate has long been segregated from the mass of the public
domain and has become private land duly registered under the Torrens system following the
procedure for the confirmation of private lands prescribed in Act 496. Thus the lands inside the
Piedad Estate are no longer lands of the public domain. 20
One who acquires land under the Friar Lands Act, as well as his successors-in-interest, may not
claim successional rights to purchase by reason of occupation from time immemorial, as this
contravenes the historical fact that friar lands were bought by the Government of the Philippine
Islands, pursuant to an Act of Congress of the United States, approved on July 1, 1902, not from
individual persons but from certain companies, a society and a religious order. Under the Friar Lands
Act, only "actual settlers and occupants at the time said lands are acquired by the Government"
were given preference to lease, purchase, or acquire their holdings, in disregard of the settlement
and occupation of persons before the government acquired the lands. 21
The basic rules of proper pleading and procedure require that every pleading shall contain in a
methodical and logical form, a plain, concise and direct statement of the ultimate facts on which the
party pleading relies for his claim or defense, as the case may be, omitting the statement of mere
evidentiary facts.22 And in all averments of fraud or mistake, the circumstances constituting fraud or
mistake must be stated with particularity.23
It is axiomatic that the averments of the complaint determine the nature of the action, and
consequently, the jurisdiction of the courts. This is because the complaint must contain a
concise statement of the ultimate facts constituting the plaintiff's cause of action and must
specify the relief sought. No rule is better established than that which requires the complaint
to contain a statement of all the facts constituting the plaintiff's cause of action. Additionally,
Section 5, Rule 8 of the Rules of Court provides that in all averments of fraud or mistake, the
circumstances constituting fraud or mistake must be stated with particularity. In the case at
bar, while there are allegations of fraud in the above quoted complaints, the same are not
particular enough to bring the controversy within the SEC's jurisdiction. The said allegations
are not statements of ultimate facts but are mere conclusions of law.
A pleading should state the ultimate facts essential to the rights of action or defense
asserted, as distinguished from mere conclusions of fact, or conclusions of law. General
allegations that a contract is valid or legal, or is just, fair and reasonable, are mere
conclusions of law. Likewise, allegations that a contract is void, voidable, invalid, illegal, ultra
vires, or against public policy, without stating facts showing its invalidity, are mere
conclusions of law.24
"Ultimate facts" means the essential facts constituting the plaintiff's cause of action, or such facts as
are so essential that they cannot be stricken out without leaving the statement of the cause of action
inadequate.25"Cause of action" has been defined as an act or omission of one party in violation of the
legal right or rights of the other; 26 and its essential elements are: 1) a right in favor of the plaintiff by
whatever means and under whatever law it arises or is created; 2) an obligation on the part of the
named defendant to respect or not to violate such right; and 3) an act or omission on the part of the
named defendant violative of the right of the plaintiff or constituting a breach of the obligation of
defendant to the plaintiff for which the latter may maintain an action for recovery of damages. If
these elements are not extant, the complaint becomes vulnerable to a motion to dismiss on the
ground of failure to state a cause of action.27 In the resolution of a motion to dismiss based on failure
to state a cause of action, only the facts alleged in the complaint as well as its annexes must be

considered.28 The test in such case is whether a court can render a valid judgment on the complaint
based upon the facts alleged and pursuant to the prayer therein. 29
Corollarily, the question of whether or not a complaint states a cause of action against a defendant
or the action is premature is one of law. The trial court can consider all the pleadings filed, including
annexes, motions and the evidence on record. However in so doing, the trial court does not rule on
the truth or falsity of such documents. It merely includes such documents in the hypothetical
admission. Any review of a finding of lack of cause of action based on these documents would not
involve a calibration of the probative value of such pieces of evidence but would only limit itself to the
inquiry of whether the law was properly applied given the facts and these supporting documents.
Therefore, what would inevitably arise from such a review are pure questions of law, and not
questions of fact.
The trial court must likewise apply relevant statutes and jurisprudence in determining whether the
allegations in a complaint establish a cause of action. While it focuses on the complaint, a court
clearly cannot disregard decisions material to the proper appreciation of the questions before it. In
resolving a motion to dismiss, every court must take cognizance of decisions this Court has
rendered because they are proper subjects of mandatory judicial notice. The said decisions, more
importantly, form part of the legal system, and failure of any court to apply them shall constitute an
abdication of its duty to resolve a dispute in accordance with law, and shall be a ground for
administrative action against an inferior court magistrate. 30
Considering the foregoing, it is not difficult to see the need for particularity and incipient
substantiation in the petitioners Second Amended Complaint.
First, their initial claim that OCT 614 of which all the other subject titles are derivatives is null and
void, has been proven wrong. As has been held in Pinlac and other cases, OCT 614 did legally exist
and was previously issued in the name of the Philippine Government in 1910 under the provisions of
Act 496.
Second, the Ad Hoc Committee of the then Ministry of Natural Resources, which was specifically
tasked to investigate the historical background of the Piedad Estate, found that as early as the
period prior to the Second World War, all lots in the Piedad Estate had already been disposed of.
Third, the Piedad Estate has been placed under the Torrens system of land registration, which
means that all lots therein are titled.
Fourth, as held in the Balicudiong case, one who acquires land under the Friar Lands Act, as well as
his successors-in-interest, may not claim successional rights to purchase by reason of occupation
from time immemorial, which means that petitioners claimed actual, adverse, peaceful and
continuous possession of the subject property is really of no moment unless it is shown that their
predecessors-in-interest were actual settlers and occupants at the time said lands were acquired by
the Government, and whose rights were not disregarded even though they were in occupation of the
same before the government acquired the land; yet, no period of time in relation to adverse
possession is alleged.
Petitioners Second Amended Complaint betrays no more than an incomplete narration of facts
unsupported by documentary or other exhibits; the allegations therein partake of conclusions of law
unsupported by a particular averment of circumstances that will show why or how such inferences or
conclusions were arrived at. It is replete with sweeping generalizations and inferences derived from
facts that are not found therein. While there are allegations of fraud upon the claim that the subject
titles were fictitious, spurious and obtained under "mysterious circumstances," the same are not

specific to bring the controversy within the trial courts jurisdiction. There is no explanation or
narration of facts as would show why said titles are claimed to be fictitious or spurious, contrary to
the requirement of the Rules that the circumstances constituting fraud must be stated with
particularity; otherwise, the allegation of fraud would simply be an unfounded conclusion of law. In
the absence of specific averments, the complaint is defective, for it presents no basis upon which the
court should act, or for the defendant to meet it with an intelligent answer.
As to the second issue raised, petitioners claim that they are bona fide occupants of the subject
property within the contemplation of the Friar Lands Act, having allegedly been in actual, adverse,
peaceful and continuous possession of the property, although it is not stated for how long and since
when. In their second amended complaint, they seek judgment
(4) Declaring the plaintiffs as bona fide occupants of the property in litigation pursuant to the
provisions of the Friar Lands Act and other existing laws. (Emphasis supplied)
They do not pray to be declared owners of the subject property despite their alleged adverse
possession but only to be adjudged as the "bona fide occupants" thereof. In other words,
petitioners concede the States ownership of the property.
Being so, petitioners may not be considered the real parties in interest for the purpose of maintaining
the suit for cancellation of the subject titles. The Court of Appeals is correct in declaring that only the
State, through the Solicitor General, may institute such suit. Jurisprudence on the matter has been
settled and the issue need not be belabored. Thus
The Court also holds that private respondents are not the proper parties to initiate the
present suit. The complaint, praying as it did for the cancellation of the transfer certificates of
title of petitioners on the ground that they were derived from a "spurious" OCT No. 4216,
assailed in effect the validity of said title. While private respondents did not pray for the
reversion of the land to the government, we agree with the petitioners that the prayer in the
complaint will have the same result of reverting the land to the government under the
Regalian doctrine. Gabila vs. Barriga ruled that only the government is entitled to this relief.
The Court in that case held:
"The present motion to dismiss is actually predicated on Section 1(g), Rule 16 of the
Revised Rules of Court, i.e., failure of the complaint to state a cause of action, for it
alleges in paragraph 12 thereof that the plaintiff admits that he has no right to
demand the cancellation or amendment of the defendants title, because, even if the
said title were canceled or amended, the ownership of the land embraced therein, or
of the portion thereof affected by the amendment, would revert to the public domain.
In his amended complaint the plaintiff makes no pretense at all that any part of the
land covered by the defendants title was privately owned by him or by his
predecessors-in-interest.Indeed, it is admitted therein that the said land was at all
times a part of the public domain until December 18, 1964, when the government
issued a title thereon in favor of defendant. Thus, if there is any person or entity to
relief, it can only be the government.
In the case at bar, the plaintiffs own averments negate the existence of such right, for it
would appear therefrom that whatever right might have been violated by the defendant
belonged to the government, not to the plaintiff. Plaintiff-appellant argues that although his
complaint is captioned as one for cancellation of title, he has nevertheless stated therein
several causes of action based on his alleged rights of possession and ownership over the
improvements, on defendant-appellees alleged fraudulent acquisition of the land, and on the

damages allegedly incurred by him (plaintiff-appellant) in relation to the improvements.

These matters are merely ancillary to the central issue of whether or not defendantappellees title should be canceled or amended, and they may not be leaned upon in an
effort to make out a cause of action in relation to the said focal issue. Indeed, the principal
relief prayed for in the amended complaint is the cancellation or amendment of defendantappellees title."31
Under Rule 3, Section 2 of the Rules of Court, a real party in interest is the party who stands to be
benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit. "Interest"
within the meaning of the rule means material interest, an interest in issue and to be affected by the
decree, as distinguished from mere interest in the question involved, or a mere incidental interest.
The interest of the party must also be personal and not one based on a desire to vindicate the
constitutional right of some third and unrelated party. Real interest, on the other hand, means a
present substantial interest, as distinguished from a mere expectancy or a future, contingent,
subordinate, or consequential interest.32
If petitioners are to be believed, they would possess a mere inchoate interest in the properties
covered by the subject titles, a mere expectancy conditioned upon the fact that if the questioned
titles are cancelled and the property is reverted to the State, they would probably or possibly be
given preferential treatment as qualified buyers or lessees of the property under the Friar Lands Act.
But this certainly is not the "interest" required by law that grants them license or the personality to
prosecute their case. Only to the State does the privilege belong.
On the issue of exhaustion of administrative remedies, suffice it to state that since petitioners do not
possess the necessary interest to prosecute the case for cancellation of title in the courts, neither do
they have the right to pursue administrative remedies outside thereof. They are not the owners; nor
are they qualified applicants therefor. It has not been shown by their complaint that they have
previously taken steps to avail of the benefits under the Friar Lands Act, since all they seek, should
the questioned titles be nullified, is to be declared bona fideoccupants of the property covered by the
questioned titles. Neither is there any indication that they possess the qualifications necessary to
enable them to avail of the preference granted under the Act.
Finally, there is no merit in petitioners contention that respondent belatedly filed the petition for
certiorari with the Court of Appeals, and that the appellate court gravely abused its discretion when it
entertained and resolved the same.
The Order of the trial court dated January 3, 2001 denying respondents motion to dismiss the
Second Amended Complaint was received by the respondent on January 16, 2001. Respondent filed
a motion for reconsideration on January 18, 2001 which was denied on February 28, 2001.
Respondent received the order denying its motion for reconsideration on March 27, 2001. On the
same day, it filed a Notice to File Petition for Certiorari. On April 2, 2001, the petition for certiorari
was filed with the Court of Appeals. Clearly, the same was timely filed hence, the appellate court
correctly entertained the same.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated January 9, 2002
in CA-G.R. SP No. 64337 dismissing petitioners "Second Amended Complaint" in Civil Case No. Q99-36483 and the Resolution dated June 26, 2002 denying the motion for reconsideration,
are AFFIRMED.
SO ORDERED.
G.R. No. L-20761

July 27, 1966

LA MALLORCA, petitioner,
vs.
HONORABLE COURT OF APPEALS, MARIANO BELTRAN, ET AL., respondents.
G. E. Yabut, R. Monterey and M.C. Lagman for petitioner.
Ahmed Garcia for respondents.
BARRERA, J.:
La Mallorca seeks the review of the decision of the Court of Appeals in CA-G.R. No. 23267-R,
holding it liable for quasi-delict and ordering it to pay to respondents Mariano Beltran, et al.,
P6,000.00 for the death of his minor daughter Raquel Beltran, plus P400.00 as actual damages.
The facts of the case as found by the Court of Appeals, briefly are:
On December 20, 1953, at about noontime, plaintiffs, husband and wife, together with their
minor daughters, namely, Milagros, 13 years old, Raquel, about 4 years old, and Fe, over 2
years old, boarded the Pambusco Bus No. 352, bearing plate TPU No. 757 (1953
Pampanga), owned and operated by the defendant, at San Fernando, Pampanga, bound for
Anao, Mexico, Pampanga. At the time, they were carrying with them four pieces of baggages
containing their personal belonging. The conductor of the bus, who happened to be a halfbrother of plaintiff Mariano Beltran, issued three tickets (Exhs. A, B, & C) covering the full
fares of the plaintiff and their eldest child, Milagros. No fare was charged on Raquel and Fe,
since both were below the height at which fare is charged in accordance with the appellant's
rules and regulations.
After about an hour's trip, the bus reached Anao whereat it stopped to allow the passengers
bound therefor, among whom were the plaintiffs and their children to get off. With respect to
the group of the plaintiffs, Mariano Beltran, then carrying some of their baggages, was the
first to get down the bus, followed by his wife and his children. Mariano led his companions
to a shaded spot on the left pedestrians side of the road about four or five meters away from
the vehicle. Afterwards, he returned to the bus in controversy to get his other bayong, which
he had left behind, but in so doing, his daughter Raquel followed him, unnoticed by her
father. While said Mariano Beltran was on the running board of the bus waiting for the
conductor to hand him his bayong which he left under one of its seats near the door, the bus,
whose motor was not shut off while unloading, suddenly started moving forward, evidently to
resume its trip, notwithstanding the fact that the conductor has not given the driver the
customary signal to start, since said conductor was still attending to the baggage left behind
by Mariano Beltran. Incidentally, when the bus was again placed into a complete stop, it had
travelled about ten meters from the point where the plaintiffs had gotten off.
Sensing that the bus was again in motion, Mariano Beltran immediately jumped from the
running board without getting his bayong from the conductor. He landed on the side of the
road almost in front of the shaded place where he left his wife and children. At that precise
time, he saw people beginning to gather around the body of a child lying prostrate on the
ground, her skull crushed, and without life. The child was none other than his daughter
Raquel, who was run over by the bus in which she rode earlier together with her parents.
For the death of their said child, the plaintiffs commenced the present suit against the
defendant seeking to recover from the latter an aggregate amount of P16,000 to cover moral
damages and actual damages sustained as a result thereof and attorney's fees. After trial on
the merits, the court below rendered the judgment in question.

On the basis of these facts, the trial court found defendant liable for breach of contract of carriage
and sentenced it to pay P3,000.00 for the death of the child and P400.00 as compensatory damages
representing burial expenses and costs.
On appeal to the Court of Appeals, La Mallorca claimed that there could not be a breach of contract
in the case, for the reason that when the child met her death, she was no longer a passenger of the
bus involved in the incident and, therefore, the contract of carriage had already terminated. Although
the Court of Appeals sustained this theory, it nevertheless found the defendant-appellant guilty
of quasi-delict and held the latter liable for damages, for the negligence of its driver, in accordance
with Article 2180 of the Civil Code. And, the Court of Appeals did not only find the petitioner liable,
but increased the damages awarded the plaintiffs-appellees to P6,000.00, instead of P3,000.00
granted by the trial court.
In its brief before us, La Mallorca contends that the Court of Appeals erred (1) in holding it liable
for quasi-delict, considering that respondents complaint was one for breach of contract, and (2) in
raising the award of damages from P3,000.00 to P6,000.00 although respondents did not appeal
from the decision of the lower court.
Under the facts as found by the Court of Appeals, we have to sustain the judgement holding
petitioner liable for damages for the death of the child, Raquel Beltran. It may be pointed out that
although it is true that respondent Mariano Beltran, his wife, and their children (including the
deceased child) had alighted from the bus at a place designated for disembarking or unloading of
passengers, it was also established that the father had to return to the vehicle (which was still at a
stop) to get one of his bags or bayong that was left under one of the seats of the bus. There can be
no controversy that as far as the father is concerned, when he returned to the bus for
hisbayong which was not unloaded, the relation of passenger and carrier between him and the
petitioner remained subsisting. For, the relation of carrier and passenger does not necessarily cease
where the latter, after alighting from the car, aids the carrier's servant or employee in removing his
baggage from the car.1 The issue to be determined here is whether as to the child, who was already
led by the father to a place about 5 meters away from the bus, the liability of the carrier for her safety
under the contract of carriage also persisted.
It has been recognized as a rule that the relation of carrier and passenger does not cease at the
moment the passenger alights from the carrier's vehicle at a place selected by the carrier at the point
of destination, but continues until the passenger has had a reasonable time or a reasonable
opportunity to leave the carrier's premises. And, what is a reasonable time or a reasonable delay
within this rule is to be determined from all the circumstances. Thus, a person who, after alighting
from a train, walks along the station platform is considered still a passenger.2 So also, where a
passenger has alighted at his destination and is proceeding by the usual way to leave the company's
premises, but before actually doing so is halted by the report that his brother, a fellow passenger,
has been shot, and he in good faith and without intent of engaging in the difficulty, returns to relieve
his brother, he is deemed reasonably and necessarily delayed and thus continues to be a passenger
entitled as such to the protection of the railroad and company and its agents. 3
In the present case, the father returned to the bus to get one of his baggages which was not
unloaded when they alighted from the bus. Raquel, the child that she was, must have followed the
father. However, although the father was still on the running board of the bus awaiting for the
conductor to hand him the bag or bayong, the bus started to run, so that even he (the father) had to
jump down from the moving vehicle. It was at this instance that the child, who must be near the bus,
was run over and killed. In the circumstances, it cannot be claimed that the carrier's agent had
exercised the "utmost diligence" of a "very cautions person" required by Article 1755 of the Civil
Code to be observed by a common carrier in the discharge of its obligation to transport safely its

passengers. In the first place, the driver, although stopping the bus, nevertheless did not put off the
engine. Secondly, he started to run the bus even before the bus conductor gave him the signal to go
and while the latter was still unloading part of the baggages of the passengers Mariano Beltran and
family. The presence of said passengers near the bus was not unreasonable and they are, therefore,
to be considered still as passengers of the carrier, entitled to the protection under their contract of
carriage.
But even assuming arguendo that the contract of carriage has already terminated, herein petitioner
can be held liable for the negligence of its driver, as ruled by the Court of Appeals, pursuant to Article
2180 of the Civil Code. Paragraph 7 of the complaint, which reads
That aside from the aforesaid breach of contract, the death of Raquel Beltran, plaintiffs'
daughter, was caused by the negligence and want of exercise of the utmost diligence of a
very cautious person on the part of the defendants and their agent, necessary to transport
plaintiffs and their daughter safely as far as human care and foresight can provide in the
operation of their vehicle.
is clearly an allegation for quasi-delict. The inclusion of this averment for quasi-delict, while
incompatible with the other claim under the contract of carriage, is permissible under Section 2 of
Rule 8 of the New Rules of Court, which allows a plaintiff to allege causes of action in the alternative,
be they compatible with each other or not, to the end that the real matter in controversy may be
resolved and determined.4
The plaintiffs sufficiently pleaded the culpa or negligence upon which the claim was predicated when
it was alleged in the complaint that "the death of Raquel Beltran, plaintiffs' daughter, was caused by
the negligence and want of exercise of the utmost diligence of a very cautious person on the part of
the defendants and their agent." This allegation was also proved when it was established during the
trial that the driver, even before receiving the proper signal from the conductor, and while there were
still persons on the running board of the bus and near it, started to run off the vehicle. The
presentation of proof of the negligence of its employee gave rise to the presumption that the
defendant employer did not exercise the diligence of a good father of the family in the selection and
supervision of its employees. And this presumption, as the Court of Appeals found, petitioner had
failed to overcome. Consequently, petitioner must be adjudged peculiarily liable for the death of the
child Raquel Beltran.
The increase of the award of damages from P3,000.00 to P6,000.00 by the Court of Appeals,
however, cannot be sustained. Generally, the appellate court can only pass upon and consider
questions or issues raised and argued in appellant's brief. Plaintiffs did not appeal from that portion
of the judgment of the trial court awarding them on P3,000.00 damages for the death of their
daughter. Neither does it appear that, as appellees in the Court of Appeals, plaintiffs have pointed
out in their brief the inadequacy of the award, or that the inclusion of the figure P3,000.00 was
merely a clerical error, in order that the matter may be treated as an exception to the general
rule.5 Herein petitioner's contention, therefore, that the Court of Appeals committed error in raising
the amount of the award for damages is, evidently, meritorious.
1wph1.t

Wherefore, the decision of the Court of Appeals is hereby modified by sentencing, the petitioner to
pay to the respondents Mariano Beltran, et al., the sum of P3,000.00 for the death of the child,
Raquel Beltran, and the amount of P400.00 as actual damages. No costs in this instance. So
ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ.,
concur.
Makalintal, J., concurs in the result.

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

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

GUTIERREZ, J.:
This petition is premised on the interpretation and application of Sections 7 and 8, Rule 8 of the
Revised Rules of Court on actionable documents, which state:
SEC. 7. Action or defense based on document. Whenever an action or defense is
based upon a written instrument or document, the substance of such instrument or
document shall be set forth in the pleading, and the original or a copy thereof shall be
attached to the pleading as an exhibit, which shall be deemed to be a part of the
pleading, or said copy may with like effect be set forth in the pleading.
SEC. 8. How to contest genuineness of such documents. When an action or
defense is founded upon a written instrument, copied in or attached to the
corresponding pleading as provided in the preceding section, the genuineness and
due execution of the instrument shall be deemed admitted unless the adverse party,
under oath, specifically denies them, and sets forth what he claims to be the facts;
but this provision does not apply when the adverse party does not appear to be a
party to the instrument or when compliance with an order for an inspection of the
original instrument is refused.
The present controversy stems from a complaint filed by the petitioners against private respondents
Dalmacio Ramos and Juanita Camacho.
Engracio Francisco and Juliana Esteban were the registered owners of the parcel of land
Zamboanga. At the death of said spouses, they were survived by their ten (10) children who
inherited their state in equal pro indiviso shares. Subsequently, the property was subdivided among
the heirs and a portion designated as Lot No. 1943-B was allotted to the Justa Francisco. Justa died
and was survived among by eight (8) children namely: Dionoso, Eufremia, Alfonso, Rafael, Petrona,
Olegario, Segundino and Eusebia, all surnamed Toribio, who eight heirs, Eufremia, Alfonso and
Petrona, sold their in the property to Ramon Ledesma. Rafael also sold his share to Dinisio who, in

turn, sold the same to Ramon Ledesma. Thus, the latter acquired four (4) shares out of eight (8)
shares, or a pro indiviso share of Lot 1943-B.
Subsequently, Dionisio sold his own hereditary share in the aforesaid estate of his mother to Juanito
Camacho, who by said sale acquired a 1/8 pro indiviso share of the property.
The three other heirs, petitioners Segundino Eusebia and Olegario alleging that their shares had
never been sold nor in any wise transferred or disposed to others filed a case against herein private
respondents for recovery of hereditary rights. How Juanito Camacho, who was entitled to only a total
area of 931 square meters, nor, how one Dalmacio Ramos, Jr., acquired share of the property
was allegedly not known to them.
In their answer, the defendants-respondents alleged that the shares of plaintiffs-petitioners had
likewise been sold to Dionisio Toribio, their brother, who, in turn, sold the same to Juanito Camacho
and Dalmacio Ramos. The alleged sale from petitioners to Dionisio and the sale from Dionisio to the
respondents were evidenced by deeds of sale, xerox copies of which were appended to and made
an integral part of the respondents' partition agreement between the respondents and also a xerox
copy of the respondents' transfer certificates of title.
While testifying during the trial, Eusebia Toribio was asked whether she executed any sale of her
share in the parcel of land in litigation. The counsel for private respondents objected, raising the
proper mode of contesting the genuineness of an actionable document pursuant to Sections 7 and 8,
Rule 8 of the Revised Rules of Court. The trial court sustained the objection.
Petitioners, thereupon, filed a constancia with a motion for reconsideration stating that the
documents submitted by the respondents were merely evidentiary in nature, not a cause of action or
defense, the due execution and genuineness of which they had to prove. They alleged that the
subject of litigation was the hereditary shares of plaintiffs-petitioners, not any document. They stated
that the defense consisting mainly of transfer certificates of titles in the respondents' names
originating from the sale from petitioners to Dionisio and from the latter to the respondents were
merely evidentiary in nature. They argued that a simple specific denial without oath is sufficient. The
court denied the motion for reconsideration. The documents attached to the respondents' answer
and made an integral part thereof were declared to be the very foundation or basis of the
respondents' defense and not merely evidentiary in nature. Hence, this petition for review on
certiorari.
The initial issue brought before us is whether or not the deeds of sale allegedly executed by the
petitioners in favor of their brother Dionisio Toribio and appended to the respondents' answer are
merely evidentiary in nature or the very foundation of their defense which must be denied under oath
by the petitioner.
The records show that the deeds of sale are actionable documents.
Jurisprudence has centered mainly on a discussion of actionable documents as basis of a plaintiff's
cause of action. Little has been said of actionable documents being the foundation of a defense. The
Rule, however, covers both an action or a defense based on documents.
The situation obtaining in the case at bar is not a common one. The usual case is between plaintiff
and defendant where, the latter, as his defense, would present a document to which both parties are
parties and which states that the former relinquishes his rights to the defendant. In the case at bar,
we have a situation where the defendant presented a document in his defense, a document to which

the plaintiff is a party but to which defendant is not. Thus, the question arises as to whether or not
the document is included as a necessary part of the defense so as to make it actionable.
The petitioners alleged in their complaint that their shares in the inheritance left by their mother were
never sold nor in any wise transferred or disposed to others.
The defendants, in their answers, declare:
xxx xxx xxx
... that the hereditary shares of plaintiffs OLEGARIO TORIBIO, SEGUNDINO
TORIBIO and EUSEBIA TORIBIO were likewise sold, transferred and conveyed, first
in favor of DIONISIO TORIBIO by virtue of two (2) deeds of sale executed in due
form on October 24, 1964 and November 2, 1964, respectively, and thereafter, by
DIONISIO TORIBIO in favor of defendants JUANITO A. CAMACHO and DALMACIO
C. RAMOS, JR., on November 11, 1964 as adverted to in the preceding paragraph,
as will be discussed further in the specific and/or affirmative defenses hereunder; ...
As heretofore alleged, the hereditary shares of all the plaintiffs herein in and over Lot
1943-B were all sold, transferred and conveyed in favor of DIONISIO TORIBIO
plaintiffs OLEGARIO TORIBIO and SEGUNDINO TORIBIO on October 24, 1964 and
that of plaintiff EUSEBIA TORIBIO on November 2, 1964, by virtue of two (2) deeds
of sale all of which were acknowledged before Notary Public for and within the City of
Zamboanga, Atty. Armando B. Torralba and entered as Doc. No. 6, Page No. 3, Book
No. IX, Series of 1964, respectively, in his notarial register, xerox copies of which are
appended hereto to form integral part hereof as Annexes "1" & "2", respectively.
From the foregoing, it is clear that the respondents anchor their defense on the deeds of sale by
virtue of which the hereditary rights of all the petitioners over Lot 1943-B were sold, transferred, and
conveyed in favor of their brother, Dionisio Toribio, who in turn sold the same to herein respondents.
The deed of sale executed by the petitioners in favor of their brother Dionisio is an essential and
indispensable part of their defense to the allegation that the petitioners had never disposed of their
property.
The following question furnishes an absolute test as to the essentiality of any allegation: Can it be
made the subject of a material issue? In other words, if it be denied, win the failure to prove it decide
the case in whole or in part? If it will not, the fact is not essential. It is not one of those which
constitute the cause of action, defense, or reply (Sutherland's Code of Pleading, Practice and Forms,
p. 82). A fact is essential if it cannot be stricken out without leaving the statement of the cause of
action or defense insufficient.
Apart from alleging that the documents in this case are merely evidentiary, the petitioners also point
out that the deeds of sale purportedly executed by them were in favor of their brother, Dionisio, who
in turn executed deeds of sale in favor of the respondents. Under this circumstance, does the
genuineness and due execution of the deeds evidencing the two transactions have to be denied
under oath?
The deed of sale executed by Dionisio Toribio in favor of the respondents, by itself, would be
insufficient to establish a defense against the petitioners' claims. If the petitioners deny that they ever
sold their shares in the inherited lot to their brother Dionisio, a failure to prove the sale would be
decisive. For if it can be shown that no conveyance of the property was executed by the petitioners,
then Dionisio Toribio had no right to convey what did not belong to him. The respondents could

acquire only the rights that Dionisio had over the disputed property. The genuineness and due
execution of the deed between the co-heirs is also elemental to the defense of the respondents. The
first deeds of sale, to which the respondents were not parties but which they seek to enforce against
the parties are also actionable documents.
The petitioners further alleged that this case falls under the exception to Section 8, Rule 8 which
provides:
SECTION 8. ... but this provision does not apply when the adverse party does not
appear to be a party to the instrument.
As early as Lim-Chingco v. Terariray (5 Phil. 120), this Court gave the reason for the rule on
contesting actionable documents. The purpose is:
Reasonably construed, the purpose of the enactment (sec. 103) appears to have
been to relieve a party of the trouble and expense of proving in the first instance an
alleged fact, the existence or nonexistence of which is necessarily within the
knowledge of the adverse party, and of the necessity (to his opponent's case) of
establishing which such adverse party is notified by his opponent's pleading.
This being so, the documents have to be treated in like manner. The petitioners are themselves
parties to the deeds of sale which are sought to be enforced against them. The complaint was filed
by the petitioners. They filed suit to recover their hereditary properties. The new owners introduced
deeds of sale as their main defense. In other words, the petitioners brought the issue upon
themselves. They should meet it properly according to the Rules of Court.
Sections 7 and 8 of Rule 8, therefore, apply. The proper procedure was for the petitioners to
specifically deny under oath the genuineness and due execution of the questioned deeds of sale and
to set forth what they claim to be the facts. However, the oversight or negligence of petitioners'
counsel in not properly drafting a reply to the answer and an answer to the counter claim is not
necessarily fatal to their cause.
The facts of the case and equitable considerations constrain us to grant the petition and to set aside
the questioned order of the respondent court.
As stated earlier, the reason for the rule is to enable the adverse party to know beforehand whether
he will have to meet the issue of genuineness or due execution of the document during trial. (In re
Dick's Estate, 235 N.W. 401). While mandatory, the rule is a discovery procedure and must be
reasonably construed to attain its purpose, and in a way as not to effect a denial of substantial
justice. The interpretation should be one which assist the parties in obtaining a speedy, inexpensive,
and most important, a just determination of the disputed issues.
Paragraphs 11 and 13 of the petitioners' complaint reads:
xxx xxx xxx
11. That the share of herein Plaintiffs were never sold or in any wise transferred or
disposed to others;
xxx xxx xxx

13. That just how and by what means Defendant, JUANITO CAMACHO was able to
acquire the total area of 931 square meters, is not known; however, the acquisition
might have been effected, the same was in fraud of herein plaintiffs; and so with the
share of Defendant, DALMACIO C. RAMOS, Jr., herein Plaintiffs, jointly and/or
severally, do not know the person; and, however he might have acquired the said
share of ONE FOURTH () of the property, was not from either, much less all of the
Plaintiffs;
xxx xxx xxx
The complaint was verified under oath by the petitioners.
The petitioners' counsel was obviously lulled into complacency by two factors. First, the plaintiffs,
now petitioners, had already stated under oath that they never sold, transferred, or disposed of their
shares in the inheritance to others. Second, the usual procedure is for a defendant to specifically
deny under oath the genuineness and due execution of documents set forth in and annexed to
the complaint. Somehow, it skipped counsel's attention that the rule refers to either an action or
a defense based upon a written instrument or document. It applies to both plaintiffs and defendants.
Under the facts of this case, the private respondents were placed on adequate notice by Paragraph
11 of the verified complaint that they would be caned upon during trial to prove the genuineness or
due execution of the disputed deeds of sale.
Moreover, the heirs of Olegario Toribio, his widow and minor children represented by their mother,
are among the plaintiffs-petitioners. They are not parties to the deeds of sale allegedly executed by
their father, aunt, and uncle. They are not required to deny the deeds of sale under oath. The private
respondents will still have to introduce evidence to establish that the deeds of sale are genuine and
that they were truly executed by the parties with authority to dispose of the disputed property.
It bears repeating that rules of procedure should be liberally construed to the end that substantial
justice may be served. As stated in Pongasi v. Court of Appeals (71 SCRA 614):
We repeat what We said in Obut v. Court of Appeals, et al., supra, that 'what should
guide judicial action is the principle that a party-litigant is to be given the fullest
opportunity to establish the merits of his complaint or defense rather than for him to
lose life, liberty, honor or property on technicalities.
In dispensing justice Our action must reflect a deep insight into the failings of human
nature, a capability for making allowances for human error and/or negligence, and
the ability to maintain the scales of justice happily well-balanced between these
virtues and the application of the law.
An interpretation of a rule of procedure which would not deny to the petitioners their rights to their
inheritance is warranted by the circumstances of this case.
WHEREFORE, the order of the respondent court dated July 20, 1981 is hereby REVERSED and
SET ASIDE. The Regional Trial Court which took over the cases of the respondent court is ordered
to receive the petitioners' evidence regarding the genuineness and due execution of the disputed
deeds of sale.
SO ORDERED.

G.R. No. 86568 March 22, 1990

IMPERIAL TEXTILE MILLS, INC., petitioner,
vs.
COURT OF APPEALS and THE INTERNATIONAL CORPORATE BANK, INC., respondents.
Batino, Angala, Salud & Fabia Law Offices for petitioner.
A.M. Perez & Associates for private respondent.

GANCAYCO, J.:
This case involves the application of Sections 7 and 8 of Rule 8 of the Rules of Court when the
action or defense is based on a written document.
The facts are undisputed. In an action for the collection of a sum of money that was filed by the
private respondent against petitioner in the Regional Trial Court of Makati, Metro Manila, it was
alleged, among others, as follows:
3. On August 18, 1980, for valuable consideration, defendant executed in favor of,
and delivered to plaintiff Promissory Note No. TL-0532-80, copy of which is hereto
attached as Annex "A", whereby defendant obligated itself to pay plaintiff on
November 16, 1980 the sum of Twelve Million Pesos (P12,000,000.00) and with
interest thereon at the rate of 16% per annum.
4. The promissory note, Annex "A", expressly stipulates that in case of non-payment
when due, defendant shall pay plaintiff an additional amount equal to 3% per month
of the amount due as liquidated damages and a further sum equal to 10% thereof as
attorney's fees. 1
Attached to the complaint as Annex A was the Promissory Note.

An answer to the complaint was filed by petitioner. The petitioner denied liability and alleged that one
Julio Tan had no authority to negotiate and obtain a loan on its behalf. While defendant specifically
denied the aforestated promissory note alleged in the complaint, the answer was not verified. For
this reason, in due course, a decision was rendered by the trial court on December 1, 1986, the
dispositive portion of which reads as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff International
Corporate Bank, Inc. and against the defendant Imperial Textile Mills, Inc. as follows:
1. Ordering the defendant to pay plaintiff the total sum of P40,486,229.16, with
interest thereon at the rate of 16% per annum from 17 June 1985 until fully paid
(Cf. Exhibit B Statement of Account, p. 35, Id.);
2. Ordering the defendant to pay plaintiff the sum of P40,000.00 as and for attorney's
fees, plus the sum of P47,470.00 as costs. (Cf. Exhibits E, F and G).
SO ORDERED. 3

Petitioner brought an appeal to the Court of Appeals. In a decision dated October 17, 1988, the
Court of Appeals affirmed the judgment appealed from with costs against petitioner. 4
A motion for reconsideration of said decision was likewise denied by the appellate court.
Hence, this petition.
The petition is devoid of merit. Sections 7 and 8 of Rule 8 of the Rules of Court provide as follows:
Sec. 7. Action or defense based on document. Whenever an action or defense is
based upon a written instrument or document, the substance of such instrument or
document shall be set forth in the pleading, and the original or a copy thereof shall be
attached to the pleading as an exhibit, which shall be deemed to be a part of the
pleading, or said copy may with like effect be set forth in the pleading.
Sec. 8. How to contest genuineness of such documents. When an action or
defense is founded upon a written instrument, copied in or attached to the
corresponding pleading as provided in the preceding section, the genuineness and
due execution of the instrument shall be deemed admitted unless the adverse party,
under oath, specifically denies them, and sets forth what he claims to be the facts;
but this provision does not apply when the adverse party does not appear to be a
party to the instrument or when compliance with an order for an inspection of the
original instrument is refused.
No rule is more settled than that in an action based on a written instrument attached to the
complaint, if the defendant fails to specifically deny under oath the genuineness and due execution
of the instrument, the same is deemed admitted. 5
Section 7, Rule 8 of the Rules of Court is explicit in that there are two ways of pleading an actionable
document, namely:
(a) by alleging the substance of such written instrument in the pleading and attaching
a copy thereof to the pleading; and
(b) by copying the instrument in the pleading.
The complaint in the present case complied with the first situation under paragraph (a). The
complaint alleged the substance of the promissory note subject of the litigation and a copy of the
promissory note was attached.
There is no question likewise that the petitioner failed to specifically deny under oath the
genuineness and due execution of the promissory note subject of the complaint. By its omission,
petitioner clearly admitted the genuineness and due execution of the document and that the party
whose signature appears thereon had indeed signed the same and that he has the authority to sign
the same and that the agreement between the parties is what was in words and figures in the
document. Defenses which are inconsistent with the due execution and genuineness of the written
instrument are cut-off by such admission. 6
The claim of petitioner is that its failure to specifically deny under oath the actionable document does
not prevent it from showing that one Julio Tan was not authorized to enter into the transaction and to
sign the promissory note for and in behalf of the petitioner. But precisely, the petitioner is a party to

the instrument represented by Julio Tan so that it may not now deny the authority of Julio Tan to so
represent it. 7 The due execution and genuineness of the document have thereby been conclusively
established.
Moreover, in this case the judgment appealed from is supported by the evidence. This petition is at
best dilatory.
WHEREFORE, the petition is DISMISSED, with costs against petitioner.
SO ORDERED.

G.R. No. L-8418 December 9, 1915

L.O. HIBBERD, plaintiff-appellant,
vs.
WM. J. ROHDE and D.J. MCMILLIAN, defendants-appellees.
Gibbs, McDonough and Blanco for appellant.
W.L. Wright for appellees.

TRENT, J.:
This is a suit on a promissory note against the makers. Only one of them, the defendant Rohde,
appeared and answered. He not having entered a verified specific denial of the genuineness and
due execution of the note, the plaintiff claims that his special defense of illegality of consideration is
cut off by section 103 of the Code of Civil Procedure, which reads as follows: "Actions and defenses
based upon a written instruments. When an action is brought upon a written instrument and the
complaint contains or has annexed a copy of such instrument, the genuineness and due execution
of the instrument shall be deemed admitted, unless specifically denied under oath in the answer; and
when the defense to an action, or a counterclaim stated in an answer, is founded upon a written
instrument and the copy thereof is contained in or annexed to the answer, the genuineness and due
execution of such instrument shall be deemed admitted, unless specifically denied under oath by the
plaintiff in his pleadings."
By the admission of the genuineness and due execution of an instrument, as provided in this
section, is meant that the party whose signature it bears admits that he signed it or that it was signed
by another for him with his authority; that at the time it was signed it was in words and figures exactly
as set out in the pleadings of the party relying upon it; that the documents was delivered; and that
any formal requisites required by law, such as a seal, an acknowledgment, or revenue stamp, which
it lacks, are waived by him. Hence, such defense as that the signature is a forgery (Puritan Mfg.
Co. vs. Toti & Gradi, 14 N. M., 425; Cox vs. Northwestern Stage Co., 1 Idaho, 376;
Woolen vs. Whitacre, 73 Ind., 198; Smith vs. Ehnert, 47 Wis., 479; Faelnar vs. Escao, 11 Phil.
Rep., 92); or that it was unauthorized, as in the case of an agent signing for his principal, or one
signing in behalf of a partnership (County Bank vs. Greenberg, 127 Cal., 26; Henshaw vs. Root, 60
Ind., 220; Naftzker vs. Lantz, 137 Mich., 441), or of a corporation (Merchant vs. International

Banking Corporation, 6 Phil. Rep., 314; Wanita vs.Rollins, 75 Miss., 253; Barnes vs. Spencer &
Barnes Co., 162 Mich., 509); or that, in the case of the latter, that the corporation was not authorized
under its charter to sign the instrument (Merchant vs. International Banking Corporation, supra); or
that the party charged signed the instrument in some other capacity than that alleged in the pleading
setting it out (Payne vs. National Bank, 16 Kan., 147); or that it was never delivered (Hunt vs. Weir,
29 Ill., 83; Elbring vs. Mullen, 4 Idaho, 199; Thorp vs. Keokuk Coal Co., 48 N.Y. 253; Fire Association
of Philadelphia vs. Ruby, 60 Neb., 216) are cut off by the admission of its genuineness and due
execution.
The effect of the admission is such that in the case of a promissory note a prima facie case is made
for the plaintiff which dispenses with the necessity of evidence on his part and entitles him to a
judgment on the pleadings unless a special defense of new matter, such as payment, is interposed
by the defendant. (Papa vs.Martinez, 12 Phil. Rep., 613; Chinese Chamber of Commerce vs. Pua To
Ching, 14 Phil. Rep., 222; Banco Espaol-Filipino vs. McKay & Zoeller, 27 Phil. Rep., 183.) But we
have held that the section is not applicable to the indorsement on a promissory note in a suit against
the maker (Heinszen & Co. vs. Jones, 5 Phil. Rep., 27); nor against the heirs of decedent who
signed a document declared upon (Nery Lim-Chingco vs. Terariray, 5 Phil. Rep., 120). Under
statutes similar to our own it has been held that the admission of the genuineness and due execution
of the instrument does not bar the defense of want of consideration. (Farmers & Merchants
Bank vs.Copsey, 134 Ill. [Cal.], 287; Barnes vs. Scott, 29 Fla., 285; Booco vs. Mansfield, 66 Ohio,
121; Holt vs. Robinson, 21 Ala., 106.) And in Kentucky in actions based upon promissory notes the
consideration for which were gambling debts, it has been held that such an admission does not
prevent the defense of illegality of consideration. (Burtonvs. Emerine, 10 Ky., 499;
Arnold vs. Trundle, 30 Ky., 115.) In Freeman vs. Ellison (37 Mich., 458), it was said: "It is now
claimed for plaintiff below that this (rule) precludes any inquiry into the date of delivery or the
circumstances of the signing as bearing on any defenses dependent on time in any way.
1awphil.net

There is no authority that we know of or any such construction of the rule. Undoubtedly when
a plaintiff produces in court an instrument corresponding to the one set forth he is exempted
from proving its execution. But the actual time of delivery may involve questions which it
would be absurd to hold foreclosed by any such assumption, If a note is dated back in order
to include usurious interest, and that defense is set up, it would hardly be regarded as
bearing on the question of execution. Execution can only refer to the actual making and
delivery, but it cannot involved other matters without enlarging its meaning beyond reason.
The only object of the rule was to enable a plaintiff to make out a prima facie, not a
conclusive case, and it cannot preclude a defendant from introducing any defense on the
merits which does not contradict the execution of the instrument introduced in evidence.
To so interpret section 103 as to prohibit such a defense as illegality of consideration, which is
clearly a defense of new matter, would pro tanto repeal the second paragraph of section 94, which
permits a defendant to answer by "A statement of any new matter constituting a defense or
counterclaim." Likewise, section 285 provides that the terms of a writing may be impeached by
reason of its illegality or fraud. We do not understand that such defenses are barred by the
provisions of section 103. We accordingly hold that the special defense interposed by the defendant
of illegality of consideration is not barred by his failure to enter a verified denial of the genuineness
and due execution of the note set out in the complaint. Hence, the evidence in support of that plea
was competent. The note reads as follows:
itc-a1f

BAGUIO, BENGUET, April 27th, 1911.

For value received, we the undersigned parties, jointly and severally agree to pay to the firm
of Brand & Hibberd, of the city of Baguio, P. I., twelve hundred pesos, Philippine currency, in

monthly installments of one hundred pesos per month, beginning with the first day of June,
1911. (Not transferable, excepting to Jos. C. Brand or L.O. Hibberd.)

WM. J. ROHDE.
D. J. MCMILLIAN.

According to the testimony of the defendant Rohde, McMillian was in the retail liquor business and
secured a stock of merchandise valued at P1,200 from Brand & Hibberd and sold it. Alleging that
they delivered the merchandise to him on deposit only, Brand & Hibberd filed a complaint of estafa
against McMillian. McMillian was arrested and released on bond pending the preliminary hearing
before the justice of the peace. The defendant Rohde was a practicing attorney and undertook
McMillian's defense in the estafa case. Rohde testified that he was well acquainted with the nature of
the transaction between the firm of Brand & Hibberd and McMillian; that the merchandise was sold
outright to McMillian; that he know the estafa complaint was absolutely without foundation; and that
McMillian could not possibly be convicted; but that one Sullivan informed him after the preliminary
hearing was held that he knew positively that McMillian would be bound over for trial in the Court of
First Instance. In rebuttal, Sullivan testified that what he told Rohde was that he was satisfied from
the evidence introduced at the hearing that McMillian would be held for trial in the Court of First
Instance. Upon the strength of Sullivan's statement, Rohde agreed to sign the note reproduced
above if Brand & Hibberd would withdraw the estafa complaint. He did this because he did not want
his client to remain in confinement pending his trial in the Court of First Instance, which would not
have occurred for three months. His client was sick at the time and Rohde was afraid that
confinement in the jail for such a period of time would seriously endanger his health. After the
execution of the note, Brand & Hibberd moved in the justice court that the estafa complaint be
dismissed and this motion was granted by the presiding justice. In the order dismissing the
complaint, the justice stated that, from the evidence introduced at the hearing he was convinced that
there was no sufficient basis for a criminal action, but that the controversy was of a civil character.
Rohde subsequently paid two hundred pesos on the note. The note was assigned to the plaintiff L.O.
Hibberd, on June 10, 1911.
Any agreement which has for its purpose the concealment of a public offense, the suppression of
evidence thereof, or the stifling of a criminal prosecution already commenced is contra bonos
mores and against public policy. Every successful attempt to shield persons guilty of such offenses
adds impetus to crime by encouraging the culprits and all others of criminal tendencies who may
learn of such perversions of justice, to commit further offenses. A person suffering pecuniary from
the commission of such a crime may not barter away the benefits of public order and the personal
safety and security of the people by representing to the culprit that he will actively aid in the task of
securing immunity from the public prosecution if his civil damages are made good. Courts are
charged with the duty of administering the law, and they should not lend their aid to the enforcement
of any contract which looks to its perversion. (Wever vs. Shay, 56 Ohio, 116; 60 Am. St. Rep., 743;
Ormerod vs.Dearman, 100 Pa., 561; 45 Am. Rep., 391; Partridge vs. Hood, 120 Mass., 403; 21 Am.
Rep., 524; Gardner vs.Maxey, 9 B. Mon. [48 Ky.], 90; Goodrum vs. Merchants & Planters Bank, 102
Ark., 326; Ann. Cas., 1914A; Nickelson vs. Wilson, 60 N.Y., 362.) Nor is it important that the
shielding of the guilty party was a minor consideration of the agreement, or necessary that a crime
shall have been in fact committed. The intention of the parties to obstruct criminal justice to whatever
extent taints the entire contract and makes it unenforcible. (United States Fidelity & guaranty
Co. vs. Charles (Ala.), 57 L.R.A., 212; W.T. Joyce Co. vs. Rohan, 134 Iowa, 12; 120 Am. St. Rep.,
410; Crowder vs. Reed, 80 Ind., 1.) The courts will not interfere either to rescind an executed
contract or to enforce an executory contract of such character. The parties are left just where they
are found. Perez vs. Herranz, 7 Phil. Rep., 693; Rohdes vs. Neal, 64 Ga., 704; 37 Am. Rep., 93;

Bowman vs. Phillips, 41 Kan., 364; 13 Am. St. Rep., 292; Atwood vs. Fisk, 101 Mass., 363; 100 Am.
Dec., 124; Case vs. Smith, 107 Mich., 416; 61 Am. St. Rep., 341; 31 L.R.A., 282.)
A very large number of public offenses, however, inflict pecuniary damage on private persons. The
Penal Code recognizes the civil liability of offenders (arts. 119, et seq). In this civil liability the State
has no interest other than its undertaking to aid the injure person in securing compensation for his
injuries, and it cannot be doubted that if the injured person so desires he may privately negotiate
with the criminals or with persons interested in the latter for the settlement of his private damages.
Article 1813 of the Civil Code provides that a civil action arising from a crime may be compromised,
but the public action for the imposition of the legal penalty shall not be extinguished thereby. So long
as the right of the State to exact the penalty for the public offense is not trenched upon, there is
nothing unlawful or immoral in such a contract. (Schirm vs. Wieman, 103 Md., 541; 7 Ann. Cas.,
1008; Atwood vs.Fisk, 101 Mass., 363; 100 Am. Dec., 124; Goddrum vs. Merchants & Planters
Bank, 102 Ark., 326; Ann. Cas., 1914A; Lomax vs. Colo. Nat. Bank, 46 Colo., 229.) And mere threats
of prosecution will not vitiate an instrument given for an amount embezzled or for the value of
property feloniously taken, unless coupled with an agreement not to prosecute if the instrument be
given. (Wolf vs. Troxell Estate, 94 Mich., 573; Portner vs. Kirscher, 169 Pa., 472; 47 Am. St. Rep.,
925; Goodwin vs. Crowell, 56 Ga., 567; Thorn vs. Pinkham, 84 Me., 101; 30 Am. St. Rep., 335.) A
mere expectation of the one of the parties that the settlement of the civil injuries will stop the public
prosecution is not sufficient to make such a contract void as against public morals or public policy.
(Phillips vs.Pullen, 45 N.J. Eq., 830.) As was said in Moog vs. Strang (69 Ala., 98), the law does not
"seek to control the hope or expectation of the offender. He may very reasonably, in many cases,
expect that the prompt settlement of a discovered default may tend to paralyze the energy of an
incipient prosecution, and however reprehensible the motives of the parties, they are not cognizable
by the courts so long as their minds falls short of concurring in an agreement, express or implied, to
compound or not to prosecute as the consideration in part or in whole of the payment of the debt or
damages resulting from the crime committed."
In this country a personal is not an accessory to a public offense except in the cases expressly
provided by law. (Penal Code, art. 15; Act No. 292; U.S. vs. Caballeros, 4 Phil. Rep., 350.) In
Goodrum vs. Merchants & Planters Bank (102 Ark., 326; Ann. Cas., 1914A), it appears that
Goodrum was manager of bank and that one Eagle held the majority of the bank's capital stock and
controlled its policies. Goodrum defaulted, and to settle his shortage executed a trust deed which
was to be surrendered to the bank in case an examination shows that he was criminally liable. In a
suit by the bank to compel the conveyance, Goodrum sought to show the illegality of the contract by
evidence that he had been promised immunity from criminal prosecution if he would make good the
shortage. Eagle testified that he promised that, if the conveyance were made, "We won't lie around
the courthouse and try to prosecute him: but if the grand jury calls on me and asks me to explain
these books and asks me if the shortage occurred upon the expert's report, I will tell them everything
I know about it." The court said: "We do not think that this statement of Mr. eagle in effect that he
would not go before the grand jury until summoned to appear was an implied agreement either to
withhold testimony, conceal the crime, or to stifle the prosecution under the facts and circumstances
of this case. The charges made against Goodrum that he was short in his accounts with the bank,
and criminally so, were not only known to all the directors and persons present at the conference,
but they had been published to the world, and the knowledge thereof rife amongst the people of that
community, if not also amongst the people of the country. This is not a case where the charges were
only known by a few persons, and upon their failure to divulge them they would not come to the
notice or knowledge of the public or to those to whom the prosecution of crime is entrusted by the
law. ... At the most, Eagle only stated that he would not instigate a prosecution. ... Because he would
remain passive relative to matters of which the public authorities had full knowledge, it can not be
said that he thereby agreed to shield Goodrum from any public prosecution."

