their Reply.9 Respondents filed a Comment on the Reply.

10 AFP-RSBS,11
Espreme Realty,12 and, BPI13 filed their respective Motions to Dismiss which
respondents opposed.

RULE 6- Kinds of Pleadings

!
[G.R. NO. 136051 : June 8, 2006]
ALFREDO P. ROSETE, OSCAR P. MAPALO and CHITO P. ROSETE,
Petitioners, v. JULIANO LIM and LILIA LIM, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari which seeks to set aside the
Decision1 of the Court of Appeals in CA-G.R. SP No. 45400 dated 24 August
1998 which upheld the Orders of Branch 77 of the Regional Trial Court (RTC)
of Quezon City in Civil Case No. Q-95-25803 dated 22 July 19972 and 27
August 1997,3 allowing the taking of deposition upon oral examination of
petitioners Oscar P. Mapalo and Chito P. Rosete, and its Resolution4 dated 19
October 1998 denying petitioners' Motion for Reconsideration.
Relevant to the petition are the following antecedents:

In an Order dated 12 March 1996, the Motions to Dismiss filed by all the
defendants were denied.14 The Motions for Reconsideration filed by
petitioners15 and BPI,16 which respondents opposed,17 were also denied in an
Order dated 24 May 1996.18
On 6 June 1996, BPI filed its Answer with Compulsory Counterclaim and
Cross-claim19 to which respondents filed their Reply and Answer to
Counterclaim.20 Respondents also filed a Motion21 to Serve Supplemental
Allegation against BPI and petitioner Chito Rosete which the trial court
granted in an order dated 28 July 1996.22
On 7 June 1996, petitioners manifested that on 5 June 1996, they filed a
Petition23 for Certiorari and Prohibition in the Court of Appeals, docketed as
CA-G.R. SP No. 40837, challenging the trial court's Orders dated 12 March
1996 and 24 May 1996 that denied their Motions to Dismiss and
Reconsideration, respectively.24 They likewise informed the trial court that on
6 June 1996, they filed an Ex-Parte Motion25 to Admit Answers Ex Abudanti
Cautela.26 rbl r l l lbrr

On 5 December 1995, respondents Juliano Lim and Lilia Lim filed before
Branch 77 of the RTC of Quezon City a Complaint for Annulment, Specific
Performance with Damages against AFP Retirement and Separation Benefits
System (AFP-RSBS), Espreme Realty and Development Corporation
(Espreme Realty), Alfredo P. Rosete, Maj. Oscar Mapalo, Chito P. Rosete,
Bank of the Philippine Islands (BPI), and Register of Deeds of the Province of
Mindoro Occidental, docketed as Civil Case No. Q-95-25803.5 It asked,
among other things, that the Deed of Sale executed by AFP-RSBS covering
certain parcels of lands in favor of Espreme Realty and the titles thereof under
the name of the latter be annulled; and that the AFP-RSBS and Espreme
Realty be ordered to execute the necessary documents to restore ownership
and title of said lands to respondents, and that the Register of Deeds be
ordered to cancel the titles of said land under the name of Espreme Realty
and to transfer the same in the names of respondents.

On 7 August 1996, petitioner Chito Rosete filed a motion asking that the order
granting the Motion to Serve Supplemental Allegation against BPI and him be
reconsidered and set aside, and that respondents be ordered to reduce their
supplemental allegations in the form and manner required by the Rules of
Court.27 Same was denied in an order dated 12 August 1996.28 This denial
was appealed to the Court of Appeals on 26 August 1996, which was
docketed as CA-G.R. SP No. 41821.29

On 18 January 1996, petitioners filed a Motion to Dismiss on the grounds that

the court has no jurisdiction over the subject matter of the action or suit and
that venue has been improperly laid.6 A Supplemental Motion to Dismiss was
filed by petitioner Alfredo P. Rosete on 23 January 1996.7 Respondents
opposed the Motion to Dismiss filed by petitioners8 to which petitioners filed

On 13 June 1997, petitioners filed an Urgent Ex-Parte Motion and Objection

to Take Deposition Upon Oral Examination.32 They argued that the deposition
may not be taken without leave of court as no answer has yet been served
and the issues have not yet been joined since their Answer was filed ex
abudanti cautela, pending resolution of the Petition for Certiorari challenging

Petitioner Chito Rosete filed his Supplemental Answer (Ex Abudanti Cautela)
on 9 September 1996.30
On 28 May 1997, respondents filed a Notice to Take Deposition Upon Oral
Examination giving notice that on June 18 and 20, 1997 at 9:00 a.m., they will
cause the deposition of petitioners Oscar Mapalo and Chito Rosete.31

the orders dated 12 March 1996 and 24 May 1996 that denied their Motions to
Dismiss and for Reconsideration, respectively. This is in addition to the fact
that they challenged via a Petition for Certiorari before the Court of Appeals
the lower court's Orders dated 23 July 1996 and 12 August 1996 which,
respectively, granted respondents' Motion to Serve Supplemental Allegation
Against Defendants BPI and Chito Rosete, and for the latter to plead thereto,
and denied Chito Rosete's Motion for Reconsideration of the order dated 23
July 1996. Moreover, they contend that since there are two criminal cases
pending before the City Prosecutors of Mandaluyong City and Pasig City
involving the same set of facts as in the present case wherein respondent
Juliano Lim is the private complainant and petitioners are the respondents, to
permit the taking of the deposition would be violative of their right against selfincrimination because by means of the oral deposition, respondents would
seek to establish the allegations of fact in the complaint which are also the
allegations of fact in the complaint-affidavits in the said criminal cases.
Respondents filed their Comment on the Objection to Deposition
which petitioners filed their Reply.34

Taking33

to

In an Order dated 22 July 1997, the lower court denied petitioners' motion and
objection to take deposition upon oral examination, and scheduled the taking
thereof.35 On 7 August 1997, petitioners filed a Motion for Reconsideration.36
They filed a Supplemental Motion for Reconsideration on 11 August 1997.37
On 13 August 1997, petitioners filed an Urgent Ex-parte Motion to Cancel or
Suspend the Taking of the Deposition Upon Oral Examination.38
In an Order dated 27 August 1997, the lower court denied petitioners' Motion
for Reconsideration and Supplemental Motion for Reconsideration, and
scheduled the taking of the Deposition Upon Oral Examination.39
On 22 September1997, respondents filed an Omnibus Motion: (1) To Strike
Out Answer of Defendants Mapalo and Chito Rosete; (2) to Declare
Defendants Mapalo and Chito Rosete In Default; and (3) For Reception of
Plaintiffs' Evidence Ex-parte,40 which petitioners opposed.41
On 29 September 1997, petitioners filed with the Court of Appeals a Petition
for Certiorari and Prohibition (CA-G.R. SP No. 45400) assailing the Orders of
the lower court dated 22 July 1997 and 27 August 1997.42
In an Order dated 29 October 1997, the lower court: (1) ordered the striking
out from the record of the Answer ex abudanti cautela filed by petitioners
Mapalo and Chito Rosete for their continued unjustified refusal to be sworn

pursuant to Rule 29 of the 1997 Rules of Civil Procedure; (2) declared

defendants Mapalo and Chito Rosete in default; and I allowed plaintiffs to
present their evidence ex-parte as regards the latter.43 On 25 November 1997,
petitioners filed an Urgent Ex-parte Omnibus Motion (1) For Reconsideration;
(2) To Lift Order of Default; and (3) To Hold In Abeyance Presentation of
Plaintiffs' Evidence Ex-parte.44 The day after, petitioners filed an Amended
Omnibus Motion.45
On 28 November 1997, respondents filed a Motion to Set Case for Ex-parte
Presentation of Evidence46 which the lower court set for 11 December 1997.47
In an Order dated 11 December 1997, the lower court denied petitioners'
urgent ex-parte omnibus motion.48 On even date, the ex-parte presentation of
evidence against petitioners Mapalo and Chito Rosete was terminated.49
On 10 February 1998, petitioners filed a Petition50 for Certiorari and
Prohibition before the Court of Appeals (CA-G.R. SP No. 46774) questioning
the lower court's Orders dated 29 October 1997 and 11 December 1997.51
On 24 August 1998, the Court of Appeals dismissed the Petition for Certiorari
and Prohibition, and upheld the Orders of the lower court dated 22 July 1997
and 27 August 1997 (CA-G.R. SP No. 45400). 52 The Motion for
Reconsideration53 which was opposed54 by respondents was denied on 19
October 1998.55
Petitioners assail the ruling of the Court of Appeals via a Petition for Review
on Certiorari. They anchor their petition on the following grounds:
I.
THE TRIAL COURT ERRED AND ACTED IN GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF OR IN EXCESS OF
JURISDICTION IN DECLARING IN ITS ORDER DATED AUGUST 27, 1997
THAT THE CONSTITUTIONAL RIGHT AGAINST SELF INCRIMINATION OF
OSCAR MAPALO AND CHITO ROSETE WOULD NOT BE VIOLATED BY
THE TAKING OF THEIR DEPOSITION IN THE CIVIL CASE FILED IN THE
LOWER COURT ALTHOUGH THEY ARE ALSO RESPONDENTS OR
DEFENDANTS IN THE AFOREMENTIONED CRIMINAL CASES FILED BY
HEREIN PRIVATE RESPONDENT JULIANO LIM INVOLVING THE SAME
OR IDENTICAL SET OF FACTS; AND
II.

THE TRIAL COURT ERRED AND ACTED IN GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OF OR IN EXCESS OF
JURISDICTION IN DECLARING IN ITS ORDER DATED JULY 22, 1997 THAT
(A) THE NOTICE TO TAKE DEPOSITION UPON ORAL EXAMINATION
NEED NOT BE WITH LEAVE OF COURT BECAUSE AN ANSWER EX
ABUDANTE CAUTELA HAS BEEN FILED; AND (B) JOINDER OF ISSUES IS
NOT REQUIRED IN ORDER THAT THE SECTION 1, RULE 2356 OF THE
RULES OF CIVIL PROCEDURE MAY BE AVAILED OF.
Petitioners argue that the Court of Appeals gravely erred when it found that
the trial court did not abuse its discretion when it refused to recognize
petitioners Oscar Mapalo and Chito Rosete's constitutional right against selfincrimination when, through its Orders dated 22 July 1997 and 27 August
1997, it allowed and scheduled the taking of their depositions by way of oral
examination. They explain they refuse to give their depositions due to the
pendency of two criminal cases against them, namely, Batasan Pambansa
Blg. 22 and Estafa, because their answers would expose them to criminal
action or liability since they would be furnishing evidence against themselves
in said criminal cases. They allege there can be no doubt that the questions to
be asked during the taking of the deposition would revolve around the
allegations in the complaint in the civil case which are identical to the
allegations in the complaint-affidavits in the two criminal cases, thus, there is
a tendency to incriminate both Oscar Mapalo and Chito Rosete. Moreover,
they explain that while an ordinary witness may be compelled to take the
witness stand and claim the privilege against self-incrimination as each
question requiring an incriminating answer is shot at him, an accused may
altogether refuse to answer any and all questions because the right against
self-incrimination includes the right to refuse to testify.
In short, petitioners Mapalo and Chito Rosete refuse to have their depositions
taken in the civil case because they allegedly would be incriminating
themselves in the criminal cases because the testimony that would be elicited
from them may be used in the criminal cases. As defendants in the civil case,
it is their claim that to allow their depositions to be taken would violate their
constitutional right against self-incrimination because said right includes the
right to refuse to take the witness stand.
In order to resolve this issue, we must determine the extent of a person's right
against self-incrimination. A person's right against self-incrimination is
enshrined in Section 17, Article III of the 1987 Constitution which reads: "No
person shall be compelled to be a witness against himself."

The right against self-incrimination is accorded to every person who gives

evidence, whether voluntary or under compulsion of subpoena, in any civil,
criminal or administrative proceeding. The right is not to be compelled to be a
witness against himself. It secures to a witness, whether he be a party or not,
the right to refuse to answer any particular incriminatory question, i.e., one the
answer to which has a tendency to incriminate him for some crime. However,
the right can be claimed only when the specific question, incriminatory in
character, is actually put to the witness. It cannot be claimed at any other
time. It does not give a witness the right to disregard a subpoena, decline to
appear before the court at the time appointed, or to refuse to testify altogether.
The witness receiving a subpoena must obey it, appear as required, take the
stand, be sworn and answer questions. It is only when a particular question is
addressed to which may incriminate himself for some offense that he may
refuse to answer on the strength of the constitutional guaranty.57
As to an accused in a criminal case, it is settled that he can refuse outright to
take the stand as a witness. In People v. Ayson,58 this Court clarified the rights
of an accused in the matter of giving testimony or refusing to do so. We said:
An accused "occupies a different tier of protection from an ordinary witness."
Under the Rules of Court, in all criminal prosecutions the defendant is entitled
among others'
1) to be exempt from being a witness against himself, and
2) to testify as witness in his own behalf; but if he offers himself as a witness
he may be cross-examined as any other witness; however, his neglect or
refusal to be a witness shall not in any manner prejudice or be used against
him.
The right of the defendant in a criminal case "to be exempt from being a
witness against himself" signifies that he cannot be compelled to testify or
produce evidence in the criminal case in which he is the accused, or one of
the accused. He cannot be compelled to do so even by subpoena or other
process or order of the Court. He cannot be required to be a witness either for
the prosecution, or for a co-accused, or even for himself. In other words unlike an ordinary witness (or a party in a civil action) who may be compelled
to testify by subpoena, having only the right to refuse to answer a particular
incriminatory question at the time it is put to him - the defendant in a criminal
action can refuse to testify altogether. He can refuse to take the witness
stand, be sworn, answer any question. X x x (Underscoring supplied.)

It is clear, therefore, that only an accused in a criminal case can refuse to take
the witness stand. The right to refuse to take the stand does not generally
apply to parties in administrative cases or proceedings. The parties thereto
can only refuse to answer if incriminating questions are propounded. This
Court applied the exception - a party who is not an accused in a criminal case
is allowed not to take the witness stand - in administrative cases/proceedings
that partook of the nature of a criminal proceeding or analogous to a criminal
proceeding.59 It is likewise the opinion of the Court that said exception applies
to parties in civil actions which are criminal in nature. As long as the suit is
criminal in nature, the party thereto can altogether decline to take the witness
stand. It is not the character of the suit involved but the nature of the
proceedings that controls.60
In the Ayson case, it is evident that the Court treats a party in a civil case as
an ordinary witness, who can invoke the right against self-incrimination only
when the incriminating question is propounded. Thus, for a party in a civil
case to possess the right to refuse to take the witness stand, the civil case
must also partake of the nature of a criminal proceeding.
In the present controversy, the case is civil it being a suit for Annulment,
Specific Performance with Damages. In order for petitioners to exercise the
right to refuse to take the witness stand and to give their depositions, the case
must partake of the nature of a criminal proceeding. The case on hand
certainly cannot be categorized as such. The fact that there are two criminal
cases pending which are allegedly based on the same set of facts as that of
the civil case will not give them the right to refuse to take the witness stand
and to give their depositions. They are not facing criminal charges in the civil
case. Like an ordinary witness, they can invoke the right against selfincrimination only when the incriminating question is actually asked of them.
Only if and when incriminating questions are thrown their way can they refuse
to answer on the ground of their right against self-incrimination.
On the second assigned error, petitioners contend that the taking of their oral
depositions should not be allowed without leave of court as no answer has yet
been served and the issues have not yet been joined because their answers
were filed ex abudanti cautela pending final resolution of the petition for
certiorari challenging the trial court's Orders dated 12 March 1996 and 24 May
1996 that denied their motions to dismiss and for reconsideration,
respectively.
Section 1 of Rule 2461 of the Revised Rules of Court reads:

Section 1. Depositions pending action, when may be taken. - By leave of court

after jurisdiction has been obtained over any defendant or over property which
is the subject of the action, or without such leave after an answer has been
served, the testimony of any person, whether a party or not, may be taken, at
the instance of any party, by deposition upon oral examination or written
interrogatories. The attendance of witnesses may be compelled by the use of
a subpoena as provided in Rule 23. Depositions shall be taken only in
accordance with these rules. The deposition of a person confined in prison
may be taken only by leave of court on such terms as the court prescribes.
From the quoted section, it is evident that once an answer has been served,
the testimony of a person, whether a party or not, may be taken by deposition
upon oral examination or written interrogatories. In the case before us,
petitioners contend they have not yet served an answer to respondents
because the answers that they have filed with the trial court were made ex
abudanti cautela. In other words, they do not consider the answers they filed
in court and served on respondents as answers contemplated by the Rules of
Court on the ground that same were filed ex abudanti cautela.
We find petitioners' contention to be untenable. Ex abudanti cautela means
"out of abundant caution" or "to be on the safe side."62 An answer ex abudanti
cautela does not make their answer less of an answer. A cursory look at the
answers filed by petitioners shows that they contain their respective defenses.
An answer is a pleading in which a defending party sets forth his defenses63
and the failure to file one within the time allowed herefore may cause a
defending party to be declared in default.64 Thus, petitioners, knowing fully
well the effect of the non-filing of an answer, filed their answers despite the
pendency of their appeal with the Court of Appeals on the denial of their
motion to dismiss.
Petitioners' argument that the issues of the case have not yet been joined
must necessarily fail in light of our ruling that petitioners have filed their
answers although the same were made ex abudanti cautela. Issues are joined
when all the parties have pleaded their respective theories and the terms of
the dispute are plain before the court.65 In the present case, the issues have,
indeed, been joined when petitioners, as well as the other defendants, filed
their answers. The respective claims and defenses of the parties have been
defined and the issues to be decided by the trial court have been laid down.
We cannot also sustain petitioners' contention that the lower court erred when
it said that the joinder of issues is not required in order that Section 1, Rule 23
of the 1997 Rules of Civil Procedure may be availed of. Under said section, a
deposition pending action may be availed of: (1) with leave of court when an

answer has not yet been filed but after jurisdiction has been obtained over any
defendant or property subject of the action, or (2) without leave of court after
an answer to the complaint has been served. In the instant case, the taking of
the deposition may be availed of even without leave of court because
petitioners have already served their answers to the complaint.
WHEREFORE, all the foregoing considered, the instant petition is dismissed
for lack of merit.
SO ORDERED.

