J.

EFFECT OF FAILURE TO PLEAD AND WHEN TO FILE RESPONSIVE

PLEADINGS
[G.R. No. L-41767. August 23, 1978.]
MR. AND MRS. ROMEO FERRER and ANNETTE FERRER, Petitioners, v. HON.
VICENTE G. ERICTA, in his capacity as Presiding Judge of the Court of First
Instance of Rizal, Quezon City, Branch XVIII, MR. AND MRS. FRANCIS
PFLEIDER and DENNIS PFLEIDER, Respondents.

and as a consequence the pickup car was overturned, causing physical injuries to
plaintiff Annette Ferrer, who was then a passenger therein, which injuries paralyzed
her and required medical treatment and confinement at different hospitals for more
than two (2) years; that as a result of the physical injuries sustained by Annette, she
suffered unimaginable physical pain, mental anguish, and her parents also suffered
mental anguish, moral shock and spent a considerable sum of money for her
treatment. They prayed that defendants be ordered to reimburse them for actual
expenses as well as other damages.
In due time, defendants filed their answer, putting up the affirmative defense that
defendant Dennis Pfleider exercised due care and utmost diligence in driving the
vehicle afore mentioned and alleging that Annette Ferrer and the other persons
aboard said vehicle were not passengers in the strict sense of the term, but were
merely joy riders and that, consequently, defendants had no obligation whatsoever to
plaintiffs.

Delano F. Villaruz, for Petitioners.

Porderio C. David for Private Respondents.
SYNOPSIS
On January 26, 1975, plaintiff-spouses and their daughter sued defendant-spouses
and their 16-year old son for damages arising from an accident that occurred on
December 31, 1970. The complaint alleged that the defendants recklessly drove a
car causing it to overturn, resulting in physical injuries on plaintiffs daughter who
was a passenger therein. Defendant answered that their son exercised due care in
driving the car and that plaintiffs daughter was not a passenger but merely a joy
rider. Subsequently, defendants moved to dismiss the complaint on the ground of
prescription. Plaintiffs opposed the motion, invoking Section 2, Rule 9 which
provides that "defenses and objections not pleaded in the motion to dismiss or
answer are deemed waived." The judge sustained the motion and absolved
defendants.
On petition for mandamus, the Supreme Court affirmed the order and held that
actions for damages arising from tort prescribe in four years; and the circumstance
that plaintiffs own allegation in the complaint shows clearly that the action had
prescribed removes the case from the rule regarding waiver of defenses by failure to
plead the same.

SYLLABUS

1. PLEADINGS; PRESCRIPTION; FAILURE TO PLEAD IN THE ANSWER. A

complaint may be dismissed in the course of the proceedings on the ground of
prescription, although such defense was not raised in the answer, where plaintiffs
own allegation in the complaint shows clearly that the action had prescribed. Such
circumstance removes this case from the rule under Sec. 2, Rule 9 regarding waiver
of defenses by failure to plead the same.
2. ACTIONS; PRESCRIPTION; DAMAGES BASED ON TORT. Actions for
damages arising from tort prescribe in four (4) years.

DECISION

ANTONIO, J.:

Mandamus to compel the immediate execution of the Decision of the Court of First
Instance of Quezon City, Branch XVIII, presided over by respondent Judge, in Civil
Case No. Q-19647, dated July 21, 1975. The pertinent facts are as
follows:chanrob1es virtual 1aw library
In a complaint for damages against respondents, dated December 27, 1974 but
actually filed on January 6, 1975 (Civil Case No. Q-19647), and assigned to the sala
of respondent Judge, it was alleged that defendants Mr. and Mrs. Francis Pfleider,
residents of Bayawan, Negros Oriental, were the owners or operators of a Ford pickup car; that at about 5:00 oclock in the afternoon of December 31, 1970, in the
streets of Bayawan, Negros Oriental, their son, defendant Dennis Pfleider, who was
then only sixteen (16) years of age, without proper official authority, drove the abovedescribed vehicle, without due regard to traffic rules and regulations, and without
taking the necessary precaution to prevent injury to persons or damage to property,

At the pre-trial on May 12, 1975, only plaintiffs-petitioners and their counsel were
present. Consequently, defendants-private respondents were declared in default and
the plaintiffs-petitioners were allowed to present their evidence ex parte. On May 21,
1975, petitioners moved that they be granted an extension of ten (10) days from May
22, 1975 to present her evidence, which was granted by the court a quo. The
presentation of petitioners evidence was later continued by the trial court to June 16,
1975, when the deposition of Annette Ferrer was submitted by petitioners and
admitted by the trial court.
On June 26, 1975, private respondents filed a motion to "set aside the order of
default and subsequent pleadings" on the ground that "defendants failure to appear
for pre-trial was due to accident or excusable neglect," This was opposed by
petitioners on the ground that the said pleading was not under oath, contrary to the
requirements of Sec. 3, Rule 18 of the Rules, and that it was not accompanied by an
affidavit of merit showing that the defendants have a good defense. In view of this,
the motion of private respondents was denied by respondent Judge on July 21,
1975. On the same date, respondent Judge rendered judgment against private
respondents, finding that the minor, Dennis Pfleider, was allowed by his parents to
operate a Ford pick-up car and because of his reckless negligence caused the
accident in question, resulting in injuries to Annette, and ordering the defendants, as
a result thereof, to pay jointly and severally the plaintiffs the following amounts; (1)
24,500.00 for actual expenses, hospitalization and medical expenses; (2)
P24,000.00 for actual expenses for the care, medicines of plaintiff Annette for helps
from December 31, 1970 to December 31, 1974; (3) P50,000.00 for moral damages;
(4) P10,000.00 for exemplary damages; (5) P5,000.00 for attorneys fees; and 16)
costs of suit.
On September 1, 1975, private respondents filed a Motion for Reconsideration 1 of
the decision and of the order denying the motion to set aside order of default, based
on the following grounds: (1) the complaint states no cause of action insofar as Mr.
and Mrs. Pfleider are concerned because it does not allege that at the time of the
mishap, defendant Dennis Pfleider was living with them, the fact being that at such
time he was living apart from them, hence, there can be no application of Article
2180 of the Civil Code, upon which parents liability is premised; and (2) that the
complaint shows on its face "that it was filed only on January 6, 1975, or after the
lapse of MORE THAN FOUR YEARS from the date of the accident on December 31,
1970", likewise appearing from the complaint and, therefore, the action has already
prescribed under Article 1146 of the Civil Code.chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph
A Supplemental Motion for Reconsideration 2 was subsequently filed by defendantsprivate respondents on September 10, 1975, alleging that their defense of
prescription has not been waived and may be raised even at such stage of the
proceedings because on the face of the complaint, as well as from the plaintiffs
evidence, their cause of action had already prescribed, citing as authority the
decision of this Court in Philippine National Bank v. Pacific Commission House, 3 as
well as the decisions quoted therein. The Opposition 4 to the above supplemental
motion interposed by plaintiffs-petitioners averred that: (a) the defense of
prescription had been waived while the defense that the complaint states no cause
of action "is available only at any time not later than the trial and prior to the
decision" ; (b) inasmuch as defendants have been declared in default for failure to
appear at the pretrial conference, they have lost their standing in court and cannot
be allowed to adduce evidence nor to take part in the trial, in accordance with
Section 2 of Rule 18 of the Rules of Court; and (c) the motion and supplemental

Page 1 of 58

motion for reconsideration are pro forma because the defenses raised therein have
been previously raised and passed upon by respondent court in resolving
defendants motion to set aside order of default. Being pro forma, said motion and
supplemental motion do not suspend the running of the thirty-day period to appeal,
which was from August 5, 1975, when defendants received a copy of the decision, to
September 4, 1975, and hence the decision has already become final and executory.
Plaintiffs-petitioners accordingly prayed that a writ of execution be issued to enforce
the judgment in their favor.

January 6, 1976. Actions for damages arising from physical injuries because of a tort
must be filed within four years. 8 The four-year period begins from the day the quasidelict is committed or the date of the accident. 9
WHEREFORE, the instant petition for mandamus is hereby DISMISSED, without
pronouncement as to costs.

On September 23, 1975, respondent judge, without setting aside the order of default,
issued an order absolving defendants from any liability on the grounds that: (a) the
complaint states no cause of action because it does not allege that Dennis Pfleider
was living with his parents at the time of the vehicular accident, considering that
under Article 2180 of the Civil Code, the father and, in case of his death or incapacity
the mother, are only responsible for the damages caused by their minor children who
live in their company; and (b) that the defense of prescription is meritorious, since
the complaint was filed more than four (4) years after the date of the accident, and
the action to recover damages based on quasi-delict prescribes in four (4 years.
Hence, the instant petition for mandamus.
The basic issue is whether the defense of prescription had been deemed waived by
private respondents failure to allege the same in their answer.
As early as Chua Lamko v. Dioso, Et Al., 5 this Court sustained the dismissal on a
counterclaim on the ground of prescription, although such defense was not raised in
the answer of the plaintiff. Thus, this Court held that where the answer does not take
issue with the complaint as to dates involved in the defendants claim of prescription,
his failure to specifically plead prescription in the answer does not constitute a
waiver of the defense of prescription, it was explained that the defense of
prescription, even if not raised in a motion to dismiss or in the answer, is not deemed
waived unless such defense raises issues of fact not appearing upon the preceding
pleading.
In Philippine National Bank v. Perez, Et Al., 6 which was an action filed by the
Philippine National Bank on March 22, 1961 for revival of a judgment rendered on
December 29, 1949 against Amando Perez, Gregorio Pumuntoc and Virginia de
Pumuntoc pursuant to Section 6, Rule 39 of the Rules of Court, the defendants were
declared in default for their failure to file their answer. There upon, the plaintiff
submitted its evidence, but when the case was submitted for decision, the court a
quo dismissed the complaint on the ground that plaintiffs cause of action had
already prescribed under Articles 1144 and 1152 of the Civil Code. The plaintiff in
said case, contending that since prescription is a defense that can only be set up by
defendants, the court could not motu proprio consider it as a basis for dismissal,
moved to reconsider the order, but its motion was denied. When the issue was
raised to this Court, We ruled:chanrobles law library : red
"It is true that the defense of prescription can only be considered if the came is
invoked as such in the answer of the defendant and that in this particular instance no
such defense was invoked because the defendants had been declared in default, but
such rule does not obtain when the evidence shows that the cause of action upon
which plaintiffs complaint is based is already barred by the statute of limitations."
(Emphasis supplied.)
Again, in Philippine National Bank v. Pacific Commission House, 7 where the action
sought to revive a judgment rendered by the Court of First Instance of Manila on
February 3, 1953 and it was patent from the stamp appearing on the first page of the
complaint that the complaint was actually filed on May 31, 1963, this Court sustained
the dismissal of the complaint on the ground of prescription, although such defense
was not raised in the answer, overruling the appellants invocation of Section 2 of
Rule 9 of the Rules of Court that "defenses and objections not pleaded either in a
motion to dismiss or in the answer are deemed waived." We held therein that." . . the
fact that the plaintiffs own allegation in the complaint or the evidence it presented
shows clearly that the action had prescribed removes this case from the rule
regarding waiver of the defense by failure to plead the same."cralaw virtua1aw
library
In the present case, there is no issue of fact involved in connection with the question
of prescription. The complaint in Civil Case No. Q-19647 alleges that the accident
which caused the injuries sustained by plaintiff Annette Ferrer occurred on
December 31, 1970. It is undisputed that the action for damages was only filed on

Page 2 of 58

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

WHEREFORE, finding the petition to be without merit, the same is hereby dismissed
without any special pronouncement as to costs.

SULPICIO A. GARCIA, Petitioner, v. COLONEL PAUL C. MATHIS, in his capacity

as Base Commander, Clark Air Force Base (CAFB) or his SUCCESSOR, and
the HONORABLE COURT OF FIRST INSTANCE OF PANGASINAN, Branch IV,
Dagupan City, Respondents.

SO ORDERED.

DECISION

ABAD SANTOS, J.:

Petition for certiorari to set aside the Order of the respondent judge, dated June 4,
1978, dismissing petitioners Complaint against the private respondent and another
Order, dated, July 7, 1978, denying a motion to reconsider the aforesaid order.
The factual background can be briefly stated as follows:chanrob1es virtual 1aw
library
In Civil Case No. D-4097 of the Court of First Instance of Pangasinan presided by
the respondent judge, Sulpicio Garcia, the petitioner herein, sued Colonel Paul C.
Mathis in his capacity as Base Commander, CAFB, acting for and in behalf of the
United States of America. The complaint, which was filed on November 8, 1977,
alleged that Garcia was a civil employee at Clark Air Force Base from May 26, 1949.
August 23, 1956, when he was dismissed for alleged bribery and collusion. He
prayed, inter alia, that he be reinstated to his former position, and paid back wages,
moral damage, attorneys fees and costs of the suit.
The defendant Mathis entered a special appearance and a motion for the dismissal
of the complaint upon the ground that the trial court had no jurisdiction over his
person because he was being sued as the representative of a foreign sovereign
"which has not consented and does not now consent to the maintenance of the
present suit."cralaw virtua1aw library
On June 7, 1978, the respondent judge issued an Order as aforesaid the text of
which reads as follows:chanrobles law library
"Without considering the issue of jurisdiction raised by the defendant in his motion to
dismiss the above entitled case, the Court finds that the abuse of action has already
prescribed, because paragraphs 3 and 5 of the complaint alleged that the services of
the plaintiff has been terminated on August 23, 1956.
WHEREFORE, the above-entitled case is hereby dismissed."cralaw virtua1aw library
The only issue in this case is whether or not the respondent judge committed a
grave abuse of discretion amounting to lack of jurisdiction when he dismissed the
complaint on the ground of prescription which the defendant did not raise in any of
his pleadings.
It is true that an action will not be held to have prescribed if prescription is not
expressly invoked. However there are exceptions to this rule and one of them is
when the plaintiffs own allegations in his complaint show clearly that the action has
prescribed. (Philippine National Bank v. Pacific Commission House, G.R. No. L22675, March 28, 1969, 27 SCRA 766). In this case the complaint shows clearly that
the plaintiffs action had prescribed for he alleged that he was removed on August
23, 1956 (par. 5) but the case was filed only on November 18, 1977, after a lapse of
more than 21 years. Prescinding, therefore, the defense of jurisdiction which is
apparently meritorious, the complaint was properly dismissed.
It is not amiss to state here that because of the special appearance which the
defendant had entered, he was constrained to confine himself to showing that the
trial court did not have jurisdiction over his person and had to exclude all other nonjurisdictional grounds in his motion to dismiss otherwise he could be deemed to have
abandoned his special appearance and voluntarily submitted himself to the
jurisdiction of the court (Republic v. Ker & Co., Ltd.; G.R. No. L-21609, Sept. 29,
1966, 18 SCRA 207).

