G.R. No.

141833
March 26, 2003
LM POWER ENGINEERING CORPORATION, petitioner,
vs.
CAPITOL INDUSTRIAL CONSTRUCTION GROUPS, INC., respondent.
PANGANIBAN, J.:
Alternative dispute resolution methods or ADRs -- like arbitration,
mediation, negotiation and conciliation -- are encouraged by the Supreme
Court. By enabling parties to resolve their disputes amicably, they provide
solutions that are less time-consuming, less tedious, less confrontational,
and more productive of goodwill and lasting relationships. 1
The Case
Before us is a Petition for Review on Certiorari 2 under Rule 45 of the
Rules of Court, seeking to set aside the January 28, 2000 Decision of the
Court of Appeals3 (CA) in CA-GR CV No. 54232. The dispositive portion
of the Decision reads as follows:
"WHEREFORE, the judgment appealed from is REVERSED and
SET ASIDE. The parties are ORDERED to present their dispute
to arbitration in accordance with their Sub-contract Agreement.
The surety bond posted by [respondent] is [d]ischarged." 4
The Facts
On February 22, 1983, Petitioner LM Power Engineering Corporation and
Respondent Capitol Industrial Construction Groups Inc. entered into a
"Subcontract Agreement" involving electrical work at the Third Port of
Zamboanga.5
On April 25, 1985, respondent took over some of the work contracted to
petitioner.6 Allegedly, the latter had failed to finish it because of its inability
to procure materials.7
Upon completing its task under the Contract, petitioner billed respondent
in the amount of P6,711,813.90. 8Contesting the accuracy of the amount
of advances and billable accomplishments listed by the former, the latter
refused to pay. Respondent also took refuge in the termination clause of
the Agreement.9 That clause allowed it to set off the cost of the work that
petitioner had failed to undertake -- due to termination or take-over -against the amount it owed the latter.

Because of the dispute, petitioner filed with the Regional Trial Court
(RTC) of Makati (Branch 141) a Complaint 10for the collection of the
amount representing the alleged balance due it under the Subcontract.
Instead of submitting an Answer, respondent filed a Motion to
Dismiss,11 alleging that the Complaint was premature, because there was
no prior recourse to arbitration.
In its Order12 dated September 15, 1987, the RTC denied the Motion on
the ground that the dispute did not involve the interpretation or the
implementation of the Agreement and was, therefore, not covered by the
arbitral clause.13
After trial on the merits, the RTC 14 ruled that the take-over of some work
items by respondent was not equivalent to a termination, but a mere
modification, of the Subcontract. The latter was ordered to give full
payment for the work completed by petitioner.
Ruling of the Court of Appeals
On appeal, the CA reversed the RTC and ordered the referral of the case
to arbitration. The appellate court held as arbitrable the issue of whether
respondents take-over of some work items had been intended to be a
termination of the original contract under Letter "K" of the Subcontract. It
ruled likewise on two other issues: whether petitioner was liable under
the warranty clause of the Agreement, and whether it should reimburse
respondent for the work the latter had taken over.15
Hence, this Petition.16
The Issues
In its Memorandum, petitioner raises the following issues for the Courts
consideration:
"A
Whether or not there exist[s] a controversy/dispute between petitioner
and respondent regarding the interpretation and implementation of the
Sub-Contract Agreement dated February 22, 1983 that requires prior
recourse to voluntary arbitration;
"B

In the affirmative, whether or not the requirements provided in Article

III 1 of CIAC Arbitration Rules regarding request for arbitration ha[ve]
been complied with[.]"17
The Courts Ruling
The Petition is unmeritorious.
First Issue:
Whether Dispute Is Arbitrable
Petitioner claims that there is no conflict regarding the interpretation or
the implementation of the Agreement. Thus, without having to resort to
prior arbitration, it is entitled to collect the value of the services it
rendered through an ordinary action for the collection of a sum of money
from respondent. On the other hand, the latter contends that there is a
need for prior arbitration as provided in the Agreement. This is because
there are some disparities between the parties positions regarding the
extent of the work done, the amount of advances and billable
accomplishments, and the set off of expenses incurred by respondent in
its take-over of petitioners work.
We side with respondent. Essentially, the dispute arose from the parties
ncongruent positions on whether certain provisions of their Agreement
could be applied to the facts. The instant case involves technical
discrepancies that are better left to an arbitral body that has expertise in
those areas. In any event, the inclusion of an arbitration clause in a
contract does not ipso facto divest the courts of jurisdiction to pass upon
the findings of arbitral bodies, because the awards are still judicially
reviewable under certain conditions.18
In the case before us, the Subcontract has the following arbitral clause:
"6. The Parties hereto agree that any dispute or conflict as
regards to interpretation and implementation of this
Agreement which cannot be settled between [respondent] and
[petitioner] amicably shall be settled by means of arbitration x x
x."19
Clearly, the resolution of the dispute between the parties herein requires
a referral to the provisions of their Agreement. Within the scope of the
arbitration clause are discrepancies as to the amount of advances and

billable accomplishments, the application of the provision on termination,

and the consequent set-off of expenses.
A review of the factual allegations of the parties reveals that they differ on
the following questions: (1) Did a take-over/termination occur? (2) May
the expenses incurred by respondent in the take-over be set off against
the amounts it owed petitioner? (3) How much were the advances and
billable accomplishments?
The resolution of the foregoing issues lies in the interpretation of the
provisions of the Agreement. According to respondent, the take-over was
caused by petitioners delay in completing the work. Such delay was in
violation of the provision in the Agreement as to time schedule:
"G. TIME SCHEDULE
"[Petitioner] shall adhere strictly to the schedule related to the
WORK and complete the WORK within the period set forth in
Annex C hereof. NO time extension shall be granted by
[respondent] to [petitioner] unless a corresponding time extension
is granted by [the Ministry of Public Works and Highways] to the
CONSORTIUM."20
Because of the delay, respondent alleges that it took over some of the
work contracted to petitioner, pursuant to the following provision in the
Agreement:
"K. TERMINATION OF AGREEMENT
"[Respondent] has the right to terminate and/or take over this
Agreement for any of the following causes:
xxx

xxx

xxx

6. If despite previous warnings by [respondent],

[petitioner] does not execute the WORK in accordance
with this Agreement, or persistently or flagrantly neglects
to carry out [its] obligations under this Agreement."21
Supposedly, as a result of the "take-over," respondent incurred expenses
in excess of the contracted price. It sought to set off those expenses
against the amount claimed by petitioner for the work the latter
accomplished, pursuant to the following provision:

"If the total direct and indirect cost of completing the remaining
part of the WORK exceed the sum which would have been
payable to [petitioner] had it completed the WORK, the amount of
such excess [may be] claimed by [respondent] from either of the
following:
1. Any amount due [petitioner] from [respondent] at the time of
the termination of this Agreement."22
The issue as to the correct amount of petitioners advances and billable
accomplishments involves an evaluation of the manner in which the
parties completed the work, the extent to which they did it, and the
expenses each of them incurred in connection therewith. Arbitrators also
need to look into the computation of foreign and local costs of materials,
foreign and local advances, retention fees and letters of credit, and taxes
and duties as set forth in the Agreement. These data can be gathered
from a review of the Agreement, pertinent portions of which are
reproduced hereunder:
"C. CONTRACT PRICE AND TERMS OF PAYMENT
xxx

xxx

xxx

"All progress payments to be made by [respondent] to [petitioner]

shall be subject to a retention sum of ten percent (10%) of the
value of the approved quantities. Any claims by [respondent] on
[petitioner] may be deducted by [respondent] from the progress
payments and/or retained amount. Any excess from the retained
amount after deducting [respondents] claims shall be released by
[respondent] to [petitioner] after the issuance of [the Ministry of
Public Works and Highways] of the Certificate of Completion and
final acceptance of the WORK by [the Ministry of Public Works
and Highways].
xxx

xxx

xxx

"D. IMPORTED MATERIALS AND EQUIPMENT

"[Respondent shall open the letters of credit for the importation of
equipment and materials listed in Annex E hereof after the
drawings, brochures, and other technical data of each items in
the list have been formally approved by [the Ministry of Public

Works and Highways]. However, petitioner will still be fully

responsible for all imported materials and equipment.
"All expenses incurred by [respondent], both in foreign and local
currencies in connection with the opening of the letters of credit
shall be deducted from the Contract Prices.
xxx

xxx

xxx

"N. OTHER CONDITIONS

xxx

xxx

xxx

"2. All customs duties, import duties, contractors taxes, income

taxes, and other taxes that may be required by any government
agencies in connection with this Agreement shall be for the sole
account of [petitioner]."23
Being an inexpensive, speedy and amicable method of settling
disputes,24 arbitration -- along with mediation, conciliation and negotiation
-- is encouraged by the Supreme Court. Aside from unclogging judicial
dockets, arbitration also hastens the resolution of disputes, especially of
the commercial kind.25 It is thus regarded as the "wave of the future" in
international civil and commercial disputes.26 Brushing aside a contractual
agreement calling for arbitration between the parties would be a step
backward.27
Consistent with the above-mentioned policy of encouraging alternative
dispute resolution methods, courts should liberally construe arbitration
clauses. Provided such clause is susceptible of an interpretation that
covers the asserted dispute, an order to arbitrate should be
granted.28 Any doubt should be resolved in favor of arbitration. 29
Second Issue:
Prior Request for Arbitration
According to petitioner, assuming arguendo that the dispute is arbitrable,
the failure to file a formal request for arbitration with the Construction
Industry Arbitration Commission (CIAC) precluded the latter from
acquiring jurisdiction over the question. To bolster its position, petitioner
even cites our ruling in Tesco Services Incorporated v. Vera.30 We are not
persuaded.

Section 1 of Article II of the old Rules of Procedure Governing

Construction Arbitration indeed required the submission of a request for
arbitration, as follows:
"SECTION. 1. Submission to Arbitration -- Any party to a
construction contract wishing to have recourse to arbitration by
the Construction Industry Arbitration Commission (CIAC) shall
submit its Request for Arbitration in sufficient copies to the
Secretariat of the CIAC; PROVIDED, that in the case of
government construction contracts, all administrative remedies
available to the parties must have been exhausted within 90 days
from the time the dispute arose."
Tesco was promulgated by this Court, using the foregoing provision as
reference.
On the other hand, Section 1 of Article III of the new Rules of Procedure
Governing Construction Arbitration has dispensed with this requirement
and recourse to the CIAC may now be availed of whenever a contract
"contains a clause for the submission of a future controversy to
arbitration," in this wise:
"SECTION 1. Submission to CIAC Jurisdiction An arbitration
clause in a construction contract or a submission to arbitration of
a construction dispute shall be deemed an agreement to submit
an existing or future controversy to CIAC jurisdiction,
notwithstanding the reference to a different arbitration institution
or arbitral body in such contract or submission. When a contract
contains a clause for the submission of a future controversy to
arbitration, it is not necessary for the parties to enter into a
submission agreement before the claimant may invoke the
jurisdiction of CIAC."
The foregoing amendments in the Rules were formalized by CIAC
Resolution Nos. 2-91 and 3-93.31

"Under the present Rules of Procedure, for a particular

construction contract to fall within the jurisdiction of CIAC, it is
merely required that the parties agree to submit the same to
voluntary arbitration Unlike in the original version of Section 1, as
applied in the Tesco case, the law as it now stands does not
provide that the parties should agree to submit disputes arising
from their agreement specifically to the CIAC for the latter to
acquire jurisdiction over the same. Rather, it is plain and clear
that as long as the parties agree to submit to voluntary arbitration,
regardless of what forum they may choose, their agreement will
fall within the jurisdiction of the CIAC, such that, even if they
specifically choose another forum, the parties will not be
precluded from electing to submit their dispute before the CIAC
because this right has been vested upon each party by law, i.e.,
E.O. No. 1008."34
Clearly, there is no more need to file a request with the CIAC in order to
vest it with jurisdiction to decide a construction dispute.
The arbitral clause in the Agreement is a commitment on the part of the
parties to submit to arbitration the disputes covered therein. Because that
clause is binding, they are expected to abide by it in good faith. 35 And
because it covers the dispute between the parties in the present case,
either of them may compel the other to arbitrate.36
Since petitioner has already filed a Complaint with the RTC without prior
recourse to arbitration, the proper procedure to enable the CIAC to
decide on the dispute is to request the stay or suspension of such action,
as provided under RA 876 [the Arbitration Law].37
WHEREFORE, the Petition is DENIED and the assailed Decision
AFFIRMED. Costs against petitioner.
SO ORDERED.

The difference in the two provisions was clearly explained in China

Chang Jiang Energy Corporation (Philippines) v. Rosal Infrastructure
Builders et al.32 (an extended unsigned Resolution) and reiterated
in National Irrigation Administration v. Court of Appeals,33 from which we
quote thus:
G.R. No. 144074

March 20, 2001

MEDINA INVESTIGATION & SECURITY CORPORATION and

ERNESTO Z. MEDINA, petitioners,
vs.
COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION
and ROMEO TABURNAL, respondents.
RESOLUTION
GONZAGA-REYES, J.:
Before this Court is a Petition for Review seeking to set aside the
Resolution dated June 2, 2000 dismissing the petition for being filed
beyond the 60-day reglementary period and the Resolution dated July
12, 2000 denying the motion for reconsideration, both issued by the
Court of Appeals in CA-G.R. SP No. 58968.
Respondent Romeo Taburnal was hired by petitioner corporation as
security guard on September 8, 1996 and was assigned to one of its
clients, Abenson, Inc. at Sta. Lucia Grand Mall. On September 5, 1997,
the client requested that respondent Taburnal be relieved due to
violations pursuant to the Service Contract such as reporting late for duty,
below standard performance of duties, and exceeding the maximum six
(6) months duty in the company. In view of his replacement, respondent
Taburnal filed a complaint for Illegal Dismissal claiming for separation
pay, non-payment of legal/special holiday and overtime pay,
underpayment of 13th month pay and cash bond and tax refund. On April
29, 1999, the Labor Arbiter rendered judgment ordering the reinstatement
of respondent Taburnal without loss of seniority rights and the payment of
full backwages and salary differentials. Petitioners appealed to the NLRC
which dismissed the same for lack of jurisdiction. The Motion for
Reconsideration thereto was denied. Herein petitioners filed a petition
for certiorari with the Court of Appeals which dismissed the petition
outright for having been filed beyond the 60-day reglementary period or
on the 67th day per its Resolution on June 2, 2000. The Court of Appeals
ruled that the petition was filed on the sixty-seventh (67th) day since
petitioners received on November 10, 1999 the Order dated August 26,
1999 of the NLRC and the Motion for Reconsideration thereto was filed of
November 19, 1999. Copy of the order denying the said motion was
received by petitioners on April 3, 2000, while the petition was filed with
the Court of Appeals on May 31, 2000. The Court of Appeals did not
discuss the merits of the petition. Hence, the petition raising the following
grounds:

"THE COURT OF APPEALS ERRED WHEN IT RULED THAT

THE PETITION FOR CERTIORARI WAS FILED BEYOND THE
REGLEMENTARY PERIOD.
1wphi1.nt

"PUBLIC APPELLEES COMMITTED A REVERSIBLE ERROR

WHEN THEY DISMISSED THE PETITION, THEREBY
AFFIRMING THE DECISION OF LABOR ARBITER FELIPE P.
PATI WHICH AWARDED MONETARY CLAIMS AND OTHER
RELIEF NOT PRAYED FOR IN THE COMPLAINT, IN GRAVE
ABUSE OF THEIR DISCRETION, AMOUNTING TO LACK OR
EXCESS OF JURISDICTION.
"PUBLIC APPELLEES GROSSLY ERRED AND GRAVELY
ABUSED THEIR DISCRETION, WHEN THEY HELD
APPELLANT ERNESTO Z. MEDINA JOINTLY AND SEVERALLY
LIABLE WITH APPELLANT MISCOR, INSPITE OF THE FACT
THAT THERE IS NO EVIDENCE TO THAT EFFECT."
Petitioners' main contention is that their petition for certiorari filed with the
Court of Appeals was within the 60-day reglementary period pursuant to
Rule 65. They insist that when the assailed Order was received on April
3, 2000, the petition filed on May 31, 2000 was the 58th day, citing
Section 1, Rule 22 of the 1997 Rules on Civil Procedure and Article 13 of
the Civil Code.
In his Comment, private respondent Romeo Taburnal alleges that he is
aware that Section 4, Rule 65 of the 1997 Rules on Civil Procedure was
later amended, which amendment took effect on September 1, 2000. He
insists however that the petition filed with the Court of Appeals was not
yet covered by said amendment. Private respondent further avers that
Article 223 of the Labor Code and the NLRC Rules of Procedure provide
that appeal is the proper remedy for a party aggrieved by a decision of
the Labor Arbiter and the filing of a petition forcertiorari with the NLRC by
petitioners is definitely a wrong remedy.
A.M. No. 00-2-03-SC amending Section 4, Rule 65 of the 1997 Rules of
Civil Procedure (as amended by the Resolution of July 21, 1998) took
effect on September 1, 2000 and provides, to wit:
"SEC. 4. When and where petition filed. --- The petition shall be
filed not later than sixty (60) days from notice of the judgment,
order or resolution. In case a motion for reconsideration or
new trial is timely filed, whether such motion is required or

not, the sixty (60) day period shall be counted from notice of
the denial of said motion.

The other issues raised by petitioners should be addressed and resolved

by the court below.

The petition shall be filed in the Supreme Court or, if it relates to

the acts or omissions of a lower court or of a corporation, board,
officer or person, in the Regional Trial Court exercising jurisdiction
over the territorial area as defined by the Supreme Court. It may
also be filed in the Court of Appeals whether or not the same is in
aid of its appellate jurisdiction, or in the Sandiganbayan if it is in
aid of its appellate jurisdiction. If it involves the acts or omissions
of a quasi-judicial agency, unless otherwise provided by law or
these rules, the petition shall be filed in and cognizable only by
the Court of Appeals.

WHEREFORE, the Resolutions dated June 2, 2000 and July 12, 2000
are hereby SET ASIDE and the case is REMANDED to the Court of
Appeals for further proceedings.

No extension of time to file the petition shall be granted except for

compelling reason and in no case exceeding fifteen (15) days.
Contrary to the position of respondents that such amendment should not
apply in this case, we have ruled in the cases of Systems Factors
Corporation and Modesto Dean vs. NLRC, et al., G.R. No. 143789
(promulgated
on
November
27,
2000) and Unity
Fishing
Development Corp. and/or Antonio Dee vs. CA, et al., G.R. No.
145415 (promulgated on February 2, 2001) that the amendment under
A.M. No. 00-2-03-SC wherein the sixty-day period to file a petition
for certiorari is reckoned from receipt of the resolution denying the motion
for reconsideration should be deemed applicable. We reiterate that
remedial statutes or statutes relating to remedies or modes of procedure,
which do not create new or take away vested rights, but only operate in
furtherance of the remedy or confirmation of rights already existing, do
not come within the legal conception of a retroactive law, or the general
rule against retroactive operation of statutes. 1 Statutes regulating the
procedure of the courts will be construed as applicable to actions pending
and undetermined at the time of their passage. Procedural laws are
retroactive in that sense and to that extent. The retroactive application of
procedural laws is not violative of any right of a person who may feel that
he is adversely affected.2 The reason is that as a general rule, no vested
right may attach to nor arise from procedural laws.3
The above conclusion is consonant with the provision in Section 6, Rule
1 of the 1997 Rules of Civil Procedure that "(T)hese Rules shall be
liberally construed in order to promote their objective of securing a just,
speedy and inexpensive disposition of every action and proceeding."

1wphi1.nt

SO ORDERED.

G.R. No. 149692

July 30, 2002
HEIRS OF SPOUSES JULIAN DELA CRUZ AND MAGDALENA
TUAZON, represented by their Attorney-in-Fact and co-heir,
VIRGILIO C. ALVENDIA, petitioners,
vs.
HEIRS OF FLORENTINO QUINTOS, SR., namely, FLORENTINO
QUINTOS, JR. and GLORIA QUINTOS BUGAYONG, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before Us is a petition for review on certiorari under Rule 45 filed by
petitioners seeking to reverse and set aside the Resolution dated May
29, 2001 of the Court of Appeals1 which dismissed their petition for review
of the decision of the Regional Trial Court of Lingayen, Pangasinan
(Branch 38) on the ground that the petition was filed out of time; and, the
Resolution dated August 29, 2001 2 denying their motion for
reconsideration.
Sometime in 1996, petitioners filed with the Municipal Trial Court of
Lingayen, Pangasinan an action for reconveyance with damages 3 against
respondents alleging, among others, that they are the children of the late
Ariston dela Cruz, who was the only forced and legal heir of his deceased
parents, Julian dela Cruz and Magdalena Tuazon who died intestate; that
sometime in 1897, Magdalena Tuazon purchased from Herminigildo and
Filomena Tiong a certain parcel of land located at Heroes Street,
Lingayen, Pangasinan consisting of 605 square meters and since then
respondents and their predecessors had been in continuous occupation
and adverse possession of the subject land; that sometime in 1987,
private respondents predecessor Florentino Quintos, Sr., filed an
application for the judicial registration of a certain land which included
petitioners land; that the land registration court granted Quintos
application and decreed the land in Florentino Quintos name and OCT
No. 22665 was subsequently issued; that OCT No. 22665 was partitioned
into four separate lots and petitioners land was covered by TCT No.
173052; that respondents subsequently filed a complaint (docketed as
Civil Case No. 4118) for illegal detainer against petitioners for the latters
refusal to vacate the subject land which resulted in petitioners ejectment
from the subject property.
Respondents filed their answer with counterclaim, alleging that the
subject land had always belonged to respondents late father Florentino
Quintos, Sr., who in turn inherited the same from his mother, Dolores
Tuazon; that the affidavit evidencing petitioners ownership of the subject

land was not attached to the complaint; that respondents predecessors

merely tolerated petitioners possession of the subject land; that
petitioners never filed their opposition to respondents application for
registration despite knowledge thereof; that the land registration case
which was the basis for the issuance of OCT No. 22665 in the name of
the predecessor of respondents was a proceeding in rem which bound all
persons whether notified or not.
On January 29, 1999, a decision 4 was rendered by the MTC declaring
petitioners as the legal owners of the land covered by TCT No. 173052
and ordering respondents to convey to petitioners the subject land and to
pay damages to petitioners. 5
Respondents filed their appeal before the Regional Trial Court, Lingayen,
Pangasinan (Branch 38). On January 19, 2000, the RTC 6 reversed the
decision of the MTC dismissing the complaint, declaring respondents as
the absolute owners of the subject land and ordering petitioners to pay
damages to respondents.
Petitioners filed their motion for reconsideration which the trial court
denied in a Resolution dated March 8, 2000.7
On April 18, 2000, petitioners, through counsel, filed with the Court of
Appeals (CA) a motion for extension of time to file a petition for review
which she subsequently filed on May 2, 2000. Respondents filed a
motion to dismiss the petition for review for being filed out of time since
the certification issued by Postmaster Elizabeth I. Torio of Dagupan City
Post Office and the affidavit of Ricardo C. Castro, Clerk III of the Regional
Trial Court show that the trial courts Resolution dated March 8, 2000
denying petitioners motion for reconsideration was received by the
secretary of petitioners counsel on March 16, 2000, thus the filing of the
petition was filed 28 days late.
Petitioners counsel filed her Comment to respondents motion to dismiss
alleging that when she arrived in her office on April 3, 2000, she found
copies of pleadings and correspondence including a copy of the trial
courts Resolution dated March 8, 2000 denying her motion for
reconsideration; that she thought that these pleadings and
correspondence were all received on April 3, 2000; that upon receipt of
respondents motion to dismiss, she confronted her secretary who told
her that the envelope containing the Resolution was only opened on April
3, 2000 and her secretary could not recall if the Resolution was among
those she received on March 16, 2000.

On May 29, 2001, the CA issued the assailed Resolution dismissing

petitioners petition for review for being filed out of time. It found the
explanation given by petitioners counsel unconvincing since she failed to
give the reason why the envelope was opened only on April 3, 2000; that
counsels secretary did not even admit that she actually received the said
Resolution; that it is the counsels duty to adopt and strictly maintain a
system that efficiently takes into account all court notices sent to her and
she failed to instruct and remind her secretary on what should be done
with respect to such notices and processes. Petitioners motion for
reconsideration was denied in a Resolution dated August 29, 2001.
Hence, the present petition on the following grounds:
1) The appellate court rejected and refused to consider the valid
reason submitted by the petitioners counsel for the apparent
delay in the filing of the petition for review with said court; hence
the dismissal of the petition was tainted with grave abuse of
discretion;
2) Granting, arguendo, that there is a basis for the dismissal of
the petition, the appellate court should have applied the principle
of liberal construction of the Rules pursuant to Rule 1, Section 6
of the 1997 Rules of Civil Procedure (1997 RCP), considering the
valid and meritorious case of petitioners.
3) In either case, it is respectfully submitted that the appellate
court has departed from the accepted and usual course of judicial
proceedings in dismissing outright the petition for review as to call
for the supervision of this Honorable Court in the exercise of its
equity jurisdiction.8
We deny the petition.
Section 1, Rule 42 of the 1997 Rules on Civil Procedure, provides that
the petition shall be filed and served within 15 days from notice of the
decision sought to be reviewed or of the denial of petitioners motion for
new trial or reconsideration filed in due time after judgment. 9 In the instant
case, it has been established that the resolution denying petitioners
motion for reconsideration of the trial courts decision was received by the
secretary of petitioners former counsel on March 16, 2000, thus the last
day of the 15-day period within which to file the petition for review with
the respondent court was March 31, 2000. Considering that counsel filed
a motion for extension of time to file a petition for review with the

respondent court only on April 18, 2000, the judgment of the RTC subject
of the petition for review had already become final and executory.
Consequently, the CA did not err in dismissing the petition for being filed
out of time since it has no more jurisdiction to entertain the petition much
less to alter a judgment.
This Court has invariably ruled that perfection of an appeal in the manner
and within the period laid down by law is not only mandatory but also
jurisdictional.10 The failure to perfect an appeal as required by the rules
has the effect of defeating the right to appeal of a party and precluding
the appellate court from acquiring jurisdiction over the case. 11 The right to
appeal is not a natural right nor a part of due process; it is merely a
statutory privilege, and may be exercised only in the manner and in
accordance with the provisions of the law.12 The party who seeks to avail
of the same must comply with the requirement of the rules. Failing to do
so, the right to appeal is lost. 13
We agree with the CA when it found that the reason advanced by
petitioners former counsel, which is that she received the resolution
denying her motion for reconsideration only on April 3, 2000 as she found
it on her table on the same date, unacceptable. The negligence of her
secretary in failing to immediately give the trial courts resolution denying
petitioners motion for reconsideration upon receipt to the counsel and the
negligence of counsel to adopt and arrange matters in order to ensure
that official or judicial communications sent by mail would reach her
promptly cannot be considered excusable. The Court has also often
repeated that the negligence of the clerks which adversely affect the
cases handled by lawyers, is binding upon the latter.14 The doctrinal rule
is that the negligence of counsel binds the client because otherwise,
"there would never be an end to a suit so long as new counsel could be
employed who could allege and show that prior counsel had not be
sufficiently diligent, or experienced, or learned.15
Petitioners claim that there should be a liberal construction of the rules of
procedure in order to effect substantial justice and appeal to this Courts
exercise of equity jurisdiction. We are not persuaded. There is no
showing in this case of any extraordinary circumstance which may justify
a deviation from the rule on timely filing of appeals. As held in the case
of Tupas vs. CA:16
"Rules of procedure are intended to ensure the orderly administration of
justice and the protection of substantive rights in judicial and extrajudicial
proceedings. It is a mistake to suppose that substantive law and adjective
law are contradictory to each other or, has often been "suggested, that

enforcement of procedural rules should never be permitted if it will result

in prejudice to the substantive rights of the litigants. This is not exactly
true; the concept is much misunderstood. As a matter of fact, the policy of
the courts is to give effect to both kinds of law, as complementing each
other, in the just and speedy resolution of the dispute between the
parties. Observance of both substantive and procedural rights is equally
guaranteed by due process, whatever the source of such rights, be it the
Constitution itself or only a statute or a rule of court. (Limpot vs. CA, 170
SCRA 369)
xxx

xxx

xxx

"For all its conceded merits, equity is available only in the absence of law
and not as its replacement. Equity is described as justice outside legality,
which simply means that it cannot supplant although it may, as often
happens, supplement the law. We said in an earlier case, and we repeat
it now, that all abstract arguments based only on equity should yield to
positive rules, which pre-empt and prevail over such persuasions.
Emotional appeals for justice, while they may wring the heart of the
Court, cannot justify disregard of the mandate of the law as long as it
remains in force. The applicable maxim, which goes back to the ancient
days of the Roman jurists- and is now still reverently observed- is
`aequetas nunquam contravenit legis." (Aguila vs. CA, 160 SCRA 359)
At any rate, we find no reversible error committed by the RTC in
dismissing petitioners complaint for reconveyance against respondents.
Petitioners claim of ownership was based on the affidavit of Herminigildo
and Filomena Tiong executed on November 9, 1926 which stated among
others that they were the former owners in common of the subject parcel
of land which they sold to Magdalena Tuazon (petitioners predecessor in
interest) on or about the year 1897. However, such affidavit was not
accompanied by any instrument showing the sale between the Tiong
spouses and Magdalena Tuazon. By itself, an affidavit is not a mode of
acquiring ownership,17thus it cannot serve as the basis of ownership of
the petitioners. Moreover, the RTC found that there was no tax
declaration or title in the name of the Tiong spouses to evidence their
ownership of the subject land. On the other hand, respondents
ownership of the subject land was by virtue of a land registration case
where the land registration court found sufficient the well documented
evidence submitted by applicant Florentino Quintos, Sr. ( respondents
predecessor in interest ) to prove their ownership of 2,048 sq. meters lot
which included the subject land.

In civil cases, the burden of proof is on the plaintiff to establish his case
by a preponderance of evidence. If he claims a right granted or created
by law, he must prove his claim by competent evidence. He must rely on
the strength of his own evidence and not on the weakness of that of his
opponent.18 The RTC had correctly ruled that petitioners failed to show
sufficient proof of ownership over the subject land covered by TCT No.
173052 so as to entitle them the return of the same.
1wphi1

WHEREFORE, the petition is DENIED. The Court of Appeals Resolution

dated May 29, 2001 and Resolution dated August 29, 2001 are
AFFIRMED. Costs against petitioners.
SO ORDERED.

G.R. No. 144294

March 11, 2003
SOLEDAD CHANLIONGCO RAMOS, FRANCISCO D.
CHANLIONGCO, ADELBERTO D. CHANLIONGCO, ARMANDO D.
CHANLIONGCO and FLORENCIO D. CHANLIONGCO, petitioners,
vs.
TERESITA D. RAMOS, Spouses TERESITA and EDMUNDO S.
MUYOT, Spouses VEDASTA and FLORENCIO M. DATO, LORETO
MUYOT, Spouses TERESITA and ELMER SOLIS, LICERIA TORRES,
Spouses CORAZON and VICENTE MACATUNGAL, Spouses
PRECILLA and CRISOSTOMO MUYOT, and Spouses CARIDAD and
SALVADOR PINGOL, respondents.
PANGANIBAN, J.:

The RTC upheld the sale insofar as the share of Narcisa was concerned.
It ruled that Adoracion had no authority to sell the shares of the other coowners, because the Special Power of Attorney had been executed in
favor only of her mother, Narcisa.