!
[G.R. No. 133119. August 17, 2000]

FINANCIAL BUILDING CORPORATION, petitioner, vs. FORBES PARK

ASSOCIATION, INC., respondent.
DECISION
DE LEON, JR., J.:
Before us is petition for review on certiorari of the Decision[1] dated
March 20, 1998 of the Court of Appeals[2] in CA-GR CV No. 48194 entitled
Forbes Park Association, Inc. vs. Financial Building Corporation, finding
Financial Building Corporation
(hereafter, Financial Building) liable for
damages in favor of Forbes Park Association, Inc. (hereafter, Forbes Park),
for violating the latters deed of restrictions on the construction of buildings
within the Forbes Park Village, Makati.
The pertinent facts are as follows:
The then Union of Soviet Socialist Republic (hereafter, USSR) was the
owner of a 4,223 square meter residential lot located at No. 10, Narra Place,
Forbes Park Village in Makati City. On December 2, 1985, the USSR
engaged the services of Financial Building for the construction of a multi-level
office and staff apartment building at the said lot, which would be used by the
Trade Representative of the USSR.[3] Due to the USSRs representation that
it would be building a residence for its Trade Representative, Forbes Park
authorized its construction and work began shortly thereafter.

On June 30, 1986, Forbes Park reminded the USSR of existing

regulations[4] authorizing only the construction of a single-family residential
building in each lot within the village. It also elicited a reassurance from the
USSR that such restriction has been complied with.[5] Promptly, the USSR
gave its assurance that it has been complying with all regulations of Forbes
Park.[6] Despite this, Financial Building submitted to the Makati City
Government a second building plan for the construction of a multi-level
apartment building, which was different from the first plan for the construction
of a residential building submitted to Forbes Park.
Forbes Park discovered the second plan and subsequent ocular
inspection of the USSRs subject lot confirmed the violation of the deed of
restrictions. Thus, it enjoined further construction work. On March 27, 1987,
Forbes Park suspended all permits of entry for the personnel and materials of
Financial Building in the said construction site. The parties attempted to meet
to settle their differences but it did not push through.
Instead, on April 9, 1987, Financial Building filed in the Regional Trial
Court of Makati, Metro Manila, a Complaint[7] for Injunction and Damages
with a prayer for Preliminary Injunction against Forbes Park docketed as Civil
Case No. 16540. The latter, in turn, filed a Motion to Dismiss on the ground
that Financial Building had no cause of action because it was not the real
party-in-interest.
On April 28, 1987, the trial court issued a writ of preliminary injunction
against Forbes Park but the Court of Appeals nullified it and dismissed the
complaint in Civil Case No. 16540 altogether. We affirmed the said dismissal
in our Resolution,[8] promulgated on April 6, 1988, in G.R. No. 79319 entitled
Financial Building Corporation, et al. vs. Forbes Park Association, et al.
After Financial Buildings case, G.R. No. 79319, was terminated with
finality, Forbes Park sought to vindicate its rights by filing on October 27, 1989
with the Regional Trial Court of Makati a Complaint[9] for Damages, against
Financial Building, docketed as Civil Case No. 89-5522, arising from the
violation of its rules and regulations. The damages claimed are in the
following amounts: (a) P3,000,000.00 as actual damages; (b) P1,000,000.00
as moral damages; (c) P1,000,000.00 as exemplary damages; and (d)
P1,000,000.00 as attorneys fees.[10] On September 26, 1994, the trial court
rendered its Decision[11] in Civil Case No. 89-5522 in favor of Forbes Park
and against Financial Building, the dispositive portion of which reads, to wit:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment
in favor of the plaintiff and against the defendant:

(1) Ordering the defendant to remove/demolish the

illegal structures within three (3) months from the
time this judgment becomes final and executory, and
in case of failure of the defendant to do so, the
plaintiff is authorized to demolish/remove the
structures at the expense of the defendant;
(2) Ordering the defendant to pay damages, to wit:
(a) P3,000,000.00 as actual damages by
way of demolition expenses;
(b) P1,000,000.00 as exemplary damages;
(c) P500,000.00 as attorneys fees;
(d) the costs of suit.
SO ORDERED.
Financial Building appealed the said Decision of the trial court in Civil
Case No. 89-5522 by way of a petition for review on certiorari[12] entitled
Financial Building Corporation vs. Forbes Park Association, Inc. to the Court
of Appeals and docketed therein as CA-GR CV No. 48194. However, the
Court of Appeals affirmed it in its Decision[13] dated March 20, 1998, the
dispositive portion of which reads:
WHEREFORE, the Decision dated September 26, 1994 of the Regional Trial
Court of Makati is AFFIRMED with the modification that the award of
exemplary damages, as well as attorneys fees, is reduced to fifty thousand
pesos (P50,000.00) each.
Hence, this petition, wherein Financial Building assigns the following
errors:
I.

THE COURT OF APPEALS GRAVELY ERRED IN

NOT DISMISSING THE COMPLAINT FILED BY
RESPONDENT FPA DESPITE THE FACT THAT ITS
ALLEGED CLAIMS AND CAUSES OF ACTION
THEREIN ARE BARRED BY PRIOR JUDGMENT
AND/OR ARE DEEMED WAIVED FOR ITS
FAILURE TO INTERPOSE THE SAME AS

COMPULSORY COUNTERCLAIMS IN CIVIL CASE

NO. 16540;
II.

THE COURT OF APPEALS GRAVELY ERRED IN

NOT DISMISSING THE COMPLAINT FILED BY
RESPONDENT FPA AGAINST PETITIONER FBC
SINCE RESPONDENT FPA HAS NO CAUSE OF
ACTION AGAINST PETITIONER FBC;

III. THE COURT OF APPEALS GRAVELY ERRED IN

A W A R D I N G D A M A G E S I N FAV O R O F
RESPONDENT FPA DESPITE THE FACT THAT ON
THE BASIS OF THE EVIDENCE ON RECORD,
RESPONDENT FPA IS NOT ENTITLED THERETO
AND PETITIONER FBC IS NOT LIABLE
THEREFOR;
IV. THE COURT OF APPEALS ERRED IN ORDERING
THE DEMOLITION OF THE ILLEGAL
STRUCTURES LOCATED AT NO. 10 NARRA
P L A C E , F O R B E S PA R K , M A K AT I C I T Y,
CONSIDERING THAT THE SAME ARE LOCATED
ON DIPLOMATIC PREMISES[14]
We grant the petition.
First. The instant case is barred due to Forbes Parks failure to set it up
as a compulsory counterclaim in Civil Case No. 16540, the prior injunction suit
initiated by Financial Building against Forbes Park.
A compulsory counterclaim is one which arises out of or is necessarily
connected with the transaction or occurrence that is the subject matter of the
opposing partys claim.[15] If it is within the jurisdiction of the court and it does
not require for its adjudication the presence of third parties over whom the
court cannot acquire jurisdiction, such compulsory counterclaim is barred if it
is not set up in the action filed by the opposing party.[16]
Thus, a compulsory counterclaim cannot be the subject of a separate
action but it should instead be asserted in the same suit involving the same
transaction or occurrence, which gave rise to it.[17] To determine whether a
counterclaim is compulsory or not, we have devised the following tests: (1)
Are the issues of fact or law raised by the claim and the counterclaim largely
the same? (2) Would res judicata bar a subsequent suit on defendants claim
absent the compulsory counterclaim rule? (3) Will substantially the same

evidence support or refute plaintiffs claim as well as the defendants

counterclaim? and (4) Is there any logical relation between the claim and the
counterclaim? Affirmative answers to the above queries indicate the existence
of a compulsory counterclaim.[18]
Undoubtedly, the prior Civil Case No. 16540 and the instant case arose
from the same occurrence the construction work done by Financial Building
on the USSRs lot in Forbes Park Village. The issues of fact and law in both
cases are identical. The factual issue is whether the structures erected by
Financial Building violate Forbes Parks rules and regulations, whereas the
legal issue is whether Financial Building, as an independent contractor
working for the USSR, could be enjoined from continuing with the construction
and be held liable for damages if it is found to have violated Forbes Parks
rules.
As a result of the controversy, Financial Building seized the initiative by
filing the prior injunction case, which was anchored on the contention that
Forbes Parks prohibition on the construction work in the subject premises
was improper. The instant case on the other hand was initiated by Forbes
Park to compel Financial Building to remove the same structures it has
erected in the same premises involved in the prior case and to claim damages
for undertaking the said construction. Thus, the logical relation between the
two cases is patent and it is obvious that substantially the same evidence is
involved in the said cases.
Moreover, the two cases involve the same parties. The aggregate
amount of the claims in the instant case is within the jurisdiction of the
regional trial court, had it been set up as a counterclaim in Civil Case No.
16540. Therefore, Forbes Parks claims in the instant case should have been
filed as a counterclaim in Civil Case No. 16540.

because the grant of the motion ultimately results in the dismissal of the
counterclaim.
Thus, the filing of a motion to dismiss and the setting up of a
compulsory counterclaim are incompatible remedies. In the event that a
defending party has a ground for dismissal and a compulsory counterclaim at
the same time, he must choose only one remedy. If he decides to file a
motion to dismiss, he will lose his compulsory counterclaim. But if he opts to
set up his compulsory counterclaim, he may still plead his ground for
dismissal as an affirmative defense in his answer.[21] The latter option is
obviously more favorable to the defendant although such fact was lost on
Forbes Park.
The ground for dismissal invoked by Forbes Park in Civil Case No.
16540 was lack of cause of action. There was no need to plead such ground
in a motion to dismiss or in the answer since the same was not deemed
waived if it was not pleaded.[22] Nonetheless, Forbes Park still filed a motion
to dismiss and thus exercised bad judgment in its choice of remedies. Thus, it
has no one to blame but itself for the consequent loss of its counterclaim as a
result of such choice.
Inasmuch as the action for damages filed by Forbes Park should be as
it is hereby dismissed for being barred by the prior judgment in G.R. No.
79319 (supra) and/or deemed waived by Forbes Park to interpose the same
under the rule on compulsory counterclaims, there is no need to discuss the
other issues raised by the herein petitioner.
WHEREFORE, the instant petition is hereby GRANTED and the
Decision dated March 20, 1998 of the Court of Appeals in CA-G.R. CV No.
48194 is hereby REVERSED and SET ASIDE.

Second. Since Forbes Park filed a motion to dismiss in Civil Case No.
16540, its existing compulsory counterclaim at that time is now barred.

Costs against respondent Forbes Park Association, Inc. .

A compulsory counterclaim is auxiliary to the proceeding in the original

suit and derives its jurisdictional support therefrom.[19] A counterclaim
presupposes the existence of a claim against the party filing the
counterclaim. Hence, where there is no claim against the counterclaimant,
the counterclaim is improper and it must dismissed, more so where the
complaint is dismissed at the instance of the counterclaimant.[20] In other
words, if the dismissal of the main action results in the dismissal of the
counterclaim already filed, it stands to reason that the filing of a motion to
dismiss the complaint is an implied waiver of the compulsory counterclaim

SO ORDERED.

[G.R. NO. 166393 : June 18, 2009]

CRISTINA F. REILLO, LEONOR F. PUSO, ADELIA F. ROCAMORA,
SOFRONIO S.J. FERNANDO, EFREN S.J. FERNANDO, ZOSIMO S.J.
FERNANDO, JR., and MA. TERESA F. PION, Petitioners, v. GALICANO
E.S. SAN JOSE, represented by his Attorneys-in-Fact, ANNALISA S.J.
RUIZ and RODELIO S. SAN JOSE, VICTORIA S.J. REDONGO, CATALINA

S.J. DEL ROSARIO and MARIBETH S.J. CORTEZ, collectively known as

the HEIRS OF QUITERIO SAN JOSE and ANTONINA ESPIRITU SANTO,
Respondents.
DECISION
PERALTA, J.:

6. Under date of January 23, 1998, defendants FERNANDO et al, without the
knowledge and consent of all the other surviving heirs of the deceased
spouses QUITERIO SAN JOSE and ANTONINA ESPIRITU SANTO, including
herein plaintiffs, executed a Deed of Extrajudicial Settlement of Estate Among
Heirs with Waiver of Rights making it appear therein that they are the
"legitimate descendants and sole heirs of QUITERIO SAN JOSE and
ANTONINA ESPIRITU SANTO"; and adjudicating among themselves, the
subject parcel of land.

Assailed in this Petition for Review on Certiorari is the Decision1 dated August
31, 2004 of the Court of Appeals (CA) in CA-G.R. CV No. 69261 which
affirmed the Order dated May 9, 2000 of the Regional Trial Court (RTC) of
Morong, Rizal, Branch 78, granting the motion for judgment on the pleadings
and the motion to dismiss counter petition for partition filed by respondents in
Civil Case No. 99-1148-M. Also questioned is the CA Resolution2 dated
December 14, 2004 denying petitioners' motion for reconsideration.

6.1 In the same document, defendants ZOSIMO SR., CRISTINA, LEONOR,

ADELIA, SOFRONIO, EFREN and ZOSIMO JR., waived all their rights,
participation and interests over the subject parcel of land in favor of their codefendant MA. TERESA F. PION (a.k.a MA. TERESA S.J. FERNANDO).

Spouses Quiterio San Jose (Quiterio) and Antonina Espiritu Santo (Antonina)
were the original registered owners of a parcel of land located in E. Rodriguez
Sr. Avenue, Teresa, Rizal covered by Transfer Certificate of Title (TCT) No.
458396 of the Register of Deeds of Rizal. The said parcel of land is now
registered in the name of Ma. Teresa F. Pion (Teresa) under TCT No.
M-94400.

7. On the strength of the said falsified Deed of Extrajudicial Settlement of

Estate, defendant MA. TERESA PION (a.k.a MA. TERESA S.J.
FERNANDO) succeeded in causing the cancellation of TCT No. 458396 in the
name of SPS. QUITERIO SAN JOSE and ANTONINA ESPIRITU SANTO and
the issuance of a new Transfer Certificate of Title in her name only, to the
extreme prejudice of all the other heirs of the deceased SPS. QUITERIO SAN
JOSE and ANTONINA ESPIRITU SANTO, specifically, the herein plaintiffs
who were deprived of their lawful participation over the subject parcel of land.