Page 3 of 58

[G.R. NO. 170354 : June 30, 2006]

was dismissed. At the same time, the RTC allowed defendants "to present their
evidence ex-parte."12

EDGARDO PINGA, Petitioner, v. THE HEIRS OF GERMAN, SANTIAGO

represented by FERNANDO SANTIAGO, Respondents.
DECISION
TINGA, J.:
The constitutional faculty of the Court to promulgate rules of practice and
procedure1 necessarily carries the power to overturn judicial precedents on points of
remedial law through the amendment of the Rules of Court. One of the notable
changes introduced in the 1997 Rules of Civil Procedure is the explicit proviso that if
a complaint is dismissed due to fault of the plaintiff, such dismissal is "without
prejudice to the right of the defendant to prosecute his counterclaim in the same or in
a separate action."2 The innovation was instituted in spite of previous jurisprudence
holding that the fact of the dismissal of the complaint was sufficient to justify the
dismissal as well of the compulsory counterclaim.3
In granting this petition, the Court recognizes that the former jurisprudential rule can
no longer stand in light of Section 3, Rule 17 of the 1997 Rules of Civil Procedure.
The relevant facts are simple enough. Petitioner Eduardo Pinga was named as one
of two defendants in a complaint for injunction4 filed with Branch 29 of the Regional
Trial Court (RTC)5 of San Miguel, Zamboanga del Sur, by respondent Heirs of
German Santiago, represented by Fernando Santiago. The Complaint6 dated 28
May 1998 alleged in essence that petitioner and co-defendant Vicente Saavedra had
been unlawfully entering the coco lands of the respondent, cutting wood and
bamboos and harvesting the fruits of the coconut trees therein. Respondents prayed
that petitioner and Saavedra be enjoined from committing "acts of depredation" on
their properties, and ordered to pay damages.
In their Amended Answer with Counterclaim,7 petitioner and his co-defendant
disputed respondents' ownership of the properties in question, asserting that
petitioner's father, Edmundo Pinga, from whom defendants derived their interest in
the properties, had been in possession thereof since the 1930s.8They alleged that as
far back as 1968, respondents had already been ordered ejected from the properties
after a complaint for forcible entry was filed by the heirs of Edmundo Pinga. It was
further claimed that respondents' application for free patent over the properties was
rejected by the Office of the President in 1971. Defendants in turn prayed that owing
to respondents' forcible re-entry in the properties and the irresponsible and reckless
filing of the case, they be awarded various types of damages instead in amounts
totaling P2,100,000 plus costs of suit.9
By July of 2005, the trial of the case had not yet been completed. Moreover,
respondents, as plaintiffs, had failed to present their evidence. It appears that on 25
October 2004, the RTC already ordered the dismissal of the complaint after
respondents' counsel had sought the postponement of the hearing scheduled
then.10 However, the order of dismissal was subsequently reconsidered by the RTC
in an Order dated 9 June 2005, which took into account the assurance of
respondents' counsel that he would give priority to that case.11
At the hearing of 27 July 2005, plaintiffs' counsel on record failed to appear, sending
in his stead a representative who sought the postponement of the hearing. Counsel
for defendants (who include herein petitioner) opposed the move for postponement
and moved instead for the dismissal of the case. The RTC noted that it was obvious
that respondents had failed to prosecute the case for an unreasonable length of
time, in fact not having presented their evidence yet. On that ground, the complaint

Respondents filed a Motion for Reconsideration13 of the order issued in open court
on 27 July 2005, opting however not to seek that their complaint be reinstated, but
praying instead that the entire action be dismissed and petitioner be disallowed from
presenting evidence ex-parte. Respondents claimed that the order of the RTC
allowing petitioner to present evidence ex-parte was not in accord with established
jurisprudence. They cited cases, particularly City of Manila v.
Ruymann14 andDomingo v. Santos,15 which noted those instances in which a
counterclaim could not remain pending for independent adjudication.
On 9 August 2005, the RTC promulgated an order granting respondents' Motion for
Reconsideration and dismissing the counterclaim, citing as the only ground therefor
that "there is no opposition to the Motion for Reconsideration of the
[respondents]."16 Petitioner filed a Motion for Reconsideration, but the same was
denied by the RTC in an Order dated 10 October 2005.17 Notably, respondents filed
an Opposition to Defendants' Urgent Motion for Reconsideration, wherein they
argued that the prevailing jurisprudential rule18 is that "compulsory counterclaims
cannot be adjudicated independently of plaintiff's cause of action," and "a conversu,
the dismissal of the complaint carries with it the dismissal of the compulsory
counterclaims."19
The matter was elevated to this Court directly by way of a Petition for Review under
Rule 45 on a pure question of law, the most relevant being whether the dismissal of
the complaint necessarily carries the dismissal of the compulsory counterclaim.
We hold that under Section 3, Rule 17 of the 1997 Rules of Civil Procedure, the
dismissal of the complaint due to the fault of plaintiff does not necessarily carry with
it the dismissal of the counterclaim, compulsory or otherwise. In fact, the dismissal of
the complaint is without prejudice to the right of defendants to prosecute the
counterclaim.
On a prefatory note, the RTC, in dismissing the counterclaim, did not expressly
adopt respondents' argument that the dismissal of their complaint extended as well
to the counterclaim. Instead, the RTC justified the dismissal of the counterclaim on
the ground that "there is no opposition to [plaintiff's] Motion for Reconsideration
[seeking the dismissal of the counterclaim]."20 This explanation is hollow, considering
that there is no mandatory rule requiring that an opposition be filed to a motion for
reconsideration without need for a court order to that effect; and, as posited by
petitioner, the "failure to file an opposition to the Plaintiff's Motion for Reconsideration
is definitely not one among the established grounds for dismissal [of the
counterclaim]."21 Still, the dismissal of the counterclaim by the RTC betrays at very
least a tacit recognition of respondents' argument that the counterclaim did not
survive the dismissal of the complaint. At most, the dismissal of the counterclaim
over the objection of the defendant (herein petitioner) on grounds other than the
merits of the counterclaim, despite the provisions under Rule 17 of the 1997 Rules of
Civil Procedure, constitutes a debatable question of law, presently meriting
justiciability through the instant action. Indeed, in reviewing the assailed orders of the
RTC, it is inevitable that the Court consider whether the dismissal of the complaint,
upon motion of the defendant, on the ground of the failure to prosecute on plaintiff's
part precipitates or carries with it the dismissal of the pending counterclaims.
Our core discussion begins with Section 3, Rule 17 of the 1997 Rules of Civil
Procedure, which states:
SEC. 3. Dismissal due to fault of plaintiff. If, for no justifiable cause, the plaintiff fails
to appear on the date of the presentation of his evidence in chief on the complaint, or
to prosecute his action for an unreasonable length of time, or to comply with these
Rules or any order of the court, the complaint may be dismissed upon motion of

Page 4 of 58

defendant or upon the court's own motion, without prejudice to the right of the
defendant to prosecute his counterclaim in the same or in a separate action. This
dismissal shall have the effect of an adjudication upon the merits, unless otherwise
declared by the court.
The express qualification in the provision that the dismissal of the complaint due to
the plaintiff's fault, as in the case for failure to prosecute, is without prejudice to the
right of the defendant to prosecute his counterclaim in the same or separate action.
This stands in marked contrast to the provisions under Rule 17 of the 1964 Rules of
Court which were superseded by the 1997 amendments. In the 1964 Rules,
dismissals due to failure to prosecute were governed by Section 3, Rule 17, to wit:
SEC. 3. Failure to prosecute. - If plaintiff fails to appear at the time of the trial, or to
prosecute his action for an unreasonable length of time, or to comply with these
rules or any order of the court, the action may be dismissed upon motion of the
defendant or upon the court's own motion. This dismissal shall have the effect of an
adjudication upon the merits, unless otherwise provided by court.
Evidently, the old rule was silent on the effect of such dismissal due to failure to
prosecute on the pending counterclaims. As a result, there arose what one authority
on remedial law characterized as "the nagging question of whether or not the
dismissal of the complaint carries with it the dismissal of the
counterclaim."22 Jurisprudence construing the previous Rules was hardly silent on
the matter.
In their arguments before the RTC on the dismissal of the counterclaim, respondents
cited in supportCity of Manila v.
Ruymann,23 Domingo v. Santos,24 Belleza v. Huntington,25 and Froilan v. Pan Oriental
Shipping Co.,26 all of which were decided more than five decades ago. Notably
though, none of the complaints in these four cases were dismissed either due to the
fault of the plaintiff or upon the instance of the defendant.27
The distinction is relevant, for under the previous and current incarnations of the
Rules of Civil Procedure, it is Section 3, Rule 17 that governs the dismissals due to
the failure of the plaintiff to prosecute the complaint, as had happened in the case at
bar. Otherwise, it is Section 2, Rule 17, which then, and still is now, covered
dismissals ordered by the trial court upon the instance of the plaintiff.28 Yet, as will be
seen in the foregoing discussion, a discussion of Section 2 cannot be avoided as the
postulate behind that provision was eventually extended as well in cases that should
have properly been governed by Section 3.
Even though the cases cited by respondents involved different factual antecedents,
there exists more appropriate precedents which they could have cited in support of
their claim that the counterclaim should have been dismissed even if the dismissal of
the complaint was upon the defendants' motion and was predicated on the plaintiff's
fault. BA Finance Corp. v. Co29 particularly stands out in that regard, although that
ruling is itself grounded on other precedents as well. Elucidation of these cases is in
order.
On the general effect of the dismissal of a complaint, regardless of cause, on the
pending counterclaims, previous jurisprudence laid emphasis on whether the
counterclaim was compulsory or permissive in character. The necessity of such
distinction was provided in the 1964 Rules itself, particularly Section 2, Rule 17,
which stated that in instances wherein the plaintiff seeks the dismissal of the
complaint, "if a counterclaim has been pleaded by a defendant prior to the service
upon him of the plaintiff's motion to dismiss, the action shall not be dismissed against
the defendant's objection unless the counterclaim can remain pending for
independent adjudication by the court."30 The

vaunted commentaries of Chief Justice Moran, remarking on Section 2, Rule 17,

noted that "[t]here are instances in which a counterclaim cannot remain pending for
independent adjudication, as, where it arises out of, or is necessarily connected with,
the transaction or occurrence which is the subject matter of the opposing party's
claim."31
This view expressed in Moran's Commentaries was adopted by the Court in cases
where the application of Section 2, Rule 17 of the 1964 Rules of Court was called
for, such as in Lim Tanhu v. Ramolete,32 and Dalman v. City Court of Dipolog
City.33 The latter case warrants brief elaboration. Therein, the plaintiff in a civil case
for damages moved for the withdrawal of her own case on the ground that the
dispute had not been referred to the barangay council as required by law. Over the
objection of the defendant, who feared that her own counterclaim would be
prejudiced by the dismissal, plaintiff's motion was granted, the complaint and the
counterclaim accordingly dismissed by the trial court. The Court refused to reinstate
the counterclaim, opining without elaboration, "[i]f the civil case is dismissed, so also
is the counterclaim filed therein."34 The broad nature of that statement gave rise to
the notion that the mandatory
dismissal of the counterclaim upon dismissal of the complaint applied regardless of
the cause of the complaint's dismissal.35
Notably, the qualification concerning compulsory counterclaims was provided in
Section 2, Rule 17 of the 1964 Rules, the provision governing dismissals by order of
the court, and not Section 3, Rule 17. As stated earlier, Section 3, which covered
dismissals for failure to prosecute upon motion of the defendant or upon motu
proprio action of the trial court, was silent on the effect on the counterclaim of
dismissals of such nature.
Spouses Sta. Maria, Jr. v. Court of Appeals,36 decided in 1972, ostensibly supplied
the gap on the effect on the counterclaim of complaints dismissed under Section 3.
The defendants therein successfully moved before the trial court for the dismissal of
the complaint without prejudice and their declaration in default on the counterclaim
after plaintiffs therein failed to attend the pre-trial. After favorable judgment was
rendered on the counterclaim, plaintiffs interposed an appeal, citing among other
grounds, that the counterclaim could no longer have been heard after the dismissal
of the complaint. While the Court noted that the adjudication of the counterclaim in
question "does not depend upon the adjudication of the claims made in the
complaint since they were virtually abandoned by the non-appearance of the
plaintiffs themselves," it was also added that "[t]he doctrine invoked is not available
to plaintiffs like the petitioners, who prevent or delay the hearing of their own claims
and allegations."37 The Court, through Justice JBL Reyes, noted:
The doctrine that the complaint may not be dismissed if the counterclaim
cannot be independently adjudicated is not available to, and was not intended
for the benefit of, a plaintiff who prevents or delays the prosecution of his own
complaint. Otherwise, the trial of counterclaims would be made to depend upon the
maneuvers of the plaintiff, and the rule would offer a premium to vexing or delaying
tactics to the prejudice of the counterclaimants. It is in the same spirit that we have
ruled that a complaint may not be withdrawn over the opposition of the defendant
where the counterclaim is one that arises from, or is necessarily connected with, the
plaintiff's action and cannot remain pending for independent adjudication.38
There is no doubt that under the 1964 Rules, the dismissal of a complaint due to the
failure of the plaintiff to appear during pre-trial, as what had happened in Sta. Maria,
fell within the coverage of Section 3, Rule 17. On the other hand, Section 2 was
clearly limited in scope to those dismissals sustained at the instance of the
plaintiff.39 Nonetheless, by the early 1990s, jurisprudence was settling on a rule that
compulsory counterclaims were necessarily terminated upon the dismissal of the
complaint not only if such dismissal was upon motion of the plaintiff, but at the

Page 5 of 58

instance of the defendant as well. Two decisions from that period stand out in this
regard, Metals Engineering Resources Corp. v. Court of Appeals40 and International
Container Terminal Services v. Court of Appeals.41
In Metals, the complaint was expunged from the record after the defendant had filed
a motion for reconsideration of a trial court order allowing the filing of an amended
complaint that corrected a jurisdictional error in the original complaint pertaining to
the specification of the amount of damages sought. When the defendant was
nonetheless allowed to present evidence on the counterclaim, the plaintiff assailed
such allowance on the ground that the counterclaim was compulsory and could no
longer remain pending for independent adjudication. The Court, in finding for the
plaintiff, noted that the counterclaim was indeed compulsory in nature, and as such,
was auxiliary to the proceeding in the original suit and derived its jurisdictional
support therefrom.42 It was further explained that the doctrine was in consonance
with the primary objective of a counterclaim, which was to avoid and prevent circuitry
of action by allowing the entire controversy between the parties to be litigated and
finally determined in one action, and to discourage multiplicity of suits.43 Also, the
Court noted that since the complaint was dismissed for lack of jurisdiction, it was as
if no claim was filed against the defendant, and there was thus no more leg for the
complaint to stand on.44
In International Container, the defendant filed a motion to dismiss which was granted
by the trial court. The defendant's counterclaim was dismissed as well. The Court
summarized the key question as "what is the effect of the dismissal of a complaint
ordered at the instance of the defendant upon a compulsory counterclaim duly raised
in its answer."45 Then it ruled that the counterclaim did not survive such dismissal.
After classifying the counterclaim therein as compulsory, the Court noted that "[i]t is
obvious from the very nature of the counterclaim that it could not remain pending for
independent adjudication, that is, without adjudication by the court of the complaint
itself on which the counterclaim was based."46
Then in 1993, a divided Court ruled in BA Finance that the dismissal of the complaint
for nonappearance of plaintiff at the pre-trial, upon motion of the defendants, carried
with it the dismissal of their compulsory counterclaim.47 The Court reiterated the rule
that "a compulsory counterclaim cannot remain pending for independent adjudication
by the court' as it is auxiliary to the proceeding in the original suit and merely derives
its jurisdictional support therefrom."48 Express reliance was made on Metals,
International Container, and even Dalman in support of the majority's thesis. BA
Finance likewise advised that the proper remedy for defendants desirous that their
counterclaims not be dismissed along with the main complaint was for them to move
to declare the plaintiffs to be "non-suited" on their complaint and "as in default" on
their compulsory counterclaim, instead of moving for the dismissal of the complaint. 49
Justice Regalado, joined by Chief Justice Narvasa, registered a strong objection to
the theory of the majority. They agreed that the trial court could no longer hear the
counterclaim, but only on the ground that defendant's motion to be allowed to
present evidence on the counterclaim was filed after the order dismissing the
complaint had already become final. They disagreed however that the compulsory
counterclaim was necessarily dismissed along with the main complaint, pointing out
that a situation wherein the dismissal of the complaint was occasioned by plaintiff's
failure to appear during pre-trial was governed under Section 3, Rule 17, and not
Section 2 of the same rule. Justice Regalado, who ironically penned the decision
in Metals cited by the majority, explained:
Turning back to Rule 17, it is readily apparent that Sections 2 and 3 thereof envisage
different factual and adjective situations. The dismissal of the complaint under
Section 2 is at the instance of plaintiff, for whatever reason he is minded to move for
such dismissal, and, as a matter of procedure, is without prejudice unless otherwise
stated in the order of the court or, for that matter, in plaintiff's motion to dismiss his
own complaint. By reason thereof, to curb any dubious or frivolous strategy of

plaintiff for his benefit or to obviate possible prejudice to defendant, the former may
not dismiss his complaint over the defendant's objection if the latter has a
compulsory counterclaim since said counterclaim would necessarily be divested of
juridical basis and defendant would be deprived of possible recovery thereon in that
same judicial proceeding.
Section 3, on the other hand, contemplates a dismissal not procured by plaintiff,
albeit justified by causes imputable to him and which, in the present case, was
petitioner's failure to appear at the pre-trial. This situation is also covered by Section
3, as extended by judicial interpretation, and is ordered upon motion of defendant or
motu proprio by the court. Here, the issue of whether defendant has a pending
counterclaim, permissive or compulsory, is not of determinative significance. The
dismissal of plaintiff's complaint is evidently a confirmation of the failure of evidence
to prove his cause of action outlined therein, hence the dismissal is considered, as a
matter of evidence, an adjudication on the merits. This does not, however, mean that
there is likewise such absence of evidence to prove defendant's counterclaim
although the same arises out of the subject matter of the complaint which was
merely terminated for lack of proof. To hold otherwise would not only work injustice
to defendant but would be reading a further provision into Section 3 and wresting a
meaning therefrom although neither exists even by mere implication. Thus
understood, the complaint can accordingly be dismissed, but relief can nevertheless
be granted as a matter of course to defendant on his counterclaim as alleged and
proved, with or without any reservation therefor on his part, unless from his conduct,
express or implied, he has virtually consented to the concomitant dismissal of his
counterclaim.50
Justice Regalado also adverted to Sta. Maria and noted that the objections raised
and rejected by the Court therein were the same as those now relied upon by the
plaintiff. He pointed out that Dalmanand International Container, both relied upon by
the majority, involved the application of Section 2, Rule 17 and not Section 3, which
he insisted as the applicable provision in the case at bar.51
The partial dissent of Justice Regalado in BA Finance proved opportune, as he
happened then to be a member of the Rules of Court Revision Committee tasked
with the revision of the 1964 Rules of Court. Just a few months after BA Finance was
decided, Justice Regalado proposed before the Committee an amendment to
Section 3, Rule 17 that would explicitly provide that the dismissal of the complaint
due to the fault of the plaintiff shall be "without prejudice to the right of the defendant
to prosecute his counterclaim in the same or in a separate action." The amendment,
which was approved by the Committee, is reflected in the minutes of the meeting of
the Committee held on 12 October 1993:
[Justice Regalado] then proposed that after the words "upon the court's own motion"
in the 6th line of the draft in Sec. 3 of Rule 17, the following provision be
inserted: "without prejudice to the right of the defendant to prosecute his
counterclaim in the same or in a separate action." The Committee agreed with
the proposed amendment of Justice Regalado.
Justice Herrera observed that under Secs. 1 to 3 of Rule 17, it is not the action that
is dismissed but the complaint. He asked whether there is any distinction between
"complaint" and "action." Justice Regalado opined that the action of the plaintiff is
initiated by his complaint.
Justice Feria then suggested that the dismissal be limited to the complaint[.]
Thus, in the 1st line of Sec. 1, the words "An action" will be changed to "a
complaint"; in the 2nd line of Sec. 2, the words "an action" will be changed to
"a complaint" and in Sec. 3, the word "action" on the 5th line of the draft will
be changed to "complaint." The Committee agreed with Justice Feria's
suggested amendments.