Well-settled is the rule that a final judgment is immutable and unalterable.

The only exceptions to this rule are (1) the correction of clerical errors, (2)
the so-called nunc pro tunc entries which cause no prejudice to any party,
and (3) void judgments.

On April 10, 1999, petitioners filed with the CA a Motion to Set Aside the
Decision. They contended that they had not been served a copy of either
the Complaint or the summons. Neither had they been impleaded as
parties to the case in the RTC. As it was, they argued, the CA Decision
should be set aside because it adversely affected their respective shares
in the property without due process.

The Case
Before us is a Petition for Review on Certiorari1 under Rule 45 of the
Rules of Court, seeking to set aside the July 31, 2000 Resolution 2 of the
Court of Appeals (CA) in CA-GR CV No. 29507 which denied petitioners
Motion to Set Aside the CA Decision3 dated September 28, 1995. The
assailed Resolution disposed as follows:
"Finding the opposition of [respondents] to be well-taken, the
[Court hereby DENIES the Motion."4

On appeal, the CA modified the ruling of the RTC. It held that while there
was no Special Power of Attorney in favor of Adoracion, the sale was
nonetheless valid, because she had been authorized by her mother to be
the latters sub-agent. There was thus no need to execute another
special power of attorney in her favor as sub-agent. This CA Decision
was not appealed, became final and was entered in favor of respondents
on August 8, 1996.7

In denying the Motion of petitioners, the CA cited the grounds raised in

respondents Opposition: (a) the Motion was not allowed as a remedy
under the 1997 Rules of Civil Procedure; (b) the Decision sought to be
set aside had long become final and executory; (c) the movants did not
have any legal standing; and (d) the Motion was purely dilatory and
without merit.8
Hence, this Petition.9

The Facts

The Issue

Petitioners are children of the late Paulino V. Chanliongco Jr., who was
the co-owner of a parcel of land known as Lot No. 2-G of Subdivision
Plan SWO No. 7308. Situated in Tondo, Manila, it was co-owned by him,
his sister Narcisa, and his brothers Mario and Antonio. By virtue of a
Special Power of Attorney executed by the co-owners in favor of Narcisa,
her daughter Adoracion C. Mendoza had sold the lot to herein
respondents on different days in September 1986. Because of conflict
among the heirs of the co-owners as to the validity of the sale,
respondents filed with the Regional Trial Court (RTC) 5 a Complaint6 for
interpleader to resolve the various ownership claims.

In their Memorandum, petitioners raise this sole issue for the Courts
consideration:
"x x x [W]hether the Court of Appeals erred in denying petitioners
Motion and allowing its Decision dated September 25, 1995 to
take its course, inspite of its knowledge that the lower court did
not acquire jurisdiction over the person of petitioners and passing
petitioners property in favor of respondents, hence without due
process of law."10
The Courts Ruling

The Petition is unmeritorious.

Main Issue:
Entitlement to Summons
It is well settled that a decision that has acquired finality becomes
immutable and unalterable. A final judgment may no longer be modified in
any respect, even if the modification is meant to correct erroneous
conclusions of fact or law; 11 and whether it will be made by the court that
rendered it or by the highest court in the land. 12 The only exceptions to
this rule are the correction of (1) clerical errors, (2) the so-called nunc pro
tunc entries which cause no prejudice to any party, and (3) void
judgments.13 To determine whether the CA Decision of September 28,
1995 is void, the failure to implead and to serve summons upon
petitioners will now be addressed. 14
To be able to rule on this point, the Court needs to determine whether the
action is in personam, in rem or quasi in rem. The rules on the service of
summons differ depending on the nature of the action.
An action in personam is lodged against a person based on personal
liability; an action in rem is directed against the thing itself instead of the
person;15 while an action quasi in rem names a person as defendant, but
its object is to subject that persons interest in a property to a
corresponding lien or obligation.16
The Complaint filed by respondents with the RTC called for an
interpleader to determine the ownership of the real property in
question.17 Specifically, it forced persons claiming an interest in the land
to settle the dispute among themselves as to which of them owned the
property. Essentially, it sought to resolve the ownership of the land and
was not directed against the personal liability of any particular person. It
was therefore a real action, because it affected title to or possession of
real property.18 As such, the Complaint was brought against the deceased
registered co-owners: Narcisa, Mario, Paulino and Antonio Chanliongco,
as represented by their respective estates.
Clearly, petitioners were not the registered owners of the land, but
represented merely an inchoate interest thereto as heirs of Paulino. They
had no standing in court with respect to actions over a property of the
estate, because the latter was represented by an executor or
administrator.19 Thus, there was no need to implead them as defendants

in the case, inasmuch as the estates of the deceased co-owners had

already been made parties.
Furthermore, at the time the Complaint was filed, the 1964 Rules of Court
were still in effect. Under the old Rules, specifically Section 3 of Rule
3,20 an executor or administrator may sue or be sued without joining the
party for whose benefit the action is prosecuted or defended. 21 The
present rule,22 however, requires the joinder of the beneficiary or the party
for whose benefit the action is brought. Under the former Rules, an
executor or administrator is allowed to either sue or be sued alone in that
capacity. In the present case, it was the estate of petitioners father
Paulino Chanliongco, as represented by Sebrio Tan Quiming and
Associates, that was included as defendant 23 and served summons.24 As
it was, there was no need to include petitioners as defendants. Not being
parties, they were not entitled to be served summons.
Petitioner Florencio D. Chanliongco, on the other hand, was impleaded in
the Complaint, but not served summons. However, the service of
summons upon the estate of his deceased father was sufficient, as the
estate appeared for and on behalf of all the beneficiaries and the heirs of
Paulino Chanliongco, including Florencio.
We also note that the counsel of petitioners, Atty. Felino V. Quiming Jr., is
a partner of the law firm that represented the estate of the deceased
father. Hence, it can reasonably be expected that the service upon the
law firm was sufficient notice to all the beneficiaries of the estate,
including Petitioner Florencio D. Chanliongco.
WHEREFORE, the Petition is hereby DENIED and
Resolution AFFIRMED. Costs against petitioners.
SO ORDERED.

the

assailed

G.R. No. 155736. March 31, 2005

SPOUSES DANILO and CRISTINA DECENA, Petitioners,
vs.
SPOUSES PEDRO and VALERIA PIQUERO, Respondents.
RESOLUTION

c. Defendants, jointly and severally, be ordered to pay the plaintiffs:

i. P10,000.00 monthly, starting 01 October 1997 until complete turnover
of the subject property to the plaintiffs, as reasonable compensation for
its continued unlawful use and occupation by the defendants;

CALLEJO, SR., J.:

ii. P200,000.00 moral damages;

The petitioners, Spouses Danilo and Cristina Decena were the owners of
a parcel of land, with a house constructed thereon, located in Paraaque,
Metro Manila (now Paraaque City) covered by Transfer Certificate of
Title (TCT) No. 134391 issued on February 24, 1998. 1

iii. P200,000.00 exemplary damages;

On September 7, 1997, the petitioners and the respondents, the Spouses

Pedro and Valeria Piquero, executed a Memorandum of Agreement
(MOA)2 in which the former sold the property to the latter for the price
ofP940,250.00 payable in six (6) installments via postdated checks. The
vendees forthwith took possession of the property.
It appears in the MOA that the petitioners obliged themselves to transfer
the property to the respondents upon the execution of the MOA with the
condition that if two of the postdated checks would be dishonored by the
drawee bank, the latter would be obliged to reconvey the property to the
petitioners.
On May 17, 1999, the petitioners, then residents of Malolos, Bulacan,
filed a Complaint3 against the respondents with the Regional Trial Court
(RTC) of Malolos, Bulacan, for the annulment of the sale/MOA, recovery
of possession and damages. The petitioners alleged therein that, they did
not transfer the property to and in the names of the respondents as
vendees because the first two checks drawn and issued by them in
payment for the purchase price of the property were dishonored by the
drawee bank, and were not replaced with cash despite demands therefor.
The petitioners prayed that, after due proceedings, judgment be rendered
in their favor, thus:
a. The sale/Memorandum of Agreement (Annex "A," supra) be declared
null and void, rescinded and with no further force and effect;
b. Defendants, and all persons claiming right under them, be ordered to
immediately vacate the subject property and turnover its possession to
the plaintiffs;

iv. P250,000.00 attorneys fees and litigation related expenses; and

v. the costs of suit.
Other reliefs just and equitable are, likewise, prayed for.4
The petitioners declared in their complaint that the property subject of the
complaint was valued at P6,900,000.00. They appended copies of the
MOA and TCT No. 134391 to their complaint. The case was eventually
raffled to Branch 13 of the RTC of Malolos, Bulacan.
The respondents filed a motion to dismiss the complaint on the
ground, inter alia, of improper venue and lack of jurisdiction over the
property subject matter of the action.
On the first ground, the respondents averred that the principal action of
the petitioners for the rescission of the MOA, and the recovery of the
possession of the property is a real action and not a personal one; hence,
it should have been brought in the RTC of Paraaque City, where the
property subject matter of the action was located, and not in the RTC of
Malolos, Bulacan, where the petitioners resided. The respondents posited
that the said court had no jurisdiction over the property subject matter of
the action because it was located in Paraaque City.5
In opposition, the petitioners insisted that their action for damages and
attorneys fees is a personal action and not a real action; hence, it may
be filed in the RTC of Bulacan where they reside. They averred that while
their second cause of action for the recovery of the possession of the
property is a real action, the same may, nevertheless, be joined with the
rest of their causes of action for damages, conformably with Section 5(c),
Rule 2 of the Rules of Court.6

By way of reply, the respondents averred that Section 5(c), Rule 2 of the
Rules of Court applies only when one or more of multiple causes of
action falls within the exclusive jurisdiction of the first level courts, and the
other or others are within the exclusive jurisdiction of the RTC, and the
venue lies therein.

Explaining the aforequoted condition, Justice Jose Y. Feria declared:

On February 9, 2000, the trial court issued an Order 7 denying the motion
for lack of merit. It found merit in the petitioners contention that Section
5(c), Rule 2 was applicable.

(c) Under the third condition, if one cause of action falls within the
jurisdiction of the Regional Trial Court and the other falls within the
jurisdiction of a Municipal Trial Court, the action should be filed in the
Regional Trial Court. If the causes of action have different venues, they
may be joined in any of the courts of proper venue. Hence, a real action
and a personal action may be joined either in the Regional Trial Court of
the place where the real property is located or where the parties reside. 10

Meanwhile, the case was re-raffled to Branch 10 of the RTC of Malolos,

Bulacan. In a Motion8 dated December 20, 2000, the respondents prayed
for the reconsideration of the trial courts February 9, 2000 Order. On
October 16, 2001, the court issued an Order 9 granting the motion and
ordered the dismissal of the complaint. It ruled that the principal action of
the petitioners was a real action and should have been filed in the RTC of
Paraaque City where the property subject matter of the complaint was
located. However, since the case was filed in the RTC of Bulacan where
the petitioners reside, which court had no jurisdiction over the subject
matter of the action, it must be dismissed.

A cause of action is an act or omission of one party in violation of the

legal right of the other which causes the latter injury. The essential
elements of a cause of action are the following: (1) the existence of a
legal right of the plaintiff; (2) a correlative legal duty of the defendant to
respect ones right; and (3) an act or omission of the defendant in
violation of the plaintiffs right. 11 A cause of action should not be confused
with the remedies or reliefs prayed for. A cause of action is to be found in
the facts alleged in the complaint and not in the prayer for relief. It is the
substance and not the form that is controlling. 12 A party may have two or
more causes of action against another party.

Hence, the present recourse.

A joinder of causes of action is the uniting of two or more demands or

right of action in a complaint. The question of the joinder of causes of
action involves in particular cases a preliminary inquiry as to whether two
or more causes of action are alleged. 13 In declaring whether more than
one cause of action is alleged, the main thrust is whether more than one
primary right or subject of controversy is present. Other tests are whether
recovery on one ground would bar recovery on the other, whether the
same evidence would support the other different counts and whether
separate actions could be maintained for separate relief; 14 or whether
more than one distinct primary right or subject of controversy is alleged
for enforcement or adjudication.15

The petition has no merit.

The sole issue is whether or not venue was properly laid by the
petitioners in the RTC of Malolos, Bulacan. The resolution of this issue is,
in turn, anchored on whether Section 5, Rule 2 of the Rules of Court
invoked by the petitioners is applicable in this case.
Under the said Rule, a party may, in one pleading, assert, in the
alternative or otherwise, as many causes of action as he may have
against an opposing party subject to the conditions therein enumerated,
one of which is Section 5(c) which reads:
Sec. 5. Joinder of causes of action. --

(c) Where the causes of action are between the same parties but pertain
to different venues or jurisdiction, the joinder may be allowed in the
Regional Trial Court provided one of the causes of action falls within the
jurisdiction of said court and the venue lies therein;

A cause of action may be single although the plaintiff seeks a variety of

remedies. The mere fact that the plaintiff prays for multiple reliefs does
not indicate that he has stated more than one cause of action. The prayer
may be an aid in interpreting the petition and in determining whether or
not more than one cause of action is pleaded. 16 If the allegations of the
complaint show one primary right and one wrong, only one cause of
action is alleged even though other matters are incidentally involved, and
although different acts, methods, elements of injury, items of claims or
theories of recovery are set forth. 17 Where two or more primary rights and
wrongs appear, there is a joinder of causes of action.

After due consideration of the foregoing, we find and so rule that Section
5(c), Rule 2 of the Rules of Court does not apply. This is so because the
petitioners, as plaintiffs in the court a quo, had only one cause of action
against the respondents, namely, the breach of the MOA upon the latters
refusal to pay the first two installments in payment of the property as
agreed upon, and turn over to the petitioners the possession of the real
property, as well as the house constructed thereon occupied by the
respondents. The claim for damages for reasonable compensation for the
respondents use and occupation of the property, in the interim, as well as
moral and exemplary damages suffered by the petitioners on account of
the aforestated breach of contract of the respondents are merely
incidental to the main cause of action, and are not independent or
separate causes of action.18
The action of the petitioners for the rescission of the MOA on account of
the respondents breach thereof and the latters failure to return the
premises subject of the complaint to the petitioners, and the respondents
eviction therefrom is a real action.19 As such, the action should have been
filed in the proper court where the property is located, namely, in
Paraaque City, conformably with Section 1, Rule 4 of the Rules of Court
which reads:
SECTION 1. Venue of real actions. Actions affecting title to or
possession of real property, or interest therein, shall be commenced and
tried in the proper court which has jurisdiction over the area wherein the
real property involved, or a portion thereof, is situated.
Since the petitioners, who were residents of Malolos, Bulacan, filed their
complaint in the said RTC, venue was improperly laid; hence, the trial
court acted conformably with Section 1(c), Rule 16 of the Rules of Court
when it ordered the dismissal of the complaint.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of
merit. Costs against the petitioners.
SO ORDERED.

G.R. No. 147417 July 8, 2005

SPS. VICTOR & MILAGROS

PEREZ
and CRISTINA AGRAVIADOR AVISO, Petitioners,
vs.
ANTONIO HERMANO, Respondent.
DECISION
CHICO-NAZARIO, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of
Court assailing the Resolution 1 of the Court of Appeals dismissing
petitioners original action for certiorari under Rule 65 for being filed out of
time. Assailed as well is the Resolution 2 dismissing petitioners motion for
reconsideration.
The pertinent facts of the case are as follows:
On 27 April 1998, petitioners Cristina Agraviador Aviso and spouses
Victor and Milagros Perez filed a civil case for Enforcement of Contract
and Damages with Prayer for the Issuance of a Temporary Restraining
Order (TRO) and/or Preliminary Injunction against Zescon Land, Inc.
and/or its President Zenie Sales-Contreras, Atty. Perlita Vitan-Ele and
against respondent herein Antonio Hermano before the Regional Trial
Court (RTC) of Quezon City, Branch 224. 3 On 15 May 1998, respondent
(then defendant) Hermano filed his Answer with Compulsory
Counterclaim. On 17 January 2000, respondent Hermano filed a "Motion
with Leave to Dismiss the Complaint or Ordered Severed for Separate
Trial" which was granted by the trial court in an Order dated 28 February
2000.

second assailed Resolution was promulgated dismissing petitioners

motion for reconsideration, the Court of Appeals holding that:
From the time petitioners received the assailed Order on March 21, 2000
and filed their motion for reconsideration, four (4) days had elapsed. On
June 18, 2000, petitioners received the denial of their motion for
reconsideration. When the instant petition was filed on August 17, 2000,
a total of 63 days had elapsed.
A.M. No. 00-2-03-50 further amending Section 4, Rule 65 of the New
Rules on Civil Procedure states that the petition shall be filed not later
than sixty (60) days from notice of the judgment, Order or Resolution and
in case a motion for reconsideration or new trial is timely filed, whether
such motion is required or not, the 60-day period shall be counted from
notice of the denial of said motion.
Viewed from its light, the assailed Orders had already attained finality,
and are now beyond the power of this Court to review.4
Aggrieved by the foregoing ruling, petitioners are now before us
assigning the following
MANIFEST AND/OR SERIOUS ERROR COMMITTED BY THE
HONORABLE COURT OF APPEALS IN THE COMPUTATION OF THE
PERIOD WITHIN WHICH THE PETITIONERS FILED THEIR PETITION
FOR CERTIORARI BEFORE IT AND CONSEQUENTLY COMMITTED
GRAVE ABUSE OF DISCRETION IN THE APPRECIATION OF FACTS
AND/OR MISAPPREHENSION OF FACTS, WITH ITS FINDING OF
FACT NOT BEING BORNE BY THE RECORD OR EVIDENCE, AND
THUS ITS CONCLUSION IS ENTIRELY BASELESS.5

This Order was received by petitioners on 21 March 2000. On 23 March

2000, petitioners moved for reconsideration which was denied by the trial
court on 25 May 2000 and received by petitioners on 18 June 2000. On
17 August 2000, petitioners filed an original action for certiorari before the
Court of Appeals imputing grave abuse of discretion on the part of the
trial court in dismissing the complaint against respondent Hermano.

According to petitioners, following the amendment introduced by A.M. No.

00-2-03-SC to Section 4, Rule 65 of the 1997 Rules on Civil Procedure,
their petition was filed on the 60th day, thus, within the reglementary
period. Respondent insists, on the other hand, that the petition was filed
on the 61st day while the Court of Appeals had declared that the petition
was filed on the 63rd day.

On 19 October 2000, the Court of Appeals rendered the first assailed

Resolution dismissing the petition forcertiorari "for having been filed
beyond the reglementary period pursuant to Section 4, Rule 65 of the
1997 Rules on Civil Procedure, as amended." On 02 March 2001, the

We agree in the position taken by petitioners.

Admittedly, at the time petitioners filed their petition for certiorari on 17
August 2000, the rule then prevailing was Section 4, Rule 65 of the 1997

Rules on Civil Procedure, as amended by Circular No. 39-98 effective 01

September 1998, which provides:
Sec. 4. Where petition filed. The petition shall be filed not later than
sixty (60) days from notice of the judgment, order or resolution sought to
be assailed in the Supreme Court, or if it relates to the acts or omissions
of a lower court or of a corporation, board, officer or person in the
Regional Trial Court exercising jurisdiction over the territorial area as
defined by the Supreme Court. It may also be filed in the Court of
Appeals whether or not the same is in aid of its appellate jurisdiction, or
in the Sandiganbayan if it is in aid of its jurisdiction. If it involves the acts
or omissions of a quasi-judicial agency, and unless otherwise provided by
law or these Rules, the petition shall be filed in and cognizable only by
the Court of Appeals.
If the petitioner had filed a motion for new trial or reconsideration in due
time after notice of said judgment, order, or resolution, the period herein
fixed shall be interrupted. If the motion is denied, the aggrieved party
may file the petition within the remaining period, but which shall not
be less than five (5) days in any event, reckoned from notice of such
denial. No extension of time to file the petition shall be granted except for
the most compelling reason and in no case to exceed fifteen (15) days.
(Emphasis supplied)
However, on 01 September 2000, during the pendency of the case before
the Court of Appeals, Section 4 was amended anew by A.M. No. 00-2-03SC6 which now provides:
Sec. 4. When and where petition filed. The petition shall be filed not
later than sixty (60) days from notice of the judgment, order or
resolution. In case a motion for reconsideration or new trial is timely
filed, whether such motion is required or not, the sixty (60) day
period shall be counted from notice of the denial of said motion.
The petition shall be filed in the Supreme Court or, if it relates to the acts
or omissions of a lower court or of a corporation, board, officer or person,
in the Regional Trial Court exercising jurisdiction over the territorial area
as defined by the Supreme Court. It may also be filed in the Court of
Appeals whether or not the same is in aid of its appellate jurisdiction, or
in the Sandiganbayan if it is in aid of its appellate jurisdiction. If it involves
the acts or omissions of a quasi-judicial agency, unless otherwise
provided by law or these rules, the petition shall be filed in and
cognizable only by the Court of Appeals.

No extension of time to file the petition shall be granted except for

compelling reason and in no case exceeding fifteen (15) days. (Emphasis
supplied)
Under this amendment, the 60-day period within which to file the petition
starts to run from receipt of notice of the denial of the motion for
reconsideration, if one is filed. 7
In Narzoles v. National Labor Relations Commission,8 we described this
latest amendment as curative in nature as it remedied the confusion
brought about by Circular No. 39-98 because, "historically, i.e., even
before the 1997 revision to the Rules of Civil Procedure, a party had a
fresh period from receipt of the order denying the motion for
reconsideration to file a petition for certiorari." Curative statutes, which
are enacted to cure defects in a prior law or to validate legal proceedings
which would otherwise be void for want of conformity with certain legal
requirements, by their very essence, are retroactive. 9 And, being a
procedural rule, we held in Sps. Ma. Carmen and Victor Javellana v. Hon.
Presiding Judge Benito Legarda10 that "procedural laws are construed to
be applicable to actions pending and undetermined at the time of their
passage, and are deemed retroactive in that sense and to that extent."
Consequently, petitioners had a fresh period of 60 days from the time
they received the Order of the trial court denying their motion for
reconsideration on 18 June 2000. When they filed their petition with the
Court of Appeals on 17 August 2000, exactly 60 days had elapsed
following the rule that in computing a period, the first day shall be
excluded and the last day included. 11 Hence, there can be no doubt that
the petition was filed within the reglementary period for doing so and it
was reversible error on the part of the Court of Appeals in not giving said
petition due course. However, instead of remanding the case to the Court
of Appeals which would only unduly prolong the disposition of the
substantive issue raised, we shall resolve the petition originally filed
therein.
Petitioners brought to the Court of Appeals on petition for certiorari under
Rule 65 the lone issue of:
WHETHER OR NOT THE PUBLIC RESPONDENT [Hon. Emilio L.
Leachon, Jr., Presiding Judge, RTC, Branch 224, Quezon City] HAD
PLAINLY AND MANIFESTLY ACTED WITH GRAVE ABUSE OF
DISCRETION, IN EXCESS OF JURISDICTION, TANTAMOUNT TO
LACK OF JURISDICTION, IN DISMISSING THE COMPLAINT AS

AGAINST RESPONDENT ANTONIO HERMANO IN CIVIL CASE NO. Q98-34211.12

Petitioners assert that respondent Hermano should not have been
dismissed from the complaint because: (1) He did not file a motion to
dismiss under Rule 16 of the Rules of Court and, in fact, his "Motion with
Leave to Dismiss the Complaint or Ordered Severed for Separate Trial"
was filed almost two years after he filed his Answer to the complaint; (2)
There was no misjoinder of causes of action in this case; and (3) There
was no misjoinder of parties.
The case filed by petitioners against respondent Hermano and the other
defendants, namely Zescon Land, Inc. and/or its President Zenie SalesContreras and Atty. Perlita Vitan-Ele, was one for "Enforcement of
Contract and Damages with Prayer for the Issuance of a Temporary
Restraining Order (TRO) and/or Preliminary Injunction" docketed as Civil
Case No. Q-98-34211 and raffled to Branch 224.
Petitioners presented three causes of action in their complaint, the first
for enforcement of contract to sell entered into between petitioners and
Zescon Land, Inc., the second for annulment or rescission of two
contracts of mortgage entered into between petitioners and respondent
Hermano and the third for damages against all defendants.
For the first cause of action, petitioners allege that sometime in
November 1997, they entered into a Contract to Sell with Zescon Land,
Inc., through Zenie Sales-Contreras, for the purchase of five (5) parcels
of land in the total amount of Nineteen Million One Hundred Four
Thousand Pesos (P19,104,000.00). As part of their agreement, a portion
of the purchase price would be paid to them as down payment, another
portion to be given to them as cash advance upon the execution of the
contract and another portion to be used by the buyer, Zescon Land, Inc.,
to pay for loans earlier contracted by petitioners which loans were
secured by mortgages.
Re-pleading the foregoing in their second cause of action, petitioners
contend that "in a tricky machination and simultaneous with the execution
of the aforesaid Contract to Sell," they were made to sign other
documents, two of which were Mortgage deeds over the same five
properties in favor of respondent Hermano, whom they had never met. It
was allegedly explained to them by Sales-Contreras that the mortgage
contracts would merely serve to facilitate the payment of the price as
agreed upon in their Contract to Sell. Petitioners claim that it was never

their intention to mortgage their property to respondent Hermano and that

they have never received a single centavo from mortgaging their property
to him. Petitioners acknowledge, however, that respondent Hermano was
responsible for discharging their obligations under the first mortgage and
for having the titles over the subject lands released, albeit not to them but
to respondent Hermano. They seek a TRO against respondent Hermano
who had informed them that he would be foreclosing the subject
properties.
In their third cause of action, petitioners pray for damages against all the
defendants alleging that:
Due to the failure and refusal, without any valid justification and reason,
by defendants Zescon and Contreras to comply with their obligations
under the Contract to Sell, including their failure and refusal to pay the
sums stipulated therein, and in misleading and misrepresenting the
plaintiffs into mortgaging their properties to defendant Antonio Hermano,
who in turn had not paid the plaintiffs the proceeds thereof, putting them
in imminent danger of losing the same, plaintiffs had suffered, and
continue to suffer, sleepless nights .
By reason of defendants Zescon and Contrerass failure and refusal to
pay the sums stipulated in the Contract to Sell, and of defendant Antonio
Hermanos not having paid plaintiffs the proceeds of the mortgage
agreements, plaintiffs had been deprived of the beneficial use of the
proceeds and stood to lose, as they continue to lose, by way of unearned
profits at least P1,000,000.00. 13
In his Answer with (Compulsory) Counterclaim dated 15 May 1998,
respondent Hermano denied petitioners allegations. 14 Then, on 19
February 1999, respondent Hermano filed a civil case entitled "Judicial
Foreclosure of Real Estate Mortgage" against petitioner Aviso docketed
as Civil Case No. Q-99-36914 and raffled to Branch 216 of the RTC of
Quezon City. On 17 January 2000, respondent Hermano filed a "Motion
With Leave To Dismiss The Complaint Against Defendant Antonio
Hermano, Or Ordered Severed For Separate Trial" before Branch 224. In
said motion, respondent Hermano argued that there was a mis-joinder of
causes of action under Rule 2, Section 6 of the Rules of Court. To quote
respondent Hermano:
3. In the instant case, the plaintiffs action for the Enforcement of Contract
and Damages with Prayer for The Issuance of a Temporary Restraining
Order And/Or Preliminary Injunction against Zescon Land, Inc., and/or its

President Zenie Sales Contreras, may not, under Rule 2, Section 6 of the
1997 Rules of Civil Procedure, join defendant Hermano as party
defendant to annul and/or rescind the Real Estate Mortgages of subject
properties. There is a misjoinder of parties defendants under a different
transaction or cause of action; that under the said Rule 2, Section 6,
upon motion of defendant Hermano in the instant case, the complaint
against defendant Hermano can be severed and tried separately; . . . . 15
Over petitioners opposition to said motion, the same was granted by the
trial court in its Order dated 28 February 2000 on the justification that:
. . . [D]efendant having filed a special civil action for judicial foreclosure of
mortgage and now pending before RTC Branch 216, he should be
dropped as one of the defendants in this case and whatever claims
plaintiffs may have against defendant Hermano, they can set it up by way
of an answer to said judicial foreclosure.16
And, in an Order dated 25 May 2000, the trial court resolved petitioners
motion for reconsideration by dismissing the same, to wit:
After going over the arguments of the parties, the Court believes that
defendant Hermano has nothing to do with the transaction which the
plaintiffs entered into with defendant Zescon Land, Inc. Besides, the said
motion raised matters and defenses previously considered and passed
upon by the Court.17
It is these two Orders that were brought up by petitioners to the Court of
Appeals on petition for Certiorari under Rule 65. The pivotal issue to be
resolved, therefore, is whether or not respondent trial court committed
grave abuse of discretion in dismissing the complaint against respondent
Hermano in Civil Case No. Q-98-34211.
As far as we can glean from the Orders of the trial court, respondent
Hermano was dropped from the complaint on the ground of misjoinder of
causes of action. Petitioners, on the other hand, insist that there was no
misjoinder in this case.
To better understand the present controversy, it is vital to revisit the rules
on joinder of causes of action as exhaustively discussed in Republic v.
Hernandez,18 thus:
By a joinder of actions, or more properly, a joinder of causes of action, is
meant the uniting of two or more demands or rights of action in one

action; the statement of more than one cause of action in a declaration. It

is the union of two or more civil causes of action, each of which could be
made the basis of a separate suit, in the same complaint, declaration or
petition. A plaintiff may under certain circumstances join several distinct
demands, controversies or rights of action in one declaration, complaint
or petition.
As can easily be inferred from the above definitions, a party is generally
not required to join in one suit several distinct causes of action. The
joinder of separate causes of action, where allowable, is permissive and
not mandatory in the absence of a contrary statutory provision, even
though the causes of action arose from the same factual setting and
might under applicable joinder rules be joined. Modern statutes and rules
governing joinders are intended to avoid a multiplicity of suits and to
promote the efficient administration of justice wherever this may be done
without prejudice to the rights of the litigants. To achieve these ends, they
are liberally construed.
While joinder of causes of action is largely left to the option of a party
litigant, Section 5, Rule 2 of our present Rules allows causes of action to
be joined in one complaint conditioned upon the following requisites: (a) it
will not violate the rules on jurisdiction, venue and joinder of parties; and
(b) the causes of action arise out of the same contract, transaction or
relation between the parties, or are for demands for money or are of the
same nature and character.
The objectives of the rule or provision are to avoid a multiplicity of suits
where the same parties and subject matter are to be dealt with by
effecting in one action a complete determination of all matters in
controversy and litigation between the parties involving one subject
matter, and to expedite the disposition of litigation at minimum cost. The
provision should be construed so as to avoid such multiplicity, where
possible, without prejudice to the rights of the litigants. Being of a
remedial nature, the provision should be liberally construed, to the end
that related controversies between the same parties may be adjudicated
at one time; and it should be made effectual as far as practicable, with
the end in view of promoting the efficient administration of justice.
The statutory intent behind the provisions on joinder of causes of action
is to encourage joinder of actions which could reasonably be said to
involve kindred rights and wrongs, although the courts have not
succeeded in giving a standard definition of the terms used or in
developing a rule of universal application. The dominant idea is to permit
joinder of causes of action, legal or equitable, where there is some

substantial unity between them. While the rule allows a plaintiff to join as
many separate claims as he may have, there should nevertheless be
some unity in the problem presented and a common question of law and
fact involved, subject always to the restriction thereon regarding
jurisdiction, venue and joinder of parties. Unlimited joinder is not
authorized.
Our rule on permissive joinder of causes of action, with the proviso
subjecting it to the correlative rules on jurisdiction, venue and joinder of
parties and requiring a conceptual unity in the problems presented,
effectively disallows unlimited joinder.
Section 6, Rule 2 on misjoinder of causes of action provides:
Sec. 6. Misjoinder of causes of action. - Misjoinder of causes of action is
not a ground for dismissal of an action. A misjoined cause of action may,
on motion of a party or on the initiative of the court, be severed and
proceeded with separately.
There is misjoinder of causes of action when the conditions for joinder
under Section 5, Rule 2 are not met. Section 5 provides:
Sec. 5. Joinder of causes of action. - A party may in one pleading assert,
in the alternative or otherwise, as many causes of action as he may have
against an opposing party, subject to the following conditions:
(a) The party joining the causes of action shall comply with the rules on
joinder of parties;
(b) The joinder shall not include special civil actions or actions governed
by special rules;
(c) Where the causes of action are between the same parties but pertain
to different venues or jurisdictions, the joinder may be allowed in the
Regional Trial Court provided one of the causes of action falls within the
jurisdiction of said court and the venue lies therein; and
(d) Where the claims in all the causes of action are principally for
recovery of money, the aggregate amount claimed shall be the test of
jurisdiction.
As far as can be gathered from the assailed Orders, it is the first
condition - on joinder of parties - that the trial court deemed to be lacking.