Quiterio and Antonina had five children, namely, Virginia, Virgilio, Galicano,
Victoria and Catalina. Antonina died on July 1, 1970, while Quiterio died on
October 19, 1976. Virginia and Virgilio are also now deceased. Virginia was
survived by her husband Zosimo Fernando, Sr. (Zosimo Sr.) and their seven
children, while Virgilio was survived by his wife Julita Gonzales and children,
among whom is Maribeth S.J. Cortez (Maribeth).
On October 26, 1999, Galicano, represented by his children and attorneys-infact, Annalisa S.J. Ruiz and Rodegelio San Jose, Victoria, Catalina, and
Maribeth (respondents) filed with the RTC a Complaint3 for annulment of title,
annulment of deed of extra-judicial settlement, partition and damages against
Zosimo Sr. and his children Cristina F. Reillo, Leonor F. Puso, Adelia F.
Rocamora, Sofronio S.J. Fernando, Efren S.J. Fernando, Zosimo S.J.
Fernando, Jr. and Ma. Teresa (petitioners) and the Register of Deeds of
Morong, Rizal. The complaint alleged among other things:

xxx

7.1 Thus, on July 6, 1999, Transfer Certificate of Title No. M-94400 was
issued in the name of defendant MA. TERESA S.J. FERNANDO.
xxx
8. As a result, the herein plaintiffs and the other surviving heirs of the
deceased spouses QUITERIO SAN JOSE and ANTONINA ESPIRITU
SANTO, who are legally entitled to inherit from the latter's respective estates,
in accordance with the laws of intestate succession, have been duly deprived
of their respective rights, interests and participation over the subject parcel of
land.
8.1 Thus, there is sufficient ground to annul the subject Deed of Extrajudicial
Settlement of Estate Among Heirs with Waiver of Rights dated January 23,

1998, and all other documents issued on the strength thereof, particularly
Transfer Certificate of Title No. M-94400.4

On May 9, 2000, the RTC rendered its Order,10 the dispositive portion of
which reads:

It was also alleged that respondents filed a complaint before the Lupong
Tagapamayapa of their Barangay which issued the required certification to file
action for failure of the parties to settle the matter amicably.

1. The Extrajudicial Settlement of Estate Among Heirs with Waiver of Rights,

dated January 23, 1998 and Transfer Certificate of Title No. M-94400 in the
name of Ma. Teresa S.J. Fernando are declared null and void;

Petitioners filed their Answer with Counter-Petition and with Compulsory

Counterclaim5 denying that the Deed of Extrajudicial Settlement of Estate
Among Heirs with Waiver of Rights which was the basis of the issuance of
TCT No. M-94400, was falsified and that the settlement was made and
implemented in accordance with law. They admitted that the deceased
spouses Quiterio and Antonina had five children; that the subject property was
not the only property of spouses Quiterio and Antonina and submitted in their
counter-petition for partition the list of the other 12 parcels of land of the
deceased spouses Quiterio and Antonina that petitioners alleged are in
respondents' possession and control.

2. The Register of Deeds of Rizal, Morong Branch, is directed to cancel TCT

No. 94400; andcralawlibrary

On January 18, 2000, respondents filed a Motion for Judgment on the

Pleadings6 alleging that: (1) the denials made by petitioners in their answer
were in the form of negative pregnant; (2) petitioners failed to state the basis
that the questioned document was not falsified; (3) they failed to specifically
deny the allegations in the complaint that petitioners committed
misrepresentations by stating that they are the sole heirs and legitimate
descendants of Quiterio and Antonina; and (4) by making reference to their
allegations in their counter-petition for partition to support their denials,
petitioners impliedly admitted that they are not the sole heirs of Quiterio and
Antonina.
Respondents filed a Reply to Answer with Compulsory Counterclaim7 with a
motion to dismiss the counter-petition for partition on the ground that
petitioners failed to pay the required docket fees for their counter-petition for
partition. Petitioners filed their Rejoinder8 without tackling the issue of nonpayment of docket fees.
On February 4, 2000, petitioners filed their Comment9 to respondents' motion
for judgment on the pleading and prayed that the instant action be decided on
the basis of the pleadings with the exception of respondents' unverified Reply.
Petitioners also filed an Opposition to the motion to dismiss the counterpetition for partition.

3. The Heirs of Quiterio San Jose and Antonina Espiritu Santo is (sic) directed
to partition the subject parcel of land covered by TCT No. M-458396 in
accordance with the law of intestate succession.11
SO ORDERED.
The RTC found that, based on the allegations contained in the pleadings filed
by the parties, petitioners misrepresented themselves when they alleged in
the Deed of Extrajudicial Settlement of Estate Among Heirs with Waiver of
Rights that they are the sole heirs of the deceased spouses Quiterio and
Antonina; that petitioners prayed for a counter-petition for partition involving
several parcels of land left by the deceased spouses Quiterio and Antonina
which bolstered respondents' claim that petitioners falsified the Extrajudicial
Settlement which became the basis for the issuance of TCT No. M-94400 in
Ma. Teresa's name; thus, a ground to annul the Deed of Extrajudicial
Settlement and the title.rbl rl l lbrr
The RTC did not consider as filed petitioners' Counter-Petition for Partition
since they did not pay the corresponding docket fees.
Petitioners filed their Motion for Reconsideration, which the RTC denied in an
Order12 dated August 29, 2000.
Dissatisfied, petitioners filed an appeal with the CA. After the parties filed their
respective briefs, the case was submitted for decision.
On August 31, 2004, the CA rendered its assailed Decision affirming the May
9, 2000 Order of the RTC.

The CA found that, while the subject matter of respondents' complaint was the
nullity of the Deed of Extrajudicial Settlement of Estate among Heirs with
Waiver of Rights that resulted in the issuance of TCT No. M-94400 in Ma.
Teresa's name, petitioners included in their Answer a Counter-Petition for
Partition involving 12 other parcels of land of spouses Quiterio and Antonina
which was in the nature of a permissive counterclaim; that petitioners, being
the plaintiffs in the counter-petition for partition, must pay the docket fees
otherwise the court will not acquire jurisdiction over the case. The CA ruled
that petitioners cannot pass the blame to the RTC for their omission to pay the
docket fees.
The CA affirmed the RTC's judgment on the pleadings since petitioners
admitted that the deceased spouses Quiterio and Antonina had five children
which included herein plaintiffs; thus, petitioners misrepresented themselves
when they stated in the Deed of Extrajudicial Settlement that they are the
legitimate descendants and sole heirs of the deceased spouses Quiterio and
Antonina; that the deed is null and void on such ground since respondents
were deprived of their rightful share in the subject property and petitioners
cannot transfer the property in favor of Ma. Teresa without respondents'
consent; that TCT No. M-94400 must be cancelled for lack of basis. The CA
affirmed the RTC's Order of partition of the subject property in accordance
with the rules on intestate succession in the absence of a will.
Petitioners filed the instant Petition for Review on Certiorari raising the
following assignment of errors, to wit:
THE COURT OF APPEALS ERRED IN NOT GIVING DUE COURSE TO THE
APPEAL OF THE DEFENDANTS (HEREIN PETITIONERS) AND IN
EVENTUALLY UPHOLDING THE DECISION OF THE COURT OF ORIGIN,
CONSIDERING THAT SUCH RULING WILL RESULT TO MULTIPLICITY OF
SUITS BETWEEN THE SAME PARTIES AND IN VIOLATION OF THE
CONSTITUTIONAL GUARANTY OF DUE PROCESS OF LAW & PROPERTY
AND PROPERTY RIGHTS.
THE COURT OF APPEALS ERRED IN NOT VACATING THE ORDER OF
THE TRIAL COURT IN PARTITIONING THE ESTATE WITHOUT
PUBLICATION AS REQUIRED BY RULE 74 AND 76 OF THE 1997 RULES
OF CIVIL PROCEDURE.13
Petitioners contend that in their Comment to respondents' motion for judgment
on the pleadings, they stated that they will not oppose the same provided that

their Answer with Counter-Petition for Partition and Rejoinder will be taken
into consideration in deciding the case; however, the RTC decided the case
on the basis alone of respondents' complaint; that the Answer stated that the
deed was not a falsified document and was made and implemented in
accordance with law, thus, it was sufficient enough to tender an issue and was
very far from admitting the material allegations of respondents' complaint.
Petitioners also fault the RTC for disregarding their claim for partition of the
other parcels of land owned by the deceased spouses Quiterio and Antonina
for their failure to pay the court docket fees when the RTC could have simply
directed petitioners to pay the same; and that this error if not corrected will
result to multiplicity of suits.
Petitioners argue that the RTC erred in ordering the partition of the subject
property as it violates the basic law on intestate succession that the heirs
should be named and qualified through a formal petition for intestate
succession whereby blood relationship should be established first by the
claiming heirs before they shall be entitled to receive from the estate of the
deceased; that the order of partition was rendered without jurisdiction for lack
of publication as required under Rules 74 and 76 of the Rules of Civil
Procedure for testate or intestate succession.
We find no merit in the petition.
The CA committed no reversible error in affirming the judgment on the
pleadings rendered by the RTC.
Section 1, Rule 34 of the Rules of Court, states:
SECTION 1. Judgment on the pleadings. - Where an answer fails to tender an
issue, or otherwise admits the material allegations of the adverse party's
pleading, the court may, on motion of that party, direct judgment on such
pleading. x x x.
Where a motion for judgment on the pleadings is filed, the essential question
is whether there are issues generated by the pleadings. In a proper case for
judgment on the pleadings, there is no ostensible issue at all because of the
failure of the defending party's answer to raise an issue.14 The answer would
fail to tender an issue, of course, if it does not deny the material allegations in
the complaint or admits said material allegations of the adverse party's

pleadings by confessing the truthfulness thereof and/or omitting to deal with

them at all.15
In this case, respondents' principal action was for the annulment of the Deed
of Extrajudicial Settlement of Estate Among Heirs with Waiver of Rights
executed by petitioners and annulment of title on the ground that petitioners
stated in the said Deed that they are the legitimate descendants and sole
heirs of the spouses Quiterio and Antonina. Although petitioners denied in
their Answer that the Deed was falsified, they, however, admitted respondents'
allegation that spouses Quiterio and Antonina had 5 children, thus, supporting
respondents' claim that petitioners are not the sole heirs of the deceased
spouses. Petitioners' denial/admission in his Answer to the complaint should
be considered in its entirety and not truncated parts. Considering that
petitioners already admitted that respondents Galicano, Victoria, Catalina and
Maribeth are the children and grandchild, respectively, of the spouses Quiterio
and Antonina, who were the original registered owners of the subject property,
and thus excluding respondents from the deed of settlement of the subject
property, there is no more genuine issue between the parties generated by
the pleadings, thus, the RTC committed no reversible error in rendering the
judgment on the pleadings.
A deed of extrajudicial partition executed without including some of the heirs,
who had no knowledge of and consent to the same, is fraudulent and vicious.
16 The deed of settlement made by petitioners was invalid because it excluded
respondents who were entitled to equal shares in the subject property. Under
the rule, no extrajudicial settlement shall be binding upon any person who has
not participated therein or had no notice thereof.17 Thus, the RTC correctly
annulled the Deed of Extrajudicial Settlement of Estate Among Heirs with
Waiver of Rights dated January 23, 1998 and TCT No. M-94400 in the name
of Ma. Teresa S.J. Fernando issued pursuant to such deed.
Petitioners' claim that had there been a trial, they could have presented
testamentary and documentary evidence that the subject land is the
inheritance of their deceased mother from her deceased parents, deserves
scant consideration. A perusal of petitioners' Answer, as well as their
Rejoinder, never raised such a defense. In fact, nowhere in the Deed of
Extrajudicial Settlement Among Heirs with Waiver of Rights executed by
petitioners was there a statement that the subject property was inherited by
petitioners' mother Virginia from her deceased parents Quiterio and Antonina.
Notably, petitioners never opposed respondents' motion for judgment on the
pleadings.

We also find no merit in petitioners' contention that the Counter-Petition for

Partition in their Answer was in the nature of a compulsory counterclaim which
does not require the payment of docket fees.
A counterclaim is any claim which a defending party may have against an
opposing party.18 It may either be permissive or compulsory. It is permissive if
it does not arise out of or is not necessarily connected with the subject matter
of the opposing party's claim.19 A permissive counterclaim is essentially an
independent claim that may be filed separately in another case.
A counterclaim is compulsory when its object arises out of or is necessarily
connected with the transaction or occurrence constituting the subject matter of
the opposing party's claim and does not require for its adjudication the
presence of third parties of whom the court cannot acquire jurisdiction.20
Unlike permissive counterclaims, compulsory counterclaims should be set up
in the same action; otherwise, they would be barred forever.
Respondents' action was for the annulment of the Deed of Extrajudicial
Settlement, title and partition of the property subject of the Deed. On the other
hand, in the Counter-Petition filed by petitioners in their Answer to
respondents' complaint, they were asking for the partition and accounting of
the other 12 parcels of land of the deceased spouses Quiterio and Antonina,
which are entirely different from the subject matter of the respondents' action.
Petitioners' claim does not arise out of or is necessarily connected with the
action for the Annulment of the Deed of Extrajudicial Settlement of the
property covered by TCT No. 458396. Thus, payment of docket fees is
necessary before the RTC could acquire jurisdiction over petitioners' petition
for partition.rbl rl l lbrr
Petitioners, however, argue that the RTC could have simply issued a directive
ordering them to pay the docket fees, for its non-payment should not result in
the automatic dismissal of the case.
We find apropos the disquisition of the CA on this matter, thus:
The rule regarding the payment of docket fees upon the filing of the initiatory
pleading is not without exception. It has been held that if the filing of the
initiatory pleading is not accompanied by payment of docket fees, the court
may allow payment of the fee within reasonable time but in no case beyond
the applicable prescriptive or reglementary period.

It is apparent from the arguments of the defendants-appellants that they are

blaming the trial court for their omission to pay the docket fees. It is, however,
our opinion that the defendants-appellants cannot pass on to the trial court the
performance of a positive duty imposed upon them by the law. It should be
noted that their omission to file the docket fees was raised as one of the
grounds to dismiss the counter petition for partition. The defendantsappellants opposed the said motion without, however, offering an answer to
the said ground raised by the plaintiffs-appellees. In fact, during the period the
motion was being heard by the trial court, the defendants'appellants never
paid the docket fees for their petition so that it could have at least brought to
the attention of the trial court their payment of the docket fees although
belatedly done. They did not even ask the trial court for time within which to
pay the docket fees for their petition. When the trial court ruled to dismiss the
petition of the defendants-appellants, the latter did not, in their motion for
reconsideration, ask the trial court to reconsider the dismissal of their petition
by paying the required docket fees, neither did they ask for time within which
to pay their docket fees. In other words, the trial court could have issued an
order allowing the defendants-appellants a period to pay the docket fees for
their petition if the defendants-appellants made such manifestation. What is
apparent from the factual circumstances of the case is that the defendantsappellants have been neglectful in complying with this positive duty imposed
upon them by law as plaintiffs of the counter petition for partition. Because of
their omission to comply with their duty, no grave error was committed by the
trial court in dismissing the defendants-appellants' counter petition for
partition.21
Petitioners argue that with the dismissal of their Counter-Petition for Partition,
the partition of the other parcels of land owned by the deceased spouses
Quiterio and Antonina will result to multiplicity of suits.
We are not persuaded.
Significantly, in petitioners' Answer with Counter-Petition for Partition, they
enumerated 12 other parcels of land owned by the deceased spouses
Quiterio and Antonina. They alleged that some of these properties had
already been disposed of by respondents and some are still generating
income under the control and administration of respondents, and these
properties should be collated back by respondents to be partitioned by all the
heirs of the deceased spouses. It bears stressing that the action filed by
respondents in the RTC was an ordinary civil action for annulment of title,
annulment of the deed of extrajudicial settlement and partition of a parcel of
land now covered by TCT No. M-94400; hence, the authority of the court is

limited to the property described in the pleading. The RTC cannot order the
collation and partition of the other properties which were not included in the
partition that was the subject matter of the respondents' action for annulment.
Thus, a separate proceeding is indeed proper for the partition of the estate of
the deceased spouses Quiterio and Antonina.
Finally, petitioners contend that the RTC erred when it ordered the heirs of
Quiterio and Antonina to partition the subject parcel of land covered by TCT
No. 458396 in accordance with the laws of intestate succession; that the RTC
violated the requirement of publication under Sections 1 and 2 of Rule 74 and
Section 3 of Rule 76 of the Rules of Court.
We do not agree.
We find the ruling of the CA on the matter of the RTC's order of partition of
land subject of the annulled deed of extrajudicial settlement worth quoting,
thus:
Considering that the subject document and the corresponding title were
canceled, the logical consequence is that the property in dispute, which was
the subject of the extrajudicial settlement, reverted back to the estate of its
original owners, the deceased spouses Quiterio and Antonina San Jose.
Since, it was admitted that all the parties to the instant suit are legal heirs of
the deceased spouses, they owned the subject property in common. It is a
basic rule that any act which is intended to put an end to indivision among coheirs or co-owners is deemed to be a partition. Therefore, there was no
reversible error committed by the trial court in ordering the partition of the
subject property. We find nothing wrong with such ruling considering that the
trial court ordered the partition of the subject property in accordance with the
rules on intestate succession. The trial court found the property to be
originally owned by the deceased spouses Quiterio and Antonina San Jose
and, in the absence of a will left by the deceased spouses, it must be
partitioned in accordance with the rules on intestate succession.22
As the RTC nullified the Deed of Extrajudicial Settlement of Estate Among
Heirs with Waiver of Rights executed by petitioners and the title issued in
accordance therewith, the order of partition of the land subject of the
settlement in accordance with the laws on intestate succession is proper as
respondents' action filed in the RTC and respondents' prayer in their
complaint asked for the partition of the subject property in accordance with

intestate succession. The applicable law is Section 1, Rule 69 of the Rules of

Court, which deals with action for partition, to wit:

August 25, 2005

xx - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -xx

SECTION 1. Complaint in action for partition of real estate. - A person having

the right to compel the partition of real estate may do so as provided in this
Rule, setting forth in his complaint the nature and extent of his title and an
adequate description of the real estate of which partition is demanded and
joining as defendants all other persons interested in the property.
And, under this law, there is no requirement for publication.
WHEREFORE, the instant petition is DENIED. The Decision dated August 31,
2004 and the Resolution dated December 14, 2004, of the Court of Appeals in
CA-G.R. CV No. 69261, are AFFIRMED.
SO ORDERED.