Page 6 of 58

CA Pao believed that there is a need to clarify the counterclaim that the defendant
will prosecute, whether it is permissive or compulsory or all kinds of counterclaims.
Justice Regalado opined that there is no need of making a clarification because it is
already understood that it covers both counterclaims.52
It is apparent from these minutes that the survival of the counterclaim despite the
dismissal of the complaint under Section 3 stood irrespective of whether the
counterclaim was permissive or compulsory. Moreover, when the Court itself
approved the revisions now contained in the 1997 Rules of Civil Procedure, not only
did Justice Regalado's amendment to Section 3, Rule 17 remain intact, but the final
version likewise eliminated the qualification formerly offered under Section 2 on
"counterclaims that can remain pending for independent adjudication by the
court."53 At present, even Section 2, concerning dismissals on motion of the plaintiff,
now recognizes the right of the defendant to prosecute the counterclaim either in the
same or separate action notwithstanding the dismissal of the complaint, and without
regard as to the permissive or compulsory nature of the counterclaim.
In his commentaries on the 1997 Rules of Civil Procedure, Justice Regalado
expounds on the effects of the amendments to Section 2 and 3 of Rule 17:
2. Under this revised section [2], where the plaintiff moves for the dismissal of his
complaint to which a counterclaim has been interposed, the dismissal shall be
limited to the complaint. Such dismissal shall be without prejudice to the right of the
defendant to either prosecute his counterclaim in a separate action or to have the
same resolved in the same action. Should he opt for the first alternative, the court
should render the corresponding order granting and reserving his right to prosecute
his claim in a separate complaint. Should he choose to have his counterclaim
disposed of in the same action wherein the complaint had been dismissed, he must
manifest such preference to the trial court within 15 days from notice to him of
plaintiff's motion to dismiss. These alternative remedies of the defendant are
available to him regardless of whether his counterclaim is compulsory or
permissive. A similar alternative procedure, with the same underlying reason
therefor, is adopted in Sec. 6, Rule 16 and Sec. 3 of this Rule, wherein the complaint
is dismissed on the motion of the defendant or, in the latter instance, also by the
court motu proprio.
xxxx
2. The second substantial amendment to [Section 3] is with respect to the disposition
of the defendant's counterclaim in the event the plaintiff's complaint is dismissed. As
already observed, he is here granted the choice to prosecute that counterclaim in
either the same or a separate action. x x x x
3. With the aforestated amendments in Secs. 2 and 3 laying down specific
rules on the disposition of counterclaims involved in the dismissal actions, the
controversial doctrine inBA Finance Corporation v. Co, et al., (G.R. No. 105751,
June 30, 1993) has been abandoned, together with the apparent confusion on
the proper application of said Secs. 2 and 3. Said sections were distinguished
and discussed in the author's separate opinion in that case, even before they were
clarified by the present amendments x x x.54
Similarly, Justice Feria notes that "the present rule reaffirms the right of the
defendant to move for the dismissal of the complaint and to prosecute his
counterclaim, as stated in the separate opinion [of Justice Regalado in BA
Finance.]"55 Retired Court of Appeals Justice Herrera pronounces that the
amendment to Section 3, Rule 17 settles that "nagging question" whether the
dismissal of the complaint carries with it the dismissal of the counterclaim, and
opines that by reason of the amendments, the rulings

in Metals Engineering, International Container, and BA Finance "may be deemed

abandoned."56 On the effect of amendment to Section 3, Rule 17, the commentators
are in general agreement,57 although there is less unanimity of views insofar as
Section 2, Rule 17 is concerned.58
To be certain, when the Court promulgated the 1997 Rules of Civil Procedure,
including the amended Rule 17, those previous jural doctrines that were inconsistent
with the new rules incorporated in the 1997 Rules of Civil Procedure were implicitly
abandoned insofar as incidents arising after the effectivity of the new procedural
rules on 1 July 1997. BA Finance, or even the doctrine that a counterclaim may be
necessarily dismissed along with the complaint, clearly conflicts with the 1997 Rules
of Civil Procedure. The abandonment of BA Finance as doctrine extends as far back
as 1997, when the Court adopted the new Rules of Civil Procedure. If, since then,
such abandonment has not been affirmed in jurisprudence, it is only because no
proper case has arisen that would warrant express confirmation of the new rule. That
opportunity is here and now, and we thus rule that the dismissal of a complaint due
to fault of the plaintiff is without prejudice to the right of the defendant to prosecute
any pending counterclaims of whatever nature in the same or separate action. We
confirm that BA Finance and all previous rulings of the Court that are inconsistent
with this present holding are now abandoned.
Accordingly, the RTC clearly erred when it ordered the dismissal of the counterclaim,
since Section 3, Rule 17 mandates that the dismissal of the complaint is without
prejudice to the right of the defendant to prosecute the counterclaim in the same or
separate action. If the RTC were to dismiss the counterclaim, it should be on the
merits of such counterclaim. Reversal of the RTC is in order, and a remand is
necessary for trial on the merits of the counterclaim.
It would be perfectly satisfactory for the Court to leave this matter at that. Still, an
explanation of the reason behind the new rule is called for, considering that the
rationale behind the previous rule was frequently elaborated upon.
Under Act No. 190, or the Code of Procedure in Civil Actions promulgated in 1901, it
was recognized in Section 127(1) that the plaintiff had the right to seek the dismissal
of the complaint at any time before trial, "provided a counterclaim has not been
made, or affirmative relief sought by the cross-complaint or answer of the
defendant."59 Note that no qualification was made then as to the nature of the
counterclaim, whether it be compulsory or permissive. The protection of the
defendant's right to prosecute the counterclaim was indeed unqualified. In City of
Manila, decided in 1918, the Court explained:
By paragraph 1 [of Section 127], it will be seen that, where the defendant has
interposed a counterclaim, or is seeking affirmative relief by a cross-complaint, that
then, and in that case, the plaintiff cannot dismiss the action so as to affect the right
of the defendant in his counterclaim or prayer for affirmative relief. The reason for
that exception is clear. When the answer sets up an independent action against
the plaintiff, it then becomes an action by the defendant against the plaintiff,
and, of course, the plaintiff has no right to ask for a dismissal of
thedefendant's action.60
Nonetheless, a new rule was introduced when Act No. 190 was replaced by the 1940
Rules of Court. Section 2, Rule 30 of the 1940 Rules specified that if a counterclaim
is pleaded by a defendant prior to the service of the plaintiff's motion to dismiss, the
action shall not be dismissed against the defendant's objection unless the
counterclaim can remain pending for independent adjudication by the court. This
qualification remained intact when the 1964 Rules of Court was introduced.61 The
rule referred only to compulsory counterclaims, or counterclaims which arise out of
or are necessarily connected with the transaction or occurrence that is the subject
matter of the plaintiff's claim, since the rights of the parties arising out of the same
transaction should be settled at the same time.62 As was evident

Page 7 of 58

in Metals, International Container and BA Finance, the rule was eventually extended
to instances wherein it was the defendant with the pending counterclaim, and not the
plaintiff, that moved for the dismissal of the complaint.
We should not ignore the theoretical bases of the rule distinguishing compulsory
counterclaims from permissive counterclaims insofar as the dismissal of the action is
concerned. There is a particular school of thought that informs the broad proposition
in Dalman that "if the civil case is dismissed, so also is the counterclaim filed
therein,"63 or the more nuanced discussions offered in Metals,International
Container, and BA Finance. The most potent statement of the theory may be found
inMetals,64 which proceeds from the following fundamental premises'a compulsory
counterclaim must be set up in the same proceeding or would otherwise be abated
or barred in a separate or subsequent litigation on the ground of auter action
pendant, litis pendentia or res judicata; a compulsory counterclaim is auxiliary to the
main suit and derives its jurisdictional support therefrom as it arises out of or is
necessarily connected with the transaction or occurrence that is the subject matter of
the complaint;65 and that if the court dismisses the complaint on the ground of lack of
jurisdiction, the compulsory counterclaim must also be dismissed as it is merely
ancilliary to the main action and no jurisdiction remained for any grant of relief under
the counterclaim.
The first point is derived from Section 4, Rule 9, of the 1964 Rules of Court, while the
two latter points are sourced from American jurisprudence. There is no disputing the
theoretical viability of these three points. In fact, the requirement that the compulsory
counterclaim must be set up in the same proceeding remains extant under the 1997
Rules of Civil Procedure.66 At the same time, other considerations rooted in actual
practice provide a counterbalance to the above-cited rationales.
Whatever the nature of the counterclaim, it bears the same integral characteristics
as a complaint; namely a cause (or causes) of action constituting an act or omission
by which a party violates the right of another. The main difference lies in that the
cause of action in the counterclaim is maintained by the defendant against the
plaintiff, while the converse holds true with the complaint. Yet, as with a complaint, a
counterclaim without a cause of action cannot survive.
It would then seemingly follow that if the dismissal of the complaint somehow
eliminates the cause(s) of the counterclaim, then the counterclaim cannot survive.
Yet that hardly is the case, especially as a general rule. More often than not, the
allegations that form the counterclaim are rooted in an act or omission of the
plaintiff other than the plaintiff's very act of filing the complaint. Moreover,
such acts or omissions imputed to the plaintiff are often claimed to have
occurred prior to the filing of the complaint itself. The only apparent exception
to this circumstance is if it is alleged in the counterclaim that the very act of
the plaintiff in filing the complaint precisely causes the violation of the
defendant's rights. Yet even in such an instance, it remains debatable whether
the dismissal or withdrawal of the complaint is sufficient to obviate the
pending cause of action maintained by the defendant against the plaintiff.67

by the plaintiff, either through his/her own initiative or fault, it would be iniquitous to
similarly encumber the defendant who maintained no such initiative or fault. If the
defendant similarly moves for the dismissal of the counterclaim or neglects to timely
pursue such action, let the dismissal of the counterclaim be premised on those
grounds imputable to the defendant, and not on the actuations of the plaintiff.
The other considerations supplied in Metals are anchored on the premise that the
jurisdictional foundation of the counterclaim is the complaint itself. The theory is
correct, but there are other facets to this subject that should be taken into account as
well. On the established premise that a counterclaim involves separate causes of
action than the complaint even if derived from the same transaction or series of
transactions, the counterclaim could have very well been lodged as a complaint had
the defendant filed the action ahead of the complainant.69 The terms "ancillary" or
"auxiliary" may mislead in signifying that a complaint innately possesses more
credence than a counterclaim, yet there are many instances wherein the complaint is
trivial but the counterclaim is meritorious. In truth, the notion that a counterclaim is,
or better still, appears to be merely "ancillary" or "auxiliary" is chiefly the offshoot of
an accident of chronology, more than anything else.
The formalistic distinction between a complaint and a counterclaim does not detract
from the fact that both of them embody causes of action that have in their end the
vindication of rights. While the distinction is necessary as a means to facilitate order
and clarity in the rules of procedure, it should be remembered that the primordial
purpose of procedural rules is to provide the means for the vindication of rights. A
party with a valid cause of action against another party cannot be denied the right to
relief simply because the opposing side had the good fortune of filing the case first.
Yet this in effect was what had happened under the previous procedural rule and
correspondent doctrine, which under their final permutation, prescribed the
automatic dismissal of the compulsory counterclaim upon the dismissal of the
complaint, whether upon the initiative of the plaintiff or of the defendant.
Thus, the present rule embodied in Sections 2 and 3 of Rule 17 ordains a more
equitable disposition of the counterclaims by ensuring that any judgment thereon is
based on the merit of the counterclaim itself and not on the survival of the main
complaint. Certainly, if the counterclaim is palpably without merit or suffers
jurisdictional flaws which stand independent of the complaint, the trial court is not
precluded from dismissing it under the amended rules, provided that the judgment or
order dismissing the counterclaim is premised on those defects. At the same time, if
the counterclaim is justified, the amended rules now unequivocally protect such
counterclaim from peremptory dismissal by reason of the dismissal of the complaint.
WHEREFORE, the petition is GRANTED. The Orders dated 9 August 2005 and 10
October 2005 of Branch 29, Regional Trial Court of San Miguel, Zamboanga del Sur
in Civil Case No. 98-012 are SET ASIDE. Petitioner's counterclaim as defendant in
Civil Case. No. 98-012 is REINSTATED. The Regional Trial Court is ORDERED to
hear and decide the counterclaim with deliberate dispatch.
SO ORDERED.

These considerations persist whether the counterclaim in question is permissive or

compulsory. A compulsory counterclaim arises out of or is connected with the
transaction or occurrence constituting the subject matter of the opposing party's
claim, does not require for its adjudication the presence of third parties, and stands
within the jurisdiction of the court both as to the amount involved and the nature of
the claim.68 The fact that the culpable acts on which the counterclaim is based are
founded within the same transaction or occurrence as the complaint, is insufficient
causation to negate the counterclaim together with the complaint. The dismissal or
withdrawal of the complaint does not traverse the boundaries of time to undo the act
or omission of the plaintiff against the defendant, or vice versa. While such dismissal
or withdrawal precludes the pursuit of litigation

Page 8 of 58

[G.R. No. 133284. May 9, 2000.]