It is well to remember that the joinder of causes of action may involve the
same parties or different parties. If the joinder involves different parties,
as in this case, there must be a question of fact or of law common to both
parties joined, arising out of the same transaction or series of
transaction.19
In herein case, petitioners have adequately alleged in their complaint that
after they had already agreed to enter into a contract to sell with Zescon
Land, Inc., through Sales-Contreras, the latter also gave them other
documents to sign, to wit: A Deed of Absolute Sale over the same
properties but for a lower consideration, two mortgage deeds over the
same properties in favor of respondent Hermano with accompanying
notes and acknowledgment receipts for Ten Million pesos (P10,000,000)
each. Petitioners claim that Zescon Land, Inc., through Sales-Contreras,
misled them to mortgage their properties which they had already agreed
to sell to the latter.
From the above averments in the complaint, it becomes reasonably
apparent that there are questions of fact and law common to both Zescon
Land, Inc., and respondent Hermano arising from a series of transaction
over the same properties. There is the question of fact, for example, of
whether or not Zescon Land, Inc., indeed misled petitioners to sign the
mortgage deeds in favor of respondent Hermano. There is also the
question of which of the four contracts were validly entered into by the
parties. Note that under Article 2085 of the Civil Code, for a mortgage to
be valid, it is imperative that the mortgagor be the absolute owner of the
thing mortgaged. Thus, respondent Hermano will definitely be affected if
it is subsequently declared that what was entered into by petitioners and
Zescon Land, Inc., was a Contract of Sale (as evidenced by the Deed of
Absolute Sale signed by them) because this would mean that the
contracts of mortgage were void as petitioners were no longer the
absolute owners of the properties mortgaged. Finally, there is also the
question of whether or not Zescon Land, Inc., as represented by SalesContreras, and respondent Hermano committed fraud against petitioners
as to make them liable for damages.
Prescinding from the foregoing, and bearing in mind that the joinder of
causes of action should be liberally construed as to effect in one action a
complete determination of all matters in controversy involving one subject
matter, we hold that the trial court committed grave abuse of discretion in
severing from the complaint petitioners cause of action against
respondent Hermano.

WHEREFORE, premises considered, the Resolution of the Court of

Appeals dated 19 October 2000 dismissing petitioners petition
for certiorari and its Resolution dated 02 March 2001 denying petitioners
motion for reconsideration are REVERSED and SET ASIDE. The petition
for certiorari is hereby GRANTED. The Orders of the Regional Trial Court
of Quezon City, Branch 224, dated 28 February 2000 and 25 May 2000
are ANNULLED and SET ASIDE. The RTC is further ordered to reinstate
respondent Antonio Hermano as one of the defendants in Civil Case No.
Q-98-34211. No costs.
SO ORDERED.

G.R. No. 164041. July 29, 2005

ROSENDO ALBA, minor, represented by his mother and natural
guardian, Armi A. Alba, and ARMI A. ALBA, in her personal
capacity, Petitioners,
vs.
COURT OF APPEALS and ROSENDO C. HERRERA, Respondents.
DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for certiorari1 are the February 27, 2004
decision2 and the May 14, 2004 resolution 3 of the Court of Appeals in CAG.R. SP No. 61883, which dismissed petitioners original action for
annulment of judgment4 of the Regional Trial Court of Manila, Branch 37,
and denied the motion for reconsideration, respectively.
The antecedent facts show that on October 21, 1996, private respondent
Rosendo C. Herrera filed a petition 5 for cancellation of the following
entries in the birth certificate of "Rosendo Alba Herrera, Jr.", to wit: (1) the
surname "Herrera" as appended to the name of said child; (2) the
reference to private respondent as the father of Rosendo Alba Herrera,
Jr.; and (3) the alleged marriage of private respondent to the childs
mother, Armi A. Alba (Armi) on August 4, 1982 in Mandaluyong City. He
claimed that the challenged entries are false and that it was only
sometime in September 1996 that he learned of the existence of said
birth certificate.
Private respondent alleged that he married only once, i.e., on June 28,
1965 with Ezperanza C. Santos and never contracted marriage with Armi
nor fathered Rosendo Alba Herrera, Jr. In support thereof, he presented
certifications from the Civil Registrar of Mandaluyong City 6 and the
National Statistics Office,7 both stating that they have no record of
marriage between private respondent and Armi.
On November 12, 1996, private respondent filed an amended
petition,8 impleading Armi and "all the persons who have or claim any
interest in th[e] petition."9
On November 27, 1996, the trial court issued an Order setting the petition
for hearing on January 24, 1997, and directed the publication and service
of said order to Armi at her address appearing in the birth certificate
which is No. 418 Arquiza St., Ermita, Manila, and to the Civil Registrar of

the City of Manila and the Solicitor General. The full text of the order,
reads:
In a verified Amended Petition for Correction of Entry, the Petitioner
prays, inter alia, that the following entries appearing in the subject
Certificate of Live Birth be deleted:
1. All informations having reference to him as the father of the child
mentioned therein;
2. The surname "Herrera" appended to the childs name;
3. His alleged marriage with the natural mother of the child.
Finding the Petition to be sufficient in form and substance, let the Petition
be set for hearing on January 24, 1997 at nine oclock in the morning
before this Branch at Rooms 447-449, Fourth Floor, Manila City Hall. All
interested parties are hereby notified of the said hearing and are ordered
to show cause why the Petition should not be granted.
Let a copy of this Order be published at the expense of the Petitioner,
once a week for three (3) consecutive weeks, in a newspaper of general
circulation in the City of Manila, and raffled pursuant to P.D. 1079.
Furnish the Office of the Solicitor General and the Office of the Local Civil
Registrar of the City of Manila with copies of the Petition and of this
Order.
Let the same be likewise furnished the Private Respondent Armi Alba
Herrera at the address indicated in the subject Certificate of Live Birth.
SO ORDERED.10
On January 13, 1997, before the scheduled January 24, 1997 hearing,
the trial court issued an Amended Order 11with substantially the same
contents, except that the hearing was re-scheduled to February 26, 1997.
A copy of said Amended Order was published in "Today", a newspaper of
general circulation in Manila in its January 20, 27, and February 3, 1997
issues. Copies thereof were also sent to Armi at No. 418 Arquiza St.,
Ermita, Manila, on January 17, 1997, the Local Civil Registrar of Manila
and the Solicitor General.

At the scheduled hearing on February 26, 1997, the counsel from the
Office of the Solicitor General appeared but filed no opposition to the
petition. Armi, on the other hand was not present. The return of the notice
sent to her had the following notation:
This is to certify that on January 17, 1997, the undersigned [process
server] personally served a copy of the Amended Order in Sp. Proc. No.
96-80512 dated January 13, 1997 to the private respondent, Armi Alba
Herrera at 418 Arquiza St., Ermita, Manila, but failed and unavailing
for reason that (sic), private respondent is no longer residing at said
given address.12
On April 1, 1997, the court a quo rendered a decision which became final
and executory on June 2, 1997. 13 The dispositive portion thereof, states:
ACCORDINGLY, and pursuant to Rule 108 of the Revised Rules of Court,
judgment is hereby rendered ordering the correction of the entries in the
Certificate of Live Birth of Rosendo Alba Herrera, Jr., in such a way that
the entry under the name of the child, the surname Herrera, Jr.[,] is
ordered deleted, and the child shall be known as ROSENDO ALBA; and
that the entry under the date and place of marriage, the date August 4,
1982, Mandaluyong, MM is likewise ordered deleted or cancelled.
Let a copy of this Decision be furnished the Local Civil Registrar of
Manila for proper correction and entry.
SO ORDERED.14
Private respondent filed a motion 15 for amendment of the decretal portion
of the decision to include the cancellation of all entries having reference
to him as the father of petitioner minor. This was granted in the August
11, 1997 order of the trial court as follows:
ACCORDINGLY, and pursuant to Rule 108 of the Revised Rules of Court,
judgment is hereby rendered ordering the correction of the entries in the
Certificate of Live Birth of Rosendo Alba Herrera, Jr., in such a way that
the entries under the name of the child, the surname Herrera, Jr., and the
name of the father Rosendo Caparas Herrera are ordered deleted, and
the child shall be known as ROSENDO ALBA; and the entry under the
date and place of marriage, the date August 4, 1982, Mandaluyong, MM
is likewise ordered deleted or cancelled.
SO ORDERED.16

On November 24, 2000, Armi and petitioner minor filed a petition for
annulment of judgment before the Court of Appeals on the grounds of
extrinsic fraud and lack of jurisdiction over their person. She allegedly
came to know of the decision of the trial court only on February 26, 1998,
when San Beda College, where her son was enrolled as a high school
student, was furnished by private respondent with a copy of a court order
directing the change of petitioner minors surname from Herrera to Alba.
Armi averred that private respondent was aware that her address is at
Unit 302 Plaza Towers Condominium, 1175 Lorenzo Guerrero St., Ermita,
Manila, because such was her residence when she and private
respondent cohabited as husband and wife from 1982 to 1988; and her
abode when petitioner minor was born on March 8, 1985. Even after their
separation, private respondent continued to give support to their son until
1998; and that Unit 302 was conveyed to her by private respondent on
June 14, 1991 as part of his support to petitioner minor. According to
Armi, her address i.e., No. 418 Arquiza St., Ermita, Manila, as appearing
in the birth certificate of their son, was entered in said certificate through
the erroneous information given by her sister, Corazon Espiritu. She
stressed that private respondent knew all along that No. 418 Arquiza St.,
is the residence of her sister and that he deliberately caused the service
of notice therein to prevent her from opposing the petition.
In his answer, private respondent denied paternity of petitioner minor and
his purported cohabitation with Armi. He branded the allegations of the
latter as "false statements coming from a polluted source." 17
On February 27, 2004, the Court of Appeals dismissed the petition
holding, among others, that petitioner failed to prove that private
respondent employed fraud and purposely deprived them of their day in
court. It further held that as an illegitimate child, petitioner minor should
bear the surname of his mother.18 Petitioners filed a motion for
reconsideration but was denied.
Hence, the instant petition.
Under Section 2, Rule 47 of the 1997 Revised Rules of Civil Procedure,
judgments may be annulled on the grounds of lack of jurisdiction and
extrinsic fraud.19
Whether or not the trial court acquired jurisdiction over the person of
petitioner and her minor child depends on the nature of private
respondents action, that is, in personam, in rem or quasi in rem. An

action in personam is lodged against a person based on personal liability;

an action in rem is directed against the thing itself instead of the person;
while an action quasi in rem names a person as defendant, but its object
is to subject that persons interest in a property to a corresponding lien or
obligation.20
Hence, petitions directed against the "thing" itself or the res,21 which
concerns the status of a person, 22 like a petition for adoption, 23 annulment
of marriage,24 or correction of entries in the birth certificate, 25 as in the
instant case, are actions in rem.
In an action in personam, jurisdiction over the person of the defendant is
necessary for the court to validly try and decide the case. In a
proceeding in rem or quasi in rem, jurisdiction over the person of the
defendant is not a prerequisite to confer jurisdiction on the court,
provided that the latter has jurisdiction over the res. Jurisdiction over
the res is acquired either (a) by the seizure of the property under legal
process, whereby it is brought into actual custody of the law; or (b) as a
result of the institution of legal proceedings, in which the power of the
court is recognized and made effective. 26 The service of summons or
notice to the defendant is not for the purpose of vesting the court with
jurisdiction but merely for satisfying the due process requirements. 27
In the case at bar, the filing with the trial court of the petition for
cancellation vested the latter jurisdiction over the res. Substantial
corrections or cancellations of entries in civil registry records affecting the
status or legitimacy of a person may be effected through the institution of
a petition under Rule 108 of the Revised Rules of Court, with the proper
Regional Trial Court.28 Being a proceeding in rem, acquisition of
jurisdiction over the person of petitioner is therefore not required in the
present case. It is enough that the trial court is vested with jurisdiction
over the subject matter.
The service of the order at No. 418 Arquiza St., Ermita, Manila and the
publication thereof in a newspaper of general circulation in Manila,
sufficiently complied with the requirement of due process, the essence of
which is an opportunity to be heard. Said address appeared in the birth
certificate of petitioner minor as the residence of Armi. Considering that
the Certificate of Birth bears her signature, the entries appearing therein
are presumed to have been entered with her approval. Moreover, the
publication of the order is a notice to all indispensable parties, including
Armi and petitioner minor, which binds the whole world to the judgment
that may be rendered in the petition. An in rem proceeding is validated
essentially through publication. 29 The absence of personal service of the

order to Armi was therefore cured by the trial courts compliance with
Section 4, Rule 108, which requires notice by publication, thus:
SEC. 4. Notice and publication. Upon the filing of the petition, the court
shall, by an order, fix the time and place for the hearing of the same, and
cause reasonable notice thereof to be given to the persons named in the
petition. The court shall also cause the order to be published once a
week for three (3) consecutive weeks in a newspaper of general
circulation in the province.
In Barco v. Court of Appeals, the trial court granted a petition for
correction/change of entries in a minors birth certificate to reflect the
name of the minors real father as well as to effect the corresponding
change of her surname. In seeking to annul said decision, the other
children of the alleged father claimed that they are indispensable parties
to the petition for correction, hence, the failure to implead them is a
ground to annul the decision of the trial court. The Court of Appeals
denied the petition which was sustained by this Court on the ground, inter
alia, that while petitioner is indeed an indispensable party, the failure to
implead her was cured by the publication of the order of hearing. Thus
Undoubtedly, Barco is among the parties referred to in Section 3 of Rule
108. Her interest was affected by the petition for correction, as any
judicial determination that June was the daughter of Armando would
affect her wards share in the estate of her father. It cannot be established
whether Nadina knew of Mary Joys existence at the time she filed the
petition for correction. Indeed, doubt may always be cast as to whether a
petitioner under Rule 108 would know of all the parties whose interests
may be affected by the granting of a petition. For example, a petitioner
cannot be presumed to be aware of all the legitimate or illegitimate
offsprings of his/her spouse or paramour. The fact that Nadina amended
her petition to implead Francisco and Gustilo indicates earnest effort on
her part to comply with Section 3 as quoted above.
Yet, even though Barco was not impleaded in the petition, the Court of
Appeals correctly pointed out that the defect was cured by compliance
with Section 4, Rule 108, which requires notice by publication, thus:
Section 4. Upon the filing of the petition, the court shall, by order, fix the
time and place for the hearing of the same, and cause reasonable notice
thereof to be given to the persons named in the petition. The court shall
also cause the order to be published once a week for three (3)
consecutive weeks in a newspaper of general circulation in the province.

The purpose precisely of Section 4, Rule 108 is to bind the whole

world to the subsequent judgment on the petition. The sweep of the
decision would cover even parties who should have been impleaded
under Section 3, Rule 108, but were inadvertently left out. The Court
of Appeals correctly noted:
The publication being ordered was in compliance with, and borne out by
the Order of January 7, 1985. The actual publication of the September
22, 1983 Order, conferred jurisdiction upon the respondent court to try
and decide the case. While "nobody appeared to oppose the instant
petition" during the December 6, 1984 hearing, that did not divest the
court from its jurisdiction over the case and of its authority to continue
trying the case. For, the rule is well-settled, that jurisdiction, once
acquired continues until termination of the case.
Verily, a petition for correction is an action in rem, an action against a
thing and not against a person. The decision on the petition binds not
only the parties thereto but the whole world. An in rem proceeding is
validated essentially through publication. Publication is notice to the
whole world that the proceeding has for its object to bar indefinitely all
who might be minded to make an objection of any sort against the right
sought to be established. It is the publication of such notice that brings in
the whole world as a party in the case and vests the court with jurisdiction
to hear and decide it.30
Furthermore, extrinsic fraud, which was private respondents alleged
concealment of Armis present address, was not proven. Extrinsic fraud
exists when there is a fraudulent act committed by the prevailing party
outside of the trial of the case, whereby the defeated party was prevented
from presenting fully his side of the case by fraud or deception practiced
on him by the prevailing party. Here, Armi contended that private
respondent is aware of her present address because they lived together
as husband and wife in the condominium unit from 1982 to 1988 and
because private respondent continued to give support to their son until
1998. To prove her claim, she presented (1) private respondents title
over the condominium unit; (2) receipts allegedly issued to private
respondent for payment of homeowners or association dues; (2) a
photocopy of a January 14, 1991 deed of sale of the subject unit in favor
of Armi; and (3) the subsequent title issued to the latter. However, these
documents only tend to prove private respondents previous ownership of
the unit and the subsequent transfer thereof to Armi, but not the claimed
live-in relationship of the parties. Neither does the sale prove that the
conveyance of the unit was part of private respondents support to
petitioner minor. Indeed, intimate relationships and family relations

cannot be inferred from what appears to be an ordinary business

transaction.
Although the January 14, 1991 deed of sale 31 stated that Armi resides at
1175 L. Guerrero St., Ermita, Manila, the same is not sufficient to prove
that private respondent has knowledge of Armis address because the
former objected to the offer of the deed for being a mere photocopy. 32 The
counsel for petitioners even admitted that they do not have the original of
the deed and that per certification of the Clerk of Court, the Notary Public
who notarized the deed of sale did not submit a copy of the notarized
document as required by the rules.33 The deed cannot thus be the basis
of ascribing knowledge of Armis address to private respondent inasmuch
as the authenticity thereof was neither admitted by private respondent
nor proven by petitioners.
While Armi presented the alleged love letters/notes from private
respondent, they were only attached as annexes to the petition and not
formally offered as evidence before the Court of Appeals. More
importantly, said letters/notes do not have probative value because they
were mere photocopies and never proven to be an authentic writing of
private respondent. In the same vein, the affidavits 34 of Armi and her
sister, Corazon Espiritu, are of no evidentiary weight. The basic rule of
evidence is that unless the affiants themselves are placed on the witness
stand to testify on their affidavits, such affidavits must be rejected for
being hearsay. Stated differently, the declarants of written statements
pertaining to disputed facts must be presented at the trial for crossexamination.35 Inasmuch as Armi and her sister were not presented
before the Court of Appeals to affirm the veracity of their affidavits, the
same are considered hearsay and without probative value.
Ei incumbit probotio qui dicit, non qui negat. He who asserts, not he who
denies, must prove.36 Armis claim that private respondent is aware of her
present address is anchored on the assertion of a live-in relationship and
support to her son. Since the evidence presented by Armi is not sufficient
to prove the purported cohabitation and support, it follows that private
respondents knowledge of Armis address was likewise not proven.
Thus, private respondent could not have deliberately concealed from the
court that which was not shown to be known to him. The Court of Appeals
therefore correctly dismissed the petition for annulment of judgment on
the ground of failure to establish extrinsic fraud.
The proper remedy of a party aggrieved by a decision of the Court of
Appeals in an action to annul a judgment of a Regional Trial Court is a
petition for review on certiorari under Rule 45 of the Revised Rules of

Civil Procedure, where only questions of law may be raised. The resort of
petitioner to the instant civil action for certiorari under Rule 65 is therefore
erroneous. The special civil action of certiorari will not be allowed as a
substitute for failure to timely file a petition for review under Rule 45,
which should be instituted within 15 days 37 from receipt of the assailed
decision or resolution. The wrong choice of remedy thus provides another
reason to dismiss this petition.38
Finally, petitioner failed to establish the merits of her petition to annul the
trial courts decision. In an action for annulment of judgment, the
petitioner must convince the court that something may indeed be
achieved should the assailed decision be annulled. 39 Under Article
17640 of the Family Code as amended by Republic Act (RA) No. 9255,
which took effect on March 19, 2004, illegitimate children shall use the
surname of their mother, unless their father recognizes their filiation, in
which case they may bear the fathers surname. In Wang v. Cebu Civil
Registrar,41 it was held that an illegitimate child whose filiation is not
recognized by the father, bears only a given name and his mothers
surname. The name of the unrecognized illegitimate child identifies him
as such. It is only when said child is recognized that he may use his
fathers surname, reflecting his status as an acknowledged illegitimate
child.
In the present case, it is clear from the allegations of Armi that petitioner
minor is an illegitimate child because she was never married to private
respondent. Considering that the latter strongly asserts that he is not the
father of petitioner minor, the latter is therefore an unrecognized
illegitimate child. As such, he must bear the surname of his mother.
In sum, the substantive and procedural aspects of the instant controversy
do not warrant the annulment of the trial courts decision.
WHEREFORE, the petition is DISMISSED. The February 27, 2004
decision and the May 14, 2004 resolution of the Court of Appeals in CAG.R. SP No. 61883 are AFFIRMED.
SO ORDERED.

G.R. No. 175799

November 28, 2011
NM ROTHSCHILD & SONS (AUSTRALIA) LIMITED, Petitioner,
vs.
LEPANTO CONSOLIDATED MINING COMPANY, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
This is a Petition for Review on Certiorari assailing the Decision 1 of the
Court of Appeals dated September 8, 2006 in CA-G.R. SP No. 94382 and
its Resolution2 dated December 12, 2006, denying the Motion for
Reconsideration.
On August 30, 2005, respondent Lepanto Consolidated Mining Company
filed with the Regional Trial Court (RTC) of Makati City a
Complaint3 against petitioner NM Rothschild & Sons (Australia) Limited
praying for a judgment declaring the loan and hedging contracts between
the parties void for being contrary to Article 2018 4 of the Civil Code of the
Philippines and for damages. The Complaint was docketed as Civil Case
No. 05-782, and was raffled to Branch 150. Upon respondents (plaintiffs)
motion, the trial court authorized respondents counsel to personally bring
the summons and Complaint to the Philippine Consulate General in
Sydney, Australia for the latter office to effect service of summons on
petitioner (defendant).
On October 20, 2005, petitioner filed a Special Appearance With Motion
to Dismiss5 praying for the dismissal of the Complaint on the following
grounds: (a) the court has not acquired jurisdiction over the person of
petitioner due to the defective and improper service of summons; (b) the
Complaint failed to state a cause of action and respondent does not have
any against petitioner; (c) the action is barred by estoppel; and (d)
respondent did not come to court with clean hands.
On November 29, 2005, petitioner filed two Motions: (1) a Motion for
Leave to take the deposition of Mr. Paul Murray (Director, Risk
Management of petitioner) before the Philippine Consul General; and (2)
a Motion for Leave to Serve Interrogatories on respondent.
On December 9, 2005, the trial court issued an Order 6 denying the
Motion to Dismiss. According to the trial court, there was a proper service
of summons through the Department of Foreign Affairs (DFA) on account
of the fact that the defendant has neither applied for a license to do
business in the Philippines, nor filed with the Securities and Exchange

Commission (SEC) a Written Power of Attorney designating some person

on whom summons and other legal processes maybe served. The trial
court also held that the Complaint sufficiently stated a cause of action.
The other allegations in the Motion to Dismiss were brushed aside as
matters of defense which can best be ventilated during the trial.
On December 27, 2005, petitioner filed a Motion for Reconsideration. 7 On
March 6, 2006, the trial court issued an Order denying the December 27,
2005 Motion for Reconsideration and disallowed the twin Motions for
Leave to take deposition and serve written interrogatories. 8
On April 3, 2006, petitioner sought redress via a Petition for
Certiorari9 with the Court of Appeals, alleging that the trial court
committed grave abuse of discretion in denying its Motion to Dismiss.
The Petition was docketed as CA-G.R. SP No. 94382.
On September 8, 2006, the Court of Appeals rendered the assailed
Decision dismissing the Petition for Certiorari. The Court of Appeals ruled
that since the denial of a Motion to Dismiss is an interlocutory order, it
cannot be the subject of a Petition for Certiorari, and may only be
reviewed in the ordinary course of law by an appeal from the judgment
after trial. On December 12, 2006, the Court of Appeals rendered the
assailed Resolution denying the petitioners Motion for Reconsideration.
Meanwhile, on December 28, 2006, the trial court issued an Order
directing respondent to answer some of the questions in petitioners
Interrogatories to Plaintiff dated September 7, 2006.
Notwithstanding the foregoing, petitioner filed the present petition
assailing the September 8, 2006 Decision and the December 12, 2006
Resolution of the Court of Appeals. Arguing against the ruling of the
appellate court, petitioner insists that (a) an order denying a motion to
dismiss may be the proper subject of a petition for certiorari; and (b) the
trial court committed grave abuse of discretion in not finding that it had
not validly acquired jurisdiction over petitioner and that the plaintiff had no
cause of action.
Respondent, on the other hand, posits that: (a) the present Petition
should be dismissed for not being filed by a real party in interest and for
lack of a proper verification and certificate of non-forum shopping; (b) the
Court of Appeals correctly ruled that certiorari was not the proper remedy;
and (c) the trial court correctly denied petitioners motion to dismiss.

Our discussion of the issues raised by the parties follows:

Whether petitioner is a real party in interest
Respondent argues that the present Petition should be dismissed on the
ground that petitioner no longer existed as a corporation at the time said
Petition was filed on February 1, 2007. Respondent points out that as of
the date of the filing of the Petition, there is no such corporation that goes
by the name NM Rothschild and Sons (Australia) Limited. Thus,
according to respondent, the present Petition was not filed by a real party
in interest, citing our ruling in Philips Export B.V. v. Court of
Appeals,10 wherein we held:
A name is peculiarly important as necessary to the very existence of a
corporation (American Steel Foundries vs. Robertson, 269 US 372, 70 L
ed 317, 46 S Ct 160; Lauman vs. Lebanon Valley R. Co., 30 Pa 42; First
National Bank vs. Huntington Distilling Co., 40 W Va 530, 23 SE 792). Its
name is one of its attributes, an element of its existence, and essential to
its identity (6 Fletcher [Perm Ed], pp. 3-4). The general rule as to
corporations is that each corporation must have a name by which it is to
sue and be sued and do all legal acts. The name of a corporation in this
respect designates the corporation in the same manner as the name of
an individual designates the person (Cincinnati Cooperage Co. vs. Bate,
96 Ky 356, 26 SW 538; Newport Mechanics Mfg. Co. vs. Starbird, 10 NH
123); and the right to use its corporate name is as much a part of the
corporate franchise as any other privilege granted (Federal Secur. Co. vs.
Federal Secur. Corp., 129 Or 375, 276 P 1100, 66 ALR 934; Paulino vs.
Portuguese Beneficial Association, 18 RI 165, 26 A 36). 11
In its Memorandum12 before this Court, petitioner started to refer to itself
as Investec Australia Limited (formerly "NM Rothschild & Sons [Australia]
Limited") and captioned said Memorandum accordingly. Petitioner claims
that NM Rothschild and Sons (Australia) Limited still exists as a
corporation under the laws of Australia under said new name. It
presented before us documents evidencing the process in the Australian
Securities & Investment Commission on the change of petitioners
company name from NM Rothschild and Sons (Australia) Limited to
Investec Australia Limited.13
We find the submissions of petitioner on the change of its corporate
name satisfactory and resolve not to dismiss the present Petition for
Review on the ground of not being prosecuted under the name of the real
party in interest. While we stand by our pronouncement in Philips Export

on the importance of the corporate name to the very existence of

corporations and the significance thereof in the corporations right to sue,
we shall not go so far as to dismiss a case filed by the proper party using
its former name when adequate identification is presented. A real party in
interest is the party who stands to be benefited or injured by the judgment
in the suit, or the party entitled to the avails of the suit. 14 There is no doubt
in our minds that the party who filed the present Petition, having
presented sufficient evidence of its identity and being represented by the
same counsel as that of the defendant in the case sought to be
dismissed, is the entity that will be benefited if this Court grants the
dismissal prayed for.
Since the main objection of respondent to the verification and certification
against forum shopping likewise depends on the supposed inexistence of
the corporation named therein, we give no credit to said objection in light
of the foregoing discussion.
Propriety of the Resort to a Petition for Certiorari with the Court of
Appeals
We have held time and again that an order denying a Motion to Dismiss
is an interlocutory order which neither terminates nor finally disposes of a
case as it leaves something to be done by the court before the case is
finally decided on the merits. The general rule, therefore, is that the
denial of a Motion to Dismiss cannot be questioned in a special civil
action for Certiorari which is a remedy designed to correct errors of
jurisdiction and not errors of judgment. 15 However, we have likewise held
that when the denial of the Motion to Dismiss is tainted with grave abuse
of discretion, the grant of the extraordinary remedy of Certiorari may be
justified. By "grave abuse of discretion" is meant:
[S]uch capricious and whimsical exercise of judgment that is equivalent
to lack of jurisdiction. The abuse of discretion must be grave as where the
power is exercised in an arbitrary or despotic manner by reason of
passion or personal hostility, and must be so patent and gross as to
amount to an evasion of positive duty or to a virtual refusal to perform the
duty enjoined by or to act all in contemplation of law.16
The resolution of the present Petition therefore entails an inquiry into
whether the Court of Appeals correctly ruled that the trial court did not
commit grave abuse of discretion in its denial of petitioners Motion to
Dismiss. A mere error in judgment on the part of the trial court would

undeniably be inadequate for us to reverse the disposition by the Court of

Appeals.

contracts are null and void under Philippine laws; and (3) defendant
ignored the advice and intends to enforce the Hedging Contracts by
demanding financial payments due therefrom. 21