- versus -

THE HON. COURT OF APPEALS and SPS. GABRIEL G.

LOCSIN and MA. GERALDINE R. LOCSIN,
Respondents.
G.R. No. 160354

PANGANIBAN, Chairman,
SANDOVAL- GUTIERREZ,
CORONA,
CARPIO MORALES, and
GARCIA, JJ.
Promulgated:

CARPIO MORALES, J.:

Subject of the present Petition for Review is the Court of Appeals
June 5, 2003 Decision[1] annulling and setting aside the Orders[2] of the
Regional Trial Court (RTC) of Mandaluyong denying respondents spouses
Gabriel and Ma. Geraldine Locsins Motion to Dismiss the complaint of
petitioner, Banco de Oro Universal Bank.
The following antecedent facts are not disputed:

BANCO DE ORO UNIVERSAL BANK,

Petitioner,

Present:

DECISION

On September 28, 1995, respondents Locsins entered into a Term

Loan Agreement (TLA) with petitioner under which they obtained a loan of
P700,000.00 which was secured by a Real Estate Mortgage of their property
covered by TCT No. N-138739 (1st TLA).
On February 29, 1996, the Locsins obtained a 2nd TLA from
petitioner in the amount of P800,000.00, to secure which they executed a
Real Estate Mortgage over their property covered by TCT No. 67286. This
2nd TLA was eventually settled on July 2, 1996, on account of which the
mortgage was cancelled and the title was released on July 8, 1996.
On November 6, 1996, the parties entered into a Credit Line
Agreement (CLA) under which the Locsins obtained a credit line of P2.5
Million, to secure which their business partners, the spouses Juanito and
Anita Evidente, executed a Real Estate Mortgage of their (the Evidentes)
properties covered by TCT Nos. N-166336 and
N-166637. Monthly
amortization of the obligation appears to have been religiously paid until
October of 1997.
The Locsins having failed to comply with their obligation under the
CLA, petitioner filed before the Quezon City Regional Trial Court (RTC)
Executive Judge an application dated May 4, 1998 for the extra-judicial
foreclosure of the mortgage which encumbered the Evidente properties under
the CLA, as well as the mortgage of the Locsin property covering TCT

N-67286 which secured the 2nd TLA. The application was granted and public
auction of these properties was scheduled, and was actually carried out on
July 23, 1998.
The public auction was later nullified, however, on petitioners
move, the Locsin property covered by TCT No. 67286 which secured the 2nd
TLA having been erroneously included.
An amended application for
extrajudicial foreclosure was thus filed by petitioner, this time covering the
same Evidente properties and TCT No. 138739, the property of the Locsins
which secured the 1st TLA. Public auction of these properties was scheduled
on August 26, 1998.
Two days before the scheduled public auction or on August 24,
1998, the Locsins filed before the Quezon City Regional Trial Court (RTC) a
complaint against petitioner, the RTC Clerk of Court and Ex-Oficio Sheriff of
Quezon City, and Sheriff VI Marino V. Cahero, for Specific Performance, Tort
and Damages with Prayer for the Issuance of a Temporary Restraining Order
(TRO) and a Writ of Preliminary Injunction, docketed as Civil Case No.
Q-98-35337.[3] The pertinent allegations of the Locsins complaint are as
follows:
xxx
15.
Defendant bank, through its
Assistant Vice-President-Combank II, Agnes C.
Tuason, told plaintiffs that the loan valuation of
the two aforementioned properties [of the
spouses Evidente securing the CLA] is PHP2.5
Million, and this was in fact the amount received
by plaintiff from defendant bank . . .
16. The spouses Evidente, through
plaintiffs, paid for the monthly installments due
on the [CLA] until October, 1997, as evidenced
by OR No. 167588 dated October 31, 1997
issued by defendant bank. . . .
17.
The spouses Evidente were
unable to make subsequent payments and the
real estate mortgage over the Evidente
properties was recommended for foreclosure.
xxx

19. . . . [P]laintiffs advised defendant

bank that they will be settling their 1st TLA in
full and shall be taking the property covered by
TCT No. N-138739 out of the mortgage.
20.
However, to the shock of
plaintiffs, defendant bank through its Account
Officer, Nelia Umbal, refused to release the said
property because the Evidente properties, the
mortgage of which secures . . . the CLA dated
November 6, 1996, will be insufficient to cover
the balance of the said CLA.
21. Plaintiffs were surprised to learn
that defendant bank capriciously, recklessly
and oppressively gave a loan valuation of
only PHP900,000.00 for each of [the] two
Evidente properties, or
a total of PHP1.8
Million.
This valuation is unfair and
unreasonable considering that the fair
market value of these properties is around
PHP5 Million. Furthermore, no reason was
given by defendant bank for the sudden and
unjust change in the valuation, which was
originally pegged by defendant at PHP2.5
Million.
22.
In effect, the mortgaged
property covered by TCT No. N-138739,
which secures the 1st TLA dated September
28, 1995, and which has a loan valuation of
PHP700,000.00, was also made a collateral
for the CLA. Worse, the whole amount of the
loan under the 1st TLA was declared due and
demandable, although plaintiffs faithfully
and regularly paid for the monthly
amortization there[of].
23.
Thus, to complete, rather
suspiciously, the security for the CLA which is
for PHP2.5 Million, defendant bank further
informed plaintiffs that it would cost them

PHP1.4 Million to take the property covered

by TCT No. N-138739 [which secured the first
TLA] out of the mortgage, because the
deficiency in the CLA secured by the Evidente
properties must also be paid. This amount is
preposterous considering that at the time, the
remaining balance of the 1st TLA was only
around PHP450,000,00. Moreover, plaintiffs
were suffering from financial difficulties because
of the sharp decline of the pesos purchasing
power.
xxx
26. Defendant bank filed with the
Executive Judge of Quezon City, through public
defendants herein, an Application for ExtraJudicial foreclosure of Real Estate Mortgage
under Act No, 3135, as amended, dated May 4,
1998. The application sought the sale in a
public auction of the Evidente properties and
plaintiffs property covered by TCT No. 67286
[which secured the second TLA and which TLA
had been settled]. . . .
xxx
31. Yet, defendant bank and public
defendants allowed the public auction to
proceed as scheduled [on July 23, 1998].
xxx
35. In the meantime, without making
any effort to cancel the effects of the public
auction held on July 23, 1998, defendant bank
filed with public defendants an Amended
Application for Extra-Judicial Foreclosure of
Real Estate Mortgage under Act No. 3135, as
amended. The amended application sought the
sale in a public auction of the same Evidente
properties and plaintiffs property covered by

TCT No. N-138739 [which secured the first

TLA].
36. Acting upon the said application,
public defendants issued another notice of
Sheriff Sale dated July 28, 1998 which
scheduled the public auction of the
aforementioned real properties on August
26, 1998 . . .
37. Plaintiffs property covered by
TCT No. N-138739 is erroneously included in
the amended application and in the Notice of the
Sheriffs Sale. The said mortgaged property
secures the 1st TLA dated September 28, 1995,
for which plaintiffs have faithfully and regularly
paid for the monthly amortization due. On the
other hand, defendant bank is foreclosing the
said property and the two Evidente properties
for alleged failure to pay the monthly
installments due on the CLA dated November 8,
1996.
xxx
38. Furthermore, defendant bank
acted in bad faith and in willful breach of its
c o n t r a c t u a l o b l i g a t i o n s t o p l a i n t i ff s i n
understating the loan valuation of the two
Evidente properties, and in effect declaring
the property covered by TCT No. N-133739
[which secured the first TLA] as additional
collateral for the said CLA. (Emphasis and
underscoring supplied).

The plaintiffs Locsins thus prayed that:

A.
Upon filing of this complaint, a
temporary restraining order (TRO)
be
immediately issued ex-parte, enjoining
defendants, their agents and/or representatives

from enforcing the Notice of Sheriffs Sale dated

July 28, 1998, and from proceeding with the
scheduled public auction of the properties
included therein, particularly plaintiffs real
property covered by TCT No. N-138739, on
August 26, 1998, or on any date thereafter, until
further orders from the Honorable Court.
B. After appropriate proceedings, a
writ of preliminary injunction be issued, under
the same tenor as above, and upon payment of
such bond as may be fixed by the Honorable
Court.
C.
judgment be rendered:

After trial on the merits,

1. On the First
Cause of Action, ordering
defendant bank to faithfully
comply with its obligations
under the 1st TLA and the
CLA, revert the loan
valuation of the two
Evidente properties
covered by TCTs Nos.
N-166336 and 166337 to
PHP2.5 Million, and allow
plaintiffs to take its
property covered by TCT
No. N-138739 out of the
mortgage by paying the
balance thereon, minus
interests and penalties
accruing from February
1998;
2. On the First
and Second Causes of
Action, ordering defendant
bank to pay plaintiffs
PHP500,000.00 in actual
damages;

3. On the Third
Cause of Action, ordering
defendant bank to pay
plaintiffs PHP1 Million in
actual damages;
4. On the
Fourth Cause of Action,
ordering defendant bank to
pay
plaintiffs
PHP500,000.00 in moral
damages;
5. On the Fifth
Cause of Action, ordering
defendant bank to pay
plaintiffs PHP300,000.00 in
exemplary damages;
6. On the Sixth
Cause of Action, ordering
defendant bank to [pay]
plaintiffs PHP200,[000].00
for attorneys fees and
litigation expenses;
7. Making the
injunction issued against
defendants permanent;
and
8.
Ordering
defendants to pay costs of
suit.
Other reliefs which are just
and equitable are likewise prayed for.[4]
(Emphasis and underscoring in the original;
italics supplied).

Branch 233 of the Quezon City RTC denied the Locsins prayer for
the issuance of a TRO, by Order of August 25, 1998.

of this Promissory Note or

any related agreement;

In its September 8, 1998 ANSWER[5] with Compulsory

Counterclaim filed on September 11, 1998, petitioner denied that its Asst.
Vice President Agnes Tuason had told the Locsins that the loan valuation of
the Evidente properties was P2.5 million for it in fact told them that the P2.5
million loan was approved inspite of the deficiency of the Evidente properties
because of their [Locsins] good paying record with [it]. And it denied
(specifically) too the Locsins complaints-allegations in paragraphs 19-25,
alleging as follows:

xxx

8.2 All the promissory notes signed by

[the Locsins] uniformly provide:
Upon
the
occurrence as to Maker or
any Co-Maker of this
Promissory Note of any of
the following events of
default, the outstanding
principal, accrued interest
and any other sum
payable hereunder or
under any related
agreement shall become
immediately due and
payable
without
presentment, demand,
protest or notice of any
kind (other than notice of
the event and fact of
default) all of which are
hereby expressly waived
by the Maker and all of the
Co-Makers, if any:
xxx
3)
Failure by
the Maker or any CoMaker to perform or the
violation of any provision

6) The Maker
or any Co-Maker fails to
pay any money due under
any other agreement,
standby letter of credit or
document evidencing,
securing, guaranteeing or
otherwise relating to
indebtedness of the Maker
or any Co-Maker to any
other creditor, or there
occurs, any event of
default or any event which,
but for the passage of time
or the giving of notice, or
both, would constitute
under
any
such
agreement, stand by letter
of credit or document (and
which has not been
remedied within any
applicable grace period):
xxx
8.3 The letter of approval of the P2.5
million loan of [the Locsins] has a crossdefault provision, which reads:
3.6 A default
on any availment under
this credit line facility shall
automatically mean a
default on [the Locsins]
existing term loan under
Promissory Note No.
29-01-9080-95 [covering

the first TLA] and vice

versa (Emphasis and
underscoring supplied),[6]

on which letter the Locsins affixed their conformity; that in light of the Locsins
default in the settlement of their monthly obligations under the CLA, it sent
them a January 7, 1998 demand letter advising them of the Past Due Status
of their promissory note covering the P2.5 million account to
thereby
automatically mean that [said promissory note] and the other loan account
under [the promissory note covering the 1st TLA] with an outstanding balance
of P460,652.95 are considered Due and Demandable already; that after a
follow up letter and a final letter of demand, the Locsins requested, by letter of
February 26, 1998, that the promissory note under the 1st TLA and that under
the CLA be treated separately and that one of their titles be released upon
payment of P1.8 million; that by letter of March 5, 1998, it advised the
Locsins that their request in their February 26, 1998 letter regarding the
release of one of the [two Evidente titles] was approved, subject to the
partial payment on Principal plus all interests and charges amounting to
P1,934,465.79 as of March 20, 1998; that to its March 5, 1998 letter, the
Locsins, by letter of March ___, (sic) 1998, replied as follows:
We would like to request for a thirty day
extension on the deadline given us today for the
payment of P1,900,000.00, or (sic) the release
of one title under PN No. 11-01-0586-96
[covering the CLA] as the person very much
interested in purchasing it has asked us for the
same. At the same time we are also going to
take out the property under PN No.
29-01-9080-95 [covering the first TLA], so that
only one property under the fire (sic) account
mentioned shall be left mortgaged to your bank.
Thank you for your kind consideration.[7]
(Underscoring supplied);
that despite the grant of the Locsins request for extension of 30 days or up to
April 20, 1998 to pay P1.9 million as a condition for the release of the title,
the Locsins failed to come up therewith; and that the inclusion of the Locsins
mortgaged title covering the 1st TLA in the amended application for extra-

judicial foreclosure was not erroneous because of the cross-default

provisions and acceleration clauses in the loan documents which [the
Locsins] signed.
As Compulsory Counterclaim petitioner alleged that on account of the
filing of the baseless and malicious suit, it was constrained to engage the
services of its counsel at an agreed fee of P200,000.00. It thus prayed for the
dismissal of the Locsins complaint and the grant of its counterclaim.
En passant, it does not appear that the Locsins filed a Reply[8] to
petitioners Answer with Compulsory Counterclaim.
On March 26, 1999, the Locsins filed an Omnibus Motion[9] (To Amend
the Designation of the Plaintiffs; and to Admit Supplemental Complaint), which
appears to have been granted by the Quezon City RTC.
In their
Supplemental Complaint,[10] they repleaded in toto the allegations in their
August 24, 1998 Complaint and additionally alleged that petitioner proceeded
with the public auction of the properties covered by the mortgage in the 1st
TLA and the mortgage in the CLA on September 23, 1998, contrary to law.
The Locsins thus prayed in their Supplemental Complaint as follows:
1.

Ordering the cancellation of the public

auction of TCT Nos. N-138739, N-166336
and N-166337 on September 23, 1998;

2.

Declaring said auction of no legal force

and effect; and

3.

Granting the following reliefs prayed for by

plaintiffs in their [original] Complaint, to wit:
x x x[11] (Emphasis and underscoring
supplied).