SPS. CLARO PONCIANO and GLORIA PONCIANO, Petitioners, v. HONORABLE
JOSE J. PARENTELA, JR., Presiding Judge, Regional Trial Court of Trece
Martires City, Br. 23 and SPS. ILDEFONSO CLAMOSA and LEONORA
CLAMOSA, Respondents.
DECISION

GONZAGA-REYES, J.:

The instant case deals with Administrative Circular 04-94. More specifically, the
primary issue is whether or not an answer which asserts a compulsory counterclaim
must include a certificate of non-forum shopping, and if so, whether or not the
dismissal of such compulsory counterclaim by the trial court due to the absence of
such certification has the effect of a dismissal with prejudice so as to bar the party
from re-filing such compulsory counterclaim.chanroblesvirtual|awlibrary
The antecedents of this case are as follows:chanrob1es virtual 1aw library
On June 13, 1995, private respondents Ildefonso and Leonora Clamosa filed a
complaint for a sum of money and damages with the Regional Trial Court of Trece
Martires City, Branch 23, against petitioners Claro and Gloria Ponciano for unpaid
cost of labor and materials incurred by them in repairing petitioners house in San
Roque, Cavite. The case was docketed as Civil Case No. TM-601. Petitioners filed a
motion to dismiss the complaint for failure to state a cause of action, but the same
was denied by the trial court in its Order dated September 21, 1995.
On October 18, 1995, petitioners filed their answer with compulsory counterclaim,
claiming that they have paid the total contract price agreed upon; that despite this,
the work of private respondents was defective; and that private respondents
abandoned the renovation before it was completed. Petitioners asserted that they
are entitled to be paid P250,000 to complete the renovation, and damages.
On August 23, 1996, upon motion of private respondents, the trial court ordered that
petitioners counterclaim be stricken off from the record for failure to comply with
Administrative Circular No. 04-94, which requires an affidavit of non-forum shopping
for all initiatory pleadings in all courts. Petitioners filed a motion for reconsideration
dated September 17, 1996, arguing, among others, that since their counterclaim is
compulsory in nature, it is not an initiatory pleading and therefore, does not fall within
the scope of Administrative Circular No. 04-94. However, on October 17, 1996, the
trial court denied petitioners motion for reconsideration. 1
Petitioners questioned the trial courts orders before this Court by means of a special
civil action forcertiorari under Rule 65 of the 1997 Revised Rules of Civil Procedure,
which case was docketed as G.R. No. 127701. On February 10, 1997, the Courts
Second Division denied the petition for lack of merit, holding that
x

We find there is no reversible error in the trial courts questioned order. The
administrative circular invoked provides clearly that strict compliance with its
mandate is imposed upon all initiatory pleadings, and that "the complaint and other
initiatory pleadings referred to and subject of this Circular are the original civil
complaint, counterclaim, cross-claim, third (fourth, etc.) party complaint, or
complaint-in-intervention, petition, or application wherein a party asserts his claim or
relief." It is notable that in issuing the said circular, the court did not distinguish
between permissive and compulsory counterclaim, and we need not make a
distinction in this regard as well. (Emphasis supplied) 2
x

Thereafter, petitioners filed an "Answer with Amended Compulsory Counterclaim,"

wherein the amendment consisted of the addition of a certification under oath in
compliance with the Administrative Circular No. 04-94. Initially, the trial court

admitted the "Answer with Amended Compulsory Counterclaim" in its July 9, 1997
Order. However, after the filing of a motion for reconsideration by private
respondents, the court reconsidered its action and expunged the amended
compulsory counterclaim from the records. 3 Its ruling was explained in its Order
dated December 9, 1997
After a soul-searching evaluation of the arguments in the Motion for reconsideration
filed by plaintiffs thru counsel dated October 6, 1997 and the Comment/Opposition
thereto field by counsel for defendants dated November 5, 1997 this Court finds the
raison dentre of said Motion for Reconsideration to be impressed with merit. Surely,
it would be logomachic and fallacious and what is worse, contemptible to admit
defendants Amended Compulsory Counterclaim after the Honorable Supreme Court
had dismissed the petition for certiorari questioning the Order of this Court strikingoff from the record defendants compulsory counterclaim for not complying with
Administrative Circular No. 04-94. As it is, the Honorable Supreme Court is the
highest court of the land and this court like any other Regional Trial Court belongs to
the lower strata of the judicial [sic].chanroblesvirtuallawlibrary
ACCORDINGLY, the Motion for reconsideration is hereby granted. Apropos,
defendants amended compulsory counterclaim is hereby expunged and/or stricken
off from the record.
SO ORDERED. 4
After its motion for reconsideration was denied by the trial court in an order dated
March 17, 1998, petitioners filed the present special civil action for certiorari under
Rule 65, assailing the trial courts orders denying admission of their amended
compulsory counterclaim. They maintain that this Court did not rule in its decision in
G.R. No. 127701 that the dismissal of petitioners compulsory counterclaim in Civil
Case No. TM-601 for non-compliance with Administrative Circular No. 04-94 was
with prejudice. Consequently, petitioners assert that they should be permitted to refile their compulsory counterclaim provided that they comply with such circular 5 .
Administrative Circular No. 04-94 6 was issued by this Court in order to prevent the
undesirable practice of forum-shopping, which exists when, as a result of an adverse
opinion in one forum, a party seeks a favorable opinion (other than by appeal
or certiorari) in another, or when he institutes two or more actions or proceedings
grounded on the same cause, on the chance that one or the other court would make
a favorable disposition. 7 The pertinent portion of the Circular provides
x

(1) The plaintiff, Petitioner, applicant or principal party seeking relief in the complaint,
petition, application or other initiatory pleading shall certify under oath in such
original pleading, or in a sworn certification annexed thereto and simultaneously filed
therewith, to the truth of the following facts and undertakings: (a) he has not
theretofore commenced any other action or proceeding involving the same issues in
the Supreme Court, the Court of Appeals, or any other tribunal or agency; (b) to the
best of his knowledge, no such action or proceeding is pending in the Supreme
Court, the Court of Appeals, or any other tribunal or agency; (c) if there is any such
action or proceeding which is either pending or may have been terminated, he must
state the status thereof; and (d) if he should thereafter learn that a similar action or
proceeding has been filed or is pending before the Supreme Court, the Court of
Appeals, or any other tribunal or agency, he undertakes to report that fact within five
(5) days therefrom to the court or agency wherein the original pleading and sworn
certification contemplated herein have been filed.
The complaint and other initiatory pleadings referred to and subject of this Circular
are the original civil complaint, counterclaim, cross-claim, third (fourth, etc.) party
complaint, or complaint-in-intervention, petition, or application wherein a party
asserts his claim for relief.
x

In resolving the issues presented in this case, it should first be asked whether, in the
first place, a compulsory counterclaim pleaded in an answer must be accompanied
with a certificate of non-forum shopping. This very same issue was confronted in the
case of Santo Tomas University Hospital v. Surla, 8 wherein we held that the above-

Page 9 of 58

quoted provisions of administrative Circular No. 04-94 do not apply to compulsory

counterclaims. Speaking for the Court, Justice Vitug explained that
It bears stressing, once again, that the real office of Administrative Circular No. 0494, made effective on 01 April 1994, is to curb the malpractice commonly referred to
also as forum-shopping. It is an act of a party against whom an adverse judgment
has been rendered in one forum of seeking and possibly getting a favorable opinion
in another forum, other than by appeal or the special civil action of certiorari, or the
institution of two or more actions or proceedings grounded on the same cause on the
supposition that one or the other court would make a favorable disposition. The
language of the circular distinctly suggests that it is primarily intended to cover an
initiatory pleading or an incipient application of a party asserting a claim for relief.
It should not be too difficult, the foregoing rationale of the circular aptly taken, to
sustain the view that the circular in question has not, in fact, been contemplated to
include a kind of claim which, by its very nature as being auxiliary to the proceedings
in the suit and as deriving its substantive and jurisdictional support therefrom, can
only be appropriately pleaded in the answer and not remain outstanding for
independent resolution except by the court where the main case pends. Prescinding
from the foregoing, the proviso in the second paragraph of Section 5, Rule 8, of the
1997 Rules of Civil Procedure, i.e., that the violation of the anti-forum shopping rule
"shall not curable by mere amendment . . . but shall be cause for the dismissal of the
case without prejudice," being predicated on the applicability of the need for a
certification against forum-shopping, obviously does not include a claim which
cannot be independently set up.
A compulsory counterclaim is any claim for money or other relief which a defending
party may have against an opposing party, which at the time of suit arises out of, or
is necessarily connected with, the same transaction or occurrence that is the subject
matter of plaintiffs complaint. It is compulsory in the sense that if it is within the
jurisdiction of the court, and does not require for its adjudication the presence of third
parties over whom the court cannot acquire jurisdiction, it must be set up therein,
and will be barred in the future if not set up. 9
In the case at bar, there is no doubt that the counterclaims pleaded by petitioners in
their answers are compulsory in nature. The filing of a separate action by petitioners
would only result in the presentation of the same evidence as in Civil Case No. TM601. Proceeding from our ruling in Santo Tomas University Hospital, petitioners need
not file a certification of non-forum shopping since their claims are not initiatory in
character, and therefore, are not covered by the provisions of Administrative Circular
No. 04-94.
WHEREFORE, the December 9, 1997 and March 17, 1998 Orders of Branch 23 of
the Regional Trial Court of Trece Martires City in Civil Case No. TM-601 are hereby
SET ASIDE. The trial court is ORDERED to ADMIT petitioners answer with
compulsory counterclaim. No pronouncement as to costs.
SO ORDERED.chanrobles.com : law library

Page 10 of 58

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

FAUSTINO GOJO, Petitioner-Appellant, v. SEGUNDO GOYALA and ANTONINA
ALMOGUERA,Respondents-Appellees.
Fernando P. Gerona, Sr. for Petitioner-Appellant.

DECISION

BARREDO, J.:

Agustin Frivaldo for Respondents-Appellees.

SYLLABUS

1. REMEDIAL LAW; PLEADINGS AND PRACTICE; COUNTERCLAIM;

COMPULSORY COUNTERCLAIM DOES NOT CALL FOR AN INDEPENDENT
ANSWER. It is now settled that a plaintiff who fails or chooses not to answer a
compulsory counterclaim may not be declared in default, principally because the
issues raised in the counterclaim are deemed automatically joined by the allegations
of the complaint.
2. ID.; ID.; ID.; COMPULSORY COUNTERCLAIM. In the instant case, there can
be no doubt that appellants counterclaim was a compulsory one inasmuch as it
arises out of or is necessarily connected with transaction or occurrence that is the
subject matter of the complaint; the complaint alleged that the right of appellee to
repurchase the property in question had already expired and asked for an order of
consolidation; on the other hand, appellants counterclaim was for reformation of the
deed claiming that it was only a mortgage. Thus the counterclaim was clearly
inconsistent with and directly controverted the whole theory and basic allegations of
the complaint.
3. ID.; ID.; COMPLAINT; DISMISSAL; FAILURE TO PROSECUTE; FAILURE TO
COMPLY WITH A VOID ORDER OF A COURT WILL NOT JUSTIFY THE
DISMISSAL OF THE COMPLAINT. It is true that under Section 3 of Rule 17, a
complaint may be dismissed for failure to prosecute if the plaintiff fails to comply with
an order of the court, but it is obvious that the said provision cannot apply when the
order supposedly ignored is a void one, as in this case. Here, the trial court ordered
petitioner to amend the complaint only because it was informed that one of the
defendants had died, the court directing that the plaintiff should name the heirs of the
deceased as defendants in lieu of said deceased. Such an order runs counter to the
ruling in Case-as v. Rosales, Et. Al. (L-18707, February 28, 1967) that an order of
the trial court directing the surviving plaintiff to amend the complaint was a void order
inasmuch as there was no obligation on said plaintiff to amend his complaint.
4. ID.; ID.; PARTY; DEATH OF A PARTY. When certain of the parties to a civil
case died and due notice thereof was given to the trial court, it devolved on the said
court to order, not the amendment of the complaint, but the appearance of the legal
representatives of the deceased in accordance with the procedure and manner
outlined in Rule 3, Section 17 of the Rules of Court.
5. ID.; ID.; DISMISSAL OF COMPLAINT NOT PROPER WHEN THERE IS
COMPULSORY COUNTERCLAIM. In line with the principle underlying Sec. 2 of
Rule 17, it is not proper to dismiss a complaint when a compulsory counterclaim has
been pleaded by defendant. The reason is obvious. Under the cited provision, the
right of the plaintiff to move for the dismissal of an action after the defendant has
filed his answer is qualified by the clause providing that: "If a counterclaim has been
pleaded by a defendant prior to the service upon him of the plaintiffs motion to
dismiss, the action shall not be dismissed against the defendants objection unless
the counterclaim can remain pending for independent adjudication by the court."
With this limitation, the power of the court to dismiss the complaint upon motion of
plaintiff, which is usually without prejudice, is not purely discretionary.
6. ID.; ID.; ID.; PURPOSE. The purpose of Section 2, Rule 17, Revised Rules of
Court is to avoid multiplicity of suits over the same matter which would necessarily
entail unnecessary expense and, what is worse, possibility of conflict and
inconsistency in the resolution of the same question. The same considerations would
obtain, if the defendant were the one to ask for dismissal. The best interests of
justice require that conflicting claims regarding the same matter should be decided
on one single proceeding.

Appeal from the favorable decision of the Court of First Instance of Sorsogon on the
counterclaim of respondents (herein appellees) in its Civil Case No. 1657-84 the
complaint (petition) of therein petitioner (herein appellant) having been previously
dismissed, without prejudice, for his failure to submit an amended complaint as
required of him in the court a quos earlier order.
The record shows that on 26 May 1951, appellee Segundo Goyala together with his
now deceased wife Antonina Almoguera, who was also named respondent or
defendant in the complaint or petition in the court below, sold to appellant by a "Deed
of Pacto de Retro Sale" a certain parcel of agricultural land having an area of
approximately two and one-half hectares for P750.00, the repurchase to be made,
according to the deed, within one year. It also appears from said deed that on July 4,
1951, the vendee paid another P100.00 as addition to the purchase price. About ten
(10) years after the execution of the said document, or on April 12, 1961, to be
precise, the vendee filed with the Court of First Instance of Sorsogon the present
case against the vendors by way of a petition for consolidation of ownership of the
land described and involved in the "Deed of Pacto de Retro Sale." In his petition, the
vendee, herein appellant, alleged, inter alia, that the date for repurchase, May 26,
1952, having expired and the vendors not having been able to repurchase the same
under the terms and conditions of the agreement, the ownership over the land
involved had become consolidated in him; and that for the purpose of recording in
the Registry of Property the said consolidation of ownership, it was necessary that a
judicial order be issued to that effect and accordingly prayed for such an order. pred
On May 26, 1961, appellee Segundo Goyala filed an opposition or answer to the
petition. He therein alleged that his wife Antonina Almoguera had died in the year
1959 and denied the allegation in the petition regarding the pacto de retro sale, "the
fact of the matter being," according to him, "that on May 26, 1951, the respondents
obtained a cash loan of P750.00 from the petitioner payable in one year without
interest; that only on July 26, 1951, Dolores Goyala, daughter of the respondents,
obtained from the petitioner the sum of P50.00 to be added and credited to the
account of the respondents; and then on August 25, 1951, the said Dolores Goyala
received from the petitioner another amount of P10.00 to be added to and credited to
the account of the respondents, (so that) the total loan of the respondents from the
petitioner aggregates P810.00 Philippine Currency" and that to guarantee the
payment of the said loan, the respondents executed a mortgage in favor of the
petitioner on a parcel of coconut land described in Annex A of the petition, hence,
altho the deed was executed or drawn in the form of a pacto de retro sale, the true
and real intention of the parties thereto was that the same was a mere mortgage to
secure the payment of the original loan of P750.00 together with the additional
amount received thereafter, making a total loan of P810.00, payable within one year
without interest. He further alleged that in the evening of May 26, 1952, he and his
wife went to the house of the petitioner and tendered to him the sum of P810.00 to
pay the debt, but said petitioner refused to receive the same and to cancel the
document of mortgage, Annex A. The said appellee also reiterated by way of
counterclaim the foregoing allegations of his answer and prayed
thus:jgc:chanrobles.com.ph
"WHEREFORE, the respondent Segundo Goyala respectfully prays this Honorable
Court to dismiss the petition and render judgment in favor of the respondents as
follows:jgc:chanrobles.com.ph
"(a) Ordering the petitioner to receive the sum of P810.00 tendered or deposited by
the respondents in full settlement of their debts to him;
"(b) Declaring the document marked Annex A of the petition to be mortgage and not
a pacto de retro sale, and ordering the same cancelled and with no more force and
effect;
"(c) Ordering the petitioner to pay the respondents the sum of P1,800.00 per annum
beginning May 26, 1951 until the final termination of this case as the reasonable