Issues more properly ventilated during the trial of the case

As previously stated, petitioner seeks the dismissal of Civil Case No. 05782 on the following grounds: (a) lack of jurisdiction over the person of
petitioner due to the defective and improper service of summons; (b)
failure of the Complaint to state a cause of action and absence of a
cause of action; (c) the action is barred by estoppel; and (d) respondent
did not come to court with clean hands.
As correctly ruled by both the trial court and the Court of Appeals, the
alleged absence of a cause of action (as opposed to the failure to state a
cause of action), the alleged estoppel on the part of petitioner, and the
argument that respondent is in pari delicto in the execution of the
challenged contracts, are not grounds in a Motion to Dismiss as
enumerated in Section 1, Rule 16 17 of the Rules of Court. Rather, such
defenses raise evidentiary issues closely related to the validity and/or
existence of respondents alleged cause of action and should therefore
be threshed out during the trial.
As regards the allegation of failure to state a cause of action, while the
same is usually available as a ground in a Motion to Dismiss, said ground
cannot be ruled upon in the present Petition without going into the very
merits of the main case.
It is basic that "[a] cause of action is the act or omission by which a party
violates a right of another."18 Its elements are the following: (1) a right
existing in favor of the plaintiff, (2) a duty on the part of the defendant to
respect the plaintiff's right, and (3) an act or omission of the defendant in
violation of such right.19 We have held that to sustain a Motion to Dismiss
for lack of cause of action, the complaint must show that the claim for
relief does not exist and not only that the claim was defectively stated or
is ambiguous, indefinite or uncertain. 20
The trial court held that the Complaint in the case at bar contains all the
three elements of a cause of action, i.e., it alleges that: (1) plaintiff has
the right to ask for the declaration of nullity of the Hedging Contracts for
being null and void and contrary to Article 2018 of the Civil Code of the
Philippines; (2) defendant has the corresponding obligation not to enforce
the Hedging Contracts because they are in the nature of wagering or
gambling agreements and therefore the transactions implementing those

The rule is that in a Motion to Dismiss, a defendant hypothetically admits

the truth of the material allegations of the ultimate facts contained in the
plaintiff's complaint.22 However, this principle of hypothetical admission
admits of exceptions. Thus, in Tan v. Court of Appeals, 23 we held:
The flaw in this conclusion is that, while conveniently echoing the general
rule that averments in the complaint are deemed hypothetically admitted
upon the filing of a motion to dismiss grounded on the failure to state a
cause of action, it did not take into account the equally established
limitations to such rule, i.e., that a motion to dismiss does not
admit the truth of mere epithets of fraud; nor allegations of legal
conclusions; nor an erroneous statement of law; nor mere inferences or
conclusions from facts not stated; nor mere conclusions of law; nor
allegations of fact the falsity of which is subject to judicial notice; nor
matters of evidence; nor surplusage and irrelevant matter; nor
scandalous matter inserted merely to insult the opposing party; nor to
legally impossible facts; nor to facts which appear unfounded by a record
incorporated in the pleading, or by a document referred to; and, nor to
general averments contradicted by more specific averments. A more
judicious resolution of a motion to dismiss, therefore, necessitates that
the court be not restricted to the consideration of the facts alleged in the
complaint and inferences fairly deducible therefrom. Courts may consider
other facts within the range of judicial notice as well as relevant laws and
jurisprudence which the courts are bound to take into account, andthey
are also fairly entitled to examine records/documents duly
incorporated into the complaint by the pleader himself in ruling on
the demurrer to the complaint.24 (Emphases supplied.)
In the case at bar, respondent asserts in the Complaint that the Hedging
Contracts are void for being contrary to Article 2018 25 of the Civil Code.
Respondent claims that under the Hedging Contracts, despite the
express stipulation for deliveries of gold, the intention of the parties was
allegedly merely to compel each other to pay the difference between the
value of the gold at the forward price stated in the contract and its market
price at the supposed time of delivery.
Whether such an agreement is void is a mere allegation of a conclusion
of law, which therefore cannot be hypothetically admitted. Quite properly,
the relevant portions of the contracts sought to be nullified, as well as a
copy of the contract itself, are incorporated in the Complaint. The

determination of whether or not the Complaint stated a cause of action

would therefore involve an inquiry into whether or not the assailed
contracts are void under Philippine laws. This is, precisely, the very issue
to be determined in Civil Case No. 05-782. Indeed, petitioners defense
against the charge of nullity of the Hedging Contracts is the purported
intent of the parties that actual deliveries of gold be made pursuant
thereto. Such a defense requires the presentation of evidence on the
merits of the case. An issue that "requires the contravention of the
allegations of the complaint, as well as the full ventilation, in effect, of the
main merits of the case, should not be within the province of a mere
Motion to Dismiss."26 The trial court, therefore, correctly denied the
Motion to Dismiss on this ground.
It is also settled in jurisprudence that allegations of estoppel and bad faith
require proof. Thus, in Paraaque Kings Enterprises, Inc. v. Court of
Appeals,27 we ruled:
Having come to the conclusion that the complaint states a valid cause of
action for breach of the right of first refusal and that the trial court should
thus not have dismissed the complaint, we find no more need to pass
upon the question of whether the complaint states a cause of action for
damages or whether the complaint is barred by estoppel or laches. As
these matters require presentation and/or determination of facts,
they can be best resolved after trial on the merits.28 (Emphases
supplied.)
On the proposition in the Motion to Dismiss that respondent has come to
court with unclean hands, suffice it to state that the determination of
whether one acted in bad faith and whether damages may be awarded is
evidentiary in nature. Thus, we have previously held that "[a]s a matter of
defense, it can be best passed upon after a full-blown trial on the
merits."29
Jurisdiction over the person of petitioner
Petitioner alleges that the RTC has not acquired jurisdiction over its
person on account of the improper service of summons. Summons was
served on petitioner through the DFA, with respondents counsel
personally bringing the summons and Complaint to the Philippine
Consulate General in Sydney, Australia.
In the pleadings filed by the parties before this Court, the parties entered
into a lengthy debate as to whether or not petitioner is doing business in

the Philippines. However, such discussion is completely irrelevant in the

case at bar, for two reasons. Firstly, since the Complaint was filed on
August 30, 2005, the provisions of the 1997 Rules of Civil Procedure
govern the service of summons. Section 12, Rule 14 of said rules
provides:
Sec. 12. Service upon foreign private juridical entity. When the
defendant is a foreign private juridical entitywhich has transacted
business in the Philippines, service may be made on its resident agent
designated in accordance with law for that purpose, or, if there be no
such agent, on the government official designated by law to that effect, or
on any of its officers or agents within the Philippines. (Emphasis
supplied.)
This is a significant amendment of the former Section 14 of said rule
which previously provided:
Sec. 14. Service upon private foreign corporations. If the defendant is
a foreign corporation, or a nonresident joint stock company or
association, doing business in the Philippines, service may be made
on its resident agent designated in accordance with law for that purpose,
or if there be no such agent, on the government official designated by law
to that effect, or on any of its officers or agents within the Philippines.
(Emphasis supplied.)
The coverage of the present rule is thus broader. 30 Secondly, the service
of summons to petitioner through the DFA by the conveyance of the
summons to the Philippine Consulate General in Sydney, Australia was
clearly made not through the above-quoted Section 12, but pursuant to
Section 15 of the same rule which provides:
Sec. 15. Extraterritorial service. When the defendant does not reside
and is not found in the Philippines, and the action affects the personal
status of the plaintiff or relates to, or the subject of which is property
within the Philippines, in which the defendant has or claims a lien or
interest, actual or contingent, or in which the relief demanded consists,
wholly or in part, in excluding the defendant from any interest therein, or
the property of the defendant has been attached within the Philippines,
service may, by leave of court, be effected out of the Philippines by
personal service as under section 6; or by publication in a newspaper of
general circulation in such places and for such time as the court may
order, in which case a copy of the summons and order of the court shall
be sent by registered mail to the last known address of the defendant, or

in any other manner the court may deem sufficient. Any order granting
such leave shall specify a reasonable time, which shall not be less than
sixty (60) days after notice, within which the defendant must answer.
Respondent argues31 that extraterritorial service of summons upon
foreign private juridical entities is not proscribed under the Rules of Court,
and is in fact within the authority of the trial court to adopt, in accordance
with Section 6, Rule 135:
Sec. 6. Means to carry jurisdiction into effect. When by law jurisdiction
is conferred on a court or judicial officer, all auxiliary writs, processes and
other means necessary to carry it into effect may be employed by such
court or officer; and if the procedure to be followed in the exercise of such
jurisdiction is not specifically pointed out by law or by these rules, any
suitable process or mode of proceeding may be adopted which appears
comformable to the spirit of said law or rules.
Section 15, Rule 14, however, is the specific provision dealing precisely
with the service of summons on a defendant which does not reside and is
not found in the Philippines, while Rule 135 (which is in Part V of the
Rules of Court entitled Legal Ethics) concerns the general powers and
duties of courts and judicial officers.
Breaking down Section 15, Rule 14, it is apparent that there are only four
instances wherein a defendant who is a non-resident and is not found in
the country may be served with summons by extraterritorial service, to
wit: (1) when the action affects the personal status of the plaintiffs; (2)
when the action relates to, or the subject of which is property, within the
Philippines, in which the defendant claims a lien or an interest, actual or
contingent; (3) when the relief demanded in such action consists, wholly
or in part, in excluding the defendant from any interest in property located
in the Philippines; and (4) when the defendant non-resident's property
has been attached within the Philippines. In these instances, service of
summons may be effected by (a) personal service out of the country, with
leave of court; (b) publication, also with leave of court; or (c) any other
manner the court may deem sufficient. 32
Proceeding from this enumeration, we held in Perkin Elmer Singapore
Pte Ltd. v. Dakila Trading Corporation33that:
Undoubtedly, extraterritorial service of summons applies only where
the action is in rem or quasi in rem, but not if an action is in
personam.

When the case instituted is an action in rem or quasi in rem, Philippine

courts already have jurisdiction to hear and decide the case because, in
actions in rem and quasi in rem, jurisdiction over the person of the
defendant is not a prerequisite to confer jurisdiction on the court,
provided that the court acquires jurisdiction over the res. Thus, in such
instance, extraterritorial service of summons can be made upon the
defendant. The said extraterritorial service of summons is not for the
purpose of vesting the court with jurisdiction, but for complying with the
requirements of fair play or due process, so that the defendant will be
informed of the pendency of the action against him and the possibility
that property in the Philippines belonging to him or in which he has an
interest may be subjected to a judgment in favor of the plaintiff, and he
can thereby take steps to protect his interest if he is so minded. On the
other hand, when the defendant or respondent does not reside and
is not found in the Philippines, and the action involved is in
personam, Philippine courts cannot try any case against him
because of the impossibility of acquiring jurisdiction over his
person unless he voluntarily appears in court.34 (Emphases supplied.)
In Domagas v. Jensen,35 we held that:
[T]he aim and object of an action determine its character. Whether a
proceeding is in rem, or in personam, or quasi in rem for that matter, is
determined by its nature and purpose, and by these only. A proceeding in
personam is a proceeding to enforce personal rights and obligations
brought against the person and is based on the jurisdiction of the person,
although it may involve his right to, or the exercise of ownership of,
specific property, or seek to compel him to control or dispose of it in
accordance with the mandate of the court. The purpose of a proceeding
in personam is to impose, through the judgment of a court, some
responsibility or liability directly upon the person of the defendant. Of this
character are suits to compel a defendant to specifically perform some
act or actions to fasten a pecuniary liability on him. 36
It is likewise settled that "[a]n action in personam is lodged against a
person based on personal liability; an action in rem is directed against the
thing itself instead of the person; while an action quasi in rem names a
person as defendant, but its object is to subject that persons interest in a
property to a corresponding lien or obligation."37
The Complaint in the case at bar is an action to declare the loan and
Hedging Contracts between the parties void with a prayer for
damages. It is a suit in which the plaintiff seeks to be freed from its
obligations to the defendant under a contract and to hold said defendant

pecuniarily liable to the plaintiff for entering into such contract. It is

therefore an action in personam, unless and until the plaintiff attaches a
property within the Philippines belonging to the defendant, in which case
the action will be converted to one quasi in rem.

failure to so raise them, that can result in waiver or estoppel. By

defenses, of course, we refer to the grounds provided for in Rule 16
of the Rules of Court that must be asserted in a motion to dismiss
or by way of affirmative defenses in an answer.

Since the action involved in the case at bar is in personam and since the
defendant, petitioner Rothschild/Investec, does not reside and is not
found in the Philippines, the Philippine courts cannot try any case against
it because of the impossibility of acquiring jurisdiction over its person
unless it voluntarily appears in court.38

Mindful of the foregoing, in Signetics Corporation vs. Court of

Appeals and Freuhauf Electronics Phils., Inc. (225 SCRA 737, 738),
we lately ruled:

In this regard, respondent vigorously argues that petitioner should be

held to have voluntarily appeared before the trial court when it prayed for,
and was actually afforded, specific reliefs from the trial
court.39 Respondent points out that while petitioners Motion to Dismiss
was still pending, petitioner prayed for and was able to avail of modes of
discovery against respondent, such as written interrogatories, requests
for admission, deposition, and motions for production of documents. 40
Petitioner counters that under this Courts ruling in the leading case of La
Naval Drug Corporation v. Court of Appeals, 41 a party may file a Motion to
Dismiss on the ground of lack of jurisdiction over its person, and at the
same time raise affirmative defenses and pray for affirmative relief,
without waiving its objection to the acquisition of jurisdiction over its
person.42
It appears, however, that petitioner misunderstood our ruling in La Naval.
A close reading of La Naval reveals that the Court intended a distinction
between the raising of affirmative defenses in an Answer (which
would notamount to acceptance of the jurisdiction of the court) and the
prayer for affirmative reliefs (which would be considered acquiescence to
the jurisdiction of the court):
In the same manner that a plaintiff may assert two or more causes
of action in a court suit, a defendant is likewise expressly allowed,
under Section 2, Rule 8, of the Rules of Court, to put up his own
defenses alternatively or even hypothetically. Indeed, under Section
2, Rule 9, of the Rules of Court, defenses and objections not pleaded
either in a motion to dismiss or in an answer, except for the failure to
state a cause of action, are deemed waived. We take this to mean that a
defendant may, in fact, feel enjoined to set up, along with his objection to
the court's jurisdiction over his person, all other possible defenses. It thus
appears that it is not the invocation of any of such defenses, but the

"This is not to say, however, that the petitioner's right to question

the jurisdiction of the court over its person is now to be deemed a
foreclosed matter. If it is true, as Signetics claims, that its only
involvement in the Philippines was through a passive investment in Sigfil,
which it even later disposed of, and that TEAM Pacific is not its agent,
then it cannot really be said to be doing business in the Philippines. It is a
defense, however, that requires the contravention of the allegations of the
complaint, as well as a full ventilation, in effect, of the main merits of the
case, which should not thus be within the province of a mere motion to
dismiss. So, also, the issue posed by the petitioner as to whether a
foreign corporation which has done business in the country, but which
has ceased to do business at the time of the filing of a complaint, can still
be made to answer for a cause of action which accrued while it was
doing business, is another matter that would yet have to await the
reception and admission of evidence. Since these points have
seasonably been raised by the petitioner, there should be no real
cause for what may understandably be its apprehension, i.e., that by
its participation during the trial on the merits, it may, absent an
invocation of separate or independent reliefs of its own, be
considered to have voluntarily submitted itself to the court's
jurisdiction."43 (Emphases supplied.)
In order to conform to the ruling in La Naval, which was decided by this
Court in 1994, the former Section 23, Rule 14 44 concerning voluntary
appearance was amended to include a second sentence in its equivalent
provision in the 1997 Rules of Civil Procedure:
SEC. 20. Voluntary appearance. The defendant's voluntary appearance
in the action shall be equivalent to service of summons. The inclusion in
a motion to dismiss of other grounds aside from lack of jurisdiction
over the person of the defendant shall not be deemed a voluntary
appearance. (Emphasis supplied.)

The new second sentence, it can be observed, merely mentions other

grounds in a Motion to Dismiss aside from lack of jurisdiction over the
person of the defendant. This clearly refers to affirmative defenses, rather
than affirmative reliefs.
Thus, while mindful of our ruling in La Naval and the new Section 20,
Rule 20, this Court, in several cases, ruled that seeking affirmative relief
in a court is tantamount to voluntary appearance therein. 45 Thus, in
Philippine Commercial International Bank v. Dy Hong Pi, 46 wherein
defendants filed a "Motion for Inhibition without submitting themselves to
the jurisdiction of this Honorable Court" subsequent to their filing of a
"Motion to Dismiss (for Lack of Jurisdiction)," we held:
Besides, any lingering doubts on the issue of voluntary appearance
dissipate when the respondents' motion for inhibition is considered. This
motion seeks a sole relief: inhibition of Judge Napoleon Inoturan from
further hearing the case. Evidently, by seeking affirmative relief other
than dismissal of the case, respondents manifested their voluntary
submission to the court's jurisdiction. It is well-settled that the active
participation of a party in the proceedings is tantamount to an invocation
of the court's jurisdiction and a willingness to abide by the resolution of
the case, and will bar said party from later on impugning the court's
jurisdiction.47 (Emphasis supplied.)
1wphi1

In view of the above, we therefore rule that petitioner, by seeking

affirmative reliefs from the trial court, is deemed to have voluntarily
submitted to the jurisdiction of said court. A party cannot invoke the
jurisdiction of a court to secure affirmative relief against his opponent and
after obtaining or failing to obtain such relief, repudiate or question that
same jurisdiction.48 Consequently, the trial court cannot be considered to
have committed grave abuse of discretion amounting to lack or excess of
jurisdiction in the denial of the Motion to Dismiss on account of failure to
acquire jurisdiction over the person of the defendant.
WHEREFORE, the Petition for Review on Certiorari is DENIED. The
Decision of the Court of Appeals dated September 8, 2006 and its
Resolution dated December 12, 2006 in CA-G.R. SP No. 94382 are
hereby AFFIRMED.
No pronouncement as to costs.
SO ORDERED.

G.R. No. L-55687 July 30, 1982

JUASING HARDWARE, petitioner,
vs.
THE HONORABLE RAFAEL T. MENDOZA, Judge of the Court of First
Instance of Cebu, and PILAR DOLLA, respondents.
Luis V. Diones, Paulito Y. Cabrera and Victor C. Laborte for petitioner.

in proceeding to trial instead of amending the Complaint.

During the trial, it was found out that the affirmative
defense of defendant of plaintiff's lack of legal capacity to
sue is very evident for plaintiff Juasing Hardware is a
single proprietorship which is neither a partnership nor a
corporation. The amendment therefore ' is now too late it
being substantial.

Amadeo D. Seno for respondents.

GUERRERO, J.:
In this special civil action for certiorari, petitioner Juasing Hardware seeks
to annul the Orders of respondent Judge dated September 5, 1980 and
October 21, 1980 issued in Civil Case No. R-18386.
Records show the pertinent factual and procedural antecedents of the
instant Petition to be as follows:
On August 17, 1979, Juasing Hardware, alleging to be a single
proprietorship duly organized and existing under and by virtue of the laws
of the Philippines and represented by its manager Ong Bon Yong, filed a
complaint for the collection of a sum of money against Pilar Dolla. 1 The
complaint charged that defendant Dolla failed and refused to pay, despite
repeated demands, the purchase price of items, materials and merchandise
which she bought from the plaintiff. 2 In her Answer, defendant stated, among
others, that she "has no knowledge about plaintiff's legal personality and
capacity to sue as alleged in ... the complaint." 3 The case proceeded to pretrial and trial. After plaintiff had completed the presentation of its evidence
and rested its case, defendant filed a Motion for Dismissal of Action
(Demurrer to Evidence) 4praying that the action be dismissed for plaintiff's
lack of legal capacity to sue. Defendant in said Motion contended that plaintiff
Juasing Hardware is a single proprietorship, not a corporation or a
partnership duly registered in accordance with law, and therefore is not a
juridical person with legal capacity to bring an action in court. Plaintiff filed an
Opposition and moved for the admission of an Amended Complaint. 5
Resolving the foregoing controversy, respondent Judge issued the Order
dated September 5, 1980 dismissing the case and denying admission of
the Amended Complaint. Pertinent portions of said Order follow:
The Answer of the defendant to the complaint alleged the
lack of legal capacity to sue of the plaintiff as contained in
its affirmative defense. inspite of the allegation that
plaintiff has no legal capacity to sue, the plaintiff insisted

In view of all the foregoing, this case is hereby

DISMISSED with costs de oficio. 6
Plaintiff's Motion for Reconsideration of the above Order was denied in
another Order issued by respondent Judge on October 21, 1980. 7
The sole issue in this case is whether or not the lower court committed a
grave abuse of discretion when it dismissed the case below and refused
to admit the Amended Complaint filed by therein plaintiff, now herein
petitioner, Juasing Hardware.
Rule 3 of the Revised Rules of Court provides as follows:
Sec. 1. Who may be parties.-Only natural or juridical
persons or entities authorized by law may be parties in a
civil action.
Petitioner is definitely not a natural person; nor is it a juridical person as
defined in the New Civil Code of the Philippines thus:
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public
interest or purpose, created by law; their personality
begins as soon as they have been constituted according
to law;
(3) Corporations, partnerships and associations for
private interest or purpose to which the law grants a
juridical personality, separate and distinct from that of
each shareholder, partner or member.

Finally, there is no law authorizing sole proprietorships like petitioner to

bring suit in court. The law merely recognizes the existence of a sole
proprietorship as a form of business organization conducted for profit by
a single individual, and requires the proprietor or owner thereof to secure
licenses and permits, register the business name, and pay taxes to the
national government. It does not vest juridical or legal personality upon
the sole proprietorship nor empower it to file or defend an action in court.
Thus, the complaint in the court below should have been filed in the
name of the owner of Juasing Hardware. The allegations in the body of
the complaint would show that the suit is brought by such person AS
proprietor or owner of the business conducted under the name and style
Juasing Hardware". The descriptive words "doing business as Juasing
Hardware' " may be added in the title of the case, as is customarily done.
Be that as it may, petitioner's contention that respondent Judge erred in
not allowing the amendment of the complaint to correct the designation of
the party plaintiff in the lower court, is impressed with merit. Such an
amendment is authorized by Rule 10 of the Revised Rules of Court which
provides thus:
Sec. 4. Formal Amendments. A defect in the
designation of the parties may be summarily corrected at
any stage of the action provided no prejudice is caused
thereby to the adverse party. (Emphasis supplied.)
Contrary to the ruling of respondent Judge, the defect of the complaint in
the instant case is merely formal, not substantial. Substitution of the party
plaintiff would not constitute a change in the Identity of the parties. No
unfairness or surprise to private respondent Dolla, defendant in the
court a quo, would result by allowing the amendment, the purpose of
which is merely to conform to procedural rules or to correct a technical
error.
In point is the case of Alonzo vs. Villamor, et al. 8 which applied Sec. 110 of
the Code of Civil Procedure authorizing the court "in furtherance of justice ...
(to) allow a party to amend any pleading or proceeding and at any stage of
the action, in either the Court of First Instance or the Supreme Court, by
adding or striking out the name of any party, either plaintiff or defendant, or
by correcting a mistake in the name of a party ..." In the Alonzo case, Fr.
Eladio Alonzo, a priest of the Roman Catholic Church, brought an action to
recover from therein defendants the value of certain properties taken from
the Church. The defendants contended that Fr. Alonzo was not the real party
in interest. This Court, speaking through Justice Moreland, ordered the

substitution of the Roman Catholic Apostolic Church in the place and stead of
Eladio Alonzo as party plaintiff, and aptly held in this wise:

... Defect in form cannot possibly prejudice so long as the

substantial is clearly evident. ...
No one has been misled by the error in the name of the
party plaintiff. If we should by reason of this error send
this case back for amendment and new trial, there would
be on the retrial the same complaint, the same answer,
the same defense, the same interests, the same
witnesses, and the same evidence. The name of the
plaintiff would constitute the only difference between the
old trial and the new. In our judgment there is not enough
in a name to justify such action.
There is nothing sacred about processes or pleadings,
their forms or contents. Their sole purpose is to facilitate
the application of justice to the rival claims of contending
parties. They were created, not to hinder and delay, but to
facilitate and promote, the administration of justice. They
do not constitute the thing itself, which courts are always
striving to secure to litigants. They are designed as the
means best adapted to obtain that thing. In other words,
they are a means to an end. When they lose the
character of the one and become the other, the
administration of justice is at fault and courts are
correspondingly remiss in the performance of their
obvious duty.
The error in this case is purely technical. To take
advantage of it for other purposes than to cure it, does not
appeal to a fair sense of justice. Its presentation as fatal
to the plaintiff's case smacks of skill rather than right. A
litigation is not a game of technicalities in which one,
more deeply schooled and skilled in the subtle art of
movement and position, entraps and destroys the other. It
is, rather, a contest in which each contending party fully
and fairly lays before the court the facts in issue and then,
brushing aside as wholly trivial and indecisive all
imperfections of form and technicalities of procedure,
asks that justice be done upon the merits. Lawsuits,
unlike duels, are not to be won by a rapier's thrust.
Technicality, when it deserts its proper office as an aid to

justice and becomes its great hindrance and chief enemy,

deserves scant consideration from courts. There should
be no vested rights in technicalities. No litigant should be
permitted to challenge a record of a court ... for defect of
form when his substantial rights have not been prejudiced
thereby. 9
We reiterate what this Court had stated in the more recent case
of Shaffer vs. Palma 10 that "(t)he courts should be liberal in allowing
amendments to pleadings to avoid multiplicity of suits and in order that t he
real controversies between the parties are presented and the case decided
on the merits without unnecessary delay." 11 This rule applies with more
reason and with greater force when, as in the case at bar, the amendment
sought to be made refers to a mere matter of form and no substantial rights
are prejudiced. 12
WHEREFORE, the Petition is hereby granted. The Orders dated
September 5, 1980 and October 21, 1980 are hereby annulled and the
lower court is hereby ordered to admit the Amended Complaint in
conformity with the pronouncements in this Decision. No costs.
SO ORDERED.

G.R. No. 73722 February 26, 1990

THE COMMISSIONER OF CUSTOMS, petitioner,
vs.
K.M.K. GANI, INDRAPAL & CO., and the HONORABLE COURT OF
TAX APPEALS, respondents.
Armando S. Padilla for private respondent.
SARMIENTO, J.:
This is a review of the decision of the Court of Tax Appeals disposing as
follows:
WHEREFORE. the subject ten (10) cartons of articles are
hereby released to the carrying airline for immediate
transshipment to the country of destination under the
terms of the contract of carriage. No costs.
SO ORDERED. 1
The pertinent facts may be summarized thus:
On September 11, 1982, two (2,) containers loaded with 103 cartons of
merchandise covered by eleven (11) airway bills of several supposedly
Singapore-based consignees arrived at the Manila International Airport
on board Philippine Air Lines (PAL) Flight PR 311 from Hongkong. The
cargoes were consigned to these different entities: K.M.K. Gani (hereafter
referred to as K.M.K.) and Indrapal and Company (hereafter referred to
as INDRAPAL), the private respondents in the petition before us; and Sin
Hong Lee Trading Co., Ltd., AAR TEE Enterprises, and C. Ratilal all
purportedly based in Singapore.
While the cargoes were at the Manila International Airport, a "reliable
source" tipped off the Bureau of customs that the said cargoes were
going to be unloaded in Manila. Forthwith, the Bureau's agency on such
matters, the Suspected Cargo and Anti-Narcotics (SCAN), dispatched an
agent to verify the information. Upon arriving at the airport, the SCAN
agent saw an empty PAL van parked directly alongside the plane's belly
from which cargoes were being unloaded. When the SCAN agent asked
the van's driver why he was at the site, the driver drove away in his
vehicle. The SCAN agent then sequestered the unloaded cargoes.
The seized cargoes consisted of 103 cartons "containing Mogadon and
Mandrax tablets,

Sony
T.V. sets 1546R/176R kw,
Sony
Betamax SL5800, and SL5000, Cassette Stereos with Headphone (ala
walkman), Casio Calculators, Pioneer Car Stereos, Yamaha Watches,
Eyeglass Frames, Sunglasses, Plastic Utility Bags, Perfumes, etc." These
goods were transferred to the International Cargo Terminal under Warrant of
Seizure and Detention and thereafter subjected to Seizure and Forfeiture
proceedings for "technical smuggling."

At the hearing, Atty. Armando S. Padilla entered his appearance for the
consignees K.M.K. and INDRAPAL. The records of the case do not show
any appearance of the consignees in person. Atty. Padilla moved for the
transshipment of the cargoes consigned to his clients. On the other hand,
the Solicitor General avers that K.M.K. and INDRAPAL did not present
any testimonial or documentary evidence. The, collector of Customs at
the then Manila International Airport (MIA), now Ninoy Aquino
International Airport (NAIA), ruled for the forfeiture of all the cargoes in
the said containers (Seizure Identification No. 4993-82, dated July 14,
1983). Consequently, Atty. Padilla, ostensibly on behalf of his two clients,
K.M.K. and INDRAPAL, appealed the order to the Commissioner. of
Customs. 2
The Commissioner of Customs affirmed the finding of the Collector of
Customs (Customs Case No. 83-85, January, 1984), of the presence of
the intention to import the said goods in violation of the Dangerous Drugs
Act 3and Central Bank Circular No. 808 in relation to the Tariff and Customs
Code. 4
The Commissioner added the following findings of fact:

1. There is a direct flight from Hongkong to Singapore,

thus making the transit through Manila more expensive,
tedious, and circuitous.
2. The articles were grossly misdeclared, considering that
Singapore is a free port.
3. The television sets and betamax units seized were of
the American standard which is popularly used in Manila,
and not of the European standard which is used in
Singapore.

4. One of the shippers is a Filipino national with no

business connection with her alleged consignee in
Singapore.
5. The alleged consignee of the prohibited drugs
confiscated has no authority to import Mogadon or
Mandrax.
Upon these findings, the Commissioner concluded that there was an
"intent to unlade" in Manila, thus, an attempt to smuggle goods into the
country.
Taking exception to these findings, Atty. Armando S. Padilla, again as
counsel of the consignees K.M.K. and Indrapal, appealed to the
respondent Court of Tax Appeals (CTA). He argued in the CTA that
K.M.K. and INDRAPAL were "entitled to the release of their cargoes for
transshipment to Singapore so manifested and covered by the Airway
bills as in transit, ... contending that the goods were never intended
importations into the Philippines and the same suffer none of any
affiliating breaches allegedly found attributable to the other shipments
under the Customs and related laws." 6
The CTA reversed the decision of the Commissioner of Customs. Hence
this petition.

The issues before us are therefore: (1) whether or not the private
respondents failed to establish their personality to sue in a representative
capacity, hence making their action dismissable, and (2) whether or not
the subject goods were importations intended for the Philippines in
violation of the Tariff and Customs Code.
We answer both questions in the affirmative.
The law is clear: "No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be
permitted to maintain or intervene in any action, suit or proceeding in any
court or administrative agency of the Philippines; but such corporation
may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized under
Philippine laws." 7
However, the Court in a long line of cases has held that a foreign
corporation not engaged in business in the Philippines may not be denied
the right to file an action in the Philippine courts for an isolated
transaction. 8
Therefore, the issue on whether or not a foreign corporation which does
not have a license to engage in business in this country can seek redress
in Philippine courts boils down as to whether it is doing business or
merely entered into an isolated transaction in the Philippines.