In Nickelson vs. Wilson (60 N.Y., 362), it was said: "But an agreement to lay the whole facts before
the court, and to leave it to the free exercise of the discretionary powers vested in it by law, is not in
itself wrong, and is not rendered illegal even by a stipulation on the part of a prosecutor to exert such
legitimate influence as his position gives him in favor of the extension of mercy to a guilty party."
Whether the tendency of an agreement is to interfere with the due enforcement of criminal law is
always a question of fact. (Martin vs. Tucker, 35 Ark., 279; Goodwin vs. Crowell, 56 Ga., 567;
Beath vs. Chapoton, 115 Mich., 506; 69 Am. St. Rep., 589; Goodrum vs. Merchants & Planters
Bank, supra.)
In the case at bar, the finding of fact made by the court below have been duly submitted to us for
review. The trial court found as a fact that the consideration of the note was the compromise of a
public offense. We do not think that the evidence justifies this conclusion. It is true that the defendant
Rohde testified that the consideration of the note was "the withdrawal of the false charge against him
(McMillian) and to get him out of jail." But it is also in evidence that McMillian owed Brand & Hibberd
the full amount of the note and Rohde knew this fact before he signed the note. There is no charge
that Brand & Hibberd file the criminal complaint with a view of extorting a settlement of their claim
against McMillian. The hearing at the preliminary investigation was duly had and all the evidence
was before the justice of the peace before the agreement represented by the note was made. It is
not shown that Brand & Hibberd agreed not to testify in any further criminal proceedings against
McMillian, or that they would suppress any evidence in their possession, or that they would solicit
the State's prosecutor or any other Government official whose authority extend to the criminal case,
to not hold the defendant for trial. What they actually did was to move in open court for a dismissal of
the complaint. This is all they did so far as the record shows, and that it was satisfactory to the
defendant Rohde is apparent from the fact that he subsequently made partial payments on the note.
There can be no doubt that the agreement which resulted in the execution of the note was entered
into by Brand & Hibberd with an eye to the satisfaction of their pecuniary claim against McMillian.
From the testimony of Rohde himself it appears that he strongly insisted that McMillian was not guilty
of the crime charged, and no doubt his ability as a lawyer tended to convince the complainants that
the criminal charge was unjustified. If they became converted to this view of the matter, they no
doubt more readily consented not to actively assist in the further prosecution of the criminal
complaint. We do not think the record justifies a more radical conclusion as to what Brand & Hibberd
agreed to do with reference to the criminal phase of the transaction than that they promised not to
further actively participate in the case. The record does not justify the conclusion that they went
further and agreed to actively assist in preventing the due investigation of the criminal charge by
suppressing evidence, by declining to appear against McMillian if duly subpoenaed as witnesses, or
by other means. In our opinion, the case is similar in many aspects to Goodrum vs. Merchants &
Planters Bank (102 Ark., 326), to which we have referred above. The record indicates the same
passivity on the part of the injured party and the same publicity of the criminal charge. There having
been no agreement to interfere with the due administration of the criminal law, we are constrained to
hold that no part of the consideration of the note declared upon his illegal or against public policy.
The plaintiff is therefore entitled to judgment. The judgment appealed from is reversed and judgment
is decreed against the defendant Rohde for the sum of one thousand pesos, the amount remaining
unpaid on the note, together with legal interest from the date of the institution of this action. Without
costs. So ordered.
Arellano, C.J., Torres, Carson, and Araullo, JJ., concur.

G.R. No. L-28633 March 30, 1971

CENTRAL SURETY and INSURANCE COMPANY, petitioner,
vs.
C. N. HODGES and THE COURT OF APPEALS, respondents.
Pelaez, Jalandoni and Jamir for petitioner.
Leon P. Gellada for respondent C. N. Hodges.

CONCEPCION, C.J.:
Appeal by certiorari from a decision of the Court of Appeals, the dispositive part of which reads as
follows:
WHEREFORE, in view of the foregoing considerations, the decision appealed from is modified and
judgment is hereby rendered against Central Surety & Insurance Company:
(a) To pay plaintiff C. N. Hodges the sum of P17,826.08 with interest thereon at the rate of 12% per
annum from October 24, 1955 until fully paid;
(b) To pay plaintiff C. N. Hodges the sum of P1,551.60 as attorney's fees; and
(c) To pay the costs.
The main facts are not disputed. Prior to January 15, 1954, lots Nos. 1226 and 1182 of the Cadastral
Survey of Talisay, Negros Occidental, had been sold by C. N. Hodges to Vicente M. Layson, for the
sum of P43,000.90, payable on installments. As of January 15, 1954, the outstanding balance of
Layson's debt, after deducting the installments paid by him prior thereto, amounted to P15,516.00. In
order that he could use said lots as security for a loan he intended to apply from a bank, Layson
persuaded Hodges to execute in his (Layson's) favor a deed of absolute sale over the properties,
with the understanding that he would put up a surety bond to guarantee the payment of said
balance. Accordingly, on the date above-mentioned, Layson executed, in favor of Hodges, a
promissory note for P15,516.00, with interest thereon at the rate of 1% per month, and the sum of
P1,551.60, for attorney's fees and costs, in case of default in the payment of the principal or interest
of said note. To guarantee the same, on January 23, 1954, the Central Surety and Insurance
Company hereinafter referred to as petitioner through the manager of its branch office in Iloilo,
Mrs. Rosita Mesa, executed in favor of Hodges the surety bond Annex B, which was good for twelve
(12) months from the date thereof.
When Layson defaulted in the discharge of his aforesaid obligation, Hodges demanded payment
from the petitioner, which, despite repeated extensions of time granted thereto, at its request, failed
to honor its commitments under the surety bond. On October 24, 1955, Hodges commenced,
therefore. the present action, in the Court of First Instance of Iloilo, against Layson and petitioner
herein, to recover from them, jointly and severally, the sums of P17,826.08, representing the
principal and interest due up to said date, and P1,551.60, as attorney's fees. In his answer to the
complaint, Layson admitted the formal allegations and denied the other allegations thereof.

Having failed to file its answer within the reglementary period, the petitioner was, on January 18,
1956, declared in default. When the case was called for trial, insofar as Layson was concerned, the
latter did not appear, and Hodges was allowed to introduce his evidence. Then the trial court
rendered a partial decision against Layson, petitioner having, in the meantime, filed a motion to set
aside the order of default, which motion was still pending resolution. Thereafter, said motion was
denied, and upon presentation of the evidence of Hodges against herein petitioner, judgment was
rendered against the latter as prayed for in the complaint. Thereupon, petitioner filled a motion for
reconsideration and a motion for relief under Rule 38. Acting thereon, His Honor, the trial Judge,
later set aside its decision against the petitioner and admitted its answer, attached to the motion to
set aside the order of default.
lwph1.t

In its answer, petitioner disclaimed liability under the surety bond in question, upon the ground (a)
that the same is null and void, it having been issued by Mrs. Rosita Mesa after her authority therefor
had been withdrawn on March 15, 1952; (b) that even under her original authority Mrs. Mesa could
not issue surety bonds in excess of P8,000.00 without the approval of petitioner's main office which
was not given to the surety bond in favor of Hodges; and (c) that the present action is barred by the
provision in the surety bond to the effect that all claims and actions thereon should be filed within
three (3) months from the date of its expiration on January 23, 1955. Petitioner, moreover, set up a
counterclaim for damages.
In due course, thereafter, the trial court rendered a decision:
a) Condenando a la demandada Central Surety & Insurance Co. que pague al demandante la desde
la P8,000.00 con intereses legales a contar desde la fecha de la demanda 24 de Octubre de
1955;
b) Condenando a la misma demandada que pague al de mindante la suma de P600.00 en concepto
de honorarios de abogado; y
c) Condenindo ademas a la misma demandada que pague las costas del juicio.
Hodges appealed to the Court of Appeals (CA-G.R. No. L-24684-R) from this decision, insofar as it
limited petitioners liability to P8,000.00. Petitioner, also, appealed to said Court upon the ground that
the trial court had erred: (a) in holding petitioner liable under a contract entered into by its agent in
excess of her authority; (b) in sentencing petitioner to pay Hodges the sum of P8,000.00 with interest
thereon, in addition to attorney's fees and the costs; and (c) in "not awarding" petitioner's
counterclaim.
After appropriate proceedings, the Court of Appeals rendered the decision above referred to, from
which petitioner has appealed to this Court, alleging that the Court of Appeals has erred: (1) in
finding that petitioner "was liable on a bond issued by an agent whose authority ... had already been
withdrawn and revoked"; (2) "in applying the rule on implied admission by reason of failure to deny
under oath the authenticity of a pleaded document"; and (3) "in not considering the legal effect of the
waiver contained in the disputed bond and in not disposing of this case under the light of such
waiver."
The first assignment of error is predicated upon the fact that prior to January 23, 1954, when the
surety bond involved in this case was executed, or on March 15, 1952, petitioner herein had
withdrawn the authority of its branch manager in the City of Iloilo, Mrs. Rosita Mesa, to issue, inter
alia, surety bonds and that, accordingly, the surety bond, copy of which was attached to the
complaint as Annex B, is null and void. On this point, the Court of Appeals had the following to say:

... we are of the opinion that said surety bond is valid. In the first place, there appears
to be no showing that the revocation of authority was made known to the public in
general by publication, nor was Hodges notified of such revocation despite the fact
that he was a regular client of the firm. And even if Hodges would have inquired from
Mrs. Mesa as to her authority to issue said bond, we doubt if she would disclose the
contents of the letter of March 15, 1952 in view of Central Surety's claim that she
was committing irregularities in her remittances to the main office. Secondly, some
surety bonds issued by Mrs. Mesa in favor of Hodges after her authority had
allegedly been curtailed, were honored by the Central Surety despite the fact that
these were not reported to the main office at the time of their issuance. These
accounts were paid on January 31, 1957, to wit: Felicito and Libertad Parra issued
on August 16, 1952; Estrella Auayan issued on November 16, 1953; Dominador
Jordan issued on August 26, 1953; and Ladislao Lachica issued on February 28,
1953. (Exhs. F, G, H, I and J). By these acts Central Surety ratified Mrs. Mesa's
unauthorized acts and as such it is now estopped from setting forth Mrs. Mesa's lack
of authority to issue surety bonds after March 15, 1952. It has been held that
although the agent may have acted beyond the scope of his authority, or may have
acted without authority at all, the principal may yet subsequently see fit to recognize
and adopt the act as his own. Ratification being a matter of assent to and approval of
the act as done on account of the person ratifying any words or acts which show
such assent and approval are ordinarily sufficient. (Sta. Catalina vs. Espitero, CAG.R. No. 27075-R, April 28, 1964, citing IV Padilla, CIVIL CODE. 1959 ed., pp. 478479; Roxas vs. Villanueva, CA-G.R. No. 18928-R, June 20, 1958). Moreover, the
relocation of agency does not prejudice third persons who acted in good faith without
knowledge of the revocation. (Joson vs. Garcia, CA-G.R. No. 29336-R. Nov. 19,
1962).
Indeed, Article 1922 of our Civil Code provides:
If the agent had general powers, revocation of the agency does not prejudice third
persons who acted in good faith and without knowledge of the revocation. Notice of
the revocation in a newspaper of general circulation is a sufficient warning to third
persons.
It is not disputed that petitioner has not caused to be published any notice of the revocation of Mrs.
Mesa's authority to issue surety bonds on its behalf, notwithstanding the fact that the powers of Mrs.
Mesa, as its branch manager in Iloilo, were of a general nature, for she had exclusive authority, in
the City of Iloilo, to represent petitioner herein, not with a particular person, but with the public in
general, "in all the negotiations, transactions, and business in wherein the Company may lawfully
transact or engage on subject only to the restrictions specified in their agreement, copy of which was
attached to petitioner's answer as Annex 3. 1 Contrary to petitioner's claim, Article 1922 applies
whenever an agent has general powers, not merely when the principal has published the same, apart
from the fact that the opening of petitioner's branch office amounted to a publication of the grant of
powers to the manager of said office. Then, again, by honoring several surety bonds issued in its behalf
by Mrs. Mesa subsequently to March 15, 1952, petitioner induced the public to believe that she had
authority to issue such bonds. As a consequence, petitioner is now estopped from pleading, particularly
against a regular customer thereof, like Hodges, the absence of said authority.
Let us now take up the third assignment of error and defer, until after the same has been disposed
of, the consideration of the second assignment of error. Under the third assignment of error,
petitioner maintains that, having been instituted on October 24, 1955 or nine (9) months after the
expiration of petitioner's surety bond on January 23, 1955 the present action is barred by the
provision in said bond to the effect that it:

...will not be liable for any claim not discovered and presented to the Company within
three (3) months from the expiration of this bond and that the obligee hereby waives
his right to file any court action against the surety after the termination of the period
of three months above-mentioned.
Interpreting an identical provision, 2 court has, however, held "that the three-month period" prescribed
therein "established only a condition precedent, not a limitation of action," and that, when a claim has
been presented within said period, the action to enforce the claim may be "filed within the statutory time of
prescription." This view was clarified in a subsequent case, 3 in the sense that the above-quoted provision
was "... merely interpreted to mean that presentation of the claim within three months was a condition
precedent to the filing of a court action. Since the obligee in said case presented his claim seasonably
although it did not file the action within the same period, this Court ruled that the stipulation in the bond
concerning the limitation being ambiguous, the ambiguity should be resolved against the surety, which
drafted the agreement, and that the action could be filed within the statutory period of prescription." 4
In the case at bar, it is not contended that Hodges had not presented his claim within three (3)
months from January 23, 1955. In fact, he had repeatedly demanded from petitioner herein
compliance with its obligations under the surety bond in question, and, in reply to such demands,
petitioner asked extensions of time, on January 29, February 16, March 15, May 3, June 16, July 1
and 15, and October 15, 1955. 5 After thus securing extensions of time, even beyond three (3) months
from January 23, 1955, petitioner cannot plead the lapse of said period to bar the present action.
The second assignment of error assails the finding of the Court of Appeals to the effect that the
petitioner is liable for the full amount of surety bond despite the fact that it exceeded the sum of
P8,000.00 and hence, required, for its validity and binding effect as against petitioner herein, the
express approval and confirmation of its Manila office, which were not secured in view of
petitioner's failure to deny under oath the genuineness and due execution of said bond, copy of
which was attached to the complaint. It is true that, pursuant to section 8 of Rule 8 of the Rules of
Court:
When an action or defense is founded upon a written instrument, copied in or
attached to the corresponding pleading as provided in the preceding section, the
genuineness and due execution of the instrument shall be deemed admitted unless
the adverse party, under oath, specifically denies them, and sets forth what he claims
to be the facts; but this provision does not apply when the adverse party does not
appear to be a party to the instrument or when compliance with an order for an
inspection of the original instrument is refused.
We have however, held that:
... where a case has been tried in complete disregard of the rule and the plaintiff
having pleaded a document by copy, presents oral evidence to prove the due
execution of the document as well as the agent's authority and no objections are
made to the defendant's evidence in refutation, the rule will be considered waived. 6
The reason for such view was explained by this Court as follows:
Before entering upon a discussion of the questions raised by the assignments of
error, we may draw attention to a matter which has not been mentioned either by
counsel or by the court below, but which, to prevent misunderstanding, should be
briefly explained: It is averred in the complaint that it is accompanied by a copy of the
contract between the parties (Exhibit A) which copy, by the terms of the complaint, is

made a part thereof. The copy is not set forth in the bill of exceptions and aside from
said averment, there is no indication that the copy actually accompanied the
complaint, but an examination of the record of the case in the Court of First Instance
shows that a translation of the contract was attached to the complaint and served
upon the defendant. As this translation may be considered a copy and as the
defendant failed to deny its authenticity under oath, it will perhaps be said that under
section 103 of the Code of Civil Procedure the omission to so deny it constitutes an
admission of the genuineness and due execution of the document as well as of the
agent's authority to bind the defendant. (Merchant vs. International Banking
Corporation, 6 Phil. 314.)
In ordinary circumstances that would be true. But this case appears to have been
tried upon the theory that the rule did not apply; at least, it was wholly overlooked or
disregarded by both parties. The plaintiffs at the beginning of the trial presented a
number of witnesses to prove the due execution of the document as well as the
agent's authority; no objection were made to the defendant's evidence in refutation;
all no exceptions taken; and the matter is not mentioned in the decision of the trial
court.
lwph1.t

The object of the rule is 'to relieve a party of the trouble and expense of proving in
the first instance an alleged fact, the existence or nonexistence of which is
necessarily within the knowledge of the adverse party, and of the necessity (to his
opponent's case) of establishing which such adverse party is notified by his
opponent's pleading.' (Nery Lim-Chingco vs. Terariray, 5 Phil., at p. 124.)
The plaintiff may, of course, waive the rule and that is what he must be considered to
have done in the present case by introducing evidence as to the execution of the
document and failing to object to the defendant's evidence in refutation; all this
evidence is now competent and the case must be decided thereupon. .... Nothing of
what has here been said is in conflict with former decisions of this court; it will be
found upon examination that in all cases where the applicability of the rule has been
sustained the party invoking it has relied on it in the court below and conducted his
case accordingly."7
In the case at bar, the parties acted in complete disregard of or wholly overlooked the rule abovequoted. Hodges had neither objected to the evidence introduced by petitioner herein in order to
prove that Mrs. Mesa had no authority to issue a surety bond, much less one in excess of
P8,000.00, and took no exception to the admission of said evidence. Hence, Hodges must be
deemed to have waived the benefits of said rule and petitioner herein cannot be held liable in excess
of the sum of P8,000.00.
WHEREFORE, with the modification that petitioner's liability to Hodges is limited to said sum of
P8,000.00 the period, the petitioner was, on January 18, 1956, declared it is hereby affirmed in all
other respects, without costs. It is so ordered.
Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo, Villamor and
Makasiar, JJ., concur.

A.C. No. 7136

August 1, 2007

JOSELANO GUEVARRA, complainant,

vs.
ATTY. JOSE EMMANUEL EALA, respondent.
DECISION
PER CURIAM:
Joselano Guevarra (complainant) filed on March 4, 2002 a Complaint for Disbarment 1 before the
Integrated Bar of the Philippines (IBP) Committee on Bar Discipline (CBD) against Atty. Jose
Emmanuel M. Eala a.k.a. Noli Eala (respondent) for "grossly immoral conduct and unmitigated
violation of the lawyer's oath."
In his complaint, Guevarra gave the following account:
He first met respondent in January 2000 when his (complainant's) then-fiancee Irene Moje (Irene)
introduced respondent to him as her friend who was married to Marianne (sometimes spelled "Mary
Ann") Tantoco with whom he had three children.
After his marriage to Irene on October 7, 2000, complainant noticed that from January to March
2001, Irene had been receiving from respondent cellphone calls, as well as messages some of
which read "I love you," "I miss you," or "Meet you at Megamall."
Complainant also noticed that Irene habitually went home very late at night or early in the morning of
the following day, and sometimes did not go home from work. When he asked about her
whereabouts, she replied that she slept at her parents' house in Binangonan, Rizal or she was busy
with her work.
In February or March 2001, complainant saw Irene and respondent together on two occasions. On
the second occasion, he confronted them following which Irene abandoned the conjugal house.
On April 22, 2001, complainant went uninvited to Irene's birthday celebration at which he saw her
and respondent celebrating with her family and friends. Out of embarrassment, anger and
humiliation, he left the venue immediately. Following that incident, Irene went to the conjugal house
and hauled off all her personal belongings, pieces of furniture, and her share of the household
appliances.
Complainant later found, in the master's bedroom, a folded social card bearing the words "I Love
You" on its face, which card when unfolded contained a handwritten letter dated October 7, 2000,
the day of his wedding to Irene, reading:
My everdearest Irene,
By the time you open this, you'll be moments away from walking down the aisle. I will say a
prayer for you that you may find meaning in what you're about to do.
Sometimes I wonder why we ever met. Is it only for me to find fleeting happiness but
experience eternal pain? Is it only for us to find a true love but then lose it again? Or is it
because there's a bigger plan for the two of us?

I hope that you have experienced true happiness with me. I have done everything humanly
possible to love you. And today, as you make your vows . . . I make my own vow to YOU!
I will love you for the rest of my life. I loved you from the first time I laid eyes on you, to the
time we spent together, up to the final moments of your single life. But more importantly, I will
love you until the life in me is gone and until we are together again.
Do not worry about me! I will be happy for you. I have enough memories of us to last me a
lifetime. Always remember though that in my heart, in my mind and in my soul, YOU WILL
ALWAYS
. . . AND THE WONDERFUL THINGS YOU DO!
BE MINE . . . . AND MINE ALONE, and I WILL ALWAYS BE YOURS AND YOURS ALONE!
I LOVE YOU FOREVER, I LOVE YOU FOR ALWAYS. AS LONG AS I'M LIVING MY
TWEETIE YOU'LL BE!"2
Eternally yours,
NOLI
Complainant soon saw respondent's car and that of Irene constantly parked at No. 71-B 11th Street,
New Manila where, as he was to later learn sometime in April 2001, Irene was already residing. He
also learned still later that when his friends saw Irene on or about January 18, 2002 together with
respondent during a concert, she was pregnant.
In his ANSWER,3 respondent admitted having sent the I LOVE YOU card on which the above-quoted
letter was handwritten.
On paragraph 14 of the COMPLAINT reading:
14. Respondent and Irene were even FLAUNTING THEIR ADULTEROUS RELATIONSHIP
as they attended social functions together. For instance, in or about the third week of
September 2001, the couple attended the launch of the "Wine All You Can" promotion of
French wines, held at the Mega Strip of SM Megamall B at Mandaluyong City. Their
attendance was reported in Section B of the Manila Standard issue of 24 September 2001,
on page 21. Respondent and Irene were photographed together; their picture was captioned:
"Irene with Sportscaster Noli Eala." A photocopy of the report is attached as Annex
C.4 (Italics and emphasis in the original; CAPITALIZATION of the phrase "flaunting their
adulterous relationship" supplied),
respondent, in his ANSWER, stated:
4. Respondent specifically denies having ever flaunted an adulterous relationship with
Irene as alleged in paragraph 14 of the Complaint, the truth of the matter being that their
relationship was low profile and known only to the immediate members of their
respective families, and that Respondent, as far as the general public was concerned, was
still known to be legally married to Mary Anne Tantoco.5 (Emphasis and underscoring
supplied)

On paragraph 15 of the COMPLAINT reading:

15. Respondent's adulterous conduct with the complainant's wife and his
apparent abandoning or neglecting of his own family, demonstrate his gross moral depravity,
making him morally unfit to keep his membership in the bar. He flaunted his aversion to the
institution of marriage, calling it a "piece of paper." Morally reprehensible was his writing the
love letter to complainant's bride on the very day of her wedding, vowing to continue his love
for her "until we are together again," as now they are. 6 (Underscoring supplied),
respondent stated in his ANSWER as follows:
5. Respondent specifically denies the allegations in paragraph 15 of the Complaint regarding
his adulterousrelationship and that his acts demonstrate gross moral depravity thereby
making him unfit to keep his membership in the bar, the reason being that Respondent's
relationship with Irene was not under scandalous circumstances and that as far as his
relationship with his own family:
5.1 Respondent has maintained a civil, cordial and peaceful relationship with [his wife] Mary
Anne as in fact they still occasionally meet in public, even if Mary Anne is aware
of Respondent's special friendship with Irene.
xxxx
5.5 Respondent also denies that he has flaunted his aversion to the institution of marriage by
calling the institution of marriage a mere piece of paper because his reference [in his abovequoted handwritten letter to Irene] to the marriage between Complainant and Irene as a
piece of paper was merely with respect to the formality of the marriage contract.7 (Emphasis
and underscoring supplied)
Respondent admitted8 paragraph 18 of the COMPLAINT reading:
18. The Rules of Court requires lawyers to support the Constitution and obey the laws. The
Constitution regards marriage as an inviolable social institution and is the foundation of the
family (Article XV, Sec. 2).9
And on paragraph 19 of the COMPLAINT reading:
19. Respondent's grossly immoral conduct runs afoul of the Constitution and the laws he,
as a lawyer, has been sworn to uphold. In pursuing obsessively his illicit love for the
complainant's wife, he mocked the institution of marriage, betrayed his own family, broke
up the complainant's marriage, commits adultery with his wife, and degrades the legal
profession.10 (Emphasis and underscoring supplied),
respondent, in his ANSWER, stated:
7. Respondent specifically denies the allegations in paragraph 19 of the Complaint, the
reason being thatunder the circumstances the acts of Respondent with respect to his purely
personal and low profile special relationship with Irene is neither under scandalous
circumstances nor tantamount to grossly immoral conduct as would be a ground for
disbarment pursuant to Rule 138, Section 27 of the Rules of Court.11 (Emphasis and
underscoring supplied)

To respondent's ANSWER, complainant filed a REPLY,12 alleging that Irene gave birth to a girl and
Irene named respondent in the Certificate of Live Birth as the girl's father. Complainant attached to
the Reply, as Annex "A," a copy of a Certificate of Live Birth 13 bearing Irene's signature and naming
respondent as the father of her daughter Samantha Irene Louise Moje who was born on February
14, 2002 at St. Luke's Hospital.
Complainant's REPLY merited a REJOINDER WITH MOTION TO DISMISS14 dated January 10,
2003 from respondent in which he denied having "personal knowledge of the Certificate of Live Birth
attached to the complainant's Reply." 15 Respondent moved to dismiss the complaint due to the
pendency of a civil case filed by complainant for the annulment of his marriage to Irene, and a
criminal complaint for adultery against respondent and Irene which was pending before the Quezon
City Prosecutor's Office.
During the investigation before the IBP-CBD, complainant's Complaint-Affidavit and Reply to Answer
were adopted as his testimony on direct examination. 16 Respondent's counsel did not cross-examine
complainant.17
After investigation, IBP-CBD Investigating Commissioner Milagros V. San Juan, in a 12-page
REPORT AND RECOMMENDATION18 dated October 26, 2004, found the charge against
respondent sufficiently proven.
The Commissioner thus recommended19 that respondent be disbarred for violating Rule 1.01 of
Canon 1 of the Code of Professional Responsibility reading:
Rule 1.01: A lawyer shall not engage in unlawful, dishonest, immoral or
deceitful conduct (Underscoring supplied),
and Rule 7.03 of Canon 7 of the same Code reading:
Rule 7.03: A lawyer shall not engage in conduct that adversely reflects on his fitness to
practice law, nor shall he, whether in public or private life, behave in a scandalous manner to
the discredit of the legal profession. (Underscoring supplied)
The IBP Board of Governors, however, annulled and set aside the Recommendation of the
Investigating Commissioner and accordingly dismissed the case for lack of merit, by Resolution
dated January 28, 2006 briefly reading:
RESOLUTION NO. XVII-2006-06
CBD Case No. 02-936
Joselano C. Guevarra vs.
Atty. Jose Emmanuel M. Eala
a.k.a. Noli Eala
RESOLVED to ANNUL and SET ASIDE, as it is hereby ANNULLED AND SET ASIDE, the
Recommendation of the Investigating Commissioner, and to APPROVE the DISMISSAL of
the above-entitled case for lack of merit.20 (Italics and emphasis in the original)
Hence, the present petition21 of complainant before this Court, filed pursuant to Section 12 (c), Rule
13922 of the Rules of Court.

The petition is impressed with merit.

Oddly enough, the IBP Board of Governors, in setting aside the Recommendation of the
Investigating Commissioner and dismissing the case for lack of merit, gave no reason therefor as its
above-quoted 33-word Resolution shows.
Respondent contends, in his Comment23 on the present petition of complainant, that there is no
evidence against him.24 The contention fails. As the IBP-CBD Investigating Commissioner observed:
While it may be true that the love letter dated October 7, 2000 (Exh. "C") and the news item
published in the Manila Standard (Exh. "D"), even taken together do not sufficiently prove
that respondent is carrying on an adulterous relationship with complainant's wife, there are
other pieces of evidence on record which support the accusation of complainant against
respondent.
It should be noted that in his Answer dated 17 October 2002, respondent through
counsel made the following statements to wit: "Respondent specifically denies having
[ever] flaunted an adulterous relationship with Irene as alleged in paragraph [14] of the
Complaint, the truth of the matter being [that]their relationship was low profile and known
only to immediate members of their respective families . . . , and Respondent specifically
denies the allegations in paragraph 19 of the complaint, the reason being that under the
circumstances the acts of the respondents with respect to his purely personal and low profile
relationship with Irene is neither under scandalous circumstances nor tantamount to grossly
immoral conduct . . ."
These statements of respondent in his Answer are an admission that there is indeed a
"special" relationship between him and complainant's wife, Irene, [which] taken
together with the Certificate of Live Birth of Samantha Louise Irene Moje (Annex "H1") sufficiently prove that there was indeed an illicit relationship between respondent
and Irene which resulted in the birth of the child "Samantha". In the Certificate of Live Birth
of Samantha it should be noted that complainant's wife Irene supplied the information
that respondent was the father of the child. Given the fact that the respondent admitted
his special relationship with Irene there is no reason to believe that Irene would lie or
make any misrepresentation regarding the paternity of the child. It should be
underscored that respondent has not categorically denied that he is the father of
Samantha Louise Irene Moje.25 (Emphasis and underscoring supplied)
Indeed, from respondent's Answer, he does not deny carrying on an adulterous relationship with
Irene, "adultery" being defined under Art. 333 of the Revised Penal Code as that "committed by any
married woman who shall have sexual intercourse with a man not her husband and by the man who
has carnal knowledge of her, knowing her to be married, even if the marriage be subsequently
declared void."26 (Italics supplied) What respondent denies is having flaunted such relationship, he
maintaining that it was "low profile and known only to the immediate members of their respective
families."
In other words, respondent's denial is a negative pregnant,
a denial pregnant with the admission of the substantial facts in the pleading responded to
which are not squarely denied. It was in effect an admission of the averments it was directed
at. Stated otherwise, a negative pregnant is a form of negative expression which carries with
it in affirmation or at least an implication of some kind favorable to the adverse party. It is a
denial pregnant with an admission of the substantial facts alleged in the pleading. Where a

fact is alleged with qualifying or modifying language and the words of the allegation as so
qualified or modified are literally denied, it has been held that the qualifying circumstances
alone are denied while the fact itself is admitted.27 (Citations omitted; emphasis and
underscoring supplied)
A negative pregnant too is respondent's denial of having "personal knowledge" of Irene's daughter
Samantha Louise Irene Moje's Certificate of Live Birth. In said certificate, Irene named respondent
a "lawyer," 38 years old as the child's father. And the phrase "NOT MARRIED" is entered on the
desired information on "DATE AND PLACE OF MARRIAGE." A comparison of the signature
attributed to Irene in the certificate28 with her signature on the Marriage Certificate 29 shows that they
were affixed by one and the same person. Notatu dignum is that, as the Investigating Commissioner
noted, respondent never denied being the father of the child.
Franklin A. Ricafort, the records custodian of St. Luke's Medical Center, in his January 29, 2003
Affidavit30 which he identified at the witness stand, declared that Irene gave the information in the
Certificate of Live Birth that the child's father is "Jose Emmanuel Masacaet Eala," who was 38 years
old and a lawyer.31
Without doubt, the adulterous relationship between respondent and Irene has been sufficiently
proven by more than clearly preponderant evidence that evidence adduced by one party which is
more conclusive and credible than that of the other party and, therefore, has greater weight than the
other32 which is the quantum of evidence needed in an administrative case against a lawyer.
Administrative cases against lawyers belong to a class of their own. They are distinct from and they
may proceed independently of civil and criminal cases.
. . . of proof for these types of cases differ. In a criminal case, proof beyond reasonable doubt
is necessary; in an administrative case for disbarment or suspension, "clearly preponderant
evidence" is all that is required.33 (Emphasis supplied)
Respondent insists, however, that disbarment does not lie because his relationship with Irene was
not, under Section 27 of Rule 138 of the Revised Rules of Court, reading:
SEC. 27. Disbarment or suspension of attorneys by Supreme Court, grounds therefor. A
member of the bar may be disbarred or suspended from his office as attorney by the
Supreme Court for any deceit, malpractice, or other gross misconduct in such office, grossly
immoral conduct, or by reason of his conviction of a crime involving moral turpitude, or
for any violation of the oath which he is required to take before admission to practice, or for a
willful disobedience appearing as an attorney for a party to a case without authority so to do.
The practice of soliciting cases at law for the purpose of gain, either personally or through
paid agents or brokers, constitutes malpractice.
The disbarment or suspension of a member of the Philippine Bar by a competent court or
other disciplinatory agency in a foreign jurisdiction where he has also been admitted as an
attorney is a ground for his disbarment or suspension if the basis of such action includes any
of the acts hereinabove enumerated.
The judgment, resolution or order of the foreign court or disciplinary agency shall be prima
facie evidence of the ground for disbarment or suspension (Emphasis and underscoring
supplied),

under scandalous circumstances.34

The immediately-quoted Rule which provides the grounds for disbarment or suspension uses the
phrase "grossly immoral conduct," not "under scandalous circumstances." Sexual intercourse
under scandalous circumstances is, following Article 334 of the Revised Penal Code reading:
ART. 334. Concubinage. - Any husband who shall keep a mistress in the conjugal dwelling,
or, shall have sexual intercourse, under scandalous circumstances, with a woman who is not
his wife, or shall cohabit with her in any other place, shall be punished by prision
correccional in its minimum and medium periods.
x x x x,
an element of the crime of concubinage when a married man has sexual intercourse with a woman
elsewhere.
"Whether a lawyer's sexual congress with a woman not his wife or without the benefit of marriage
should be characterized as 'grossly immoral conduct' depends on the surrounding
circumstances."35 The case at bar involves a relationship between a married lawyer and a married
woman who is not his wife. It is immaterial whether the affair was carried out discreetly. Apropos is
the following pronouncement of this Court in Vitug v. Rongcal:36
On the charge of immorality, respondent does not deny that he had an extra-marital affair
with complainant, albeit brief and discreet, and which act is not "so corrupt and false as to
constitute a criminal act or so unprincipled as to be reprehensible to a high degree" in order
to merit disciplinary sanction. We disagree.
xxxx
While it has been held in disbarment cases that the mere fact of sexual relations between
two unmarriedadults is not sufficient to warrant administrative sanction for such illicit
behavior, it is not so with respect tobetrayals of the marital vow of fidelity. Even if not all
forms of extra-marital relations are punishable under penal law, sexual relations outside
marriage is considered disgraceful and immoral as it manifests deliberate disregard of the
sanctity of marriage and the marital vows protected by the Constitution and affirmed by
our laws.37 (Emphasis and underscoring supplied)
And so is the pronouncement in Tucay v. Atty. Tucay:38
The Court need not delve into the question of whether or not the respondent did contract a
bigamous marriage . . . It is enough that the records of this administrative case substantiate
the findings of the Investigating Commissioner, as well as the IBP Board of Governors, i.e.,
that indeed respondent has beencarrying on an illicit affair with a married woman, a grossly
immoral conduct and indicative of an extremely low regard for the fundamental ethics of
his profession. This detestable behavior renders him regrettably unfit and
undeserving of the treasured honor and privileges which his license confers upon
him.39 (Underscoring supplied)
Respondent in fact also violated the lawyer's oath he took before admission to practice law which
goes:

I _________, having been permitted to continue in the practice of law in the Philippines, do
solemnly swear that I recognize the supreme authority of the Republic of the Philippines; I
will support its Constitution andobey the laws as well as the legal orders of the duly
constituted authorities therein; I will do no falsehood, nor consent to the doing of any in court;
I will not wittingly or willingly promote or sue any groundless, false or unlawful suit, nor give
aid nor consent to the same; I will delay no man for money or malice, and will conduct myself
as a lawyer according to the best of my knowledge and discretion with all good fidelity as
well as to the courts as to my clients; and I impose upon myself this voluntary obligation
without any mental reservation or purpose of evasion. So help me God. (Underscoring
supplied)
Respondent admittedly is aware of Section 2 of Article XV (The Family) of the Constitution reading:
Section 2. Marriage, as an inviolable social institution, is the foundation of the family and
shall be protected by the State.
In this connection, the Family Code (Executive Order No. 209), which echoes this constitutional
provision, obligates the husband and the wife "to live together, observe mutual love, respect and
fidelity, and render mutual help and support."40
Furthermore, respondent violated Rule 1.01 of Canon 1 of the Code of Professional Responsibility
which proscribes a lawyer from engaging in "unlawful, dishonest, immoral or deceitful conduct," and
Rule 7.03 of Canon7 of the same Code which proscribes a lawyer from engaging in any "conduct
that adversely reflects on his fitness to practice law."
Clutching at straws, respondent, during the pendency of the investigation of the case before the IBP
Commissioner, filed a Manifestation41 on March 22, 2005 informing the IBP-CBD that complainant's
petition for nullity of his (complainant's) marriage to Irene had been granted by Branch 106 of the
Quezon City Regional Trial Court, and that the criminal complaint for adultery complainant filed
against respondent and Irene "based on the same set of facts alleged in the instant case," which
was pending review before the Department of Justice (DOJ), on petition of complainant, had been,
on motion of complainant, withdrawn.
The Secretary of Justice's Resolution of January 16, 2004 granting complainant's Motion to
Withdraw Petition for Review reads:
Considering that the instant motion was filed before the final resolution of the petition for
review, we are inclined to grant the same pursuant to Section 10 of Department Circular No.
70 dated July 3, 2000, which provides that "notwithstanding the perfection of the appeal, the
petitioner may withdraw the same at any time before it is finally resolved, in which case the
appealed resolution shall stand as though no appeal has been taken."42 (Emphasis
supplied by complainant)
That the marriage between complainant and Irene was subsequently declared void ab initio is
immaterial. The acts complained of took place before the marriage was declared null and void.43 As a
lawyer, respondent should be aware that a man and a woman deporting themselves as husband and
wife are presumed, unless proven otherwise, to have entered into a lawful contract of marriage. 44 In
carrying on an extra-marital affair with Irene prior to the judicial declaration that her marriage with
complainant was null and void, and despite respondent himself being married, he showed disrespect
for an institution held sacred by the law. And he betrayed his unfitness to be a lawyer.

As for complainant's withdrawal of his petition for review before the DOJ, respondent glaringly
omitted to state that before complainant filed his December 23, 2003 Motion to Withdraw his Petition
for Review, the DOJ had already promulgated a Resolution on September 22, 2003 reversing the
dismissal by the Quezon City Prosecutor's Office of complainant's complaint for adultery. In
reversing the City Prosecutor's Resolution, DOJ Secretary Simeon Datumanong held:
Parenthetically the totality of evidence adduced by complainant would, in the fair estimation
of the Department, sufficiently establish all the elements of the offense of adultery on the part
of both respondents. Indeed, early on, respondent Moje conceded to complainant that she
was going out on dates with respondent Eala, and this she did when complainant confronted
her about Eala's frequent phone calls and text messages to her. Complainant also personally
witnessed Moje and Eala having a rendezvous on two occasions. Respondent Eala never
denied the fact that he knew Moje to be married to complainant[.] In fact, he (Eala) himself
was married to another woman. Moreover, Moje's eventual abandonment of their conjugal
home, after complainant had once more confronted her about Eala, only served to confirm
the illicit relationship involving both respondents. This becomes all the more apparent by
Moje's subsequent relocation in No. 71-B, 11th Street, New Manila, Quezon City, which was a
few blocks away from the church where she had exchange marital vows with complainant.
It was in this place that the two lovers apparently cohabited. Especially since Eala's vehicle
and that of Moje's were always seen there. Moje herself admits that she came to live in the
said address whereas Eala asserts that that was where he held office. The happenstance
that it was in that said address that Eala and Moje had decided to hold office for the firm that
both had formed smacks too much of a coincidence. For one, the said address appears to
be a residential house, for that was where Moje stayed all throughout after her separation
from complainant. It was both respondent's love nest, to put short; their illicit affair that was
carried out there bore fruit a few months later when Moje gave birth to a girl at the nearby
hospital of St. Luke's Medical Center. What finally militates against the respondents is
the indubitable fact that in the certificate of birth of the girl, Moje furnished the information
that Eala was the father. This speaks all too eloquently of the unlawful and damning
nature of the adulterous acts of the respondents. Complainant's supposed illegal
procurement of the birth certificate is most certainly beside the point for both respondents
Eala and Moje have not denied, in any categorical manner, that Eala is the father of the
child Samantha Irene Louise Moje.45 (Emphasis and underscoring supplied)
It bears emphasis that adultery is a private offense which cannot be prosecuted de oficio and thus
leaves the DOJ no choice but to grant complainant's motion to withdraw his petition for review. But
even if respondent and Irene were to be acquitted of adultery after trial, if the Information for adultery
were filed in court, the same would not have been a bar to the present administrative complaint.
Citing the ruling in Pangan v. Ramos,46 viz:
x x x The acquittal of respondent Ramos [of] the criminal charge is not a bar to these
[administrative] proceedings. The standards of legal profession are not satisfied by conduct
which merely enables one to escape the penalties of x x x criminal law. Moreover, this Court,
in disbarment proceedings is acting in an entirely different capacity from that which courts
assume in trying criminal case47 (Italics in the original),
this Court in Gatchalian Promotions Talents Pools, Inc. v. Atty. Naldoza,48 held:
Administrative cases against lawyers belong to a class of their own. They are distinct from
and they mayproceed independently of civil and criminal cases.

WHEREFORE, the petition is GRANTED. Resolution No. XVII-2006-06 passed on January 28, 2006
by the Board of Governors of the Integrated Bar of the Philippines is ANNULLED and SET ASIDE.
Respondent, Atty. Jose Emmanuel M. Eala, is DISBARRED for grossly immoral conduct, violation of
his oath of office, and violation of Canon 1, Rule 1.01 and Canon 7, Rule 7.03 of the Code of
Professional Responsibility.
Let a copy of this Decision, which is immediately executory, be made part of the records of
respondent in the Office of the Bar Confidant, Supreme Court of the Philippines. And let copies of the
Decision be furnished the Integrated Bar of the Philippines and circulated to all courts.
This Decision takes effect immediately.
SO ORDERED.

G.R. No. 87434 August 5, 1992

PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC. and TAGUM PLASTICS,
INC., petitioners,
vs.
SWEET LINES, INC., DAVAO VETERANS ARRASTRE AND PORT SERVICES, INC. and HON.
COURT OF APPEALS, respondents.
De Lara, De Lunas & Rosales for petitioners.
Carlo L. Aquino for Sweet Lines, Inc.

REGALADO, J.:
A maritime suit 1 was commenced on May 12, 1978 by herein Petitioner Philippine American General
Insurance Co., Inc. (Philamgen) and Tagum Plastics, Inc. (TPI) against private respondents Sweet Lines,
Inc. (SLI) and Davao Veterans Arrastre and Port Services, Inc. (DVAPSI), along with S.C.I. Line (The
Shipping Corporation of India Limited) and F.E. Zuellig, Inc., as co-defendants in the court a quo, seeking
recovery of the cost of lost or damaged shipment plus exemplary damages, attorney's fees and costs
allegedly due to defendants' negligence, with the following factual backdrop yielded by the findings of the
court below and adopted by respondent court:
It would appear that in or about March 1977, the vessel SS "VISHVA YASH"
belonging to or operated by the foreign common carrier, took on board at Baton
Rouge, LA, two (2) consignments of cargoes for shipment to Manila and later for
transhipment to Davao City, consisting of 600 bags Low Density Polyethylene 631
and another 6,400 bags Low Density Polyethylene 647, both consigned to the order
of Far East Bank and Trust Company of Manila, with arrival notice to Tagum Plastics,
Inc., Madaum, Tagum, Davao City. Said cargoes were covered, respectively, by Bills
of Lading Nos. 6 and 7 issued by the foreign common carrier (Exhs. E and F). The

necessary packing or Weight List (Exhs. A and B), as well as the Commercial
Invoices (Exhs. C and D) accompanied the shipment. The cargoes were likewise
insured by the Tagum Plastics Inc. with plaintiff Philippine American General
Insurance Co., Inc., (Exh. G).
In the course of time, the said vessel arrived at Manila and discharged its cargoes in
the Port of Manila for transhipment to Davao City. For this purpose, the foreign
carrier awaited and made use of the services of the vessel called M/V "Sweet Love"
owned and operated by defendant interisland carrier.
Subject cargoes were loaded in Holds Nos. 2 and 3 of the interisland carrier. These
were commingled with similar cargoes belonging to Evergreen Plantation and also
Standfilco.
On May 15, 1977, the shipment(s) were discharged from the interisland carrier into
the custody of the consignee. A later survey conducted on July 8, 1977, upon the
instance of the plaintiff, shows the following:
Of the cargo covered by Bill of Lading No. 25 or (2)6, supposed to contain 6,400
bags of Low Density Polyethylene 647 originally inside 160 pallets, there were
delivered to the consignee 5,413 bags in good order condition. The survey shows
shortages, damages and losses to be as follows:
Undelivered/Damaged bags as tallied during discharge from vessel173 bags; undelivered and damaged as noted and observed whilst
stored at the pier-699 bags; and shortlanded-110 bags (Exhs. P and
P-1).
Of the 600 bags of Low Density Polyethylene 631, the survey conducted on the
same day shows an actual delivery to the consignee of only 507 bags in good order
condition. Likewise noted were the following losses, damages and shortages, to wit:
Undelivered/damaged bags and tally sheets during discharge from
vessel-17 bags.
Undelivered and damaged as noted and observed whilst stored at the
pier-66 bags; Shortlanded-10 bags.
Therefore, of said shipment totalling 7,000 bags, originally contained in 175 pallets,
only a total of 5,820 bags were delivered to the consignee in good order condition,
leaving a balance of 1,080 bags. Such loss from this particular shipment is what any
or all defendants may be answerable to (sic).
As already stated, some bags were either shortlanded or were missing, and some of
the 1,080 bags were torn, the contents thereof partly spilled or were fully/partially
emptied, but, worse, the contents thereof contaminated with foreign matters and
therefore could no longer serve their intended purpose. The position taken by the
consignee was that even those bags which still had some contents were considered
as total losses as the remaining contents were contaminated with foreign matters
and therefore did not (sic) longer serve the intended purpose of the material. Each
bag was valued, taking into account the customs duties and other taxes paid as well

as charges and the conversion value then of a dollar to the peso, at P110.28 per bag
(see Exhs. L and L-1 M and O). 2
Before trial, a compromise agreement was entered into between petitioners, as plaintiffs, and
defendants S.C.I. Line and F.E. Zuellig, upon the latter's payment of P532.65 in settlement of the
claim against them. Whereupon, the trial court in its order of August 12, 1981 3 granted plaintiffs'
motion to dismiss grounded on said amicable settlement and the case as to S.C.I. Line and F.E. Zuellig
was consequently "dismissed with prejudice and without pronouncement as to costs."
The trial court thereafter rendered judgment in favor of herein petitioners on this dispositive portion:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff Philippine
General American Insurance Company Inc. and against the remaining defendants,
Sweet Lines Inc. and Davao Veterans Arrastre Inc. as follows:
Defendant Sweet Lines, Inc. is ordered to pay said plaintiff the sum of P34,902.00,
with legal interest thereon from date of extrajudicial demand on April 28, 1978 (Exh.
M) until fully paid;
Defendant Sweet Lines Inc. and Davao Veterans Arrastre and (Port) Services Inc.
are directed to pay jointly and severally, the plaintiff the sum of P49,747.55, with legal
interest thereon from April 28, 1978 until fully paid;
Each of said defendants are ordered to pay the plaintiffs the additional sum of
P5,000 is reimbursable attorney's fees and other litigation expenses;
Each of said defendants shall pay one-fourth (1/4) costs.

Due to the reversal on appeal by respondent court of the trial court's decision on the ground of
prescription, 5 in effect dismissing the complaint of herein petitioners, and the denial of their motion for
reconsideration, 6 petitioners filed the instant petition for review on certiorari, faulting respondent appellate
court with the following errors: (1) in upholding, without proof, the existence of the so-called prescriptive
period; (2) granting arguendo that the said prescriptive period does exist, in not finding the same to be
null and void; and (3) assuming arguendo that the said prescriptive period is valid and legal, in failing to
conclude that petitioners substantially complied therewith. 7
Parenthetically, we observe that herein petitioners are jointly pursuing this case, considering their
common interest in the shipment subject of the present controversy, to obviate any question as to
who the real party in interest is and to protect their respective rights as insurer and insured. In any
case, there is no impediment to the legal standing of Petitioner Philamgen, even if it alone were to
sue herein private respondents in its own capacity as insurer, it having been subrogated to all rights
of recovery for loss of or damage to the shipment insured under its Marine Risk Note No. 438734
dated March 31, 1977 8 in view of the full settlement of the claim thereunder as evidenced by the subrogation receipt 9 issued in
its favor by Far East Bank and Trust Co., Davao Branch, for the account of petitioner TPI.
Upon payment of the loss covered by the policy, the insurer's entitlement to subrogation pro tanto,
being of the highest equity, equips it with a cause of action against a third party in case of
contractual breach. 10 Further, the insurer's subrogatory right to sue for recovery under the bill of lading in
case of loss of or damage to the cargo is jurisprudentially upheld. 11 However, if an insurer, in the exercise
of its subrogatory right, may proceed against the erring carrier and for all intents and purposes stands in
the place and in substitution of the consignee, a fortiori such insurer is presumed to know and is just as
bound by the contractual terms under the bill of lading as the insured.

On the first issue, petitioners contend that it was error for the Court of Appeals to reverse the
appealed decision on the supposed ground of prescription when SLI failed to adduce any evidence
in support thereof and that the bills of lading said to contain the shortened periods for filing a claim
and for instituting a court action against the carrier were never offered in evidence. Considering that
the existence and tenor of this stipulation on the aforesaid periods have allegedly not been
established, petitioners maintain that it is inconceivable how they can possibly comply therewith. 12 In
refutation, SLI avers that it is standard practice in its operations to issue bills of lading for shipments
entrusted to it for carriage and that it in fact issued bills of lading numbered MD-25 and MD-26 therefor
with proof of their existence manifest in the records of the case. 13 For its part, DVAPSI insists on the
propriety of the dismissal of the complaint as to it due to petitioners' failure to prove its direct responsibility
for the loss of and/or damage to the cargo.14
On this point, in denying petitioner's motion for reconsideration, the Court of Appeals resolved that
although the bills of lading were not offered in evidence, the litigation obviously revolves on such bills
of lading which are practically the documents or contracts sued upon, hence, they are inevitably
involved and their provisions cannot be disregarded in the determination of the relative rights of the
parties thereto. 15
Respondent court correctly passed upon the matter of prescription, since that defense was so
considered and controverted by the parties. This issue may accordingly be taken cognizance of by
the court even if not inceptively raised as a defense so long as its existence is plainly apparent on
the face of relevant pleadings. 16 In the case at bar, prescription as an affirmative defense was
seasonably raised by SLI in its answer, 17 except that the bills of lading embodying the same were not
formally offered in evidence, thus reducing the bone of contention to whether or not prescription can be
maintained as such defense and, as in this case, consequently upheld on the strength of mere references
thereto.
As petitioners are suing upon SLI's contractual obligation under the contract of carriage as contained
in the bills of lading, such bills of lading can be categorized as actionable documents which under
the Rules must be properly pleaded either as causes of action or defenses, 18 and the genuineness
and due execution of which are deemed admitted unless specifically denied under oath by the adverse
party. 19 The rules on actionable documents cover and apply to both a cause of action or defense based
on said documents. 20
In the present case and under the aforestated assumption that the time limit involved is a
prescriptive period, respondent carrier duly raised prescription as an affirmative defense in its
answer setting forth paragraph 5 of the pertinent bills of lading which comprised the stipulation
thereon by parties, to wit:
5. Claims for shortage, damage, must be made at the time of delivery to consignee
or agent, if container shows exterior signs of damage or shortage. Claims for nondelivery, misdelivery, loss or damage must be filed within 30 days from accrual. Suits
arising from shortage, damage or loss, non-delivery or misdelivery shall be instituted
within 60 days from date of accrual of right of action. Failure to file claims or institute
judicial proceedings as herein provided constitutes waiver of claim or right of action.
In no case shall carrier be liable for any delay, non-delivery, misdelivery, loss of
damage to cargo while cargo is not in actual custody of carrier. 21
In their reply thereto, herein petitioners, by their own assertions that
2. In connection with Pars. 14 and 15 of defendant Sweet Lines, Inc.'s Answer,
plaintiffs state that such agreements are what the Supreme Court considers as
contracts of adhesion (see Sweet Lines, Inc. vs. Hon. Bernardo Teves, et al., G.R.