Page 11 of 58

monetary value of the products for the said property, and from this amount, there
should be deducted however, the corresponding legal interest annually on said
loans; and
"(d) In case, however, of the remote possibility that this Court should find the said
instrument (Annex A) to be a true pacto de retro sale, and not a mere mortgage, it is
hereby prayed that the petitioner be ordered to execute a deed of resale or
repurchase of said property in favor of the respondents in accordance with Art. 1606
third paragraph of the Civil Code."cralaw virtua1aw library
On December 1, 1962, counsel for respondent Goyala filed a manifestation
informing the trial court that the named defendant (respondent) Antonina Almoguera
was already dead, she having died at Labo, Camarines Norte on March 27, 1959,
and that her surviving nearest kin are her children, namely: Leonor, Pedro, Juliana,
Dolores, Valentina, Soledad, Penya, Mamerta, Salvador, Genesa, Felipe and Elegio
all surnamed Goyala with residences at Bulan, Sorsogon. Hearing was had on
that manifestation, after which the trial court, under date of December 4, 1962,
issued the following order:jgc:chanrobles.com.ph
"As prayed for in the manifestation of Atty. Agustin Frivaldo, counsel for the
defendant, dated December 1, 1962, on the ground stated therein, the counsel for
the plaintiff is hereby required to submit an amended Complaint substituting therein
for one of the defendants, Antonina Almoguera, now deceased her successors in
interest as party defendants, weithin the reglementery period."cralaw virtua1aw
library
Subsequently, on January 26, 1963, appellee Goyala filed a motion to dismiss the
complaint or petition on the ground that notwithstanding the lapse of 43 days after
appellants receipt of a copy of the above-quoted order of the trial court, said
appellant had failed and neglected to submit the amended complaint required of him.
The motion was opposed by appellant; and the trial court, resolving the incident,
issued the following order on February 15, 1963:jgc:chanrobles.com.ph
"The matter under consideration is the motion to dismiss filed by the defendants on
the ground that the plaintiff has failed and neglected to submit the amended
complaint as required in the order of this Court dated December 4, 1962, which the
plaintiff had received on December 13, 1962. From December 13, 1962 when the
motion to dismiss was filed, 43 days have elapsed. On February 6, 1963 when the
plaintiff has again failed to file together with said opposition the required amended
complaint, and altho plaintiff has requested for a reasonable extension of time within
which to file the said pleading, it is regretable to state that up to the present has
neglected to do so.
"WHEREFORE, the complaint is hereby dismissed without prejudice."cralaw
virtua1aw library
Thereafter, on July 10, 1963, appellee filed a motion to declare appellant in default in
respect of said appellees counterclaim, contained in his answer (opposition) to the
dismissed complaint (petition) of appellant. This motion was granted by the trial court
in its order of July 11, 1963, to wit:jgc:chanrobles.com.ph
"Upon petition of the counsel for the defendant Segundo Goyala to declare the
plaintiff in default on the ground of failure on the part of the plaintiff to answer the
counterclaim filed by said defendant Segundo Goyala within the reglementary
period, despite the fact that the plaintiffs counsel was duly served with a copy
thereof, and the plaintiffs complaint was already dismissed by this Court in its order
of February 15, 1963 on the ground of neglect to submit the amended complaint as
required in the Court order of December 4, 1962, the plaintiff is hereby declared in
default on the counterclaim filed by said defendant Segundo Goyala.
"Let the defendant Segundo Goyala submit his evidence before the Clerk of Court,
who is hereby commissioned to receive the same." chanrobles.com.ph : virtual law
library
As directed in the order above-quoted, the Clerk of Court received the evidence of
appellee in respect of his counterclaim and, thereafter, on November 15, 1963 the
trial court rendered favorable judgment on appellees counterclaim. The pertinent
portions of the decision referred to read thus:jgc:chanrobles.com.ph
"It appears that on May 26, 1951, respondents obtained a loan of P750.00 from the

petitioner. To secure the loan, respondents executed a document, which was made a
Deed of Pacto de Retro Sale (Exh.A), on suggestion of petitioner to exempt himself
from liabilities under the Usury Law. Dolores Goyala, one of the daughters of
respondents, obtained an additional loan of P50.00 on July 26, 1951, (Exh.A-1) and
another P10.00 on August 19, 1951, (Exh.A-3) from the petitioner which amounts
were duly authorized and acknowledged by respondent Segundo Goyala. In the late
afternoon of May 26, 1952, the last day to redeem the property, Segundo Goyala,
tendered the amount of P810.00 to herein petitioner in complete payment of the loan
and to release the property securing the said loan, but was refused because it was
already night time, and was advised instead to return the following day. When
Segundo Goyala returned the following day to redeem the property he was told by
petitioner that the period to redeem has already expired. Segundo Goyala testified
further that he tried no less than three times to redeem the property but each time
petitioner refused the redemption money.
"It appears further that the petitioner is in possession of the land since May 26, 1951,
after the execution of Exhibit A up to the present time and had appropriated to
himself the products during the period. It is shown further that the land is a
productive coconut land and has a fair market value of P5,000.00 with an annual
yield of P1,800.00."cralaw virtua1aw library
"The respondents are not however entitled to be reimbursed of the value of the
products obtained by the petitioner who acted in the belief that the agreement was a
Pacto de Retro Sale which turned out to be otherwise as the Court now so declares.
"WHEREFORE, in view of the foregoing the Court hereby declares the Deed of
Pacto de Retro Sale (Exh.A) an equitable mortgage and respondents Segundo
Goyala and the heirs of Antonina Almoguera are allowed to redeem the property;
orders Faustino Gojo to withdraw the amount of P810.00 deposited with the Clerk of
Court in full settlement of the loan, and hereby cancels and declares without force
and effect the aforementioned Deed of Pacto de Retro Sale executed by the
spouses Segundo Goyala and Antonina Almoguera in favor of Faustino Gojo.
Without costs."cralaw virtua1aw library
The above quoted decision was subsequently amended in an order of December 19,
1963, as follows:jgc:chanrobles.com.ph
"It appearing that in the dispositive part of the decision there was no directive to
restore the possession to the defendants upon execution, the dispositive portion of
the said decision is hereby amended to include therein an additional directive
ordering the plaintiff to deliver and restore the possession of the land in question to
the defendants."cralaw virtua1aw library
Dissatisfied with the decision referred to, appellant appealed to the Court of Appeals
which, upon its finding that the said appeal involves purely questions of law, certified
the same to this Court for resolution.chanroblesvirtuallawlibrary
In his brief, appellant assigns the following errors allegedly committed by the trial
court:jgc:chanrobles.com.ph
"1. THE LOWER COURT ERRED IN DECLARING PLAINTIFF IN DEFAULT WITH
RESPECT TO DEFENDANTS COUNTERCLAIM;
"2. THE LOWER COURT ERRED IN DEPUTIZING OR COMMISSIONING THE
CLERK OF COURT TO RECEIVE THE EVIDENCE OF THE DEFENDANT
SEGUNDO GOYALA;
"3. THE LOWER COURT ERRED IN RENDERING JUDGMENT IN FAVOR OF THE
RESPONDENT SEGUNDO GOYALA AND THE HEIRS OF ANTONINA
ALMOGUERA ALLOWING THEM TO REDEEM THE LAND IN QUESTION FROM
THE PETITIONER FAUSTINO GOJO FOR THE SUM OF P810.00."cralaw
virtua1aw library
The thrust of appellants argument in respect of the first assignment of error is to the
effect that there is no occasion for the trial court to declare him in default in respect
of appellees counterclaim in this case, for the reasons that: (a) the said counterclaim
"falls within the category of compulsory counterclaim" which does not call for an
independent answer as the complaint already denies its material allegations; and (b)
the dismissal of the complaint in this case without prejudice carried with it the
dismissal of the said counterclaim.

Page 12 of 58

The first assignment of error of appellant is well taken. It is now settled that a plaintiff
who fails or chooses not to answer a compulsory counterclaim may not be declared
in default, principally because the issues raised in the counterclaim are deemed
automatically joined by the allegations of the complaint. 1 In the instant case, there
can be no doubt that appellants counterclaim was a compulsory one inasmuch as it
arises out of or is necessarily connected with transaction or occurrence that is the
subject matter of the complaint; the complaint alleged that the right of appellee to
repurchase the property in question had already expired and asked for an order of
consolidation; on the other hand, appellants counterclaim was for reformation of the
deed claiming that it was only a mortgage. Thus the counterclaim was clearly
inconsistent with and directly controverted the whole theory and basic allegations of
the complaint. In consequence, appellants complaint stood as the answer to
appellees counterclaim; hence, the incorrectness of the trial courts order declaring
the appellant in default in regard to said counterclaim is evident.
Regarding the dismissal of petitioners complaint, We hold also, that the trial court
committed reversible error in ordering the same. It is true that under Section 3 of
Rule 17, a complaint may be dismissed for failure to prosecute if the plaintiff fails to
comply with an order of the court, but it is obvious that the said provision cannot
apply when the order supposedly ignored is a void one, as in this case. Here, the
trial court ordered petitioner to amend the complaint only because it was informed
that one of the defendants had died, the court directing that the plaintiff should name
the heirs of the deceased as defendants in lieu of said deceased. Such an order
runs counter to the ruling of this Court in Caseas v. Rosales, Et. Al. 2 which is
squarely applicable to the situation herein obtaining. In that case, We
held:jgc:chanrobles.com.ph
"When certain of the parties to Civil Case No. 261 died and due notice thereof was
given to the trial court, it devolved on the said court to order, not the amendment of
the complaint, but the appearance of the legal representatives of the deceased in
accordance with the procedure and manner outlined in Rule 3, Section 17 of the
Rules of Court, which provide:chanrob1es virtual 1aw library

upon a void order, the dismissal was itself void." (To the same effect, see World
Wide Insurance & Surety Co. v. Jose, etc., Et Al., 96 Phil. 45, 50).chanrobles virtual
lawlibrary
Besides, in line with the principle underlying Sec. 2 of Rule 17, it is not proper to
dismiss a complaint when a compulsory counterclaim has been pleaded by
defendant. The reason is obvious. Under the cited provision, the right of the plaintiff
to move for the dismissal of an action after the defendant has filed his answer is
qualified by the clause providing that: "If a counterclaim has been pleaded by a
defendant prior to the service upon him of the plaintiffs motion to dismiss, the action
shall not be dismissed against the defendants objection unless the counterclaim can
remain pending for independent adjudication by the court." With this limitation, the
power of the court to dismiss the complaint upon motion of plaintiff, which is usually
without prejudice, is not purely discretionary. 3 The purpose is to avoid multiplicity of
suits over the same matter which would necessarily entail unnecessary expense
and, what is worse, possibility of conflict and inconsistency in the resolution of the
same questions. The same considerations would obtain, if the defendant were the
one to ask for dismissal. The best interests of justice require that conflicting claims
regarding the same matter should be decided in one single proceeding. Dismissing
the complaint without prejudice, as the trial court has done in this case, albeit upon
motion of the defendant, will not prevent the undesirable multiplication of suits and
reventilation of the same issues in the subsequent action that may be filed by virtue
of the reservation made in the disputed order of dismissal.
Having arrived at the foregoing conclusions, it becomes unnecessary to discuss the
other two assigned errors.cralawnad
WHEREFORE, the decision appealed from is set aside and this case is remanded to
the court below for further proceedings in consonance with the above opinion, with
costs against appellee.

SECTION 17. Death of party.After a party dies and the claim is not thereby
extinguished, the court shall order, upon proper notice, the legal representative of
the deceased to appear and to be substituted for the deceased, within a period of
thirty (30) days, or within such time as may be granted. If the legal representative
fails to appear within said time, the court may order the opposing party to procure
the appointment of a legal representative of the deceased within a time to be
specified by the court, and the representative shall immediately appear for and on
behalf of the interest of the deceased. The court charges involved in procuring such
appointment, if defrayed by the opposing party, may be recovered as costs. The
heirs of the deceased may be allowed to be substituted for the deceased, without
requiring the appointment of an executor or administrator and the court may appoint
guardian ad litem for the minor heirs.
"In the case of Barrameda v. Barbara, 90 Phil. 718, this Court held that an order to
amend the complaint, before the proper substitution of parties as directed by the
aforequoted rule has been effected, is void and imposes upon the plaintiff no duty to
comply therewith to the end that an order dismissing the said complaint, for such
non-compliance, would similarly be void. In a subsequent case, Ferriera, Et. Al. v.
Gonzales, Et Al., G.R. No. L-11567, July 17, 1958, this Court affirmed a similar
conclusion on the determination that the continuance of a proceedings during the
pendency of which a party thereto dies, without such party having been validly
substituted in accordance with the rules, amounts to a lack of jurisdiction."cralaw
virtua1aw library
"The facts of this case fit four square into the Barrameda case above-cited, save for
the minor variance that in the former two of the litigants died while only one
predeceased the case in Barrameda. Here, as in Barrameda, during the pendency of
(the) civil case, notice was given to the trial court of the deaths of one of the plaintiffs
and one of the defendants in it. Instead of ordering the substitution of the deceaseds
legal representatives in accordance with Rule 3, Sec. 17 of the Rules of Court, the
trial court directed the surviving plaintiff to amend the complaint and when the latter
failed to comply therewith, the said court dismissed the complaint for such noncompliance. We must hold, therefore, as We did in Barrameda that inasmuch as
there was no obligation on the part of the plaintiff-appellant herein to amend his
complaint in Civil Case No. 261, any such imposition being void, his failure to comply
with such an order did not justify the dismissal of his complaint. Grounded as it was

Page 13 of 58

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

LIAM LAW, Plaintiff-Appellee, v. OLYMPIC SAWMILL CO. and ELINO LEE
CHI, Defendants-Appellants.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; PRESUMPTION OF

EXISTENCE AND LEGALITY OF OBLIGATIONS; MUST BE OVERCOME BY
PROOF; CASE AT BAR. Under Article 1354 of the Civil Code, in regards to the
agreement of the parties relative to the P6,000.00 obligation, "it is presumed that it
exists and is lawful, unless the debtor proves the contrary." No evidentiary hearing
having been held, it has to be concluded that defendants had not proven that the
P6,000.00 obligation was illegal. Confirming the Trial Courts finding, we view the
P6,000.00 obligation as liquidated damages suffered by plaintiff, as of March 17,
1960, representing loss of interest income, attorneys fees and incidentals.
2. MERCANTILE LAW; USURY LAW; REQUIRES DEFENDANT TO SPECIFICALLY
DENY, UNDER OATH, ALLEGATION OF USURY; REQUIREMENT DOES NOT
APPLY WHERE IT IS THE DEFENDANT, NOT THE PLAINTIFF, WHO ALLEGES
USURY; CASE AT BAR. The main thrust of defendants appeal is the allegation in
their Answer that the P6,000.00 constituted usurious interest. They insist the claim of
usury should have been deemed admitted by the plaintiff as it was "not denied
specifically and under oath" pursuant to Section 1, Rule 9 of the Rules of Court and
Section 9 of the Usury Law (Act 2655). The foregoing provision envisages a
complaint filed against an entity which has committed usury, for the recovery of the
usurious interest paid. In that case, if the entity sued shall not file its answer under
oath denying the allegation of usury, the defendant shall be deemed to have
admitted the usury. The provision does not apply to a case, as in the present, where
it is the defendant, not the plaintiff, who is alleging usury.
3. ID.; ID.; USURY, AT PRESENT, IS LEGALLY NON-EXISTENT, For sometime
now, usury has been legally non-existent. Interest can now be charged as lender and
borrower may agree upon (Central Bank Circular No. 905, Series of 1982, 78 Off.
Gaz. 7336). The Rules of Court in regards to allegations of usury, procedural in
nature, should be considered repealed with retroactive effect.

DECISION

MELENCIO-HERRERA, J.:

This is an appeal by defendants from a Decision rendered by the then Court of First
Instance of Bulacan. The appeal was originally taken to the then Court of Appeals,
which endorsed it to this instance stating that the issue involved was one of
law.chanrobles virtual lawlibrary
It appears that on or about September 7, 1957, plaintiff loaned P10,000.00, without
interest, to defendant partnership and defendant Elino Lee Chi, as the managing
partner. The loan became ultimately due on January 31, 1960, but was not paid on
that date, with the debtors asking for an extension of three months, or up to April 30,
1960.
On March 17, 1960, the parties executed another loan document. Payment of the
P10,000.00 was extended to April 30, 1960, but the obligation was increased by
P6,000.00 as follows:jgc:chanrobles.com.ph
"That the sum of SIX THOUSAND PESOS (P6,000.00), Philippine currency shall
form part of the principal obligation to answer for attorneys fees, legal interest, and
other cost incident thereto to be paid unto the creditor and his successors in interest
upon the termination of this agreement."cralaw virtua1aw library

principal obligation, but claimed that the additional P6,000.00 constituted usurious
interest.
Upon application of plaintiff, the Trial Court issued, on the same date of September
23, 1960, a writ of Attachment on real and personal properties of defendants located
at Karanglan, Nueva Ecija. After the Writ of Attachment was implemented,
proceedings before the Trial Court versed principally in regards to the
attachment.chanrobles virtual lawlibrary
On January 18, 1961, an Order was issued by the Trial Court stating that "after
considering the manifestation of both counsel in Chambers, the Court hereby allows
both parties to simultaneously submit a Motion for Summary Judgment. 1 The
plaintiff filed his Motion for Summary Judgment on January 31, 1961, while
defendants filed theirs on February 2, 1961. 2
On June 26, 1961, the Trial Court rendered decision ordering defendants to pay
plaintiff "the amount of P10,000.00 plus the further sum of P6,000.00 by way of
liquidated damages . . . with legal rate of interest on both amounts from April 30,
1960." It is from this judgment that defendants have appealed.
We have decided to affirm.
Under Article 1354 of the Civil Code, in regards to the agreement of the parties
relative to the P6,000.00 obligation, "it is presumed that it exists and is lawful, unless
the debtor proves the contrary." No evidentiary hearing having been held, it has to be
concluded that defendants had not proven that the P6,000.00 obligation was illegal.
Confirming the Trial Courts finding, we view the P6,000.00 obligation as liquidated
damages suffered by plaintiff, as of March 17, 1960, representing loss of interest
income, attorneys fees and incidentals.chanrobles law library : red
The main thrust of defendants appeal is the allegation in their Answer that the
P6,000.00 constituted usurious interest. They insist the claim of usury should have
been deemed admitted by plaintiff as it was "not denied specifically and under oath."
3
Section 9 of the Usury Law (Act 2655) provided:jgc:chanrobles.com.ph
"SEC. 9. The person or corporation sued shall file its answer in writing under oath to
any complaint brought or filed against said person or corporation before a competent
court to recover the money or other personal or real property, seeds or agricultural
products, charged or received in violation of the provisions of this Act. The lack of
taking an oath to an answer to a complaint will mean the admission of the facts
contained in the latter."cralaw virtua1aw library
The foregoing provision envisages a complaint filed against an entity which has
committed usury, for the recovery of the usurious interest paid. In that case, if the
entity sued shall not file its answer under oath denying the allegation of usury, the
defendant shall be deemed to have admitted the usury. The provision does not apply
to a case, as in the present, where it is the defendant, not the plaintiff, who is
alleging usury.chanrobles law library
Moreover, for sometime now, usury has been legally non-existent. Interest can now
be charged as lender and borrower may agree upon. 4 The Rules of Court in
regards to allegations of usury, procedural in nature, should be considered repealed
with retroactive effect.
"Statutes regulating the procedure of the courts will be construed as applicable to
actions pending and undetermined at the time of their passage. Procedural laws are
retrospective in that sense and to that extent." 5
". . . Section 24(d), Republic Act No. 876, known as the Arbitration Law, which took
effect on 19 December 1953, and may be retroactively applied to the case at bar
because it is procedural in nature . . ." 6
WHEREFORE, the appealed judgment is hereby affirmed, without pronouncement
as to costs.
SO ORDERED.