By Answer[12] (To Supplemental Complaint) dated June 1, 1999,

petitioner admitted that the public auction (which was originally scheduled on
August 26, 1998) did take place on September 23, 1998. It denied, however,
that it was contrary to law.
More than eight months after the Locsins filed their Supplemental
Complaint reflecting their prayer for the nullification of the September 23,
1998 public auction sale or on November 29, 1999, petitioner filed a complaint

against the Locsins before the RTC of Mandaluyong where it was docketed as
Civil Case No. MC-99-935,[13] for Collection of Sum of Money, alleging as
follows:
xxx
5.

14.

On 09 February 1999, counsel for plaintiff

sent a letter to defendants dated 05
February 1999, demanding from the
latter the payment of said deficiency but
Defendants refused and failed and
continue to refuse and fail to pay said
obligation . . .

15.

Due to Defendants unreasonable refusal

and failure to comply with Plaintiffs just
demands, Plaintiff was compelled to
institute the present action and to
engage the services of counsel to whom
it bound itself to pay the sum of
P130,000.00, plus appearance fee of
P2,000.00 and other legal costs and
expenses.[14]
(Emphasis in the
original; underscoring supplied).

Defendants failed to satisfy their

obligations under the . . . Promissory
Notes [covering the first TLA & the CLA]
and Plaintiff deemed them in default;
xxx

11.

The [amended] extrajudicial sale was

conducted on 23 September 1998 and
Plaintiff was again declared the highest
bidder . . .

12.

The total outstanding obligation of

Defendants at the time of the
foreclosure was PESOS:
FIVE
MILLION TWENTY THREE
THOUSAND FOUR HUNDRED
NINETY SIX & 64/100 (P5,023.496.64).
However, the appraised value of the
properties was only P3,879,406.80 and
plaintiff thus submitted a bid of PESOS:
THREE MILLION EIGHT HUNDRED
SEVENTY NINE THOUSAND FOUR
HUNDRED SIX
& 80/100
(P3,879.406.80);

13.

Plaintiff is entitled to recover from

Defendants;

After all expenses for the foreclosure and

registration of the Certificate of Sale
have been deducted from the
aforementioned bid, there still remains
an outstanding balance in the amount of
PESOS:
ONE MILLION ONE
HUNDRED FORTY FOUR THOUSAND
EIGHTY NINE & 84/100 (1,144,089.84),
EXCLUSIVE OF INTEREST AT THE
RATE OF TWENTY FIVE AND A HALF
PERCENT (25.5%) per annum, which

Petitioner accordingly prayed in its complaint that the Locsins be ordered to

pay it jointly and severally
1.

the outstanding obligation in the sum of

PESOS:
ONE MILLION ONE
HUNDRED FORTY FOUR THOUSAND
EIGHTY NINE & 84/100 (1,144,089.84),
plus interest thereon at the rate of
twenty five and a half percent (25.5%)
per annum from 23 September 1998,
the date of the foreclosure sale, until the
obligation has been fully paid;

2.

attorneys fees in the sum of P130,000.00,

plus appearance fee of P2,000.00; and

3.

costs of suit and expenses of litigation.

Other just and equitable reliefs under

the premises are likewise prayed for.[15]
(Emphasis in the original).
To petitioners complaint (for sum of money), the Locsins filed a
Motion to Dismiss[16] on the ground that it should have been raised as
compulsory counterclaim in their (the Locsins) complaint (for specific
performance, damages and nullification of the public auction), and by failing to
raise it as such, it is now barred by the rules. To the Motion, petitioner filed
its Opposition which merited the Locsins filing of a Reply to Opposition.[17]
Branch 213 of the Mandaluyong RTC denied the Locsins Motion to
Dismiss petitioners Complaint, by Order of September 18, 2000,[18] in this
wise:
The motion to dismiss is premised on
the ground that plaintiffs claim in the instant
case should have been raised in the previous
case, [C]ivil [C]ase No. Q98-35337, wherein
plaintiff herein was the defendant, said claim
being a compulsory counterclaim and for failure
to raise the same, it is now barred by the rules.
It is noted, however, that the instant
case is one for collection of alleged deficiency
amount as the proceeds of the foreclosure sale
of defendants properties are not sufficient to
cover the entire indebtedness. In effect, such
claim did not arise as a consequence of [C]ivil
Case No. 098-353337 but was already existing
(sic) even before the institution of that earlier
case.
Without necessarily delving into the
veracity of plaintiff s claim but merely
considering its origin and nature as alleged in
the complaint, said claim is merely permissive
and not compulsory. Thus, such a claim can
stand as an independent action.[19]
(Underscoring supplied).

The Locsins Motion for Reconsideration having been denied by

the Mandaluyong RTC by Order of March 21, 2001,[20] they appealed to the
Court of Appeals which, by the present assailed decision of June 5, 2003,[21]
reversed the Orders of the Mandaluyong RTC, it finding that petitioners
complaint was a compulsory counterclaim which should have been raised in
its Answer to the Locsins complaint, and having failed to do so, it is now
barred; that litis pendentia and res judicata apply to the case; and that
petitioner violated the rule on forum shopping, hence, the dismissal of its
complaint is warranted. Explained the appellate court:
[The Locsins] complaint in Civil Case
No. Q-98-35337, pending before Branch 223 of
the Regional; Trial Court of Quezon City asks
specific performance by private respondent
Banco de Oro of its obligations under the very
same loan agreements covered by Real Estate
Mortgages mentioned in private respondents
Complaint in Civil Case No. MC-99-935 before
the Mandaluyong City Trial Court.
In both
cases, the real properties involved are those
covered by TCT Nos. N-138739, [N-166336]
and N-166337.
The basis of the parties
respective complaints arose from the very same
transactions, the Term Loan Agreement, dated
September 28, 1995 and the Credit Line
Agreement, dated November 6, 1996. Clearly,
there is a logical connection between both
claims which arose from the same transaction
and are necessarily connected and it does not
require the presence of third parties for its
adjudication. A counterclaim is logically related
to the opposing partys claim where separate
trials of each of their respective claims would
involve substantial duplication of effort and time
by the parties and the courts.
Moreover, Sec. 2, Rule 9 of the Rules
of Court provides:
Sec.
2.
Compulsory counterclaim,
or cross-claim, not set up
barred. - A compulsory

counterclaim. or a cross
claim, not set up shall be
barred.
Private respondent should have
raised its complaint as compulsory counterclaim
in the Regional Trial Court of Quezon City.
Failing to do so, it is now barred. The reason for
the rule relating to counterclaims is to avoid
multiplicity of suits and to enable the Courts to
dispose of the whole matter in controversy in
one action, and adjustment of defendants
demand by counterclaim rather than by
independent suit. (Reyes vs. Court of Appeals,
38 SCRA 138).
[The Locsins] second argument is
that private respondents complaint in Civil Case
No. MC-99-935 constitutes litis pendentia, and
therefore should have been dismissed by the
trial court. For litis pendentia to be a ground for
dismissal of an action, three elements must
concur: (a) identity of parties, or at least such
parties who represent the same interest in both
actions; (b) identity of rights asserted and relief
prayed for being founded on the same facts;
and (c) the identity, with respect to the two
preceding particulars in the two cases, is such
that any judgment that may be rendered in the
pending case, regardless of which party is
successful, would amount to res judicata in the
other.
Applying this test, the principle of litis
pendentia and res judicata will certainly apply to
the instant case,
all three requisites are
present. The parties are the same and what is
involved in both Civil Case No. Q-98-35337
pending before the Quezon City Trial Court and
Civil Case No. MC-99-935 before the
Mandaluyong City Trial Court are the same
subject matter and set of circumstances, which
would entail presentation of the same evidence.

Judgment in favor of one of the parties in Civil

Case No. Q-9835337 would bar the institution of
the case filed before the Mandaluyong City Trial
Court.
Finally, [the Locsins] assert that Civil
Case MC-99-935 should be dismissed since
private respondent is guilty of willful and
deliberate forum shopping. Jurisprudence has
defined forum-shopping as the filing of multiple
suits involving the same parties for the same
cause of action, either simultaneously or
successively, for the purpose of obtaining a
favorable judgment.
Forum shopping exists
where the elements of litis pendentia
are
present, and where the a final judgment in one
case will amount to res judicata in the other.
(Heirs of Victorina Motus Penaverde v. Heirs of
Mariano Penaverde, 344 SCRA 69).
Thus,
there is forum shopping when there exist: a)
identity of parties, or at least such parties as
represent the same interest in both actions, b)
identity of rights asserted and relief prayed for,
the relief being founded on the same facts, and
c) the identity of the two preceding particulars is
such that any judgment rendered in the other
action, will amount to res judicata in the action
under consideration. (Prubankers Association
vs. Prudential Bank and Trust Company, 302
SCRA 83). As discussed earlier, the elements
of litis pendentia being present and that res
judicata will eventually result, a decision by the
Quezon City Trial Court would bar the institution
of the Civil Case in the Mandaluyong City Trial
Court for the collection of deficiency claim in the
foreclosure sale of the petitioners properties.
Private respondent violated the rule on forum
shopping and therefore, the summary dismissal
of their action is warranted.[22] (Italics in the
original; underscoring supplied).
Hence, the present Petition for Review on Certiorari,[23] petitioner
raising the following assignment of errors:

I.

THE COURT OF APPEALS ERRED IN

HOLDING THAT PETITIONER BANKS
COMPLAINT FOR COLLECTION OF
SUM OF MONEY BASED ON
DEFICIENCY CLAIM UNDER CIVIL
CASE No. MC-99-935 IS A
COMPULSORY COUNTERCLAIM AND
SHOULD HAVE BEEN SET UP BY
PETITIONER BANK IN PRIVATE
RESPONDENTS COMPLAINT FOR
SPECIFIC PERFORMANCE, TORT
AND DAMAGES, AND ANNULMENT
OF FORECLOSURE IN CIVIL CASE
NO. Q-98-35337.

II.

THE COURT OF APPEALS ERRED IN

HOLDING THAT THERE IS LITIS
PENDENTIA AND THUS, CIVIL CASE
No. MC-99-935 SHOULD BE
DISMISSED.

III.

THE COURT OF APPEALS ERRED IN

HOLDING THAT THE PETITIONER
B A N K I S G U I LT Y O F F O R U M
SHOPPING.[24]

Petitioner argues that the Locsins complaint is one based on tort,

whereas its complaint before the Mandaluyong RTC is based on contract and
law, hence, the two causes of action are separate and distinct; that under the
test for the determination of whether the counterclaim is compulsory or
permissive, its suit before the RTC of Mandaluyong for collection of deficiency
judgment is not a compulsory, but permissive counterclaim and may,
therefore, proceed independently of the Locsins complaint.
Petitioner adds that its claim arises from the loan agreement,
whereas the Locsins claim arises from the annulment of the foreclosure sale;
that litis pendentia and res judicata do not apply as grounds for dismissal of its
complaint as a perusal of both complaints reveals different causes of action,
and the rights asserted and the reliefs prayed for are different, and the rule on
lis pendens is applicable only when the judgment to be rendered in the action
first instituted will be such that regardless of which party is successful, it will

amount to res judicata as to the second action, it citing Hongkong &

Shanghai Bank v. Aldecon & Co.[25]
Citing Enriquez, et al. v. Ramos, et al.,[26] petitioner further argues
that an action for collection of a mortgage loan does not bar another for
rescission of the mortgage if such is based on the non-compliance by the
mortgagor of the mortgage contract.
Petitioner further cites Roa v. PH Credit Corporation,[27] wherein
this Court ruled that the pendency of a replevin suit does not bar a proceeding
for deficiency claim as there is no identity of subject matter, cause of action
and reliefs prayed for.

Finally, petitioner cites Bangko Silangan Development Bank v.

Court of Appeals,[28] wherein this Court held that:
The test to determine identity of the
causes of action is to ascertain whether the
same evidence necessary to sustain the second
cause of action is sufficient to authorize a
recovery in the first, even if the form or nature of
the two (2) actions are different from each
other. If the same facts or evidence would
sustain both, the two (2) actions are considered
the same within the rule that the judgment in the
former is a bar to the subsequent action;
otherwise, it is not. This method has been
considered the most accurate test as to
whether a former judgment is a bar in
subsequent proceedings between the same
parties.
It has even been designated as
infallible.
While it is true that the two (2) cases
are founded in practically the same set of facts,
as correctly observed by the Court of Appeals, it
cannot be said that exactly the same evidence
are needed to prove the causes of action in both
cases. Thus, in Civil Case No, 91-56185 of the
RTC of Manila, the evidence needed to prove
that petitioner sustained damage to its
reputation and goodwill is not the same

evidence needed in Civil Case No. 221 of the

RTC of Batangas to prove the allegation that a
substantial amount of respondent Bausas bank
deposit in petitioners bank was illegally
withdrawn without her consent or authority, The
RTC of Batangas and the Court of Appeals,
therefore, did not abuse their discretion in
denying petitioners motion to dismiss which
was based on the ground of litis pendentia.[29]
(Emphasis and underscoring supplied).
By their Comment,[30] the Locsins maintain that
petitioners claim in Civil Case No. MC-99-935 is logically related to
their claim in Civil Case No. Q-98-35337, as they involve the same
parties, rely on the same facts, subject matter and series of
transactions and, therefore, would entail presentation of the same
evidence; that petitioner having failed to set up its claim as a
compulsory counterclaim[31] in Civil Case No. Q-98-35337, it is now
barred from setting it up in Civil Case No. MC-99-935; and that litis
pendentia and res judicata proscribe the filing of a separate
complaint by petitioner which is guilty of willful and deliberate forum
shopping.
The petition is impressed with merit.
It bears noting that when petitioner filed its Answer with
Counterclaim to the Locsins complaint on September 11, 1998, the
Real Estate Mortgages covering the 1st TLA and the CLA had not
been extrajudicially foreclosed, the extra-judicial foreclosure having
taken place subsequent thereto or on September 23, 1998.
It bears noting too that until after the Locsins allegedly
refused and failed to settle the alleged deficiency amount of their
outstanding obligation, despite petitioners February 5, 1999 letter of
demand sent to the Locsins on February 9, 1999, petitioners cause
of action had not arisen.

Petitioner could not, therefore, have set its claim subject

of its complaint in Civil Case No. MC-99-935 as, assuming arguendo
that it is, a compulsory counterclaim when it filed on September 11,

1998 its Answer with Compulsory Counterclaim to the Locsins

complaint.[32]
The counterclaim must be existing at
the time of filing the answer, though not at the
commencement of the action for under Section
3 of the former Rule 10, the counterclaim or
cross-claim which a party may aver in his
answer must be one which he may have at the
time against the opposing party. That phrase
can only have reference to the time of the
answer.
Certainly a premature counterclaim
cannot be set up in the answer. This
construction is not only explicit from the
language of the aforecited provisions but also
serves to harmonize the aforecited sections of
Rule 10, with section 4 of the same rule which
provides that a counterclaim . . . which either
matured or was acquired by a party after serving
his pleading may, with the permission of the
court, be presented as a counterclaim . . . by
supplemental pleading before judgment.
Thus a party who fails to interpose a
counterclaim although arising out of or is
necessarily connected with the transaction or
occurrence of the plaintiffs suit but which did not
exist or mature at the time said party files his
answer is not thereby barred from interposing
such claim in a future litigation. . .[33]
(Emphasis and underscoring supplied).

While petitioner could have, after the Locsins filed on March 26,
1999 a Supplemental Complaint in Civil Case No. Q-98-35337, set up, in its
Supplemental Answer, its claim subject of Civil Case No. MC-99-935, again
assuming arguendo that it is a Compulsory
Counterclaim, the setting up of such after-acquired counterclaim, is merely
permissive, not compulsory.[34]
At all events, even if the claim of petitioner - subject of its complaint
in Civil Case No. MC-99-935 is a compulsory counterclaim which should have

been set up in its Answer to the Locsins Supplemental Complaint, technicality

should give way to justice and equity to enable petitioner to pursue its afteracquired claim against the Locsins.
As for the issue of whether petitioners complaint is dismissible on
the grounds of litis pendentia or auter action pendant, and forum shopping,
the above-quoted and recited allegations of the pleadings of the parties do not
reflect identity of rights asserted and reliefs sought, as well as basis thereof,
to a degree sufficient to give rise to the abatement of petitioners complaint on
any of these grounds.

WHEREFORE, the petition is hereby GRANTED.