No. L-37750, May 19, 1978) and, consequently, the provisions therein which are
contrary to law and public policy cannot be availed of by answering defendant as
valid defenses. 22
thereby failed to controvert the existence of the bills of lading and the aforequoted provisions therein,
hence they impliedly admitted the same when they merely assailed the validity of subject
stipulations.
Petitioners' failure to specifically deny the existence, much less the genuineness and due execution,
of the instruments in question amounts to an admission. Judicial admissions, verbal or written, made
by the parties in the pleadings or in the course of the trial or other proceedings in the same case are
conclusive, no evidence being required to prove the same, and cannot be contradicted unless shown
to have been made through palpable mistake or that no such admission was made. 23 Moreover,
when the due execution and genuineness of an instrument are deemed admitted because of the adverse
party's failure to make a specific verified denial thereof, the instrument need not be presented formally in
evidence for it may be considered an admitted fact. 24
Even granting that petitioners' averment in their reply amounts to a denial, it has the procedural
earmarks of what in the law on pleadings is called a negative pregnant, that is, a denial pregnant
with the admission of the substantial facts in the pleading responded to which are not squarely
denied. It is in effect an admission of the averment it is directed to. 25 Thus, while petitioners objected
to the validity of such agreement for being contrary to public policy, the existence of the bills of lading and
said stipulations were nevertheless impliedly admitted by them.
We find merit in respondent court's comments that petitioners failed to touch on the matter of the
non-presentation of the bills of lading in their brief and earlier on in the appellate proceedings in this
case, hence it is too late in the day to now allow the litigation to be overturned on that score, for to
do so would mean an over-indulgence in technicalities. Hence, for the reasons already advanced,
the non-inclusion of the controverted bills of lading in the formal offer of evidence cannot, under the
facts of this particular case, be considered a fatal procedural lapse as would bar respondent carrier
from raising the defense of prescription. Petitioners' feigned ignorance of the provisions of the bills of
lading, particularly on the time limitations for filing a claim and for commencing a suit in court, as
their excuse for non-compliance therewith does not deserve serious attention.
It is to be noted that the carriage of the cargo involved was effected pursuant to an "Application for
Delivery of Cargoes without Original Bill of Lading" issued on May 20, 1977 in Davao City 26 with the
notation therein that said application corresponds to and is subject to the terms of bills of lading MD-25
and MD-26. It would be a safe assessment to interpret this to mean that, sight unseen, petitioners
acknowledged the existence of said bills of lading. By having the cargo shipped on respondent carrier's
vessel and later making a claim for loss on the basis of the bills of lading, petitioners for all intents and
purposes accepted said bills. Having done so they are bound by all stipulations contained
therein. 27 Verily, as petitioners are suing for recovery on the contract, and in fact even went as far as
assailing its validity by categorizing it as a contract of adhesion, then they necessarily admit that there is
such a contract, their knowledge of the existence of which with its attendant stipulations they cannot now
be allowed to deny.
On the issue of the validity of the controverted paragraph 5 of the bills of lading above quoted which
unequivocally prescribes a time frame of thirty (30) days for filing a claim with the carrier in case of
loss of or damage to the cargo and sixty (60) days from accrual of the right of action for instituting an
action in court, which periods must concur, petitioners posit that the alleged shorter prescriptive
period which is in the nature of a limitation on petitioners' right of recovery is unreasonable and that
SLI has the burden of proving otherwise, citing the earlier case of Southern Lines, Inc. vs. Court of
Appeals, et al. 28 They postulate this on the theory that the bills of lading containing the same constitute

contracts of adhesion and are, therefore, void for being contrary to public policy, supposedly pursuant to
the dictum in Sweet Lines, Inc. vs. Teves, et al. 29

Furthermore, they contend, since the liability of private respondents has been clearly established, to
bar petitioners' right of recovery on a mere technicality will pave the way for unjust
enrichment. 30 Contrarily, SLI asserts and defends the reasonableness of the time limitation within which
claims should be filed with the carrier; the necessity for the same, as this condition for the carrier's liability
is uniformly adopted by nearly all shipping companies if they are to survive the concomitant rigors and
risks of the shipping industry; and the countervailing balance afforded by such stipulation to the legal
presumption of negligence under which the carrier labors in the event of loss of or damage to the cargo. 31
It has long been held that Article 366 of the Code of Commerce applies not only to overland and river
transportation but also to maritime
transportation. 32 Moreover, we agree that in this jurisdiction, as viewed from another angle, it is more
accurate to state that the filing of a claim with the carrier within the time limitation therefor under Article
366 actually constitutes a condition precedent to the accrual of a right of action against a carrier for
damages caused to the merchandise. The shipper or the consignee must allege and prove the fulfillment
of the condition and if he omits such allegations and proof, no right of action against the carrier can
accrue in his favor. As the requirements in Article 366, restated with a slight modification in the assailed
paragraph 5 of the bills of lading, are reasonable conditions precedent, they are not limitations of
action. 33 Being conditions precedent, their performance must precede a suit for enforcement 34 and the
vesting of the right to file spit does not take place until the happening of these conditions. 35
Now, before an action can properly be commenced all the essential elements of the cause of action
must be in existence, that is, the cause of action must be complete. All valid conditions precedent to
the institution of the particular action, whether prescribed by statute, fixed by agreement of the
parties or implied by law must be performed or complied with before commencing the action, unless
the conduct of the adverse party has been such as to prevent or waive performance or excuse nonperformance of the condition. 36
It bears restating that a right of action is the right to presently enforce a cause of action, while a
cause of action consists of the operative facts which give rise to such right of action. The right of
action does not arise until the performance of all conditions precedent to the action and may be
taken away by the running of the statute of limitations, through estoppel, or by other circumstances
which do not affect the cause of action. 37 Performance or fulfillment of all conditions precedent upon
which a right of action depends must be sufficiently alleged, 38 considering that the burden of proof to
show that a party has a right of action is upon the person initiating the suit. 39
More particularly, where the contract of shipment contains a reasonable requirement of giving notice
of loss of or injury to the goods, the giving of such notice is a condition precedent to the action for
loss or injury or the right to enforce the carrier's liability. Such requirement is not an empty formalism.
The fundamental reason or purpose of such a stipulation is not to relieve the carrier from just liability,
but reasonably to inform it that the shipment has been damaged and that it is charged with liability
therefor, and to give it an opportunity to examine the nature and extent of the injury. This protects the
carrier by affording it an opportunity to make an investigation of a claim while the matter is fresh and
easily investigated so as to safeguard itself from false and fraudulent claims. 40
Stipulations in bills of lading or other contracts of shipment which require notice of claim for loss of or
damage to goods shipped in order to impose liability on the carrier operate to prevent the
enforcement of the contract when not complied with, that is, notice is a condition precedent and the
carrier is not liable if notice is not given in accordance with the stipulation, 41 as the failure to comply
with such a stipulation in a contract of carriage with respect to notice of loss or claim for damage bars
recovery for the loss or damage suffered. 42

On the other hand, the validity of a contractual limitation of time for filing the suit itself against a
carrier shorter than the statutory period therefor has generally been upheld as such stipulation
merely affects the shipper's remedy and does not affect the liability of the carrier. In the absence of
any statutory limitation and subject only to the requirement on the reasonableness of the stipulated
limitation period, the parties to a contract of carriage may fix by agreement a shorter time for the
bringing of suit on a claim for the loss of or damage to the shipment than that provided by the statute
of limitations. Such limitation is not contrary to public policy for it does not in any way defeat the
complete vestiture of the right to recover, but merely requires the assertion of that right by action at
an earlier period than would be necessary to defeat it through the operation of the ordinary statute of
limitations. 43
In the case at bar, there is neither any showing of compliance by petitioners with the requirement for
the filing of a notice of claim within the prescribed period nor any allegation to that effect. It may then
be said that while petitioners may possibly have a cause of action, for failure to comply with the
above condition precedent they lost whatever right of action they may have in their favor or, token in
another sense, that remedial right or right to relief had prescribed. 44
The shipment in question was discharged into the custody of the consignee on May 15, 1977, and it
was from this date that petitioners' cause of action accrued, with thirty (30) days therefrom within
which to file a claim with the carrier for any loss or damage which may have been suffered by the
cargo and thereby perfect their right of action. The findings of respondent court as supported by
petitioners' formal offer of evidence in the court below show that the claim was filed with SLI only on
April 28, 1978, way beyond the period provided in the bills of lading 45 and violative of the contractual
provision, the inevitable consequence of which is the loss of petitioners' remedy or right to sue. Even the
filing of the complaint on May 12, 1978 is of no remedial or practical consequence, since the time limits
for the filing thereof, whether viewed as a condition precedent or as a prescriptive period, would in this
case be productive of the same result, that is, that petitioners had no right of action to begin with or, at
any rate, their claim was time-barred.
What the court finds rather odd is the fact that petitioner TPI filed a provisional claim with DVAPSI as
early as June 14, 1977 46 and, as found by the trial court, a survey fixing the extent of loss of and/or
damage to the cargo was conducted on July 8, 1977 at the instance of petitioners. 47 If petitioners had the
opportunity and awareness to file such provisional claim and to cause a survey to be conducted soon
after the discharge of the cargo, then they could very easily have filed the necessary formal, or even a
provisional, claim with SLI itself 48 within the stipulated period therefor, instead of doing so only on April
28, 1978 despite the vessel's arrival at the port of destination on May 15, 1977. Their failure to timely act
brings us to no inference other than the fact that petitioners slept on their rights and they must now face
the consequences of such inaction.
The ratiocination of the Court of Appeals on this aspect is worth reproducing:
xxx xxx xxx
It must be noted, at this juncture, that the aforestated time limitation in the
presentation of claim for loss or damage, is but a restatement of the rule prescribed
under Art. 366 of the Code of Commerce which reads as follows:
Art. 366. Within the twenty-four hours following the receipt of the
merchandise, the claim against the carrier for damage or average
which may be found therein upon opening the packages, may be
made, provided that the indications of the damage or average which
gives rise to the claim cannot be ascertained from the outside part of

the packages, in which case the claims shall be admitted only at the
time of the receipt.
After the periods mentioned have elapsed, or the transportation
charges have been paid, no claim shall be admitted against the
carrier with regard to the condition in which the goods transported
were delivered.
Gleanable therefrom is the fact that subject stipulation even lengthened the period for
presentation of claims thereunder. Such modification has been sanctioned by the
Supreme Court. In the case of Ong Yet (M)ua Hardware Co., Inc. vs. Mitsui
Steamship Co., Ltd., et al., 59 O.G. No. 17, p. 2764, it ruled that Art. 366 of the Code
of Commerce can be modified by a bill of lading prescribing the period of 90 days
after arrival of the ship, for filing of written claim with the carrier or agent, instead of
the 24-hour time limit after delivery provided in the aforecited legal provision.
Tested, too, under paragraph 5 of said Bill of Lading, it is crystal clear that the
commencement of the instant suit on May 12, 1978 was indeed fatally late. In view of
the express provision that "suits arising from
. . . damage or loss shall be instituted within 60 days from date of accrual of right of
action," the present action necessarily fails on ground of prescription.
In the absence of constitutional or statutory prohibition, it is usually
held or recognized that it is competent for the parties to a contract of
shipment to agree on a limitation of time shorter than the statutory
period, within which action for breach of the contract shall be brought,
and such limitation will be enforced if reasonable . . . (13 C.J.S. 496497)
A perusal of the pertinent provisions of law on the matter would disclose that there is
no constitutional or statutory prohibition infirming paragraph 5 of subject Bill of
Lading. The stipulated period of 60 days is reasonable enough for appellees to
ascertain the facts and thereafter to sue, if need be, and the 60-day period agreed
upon by the parties which shortened the statutory period within which to bring action
for breach of contract is valid and binding. . . . (Emphasis in the original text.) 49
As explained above, the shortened period for filing suit is not unreasonable and has in fact been
generally recognized to be a valid business practice in the shipping industry. Petitioners' advertence
to the Court's holding in the Southern Lines case, supra, is futile as what was involved was a claim
for refund of excess payment. We ruled therein that non-compliance with the requirement of filing a
notice of claim under Article 366 of the Code of Commerce does not affect the consignee's right of
action against the carrier because said requirement applies only to cases for recovery of damages
on account of loss of or damage to cargo, not to an action for refund of overpayment, and on the
further consideration that neither the Code of Commerce nor the bills of lading therein provided any
time limitation for suing for refund of money paid in excess, except only that it be filed within a
reasonable time.
The ruling in Sweet Lines categorizing the stipulated limitation on venue of action provided in the
subject bill of lading as a contract of adhesion and, under the circumstances therein, void for being
contrary to public policy is evidently likewise unavailing in view of the discrete environmental facts
involved and the fact that the restriction therein was unreasonable. In any case, Ong Yiu vs. Court of
Appeals, et al., 50 instructs us that "contracts of adhesion wherein one party imposes a ready-made form

of contract on the other . . . are contracts not entirely prohibited. The one who adheres to the contract is in
reality free to reject it entirely; if he adheres he gives his consent." In the present case, not even an
allegation of ignorance of a party excuses non-compliance with the contractual stipulations since the
responsibility for ensuring full comprehension of the provisions of a contract of carriage devolves not on
the carrier but on the owner, shipper, or consignee as the case may be.

While it is true that substantial compliance with provisions on filing of claim for loss of or damage to
cargo may sometimes suffice, the invocation of such an assumption must be viewed vis-a-vis the
object or purpose which such a provision seeks to attain and that is to afford the carrier a reasonable
opportunity to determine the merits and validity of the claim and to protect itself against unfounded
impositions. 51 Petitioners' would nevertheless adopt an adamant posture hinged on the issuance by SLI
of a "Report on Losses and Damages," dated May 15, 1977, 52 from which petitioners theorize that this
charges private respondents with actual knowledge of the loss and damage involved in the present case
as would obviate the need for or render superfluous the filing of a claim within the stipulated period.
Withal, it has merely to be pointed out that the aforementioned report bears this notation at the lower
part thereof: "Damaged by Mla. labor upon unloading; B/L noted at port of origin," as an explanation
for the cause of loss of and/or damage to the cargo, together with an iterative note stating that "(t)his
Copy should be submitted together with your claim invoice or receipt within 30 days from date of
issue otherwise your claim will not be honored."
Moreover, knowledge on the part of the carrier of the loss of or damage to the goods deducible from
the issuance of said report is not equivalent to nor does it approximate the legal purpose served by
the filing of the requisite claim, that is, to promptly apprise the carrier about a consignee's intention to
file a claim and thus cause the prompt investigation of the veracity and merit thereof for its
protection. It would be an unfair imposition to require the carrier, upon discovery in the process of
preparing the report on losses or damages of any and all such loss or damage, to presume the
existence of a claim against it when at that time the carrier is expectedly concerned merely with
accounting for each and every shipment and assessing its condition. Unless and until a notice of
claim is therewith timely filed, the carrier cannot be expected to presume that for every loss or
damage tallied, a corresponding claim therefor has been filed or is already in existence as would
alert it to the urgency for an immediate investigation of the soundness of the claim. The report on
losses and damages is not the claim referred to and required by the bills of lading for it does not fix
responsibility for the loss or damage, but merely states the condition of the goods shipped. The
claim contemplated herein, in whatever form, must be something more than a notice that the goods
have been lost or damaged; it must contain a claim for compensation or indicate an intent to claim. 53
Thus, to put the legal effect of respondent carrier's report on losses or damages, the preparation of
which is standard procedure upon unloading of cargo at the port of destination, on the same level as
that of a notice of claim by imploring substantial compliance is definitely farfetched. Besides, the
cited notation on the carrier's report itself makes it clear that the filing of a notice of claim in any case
is imperative if carrier is to be held liable at all for the loss of or damage to cargo.
Turning now to respondent DVAPSI and considering that whatever right of action petitioners may
have against respondent carrier was lost due to their failure to seasonably file the requisite claim, it
would be awkward, to say the least, that by some convenient process of elimination DVAPSI should
proverbially be left holding the bag, and it would be pure speculation to assume that DVAPSI is
probably responsible for the loss of or damage to cargo. Unlike a common carrier, an arrastre
operator does not labor under a presumption of negligence in case of loss, destruction or
deterioration of goods discharged into its custody. In other words, to hold an arrastre operator liable
for loss of and/or damage to goods entrusted to it there must be preponderant evidence that it did
not exercise due diligence in the handling and care of the goods.

Petitioners failed to pinpoint liability on any of the original defendants and in this seemingly wild
goose-chase, they cannot quite put their finger down on when, where, how and under whose
responsibility the loss or damage probably occurred, or as stated in paragraph 8 of their basic
complaint filed in the court below, whether "(u)pon discharge of the cargoes from the original
carrying vessel, the SS VISHVA YASH," and/or upon discharge of the cargoes from the interisland
vessel the MV "SWEET LOVE," in Davao City and later while in the custody of defendant arrastre
operator. 54
The testimony of petitioners' own witness, Roberto Cabato, Jr., Marine and Aviation Claims Manager
of petitioner Philamgen, was definitely inconclusive and the responsibility for the loss or damage
could still not be ascertained therefrom:
Q In other words, Mr. Cabato, you only computed the loss on the
basis of the figures submitted to you and based on the documents
like the survey certificate and the certificate of the arrastre?
A Yes, sir.
Q Therefore, Mr. Cabato, you have no idea how or where these
losses were incurred?
A No, sir.
xxx xxx xxx
Q Mr. Witness, you said that you processed and investigated the
claim involving the shipment in question. Is it not a fact that in your
processing and investigation you considered how the shipment was
transported? Where the losses could have occurred and what is the
extent of the respective responsibilities of the bailees and/or carriers
involved?
xxx xxx xxx
A With respect to the shipment being transported, we have of course
to get into it in order to check whether the shipment coming in to this
port is in accordance with the policy condition, like in this particular
case, the shipment was transported to Manila and transhipped
through an interisland vessel in accordance with the policy. With
respect to the losses, we have a general view where losses could
have occurred. Of course we will have to consider the different
bailees wherein the shipment must have passed through, like the
ocean vessel, the interisland vessel and the arrastre, but definitely at
that point and time we cannot determine the extent of each liability.
We are only interested at that point and time in the liability as regards
the underwriter in accordance with the policy that we issued.
xxx xxx xxx
Q Mr. Witness, from the documents, namely, the survey of Manila
Adjusters and Surveyors Company, the survey of Davao Arrastre

contractor and the bills of lading issued by the defendant Sweet

Lines, will you be able to tell the respective liabilities of the bailees
and/or carriers concerned?
A No, sir. (Emphasis ours.) 55
Neither did nor could the trial court, much less the Court of Appeals, precisely establish the stage in
the course of the shipment when the goods were lost, destroyed or damaged. What can only be
inferred from the factual findings of the trial court is that by the time the cargo was discharged to
DVAPSI, loss or damage had already occurred and that the same could not have possibly occurred
while the same was in the custody of DVAPSI, as demonstrated by the observations of the trial court
quoted at the start of this opinion.
ACCORDINGLY, on the foregoing premises, the instant petition is DENIED and the dismissal of the
complaint in the court a quo as decreed by respondent Court of Appeals in its challenged judgment
is hereby AFFIRMED.
SO ORDERED.

G.R. No. L-41767 August 23, 1978

MR. AND MRS. ROMEO FERRER and ANNETTE FERRER, petitioners,
vs.
HON. VICENTE G. ERICTA, in his capacity as Presiding Judge of the Court of First Instance of
Rizal, Quezon City, Branch XVIII, MR. AND MRS. FRANCIS PFLEIDER and DENNIS
PFLEIDER, respondents.
Delano F. Villaruz for petitioners.
Porderio C. David for private respondents.

ANTONIO, J:
Mandamus to compel the immediate execution of the Decision of the Court of First Instance of
Quezon City, Branch XVIII, presided over by respondent Judge, in Civil Case No. Q-19647, dated
July 21, 1975. The pertinent facts are as follows:
In a complaint for damages against respondents, dated December 27, 1974 but actually filed on
January 6, 1975 (Civil Case No. Q-19647), and assigned to the sala of respondent Judge, it was
alleged that defendants Mr. and Mrs. Francis Pfleider, residents of Bayawan, Negros Oriental, were
the owners or operators of a Ford pick-up car; that at about 5:00 o'clock in the afternoon of
December 31, 1970, in the streets of Bayawan, Negros Oriental, their son, defendant Dennis
Pfleider, who was then only sixteen (16) years of age, without proper official authority, drove the

above-described vehicle, without due regard to traffic rules and regulations, and without taking the
necessary precaution to prevent injury to persons or damage to property, and as a consequence the
pickup car was overturned, causing physical injuries to plaintiff Annette Ferrer, who was then a
passenger therein, which injuries paralyzed her and required medical treatment and confinement at
different hospitals for more than two (2) years; that as a result of the physical injuries sustained by
Annette, she suffered unimaginable physical pain, mental anguish, and her parents also suffered
mental anguish, moral shock and spent a considerable sum of money for her treatment. They prayed
that defendants be ordered to reimburse them for actual expenses as well as other damages.
In due time, defendants filed their answer, putting up the affirmative defense that defendant Dennis
Pfleider exercised due care and utmost diligence in driving the vehicle aforementioned and alleging
that Annette Ferrer and the other persons aboard said vehicle were not passengers in the strict
sense of the term, but were merely joy riders and that, consequently, defendants had no obligation
whatsoever to plaintiffs.
At the pre-trial on May 12, 1975, only plaintiffs-petitioners and their counsel were present.
Consequently, defendants-private respondents were declared in default and the plaintiff petitioners
were allowed to present their evidence ex parte. On May 21, 1975, petitioners moved that they be
granted an extension of ten (10) days from May 22, 1975 to present her evidence, which was
granted by the court a quo. The presentation of petitioners' evidence was later continued by the trial
court to June 16, 1975, when the deposition of Annette Ferrer was submitted by petitioners and
admitted by the trial court.
On June 26, 1975, private respondents filed a motion to "set aside the order of default and
subsequent pleadings" on the ground that "defendants' failure to appear for pre-trial was due to
accident or excusable neglect." This was opposed by petitioners on the ground that the said
pleading was not under oath, contrary to the requirements of Sec. 3, Rule 18 of the Rules, and that it
was not accompanied by an affidavit of merit showing that the defendants have a good defense. In
view of this, the motion of private respondents was denied by respondent Judge on July 21, 1975.
On the same date, respondent Judge rendered judgment against private respondents, finding that
the minor Dennis Pfleider, was allowed by his parents to operate a Ford pick-up car and because of
his reckless negligence caused the accident in question, resulting in injuries to Annette, and ordering
the defendants, as a result thereof, to pay jointly and severally the plaintiffs the following amounts:
(1) P24,500.00 for actual expenses, hospitalization and medical expenses; (2) P24,000.00 for actual
expenses for the care, medicines of plaintiff Annette for helps from December 31, 1970 to December
31, 1974; (3) P50,000.00 for moral damages; (4) P10,000.00 for exemplary damages; (5) P5,000.00
for attorney's fees; and (6) costs of suit.
On September 1, 1975, private respondents filed a Motion for Reconsideration 1 of the decision and of
the order denying the motion to set aside order of default, based on the following grounds: (1) the
complaint states no cause of action insofar as Mr. and Mrs. Pfleider are concerned because it does not
allege that at the time of the mishap, defendant Dennis Pfleider was living with them, the fact being that at
such time he was living apart from them, hence, there can be no application of Article 2180 of the Civil
Code, upon which parents' liability is premised; and (2) that tile complaint shows on its face "that it was
filed only on January 6, 1975, or after the lapse of MORE THAN FOUR YEARS from the date of the
accident on December 31, 1970", likewise appearing from the complaint and, therefore, the action has
already prescribed under Article 1146 of the Civil Code.
A Supplemental Motion for Reconsideration 2 was subsequently filed by defendants-private respondents
on September 10, 1975, alleging that their defense of prescription has not been waived and may be
raised even at such stage of the proceedings because on the face of the complaint, as well as from the
plaintiff's evidence, their cause of action had already prescribed, citing as authority the decision of this
Court in Philippine National Bank v. Pacific Commission House, 3 as well as the decisions quoted therein.

The Opposition 4 to the above supplemental motion interposed by plaintiffs-petitioners averred that: (a)
the defense of prescription had been waived while the defense that the complaint states no cause of
action "is available only at any time not later than the trial and prior to the decision"; (b) inasmuch as
defendants have been declared in default for failure to appear at the pretrial conference, they have lost
their standing in court and cannot be allowed to adduce evidence nor to take part in the trial, in
accordance with Section 2 of Rule 18 of the Rules of Court; and (c) the motion and supplemental motion
for reconsideration are pro forma because the defenses raised therein have been previously raised and
passed upon by respondent court in resolving defendants' motion to set aside order of default. Beingpro
forma, said motion and supplemental motion do not suspend the running of the thirty-day period to
appeal, which was from August 5, 1975, when defendants received a copy of the decision, to September
4, 1975, and hence the decision has already become final and executory. Plaintiffs-petitioners accordingly
prayed that a writ of execution be issued to enforce the judgment in their favor.

On September 23, 1975, respondent judge, without setting aside the order of default, issued an
order absolving defendants from any liability on the grounds that: (a) the complaint states no cause
of action because it does not allege that Dennis Pfleider was living with his parents at the time of the
vehicular accident, considering that under Article 2180 of the Civil Code, the father and, in case of
his death or incapacity the mother, are only responsible for the damages caused by their minor
children who live in their company; and (b) that the defense of prescription is meritorious, since the
complaint was filed more than four (4) years after the date of the accident, and the action to recover
damages based on quasi-delict prescribes in four (4) years. Hence, the instant petition for
mandamus.
The basic issue is whether the defense of prescription had been deemed waived by private
respondents' failure to allege the same in their answer.
As early as Chua Lamko v. Dioso, et al., 5 this Court sustained the dismissal of a counterclaim on the
ground of prescription, although such defense was not raised in the answer of the plaintiff. Thus, this
Court held that where the answer does not take issue with the complaint as to dates involved in the
defendant's claim of prescription, his failure to specifically plead prescription in the answer does not
constitute a waiver of the defense of prescription. It was explained that the defense of prescription, even if
not raised in a motion to dismiss or in the answer, is not deemed waived unless such defense
raises issues of fact not appearing upon the preceding pleading.
In Philippine National Bank v. Perez, et al., 6 which was an action filed by the Philippine National Bank
on March 22, 1961 for revival of a judgment rendered on December 29, 1949 against Amando Perez,
Gregorio Pumuntoc and Virginia de Pumuntoc pursuant to Section 6, Rule 39 of the rules of court the
defendants were declared in default for their failure to file their answer. There upon, the plaintiff submitted
its evidence, but when the case was submitted for decision, the court a quodismissed the complaint on
the ground that plaintiff's cause of action had already prescribed under Articles 1144 and 1152 of the Civil
Code. The plaintiff in said case, contending that since prescription is a defense that can only be set up by
defendants, the court could not motu proprio consider it as a basis for dismissal, moved to reconsider the
order, but its motion was denied. When the issue was raised to this Court, We ruled:
It is true that the defense of prescription can only be considered if the same is
invoked as such in the answer of the defendant and that in this particular instance no
such defense was invoked because the defendants had been declared in default, but
such rule does riot obtain when the evidence shows that the cause of action upon
which plaintiff's complaint is based is already barred by the statute of limitations.
(Emphasis supplied.)
Again, in Philippine National Bank v. Pacific Commission House, 7 where the action sought to revive a
judgment rendered by the Court of First Instance of Manila on February 3, 1953 and it was patent from
the stamp appearing on the first page of the complaint that the complaint was actually filed on May 31,

1963, this Court sustained the dismissal of the complaint on the ground of prescription, although such
defense was not raised in the answer, overruling the appellants' invocation of Section 2 of Rule 9 of the
Rules of Court that "defenses and objections not pleaded either in a motion to dismiss or in tile answer
are deemed waived." We held therein that "... the fact that the plaintiff's own allegation in tile complaint or
the evidence it presented shows clearly that the action had prescribed removes this case from the rule
regarding waiver of the defense by failure to plead the same."

In the present case, there is no issue of fact involved in connection with the question of prescription.
The complaint in Civil Case No. Q-19647 alleges that the accident which caused the injuries
sustained by plaintiff Annette Ferrer occured on December 31, 1970. It is undisputed that the action
for damages was only filed on January 6, 1975. Actions for damages arising from physical injuries
because of a tort must be filed within four years. 8 The four-year period begins from the day the quasidelict is committed or the date of the accident. 9
WHEREFORE, the instant petition for mandamus is hereby DISMISSED, without pronouncement as
to costs.
Fernando (Chairman), Barredo, Aquino, Concepcion, Jr.

G.R. No. L-48577 September 30, 1980

SULPICIO A. GARCIA, petitioner,
vs.
COLONEL PAUL C. MATHIS, in his capacity as Base Commander, Clark Air Force Base
(CAFB) or his SUCCESSOR, and the HONORABLE COURT OF FIRST INSTANCE OF
PANGASINAN, Branch IV, Dagupan City, respondents.

ABAD SANTOS, J.:

Petition for certiorari to set aside the Order of the respondent judge, dated June 4, 1978, dismissing
petitioner's Complaint against the private respondent and another Order, dated July 7, 1978, denying
a motion to reconsider the aforesaid order.
The factual background can be briefly stated as follows.
In Civil Case No. D-4097 of the Court of First Instance of Pangasinan presided by the respondent
judge, Sulpicio Garcia, the petitioner herein, sued Colonel Paul C. Mathis in his capacity as Base
Commander, CAFB, acting for and in behalf of the United States of America. The complaint, which
was filed on November 8, 1977, alleged that Garcia was a civilian employee at Clark Air Force Base
from May 26, 1949, to August 23, 1956, when he was dismissed for alleged bribery and collusion.
He prayed inter alia that he be reinstated to his former position, and paid back wages, moral
damages, attorney's fees and costs of the suit.
The defendant Mathis entered a special appearance and filed a motion for the dismissal of the
complaint upon the ground that the trial court had no jurisdiction over his person because he was

being sued as the representative of a foreign sovereign "which has not consented and does not now
consent to the maintenance of the present suit."
On June 7, 1978, the respondent judge issued an Order as aforesaid the text of which reads as
follows:
Without considering the issue of jurisdiction raised by the defendant in his motion to
dismiss the above-entitled case, the Court finds that the cause of action has already
prescribed, because paragraphs 3 and 5 of the complaint alleged that the services of
the plaintiff has been terminated on August 23, 1956.
WHEREFORE, the above-entitled case is hereby dismissed.
The only issue in this case is whether or not the respondent judge committed a grave abuse of
discretion amounting to lack of jurisdiction when he dismissed the complaint on the ground of
prescription which the defendant did not raise in any of his pleadings.
It is true that an action will not be held to have prescribed if prescription is not expressly invoked.
However there are exceptions to this rule and one of them is when the plaintiff's own allegations in
his complaint show clearly that the action has prescribed. (Philippine National Bank vs. Pacific
Commission House, G.R. No. L-22675, March 28, 1969, 27 SCRA 766). In this case the complaint
shows clearly that the plaintiff's action had prescribed for he alleged that he was removed on August
23, 1956 (par. 5) but the case was filed only on November 18, 1977, after a lapse of more than 21
years. Prescinding, therefore, the defense of jurisdiction which is apparently meritorious, the
complaint was properly dismissed.
It is not amiss to state here that because of the special appearance which the defendant had
entered, he was constrained to confine himself to showing that the trial court did not have jurisdiction
over his person and had to exclude all other non-jurisdictional grounds in his motion to dismiss
otherwise he could be deemed to have abandoned his special appearance and voluntarily submitted
himself to the jurisdiction of the court. (Republic vs. Ker z Co., Ltd; G.R. No. L-21609, Sept. 29,1966,
18 SCRA 207).
WHEREFORE, finding the petition to be without merit, the same is hereby dismissal without any
special pronouncement as to costs.
SO ORDERED.

G.R. No. 133284 May 9, 2000

SPS. CLARO PONCIANO and GLORIA PONCIANO, petitioners,
vs.
HONORABLE JOSE J. PARENTELA, JR., Presiding Judge, Regional Trial Court of Trece
Martires City, Br. 23 and SPS. ILDEFONSO CLAMOSA and LEONORA CLAMOSA, respondents.

GONZAGA-REYES, J.:
The instant case deals with Administrative Circular 04-94. More specifically, the primary issue is
whether or not an answer which asserts a compulsory counterclaim must include a certificate of nonforum shopping, and if so, whether or not the dismissal of such compulsory counterclaim by the trial
court due to the absence of such certification has the effect of a dismissal with prejudice so as to bar
the party from re-filing such compulsory counterclaim.
The antecedents of this case are as follows:
On June 13, 1995, private respondents Ildefonso and Leonora Clamosa filed a complaint for a sum
of money and damages with the Regional Trial Court of Trece Martires City, Branch 23, against
petitioners Claro and Gloria Ponciano for unpaid cost of labor and materials incurred by them in
repairing petitioner's house in San Roque, Cavite. The case was docketed as Civil Case No. TM601. Petitioners filed a motion to dismiss the complaint for failure to state a cause of action, but the
same was denied by the trial court in its Order dated September 21, 1995.
On October 18, 1995, petitioners filed their answer with compulsory counterclaim, claiming that they
have paid the total contract price agreed upon; that despite this, the work of private respondents was
defective; and that private respondents abandoned the renovation before it was completed.
Petitioners asserted that they are entitled to be paid P250,000 to complete the renovation, and
damages.
On August 23, 1996, upon motion of private respondents, the trial court ordered that petitioners
counterclaim be stricken off from the record for failure to comply with Administrative Circular No. 0494, which requires an affidavit of non-forum shopping for all initiatory pleadings in all courts.
Petitioners filed a motion for reconsideration dated September 17, 1996, arguing, among others, that
since their counterclaim is compulsory in nature, it is not an initiatory pleading and therefore, does
not fall within the scope of Administrative Circular No. 04-94. However, on October 17, 1996, the trial
court denied petitioners' motion for reconsideration. 1
Petitioners questioned the trial court's orders before this Court by means of a special civil action
for certiorariunder Rule 65 of the 1997 Revised Rules of Civil Procedure, which case was docketed
as G.R. No. 127701. On February 10, 1997, the Court's Second Division denied the petition for lack
of merit, holding that
xxx xxx xxx
We find there is no reversible error in the trial court's questioned order. The
administrative circular invoked provides clearly that strict compliance with its
mandate is imposed upon all initiatory pleadings, and that "the complaint and other
initiatory pleadings referred to and subject of this Circular are the original civil
complaint, counterclaim, cross-claim, third (fourth, etc.) party complaint, or complaintin-intervention, petition, or application wherein a party asserts his claim or relief." It is
notable that in issuing the said circular, the court did not distinguish between
permissive and compulsory counterclaim, and we need not make a distinction in this
regard as well. (emphasis supplied) 2
xxx xxx xxx

Thereafter, petitioners filed an "Answer with Amended Compulsory Counterclaim," wherein the
amendment consisted of the addition of a certification under oath in compliance with the
Administrative Circular No. 04-94. Initially, the trial court admitted the "Answer with Amended
Compulsory Counterclaim" in its July 9, 1997 Order. However, after the filing of a motion for
reconsideration by private respondents, the court reconsidered its action and expunged the
amended compulsory counterclaim from the records. 3 Its ruling was explained in its Order dated
December 9, 1997
After a soul-searching evaluation of the arguments in the Motion for Reconsideration
filed by plaintiffs thru counsel dated October 6, 1997 and the Comment/Opposition
thereto field by counsel for defendants dated November 5, 1997 this Court finds
the raison d'entre of said Motion for Reconsideration to be impressed with merit.
Surely, it would be logomachic and fallacious and what is worse, contemptible to
admit defendants' Amended Compulsory Counterclaim after the Honorable Supreme
Court had dismissed the petition for certiorari questioning the Order of this Court
striking-off from the record defendants' compulsory counterclaim for not complying
with Administrative Circular No. 04-94. As it is, the Honorable Supreme Court is the
highest court of the land and this court like any other Regional Trial Court belongs to
the lower strata of the judicial [sic].
ACCORDINGLY, the Motion for Reconsideration is hereby granted. Apropos,
defendants' amended compulsory counterclaim is hereby expunged and/or stricken
off from the record.
SO ORDERED. 4
After its motion for reconsideration was denied by the trial court in an order dated March 17, 1998,
petitioners filed the present special civil action for certiorari under Rule 65, assailing the trial court's
orders denying admission of their amended compulsory counterclaim. They maintain that this Court
did not rule in its decision in G.R. No. 127701 that the dismissal of petitioners' compulsory
counterclaim in Civil Case No. TM-601 for non-compliance with Administrative Circular No. 04-94
was with prejudice. Consequently, petitioners assert that they should be permitted to re-file their
compulsory counterclaim provided that they comply with such circular 5.
Administrative Circular No. 04-94 6 was issued by this Court in order to prevent the undesirable
practice of forum-shopping, which exists when, as a result of an adverse opinion in one forum, a
party seeks a favorable opinion (other than by appeal or certiorari) in another, or when he institutes
two or more actions or proceedings grounded on the same cause, on the chance that one or the
other court would make a favorable disposition. 7 The pertinent portion of the Circular provides
xxx xxx xxx
(1) The plaintiff, petitioner, applicant or principal party seeking relief in the complaint,
petition, application or other initiatory pleading shall certify under oath in such original
pleading, or in a sworn certification annexed thereto and simultaneously filed
therewith, to the truth of the following facts and undertakings: (a) he has not
theretofore commenced any other action or proceeding involving the same issues in
the Supreme Court, the Court of Appeals, or any other tribunal or agency; (b) to the
best of his knowledge, no such action or proceeding is pending in the Supreme
Court, the Court of Appeals, or any other tribunal or agency; (c) if there is any such
action or proceeding which is either pending or may have been terminated, he must
state the status thereof; and (d) if he should thereafter learn that a similar action or

proceeding has been filed or is pending before the Supreme Court, the Court of
Appeals, or any other tribunal or agency, he undertakes to report that fact within five
(5) days therefrom to the court or agency wherein the original pleading and sworn
certification contemplated herein have been filed.
The complaint and other initiatory pleadings referred to and subject of this Circular
are the original civil complaint, counterclaim, cross-claim, third (fourth, etc.) party
complaint, or complaint-in-intervention, petition, or application wherein a party
asserts his claim for relief.
xxx xxx xxx
In resolving the issues presented in this case, it should first be asked whether, in the first place, a
compulsory counterclaim pleaded in an answer must be accompanied with a certificate of non-forum
shopping. This very same issue was confronted in the case of Santo Tomas University Hospital
v. Surla,8 wherein we held that the above-quoted provisions of administrative Circular No. 04-94 do
not apply to compulsory counterclaims. Speaking for the Court, Justice Vitug explained that
It bears stressing, once again, that the real office of Administrative Circular No. 0494, made effective on 01 April 1994, is to curb the malpractice commonly referred to
also as forum-shopping. It is an act of a party against whom an adverse judgment
has been rendered in one forum of seeking and possibly getting a favorable opinion
in another forum, other than by appeal or the special civil action of certiorari, or the
institution of two or more actions or proceedings grounded on the same cause on the
supposition that one or the other court would make a favorable disposition. The
language of the circular distinctly suggests that it is primarily intended to cover an
initiatory pleading or an incipient application of a party asserting a claim for relief.
It should not be too difficult, the foregoing rationale of the circular aptly taken, to
sustain the view that the circular in question has not, in fact, been contemplated to
include a kind of claim which, by its very nature as being auxiliary to the proceedings
in the suit and as deriving its substantive and jurisdictional support therefrom, can
only be appropriately pleaded in the answer and not remain outstanding for
independent resolution except by the court where the main case pends. Prescinding
from the foregoing, the proviso in the second paragraph of Section 5, Rule 8, of the
1997 Rules of Civil Procedure, i.e., that the violation of the anti-forum shopping rule
"shall not curable by mere amendment . . . but shall be cause for the dismissal of the
case without prejudice," being predicated on the applicability of the need for a
certification against forum-shopping, obviously does not include a claim which cannot
be independently set up.
A compulsory counterclaim is any claim for money or other relief which a defending party may have
against an opposing party, which at the time of suit arises out of, or is necessarily connected with,
the same transaction or occurrence that is the subject matter of plaintiff's complaint. It is compulsory
in the sense that if it is within the jurisdiction of the court, and does not require for its adjudication the
presence of third parties over whom the court cannot acquire jurisdiction, it must be set up therein,
and will be barred in the future if not set up. 9
In the case at bar, there is no doubt that the counterclaims pleaded by petitioners in their answers
are compulsory in nature. The filing of a separate action by petitioners would only result in the
presentation of the same evidence as in Civil Case No. TM-601. Proceeding from our ruling in Santo
Tomas University Hospital, petitioners need not file a certification of non-forum shopping since their

claims are not initiatory in character, and therefore, are not covered by the provisions of
Administrative Circular No. 04-94.
WHEREFORE, the December 9, 1997 and March 17, 1998 Orders of Branch 23 of the Regional
Trial Court of Trece Martires City in Civil Case No. TM-601 are hereby SET ASIDE. The trial court is
ORDERED to ADMIT petitioners' answer with compulsory counterclaim. No pronouncement as to
costs.
SO ORDERED.

G.R. No. L-26768 October 30, 1970

FAUSTINO GOJO, petitioner-appellant,
vs.
SEGUNDO GOYALA and ANTONINA ALMOGUERA, respondents-appellees.
Fernando P. Gerona, Sr. for petitioner-appellant.
Agustin Frivaldo for respondents-appellees.

BARREDO, J.:.
Appeal from the favorable decision of the Court of First Instance of Sorsogon on the counterclaim of
respondents (herein appellees) in its Civil Case No. 1657-84 the complaint (petition) of therein
petitioner (herein appellant) having beet previously dismissed, without prejudice, for his failure to
submit an amended complaint as required of him in the court a quo's earlier order.
The record shows that on 26 May 1951, appellee Segundo, Goyala together with his now deceased
wife Antonina Almoguera, who was also named respondent or defendant in the complaint or petition
in the court below, sold to appellant by a "Deed of Pacto de Retro Sale" a certain parcel of
agricultural land having an area of approximately two and one-half hectares for P750.00, the
repurchase to be made, according to the deed, within one year. It also appears from said deed that
on July 4, 1951, the vendee paid another P100.00 as addition to the purchase price. About ten (10)
years after the execution of the said document, or on April 12, 1961, to be precise, the vendee filed
with the Court of First Instance of Sorsogon the present case against the vendors by way of a
petition for consolidation of ownership of the land described and involved in the "Deed of Pacto de
Retro Sale." In his petition, the vendee, herein appellant, alleged, inter alia, that the date for
repurchase, May 26, 1952, having expired and the vendors not having been able to repurchase the
same under the terms and conditions of the agreement, the ownership over the land involved had
become consolidated in him; and that for the purpose of recording in the Registry of Property the
said consolidation of ownership, it was necessary that a judicial order be issued to that effect and
accordingly prayed for such an order.
On May 26, 1961, appellee Segundo Goyala filed an opposition or answer to the petition. He therein
alleged that his wife Antonina Almoguera had died in the year 1959 and denied the allegation in the

petition regarding thepacto de retro sale, "the fact of the matter being," according to him, "that on
May 26, 1951, the respondents obtained a cash load of P750.00 from the petitioner payable in one
year without interest; that only on July 26, 1951, Dolores Goyala, daughter of the respondents,
obtained from the petitioner the sum of P50.00 to be added and credited to the account of the
respondents; and then on August 25, 1951, the said Dolores Goyala received from the petitioner
another amount of P10.00 to be added to and credited to the account of the respondents, (so that)
the total loan of the respondents from the petitioner aggregates P810.00 Philippine Currency" and
that to guarantee the payment of the said loan, the respondents executed a mortgage in favor of the
petitioner on a parcel of coconut land described in Annex A of the petition, hence, altho the deed was
executed or drawn in the form of a pacto de retro sale, the true and real intention of the parties
thereto was that the same was a mere mortgage to secure the payment of the original loan of
P750.00 together with the additional amount received thereafter, making a total loan of P810.00,
payable within, one year without interest. He further alleged that in the evening of May 26, 1952, he
and his wife went to the house of the petitioner and tendered to him the sum of P810.00 to pay the
debt, but said petitioner refused to receive the same and to cancel the document of mortgage, Annex
A. The said appellee also reiterated by way of counterclaim the foregoing allegations of his answer
and prayed thus:.
WHEREFORE, the respondent Segundo Goyala respectfully prays this Honorable
Court to dismiss the petition and render judgment in favor of the respondents as
follows:.
(a) Ordering the petitioner to receive the sum of P810.00 tendered or
deposited by the respondents in full settlement of their debts to him;
(b) Declaring the document marked Annex A of the petition to be
mortgage and not a pacto de retro sale, and ordering the same
cancelled and with no more force and effect;
(c) Ordering the petitioner to pay the respondents the sum of
P1,800.00 per annum beginning May 26, 1951 until the final
termination of this case as the reasonable monetary value of the
products for the said property, and from this amount, there should be
deducted however, the corresponding legal interest annually on said
loans; and
(d) In case, however, of the remote possibility that this Court should
find the said instrument (Annex A) to be a true pacto de retro sale,
and not a mere mortgage, it is hereby prayed that the petitioner be
ordered to execute a deed of resale or repurchase of said property in
favor of the respondents in accordance with Art. 1606 third paragraph
of the Civil Code."
On December 1, 1962, counsel for respondent Goyala filed a manifestation informing the trial court
that the named defendant (respondent) Antonina Almoguera was already dead, she having died at
Labo, Camarines Norte on March 27, 1959, and that her surviving nearest kin are her children,
namely: Leonor, Pedro, Juliana, Dolores, Valentina, Soledad, Penya, Mamerta, Salvador, Genesa,
Felipe, Elegio all surnamed Goyala with residences at Bulan, Sorsogon. Hearing was had on
that manifestation, after which the trial court, under date of December 4, 1962, issued the following
order:.

As prayed for in the manifestation of Atty. Agustin Frivaldo counsel for the defendant,
dated December 1, 1962, on the ground stated therein, the counsel for the plaintiff is
hereby required to submit an amended Complaint substituting therein for one of the
defendants, Antonina Almoguera, now deceased her successors in interest as party
defendants, within the reglementary period.
Subsequently, on January 26, 1963, appellee Goyala filed a motion to dismiss the complaint or
petition on the ground that notwithstanding the lapse of 43 days after appellant's receipt of a copy of
the above-quoted order of the trial court, said appellant had failed and neglected to submit the
amended complaint required of him. The motion was opposed by appellant; and the trial court,
resolving the incident, issued the following order on February 15, 1963:.
The matter under consideration is the motion to dismiss filed by the defendants on
the ground that the plaintiff has failed and neglected to submit the amended
complaint as required in the order of this Court dated December 4, 1962, which the
plaintiff has received on December 18, 1962. From December 13, 1962 when the
motion to dismiss was filed, 43 days have elapsed. On February 6, 1963 when the
plaintiff has again failed to file together with said opposition the required amended
complaint, and although plaintiff has requested for a reasonable extension of time
within which to file the said pleading, it is regretable to state that up to the present
has neglected to do so.
WHEREFORE, the complaint is hereby dismissed without prejudice.
Thereafter, on July 10, 1963, appellee filed a motion to declare appellant in default in respect of said
appellee's counterclaim, contained in his answer (opposition) to the dismissed complaint petition) of
appellant. This motion was granted by the trial court in its order of July 11, 1963, to wit:.
Upon petition of the counsel for the defendant Segundo Goyala to declare the
plaintiff in default on the ground of failure on the part of the plaintiff to answer the
counterclaim filed by said defendant Segundo Goyala within the reglementary period,
despite the fact that the plaintiff's counsel was duly served with a copy thereof, and
the plaintiff's complaint was already dismissed by this Court in its order of February
15, 1963 on the ground of neglect to submit the amended complaint as required in
the Court order of December 4, 1962, the plaintiff is hereby declared in default on the
counterclaim filed by said defendant Segundo Goyala.
Let the defendant Segundo Goyala submit his evidence before the Clerk of Court,
who is hereby commissioned to receive the same.
As directed in the order above-quoted, the Clerk of Court received the evidence of appellee in
respect of his counterclaim and, thereafter, on November 15, 1963 the trial court rendered favorable
judgment on appellee's counterclaim. The pertinent portions of the decision referred to read thus:.
It appears that on May 26, 1951, respondents obtained a loan of P750.00 from the
petitioner. To secure the loan, respondents executed a document, which was made a
Deed of Pacto de Retro Sale (Exh. "A"), on suggestion of petitioner to exempt
himself from liabilities under the Usury Law. Dolores Goyala, one of the daughters of
respondents, obtained an additional loan of P50.00 on July 26, 1951, (Exh. "A-1")
and another P10.00 on August 19, 1951, (Exh. "A-3") from the petitioner which
amounts were duly authorized and acknowledged by respondent Segundo Goyala. In
the late afternoon of May 26, 1952, the last day to redeem the property, Segundo

Goyala, tendered the amount of P810.00 to herein petitioner in complete payment of

the loan and to release the property securing the said loan, but was refused because
it was already night time, and was advised instead to return the following day. When
Segundo Goyala returned the following day to redeem the property he was told by
petitioner that the period to redeem has already expired. Segundo Goyala testified
further that he tried no less than three times to redeem the property but each time
petitioner refused the redemption money.
It appears further that the petitioner is in possession of the land since May 26, 1951,
after the execution of Exhibit "A" up to the present time and had appropriated to
himself the products during the period. It is shown further that the land is a productive
coconut land and has a fair market value of P5,000.00 with an annual yield of
P1,800.00.
The respondents are not however entitled to be reimbursed of the value of the
products obtained by the petitioner who acted in the belief that the agreement was a
Pacto de Retro Sale which turned out to be otherwise as the Court now so declares.
WHEREFORE, in view of the foregoing the Court hereby declares the Deed of Pacto
de Retro Sale (Exh. "A") an equitable mortgage and respondents Segundo Goyala
and the heirs of Antonina Almoguera are allowed to redeem the property; orders
Faustino Gojo to withdraw the amount of P810.00 deposited with the Clerk of Court
in full settlement of the loan, and hereby cancels and declares without force and
effect the aforementioned Deed of Pacto de Retro Sale executed by the spouses
Segundo Goyala and Antonina Almoguera in favor of Faustino Gojo. Without costs.
The above-quoted decision was subsequently amended in an order of December 19, 1963, as
follows:.
It appearing that in the dispositive part of the decision there was no directive to
restore the possession to the defendants upon execution, the dispositive portion of
the said decision is hereby amended to include therein an additional directive
ordering the plaintiff to deliver and restore the possession of the land in question to
the defendants.
Dissatisfied with the decision referred to, appellant appealed to the Court of Appeals which upon its
finding that the said appeal involves purely questions of law, certified the same to this Court for
resolution.
In his brief, appellant assigns the following errors allegedly committed by the trial court:.
1. THE LOWER COURT ERRED IN DECLARING PLAINTIFF IN DEFAULT WITH
RESPECT TO DEFENDANT'S COUNTERCLAIM;
2. THE LOWER COURT ERRED IN DEPUTIZING OR COMMISSIONING THE
CLERK OF COURT TO RECEIVE THE EVIDENCE OF THE DEFENDANT
SEGUNDO GOYALA;
3. THE LOWER COURT ERRED IN RENDERING JUDGMENT IN FAVOR OF THE
RESPONDENT SEGUNDO GOYALA AND THE HEIRS OF ANTONINA

ALMOGUERA ALLOWING THEM TO REDEEM THE LAND IN QUESTION FROM

THE PETITIONER FAUSTINO GOJO FOR THE SUM OF P810.00.
The thrust of appellant's argument in respect of the first assignment of error is to the effect that there
is no occasion for the trial court to declare him in default in respect of appellee's counterclaim in this
case, for the reasons that: (a) the said counterclaim "falls within the category of compulsory
counterclaim" which does not call for an independent answer as the complaint already denies its
material allegations; and (b) the dismissal of the complaint in this case without prejudice carried with
it the dismissal of the said counterclaim.
The first assignment of error of appellant is well taken. It is now settled that a plaintiff who fails or
chooses not to answer a compulsory counterclaim may not be declared in default, principally
because the issues raised in the counterclaim are deemed automatically joined by the allegations of
the complaint.1 In the instant case, there can be no doubt that appellant's counterclaim was a compulsory
one in as much as it arises out of or is necessarily connected with transaction or occurrence that is the
subject matter of the complaint; the complaint alleged that the right of appellee to repurchase the property
in question had already expired and asked for an order of consolidation; on the other hand, appellant's
counterclaim was for reformation of the deed claiming that it was only a mortgage. Thus the counterclaim
was clearly inconsistent with and directly controverted; the whole theory and basic allegations of the
complaint. In consequence, appellant's complaint stood as the answer to appellee's counterclaim; hence,
the incorrectness of the trial court's order declaring the appellant in default in regard to said counterclaim
is evident.
Regarding the dismissal of petitioner's complaint, We hold also, that the trial court committed
reversible error in ordering the same. It is true that under Section 3 of Rule 17, a complaint may be
dismissed for failure to prosecute if the plaintiff fails to comply with an order of the court, but it is
obvious that the said provision cannot apply when the order supposedly ignored is a void one, as in
this case. Here, the trial court ordered petitioner to amend the complaint only because it was
informed that one of the defendants had died, the court directing that the plaintiff should name the
heirs of the deceased as defendants in lieu of said deceased. Such an order runs counter to the
ruling of this Court in Caseas vs. Resales, et al. 2 which is squarely applicable to the Situation herein obtaining. In that
case, We held:.