Defendants again failed to pay their obligation by April 30, 1960 and, on September
23, 1960, plaintiff instituted this collection case. Defendants admitted the P10,000.00

Page 14 of 58

[G.R. No. 101883. December 11, 1992.]

SPOUSES LYDIA and VIRGILIO MELITON, *, Petitioners, v. COURT OF
APPEALS and NELIA A. ZIGA, represented by her Attorney-in-Fact RAMON A.
AREJOLA, ** respondents.
Adan Marcelo B. Botor for Petitioner.

SYLLABUS

1. REMEDIAL LAW; COMPULSORY COUNTERCLAIM, TEST OF

"COMPULSORINESS." Considering Section 4 of Rule 9 of the Rules of Court, a
counterclaim is compulsory if (a) it arises out of, or is necessarily connected with, the
transaction or occurrence which is the subject matter of the opposing partys claim;
(b) it does not require for its adjudication the presence of third parties of whom the
court cannot acquire jurisdiction; and (c) the court has jurisdiction to entertain the
claim. It has been postulated that while a number of criteria have been advanced for
the determination of whether the counterclaim is compulsory or permissive, the "one
compelling test of compulsoriness" is the logical relationship between the claim
alleged in the complaint and that in the counterclaim, that is, where conducting
separate trials of the respective claims of the parties would entail a substantial
duplication of effort and time, as where they involve many of the same factual and/or
legal issues.
2. ID.; ID.; ID.; PHRASE "LOGICAL RELATIONSHIP," CONSTRUED. The phrase
"logical relationship" is given meaning by the purpose of the rule which it was
designed to implement. Thus, a counterclaim is logically related to the opposing
partys claim where, as already stated, separate trials of each of their respective
claims would involve a substantial duplication of effort and time by the parties and
the courts. Where multiple claims involve many of the same factual issues, or where
they are offshoots of the same basic controversy between the parties, fairness and
considerations of convenience and of economy require that the counterclaimant be
permitted to maintain his cause of action.
3. ID.; ACTION FOR RECOVERY OF POSSESSION OF REAL PROPERTY
SUBJECT MATTER OF COUNTERCLAIM IN CASE AT BAR. As we have ruled,
in actions for ejectment or for recovery of possession of real property, it is well
settled that the defendants claims for the value of the improvements on the property
or necessary expenses for its preservation are required to be interposed in the same
action as compulsory counterclaims. In such cases, it is the refusal of the defendant
to vacate or surrender possession of the premises that serves as the vital link in the
chain of facts and events, and which constitutes the transaction upon which the
plaintiff bases his cause of action. It is likewise an "important part of the transaction
constituting the subject matter of the counterclaim" of defendant for the value of the
improvements or the necessary expenses incurred for the preservation of the
property. They are offshoots of the same basic controversy between the parties, that
is, the right of either to the possession of the property.
4. ID.; ID.; INSTANCES WHEN COUNTERCLAIM NOT SET UP SHALL BE
BARRED UNDER SEC. 4, RULE 9, RULES OF COURT. It is indeed the rule,
embodied in Section 4, Rule 9 of the Rules of Court, that a counterclaim not set up
shall be barred if it arises out of or is necessarily connected with the transaction or
occurrence that is the subject matter of the opposing partys claim and does not
require for its adjudication the presence of third parties of whom the court cannot
acquire jurisdiction.
5. ID.; RES JUDICATA; REQUISITES. In order that a prior judgment will
constitute a bar to a subsequent case, the following requisites must concur: (1) the
judgment must be final; (2) the judgment must have been rendered by a court having
jurisdiction over the subject matter and the parties; (3) the judgment must be on the
merits; and (4) there must be between the first and second actions, identity of
parties, of subject matter, and of causes of action.
6. ID.; DISMISSAL OF CASE WITHOUT PREJUDICE; EXPLAINED. The
dismissal of the case without prejudice indicates the absence of a decision on the
merits and leaves the parties free to litigate the matter in a subsequent action as
though the dismissal action had not been commenced. The discontinuance of a case

not on the merits does not bar another action on the same subject matter. Evidently,
therefore, the prior dismissal of herein petitioners counterclaims is not res judicata
and will not bar the filing of another action based on the same causes of action.
7. ID.; DISMISSAL OF ACTIONS AFTER FILING OF ANSWER; GOVERNING
RULE. As laid down in Rule 17 of the Rules of Court, which is summarized as
follows: An action shall not be dismissed at the request of the plaintiff after the
service of the answer, except by order of the court and upon such terms and
conditions as the court deems proper. The trial court has the judicial discretion in
ruling on a motion to dismiss at the instance of the plaintiff. It has to decide whether
the dismissal of the case should be allowed, and if so, on what terms and conditions.
8. CIVIL LAW; ACTION FOR DAMAGES FOR VIOLATION OF LEASE
AGREEMENT; CASE AT BAR. Specifically applicable in a lessor-lessee
relationship is authorized in Article 1659 of the Civil Code which provides that: "Art.
1659. If the lessor or the lessee should not comply with the obligations set forth in
articles 1654 and 1657, the aggrieved party may ask for the rescission of the
contract and indemnification for damages, or only the latter, allowing the contract to
remain in force." The act of private respondent in demolishing the structures
introduced by petitioners on the property leased and the improvements therein
during the existence of the lease contract is a clear violation by her, as lessor, of her
obligation mandated by paragraph 3, Article 1654 of the Civil Code. The said
violation gave rise to a cause of action for damages in favor of herein petitioners.
9. REMEDIAL LAW; DISMISSAL OF COUNTERCLAIM FOR NON-PAYMENT OF
DOCKET FEES; RULING IN MANCHESTER CASE APPLIES TO PERMISSIVE
COUNTERCLAIMS ONLY. The court a quo dismissed petitioners counterclaims
for non-payment of docket fees pursuant to our then ruling in Manchester
Development Corporation, Et Al., v. Court of Appeals, Et Al., before its modification.
The failure of petitioners to seek reconsideration of or to take an appeal from the
order of dismissal of the counterclaim should not prejudice their right to file their
claims in a separate action because they were thereby made to understand and
believe that their counterclaims were merely permissive and could be the subject of
a separate and independent action. Under the Rules, there is no need to pay docket
fee for a compulsory counterclaim. The ruling in Manchester applies specifically to
permissive counterclaims only, thereby excluding compulsory counterclaims from its
purview, and that was the ruling of the court below to which the litigants therein
submitted. Had the trial court correctly specified that petitioners counterclaims were
compulsory, petitioners could have objected to the dismissal sought by private
respondent on the ground that said counterclaims could not remain pending for
independent adjudication.
10. ID.; RULES ON PROCEDURE; SHOULD BE LIBERALLY CONSTRUED TO
THE END THAT NO PARTY SHOULD BE DEPRIVED OF HIS DAY IN COURT ON
TECHNICALITIES. This, is one case where it is necessary to heed the injunction
that the rules of procedure are not to be applied in a rigid and technical sense. After
all, rules of procedure are used only to help secure substantial justice. They cannot
be applied to prevent the achievement of that goal. Form cannot and should not
prevail over substance. Absent a specific requirement for stringent application, the
Rules of Court are to be liberally construed to the end that no party shall be deprived
of his day in court on technicalities. The courts in our jurisdiction are tribunals both of
law and equity. Hence, under the antecedents of this case, we are persuaded that
even if only to approximate that desirable measure of justice we are sworn to
dispense, this controversy should be resolved on the merits.

DECISION

REGALADO, J.:

In its judgment in CA-G.R. No. 25091 1 promulgated on August 9, 1991, respondent

Court of Appeals annulled and set aside the orders dated February 22, 1991 and
March 18, 1991 of the Regional Trial Court of Naga City, Branch 27, in Civil Case
No. RTC 89-1942 thereof and ordered the dismissal of petitioners complaint filed
therein, hence this appeal by certiorari.
On June 22, 1988, private respondent Nelia Ziga, in her own behalf and as attorney-

Page 15 of 58

in-fact of Alex A. Ziga and Emma A. Ziga-Siy, filed a complaint, docketed as Civil
Case No. RTC 88-1480 of the Regional Trial Court, Branch 27, Naga City, 2 against
herein petitioner Lydia Meliton for rescission of a contract of lease over a parcel of
land situated at Elias Angeles Street, Naga City. Alleged as grounds therefor were
said petitioners failure, as lessee, to deposit the one month rental and to pay the
monthly rentals due; her construction of a concrete wall and roof on the site of a
demolished house on the leased premises without the lessors written consent; and
her unauthorized sublease of the leased property to a third
party.chanrobles.com.ph : virtual law library
On July 29, 1988, petitioner Lydia Meliton filed an answer to the complaint denying
the material averments thereof and setting up three counterclaims for recovery of the
value of her kitchenette constructed on the leased parcel of land and which was
demolished by private respondent, in the amount of P34,000.00; the value of the
improvements introduced in the kitchenette to beautify it, in the amount of
P10,000.00, plus the value of the furniture and fixtures purchased for use in the
kitchenette in the amount of P23,000.00; and moral damages in the amount of
P20,000.00 aside from attorneys fees of P50,000.00 and P250.00 per court
appearance, with litigation expenses in the amount of P1,000.00. 3
On May 29, 1989, the trial court, on motion of private respondent contending that her
cause of action had already become moot and academic by the expiration of the
lease contract on February 7, 1989, dismissed the complaint. The counterclaims of
petitioner Lydia Meliton were also dismissed for non-payment of the docket fees,
ergo the trial courts holding that thereby it had not acquired jurisdiction over the
same. 4
On December 6, 1989, petitioners Lydia Meliton and Virgilio Meliton filed a complaint
against private respondent for recovery of the same amounts involved and alleged in
their counterclaims in Civil Case No. RTC 88-1480, which complaint was docketed
as Civil Case No. RTC 89-1942 5 and likewise assigned to Branch 27 of the same
trial court.
On February 15, 1991, private respondent filed a motion to dismiss the complaint on
the ground that the cause of action therein was barred by prior judgment in Civil
Case No. RTC 88-1480, the order of dismissal wherein was rendered on May 29,
1989. 6
On February 22, 1991, the court below denied private respondents motion to
dismiss the complaint in Civil Case No. RTC 89-1942 on the ground that the
dismissal of the petitioners counterclaims in Civil Case No. RTC 88-1480 is not an
adjudication on the merits as the court did not acquire jurisdiction over the
counterclaims for failure of petitioner Lydia Meliton to pay the docket fees, hence the
said dismissal does not constitute a bar to the filing of the later complaint. 7
Private respondents motion for reconsideration of the foregoing order was denied by
the lower court for lack of merit in its order of March 18, 1991. 8 Dissatisfied
therewith, private respondent file a petition for certiorari with this Court. In our
resolution dated April 29, 1991, we referred this case to the Court of Appeals for
proper determination and disposition pursuant to Section 9, paragraph 1 of B.P. Blg.
129, 9 where it was docketed as CA-G.R. SP No. 25093.
In a decision promulgated on August 9, 1991, the Court of Appeals granted the
petition, the pertinent part of which reads:chanrob1es virtual 1aw library
x

"The respondents counterclaim against the petitioner in Civil Case No. RTC 88-1480
(Annex E, petition) is a compulsory counterclaim, it having (arisen) out of or being
necessarily connected with the transaction or occurrence subject matter of the
petitioners complaint. The failure of the respondents to seek a reconsideration of the
dismissal of their counterclaim or to take an appeal therefrom rendered the dismissal
final. Such dismissal barred the prosecution of their counterclaim by another action
(Section 4, Rule 9, Revised Rules of Court; Javier v. IAC, 171 SCRA 605).
"The respondent Court, therefore, in issuing the orders complained of (Annexes G
and I, petition), gravely abused its discretion amounting to lack of jurisdiction.
"WHEREFORE, the petition for certiorari is GRANTED. Accordingly, the orders

complained of (Annexes G and I, petition) are annuled and set aside and the
respondents complaint in Civil Case No. RTC 89-1942 before the respondent Court,
DISMISSED. Costs against the respondents, except the respondent Court." 10
Petitioners are now before us, assailing the said judgment of the Court of Appeals
and praying for the annulment thereof.
The present petition requires the resolution of two principal issues, to wit: (1)
whether or not the counterclaims of petitioners are compulsory in nature; and (2)
whether or not petitioners, having failed to seek reconsideration of or to take an
appeal from the order of dismissal of their counterclaims, are already barred from
asserting the same in another action.
1. Considering Section 4 of Rule 9 of the Rules of Court, a counterclaim is
compulsory if (a) it arises out of, or is necessarily connected with, the transaction or
occurrence which is the subject matter of the opposing partys claim; (b) it does not
require for its adjudication the presence of third parties of whom the court cannot
acquire jurisdiction; and (c) the court has jurisdiction to entertain the claim.
It has been postulated that while a number of criteria have been advanced for the
determination of whether the counterclaim is compulsory or permissive, the "one
compelling test of compulsoriness" is the logical relationship between the claim
alleged in the complaint and that in the counterclaim, that is, where conducting
separate trials of the respective claims of the parties would entail a substantial
duplication of effort and time, as where they involve many of the same factual and/or
legal issues.
The phrase "logical relationship" is given meaning by the purpose of the rule which it
was designed to implement. Thus, a counterclaim is logically related to the opposing
partys claim where, as already stated, separate trials of each of their respective
claims would involve a substantial duplication of effort and time by the parties and
the courts. Where multiple claims involve many of the same factual issues, or where
they are offshoots of the same basic controversy between the parties, fairness and
considerations of convenience and of economy require that the counterclaimant be
permitted to maintain his cause of action. 11
In the aforesaid Civil Case No. 88-1480, all the requisites of a compulsory
counterclaim are present. The counterclaims, as this term is now broadly defined,
are logically related to the complaint. Private respondents complaint was for
rescission of the contract of lease due to petitioner Lydia Melitons breach of her
obligations under the said contract. On the other hand, petitioners counterclaims
were for damages for unlawful demolition of the improvements she introduced
pursuant to her leasehold occupancy of the premises, as well as for the filing of that
civil suit which is contended to be clearly unfounded.chanrobles law library
Both the claims therein of petitioners and private respondent arose from the same
contract of lease. The rights and obligations of the parties, as well as their potential
liability for damages, emanated from the same contractual relation. Petitioners right
to claim damages for the unlawful demolition of the improvements they introduced
on the land was based on their right of possession under the contract of lease which
is precisely the very same contract sought to be rescinded by private respondent in
her complaint. The two actions are but the consequences of the reciprocal
obligations imposed by law upon and assumed by the parties under their aforesaid
lease contract. That contract of lease pleaded by private respondent constitutes the
foundation and basis relied on by both parties for recovery of their respective claims.
The relationship between petitioners counterclaims and private respondents
complaint is substantially the same as that which exists between a complaint for
recovery of land by the owner and the claim for improvements introduced therein by
the possessor. As we have ruled, in actions for ejectment or for recovery of
possession of real property, it is well settled that the defendants claims for the value
of the improvements on the property or necessary expenses for its preservation are
required to be interposed in the same action as compulsory counterclaims. In such
cases, it is the refusal of the defendant to vacate or surrender possession of the
premises that serves as the vital link in the chain of facts and events, and which
constitutes the transaction upon which the plaintiff bases his cause of action. It is
likewise an "important part of the transaction constituting the subject matter of the
counterclaim" of defendant for the value of the improvements or the necessary
expenses incurred for the preservation of the property. They are offshoots of the
same basic controversy between the parties, that is, the right of either to the