The petitioner raises the following errors:

1. THE COURT OF TAX APPEALS
ERRED
IN
ENTERTAINING
THE
PETITION
FOR
REVIEW
NOTWITHSTANDING HEREIN PRIVATE
RESPONDENTS'
FAILURE
TO
ESTABLISH THEIR PERSONALITY TO
SUE IN A REPRESENTATIVE CAPACITY.
2. THE COURT OF TAX APPEALS
ERRED IN RULING THAT THE SUBJECT
GOODS WERE IMPORTATIONS NOT
INTENDED FOR THE PHILIPPINES BUT
FOR
SINGAPORE,
THUS,
NOT
VIOLATING THE LAW ON TECHNICAL
SMUGGLING UNDER THE TARIFF AND
CUSTOMS CODE.

The fact that a foreign corporation is not doing business in the Philippines
must be disclosed if it desires to sue in Philippine courts under the
"isolated transaction rule." Without this disclosure, the court may choose
to deny it the right to sue. 9
In the case at bar, the private respondents K.M.K. and INDRAPAL aver
that they are "suing upon a singular and isolated transaction." But they
failed to prove their legal existence or juridical personality as foreign
corporations. Their unverified petition before the respondent Court of Tax
Appeals merely stated:
1. That petitioner "K.M.K. Gani" is a single
proprietorship
doing
business
in
accordance with the laws of Singapore
with address at 99 Greenfield Drive,
Singapore, Rep. of Singapore, while
Petitioner INDRAPAL and COMPANY" is a

firm doing business in accordance with the

laws of Singapore with office address at
97 High Street, Singapore 0641, Republic
of Singapore, and summons as well as
other Court process may be served to the
undersigned lawyer;
2. That the Petitioner's (sic) are sueing
(sic) upon a singular and isolated
transaction. 10
We are cognizant of the fact that under the "isolated transaction rule,"
only foreign corporations and not just any business organization or entity
can avail themselves of the privilege of suing before Philippine courts
even without a license. Counsel Armando S. Padilla stated before the
respondent Court of Tax Appeals that his clients are "suing upon a
singular and isolated transaction." But there is no proof to show that
K.M.K. and INDRAPAL are indeed what they are represented to be. It has
been simply stated by Attorney Padilla that K.M.K. Gani is "a single
proprietorship," while INDRAPAL is "a firm," and both are "doing business
in accordance with the laws of Singapore ... ," with specified addresses in
Singapore. In cases of this nature, these allegations are not sufficient to
clothe a claimant of suspected smuggled goods of juridical personality
and existence. The "isolated transaction rule" refers only to foreign
corporations. Here the petitioners are not foreign corporations. They do
not even pretend to be so. The first paragraph of their petition before the
Court, containing the allegation of their identities, does not even aver
their corporate character. On the contrary, K.M.K. alleges that it is a
"single proprietorship" while INDRAPAL hides under the vague
identification as a "firm," although both describe themselves with the
phrase "doing business in accordance with the laws of Singapore."

issue in the present case. The proposition as stated,

refers to the right to sue; the question here refers to
pleading and procedure. It should be noted that insofar as
the allegations in the complaint have a bearing on
appellant's capacity to sue, all that is averred is that they
are both foreign corporations existing under the laws of
the United States. This averment conjures two alternative
possibilities: either they are engaged in business in the
Philippines or they are not so engaged. If the first, they
must have been duly licensed in order to maintain this
suit; if the second, if (sic) the transaction sued upon is
singular and isolated, no such license is required. In
either case, the qualifying circumstance is an essential
part of the element of plaintiffs capacity to sue and must
be affirmatively pleaded. 11
In this connection, we note also a fatal defect in the pleadings of the
private respondents. There is no allegation as to who is the duly
authorized representative or resident agent in our jurisdiction. All we have
on record are the pleadings filed by Attorney Armando S. Padilla who
represents himself as the counsel for the private respondents.
xxx xxx xxx

Absent such proof that the private respondents are corporations (foreign
or not), the respondent Court of Tax Appeals should have barred their
invocation of the right to sue within Philippine jurisdiction under the
"isolated transaction rule" since they do not qualify for the availment of
such right.

It is incumbent on plaintiff to allege sufficient facts to show

that he is concerned with the cause of action averred, and
is the party who has suffered injury by reason of the acts
of defendant; in other words, it is not enough that he
alleges a cause of action existing in favor of someone, but
he must show that it exists in favor of himself. The burden
should not be placed on defendant to show that plaintiff is
not the aggrieved person and that he has sustained no
damages. It is also necessary for plaintiff to allege facts
showing that the causes of action alleged accrued to him
in the capacity in which he sues, and for this purpose it is
necessary for someone for one who sues otherwise than
in his individual capacity to allege his authority.

As we had stated before:

xxx xxx xxx

But merely to say that a foreign corporation not doing

business in the Philippines does not need a license in
order to sue in our courts does not completely resolve the

The plaintiff must show, in his pleading, his right and

interest in the subject matter of the suit; and a complaint
which does not show that plaintiff has the requisite

interest to enable him to maintain his action should be

dismissed for insufficiency ... 12
xxx xxx xxx

The appearance of Atty, Armando S. Padilla as counsel for the two

claimants would not suffice. Generally, a "lawyer is presumed to be
properly authorized to represent any cause in which he appears, and no
written power of attorney is required to authorize him to appear in court
for his client." 13 Nevertheless, although the authority of an attorney to
appear for and on behalf of a party may be assumed, it can still be
questioned or challenged by the adverse party concerned. 14
The presumption established under the provision of Section 21, Rule 138
of the Revised Rules of Court is disputable. 15 The requirement for the
production of authority is essential because the client will be bound by his
acquiescence resulting from his knowledge that he was being represented by
said attorney. 16
The Solicitor General, representing the petitioner-appellant, not only
questions the authority of Atty. Armando S. Padilla to represent the
private respondents but also the latter's capacity to sue:
... While it is alleged that the summons and court processes may
be served to herein private respondents' counsel who filed the
unverified petition before the Court of Tax Appeals, the allegation
would be insufficient for the purpose of binding foreign
corporations as in the instant case. To be sure, the admitted
absence of special power of attorney in favor of their counsel, the
relationship with the latter, if at all, is merely that of a lawyer-client
relationship and definitely not one of a principal agent. Such
being the case, said counsel cannot bind nor compromise the
interest of private respondents as it is possible that the latter may
disown the former's representation to avoid civil or criminal
liability. In this respect, the Court cannot assume jurisdiction over
the person of private respondents, notwithstanding the filing of
the unverified petition in question.
Apart from the foregoing, Section 4, Rule 8, Revised Rules of
Court mandates that facts showing the capacity of a party to sue
or be sued; or the authority of a party to sue or be sued in a
representative capacity; or the legal existence of an organized
association of person (sic) that is made a party, must be averred.

In like manner, the rule is settled that in case where the law
denies a foreign corporation to maintain a suit unless it has
previously complied with certain requirements, then such
compliance or exemption therefrom, becomes a necessary
averment in the complaint (Atlantic Mutual Inc. Co. v. Cebu
Stevedoring Co., Inc. 17 SCRA 1037; vide; Sec. 4, Rule 8,
Revised Rules of Court). In the case at bar, apart from merely
alleging that private respondents are foreign corporation (sic) and
that summons may be served to their counsel, their petition in the
Court of Tax Appeals is bereft of any other factual allegation to
show their capacity to sue or be sued in a representative capacity
in his jurisdiction. 17
The representation and the extent of the authority of Atty. Padilla have
thus been expressly challenged. But he ignored such challenge which
leads us to the only conclusion that he has no authority to appear for
such clients if they exist, which we even doubt. In cases like this, it is the
duty of the government officials concerned to require competent proof of
the representation and authority of any claimant of any goods coming
from abroad and seized by our customs authorities or otherwise
appearing to be illegally imported. This desired meticulousness,
strictness if you may, should extend to their representatives and counsel.
Our government has lost considerable sums of money due to such
dubious claims or claimants.
Apropos the second issue, suffice it to state that we agree with the
findings, already enumerated and discussed at the outset, made by the
Collector of Customs in his decision, dated July 14, 1983, which was
affirmed and amplified by the decision of the Commissioner of Customs,
that those constitute sufficient evidence to support the conclusion that
there was an intention to unlade the seized goods in the Philippines
instead of its supposed destination, Singapore. There is no need of
belaboring them anymore.
WHEREFORE, the petition is GRANTED; the decision of the Court of Tax
Appeals is SET ASIDE, and the decision of the petitioner is hereby
REINSTATED.
No costs.
SO ORDERED.
G.R. No. 78646 July 23, 1991

PABLO RALLA, substituted by his wife and co-defendant CARMEN

MUOZ-RALLA, and his legal heirs, HILDA RALLA-ALMINE,
BELISTA, RENE RALLA-BELISTA and GERARDO M.
RALLA, petitioners,
vs.
PEDRO RALLA, substituted by his legal heirs, LEONI, PETER, and
MARINELA all surnamed RALLA, and COURT OF
APPEALS, respondents.
Rafael Triunfante and Teodorico C. Almine, Jr. for petitioners.
Ruben R. Basa for private respondents.
CRUZ, J.:p
Rosendo Ralla had two sons, Pablo and Pedro. The father apparently
loved the former but not the latter, Pablo and his family lived with
Rosendo, who took care of all the household expenses. Pablo
administered part of the family properties and received a monthly salary
of P250.00 plus part of the produce of the land. Pedro lived with his
mother, Paz Escarella, in another town. He was not on good terms with
his father.
Paz Escarella died in 1957 and the two brothers partitioned 63 parcels of
land she left as her paraphernalia property. The partition was sustained
by this Court in G.R. Nos. 63253-54 on April 27, 1989. 1 Meanwhile, on
December 22, 1958, Rosendo executed a will disinheriting Pedro and leaving
everything he owned to Pablo, to whom he said he had earlier sold a part of
his property for P10,000.00. Rosendo himself filed for the probate of the will
but pendente lite died on October 1, 1960.
On November 3, 1966, the probate judge converted SP 564 into an
intestate proceeding. On February 28, 1978, a creditor of the deceased
filed a petition for the probate of Rosendo's will in SP 1106, which was
heard jointly with SP 564. On August 3, 1979, the order of November 3,
1966, was set aside.
The last will and testament of Rosendo Ralla was allowed on June 7,
1982 2 but on October 20, 1982, the disinheritance of Pedro was
disapproved. 3 This order was elevated to the Court of Appeals in AC-G.R.
Nos. 00472, 00489.
In a decision dated July 25, 1986, the Court of Appeals 4 reversed the trial
court and reinstated the disinheritance clause after finding that the requisites

of a valid disinheritance had been complied with in the will. The appellate
court noted that Pedro had threatened to kill his father, who was afraid of him
and had earlier sued him for slander and grave oral defamation.

The decision was assailed before this Court in G.R. Nos. 76657-58,
which was dismissed in our resolution of August 26, 1987, reading as
follows:
. . . Assuming that, as claimed, the petitioners' counsel
received a copy of the questioned decision only on
August 15, 1986 (although it should have been earlier
because it was mailed to him at his address of record on
July 28, 1986), they had 15 days, or until August 30,
1986, within which to move for its reconsideration or
appeal therefrom by certiorari to this Court. Instead, they
filed on August 28, 1986, a motion for extension of time to
file a motion for reconsideration, which was not allowed
under our ruling in Habaluyas Enterprises, Inc. v. Japson,
142 SCRA 208, and so did not interrupt the running of the
reglementary period. Indeed, even if the period were to be
counted from October 7, 1986, when notice of the denial
of the motion for extension was received by the
petitioners, the petition would still be 30 days late, having
been filed on December 8, 1986. Moreover, the
petitioners have not shown that the questioned decision is
tainted with grave abuse of discretion or that it is not in
accord with law and jurisprudence. For these reasons, the
Court Resolved to DISMISS the petition.
The motion for reconsideration was denied with finality in the following
resolution dated October 26, 1987:
. . . The Court, after deliberation, Resolved to DENY with
finality the motion for reconsideration, wherein the
petitioners pray that they be relieved from the effects of
our ruling in Habaluyas Enterprises, Inc. v. Japson, 142
SCRA 208, under which the petition was denied for
tardiness. Counsel are expected to be abreast of current
developments in law and jurisprudence and cannot plead
ignorance thereof as an excuse for non-compliance with
the same. As earlier observed, the petition was filed
extremely late, and, moreover, it was inadequate even on
the merits, same having failed to show that the

questioned decision was tainted with grave abuse of

discretion or reversible error.
What is involved in the present petition is the correctness of the decision
of the respondent court annulling the deed of sale executed by Rosendo
Ralla in favor of Pablo over 149 parcels of land. Pedro had filed on May
19, 1972, a complaint to annul the transaction on the ground that it was
simulated. 5 The original decision of the trial court declared the sale null and
void. 6 In the resolution of the motion for reconsideration, however, Judge
Jose F. Madara completely reversed himself and held the deed of sale to be
valid. 7 This order was in turn set aside by the respondent court, which
reinstated the original decision invalidating the deed of sale.
It is indeed intriguing that the trial judge should, in resolving the motion
for reconsideration, make a complete turnabout on the basis of
the same evidence and jurisprudence that he considered in rendering the
original decision. It is no less noteworthy that the respondent court, after
studying the two conclusions reached by him, saw fit to sustain his
original findings as the correct appreciation of the evidence and the
applicable law.
But we find that, regardless of these curious resolutions, the petition must
nevertheless be sustained albeit not on the ground that the deed of sale
was indeed valid. The Court is inclined to support the findings of the
respondent court. However, we do not and cannot make any decision on
this matter because of one insuperable obstacle. That obstacle is the
proper party personality of Pedro Ralla to question the transaction.
The decision of the Court of Appeals in AC-G.R. Nos. 00472, 00489
approved the disinheritance of Pedro Ralla. That decision was appealed
to this Court, but the petition for review was dismissed as above related.
The decision has long since become final. Since then, Pedro Ralla no
longer had the legal standing to question the validity of the sale executed
by Rosendo in favor of his other son Pablo.
The real party-in-interest is the party who stands to be benefited or
injured by the judgment or the party entitled to the avails of the suit.
"Interest" within the meaning of the rule means material interest, an
interest in issue and to be affected by the decree, as distinguished from
mere interest in the question involved, or a mere incidental interest. As a
general rule, one having no right or interest to protect cannot invoke the
jurisdiction of the court as a party-plaintiff in an action.

As the sole heir, Pablo Ralla had the right to inherit the totality of his
father's estate after payment of all its debts. Even if it be assumed that
the deed of sale was indeed invalid, the subject-matter thereof
nevertheless devolved upon Pablo as the universal successor of his
father Rosendo. In his wig, Rosendo claimed the 149 parcels as "part of
my property" as distinguished from the conjugal estate which he
had earlier sold to Pablo. Significantly, Pedro did not deny this description
of the property in his Comment to the present petition, confining himself
to assailing the validity of the sale.
The Court must note the lackadaisical attitude of the heirs of Pedro Ralla,
who substituted him upon his death. They seem to have lost interest in
this litigation, probably because of the approval of their father's
disinheritance by the respondent court. When the parties were required
to submit their respective memoranda after we gave due course to this
petition, the petitioners did but not the private respondents. Although the
period to do so had already expired, the Court relaxed its rules to give the
private respondents another opportunity to comply with the requirement.
When the resolution of August 22, 1990, could not be served upon the
private respondents' counsel, we directed that it be served on the private
respondents themselves. 9 On January 18, 1991, the heirs of Pedro Ralla
informed the Court that they were retaining another counsel and asked that
they be furnished a copy of the petition and given 30 days within which to file
their memorandum. 10 This motion was granted. The records show that they
received a copy of the petition on February 26, 1991, but their memorandum
was never filed. On May 29, 1991, the Court, noting this omission, finally
resolved to dispense with the memorandum and to decide this case on the
basis of the available records.
Our decision is that as a validly disinherited heir, and not claiming to be a
creditor of his deceased father, Pedro Ralla had no legal personality to
question the deed of sale dated November 29, 1957, between Rosendo
Ralla and his son Pablo. Legally speaking, Pedro Ralla was a stranger to
the transaction as he did not stand to benefit from its annulment. His
disinheritance had rendered him hors de combat.
WHEREFORE, the decision of the respondent court dated January 23,
1987, is set aside and another judgment is hereby rendered dismissing
Civil Case 194 (originally Civil Case 4624) in this Regional Trial Court of
Ligao, Albay, Branch 5.
SO ORDERED.

G.R. No. 73765 August 26, 1991

HANG LUNG BANK, LTD., petitioner,
vs.
HON. FELINTRIYE G. SAULOG, Presiding Judge, Regional Trial
Court, National Capital Judicial Region, Branch CXLII, Makati, Metro
Manila, and CORDOVA CHIN SAN, respondents.
Belo, Abiera & Associates for petitioner.
Castelo Law Office for private respondent.
FERNAN, C.J.:p
Challenged in this petition for certiorari which is anchored on grave abuse
of discretion, are two orders of the Regional Trial Court, Branch CXLII of
Makati, Metro Manila dismissing the complaint for collection of a sum of
money and denying the motion for reconsideration of the dismissal order
on the ground that petitioner, a Hongkong-based bank, is barred by the
General Banking Act from maintaining a suit in this jurisdiction.
The records show that on July 18, 1979, petitioner Hang Lung Bank, Ltd.,
which was not doing business in the Philippines, entered into two (2)
continuing guarantee agreements with Cordova Chin San in Hongkong
whereby the latter agreed to pay on demand all sums of money which
may be due the bank from Worlder Enterprises to the extent of the total
amount of two hundred fifty thousand Hongkong dollars (HK $250,000). 1
Worlder Enterprises having defaulted in its payment, petitioner filed in the
Supreme Court of Hongkong a collection suit against Worlder Enterprises
and Chin San. Summonses were allegedly served upon Worlder
Enterprises and Chin San at their addresses in Hongkong but they failed
to respond thereto. Consequently, the Supreme Court of Hongkong
issued the following:
JUDGMENT
THE 14th DAY OF JUNE, 1984
No notice of intention to defend having been given by the
1st and 2nd Defendants herein, IT IS THIS DAY
ADJUDGED that:
(1) the 1st Defendant (Ko Ching Chong Trading otherwise
known as the Worlder Enterprises) do pay the Plaintiff the

sum of HK$1,117,968.36 together with interest on the

respective
principal
sums
of
HK$196,591.38,
HK$200,216.29, HK$526,557.63, HK$49,350.00 and
HK$3,965.50 at the rates of 1.7% per month (or
HK$111.40 per day), 18.5% per annum (or HK$101.48
per day), 1.85% per month (or HK$324.71 per day),
1.55% per month (or HK$25.50 per day) and 1.7% per
month (or HK$2.25 per day) respectively from 4th May
1984 up to the date of payment; and
(2) the 2nd Defendant (Cordova Chin San) do pay the
Plaintiff the sum of HK$279,325.00 together with interest
on the principal sum of HK$250,000.00 at the rate of
1.7% per month (or HK$141.67 per day) from 4th May
1984 up to the date of payment.
AND IT IS ADJUDGED that the 1st and 2nd Defendants
do pay the Plaintiff the sum of HK$970.00 fixed costs.
N.J.
Registrar

BARNETT

Thereafter, petitioner through counsel sent a demand letter to Chin San

at his Philippine address but again, no response was made thereto.
Hence, on October 18, 1984, petitioner instituted in the court below an
action seeking "the enforcement of its just and valid claims against
private respondent, who is a local resident, for a sum of money based on
a transaction which was perfected, executed and consummated
abroad." 2
In his answer to the complaint, Chin San raised as affirmative defenses:
lack of cause of action, incapacity to sue and improper venue. 3
Pre-trial of the case was set for June 17, 1985 but it was postponed to
July 12, 1985. However, a day before the latter pre-trial date, Chin San
filed a motion to dismiss the case and to set the same for hearing the
next day. The motion to dismiss was based on the grounds that petitioner
had no legal capacity to sue and that venue was improperly laid.
Acting on said motion to dismiss, on December 20, 1985, the lower
court 4 issued the following order:

On defendant Chin San Cordova's motion to dismiss,

dated July 10, 1985; plaintiff's opposition, dated July 12,
1985; defendant's reply, dated July 22, 1985; plaintiff's
supplemental opposition, dated September 13, 1985, and
defendant's rejoinder filed on September 23, 1985, said
motion to dismiss is granted.
Section 14, General Banking Act provides:
"No foreign bank or banking corporation
formed, organized or existing under any
laws other than those of the Republic of
the Philippines, shall be permitted to
transact business in the Philippines, or
maintain by itself any suit for the recovery
of any debt, claims or demands
whatsoever until after it shall have
obtained, upon order of the Monetary
Board, a license for that purpose."
Plaintiff Hang Lung Bank, Ltd. with business and postal
address at the 3rd Floor, United Centre, 95 Queensway,
Hongkong, does not do business in the Philippines. The
continuing guarantee, Annexes "A" and "B" appeared to
have been transacted in Hongkong. Plaintiff's Annex "C"
shows that it had already obtained judgment from the
Supreme Court of Hongkong against defendant involving
the same claim on June 14, 1984.
The cases of Mentholatum Company, Inc. versus
Mangaliman, 72 Phil. 524 and Eastern Seaboard
Navigation, Ltd. versus Juan Ysmael & Company, Inc.,
102 Phil. 1-8, relied upon by plaintiff, deal with isolated
transaction in the Philippines of foreign corporation. Such
transaction though isolated is the one that conferred
jurisdiction to Philippine courts, but in the instant case, the
transaction occurred in Hongkong.
Case dismissed. The instant complaint not the proper
action.
SO ORDERED. 5

Petitioner filed a motion for the reconsideration of said order but it was
denied for lack of merit. 6 Hence, the instant petition for certiorari seeking
the reversal of said orders "so as to allow petitioner to enforce through the
court below its claims against private respondent as recognized by the
Supreme Court of Hongkong." 7
Petitioner asserts that the lower court gravely abused its discretion in: (a)
holding that the complaint was not the proper action for purposes of
collecting the amount guaranteed by Chin San "as recognized and
adjudged by the Supreme Court of Hongkong;" (b) interpreting Section 14
of the General Banking Act as precluding petitioner from maintaining a
suit before Philippine courts because it is a foreign corporation not
licensed to do business in the Philippines despite the fact that it does not
do business here; and (c) impliedly sustaining private respondent's
allegation of improper venue.
We need not detain ourselves on the issue of improper venue. Suffice it
to state that private respondent waived his right to invoke it when he
forthwith filed his answer to the complaint thereby necessarily implying
submission to the jurisdiction of the court. 8
The resolution of this petition hinges on a determination of whether
petitioner foreign banking corporation has the capacity to file the action
below.
Private respondent correctly contends that since petitioner is a bank, its
capacity to file an action in this jurisdiction is governed by the General
Banking Act (Republic Act No. 337), particularly Section 14 thereof which
provides:
SEC. 14. No foreign bank or banking corporation formed,
organized or existing under any laws other than those of
the Republic of the Philippines shall be permitted to
transact business in the Philippines, or maintain by itself
or assignee any suit for the recovery of any debt, claims,
or demand whatsoever, until after it shall have obtained,
upon order of the Monetary Board, a license for that
purpose
from
the
Securities
and
Exchange
Commissioner. Any officer, director or agent of any such
corporation who transacts business in the Philippines
without the said license shall be punished by
imprisonment for not less than one year nor more than
ten years and by a fine of not less than one thousand

pesos nor more than ten thousand pesos. (45 O.G. No. 4,
1647, 1649-1650)
In construing this provision, we adhere to the interpretation given by this
Court to the almost identical Section 69 of the old Corporation Law (Act
No. 1459) which reads:
SEC. 69. No foreign corporation or corporation formed,
organized, or existing under any laws other than those of
the Philippines shall be permitted to transact business in
the Philippines or maintain by itself or assignee any suit
for the recovery of any debt, claim, or demand whatever,
unless it shall have the license prescribed in the section
immediately preceding. Any officer, director or agent of
the corporation or any person transacting business for
any foreign corporation not having the license prescribed
shall be punished by imprisonment for not less than six
months nor more than two years or by a fine of not less
than two hundred pesos nor more than one thousand
pesos, or by both such imprisonment and fine, in the
discretion of the Court.
In a long line of cases, this Court has interpreted this last quoted
provision as not altogether prohibiting a foreign corporation not licensed
to do business in the Philippines from suing or maintaining an action in
Philippine courts.9 What it seeks to prevent is a foreign corporation doing
business in the Philippines without a license from gaining access to
Philippine courts. As elucidated in Marshall-Wells Co. vs. Elser & Co., 46
Phil. 70:
The object of the statute was to subject the foreign
corporation doing business in the Philippines to the
jurisdiction of its courts. The object of the statute was not
to prevent it from performing single acts but to prevent it
from acquiring a domicile for the purpose of business
without taking the steps necessary to render it amenable
to suit in the local courts. The implication of the law is that
it was never the purpose of the Legislature to exclude a
foreign corporation which happens to obtain an isolated
order for business from the Philippines from securing
redress from Philippine courts, and thus, in effect, to
permit persons to avoid their contract made with such
foreign corporation. The effect of the statute preventing
foreign corporations from doing business and from

bringing actions in the local courts, except on compliance

with elaborate requirements, must not be unduly
extended or improperly applied. It should not be
construed to extend beyond the plain meaning of its
terms, considered in connection with its object, and in
connection with the spirit of the entire law.
The fairly recent case of Universal Shipping Lines vs. Intermediate
Appellate Court, 10 although dealing with the amended version of Section 69
of the old Corporation Law, Section 133 of the Corporation Code (Batas
Pambansa Blg. 68), but which is nonetheless apropos, states the rule
succinctly: "it is not the lack of the prescribed license (to do business in the
Philippines) but doing business without license, which bars a foreign
corporation from access to our courts."
Thus, we have ruled that a foreign corporation not licensed to do
business in the Philippines may file a suit in this country due to the
collision of two vessels at the harbor of Manila 11 and for the loss of goods
bound for Hongkong but erroneously discharged in Manila. 12
Indeed, the phraseologies of Section 14 of the General Banking Act and
its almost identical counterpart Section 69 of the old Corporation Law are
misleading in that they seem to require a foreign corporation, including a
foreign bank or banking corporation, not licensed to do business and not
doing business in the Philippines to secure a license from the Securities
and Exchange Commission before it can bring or maintain an action in
Philippine courts. To avert such misimpression, Section 133 of the
Corporation Code is now more plainly worded thus:
No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns,
shall be permitted to maintain or intervene in any action,
suit or proceeding in any court or administrative agency of
the Philippines.
Under this provision, we have ruled that a foreign corporation may sue in
this jurisdiction for infringement of trademark and unfair competition
although it is not doing business in the Philippines 13 because the
Philippines was a party to the Convention of the Union of Paris for the
Protection of IndustrialProperty. 14
We even went further to say that a foreign corporation not licensed to do
business in the Philippines may not be denied the right to file an action in
our courts for an isolated transaction in this country. 15

Since petitioner foreign banking corporation was not doing business in

the Philippines, it may not be denied the privilege of pursuing its claims
against private respondent for a contract which was entered into and
consummated outside the Philippines. Otherwise we will be hampering
the growth and development of business relations between Filipino
citizens and foreign nationals. Worse, we will be allowing the law to serve
as a protective shield for unscrupulous Filipino citizens who have
business relationships abroad.
In its pleadings before the court, petitioner appears to be in a quandary
as to whether the suit below is one for enforcement or recognition of the
Hongkong judgment. Its complaint states:
COMES NOW Plaintiff, by undersigned counsel, and to
this Honorable Court, most respectfully alleges that:
1. Plaintiff is a corporation duly organized and existing
under and by virtue of the laws of Hongkong with
business and postal address at the 3rd Floor, United
Centre, 95 Queensway, Hongkong, not doing business in
the Philippines, but is suing for this isolated transaction,
but for purposes of this complaint may be served with
summons and legal processes of this Honorable Court, at
the 6th Floor, Cibeles Building, 6780 Ayala Avenue,
Makati, Metro Manila, while defendant Cordova Chin San,
may be served with summons and other legal processes
of this Honorable Court at the Municipality of Moncada,
Province of Tarlac, Philippines;
2. On July 18, 1979 and July 25, 1980, the defendant
executed Continuing Guarantees, in consideration of
plaintiff's from time to time making advances, or coming to
liability or discounting bills or otherwise giving credit or
granting banking facilities from time to time to, or on
account of the Wolder Enterprises (sic), photocopies of
the Contract of Continuing Guarantees are hereto
attached as Annexes "A" and "B", respectively, and made
parts hereof;
3. In June 1984, a complaint was filed by plaintiff against
the Wolder Enterprises (sic) and defendant Cordova Chin
San, in The Supreme Court of Hongkong, under Case No.
3176, and pursuant to which complaint, a judgment dated

14th day of July, 1984 was rendered by The Supreme

Court of Hongkong ordering to (sic) defendant Cordova
Chin San to pay the plaintiff the sum of HK$279,325.00
together with interest on the principal sum of
HK$250,000.00 at the rate of HK$1.7% per month or
(HK$141.67) per day from 4th May, 1984 up to the date
the said amount is paid in full, and to pay the sum of
HK$970.00 as fixed cost, a photocopy of the Judgment
rendered by The Supreme Court of Hongkong is hereto
attached as Annex "C" and made an integral part hereof.
4. Plaintiff has made demands upon the defendant in this
case to pay the aforesaid amount the last of which is by
letter dated July 16, 1984 sent by undersigned counsel, a
photocopy of the letter of demand is hereto attached as
Annex "D" and the Registry Return Card hereto attached
as Annex "E", respectively, and made parts hereof.
However, this notwithstanding, defendant failed and
refused and still continue to fail and refuse to make any
payment to plaintiff on the aforesaid amount of
HK$279,325.00 plus interest on the principal sum of
HK$250,000.00 at the rate of (HK$141.67) per day from
May 4, 1984 up to the date of payment;
5. In order to protect and safeguard the rights and
interests of herein plaintiff, it has engaged the services of
undersigned counsel, to file the suit at bar, and for whose
services it has agreed to pay an amount equivalent to
25% of the total amount due and owing, as of and by way
of attorney's fees plus costs of suit.
WHEREFORE, premises considered, it is most
respectfully prayed of this Honorable Court that judgment
be rendered ordering the defendant:
a) To pay plaintiff the sum of HK$279,325.00 together with
interest on the principal sum of HK$260,000.00 at the rate
of HK$1.7% (sic) per month (or HK$141.67 per day) from
May 4, 1984 until the aforesaid amount is paid in full;
b) To pay an amount equivalent to 25% of the total
amount due and demandable as of and by way of
attorney's fees; and

c) To pay costs of suit, and

Plaintiff prays for such other and further reliefs, to which it
may by law and equity, be entitled. 16
The complaint therefore appears to be one of the enforcement of the
Hongkong judgment because it prays for the grant of the affirmative relief
given by said foreign judgment. 17 Although petitioner asserts that it is
merely seeking the recognition of its claims based on the contract sued upon
and not the enforcement of the Hongkong judgment 18 it should be noted that
in the prayer of the complaint, petitioner simply copied the Hongkong
judgment with respect to private respondent's liability.
However, a foreign judgment may not be enforced if it is not recognized
in the jurisdiction where affirmative relief is being sought. Hence, in the
interest of justice, the complaint should be considered as a petition for
the recognition of the Hongkong judgment under Section 50 (b), Rule 39
of the Rules of Court in order that the defendant, private respondent
herein, may present evidence of lack of jurisdiction, notice, collusion,
fraud or clear mistake of fact and law, if applicable.
WHEREFORE, the questioned orders of the lower court are hereby set
aside. Civil Case No. 8762 is reinstated and the lower court is directed to
proceed with dispatch in the disposition of said case. This decision is
immediately executory. No costs.
SO ORDERED.