When certain of the parties to Civil Case No. 261 died and due notice thereof was
given to the trial court, it devolved on the said court to order, not the amendment of
the complaint, but the appearance of the legal representatives of the deceased in
accordance with the procedure and manner outlined in Rule 3, Section 17 of the
Rules of Court, which provide:.
"SECTION 17. Death of party. After a party dies and the claim is
not thereby extinguished, the court shall order, upon proper notice,
the legal representative of the deceased to appear and to be
substituted for the deceased, within a period of thirty (30) days, or
within such time as may be granted. If the legal representative fails to
appear within said time, the court may order the opposing party to
procure the appointment of a legal representative of the deceased
within a time to be specified by the court, and the representative shall
immediately appear for and on behalf of the interest of the deceased.
The court charges involved in procuring such appointment, if
defrayed by the opposing party, may be recovered as costs. The
heirs of the deceased may be allowed to be substituted for the
deceased, without requiring the appointment of an executor or

administrator and the court may appoint guardian ad litem for the
minor heirs."
In the case of Barrameda vs. Barbara, 90 Phil. 718, this Court held that an order to
amend the complaint, before the proper substitution of parties as directed by the
aforequoted rule has been effected, is void and imposes upon the plaintiff no duty to
comply therewith to the end that an order dismissing the said complaint, for such
non-compliance, would similarly be void. In a subsequent case, Ferriera, et al. vs.
Gonzales, et al., G.R. No. L-11567, July 17, 1958, this Court affirmed a similar
conclusion on the determination that the continuance of a proceedings during the
pendency of which a party thereto dies, without such party having been validly
substituted in accordance with the rules, amounts to a "lack of jurisdiction".
The facts of this case fit four square into the Barrameda case above-cited, save for
the minor variance that in the former two of the litigants died while only one
predeceased the case in Barrameda. Here, as in Barrameda, during the pendency of
(the) civil case, notice was given to the trial court of the deaths of one of the plaintiffs
and one of the defendants in it. Instead of ordering the substitution of the deceased's
legal representatives in accordance with Rule 3, Sec. 17 of the Rules of Court, the
trial court directed the surviving plaintiff to amend the complaint and when the latter
failed to comply therewith, the said court dismissed the complaint for such noncompliance. We must hold, therefore, as We did in Barrameda that inasmuch as
there was no obligation on the part of the plaintiff-appellant herein to amend his
complaint in Civil Case No. 261, any such imposition being void, his failure to comply
with such an order did not justify the dismissal of his complaint. Grounded as it was
upon a void order, the dismissal was itself void." (To the same effect, see World Wide
Insurance & Surety Co. v. Jose, etc., et al., 96 Phil. 45, 50).
Besides, in line with the principle underlying Sec. 2 of Rule 17, it is not proper to dismiss a complaint
when a compulsory counterclaim has been pleaded by defendant. The reason is obvious. Under the
cited provision, the right of the plaintiff to move for the dismissal of an action after the defendant has
filed his answer is qualified by the clause providing that: "If a counterclaim has been pleaded by a
defendant prior to the service upon him of the plaintiff's motion to dismiss, the action shall not be
dismissed against the defendant's objection unless the counterclaim can remain pending for
independent adjudication by the court." With this limitation, the power of the court to dismiss the
complaint upon motion of plaintiff, which is usually without prejudice, is not purely discretionary.3 The
purpose is to avoid multiplicity of suits over the same matter which would necessarily entail unnecessary
expense and, what is worse, possibility of conflict and inconsistency in the resolution of the same
questions. The same considerations would obtain, if the defendant were the one to ask for dismissal. The
best interests of justice require that conflicting claims regarding the same matter should be decided in one
single proceeding. Dismissing the complaint without prejudice, as the trial court has done in this case,
albeit upon motion of the defendant, will not prevent the undesirable multiplication of suits and
reventilation of the same issues in the subsequent action that may be filed by virtue of the reservation
made in the disputed order of dismissal.
Having arrived at the foregoing conclusions, it becomes unnecessary to discuss the other two
assigned errors.
WHEREFORE, the decision appealed from is set aside and this case is remanded to the court below
for further proceedings in consonance with the above opinion, with costs against appellee.
Reyes, J.B.L., Actg. C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee and Makasiar,
JJ., concur.

Villamor, J., took no part.

G.R. No. L-30771 May 28, 1984

LIAM LAW, plaintiff-appellee,
vs.
OLYMPIC SAWMILL CO. and ELINO LEE CHI, defendants-appellants.
Felizardo S.M. de Guzman for plaintiff-appellee.
Mariano M. de Joya for defendants-appellants.

MELENCIO-HERRERA, J.:
This is an appeal by defendants from a Decision rendered by the then Court of First Instance of
Bulacan. The appeal was originally taken to the then Court of Appeals, which endorsed it to this
instance stating that the issue involved was one of law.
It appears that on or about September 7, 1957, plaintiff loaned P10,000.00, without interest, to
defendant partnership and defendant Elino Lee Chi, as the managing partner. The loan became
ultimately due on January 31, 1960, but was not paid on that date, with the debtors asking for an
extension of three months, or up to April 30, 1960.
On March 17, 1960, the parties executed another loan document. Payment of the P10,000.00 was
extended to April 30, 1960, but the obligation was increased by P6,000.00 as follows:
That the sum of SIX THOUSAND PESOS (P6,000.00), Philippine currency shall form
part of the principal obligation to answer for attorney's fees, legal interest, and other
cost incident thereto to be paid unto the creditor and his successors in interest upon
the termination of this agreement.
Defendants again failed to pay their obligation by April 30, 1960 and, on September 23, 1960,
plaintiff instituted this collection case. Defendants admitted the P10,000.00 principal obligation, but
claimed that the additional P6,000.00 constituted usurious interest.
Upon application of plaintiff, the Trial Court issued, on the same date of September 23, 1960, a writ
of Attachment on real and personal properties of defendants located at Karanglan, Nueva Ecija. After
the Writ of Attachment was implemented, proceedings before the Trial Court versed principally in
regards to the attachment.
On January 18, 1961, an Order was issued by the Trial Court stating that "after considering the
manifestation of both counsel in Chambers, the Court hereby allows both parties to simultaneously
submit a Motion for Summary Judgment. 1 The plaintiff filed his Motion for Summary Judgment on January 31, 1961, while
defendants filed theirs on February 2, 196l.

On June 26, 1961, the Trial Court rendered decision ordering defendants to pay plaintiff "the amount
of P10,000.00 plus the further sum of P6,000.00 by way of liquidated damages . . . with legal rate of
interest on both amounts from April 30, 1960." It is from this judgment that defendants have
appealed.
We have decided to affirm.
Under Article 1354 of the Civil Code, in regards to the agreement of the parties relative to the
P6,000.00 obligation, "it is presumed that it exists and is lawful, unless the debtor proves the
contrary". No evidentiary hearing having been held, it has to be concluded that defendants had not
proven that the P6,000.00 obligation was illegal. Confirming the Trial Court's finding, we view the
P6,000.00 obligation as liquidated damages suffered by plaintiff, as of March 17, 1960, representing
loss of interest income, attorney's fees and incidentals.
The main thrust of defendants' appeal is the allegation in their Answer that the P6,000.00 constituted
usurious interest. They insist the claim of usury should have been deemed admitted by plaintiff as it
was "not denied specifically and under oath". 3
Section 9 of the Usury Law (Act 2655) provided:
SEC. 9. The person or corporation sued shall file its answer in writing under oath to
any complaint brought or filed against said person or corporation before a competent
court to recover the money or other personal or real property, seeds or agricultural
products, charged or received in violation of the provisions of this Act. The lack of
taking an oath to an answer to a complaint will mean the admission of the facts
contained in the latter.
The foregoing provision envisages a complaint filed against an entity which has committed usury, for
the recovery of the usurious interest paid. In that case, if the entity sued shall not file its answer
under oath denying the allegation of usury, the defendant shall be deemed to have admitted the
usury. The provision does not apply to a case, as in the present, where it is the defendant, not the
plaintiff, who is alleging usury.
Moreover, for sometime now, usury has been legally non-existent. Interest can now be charged as
lender and borrower may agree upon. 4 The Rules of Court in regards to allegations of usury, procedural
in nature, should be considered repealed with retroactive effect.
Statutes regulating the procedure of the courts will be construed as applicable to
actions pending and undetermined at the time of their passage. Procedural laws are
retrospective in that sense and to that extent. 5
... Section 24(d), Republic Act No. 876, known as the Arbitration Law, which took effect on
19 December 1953, and may be retroactively applied to the case at bar because it is
procedural in nature. ... 6

WHEREFORE, the appealed judgment is hereby affirmed, without pronouncement as to costs.

SO ORDERED.

G.R. No. 101883 December 11, 1992

SPOUSES LYDIA and VIRGILIO MELITON,* petitioners,
vs.
COURT OF APPEALS and NELIA A. ZIGA, represented by her Attorney-in-Fact RAMON A.
AREJOLA,**respondents.

REGALADO, J.:
In its judgment in CA-G.R. No. 25091 1 promulgated on August 9, 1991, respondent Court of Appeals
annulled and set aside the orders dated February 22, 1991 and March 18, 1991 of the Regional Trial
Court of Naga City, Branch 27, in Civil Case No. RTC 89-1942 thereof and ordered the dismissal of
petitioner's complaint filed herein, hence this appeal bycertiorari.
On June 22, 1988, private respondent Nelia Ziga, in her own behalf and as attorney-in-fact of Alex A.
Ziga and Emma A. Ziga-Siy, filed a complaint, docketed as Civil Case No. RTC 88-1480 of the
Regional Trial Court, Branch 27, Naga City, 2 against herein petitioner Lydia Meliton for rescission of a
contract of lease over a parcel of land situated at Elias Angeles Street, Naga City. Alleged as grounds
therefor were said petitioner's failure, as lessee, to deposit the one month rental and to pay the monthly
rentals due; her construction of a concrete wall and roof on the site of a demolished house on the leased
premises without the lessor's written consent; and here unauthorized sublease of the leased property to a
third party.
On July 29, 1988, petitioner Lydia Meliton filed an answer to the complaint denying the material
averments thereof and setting up three counterclaims for recovery of the value of her kitchenette
constructed on the leased parcel of land and which was demolished by private respondent, in the
amount of P34,000.00; the value of the improvements introduced in the kitchenette to beautify it, in
the amount of P10,000.00, plus the value of the furniture and fixtures purchased for use in the
kitchenette in the amount of P23,000.00; and moral damages in the amount of P20,000.00 aside
from attorney's fees of P5,000.00 and P250.00 per court appearance, with litigation expenses in the
amount of P1,000.00. 3
On May 29, 1989, the trial court, on motion of private respondent contending that her cause of action
had already become moot and academic by the expiration of the lease contract on February 7, 1989,
dismissed the complaint. The counterclaims of petitioner Lydia Meliton were also dismissed for nonpayment of the docket fees, ergo the trial court's holding that thereby it had not acquired jurisdiction
over the same. 4
On December 6, 1989, petitioners Lydia Meliton and Virgilio Meliton filed a complaint against private
respondent for recovery of the same amounts involved and alleged in their counterclaims in Civil
Case No. RTC 88-1480, which complaint was docketed as Civil Case No. RTC 89-1942 5 and
likewise assigned to Branch 27 of the same trial court.
On February 15, 1991, private respondent filed a motion to dismiss the complaint on the ground that
the cause of action therein was barred by prior judgment in Civil Case No. RTC 88-1480, the order
of dismissal wherein was rendered on May 29, 1989. 6
On February 22, 1991, the court below denied private respondent's motion to dismiss the complaint
in Civil Case No. RTC 89-1942 on the ground that the dismissal of the petitioner's counterclaims in
Civil Case No. RTC 88-1480 is not an adjudication on the merits as the court did not acquire

jurisdiction over the counterclaims for failure of petitioner Lydia Meliton to pay the docket fees, hence
the said dismissal does not constitute a bar to the filing of the later complaint. 7
Private respondent's motion for reconsideration of the foregoing order was denied by the lower court
for lack of merit in its order of March 18, 1991. 8 Dissatisfied therewith, private respondent filed a petition for certiorari with
this Court. In our resolution dated April 29, 1991, we referred this case to the Court of Appeals for proper determination and disposition
pursuant to Section 9, paragraph 1, of B.P. Blg. 129, 9 where it was docketed as CA-G.R. SP No. 25093.

In a decision promulgated on August 9, 1991, the Court of Appeals granted the petition, the pertinent
part of which reads:
xxx xxx xxx
The respondents' counterclaim against the petitioner in Civil Case No. RTC 88-1480
(Annex E, petition) is a compulsory counterclaim, it having (arisen) out of or being
necessarily connected with the transaction or occurrence subject matter of the
petitioner's complaint. The failure of the respondents to seek a reconsideration of the
dismissal of their counterclaim or to take an appeal therefrom rendered the dismissal
final. Such dismissal barred the prosecution of their counterclaim by another action
(Section 4, Rule 9, Revised Rules of Court; Javier vs. IAC, 171 SCRA 605).
The respondent Court, therefore, in issuing the orders complained of (Annexes G
and I, petition), gravely abused its discretion amounting to lack of jurisdiction.
WHEREFORE, the petition for certiorari is GRANTED. Accordingly, the orders
complained of (Annexes G and I, petition) are annulled and set aside and the
respondents' complaint in Civil Case No. RTC 89-1942 before the respondent Court,
DISMISSED. Costs against the respondents, except the respondent Court. 10
Petitioners are now before use, assailing the said judgment of the Court of Appeals and praying for
the annulment thereof.
The present petition requires the resolution of two principal issues, to wit: (1) whether or not the
counterclaims of petitioners are compulsory in nature; and (2) whether or not petitioners, having
failed to seek reconsideration of or to take an appeal from the order of dismissal of their
counterclaims, are already barred from asserting the same in another action.
1. Considering Section 4 of Rule 9 of the Rules of Court, a counterclaim is compulsory if (a) it arises
out of, or is necessarily connected with, the transaction or occurrence which is the subject matter of
the opposing party's claim; (b) it does not require for its adjudication the presence of third parties of
whom the court cannot acquire jurisdiction; and (c) the court has jurisdiction to entertain the claim.
It has been postulated that while a number of criteria have been advanced for the determination of
whether the counterclaim is compulsory or permissive, the "one compelling test of compulsoriness"
is the logical relationship between the claim alleged in the complaint and that in the counterclaim,
that is, where conducting separate trials of the respective claims of the parties would entail a
substantial duplication of effort and time, as where they involve many of the same factual and/or
legal issues.
The phrase "logical relationship" is given meaning by the purpose of the rule which it was designed
to implement. Thus, a counterclaim is logically related to the opposing party's claim where, as
already stated, separate trials of each of their respective claims would involve a substantial

duplication of effort and time by the parties and the courts. Where multiple claims involve many of
the same factual issues, or where they are offshoots of the same basic controversy between the
parties, fairness and considerations of convenience and of economy require that the counterclaimant
be permitted to maintain his cause of action. 11
In the aforesaid Civil Case No. 88-1480, all the requisites of a compulsory counterclaim are present.
The counterclaims, as this term is now broadly defined, are logically related to the complaint. Private
respondent's complaint was for rescission of the contract of lease due to petitioner Lydia Meliton's
breach of her obligations under the said contract. On the other hand, petitioner's counterclaims were
for damages for unlawful demolition of the improvements she introduced pursuant to her leasehold
occupancy of the premises, as well as for the filing of that civil suit which is contended to be clearly
unfounded.
Both the claims therein of petitioners and private respondent arose from the same contract of lease.
The rights and obligations of the parties, as well as their potential liability for damages, emanated
from the same contractual relation. Petitioners' right to claim damages for the unlawful demolition of
the improvements they introduced on the land was based on their right of possession under the
contract of lease which is precisely the very same contract sought to be rescinded by private
respondent in her complaint. The two actions are but the consequences of the reciprocal obligations
imposed by law upon and assumed by the parties under their aforesaid lease contract. That contract
of lease pleaded by private respondent constitutes the foundation and basis relied on by both parties
for recovery of their respective claims.
The relationship between petitioners' counterclaims and private respondent's complaint is
substantially the same as that which exists between a complaint for recovery of land by the owner
and the claim for improvements introduced therein by the possessor. As we have ruled, in actions for
ejectment or for recovery of possession of real property, it is well settled that the defendant's claims
for the value of the improvements on the property or necessary expenses for its preservation are
required to be interposed in the same action as compulsory couterclaims. In such cases, it is the
refusal of the defendant to vacate or surrender possession of the premises that serves as the vital
link in the chain of facts and events, and which constitutes the transaction upon which the plaintiff
bases his cause of action. It is likewise an "important part of the transaction constituting the subject
matter of the counterclaim" of defendant for the value of the improvements or the necessary
expenses incurred for the preservation of the property. They are offshoots of the same basic
controversy between the parties, that is, the right of either to the possession of the property. 12
On the foregoing considerations, respondent Court of Appeals correctly held that the counterclaims
of petitioners are compulsory in nature.
2. Petitioners having alleged compulsory counterclaims, the next point of inquiry is whether or not
petitioners are already barred from asserting said claims in a separate suit, the same having been
dismissed in the preceding one. The answer is in the negative.
It is indeed the rule, embodied in Section 4, Rule 9 of the Rules of Court, that a counterclaim not set
up shall be barred if it arises out of or is necessarily connected with the transaction or occurrence
that is the subject matter of the opposing party's claim and does not require for its adjudication the
presence of third parties of whom the court cannot acquire jurisdiction. However, said rule is not
applicable to the case at bar.
Contrary to the claim of private respondent, it cannot be said that therein petitioners failed to duly
interpose their causes of action as counterclaims in the previous action. Petitioners' claims were duly
set up as counterclaims in the prior case but the same were dismissed by reason of non-payment of

docket fees. The ruling of respondent Court of Appeals to the effect that the failure of petitioners to
appeal or to move for reconsideration of the said order of dismissal bars them from asserting their
claims in another action cannot be upheld.
Firstly, where a compulsory counterclaim is made the subject of a separate suit, it may be abated
upon a plea ofauter action pendant or litis pendentia and/or dismissed on the ground of res
judicata, 13 depending on the stage or status of the other suit.
Both defenses are unavailing to private respondent. The present action cannot be dismissed either
on the ground of litis pendentia since there is no other pending action between the same parties and
for the same cause, nor on the ground of res judicata.
In order that a prior judgment will constitute a bar to a subsequent case, the following requisites
must concur: (1) the judgment must be final; (2) the judgment must have been rendered by a court
having jurisdiction over the subject matter and the parties; (3) the judgment must be on the merits;
and (4) there must be between the first and second actions, identity of parties, of subject matter, and
of causes of action. 14
The first case, Civil Case No. RTC 88-1480, was dismissed upon motion of private respondent,
plaintiff therein, under Section 2 of Rule 17. Dismissal thereunder is without prejudice, except when
otherwise stated in the motion to dismiss or when stated to be with prejudice in the order of the
court. 15 The order of dismissal of the first case was unqualified, hence without prejudice and, therefore,
does not have the effect of an adjudication on the merits. On a parity of rationale, the same rule should
apply to a counterclaim duly interposed therein and which is likewise dismissed but not on the merits
thereof.
Moreover, in the same order of dismissal of the complaint, the counterclaims of herein petitioners
were dismissed by reason of the fact the court a quo had not acquired jurisdiction over the same for
non-payment of the docket fees. On that score, the said dismissal was also without prejudice,
since a dismissal on the ground of lack of jurisdiction does not constitute res judicata, 16 there having
been no consideration and adjudication of the case on the merits.
The dismissal of the case without prejudice indicates the absence of a decision on the merits and
leaves the parties free to litigate the matter in a subsequent action as though the dismissal action
had not been commenced.17 The discontinuance of a case not on the merits does not bar another action
on the same subject matter. 18 Evidently, therefore, the prior dismissal of herein petitioners' counterclaims
is not res judicata and will not bar the filing of another action based on the same causes of action.
Secondly, a reading of the order of dismissal will show that the trial court, in dismissing the complaint
of private respondent, did not intend to prejudice the claims of petitioners by barring the subsequent
judicial enforcement thereof. As stated therein, "(t)he court in dismissing the counterclaim(s) has
taken into account the fact that a counterclaim partakes of the nature of a complaint and/or a cause
of action against the plaintiffs." 19 This is a clear indication, deducible by necessary implication, that the
lower court was aware of the fact that petitioners could avail of the causes of action in said counterclaims
in a subsequent independent suit based thereon and that there was no legal obstacle thereto. That this
was the import and intendment of that statement in its order dismissing petitioners' counterclaims in Civil
Case No. RTC 88-1480 was categorically confirmed by the very same court, wherein Civil Case No. RTC
89-1942 was also subsequently filed, in its assailed orders denying private respondent's motion to
dismiss the latter case on the ground of res judicata.
This is also concordant with the rule governing dismissal of actions by the plaintiff after the answer
has been served as laid down in Rule 17 of the Rules of Court, which is summarized as follows: An

action shall not be dismissed at the request of the plaintiff after the service of the answer, except by
order of the court and upon such terms and conditions as the court deems proper. The trial court has
the judicial discretion in ruling on a motion to dismiss at the instance of the plaintiff. It has to decide
whether the dismissal of the case should be allowed, and if so, on what terms and conditions. 20
In dismissing private respondent's complaint, the trial court could not but have reserved to
petitioners, as a condition for such dismissal, the right to maintain a separate action for damages.
Petitioners' claims for damages in the three counterclaims interposed in said case, although in the
nature of compulsory counterclaims but in light of the aforesaid reservation in the dismissal order,
are consequently independent causes of action which can be the subject of a separate action
against private respondent.
An action for damages specifically applicable in a lessor-lessee relationship is authorized in Article
1659 of the Civil Code which provides that:
Art. 1659. If the lessor or the lessee should not comply with the obligations set forth
in articles 1654 and 1657, the aggrieved party may ask for the rescission of the
contract and indemnification for damages, or only the latter, allowing the contract to
remain in force.
Paragraph 3 of Article 1654 of the same Code requires that the lessor must "maintain the lessee in
the peaceful and adequate enjoyment of the lease for the entire duration of the contract." 21 The
aggrieved party has the alternative remedies, in case of contractual breach, of rescission with damages,
or for damages only, "allowing the contract to remain in force."
The act of private respondent in demolishing the structures introduced by petitioners on the property
leased and the improvements therein during the existence of the lease contract is a clear violation by
her, as lessor, of her obligation mandated by paragraph 3, Article 1654 of the Civil Code. The said
violation gave rise to a cause of action for damages in favor of herein petitioners.
Lastly, even assuming arguendo that the bar under the rule on compulsory counterclaims may be
invoked, the peculiar circumstances of this case irresistibly and justifiedly warrant the relaxation of
such rule.
The court a quo dismissed petitioners' counterclaims for non-payment of docket fees pursuant to our
then ruling in Manchester Development Corporation, et al. vs. Court of Appeals, et al., 22 before its
modification. The failure of petitioners to seek reconsideration of or to take an appeal from the order of
dismissal of the counterclaim should not prejudice their right to file their claims in a separate action
because they were thereby made to understand and believe that their counterclaims were merely
permissive and could be the subject of a separate and independent action. Under the Rules, there is no
need to pay docket fees for a compulsory counterclaim. 23 The ruling in Manchester applies specifically to
permissive counterclaims only, thereby excluding compulsory counterclaims from its purview, 24 and that
was the ruling of the court below to which the litigants therein submitted. Had the trial court correctly
specified that petitioners' counterclaims were compulsory, petitioners could have objected to the dismissal
sought by private respondent on the ground that said counterclaims could not remain pending for
independent adjudication. 25
Furthermore, under the Manchester doctrine, the defect cannot be cured by an amendment of the
complaint or similar pleadings, much less the payment of the docket fee. Hence, the only remedy left
for the petitioners was to file a separate action for their claims and to pay the prescribed docket fees
therein within the applicable and reglementary period, which is what they did in the case at bar in
obedience and deference to the judicial mandate laid down in their case. At any rate, the ambivalent

positions adopted by the lower court can be considered cured by what we have construed as
effectively a reservation in its order of dismissal for the filing of a complaint based on the causes of
action in the dismissed counterclaims.
This, then, is one case where it is necessary to heed the injunction that the rules of procedure are
not to be applied in a rigid and technical sense. After all, rules of procedure are used only to help
secure substantial justice. They cannot be applied to prevent the achievement of that goal. Form
cannot and should not prevail over substance. 26 Absent a specific requirement for stringent application,
the Rules of Court are to be liberally construed to the end that no party shall be deprived of his day in
court on technicalities. The courts in our jurisdiction are tribunals both of law and equity. Hence, under the
antecedents of this case, we are persuaded that even if only to approximate that desirable measure of
justice we are sworn to dispense, this controversy should be resolved on the merits.
WHEREFORE, the questioned judgment of respondent Court of Appeals is hereby REVERSED and
SET ASIDE. Civil Case No. RTC 89-1942 is hereby REINSTATED and the Regional Trial Court of
Naga City, Branch 27, or wherever the case has been assigned, is directed to proceed with
deliberate dispatch in the adjudication thereof.
SO ORDERED.

G.R. No. 143581

January 7, 2008

KOREA TECHNOLOGIES CO., LTD., petitioner,

vs.
HON. ALBERTO A. LERMA, in his capacity as Presiding Judge of Branch 256 of Regional Trial
Court of Muntinlupa City, and PACIFIC GENERAL STEEL MANUFACTURING
CORPORATION, respondents.
DECISION
VELASCO, JR., J.:
In our jurisdiction, the policy is to favor alternative methods of resolving disputes, particularly in civil
and commercial disputes. Arbitration along with mediation, conciliation, and negotiation, being
inexpensive, speedy and less hostile methods have long been favored by this Court. The petition
before us puts at issue an arbitration clause in a contract mutually agreed upon by the parties
stipulating that they would submit themselves to arbitration in a foreign country. Regrettably, instead
of hastening the resolution of their dispute, the parties wittingly or unwittingly prolonged the
controversy.
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is engaged in the
supply and installation of Liquefied Petroleum Gas (LPG) Cylinder manufacturing plants, while
private respondent Pacific General Steel Manufacturing Corp. (PGSMC) is a domestic corporation.
On March 5, 1997, PGSMC and KOGIES executed a Contract 1 whereby KOGIES would set up an
LPG Cylinder Manufacturing Plant in Carmona, Cavite. The contract was executed in the Philippines.

On April 7, 1997, the parties executed, in Korea, an Amendment for Contract No. KLP-970301 dated
March 5, 19972 amending the terms of payment. The contract and its amendment stipulated that
KOGIES will ship the machinery and facilities necessary for manufacturing LPG cylinders for which
PGSMC would pay USD 1,224,000. KOGIES would install and initiate the operation of the plant for
which PGSMC bound itself to pay USD 306,000 upon the plants production of the 11-kg. LPG
cylinder samples. Thus, the total contract price amounted to USD 1,530,000.
On October 14, 1997, PGSMC entered into a Contract of Lease 3 with Worth Properties, Inc. (Worth)
for use of Worths 5,079-square meter property with a 4,032-square meter warehouse building to
house the LPG manufacturing plant. The monthly rental was PhP 322,560 commencing on January
1, 1998 with a 10% annual increment clause. Subsequently, the machineries, equipment, and
facilities for the manufacture of LPG cylinders were shipped, delivered, and installed in the Carmona
plant. PGSMC paid KOGIES USD 1,224,000.
However, gleaned from the Certificate 4 executed by the parties on January 22, 1998, after the
installation of the plant, the initial operation could not be conducted as PGSMC encountered
financial difficulties affecting the supply of materials, thus forcing the parties to agree that KOGIES
would be deemed to have completely complied with the terms and conditions of the March 5, 1997
contract.
For the remaining balance of USD306,000 for the installation and initial operation of the plant,
PGSMC issued two postdated checks: (1) BPI Check No. 0316412 dated January 30, 1998 for PhP
4,500,000; and (2) BPI Check No. 0316413 dated March 30, 1998 for PhP 4,500,000. 5
When KOGIES deposited the checks, these were dishonored for the reason "PAYMENT STOPPED."
Thus, on May 8, 1998, KOGIES sent a demand letter 6 to PGSMC threatening criminal action for
violation of Batas Pambansa Blg. 22 in case of nonpayment. On the same date, the wife of
PGSMCs President faxed a letter dated May 7, 1998 to KOGIES President who was then staying at
a Makati City hotel. She complained that not only did KOGIES deliver a different brand of hydraulic
press from that agreed upon but it had not delivered several equipment parts already paid for.
On May 14, 1998, PGSMC replied that the two checks it issued KOGIES were fully funded but the
payments were stopped for reasons previously made known to KOGIES. 7
On June 1, 1998, PGSMC informed KOGIES that PGSMC was canceling their Contract dated March
5, 1997 on the ground that KOGIES had altered the quantity and lowered the quality of the
machineries and equipment it delivered to PGSMC, and that PGSMC would dismantle and transfer
the machineries, equipment, and facilities installed in the Carmona plant. Five days later, PGSMC
filed before the Office of the Public Prosecutor an Affidavit-Complaint for Estafa docketed as I.S. No.
98-03813 against Mr. Dae Hyun Kang, President of KOGIES.
On June 15, 1998, KOGIES wrote PGSMC informing the latter that PGSMC could not unilaterally
rescind their contract nor dismantle and transfer the machineries and equipment on mere imagined
violations by KOGIES. It also insisted that their disputes should be settled by arbitration as agreed
upon in Article 15, the arbitration clause of their contract.
On June 23, 1998, PGSMC again wrote KOGIES reiterating the contents of its June 1, 1998 letter
threatening that the machineries, equipment, and facilities installed in the plant would be dismantled
and transferred on July 4, 1998. Thus, on July 1, 1998, KOGIES instituted an Application for
Arbitration before the Korean Commercial Arbitration Board (KCAB) in Seoul, Korea pursuant to Art.
15 of the Contract as amended.

On July 3, 1998, KOGIES filed a Complaint for Specific Performance, docketed as Civil Case No.
98-1178 against PGSMC before the Muntinlupa City Regional Trial Court (RTC). The RTC granted a
temporary restraining order (TRO) on July 4, 1998, which was subsequently extended until July 22,
1998. In its complaint, KOGIES alleged that PGSMC had initially admitted that the checks that were
stopped were not funded but later on claimed that it stopped payment of the checks for the reason
that "their value was not received" as the former allegedly breached their contract by "altering the
quantity and lowering the quality of the machinery and equipment" installed in the plant and failed to
make the plant operational although it earlier certified to the contrary as shown in a January 22,
1998 Certificate. Likewise, KOGIES averred that PGSMC violated Art. 15 of their Contract, as
amended, by unilaterally rescinding the contract without resorting to arbitration. KOGIES also asked
that PGSMC be restrained from dismantling and transferring the machinery and equipment installed
in the plant which the latter threatened to do on July 4, 1998.
On July 9, 1998, PGSMC filed an opposition to the TRO arguing that KOGIES was not entitled to the
TRO since Art. 15, the arbitration clause, was null and void for being against public policy as it ousts
the local courts of jurisdiction over the instant controversy.
On July 17, 1998, PGSMC filed its Answer with Compulsory Counterclaim 9 asserting that it had the
full right to dismantle and transfer the machineries and equipment because it had paid for them in full
as stipulated in the contract; that KOGIES was not entitled to the PhP 9,000,000 covered by the
checks for failing to completely install and make the plant operational; and that KOGIES was liable
for damages amounting to PhP 4,500,000 for altering the quantity and lowering the quality of the
machineries and equipment. Moreover, PGSMC averred that it has already paid PhP 2,257,920 in
rent (covering January to July 1998) to Worth and it was not willing to further shoulder the cost of
renting the premises of the plant considering that the LPG cylinder manufacturing plant never
became operational.
After the parties submitted their Memoranda, on July 23, 1998, the RTC issued an Order denying the
application for a writ of preliminary injunction, reasoning that PGSMC had paid KOGIES USD
1,224,000, the value of the machineries and equipment as shown in the contract such that KOGIES
no longer had proprietary rights over them. And finally, the RTC held that Art. 15 of the Contract as
amended was invalid as it tended to oust the trial court or any other court jurisdiction over any
dispute that may arise between the parties. KOGIES prayer for an injunctive writ was denied. 10 The
dispositive portion of the Order stated:
WHEREFORE, in view of the foregoing consideration, this Court believes and so holds that
no cogent reason exists for this Court to grant the writ of preliminary injunction to restrain
and refrain defendant from dismantling the machineries and facilities at the lot and building
of Worth Properties, Incorporated at Carmona, Cavite and transfer the same to another site:
and therefore denies plaintiffs application for a writ of preliminary injunction.
On July 29, 1998, KOGIES filed its Reply to Answer and Answer to Counterclaim. 11 KOGIES denied
it had altered the quantity and lowered the quality of the machinery, equipment, and facilities it
delivered to the plant. It claimed that it had performed all the undertakings under the contract and
had already produced certified samples of LPG cylinders. It averred that whatever was unfinished
was PGSMCs fault since it failed to procure raw materials due to lack of funds. KOGIES, relying
on Chung Fu Industries (Phils.), Inc. v. Court of Appeals,12 insisted that the arbitration clause was
without question valid.
After KOGIES filed a Supplemental Memorandum with Motion to Dismiss 13 answering PGSMCs
memorandum of July 22, 1998 and seeking dismissal of PGSMCs counterclaims, KOGIES, on
August 4, 1998, filed its Motion for Reconsideration14 of the July 23, 1998 Order denying its

application for an injunctive writ claiming that the contract was not merely for machinery and facilities
worth USD 1,224,000 but was for the sale of an "LPG manufacturing plant" consisting of "supply of
all the machinery and facilities" and "transfer of technology" for a total contract price of USD
1,530,000 such that the dismantling and transfer of the machinery and facilities would result in the
dismantling and transfer of the very plant itself to the great prejudice of KOGIES as the still unpaid
owner/seller of the plant. Moreover, KOGIES points out that the arbitration clause under Art. 15 of
the Contract as amended was a valid arbitration stipulation under Art. 2044 of the Civil Code and as
held by this Court in Chung Fu Industries (Phils.), Inc.15
In the meantime, PGSMC filed a Motion for Inspection of Things 16 to determine whether there was
indeed alteration of the quantity and lowering of quality of the machineries and equipment, and
whether these were properly installed. KOGIES opposed the motion positing that the queries and
issues raised in the motion for inspection fell under the coverage of the arbitration clause in their
contract.
On September 21, 1998, the trial court issued an Order (1) granting PGSMCs motion for inspection;
(2) denying KOGIES motion for reconsideration of the July 23, 1998 RTC Order; and (3) denying
KOGIES motion to dismiss PGSMCs compulsory counterclaims as these counterclaims fell within
the requisites of compulsory counterclaims.
On October 2, 1998, KOGIES filed an Urgent Motion for Reconsideration 17 of the September 21,
1998 RTC Order granting inspection of the plant and denying dismissal of PGSMCs compulsory
counterclaims.
Ten days after, on October 12, 1998, without waiting for the resolution of its October 2, 1998 urgent
motion for reconsideration, KOGIES filed before the Court of Appeals (CA) a petition for
certiorari18 docketed as CA-G.R. SP No. 49249, seeking annulment of the July 23, 1998 and
September 21, 1998 RTC Orders and praying for the issuance of writs of prohibition, mandamus,
and preliminary injunction to enjoin the RTC and PGSMC from inspecting, dismantling, and
transferring the machineries and equipment in the Carmona plant, and to direct the RTC to enforce
the specific agreement on arbitration to resolve the dispute.
In the meantime, on October 19, 1998, the RTC denied KOGIES urgent motion for reconsideration
and directed the Branch Sheriff to proceed with the inspection of the machineries and equipment in
the plant on October 28, 1998.19
Thereafter, KOGIES filed a Supplement to the Petition20 in CA-G.R. SP No. 49249 informing the CA
about the October 19, 1998 RTC Order. It also reiterated its prayer for the issuance of the writs of
prohibition, mandamus and preliminary injunction which was not acted upon by the CA. KOGIES
asserted that the Branch Sheriff did not have the technical expertise to ascertain whether or not the
machineries and equipment conformed to the specifications in the contract and were properly
installed.
On November 11, 1998, the Branch Sheriff filed his Sheriffs Report 21 finding that the enumerated
machineries and equipment were not fully and properly installed.
The Court of Appeals affirmed the trial court and declared
the arbitration clause against public policy
On May 30, 2000, the CA rendered the assailed Decision22 affirming the RTC Orders and dismissing
the petition for certiorari filed by KOGIES. The CA found that the RTC did not gravely abuse its
discretion in issuing the assailed July 23, 1998 and September 21, 1998 Orders. Moreover, the CA

reasoned that KOGIES contention that the total contract price for USD 1,530,000 was for the whole
plant and had not been fully paid was contrary to the finding of the RTC that PGSMC fully paid the
price of USD 1,224,000, which was for all the machineries and equipment. According to the CA, this
determination by the RTC was a factual finding beyond the ambit of a petition for certiorari.
On the issue of the validity of the arbitration clause, the CA agreed with the lower court that an
arbitration clause which provided for a final determination of the legal rights of the parties to the
contract by arbitration was against public policy.
On the issue of nonpayment of docket fees and non-attachment of a certificate of non-forum
shopping by PGSMC, the CA held that the counterclaims of PGSMC were compulsory ones and
payment of docket fees was not required since the Answer with counterclaim was not an initiatory
pleading. For the same reason, the CA said a certificate of non-forum shopping was also not
required.
Furthermore, the CA held that the petition for certiorari had been filed prematurely since KOGIES did
not wait for the resolution of its urgent motion for reconsideration of the September 21, 1998 RTC
Order which was the plain, speedy, and adequate remedy available. According to the CA, the RTC
must be given the opportunity to correct any alleged error it has committed, and that since the
assailed orders were interlocutory, these cannot be the subject of a petition for certiorari.
Hence, we have this Petition for Review on Certiorari under Rule 45.
The Issues
Petitioner posits that the appellate court committed the following errors:
a. PRONOUNCING THE QUESTION OF OWNERSHIP OVER THE MACHINERY AND
FACILITIES AS "A QUESTION OF FACT" "BEYOND THE AMBIT OF A PETITION FOR
CERTIORARI" INTENDED ONLY FOR CORRECTION OF ERRORS OF JURISDICTION OR
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF (SIC) EXCESS OF
JURISDICTION, AND CONCLUDING THAT THE TRIAL COURTS FINDING ON THE SAME
QUESTION WAS IMPROPERLY RAISED IN THE PETITION BELOW;
b. DECLARING AS NULL AND VOID THE ARBITRATION CLAUSE IN ARTICLE 15 OF THE
CONTRACT BETWEEN THE PARTIES FOR BEING "CONTRARY TO PUBLIC POLICY"
AND FOR OUSTING THE COURTS OF JURISDICTION;
c. DECREEING PRIVATE RESPONDENTS COUNTERCLAIMS TO BE ALL COMPULSORY
NOT NECESSITATING PAYMENT OF DOCKET FEES AND CERTIFICATION OF NONFORUM SHOPPING;
d. RULING THAT THE PETITION WAS FILED PREMATURELY WITHOUT WAITING FOR
THE RESOLUTION OF THE MOTION FOR RECONSIDERATION OF THE ORDER DATED
SEPTEMBER 21, 1998 OR WITHOUT GIVING THE TRIAL COURT AN OPPORTUNITY TO
CORRECT ITSELF;
e. PROCLAIMING THE TWO ORDERS DATED JULY 23 AND SEPTEMBER 21, 1998 NOT
TO BE PROPER SUBJECTS OF CERTIORARI AND PROHIBITION FOR BEING
"INTERLOCUTORY IN NATURE;"

f. NOT GRANTING THE RELIEFS AND REMEDIES PRAYED FOR IN HE (SIC) PETITION
AND, INSTEAD, DISMISSING THE SAME FOR ALLEGEDLY "WITHOUT MERIT." 23
The Courts Ruling
The petition is partly meritorious.
Before we delve into the substantive issues, we shall first tackle the procedural issues.
The rules on the payment of docket fees for counterclaims
and cross claims were amended effective August 16, 2004
KOGIES strongly argues that when PGSMC filed the counterclaims, it should have paid docket fees
and filed a certificate of non-forum shopping, and that its failure to do so was a fatal defect.
We disagree with KOGIES.
As aptly ruled by the CA, the counterclaims of PGSMC were incorporated in its Answer with
Compulsory Counterclaim dated July 17, 1998 in accordance with Section 8 of Rule 11, 1997
Revised Rules of Civil Procedure, the rule that was effective at the time the Answer with
Counterclaim was filed. Sec. 8 on existing counterclaim or cross-claim states, "A compulsory
counterclaim or a cross-claim that a defending party has at the time he files his answer shall be
contained therein."
On July 17, 1998, at the time PGSMC filed its Answer incorporating its counterclaims against
KOGIES, it was not liable to pay filing fees for said counterclaims being compulsory in nature. We
stress, however, that effective August 16, 2004 under Sec. 7, Rule 141, as amended by A.M. No. 042-04-SC, docket fees are now required to be paid in compulsory counterclaim or cross-claims.
As to the failure to submit a certificate of forum shopping, PGSMCs Answer is not an initiatory
pleading which requires a certification against forum shopping under Sec. 5 24 of Rule 7, 1997
Revised Rules of Civil Procedure. It is a responsive pleading, hence, the courts a quo did not commit
reversible error in denying KOGIES motion to dismiss PGSMCs compulsory counterclaims.
Interlocutory orders proper subject of certiorari
Citing Gamboa v. Cruz,25 the CA also pronounced that "certiorari and Prohibition are neither the
remedies to question the propriety of an interlocutory order of the trial court." 26 The CA erred on its
reliance on Gamboa.Gamboa involved the denial of a motion to acquit in a criminal case which was
not assailable in an action for certiorari since the denial of a motion to quash required the accused to
plead and to continue with the trial, and whatever objections the accused had in his motion to quash
can then be used as part of his defense and subsequently can be raised as errors on his appeal if
the judgment of the trial court is adverse to him. The general rule is that interlocutory orders cannot
be challenged by an appeal.27 Thus, in Yamaoka v. Pescarich Manufacturing Corporation, we held:
The proper remedy in such cases is an ordinary appeal from an adverse
judgment on the merits, incorporating in said appeal the grounds for assailing the
interlocutory orders. Allowing appeals from interlocutory orders would result in the sorry
spectacle of a case being subject of a counterproductive ping-pong to and from the
appellate court as often as a trial court is perceived to have made an error in any of its
interlocutory rulings. However, where the assailed interlocutory order was issued with grave

abuse of discretion or patently erroneous and the remedy of appeal would not afford
adequate and expeditious relief, the Court allows certiorari as a mode of redress. 28
Also, appeals from interlocutory orders would open the floodgates to endless occasions for dilatory
motions. Thus, where the interlocutory order was issued without or in excess of jurisdiction or with
grave abuse of discretion, the remedy is certiorari. 29
The alleged grave abuse of discretion of the respondent court equivalent to lack of jurisdiction in the
issuance of the two assailed orders coupled with the fact that there is no plain, speedy, and
adequate remedy in the ordinary course of law amply provides the basis for allowing the resort to a
petition for certiorari under Rule 65.
Prematurity of the petition before the CA
Neither do we think that KOGIES was guilty of forum shopping in filing the petition for certiorari. Note
that KOGIES motion for reconsideration of the July 23, 1998 RTC Order which denied the issuance
of the injunctive writ had already been denied. Thus, KOGIES only remedy was to assail the RTCs
interlocutory order via a petition for certiorari under Rule 65.
While the October 2, 1998 motion for reconsideration of KOGIES of the September 21, 1998 RTC
Order relating to the inspection of things, and the allowance of the compulsory counterclaims has not
yet been resolved, the circumstances in this case would allow an exception to the rule that before
certiorari may be availed of, the petitioner must have filed a motion for reconsideration and said
motion should have been first resolved by the court a quo. The reason behind the rule is "to enable
the lower court, in the first instance, to pass upon and correct its mistakes without the intervention of
the higher court."30
The September 21, 1998 RTC Order directing the branch sheriff to inspect the plant, equipment, and
facilities when he is not competent and knowledgeable on said matters is evidently flawed and
devoid of any legal support. Moreover, there is an urgent necessity to resolve the issue on the
dismantling of the facilities and any further delay would prejudice the interests of KOGIES. Indeed,
there is real and imminent threat of irreparable destruction or substantial damage to KOGIES
equipment and machineries. We find the resort to certiorari based on the gravely abusive orders of
the trial court sans the ruling on the October 2, 1998 motion for reconsideration to be proper.
The Core Issue: Article 15 of the Contract
We now go to the core issue of the validity of Art. 15 of the Contract, the arbitration clause. It
provides:
Article 15. Arbitration.All disputes, controversies, or differences which may arise between
the parties, out of or in relation to or in connection with this Contract or for the breach
thereof, shall finally be settled by arbitration in Seoul, Korea in accordance with the
Commercial Arbitration Rules of the Korean Commercial Arbitration Board. The award
rendered by the arbitration(s) shall be final and binding upon both parties concerned.
(Emphasis supplied.)
Petitioner claims the RTC and the CA erred in ruling that the arbitration clause is null and void.
Petitioner is correct.

Established in this jurisdiction is the rule that the law of the place where the contract is made
governs. Lex loci contractus. The contract in this case was perfected here in the Philippines.
Therefore, our laws ought to govern. Nonetheless, Art. 2044 of the Civil Code sanctions the validity
of mutually agreed arbitral clause or the finality and binding effect of an arbitral award. Art. 2044
provides, "Any stipulation that the arbitrators award or decision shall be final, is valid, without
prejudice to Articles 2038, 2039 and 2040." (Emphasis supplied.)
Arts. 2038,31 2039,32 and 204033 abovecited refer to instances where a compromise or an arbitral
award, as applied to Art. 2044 pursuant to Art. 2043, 34 may be voided, rescinded, or annulled, but
these would not denigrate the finality of the arbitral award.
The arbitration clause was mutually and voluntarily agreed upon by the parties. It has not been
shown to be contrary to any law, or against morals, good customs, public order, or public policy.
There has been no showing that the parties have not dealt with each other on equal footing. We find
no reason why the arbitration clause should not be respected and complied with by both parties.
In Gonzales v. Climax Mining Ltd.,35 we held that submission to arbitration is a contract and that a
clause in a contract providing that all matters in dispute between the parties shall be referred to
arbitration is a contract.36 Again in Del Monte Corporation-USA v. Court of Appeals, we likewise ruled
that "[t]he provision to submit to arbitration any dispute arising therefrom and the relationship of the
parties is part of that contract and is itself a contract." 37
Arbitration clause not contrary to public policy
The arbitration clause which stipulates that the arbitration must be done in Seoul, Korea in
accordance with the Commercial Arbitration Rules of the KCAB, and that the arbitral award is final
and binding, is not contrary to public policy. This Court has sanctioned the validity of arbitration
clauses in a catena of cases. In the 1957 case ofEastboard Navigation Ltd. v. Juan Ysmael and Co.,
Inc.,38 this Court had occasion to rule that an arbitration clause to resolve differences and breaches
of mutually agreed contractual terms is valid. In BF Corporation v. Court of Appeals, we held that "[i]n
this jurisdiction, arbitration has been held valid and constitutional. Even before the approval on June
19, 1953 of Republic Act No. 876, this Court has countenanced the settlement of disputes through
arbitration. Republic Act No. 876 was adopted to supplement the New Civil Codes provisions on
arbitration."39 And in LM Power Engineering Corporation v. Capitol Industrial Construction Groups,
Inc., we declared that:
Being an inexpensive, speedy and amicable method of settling disputes, arbitrationalong
with mediation, conciliation and negotiationis encouraged by the Supreme Court. Aside
from unclogging judicial dockets, arbitration also hastens the resolution of disputes,
especially of the commercial kind. It is thus regarded as the "wave of the future" in
international civil and commercial disputes. Brushing aside a contractual agreement calling
for arbitration between the parties would be a step backward.
Consistent with the above-mentioned policy of encouraging alternative dispute resolution
methods, courts should liberally construe arbitration clauses. Provided such clause is
susceptible of an interpretation that covers the asserted dispute, an order to arbitrate should
be granted. Any doubt should be resolved in favor of arbitration. 40
Having said that the instant arbitration clause is not against public policy, we come to the question
on what governs an arbitration clause specifying that in case of any dispute arising from the contract,
an arbitral panel will be constituted in a foreign country and the arbitration rules of the foreign
country would govern and its award shall be final and binding.