Court (RTC) of Quezon City. The complaint alleged the following: ACDC
leased Caterpillar generator sets and Amida mobile floodlighting systems from
MEC during the period of March 13 to July 15, 1998 but failed, despite
demands, to pay the rentals therefor in the total amount of P4,313,935.00;
from July 14 to August 25, 1998, various equipments from MEC were,
likewise, leased by ACDC for the latters power plant in Mauban, Quezon, and
that there was still a balance of P456,666.67; and ACDC also purchased and
took custody of various equipment parts from MEC for the agreed price of
P237,336.20 which, despite demands, ACDC failed to pay.
MEC prayed that judgment be rendered in its favor, thus:
1.
Ordering defendant to pay the plaintiff the total amount of FIVE
MILLION SEVENTY-ONE THOUSAND THREE HUNDRED THIRTY-FIVE
[PESOS] & 86/100 (P5,071,335.86);

The assailed decision of the Court of Appeals is SET ASIDE.

Let the case be REMANDED to the court of origin,
Branch
213 of the Regional Trial Court of Mandaluyong, which is hereby DIRECTED
to continue with dispatch the proceedings in Civil Case No. MC-99-935.
No costs.

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

SO ORDERED.

!!

2.
Ordering defendant to pay the plaintiff legal interest of 12% per annum
on the principal obligations in the total amount of FIVE MILLION SEVENTYONE THOUSAND THREE HUNDRED THIRTY-FIVE [PESOS] & 86/100
(P5,071,335.86) computed from the date the obligations became due until
fully paid;

[G.R. No. 160242. May 17, 2005]

4.

Ordering defendant to pay all costs of litigation.

Plaintiff prays for such other reliefs as may be just and equitable under the
premises.[2]
ASIAN CONSTRUCTION AND DEVELOPMENT CORPORATION,
petitioner, vs. COURT OF APPEALS and MONARK
EQUIPMENT CORPORATION, respondents.
DECISION
CALLEJO, SR., J.:
On March 13, 2001, Monark Equipment Corporation (MEC) filed a
Complaint[1] for a sum of money with damages against the Asian
Construction and Development Corporation (ACDC) with the Regional Trial

ACDC filed a motion to file and admit answer with third-party complaint
against Becthel Overseas Corporation (Becthel).
In its answer, ACDC
admitted its indebtedness to MEC in the amount of P5,071,335.86 but alleged
the following special and affirmative defenses:
5. Defendant has incurred an obligation with plaintiff, in
the amount of P5,071,335.86.
But third-party
defendant fails and refuses to pay its overdue
obligation in connection with the leased equipment
used by defendant to comply with its contracted
services;

6. The equipment covered by the lease were all used in

the construction project of Becthel in Mauban,
Quezon, and Expo in Pampanga and defendant was
not yet paid of its services that resulted to the nonpayment of rentals on the leased equipment.[3]
And by way of third-party complaint against Becthel as third-party
defendant, ACDC alleged that:

equipment used in the Mauban, Quezon project in

the total amount of P456,666.67;
13. By reason thereof, third-party plaintiff was compelled
to prosecute its claim against third-party defendant
and hired the services of undersigned counsel for
an attorneys fees of P500,000.00.[4]
ACDC prayed that judgment be rendered in its favor dismissing the
complaint and ordering the third-party defendant (Becthel) to pay P456,666.67
plus interest thereon and attorneys fees.[5]

7.

Third-party plaintiff repleads the foregoing

allegations in the preceding paragraphs as may be
material and pertinent hereto;

8.

Third-party BECTHEL OVERSEAS CORPORATION

(herein called Becthel) is a corporation duly
organized and existing under the laws of the
United States of America but may be served with
summons at Barangay Cagsiay I, Mauban,
Quezon 4330, Philippines;

MEC opposed the motion of ACDC to file a third-party complaint

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

9.

Third-party defendant Becthel contracted the

services of third-party plaintiff to do construction
work at its Mauban, Quezon project using the
leased equipment of plaintiff Monark;

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

10. With the contracted work, third-party plaintiff rented

the equipment of the plaintiff Monark;

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

11. Third-party plaintiff rendered and complied with its

contracted works with third-party defendant using
plaintiffs (Monark) rented equipment. But, thirdparty defendant BECTHEL did not pay for the
services of third-party plaintiff ASIAKONSTRUKT
that resulted to the non-payment of plaintiff
Monarks claim;
12.

Despite repeated demands, third-party defendant

failed and refused to pay its overdue obligation to
third-party plaintiff ASIAKONSTRUKT, and thirdparty defendant needs to be impleaded in this
case for contribution, indemnity, subrogation or
other reliefs to off-set or to pay the amount of
money claim of plaintiff Monark on the leased

In its reply, MEC alleged that the demand of ACDC in its special and
affirmative defenses partook of the nature of a negative pregnant, and that
there was a need for a hearing on its claim for damages.
On August 2, 2001, the trial court issued a Resolution denying the
motion of ACDC for leave to file a third-party complaint and granting the
motion of MEC, which the trial court considered as a motion for a judgment on
the pleadings. The fallo of the resolution reads:
ACCORDINGLY, this Court finds defendant Asian Construction and
Development Corporation liable to pay plaintiff Monark Equipment
Corporation and is hereby ordered to pay plaintiff the amount of FIVE
MILLION SEVENTY-ONE THOUSAND AND THREE HUNDRED THIRTY-

FIVE & 86/100 PESOS (P5,071,335.86) plus 12% interest from the filing of
the complaint until fully paid.
SO ORDERED.[9]

that

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

I.

THE LOWER COURT ERRED IN DENYING THE

MOTION TO FILE AND ADMIT ANSWER WITH
THIRD-PARTY COMPLAINT;

II. THE LOWER COURT ERRED IN GRANTING THE

MOTION FOR SUMMARY JUDGMENT;
III.

THE LOWER COURT ERRED WHEN IT DENIED

THE THIRD-PARTY COMPLAINT AND ORDERED
D E F E N D A N T TO PAY T H E A M O U N T O F
P5,071,335.86 PLUS INTEREST OF 12% PER
ANNUM.[10]

On July 18, 2001, the CA rendered judgment dismissing the appeal and
affirming the assailed decision. The appellate court ruled that since MEC had
prayed for judgment on the pleadings, it thereby waived its claim for damages
other than the amount of P5,071,335.86; hence, there was no longer a
genuine issue to be resolved by the court which necessitated trial. The
appellate court sustained the disallowance of the third-party complaint of
ACDC against Becthel on the ground that the transaction between the said
parties did not arise out of the same transaction on which MECs claim was
based.
Its motion for reconsideration of the decision having been denied,
ACDC, now the petitioner, filed the present petition for review on certiorari,
and raises the following issues:
I.
II.

WHETHER OR NOT A THIRD-PARTY COMPLAINT

IS PROPER; AND
WHETHER OR NOT JUDGMENT ON THE
PLEADINGS IS PROPER.[11]

Citing the rulings of this Court in Allied Banking Corporation v. Court of

Appeals[12] and British Airways v. Court of Appeals,[13] the petitioner avers

that the CA erred in ruling that in denying its motion for leave to file a thirdparty complaint, the RTC acted in accordance with the Rules of Court and
case law. The petitioner maintains that it raised genuine issues in its answer;
hence, it was improper for the trial court to render judgment on the pleadings:
With due respect, the judgment on the pleadings affirmed by the Court of
Appeals is not, likewise, proper considering that the Answer with Third-Party
Complaint, although it admitted the obligation to respondent, tendered an
issue of whether the respondents claim is connected with the third-party
claim.
As alleged in the Answer with Third-Party Complaint, it is admitted then by
respondent, for purposes of judgment on the pleadings, that failure to pay
respondent was in connection of Becthel Overseas Corporations failure to
pay its obligation to petitioner and that the equipment leased was used in
connection with the Becthel Overseas Corporation project.
This tendered issue could not just be disregarded in the light of the third-party
complaint filed by herein petitioner and third-party plaintiff which, as argued in
the first discussion/argument, is proper and should have been given due
course.[14]
The petition is denied for lack of merit.
Section 11, Rule 6 of the Rules of Court provides:
Sec. 11. Third (fourth, etc.)-party complaint. A third (fourth, etc.) party
complaint is a claim that a defending party may, with leave of court, file
against a person not a party to the action, called the third (fourth, etc.) party
defendant, for contribution, indemnity, subrogation or any other relief, in
respect of his opponents claim.
Furthermore, Section 1, Rule 34 of the Rules of Court provides that the
Court may render judgment on the pleadings, as follows:
Section 1. Judgment on the pleadings. Where an answer fails to tender an
issue, or, otherwise, admits the material allegations of the adverse partys
pleading, the court may, on motion of that party, direct judgment on such
pleading. However, in actions for declaration of nullity or annulment of
marriage or for legal separation, the material facts alleged in the complaint
shall always be proved.

The purpose of Section 11, Rule 6 of the Rules of Court is to permit a

defendant to assert an independent claim against a third-party which he,
otherwise, would assert in another action, thus preventing multiplicity of suits.
All the rights of the parties concerned would then be adjudicated in one
proceeding. This is a rule of procedure and does not create a substantial
right. Neither does it abridge, enlarge, or nullify the substantial rights of any
litigant.[15] This right to file a third-party complaint against a third-party rests
in the discretion of the trial court. The third-party complaint is actually
independent of, separate and distinct from the plaintiffs complaint, such that
were it not for the rule, it would have to be filed separately from the original
complaint.[16]
A prerequisite to the exercise of such right is that some substantive
basis for a third-party claim be found to exist, whether the basis be one of
indemnity, subrogation, contribution or other substantive right.[17] The
bringing of a third-party defendant is proper if he would be liable to the plaintiff
or to the defendant or both for all or part of the plaintiffs claim against the
original defendant, although the third-party defendants liability arises out of
another transaction.[18] The defendant may implead another as third-party
defendant (a) on an allegation of liability of the latter to the defendant for
contribution, indemnity, subrogation or any other relief; (b) on the ground of
direct liability of the third-party defendant to the plaintiff; or (c) the liability of
the third-party defendant to both the plaintiff and the defendant.[19] There
must be a causal connection between the claim of the plaintiff in his complaint
and a claim for contribution, indemnity or other relief of the defendant against
the third-party defendant. In Capayas v. Court of First Instance,[20] the Court
made out the following tests: (1) whether it arises out of the same transaction
on which the plaintiffs claim is based; or whether the third-party claim,
although arising out of another or different contract or transaction, is
connected with the plaintiffs claim; (2) whether the third-party defendant
would be liable to the plaintiff or to the defendant for all or part of the plaintiffs
claim against the original defendant, although the third-party defendants
liability arises out of another transaction; and (3) whether the third-party
defendant may assert any defenses which the third-party plaintiff has or may
have to the plaintiffs claim.
The third-party complaint does not have to show with certainty that
there will be recovery against the third-party defendant, and it is sufficient that
pleadings show possibility of recovery.[21] In determining the sufficiency of the
third-party complaint, the allegations in the original complaint and the thirdparty complaint must be examined.[22] A third-party complaint must allege
facts which prima facie show that the defendant is entitled to contribution,
indemnity, subrogation or other relief from the third-party defendant.[23]

It bears stressing that common liability is the very essence for

contribution. Contribution is a payment made by each, or by any of several
having a common liability of his share in the damage suffered or in the money
necessarily paid by one of the parties in behalf of the other or others.[24] The
rule on common liability is fundamental in the action for contribution.[25] The
test to determine whether the claim for indemnity in a third-party complaint is,
whether it arises out of the same transaction on which the plaintiffs claim is
based, or the third-party plaintiffs claim, although arising out of another or
different contract or transaction, is connected with the plaintiffs claim.[26]
In this case, the claims of the respondent, as plaintiff in the RTC,
against the petitioner as defendant therein, arose out of the contracts of lease
and sale; such transactions are different and separate from those between
Becthel and the petitioner as third-party plaintiff for the construction of the
latters project in Mauban, Quezon, where the equipment leased from the
respondent was used by the petitioner.
The controversy between the
respondent and the petitioner, on one hand, and that between the petitioner
and Becthel, on the other, are thus entirely distinct from each other. There is
no showing in the proposed third-party complaint that the respondent knew or
approved the use of the leased equipment by the petitioner for the said project
in Quezon. Becthel cannot invoke any defense the petitioner had or may
have against the claims of the respondent in its complaint, because the
petitioner admitted its liabilities to the respondent for the amount of
P5,075,335.86. The barefaced fact that the petitioner used the equipment it
leased from the respondent in connection with its project with Becthel does
not provide a substantive basis for the filing of a third-party complaint against
the latter. There is no causal connection between the claim of the respondent
for the rental and the balance of the purchase price of the equipment and
parts sold and leased to the petitioner, and the failure of Becthel to pay the
balance of its account to the petitioner after the completion of the project in
Quezon.[27]
We note that in its third-party complaint, the petitioner alleged that
Becthel should be ordered to pay the balance of its account of P456,666.67,
so that the petitioner could pay the same to the respondent. However,
contrary to its earlier plea for the admission of its third-party complaint against
Becthel, the petitioner also sought the dismissal of the respondents
complaint. The amount of P456,666.67 it sought to collect from Becthel would
not be remitted to the respondent after all.
The rulings of this Court in Allied Banking Corporation and British
Airways are not applicable in this case since the factual backdrops in the said
cases are different.

In Allied Banking Corporation, Joselito Yujuico obtained a loan from

General Bank and Trust Company. The Central Bank of the Philippines
ordered the liquidation of the Bank. In a Memorandum Agreement between
the liquidation of the Bank and Allied Banking Corporation, the latter acquired
the receivables from Yujuico. Allied Banking Corporation then sued Yujuico
for the collection of his loan, and the latter filed a third-party complaint against
the Central Bank, alleging that by reason of its tortious interference with the
affairs of the General Bank and Trust Company, he was prevented from
performing his obligation under the loan. This Court allowed the third-party
complaint based on the claim of the defendant therein, thus:
In the words of private respondent, he [s]eeks to transfer liability for the
default imputed against him by the petitioner to the proposed third-party
defendants because of their tortious acts which prevented him from
performing his obligations. Thus, if at the outset the issue appeared to be a
simple makers liability on a promissory note, it became complex by the
rendition of the aforestated decision.[28]
In British Airways, the Court allowed the third-party complaint of British
Airways against its agent, the Philippine Airlines, on the plaintiffs complaint
regarding his luggage, considering that a contract of carriage was involved.
The Court ruled, thus:
Undeniably, for the loss of his luggage, Mahtani is entitled to damages from
BA, in view of their contract of carriage. Yet, BA adamantly disclaimed its
liability and instead imputed it to PAL which the latter naturally denies. In
other words, BA and PAL are blaming each other for the incident.
In resolving this issue, it is worth observing that the contract of air
transportation was exclusively between Mahtani and BA, the latter merely
endorsing the Manila to Hongkong leg of the formers journey to PAL, as its
subcontractor or agent. In fact, the fourth paragraph of the Conditions of
Contracts of the ticket issued by BA to Mahtani confirms that the contract was
one of continuous air transportation from Manila to Bombay.

Parenthetically, the Court of Appeals should have been cognizant of the wellsettled rule that an agent is also responsible for any negligence in the
performance of its function and is liable for damages which the principal may
suffer by reason of its negligent act. Hence, the Court of Appeals erred when
it opined that BA, being the principal, had no cause of action against PAL, its
agent or sub-contractor.
Also, it is worth mentioning that both BA and PAL are members of the
International Air Transport Association (IATA), wherein member airlines are
regarded as agents of each other in the issuance of the tickets and other
matters pertaining to their relationship. Therefore, in the instant case, the
contractual relationship between BA and PAL is one of agency, the former
being the principal, since it was the one which issued the confirmed ticket,
and the latter the agent.[29]
It goes without saying that the denial of the petitioners motion with
leave to file a third-party complaint against Becthel is without prejudice to its
right to file a separate complaint against the latter.
Considering that the petitioner admitted its liability for the principal
claim of the respondent in its Answer with Third-Party Complaint, the trial
court did not err in rendering judgment on the pleadings against it.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack
of merit. Costs against the petitioner.
SO ORDERED.

SY TIONG SHIOU, JUANITA TAN

G.R. No. 174168
SY, JOLIE ROSS TAN, ROMER
TAN, CHARLIE TAN, and JESSIE Present:
JAMES TAN,
Petitioners,
QUISUMBING, J.,

4.
xxx carriage to be performed hereunder by several successive
carriers is regarded as a single operation.
Prescinding from the above discussion, it is undisputed that PAL, in
transporting Mahtani from Manila to Hongkong acted as the agent of BA.

- versus -

Chairperson,
CARPIO MORALES,
TINGA,
VELASCO, JR., and

NA
CH
UR

A,
JJ.
*

SY CHIM and FELICIDAD CHAN

SY,
Respondents.