G.R. No. 97816 July 24, 1992

MERRILL LYNCH FUTURES, INC., petitioner,
vs.
HON. COURT OF APPEALS, and the SPOUSES PEDRO M. LARA and
ELISA G. LARA, respondents.

NARVASA, C.J.:
The capacity of a foreign corporation to maintain an action in the
Philippines against residents thereof, is the principal question in the
appellate proceedings at bar. The issue arises from the undisputed facts
now to be briefly narrated.
On November 23, 1987, Merrill Lynch Futures, Inc. (hereafter, simply ML
FUTURES) filed a complaint with the Regional Trial Court at Quezon City
against the Spouses Pedro M. Lara and Elisa G. Lara for the recovery of
a debt and interest thereon, damages, and attorney's fees. 1 In its
complaint ML FUTURES described itself as
a) a non-resident foreign corporation, not doing business
in the Philippines, duly organized and existing under and
by virtue of the laws of the state of Delaware, U.S.A.;" as
well as
b) a "futures commission merchant" duly licensed to act
as such in the futures markets and exchanges in the
United States, . . essentially functioning as a broker . .
(executing) orders to buy and sell futures contracts
received from its customers on U.S. futures exchanges.
It also defined a "futures contract" as a "contractual commitment to buy
and sell a standardized quantity of a particular item at a specified future
settlement date and at a price agreed upon, with the purchase or sale
being executed on a regulated futures exchange."
In its complaint ML FUTURES alleged the following:
1) that on September 28, 1983 it entered into a Futures Customer
Agreement with the defendant spouses (Account No. 138-12161), in
virtue of which it agreed to act as the latter's broker for the purchase and
sale of futures contracts in the U.S.;

2) that pursuant to the contract, orders to buy and sell futures contracts
were transmitted to ML FUTURES by the Lara Spouses "through the
facilities of Merrill Lynch Philippines, Inc., a Philippine corporation and a
company servicing plaintiffs customers; 2
3) that from the outset, the Lara Spouses "knew and were duly advised
that Merrill Lynch Philippines, Inc. was not a broker in futures contracts,"
and that it "did not have a license from the Securities and Exchange
Commission to operate as a commodity trading advisor (i.e., 'an entity
which, not being a broker, furnishes advice on commodity futures to
persons who trade in futures contracts');
4) that in line with the above mentioned agreement and through said
Merrill Lynch Philippines, Inc., the Lara Spouses actively traded in futures
contracts, including "stock index futures" for four years or so, i.e., from
1983 to October, 1987, 3 there being more or less regular accounting and
corresponding remittances of money (or crediting or debiting) made between
the spouses and ML FUTURES;
5) that because of a loss amounting to US$160,749.69 incurred in
respect of three (3) transactions involving "index futures," and after
setting this off against an amount of US$75,913.42 then owing by ML
FUTURES to the Lara Spouses, said spouses became indebted to ML
FUTURES for the ensuing balance of US$84,836.27, which the latter
asked them to pay;
6) that the Lara Spouses however refused to pay this balance, "alleging
that the transactions were null and void because Merrill Lynch
Philippines, Inc., the Philippine company servicing accounts of plaintiff, . .
had no license to operate as a 'commodity and/or financial futures
broker.'"
On the foregoing essential facts, ML FUTURES prayed (1) for a
preliminary attachment against defendant spouses' properties "up to the
value of at least P2,267,139.50," and (2) for judgment, after trial,
sentencing the spouses to pay ML FUTURES:
a) the Philippine peso equivalent of $84,836.27 at the
applicable exchanged rate on date of payment, with legal
interest from date of demand until full payment;
b) exemplary damages
P500,000.00; and

in

the

sum

of

at

least

c) attorney's fees and expenses of litigation as may be

proven at the trial.
Preliminary attachment issued ex parte on December 2, 1987, and the
defendant spouses were duly served with summons.

b) it also drew attention to a printed form of "Merrill Lynch Futures, Inc."

filled out and signed by defendant spouses when they opened an
account with ML Futures, in order to supply information about
themselves, including their bank's name
(1) in which appear the following epigraph:
"Account introduced by Merrill Lynch
International, Inc.," and the following
statements, to wit:

They then filed a motion to dismiss dated December 18, 1987 on the
grounds that:
(1) plaintiff ML FUTURES had "no legal capacity to sue"
and
(2) its "complaint states no cause of action since . . (it) is
not the real party in interest."
In that motion to dismiss, the defendant spouses averred that:
a) although not licensed to do so, ML FUTURES had been doing
business in the Philippines "at least for the last four (4) years," this being
clear from the very allegations of the complaint; consequently, ML
FUTURES is prohibited by law "to maintain or intervene in any action,
suit or proceeding in any court or administrative agency of the
Philippines;" and
b) they had never been informed that Merrill Lynch Philippines, Inc. was
not licensed to do business in this country; and contrary to the allegations
of the complaint, all their transactions had actually been with MERRILL
LYNCH PIERCE FENNER & SMITH, INC., and not with ML
FUTURES (Merrill Lynch Futures, Inc.), in proof of which they attached to
their motion to dismiss copies of eight (8) agreements, receipts or
reminders, etc., executed on standard printed forms of said Merrill Lynch
Pierce Fenner & Smith Inc. 4
ML FUTURES filed an OPPOSITION to the defendant spouses' motion to
dismiss. In that motion
a) it drew attention to paragraph 4 of its complaint, admitted by
defendants, that the latter "have been actively trading in futures contracts
. . . in U.S. futures exchanges from 1983 to 1987," and ask, "If the trading
. . . (was) made in U.S., how could plaintiff be doing business in the
Philippines?"

This Commodity Trading Advisor (Merrill Lynch, Pierce,

Fenner & Smith Philippines, Inc.) is prohibited by the
Philippine Securities and Exchange Commission from
accepting funds in the trading advisor's name from a
client of Merrill Lynch Futures, Inc. for trading commodity
interests. All funds in this trading program must be placed
with Merrill Lynch Futures, Inc.;
and
. . . It is agreed between MERRILL LYNCH, PIERCE,
FENNER & SMITH INC., and other account carrying
MERRILL LYNCH entities and their customers that all
legal relationships between them will be governed by
applicable laws in countries outside the Philippines where
sale and purchase transactions take place.
c) and it argued that
(1) it is not permitted for defendant spouses to present
"evidence" in connection with a motion to dismiss based
on failure of the complaint to state a cause of action;
(2) even if the documents appended to the motion to
dismiss be considered as admissible "evidence," the
same would be immaterial since the documents refer to a
different account number:138-12136, the defendants'
account number with ML FUTURES being 138-12161;
(3) it is a lie for the defendant spouses to assert that they
were never informed that Merrill Lynch Philippines, Inc.
had not been licensed to do business in the Philippines;
and

(4) defendant spouses should not be allowed to "invoke

the aid of the court with unclean hands.
The defendant spouses filed a REPLY reaffirming their lack of awareness
that Merrill Lynch Philippines, Inc.(formerly registered as Merrill Lynch,
Pierce, Fenner & Smith Philippines, Inc.) 5 did not have a license, claiming
that they learned of this only from inquiries with the Securities and Exchange
Commission which elicited the information that it had denied said
corporation's application to operate as a commodity futures trading advisor
a denial subsequently affirmed by the Court of Appeals (Merrill Lynch
Philippines, Inc. v. Securities & Exchange Commission, CA-G.R. No. 10821SP, Nov. 19, 1987). The spouses also submitted additional documents
(Annexes J to R) involving transactions with Merrill Lynch Pierce Fenner &
Smith, Inc., dating back to 1980, stressing that all but one of the documents
"refer to Account No. 138-12161 which is the very account that is involved in
the instant complaint."
ML FUTURES filed a Rejoinder alleging it had given the spouses a
disclosure statement by which the latter were made aware that the
transactions they were agreeing on would take place outside of the
Philippines, and that "all funds in the trading program must be placed with
Merrill Lynch Futures, Inc."
On January 12, 1988, the Trial Court promulgated an Order sustaining
the motion to dismiss, directing the dismissal of the case and discharging
the writ of preliminary attachment. It later denied ML FUTURES's motion
for reconsideration, by Order dated February 29, 1988. ML FUTURES
appealed to the Court of Appeals. 6
In its own decision promulgated on November 27, 1990, 7 the Court of
Appeals affirmed the Trial Court's judgment. It declared that the Trial Court
had seen "through the charade in the representation of MLPI and the plaintiff
that MLPI is only a trading advisor and in fact it is a conduit in the plaintiff's
business transactions in the Philippines as a basis for invoking the provisions
of Section 133 of the Corporation Code," 8 viz.:
Sec. 133. Doing business without a license. No foreign
corporation transacting business in the Philippines without
a license, or its successors or assigns, shall be permitted
to maintain or intervene in any action, suit or proceeding
in any court or administrative agency in the Philippines;
but such corporation may be sued or proceeded against
before Philippine courts or administrative tribunals on any
valid cause of action recognized under Philippine laws.

It also declared that the evidence established that plaintiff had in

fact been "doing business" in this country in legal contemplation,
adverting to Mentholatum v. Mangaliman, 72 Phil. 524, 528-530,
and Section 1 of Republic Act No. 5455 reading as follows: 9
Sec. 1. Definition and scope of this ACT . (1) As used in this
Act, the term "investment" shall mean equity participation in
any enterprise formed, organized, or existing under the laws
of the Philippines; and the phrase "doing business" shall
INCLUDE soliciting orders, purchases, service contracts,
opening offices, whether called "liaison" offices or
branches; appointing representatives or distributors who are
domiciled in the Philippines or who in any calendar year stay
in the Philippines for a period or periods totalling one
hundred eighty days or more; participating in the
management, supervision or control of any domestic
business firm, entity or corporation in the Philippines; AND
ANY OTHER ACT OR ACTS THAT IMPLY A CONTINUITY
OF COMMERCIAL DEALINGS OR ARRANGEMENTS AND
CONTEMPLATE TO THAT EXTENT THE PERFORMANCE
OF ACTS OR WORKS, OR THE EXERCISE OF SOME
FUNCTIONS NORMALLY INCIDENT TO, AND IN
PROGRESSIVE PROSECUTION OF COMMERCIAL GAIN
OR OF THE PURPOSE AND OBJECT OF THE BUSINESS
ORGANIZATION.

As regards the claim that it was error for the Trial Court to place reliance
on the decision of the Court of Appeals in CA-G.R. No. 10821-SP
sustaining the finding of the Securities & Exchange Commission that ML
FUTURES was doing business in the Philippines since that judgment
was not yet final and ML FUTURES was not a party to that proceeding,
the Court of Appeals ruled that there was no need to belabor the point
considering that there was, in any event, "adequate proof of the activities
of MLPI . . . which manifestly show that the plaintiff (ML FUTURES)
performed a series of business acts, consummated contracts and
undertook transactions for the period from 1983 to October 1987," "and
because ML FUTURES had done so without license, it consequently had
"no legal personality to bring suit in Philippine courts."
Its motion for reconsideration having been denied, 10 ML FUTURES has
appealed to this Court on certiorari. Here, it submits the following issues for
resolution:
(a) Whether or not the annexes appended by the Laras to
their Motion to Dismiss and Reply filed with the Regional

Trial Court, but never authenticated or offered, constitute

admissible evidence.

respective parties, but the court may direct that the matter
be heard wholly or partly on oral testimony or depositions.

(b) Whether or not in the proceedings below, ML

FUTURES has been accorded procedural due process.

There was, to be sure, no affidavit or deposition attached to the Lara

Spouses' motion to dismiss or thereafter proffered in proof of the
averments of their motion. The motion itself was not verified. What the
spouses did do was to refer in their motion to documents which purported
to establish that it was not with ML FUTURES that they had theretofore
been dealing, but another, distinct entity, Merrill Lynch, Pierce, Fenner &
Smith, Inc., copies of which documents were attached to the motion. It is
significant that ML FUTURES raised no issue relative to the authenticity
of the documents thus annexed to the Laras' motion. In fact, its
arguments subsumed the genuineness thereof and even adverted to one
or two of them. Its objection was centered on the propriety of taking
account of those documents as evidence, considering the established
principle that no evidence should be received in the resolution of a
motion to dismiss based on an alleged failure of the complaint to state a
cause of action.

(c) Whether or not the annexes, assuming them to be

admissible, established that ML FUTURES was doing
business in the Philippines without a license.
As just stated, the Lara Spouse's motion to dismiss was founded on two
(2) grounds: (a) that the plaintiff has no legal capacity to sue, and (b) that
the complaint states no cause of action (Sec. 1 [d], and [g], Rule 16,
Rules of Court).
As regards the second ground, i.e., that the complaint states no cause of
action, the settled doctrine of course is that said ground must appear on
the face of the complaint, and its existence may be determined only by
the allegations of the complaint, consideration of other facts being
proscribed, and any attempt to prove extraneous circumstances not
being allowed. 11 The test of the sufficiency of the facts alleged in a
complaint as constituting a cause of action is whether or not, admitting the
facts alleged, the court might render a valid judgment upon the same in
accordance with the prayer of the complaint. 12 Indeed, it is error for a judge
to conduct a preliminary hearing and receive evidence on the affirmative
defense of failure of the complaint to state a cause of action. 13
The other ground for dismissal relied upon, i.e., that the plaintiff has no
legal capacity to sue may be understood in two senses: one, that the
plaintiff is prohibited or otherwise incapacitated by law to institute suit in
Philippine Courts, 14 or two, although not otherwise incapacitated in the
sense just stated, that it is not a real party in interest. 15 Now, the Lara
Spouses contend that ML Futures has no capacity to sue them because the
transactions subject of the complaint were had by them, not with the plaintiff
ML FUTURES, but with Merrill Lynch Pierce Fenner & Smith, Inc. Evidence is
quite obviously needed in this situation, for it is not to be expected that said
ground, or any facts from which its existence may be inferred, will be found in
the averments of the complaint. When such a ground is asserted in a motion
to dismiss, the general rule governing evidence on motions applies. The rule
is embodied in Section 7, Rule 133 of the Rules of Court.
Sec. 7. Evidence on motion. When a motion is based
on facts not appearing of record the court may hear the
matter on affidavits or depositions presented by the

There being otherwise no question respecting the genuineness of the

documents, nor of their relevance to at least one of the grounds for
dismissal i.e., the prohibition on suits in Philippine Courts by foreign
corporations doing business in the country without license it would
have been a superfluity for the Court to require prior proof of their
authenticity, and no error may be ascribed to the Trial Court in taking
account of them in the determination of the motion on the ground, not
that the complaint fails to state a cause of action as regards which
evidence is improper and impermissible but that the plaintiff has no
legal capacity to sue respecting which proof may and should be
presented.
Neither may ML FUTURES argue with any degree of tenability that it had
been denied due process in the premises. As just pointed out, it was very
clear from the outset that the claim of lack of its capacity to sue was
being made to rest squarely on the documents annexed thereto, and ML
FUTURES had more than ample opportunity to impugn those documents
and require their authentication, but did not do so. To sustain its theory
that there should have been identification and authentication, and formal
offer, of those documents in the Trial Court pursuant to the rules of
evidence would be to give unwarranted importance to technicality and
make it prevail over the substance of the issue.
The first question then, is, as ML FUTURES formulates it, whether or not
the annexes, assuming them to be admissible, establish that (a) ML

FUTURES is prohibited from suing in Philippine Courts because doing

business in the country without a license, and that (b) it is not a real party
in interest since the Lara Spouses had not been doing business with it,
but with another corporation, Merrill Lynch, Pierce, Fenner & Smith, Inc.
The Court is satisfied that the facts on record adequately establish that
ML FUTURES, operating in the United States, had indeed done business
with the Lara Spouses in the Philippines over several years, had done so
at all times through Merrill Lynch Philippines, Inc. (MLPI), a corporation
organized in this country, and had executed all these transactions without
ML FUTURES being licensed to so transact business here, and without
MLPI being authorized to operate as a commodity futures trading advisor.
These are the factual findings of both the Trial Court and the Court of
Appeals. These, too, are the conclusions of the Securities & Exchange
Commission which denied MLPI's application to operate as a commodity
futures trading advisor, a denial subsequently affirmed by the Court of
Appeals. Prescinding from the proposition that factual findings of the
Court of Appeals are generally conclusive this Court has been cited to no
circumstance of substance to warrant reversal of said Appellate Court's
findings or conclusions in this case.
The Court is satisfied, too, that the Laras did transact business with ML
FUTURES through its agent corporation organized in the Philippines, it
being unnecessary to determine whether this domestic firm was MLPI
(Merrill Lynch Philippines, Inc.) or Merrill Lynch Pierce Fenner & Smith
(MLPI's alleged predecessor). The fact is that ML FUTURES did deal with
futures contracts in exchanges in the United States in behalf and for the
account of the Lara Spouses, and that on several occasions the latter
received account documents and money in connection with those
transactions.
Given these facts, if indeed the last transaction executed by ML
FUTURES in the Laras's behalf had resulted in a loss amounting to US
$160,749.69; that in relation to this loss, ML FUTURES had credited the
Laras with the amount of US$75,913.42 which it (ML FUTURES) then
admittedly owed the spouses and thereafter sought to collect the
balance, US$84,836.27, but the Laras had refused to pay (for the
reasons already above stated), the crucial question is whether or not ML
FUTURES may sue in Philippine Courts to establish and enforce its
rights against said spouses, in light of the undeniable fact that it had
transacted business in this country without being licensed to do so. In
other words, if it be true that during all the time that they were transacting
with ML FUTURES, the Laras were fully aware of its lack of license to do
business in the Philippines, and in relation to those transactions had

made payments to, and received money from it for several years, the
question is whether or not the Lara Spouses are now estopped to impugn
ML FUTURES' capacity to sue them in the courts of the forum.
The rule is that a party is estopped to challenge the personality of a
corporation after having acknowledged the same by entering into a
contract with it. 16 And the "doctrine of estoppel to deny corporate existence
applies to foreign as well as to domestic corporations;" 17 "one who has dealt
with a corporation of foreign origin as a corporate entity is estopped to deny
its corporate existence and capacity." 18 The principle "will be applied to
prevent a person contracting with a foreign corporation from later taking
advantage of its noncompliance with the statutes, chiefly in cases where
such person has received the benefits of the contract (Sherwood v. Alvis, 83
Ala 115, 3 So 307, limited and distinguished in Dudley v. Collier, 87 Ala 431,
6 So 304; Spinney v. Miller, 114 Iowa 210, 86 NW 317), where such person
has acted as agent for the corporation and has violated his fiduciary
obligations as such, and where the statute does not provide that the contract
shall be void, but merely fixes a special penalty for violation of the
statute. . . ." 19
The doctrine was adopted by this Court as early as 1924 in Asia Banking
Corporation v. Standard Products Co.,20 in which the following
pronouncement was made: 21
The general rule that in the absence of fraud of person
who has contracted or otherwise dealt with an association
in such a way as to recognize and in effect admit its legal
existence as a corporate body is thereby estopped to
deny its corporate existence in any action leading out of
or involving such contract or dealing, unless its existence
is attacked for causes which have arisen since making
the contract or other dealing relied on as an estoppel
and this applies to foreign as well as domestic
corporations. (14 C.J .7; Chinese Chamber of Commerce
vs. Pua Te Ching, 14 Phil. 222).
There would seem to be no question that the Laras received benefits
generated by their business relations with ML FUTURES. Those
business relations, according to the Laras themselves, spanned a period
of seven (7) years; and they evidently found those relations to be of such
profitability as warranted their maintaining them for that not insignificant
period of time; otherwise, it is reasonably certain that they would have
terminated their dealings with ML FUTURES much, much earlier. In fact,
even as regards their last transaction, in which the Laras allegedly

suffered a loss in the sum of US$160,749.69, the Laras nonetheless still

received some monetary advantage, for ML FUTURES credited them
with the amount of US$75,913.42 then due to them, thus reducing their
debt to US$84,836.27. Given these facts, and assuming that the Lara
Spouses were aware from the outset that ML FUTURES had no license
to do business in this country and MLPI, no authority to act as broker for
it, it would appear quite inequitable for the Laras to evade payment of an
otherwise legitimate indebtedness due and owing to ML FUTURES upon
the plea that it should not have done business in this country in the first
place, or that its agent in this country, MLPI, had no license either to
operate as a "commodity and/or financial futures broker."
Considerations of equity dictate that, at the very least, the issue of
whether the Laras are in truth liable to ML FUTURES and if so in what
amount, and whether they were so far aware of the absence of the
requisite licenses on the part of ML FUTURES and its Philippine
correspondent, MLPI, as to be estopped from alleging that fact as
defense to such liability, should be ventilated and adjudicated on the
merits by the proper trial court.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No.
16478 dated November 27, 1990 and its Resolution of March 7, 1991 are
REVERSED and SET ASIDE, and the Regional Trial Court at Quezon
City, Branch 84, is ORDERED to reinstate Civil Case No. Q-52360 and
forthwith conduct a hearing to adjudicate the issues set out in the
preceding paragraph on the merits.
SO ORDERED.

G.R. No. 102223 August 22, 1996

COMMUNICATION MATERIALS AND DESIGN, INC., ASPAC MULTITRADE, INC., (formerly ASPAC-ITEC PHILIPPINES, INC.) and
FRANCISCO S. AGUIRRE, petitioners,
vs.
THE COURT OF APPEALS, ITEC INTERNATIONAL, INC., and ITEC,
INC., respondents.
TORRES, JR., J.:p
Business Corporations, according to Lord Coke, "have no souls."
They do business peddling goods, wares or even services across
national boundaries in "souless forms" in quest for profits albeit at
times, unwelcomed in these strange lands venturing into
uncertain markets and, the risk of dealing with wily competitors.
This is one of the issues in the case at bar.
Contested in this petition for review on Certiorari is the Decision
of the Court of Appeals on June 7, 1991, sustaining the RTC
Order dated February 22, 1991, denying the petitioners' Motion to
Dismiss, and directing the issuance of a writ of preliminary
injunction, and its companion Resolution of October 9, 1991,
denying the petitioners' Motion for Reconsideration.
Petitioners COMMUNICATION MATERIALS AND DESIGN, INC.,
(CMDI, for brevity) and ASPAC MULTI-TRADE INC., (ASPAC, for
brevity) are both domestic corporations, while petitioner Francisco
S. Aguirre is their President and majority stockholder. Private
Respondents ITEC, INC. and/or ITEC, INTERNATIONAL, INC.
(ITEC, for brevity) are corporations duly organized and existing
under the laws of the State of Alabama, United States of America.
There is no dispute that ITEC is a foreign corporation not licensed
to do business in the Philippines.
On August 14, 1987, ITEC entered into a contract with petitioner
ASPAC referred to as "Representative Agreement". 1 Pursuant to
the contract, ITEC engaged ASPAC as its "exclusive representative"
in the Philippines for the sale of ITEC's products, in consideration of
which, ASPAC was paid a stipulated commission. The agreement
was signed by G.A. Clark and Francisco S. Aguirre, presidents of
ITEC and ASPAC respectively, for and in behalf of their
companies. 2 The said agreement was initially for a term of twenty-

four months. After the lapse of the agreed period, the agreement was
renewed for another twenty-four months.

Through a "License Agreement" 3 entered into by the same parties

on November 10, 1988, ASPAC was able to incorporate and use the
name "ITEC" in its own name. Thus , ASPAC Multi-Trade, Inc.
became legally and publicly known as ASPAC-ITEC (Philippines).
By virtue of said contracts, ASPAC sold electronic products,
exported by ITEC, to their sole customer, the Philippine Long
Distance Telephone Company, (PLDT, for brevity).
To facilitate their transactions, ASPAC, dealing under its new
appellation, and PLDT executed a document entitled "PLDTASPAC/ITEC PROTOCOL" 4 which defined the project details for
the supply of ITEC's Interface Equipment in connection with the Fifth
Expansion Program of PLDT.
One year into the second term of the parties' Representative
Agreement, ITEC decided to terminate the same, because
petitioner ASPAC allegedly violated its contractual commitment as
stipulated in their agreements. 5
ITEC charges the petitioners and another Philippine Corporation,
DIGITAL BASE COMMUNICATIONS, INC. (DIGITAL, for brevity),
the President of which is likewise petitioner Aguirre, of using
knowledge and information of ITEC's products specifications to
develop their own line of equipment and product support, which
are similar, if not identical to ITEC's own, and offering them to
ITEC's former customer.
On January 31, 1991, the complaint 6 in Civil Case No. 91-294, was
filed with the Regional Trial Court of Makati, Branch 134 by ITEC,
INC. Plaintiff sought to enjoin, first, preliminarily and then, after trial,
permanently; (1) defendants DIGITAL, CMDI, and Francisco Aguirre
and their agents and business associates, to cease and desist from
selling or attempting to sell to PLDT and to any other party, products
which have been copied or manufactured "in like manner, similar or
identical to the products, wares and equipment of plaintiff," and (2)
defendant ASPAC, to cease and desist from using in its corporate
name, letter heads, envelopes, sign boards and business dealings,
plaintiff's trademark, internationally known as ITEC; and the recovery
from defendants in solidum, damages of at least P500,000.00,
attorney's fees and litigation expenses.

In due time, defendants filed a motion to dismiss 7 the complaint on

the following grounds:
(1) That plaintiff has no legal capacity to sue as it is a foreign
corporation doing business in the Philippines without the required
BOI authority and SEC license, and (2) that plaintiff is simply
engaged in forum shopping which justifies the application against
it of the principle of "forum non conveniens".
On February 8, 1991, the complaint was amended by virtue of
which ITEC INTERNATIONAL, INC. was substituted as plaintiff
instead of ITEC, INC. 8
In their Supplemental Motion to Dismiss, 9 defendants took note of
the amendment of the complaint and asked the court to consider in
toto their motion to dismiss and their supplemental motion as their
answer to the amended complaint.
After conducting hearings on the prayer for preliminary injunction,
the court a quo on February 22, 1991, issued its Order: 10 (1)
denying the motion to dismiss for being devoid of legal merit with a
rejection of both grounds relied upon by the defendants in their
motion to dismiss, and (2) directing the issuance of a writ of
preliminary injunction on the same day.
From the foregoing order, petitioners elevated the case to the
respondent Court of Appeals on a Petition forCertiorari and
Prohibition 11 under Rule 65 of the Revised Rules of Court, assailing
and seeking the nullification and the setting aside of the Order and
the Writ of Preliminary Injunction issued by the Regional Trial Court.
The respondent appellate court stated, thus:
We find no reason whether in law or from the facts of
record, to disagree with the (lower court's) ruling. We
therefore are unable to find in respondent Judge's
issuance of said writ the grave abuse of discretion
ascribed thereto by the petitioners.
In fine, We find that the petition prima facie does not show
that Certiorari lies in the present case and therefore, the
petition does not deserve to be given due course.

WHEREFORE, the present petition should be, as it is

hereby, denied due course and accordingly, is hereby
dismissed. Costs against the petitioners.
SO ORDERED. 12
Petitioners filed a motion for reconsideration 13 on June 7, 1991,
which was likewise denied by the respondent court.
WHEREFORE, the present motion for reconsideration
should be, as it is hereby, denied for lack of merit. For the
same reason, the motion to have the motion for
reconsideration set for oral argument likewise should be
and is hereby denied.
SO ORDERED. 14
Petitioners are now before us via Petition for Review
on Certiorari 15 under Rule 45 of the Revised Rules of Court.
It is the petitioners' submission that private respondents are
foreign corporations actually doing business in the Philippines
without the requisite authority and license from the Board of
Investments and the Securities and Exchange Commission, and
thus, disqualified from instituting the present action in our courts.
It is their contention that the provisions of the Representative
Agreement, petitioner ASPAC executed with private respondent
ITEC, are similarly "highly restrictive" in nature as those found in
the agreements which confronted the Court in the case of TopWeld Manufacturing, Inc. vs. ECED S.A. et al., 16 as to reduce
petitioner ASPAC to a mere conduit or extension of private
respondents in the Philippines.
In that case, we ruled that respondent foreign corporations are
doing business in the Philippines because when the respondents
entered into the disputed contracts with the petitioner, they were
carrying out the purposes for which they were created, i.e., to
manufacture and market welding products and equipment. The
terms and conditions of the contracts as well as the respondents'
conduct indicate that they established within our country a
continuous business, and not merely one of a temporary
character. The respondents could be exempted from the
requirements of Republic Act 5455 if the petitioner is an

independent entity which buys and distributes products not only

of the petitioner, but also of other manufacturers or transacts
business in its name and for its account and not in the name or
for the account of the foreign principal. A reading of the
agreements between the petitioner and the respondents shows
that they are highly restrictive in nature, thus making the
petitioner a mere conduit or extension of the respondents.

months is set forth on Attachment two (2) hereto. The

Sales Goal for additional twelve month periods, if any,
shall be sent to the Sales Agent by ITEC at the beginning
of each period. These Sales Goals shall be incorporated
into this Agreement and made a part hereof.