RA 9285 incorporated the UNCITRAL Model law

to which we are a signatory
For domestic arbitration proceedings, we have particular agencies to arbitrate disputes arising from
contractual relations. In case a foreign arbitral body is chosen by the parties, the arbitration rules of
our domestic arbitration bodies would not be applied. As signatory to the Arbitration Rules of the
UNCITRAL Model Law on International Commercial Arbitration41 of the United Nations Commission
on International Trade Law (UNCITRAL) in the New York Convention on June 21, 1985, the
Philippines committed itself to be bound by the Model Law. We have even incorporated the Model
Law in Republic Act No. (RA) 9285, otherwise known as the Alternative Dispute Resolution Act of
2004 entitled An Act to Institutionalize the Use of an Alternative Dispute Resolution System in the
Philippines and to Establish the Office for Alternative Dispute Resolution, and for Other Purposes,
promulgated on April 2, 2004. Secs. 19 and 20 of Chapter 4 of the Model Law are the pertinent
provisions:
CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION
SEC. 19. Adoption of the Model Law on International Commercial Arbitration.International
commercial arbitration shall be governed by the Model Law on International Commercial
Arbitration (the "Model Law") adopted by the United Nations Commission on International
Trade Law on June 21, 1985 (United Nations Document A/40/17) and recommended for
enactment by the General Assembly in Resolution No. 40/72 approved on December 11,
1985, copy of which is hereto attached as Appendix "A".
SEC. 20. Interpretation of Model Law.In interpreting the Model Law, regard shall be had to
its international origin and to the need for uniformity in its interpretation and resort may be
made to the travaux preparatories and the report of the Secretary General of the United
Nations Commission on International Trade Law dated March 25, 1985 entitled,
"International Commercial Arbitration: Analytical Commentary on Draft Trade identified by
reference number A/CN. 9/264."
While RA 9285 was passed only in 2004, it nonetheless applies in the instant case since it is a
procedural law which has a retroactive effect. Likewise, KOGIES filed its application for arbitration
before the KCAB on July 1, 1998 and it is still pending because no arbitral award has yet been
rendered. Thus, RA 9285 is applicable to the instant case. Well-settled is the rule that procedural
laws are construed to be applicable to actions pending and undetermined at the time of their
passage, and are deemed retroactive in that sense and to that extent. As a general rule, the
retroactive application of procedural laws does not violate any personal rights because no vested
right has yet attached nor arisen from them.42
Among the pertinent features of RA 9285 applying and incorporating the UNCITRAL Model Law are
the following:
(1) The RTC must refer to arbitration in proper cases
Under Sec. 24, the RTC does not have jurisdiction over disputes that are properly the subject of
arbitration pursuant to an arbitration clause, and mandates the referral to arbitration in such cases,
thus:
SEC. 24. Referral to Arbitration.A court before which an action is brought in a matter which
is the subject matter of an arbitration agreement shall, if at least one party so requests not
later than the pre-trial conference, or upon the request of both parties thereafter, refer the

parties to arbitration unless it finds that the arbitration agreement is null and void, inoperative
or incapable of being performed.
(2) Foreign arbitral awards must be confirmed by the RTC
Foreign arbitral awards while mutually stipulated by the parties in the arbitration clause to be final
and binding are not immediately enforceable or cannot be implemented immediately. Sec. 35 43 of the
UNCITRAL Model Law stipulates the requirement for the arbitral award to be recognized by a
competent court for enforcement, which court under Sec. 36 of the UNCITRAL Model Law may
refuse recognition or enforcement on the grounds provided for. RA 9285 incorporated these provisos
to Secs. 42, 43, and 44 relative to Secs. 47 and 48, thus:
SEC. 42. Application of the New York Convention.The New York Convention shall govern
the recognition and enforcement of arbitral awards covered by said Convention.
The recognition and enforcement of such arbitral awards shall be filed with the Regional
Trial Court in accordance with the rules of procedure to be promulgated by the Supreme
Court. Said procedural rules shall provide that the party relying on the award or applying for
its enforcement shall file with the court the original or authenticated copy of the award and
the arbitration agreement. If the award or agreement is not made in any of the official
languages, the party shall supply a duly certified translation thereof into any of such
languages.
The applicant shall establish that the country in which foreign arbitration award was made in
party to the New York Convention.
xxxx
SEC. 43. Recognition and Enforcement of Foreign Arbitral Awards Not Covered by the New
York Convention.The recognition and enforcement of foreign arbitral awards not covered
by the New York Convention shall be done in accordance with procedural rules to be
promulgated by the Supreme Court. The Court may, on grounds of comity and reciprocity,
recognize and enforce a non-convention award as a convention award.
SEC. 44. Foreign Arbitral Award Not Foreign Judgment.A foreign arbitral award when
confirmed by a court of a foreign country, shall be recognized and enforced as a foreign
arbitral award and not as a judgment of a foreign court.
A foreign arbitral award, when confirmed by the Regional Trial Court, shall be enforced in the
same manner as final and executory decisions of courts of law of the Philippines
xxxx
SEC. 47. Venue and Jurisdiction.Proceedings for recognition and enforcement of an
arbitration agreement or for vacations, setting aside, correction or modification of an arbitral
award, and any application with a court for arbitration assistance and supervision shall be
deemed as special proceedings and shall be filed with the Regional Trial Court (i) where
arbitration proceedings are conducted; (ii) where the asset to be attached or levied upon, or
the act to be enjoined is located; (iii) where any of the parties to the dispute resides or has
his place of business; or (iv) in the National Judicial Capital Region, at the option of the
applicant.

SEC. 48. Notice of Proceeding to Parties.In a special proceeding for recognition and
enforcement of an arbitral award, the Court shall send notice to the parties at their address
of record in the arbitration, or if any part cannot be served notice at such address, at such
partys last known address. The notice shall be sent al least fifteen (15) days before the date
set for the initial hearing of the application.
It is now clear that foreign arbitral awards when confirmed by the RTC are deemed not as a
judgment of a foreign court but as a foreign arbitral award, and when confirmed, are enforced as
final and executory decisions of our courts of law.
Thus, it can be gleaned that the concept of a final and binding arbitral award is similar to judgments
or awards given by some of our quasi-judicial bodies, like the National Labor Relations Commission
and Mines Adjudication Board, whose final judgments are stipulated to be final and binding, but not
immediately executory in the sense that they may still be judicially reviewed, upon the instance of
any party. Therefore, the final foreign arbitral awards are similarly situated in that they need first to
be confirmed by the RTC.
(3) The RTC has jurisdiction to review foreign arbitral awards
Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the RTC with specific authority and
jurisdiction to set aside, reject, or vacate a foreign arbitral award on grounds provided under Art.
34(2) of the UNCITRAL Model Law. Secs. 42 and 45 provide:
SEC. 42. Application of the New York Convention.The New York Convention shall govern
the recognition and enforcement of arbitral awards covered by said Convention.
The recognition and enforcement of such arbitral awards shall be filed with the Regional
Trial Court in accordance with the rules of procedure to be promulgated by the Supreme
Court. Said procedural rules shall provide that the party relying on the award or applying for
its enforcement shall file with the court the original or authenticated copy of the award and
the arbitration agreement. If the award or agreement is not made in any of the official
languages, the party shall supply a duly certified translation thereof into any of such
languages.
The applicant shall establish that the country in which foreign arbitration award was made is
party to the New York Convention.
If the application for rejection or suspension of enforcement of an award has been made, the
Regional Trial Court may, if it considers it proper, vacate its decision and may also, on the
application of the party claiming recognition or enforcement of the award, order the party to
provide appropriate security.
xxxx
SEC. 45. Rejection of a Foreign Arbitral Award.A party to a foreign arbitration proceeding
may oppose an application for recognition and enforcement of the arbitral award in
accordance with the procedures and rules to be promulgated by the Supreme Court only on
those grounds enumerated under Article V of the New York Convention. Any other ground
raised shall be disregarded by the Regional Trial Court.

Thus, while the RTC does not have jurisdiction over disputes governed by arbitration mutually
agreed upon by the parties, still the foreign arbitral award is subject to judicial review by the RTC
which can set aside, reject, or vacate it. In this sense, what this Court held in Chung Fu Industries
(Phils.), Inc. relied upon by KOGIES is applicable insofar as the foreign arbitral awards, while final
and binding, do not oust courts of jurisdiction since these arbitral awards are not absolute and
without exceptions as they are still judicially reviewable. Chapter 7 of RA 9285 has made it clear that
all arbitral awards, whether domestic or foreign, are subject to judicial review on specific grounds
provided for.
(4) Grounds for judicial review different in domestic and foreign arbitral awards
The differences between a final arbitral award from an international or foreign arbitral tribunal and an
award given by a local arbitral tribunal are the specific grounds or conditions that vest jurisdiction
over our courts to review the awards.
For foreign or international arbitral awards which must first be confirmed by the RTC, the grounds for
setting aside, rejecting or vacating the award by the RTC are provided under Art. 34(2) of the
UNCITRAL Model Law.
For final domestic arbitral awards, which also need confirmation by the RTC pursuant to Sec. 23 of
RA 87644 and shall be recognized as final and executory decisions of the RTC,45 they may only be
assailed before the RTC and vacated on the grounds provided under Sec. 25 of RA 876. 46
(5) RTC decision of assailed foreign arbitral award appealable
Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of an aggrieved party in
cases where the RTC sets aside, rejects, vacates, modifies, or corrects an arbitral award, thus:
SEC. 46. Appeal from Court Decision or Arbitral Awards.A decision of the Regional Trial
Court confirming, vacating, setting aside, modifying or correcting an arbitral award may be
appealed to the Court of Appeals in accordance with the rules and procedure to be
promulgated by the Supreme Court.
The losing party who appeals from the judgment of the court confirming an arbitral award
shall be required by the appellate court to post a counterbond executed in favor of the
prevailing party equal to the amount of the award in accordance with the rules to be
promulgated by the Supreme Court.
Thereafter, the CA decision may further be appealed or reviewed before this Court through a petition
for review under Rule 45 of the Rules of Court.
PGSMC has remedies to protect its interests
Thus, based on the foregoing features of RA 9285, PGSMC must submit to the foreign arbitration as
it bound itself through the subject contract. While it may have misgivings on the foreign arbitration
done in Korea by the KCAB, it has available remedies under RA 9285. Its interests are duly
protected by the law which requires that the arbitral award that may be rendered by KCAB must be
confirmed here by the RTC before it can be enforced.
With our disquisition above, petitioner is correct in its contention that an arbitration clause, stipulating
that the arbitral award is final and binding, does not oust our courts of jurisdiction as the international

arbitral award, the award of which is not absolute and without exceptions, is still judicially reviewable
under certain conditions provided for by the UNCITRAL Model Law on ICA as applied and
incorporated in RA 9285.
Finally, it must be noted that there is nothing in the subject Contract which provides that the parties
may dispense with the arbitration clause.
Unilateral rescission improper and illegal
Having ruled that the arbitration clause of the subject contract is valid and binding on the parties, and
not contrary to public policy; consequently, being bound to the contract of arbitration, a party may not
unilaterally rescind or terminate the contract for whatever cause without first resorting to arbitration.
What this Court held in University of the Philippines v. De Los Angeles 47 and reiterated in succeeding
cases,48that the act of treating a contract as rescinded on account of infractions by the other
contracting party is valid albeit provisional as it can be judicially assailed, is not applicable to the
instant case on account of a valid stipulation on arbitration. Where an arbitration clause in a contract
is availing, neither of the parties can unilaterally treat the contract as rescinded since whatever
infractions or breaches by a party or differences arising from the contract must be brought first and
resolved by arbitration, and not through an extrajudicial rescission or judicial action.
The issues arising from the contract between PGSMC and KOGIES on whether the equipment and
machineries delivered and installed were properly installed and operational in the plant in Carmona,
Cavite; the ownership of equipment and payment of the contract price; and whether there was
substantial compliance by KOGIES in the production of the samples, given the alleged fact that
PGSMC could not supply the raw materials required to produce the sample LPG cylinders, are
matters proper for arbitration. Indeed, we note that on July 1, 1998, KOGIES instituted an Application
for Arbitration before the KCAB in Seoul, Korea pursuant to Art. 15 of the Contract as amended.
Thus, it is incumbent upon PGSMC to abide by its commitment to arbitrate.
Corollarily, the trial court gravely abused its discretion in granting PGSMCs Motion for Inspection of
Things on September 21, 1998, as the subject matter of the motion is under the primary jurisdiction
of the mutually agreed arbitral body, the KCAB in Korea.
In addition, whatever findings and conclusions made by the RTC Branch Sheriff from the inspection
made on October 28, 1998, as ordered by the trial court on October 19, 1998, is of no worth as said
Sheriff is not technically competent to ascertain the actual status of the equipment and machineries
as installed in the plant.
For these reasons, the September 21, 1998 and October 19, 1998 RTC Orders pertaining to the
grant of the inspection of the equipment and machineries have to be recalled and nullified.
Issue on ownership of plant proper for arbitration
Petitioner assails the CA ruling that the issue petitioner raised on whether the total contract price of
USD 1,530,000 was for the whole plant and its installation is beyond the ambit of a Petition for
Certiorari.
Petitioners position is untenable.

It is settled that questions of fact cannot be raised in an original action for certiorari. 49 Whether or not
there was full payment for the machineries and equipment and installation is indeed a factual issue
prohibited by Rule 65.
However, what appears to constitute a grave abuse of discretion is the order of the RTC in resolving
the issue on the ownership of the plant when it is the arbitral body (KCAB) and not the RTC which
has jurisdiction and authority over the said issue. The RTCs determination of such factual issue
constitutes grave abuse of discretion and must be reversed and set aside.
RTC has interim jurisdiction to protect the rights of the parties
Anent the July 23, 1998 Order denying the issuance of the injunctive writ paving the way for PGSMC
to dismantle and transfer the equipment and machineries, we find it to be in order considering the
factual milieu of the instant case.
Firstly, while the issue of the proper installation of the equipment and machineries might well be
under the primary jurisdiction of the arbitral body to decide, yet the RTC under Sec. 28 of RA 9285
has jurisdiction to hear and grant interim measures to protect vested rights of the parties. Sec. 28
pertinently provides:
SEC. 28. Grant of interim Measure of Protection.(a) It is not incompatible with an
arbitration agreement for a party to request, before constitution of the tribunal, from a
Court to grant such measure. After constitution of the arbitral tribunal and during arbitral
proceedings, a request for an interim measure of protection, or modification thereof, may be
made with the arbitral or to the extent that the arbitral tribunal has no power to act or is
unable to act effectivity, the request may be made with the Court. The arbitral tribunal is
deemed constituted when the sole arbitrator or the third arbitrator, who has been nominated,
has accepted the nomination and written communication of said nomination and acceptance
has been received by the party making the request.
(b) The following rules on interim or provisional relief shall be observed:
Any party may request that provisional relief be granted against the adverse party.
Such relief may be granted:
(i) to prevent irreparable loss or injury;
(ii) to provide security for the performance of any obligation;
(iii) to produce or preserve any evidence; or
(iv) to compel any other appropriate act or omission.
(c) The order granting provisional relief may be conditioned upon the provision of security or
any act or omission specified in the order.
(d) Interim or provisional relief is requested by written application transmitted by reasonable
means to the Court or arbitral tribunal as the case may be and the party against whom the
relief is sought, describing in appropriate detail the precise relief, the party against whom the
relief is requested, the grounds for the relief, and the evidence supporting the request.

(e) The order shall be binding upon the parties.

(f) Either party may apply with the Court for assistance in implementing or enforcing an
interim measure ordered by an arbitral tribunal.
(g) A party who does not comply with the order shall be liable for all damages resulting from
noncompliance, including all expenses, and reasonable attorney's fees, paid in obtaining the
orders judicial enforcement. (Emphasis ours.)
Art. 17(2) of the UNCITRAL Model Law on ICA defines an "interim measure" of protection as:
Article 17. Power of arbitral tribunal to order interim measures
xxx xxx xxx
(2) An interim measure is any temporary measure, whether in the form of an award or in
another form, by which, at any time prior to the issuance of the award by which the dispute is
finally decided, the arbitral tribunal orders a party to:
(a) Maintain or restore the status quo pending determination of the dispute;
(b) Take action that would prevent, or refrain from taking action that is likely to cause, current
or imminent harm or prejudice to the arbitral process itself;
(c) Provide a means of preserving assets out of which a subsequent award may be satisfied;
or
(d) Preserve evidence that may be relevant and material to the resolution of the dispute.
Art. 17 J of UNCITRAL Model Law on ICA also grants courts power and jurisdiction to issue interim
measures:
Article 17 J. Court-ordered interim measures
A court shall have the same power of issuing an interim measure in relation to arbitration
proceedings, irrespective of whether their place is in the territory of this State, as it has in
relation to proceedings in courts. The court shall exercise such power in accordance with its
own procedures in consideration of the specific features of international arbitration.
In the recent 2006 case of Transfield Philippines, Inc. v. Luzon Hydro Corporation, we were explicit
that even "the pendency of an arbitral proceeding does not foreclose resort to the courts for
provisional reliefs." We explicated this way:
As a fundamental point, the pendency of arbitral proceedings does not foreclose resort to the
courts for provisional reliefs. The Rules of the ICC, which governs the parties arbitral
dispute, allows the application of a party to a judicial authority for interim or conservatory
measures. Likewise, Section 14 of Republic Act (R.A.) No. 876 (The Arbitration Law)
recognizes the rights of any party to petition the court to take measures to safeguard and/or
conserve any matter which is the subject of the dispute in arbitration. In addition, R.A. 9285,
otherwise known as the "Alternative Dispute Resolution Act of 2004," allows the filing of

provisional or interim measures with the regular courts whenever the arbitral tribunal has no
power to act or to act effectively.50
It is thus beyond cavil that the RTC has authority and jurisdiction to grant interim measures of
protection.
Secondly, considering that the equipment and machineries are in the possession of PGSMC, it has
the right to protect and preserve the equipment and machineries in the best way it can. Considering
that the LPG plant was non-operational, PGSMC has the right to dismantle and transfer the
equipment and machineries either for their protection and preservation or for the better way to make
good use of them which is ineluctably within the management discretion of PGSMC.
Thirdly, and of greater import is the reason that maintaining the equipment and machineries in
Worths property is not to the best interest of PGSMC due to the prohibitive rent while the LPG plant
as set-up is not operational. PGSMC was losing PhP322,560 as monthly rentals or PhP3.87M for
1998 alone without considering the 10% annual rent increment in maintaining the plant.
Fourthly, and corollarily, while the KCAB can rule on motions or petitions relating to the preservation
or transfer of the equipment and machineries as an interim measure, yet on hindsight, the July 23,
1998 Order of the RTC allowing the transfer of the equipment and machineries given the nonrecognition by the lower courts of the arbitral clause, has accorded an interim measure of protection
to PGSMC which would otherwise been irreparably damaged.
Fifth, KOGIES is not unjustly prejudiced as it has already been paid a substantial amount based on
the contract. Moreover, KOGIES is amply protected by the arbitral action it has instituted before the
KCAB, the award of which can be enforced in our jurisdiction through the RTC. Besides, by our
decision, PGSMC is compelled to submit to arbitration pursuant to the valid arbitration clause of its
contract with KOGIES.
PGSMC to preserve the subject equipment and machineries
Finally, while PGSMC may have been granted the right to dismantle and transfer the subject
equipment and machineries, it does not have the right to convey or dispose of the same considering
the pending arbitral proceedings to settle the differences of the parties. PGSMC therefore must
preserve and maintain the subject equipment and machineries with the diligence of a good father of
a family51 until final resolution of the arbitral proceedings and enforcement of the award, if any.
WHEREFORE, this petition is PARTLY GRANTED, in that:
(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249 is REVERSED and SET ASIDE;
(2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil Case No. 98-117
are REVERSED andSET ASIDE;
(3) The parties are hereby ORDERED to submit themselves to the arbitration of their dispute and
differences arising from the subject Contract before the KCAB; and
(4) PGSMC is hereby ALLOWED to dismantle and transfer the equipment and machineries, if it had
not done so, and ORDERED to preserve and maintain them until the finality of whatever arbitral
award is given in the arbitration proceedings.

No pronouncement as to costs.
SO ORDERED.

G.R. No. 73039 October 9, 1987

PERFECTA CAVILI, PRIMITIVO CAVILI and QUIRINO CAVILI, petitioners,
vs.
HON. TEODORO N. FLORENDO, Presiding Judge, Branch XXXVI, Regional Trial Court of
Negros Oriental, 7th Judicial Region, CLARITA CAVILI, ULPIANO CAVILI, ESTRELLA CAVILI,
PLACIDA CAVILI, ET AL.,respondents.
No. L-68680 October 9, 1987
PERFECTA CAVILI, PRIMITIVO CAVILI and QUIRINO CAVILI, petitioners,
vs.
HON. TEODORO N. FLORENDO, Presiding Judge, Branch XXXVI, Regional Trial Court, 7th
Judicial Region, CLARITA CAVILI, ULPIANO CAVILI, ESTRELLA CAVILI, PLACIDA CAVILI,
GREGORIA CAVILI, FORTUNATA CAVILI, AMILITA CAVILI, APAD CAVILI, AQUILINA CAVILI,
CRESENCIO CAVILI, ALMA CAVILI, ET AL., respondents.
No. L-57771 October 9, 1987
QUIRINO CAVILI, PRIMITIVO, CAVILI, and PERFECTA CAVILI, petitioners,
vs.
HON. CIPRIANO VAMENTA, JR., as Presiding Judge, Branch III Court of First Instance of
Negros Oriental; ULPIANO CAVILI, CLARITA CAVILI, ESTRELLA CAVILI, RAMONA TAKANG
COSME TAKANG FABIAN TAKANG, LEODEGARIO TAKANG ET AL., respondents.

GUTIERREZ, JR., J.:

This is a petition to review and set aside two orders of the then Court of First Instance of Negros
Oriental, namely: (1) the order dated October 11, 1985, disqualifying Perfects Cavili dela Cruz as a
witness in Civil Case No. 6880 entitled "Clarita Cavili, et al. v. Perfecta Cavili, Quirino Cavili, and
Primitivo Cavili" and (2) the order dated November 26, 1985, refusing to reconsider the previous
orders of disqualification and resetting the reception of evidence for the defendants to December 19
and 20, 1985 with a warning that should defendants' witnesses fail to appear in court on said date,
they will be deemed to have waived their right to be witnesses in this case.
The private respondents filed Civil Case No. 6880 with the Court of First Instance of Negros Oriental
against herein petitioners for Partition, Accounting, and Damages. After the case was raffled to
Branch I presided over by Judge Augusto S. Villarin, summons was issued to the three petitioners,
all at Bayawan Negros Oriental which was the address indicated in the complaint.

After trying to effect service, the process server went back to the court with the following return of
service to Quirino and Primitivo Cavili not contacted, according to Perfecta Cavili, subject persons is
(sic) staying in Kabangkalan, Negros Occidental."
Meanwhile, Atty. Jose P. Alamino filed a motion for extension to answer in behalf of the defendants,
manifesting the representation of his client Perfecta Cavili that she will inform her brothers Primitivo
and Quirino about the case.
The defendants, however, failed to file their answer within the request period and upon motion of the
plaintiffs, the defendants were declared in default, and on October 5, 1979, a judgment by default
was promulgated by Judge Augusto S. Villarin.
The records of the case, however, show that a Manifestation was filed by Atty. Jose P. Alamino
informing the court that since he never met Primitivo and Quirino Cavili, who are residents of another
province, he desisted from further appearing in the case in their behalf.
On November 7, 1979, Atty. Jose P. Alamillo received a copy of the decision. On December 7, 1979,
he filed a motion for new trial in behalf of the defendants on grounds of lack of jurisdiction and, with a
meritorious defense that the properties sought to be partitioned have already been the subject of a
written partition agreement between the direct heirs of the late Bernardo Cavili who are the
predecessors of the parties in this case. In/an order dated April 23, 1980, the court granted said
motion.
The plaintiffs filed a motion for reconsideration of the order granting new trial and at the same time
prayed that a writ of execution be issued but only in so far as defendant Perfecta Cavili was
concerned.
In an order dated July 21, 1981, Judge Cipriano Vamenta of Branch III of the Court of First Instance
of Negros Oriental to whom the case had been assigned after a re-raffle, set aside the order of April
23, 1980 and directed the execution of the October 5, 1979 decision without qualification ruling that
the petitioners' remedy should have been appeal rather than new trial.
Their motion for reconsideration having been denied on August 11, 1981, the defendants, now
petitioners, brought the case to this Court through a petition for certiorari, G.R. No. 57771, entitled
"Quirino Cavili, et al., Petitioners vs. Hon. Cipriano Vamenta, et al., Respondents "
On May 31, 1982, this Court rendered a decision, the dispositive portion of which reads:
WHEREFORE, Our resolution dismissing the petition is hereby reconsidered; the
petition is granted; and the order dated July 21, 1981, is set aside while that of April
23, 1980, is revived. (No special pronouncement as to costs. Rollo p. 21)
Thereafter, the pre-trial and trial of Civil Case No. 6880 was scheduled on October 9, 10, and 11,
1985 before Branch XXXVI of the Regional Trial Court, presided by respondent Judge Teodoro N.
Florendo. The defendants, (now petitioners), presented Perfects Cavili dela Cruz as their first
witness. The respondents, through counsel moved for her disqualification as a witness on the
ground that having been declared in default, Perfects Cavili has lost her standing in court and she
cannot be allowed to participate in all premise the even as a witness. The court, through the
respondent judge, sustained the respondents' contention and disqualified her from testifying.
The petitioners, through counsel, moved for a reconsideration of the ruling.

On November 26, 1985, the lower court issued an order denying reconsideration of its Order dated
October 11, 1985 disqualifying Perfecta Cavili dela Cruz as a witness in Civil Case No. 6880.
Hence, this petition.
Petitioner Perfecta Cavili's competence as a witness is put in issue by the private respondents.
Section 18, Rule 130 of the Revised Rules of Court states who are qualified to be witnesses. It
provides:
Section 18. Witnesses; their qualifications. Except as provided in the next succeeding section, all
persons who, having organs of sense, can perceive, and perceiving, can make known their
perception to others, may be witnesses. Neither parties nor other persons interested in the outcome
of a case shall be excluded; nor those who have been convicted of crime; nor any person on
account of his opinion on matters of religious belief.
The generosity with which the Rule allows people to testify is apparent. Interest in the outcome of a
case, conviction of a crime unless otherwise provided by law, and religious belief are not grounds for
disqualification.
Sections 19 and 20 of Rule 130 provide for specific disqualifications. Section 19 disqualifies those
who are mentally incapacitated and children whose tender age or immaturity renders them incapable
of being witnesses. Section 20 provides for disqualification based on conflicts of interest or on
relationship. Section 21 provides for disqualifications based on privileged communications. Section
15 of Rule 132 may not be a rule on disqualification of witnesses but it states the grounds when a
witness may be impeached by the party against whom he was called.
There is no provision of the Rules disqualifying parties declared in default from taking the witness
stand for non-disqualified parties. The law does not provide default as an exception. The specific
enumeration of disqualified witnesses excludes the operation of causes of disability other than those
mentioned in the Rules. It is a maxim of recognized utility and merit in the construction of statutes
that an express exception, exemption, or saving clause excludes other exceptions. (In Re Estate of
Enriquez, 29 Phil. 167) As a general rule, where there are express exceptions these comprise the
only limitations on the operation of a statute and no other exception will be implied. (Sutherland on
Statutory Construction, Fourth Edition, Vol. 2A, p. 90) The Rules should not be interpreted to include
an exception not embodied therein.
The respondents, however, cite Section 2, Rule 18 on Defaults, to wit:
Section 2. Effect of order of default. Except as provided in section 9 of Rule 13, a party declared
in default shall not be entitled to notice of subsequent proceedings nor to take part in the trial.
They advance the argument that to allow Perfecta Cavili to stand as witness would be to permit a
party in default "to take part in the trial."
An explanation of the Rule is in order.
Loss of standing in court is the consequence of an order of default. Thus, a party declared in default
is considered out of court and cannot appear therein, adduce evidence, and be heard and for that
reason he is not entitled to notice. (Rule 18, Rules of Court; Lim Toco v. Go Fay, 80 Phil. 166)
However, "loss of pending" must be understood to mean only the forfeiture of one's rights as a party

litigant, contestant or legal adversary. A party in default loses his right to present his defense, control
the proceedings, and examine or cross-examine witnesses. He has no right to expect that his
pleadings would be acted upon by the court nor may he object to or refute evidence or motions filed
against him. There is nothing in the rule, however, which contemplates a disqualification to be a
witness or a opponent in a case. Default does not make him an incompetent.
As opposed to a party litigant, a witness is merely a beholder, a spectator or onlooker, called upon to
testify to what he has seen, heard, or observed. As such, he takes no active part in the contest of
rights between the parties. Cast in the cited role of witness, a party in default cannot be considered
as " a part in the trial." He remains suffering the effects of an order of default.
A party in default may thus be cited as a witness by his co-defendants who have the standing and
the right to present evidence which the former may provide. The incidental benefit giving the party in
default the opportunity to present evidence which may eventually redound to his advantage or bring
about a desired result, through his co-defendants, is of minor consequence.
Of greater concern or importance in allowing the presence of Perfecta Cavili as a witness in the case
at bar, is the preservation of the right of petitioners Quirino and Primitivo Cavili to secure the
attendance of witnesses and the production of evidence in their behalf. To reject Perfects Cavili's
presentation of testimonial evidence would be to treat Primitivo and Quirino, as if they too were in
default. There is no reason why the latter should also be made to bear the consequences of
Perfecta's omission. Moreover, we cannot deprive Quirino and Primitivo of the only instrument of
proof available to them, as Perfecta alone has been in possession and administration of the claim.
WHEREFORE, in view of the foregoing, the petition is hereby GRANTED. The order of the
respondent court disqualifying. Perfects Cavili dela Cruz as a witness in Civil Case No. 6880 is
hereby SET ASIDE. The case is remanded to the court a quo for Wither proceedings. The temporary
restraining order issued on January 6, 1986 is LIFTED.
SO ORDERED.

G.R. No. 151098

March 21, 2006

ERLINDA GAJUDO, FERNANDO GAJUDO, JR., ESTELITA GAJUDO, BALTAZAR GAJUDO and
DANILO ARAHAN CHUA, Petitioners,
vs.
TRADERS ROYAL BANK,1Respondent.
DECISION
PANGANIBAN, CJ:
The mere fact that a defendant is declared in default does not automatically result in the grant of the
prayers of the plaintiff. To win, the latter must still present the same quantum of evidence that would
be required if the defendant were still present. A party that defaults is not deprived of its rights,
except the right to be heard and to present evidence to the trial court. If the evidence presented does

not support a judgment for the plaintiff, the complaint should be dismissed, even if the defendant
may not have been heard or allowed to present any countervailing evidence.
The Case
Before us is a Petition for Review2 under Rule 45 of the Rules of Court, assailing the June 29, 2001
Decision3 and December 6, 2001 Resolution4 of the Court of Appeals (CA) in CA-GR CV No. 43889.
The CA disposed as follows:
"UPON THE VIEW WE TAKE OF THIS CASE, THUS, the partial judgment appealed from, must be,
as it hereby is, VACATED and SET ASIDE, and another one entered DISMISSING the complaint at
bench. Without costs."5
The assailed Resolution denied petitioners Motion for Reconsideration 6 for lack of merit.
The Facts
The CA narrated the facts as follows:
"[Petitioners] filed a complaint before the Regional Trial Court of Quezon City, Branch 90, against
[respondent] Traders Royal Bank, the City Sheriff of Quezon City and the Register of Deeds of
Quezon City. Docketed thereat as Civil Case No. Q-41203, the complaint sought the annulment of
the extra-judicial foreclosure and auction sale made by [the] city sheriff of Quezon City of a parcel of
land covered by TCT No. 16711 of the Register of Deeds of Quezon City, the conventional
redemption thereof, and prayed for damages and the issuance of a writ of preliminary injunction.
"The complaint alleged that in mid 1977[, Petitioner] Danilo Chua obtained a loan from [respondent]
bank in the amount of P75,000.00 secured by a real estate mortgage over a parcel of land covered
by TCT No. 16711, and owned in common by the [petitioners]; that when the loan was not paid,
[respondent] bank commenced extra-judicial foreclosure proceedings on the property; that the
auction sale of the property was set on 10 June 1981, but was reset to 31 August 1981, on
[Petitioner Chuas] request, which, however, was made without the knowledge and conformity of the
other [petitioners]; that on the re-scheduled auction sale, [the] Sheriff of Quezon City sold the
property to the [respondent] bank, the highest bidder therein, for the sum of P24,911.30; that the
auction sale was tainted with irregularity because, amongst others, the bid price was shockingly or
unconscionably, low; that the other [petitioners] failed to redeem the property due to their lack of
knowledge of their right of redemption, and want of sufficient education; that, although the period of
redemption had long expired, [Petitioner] Chua offered to buy back, and [respondent] bank also
agreed to sell back, the foreclosed property, on the understanding that Chua would pay [respondent]
bank the amount of P40,135.53, representing the sum that the bank paid at the auction sale, plus
interest; that [Petitioner] Chua made an initial payment thereon in the amount of P4,000.00, covered
by Interbank Check No. 09173938, dated 16 February 1984, duly receipted by [respondent] bank;
that, in a sudden change of position, [respondent] bank wrote Chua, on 20 February 1984, asking
that he could repurchase the property, but based on the current market value thereof; and that
sometime later, or on 22 March 1984, [respondent] bank wrote Chua anew, requiring him to tender a
new offer to counter the offer made thereon by another buyer.
"Traversing [petitioners] complaint, [respondent] bank, upon 05 July 1984, filed its answer with
counterclaim, thereunder asserting that the foreclosure sale of the mortgaged property was done in
accordance with law; and that the bid price was neither unconscionable, nor shockingly low; that
[petitioners] slept on their rights when they failed to redeem the property within the one year
statutory period; and that [respondent] bank, in offering to sell the property to [Petitioner] Chua on

the basis of its current market price, was acting conformably with law, and with legitimate banking
practice and regulations.
"Pre-trial having been concluded, the parties entered upon trial, which dragged/lengthened to
several months due to postponements. Upon 11 June 1988, however, a big conflagration hit the City
Hall of Quezon City, which destroyed, amongst other things, the records of the case. After the
records were reconstituted, [petitioners] discovered that the foreclosed property was sold by
[respondent] bank to the Ceroferr Realty Corporation, and that the notice of lis pendens annotated
on the certificate of title of the foreclosed property, had already been cancelled. Accordingly,
[petitioners], with leave of court, amended their complaint, but the Trial Court dismissed the case
without prejudice due to [petitioners] failure to pay additional filing fees.
"So, upon 11 June 1990, [petitioners] re-filed the complaint with the same Court, whereat it was
docketed as Civil Case No. 90-5749, and assigned to Branch 98: the amended complaint
substantially reproduced the allegations of the original complaint. But [petitioners] this time
impleaded as additional defendants the Ceroferr Realty Corporation and/or Cesar Roque, and Lorna
Roque, and included an additional cause of action, to wit: that said new defendants conspired with
[respondent] bank in [canceling] the notice of lis pendens by falsifying a letter sent to and filed with
the office of the Register of Deeds of Quezon City, purportedly for the cancellation of said notice.
"Summons was served on [respondent] bank on 26 September 1990, per Sheriffs Return dated 08
October 1990. Supposing that all the defendants had filed their answer, [petitioners] filed, on 23
October 1991, a motion to set case for pre-trial, which motion was, however, denied by the Trial
Court in its Order of 25 October 1991, on the ground that [respondent] bank has not yet filed its
answer. On 13 November 1991[, petitioners] filed a motion for reconsideration, thereunder alleging
that they received by registered mail, on 19 October 1990, a copy of [respondent] banks answer
with counterclaim, dated 04 October 1990, which copy was attached to the motion. In its Order of 14
November 1991, the trial Court denied for lack of merit, the motion for reconsideration, therein
holding that the answer with counterclaim filed by [respondent] bank referred to another civil case
pending before Branch 90 of the same Court.
"For this reason, [petitioners] filed on 02 December 1991 a motion to declare [respondent] bank in
default, thereunder alleging that no answer has been filed despite the service of summons on it on
26 September 1990.
"On 13 December 1991, the Trial Court declared the motion submitted for resolution upon
submission by [petitioners] of proof of service of the motion on [respondent] bank.
"Thus, on 16 January 1992, upon proof that [petitioners] had indeed served [respondent] bank with a
copy of said motion, the Trial Court issued an Order of default against [respondent] bank.
"Upon 01 December 1992, on [petitioners] motion, they were by the Court allowed to present
evidence ex parte on 07 January 1993, insofar as [respondent] bank was concerned.
"Thereafter, or on 08 February 1993, the Trial Court rendered the new questioned partial decision. 7
"Aggrieved, [respondent] bank filed a motion to set aside [the] partial decision by default against
Traders Royal Bank and admit [respondent] Traders Royal Banks x x x Answer with counterclaim:
thereunder it averred, amongst others, that the erroneous filing of said answer was due to an honest
mistake of the typist and inadvertence of its counsel.

"The [trial court] thumbed down the motion in its Order of 26 July 1993." 8
Respondent bank appealed the Partial Decision9 to the CA. During the pendency of that appeal,
Ceroferr Realty Corporation and/or Cesar and/or Lorna Roque filed a Manifestation with
Motion10 asking the CA to discharge them as parties, because the case against them had already
been dismissed on the basis of their Compromise Agreement 11 with petitioners. On May 14, 1996,
the CA issued a Resolution12 granting Ceroferr et al.s Manifestation with Motion to discharge
movants as parties to the appeal. The Court, though, deferred resolution of the matters raised in the
Comment13 of respondent bank. The latter contended that the Partial Decision had been novated by
the Compromise Agreement, whose effect of res judicata had rendered that Decision functus officio.
Ruling of the Court of Appeals
The CA ruled in favor of respondent bank. Deemed, however, to have rested on shaky ground was
the latters "Motion to Set Aside Partial Decision by Default Against Traders Royal Bank and Admit
Defendant Traders Royal Banks Answer."14 The reasons offered by the bank for failing to file an
answer were considered by the appellate court to be "at once specious, shallow and sophistical and
can hardly be dignified as a mistake or excusable negligence, which ordinary prudence could not
have guarded against."15
In particular, the CA ruled that the erroneous docket number placed on the Answer filed before the
trial court was not an excusable negligence by the banks counsel. The latter had a bounden duty to
be scrupulously careful in reviewing pleadings. Also, there were several opportunities to discover
and rectify the mistake, but these were not taken. Moreover, the banks Motion to Set Aside the
Partial Decision and to Admit [the] Answer was not accompanied by an affidavit of merit. These
mistakes and the inexcusable negligence committed by respondents lawyer were binding on the
bank.
On the issue of whether petitioners had convincingly established their right to relief, the appellate
court held that there was no ground to invalidate the foreclosure sale of the mortgaged property.
First, under Section 3 of Act No. 3135, an extrajudicial foreclosure sale did not require personal
notice to the mortgagor. Second, there was no allegation or proof of noncompliance with the
publication requirement and the public posting of the notice of sale, provided under Act No. 3135, as
amended. Third, there was no showing of inadequacy of price as no competent evidence was
presented to show the real market value of the land sold or the readiness of another buyer to offer a
price higher than that at which the property had been sold.
Moreover, petitioners failed to prove that the bank had agreed to sell the property back to them. After
pointing out that the redemption period had long expired, respondents written communications to
Petitioner Chua only showed, at most, that the former had made a proposal for the latter to buy back
the property at the current market price; and that Petitioner Chua was requested to make an offer to
repurchase the property, because another buyer had already made an offer to buy it. On the other
hand, respondent noted that the Interbank check for P4,000 was for "deposit only." Thus, there was
no showing that the check had been issued to cover part of the repurchase price.
The appellate court also held that the Compromise Agreement had not resulted in the novation of the
Partial Decision, because the two were not incompatible. In fact, the bank was not even a party to
the Agreement. Petitioners recognition of Ceroferrs title to the mortgaged property was intended to
preclude future litigation against it.
Hence this Petition.16

Issues
In their Memorandum, petitioners raise the following issues:
"1. Whether or not the Respondent Court of Appeals erred in failing to apply the provisions of
Section 3, Rule 9 of the 1997 Rules of Civil Procedure [and in applying instead] the rule on
preponderance of evidence under Section 1, Rule 133 of the Rules of Court.
"2. Whether or not the respondent appellate court failed to apply the conventional redemption rule
provided for under Article 1601 of the New Civil Code.
"3. Whether or not this Honorable Court can exercise its judicial prerogative to evaluate the findings
of facts."17
The first issue is one of law and may be taken up by the Court without hindrance, pursuant to
Section 1 of Rule 45 of the Rules of Court.18 The second and the third issues, however, would entail
an evaluation of the factual findings of the appellate court, a function ordinarily not assumed by this
Court, unless in some excepted cases. The Court will thus rule on the first issue before addressing
the second and the third issues jointly.
The Courts Ruling
The Petition has no merit.
First Issue:
Quantum of Proof
Petitioners challenge the CA Decision for applying Section 3 of Rule 9 of the Rules of Court, rather
than Section 1 of Rule 133 of the same Rules. In essence, petitioners argue that the quantum of
evidence for judgments flowing from a default order under Section 3 of Rule 9 is not the same as
that provided for in Section 1 of Rule 133.
For ease of discussion, these two rules will be reproduced below, starting with Section 3 of Rule 9 of
the Rules of Court:
"Sec. 3. Default; declaration of. If the defending party fails to answer within the time allowed
therefor, the court shall, upon motion of the claiming party with notice to the defending party, and
proof of such failure, declare the defending party in default. Thereupon, the court shall proceed to
render judgment granting the claimant such relief as his pleading may warrant, unless the court in its
discretion requires the claimant to submit evidence. Such reception of evidence may be delegated to
the clerk of court.
"(a) Effect of order of default. A party in default shall be entitled to notice of subsequent
proceedings but not to take part in the trial.
"(b) Relief from order of default. A party declared in default may at any time after notice
thereof and before judgment file a motion under oath to set aside the order of default upon
proper showing that his failure to answer was due to fraud, accident, mistake or excusable
negligence and that he has a meritorious defense. In such case, the order of default may be
set aside on such terms and conditions as the judge may impose in the interest of justice.

"(c) Effect of partial default. When a pleading asserting a claim states a common cause of
action against several defending parties, some of whom answer and the others fail to do so,
the court shall try the case against all upon the answers thus filed and render judgment upon
the evidence presented.
"(d) Extent of relief to be awarded. A judgment rendered against a party in default shall not
exceed the amount or be different in kind from that prayed for nor award unliquidated
damages.
"(e) Where no defaults allowed. If the defending party in an action for annulment or
declaration of nullity of marriage or for legal separation fails to answer, the court shall order
the prosecuting attorney to investigate whether or nor a collusion between the parties exists,
and if there is no collusion, to intervene for the State in order to see to it that the evidence
submitted is not fabricated."
We now quote Section 1 of Rule 133:
"SECTION 1. Preponderance of evidence, how determined. In civil cases, the party having the
burden of proof must establish his case by a preponderance of evidence. In determining where the
preponderance or superior weight of evidence on the issues involved lies, the court may consider all
the facts and circumstances of the case, the witnesses manner of testifying, their intelligence, their
means and opportunity of knowing the facts to which they are testifying, the nature of the facts to
which they testify, the probability or improbability of their testimony, their interest or want of interest,
and also their personal credibility so far as the same may legitimately appear upon the trial. The
court may also consider the number of witnesses, though the preponderance is not necessarily with
the greater number."
Between the two rules, there is no incompatibility that would preclude the application of either one of
them. To begin with, Section 3 of Rule 9 governs the procedure which the trial court is directed to
take when a defendant fails to file an answer. According to this provision, the court "shall proceed to
render judgment granting the claimant such relief as his pleading may warrant," subject to the courts
discretion on whether to require the presentation of evidence ex parte. The same provision also sets
down guidelines on the nature and extent of the relief that may be granted. In particular, the courts
judgment "shall not exceed the amount or be different in kind from that prayed for nor award
unliquidated damages."
As in other civil cases, basic is the rule that the party making allegations has the burden of proving
them by a preponderance of evidence.19 Moreover, parties must rely on the strength of their own
evidence, not upon the weakness of the defense offered by their opponent. 20 This principle holds
true, especially when the latter has had no opportunity to present evidence because of a default
order. Needless to say, the extent of the relief that may be granted can only be as much as has been
alleged and proved21 with preponderant evidence required under Section 1 of Rule 133.
Regarding judgments by default, it was explained in Pascua v. Florendo 22 that complainants are not
automatically entitled to the relief prayed for, once the defendants are declared in default. Favorable
relief can be granted only after the court has ascertained that the relief is warranted by the evidence
offered and the facts proven by the presenting party. In Pascua, this Court ruled that "x x x it would
be meaningless to require presentation of evidence if every time the other party is declared in
default, a decision would automatically be rendered in favor of the non-defaulting party and exactly
according to the tenor of his prayer. This is not contemplated by the Rules nor is it sanctioned by the
due process clause."23

The import of a judgment by default was further clarified in Lim Tanhu v. Ramolete. 24 The following
disquisition is most instructive:
"Unequivocal, in the literal sense, as these provisions [referring to the subject of default then under
Rule 18 of the old Rules of Civil Procedure] are, they do not readily convey the full import of what
they contemplate. To begin with, contrary to the immediate notion that can be drawn from their
language, these provisions are not to be understood as meaning that default or the failure of the
defendant to answer should be interpreted as an admission by the said defendant that the plaintiffs
cause of action find support in the law or that plaintiff is entitled to the relief prayed for. x x x.
xxxxxxxxx
"Being declared in default does not constitute a waiver of rights except that of being heard and of
presenting evidence in the trial court. x x x.
"In other words, a defaulted defendant is not actually thrown out of court. While in a sense it may be
said that by defaulting he leaves himself at the mercy of the court, the rules see to it that any
judgment against him must be in accordance with law. The evidence to support the plaintiffs cause
is, of course, presented in his absence, but the court is not supposed to admit that which is basically
incompetent. Although the defendant would not be in a position to object, elementary justice requires
that only legal evidence should be considered against him. If the evidence presented should not be
sufficient to justify a judgment for the plaintiff, the complaint must be dismissed. And if an
unfavorable judgment should be justifiable, it cannot exceed in amount or be different in kind from
what is prayed for in the complaint." 25
In sum, while petitioners were allowed to present evidence ex parte under Section 3 of Rule 9, they
were not excused from establishing their claims for damages by the required quantum of proof under
Section 1 of Rule 133. Stated differently, any advantage they may have gained from the ex parte
presentation of evidence does not lower the degree of proof required. Clearly then, there is no
incompatibility between the two rules.
Second and Third Issues:
Review of the Evidence
Petitioners urge this Court to depart from the general rule that the lower courts findings of fact are
not reviewable in a petition for review.26 In support of their plea, they cite the conflicting findings of
the trial and the appellate courts, as well as the alleged conjectures and surmises made by the CA in
arriving at its Decision.
Indeed, the differences between the findings of the two courts a quo, leading to entirely disparate
dispositions, is reason enough for this Court to review the evidence in this case. 27 Whether the CA
indulged in surmises and conjectures when it issued the assailed Decision will thus be determined.
At the outset, it behooves this Court to clarify the CAs impression that no evidence was presented in
the case which might have contributed to petitioners challenge to its Decision. The appellate courts
observation was based on the notation by the lower courts clerk of court that there were no separate
folders for exhibits and transcripts, because "there was no actual hearing conducted in this case." 28
True, there was no hearing conducted between petitioners and respondent, precisely because the
latter had been declared in default, and petitioners had therefore been ordered to present their
evidence ex parte. But the absence of a hearing did not mean that no evidence was presented. The

Partial Decision dated February 8, 1993, in fact clearly enumerated the pieces of evidence adduced
by petitioners during the ex parte presentation on January 7, 1993. The documentary evidence they
presented consisted of the following:
1. A copy of respondent banks Petition for the extrajudicial foreclosure and auction sale of
the mortgaged parcel of land29
2. The Certificate of Sale that was a consequence of the foreclosure sale30
3. A Statement of Account dated February 15, 1984, showing Petitioner Chuas outstanding
debt in the amount of P40,135.5331
4. A copy of the Interbank check dated February 16, 1984, in the amount of P4,00032
5. The Official Receipt issued by the bank acknowledging the check 33
6. The banks letter dated February 20, 1984, advising Petitioner Chua of the sale of the
property at an extrajudicial public auction; the lapse of the period of redemption; and an
invitation to purchase the property at its current market price 34
7. Another letter from the bank dated March 22, 1984, inviting Petitioner Chua to submit,
within five days, an offer to buy the same property, which another buyer had offered to buy 35
8. A copy of the Notice of Lis Pendens, the filing of which was done after that of the Amended
Complaint36
9. A copy of the title showing the inscription of the Notice of Lis Pendens37
10. A copy of the Absolute Deed of Sale to Cerrofer38
11. A copy of a letter dated August 29, 1986, made and signed by petitioners counsel,
requesting the cancellation of the Notice of Lis Pendens39
12. A copy of a page of the Memorandum of Encumbrance from TCT No. (314341) 7778/T3940
Having clarified this matter, we proceed to review the facts.
Petitioners do not deny that the one-year period for legal redemption had already lapsed when
respondent bank supposedly offered to sell the property in question. The records clearly show that
the Certificate of Sale following the extrajudicial public auction of the property was registered on
June 21, 1982, the date from which the legal redemption period was to be reckoned. 41 Petitioners
insist, though, that they had the right to repurchase the property through conventional redemption,
as provided under Article 1601 of the Civil Code, worded as follows:
"ART. 1601. Conventional redemption shall take place when the vendor reserves the right to
repurchase the thing sold, with the obligation to comply with the provisions of Article 1616 and other
stipulations which may have been agreed upon."
It is true that the one-year period of redemption provided in Act No. 3135, as amended -- the law
under which the property here was sold in a foreclosure sale -- is only directory and, as such can be

extended by agreement of the parties.42 However, it has also been held that for legal redemption to
be converted into conventional redemption, two requisites must be established: 1) voluntary
agreement of the parties to extend the redemption period; and 2) the debtors commitment to pay the
redemption price on a fixed date. 43 Thus, assuming that an offer was made to Petitioner Chua to buy
back the property after the lapse of the period of legal redemption, petitioners needed to show that
the parties had agreed to extend the period, and that Petitioner Chua had committed to pay the
redemption price on a fixed date.
The letters sent by the bank to Petitioner Chua on February 20 and March 22, 1984, do not
convincingly show that the parties arrived at a firm agreement for the repurchase of the property.
What can be gleaned from the February 20 letter is that Petitioner Chua proposed to pay the
redemption price for the property, but that the bank refused to accede to his request, because the
one-year redemption period had already lapsed. 44 The bank, though, had offered to sell back the
property to him at the current market value. Indeed, an examination of his earlier letter of February
17, 1984, readily reveals that he expressed willingness to settle his account with the bank, but that
his "present financial situation precludes [him] from effecting an immediate settlement x x x." 45
On the other hand, the letter dated March 22, 1984, clearly states that "x x x the Bank rejected [his]
request to redeem said property due to [the] lapse of [the] one (1) year legal redemption
period."46 Nonetheless, he was "[invited] to submit an offer to buy the same property in five (5) days
from receipt [of the letter]."47 Petitioner Chua was also informed that the bank had received an offer
to purchase the foreclosed property. As to the P4,000 check enclosed in his proposal dated February
17, 1984, as a token of his good faith, he was advised that the amount was still outstanding in the
books of the bank and could be claimed by him if he thought the invitation was not feasible.
More important, there was no showing that petitioners had committed to pay the redemption price on
a fixed date. True, Petitioner Chua had attempted to establish a previous agreement to repurchase
the property for less than its fair market value. He had submitted in evidence a Statement of
Account48 dated February 15, 1984, showing a balance of P40,135.53; the Interbank check dated
February 16, 1984 , for P4,000, which was deposited to the account of respondent bank; 49 and the
Official Receipt for the check.50
Granting that these documents evinced an agreement, petitioners were still unable to establish a
firm commitment on their part to pay the redemption price on a fixed date. On the contrary, the
February 17 letter of Petitioner Chua to the bank clearly manifested that he was not capable of
paying the account immediately. For this reason, he proposed to pay in "three or four installments"
without a specification of dates for the payments, but with a plea for a reduction of the interest
charges. That proposal was rejected.
Indeed, other than the Interbank check marked "for deposit" by respondent bank, no other evidence
was presented to establish that petitioners had offered to pay the alleged redemption price
of P40,135.53 on a fixed date. For that matter, petitioners have not shown that they tendered
payment of the balance and/or consigned the payment to the court, in order to fulfill their part of the
purported agreement. These remedies are available to an aggrieved debtor under Article 1256 of the
Civil Code,51 when the creditor unjustly refuses to accept the payment of an obligation.
The next question that presents itself for resolution is the propriety of the CAs ruling vacating the
Partial Decision of the regional trial court (RTC) and dismissing the case. To recall, the RTC had
resolved to withhold a ruling on petitioners right to redeem conventionally and/or order the
reconveyance of the property in question, pending a determination of the validity of the sale to
Cerrofer Realty Corporation and Spouses Cesar and Lorna Roque. The trial court, however, granted
the prayer for damages against respondent bank. The RTC ruled as follows:

"The evidence presented by [petitioners] in so far as the cause of action against [respondent]
Traders Royal Bank is concerned are preponderant to support the claims of the [petitioners].
However, in view of the fact that the property subject matter of this case has already been conveyed
to defendant Cerrofer Realty Corporation thus the issue as to whether or not the said conveyance or
sale is valid is sill pending between the [petitioners] and [respondents] Cerrofer Realty Corporation
and Cesar Roque and Lorna Roque. Hence, this Court resolves to grant the prayer for damages
against Traders Royal Bank.
"The claims of the [petitioners] as against [respondent] Traders Royal Bank having been established
and proved by evidence, judgment is hereby rendered ordering [respondent] Traders Royal Bank to
pay [petitioners] actual damage or the market value of the land in question in the sum
of P500,000.00; the sum of P70,000.00 as compensatory damages; the sum of P200,000.00 to the
heirs of [petitioner] Danilo Chua; and attorneys fees in the sum of P30,000.00."52
In the light of the pending issue as to the validity of the sale of the property to the third parties
(Cerrofer Realty Corporation and Spouses Roque), the trial court properly withheld judgment on the
matter and thus left the prayer for damages as the sole issue for resolution.
To adjudge damages, paragraph (d) of Section 3 of Rule 9 of the Rules of Court provides that a
judgment against a party in default "shall not exceed the amount or be different in kind from that
prayed for nor award unliquidated damages." The proscription against the award of unliquidated
damages is significant, because it means that the damages to be awarded must be proved
convincingly, in accordance with the quantum of evidence required in civil cases.
Unfortunately for petitioners, the grant of damages was not sufficiently supported by the evidence for
the following reasons.
First, petitioners were not deprived of their property without cause. As correctly pointed out by the
CA, Act No. 3135, as amended, does not require personal notice to the mortgagor.53 In the present
case, there has been no allegation -- much less, proof -- of noncompliance with the requirement of
publication and public posting of the notice of sale, as required by ct No. 3135. Neither has there
been competent evidence to show that the price paid at the foreclosure sale was inadequate. 54 To be
sure, there was no ground to invalidate the sale.
Second, as previously stated, petitioners have not convincingly established their right to damages on
the basis of the purported agreement to repurchase. Without reiterating our prior discussion on this
point, we stress that entitlement to actual and compensatory damages must be proved even under
Section 3 of Rule 9 of the Rules of Court. The same is true with regard to awards for moral damages
and attorneys fees, which were also granted by the trial court.
In sum, petitioners have failed to convince this Court of the cogency of their position, notwithstanding
the advantage they enjoyed in presenting their evidence ex parte. Not in every case of default by the
defendant is the complainant entitled to win automatically.
WHEREFORE, this Petition is hereby DENIED and the assailed Decision and Resolution
AFFIRMED. Costs against petitioners.
SO ORDERED.