Page 16 of 58

possession of the property. 12

On the foregoing considerations, respondent Court of Appeals correctly held that the
counterclaims of petitioners are compulsory in nature.
2. Petitioners having alleged compulsory counterclaims, the next point of inquiry is
whether or not petitioners are already barred from asserting said claims in a
separate suit, the same having being dismissed in the preceding one. The answer is
in the negative.
It is indeed the rule, embodied in Section 4, Rule 9 of the Rules of Court, that a
counterclaim not set up shall be barred if it arises out of or is necessarily connected
with the transaction or occurrence that is the subject matter of the opposing partys
claim and does not require for its adjudication the presence of third parties of whom
the court cannot acquire jurisdiction. However, said rule is not applicable to the case
at bar.
Contrary to the claim of private respondent, it cannot be said that herein petitioners
failed to duly interpose their causes of action as counterclaims in the previous action.
Petitioners claims were duly set up as counterclaims in the prior case but the same
were dismissed by reason of non-payment of docket fees. The ruling of respondent
Court of Appeals to the effect that the failure of petitioners to appeal or to move for
reconsideration of the said order of dismissal bars them from asserting their claims
in another action cannot be upheld.
Firstly, where a compulsory counterclaim is made the subject of a separate suit, it
may be abated upon a plea of auter action pendant or litis pendentia and/or
dismissed on the ground of res judicata, 13 depending on the stage or status of the
other suit.
Both defenses are unavailing to private respondents. The present action cannot be
dismissed either on the ground of litis pendentia since there is no other pending
action between the same parties and for the same cause, nor on the ground of res
judicata.
In order that a prior judgment will constitute a bar to a subsequent case, the
following requisites must concur: (1) the judgment must be final; (2) the judgment
must have been rendered by a court having jurisdiction over the subject matter and
the parties; (3) the judgment must be on the merits; and (4) there must be between
the first and second actions, identity of parties, of subject matter, and of causes of
action. 14
The first case, Civil Case No. RTC 88-1480, was dismissed upon motion of private
respondent, plaintiff therein, under Section 2 of Rule 17. Dismissal thereunder is
without prejudice, except when otherwise stated in the motion to dismiss or when
stated to be with prejudice in the order of the court. 15 The order of dismissal of the
first case was unqualified, hence without prejudice and, therefore, does not have the
effect of an adjudication on the merits. On a parity of rationale, the same rule should
apply to a counterclaim duly interposed therein and which is likewise dismissed but
not on the merits thereof.chanrobles lawlibrary : rednad
Moreover, in the same order of dismissal of the complaint, the counterclaims of
herein petitioners were dismissed by reason of the fact that the court a quo had not
acquired jurisdiction over the same for non-payment of the docket fees. On that
score, the said dismissal was also without prejudice, since a dismissal on the ground
of lack of jurisdiction does not constitute res judicata, 16 there having been no
consideration and adjudication of the case on the merits.
The dismissal of the case without prejudice indicates the absence of a decision on
the merits and leaves the parties free to litigate the matter in a subsequent action as
though the dismissal action had not been commenced. 17 The discontinuance of a
case not on the merits does not bar another action on the same subject matter. 18
Evidently, therefore, the prior dismissal of herein petitioners counterclaims is not res
judicata and will not bar the filing of another action based on the same causes of
action.
Secondly, a reading of the order of dismissal will show that the trial court, in
dismissing the complaint of private respondent, did not intend to prejudice the claims
of petitioners by barring the subsequent judicial enforcement thereof. As stated
therein," (t)he court in dismissing the counterclaim(s) has taken into account the fact

that a counterclaim partakes of the nature of a complaint and/or a cause of action

against the plaintiffs." 19 This is a clear indication, deducible by necessary
implication, that the lower court was aware of the fact that petitioners could avail of
the causes of action in said counterclaims in a subsequent independent suit based
thereon and that there was no legal obstacle thereto. That this was the import and
intendment of that statement in its order dismissing petitioners counterclaims in Civil
Case No. RTC 88-1480 was categorically confirmed by the very same court, wherein
Civil Case No. RTC 89-1942 was also subsequently filed, in its assailed orders
denying private respondents motion to dismiss the latter case on the ground of res
judicata.
This is also concordant with the rule governing dismissal of actions by the plaintiff
after the answer has been served as laid down in Rule 17 of the Rules of Court,
which is summarized as follows: An action shall not be dismissed at the request of
the plaintiff after the service of the answer, except by order of the court and upon
such terms and conditions as the court deems proper. The trial court has the judicial
discretion in ruling on a motion to dismiss at the instance of the plaintiff. It has to
decide whether the dismissal of the case should be allowed, and if so, on what terms
and conditions. 20
In dismissing private respondents complaint, the trial court could not but have
reserved to petitioners, as a condition for such dismissal, the right to maintain a
separate action for damages. Petitioners claims for damages in the three
counterclaims interposed in said case, although in the nature of compulsory
counterclaims but in light of the aforesaid reservation in the dismissal order, are
consequently independent causes of action which can be the subject of a separate
action against private Respondent.
An action for damages specifically applicable in a lessor-lessee relationship is
authorized in Article 1659 of the Civil Code which provides
that:jgc:chanrobles.com.ph
"ARTICLE 1659. If the lessor or the lessee should not comply with the obligations set
forth in articles 1654 and 1657, the aggrieved party may ask for the rescission of the
contract and indemnification for damages, or only the latter, allowing the contract to
remain in force."cralaw virtua1aw library
Paragraph 3 of Article 1654 of the same Code requires that the lessor must
"maintain the lessee in the peaceful and adequate enjoyment of the lease for the
entire duration of the contract." 21 The aggrieved party has the alternative remedies,
in case of contractual breach, of rescission with damages, or for damages only
"allowing the contract to remain in force."cralaw virtua1aw library
The act of private respondent in demolishing the structures introduced by petitioners
on the property leased and the improvements therein during the existence of the
lease contract is a clear violation by her, as lessor, of her obligation mandated by
paragraph 3, Article 1654 of the Civil Code. The said violation gave rise to a cause of
action for damages in favor of herein petitioners.
Lastly, even assuming arguendo that the bar under the rule on compulsory
counterclaims may be invoked, the peculiar circumstances of this case irresistibly
and justifiedly warrant the relaxation of such rule.
The court a quo dismissed petitioners counterclaims for non-payment of docket fees
pursuant to our then ruling in Manchester Development Corporation, Et Al., v. Court
of Appeals, Et Al., 22 before its modification. The failure of petitioners to seek
reconsideration of or to take an appeal from the order of dismissal of the
counterclaim should not prejudice their right to file their claims in a separate action
because they were thereby made to understand and believe that their counterclaims
were merely permissive and could be the subject of a separate and independent
action. Under the Rules, there is no need to pay docket fee for a compulsory
counterclaim. 23 The ruling in Manchester applies specifically to permissive
counterclaims only, thereby excluding compulsory counterclaims from its purview, 24
and that was the ruling of the court below to which the litigants therein submitted.
Had the trial court correctly specified that petitioners counterclaims were
compulsory, petitioners could have objected to the dismissal sought by private
respondent on the ground that said counterclaims could not remain pending for
independent adjudication.25cralaw:red
Furthermore, under the Manchester doctrine, the defect cannot be cured by an

Page 17 of 58

amendment of the complaint or similar pleadings, much less the payment of the
docket fee. Hence, the only remedy left for the petitioners was to file a separate
action for their claims and to pay the prescribed docket fees therein within the
applicable and reglementary period, which is what they did in the case at bar in
obedience and deference to the judicial mandate laid down in their case. At any rate,
the ambivalent positions adopted by the lower court can be considered cured by
what we have construed as effectively a reservation in its order of dismissal for the
filing of a complaint based on the causes of action in the dismissed
counterclaims.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph
This, then, is one case where it is necessary to heed the injunction that the rules of
procedure are not to be applied in a rigid and technical sense. After all, rules of
procedure are used only to help secure substantial justice. They cannot be applied
to prevent the achievement of that goal. Form cannot and should not prevail over
substance. 26 Absent a specific requirement for stringent application, the Rules of
Court are to be liberally construed to the end that no party shall be deprived of his
day in court on technicalities. The courts in our jurisdiction are tribunals both of law
and equity. Hence, under the antecedents of this case, we are persuaded that even
if only to approximate that desirable measure of justice we are sworn to dispense,
this controversy should be resolved on the merits.
WHEREFORE, the questioned judgment of respondent Court of Appeals is hereby
REVERSED and SET ASIDE. Civil Case No. RTC 89-1942 is hereby REINSTATED
and the Regional Trial Court of Naga City, Branch 27, or wherever the case has
been assigned, is directed to proceed with deliberate dispatch in the adjudication
thereof.
SO ORDERED.

Page 18 of 58

[G.R. NO. 143581 - January 7, 2008]

KOREA TECHNOLOGIES CO., LTD., Petitioner, v. HON. ALBERTO A. LERMA, in
his capacity as Presiding Judge of Branch 256 of Regional Trial Court of
Muntinlupa City, and PACIFIC GENERAL STEEL MANUFACTURING
CORPORATION, Respondents.
DECISION
VELASCO, JR., J.:
In our jurisdiction, the policy is to favor alternative methods of resolving disputes,
particularly in civil and commercial disputes. Arbitration along with mediation,
conciliation, and negotiation, being inexpensive, speedy and less hostile methods
have long been favored by this Court. The petition before us puts at issue an
arbitration clause in a contract mutually agreed upon by the parties stipulating that
they would submit themselves to arbitration in a foreign country. Regrettably, instead
of hastening the resolution of their dispute, the parties wittingly or unwittingly
prolonged the controversy.
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is
engaged in the supply and installation of Liquefied Petroleum Gas (LPG) Cylinder
manufacturing plants, while private respondent Pacific General Steel Manufacturing
Corp. (PGSMC) is a domestic corporation.
On March 5, 1997, PGSMC and KOGIES executed a Contract1 whereby KOGIES
would set up an LPG Cylinder Manufacturing Plant in Carmona, Cavite. The contract
was executed in the Philippines. On April 7, 1997, the parties executed, in Korea, an
Amendment for Contract No. KLP-970301 dated March 5, 19972 amending the terms
of payment. The contract and its amendment stipulated that KOGIES will ship the
machinery and facilities necessary for manufacturing LPG cylinders for which
PGSMC would pay USD 1,224,000. KOGIES would install and initiate the operation
of the plant for which PGSMC bound itself to pay USD 306,000 upon the plant's
production of the 11-kg. LPG cylinder samples. Thus, the total contract price
amounted to USD 1,530,000.
On October 14, 1997, PGSMC entered into a Contract of Lease3 with Worth
Properties, Inc. (Worth) for use of Worth's 5,079-square meter property with a 4,032square meter warehouse building to house the LPG manufacturing plant. The
monthly rental was PhP 322,560 commencing on January 1, 1998 with a 10%
annual increment clause. Subsequently, the machineries, equipment, and facilities
for the manufacture of LPG cylinders were shipped, delivered, and installed in the
Carmona plant. PGSMC paid KOGIES USD 1,224,000.
However, gleaned from the Certificate4 executed by the parties on January 22, 1998,
after the installation of the plant, the initial operation could not be conducted as
PGSMC encountered financial difficulties affecting the supply of materials, thus
forcing the parties to agree that KOGIES would be deemed to have completely
complied with the terms and conditions of the March 5, 1997 contract.
For the remaining balance of USD306,000 for the installation and initial operation of
the plant, PGSMC issued two postdated checks: (1) BPI Check No. 0316412 dated
January 30, 1998 for PhP 4,500,000; and (2) BPI Check No. 0316413 dated March
30, 1998 for PhP 4,500,000.5
When KOGIES deposited the checks, these were dishonored for the reason
"PAYMENT STOPPED." Thus, on May 8, 1998, KOGIES sent a demand letter6 to
PGSMC threatening criminal action for violation of Batas Pambansa Blg. 22 in case
of nonpayment. On the same date, the wife of PGSMC's President faxed a letter

dated May 7, 1998 to KOGIES' President who was then staying at a Makati City
hotel. She complained that not only did KOGIES deliver a different brand of hydraulic
press from that agreed upon but it had not delivered several equipment parts already
paid for.
On May 14, 1998, PGSMC replied that the two checks it issued KOGIES were fully
funded but the payments were stopped for reasons previously made known to
KOGIES.7
On June 1, 1998, PGSMC informed KOGIES that PGSMC was canceling their
Contract dated March 5, 1997 on the ground that KOGIES had altered the quantity
and lowered the quality of the machineries and equipment it delivered to PGSMC,
and that PGSMC would dismantle and transfer the machineries, equipment, and
facilities installed in the Carmona plant. Five days later, PGSMC filed before the
Office of the Public Prosecutor an Affidavit-Complaint for Estafa docketed as I.S. No.
98-03813 against Mr. Dae Hyun Kang, President of KOGIES.
On June 15, 1998, KOGIES wrote PGSMC informing the latter that PGSMC could
not unilaterally rescind their contract nor dismantle and transfer the machineries and
equipment on mere imagined violations by KOGIES. It also insisted that their
disputes should be settled by arbitration as agreed upon in Article 15, the arbitration
clause of their contract.
On June 23, 1998, PGSMC again wrote KOGIES reiterating the contents of its June
1, 1998 letter threatening that the machineries, equipment, and facilities installed in
the plant would be dismantled and transferred on July 4, 1998. Thus, on July 1,
1998, KOGIES instituted an Application for Arbitration before the Korean Commercial
Arbitration Board (KCAB) in Seoul, Korea pursuant to Art. 15 of the Contract as
amended.
On July 3, 1998, KOGIES filed a Complaint for Specific Performance, docketed as
Civil Case No. 98-1178 against PGSMC before the Muntinlupa City Regional Trial
Court (RTC). The RTC granted a temporary restraining order (TRO) on July 4, 1998,
which was subsequently extended until July 22, 1998. In its complaint, KOGIES
alleged that PGSMC had initially admitted that the checks that were stopped were
not funded but later on claimed that it stopped payment of the checks for the reason
that "their value was not received" as the former allegedly breached their contract by
"altering the quantity and lowering the quality of the machinery and equipment"
installed in the plant and failed to make the plant operational although it earlier
certified to the contrary as shown in a January 22, 1998 Certificate. Likewise,
KOGIES averred that PGSMC violated Art. 15 of their Contract, as amended, by
unilaterally rescinding the contract without resorting to arbitration. KOGIES also
asked that PGSMC be restrained from dismantling and transferring the machinery
and equipment installed in the plant which the latter threatened to do on July 4,
1998.
On July 9, 1998, PGSMC filed an opposition to the TRO arguing that KOGIES was
not entitled to the TRO since Art. 15, the arbitration clause, was null and void for
being against public policy as it ousts the local courts of jurisdiction over the instant
controversy.
On July 17, 1998, PGSMC filed its Answer with Compulsory Counterclaim9 asserting
that it had the full right to dismantle and transfer the machineries and equipment
because it had paid for them in full as stipulated in the contract; that KOGIES was
not entitled to the PhP 9,000,000 covered by the checks for failing to completely
install and make the plant operational; and that KOGIES was liable for damages
amounting to PhP 4,500,000 for altering the quantity and lowering the quality of the
machineries and equipment. Moreover, PGSMC averred that it has already paid PhP
2,257,920 in rent (covering January to July 1998) to Worth and it was not willing to

Page 19 of 58

further shoulder the cost of renting the premises of the plant considering that the
LPG cylinder manufacturing plant never became operational.
After the parties submitted their Memoranda, on July 23, 1998, the RTC issued an
Order denying the application for a writ of preliminary injunction, reasoning that
PGSMC had paid KOGIES USD 1,224,000, the value of the machineries and
equipment as shown in the contract such that KOGIES no longer had proprietary
rights over them. And finally, the RTC held that Art. 15 of the Contract as amended
was invalid as it tended to oust the trial court or any other court jurisdiction over any
dispute that may arise between the parties. KOGIES' prayer for an injunctive writ
was denied.10 The dispositive portion of the Order stated:
WHEREFORE, in view of the foregoing consideration, this Court believes and so
holds that no cogent reason exists for this Court to grant the writ of preliminary
injunction to restrain and refrain defendant from dismantling the machineries and
facilities at the lot and building of Worth Properties, Incorporated at Carmona, Cavite
and transfer the same to another site: and therefore denies plaintiff's application for a
writ of preliminary injunction.
On July 29, 1998, KOGIES filed its Reply to Answer and Answer to
Counterclaim.11 KOGIES denied it had altered the quantity and lowered the quality of
the machinery, equipment, and facilities it delivered to the plant. It claimed that it had
performed all the undertakings under the contract and had already produced certified
samples of LPG cylinders. It averred that whatever was unfinished was PGSMC's
fault since it failed to procure raw materials due to lack of funds. KOGIES, relying
on Chung Fu Industries (Phils.), Inc. v. Court of Appeals,12 insisted that the arbitration
clause was without question valid.
After KOGIES filed a Supplemental Memorandum with Motion to
Dismiss13 answering PGSMC's memorandum of July 22, 1998 and seeking dismissal
of PGSMC's counterclaims, KOGIES, on August 4, 1998, filed its Motion for
Reconsideration14 of the July 23, 1998 Order denying its application for an injunctive
writ claiming that the contract was not merely for machinery and facilities worth USD
1,224,000 but was for the sale of an "LPG manufacturing plant" consisting of "supply
of all the machinery and facilities" and "transfer of technology" for a total contract
price of USD 1,530,000 such that the dismantling and transfer of the machinery and
facilities would result in the dismantling and transfer of the very plant itself to the
great prejudice of KOGIES as the still unpaid owner/seller of the plant. Moreover,
KOGIES points out that the arbitration clause under Art. 15 of the Contract as
amended was a valid arbitration stipulation under Art. 2044 of the Civil Code and as
held by this Court in Chung Fu Industries (Phils.), Inc.15
In the meantime, PGSMC filed a Motion for Inspection of Things16 to determine
whether there was indeed alteration of the quantity and lowering of quality of the
machineries and equipment, and whether these were properly installed. KOGIES
opposed the motion positing that the queries and issues raised in the motion for
inspection fell under the coverage of the arbitration clause in their contract.
On September 21, 1998, the trial court issued an Order (1) granting PGSMC's
motion for inspection; (2) denying KOGIES' motion for reconsideration of the July 23,
1998 RTC Order; and (3) denying KOGIES' motion to dismiss PGSMC's compulsory
counterclaims as these counterclaims fell within the requisites of compulsory
counterclaims.
On October 2, 1998, KOGIES filed an Urgent Motion for Reconsideration17 of the
September 21, 1998 RTC Order granting inspection of the plant and denying
dismissal of PGSMC's compulsory counterclaims.