Promulgated:
March 30, 2009

x----------------------------------------------------------------------------x
SY CHIM and FELICIDAD CHAN SY,
Petitioners,

G.R. No. 179438

versus -

SY TIONG SHIOU and JUANITA TAN,

Respondents.
x----------------------------------------------------------------------------x

DECISION
TINGA, J.:
These consolidated petitions involving the same parties. although
related, dwell on different issues.
G.R. No. 174168.
This is a petition for review[1] assailing the decision and resolution
of the Court of Appeals dated 31 May 2006 and 8 August 2006, respectively,
in CA-G.R. SP No. 91416.[2]

On 30 May 2003, four criminal complaints were filed by Sy Chim and

Felicidad Chan Sy (Spouses Sy) against Sy Tiong Shiou, Juanita Tan Sy,
Jolie Ross Tan, Romer Tan, Charlie Tan and Jessie James Tan (Sy Tiong
Shiou, et al.) before the City Prosecutors Office of Manila. The cases were
later consolidated. Two of the complaints, I.S. Nos. 03E-15285 and
03E-15286,[3] were for alleged violation of Section 74 in relation to Section
144 of the Corporation Code. In these complaints, the Spouses Sy averred
that they are stockholders and directors of Sy Siy Ho & Sons, Inc. (the
corporation) who asked Sy Tiong Shiou, et al., officers of the corporation, to
allow them to inspect the books and records of the business on three
occasions to no avail. In a letter[4] dated 21 May 2003, Sy Tiong Shiou, et al.
denied the request, citing civil and intra-corporate cases pending in court.[5]
In the two other complaints, I.S. No. 03E-15287 and 03E-15288,[6] Sy
Tiong Shiou was charged with falsification under Article 172, in relation to
Article 171 of the Revised Penal Code (RPC), and perjury under Article 183
of the RPC. According to the Spouses Sy, Sy Tiong Shiou executed under
oath the 2003 General Information Sheet (GIS) wherein he falsely stated that
the shareholdings of the Spouses Sy had decreased despite the fact that
they had not executed any conveyance of their shares.[7]
Sy Tiong Shiou, et al. argued before the prosecutor that the issues
involved in the civil case for accounting and damages pending before the RTC
of Manila were intimately related to the two criminal complaints filed by the
Spouses Sy against them, and thus constituted a prejudicial question that
should require the suspension of the criminal complaints. They also argued
that the Spouses Sys request for inspection was premature as the latters
concern may be properly addressed once an answer is filed in the civil case.
Sy Tiong Shiou, on the other hand, denied the accusations against him,
alleging that before the 2003 GIS was submitted to the Securities and
Exchange Commission (SEC), the same was shown to respondents, who at
that time were the President/Chairman of the Board and Assistant Treasurer
of the corporation, and that they did not object to the entries in the GIS. Sy
Tiong Shiou also argued that the issues raised in the pending civil case for
accounting presented a prejudicial question that necessitated the suspension
of criminal proceedings.
On 29 December 2003, the investigating prosecutor issued a resolution
recommending the suspension of the criminal complaints for violation of the
Corporation Code and the dismissal of the criminal complaints for falsification
and perjury against Sy Tiong Shiou.[8] The reviewing prosecutor approved
the resolution. The Spouses Sy moved for the reconsideration of the
resolution, but their motion was denied on 14 June 2004.[9] The Spouses Sy

thereupon filed a petition for review with the Department of Justice (DOJ),
which the latter denied in a resolution issued on 02 September 2004.[10]
Their subsequent motion for reconsideration was likewise denied in the
resolution of 20 July 2005.[11]
The Spouses Sy elevated the DOJs resolutions to the Court of
Appeals through a petition for certiorari, imputing grave abuse of discretion on
the part of the DOJ. The appellate court granted the petition[12] and directed
the City Prosecutors Office to file the appropriate informations against Sy
Tiong Shiou, et al. for violation of Section 74, in relation to Section 144 of the
Corporation Code and of Articles 172 and 183 of the RPC. The appellate
court ruled that the civil case for accounting and damages cannot be deemed
prejudicial to the maintenance or prosecution of a criminal action for violation
of Section 74 in relation to Section 144 of the Corporation Code since a
finding in the civil case that respondents mishandled or misappropriated the
funds would not be determinative of their guilt or innocence in the criminal
complaint. In the same manner, the criminal complaints for falsification and/or
perjury should not have been dismissed on the ground of prejudicial question
because the accounting case is unrelated and not necessarily determinative
of the success or failure of the falsification or perjury charges. Furthermore,
the Court of Appeals held that there was probable cause that Sy Tiong Shiou
had committed falsification and that the City of Manila where the 2003 GIS
was executed is the proper venue for the institution of the perjury charges. Sy
Tiong Shiou, et al. sought reconsideration of the Court of Appeals decision but
their motion was denied.[13]
On 2 April 2008, the Court ordered the consolidation of G.R. No.
179438 with G.R. No. 174168.[14]
Sy Tiong Shiou, et al. argue that findings of the DOJ in affirming,
modifying or reversing the recommendations of the public prosecutor cannot
be the subject of certiorari or review of the Court of Appeals because the DOJ
is not a quasi-judicial body within the purview of Section 1, Rule 65 of the
Rules of Court. Petitioners rely on the separate opinion of former Chief
Justice Andres R. Narvasa in Roberts, Jr. v. Court of Appeals,[15] wherein he
wrote that this Court should not be called upon to determine the existence of
probable cause, as there is no provision of law authorizing an aggrieved party
to petition for such a determination.[16] In any event, they argue, assuming
without admitting that the findings of the DOJ may be subject to judicial review
under Section 1, Rule 65 of the Rules of Court, the DOJ has not committed
any grave abuse of discretion in affirming the findings of the City Prosecutor
of Manila. They claim that the Spouses Sys request for inspection was not
made in good faith and that their motives were tainted with the intention to

harass and to intimidate Sy Tiong Shiou, et al. from pursuing the criminal and
civil cases pending before the prosecutors office and the Regional Trial Court
(RTC) of Manila, Branch 46. Thus, to accede to the Spouses Sys request
would pose serious threats to the existence of the corporation.[17] Sy Tiong
Shiou, et al. aver that the RTC had already denied the motion for production
and inspection and instead ordered petitioners to make the corporate records
available to the appointed independent auditor. Hence, the DOJ did not
commit any grave abuse of discretion in affirming the recommendation of the
City Prosecutor of Manila.[18] They further argue that adherence to the Court
of Appeals ruling that the accounting case is unrelated to, and not necessarily
determinative of the success of, the criminal complaint for falsification and/or
perjury would unnecessarily indict petitioner Sy Tiong Shiou for the said
offenses he may not have committed but only because of an outcome
unfavorable to him in the civil action.[19]
Indeed, a preliminary proceeding is not a quasi-judicial function and that
the DOJ is not a quasi-judicial agency exercising a quasi-judicial function
when it reviews the findings of a public prosecutor regarding the presence of
probable cause.[20] Moreover, it is settled that the preliminary investigation
proper, i.e., the determination of whether there is reasonable ground to
believe that the accused is guilty of the offense charged and should be
subjected to the expense, rigors and embarrassment of trial, is the function of
the prosecution.[21] This Court has adopted a policy of non-interference in
the conduct of preliminary investigations and leaves to the investigating
prosecutor sufficient latitude of discretion in the determination of what
constitutes sufficient evidence as will establish probable cause for the filing of
information against the supposed offender.[22]

As in every rule, however, there are settled exceptions. Hence, the

principle of non-interference does not apply when there is grave abuse of
discretion which would authorize the aggrieved person to file a petition for
certiorari and prohibition under Rule 65, 1997 Rules of Civil Procedure.[23]
As correctly found by the Court of Appeals, the DOJ gravely abused its
discretion when it suspended the hearing of the charges for violation of the
Corporation Code on the ground of prejudicial question and when it
dismissed the criminal complaints.

A prejudicial question comes into play generally in a situation where a

civil action and a criminal action are both pending and there exists in the
former an issue which must be preemptively resolved before the criminal
action may proceed since howsoever the issue raised in the civil action is
resolved would be determinative juris et de jure of the guilt or innocence of the
accused in the criminal case. The reason behind the principle of prejudicial
question is to avoid two conflicting decisions. It has two essential elements:
(a) the civil action involves an issue similar or intimately related to the issue
raised in the criminal action; and (b) the resolution of such issue determines
whether or not the criminal action may proceed.[24]

inquiry into whether there is sufficient evidence to procure a conviction. It is

enough that it is believed that the act or omission complained of constitutes
the offense charged. Precisely, there is a trial for the reception of evidence of
the prosecution in support of the charge.[25]
In order that probable cause to file a criminal case may be arrived
at, or in order to engender the well-founded belief that a crime has been
committed, the elements of the crime charged should be present. This is
based on the principle that every crime is defined by its elements, without
which there should beat the mostno criminal offense.[26]
Section 74 of the Corporation Code reads in part:

The civil action and the criminal cases do not involve any
prejudicial question.
The civil action for accounting and damages, Civil Case No. 03-106456
pending before the RTC Manila, Branch 46, seeks the issuance of an order
compelling the Spouses Sy to render a full, complete and true accounting of
all the amounts, proceeds and fund paid to, received and earned by the
corporation since 1993 and to restitute it such amounts, proceeds and funds
which the Spouses Sy have misappropriated. The criminal cases, on the
other hand, charge that the Spouses Sy were illegally prevented from getting
inside company premises and from inspecting company records, and that Sy
Tiong Shiou falsified the entries in the GIS, specifically the Spouses Sys
shares in the corporation. Surely, the civil case presents no prejudicial
question to the criminal cases since a finding that the Spouses Sy
mishandled the funds will have no effect on the determination of guilt in the
complaint for violation of Section 74 in relation to Section 144 of the
Corporation Code; the civil case concerns the validity of Sy Tiong Shious
refusal to allow inspection of the records, while in the falsification and perjury
cases, what is material is the veracity of the entries made by Sy Tiong Shiou
in the sworn GIS.
Anent the issue of probable cause, the Court also finds that there is
enough probable cause to warrant the institution of the criminal cases.

The term probable cause does not mean actual and positive
cause nor does it import absolute certainty. It is merely based on opinion and
reasonable belief. Thus a finding of probable cause does not require an

xxx
The records of all business
transactions of the corporation and the minutes
of any meeting shall be open to inspection by
any director, trustee, stockholder or member of
the corporation at reasonable hours on business
days and he may demand, in writing, for a copy
of excerpts from said records or minutes, at his
expense.

Any officer or agent of the

corporation who shall refuse to allow any
director, trustee, stockholder or member of the
corporation to examine and copy excerpts from
its records or minutes, in accordance with the
provisions of this Code, shall be liable to such
director, trustee, stockholder or member for
damages, and in addition, shall be guilty of an
offense which shall be punishable under Section
144 of this Code: Provided, That if such refusal
is made pursuant to a resolution or order of the
Board of Directors or Trustees, the liability under
this section for such action shall be imposed

upon the directors or trustees who voted for

such refusal: and Provided, further, That it shall
be a defense to any action under this section
that the person demanding to examine and copy
excerpts from the corporation's records and
minutes has improperly used any information
secured through any prior examination of the
records or minutes of such corporation or of any
other corporation, or was not acting in good faith
or for a legitimate purpose in making his
demand.
Meanwhile, Section 144 of the same Code provides:
Sec. 144. Violations of the Code.
Violations of any of the provisions of this Code
or its amendments not otherwise specifically
penalized therein shall be punished by a fine of
not less than one thousand (P1,000.00) pesos
but not more than ten thousand (P10,000.00)
pesos or by imprisonment for not less than thirty
(30) days but not more than five (5) years, or
both, in the discretion of the court. If the
violation is committed by a corporation, the
same may, after notice and hearing, be
dissolved in appropriate proceedings before the
Securities and Exchange Commission:
Provided, That such dissolution shall not
preclude the institution of appropriate action
against the director, trustee or officer of the
corporation responsible for said violation:
Provided, further, That nothing in this section
shall be construed to repeal the other causes for
dissolution of a corporation provided in this
Code.
In the recent case of Ang-Abaya, et al. v. Ang, et al.,[27] the Court had
the occasion to enumerate the requisites before the penal provision under
Section 144 of the Corporation Code may be applied in a case of violation of
a stockholder or members right to inspect the corporate books/records as
provided for under Section 74 of the Corporation Code. The elements of the
offense, as laid down in the case, are:

First. A director, trustee, stockholder

or member has made a prior demand in writing
for a copy of excerpts from the corporations
records or minutes;
Second. Any officer or agent of the
concerned corporation shall refuse to allow the
said director, trustee, stockholder or member of
the corporation to examine and copy said
excerpts;
Third.
If such refusal is made
pursuant to a resolution or order of the board of
directors or trustees, the liability under this
section for such action shall be imposed upon
the directors or trustees who voted for such
refusal; and,
Fourth. Where the officer or agent of
the corporation sets up the defense that the
person demanding to examine and copy
excerpts from the corporations records and
minutes has improperly used any information
secured through any prior examination of the
records or minutes of such corporation or of any
other corporation, or was not acting in good faith
or for a legitimate purpose in making his
demand, the contrary must be shown or proved.
[28]
Thus, in a criminal complaint for violation of Section 74 of the
Corporation Code, the defense of improper use or motive is in the nature of a
justifying circumstance that would exonerate those who raise and are able to
prove the same. Accordingly, where the corporation denies inspection on the
ground of improper motive or purpose, the burden of proof is taken from the
shareholder and placed on the corporation.[29] However, where no such
improper motive or purpose is alleged, and even though so alleged, it is not
proved by the corporation, then there is no valid reason to deny the requested
inspection.
In the instant case, however, the Court finds that the denial of
inspection was predicated on the pending civil case against the Spouses Sy.

This is evident from the 21 May 2003 letter of

counsel[30] to the Spouses Sy,[31] which reads:

Sy Tiong Shiou, et al.s

Gentlemen:
We write in behalf of our clients, SY
SIY HO, INC. ( Guan Yiac Hardware); SY
TIONG SHIOU, JUANITA TAN SY; JOLIE ROSS
TAN; CHARLIE TAN; ROMER TAN; and JESSE
JAMES TAN, relative to your letter dated 16
May 2003. Please be informed that a case for
Accounting and Damages had already been
filed against your clients, Sy Chim and Felicidad
Chan Sy before the Regional Trial Court of
Manila, Branch 46, denominated as Civil Case
No. 03-106456.
We fully understand your desire for our
clients to respond to your demands, however,
under the prevailing circumstance this would not
be advisable. The concerns that you raised in
your letter can later on be addressed after your
clients shall have filed their responsive pleading
in the abovesaid case.
We trust that this response will at the
moment be enough.[32]
Even in their Joint Counter-Affidavit dated 23 September
2003,[33] Sy Tiong Shiou, et al. did not make any allegation that the
person demanding to examine and copy excerpts from the
corporations records and minutes has improperly used any
information secured through any prior examination of the records or
minutes of such corporation or of any other corporation, or was not
acting in good faith or for a legitimate purpose in making his demand.
Instead, they merely reiterated the pendency of the civil case. There
being no allegation of improper motive, and it being undisputed that
Sy Tiong Shiou, et al. denied Sy Chim and Felicidad Chan Sys
request for inspection, the Court rules and so holds that the DOJ
erred in dismissing the criminal charge for violation of Section 74 in
relation to Section 144 of the Corporation Code.