G.R. No. 151098

March 21, 2006

ERLINDA GAJUDO, FERNANDO GAJUDO, JR., ESTELITA GAJUDO, BALTAZAR GAJUDO and
DANILO ARAHAN CHUA, Petitioners,
vs.
TRADERS ROYAL BANK,1Respondent.
DECISION
PANGANIBAN, CJ:
The mere fact that a defendant is declared in default does not automatically result in the grant of the
prayers of the plaintiff. To win, the latter must still present the same quantum of evidence that would
be required if the defendant were still present. A party that defaults is not deprived of its rights,
except the right to be heard and to present evidence to the trial court. If the evidence presented does
not support a judgment for the plaintiff, the complaint should be dismissed, even if the defendant
may not have been heard or allowed to present any countervailing evidence.
The Case
Before us is a Petition for Review2 under Rule 45 of the Rules of Court, assailing the June 29, 2001
Decision3 and December 6, 2001 Resolution4 of the Court of Appeals (CA) in CA-GR CV No. 43889.
The CA disposed as follows:
"UPON THE VIEW WE TAKE OF THIS CASE, THUS, the partial judgment appealed from, must be,
as it hereby is, VACATED and SET ASIDE, and another one entered DISMISSING the complaint at
bench. Without costs."5
The assailed Resolution denied petitioners Motion for Reconsideration 6 for lack of merit.
The Facts
The CA narrated the facts as follows:
"[Petitioners] filed a complaint before the Regional Trial Court of Quezon City, Branch 90, against
[respondent] Traders Royal Bank, the City Sheriff of Quezon City and the Register of Deeds of
Quezon City. Docketed thereat as Civil Case No. Q-41203, the complaint sought the annulment of
the extra-judicial foreclosure and auction sale made by [the] city sheriff of Quezon City of a parcel of
land covered by TCT No. 16711 of the Register of Deeds of Quezon City, the conventional
redemption thereof, and prayed for damages and the issuance of a writ of preliminary injunction.
"The complaint alleged that in mid 1977[, Petitioner] Danilo Chua obtained a loan from [respondent]
bank in the amount of P75,000.00 secured by a real estate mortgage over a parcel of land covered
by TCT No. 16711, and owned in common by the [petitioners]; that when the loan was not paid,
[respondent] bank commenced extra-judicial foreclosure proceedings on the property; that the
auction sale of the property was set on 10 June 1981, but was reset to 31 August 1981, on
[Petitioner Chuas] request, which, however, was made without the knowledge and conformity of the
other [petitioners]; that on the re-scheduled auction sale, [the] Sheriff of Quezon City sold the
property to the [respondent] bank, the highest bidder therein, for the sum of P24,911.30; that the

auction sale was tainted with irregularity because, amongst others, the bid price was shockingly or
unconscionably, low; that the other [petitioners] failed to redeem the property due to their lack of
knowledge of their right of redemption, and want of sufficient education; that, although the period of
redemption had long expired, [Petitioner] Chua offered to buy back, and [respondent] bank also
agreed to sell back, the foreclosed property, on the understanding that Chua would pay [respondent]
bank the amount of P40,135.53, representing the sum that the bank paid at the auction sale, plus
interest; that [Petitioner] Chua made an initial payment thereon in the amount of P4,000.00, covered
by Interbank Check No. 09173938, dated 16 February 1984, duly receipted by [respondent] bank;
that, in a sudden change of position, [respondent] bank wrote Chua, on 20 February 1984, asking
that he could repurchase the property, but based on the current market value thereof; and that
sometime later, or on 22 March 1984, [respondent] bank wrote Chua anew, requiring him to tender a
new offer to counter the offer made thereon by another buyer.
"Traversing [petitioners] complaint, [respondent] bank, upon 05 July 1984, filed its answer with
counterclaim, thereunder asserting that the foreclosure sale of the mortgaged property was done in
accordance with law; and that the bid price was neither unconscionable, nor shockingly low; that
[petitioners] slept on their rights when they failed to redeem the property within the one year
statutory period; and that [respondent] bank, in offering to sell the property to [Petitioner] Chua on
the basis of its current market price, was acting conformably with law, and with legitimate banking
practice and regulations.
"Pre-trial having been concluded, the parties entered upon trial, which dragged/lengthened to
several months due to postponements. Upon 11 June 1988, however, a big conflagration hit the City
Hall of Quezon City, which destroyed, amongst other things, the records of the case. After the
records were reconstituted, [petitioners] discovered that the foreclosed property was sold by
[respondent] bank to the Ceroferr Realty Corporation, and that the notice of lis pendens annotated
on the certificate of title of the foreclosed property, had already been cancelled. Accordingly,
[petitioners], with leave of court, amended their complaint, but the Trial Court dismissed the case
without prejudice due to [petitioners] failure to pay additional filing fees.
"So, upon 11 June 1990, [petitioners] re-filed the complaint with the same Court, whereat it was
docketed as Civil Case No. 90-5749, and assigned to Branch 98: the amended complaint
substantially reproduced the allegations of the original complaint. But [petitioners] this time
impleaded as additional defendants the Ceroferr Realty Corporation and/or Cesar Roque, and Lorna
Roque, and included an additional cause of action, to wit: that said new defendants conspired with
[respondent] bank in [canceling] the notice of lis pendens by falsifying a letter sent to and filed with
the office of the Register of Deeds of Quezon City, purportedly for the cancellation of said notice.
"Summons was served on [respondent] bank on 26 September 1990, per Sheriffs Return dated 08
October 1990. Supposing that all the defendants had filed their answer, [petitioners] filed, on 23
October 1991, a motion to set case for pre-trial, which motion was, however, denied by the Trial
Court in its Order of 25 October 1991, on the ground that [respondent] bank has not yet filed its
answer. On 13 November 1991[, petitioners] filed a motion for reconsideration, thereunder alleging
that they received by registered mail, on 19 October 1990, a copy of [respondent] banks answer
with counterclaim, dated 04 October 1990, which copy was attached to the motion. In its Order of 14
November 1991, the trial Court denied for lack of merit, the motion for reconsideration, therein
holding that the answer with counterclaim filed by [respondent] bank referred to another civil case
pending before Branch 90 of the same Court.
"For this reason, [petitioners] filed on 02 December 1991 a motion to declare [respondent] bank in
default, thereunder alleging that no answer has been filed despite the service of summons on it on
26 September 1990.

"On 13 December 1991, the Trial Court declared the motion submitted for resolution upon
submission by [petitioners] of proof of service of the motion on [respondent] bank.
"Thus, on 16 January 1992, upon proof that [petitioners] had indeed served [respondent] bank with a
copy of said motion, the Trial Court issued an Order of default against [respondent] bank.
"Upon 01 December 1992, on [petitioners] motion, they were by the Court allowed to present
evidence ex parte on 07 January 1993, insofar as [respondent] bank was concerned.
"Thereafter, or on 08 February 1993, the Trial Court rendered the new questioned partial decision. 7
"Aggrieved, [respondent] bank filed a motion to set aside [the] partial decision by default against
Traders Royal Bank and admit [respondent] Traders Royal Banks x x x Answer with counterclaim:
thereunder it averred, amongst others, that the erroneous filing of said answer was due to an honest
mistake of the typist and inadvertence of its counsel.
"The [trial court] thumbed down the motion in its Order of 26 July 1993." 8
Respondent bank appealed the Partial Decision9 to the CA. During the pendency of that appeal,
Ceroferr Realty Corporation and/or Cesar and/or Lorna Roque filed a Manifestation with
Motion10 asking the CA to discharge them as parties, because the case against them had already
been dismissed on the basis of their Compromise Agreement 11 with petitioners. On May 14, 1996,
the CA issued a Resolution12 granting Ceroferr et al.s Manifestation with Motion to discharge
movants as parties to the appeal. The Court, though, deferred resolution of the matters raised in the
Comment13 of respondent bank. The latter contended that the Partial Decision had been novated by
the Compromise Agreement, whose effect of res judicata had rendered that Decision functus officio.
Ruling of the Court of Appeals
The CA ruled in favor of respondent bank. Deemed, however, to have rested on shaky ground was
the latters "Motion to Set Aside Partial Decision by Default Against Traders Royal Bank and Admit
Defendant Traders Royal Banks Answer."14 The reasons offered by the bank for failing to file an
answer were considered by the appellate court to be "at once specious, shallow and sophistical and
can hardly be dignified as a mistake or excusable negligence, which ordinary prudence could not
have guarded against."15
In particular, the CA ruled that the erroneous docket number placed on the Answer filed before the
trial court was not an excusable negligence by the banks counsel. The latter had a bounden duty to
be scrupulously careful in reviewing pleadings. Also, there were several opportunities to discover
and rectify the mistake, but these were not taken. Moreover, the banks Motion to Set Aside the
Partial Decision and to Admit [the] Answer was not accompanied by an affidavit of merit. These
mistakes and the inexcusable negligence committed by respondents lawyer were binding on the
bank.
On the issue of whether petitioners had convincingly established their right to relief, the appellate
court held that there was no ground to invalidate the foreclosure sale of the mortgaged property.
First, under Section 3 of Act No. 3135, an extrajudicial foreclosure sale did not require personal
notice to the mortgagor. Second, there was no allegation or proof of noncompliance with the
publication requirement and the public posting of the notice of sale, provided under Act No. 3135, as
amended. Third, there was no showing of inadequacy of price as no competent evidence was

presented to show the real market value of the land sold or the readiness of another buyer to offer a
price higher than that at which the property had been sold.
Moreover, petitioners failed to prove that the bank had agreed to sell the property back to them. After
pointing out that the redemption period had long expired, respondents written communications to
Petitioner Chua only showed, at most, that the former had made a proposal for the latter to buy back
the property at the current market price; and that Petitioner Chua was requested to make an offer to
repurchase the property, because another buyer had already made an offer to buy it. On the other
hand, respondent noted that the Interbank check for P4,000 was for "deposit only." Thus, there was
no showing that the check had been issued to cover part of the repurchase price.
The appellate court also held that the Compromise Agreement had not resulted in the novation of the
Partial Decision, because the two were not incompatible. In fact, the bank was not even a party to
the Agreement. Petitioners recognition of Ceroferrs title to the mortgaged property was intended to
preclude future litigation against it.
Hence this Petition.16
Issues
In their Memorandum, petitioners raise the following issues:
"1. Whether or not the Respondent Court of Appeals erred in failing to apply the provisions of
Section 3, Rule 9 of the 1997 Rules of Civil Procedure [and in applying instead] the rule on
preponderance of evidence under Section 1, Rule 133 of the Rules of Court.
"2. Whether or not the respondent appellate court failed to apply the conventional redemption rule
provided for under Article 1601 of the New Civil Code.
"3. Whether or not this Honorable Court can exercise its judicial prerogative to evaluate the findings
of facts."17
The first issue is one of law and may be taken up by the Court without hindrance, pursuant to
Section 1 of Rule 45 of the Rules of Court.18 The second and the third issues, however, would entail
an evaluation of the factual findings of the appellate court, a function ordinarily not assumed by this
Court, unless in some excepted cases. The Court will thus rule on the first issue before addressing
the second and the third issues jointly.
The Courts Ruling
The Petition has no merit.
First Issue:
Quantum of Proof
Petitioners challenge the CA Decision for applying Section 3 of Rule 9 of the Rules of Court, rather
than Section 1 of Rule 133 of the same Rules. In essence, petitioners argue that the quantum of
evidence for judgments flowing from a default order under Section 3 of Rule 9 is not the same as
that provided for in Section 1 of Rule 133.

For ease of discussion, these two rules will be reproduced below, starting with Section 3 of Rule 9 of
the Rules of Court:
"Sec. 3. Default; declaration of. If the defending party fails to answer within the time allowed
therefor, the court shall, upon motion of the claiming party with notice to the defending party, and
proof of such failure, declare the defending party in default. Thereupon, the court shall proceed to
render judgment granting the claimant such relief as his pleading may warrant, unless the court in its
discretion requires the claimant to submit evidence. Such reception of evidence may be delegated to
the clerk of court.
"(a) Effect of order of default. A party in default shall be entitled to notice of subsequent
proceedings but not to take part in the trial.
"(b) Relief from order of default. A party declared in default may at any time after notice
thereof and before judgment file a motion under oath to set aside the order of default upon
proper showing that his failure to answer was due to fraud, accident, mistake or excusable
negligence and that he has a meritorious defense. In such case, the order of default may be
set aside on such terms and conditions as the judge may impose in the interest of justice.
"(c) Effect of partial default. When a pleading asserting a claim states a common cause of
action against several defending parties, some of whom answer and the others fail to do so,
the court shall try the case against all upon the answers thus filed and render judgment upon
the evidence presented.
"(d) Extent of relief to be awarded. A judgment rendered against a party in default shall not
exceed the amount or be different in kind from that prayed for nor award unliquidated
damages.
"(e) Where no defaults allowed. If the defending party in an action for annulment or
declaration of nullity of marriage or for legal separation fails to answer, the court shall order
the prosecuting attorney to investigate whether or nor a collusion between the parties exists,
and if there is no collusion, to intervene for the State in order to see to it that the evidence
submitted is not fabricated."
We now quote Section 1 of Rule 133:
"SECTION 1. Preponderance of evidence, how determined. In civil cases, the party having the
burden of proof must establish his case by a preponderance of evidence. In determining where the
preponderance or superior weight of evidence on the issues involved lies, the court may consider all
the facts and circumstances of the case, the witnesses manner of testifying, their intelligence, their
means and opportunity of knowing the facts to which they are testifying, the nature of the facts to
which they testify, the probability or improbability of their testimony, their interest or want of interest,
and also their personal credibility so far as the same may legitimately appear upon the trial. The
court may also consider the number of witnesses, though the preponderance is not necessarily with
the greater number."
Between the two rules, there is no incompatibility that would preclude the application of either one of
them. To begin with, Section 3 of Rule 9 governs the procedure which the trial court is directed to
take when a defendant fails to file an answer. According to this provision, the court "shall proceed to
render judgment granting the claimant such relief as his pleading may warrant," subject to the courts
discretion on whether to require the presentation of evidence ex parte. The same provision also sets
down guidelines on the nature and extent of the relief that may be granted. In particular, the courts

judgment "shall not exceed the amount or be different in kind from that prayed for nor award
unliquidated damages."
As in other civil cases, basic is the rule that the party making allegations has the burden of proving
them by a preponderance of evidence.19 Moreover, parties must rely on the strength of their own
evidence, not upon the weakness of the defense offered by their opponent. 20 This principle holds
true, especially when the latter has had no opportunity to present evidence because of a default
order. Needless to say, the extent of the relief that may be granted can only be as much as has been
alleged and proved21 with preponderant evidence required under Section 1 of Rule 133.
Regarding judgments by default, it was explained in Pascua v. Florendo 22 that complainants are not
automatically entitled to the relief prayed for, once the defendants are declared in default. Favorable
relief can be granted only after the court has ascertained that the relief is warranted by the evidence
offered and the facts proven by the presenting party. In Pascua, this Court ruled that "x x x it would
be meaningless to require presentation of evidence if every time the other party is declared in
default, a decision would automatically be rendered in favor of the non-defaulting party and exactly
according to the tenor of his prayer. This is not contemplated by the Rules nor is it sanctioned by the
due process clause."23
The import of a judgment by default was further clarified in Lim Tanhu v. Ramolete. 24 The following
disquisition is most instructive:
"Unequivocal, in the literal sense, as these provisions [referring to the subject of default then under
Rule 18 of the old Rules of Civil Procedure] are, they do not readily convey the full import of what
they contemplate. To begin with, contrary to the immediate notion that can be drawn from their
language, these provisions are not to be understood as meaning that default or the failure of the
defendant to answer should be interpreted as an admission by the said defendant that the plaintiffs
cause of action find support in the law or that plaintiff is entitled to the relief prayed for. x x x.
xxxxxxxxx
"Being declared in default does not constitute a waiver of rights except that of being heard and of
presenting evidence in the trial court. x x x.
"In other words, a defaulted defendant is not actually thrown out of court. While in a sense it may be
said that by defaulting he leaves himself at the mercy of the court, the rules see to it that any
judgment against him must be in accordance with law. The evidence to support the plaintiffs cause
is, of course, presented in his absence, but the court is not supposed to admit that which is basically
incompetent. Although the defendant would not be in a position to object, elementary justice requires
that only legal evidence should be considered against him. If the evidence presented should not be
sufficient to justify a judgment for the plaintiff, the complaint must be dismissed. And if an
unfavorable judgment should be justifiable, it cannot exceed in amount or be different in kind from
what is prayed for in the complaint." 25
In sum, while petitioners were allowed to present evidence ex parte under Section 3 of Rule 9, they
were not excused from establishing their claims for damages by the required quantum of proof under
Section 1 of Rule 133. Stated differently, any advantage they may have gained from the ex parte
presentation of evidence does not lower the degree of proof required. Clearly then, there is no
incompatibility between the two rules.
Second and Third Issues:
Review of the Evidence

Petitioners urge this Court to depart from the general rule that the lower courts findings of fact are
not reviewable in a petition for review.26 In support of their plea, they cite the conflicting findings of
the trial and the appellate courts, as well as the alleged conjectures and surmises made by the CA in
arriving at its Decision.
Indeed, the differences between the findings of the two courts a quo, leading to entirely disparate
dispositions, is reason enough for this Court to review the evidence in this case. 27 Whether the CA
indulged in surmises and conjectures when it issued the assailed Decision will thus be determined.
At the outset, it behooves this Court to clarify the CAs impression that no evidence was presented in
the case which might have contributed to petitioners challenge to its Decision. The appellate courts
observation was based on the notation by the lower courts clerk of court that there were no separate
folders for exhibits and transcripts, because "there was no actual hearing conducted in this case." 28
True, there was no hearing conducted between petitioners and respondent, precisely because the
latter had been declared in default, and petitioners had therefore been ordered to present their
evidence ex parte. But the absence of a hearing did not mean that no evidence was presented. The
Partial Decision dated February 8, 1993, in fact clearly enumerated the pieces of evidence adduced
by petitioners during the ex parte presentation on January 7, 1993. The documentary evidence they
presented consisted of the following:
1. A copy of respondent banks Petition for the extrajudicial foreclosure and auction sale of
the mortgaged parcel of land29
2. The Certificate of Sale that was a consequence of the foreclosure sale30
3. A Statement of Account dated February 15, 1984, showing Petitioner Chuas outstanding
debt in the amount of P40,135.5331
4. A copy of the Interbank check dated February 16, 1984, in the amount of P4,00032
5. The Official Receipt issued by the bank acknowledging the check 33
6. The banks letter dated February 20, 1984, advising Petitioner Chua of the sale of the
property at an extrajudicial public auction; the lapse of the period of redemption; and an
invitation to purchase the property at its current market price 34
7. Another letter from the bank dated March 22, 1984, inviting Petitioner Chua to submit,
within five days, an offer to buy the same property, which another buyer had offered to buy 35
8. A copy of the Notice of Lis Pendens, the filing of which was done after that of the Amended
Complaint36
9. A copy of the title showing the inscription of the Notice of Lis Pendens37
10. A copy of the Absolute Deed of Sale to Cerrofer38
11. A copy of a letter dated August 29, 1986, made and signed by petitioners counsel,
requesting the cancellation of the Notice of Lis Pendens39

12. A copy of a page of the Memorandum of Encumbrance from TCT No. (314341) 7778/T3940
Having clarified this matter, we proceed to review the facts.
Petitioners do not deny that the one-year period for legal redemption had already lapsed when
respondent bank supposedly offered to sell the property in question. The records clearly show that
the Certificate of Sale following the extrajudicial public auction of the property was registered on
June 21, 1982, the date from which the legal redemption period was to be reckoned. 41 Petitioners
insist, though, that they had the right to repurchase the property through conventional redemption,
as provided under Article 1601 of the Civil Code, worded as follows:
"ART. 1601. Conventional redemption shall take place when the vendor reserves the right to
repurchase the thing sold, with the obligation to comply with the provisions of Article 1616 and other
stipulations which may have been agreed upon."
It is true that the one-year period of redemption provided in Act No. 3135, as amended -- the law
under which the property here was sold in a foreclosure sale -- is only directory and, as such can be
extended by agreement of the parties.42 However, it has also been held that for legal redemption to
be converted into conventional redemption, two requisites must be established: 1) voluntary
agreement of the parties to extend the redemption period; and 2) the debtors commitment to pay the
redemption price on a fixed date. 43 Thus, assuming that an offer was made to Petitioner Chua to buy
back the property after the lapse of the period of legal redemption, petitioners needed to show that
the parties had agreed to extend the period, and that Petitioner Chua had committed to pay the
redemption price on a fixed date.
The letters sent by the bank to Petitioner Chua on February 20 and March 22, 1984, do not
convincingly show that the parties arrived at a firm agreement for the repurchase of the property.
What can be gleaned from the February 20 letter is that Petitioner Chua proposed to pay the
redemption price for the property, but that the bank refused to accede to his request, because the
one-year redemption period had already lapsed. 44 The bank, though, had offered to sell back the
property to him at the current market value. Indeed, an examination of his earlier letter of February
17, 1984, readily reveals that he expressed willingness to settle his account with the bank, but that
his "present financial situation precludes [him] from effecting an immediate settlement x x x." 45
On the other hand, the letter dated March 22, 1984, clearly states that "x x x the Bank rejected [his]
request to redeem said property due to [the] lapse of [the] one (1) year legal redemption
period."46 Nonetheless, he was "[invited] to submit an offer to buy the same property in five (5) days
from receipt [of the letter]."47 Petitioner Chua was also informed that the bank had received an offer
to purchase the foreclosed property. As to the P4,000 check enclosed in his proposal dated February
17, 1984, as a token of his good faith, he was advised that the amount was still outstanding in the
books of the bank and could be claimed by him if he thought the invitation was not feasible.
More important, there was no showing that petitioners had committed to pay the redemption price on
a fixed date. True, Petitioner Chua had attempted to establish a previous agreement to repurchase
the property for less than its fair market value. He had submitted in evidence a Statement of
Account48 dated February 15, 1984, showing a balance of P40,135.53; the Interbank check dated
February 16, 1984 , for P4,000, which was deposited to the account of respondent bank; 49 and the
Official Receipt for the check.50
Granting that these documents evinced an agreement, petitioners were still unable to establish a
firm commitment on their part to pay the redemption price on a fixed date. On the contrary, the

February 17 letter of Petitioner Chua to the bank clearly manifested that he was not capable of
paying the account immediately. For this reason, he proposed to pay in "three or four installments"
without a specification of dates for the payments, but with a plea for a reduction of the interest
charges. That proposal was rejected.
Indeed, other than the Interbank check marked "for deposit" by respondent bank, no other evidence
was presented to establish that petitioners had offered to pay the alleged redemption price
of P40,135.53 on a fixed date. For that matter, petitioners have not shown that they tendered
payment of the balance and/or consigned the payment to the court, in order to fulfill their part of the
purported agreement. These remedies are available to an aggrieved debtor under Article 1256 of the
Civil Code,51 when the creditor unjustly refuses to accept the payment of an obligation.
The next question that presents itself for resolution is the propriety of the CAs ruling vacating the
Partial Decision of the regional trial court (RTC) and dismissing the case. To recall, the RTC had
resolved to withhold a ruling on petitioners right to redeem conventionally and/or order the
reconveyance of the property in question, pending a determination of the validity of the sale to
Cerrofer Realty Corporation and Spouses Cesar and Lorna Roque. The trial court, however, granted
the prayer for damages against respondent bank. The RTC ruled as follows:
"The evidence presented by [petitioners] in so far as the cause of action against [respondent]
Traders Royal Bank is concerned are preponderant to support the claims of the [petitioners].
However, in view of the fact that the property subject matter of this case has already been conveyed
to defendant Cerrofer Realty Corporation thus the issue as to whether or not the said conveyance or
sale is valid is sill pending between the [petitioners] and [respondents] Cerrofer Realty Corporation
and Cesar Roque and Lorna Roque. Hence, this Court resolves to grant the prayer for damages
against Traders Royal Bank.
"The claims of the [petitioners] as against [respondent] Traders Royal Bank having been established
and proved by evidence, judgment is hereby rendered ordering [respondent] Traders Royal Bank to
pay [petitioners] actual damage or the market value of the land in question in the sum
of P500,000.00; the sum of P70,000.00 as compensatory damages; the sum of P200,000.00 to the
heirs of [petitioner] Danilo Chua; and attorneys fees in the sum of P30,000.00."52
In the light of the pending issue as to the validity of the sale of the property to the third parties
(Cerrofer Realty Corporation and Spouses Roque), the trial court properly withheld judgment on the
matter and thus left the prayer for damages as the sole issue for resolution.
To adjudge damages, paragraph (d) of Section 3 of Rule 9 of the Rules of Court provides that a
judgment against a party in default "shall not exceed the amount or be different in kind from that
prayed for nor award unliquidated damages." The proscription against the award of unliquidated
damages is significant, because it means that the damages to be awarded must be proved
convincingly, in accordance with the quantum of evidence required in civil cases.
Unfortunately for petitioners, the grant of damages was not sufficiently supported by the evidence for
the following reasons.
First, petitioners were not deprived of their property without cause. As correctly pointed out by the
CA, Act No. 3135, as amended, does not require personal notice to the mortgagor.53 In the present
case, there has been no allegation -- much less, proof -- of noncompliance with the requirement of
publication and public posting of the notice of sale, as required by ct No. 3135. Neither has there
been competent evidence to show that the price paid at the foreclosure sale was inadequate. 54 To be
sure, there was no ground to invalidate the sale.

Second, as previously stated, petitioners have not convincingly established their right to damages on
the basis of the purported agreement to repurchase. Without reiterating our prior discussion on this
point, we stress that entitlement to actual and compensatory damages must be proved even under
Section 3 of Rule 9 of the Rules of Court. The same is true with regard to awards for moral damages
and attorneys fees, which were also granted by the trial court.
In sum, petitioners have failed to convince this Court of the cogency of their position, notwithstanding
the advantage they enjoyed in presenting their evidence ex parte. Not in every case of default by the
defendant is the complainant entitled to win automatically.
WHEREFORE, this Petition is hereby DENIED and the assailed Decision and Resolution
AFFIRMED. Costs against petitioners.
SO ORDERED.

G.R. No. 101256. March 8, 1993.

SPOUSES PEPITO AND LORETO LAUS, petitioners, vs. HON. COURT OF APPEALS, HON.
SALVADOR C. CEGUERA, in his capacity as Presiding Judge of the Regional Trial Court of Quezon
City, Branch 82; NILO SM. CABANG, in his capacity as Deputy Sheriff of Quezon City and
CONSUELO P. TORRES, respondents.
Alberto E. Venturanza for petitioners.
Leonardo Byron R. Perez, Jr. for private respondent.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; JURISDICTION; HOW JURISDICTION OVER PERSON
OF DEFENDANT ACQUIRED; EFFECT OF INVALID SERVICE OF SUMMONS; CASE AT BAR.
The focal issue is whether or not the trial court acquired jurisdiction over the persons of the
petitioners by virtue of the substituted service of summons effected by Deputy Sheriff Cruz. Since
the petitioners did not voluntarily submit to the jurisdiction of the trial court, proper service of
summons became imperative. If the service effected in the case at bar was, as claimed by the
petitioners, invalid, the trial court acquired no jurisdiction over their persons. In such an instance, the
order of default, judgment by default and writ of execution issued by the trial court would be null and
void. . . . Since the substituted service of summons in this case was not validly effected, the trial
court did not acquire jurisdiction over the persons of the petitioners. The order of default, the
judgment by default, the writ of execution issued by it, as well as the auction sale of the petitioners'
properties levied on execution are, therefore, all null and void.
2. ID.; ID.; SUMMONS; PERSONAL SERVICE; GENERAL RULE; SUBSTITUTED SERVICE
NATURE THEREOF; PHRASE "WITHIN A REASONABLE TIME" CONSTRUED. The general rule
in this jurisdiction is that summons must be personally served; pursuant to Section 7, Rule 14 of the
Revised Rules of Court, such personal service is to be accomplished by "handing a copy thereof to
the defendant in person, or, if he refuses to receive it, by tendering it to him." However, if this mode

of service cannot be effected within a reasonable time, substituted service may be resorted to under
Section 8 of the same Rule. Section 8 provides: "SEC. 8. Substituted Service. If the defendant
cannot be served within a reasonable time as provided in the preceding section, service may be
effected (a) by leaving copies of the summons at the defendant's dwelling house or residence with
some person of suitable age and discretion then residing therein, or (b) by leaving the copies at
defendant's office or regular place of business with some competent person in charge thereof." This
provision is a reproduction of Section 8, Rule 7 of the 1940 Rules of Court except that inter alia,
"promptly" in the latter was changed to "within a reasonable time" in the former. "Within a reasonable
time" contemplates a period of time longer than that demarcated by the word "prompt," and
presupposes that a prior attempt at personal service, within a justifiable time frame as would be
necessary to bring the defendant within the jurisdiction of the court, had failed. Since substituted
service is in derogation of the common law and is extraordinary in character, it must be used only as
prescribed and in the circumstances authorized by statute. Statutes prescribing modes other than
personal service of summons must be strictly complied with to give the court jurisdiction, and such
compliance must appear affirmatively in the return.
3. ID.; ID.; ID.; HOW IMPOSSIBILITY OF PROMPT PERSONAL SERVICE SHOWN; CASE AT BAR.
In Keister vs. Navarro, this Court described how the impossibility of personal service should be
shown: "Impossibility of prompt service should be shown by stating the efforts made to find the
defendant personally and the fact that such efforts failed. This statement should be made in the
proof of service (I Moran, Comments on the Rules of Court, 1970 Ed., p. 444). This is necessary
because substituted service is in derogation of the usual method of service. It has been held that this
method of service is `in derogation of the common law; it is a method extraordinary in character, and
hence may be used only as prescribed and in the circumstances authorized by statute.' . . . (72
C.J.S. 1053)." A perusal of the sheriff's return in the case at bar readily reveals that it does not (a)
indicate the impossibility of service of summons within a reasonable time, (b) specify the efforts
exerted to locate the petitioners and (c) state that it was served on a person of sufficient age and
discretion residing therein. The fact of the matter is that as disclosed in his testimony taken in
connection with the motion for reconsideration, and the affidavit he prepared in conjunction with such
hearing. Deputy Sheriff Cruz resorted to a substituted service on his first and only attempt to
effect a personal service. Upon being informed that the petitioners were not around at that time, he
immediately resorted to a substituted service through Josephine Areola, a person whose age he did
not even know or attempt to discover. He did not even inquire about the whereabouts of the
petitioners, the time they were expected to return home, the hours of the day they could be
contacted at their house or the location of their offices, if any, in order that he could faithfully comply
with the requirement of personal service.
4. ID.; ID.; ID.; SERVICE OF SUMMONS MAY BE MADE AT NIGHT, DURING THE DAY, ON A
SUNDAY OR A HOLIDAY; REASON THEREFOR; CASE AT BAR. It is all too obvious that no
earnest efforts were exerted by Deputy Sheriff Cruz to effect the personal service of summons. His
testimony thus attests to an undue, if not indecent, haste to serve the summons at the first attempt
without making sure that personal service was, by then and even thereafter, an impossibility
because either the petitioners had left for a foreign country or an unknown destination with not
definite date of returning within a reasonable period or had gone into hiding to avoid service of any
process from the courts. If he had only made the inquiries suggested above, he could have returned
in the evening of 10 October 1989 or on any of the succeeding days including the following
Saturday and Sunday. Service of summons may be made at night as well as during the day, or even
on a Sunday or holiday because of its ministerial character.
5. ID.; ID.; MOTION TO DISMISS ON GROUND OF LACK OF JURISDICTION OVER
DEFENDANT'S PERSON; PERIOD FOR FILING DOES NOT COMMENCE TO RUN UNTIL
DEFENDANT VOLUNTARILY SUBMITS TO COURT'S JURISDICTION; REASON THEREFOR;
CASE AT BAR. Some further comments, en passant, on the ratiocination of the respondent Court

are in order. It is not accurate for the latter to have said that the petitioners' motion to dismiss was
not filed seasonably because it was filed beyond the reglementary period provided in the Revised
Rules of Court. Such a conclusion would doubtless be correct if there was a valid service of
summons. If, however, a defendant has not been properly summoned, the period to file a motion to
dismiss for lack of jurisdiction over his person does not commence to run until he voluntarily submits
to the jurisdiction of the court, since the court has no jurisdiction to adjudicate the controversy as to
him until such time. In this case, petitioners did not voluntarily submit to the jurisdiction of the trial
court. Consequently, the period to file a responsive pleading did not even commence to run.
6. ID.; SPECIAL CIVIL ACTIONS; CERTIORARI; WHEN INTERLOCUTORY ORDER MAY BE THE
SUBJECT THEREOF; CASE AT BAR. Nor are We persuaded by the respondent Court's
declaration that even if the motion to dismiss had been filed on time, the trial court's order denying
the same, being interlocutory, still cannot be the subject of a petition for certiorari. To be sure, this
rule admits of an exception, as when the trial court clearly acted outside of its jurisdiction or with
grave abuse of discretion in denying the motion to dismiss. This is exactly what happened in the
case while it was pending before the trial court; the denial of the motion to dismiss was based solely
on the ground that a judgment by default had already been entered. Certainly, this does not
constitute a valid ground for the denial because the motion raises a fundamental and prejudicial
issue affecting the validity of the decision by default.
7. ID.; EVIDENCE DISPUTABLE PRESUMPTIONS; PRESUMPTION OF REGULARITY IN
PERFORMANCE OF OFFICIAL FUNCTIONS; DOES NOT APPLY WHERE SHERIFF'S RETURN IS
PATENTLY DEFECTIVE. Finally, respondent Court's reliance on the presumption of regularity in
the performance of official functions is misplaced. We have held that such a presumption does not
apply where it is patent that the sheriff's return is defective.
8. ID.; VOID JUDGMENT CAN NEVER BECOME FINAL AND EXECUTORY; ACTION TO
DECLARE NULLITY OF VOID JUDGMENT IMPRESCRIPTIBLE; CASE AT BAR. Equally
unmeritorious is the respondent Court's statement that the failure of the petitioners to appeal from
the judgment by default rendered such judgment final and unassailable. In the first place, it is
axiomatic that a void judgment can never become final and executory and may even be assailed or
impugned at any time. An action to declare the nullity of a void judgment does not prescribe.
Secondly, the motion to dismiss in this case was filed before the petitioners received a copy of the
decision by default. Since the said motion is based on the lack of jurisdiction over the persons of the
petitioners which, if true in fact, We have found it to be so would result in the nullification not
only of the default order but of the decision as well, then for all legal intents and purposes, the latter
was covered by the motion. This was precisely the orientation of the trial court when it allowed the
parties to submit evidence to support the motion to reconsider the Order of 5 March 1990 denying
the motion to dismiss. It would certainly not have gone that far if it thought otherwise for by then, the
decision had already become final.
DECISION
DAVIDE, JR., J p:
Petitioners seek the review and reversal of the 30 May 1991 Decision 1 of respondent Court of
Appeals in CA-G.R. SP No. 22232 2 and the 30 July 1991 Resolution denying their motion to
reconsider the said decision. The challenged decision dismissed, for lack of merit, their petition for
certiorari, prohibition and injunction to annul the Orders dated 5 March 1990 and 9 July 1990 of
Branch 82 of the Regional Trial Court (RTC) of Quezon City in Civil Case No. Q-89-3327 which,
respectively, declared them in default and denied their motion to reconsider such declaration.

The antecedents of this case are not controverted.

On 24 August 1989, private respondent Consuelo P. Torres filed against "Loredo (sic) Alfaro-Laus
and John Doe" a complaint, docketed as Civil Case No. Q-89-3327, for the collection of a sum of
money. The defendants in the said case are the petitioners in the instant petition. The complaint
alleges that petitioner Loreto Alfaro-Laus executed a promissory note in favor of the private
respondent under which the former undertook to pay the latter the amount of Sixty-Six Thousand
Pesos (P66,000.00) after three (3) months from the date thereof. Upon maturity of the said
promissory note, however, only Eleven Thousand Pesos (P11,000.00) was paid; despite the receipt
of a demand letter from the private respondent, petitioners made no further payments. Thus, the
former filed the aforementioned complaint praying for the payment of the unpaid balance of
P55,000.00 "plus interest at the rate of ten per cent (10%), compounded monthly beginning February
21, 1989, and twenty-five per cent (25%) of the entire amount due for and as attorney's fees, such
being in accordance with the terms and conditions set forth in the promissory note." 3
On 10 October 1989, Deputy Sheriff Romero S. Cruz proceeded to the petitioners' address at 122
Molave Park Subdivision, Paraaque, Metro Manila to serve the summons and a copy of the
complaint. Failing to serve the summons personally upon the petitioners after waiting for ten (10)
minutes, he resorted to a substituted service through one Josephine Areola, who purportedly
represented herself to be the maid of the said petitioners. 4 On the same date, Deputy Sheriff Cruz
executed and filed a return 5 which reads:
"Respectfully returned to the REGIONAL TRIAL COURT Branch 82, QUEZON CITY, the attached
original copy of the summons issued in connection with Civil Case No. 89-3327 entitled CONSUELO
P. TORRES versus LOREDO (sic) LAUS & JOHN DOE with the information that duplicate copy of
the same together with the complaint and its annexes was duly served upon defendant Loredo (sic)
Laus of 122 Molave Park Subd. Paraaque M. M. thru JOSEPHINE AREOLA, maid of Loredo Daus
(sic) of same address, received as evidenced by her signature appearing thereon."
The petitioners did not file any answer. Consequently, upon motion of the private respondent, the
trial court 6 issued on 29 December 1989 an order declaring the former in default and setting the ex
parte presentation of the private respondent's evidence for 16 January 1990. 7 The petitioners claim
that they received this 29 December 1989 Order only on 22 January 1990.
On 24 January 1990, the trial court rendered a judgment by default against the petitioners; it ordered
the latter "[T]o pay the plaintiff (private respondent) the amount of FIFTY-FIVE Thousand Pesos
(P55,000.00) at the rate of ten per cent (10%), compounded monthly beginning February 21, 1989
up to the present; and . . . [T]o pay attorney's fees equivalent to twenty-five percent (25%) of the
entire amount due" to the private respondent. 8
On 2 February 1990, before receiving a copy of the 22 January 1990 decision, petitioners, by way of
a special appearance, filed a motion to dismiss the case for lack of jurisdiction over their persons.
They allege that the service of summons was ineffective because it was not indicated in the return
that the sheriff had first exerted efforts to serve the same personally before resorting to substituted
service. 9
In its Order of 5 March 1990, the trial court denied the motion to dismiss for lack of merit on the
ground that it had already rendered a judgment by default on 24 January 1990. 10 Petitioners
received a copy of this order on 24 March 1990. In the meantime, the trial court issued a writ of
execution.

On 30 March 1990, public respondent Deputy Sheriff Nilo Cabang, pursuant to a writ of execution
issued by the trial court, levied upon petitioners' properties consisting of a 1983 Mitsubishi Galant
Sedan and a men's ring.
On 3 April 1990, petitioners filed a motion to reconsider the Order of 5 March 1990; 11 they
reiterated therein the contention that the trial court did not acquire jurisdiction over their persons
because of the defective service of summons, and further aver that:
"Josephine Areola, the person who supposedly received the summons is not even known to the
defendants. It turned out from their investigation that said Josephine Areola was just a guest of one
of their maid (sic) who stayed for only about a week. Furthermore Josephine Areola was just a child
of about ten to eleven years old and would not be expected to know what to do with the documents
handed to her. With all due respect it would not be fair for the defendant if the summons would be
served upon the defendants through a person who is not of sufficient age and discretion at the time
the summons was served, and a transcient (sic) at that." 12
A hearing on the motion for reconsideration was held and the parties presented evidence on the
issue of service of summons. Petitioner Loreto Alfaro-Laus testified that Josephine Areola, who was
11 to 12 years old at that time, was just a guest of her maid and thus stayed in the house for a week.
Private respondent, on the other hand, presented evidence to show that Josephine had been staying
in the petitioners' house since July 1990 for she was the person who received the demand letter sent
to the petitioners on 3 July 1989. 13 Deputy Sheriff Cruz also took the witness stand, identified the
affidavit he executed on 27 April 1990 14 and further asserted that he found no one in the house of
the petitioners when he arrived on 10 October 1989; he claimed that he waited for ten (10) minutes.
Thereupon, two (2) women arrived; the said women told him, upon his inquiry, that the petitioners
were not around. He then served the summons through one of them, Josephine Areola. 15
In its Order of 9 July 1990, 16 the trial court denied the petitioners' motion for reconsideration and
held that there was a proper service of summons because contrary to Loreto Alfaro-Laus' statement
that Areola was a guest of their maid for a week, it was proven that Areola was in fact the very
person who, on 3 July 1989, received the demand letter sent by the private respondent.
On 17 July 1990, petitioners filed with the Court of Appeals a petition for certiorari, prohibition and
injunction with application for a restraining order 17 to set aside the trial court's Orders of 5 March
1990 and 9 July 1990, and to dismiss Civil Case No. Q-89-3327. The petition was docketed as CAG.R. SP No. 22232. Petitioners insisted therein that the trial court committed grave abuse of
discretion and a grave error in denying their motion to dismiss and the motion to reconsider said
denial despite the lack of jurisdiction over their persons. They likewise challenged the denial of such
motion to dismiss which was based solely on the ground that a judgment by default had already
been rendered. 18
On 30 May 1991, the respondent Court of Appeals promulgated its decision 19 denying the petition
for lack of merit. It made the following disqualifications:
" . . . it was the defendants-petitioners who erred in filing a motion to dismiss at that late stage of the
proceedings. A motion to dismiss on the ground that the Court has no jurisdiction over the person of
the defendants is proper only when made within the reglementary period for filing a responsive
pleading and before such responsive pleading is filed (Rule 16, Sec. 1[a]). In this case, the
defendants-petitioners' motion to dismiss was filed five (5) months after the complaint was filed and
only after a default judgment had already been rendered by the respondent Court. Thus, it was
rather too late in the day for the defendants-petitioners' motion to dismiss to be considered by the
respondent Court. In the proper exercise of its sound judicial discretion, the respondent Court did not

err in denying the motion to dismiss on the ground that a judgment by default had already been
rendered.
Besides, even if the motion to dismiss was filed on time, and yet, was still denied by the respondent
Court, the order of the court denying the motion to dismiss is interlocutory and cannot be the subject
of a petition for certiorari, such as this instant petition (National Investment and Development Corp.
vs. Aquino, 163 SCRA 153). The denial of a motion to dismiss cannot be questioned in a petition for
certiorari, which is an extra-ordinary writ that is not allowed as a substitute for ordinary appeal (Tan
vs. Intermediate Appellate Court, 164 SCRA 130).
Be that as it may, the defendants-petitioners had other remedies available to them, but which they
failed to avail of. In a long line of cases decided by the Supreme Court, it has been repeatedly
provided that the remedies of a defaulted defendant are:
(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, excusable negligence, and that he has a meritorious defense;
(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 Sec. 2 of Rule 38; and
(d) He may also appeal from the judgment rendered against him as contrary to the evidence or to
law, even if no petition to set aside the order of default has been presented by him (Sec. 2, Rule 41).
(Lina vs. Court of Appeals, 135 SCRA 637; Tiburcio vs. Castro, 161 SCRA 583).
As it is, the defendants-petitioners failed, after they received notice of the order declaring them in
default and before the default judgment was rendered, to file a motion, under oath, to set aside the
order of default on the ground that they failed to file a timely answer due to fraud, accident, mistake,
or excusable negligence, and showing (sic) that they had a meritorious defense.
The other applicable remedy which they failed to employ is the remedy of appeal from the judgment
rendered against them as contrary to the evidence or the law, even in the absence of a
motion/petition to set aside the order of default. This instant petition for certiorari cannot be a
substitute for the remedy of appeal, which the defendants-petitioners did not pursue, as they must
first exhaust the remedies available to them (Lina vs. Court of Appeals, supra.). That the judgment
by default had already become final and is about to be executed is the result of the defendantspetitioners' failure to file a timely appeal. As such, the default judgment may no longer be challenged
(Tiburcio vs. Castro, supra.)
Lastly, We find that the respondent Court was liberal enough in hearing the defendants-petitioners'
motion for reconsideration of the denial of their motion to dismiss. As the pivotal issue therein, the
defendant-petitioners were given their day in court to prove that the service of summons to them was
both improper and invalid. After weighing the evidence and testimonies of the parties and other
persons involved, the respondent Court ruled that there was valid service of summons. We find no
compelling reason to rule otherwise.

There is such a presumption of regularity in the performance of official functions by the sheriff, and it
was up to the defendants-petitioners to convince the respondent Court that there was, indeed,
invalid service of summons. This they failed to do. They could not substantiate their claim that
Josephine Areola was a child of 10 to 11 years who would not know what to do with the court
documents received by her. The defendants-petitioners' contention that Josephine Areola stayed
with them for only a few days backfired when the private respondent presented documentary
evidence to show that Josephine Areola was already residing in the defendants-petitioners' house at
least three (3) months before the summons was served. No other proof was presented by the
defendants-petitioners to bolster their allegations apart from their self-serving, and sometimes
conflicting, testimonies. Thus, We find no error or grave abuse of discretion on the part of the
respondent Court in denying the defendants-petitioners' motion for reconsideration." 20
Meanwhile, on 13 June 1991, respondent sheriff Nilo Cabang sold at a public auction the levied
men's ring - on oval diamond set in yellow gold to the private respondent for P140,000.00, and
the Galant car to Atty. Leonardo Perez, Jr., counsel for the latter, for P180,000.00. Both were the
highest bidders. 21
Their motion for the reconsideration of the aforesaid decision having been denied in the respondent
Court's Resolution of 30 July 1991, 22 petitioners availed of this recourse under Rule 45 of the
Revised Rules of Court and raise the following issues:
"1. WHETHER OR NOT THE COURT A QUO ACQUIRED JURISDICTION OVER THE REASONS
OF THE PETITIONERS BY VIRTUE OF THE SUBSTITUTED SERVICE OF SUMMONS
EFFECTED BY DEPUTY SHERIFF ROMEO CRUZ;
2. WHETHER OR NOT THE REMEDY OF CERTIORARI CAN BE AVAILED OF BY A PARTY
IMPROVIDENTLY DECLARED IN DEFAULT TO CHALLENGE THE ORDER OF DEFAULT AND
THE SUBSEQUENT JUDGMENT BY DEFAULT." 23
On 10 February 1992, after the filing of the private respondent's comment and the petitioners' reply
thereto, We resolved to give due course to the petition and required the parties to file their respective
memoranda which they subsequently complied with.
We find merit in this petition.
The focal issue is whether or not the trial court acquired jurisdiction over the persons of the
petitioners by virtue of the substituted service of summons effected by Deputy Sheriff Cruz. Since
the petitioners did not voluntarily submit to the jurisdiction of the trial court, proper service of
summons became imperative. If the service effected in the case at bar was, as claimed by the
petitioners, invalid, the trial court acquired no jurisdiction over their persons. 24 In such an instance,
the order of default, judgment by default and writ of execution issued by the trial court would be null
and void. 25
The general rule in this jurisdiction is that summons must be personally served; pursuant to Section
7, Rule 14 of the Revised Rules of Court, such personal service is to be accomplished by "handing a
copy thereof to the defendant in person, or, if he refuses to receive it, by tendering it to him."
However, if this mode of service cannot be effected within a reasonable time, substituted service
may be resorted to under Section 8 of the same Rule. Section 8 provides:
"SECTION 8. Substituted Service. If the defendant cannot be served within a reasonable time as
provided in the preceding section, service may be effected (a) by leaving copies of the summons at
the defendant's dwelling house or residence with some person of suitable age and discretion then

residing therein, or (b) by leaving the copies at defendant's office or regular place of business with
some competent person in charge thereof."
This provision is a reproduction of Section 8, Rule 7 of the 1940 Rules of Court except that inter alia,
"promptly" in the latter was changed to "within a reasonable time" in the former. "Within a reasonable
time" contemplates a period of time longer than that demarcated by the word "prompt," and
presupposes that a prior attempt at personal service, within a justifiable time frame as would be
necessary to bring the defendant within the jurisdiction of the court, had failed. 26 Since substituted
service is in derogation of the common law and is extraordinary in character, it must be used only as
prescribed and in the circumstances authorized by statute. 27 Statutes prescribing modes other than
personal service of summons must be strictly complied with to give the court jurisdiction, and such
compliance must appear affirmatively in the return. 28
In Keister vs. Navarro, 29 this Court described how the impossibility of personal service should be
shown:
"Impossibility of prompt service should be shown by stating the efforts made to find the defendant
personally and the fact that such efforts failed. This statement should be made in the proof of service
(I Moran, Comments on the Rules of Court, 1970 Ed., p. 444). This is necessary because substituted
service is in derogation of the usual method of service. It has been held that this method of service is
'in derogation of the common law; it is a method extraordinary in character, and hence may be used
only as prescribed and in the circumstances authorized by statute.' . . . (72 C.J.S. 1053)."
Emphasizing the need for strict compliance with the requirements of substituted service, this Court
issued Administrative Circular No. 59, the pertinent portions of which read as follows:
"SUBJECT: Service of Summons.
Delays in court proceedings have been caused by faulty and erroneous implementation of Section 8,
Rule 14, Rules of Court on Substituted Service of Summons.
The Trial Judges of all lower courts, as well as the Clerks of Court in their capacity as Ex-Officio
Sheriffs together with the Deputy Sheriffs are reminded of the provision of Section 8, Rule 14, Rules
of Court on substituted service as follows:
xxx xxx xxx
The manner of effecting substituted service as prescribed in Venturanza v. Court of Appeals, 156
SCRA 305, must be strictly complied with, thus:
'The substituted service should be availed only when the defendant cannot be served promptly in
person. Impossibility of prompt service should be shown by stating the efforts made to find the
defendant personally and the failure of such efforts. The statement should be made in the proof of
service. This is necessary because substituted service is in derogation of the usual method of
service.
Substituted service is a method extraordinary in character, and hence may be used only as
prescribed in the circumstances authorized by statute. Thus, the statutory requirements of
substituted service must be followed strictly, faithfully, and any substituted service other than that
authorized by the statute is considered ineffective.'

For immediate compliance."