It is alleged that certain provisions of the "Representative

Agreement" executed by the parties are similar to those found in
the License Agreement of the parties in the Top-Weld case which
were considered as "highly restrictive" by this Court. The
provisions in point are:

6.0. Representative as Independent Contractor

2.0 Terms and Conditions of Sales.

2.1 Sale of ITEC products shall be at the purchase price
set by ITEC from time to time. Unless otherwise expressly
agreed to in writing by ITEC the purchase price is net to
ITEC and does not include any transportation charges,
import charges or taxes into or within the Territory. All
orders from customers are subject to formal acceptance
by ITEC at its Huntsville, Alabama U.S.A. facility.
xxx xxx xxx
3.0 Duties of Representative
3.1. REPRESENTATIVE SHALL:
3.1.1. Not represent or offer for sale within the Territory
any product which competes with an existing ITEC
product or any product which ITEC has under active
development.
3.1.2. Actively solicit all potential customers within the
Territory in a systematic and business like manner.
3.1.3. Inform ITEC of all request for proposals, requests
for bids, invitations to bid and the like within the Territory.
3.1.4. Attain the Annual Sales Goal for the Territory
established by ITEC. The Sales Goals for the first 24

xxx xxx xxx

xxx xxx xxx

6.2.
When
acting
under
this
Agreement
REPRESENTATIVE is authorized to solicit sales within
the Territory on ITEC's behalf but is authorized to bind
ITEC only in its capacity as Representative and no other,
and then only to specific customers and on terms and
conditions expressly authorized by ITEC in writing. 17
Aside from the abovestated provisions, petitioners point out the
following matters of record, which allegedly bear witness to the
respondents' activities within the Philippines in pursuit of their
business dealings:
a. While petitioner ASPAC was the authorized exclusive
representative for three (3) years, it solicited from and
closed several sales for and on behalf of private
respondents as to their products only and no other, to
PLDT, worth no less than US $ 15 Million (p. 20, tsn, Feb.
18, 1991);
b. Contract No. 1 (Exhibit for Petitioners) which covered
these sales and identified by private respondents' sole
witness, Mr. Clarence Long, is not in the name of
petitioner ASPAC as such representative, but in the name
of private respondent ITEC, INC. (p. 20, tsn, Feb. 18,
1991);
c. The document denominated as "PLDT-ASPAC/ITEC
PROTOCOL (Annex C of the original and amended
complaints) which defined the responsibilities of the
parties thereto as to the supply, installation and
maintenance of the ITEC equipment sold under said

Contract No. 1 is, as its very title indicates, in the names

jointly of the petitioner ASPAC and private respondents;

middlemen, acting in their own names, such as indebtors,

commercial bookers commercial merchants.

d. To evidence receipt of the purchase price of US $ 15

Million, private respondent ITEC, Inc. issued in its letter
head, a Confirmation of payment dated November 13,
1989 and its Invoice dated November 22, 1989 (Annexes
1 and 2 of the Motion to Dismiss and marked as Exhibits
2 and 3 for the petitioners), both of which were identified
by private respondent's sole witness, Mr. Clarence Long
(pp. 25-27, tsn, Feb. 18, 1991). 18

(2) A foreign corporation is deemed not "doing business" if

its representative domiciled in the Philippines has an
independent status in that it transacts business in its
name and for its account. 20

Petitioners contend that the above acts or activities belie the

supposed independence of petitioner ASPAC from private
respondents. "The unrebutted evidence on record below for the
petitioners likewise reveal the continuous character of doing
business in the Philippines by private respondents based on the
standards
laid
down
by
this
Court
in Wang
Laboratories, Inc. vs. Hon. Rafael T . Mendoza, et al. 19 and again
in TOP-WELD. (supra)" It thus appears that as the respondent Court
of Appeals and the trial court's failure to give credence on the
grounds relied upon in support of their Motion to Dismiss that
petitioners ascribe grave abuse of discretion amounting to an excess
of jurisdiction of said courts.
Petitioners likewise argue that since private respondents have no
capacity to bring suit here, the Philippines is not the "most
convenient forum" because the trial court is devoid of any power
to enforce its orders issued or decisions rendered in a case that
could not have been commenced to begin with, such that in
insisting to assume and exercise jurisdiction over the case below,
the trial court had gravely abused its discretion and even actually
exceeded its jurisdiction.
As against petitioner's insistence that private respondent is "doing
business" in the Philippines, the latter maintains that it is not.
We can discern from a reading of Section 1 (f) (1) and 1 (f) (2) of the
Rules and Regulations Implementing the Omnibus Investments Code of
1987, the following:
(1) A foreign firm is deemed not engaged in business in
the Philippines if it transacts business through

Private respondent argues that a scrutiny of its Representative

Agreement with the Petitioners will show that although ASPAC
was named as representative of ITEC., ASPAC actually acted in
its own name and for its own account. The following provisions
are particularly mentioned:
3.1.7.1. In the event that REPRESENTATIVE imports
directly from ITEC, REPRESENTATIVE will pay for its
own account; all customs duties and import fees imposed
on any ITEC products; all import expediting or handling
charges and expenses imposed on ITEC products; and
any stamp tax fees imposed on ITEC.
xxx xxx xxx
4.1. As complete consideration and payment for acting as
representative under this Agreement, REPRESENTATIVE
shall receive a sales commission equivalent to a per
centum of the FOB value of all ITEC equipment sold to
customers within the territory as a direct result of
REPRESENTATIVE's sales efforts. 21
More importantly, private respondent charges ASPAC of admitting
its independence from ITEC by entering and ascribing to
provision No. 6 of the Representative Agreement.
6.0 Representative as Independent Contractor
6.1. When performing any of its duties under this
Agreement, REPRESENTATIVE shall act as an
independent contractor and not as an employee, worker,
laborer, partner, joint venturer of ITEC as these terms are
defined by the laws, regulations, decrees or the like of
any jurisdiction, including the jurisdiction of the United
States, the state of Alabama and the Territory. 22

Although it admits that the Representative Agreement contains

provisions which both support and belie the independence of
ASPAC, private respondent echoes the respondent court's finding
that the lower court did not commit grave abuse of discretion nor
acted in excess of jurisdiction when it found that the ground relied
upon by the petitioners in their motion to dismiss does not appear
to be indubitable. 23
The issues before us now are whether or not private respondent
ITEC is an unlicensed corporation doing business in the
Philippines, and if it is, whether or not this fact bars it from
invoking the injunctive authority of our courts.
Considering the above, it is necessary to state what is meant by
"doing business" in the Philippines. Section 133 of the
Corporation Code, provides that "No foreign corporation,
transacting business in the Philippines without a license, or its
successors or assigns, shall be permitted to maintain or intervene
in any action, suit or proceeding in any court or administrative
agency of the Philippines; but such corporation may be sued or
proceeded against before Philippine Courts or administrative
tribunals on any valid cause of action recognized under Philippine
laws." 24
Generally, a "foreign corporation" has no legal existence within
the state in which it is foreign. This proceeds from the principle
that juridical existence of a corporation is confined within the
territory of the state under whose laws it was incorporated and
organized, and it has no legal status beyond such territory. Such
foreign corporation may be excluded by any other state from
doing business within its limits, or conditions may be imposed on
the exercise of such privileges. 25 Before a foreign corporation can
transact business in this country, it must first obtain a license to
transact business in the Philippines, and a certificate from the
appropriate government agency. If it transacts business in the
Philippines without such a license, it shall not be permitted to
maintain or intervene in any action, suit, or proceeding in any court
or administrative agency of the Philippines, but it may be sued on
any valid cause of action recognized under Philippine laws. 26
In a long line of decisions, this Court has not altogether prohibited
foreign corporation not licensed to do business in the Philippines
from suing or maintaining an action in Philippine Courts. What it
seeks to prevent is a foreign corporation doing business in the

Philippines without a licensed from gaining access to Philippine

Courts. 27
The purpose of the law in requiring that foreign corporations
doing business in the Philippines be licensed to do so and that
they appoint an agent for service of process is to subject the
foreign corporation doing business in the Philippines to the
jurisdiction of its courts. The object is not to prevent the foreign
corporation from performing single acts, but to prevent it from
acquiring a domicile for the purpose of business without taking
steps necessary to render it amenable to suit in the local
courts. 28 The implication of the law is that it was never the purpose
of the legislature to exclude a foreign corporation which happens to
obtain an isolated order for business from the Philippines, and thus,
in effect, to permit persons to avoid their contracts made with such
foreign corporations. 29
There is no exact rule or governing principle as to what
constitutes "doing" or "engaging" or "transacting" business.
Indeed, such case must be judged in the light of its peculiar
circumstances, upon its peculiar facts and upon the language of
the statute applicable. The true test, however, seems to be
whether the foreign corporation is continuing the body or
substance of the business or enterprise for which it was
organized. 30
Article 44 of the Omnibus Investments Code of 1987 defines the
phrase to include:
soliciting orders, purchases, service contracts, opening
offices, whether called "liaison" offices or branches;
appointing representatives or distributors who are
domiciled in the Philippines or who in any calendar year
stay in the Philippines for a period or periods totalling one
hundred eighty (180) days or more; participating in the
management, supervision or control of any domestic
business firm, entity or corporation in the Philippines, and
any other act or acts that imply a continuity or commercial
dealings or arrangements and contemplate to that extent
the performance of acts or works, or the exercise of some
of the functions normally incident to, and in progressive
prosecution of, commercial gain or of the purpose and
object of the business organization.

Thus, a foreign corporation with a settling agent in the Philippines

which issued twelve marine policies covering different shipments
to the Philippines 31 and a foreign corporation which had been
collecting premiums on outstanding policies 32 were regarded as
doing business here.
The same rule was observed relating to a foreign corporation with
an "exclusive distributing agent" in the Philippines, and which has
been selling its products here since 1929, 33 and a foreign
corporation engaged in the business of manufacturing and selling
computers worldwide, and had installed at least 26 different products
in several corporations in the Philippines, and allowed its registered
logo and trademark to be used and made it known that there exists a
designated distributor in the Philippines. 34
In Georg Grotjahn GMBH and Co. vs. Isnani, 35 it was held that the
uninterrupted performance by a foreign corporation of acts pursuant
to its primary purposes and functions as a regional area
headquarters for its home office, qualifies such corporation as one
doing business in the country.
These foregoing instances should be distinguished from a single
or isolated transaction or occasional, incidental, or casual
transactions, which do not come within the meaning of the
law, 36 for in such case, the foreign corporation is deemed not
engaged in business in the Philippines.
Where a single act or transaction, however, is not merely
incidental or casual but indicates the foreign corporation's
intention to do other business in the Philippines, said single act or
transaction constitutes "doing" or "engaging in" or "transacting"
business in the Philippines. 37
In determining whether a corporation does business in the
Philippines or not, aside from their activities within the forum,
reference may be made to the contractual agreements entered
into by it with other entities in the country. Thus, in the Top-Weld
case (supra), the foreign corporation's LICENSE AND
TECHNICAL AGREEMENT and DISTRIBUTOR AGREEMENT
with their local contacts were made the basis of their being
regarded by this Tribunal as corporations doing business in the
country. Likewise, in Merill Lynch Futures, Inc. vs. Court of
Appeals, etc. 38 the FUTURES CONTRACT entered into by the
petitioner foreign corporation weighed heavily in the court's ruling.

With the abovestated precedents in mind, we are persuaded to

conclude that private respondent had been "engaged in" or
"doing business" in the Philippines for some time now. This is the
inevitable result after a scrutiny of the different contracts and
agreements entered into by ITEC with its various business
contacts in the country, particularly ASPAC and Telephone
Equipment Sales and Services, Inc. (TESSI, for brevity). The
latter is a local electronics firm engaged by ITEC to be its local
technical representative, and to create a service center for ITEC
products sold locally. Its arrangements, with these entities
indicate convincingly ITEC's purpose to bring about the situation
among its customers and the general public that they are dealing
directly with ITEC, and that ITEC is actively engaging in business
in the country.
In its Master Service Agreement 39 with TESSI, private respondent
required its local technical representative to provide the employees
of the technical and service center with ITEC identification cards and
business cards, and to correspond only on ITEC, Inc., letterhead.
TESSI personnel are instructed to answer the telephone with "ITEC
Technical Assistance Center.", such telephone being listed in the
telephone book under the heading of ITEC Technical Assistance
Center, and all calls being recorded and forwarded to ITEC on a
weekly basis.
What is more, TESSI was obliged to provide ITEC with a monthly
report detailing the failure and repair of ITEC products, and to
requisition monthly the materials and components needed to
replace stock consumed in the warranty repairs of the prior
month.
A perusal of the agreements between petitioner ASPAC and the
respondents shows that there are provisions which are highly
restrictive in nature, such as to reduce petitioner ASPAC to a
mere extension or instrument of the private respondent.
The "No Competing Product" provision of the Representative
Agreement between ITEC and ASPAC provides: "The
Representative shall not represent or offer for sale within the
Territory any product which competes with an existing ITEC
product or any product which ITEC has under active
development." Likewise pertinent is the following provision:
"When acting under this Agreement, REPRESENTATIVE is
authorized to solicit sales within the Territory on ITEC's behalf but

is authorized to bind ITEC only in its capacity as Representative

and no other, and then only to specific customers and on terms
and conditions expressly authorized by ITEC in writing."
When ITEC entered into the disputed contracts with ASPAC and
TESSI, they were carrying out the purposes for which it was
created, i.e., to market electronics and communications products.
The terms and conditions of the contracts as well as ITEC's
conduct indicate that they established within our country a
continuous business, and not merely one of a temporary
character. 40
Notwithstanding such finding that ITEC is doing business in the
country, petitioner is nonetheless estopped from raising this fact
to bar ITEC from instituting this injunction case against it.
A foreign corporation doing business in the Philippines may sue in
Philippine Courts although not authorized to do business here
against a Philippine citizen or entity who had contracted with and
benefited by said corporation. 41 To put it in another way, a party is
estopped to challenge the personality of a corporation after having
acknowledged the same by entering into a contract with it. And the
doctrine of estoppel to deny corporate existence applies to a foreign
as well as to domestic corporations. 42 One who has dealt with a
corporation of foreign origin as a corporate entity is estopped to deny
its corporate existence and capacity: The principle will be applied to
prevent a person contracting with a foreign corporation from later
taking advantage of its noncompliance with the statutes chiefly in
cases where such person has received the benefits of the contract. 43

corporate transaction is expected to act with utmost candor and

fairness and, thereby allow a reasonable proportion between
benefits and expected burdens. This is a norm which should be
observed where one or the other is a foreign entity venturing in a
global market.
As observed by this Court in TOP-WELD (supra), viz:
The parties are charged with knowledge of the existing law at the
time they enter into a contract and at the time it is to become
operative. (Twiehaus v. Rosner, 245 SW 2d 107; Hall v. Bucher,
227 SW 2d 98). Moreover, a person is presumed to be more
knowledgeable about his own state law than his alien or foreign
contemporary. In this case, the record shows that, at least,
petitioner had actual knowledge of the applicability of R.A. No.
5455 at the time the contract was executed and at all times
thereafter. This conclusion is compelled by the fact that the same
statute is now being propounded by the petitioner to bolster its
claim. We, therefore sustain the appellate court's view that "it was
incumbent upon TOP-WELD to know whether or not IRTI and
ECED were properly authorized to engage in business in the
Philippines when they entered into the licensing and
distributorship agreements." The very purpose of the law was
circumvented and evaded when the petitioner entered into said
agreements despite the prohibition of R.A. No. 5455. The parties
in this case being equally guilty of violating R.A. No. 5455, they
are in pari delicto, in which case it follows as a consequence that
petitioner is not entitled to the relief prayed for in this case.

The rule is deeply rooted in the time-honored axiom

of Commodum ex injuria sua non habere debet no person
ought to derive any advantage of his own wrong. This is as it
should be for as mandated by law, "every person must in the
exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and
good faith." 44

The doctrine of lack of capacity to sue based on the failure to

acquire a local license is based on considerations of sound public
policy. The license requirement was imposed to subject the
foreign corporation doing business in the Philippines to the
jurisdiction of its courts. It was never intended to favor domestic
corporations who enter into solitary transactions with unwary
foreign firms and then repudiate their obligations simply because
the latter are not licensed to do business in this country. 45

Concededly, corporations act through agents, like directors and

officers. Corporate dealings must be characterized by utmost
good faith and fairness. Corporations cannot just feign ignorance
of the legal rules as in most cases, they are manned by
sophisticated officers with tried management skills and legal
experts with practiced eye on legal problems. Each party to a

In Antam Consolidated Inc. vs. Court of Appeals, et al. 46 we

expressed our chagrin over this commonly used scheme of
defaulting local companies which are being sued by unlicensed
foreign companies not engaged in business in the Philippines to
invoke the lack of capacity to sue of such foreign companies.
Obviously, the same ploy is resorted to by ASPAC to prevent the

injunctive action filed by ITEC to enjoin petitioner from using

knowledge possibly acquired in violation of fiduciary arrangements
between the parties.

By entering into the "Representative Agreement" with ITEC,

Petitioner is charged with knowledge that ITEC was not licensed
to engage in business activities in the country, and is thus
estopped from raising in defense such incapacity of ITEC, having
chosen to ignore or even presumptively take advantage of the
same.
In Top-Weld, we ruled that a foreign corporation may be
exempted from the license requirement in order to institute an
action in our courts if its representative in the country maintained
an independent status during the existence of the disputed
contract. Petitioner is deemed to have acceded to such
independent character when it entered into the Representative
Agreement with ITEC, particularly, provision 6.2 (supra).
Petitioner's insistence on the dismissal of this action due to the
application, or non application, of the private international law rule
of forum non conveniens defies well-settled rules of fair play.
According to petitioner, the Philippine Court has no venue to
apply its discretion whether to give cognizance or not to the
present action, because it has not acquired jurisdiction over the
person of the plaintiff in the case, the latter allegedly having no
personality to sue before Philippine Courts. This argument is
misplaced because the court has already acquired jurisdiction
over the plaintiff in the suit, by virtue of his filing the original
complaint. And as we have already observed, petitioner is not at
liberty to question plaintiff's standing to sue, having already
acceded to the same by virtue of its entry into the Representative
Agreement referred to earlier.
Thus, having acquired jurisdiction, it is now for the Philippine
Court, based on the facts of the case, whether to give due course
to the suit or dismiss it, on the principle of forum non
convenience. 47 Hence, the Philippine Court may refuse to assume
jurisdiction in spite of its having acquired jurisdiction. Conversely, the
court may assume jurisdiction over the case if it chooses to do so;
provided, that the following requisites are met: 1) That the Philippine
Court is one to which the parties may conveniently resort to; 2) That
the Philippine Court is in a position to make an intelligent decision as

to the law and the facts; and, 3) That the Philippine Court has or is
likely to have power to enforce its decision. 48

The aforesaid requirements having been met, and in view of the

court's disposition to give due course to the questioned action,
the matter of the present forum not being the "most convenient"
as a ground for the suit's dismissal, deserves scant consideration.
IN VIEW OF THE FOREGOING PREMISES, the instant Petition
is hereby DISMISSED. The decision of the Court of Appeals
dated June 7, 1991, upholding the RTC Order dated February 22,
1991, denying the petitioners' Motion to Dismiss, and ordering the
issuance of the Writ of Preliminary Injunction, is hereby
affirmed in toto.
SO ORDERED.

G.R. No. 113074 January 22, 1997

ALFRED HAHN, petitioner,
vs.
COURT OF APPEALS and BAYERSCHE MOTOREN WERKE
AKTIENGSELLSCHAFT (BMW), respondents.

MENDOZA, J.:
This is a petition for review of the decision 1 of the Court of Appeals
dismissing a complaint for specific performance which petitioner had filed
against private respondent on the ground that the Regional Trial Court of
Quezon City did not acquire jurisdiction over private respondent, a
nonresident foreign corporation, and of the appellate court's order denying
petitioner's motion for reconsideration.
The following are the facts:
Petitioner Alfred Hahn is a Filipino citizen doing business under the name
and style "Hahn-Manila." On the other hand, private respondent
Bayerische Motoren Werke Aktiengesellschaft (BMW) is a nonresident
foreign corporation existing under the laws of the former Federal
Republic of Germany, with principal office at Munich, Germany.
On March 7, 1967, petitioner executed in favor of private respondent a
"Deed of Assignment with Special Power of Attorney," which reads in full
as follows:
WHEREAS, the ASSIGNOR is the present owner and holder of
the BMW trademark and device in the Philippines which
ASSIGNOR uses and has been using on the products
manufactured by ASSIGNEE, and for which ASSIGNOR is the
authorized exclusive Dealer of the ASSIGNEE in the Philippines,
the same being evidenced by certificate of registration issued by
the Director of Patents on 12 December 1963 and is referred to
as Trademark No. 10625;
WHEREAS, the ASSIGNOR has agreed to transfer and
consequently record said transfer of the said BMW trademark and
device in favor of the ASSIGNEE herein with the Philippines
Patent Office;

NOW THEREFORE, in view of the foregoing and in consideration

of the stipulations hereunder stated, the ASSIGNOR hereby
affirms the said assignment and transfer in favor of the
ASSIGNEE under the following terms and conditions:
1. The ASSIGNEE shall take appropriate steps against any user
other than ASSIGNOR or infringer of the BMW trademark in the
Philippines; for such purpose, the ASSIGNOR shall inform the
ASSIGNEE immediately of any such use or infringement of the
said trademark which comes to his knowledge and upon such
information the ASSIGNOR shall automatically act as Attorney-InFact of the ASSIGNEE for such case, with full power, authority
and responsibility to prosecute unilaterally or in concert with
ASSIGNEE, any such infringer of the subject mark and for
purposes hereof the ASSIGNOR is hereby named and constituted
as ASSIGNEE's Attorney-In-Fact, but any such suit without
ASSIGNEE's consent will exclusively be the responsibility and for
the account of the ASSIGNOR,
2. That the ASSIGNOR and the ASSIGNEE shall continue
business relations as has been usual in the past without a formal
contract, and for that purpose, the dealership of ASSIGNOR shall
cover the ASSIGNEE's complete production program with the
only limitation that, for the present, in view of ASSIGNEE's limited
production, the latter shall not be able to supply automobiles to
ASSIGNOR.
Per the agreement, the parties "continue[d] business relations as has
been usual in the past without a formal contract." But on February 16,
1993, in a meeting with a BMW representative and the president of
Columbia Motors Corporation (CMC), Jose Alvarez, petitioner was
informed that BMW was arranging to grant the exclusive dealership of
BMW cars and products to CMC, which had expressed interest in
acquiring the same. On February 24, 1993, petitioner received
confirmation of the information from BMW which, in a letter, expressed
dissatisfaction with various aspects of petitioner's business, mentioning
among other things, decline in sales, deteriorating services, and
inadequate showroom and warehouse facilities, and petitioner's alleged
failure to comply with the standards for an exclusive BMW
dealer. 2 Nonetheless, BMW expressed willingness to continue business
relations with the petitioner on the basis of a "standard BMW importer"
contract, otherwise, it said, if this was not acceptable to petitioner, BMW
would have no alternative but to terminate petitioner's exclusive dealership
effective June 30, 1993.

Petitioner protested, claiming that the termination of his exclusive

dealership would be a breach of the Deed of Assignment. 3 Hahn insisted
that as long as the assignment of its trademark and device subsisted, he
remained BMW's exclusive dealer in the Philippines because the assignment
was made in consideration of the exclusive dealership. In the same letter
petitioner explained that the decline in sales was due to lower prices offered
for BMW cars in the United States and the fact that few customers returned
for repairs and servicing because of the durability of BMW parts and the
efficiency of petitioner's service.
Because of Hahn's insistence on the former business relation, BMW
withdrew on March 26, 1993 its offer of a "standard importer contract"
and terminated the exclusive dealer relationship effective June 30,
1993. 4 At a conference of BMW Regional Importers held on April 26, 1993 in
Singapore, Hahn was surprised to find Alvarez among those invited from the
Asian region. On April 29, 1993, BMW proposed that Hahn and CMC jointly
import and distribute BMW cars and parts.
Hahn found the proposal unacceptable. On May 14, 1993, he filed a
complaint for specific performance and damages against BMW to compel
it to continue the exclusive dealership. Later he filed an amended
complaint to include an application for temporary restraining order and for
writs of preliminary, mandatory and prohibitory injunction to enjoin BMW
from terminating his exclusive dealership. Hahn's amended complaint
alleged in pertinent parts:
2. Defendant [BMW] is a foreign corporation doing business in the
Philippines with principal offices at Munich, Germany. It may be
served with summons and other court processes through the
Secretary of the Department of Trade and Industry of the
Philippines. . . .
xxx xxx xxx
5. On March 7, 1967, Plaintiff executed in favor of defendant
BMW a Deed of Assignment with Special Power of Attorney
covering the trademark and in consideration thereof, under its first
whereas clause, Plaintiff was duly acknowledged as the
"exclusive Dealer of the Assignee in the Philippines. . . .
xxx xxx xxx
8. From the time the trademark "BMW & DEVICE" was first used
by the Plaintiff in the Philippines up to the present, Plaintiff,

through its firm name "HAHN MANILA" and without any monetary
contribution from defendant BMW, established BMW's goodwill
and market presence in the Philippines. Pursuant thereto, Plaintiff
has invested a lot of money and resources in order to singlehandedly compete against other motorcycle and car companies. .
. . Moreover, Plaintiff has built buildings and other infrastructures
such as service centers and showrooms to maintain and promote
the car and products of defendant BMW.
xxx xxx xxx
10. In a letter dated February 24, 1993, defendant BMW advised
Plaintiff that it was willing to maintain with Plaintiff a relationship
but only "on the basis of a standard BMW importer contract as
adjusted to reflect the particular situation in the Philippines"
subject to certain conditions, otherwise, defendant BMW would
terminate Plaintiffs exclusive dealership and any relationship for
cause effective June 30, 1993. . . .
xxx xxx xxx
15. The actuations of defendant BMW are in breach of the
assignment agreement between itself and plaintiff since the
consideration for the assignment of the BMW trademark is the
continuance of the exclusive dealership agreement. It thus,
follows that the exclusive dealership should continue for so long
as defendant BMW enjoys the use and ownership of the
trademark assigned to it by Plaintiff.
The case was docketed as Civil Case No. Q-93-15933 and raffled to
Branch 104 of the Quezon City Regional Trial Court, which on June 14,
1993 issued a temporary restraining order. Summons and copies of the
complaint and amended complaint were thereafter served on the private
respondent through the Department of Trade and Industry, pursuant to
Rule 14, 14 of the Rules of Court. The order, summons and copies of
the complaint and amended complaint were later sent by the DTI to BMW
via registered mail on June 15, 1993 5 and received by the latter on June
24, 1993.
On June 17, 1993, without proof of service on BMW, the hearing on the
application for the writ of preliminary injunction proceeded ex parte, with
petitioner Hahn testifying. On June 30, 1993, the trial court issued an
order granting the writ of preliminary injunction upon the filing of a bond

of P100,000.00. On July 13, 1993, following the posting of the required

bond, a writ of preliminary injunction was issued.
On July 1, 1993, BMW moved to dismiss the case, contending that the
trial court did not acquire jurisdiction over it through the service of
summons on the Department of Trade and Industry, because it (BMW)
was a foreign corporation and it was not doing business in the
Philippines. It contended that the execution of the Deed of Assignment
was an isolated transaction; that Hahn was not its agent because the
latter undertook to assemble and sell BMW cars and products without the
participation of BMW and sold other products; and that Hahn was an
indentor or middleman transacting business in his own name and for his
own account.
Petitioner Alfred Hahn opposed the motion. He argued that BMW was
doing business in the Philippines through him as its agent, as shown by
the fact that BMW invoices and order forms were used to document his
transactions; that he gave warranties as exclusive BMW dealer; that
BMW officials periodically inspected standards of service rendered by
him; and that he was described in service booklets and international
publications of BMW as a "BMW Importer" or "BMW Trading Company" in
the Philippines.
The trial court 6 deferred resolution of the motion to dismiss until after trial on
the merits for the reason that the grounds advanced by BMW in its motion
did not seem to be indubitable.
Without seeking reconsideration of the aforementioned order, BMW filed
a petition for certiorari with the Court of Appeals alleging that:
I. THE RESPONDENT JUDGE ACTED WITH UNDUE HASTE
OR OTHERWISE INJUDICIOUSLY IN PROCEEDINGS
LEADING TOWARD THE ISSUANCE OF THE WRIT OF
PRELIMINARY INJUNCTION, AND IN PRESCRIBING THE
TERMS FOR THE ISSUANCE THEREOF.
II. THE RESPONDENT JUDGE PATENTLY ERRED IN
DEFERRING RESOLUTION OF THE MOTION TO DISMISS ON
THE GROUND OF LACK OF JURISDICTION, AND THEREBY
FAILING TO IMMEDIATELY DISMISS THE CASE A QUO.
BMW asked for the immediate issuance of a temporary restraining order
and, after hearing, for a writ of preliminary injunction, to enjoin the trial

court from proceeding further in Civil Case No. Q-93-15933. Private

respondent pointed out that, unless the trial court's order was set aside, it
would be forced to submit to the jurisdiction of the court by filing its
answer or to accept judgment in default, when the very question was
whether the court had jurisdiction over it.
The Court of Appeals enjoined the trial court from hearing petitioner's
complaint. On December 20, 1993, it rendered judgment finding the trial
court guilty of grave abuse of discretion in deferring resolution of the
motion to dismiss. It stated:
Going by the pleadings already filed with the respondent court
before it came out with its questioned order of July 26, 1993, we
rule and so hold that petitioner's (BMW) motion to dismiss could
be resolved then and there, and that the respondent judge's
deferment of his action thereon until after trial on the merit
constitutes, to our mind, grave abuse of discretion.
xxx xxx xxx
. . . [T]here is not much appreciable disagreement as regards the
factual matters relating to the motion to dismiss. What truly divide
(sic) the parties and to which they greatly differ is the legal
conclusions they respectively draw from such facts, (sic) with
Hahn maintaining that on the basis thereof, BMW is doing
business in the Philippines while the latter asserts that it is not.
Then, after stating that any ruling which the trial court might make on the
motion to dismiss would anyway be elevated to it on appeal, the Court of
Appeals itself resolved the motion. It ruled that BMW was not doing
business in the country and, therefore, jurisdiction over it could not be
acquired through service of summons on the DTI pursuant to Rule 14,
14. 'The court upheld private respondent's contention that Hahn acted in
his own name and for his own account and independently of BMW, based
on Alfred Hahn's allegations that he had invested his own money and
resources in establishing BMW's goodwill in the Philippines and on
BMW's claim that Hahn sold products other than those of BMW. It held
that petitioner was a mere indentor or broker and not an agent through
whom private respondent BMW transacted business in the Philippines.
Consequently, the Court of Appeals dismissed petitioner's complaint
against BMW.

Hence, this appeal. Petitioner contends that the Court of Appeals erred
(1) in finding that the trial court gravely abused its discretion in deferring
action on the motion to dismiss and (2) in finding that private respondent
BMW is not doing business in the Philippines and, for this reason,
dismissing petitioner's case.
Petitioner's appeal is well taken. Rule 14, 14 provides:
14. Service upon private foreign corporations. If the
defendant is a foreign corporation, or a nonresident joint stock
company or association, doing business in the Philippines,
service may be made on its resident agent designated in
accordance with law for that purpose, or, if there be no such
agent, on the government official designated by law to that effect,
or on any of its officers or agents within the Philippines.
(Emphasis added).
What acts are considered "doing business in the Philippines" are
enumerated in 3(d) of the Foreign Investments Act of 1991 (R.A. No.
7042) as follows: 7
d) the phrase "doing business" shall include soliciting orders, service
contracts, opening offices, whether called "liaison" offices or
branches; appointing representatives or distributors domiciled in the
Philippines or who in any calendar year stay in the country for a
period or periods totalling one hundred eighty (180) days or more;
participating in the management, supervision or control of any
domestic business, firm, entity or corporation in the Philippines;and
any other act or acts that imply a continuity of commercial dealings
or arrangements, and contemplate to that extent the performance of
acts or works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial gain or of
the purpose and object of the business organization: Provided,
however, That the phrase "doing business" shall not be deemed to
include mere investment as a shareholder by a foreign entity in
domestic corporations duly registered to do business, and/or the
exercise of rights as such investor; nor having a nominee director or
officer to represent its interests in such corporation; nor appointing a
representative or distributor domiciled in the Philippines which
transacts business in its own name and for its own account.
(Emphasis supplied)

Thus, the phrase includes "appointing representatives or distributors in

the Philippines" but not when the representative or distributor "transacts

business in its name and for its own account." In addition, 1(f)(1) of the
Rules and Regulations implementing (IRR) the Omnibus Investment
Code of 1987 (E.O. No. 226) provided:
(f) "Doing business" shall be any act or combination of acts,
enumerated in Article 44 of the Code. In particular, "doing
business" includes:
(1) . . . A foreign firm which does business through middlemen
acting in their own names, such as indentors, commercial brokers
or commission merchants, shall not be deemed doing business in
the Philippines. But such indentors, commercial brokers or
commission merchants shall be the ones deemed to be doing
business in the Philippines.
The question is whether petitioner Alfred Hahn is the agent or distributor
in the Philippines of private respondent BMW. If he is, BMW may be
considered doing business in the Philippines and the trial court acquired
jurisdiction over it (BMW) by virtue of the service of summons on the
Department of Trade and Industry. Otherwise, if Hahn is not the agent of
BMW but an independent dealer, albeit of BMW cars and products, BMW,
a foreign corporation, is not considered doing business in the Philippines
within the meaning of the Foreign Investments Act of 1991 and the IRR,
and the trial court did not acquire jurisdiction over it (BMW).
The Court of Appeals held that petitioner Alfred Hahn acted in his own
name and for his own account and not as agent or distributor in the
Philippines of BMW on the ground that "he alone had contacts with
individuals or entities interested in acquiring BMW vehicles.
Independence characterizes Hahn's undertakings, for which reason he is
to be considered, under governing statutes, as doing business." (p. 13) In
support of this conclusion, the appellate court cited the following
allegations in Hahn's amended complaint:
8. From the time the trademark "BMW & DEVICE" was first used
by the Plaintiff in the Philippines up to the present, Plaintiff,
through its firm name "HAHN MANILA" and without any monetary
contributions from defendant BMW, established BMW's goodwill
and market presence in the Philippines. Pursuant thereto, Plaintiff
invested a lot of money and resources in order to single-handedly
compete against other motorcycle and car companies. . . .
Moreover, Plaintiff has built buildings and other infrastructures

such as service centers and showrooms to maintain and promote

the car and products of defendant BMW.
As the above quoted allegations of the amended complaint show,
however, there is nothing to support the appellate court's finding that
Hahn solicited orders alone and for his own account and without
"interference from, let alone direction of, BMW." (p. 13) To the contrary,
Hahn claimed he took orders for BMW cars and transmitted them to
BMW. Upon receipt of the orders, BMW fixed the downpayment and
pricing charges, notified Hahn of the scheduled production month for the
orders, and reconfirmed the orders by signing and returning to Hahn the
acceptance sheets. Payment was made by the buyer directly to BMW.
Title to cars purchased passed directly to the buyer and Hahn never paid
for the purchase price of BMW cars sold in the Philippines. Hahn was
credited with a commission equal to 14% of the purchase price upon the
invoicing of a vehicle order by BMW. Upon confirmation in writing that the
vehicles had been registered in the Philippines and serviced by him,
Hahn received an additional 3% of the full purchase price. Hahn
performed after-sale services, including warranty services, for which he
received reimbursement from BMW. All orders were on invoices and
forms of BMW. 8
These allegations were substantially admitted by BMW which, in its
petition for certiorari before the Court of Appeals, stated: 9
9.4. As soon as the vehicles are fully manufactured and full payment
of the purchase prices are made, the vehicles are shipped to the
Philippines. (The payments may be made by the purchasers or thirdpersons or even by Hahn.) The bills of lading are made up in the
name of the purchasers, but Hahn-Manila is therein indicated as the
person to be notified.