Now on the existence of probable cause for the falsification and/or

perjury charges.
The Spouses Sy charge Sy Tiong Shiou with the offense of
falsification of public documents under Article 171, paragraph 4; and/or perjury
under Article 183 of the Revised Penal Code (RPC). The elements of
falsification of public documents through an untruthful narration of facts are:
(a) the offender makes in a document untruthful statements in a narration of
facts; (b) the offender has a legal obligation to disclose the truth of the facts
narrated;[34] (c) the facts narrated by the offender are absolutely false; and
(d) the perversion of truth in the narration of facts was made with the wrongful
intent to injure a third person.[35] On the other hand, the elements of perjury
are: (a) that the accused made a statement under oath or executed an
affidavit upon a material matter; (b) that the statement or affidavit was made
before a competent officer, authorized to receive and administer oath; (c) that
in that statement or affidavit, the accused made a willful and deliberate
assertion of a falsehood; and, (d) that the sworn statement or affidavit
containing the falsity is required by law or made for a legal purpose.
A General Information Sheet (GIS) is required to be filed within
thirty (30) days following the date of the annual or a special meeting, and
must be certified and sworn to by the corporate secretary, or by the president,
or any duly authorized officer of the corporation.[36] From the records, the
2003 GIS submitted to the SEC on 8 April 2003 was executed under oath
by Sy Tiong Shiou in Manila, in his capacity as Vice President and General
Manager.[37]
By executing the document under oath, he, in effect,
attested to the veracity[38] of its contents. The Spouses Sy claim that the
entries in the GIS pertaining to them do not reflect the true number of shares
that they own in the company. They attached to their complaint the 2002 GIS
of the company, also executed by Sy Tiong Shiou, and compared the entries
therein vis-a-vis the ones in the 2003 GIS. The Spouses Sy noted the
marked decrease in their shareholdings, averring that at no time after the
execution of the 2002 GIS, up to the time of the filing of their criminal
complaints did they execute or authorize the execution of any document or
deed transferring, conveying or disposing their shares or any portion thereof;
and thus there is absolutely no basis for the figures reflected in the 2003 GIS.
[39] The Spouses Sy claim that the false statements were made by Sy
Tiong Shiou with the wrongful intent of injuring them. All the elements of both
offenses are sufficiently averred in the complaint-affidavits.
The Court agrees with the Court of Appeals holding, citing the
case of Fabia v. Court of Appeals, that the doctrine of primary jurisdiction no
longer precludes the simultaneous filing of the criminal case with the

corporate/civil case.[40] Moreover, the Court finds that the City of Manila is
the proper venue for the perjury charges, the GIS having been subscribed and
sworn to in the said place. Under Section 10(a), Rule 110 of the Revised
Rules of Court, the criminal action shall be instituted and tried in the court of
the municipality or territory where the offense was committed or where any of
its essential ingredients occurred.[41] In Villanueva v. Secretary of Justice,
[42] the Court held that the felony is consummated when the false statement
is made.[43] Thus in this case, it was alleged that the perjury was committed
when Sy Tiong Shiou subscribed and sworn to the GIS in the City of Manila,
thus, following Section 10(a), Rule 110 of the Revised Rules of Court, the City
of Manila is the proper venue for the offense.
G. R. No. 179438.
This petition assails the decision[44] and resolution[45] of the Court of
Appeals dated 26 May 2004 and 29 August 2007, respectively, in CA-G.R. SP
No. 81897.
On 3 February 2003, Juanita Tan, corporate treasurer of Sy Siy Ho &
Sons, Inc. (the corporation), a family corporation doing business under the
name and style Guan Yiac Hardware, submitted a letter[46] to the
corporations Board of Directors (Board) stating that the control, supervision
and administration of all corporate funds were exercised by Sy Chim and
Felicidad Chan Sy (Spouses Sy), corporate president and assistant treasurer,
respectively. In the same letter, Juanita Tan disclosed that Felicidad Chan Sy
did not make cash deposits to any of the corporations banks from 1
November 2001 to 31 January 2003, thus the total bank remittances for the
past years were less than reflected in the corporate financial statements,
accounting books and records. Finally, Juanita Tan sought to be free from any
responsibility

over all corporate funds. The Board granted Juanita Tans request and
authorized the employment of an external auditor to render a complete
audit of all the corporate accounting books and records.[47] Consequently,
the Board hired the accounting firm Banaria, Banaria & Company. In its
Report[48] dated 5 April 2003, the accounting firm attributed to the Spouses
Sy P67,117,230.30 as unaccounted receipts and disbursements from 1994 to
2002.[49]
A demand letter[50] was subsequently served on the Spouses Sy on
15 April 2003. On the same date, the children of the Spouses Sy allegedly
stole from the corporation cash, postdated checks and other important

documents. After the incident, the Spouses

Sy allegedly transferred
residence and ceased reporting to the corporation.
Thereupon, the
corporation filed a criminal complaint for robbery against the Spouses Sy
before the City Prosecutors Office of Manila.[51]
A search warrant was
subsequently issued by the Regional Trial Court.[52]
On 26 April 2003, Sy Tiong Shiou, corporate Vice President and
General Manager, called a special meeting to be held on 6 May 2003 to fill up
the positions vacated by the Spouses Sy. Sy Tiong Shiou was subsequently
elected as the new president and his wife, Juanita Tan, the new Vice
President.[53]
Despite these developments, Sy Chim still caused the
issuance of a Notice of Stockholders meeting dated 11 June 2003 in his
capacity as the alleged corporate president.[54]
Meanwhile, on 1 July 2003, the corporation, through Romer S. Tan, filed
its Amended Complaint for Accounting and Damages[55]
against the
Spouses Sy before the RTC Manila, praying for a complete and true
accounting of all the amounts paid to, received and earned by the company
since 1993 and for the restitution of the said amount.[56] The complaint also
prayed for a temporary restraining order (TRO) and or preliminary injunction
to restrain Sy Chim from calling a stockholders meeting on the ground of lack
of authority.
By way of Answer,[57] the Spouses Sy averred that Sy Chim was a
mere figurehead and Felicidad Chan Sy merely performed clerical functions,
as it was Sy Tiong Shiou and his spouse, Juanita Tan, who have been
authorized by the corporations by-laws to supervise, control and administer
corporate funds, and as such were the ones responsible for the unaccounted
funds. They assailed the meetings called by Sy Tiong Shiou on the grounds
that the same were held without notice to them and without their participation,
in violation of the by-laws. The Spouses Sy also pursued their counter-claim
for moral and exemplary damages and attorneys fees.
On 9 September 2003, the Spouses Sy filed their Motion for Leave to
File Third-Party Complaint,[58] praying that their attached Third Party
Complaint[59] be allowed and admitted against Sy Tiong Shiou and his
spouse. In the said third-party complaint, the Spouses Sy accused Sy Tiong
Shiou and Juanita Tan as directly liable for the corporations claim for
misappropriating corporate funds.
On 8 October 2003, the trial court granted the motion for leave to file
the third-party complaint, and forthwith directed the issuance of summons
against Sy Tiong Shiou and Juanita Tan.[60] On 16 January 2004, their

counsel allegedly discovered that Sy Tiong Shiou and Juanita Tan were not
furnished with the copies of several pleadings, as well as a court order, which
resulted in their having been declared in default for failure to file their answer
to the third-party complaint; thus, they opted not to file a motion for
reconsideration anymore and instead filed a petition for certiorari before the
Court of Appeals.
In its Decision dated 26 May 2004, the Court of Appeals granted
the petition of Sy Tiong Shiou and Juanita Tan.[61]
The appellate court
declared that a third-party complaint is not allowed under the Interim Rules of
Procedure Governing Intra-Corporate Controversies Under R.A. No. 8799
(Interim Rules), it not being included in the exclusive enumeration of allowed
pleadings under Section 2, Rule 2 thereof. Moreover, even if such a pleading
were allowed, the admission of the third-party complaint against Sy Tiong
Shiou and Juanita Tan still would have no basis from the facts or the law and
jurisprudence.[62]
The Court of Appeals also ruled that the respondent
judge committed a manifest error amounting to lack of jurisdiction in admitting
the third-party complaint and in summarily declaring Sy Tiong Shiou and
Juanita Tan in default for failure to file their answer within the purported
reglementary period. The Court of Appeals set aside the trial courts 8 October
2003 Order admitting the third-party complaint, as well as the 19 December
2003 Order, declaring Sy Tiong Shiou and Juanita Tan in default for failure to
file their answer. The trial court was further ordered to dismiss the third-party
complaint without prejudice to any action that the corporation may separately
file against Sy Tiong Shiou and Juanita Tan.[63]
The Spouses Sy filed a motion for reconsideration, but their motion
was denied on 29 August 2007.[64]
Sy Chim and Felicidad Chan Sy argue before this Court that a thirdparty complaint is not excluded or prohibited by the Interim Rules, and that the
Court of Appeals erred in ruling that their third- party complaint is not
actionable because their action is not in respect of the corporations claims.
They add that the disallowance of the third-party complaint will result in
multiplicity of suits.
The third-party complaint should be allowed.
The conflicting provisions of the Interim Rules of Procedure for InterCorporate Controversies read:
Rule 1, Sec. 8. Prohibited pleadings.The
following pleadings are prohibited:
(1) Motion to dismiss;

(2) Motion for a bill of particulars;

(3) Motion for new trial, or for
reconsideration of judgment or order, or for
re-opening of trial;
(4) Motion for extension of time to file
pleadings, affidavits or any other paper,
except those filed due to clearly compelling
reasons. Such motion must be verified and
under oath; and
(5) Motion for postponement and other
motions of similar intent, except those filed
due to clearly compelling reasons. Such
motion must be verified and under oath.
Rule 2, Sec.2. Pleadings allowed.The only
pleadings allowed to be filed under these Rules
are the complaint, answer, compulsory
counterclaims or cross-claims pleaded in the
answer, and the answer to the counterclaims or
cross-claims.[65]
There is a conflict, for while a third-party complaint is not included
in the allowed pleadings, neither is it among the prohibited ones.
Nevertheless, this conflict may be resolved by following the well-entrenched
rule in statutory construction, that every part of the statute must be interpreted
with reference to the context, i.e., that every part of the statute must be
considered together with the other parts, and kept subservient to the general
intent of the whole enactment.[66]
Statutes, including rules, should be
construed in the light of the object to be achieved and the evil or mischief to
be suppressed and they should be given such construction as will advance
the object, suppress the mischief and secure the benefits intended. A statute
should therefore be read with reference to its leading idea, and its general
purpose and intention should be gathered from the whole act, and this
predominant purpose will prevail over the literal import of particular terms or
clauses, if plainly apparent, operating as a limitation upon some and as a
reason for expanding the signification of others, so that the interpretation may
accord with the spirit of the entire act, and so that the policy and object of the
statute as a whole may be made effectual and operative to the widest

possible extent.[67] Otherwise stated, the spirit, rather than the letter of a law
determines its construction; hence, a statute, as in the rules in this case, must
be read according to its spirit and intent.[68]
This spirit and intent can be gleaned from Sec. 3, Rule 1 of the
Interim Rules, which reads:
Sec. 3. Construction.These Rules
shall be liberally construed in order to promote
their objective of securing a just, summary,
speedy and inexpensive determination of every
action or proceeding.[69]
Now, a third-party complaint is a claim that a defending
party may, with leave of court, file against a person not a party to the
action, called the third-party defendant, for contribution, indemnity,
subrogation or any other relief, in respect of his opponents claim. It
is actually a complaint independent of, and separate and distinct from
the plaintiffs complaint. In fact, were it not for Rule 6, Section 11 of
the Rules of Court, such third-party complaint would have to be filed
independently and separately from the original complaint by the
defendant against the third-party defendant. Jurisprudence is
consistent in declaring that the purpose of a third-party complaint is to
avoid circuitry of action and unnecessary proliferation of law suits and
of disposing expeditiously in one litigation all the matters arising from
one particular set of facts.[70]
It thus appears that the summary nature of the
proceedings governed by the Interim Rules, and the allowance of the
filing of third-party complaints is premised on one objectivethe
expeditious disposition of cases. Moreover, following the rule of liberal
interpretation found in the Interim Rules, and taking into consideration
the suppletory application of the Rules of Court under

Rule 1, Sec. 2[71] of the Interim Rules, the Court finds that a thirdparty complaint is not, and should not be prohibited in controversies
governed by the Interim Rules. The logic and justness of this
conclusion are rendered beyond question when it is considered that
Sy Tiong Shiou and Juanita Tan are not complete strangers to the
litigation as in fact they are the moving spirit behind the filing of the

principal complaint for accounting and damages against the Spouses

Sy.
The Court also rules that the third-party complaint of the Spouses Sy
should be admitted.
A prerequisite to the exercise of such right is that some substantive
basis for a third-party claim be found to exist, whether the basis be one of
indemnity, subrogation, contribution or other substantive right. The bringing of
a third-party defendant is proper if he would be liable to the plaintiff or to the
defendant or both for all or part of the plaintiffs claim against the original
defendant, although the third-party defendants liability arises out of another
transaction. The defendant may implead another as third-party defendant: (a)
on an allegation of liability of the latter to the defendant for contribution,
indemnity, subrogation or any other relief; (b) on the ground of direct

liability of the third-party defendant to the plaintiff; or (c) the liability of the
third-party defendant to both the plaintiff and the defendant.[72]
In determining the sufficiency of the third-party complaint, the
allegations in the original complaint and the third-party complaint must be
examined. A third-party complaint must allege facts which prima facie show
that the defendant is entitled to contribution, indemnity, subrogation or other
relief from the third-party defendant.[73]
The complaint alleges that the Spouses Sy, as officers of the
corporation, have acted illegally in raiding its corporate funds, hence they are
duty bound to render a full, complete and true accounting of all the amounts,
proceeds and funds paid to, received and earned by the corporation since
1993 and to restitute to the corporation all such amounts, proceeds, and
funds which they took and misappropriated for their own use and benefit, to
the damage and prejudice of the plaintiff and its stockholders.[74] On the
other hand, in the third-party complaint, the Spouses Sy claim that it is Sy
Tiong Shiou and Juanita Tan who had full and complete control of the day-to
day operations
and complete control and custody of the funds of the
corporation, and hence they are the ones liable for any shortfall or
unaccounted

difference of the corporations cash account. Thus, Sy Tiong Shiou and

Juanita Tan should render a full, complete and true accounting of all the
amounts, proceeds, funds paid to, received and earned by the corporation

since 1993, including the amount attributed to the Spouses

Sy in the
complaint for accounting and damages. In their prayer, the Spouses Sy
moved that Sy Tiong Shiou and Juanita Tan be declared as directly and solely
liable in respect of the corporations claim for accounting and damages, and
that in the event that they, the Spouses Sy, are adjudged liable to the
corporation, Sy Tiong Shiou and Juanita Tan be ordered to pay all amounts
necessary to discharge their liability to the corporation by way of indemnity or
reimbursement.
The allegations in the third-party complaint impute direct liability on
the part of Sy Tiong Shiou and Juanita Tan to the corporation for the very
same claims which the corporation interposed against the Spouses Sy. It is
clear therefore that the Spouses Sys third-party complaint is in respect of the
plaintiff corporations claims,[75] and thus the allowance of the third-party
complaint is warranted.

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.chanroblesvirtualawlibrarychanrobles
virtual law library
The facts as found, by the Court of Appeals are as follows:chanrobles virtual
law library

WHEREFORE, these cases are resolved as follows:

G.R. No. 174168
The petition for review is DENIED. The Decision and Resolution of the
Court of Appeals dated 31 May 2006 and 8 August 2006, respectively, in CAG.R. SP No. 91416 are AFFIRMED.
Costs against the petitioners.
G.R. No. 179438
The petition is GRANTED. The decision and resolution of the Court of
Appeals dated 26 May 2004 and 29 August 2007, respectively, in CA-G.R. SP
No. 81897 are SET ASIDE and the Orders of the Regional Trial Court of
Manila Branch 46 dated 8 October 2003 and 19 December 2003 are
REINSTATED.

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

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 prewar 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.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual
law library

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.chanroblesvirtualawlibrarychanrobles virtual law library
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 counterclaimed 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).chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law
library
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.chanroblesvirtualawlibrarychanrobles

virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles
virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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?chanrobles virtual law library
In the resolution of this issue the following considerations are
pertinent:chanrobles virtual law library
(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."chanrobles virtual law library
(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).chanroblesvirtualawlibrarychanrobles virtual law library
(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.chanroblesvirtualawlibrarychanrobles virtual law library
(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 ..."chanrobles virtual law library
(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.chanroblesvirtualawlibrarychanrobles virtual law library
(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.chanroblesvirtualawlibrarychanrobles
virtual law library
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. 1chanrobles virtual law library

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.chanroblesvirtualawlibrarychanrobles virtual law library

and therefore his role being purely nominal in this

petition.chanroblesvirtualawlibrarychanrobles virtual law library

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 crossdefendants the court committed such a grave abuse of discretion amounting
to
lack
of
jurisdiction
correctible
by
certiorari.chanroblesvirtualawlibrarychanrobles virtual law library

Concepcion, C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo, Makasiar,

Antonio and Esguerra, JJ., concur.

Concerning the argument that the respondents here were guilty of laches
because they filed their petition for certiorari 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 xxxchanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law
library
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,

In view of the foregoing considerations, the judgment of the Court of Appeals

is affirmed, without pronouncement as to costs.

!
!