A perusal of the sheriff's return in the case at bar readily reveals that it does not (a) indicate the
impossibility of service of summons within a reasonable time, (b) specify the efforts exerted to locate
the petitioners and (c) state that it was served on a person of sufficient age and discretion residing
therein. The fact of the matter is that as disclosed in his testimony taken in connection with the
motion for reconsideration, and the affidavit he prepared in conjunction with such hearing. Deputy
Sheriff Cruz resorted to a substituted service on his first and only attempt to effect a personal
service. Upon being informed that the petitioners were not around at that time, he immediately
resorted to a substituted service through Josephine Areola, a person whose age he did not even
know or attempt to discover. He did not even inquire about the whereabouts of the petitioners, the
time they were expected to return home, the hours of the day they could be contacted at their house
or the location of their offices, if any, in order that he could faithfully comply with the requirement of
personal service. Thus, he declared and admitted:
"Q In this case, you went to the residence of the defendant once as you stated on paragraph 3 30 on
October 10, 1989?
A Yes, sir.
Q And you did not wait the (sic) defendant to come because according to you in paragraph 4, you
were informed that the defendant was not around, is that correct?
A According to the maid.
Q So upon being informed that the defendant was not around you served the summons, according
to paragraph 4 to one Josephine Ariola, is that correct?
A Yes, sir.
Q In other words, you relied on the information given to you by somebody that the defendant was not
around?
A: I waited there for around ten (10) minutes and then two (2) women arrived in the tricycle and I
waited them (sic) to get inside and I asked them if Mr. and Mrs. Laus will be coming.
Q And they answered they were not around at that time?
A Yes, sir.
Q So, you immediately served the summons upon the persons arriving (sic)?
A Yes, sir.
Q And who were these persons who arrived?
A Josephine Ariola.
Q And who is her companion?

A I did not ask anymore?

xxx xxx xxx
Q Who is older, is this Josephine Ariola or her companion?
A Josephine Ariola, she was the one who signed the summons.
Q Did you ask her age?
A I did not ask anymore because she look already (sic) of sufficient age.
Q That's your conclusion?
A Yes because she was the maid there and she was the older one." 31
As it turns out, the unrebutted evidence for the petitioners establishes that Areola (or Ariola) was only
11 to 12 years old at the time substituted service was attempted. 32
It is all too obvious that no earnest efforts were exerted by Deputy Sheriff Cruz to effect the personal
service of summons. His testimony thus attests to an undue, if not indecent, haste to serve the
summons at the first attempt without making sure that personal service was, by then and even
thereafter, an impossibility because either the petitioners had left for a foreign country or an unknown
destination with not definite date of returning within a reasonable period or had gone into hiding to
avoid service of any process from the courts. If he had only made the inquiries suggested above, he
could have returned in the evening of 10 October 1989 or on any of the succeeding days
including the following Saturday and Sunday. Service of summons may be made at night as well as
during the day, or even on a Sunday or holiday because of its ministerial character. 33
Since the substituted service of summons in this case was not validly effected, the trial court did not
acquire jurisdiction over the persons of the petitioners. The order of default, the judgment by default,
the writ of execution issued by it, as well as the auction sale of the petitioners' properties levied on
execution are, therefore, all null and void.
There is more in this case which further unmasks the nullity of the decision of the trial court. Both
parties agree that the petitioners were the defendants in Civil Case No. Q-89-3327. However,
petitioner Loreto Alfaro-Laus is erroneously mentioned in the complaint as Loredo. On the other
hand, petitioner Pepito Laus, the husband of Loreto, is merely designated as JOHN DOE. The latter
was impleaded as a co-defendant presumably on the theory that the liability sought to be enforced is
a conjugal partnership liability. In short, Loreto's husband was sued as an indispensable party; it is
clear that the trial court treated him as such when in its decision, ordered the defendants, not just
Loreto, to pay the adjudged amounts.
The sheriff's return of service indisputably discloses that no summons was even attempted to be
served on petitioner Pepito Laus. Sheriff Cruz unequivocally states therein that the "duplicate copy of
the same together with the complaint and its annexes was duly served upon defendant Loredo (sic)
Laus of 122 Molave Park Subd. Paraaque M. M. thru JOSEPHINE AREOLA, maid of Loredo Daus
(sic) of same address, . . . ." 34
Neither Deputy Sheriff Cruz nor the private respondent had volunteered additional information to the
effect that at some other time, summons was in fact served on Pepito Laus. Accordingly, the trial

court never acquired jurisdiction over his person. And yet, while it concedes in its 29 December 1989
Order that the substituted service of summons was valid only for Loreto, it declared the defendants
and not only her in default. The court could have easily avoided this misdoing if it only
examined the records before issuing the order. On this score alone, the judgment by default is fatally
flawed.
There is still another fact which betrays the trial court's unusual haste in rendering the judgment by
default. In the dispositive portion of the decision, the defendants were ordered, inter alia:
"1. To pay the plaintiff the amount of FIFTY-FIVE Thousand Pesos (P55,000.00) at the rate of ten per
cent (10%), compounded monthly beginning February 21, 1989 up to the present;" 35
While this rate of ten per cent (10%) could only refer to the imposable interest, the court failed to
state whether its application shall be on a monthly or yearly basis. The body of the decision,
however, speaks of ten per cent (10%) interest PER MONTH; 36 this seems to have been the basis
relied on by respondent sheriff Cabang in computing for the petitioners' alleged liability for purposes
of execution. 37 This award of interest in effect amounting to one hundred twenty per cent (120%)
per annum and the additional twenty-five per cent (25%) of the total amount due ordered paid as
attorney's fees, are unreasonable and unconscionable.
Since the trial court's default order and judgment by default are null and void, the respondent Court
gravely erred in affirming them.
Some further comments, en passant, on the ratiocination of the respondent Court are in order. It is
not accurate for the latter to have said that the petitioners' motion to dismiss was not filed
seasonably because it was filed beyond the reglementary period provided in the Revised Rules of
Court. Such a conclusion would doubtless be correct if there was a valid service of summons. If,
however, a defendant has not been properly summoned, the period to file a motion to dismiss for
lack of jurisdiction over his person does not commence to run until he voluntarily submits to the
jurisdiction of the court, since the court has no jurisdiction to adjudicate the controversy as to him
until such time. 38 In this case, petitioners did not voluntarily submit to the jurisdiction of the trial
court. Consequently, the period to file a responsive pleading did not even commence to run.
Nor are We persuaded by the respondent Court's declaration that even if the motion to dismiss had
been filed on time, the trial court's order denying the same, being interlocutory, still cannot be the
subject of a petition for certiorari. To be sure, this rule admits of an exception, as when the trial court
clearly acted outside of its jurisdiction or with grave abuse of discretion in denying the motion to
dismiss. 39 This is exactly what happened in the case while it was pending before the trial court; the
denial of the motion to dismiss was based solely on the ground that a judgment by default had
already been entered. Certainly, this does not constitute a valid ground for the denial because the
motion raises a fundamental and prejudicial issue affecting the validity of the decision by default.
Equally unmeritorious is the respondent Court's statement that the failure of the petitioners to appeal
from the judgment by default rendered such judgment final and unassailable. In the first place, it is
axiomatic that a void judgment can never become final and executory and may even be assailed or
impugned at any time. 40 An action to declare the nullity of a void judgment does not prescribe. 41
Secondly, the motion to dismiss in this case was filed before the petitioners received a copy of the
decision by default. Since the said motion is based on the lack of jurisdiction over the persons of the
petitioners which, if true in fact, We have found it to be so would result in the nullification not
only of the default order but of the decision as well, then for all legal intents and purposes, the latter
was covered by the motion. This was precisely the orientation of the trial court when it allowed the
parties to submit evidence to support the motion to reconsider the Order of 5 March 1990 denying

the motion to dismiss. It would certainly not have gone that far if it thought otherwise for by then, the
decision had already become final.
Its suggestion that the petitioners should have filed a motion to set aside the order of default on the
ground that they had failed to file the answer on grounds of fraud, accident, mistake or excusable
negligence or a motion for new trial or a petition for relief from judgment, is untenable for it begs the
question. Besides, as shown above, petitioners' failure to file the answer was not based on any of
these grounds, but stood on the void service of summons.
Finally, respondent Court's reliance on the presumption of regularity in the performance of official
functions is misplaced. We have held that such a presumption does not apply where it is patent that
the sheriff's return is defective. 42
WHEREFORE, the Decision of the respondent Court of Appeals of 30 May 1991 and the Resolution
dated 30 July 1991 in CA-G.R. SP No. 22232 are hereby REVERSED and SET ASIDE. The Order of
Branch 82 of the Regional Trial Court of Quezon City of 29 December 1989 (Civil Case No. Q-893327) declaring petitioners in default, its Decision of 24 January 1990, Orders of 5 March 1990 and 9
July 1990 and the writ of execution issued therein, as well as all proceedings had pursuant to the
writ of execution, are declared NULL and VOID. The case is hereby remanded to the court of origin
for further proceedings which shall include the valid service of summons.
SO ORDERED.

G.R. No. L-33720 March 10, 1975

THE PHILIPPINE BRITISH CO. INC. and THE CIBELES INSURANCE
CORPORATION, petitioners,
vs.
THE HON. WALFRIDO DE LOS ANGELES in his capacity as Presiding Judge, Branch IV of the
Court of First Instance of Quezon City, THE HON. VICENTE S. OCOL in his capacity as Clerk
of Court of First Instance of Quezon City and Ex-Oficio Sheriff of Quezon City and
MULTIFIELD ENTERPRISES and MOISES M. TAPIArespondents.
Alfonso Felix, Jr. for petitioners.
B.M. Grecia & Associates and D.G. Garin & Associates for respondents.

BARREDO, J.:

+.wph!1

Petition for certiorari to annul and set aside the default proceedings, the judgments and the writs of
execution of respondent judge in Civil Cases Nos. Q-15377-8 of the Court of First Instance of
Quezon City entitled Multifield Enterprises, et al. vs. Philippine British Assurance Co., Inc. and
Multifield Enterprises et al. vs. Cibeles Insurance Corporation, respectively, and for prohibition to

enjoin the execution of said judgments. Upon the filing of the petition, the Court issued the writ of
preliminary injunction prayed for. Respondents were required to answer and after issues were
joined, the parties filed their respective memoranda in lieu of oral argument.
On June 12, 1970, a fire broke out in the premises of private respondents (Tapia, for short) at No.
245 Roosevelt Avenue, San Francisco del Monte, Quezon City. Being holders of fire insurance
policies from different companies, among them the petitioners, and having failed to secure
extrajudicial settlement of their claims, they filed corresponding civil actions in the Court of First
Instance of Quezon City. All of said cases, dealing as they did with the same facts and issues, were
assigned to respondent judge, to whom by raffle the first of them had fallen. Petitioner British (for
short) was served summons in Civil Case No. Q-15377 on March 29, 1971 while petitioner Cibeles
(for short) was served theirs for Civil Case No. Q-15378 on April 2, 1971, hence their answers were
due on April 13 and 17, respectively.
On April 13, 1971, counsel for British filed by mail a motion asking for fifteen (15) days extension of
its time to answer, claiming that due to the intervening Holy Week and pressure of other works, he
would be unable to prepare his answer within the reglementary period. He was granted only five (5)
days ending April 19. 1 No answer came until April 28, 1971, albeit it was mailed by registered service on
April 22, 1971. Cibeles in turn filed its own motion for extension on April 19, 1971, two days after due
date. Obviously, the period could not be extended anymore. Just the same, it filed its answer on April 22,
1971, which was joint with that of British.
In the meanwhile, on April 24, 1971, Tapia filed separate motions in the two cases praying that
petitioners be declared in default. Not having received by then any answer of petitioners, (Petitioners
did file a joint answer, but as will be seen later, the same was actually received by respondent court
only on April 28, 1971.) an order of default was issued, directing at the same time that plaintiffs'
evidence be received by the clerk of court. This reception of evidence was done on April 26 and 27,
and on April 28, 1971, the judgments complained of herein were rendered. After being duly
docketed, these judgments were released for service by registered mail on May 17, 1971, addressed
to petitioners' counsel, Atty. Alfonso Felix, Jr. at his given address at Room 212 Lopez Building,
Aduana Street, Intramuros, Manila.
According to the postman assigned in that area, Alfredo E. Sugatan, the first registry notice of said
mail matter, Registered Mail No. 13648, was delivered by him actually to counsel's secretary who
was known to him personally, a certain Miss Tuliao, in the morning of May 19, 1971, as he similarly
delivered to her subsequently the second and third notices on May 30, 1971 and June 15, 1971.
According to Atty. Felix, Jr., on May 24, 1971, the day he received the order of default in Q-13577
(Par. 12 and Annex C-1 of Petition) he found himself in the respondent court and to his great
surprise, in the corresponding expedientes, he found neither (1) his motion for extension of time to
file answer in Q-13577 nor (2) the aforementioned joint answer he had filed on behalf of petitioners
and that instead he saw therein that orders of default had been issued in both cases and, further,
that evidence of the plaintiffs had been received ex-parte on April 26 and 27, 1971. 2 He claims also
that on said occasion, when he examined the expedientes of the cases, he did not find therein any copy
of any decision. To be noted, however, he does not pretend that he made any inquiry from any of the
officials and employees of the court as to what was the exact status of his cases as of that date.
Two days later or on May 26, 1971, he filed a joint motion, dated May 25, 1971, to lift the order of
default, unverified and unaccompanied by any affidavit of merit, which he set for hearing on June 1,
1971. According to him, "the motion to set aside the Order of Default could not be heard on June 1
the day on which it was set for hearing for the reason that that day had been declared a public been
declared a public holiday, undersigned counsel went to respondent court the next day, June 2, 1971,

consulted the expedients and seeing respondent Judge de los Angeles showed him a copy of the
Joint Motion Annex 'D' to lift the Order of Default. Respondent Judge de los Angeles after reading in
the presence of undersigned counsel that Joint Motion Annex 'D' asked him to set it for hearing anew
and told him that it was always his practice to give parties a chance to present evidence." (Par. 17 of
Petition). And so, counsel did as told.
Thus, on June 10, 1971, a notice was received by Atty. Felix, Jr. Advising him that the motion had
been set for hearing on June 30, 1971, but on June 22, 1971, respondent judge issued an order
cancelling this notice for the reason that "for failure of defendants in the above-entitled cases to
comply with the requirement imposed by Section 3 of Rule 18, Rules of Court and pursuant to the
decisions of the Supreme Court on the matter, this Court can no longer set aside its order dated April
24, 1971." (Annex H of the Petition). And on June 28, 1971, respondent judge issued the following
order:
t.hqw

Acting on the 'motion for immediate execution of judgments' filed by the plaintiffs
through counsel in the above-entitled cases, this Court finds and the records of these
cases bear out and show that the judgment adverted to were rendered by this Court
on April 28, 1971 and copies thereof were sent and posted as registered mail No.
13648 to the counsel for defendants on May 17, l971 by the Clerk of this Court. The
copies of the decisions as registered mail No. 13648 were returned to this Court by
the Post Office as unclaimed by the addressee, the counsel for the defendants, on
June 23, 1971.
Both the certification (Annex "A" of the motion for immediate execution) and the proof
of service of the notices, sent by the post master stamped on the envelop-cover of
the decisions show that the first notice of this registered mail was sent to the counsel
for defendants at his office address on May 30, 1971, by the postmaster. Again, on
May 30, 1971, a notice was sent to him by the postmaster on these decisions as
registered mail No. 13648. The last and third notice by the postmaster was sent to
him by the postmaster on June 15, 1971. Still counsel for defendants did not claim
from the Post Office his copies of the decisions for which no less than three notices
were sent to him by the postmaster.
Completeness of service of the decisions on defendants' counsel was thus
accomplished after the expiration of five days from the date of the first notice which is
May 19, 1971, pursuant to Section 8 of Rule 13, Rules of Court and the numerous
decisions of the Supreme Court on this particular matter. The period of thirty (30)
days within which to interpose an appeal from these decisions rendered by this Court
in the above-entitled cases commenced on May 25, 1971 the day after the fifth day
from May 19, 1971 and expired after June 23, 1971, the thirtieth day. From May 25,
1971 to June 23, 1971, no appeal from these decisions was taken by the defendants.
Considering that the period of thirty (30) days has already expired and no appeal has
been taken by the defendants from the decisions rendered by this Court on April 28,
1971, they are by law now final, unappealable and, as matter of right, the plaintiffs
are entitled to their immediate execution.
WHEREFORE, the immediate execution of the judgments in the above-entitled
cases are hereby granted. Let the corresponding writs of execution be issued.
SO ORDERED.

Pursuant to the writs issued under this order, the Hongkong & Shanghai Banking Corporation paid to
respondent Sheriff P294,750.00 for the account of British and the First National City Bank of New
York the sum of P75,000 for the account of Cibeles (Pars. 30 and 31, Petition), but all the amounts
thus paid were returned to the respective banks by virtue of the writ of preliminary injunction of this
Court of July 9, 1971.
On July 1, 1971, petitioners filed a joint "Petition for Relief from Judgment." But before said petition
could be acted upon by the court, the instant petition was filed with this Court on July 2, 1971 and
summons, together with the writ of preliminary injunction was served on public respondents on July
10, 1971. (Annex N ,Petition), In the meantime, on the same day that the petition for relief was set
for hearing, July 7, 1971, respondent judge found it to be "sufficient in form and substance" and
ordered the respondents "to answer the same within a period of fifteen (15) days from receipt
hereof." (Annex A, Respondents' Motion to Dismiss of September 5, 1972.) Nothing else developed
in the trial court later because the injunction of this Court which was served on respondent judge on
July 10, 1971 enjoined him from "taking further action" in the two subject cases.
At this juncture, it becomes necessary to discuss and resolve a point of procedure before going any
further. As may be noted, We could have refused to give due course to the present petition when it
was filed on July 2, 1971, considering that it already avers that a petition for relief from judgment
dated June 30, 1971 (Annex N of Petition) had been filed by petitioners with the trial court on July 1,
1971, which, pursuant to the usual practice, We could have deemed as an adequate remedy in the
ordinary course of law that constitutes a bar to a certiorari review or any other kind of special civil
action. But the petition, on its face, presented the situation that obtained in the trial court in such an
alarming manner, to the point of strongly hinting possible irregularities in the actuations of the
respondent judge and the employees in his sala, which could involve their honesty and good faith as
well as the integrity of judicial records and proceedings that the Court felt it was in the best interest
of justice for the Court itself to inquire without further loss of time into what actually happened.
Indeed, even after the parties had filed their respective memoranda and the Court had by resolution
of October 21, 1971 declared these cases submitted for decision, when the respondents filed their
motion to dismiss of September 5, 1972, based precisely on the ground that on July 7, 1971 the trial
court had given due course to petitioners' petition for relief, We resolved to defer determination of the
dismissal motion until this decision on the merits.
Now, having thus disregarded the existence of an ordinary remedy in the court below at the earlier
stages of these cases, it is but proper and logical for Us to pursue such course of action to its
ultimate conclusion, since anyway, counsel for petitioners has himself vehemently objected to said
motion to dismiss, and, after all, as We see it, there are enough incontrovertible facts in the record,
furnished by both parties, on the basis of which the Court can put an end to the litigation between
the parties regarding the insurance claims of private respondents against petitioners, the subject
matter of the actions in the court below. To now confine Ourselves to holding that the trial court
should be accorded the opportunity to resolve the petition for relief of British and Cibeles therein
pending would serve no purpose than to proliferate proceedings, only to end in the same inevitable
result which even here is already obvious and unavoidable. That would be sacrificing substance to
achieve nothing more than perfection of form and procedure, which is inconsistent with the
primordial principle that the courts must always strive for a just, speedy and inexpensive
determination of all actions and proceedings. And so, the Court has decided to determine here even
the question of whether the petition for relief filed by petitioners with the respondent court should be
granted or denied thereby avoiding any possible doubt that petitioners might entertain as to the
impartiality and integrity of future actuations of the respondents. Indeed, petitioners have placed
before Us by their petition, memorandum and subsequent pleadings, complete with appropriate
annexes, consisting of affidavits, letters and other documents, all the facts which they must believe
are relevant, whereas respondents have duly joined issued with them as to all said facts in their own
answer, memorandum and other papers, complete also with similar corresponding annexes, and

there being no serious, much less any credible indication that any of the parties' annexes are not
authentic, We deem it unnecessary to prolong further the main controversy between the parties. We
will resolve the whole case here.
The contention of petitioners that they were erroneously declared in default has no merit. From the
incontrovertible facts in the record, We cannot see how it can be justly said that respondent judge
committed a grave abuse of discretion in making such declaration. As regards Cibeles, there can be
no question that even its motion for extension to file its answer filed out of time. It was served
summons on April 2, 1971, and it is not disputed that its motion for extension was filed on April 19th,
two days late. With respect to British, its answer admittedly due on April 13, 1971, and although it
asked for an extension of fifteen (15) days it was given only five (5) days ending April
19,1971, 3 consequently, its answer jointly filed with Cibeles on April 22, 1971 was undoubtedly out of
time.
Counsel suggests that he was not given enough time, considering that there was the Holy Week to
take into account, but His Honor ruled that precisely, counsel would have more time because of the
holidays. Again, We perceive no grave abuse of discretion in such a pragmatic ratiocination.
Besides, it is settled that parties and counsel should not assume that courts are bound to grant the
time they ask for compliance with the rules, and therefore, the fact that counsel received the order of
extension by mail only on April 26, 1971, is no reason for him to complain. Likewise, that he was not
notified of the motion to declare his clients in default is not against the rules, for he had no right to
such notice. (Pielago vs. Generosa, 73 Phil. 654.)
Anent the motion to lift the orders of default, counsel invites attention to the alleged directive of
respondent judge to him to have the hearing of his said motion reset because it is the judge's
"practice to give parties a chance to present evidence." We take it, however, that seemingly what
happened then must, have been that His Honor was just trying to figure out how counsel could be
helped out of his self-imposed predicament, but, evidently, upon further reflection, he must have
realized the legal obstacles on the way and consequently found no alternative than to rule that the
motion to lift did not have to be reset for hearing anymore. Upon perusing the motion when it was
filed, he must have noted that it did not comply, as he so stated in his order, with the requirements of
Section 3 of Rule 18.
As may be seen, petitioners' joint motion to lift the order of default, Annex D of the Petition, the same
is neither under oath nor accompanied by any affidavit of merit. And in Ong Peng vs. Custodio, 111
Phil. 382, We held as follows:
t.hqw

... Upon examination of the motion to set aside the order of default, we find it to be
lacking in the following substantial requirements: it does not contain an affidavit of
merits, the motion to set aside the default order is not under oath and contains only a
promise or an assurance, not an affidavit of merits, that defendant has a good
defense. The court was, therefore, fully justified in denying the motion to set aside
the order of default.
In fact, in view of the omission of petitioners to accompany their motion with any affidavit of merit,
the trial court had no authority to consider the same. It is to be noted that the requirements of
Section 3 of Rule 18 are practically identical to those of Section 3 of Rule 38 regarding the need to
show the existence of fraud, accident, mistake or excusable negligence that caused the default and
to accompany the motion to set aside with affidavits of merit. Consequently, it is but proper to apply
to such a motion the same ruling applicable to petitions for relief under Rule 38, which is to the effect
that:
t.hqw

Furthermore, it appears that appellant's petition to set aside the judgment and
reopen the case, is grounded on his alleged excusable negligence in failing to
appear and testify during the hearing of the case on February 3,1959, namely, his
becoming ill with flu (influenza) on said date. We find, however, that appellant failed
to accompany said petition with affidavits of merit showing the excusable negligence
relied upon, and the facts constituting his good and substantial cause of action or
defense, as expressly required under Section 3, Rule 38 of the Rules of Court. We
have repeatedly held that such a defect is fatal (Abao vs. Virtucio, et al., 109 Phil.,
821; Price Stabilization Corporation vs. Court of First Instance of Manila, et al., 97
Phil., 153) which warrants the denial of the relief sought (Abao vs. Virtucio, et
al., supra, citing Coombs vs. Santos, 24 Phil., 446; McGrath vs. Del Rosario, 49 Phil.,
330; Villanueva, et al., vs. Alcoba, 101 Phil., 277). The reason for the rule is that it is
the affidavits of merit which serve as jurisdictional basis for a court to entertain a
petition for relief (Abao vs. Virtucio, et al.,supra; Omandam vs. Director of Lands, 95
Phil., 450; Off. Gaz., 4840). Stated differently, where a petition to set aside a
judgment or reopen a case pursuant to Rule 38 of the Rules of Court is not
accompanied with said affidavits of merit, the court with which it is filed is not called
upon to entertain the petition. Applied to the instant case, appellant's petition to set
aside the judgment in question and reopen the case acquired no standing in court
and, consequently, it was rightly denied. (Fernandez vs. Tan Tiong Tick, 111 Phil. 773
at pp. 780-781.)
Indeed, the identity of these two remedies is such that in Ong Peng, supra, We already expressed
Our "doubt if the same issue raised in the original motion to set aside the order of default, may again
be raised in a petition for relief under Rule 38 of the Rules of Court. The general rule is that once a
matter in issue has been decided by the court, it may no longer be brought again in the form of
another objection, and in the guise of a motion under another provision of the rules" (at p. 387). True
it is that as a matter of form, under Section 3 of Rule 18 it is not essential that the affidavit of merit be
separate from the motion and may instead be incorporated therein, but in the instant case of
petitioners' motion, even if it makes general allegations of merit, these allegations are not supported
by oath of anyone who has knowledge of the fact. As already stated, not even Atty. Felix Jr. swore to
the truth thereof. Accordingly, We find no error in the subsequent action of respondent judge of
cancelling the notice of hearing of the joint motion to lift the order of default.
Besides, the same section expressly provides that motions to lift orders of default may be filed only
before judgment, and petitioners' joint motion was filed only on May 26, 1971, whereas the
judgments in question were rendered on April 28, 1971.
But counsel would attach importance to another aspect of his motion to lift the default orders,
regardless of its legal untenability. He contends that having filed such a motion, he became entitled
under Section 9 of Rule 13 to notice "of all further proceedings" and, therefore, the failure of
respondents to notify him of the motions for immediate execution of the default judgments fatally
vitiated the order granting the same and the writs and levies pursuant thereto.
It is quite obvious that counsel's reliance on the provision cited by him is misplaced. Textually, the
said section reads thus:
t.hqw

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

We are not prepared to agree with counsel that the right of a party in default to notice of further
proceedings which this rule revives as a result of the filing of a motion to set aside the default order
is intended by the rule to be so easily reacquired that just by the mere filing of any motion with a
prayer to set aside the default, the provision may be deemed as already complied with. Logic and
principle dictate that the effects of default may not be treated as lightly as if it were of no juridical
essence. While the Court has generally been liberal in giving a party in default a chance to
participate in the trial, We cannot sanction any proposition that would so reduce the effect of an
order of default that to have it set aside all that has to be done is for the party concerned to file any
perfunctory motion therefor. A party who by inaction or negligence allows himself to be declared in
default offends the rule requiring him to answer the summons without unnecessary delay to the end
that the issues may be duly joined and the litigation be expeditiously terminated. To purge himself of
the effects of such offense, it should not be enough for him to just tell the court he has, after all,
decided to wake up and take part in the proceedings. It is but proper that he must justify his failure to
comply with the rule before he is relieved from the adverse consequences of his emission. Thus,
Section 9 of Rule 13 must be read in conjunction with Section 3 of Rule 18. In other words, the
motion to set aside default referred to in Section 9 of Rule 13 must be one the contents of which are
precisely those provided for in Section 3 of Rule 18. Thus, the filing of such a motion to set aside
short of the requirements of this latter provision may not as it cannot produce the revival of the right
to notice contemplated in Section 9 of Rule 13. Any other construction in line with the position of
petitioners would render the intent and purpose of the pertinent provisions nugatory and ineffective.
Considering, therefore, that counsel's joint motion to lift the order of default in the subject cases did
not comply with Section 3 of Rule 18, there is no justification at all for his gripe that he was not
notified of further proceedings.
The next point raised by petitioners is more basic. They maintain that the circumstances related by
their counsel should prove to Us that there were in fact no judgments yet against them on June 2,
1971, the day when said counsel verbally took up with respondent judge the matter of having the
orders of default lifted. It is the emphatic charge of counsel that when he examined the records of
the subject cases on May 24, 1971 "no decision of any sort appeared" therein. (Par. 11-d Petition).
He also "affirms under oath that on June 2, 1971, no decision of any sort appeared in these
expedientes nor did respondent Judge de los Angeles ever aver that any decision had been
rendered." (Par. 18, Petition). He further adds that "the clearest evidence that we can furnish the
Supreme Court that as late as June 3, 1971, no decision had (yet) been rendered" is that he had
received on June 10, 1971 a notice setting his motion to lift the order of default for hearing on June
30, 1.971, "for had any decision been rendered, clearly the deputy clerk of court who is under the
control and supervision of respondent judge and who it doubtless familiar with the expedientes of
these cases would have not set a Motion to Lift the Order of default for hearing had any decision
been rendered (already)" (Pars. 20 and 21, Petition). Additionally he points out that even in the order
of June 22nd cancelling the notice of hearing issued by the clerk of court of the motion to lift, His
Honor made no hint that he had already decided counsel's cases. Finally, counsel surmises that it is
rather strange that respondent judge had the material time to prepare his decisions on April 28,
when the reception of the evidence took place only on April 26 and 27.
In plain language, the accusation is that the decisions in question must have been prepared
subsequent to June 3, 1971. Undoubtedly, the indictment is serious. It directly implies on the part of
the officials and employees of the trial court, not excluding respondent judge. Upon the other hand,
the rotund denial of the respondents is coupled with their own counter-accusation that counsel is
frantically but vainly trying only to make up with his clients for his failure to act on their behalf on
time. In the face of these sharply opposite positions. We could do no less than scrutinize the record
minutely and carefully, if only to be able to pin proper responsibility on whosoever might be guilty of
violating his sacred oath as functionary of the court, either as judge, clerk of court or mere employee
thereof or as counsel.

After a conscientious review of the pertinent facts extant in the record, it is our considered opinion
that counsel's suspicion is unfounded. To begin with, respondents have in their favor the
presumption heretofore invariably relied upon by the Court in similar situations that official duty has
been regularly performed by them and that they have acted in good faith. It has been the constant
ruling of this Court that this kind of presumption must stand, even against the most well reasoned
allegations seemingly pointing to some possible irregularity or anomaly. "In the absence of a
showing to the contrary, a judicial proceeding is presumed to be regular, and all steps required by
law to be taken before the Court may validly render judgment had been so taken." (El Banco
Espanol-Filipino vs. Palanca, 37 Phil. 921; Ongsiako vs. Natividad, L-1371, Aug. 5, 1947; People vs.
Baco, L-2633, Feb. 23, 1958; Go Chi, et al. v. Go Cho, et al., L-5203, Feb. 23,1955; People vs.
Nazario, L-7629, Sept. 29, 1955). And so far, We have not seen anything in the record to support the
charges of Atty. Felix Jr. beyond his own allegations which, considering that they do not necessarily
belie the contrary representations of the adverse party, do not appear to Us to have any added
weight just because counsel has taken pains to emphasize he has made them "under oath".
As to the disputed existence of the judgments in question prior to June 3, 1971, or for that matter,
before May 24, 1971, We are fully convinced that said judgments were entered in the docket on April
28, 1971. We do not feel justified under the circumstances revealed in the record to say that such
entry was made days before the judgments were actually prepared and signed. The vital fact of such
entry is borne out by the certification to such effect of the respondent Clerk of Court Vicente S. Ocol,
Annex 9 of the answer herein, and the affidavit of Branch Clerk of Court Leon D. Paradero, Annex 9B, attesting to the rendition of said judgments on the same date, the truth of which can easily be
checked with the regularity or irregularity of the entries in the docket of the trial court. If the
corresponding entries in the docket do not appear to be regular, Atty. Felix Jr. could have completely
rebutted these annexes with proof based on what appears in said docket itself. The utter silence of
counsel in this respect is eloquent evidence against him.
Besides, the apparent thrust of counsel's theory is that respondents were in such hurry to make the
impugned judgments effective that they allegedly overlooked compliance with the rules cited by him,
but, to Our mind, the incontrovertible fact that it was not until May 17, 1971, or almost three weeks
after April 28, 1971, that Jesus B. Marzan, the Chief of the Civil Cases Section in the court below,
released the said judgments, according to his affidavit (Annex 9-A, id.), belies entirely such claim.
This somewhat belated release is also proven by the evidence, to be discussed anon as to when the
postal authorities got the decision for delivery to petitioners' counsel. If it were true that respondents
were acting in haste, such release would have been immediate.
The reality of the existence of the judgments in controversy prior to the dates when counsel claims
he did not see them is corroborated by evidence coming from sources other than the office of
respondent court. Annex 11- A of the respondents' answer herein is the certification of Mr. H. G.
Guzman, Postmaster of the Port Area Post Office, Manila, to the effect that Registered Letter No.
13648 of sender, "CFI Branch IV, Quezon City" was received by his office on May 19, 1971 "and the
corresponding Registry Notice was issued on said date, and sent to addressee on same day," that
"the succeeding second and third notices was (sic) issued after about weeks' intervals (sic) the exact
date of which was noted on the envelope cover of the said letter" and further "that the Registered
Letter was return (sic) to the sender, it being (sic) remain(ed) unclaimed for more than thirty days, on
June 22, 1971 under our Registry Bill No. 199 for Quezon City line 1, page 1 as shown by our
records." Annex 10 is the affidavit of Alfredo E. Sugatan, the postman assigned to the Port Area Post
Office, Manila, entrusted specifically with the delivery of "letters, notices of mails and other mail
matters" in the area "composed of Aduana and Arsobispo Streets, Intramuros, City of Manila",
stating in detail that in the morning of May 19, 1971 he personally delivered at Room 212 Lopez
Building, Aduana, Intramuros, Manila, to Miss Tuliao, known to him to be the secretary of Atty.
Alfonso Felix, Jr., also personally known to him, by reason of the performance of his duties for a
"long period of time" in that area, "the FIRST NOTICE on (sic) Registered Mail No. 13648" (the same

number referred to in Annex 11-A above) and that he also delivered to her on May 31, 1971 and
June 15, 1971, the second and third notices corresponding to the same registered letter, respectively
Annex 11 is the photostat copy of the face and the dorsal portion of the envelope addressed to "Atty.
Alfonso Felix Jr., Rm. 212 Lopez Bldg., Intramuros, Manila", with notations such as: the number
13648 enclosed in an oblong figure; "Q-15378-D and Q-15377-D" (which are precisely the numbers
of the subject cases); "Reg. Mail w/ return card"; and "Republic of the Philippines, Court of First
Instance, Branch IV - Quezon City"; and marked with rubber stamp data as follows: "Registered,
Quezon City, Philippines, May 17, 1971", "Port Area, Manila, Philippines received May 19, 1971" as
well as "Second Notice, 5-30-71" and "Third Notice, 6-15-71".
Considered in the light of ordinary official practice and experience, all the foregoing prove that mail
matter related to Civil Cases Nos. Q-15377-D and Q-15378-D of Branch IV of the Court of First
Instance of Quezon City duly addressed to Atty. Alfonso Felix, Jr. was posted by registered mail, No.
13648, at the Quezon City Post Office on May 17, 1971 and received by the Port Area Manila Post
Office on May 19, 1971 and received back by the Quezon City Post Office on June 23, 1971,
unclaimed after a second notice on May 30, 1971 and a third notice on June 15, 1971. And since it
has not been shown that any other notices referring to the same cases had proceeded from the trial
court on or about the dates mentioned, it stands to reason that what the envelope, Annex 10,
contained were precisely the judgments in question, as attested by the affidavit, Annex 9-A, of the
mailing clerk of the respondent court who released the same.
This telling mass of official evidence stands unrebutted in the record by any evidence legally worthy
of consideration. Atty. Felix, Jr. has not shown the Court any evidence which can effectively dent the
effect thereof other than his own allegations "under oath" and the inconclusive and general
assertions in (1) the affidavit of Miss Cleofe V. Tuliao, "in charge of the clerical work in the office
including the issuance and receipt of the correspondence" to the effect that "She knows in (sic) of
her own knowledge that the (sic) matter of practice which has never been deviated from (is that) the
postman gives her the notice cards for registered mail, she then brings these cards to Atty. Alfonso
Felix, Jr., who signs them and these cards are then given to Carlos de la Cruz, the office messenger
who collects them" and that "on no occasion did she fail to present any of these notice cards to Atty.
Alfonso Felix, Jr. nor did she fail to deliver the cards thus signed to Carlos de la Cruz for collection",
Annex A of Annex 1 of Respondents' Petition for dissolution of Writ of Preliminary Injunction dated
July 13, 1971 4 and (2) the affidavit of said Carlos de la Cruz stating that "he knows that it is the practice
of the office which is never deviated from that he receives the notice cards for registered mail from Miss
Cleofe Tuliao either in hand or by having them put on his desk and he then picks up all such registered
mail at the proper post office" and that "on no occasion whatsoever that he failed to collect registered mail
covered by card notices." (Annex B, id.). At a glance, anyone can see that these assertions do not
disprove the facts evidenced by the official records just referred to. It is not an exaggeration to say that
the regularity of the actuations of the respondents in relation to the declaration of default and rendition
and execution of the judgment here in question has been proven by such convincing evidence as to
relieve Us from any doubt about it.
Now, very little needs be said as regards the contention that petitioners should have been notified of
respondents' motion for execution. Prescinding already from the consideration discussed above that
the mere filing of petitioners' motion to set aside did not, because of the fatal defects of the same,
have the effect of entitling them to notice of all subsequent proceedings, with the regularity of the
rendition of the impugned judgments as well as the fact of their having become final and executory
on June 23, 1971 5 being indisputably borne by the record, the action taken by the trial court on June 28,
1971, Annex 12 of the Answer, of granting respondents' motion for immediate execution assumed the
character of an order of execution of a final and executory judgment, as so stated in the order itself, and
has, therefore, become a matter of right to the prevailing party and ministerial on the part of the court to
grant. In Pamintuan vs. Munoz, 22 SCRA 1109, the Court held:
t.hqw

Regarding the first point, it is by now axiomatic that a judgment on a compromise

like the one in the case at bar is at once final and immediately executory. Also of
the same stature is the rule that once a judgment becomes final and executory, the
prevailing party can have it executed as a matter of right and the granting of
execution becomes a ministerial duty of the court. Otherwise stated, once sought by
the prevailing party, execution of a final judgment will just follow as a matter of
course. Hence, the judgment debtor need not be given advance notice of the
application for execution nor be afforded prior hearing. (Rule 39, Sec. 1, Rules of
Court; Luther v. Clay, 100 Ga. 236, 28 S. E. 46.) This renders of little significance
then the fact alleged by petitioners that they received copy of respondent's motion for
execution only on the afternoon of the day set for its hearing.
At this point, it should be noted that viewed strictly, petitioners' fundamental pose rests exclusively
on a claim of denial of due process in that they have been improperly declared in default and that
writs of execution were issued against them without notice. Neither in the petition herein nor even
earlier in the motion to lift the order of default, Annex D, or the petition for relief from judgment,
Annex N filed with the court below, is there the adequate showing required by the rules to make the
Court inquire into the possible existence of good and valid defenses on the part of petitioners so as
to justify granting them an opportunity to prove them. To be sure, in the joint motion, Annex D,
counsel does make mention in paragraphs 4 and 9 thereof of "good and valid reasons for the denial
of plaintiff's claim by defendant company" (British) and "good and valid defenses" of Cibeles. The
trouble however is that to support the same, counsel only makes reference to the joint answer,
Annex B, he had filed on behalf of the two petitioners but, neither the motion itself nor the joint
answer is supported by any corresponding oath. The same observations may be made with regard
to the petition for relief, Annex N. And as to the allegations on the point in question in the petition
herein, all that is stated in paragraph 9 thereof is as follows:
t.hqw

(9) In the meantime, undersigned counsel had on behalf of both petitioners filed a
joint answer on April 22, 1971 which was received by the Court on April 28, 1971.
This answer signed in behalf of both petitioners alleges meritorious defenses. A copy
of the Joint Answer is annexed to the present pleading as Annex "B" hereof.
While the petition appears to be verified by Atty. Felix Jr., it is obvious that said verification may not
be deemed sufficient for the purpose of attesting to the truth of the allegations of fact in the joint
answer, Annex B, not only because no direct reference is made to them by counsel but also because
said counsel cannot pretend he has adequate personal knowledge of said facts.
Fatal as such inadequacies are in the light of established jurisprudence too well known to need
being cited, if only to satisfy Our curiousity which was aroused by the alarming allegations of the
petition, We have opted to look into the purported defenses of the petitioners, on the basis of the
allegations pertinent thereto in the memoranda of the parties, to which are annexed, as noted earlier
above, corresponding documents supposed to evidence the truth of the facts stated in said
allegations. After careful and mature consideration and evaluation of their respective allegations, We
are convinced that petitioners' alleged defenses cannot stand close scrutiny.
Thus, counsel for petitioners opens his unsworn memorandum with the following "preliminary
statement":
t.hqw

In his memorandum of August 17, 1971 filed in these certiorari proceedings, Moises
Tapia avers that we have resorted to these proceedings purely to cause further
delays for we have no real defense. This is not true. The truth of the matter is that the
evidence clearly shows Moises Tapia to be guilty of arson and fraud. It was because

of this respondent Moises Tapia availed himself of every means, even those frowned
upon by law, in order to secure judgment in his favor without going to trial. The
evidence against Moises Tapia was such that he had to avoid going to trial. In
support of this averment, we now present the following documents:
t.hqw

1. A certification from Lt. Col. Jose Fernandez, former Chief of the

Philippine Constabulary Crime Laboratory showing that there were
gasoline residues in fourteen (14) different places of the burned
bodega and that one of these places was the steel cabinet
presumably containing the company papers so that even these
papers would burn. All these places had been saturated with
gasoline. (Annex A)
2. A sketch of the bodega premises showing the widespread
distribution of the gasoline. (Annex B)
3. Twenty-two (22) photographs of the burned bodega. (Annexes C,
D, E, F, G, H and I)
4. Chromatographic specimens of the fourteen (14) gasoline residues
found in the fourteen (14) aforesaid areas. (Annexes J, K, L and M)
Moises Tapia claims that on occasion of the fire suffered by his bodega he suffered
damages in the amount of five hundred thousand (P500,000.00) pesos. We have
annexed twenty-two (22) photographs taken of his bodega after the fire. (Annexes C,
D, E, F, G, H and I) showing that his bodega hardly contained anything. Please note
that the alleged contents of this bodega were iron and steel spare parts which do not
burn. The conclusion to be drawn from all these photographs, chemical analysis and
chromatographic specimens is obvious. Moises Tapia having withdrawn his
merchandise from his bodega saturated fourteen (14) different places in his bodega
with gasoline including his steel cabinet so as to make sure that even his papers
would burn and then caused his bodega to be burned.
Under these circumstances, it was imperative for Moises Tapia to avoid having to go
to trial. It was imperative for him also, that we, your petitioners herein should not be
allowed to present evidence of these acts. That is why Moises Tapia exerted every
effort to avoid trial proceeding and that is why we submit to this Supreme Court it is
in the interest of justice for trial proceedings to be had.
The foregoing statements are addressed to the equity of this Supreme Court. They
have become particularly necessary since Moises Tapia in his memorandum filed on
August 17, 1971, before this Supreme Court has gone so far as to allege that your
petitioners are merely seeking to delay for they have no real defense. This Supreme
Court may now judge for itself. (Pp. 189-191, Record.)
and closes the same with "final remarks" thus:

t.hqw

Should this Supreme Court be puzzled as to why all these unbecoming things were
done, the answer is as we have said in our opening statement that respondents
could not afford the luxury of a trial. A trial with a corresponding presentation of
evidence, part of which is annexed to this present memorandum as Annexes A to M
would have shown respondent Tapia's case to he baseless so that even a decision

had been rendered in his favor in the trial court, it would certainly have been
reversed by this Supreme Court, It was necessary to declare your petitioners in
default so that your petitioners would not be around to present evidence, to adjudge
the case in secrecy so that your petitioners would not learn of the judgment, and to
execute in haste so that your petitioners would find themselves deprived of their
property without due process of law and before they even knew what was happening
to them. Fortunately, this Supreme Court intervened. We rely on its continued
intervention (Pp. 209-210, Record.)
The foregoing allegations are traversed squarely in respondents' Reply Memorandum as follows:

t.hqw

To give their cause some semblance of cogency, which it does not possess,
petitioners would want this Honorable Supreme Court to believe that they have a
good defense. The alleged defense consists of a report made by one ex-Lt. Col. Jose
Fernandez and related papers attached as Annexes 'A' to 'M' to petitioners'
Memorandum. Petitioners' purpose cannot prosper, for the following reasons:
1. The said Lt. Col. Jose Fernandez is a biased and unreliable source. He was hired
and paid by petitioners to conduct an analysis on specimens he himself did not
gather. Naturally his findings had to tally with his employer's theory and must serve
their purpose and interest. That was what he was paid for.
2. The falsity and baselessness of said findings are irrefutably proven by the fact that
no criminal action was instituted against respondent Tapia. Yet petitioners have the
effrontery to assert before this Honorable Supreme Court that "the evidence clearly
shows Moises Tapia to be guilty of arson and fraud," for which reason he allegedly
wanted to avoid going to trial. If that was his intention he would not have filed the
cases against petitioners in the lower court.
As a matter of fact, in the two other cases filed by him against two other insurance
companies (Civil Case No. 15376 Multifield, et al vs. Monarch Insurance Co., Inc.,
and Civil Case No. 15379 Philippine Home Insurance Corp.) for loss arising from
the same conflagration, and involving the same evidence and proof of loss and with
which petitioners have a common adjuster and investigator,respondent Tapia has
gone to trial. There, the defendant insurance companies were not declared in default
because they answered on time.
If petitioners herein were declared in default, it was because their counsel failed to
observe the reglementary period for answering and could not or failed to obtain relief
from the order of default in accordance with the Rules of Court. Now an attempt is
being made to shift the blame to respondent Tapia by falsely attributing to him a
desire to avoid going to trial purportedly because the evidence will show he is guilty
of arson and fraud'. Such foul tactics are beneath the dignity of the Bench and Bar.
The Worthless Findings of Mr. Jose Fernandez:
3. The said findings were not even believed and accepted by the petitioners'
commissioned and employed adjustment company which, after a thorough and
careful investigation of respondent Tapia's claim, had recommended that petitioners
better pay. The reports and findings of the petitioners' adjuster are attached as
Annexes "A" and "B" and form integral parts of this reply. These reports completely

refute the petitioners' allegations that respondent Tapia is guilty of arson and that he
fraudulently removed the contents from his bodega before it was destroyed by fire.
Petitioners' commissioned and employed investigator and adjuster, the Manila
Adjustment Company, in its report dated February 26, 1971 (Annex "A") to the four
insurance companies, is very explicit in its findings and recommendation that there is
no basis to deny respondent Tapia's claim on the ground of fraud. The petitioners'
hired investigator had examined respondent Tapia under the "Examination-under
Oath-Clause" of the policies and it was satisfied that no such fraud exists.
The same Adjustment Company to which the much vaunted report of the private
chemist, Mr. Jose Fernandez, was submitted, brushed aside the same and
concluded, in its report of March 11, 1971, that the said findings are not sufficient
basis for denying the claim of respondent Tapia. Even this Honorable Supreme
Court, in several cases, has categorically ruled that the existence of traces of
gasoline in the burned premises does not necessarily indicate that there was arson
(Ya Hun Co. vs. British Traders Ins. Co., L-5719-25, May 18, 1954; Hua Chu Gan vs.
Law Union & Rock Ins. Co., Ltd., L-4611, Dec. 17,1955.)
4. These reports conclusively prove that petitioners' counsel told a brazen lie when
he claimed that there were no goods destroyed in the burned bodega. As said
reports clearly indicate, the items therein inventoried after the fire had a total value of
P367,311.00. Respondent Tapia was able to prove, through the proofs of loss he
submitted in the lower court and which proofs were the same ones he submitted to
the herein petitioners, that he suffered loss and damage in the amount of
P446,781.60.
Incidentally, both Monarch Insurance and Philippine Home Insurance, defendants in
Civil Cases Nos. 15376 and 15379, for collection of insurance proceeds in the
amounts of P100,000.00 and P50,000.00, respectively, have just recently paid and
satisfied respondent Tapia's claim. In paying respondent Tapia, these two defendants
also acted upon the findings of the Manila Adjustment Company that there is neither
fraud nor arson involved in the claim of respondent Tapia. Dr. Alberto B. Guevarra,
Jr., counsel for Monarch Insurance Company and Philippine Home Insurance
Company, was in full accord with the Adjustment Company's findings and
recommendation and he did not hesitate to recommend to his clients full settlement
of the claim of respondent Tapia. (Photostat copies of joint motions to dismiss and
corresponding orders of respondent judge granting said motions are attached as
Annexes "C", "C- 1", and "D"- "D-1 " and form integral parts of this reply).
5. Petitioners stand on quick-sand. Their counsel himself, Mr. Felix, in his letter to his
clients, marked as Annex "7" of respondent Answer to the instant petition, stated that
their case is "far from strong." Hence, petitioners' case is not even strong. How can
he say now that they have a good defense? And if the evidence did show that
respondent Tapia was guilty of arson and fraud, why does Mr. Felix consider
petitioners' case as 'far from strong?' 6
6. This contention should have been interposed in the lower court through the motion
to lift the order of default, by means of affidavits of merits. Had this been done,
respondents could have opposed the same with counter affidavits. That would have
been the proper procedure. Apparently, petitioners' counsel does not believe in the
Rules of Court. He would instead burden this Honorable Supreme Court with the task

of hearing and deciding a question which was not even raised in his petition.
Respondents submit that this particular point has been raised by petitioners rather
too late. In one case, where a similar belated effort was attempted, this Honorable
Supreme Court made the following sagacious ruling:
'We believe that this is a last minute attempt to defend a losing case. If defendants
really had any valid defense, this, should have been brought at the first opportunity,
that is, by the first motion to set aside the order of default.' (Ong Peng vs. Custodio,
L-14911, March 25, 1961). (Pp. 227- 232, Record.)
Anyone would see from a simple comparison of the foregoing conflicting allegations of the parties in
the light of their respective supporting affidavits and documents that it is rather petitioners, not Tapia,
who may have more reason to avoid a full-blown trial, contrary to the charge made by Atty. Felix Jr.
in all his papers filed with this Tribunal and the court below. The attorney himself must have felt the
subject cases of his clients to be weak when he advised them in his letter, Annex 7 of respondents'
answer, that the same are "far from being strong." At the time he wrote that letter, he was well aware
of the various reports of his clients' adjusters minimizing the significance of the supposed expert
opinion of Col. Fernandez regarding the gasoline traces found in Tapia's premises after the fire and
referring to them as being innocuously insufficient to indicate arson. The attorney also knew that said
adjusters, the ones trusted by insurance companies to give them reliable advice on whether or not
insured persons making claims on their policies are more or less guilty of fraud and other improper
schemes to collect unjustified claims, had investigated Tapia's claims thoroughly and had found no
well-grounded reason to warrant non-payment, and that, in fact, they had recommended out of court
settlement. There is no showing at all that Tapia has ever been, criminally charged with arson On the
contrary, the record reveals that two other insurance companies serviced by the same adjusting
company as that of petitioners have already compromised their cases with Tapia without the latter
having them declared in default. In other words, in these cases against the other two companies,
Tapia was prepared to proceed to trial, and if he had secured default judgments against petitioners,
the cause was none other than counsel's omissions already discussed earlier in this opinion.
We reiterate that these circumstances make it unnecessary for Us to adhere to the technical
procedure of returning these cases to the trial court for further proceedings and final determination of
the issue of whether or not petitioners' petition for relief from judgment should be granted. We find all
the proceedings leading to the rendition of the impugned judgments and to the issuance of all the
writs of execution thereunder to have been regular and legal. And as to whether or not petitioners
have been able to make the requisite showing that they have good and valid defenses, We likewise
hold that they have failed to do so. It would be idle ceremony to still require respondent court to take
further action on the petition for relief, Annex N. The order of respondent judge of July 7, 1971,
giving due course to said petition has in effect become functus officio. We are persuaded that the
respective situations of the parties can no longer be possibly altered, should We prolong this judicial
battle in any way.
What has been said so far should suffice to settle once and for all the litigation between petitioners
and private respondents. But there is another aspect of these cases which cannot be left unresolved,
since it affects matters related to the integrity of judicial proceedings and the attitude and conduct
displayed by counsel for petitioners in connection therewith. the Court cannot begrudge any lawyer
of his right to be assiduous and zealous, even tenacious, in the prosecution or defense of the cause
of his client. But when, as in these cases, counsel makes charges against the actuations of a judge
and the personnel of his court directly assailing their personal integrity as well as that of the
proceedings by alleging irregularities implying bad faith and outright misfeasance, he should be
prepared to substantiate the same. This Court will be the last to overlook, much less to tolerate the
kind of misconduct alleged by counsel in his instant petition. This is not to say, however, that trial

judges may be maligned at random with accusations that cannot be proven. Anyone who
deliberately moves this Court to act on such kind of representations may do so only at his peril of
being called to account therefor, should his charges turn out to be a mere attempt to hide his own
inadequacies and omissions in order to escape criticism of his clients.
We hold that Atty. Felix Jr.'s implied accusation that respondent judge connived with his corespondents to make it appear that proper judgments by default had been regularly rendered against
petitioners on April 28, 1971, when in truth there was no such judgments, has not been proven by
him. On the contrary, the official records and the affidavits of the employees of the trial court as well
as those of the Bureau of Posts belie conclusively counsel's allegations, and the mere fact that he
did not see said judgments and other pertinent pleadings and papers in the corresponding
expedientes on May 24, 1971, assuming the same to be true, cannot disprove their existence,
particularly, when it is considered that counsel has never pretended that he had actually made
inquiries and asked the proper personnel of the court about them, which he would naturally have
done, considering that before then he had filed motions for extension followed by the joint answer. It
is particularly unfortunate that counsel made positive allegations in his petition in the instant cases
purporting to show that his clients have good and valid defenses and that respondent Tapia's
insurance claim was fraudulent and maliciously exaggerated, when, as may be readily seen from the
communications of the petitioners' own adjusting company, Annexes A and B of respondents' reply
memorandum, of which communications counsel must have been, in the ordinary course of client
and lawyer relationship, duly informed, and from counsel's own letter to his client, Annex 7 of
respondent's answer, it is more than obvious that he knew the truth to be otherwise. It is indeed
regrettable that on the basis of such unjustified allegations, the Court had been induced to issue a
writ of preliminary mandatory injunction counter-manding the writ of execution issued by the court
below, thereby causing undue prejudice to all parties concerned. Such lack of candor bordering on
conscious misstatements of fact which has actually misled the Court calls for at least an appropriate
explanation from counsel.
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered dismissing the petition in these
cases and setting aside the writ of preliminary injunction issued on July 8, 1971, with the
consequence that the executions enjoined thereby may now proceed in accordance with law and the
rules, with costs against petitioner. And for the reasons above-stated, Atty. Alfonso Felix, Jr. is hereby
ordered to show cause within ten (10) days from notice hereof why no administrative action should
be taken against him as a member of the Philippine Bar.