9.5. It is Hahn who picks up the vehicles from the Philippine ports,
for purposes of conducting pre-delivery inspections. Thereafter,
he delivers the vehicles to the purchasers.
9.6. As soon as BMW invoices the vehicle ordered, Hahn is
credited with a commission of fourteen percent (14%) of the full
purchase price thereof, and as soon as he confirms in writing that
the vehicles have been registered in the Philippines and have
been serviced by him, he will receive an additional three percent
(3%) of the full purchase prices as commission.

Contrary to the appellate court's conclusion, this arrangement shows an

agency. An agent receives a commission upon the successful conclusion
of a sale. On the other hand, a broker earns his pay merely by bringing
the buyer and the seller together, even if no sale is eventually made.
As to the service centers and showrooms which he said he had put up at
his own expense, Hahn said that he had to follow BMW specifications as
exclusive dealer of BMW in the Philippines. According to Hahn, BMW
periodically inspected the service centers to see to it that BMW standards
were maintained. Indeed, it would seem from BMW's letter to Hahn that it
was for Hahn's alleged failure to maintain BMW standards that BMW was
terminating Hahn's dealership.
The fact that Hahn invested his own money to put up these service
centers and showrooms does not necessarily prove that he is not an
agent of BMW. For as already noted, there are facts in the record which
suggest that BMW exercised control over Hahn's activities as a dealer
and made regular inspections of Hahn's premises to enforce compliance
with BMW standards and specifications. 10 For example, in its letter to Hahn
dated February 23, 1996, BMW stated:
In the last years we have pointed out to you in several
discussions and letters that we have to tackle the Philippine
market more professionally and that we are through your present
activities not adequately prepared to cope with the forthcoming
challenges. 11
In effect, BMW was holding Hahn accountable to it under the 1967
Agreement.
This case fits into the mould of Communications Materials, Inc. v. Court
of Appeals, 12 in which the foreign corporation entered into a "Representative
Agreement" and a "Licensing Agreement" with a domestic corporation, by
virtue of which the latter was appointed "exclusive representative" in the
Philippines for a stipulated commission. Pursuant to these contracts, the
domestic corporation sold products exported by the foreign corporation and
put up a service center for the products sold locally. This Court held that
these acts constituted doing business in the Philippines. The arrangement
showed that the foreign corporation's purpose was to penetrate the Philippine
market and establish its presence in the Philippines.
In addition, BMW held out private respondent Hahn as its exclusive
distributor in the Philippines, even as it announced in the Asian region
that Hahn was the "official BMW agent" in the Philippines. 13

The Court of Appeals also found that petitioner Alfred Hahn dealt in other
products, and not exclusively in BMW products, and, on this basis, ruled
that Hahn was not an agent of BMW. (p. 14) This finding is based entirely
on allegations of BMW in its motion to dismiss filed in the trial court and
in its petition for certiorari before the Court of Appeals. 14 But this allegation
was denied by Hahn 15 and therefore the Court of Appeals should not have
cited it as if it were the fact.
Indeed this is not the only factual issue raised, which should have
indicated to the Court of Appeals the necessity of affirming the trial court's
order deferring resolution of BMW's motion to dismiss. Petitioner alleged
that whether or not he is considered an agent of BMW, the fact is that
BMW did business in the Philippines because it sold cars directly to
Philippine buyers. 16 This was denied by BMW, which claimed that Hahn was
not its agent and that, while it was true that it had sold cars to Philippine
buyers, this was done without solicitation on its part. 17
It is not true then that the question whether BMW is doing business could
have been resolved simply by considering the parties' pleadings. There
are genuine issues of facts which can only be determined on the basis of
evidence duly presented. BMW cannot short circuit the process on the
plea that to compel it to go to trial would be to deny its right not to submit
to the jurisdiction of the trial court which precisely it denies. Rule 16, 3
authorizes courts to defer the resolution of a motion to dismiss until after
the trial if the ground on which the motion is based does not appear to be
indubitable. Here the record of the case bristles with factual issues and it
is not at all clear whether some allegations correspond to the proof.
Anyway, private respondent need not apprehend that by responding to
the summons it would be waiving its objection to the trial court's
jurisdiction. It is now settled that, for purposes of having summons served
on a foreign corporation in accordance with Rule 14, 14, it is sufficient
that it be alleged in the complaint that the foreign corporation is doing
business in the Philippines. The court need not go beyond the allegations
of the complaint in order to determine whether it has Jurisdiction. 18 A
determination that the foreign corporation is doing business is only tentative
and is made only for the purpose of enabling the local court to acquire
jurisdiction over the foreign corporation through service of summons
pursuant to Rule 14, 14. Such determination does not foreclose a contrary
finding should evidence later show that it is not transacting business in the
country. As this Court has explained:
This is not to say, however, that the petitioner's right to question
the jurisdiction of the court over its person is now to be deemed a

foreclosed matter. If it is true, as Signetics claims, that its only

involvement in the Philippines was through a passive investment
in Sigfil, which it even later disposed of, and that TEAM Pacific is
not its agent, then it cannot really be said to be doing business in
the Philippines. It is a defense, however, that requires the
contravention of the allegations of the complaint, as well as a full
ventilation, in effect, of the main merits of the case, which should
not thus be within the province of a mere motion to dismiss. So,
also, the issue posed by the petitioner as to whether a foreign
corporation which has done business in the country, but which
has ceased to do business at the time of the filing of a complaint,
can still be made to answer for a cause of action which accrued
while it was doing business, is another matter that would yet have
to await the reception and admission of evidence. Since these
points have seasonably been raised by the petitioner, there
should be no real cause for what may understandably be its
apprehension,i.e., that by its participation during the trial on the
merits, it may, absent an invocation of separate or independent
reliefs of its own, be considered to have voluntarily submitted
itself to the court's jurisdiction. 19
Far from committing an abuse of discretion, the trial court properly
deferred resolution of the motion to dismiss and thus avoided
prematurely deciding a question which requires a factual basis, with the
same result if it had denied the motion and conditionally assumed
jurisdiction. It is the Court of Appeals which, by ruling that BMW is not
doing business on the basis merely of uncertain allegations in the
pleadings, disposed of the whole case with finality and thereby deprived
petitioner of his right to be heard on his cause of action. Nor was there
justification for nullifying the writ of preliminary injunction issued by the
trial court. Although the injunction was issued ex parte, the fact is that
BMW was subsequently heard on its defense by filing a motion to
dismiss.
WHEREFORE, the decision of the Court of Appeals is REVERSED and
the case is REMANDED to the trial court for further proceedings.
SO ORDERED.

G.R. No. 143723

June 28, 2001
LITONJUA GROUP OF COMPANIES, EDDIE LITONJUA and DANILO
LITONJUA, petitioners,
vs.
TERESITA VIGAN, respondent.
GONZAGA-REYES, J.:
In this petition for review on certiorari, petitioners seek to annul and set
aside the (1) decision1 of the respondent Court of Appeals dated March
20, 2000 which reversed and set aside the decision of the National Labor
Relations Commission finding respondent guilty of abandonment and (2)
resolution2 dated June 19, 2000 denying petitioners motion for
reconsideration.
The factual backdrop as found by the respondent Court of Appeals is as
follows:3
"As to the factual milieu, the contending parties have diametrically
opposed versions. Vigan tells it this way; She was hired by the
Litonjua Group of Companies on February 2, 1979 as telex
operator. Later, she was assigned as accounting and payroll clerk
under the supervision of Danilo Litonjua. She had been
performing well until 1995, when Danilo Litonjua who was already
naturally a (sic) very ill-tempered, ill-mouthed and violent
employer, became more so due to business problems. In fact, a
complaint letter (Annex "I", p. 85, rollo) was sent by the Litonjua
Employees to the father and his junior regarding the boorishness
of their kin Danilo Litonjua but apparently the management just
glossed over this.
1wphi1.nt

Danilo Litonjua became particularly angry with Vigan and threw a

stapler at her when she refused to give him money upon the
instructions of Eddie Litonjua. From then on, Danilo Litonjua had
been rabid towards her berated and bad-mouthed her, calling
her a "mental case" "psycho", "sira ulo", etc. and even threatened
to hit her for some petty matters. Danilo Litonjua even went so far
as to lock her up in the comfort room and preventing others to
help her out. Not contented, Danilo Litonjua would order the
security guards to forcibly eject her or prevent her entry in the
office premises whenever he was angry. This occurred twice in
July of 1995, first on the 5th then on the 7th. The incidents
prompted Vigan to write Danilo Litonjua letters asking why she
was treated so and what was her fault (Annexes "F", "G" & "K",
pp. 82, 83 & 87, rollo). She suspected that Danilo Litonjua wanted

her out for he would not let her inside the office such that even
while abroad he would order the guards by phone to bar her. She
pleaded for forgiveness or at least for explanation but it fell on
deaf ears.
Later, Danilo Litonjua changed tack and charged that Vigan had
been hysterical, emotional and created scenes at the office. He
even required her to secure psychiatric assistance. (Annexes "L"
to "N", pp. 88-90, rollo) But despite proof that she was not
suffering from psychosis or organic brain syndrome as certified to
by a Psychiatrist of Danilo Litonjuas choice (Annex "H", p. 84,
rollo), still she was denied by the guards entry to her work upon
instructions again of Danilo Litonjua. Left with no alternative,
Vigan filed this case for illegal dismissal, alleging she was
receiving a monthly salary of P8,000.00 at the time she was
unlawfully terminated.
The Litonjuas have a different version. They negate the existence
of the Litonjua Group of Companies and the connection of
Eduardo Litonjua thereto. They contend that Vigan was employed
by ACT Theater, Inc., where Danilo Litonjua is a Director. They
dispute the charge of illegal dismissal for it was Vigan who
ceased to report for work despite notices and likewise contest the
P8,000.00 monthly salary alleged by Vigan, claiming it was
merely P6,850.00.
They claim that Vigan was a habitual absentee specially on
Tuesdays that fell within three days before and after the "15th"
day and "30th" day of every month. Her performance had been
satisfactory, but then starting March 15, 1996 she had become
emotional, hysterical, uncontrollable and created disturbances at
the office with her crying and shouting for no reason at all. The
incident was repeated on April 3, 1996, May 24, 1996 and on
June 4, 1996. Thus alarmed, on July 24, 1996 Vigan was
required by management to undergo medical and psychological
examination at the companys expense and naming three doctors
to attend to her. Dr. Baltazar Reyes and Dr. Tony Perlas of the
Philippine General Hospital and Dr. Lourdes Ignacio of the
Medical Center Manila. But they claim that Vigan refused to
comply.
On August 2, 1996, Vigan again had another breakdown,
hysterical, shouting and crying as usual for about an hour, and
then she just left the premises without a word. The next day,

August 3, 1996, Saturday, she came to the office and explained

she was not feeling well the day before. After that Vigan went
AWOL and did not heed telegram notices from her employer
made on August 26, 1996 and on September 9, 1996 (Annexes
"1" & "2", pp. 108 to 109, rollo). She instead filed the instant suit
for illegal dismissal."

LITONJUA GROUP OF COMPANIES, EDDIE K. LITONJUA and

DANILO LITONJUA jointly and severally to:
(a) Reinstate complainant TERESITA Y. VIGAN if she so
desires;
or

On June 10, 1997, Labor Arbiter Ernesto S. Dinopol rendered his

decision4 finding Vigan diseased and unfit for work under Article 284 of
the Labor Code5 and awarded the corresponding separation pay as
follows:6

(b) pay her separation compensation in the sum of

P8,000.00 multiplied by her years of service counted from
February 2, 1979 up to the time this Decision becomes
final; and in either case to pay Vigan;

"WHEREFORE, judgment is hereby rendered ordering

respondents LITONJUA GROUP OF COMPANIES, EDDIE K.
LITONJUA and DANILO LITONJUA to jointly and severally pay
complainant TERESITA Y. VIGAN, the following amounts:

(c) full back wages from the time she was illegally
dismissed up to the date of the finality of this Decision;
(d) moral damages in the amount of P40,000.00;

Separation pay (P4,000 x 18) years.=

Proportionate
13th"
month
(P8,000 x 8 months over 12) =
TOTAL AWARD.

P72,000.00
pay

(e) exemplary damages in the amount of P15,000.00; and

4,666.66

(f) attorneys fees of P10,000.00.

P76,666.66

All other causes of action are DISMISSED for lack of merit."

Vigan appealed the decision to the National Labor Relations Commission
which modified7 the arbiters decision by ruling that Art. 284 of the Labor
Code is inapplicable in the instant case but affirmed the legality of the
termination of the complainant based on her having effectively
abandoned her job; the rest of the decision was affirmed. Vigan moved
for a partial reconsideration which was denied in a resolution dated
August 7, 1998.

SO ORDERED."
Litonjuas filed their motion for reconsideration which was denied in a
resolution dated June 19, 2000.
Petitioners Litonjuas filed the instant petition for review on certiorari
alleging the following grounds:
I
WHETHER OR NOT "LITONJUA GROUP OF COMPANIES",
WHICH HAS NO JURIDICAL PERSONALITY, BUT ONLY A
GENERIC NAME TO DESCRIBE THE VARIOUS COMPANIES
WHICH THE LITONJUA FAMILY HAS INTERESTS, CAN BE
LEGALLY CONSTRUED AS RESPONDENTS EMPLOYER.

Dissatisfied, Vigan filed a petition for certiorari with the respondent Court
of Appeals which rendered its assailed decision dated March 20, 2000
reversing the NLRC Resolution. The dispositive portion of the decision
reads:8
"WHEREFORE, premises considered, the assailed NLRC
Decision and Resolution are hereby REVERSEDand SET ASIDE.
In its stead judgment is rendered ordering the respondents

II
WHETHER OR NOT THE COURT OF APPEALS SERIOUSLY
ERRED AS A MATTER OF LAW IN HOLDING THAT

RESPONDENT WAS ILLEGALLY DISMISSED FROM HER

EMPLOYMENT, INSTEAD OF AFFIRMING THE DECISION OF
THE NATIONAL LABOR RELATIONS COMMISSION THAT SHE
HAD ABANDONED HER JOB OR THAT OF LABOR ARBITER
ERNESTO DINOPOL HOLDING THAT SHE SHOULD BE
SEPARATED ON THE GROUND OF DISEASE UNDER
ARTICLE 284 OF THE LABOR CODE, CONSIDERING THAT
SHE HAS EXHIBITED A PATTERN OF PSYCHOLOGICAL AND
MENTAL DISTURBANCE WHICH ADMITTEDLY NO LONGER
MADE HER PHYSICALLY FIT TO WORK.

the Litonjua family where she had rendered accounting and payroll
works, she simply referred to these corporations as the Litonjua group of
companies, thus, respondent merely used such generic name to describe
collectively the various corporations in which the Litonjua family has
business interest. Considering the non-existence of the Litonjua group of
companies as a juridical entity and petitioner Eddie Litonjuas denial of
his connection in any capacity with the ACT Theater, the supposed
company where Vigan was employed, petitioner Eddie Litonjuas should
also be excluded as a party in this case since respondent Vigan failed to
prove Eddie Litonjuas participation in the instant case. It is respondent
Vigan, being the party asserting a fact, who has the burden of proof as to
such fact10 which however, she failed to discharge.

WHETHER OR NOT THE COURT OF APPEALS SERIOUSLY

ERRED AS A MATTER OF LAW IN DIRECTING
RESPONDENTS REINSTATEMENT AT HER OWN CHOICE OR
PAYMENT OF SEPARATION PAY OF ONE MONTH SALARY
FOR EVERY YEAR OF SERVICE AND BACKWAGES.

Next, petitioners claim that the complaint for illegal dismissal was
prematurely filed since Vigan was not dismissed, actual or constructive,
from her employment as the records show that despite being absent
without official leave since August 5, 1996 and her receipt of two telegram
notices sent to her by petitioners on August 26, and September 9, 1996
for her to report for work, she failed to do so and yet petitioners had not
done any act to dismiss her. Petitioners deny Vigans claim that she had
been physically barred from entering the work premises.

III

IV
THE COURT OF APPEALS SERIOUSLY ERRED AS A MATTER
OF LAW IN HOLDING PETITIONERS LIABLE FOR MORAL AND
EXEMPLARY DAMAGES AND ATTORNEYS FEES.
Anent the first assigned error, petitioners allege that the Litonjua group of
companies cannot be a party to this suit for it is not a legal entity with
juridical personality but is merely a generic name used to describe
collectively the various companies in which the Litonjua family has
business interest; that the real employer of respondent Vigan was the
ACT theater Incorporated where Danilo Litonjua is a member of the
Board of Directors while Eddie Litonjua was not connected in any
capacity.
Petitioners argument is meritorious. Only natural or juridical persons or
entities authorized by law may be parties to a civil action and every action
must be prosecuted and defended in the name of the real parties in
interest.9Petitioners claim that Litonjua Group of Companies is not a legal
entity with juridical personality hence cannot be a party to this suit
deserves consideration since respondent failed to prove otherwise. In
fact, respondent Vigans own allegation in her Memorandum supported
petitioners claim that Litonjua group of companies does not exist when
she stated therein that instead of naming each and every corporation of

Petitioners thus contend that since respondent Vigan was not illegally
dismissed from employment, the respondent courts order reinstating the
latter, awarding her separation pay equivalent to one month salary per
year of service as well as backwages, damages and attorneys fees have
no factual and legal basis.
We are not persuaded.
The above arguments relate mainly to the correctness of the factual
findings of the Court of Appeals and the award of damages. This Court
has consistently affirmed that the findings of fact of the Court of Appeals
are as a rule binding upon it, subject to certain exceptions, one of which
is when the factual findings of the Court of Appeals are contrary to those
of the trial court (or administrative body, as the case may be). 11 However,
it bears emphasizing that mere disagreement between the Court of
Appeals and the trial court as to the facts of a case does not of itself
warrant this Court's review of the same. It has been held that the doctrine
that the findings of fact made by the Court of Appeals, being conclusive in
nature, are binding on this Court, applies even if the Court of Appeals
was in disagreement with the lower court as to the weight of evidence
with a consequent reversal of its findings of fact, so long as the findings

of the Court of Appeals are borne out by the record or based on

substantial evidence.12
We have gone over the records of this case and found no cogent reason
to disagree with the respondent courts findings that respondent Vigan did
not abandon her job but was illegally dismissed. Petitioners claim that
despite two (2) telegram notices dated August 26 and September 9, 1996
respectively sent to respondent Vigan to report for work, the latter did not
heed the demands and absented herself since August 5, 1996 was belied
by the respondents evidence, as it was upon instructions of petitioner
Danilo Litonjua to the guards on duty that she could not enter the
premises of her workplace. In fact, in her letter dated August 30, 1996
addressed to petitioner Danilo Litonjua, respondent Vigan had
complained of petitioner Danilos inhumane treatment in barring her from
entering her workplace, to wit:
"Sukdulan na po ang pang-aaping dinaranas ko sa inyo, sir.
Since August 5 etc. I was always approached by your guard
Batutay and harassed by your men to vacate my cubicle as per
your strict order. Only this August 7 that you succeeded as you
order the door locked for me only. As per our agreement Aug. 27
at Jollibee (sic) gave me assurance that I willingly undergo
psychiatric test I could freely report for work without intimidating
me, you wont anymore charge me of insubordination. You wont
disturb my family anymore, so why do you advice to try to go
back Aug. 30 but as always to be barred by guard Batutay? Sir,
with my 18 years of loyal service, all I need is a little respect. Tao
ako sir, hindi hayop. Malaki ang nawawala sa akin."
Notwithstanding the fact the she was refused entrance to her workplace,
respondent Vigan, to show her earnest desire to report for work, would
sneak her way into the premises and punched her time card but she
could not resume work as the guards in the company gate would prevent
her per petitioner Danilo Litonjuas instructions. It appears also that
respondent Vigan wrote petitioner Danilo a letter dated September 9,
1996 notifying him that per his instructions, she had made an
appointment for a psychiatric test on September 11, 1996 and requested
him to make a check payable to Dr. Lourdes Ladrido-Ignacio in the
amount of P800.00 consultation fee as they agreed upon. She underwent
a psychiatric examination as a result of which Dr. Ignacio issued a
medical certificate as follows:13
"This is to certify that MISS TERESITA VIGAN has come for
psychiatric evaluation on September 11 and 17, 1996. The

psychiatric interview and mental status examination did not reveal

any symptoms of psychosis or organic brain syndrome. She
showed anxiety but this was deemed a realistic reaction to her
present job difficulties."
Respondents actuations militate against petitioners claim that she did
not heed the notices to return to work and abandoned her job. She had
been going to her workplace to report for work but was prevented from
resuming her work upon the instructions of petitioner Danilo Litonjua. It
would be the height of injustice to allow an employee to claim as a
ground for abandonment a situation which he himself had brought
about.14
We fully agree with the respondent courts ratiocination on the illegality of
Vigans dismissal, to wit:15
"The basic issue is whether Vigans employment was terminated
by illegal dismissal or by abandonment of work, and We hold that
this was a case of illegal dismissal.
Shopworn is the rule on abandonment that the immediate filing of
a case for illegal dismissal negates the same. Mark that Vigan
promptly filed this suit for illegal dismissal when her attempts to
enter the premises of her workplace became futile and the efforts
to bar and eject her became unmistakable. In the more recent
case of Rizada vs. NLRC (G.R. No. 96982, September 21, 1999),
the Supreme Court reiterated anew the hoary rule that:
"To constitute abandonment two elements must concur
(1) the failure to report for work or absence without valid
or justifiable reason, and (2) a clear intention to sever the
employer-employee relationship, with the second element
as the more determinative factor and being manifested by
some overt acts. Abandoning ones job means the
deliberate, unjustified refusal of the employee to resume
his employment and the burden of proof is on the
employer to show a clear and deliberate intent on the part
of the employee to discontinue employment.
Abandonment is a matter of intention and cannot be
lightly inferred, much less legally presumed from certain
equivocal acts. (Shin Industrial v. National Labor
Relations Commission, 164 SCRA 8).

An employee who forthwith took steps to protest his

dismissal cannot be said to have abandoned his work."
(Toogue v. National Labor Relations Commission, 238
SCRA 241), as where the employee immediately filed a
complaint for illegal dismissal to seek reinstatement
(Tolong Aqua Culture Corp., et al. V. National Labor
Relations Commission, G.R. 122268, November 12,
1996) (emphasis supplied).

The NLRC had erred in shifting the onus probandi to Vigan in the
charge of abandonment against her, while the Litonjuas failed to
discharge their burden. Though they may not have verbally told
Vigan not to report for work but the act of ordering the guards not
to let her in was just as clear a notice. Vigans plight was akin to
that of the truck helper in the case of Masagana Concrete
Products, et al. vs. NLRC (G.R. No. 106916, September 3, 1999)
who was likewise prevented from coming to work.

Note that in the instant case Vigan was even pleading to be

allowed to work but she was prevented by the guards thereat
upon the orders of Danilo Litonjua. These are disclosed by her
letters (Annexes "F", "G", "K", "Q", "R" and "U", pp. 82, 83, 87, 93,
94 & 97, rollo), the entries in her time cards (Annexes "P", "S",
"W" and "X", pp. 92, 95, 99 & 100, rollo) and her compliance
when required to see a psychiatrist (Annex "H", p. 84, rollo). On
the other hand there is complete silence from the Litonjuas on
these matters, including on the collective manifesto of several
employees against Danilo Litonjua and his highhanded ways
(Annex "I", p. 85). They chose to ignore material and telling
points. They even alleged that Vigan refused to comply with their
request for her to have medical examination (Comment, pp. 164171, rollo and Memorandum for the Respondents, pp. 215-222,
rollo), an unmitigated falsity in the face of clear proofs that she
complied with their directive and was given a clean bill of mental
health by a reputable psychiatrist of their choice.

While there was no formal termination of his services,

Marias, was constructively dismissed when he was
accused of tampering the "vale sheet" and prevented
from returning to work. Constructive dismissal does not
always involve forthright dismissal or diminution in rank,
compensation, benefit and privileges. For an act of clear
discrimination insensibility or disdain by an employer may
become so unbearable on the part of the employee that it
could foreclose any choice by him except to forego his
continued employment. In this case, Marias had to
resign from his job because he was prevented from
returning back to work unless he admitted his mistake in
writing and he was not given any opportunity to contest
the charge against him. It is a rule often repeated that
unsubstantiated accusation without anything more are not
synonymous with guilt and unless a clear, valid, just or
authorized ground for dismissing an employee is
established by the employer the dismissal shall be
considered unfounded.

For emphasis, We shall quote with seeming triteness the dictum

laid down in Mendoza vs. NLRC (supra) regarding the unflinching
rule in illegal dismissal cases:
"that the employer bears the burden of proof. To establish
a case of abandonment, the employer must prove the
employees deliberate and unjustified refusal to resume
employment without any intention of returning. . .
mere absence from work, especially where the employee
has been verbally told not to report, cannot by itself
constitute abandonment. To repeat, the employer has the
burden of proving overt acts on the employees part which
demonstrate a desire or intention to abandon her work"

Similarly, Vigan was accused of having mental, emotional and

physical disorders (Annex "M", p. 89, rollo), but per medical
examination it was proven that hers was pure anxiety as a
realistic reaction to her present job difficulties. She was charged
of habitual absenteeism on Tuesdays that fell within three days
before and after the "15th" day and "30th" day of every month
(Litonjuas Position Paper, pp. 101-107, rollo). This is
preposterous for how many Tuesdays in a year would fall within
three days before and after the "15th" day and "30th" day of every
month? By no extrapolation can this be habitual absenteeism."
Since respondent Vigan was illegally dismissed from her employment,
she is entitled to: (1) either reinstatement, if viable, or separation pay if
reinstatement is no longer viable, and (2) backwages. 16 As correctly
disposed by the respondent Court:17

"Thus finding that Vigan was illegally dismissed, she is entitled to

the following:
1) Either reinstatement, if viable, or separation pay if
reinstatement is no longer viable; and 2) Backwages, Backwages
and separation pay are distinct relief given to alleviate the
economic damage by an illegally dismissed employee. Hence, an
award of separation pay in lieu of reinstatement does not bar an
award of backwages, computed from the time of illegal
dismissal up to the date of the finality of the Decision... without
qualification or deduction. Separation pay, equivalent to one
months salary for every year of service, is awarded as an
alternative to reinstatement when the latter is no longer an option.
Separation pay is computed from the commencement of
employment up to the time of termination, including the imputed
service for which the employee is entitled to backwages, with the
salary rate prevailing at the end of the period of putative service
being the basis for computation (Masagana Concrete Products, et
al. vs. NLRC, supra). In case of a fraction of at least six (6)
months in the length of service, the same shall be considered as
one year in computing the separation pay. With regard to
backwages, it meant literal "full backwages" that is inclusive of
allowances and other benefits or their monetary equivalent
computed from the time her compensation was withheld from her
up to the time of her actual reinstatement, if it is still viable or up
to the time the Decision in her favor becomes final without
deducting from back wages the earning derived elsewhere, if
there is any, by Vigan during the period of her illegal dismissal.
(Lopez vs. NLRC, 297 SCRA 508).
In other words, Vigan is entitled to reinstatement, which perhaps
is no longer viable due to the strained relations between the
parties, or separation pay of P8,000.00 for every year of service
and backwages of another P8,000 per month reckoned from the
time she last received salary from the Litonjuas up to the date of
the finality of this Decision. Mark again that We allowed the
P8,000.00 claim of Vigan as her last salary received for again the
Litonjuas failed to validly refute the same."
We likewise affirm respondent courts award of moral and exemplary
damages to the respondent. As a rule, moral damages are recoverable
only where the dismissal of the employee was attended by bad faith or
fraud or constituted an act oppressive to labor, or was done in a manner
contrary to morals, good customs or public policy. We find that bad faith

attended respondents dismissal from her employment. Bad faith involves

a state of mind dominated by ill will or motive. It implies a conscious and
intentional design to do a wrongful act for a dishonest purpose or some
moral obliquity.18 Petitioner Danilo Litonjua showed ill will in treating
respondent Vigan in a very unfair and cruel manner which made her
suffer anxieties by reason of such job difficulties. The report to work
notices sent by petitioners to respondent Vigan was just part of the ploy
to make it appear that the latter abandoned her work but in reality, Vigan
was barred from entering her work premises. We fully subscribe to
respondents position that petitioners action was for the purpose of
removing her from her employment. Respondent Vigan is also entitled to
exemplary damages as her dismissal was effected in an oppressive and
malevolent manner.19
We also find that there is a basis for the award of attorneys fees. It is
settled that in actions for recovery of wages or where an employee was
forced to litigate and incur expenses to protect his rights and interest, he
is entitled to an award of attorneys fees.20
WHEREFORE, premises considered, the decision of the respondent
Court of Appeals dated March 20, 2000 is hereby AFFIRMED with the
MODIFICATION that Litonjua Group of Companies and Eddie Litonjua
are dropped as parties in the instant case.
1wphi1.nt

SO ORDERED.