G.R. No. 135384

April 4, 2001

MARIANO DE GUIA and APOLONIA DE GUIA, petitioners,

vs.
CIRIACO, LEON, VICTORINA, TOMASA and PABLO, all surnamed DE GUIA, respondents.
PANGANIBAN, J.:

Under the pre-1997 Rules of Civil Procedure, a notice of pretrial must be served separately on
the counsel and the client. If served only on the counsel, the notice must expressly direct the
counsel to inform the client of the date, the time and the place of the pretrial conference. The
absence of such notice renders the proceedings void, and the judgment rendered therein
cannot acquire finality and may be attacked directly or collaterally.
1wphi1.nt

The Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the February
17, 1998 Decision1 of the Court of Appeals (CA) in CA-GR CV No. 42971. The dispositive
portion of the CA Decision reads as follows:
"WHEREFORE, without anymore touching on the merit of the judgment, we hereby SET
ASIDE the default Order of June 18, 1992 which the lower court had improvidently issued as
well as the ensuing judgment which suffers from the same fatal infirmity. Let the case be
remanded to the lower court, which is directed to promptly set the case for pre-trial
conference in accordance with the present Rules, and for further proceedings." 2

Also assailed is the September 11, 1998 CA Resolution3 which denied petitioners Motion for
Reconsideration.
The Facts
The appellate court summarized the antecedents of the case as follows:
"The record shows that on October 11, 1990, plaintiffs Mariano De Guia, Apolonia De Guia,
Tomasa De Guia and Irene Manuel filed with the court below a complaint for partition against
defendants Ciriaco, Leon, Victorina and Pablo De Guia. They alleged x x x that the real
properties therein described were inherited by plaintiffs and defendants from their
predecessors-in-interest, and that the latter unjustly refused to have the properties
subdivided among them. Shortly after defendants filed their traverse, an amended complaint
was admitted by the lower court, in which plaintiff Tomasa De Guia was impleaded as one of
the defendants for the reason that she had become an unwilling co-plaintiff.
"It is further shown in the record that on June 11, 1992, the Branch Clerk of Court issued a
Notice setting the case for pre-trial conference on June 18, 1992 at 8:30 a.m. Copies of said
notices were sent by registered mail to parties and their counsel. It turned out that both
defendants and counsel failed to attend the pre-trial conference. Hence, upon plaintiffs
motion, defendants were declared as in default and plaintiffs were allowed to present their
evidence ex-parte.
"It appears that on July 6, 1992, defendants filed their Motion for Reconsideration of the June
16, 1992 Order which declared them as in default. They explained therein that they received
the Notice of pre-trial only in the afternoon of June 18, 1992, giving them no chance to
appear for such proceeding in the morning of that day. The Motion was opposed by plaintiffs
who pointed out that per Postal Delivery Receipt, defendants counsel actually received his
copy of the Notice on June 17, 1992 or one day before the date of pre-trial. Citing Section 2,
Rule 13 of the Rules of Court, plaintiffs further urged that counsels receipt of the said notice
on June 17, 1992 was sufficient to bind defendants who received said notice on the next day.
Finally, they faulted defendants for failing to support their Motion for Reconsideration with an
affidavit of merit showing among others that they had a meritorious defense.

"In an Order dated August 19, 1992, plaintiffs motion for reconsideration was denied and on
June 11, 1993, judgment was rendered ordering the partition of the controverted parcels of
land."4

The CA Ruling
The CA sustained respondents claim that the trial court had improperly declared them in
default. It held that the Notice of pretrial received by their counsel a day before the hearing did
not bind the clients, because the Rules of Court in effect at the time mandated separate service
of such Notice upon the parties and their counsel. Said the appellate court:
"In fine, we hold that the lower court committed a reversible error in declaring appellants as
in default for their failure to attend the pre-trial conference [of] which they were not properly
served x x x notice and in subsequently rendering the herein appealed judgment. And while
we commend the lower court for its apparent interest in disposing of the case with dispatch,
the imperatives of procedural due process constrain us to set aside the default order and the
appealed judgment, both of which were entered in violation of appellants right to notice of
pre-trial as required by the Rules."5

Hence, this Petition.6

Issues
Petitioners impute the following alleged errors to the CA:
"I
The Respondent Court of Appeals, with grave abuse of discretion, erred in not finding private
respondents as in default despite the existence of fraud, for being contrary to law, and for
being contrary to the findings of the trial court.

"II
The Respondent Court, with grave abuse of discretion, erred in reversing the trial courts
Decision notwithstanding private respondents violations of Rule 15, Sections 4 and 5 and
Administrative Circular No. 04-94 and Revised Circular No. 28-91.

"III
The Respondent Court of Appeals, with grave abuse of discretion, erred in not affirming the
compromise agreement which has the effect and authority of res judicata even if not judicially
approved.

"IV
The Respondent Court gravely erred in not applying Rule 135, Section 8 as warranted by the
facts, admission and the evidence of the parties."7

In the main, petitioners raise the following core issues: (1) the propriety of the trial courts order
declaring respondents in default; and (2) petitioners allegation of procedural prejudice.

The Courts Ruling

The Petition has no merit.
First Issue:
The Propriety of the Default Order
When the present dispute arose in 1992, the applicable rule was Section 1, Rule 20 of the pre1997 Rules of Civil Procedure, which provided as follows:
"SECTION 1. Pre-trial mandatory. -- In any action after the last pleading has been filed, the
court shall direct the parties and their attorneys to appear before it for a conference to
consider:

xxx

xxx

x x x."

This provision mandated separate service of the notice of pretrial upon the parties and their
lawyers.8 In Taroma v. Sayo,9 the Court explained:
"For the guidance of the bench and bar, therefore, the Court in reaffirming the ruling that
notice of pre-trial must be served separately upon the party and his counsel of record,
restates that while service of such notice to party may be made directly to the party, it is best
that the trial courts uniformly serve such notice to party through or care of his counsel at
counsels address with the express imposition upon counsel of the obligation of notifying the
party of the date, time and place of the pre-trial conference and assuring that the party either
appear thereat or deliver counsel a written authority to represent the party with power to
compromise the case, with the warning that a party who fails to do so may be non-suited or
declared in default." (emphasis supplied)

Hence, before being declared non-suited or considered in default, parties and their counsel
must be shown to have been served with notice of the pretrial conference.10 Moreover, if served
only on the counsel, the notice must expressly direct him or her to inform the client of the date,
the time and the place of the pretrial conference. The absence of such notice renders the
proceedings void, and the judgment rendered therein cannot acquire finality and may be
attacked directly or collaterally.11
In this case, respondents received the notice on the afternoon of June 18, 1992, or after the
pretrial scheduled on the morning of that day. Moreover, although the Notice was also sent to
their counsel, it did not contain any imposition or directive that he inform his clients of the pretrial
conference. The Notice merely stated: "You are hereby notified that the above-entitled case will
be heard before this court on the 18th day of June, 1992, at 8:30 a.m. for pre-trial."12
Such belated receipt of the notice, which was not attributable to respondents, amounted to
a lack of notice. Thus, the lower court erred in declaring them in default and in denying them the
opportunity to fully ventilate and defend their claim in court.
Of course, this situation would not have arisen under Section 3,13 Rule 18 of the 1997 Rules of
Civil Procedure. It specifically provides that notice of pretrial shall be served on counsel, who is
charged with the duty of notifying the client. Considering the milieu of the present case,
however, such amended proviso is not applicable.

Second Issue:
Allegation of Procedural Bias
Petitioners allege that, to their detriment, the appellate court disregarded established procedural
precepts in resolving the case, and that it did so for three reasons. First, respondents
Manifestation and Motion to Lift the Order of Default, filed with the trial court, was merely pro
forma because the former lacked the requisite notice of hearing.Second, it also lacked an
affidavit of merit. Third, respondents Appeal Brief did not contain a certificate of non-forum
shopping.
Granting that respondents Manifestation and Motion to Lift the Order of Default was pro forma,
this issue has become moot, not only because the trial court had denied such Motion, but also
because what was appealed was the judgment rendered by the lower court. For the same
reason, we must also reject petitioners insistence that an affidavit of merit was absent. In any
case, there was no need to attach an affidavit of merit to the Motion, as the defenses of
respondents had been set out in their Answer.
1wphi1.nt

With regard to the absence of a certification of non-forum shopping, substantial justice

behooves us to agree with the disquisition of the appellate court. We do not condone the
shortcomings of respondents counsel, but we simply cannot ignore the merits of their claim.
Indeed, it has been held that "[i]t is within the inherent power of the Court to suspend its own
rules in a particular case in order to do justice."14
One last point. Petitioners fault the CA for remanding the case to the trial court, arguing that the
appellate court should have resolved the case on its merit.
We understand petitioners apprehension at the prospect of re-hearing the case; after all, it has
been nine years since the filing of the Complaint. However, their claim and the evidence
supporting it -- and respondents as well -- can be best threshed out and justly resolved in the
lower court. In this regard, we cannot pass upon the validity of the Agreement of Partition
between Mariano de Guia and Ciriaco de Guia, for such action would amount to a prejudgment
of the case.
WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution AFFIRMED.
No pronouncement as to costs.
SO ORDERED.

G.R. No. L-63397 April 9, 1985

ALEX LINA, petitioner,
vs.
THE HONORABLE COURT OF APPEALS; HONORABLE GREGORIO PINEDA, as Presiding

Judge of the Court of First Instance of Rizal, Branch XXI at Pasig; and NORTHERN MOTORS,
INC., respondents.
Olalia, Cabrera, Aguila & Bautista Law Office for private respondent.

RELOVA, J.:
Appeal by certiorari from the decision of the then Court of Appeals in CA-G.R. No. 14943-SP, dated
November 29, 1982, affirming (a) the order of default issued by respondent judge in a collection suit
instituted by private respondent Northern Motors, Inc. against petitioner; and, (b) the judgment of
default in the same case.
On March 31, 1982, private respondent Northern Motors, Inc. filed with the then Court of First
Instance of Rizal (Pasig) a case for sum of money with damages; docketed as Civil Case No. 4520.
On April 22, 1982, petitioner Alex Lina was served with summons together with a copy of the
complaint.
On May 8, 1982, when no answer or motion to dismiss was filed by petitioner, private respondent
Northern Motors, Inc. filed a motion to declare him in default. The motion was set for hearing on May
21, 1982.
On May 19, 1982, petitioner filed his opposition to the aforesaid motion inviting attention to the fact
that he had filed a motion for extension of time to file responsive pleading within the reglementary
period. On May 26, 1982, respondent judge issued an order declaring defendant (herein petitioner)
in default and allowing plaintiff (herein private respondent) to adduce its evidence ex parte.
On May 27, 1982, defendant (petitioner) filed his answer to the complaint.
On July 28, 1982, respondent court rendered its decision in favor of plaintiff (herein private
respondent).
On August 11, 1982, petitioner filed a motion to set aside decision dated July 28, 1982.
On August 25, 1982, respondent judge issued an order denying petitioner's motion to set aside
decision.
On October 6, 1982, petitioner filed with the then Court of Appeals a petition for certiorari/prohibition,
which was denied in its decision dated November 29, 1982 on the ground that
... when the private respondent filed on May 8, 1982, its motion to declare defendant
in default because the last day for him to file an answer under the summons was
May 7, 1982, the petitioner has not filed an answer. So, there was actually a valid
ground for the motion, and the respondent court could have validly declared the
defendant in default, especially because, at that time it was still unaware of the fact
that on May 5, 1982, the herein petitioner had sent to it, by registered mail, a motion
for extension of twenty days from May 7, 1982, within which to file an answer, and
which motion was received by the respondent court only on May 19, 1982.

But, then the respondent court did not immediately act on the motion to declare
defendant in default, so that by May 19, 1982, the herein petitioner was still able to
file an opposition to the motion asking him to be declared in default. The principal
ground of the opposition of the petitioner was the fact that he had sent, by registered
mail, a motion for extension of time to file responsive pleading, and he even attached
to his opposition a copy of the motion for extension.
On May 26, 1982, the respondent court resolved the motion to declare defendant in
default by granting the motion. Now since on May 26, 1982, the motion for extension
of time to file responsive pleading was already before the court, as it received the
same on May 19, 1982, and aside from this, a copy thereof was attached to the
petitioner's opposition to the private respondent's motion to declare defendant in
default, it is conclusively assumed that the respondent court, in resolving the motion
to declare defendant in default, had taken into consideration the motion for
extension, especially because the ground of petitioner's opposition to the motion to
declare defendant in default is the fact that he had asked for extension of time to file
responsive pleading. Now, then, when the respondent court declared the defendant
in default, it is a clear and inevitable implication, without the need of an express
statement to that effect, although it would have been more desirable, that the motion
for extension of nine to file responsive pleading was denied. In other words, the
Order of May 26, 1982 had the necessary and logical implication that the petitioner's
opposition to the motion to declare defendant in default, based upon the ground that
he had asked for extension of time to file responsive pleading, was disapproved or
denied by the court.(pp. 22-23, Rollo)
Coming to this Court on a petition for certiorari/prohibition, petitioner raised the following issues, to
wit:
1. Whether or not the order of default was issued in grave abuse of discretion
amounting to lack of jurisdiction.
2. Whether or not certiorari is proper in a case where judgment by default was
rendered without an order of default being furnished petitioner and where meritorious
defenses exist, which are for the trial court to evaluate and which evaluation was not
done in this case.
We are in agreement with respondent appellate court's affirmance of the questioned order of the trial
court. The granting of additional time within which to file an answer to a complaint is a matter largely
addressed to the sound discretion of the trial court. "While trial courts are persuaded, as a matter of
policy, to adopt a basically flexible attitude in favor of the defendant in this area of our adjective law,
the defense should never be lulled into the belief that whenever trial courts refuse a second request
for extension to file an answer, the appellate courts will grant relief (Naga Development Corporation
vs. Court of Appeals, 41 SCRA 105)."
In the case at bar, it was on May 5, 1982 or two (2) days before the expiration of the fifteen-day
reglementary period given to defendant to file his responsive pleading when petitioner moved for an
extension of twenty (20) days from May 7 within which to file his answer. Upon motion of private
respondent and over the objection of petitioner, respondent judge issued an order declaring
petitioner in default.
Under the Rules of Court, the remedies available to a defendant in the Court of First Instance (now
Regional Trial Court) are:

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 neglect,
and that he has a meritorious defense; (Sec. 3, Rule 18)
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 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)
Petitioner in this case did not avail himself of any of the above remedies. Instead, he went to the
appellate court on certiorari/prohibition. On this point, respondent appellate court aptly said:
... where the judgment rendered by the respondent court is the one sought to be
annulled, a petition for relief, under Rule 38 of the Revised Rules of Court, which is a
remedy in the ordinary course of law, could have been just as plain, adequate and
speedy as certiorari. Such a remedy could have been granted by the respondent
court. And if the respondent court still denies the petition, then petitioner can take an
appeal on the order denying the petition, and in the course of such appeal petitioner
can also assail the judgment an the merits upon the ground that it is supported by the
evidence, or it is contrary to law. (p. 25, Rollo)
ACCORDINGLY, the petition is DISMISSED. Without costs.
SO ORDERED.
Teehankee (Chairman), Plana, Gutierrez, Jr., De la Fuente and Alampay, JJ., concur.

Separate Opinions

MELENCIO-HERRERA, J., dissenting:

I am of the opinion that the Order of default was issued with grave abuse of discretion.
The following dates are pertinent:
May 7, 1982Last day to file answer.

May 5, 1982Petitioner filed Motion for Extension of 20 days from May 7, 1982 to
file answer.
May 8, 1982Private respondent filed motion to declare petitioner in default.
May 19, 1982Petitioner filed opposition.
May 19, 1982Court received petitioner's motion for extension to file answer.
May 26, 1982Court declared petitioner in default.
May 27, 1982Petitioner filed answer (last day of extended period)
July 28, 1982Court rendered judgment by default.
Clearly, petitioner's Motion for extension to file Answer was already before the Court when it
declared petitioner in default. What is more, the Answer had already been filed within the extended
period requested when judgment by default was rendered.
It has been the consistent ruling of this Court that cases should be resolved on the merits rather than
on technicalities. Every party-litigant should be afforded the amplest opportunity for the proper and
just disposition of his cause, free from the constraints of technicalities (A-One Feeds, Inc. vs. Court
of Appeals, 100 SCRA 590 (1980)).
Respondent Trial Court should have resolved the Motion for Extension before declaring petitioner in
default. I do not think that it can be "conclusively assumed" that it had taken the same into
consideration when it issued the Order of default, although that was petitioner's ground in his
opposition to the default Motion.
It is true that a defendant should not presume that a Motion for extension would be favorably acted
on. However, under the circumstances of the case, it was petitioner's first Motion for extension; said
Motion was filed before the expiration of the reglementary period within which to submit an Answer;
and the Answer having been filed within the extended period requested, in the interest of substantial
justice, the Order of default should not have been issued.
Certiorari was a proper remedy. In Dimayacyac vs. Court of Appeals, 93 SCRA 265, 267 (1979), this
Court ruled:
That the ordinary remedy which should be availed of by a party who has been
declared in default and judgment rendered against him is that of appeal and not
certiorari is a rule too elementary to be discussed herein. This rule, however, is not
without exceptions for to insist on its application in all cases may not always serve
the ends of justice. The object of procedural law is to facilitate the adjudication of
conflicting claims. Thus, althugh an appeal is available, certiorari still lies when such
appeal does not prove to be a more speedy and adequate remedy....
Upon the foregoing considerations, I vote to grant the Petition and to set aside the Order of default.

Separate Opinions
MELENCIO-HERRERA, J., dissenting:
I am of the opinion that the Order of default was issued with grave abuse of discretion.
The following dates are pertinent:
May 7, 1982Last day to file answer.
May 5, 1982Petitioner filed Motion for Extension of 20 days from May 7, 1982 to
file answer.
May 8, 1982Private respondent filed motion to declare petitioner in default.
May 19, 1982Petitioner filed opposition.
May 19, 1982Court received petitioner's motion for extension to file answer.
May 26, 1982Court declared petitioner in default.
May 27, 1982Petitioner filed answer (last day of extended period)
July 28, 1982Court rendered judgment by default.
Clearly, petitioner's Motion for extension to file Answer was already before the Court when it
declared petitioner in default. What is more, the Answer had already been filed within the extended
period requested when judgment by default was rendered.
It has been the consistent ruling of this Court that cases should be resolved on the merits rather than
on technicalities. Every party-litigant should be afforded the amplest opportunity for the proper and
just disposition of his cause, free from the constraints of technicalities (A-One Feeds, Inc. vs. Court
of Appeals, 100 SCRA 590 (1980)).
Respondent Trial Court should have resolved the Motion for Extension before declaring petitioner in
default. I do not think that it can be "conclusively assumed" that it had taken the same into
consideration when it issued the Order of default, although that was petitioner's ground in his
opposition to the default Motion.
It is true that a defendant should not presume that a Motion for extension would be favorably acted
on. However, under the circumstances of the case, it was petitioner's first Motion for extension; said
Motion was filed before the expiration of the reglementary period within which to submit an Answer;
and the Answer having been filed within the extended period requested, in the interest of substantial
justice, the Order of default should not have been issued.
Certiorari was a proper remedy. In Dimayacyac vs. Court of Appeals, 93 SCRA 265, 267 (1979), this
Court ruled:
That the ordinary remedy which should be availed of by a party who has been
declared in default and judgment rendered against him is that of appeal and not

certiorari is a rule too elementary to be discussed herein. This rule, however, is not
without exceptions for to insist on its application in all cases may not always serve
the ends of justice. The object of procedural law is to facilitate the adjudication of
conflicting claims. Thus, although an appeal is available, certiorari still lies when such
appeal does not prove to be a more speedy and adequate remedy....
Upon the foregoing considerations, I vote to grant the Petition and to set aside the Order of default.

G.R. No. L-25889 January 17, 1973

HON. GUILLERMO E. TORRES, as Presiding Judge of the Court of First Instance of Rizal,
Branch VIII, THE PROVINCIAL SHERIFF OF THE PROVINCE OF RIZAL, JAIME E. LAICO and
LUZ LOS BANOS-LAICO,petitioners-appellants,
vs.
HON. COURT OF APPEALS, JOSE CHIVI and ANGELINA CHIVI as representative of the
deceased MARTA B. CHIVI, respondents-appellees. Ernesto J. Seva for petitioners-appellants.
Ordonez, Cervo and Sanchez for respondents-appellees.

MAKALINTAL, J.:
Appeal by certiorari to review the decision of the Court of Appeals in CA-G.R. No. 35677-R, dated 31
August 1965.
The facts as found, by the Court of Appeals are as follows:
On 1 January 1955 the spouses Isidro Sierra and Antonia Magtaas sold a parcel of land to Marta B.
Chivi, representing to her that the land was not registered either under the Land Registration Act or
under the Spanish Mortgage Law and assuring her that although the land was covered by a pre-war
free patent application, the application had not been approved and no patent had been issued. The
Sierras made that assurance because Chivi was not willing to buy the land if it was covered by a
patent, since it would then be subject to repurchase. They agreed that the purchase price of
P10,800.00 was not to be fully paid until the vendors could have the land registered under Act 496.
At the instance of the Sierras, Chivi filed an application for registration of the land in the Court of
First Instance of Rizal. While the application was pending Chivi, on 24 May 1958, sold her rights and
interests in the land to the herein petitioners-spouses Jaime Laico and Luz Los Banos for
P25,647.00, with the stipulation that should Chivi fail to secure and transfer title to the Laicos she
would return to them twice the amount of the aforesaid purchase price. To induce the Laicos to buy
Chivis rights and interests, the Sierras showed them a petition withdrawing their free patent
application. The Laicos thereupon continued with the registration proceeding in substitution of Chivi,
who signed a deed of transfer of her rights.

In December, 1959 the Laicos discovered, and in January, 1960 Chivi learned, that a free patent title
had been previously issued to Isidro Sierra as early as 26 February 1932. The Laicos went to see
the Sierras, who agree to execute, as they did execute on January 17, 1960, another deed of sale in
favor of the Laicos. The Laicos then withdrew their application for registration and filed instead a
petition for the reconstitution of the title issued to Isidro Sierra.
On 14 June 1960, however, the Sierras filed a complaint against Marta B. Chivi, assisted by her
husband, and the Laicos in the Court of First Instance of Rizal, docketed as Civil Case No. 6184,
praying that they (plaintiffs) be allowed to repurchase the land under the provisions of the Public
Land Act. The Chivis and the Laicos filed their answers to the complaint and counter-claimed for
damages by reason of the alleged bad faith, misrepresentation and fraudulent acts of the Sierras, as
herein before recounted. The Laicos filed a cross-claim against the Chivis for collection of twice the
amount of the price paid under their sales contract for the latter's failure to deliver title to the Laicos,
alleging that "the defendants Chivi are/or will be liable on these warranties and condition should the
plaintiffs finally obtain favorable judgment in their favor" (sic).
On 12 March 1964 the Sierras and the Laicos entered into a compromise to amicably settle Civil
Case No. 6184 as between themselves, stipulating therein, among other things, that the Laicos were
now the absolute owners of the land and that the Sierras would withdraw their objection to the
reconstitution of the patent title and that said title would be transferred in the name of the Laicos,
who would pay P10,000.00 to the Sierras; that the Sierras would ask for the dismissal of Civil Case
No. 6184 insofar as the Laicos were concerned and would convert their action in the case from one
for repurchase to one for collection of the balance of the sales price and of damages against the
Chivis; that the Laicos would pursue their cross-claim against the Chivis and in the event they
obtained a favorable judgment thereon they would pay to the Sierras one-half (1/2) of any amount
awarded to them in excess of the purchase price of P25,647.00.
The compromise, which was executed without the knowledge of or notice to the Chivis, was
approved by the trial court on 12 March 1964. On the same date the court, joint motion of the Sierras
and the Laicos, dismissed witness prejudice the complaint in Civil Case No. 6184 insofar as the
Laicos were concerned as well as the counter-claim of the Laicos against the Sierras. Chivi was not
notified of the dismissal.
The court set the case for pre-trial on 14 July 1964. Despite notice to the Sierras and the Chivis, only
cross-claimant Jaime Laico and his counsel appeared, whereupon the court declared the Chivis in
default and allowed Laico to present evidence on the cross-claim before the deputy clerk of court.
Counsel for the Chivis filed an urgent motion for reconsideration, explaining why he failed to appear
at the pre-trial, but the motion was denied. On 5 February 1965 the court rendered judgment for the
Laicos, sentencing the cross-defendants to pay them a total amount of P15,000.00, plus costs, and
on 1 April 1965 issued a writ of execution. Pursuant to the writ the sheriff levied upon the properties
of the Chivis and issued a notice that the properties would be sold at public auction on 14 April 1965.
In due time the Chivis filed with the Court of Appeal a petition for certiorari and prohibition with
preliminary injunction to annul: (1) the order of the trial court authorizing the Laicos to adduce
evidence ex parte on their cross-claim against Marta B. Chivi; (2) the decision rendered on said
cross-claim; and (3) the order directing the issuance of a writ of execution, the levy on execution and
the notice of execution sale of the properties of Chivi prayed further that the therein respondents be
prohibited from conducting any further proceedings in said Civil Case No. 6184 on the ground that
the trial court was without jurisdiction in the premises.

Upon giving due course to the petition the Court of Appeals issued a writ of preliminary injunction,
restraining the therein respondents from proceedings with the execution and with the sale at public
auction set for 14 April 1965, until further order.
On 31 August 1965 the Court of Appeals rendered decision declaring null and void all the
proceedings on the cross-claim of the spouses Laico against Chivi, as well as the orders, decisions,
writs and processes issued in connection therewith, and restraining the therein respondent Judge
and sheriff of the Court of First Instance of Rizal from further proceeding in Civil Case No. 6184. The
Laicos moved for reconsideration. Pending resolution of the motion for reconsideration, Marta B.
Chivi died was substituted by Angelina Chivi. In an order dated 16 March 1966, the motion for
reconsideration was denied. Hence, the instant appeal by certiorari brought by the Laicos.
The principal issue in this case is: Could the cross-claim in this particular action stand after the
complaint in the same action was dismissed with prejudice?
In the resolution of this issue the following considerations are pertinent:
(1) A cross-claim, as defined in Section 7 of Rule 6 is "any claim by one party against a co-party
arising out of the transaction or occurrence that is the subject matter either of the original action or of
a counterclaim therein."
(2) The cross-claim of the Laicos against the Chivis was for the recovery of the sum of P51,294.00,
upon the allegations that according to the contract of sale between them, "should the defendants
Chivi fail to transfer the title to the land in question to the VENDEE (defendant Laico) then the former
shall return to the latter (the aforesaid sum) which is double the amount of the purchase price
received by the defendants Chivi;" and that "the defendants Chivi are/or will be liable on these
warranties and conditions should the plaintiffs (Sierras) finally obtain favorable judgment in their
favor" (sic).
(3) When Marta B. Chivi sold her "rights and interests" to the land in question to the Laicos on 24
May 1958 the latter knew that Chivi had yet no registered title, and in fact substituted her in the
registration proceeding which she had initiated.
(4) In their counterclaim for damages against the Sierras in Civil Case No. 6184, the Laicos alleged
that the "plaintiffs, in fraudulently misrepresenting to the defendants Chivi, as well as to the
defendants Laico, that the land in question is unregistered and is not covered by a patent, thereby
inducing the latter to purchase the land in question, which they would not have done had they known
that the land is covered by a patent, should be adjudged to pay ..."
(5) The warranty undertaken by Marta B. Chivi, judging by its terms and by the surrounding
circumstances was in respect of the transfer of ownership not of the registered title to the
Laicos. The action filed by the Sierras was not for recovery of such ownership but for the exercise of
their alleged right of repurchase under the Public Land Act on the ground that the land they had sold
was covered by a patent title. In other words, the filing of the action did not militate against the
warranty to transfer title, for the very fact that the plaintiffs wished to enforce their alleged right of
repurchase was predicated on the assumption that the title, that is, ownership, had been effectively
transferred first to Chivi an subsequently by the latter to the Laicos.
(6) In any event, even viewing the situation in the light most favorable to the Laicos, their cross-claim
on Chivi's warranty to deliver title to them was so inextricably linked with and so utterly dependent
upon the success of the complaint of the Sierras for the repurchase of the land that when the
complaint was dismissed the cross-claim could not possibly survive. For as the cross-claimants

themselves alleged, the cross-defendants would be liable on the warranty "should the plaintiffs finally
obtain favorable judgment in their favor" (sic). The warranty became functus oficio after the Sierras,
who turned out after all to have a free patent title to the land issued way back in 1932, agreed to
transfer and did transfer said title to the Laicos first by the deed of sale executed directly in their
favor by the Sierras on January 17, 1960, and again in the amicable settlement of the case between
them. The fact that the Laicos paid P10,000.00 to the Sierras in that amicable settlement created no
liability on the part of the Chivis: first, because the latter neither knew nor consented to such
settlement; second, because the Laicos had already acquired the land directly, from the Sierras by
virtue of the aforesaid sale of January 17, 1960; and third because the said sum of P10,000.00 was
not the subject of the cross-claim against them.
Apropos is the following statement of the legal principle:
A cross-bill strictly speaking is one brought by a defendant in an equity suit against ...
other defendants in the same suit, touching the matters in question in the original bill.
It is considered as an auxiliary suit dependent upon the original bill, and can be
sustained only on matters growing out of the original bill. There is a well-defined
distinction between a cross-bill merely defensive in character, and one seeking
affirmative relief. The dismissal of the original bill carries with it a purely defensive
cross-bill but not one seeking affirmative relief. 1
The cross-claim in this case was purely defensive in nature. It arose entirely out of the complaint and
could prosper only if the plaintiffs succeeded. Hence, under the principle above enunciated, it could
not be the subject of independent adjudication once it lost the nexus upon which its life depended.
Under the circumstances above set forth the dismissal of the cross-claim should have followed the
dismissal of the complaint as a matter of course, without further proceeding; and in setting the said
cross-claim for pre-trial and receiving evidence thereon and then rendering judgment against the
cross-defendants the court committed such a grave abuse of discretion amounting to lack of
jurisdiction correctible by certiorari.
Concerning the argument that the respondents here were guilty of laches because they filed their
petition forcertiorari after the lapse of over 9 months from the time judgment of the Court of First
Instance was rendered, respondent Court of Appeals ruled in our opinion correctly as follows:
xxx xxx xxx
To the contention that the petitioners' action is barred laches, we are bound to
disagree. The judgment by default was rendered on February 5, 1965. It is not known
when the petitioners received copy of this judgment, but the fact is that on April 13, or
after the lapse of only 2 months and 7 days from rendition of the judgment, the
petition for certiorari was filed with this Court. Principally, the petition assails the
decision and the writ of execution thereof which was issued on April 1. Assuming that
the decision complained of was actually received by the petitioners on the date it was
rendered, the intervening period to the filing of the petition is only 2 months and 7
days, which is shorter than the shortest period of 2 months and 26 days cited in the
respondents' ex-parte motion for reconsideration in support of their theory of laches.
And a mere 12 days intervened between the issuance of the writ of execution and
the filing of the petition for certiorari.
xxx xxx xxx

Parenthetically, this Court would like to state that Judge Guillermo Torres should not have been
made to appear as active party-petitioner in this case, his participation having become functus
oficio after the rendered judgment, and therefore his role being purely nominal in this petition.
In view of the foregoing considerations, the judgment of the Court of Appeals is affirmed, without
pronouncement as to costs.
Concepcion, C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo, Makasiar, Antonio and
Esguerra, JJ., concur.

G.R. No. 139884

February 15, 2001

SPOUSES OCTAVIO and EPIFANIA LORBES, petitioners,

vs.
COURT OF APPEALS, RICARDO DELOS REYES and JOSEFINA CRUZ, respondents.
GONZAGA-REYES, J.:
This petition for review on certiorari arose from an action for reformation of instrument and
damages originally filed with the Regional Trial Court of Antipolo, Rizal, Branch 74, the decision
on which was reviewed and reversed by the Third Division of the Court of Appeals.
Petitioners were the registered owners of a 225-square meter parcel of land located in Antipolo,
Rizal covered by Transfer Certificate of Title No. 165009. Sometime in August 1991, petitioners
mortgaged this property to Florencio and Nestor Carlos in the amount of P150,000.00.
About a year later, the mortgage obligation had increased to P500,000.00 and fearing
foreclosure of the property, petitioners asked their son-in-law, herein private respondent Ricardo
delos Reyes, for help in redeeming their property. Private respondent delos Reyes agreed to
redeem the property but because he allegedly had no money then for the purpose he solicited
the assistance of private respondent Josefina Cruz, a family friend of the delos Reyeses and an
employee of the Land Bank of the Philippines.
1wphi1.nt

It was agreed that petitioners will sign a deed of sale conveying the mortgaged property in favor
of private respondent Cruz and thereafter, Cruz will apply for a housing loan with Land Bank,
using the subject property as collateral. It was further agreed that out of the proceeds of the
loan, P500,000.00 will be paid to the Carloses as mortgagees, and an such balance will be
applied by petitioners for capital gains tax, expenses for the cancellation of the mortgage to the
Carloses, transfer of title to Josefina Cruz, and registration of a mortgage in favor of Land
Bank.1 Moreover, the monthly amortization on the housing loan which was supposed to be

deducted from the salary of private respondent Cruz will be reimbursed by private respondent
delos Reyes.
On September 29, 1992, the Land Bank issued a letter of guarantee in favor of the Carloses,
informing them that Cruzs loan had been approved. On October 22, 1992, Transfer Certificate
of Title No. 165009 was cancelled and Transfer Certificate of Title No. 229891 in the name of
Josefina Cruz was issued in lieu thereof.2 On November 25, 1992, the mortgage was
discharged.
Sometime in 1993, petitioners notified private respondent delos Reyes that they were ready to
redeem the property but the offer was refused. Aggrieved, petitioners filed on July 22, 1994 a
complaint for reformation of instrument and damages with the RTC of Antipolo, Rizal, docketed
as Civil Case No. 94-3296.
In the complaint, petitioners claimed that the deed was merely a formality to meet the
requirements of the bank for the housing loan, and that the real intention of the parties in
securing the loan was to apply the proceeds thereof for the payment of the mortgage
obligation.3 They alleged that the deed of sale did not reflect the true intention of the parties, and
that the transaction was not an absolute sale but an equitable mortgage, considering that the
price of the sale was inadequate considering the market value of the subject property and
because they continued paying the real estate taxes thereto even after the execution of the said
deed of sale. Petitioners averred that they did not see any reason why private respondents
would retract from their original agreement other than that they (petitioners) and the members of
their family resigned en masse from the Mahal Namin Organization, of which private respondent
delos Reyes was the president and chairman of the board of directors, and private respondent
Cruz was the treasurer. In the same complaint, they demanded moral damages, exemplary
damages, and attorneys fees.
On July 29, 1996, the trial court issued a temporary restraining order enjoining private
respondents from ejecting petitioners from the premises of the disputed property; this was soon
replaced by a writ of preliminary injunction.
Summons and a copy of the complaint were served upon private respondents on August 1,
1994. Private respondents filed their answer beyond the reglamentary period, or only on
September 1, 1994. Thus, on September 5, 1994, petitioners filed a motion to declare private
respondents in default, which the trial court granted in an order dated September 16, 1994. On
September 30 of the same year, petitioners presented their evidence ex partebefore the trial
court. The principal witness presented was petitioner Octavio Lorbes, whose testimony was
corroborated by his son, Atty. Salvador Lorbes.
On October 12, 1994, private respondents filed a motion to lift order of default and to strike out
evidence presentedex parte, which the court denied in an order dated October 26, 1994.
On June 20, 1995, the trial court rendered judgment in favor of petitioners, upon finding that: (1)
the Deed of Absolute Sale dated October 21, 1992 did not reflect the true intention of the
parties, and (2) the transaction entered into between petitioners and Cruz was not an absolute
sale but an equitable mortgage, considering that the price stated in the Deed of Absolute Sale
was insufficient compared to the value of the property, petitioners are still in possession of the
property, and petitioners had continued to pay the real estate taxes thereon after the execution
of the said deed of sale. As explained by the trial court in its decision:

The foregoing uncontroverted facts clearly show that the transaction entered into between
the plaintiffs and the defendants is not an absolute sale but merely an equitable mortgage as
the sale was executed in order to secure a loan from a certain bank to save the property
from the danger of foreclosure and to use it as collateral thereof for bank loan purposes and
that the same does not reflect the real intention of the parties in executing the said Deed of
Sale. The court notes that at the time the transaction and the Deed of Absolute Sale was
executed by the plaintiffs sometime in 1992, the prevailing market value of the lot alone was
P400,000.00 per square meter such that the lot alone consisting of 255 square meters,
excluding the house and improvements thereon would already cost more than a million
pesos already hence, the consideration of P600,000.00 in the said Deed of Sale is
considerably insufficient compared to the value of the property. Further, the plaintiffs are still
in possession of the subject property and had been paying the realty taxes thereon even
after the execution of the sale and the transfer of the title from the plaintiffs to defendant
Josephine Cruz which clearly evinces the true badge of the transaction which occurred
between the plaintiffs and defendants as that of an equitable mortgage and not an absolute
sale and that the plaintiffs were only compelled to enter into the said transaction of sale with
the defendants as the former were in extreme need of money in order to redeem their only
conjugal property and to save it from being foreclosed for non-payment of the mortgage
obligation and that it was never the intention of the plaintiffs to sell the property to the
defendants, as it was their agreement that plaintiffs can redeem the property or any member
of the family thereof, when they become financially stable. 4

The dispositive portion of the trial courts decision thus provides:

WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the plaintiffs
and against the defendants, ordering the latter jointly and severally, as follows:
1. To reconvey the subject property to the plaintiffs upon payment of the price
stipulated in the contract of sale;
2. To pay plaintiffs the sum of P50,000.00 as moral damages;
3. To pay plaintiffs the sum of P50,000.00 as and by way of attorneys fees plus
P1,000.00 per court appearance;
4. To pay the costs of suit.
SO ORDERED.5

The Court of Appeals reversed the above decision, finding that private respondents were denied
due process by the refusal of the trial court to lift the order of default against them, and that the
transaction between petitioners and Cruz was one of absolute sale, not of equitable mortgage. It
also held the RTC decision to be constitutionally infirm for its failure to clearly and distinctly state
the facts and the law on which it is based.
The Court of Appeals held that the reformation of the Deeds of Absolute Sale in the instant case
is improper because there is no showing that such instrument failed to express the true intention
of the parties by reason of mistake, fraud, inequitable conduct, or accident in the execution
thereof.6 To the Court of Appeals, the transaction was unmistakably a contract of sale, as
evidenced by the numerous supporting documents thereto, such as the Contract to Sell dated
June 1992, Affidavit of Waiver/Assignment dated August 14, 1992, Receipt of Partial Advance

Payment dated September 9, 1992, and Transfer Certificate of Title No. 229891 issued in the
name of private respondent Cruz. Going over the indicators giving rise to a presumption of
equitable mortgage cited in the decision of the RTC, the Court of Appeals held: (1) inadequacy
of price is material only in a sale with right to repurchase, which is not the case with herein
petitioners and Cruz; moreover, the estimate of the market value of the property came only from
the bare testimony of petitioner Octavio Lorbes, (2) petitioners remaining in possession of the
property resulted only from their refusal to vacate the same despite the lawful demands of
private respondent Cruz, and (3) there was no documentary evidence that petitioners continued
paying the taxes on the disputed property after the execution of the Deed of Absolute Sale.
In its decision, the Court of Appeals also pointed out that under the usual arrangement of pacto
de retro the vendor of the property is a debtor of the vendee, and the property is used as
security for his obligation. In the instant case, the mortgage creditors (the Carloses) are third
persons to the Deed of Absolute Sale.
This petition raises three issues before the Court: (1) whether respondent court erred in ruling
that the Deed of Absolute Sale dated October 21, 1992 was an equitable mortgage, (2) whether
respondent court erred in ruling that by declaring private respondents in default they were
denied due process of law, and (3) whether respondent court erred in ruling that the trial courts
decision violates the constitutional requirement that it should clearly and distinctly state the facts
and the law on which it is based.7
We shall first deal with the second and third issues, these being preliminary matters.
Well-settled is the rule that courts should be liberal in setting aside orders of default for
judgments of default are frowned upon, unless in cases where it clearly appears that the
reopening of the case is intended for delay.8 The issuance of orders of default should be the
exception rather than the rule, to be allowed only in clear cases of obstinate refusal by the
defendant to comply with the orders of the trial court.9
Under the factual milieu of this case, the RTC was indeed remiss in denying private
respondents motion to lift the order of default and to strike out the evidence presented by
petitioners ex parte, especially considering that an answer was filed, though out of time. We
thus sustain the holding of the Court of Appeals that the default order of the RTC was
immoderate and in violation of private respondents due process rights. However, we do not
think that the violation was of a degree as to justify a remand of the proceedings to the trial
court, first, because such relief was not prayed for by private respondents, and second, because
the affirmative defenses and evidence that private respondents would have presented before
the RTC were capably ventilated before respondent court, and were taken into account by the
latter in reviewing the correctness of the evaluation of petitioners evidence by the RTC and
ultimately, in reversing the decision of the RTC. This is evident from the discussions in the
decision of the Court of Appeals, which cited with approval a number of private respondents
arguments and evidence, including the documents annexed to their opposition to the issuance
of a writ of preliminary injunction filed with the RTC.10 To emphasize, the reversal of respondent
court was not simply on due process grounds but on the merits, going into the issue of whether
the transaction was one of equitable mortgage or of sale, and so we find that we can properly
take cognizance of the substantive issue in this case, while of course bearing in mind the
inordinate manner by which the RTC issued its default order.

As regards the third issue, we reverse for being unfounded the holding of the Court of Appeals
since the RTC decision, some parts of which we even reproduced in our earlier discussions,
clearly complied with the constitutional requirement to state clearly and distinctly the facts and
the law on which it was based.
Thus, the one issue essential to the resolution of this case is the nature of the transaction
between petitioners and private respondent Cruz concerning the subject parcel of land. Did the
parties intend for the contested Deed of Absolute Sale to be a bona fide and absolute
conveyance of the property, or merely an equitable mortgage?
On the outset, it must be emphasized that there is no conclusive test to determine whether a
deed absolute on its face is really a simple loan accommodation secured by a mortgage.11 "The
decisive factor in evaluating such agreement is the intention of the parties, as shown not
necessarily by the terminology used in the contract but by all the surrounding circumstances,
such as the relative situation of the parties at that time, the attitude, acts, conduct, declarations
of the parties, the negotiations between them leading to the deed, and generally, all pertinent
facts having a tendency to fix and determine the real nature of their design and understanding.
As such, documentary and parol evidence may be submitted and admitted to prove the intention
of the parties."12
The conditions which give way to a presumption of equitable mortgage, as set out in Article
1602 of the Civil Code, apply with equal force to a contract purporting to be one of absolute
sale.13 Moreover, the presence of even one of the circumstances laid out in Article 1602, and not
a concurrence of the circumstances therein enumerated, suffices to construe a contract of sale
to be one of equitable mortgage.14 This is simply in consonance with the rule that the law favors
the least transmission of property rights.15
Thus, under Article 1602 of the Civil Code, a contract shall be presumed to be an equitable
mortgage when --- (a) the price of a sale with right to repurchase is unusually inadequate; (b)
the vendor remains in possession as lessee or otherwise; (c) upon or after the expiration of the
right of repurchase another instrument extending the period of redemption or granting a new
period is executed; (d) the purchaser retains for himself a part of the purchase price; (e) the
vendor binds himself to pay the taxes on the thing sold; and, (f) in any other case where it may
be fairly inferred that the real intention of the parties is that the transaction shall secure the
payment of a debt or the performance of any other obligation.
Applying the foregoing considerations to the instant case, the Court finds that the true intention
between the parties for executing the Deed of Absolute Sale was not to convey ownership of the
property in question but merely to secure the housing loan of Cruz, in which petitioners had a
direct interest since the proceeds thereof were to be immediately applied to their outstanding
mortgage obligation to the Carloses.
It is not disputed that before the execution of the Deed of Absolute Sale petitioners mortgage
obligation to the Carloses as nearing maturity and they were in dire need of money to meet the
same. Hence, they asked for the help of their son-in-law delos Reyes who in turn requested
Cruz to take out a housing loan with Land Bank. Since collateral is a standard requirement of
banks in giving out loans, it was made to appear that the subject property was sold to Cruz so
she can declare the same as collateral for the housing loan. This was simply in line with the
basic requirement in our laws that the mortgagor be the absolute owner of the property sought
to be mortgaged.16Consistent with their agreement, as soon as the housing loan was approved,

the full amount of the proceeds were immediately turned over to petitioners, who promptly paid
P500,000.00 therefrom to the Carloses in full satisfaction of their mortgage obligation. The
balance was spent by petitioners in transferring title to the property to Cruz and registering the
new mortgage with Land Bank.
Understandably, the Deed of Absolute Sale and its supporting documents do not reflect the true
arrangement between the parties as to how the loan proceeds are to be actually applied
because it was not the intention of the parties for these documents to do so. The sole purpose
for preparing these documents was to satisfy Land Bank that the requirement of collateral
relative to Cruzs application for a housing loan was met.
Were we to accept, as respondent court had, that the loan that Cruz took out with Land Bank
was indeed a housing loan, then it is rather curious that Cruz kept none of the loan proceeds but
allowed for the bulk thereof to be immediately applied to the payment of petitioners outstanding
mortgage obligation. It also strains credulity that petitioners, who were exhausting all means to
save their sole conjugal real property from being foreclosed by the Carloses, would concurrently
part with the same in favor of Cruz.
Such urgent prospect of foreclosure helps to explain why petitioners would subscribe to an
agreement like the Deed of Absolute Sale in the herein case, which on its face represents their
unconditional relinquishment of ownership over their property. Passing upon previous similar
situations the Court has declared that "while it was true that plaintiffs were aware of the contents
of the contracts, the preponderance of the evidence showed however that they signed knowing
that said contracts did not express their real intention, and if they did so notwithstanding this, it
was due to the urgent necessity of obtaining funds. "Necessitous men are not, truly speaking,
free men; but to answer a present emergency, will submit to any terms that the crafty may
impose upon them."17
The facts further bear out that petitioners remained in possession of the disputed property after
the execution of the Deed of Absolute Sale and the transfer of registered title to Cruz in October
1992. Cruz made no demand on petitioners to vacate the subject premises until March 19,
1994;18 interestingly, this was two days after petitioners signified their intention to redeem the
property by paying the full amount of P600,000.00.19 On this basis, the finding of respondent
court that petitioners remained in possession of the property only because they refused to
vacate on Cruzs demand is not accurate because the records reflect that no such demand was
made until more than a year since the purported sale of the property.
Copies of realty tax receipts attached to the record also show that petitioners continued paying
for the taxes on the property for the period 1992 to 1994,20 or after the property was supposed to
have been sold to Cruz.
From the above, the Court is satisfied that enough of the circumstances set out in Article 1602
of the Civil Code are attendant in the instant case, as to show that the true arrangement
between petitioners and private respondent Cruz was an equitable mortgage.
That a transfer certificate of title was issued in favor of private respondent Cruz also does not
import conclusive evidence of ownership or that the agreement between the parties was one of
sale. As was stated in Oronce vs. Court of Appeals,21 citing Macapinlac vs. Gutierrez Repide22:

xxx it must be borne in mind that the equitable doctrine xxx to the effect that any conveyance
intended as security for a debt will be held in effect to be a mortgage, whether so actually
expressed in the instrument or not, operates regardless of the form of the agreement chosen
by the contracting parties as the repository of their will. Equity looks through the form and
considers the substance; and no kind of engagement can be adopted which will enable the
parties to escape from the equitable doctrine to which reference is made. In other words, a
conveyance of land, accompanied by registration in the name of the transferee and the
issuance of a new certificate, is no more secured from the operation of the equitable doctrine
than the most informal conveyance that could be devised.

Before we fully set aside this issue, it will be recalled that the instant petition originated as a
complaint for reformation filed before the RTC of Antipolo, Rizal. The Court of Appeals found
petitioners action for reformation unmeritorious because there was no showing that the failure
of the deed of sale to express the parties true intention was because of mistake, fraud,
inequitable conduct, or accident.23 Indeed, under the facts of the present case, reformation may
not be proper for failure to fully meet the requisites in Article 1359 of the Civil Code, and
because as the evidence eventually bore out the contested Deed of Absolute Sale was not
intended to reflect the true agreement between the parties but was merely to comply with the
collateral requirements of Land Bank. However, the fact that the complaint filed by petitioners
before the trial court was categorized to be one for reformation of instrument should not
preclude the Court from passing upon the issue of whether the transaction was in fact an
equitable mortgage as the same has been squarely raised in the complaint and had been the
subject of arguments and evidence of the parties. Thus we have held that it is not the caption of
the pleading but the allegations therein that determine the nature of the action, and the Court
shall grant relief warranted by the allegations and the proof even if no such relief is prayed for.24
Finally, on the award of damages. Considering the due process flaws that attended the default
judgment of the RTC, and applying the rule adopted by this Court that in instances where no
actual damages are adjudicated the awards for moral and exemplary damages may be
reduced,25 we reduce the award for moral damages in the instant case from P50,000.00 to
P30,000.00. At the same time, we sustain the award of attorneys fees in the amount of
P50,000.00, it being clear that petitioners were compelled to incur expenses and undergo the
rigors of litigation to recover their property.
1wphi1.nt

WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE. The
decision of the Regional Trial Court of Antipolo, Rizal is REINSTATED, with
the MODIFICATION that the award of moral damages is reduced to P30,000.00, and in all other
respects AFFIRMED. Costs against private respondents.
SO ORDERED.