Ten days after, on October 12, 1998, without waiting for the resolution of its October
2, 1998 urgent motion for reconsideration, KOGIES filed before the Court of Appeals
(CA) a petition for certiorari 18docketed as CA-G.R. SP No. 49249, seeking
annulment of the July 23, 1998 and September 21, 1998 RTC Orders and praying
for the issuance of writs of prohibition, mandamus, and preliminary injunction to
enjoin the RTC and PGSMC from inspecting, dismantling, and transferring the
machineries and equipment in the Carmona plant, and to direct the RTC to enforce
the specific agreement on arbitration to resolve the dispute.
In the meantime, on October 19, 1998, the RTC denied KOGIES' urgent motion for
reconsideration and directed the Branch Sheriff to proceed with the inspection of the
machineries and equipment in the plant on October 28, 1998.19
Thereafter, KOGIES filed a Supplement to the Petition20 in CA-G.R. SP No. 49249
informing the CA about the October 19, 1998 RTC Order. It also reiterated its prayer
for the issuance of the writs of prohibition, mandamus and preliminary injunction
which was not acted upon by the CA. KOGIES asserted that the Branch Sheriff did
not have the technical expertise to ascertain whether or not the machineries and
equipment conformed to the specifications in the contract and were properly
installed.
On November 11, 1998, the Branch Sheriff filed his Sheriff's Report21 finding that the
enumerated machineries and equipment were not fully and properly installed.
The Court of Appeals affirmed the trial court and declared
the arbitration clause against public policy
On May 30, 2000, the CA rendered the assailed Decision22 affirming the RTC Orders
and dismissing the petition for certiorari filed by KOGIES. The CA found that the RTC
did not gravely abuse its discretion in issuing the assailed July 23, 1998 and
September 21, 1998 Orders. Moreover, the CA reasoned that KOGIES' contention
that the total contract price for USD 1,530,000 was for the whole plant and had not
been fully paid was contrary to the finding of the RTC that PGSMC fully paid the
price of USD 1,224,000, which was for all the machineries and equipment. According
to the CA, this determination by the RTC was a factual finding beyond the ambit of a
petition for certiorari .
On the issue of the validity of the arbitration clause, the CA agreed with the lower
court that an arbitration clause which provided for a final determination of the legal
rights of the parties to the contract by arbitration was against public policy.
On the issue of nonpayment of docket fees and non-attachment of a certificate of
non-forum shopping by PGSMC, the CA held that the counterclaims of PGSMC were
compulsory ones and payment of docket fees was not required since the Answer
with counterclaim was not an initiatory pleading. For the same reason, the CA said a
certificate of non-forum shopping was also not required.
Furthermore, the CA held that the petition for certiorari had been filed prematurely
since KOGIES did not wait for the resolution of its urgent motion for reconsideration
of the September 21, 1998 RTC Order which was the plain, speedy, and adequate
remedy available. According to the CA, the RTC must be given the opportunity to
correct any alleged error it has committed, and that since the assailed orders were
interlocutory, these cannot be the subject of a petition for certiorari .
Hence, we have this Petition for Review on Certiorari under Rule 45.
The Issues
Petitioner posits that the appellate court committed the following errors:

Page 20 of 58

A. PRONOUNCING THE QUESTION OF OWNERSHIP OVER THE MACHINERY

AND FACILITIES AS "A QUESTION OF FACT" "BEYOND THE AMBIT OF A
PETITION FOR CERTIORARI" INTENDED ONLY FOR CORRECTION OF
ERRORS OF JURISDICTION OR GRAVE ABUSE OF DISCRETION AMOUNTING
TO LACK OF (SIC) EXCESS OF JURISDICTION, AND CONCLUDING THAT THE
TRIAL COURT'S FINDING ON THE SAME QUESTION WAS IMPROPERLY
RAISED IN THE PETITION BELOW;

As to the failure to submit a certificate of forum shopping, PGSMC's Answer is not an

initiatory pleading which requires a certification against forum shopping under Sec.
524 of Rule 7, 1997 Revised Rules of Civil Procedure. It is a responsive pleading,
hence, the courts a quo did not commit reversible error in denying KOGIES' motion
to dismiss PGSMC's compulsory counterclaims.

b. DECLARING AS NULL AND VOID THE ARBITRATION CLAUSE IN ARTICLE 15

OF THE CONTRACT BETWEEN THE PARTIES FOR BEING "CONTRARY TO
PUBLIC POLICY" AND FOR OUSTING THE COURTS OF JURISDICTION;

Citing Gamboa v. Cruz,25 the CA also pronounced that "certiorari and Prohibition are
neither the remedies to question the propriety of an interlocutory order of the trial
court."26 The CA erred on its reliance on Gamboa. Gamboa involved the denial of a
motion to acquit in a criminal case which was not assailable in an action
for certiorari since the denial of a motion to quash required the accused to plead and
to continue with the trial, and whatever objections the accused had in his motion to
quash can then be used as part of his defense and subsequently can be raised as
errors on his appeal if the judgment of the trial court is adverse to him. The general
rule is that interlocutory orders cannot be challenged by an appeal.27 Thus,
in Yamaoka v. Pescarich Manufacturing Corporation, we held:

c. DECREEING PRIVATE RESPONDENT'S COUNTERCLAIMS TO BE ALL

COMPULSORY NOT NECESSITATING PAYMENT OF DOCKET FEES AND
CERTIFICATION OF NON-FORUM SHOPPING;
d. RULING THAT THE PETITION WAS FILED PREMATURELY WITHOUT WAITING
FOR THE RESOLUTION OF THE MOTION FOR RECONSIDERATION OF THE
ORDER DATED SEPTEMBER 21, 1998 OR WITHOUT GIVING THE TRIAL COURT
AN OPPORTUNITY TO CORRECT ITSELF;
e. PROCLAIMING THE TWO ORDERS DATED JULY 23 AND SEPTEMBER 21,
1998 NOT TO BE PROPER SUBJECTS OF CERTIORARI AND PROHIBITION FOR
BEING "INTERLOCUTORY IN NATURE;"
f. NOT GRANTING THE RELIEFS AND REMEDIES PRAYED FOR IN HE (SIC)
PETITION AND, INSTEAD, DISMISSING THE SAME FOR ALLEGEDLY "WITHOUT
MERIT."23
The Court's Ruling
The petition is partly meritorious.
Before we delve into the substantive issues, we shall first tackle the procedural
issues.
The rules on the payment of docket fees for counterclaims
and cross claims were amended effective August 16, 2004
KOGIES strongly argues that when PGSMC filed the counterclaims, it should have
paid docket fees and filed a certificate of non-forum shopping, and that its failure to
do so was a fatal defect.
We disagree with KOGIES.
As aptly ruled by the CA, the counterclaims of PGSMC were incorporated in its
Answer with Compulsory Counterclaim dated July 17, 1998 in accordance with
Section 8 of Rule 11, 1997 Revised Rules of Civil Procedure, the rule that was
effective at the time the Answer with Counterclaim was filed. Sec. 8 on existing
counterclaim or cross-claim states, "A compulsory counterclaim or a cross-claim that
a defending party has at the time he files his answer shall be contained therein."
On July 17, 1998, at the time PGSMC filed its Answer incorporating its counterclaims
against KOGIES, it was not liable to pay filing fees for said counterclaims being
compulsory in nature. We stress, however, that effective August 16, 2004 under Sec.
7, Rule 141, as amended by A.M. No. 04-2-04-SC, docket fees are now required to
be paid in compulsory counterclaim or cross-claims.

Interlocutory orders proper subject of certiorari

The proper remedy in such cases is an ordinary appeal from an adverse

judgment onthe merits, incorporating in said appeal the grounds for assailing the
interlocutory orders. Allowing appeals from interlocutory orders would result in the
'sorry spectacle' of a case being subject of a counterproductive ping-pong to and
from the appellate court as often as a trial court is perceived to have made an error
in any of its interlocutory rulings. However, where the assailed interlocutory order
was issued with grave abuse of discretion or patently erroneous and the remedy of
appeal would not afford adequate and expeditious relief, the Court
allows certiorari as a mode of redress.28
Also, appeals from interlocutory orders would open the floodgates to endless
occasions for dilatory motions. Thus, where the interlocutory order was issued
without or in excess of jurisdiction or with grave abuse of discretion, the remedy
is certiorari .29
The alleged grave abuse of discretion of the respondent court equivalent to lack of
jurisdiction in the issuance of the two assailed orders coupled with the fact that there
is no plain, speedy, and adequate remedy in the ordinary course of law amply
provides the basis for allowing the resort to a petition forcertiorari under Rule 65.
Prematurity of the petition before the CA
Neither do we think that KOGIES was guilty of forum shopping in filing the petition
for certiorari . Note that KOGIES' motion for reconsideration of the July 23, 1998
RTC Order which denied the issuance of the injunctive writ had already been denied.
Thus, KOGIES' only remedy was to assail the RTC's interlocutory order via a petition
for certiorari under Rule 65.
While the October 2, 1998 motion for reconsideration of KOGIES of the September
21, 1998 RTC Order relating to the inspection of things, and the allowance of the
compulsory counterclaims has not yet been resolved, the circumstances in this case
would allow an exception to the rule that beforecertiorari may be availed of, the
petitioner must have filed a motion for reconsideration and said motion should have
been first resolved by the court a quo. The reason behind the rule is "to enable the
lower court, in the first instance, to pass upon and correct its mistakes without the
intervention of the higher court."30
The September 21, 1998 RTC Order directing the branch sheriff to inspect the plant,
equipment, and facilities when he is not competent and knowledgeable on said
matters is evidently flawed and devoid of any legal support. Moreover, there is an

Page 21 of 58

urgent necessity to resolve the issue on the dismantling of the facilities and any
further delay would prejudice the interests of KOGIES. Indeed, there is real and
imminent threat of irreparable destruction or substantial damage to KOGIES'
equipment and machineries. We find the resort to certiorari based on the gravely
abusive orders of the trial court sans the ruling on the October 2, 1998 motion for
reconsideration to be proper.
The Core Issue: Article 15 of the Contract
We now go to the core issue of the validity of Art. 15 of the Contract, the arbitration
clause. It provides:
Article 15. Arbitration. All disputes, controversies, or differences which may arise
between the parties, out of or in relation to or in connection with this Contract or for
the breach thereof, shall finally be settled by arbitration in Seoul, Korea in
accordance with the Commercial Arbitration Rules of the Korean Commercial
Arbitration Board. The award rendered by the arbitration(s) shall be final and
binding upon both parties concerned. (Emphasis supplied.)
Petitioner claims the RTC and the CA erred in ruling that the arbitration clause is null
and void.
Petitioner is correct.
Established in this jurisdiction is the rule that the law of the place where the contract
is made governs.Lex loci contractus. The contract in this case was perfected here in
the Philippines. Therefore, our laws ought to govern. Nonetheless, Art. 2044 of the
Civil Code sanctions the validity of mutually agreed arbitral clause or the finality and
binding effect of an arbitral award. Art. 2044 provides, "Any stipulation that the
arbitrators' award or decision shall be final, is valid, without prejudice to Articles
2038, 2039 and 2040." (Emphasis supplied.)
Arts. 2038,31 2039,32 and 204033 abovecited refer to instances where a compromise
or an arbitral award, as applied to Art. 2044 pursuant to Art. 2043,34 may be voided,
rescinded, or annulled, but these would not denigrate the finality of the arbitral
award.
The arbitration clause was mutually and voluntarily agreed upon by the parties. It
has not been shown to be contrary to any law, or against morals, good customs,
public order, or public policy. There has been no showing that the parties have not
dealt with each other on equal footing. We find no reason why the arbitration clause
should not be respected and complied with by both parties. In Gonzales v. Climax
Mining Ltd.,35 we held that submission to arbitration is a contract and that a clause in
a contract providing that all matters in dispute between the parties shall be referred
to arbitration is a contract.36 Again in Del Monte Corporation-USA v. Court of
Appeals, we likewise ruled that "[t]he provision to submit to arbitration any dispute
arising therefrom and the relationship of the parties is part of that contract and is
itself a contract."37
Arbitration clause not contrary to public policy
The arbitration clause which stipulates that the arbitration must be done in Seoul,
Korea in accordance with the Commercial Arbitration Rules of the KCAB, and that
the arbitral award is final and binding, is not contrary to public policy. This Court has
sanctioned the validity of arbitration clauses in a catena of cases. In the 1957 case
of Eastboard Navigation Ltd. v. Juan Ysmael and Co., Inc.,38 this Court had occasion
to rule that an arbitration clause to resolve differences and breaches of mutually
agreed contractual terms is valid. In BF Corporation v. Court of Appeals, we held that
"[i]n this jurisdiction, arbitration has been held valid and constitutional. Even before

the approval on June 19, 1953 of Republic Act No. 876, this Court has countenanced
the settlement of disputes through arbitration. Republic Act No. 876 was adopted to
supplement the New Civil Code's provisions on arbitration."39And in LM Power
Engineering Corporation v. Capitol Industrial Construction Groups, Inc., we declared
that:
Being an inexpensive, speedy and amicable method of settling disputes,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. It is thus regarded as the "wave of the
future" in international civil and commercial disputes. Brushing aside a contractual
agreement calling for arbitration between the parties would be a step backward.
Consistent with the above-mentioned policy of encouraging alternative dispute
resolution methods, courts should liberally construe arbitration clauses. Provided
such clause is susceptible of an interpretation that covers the asserted dispute, an
order to arbitrate should be granted. Any doubt should be resolved in favor of
arbitration.40
Having said that the instant arbitration clause is not against public policy, we come to
the question on what governs an arbitration clause specifying that in case of any
dispute arising from the contract, an arbitral panel will be constituted in a foreign
country and the arbitration rules of the foreign country would govern and its award
shall be final and binding.
RA 9285 incorporated the UNCITRAL Model law
to which we are a signatory
For domestic arbitration proceedings, we have particular agencies to arbitrate
disputes arising from contractual relations. In case a foreign arbitral body is chosen
by the parties, the arbitration rules of our domestic arbitration bodies would not be
applied. As signatory to the Arbitration Rules of the UNCITRAL Model Law on
International Commercial Arbitration41 of the United Nations Commission on
International Trade Law (UNCITRAL) in the New York Convention on June 21, 1985,
the Philippines committed itself to be bound by the Model Law. We have even
incorporated the Model Law in Republic Act No. (RA) 9285, otherwise known as the
Alternative Dispute Resolution Act of 2004 entitled An Act to Institutionalize the Use
of an Alternative Dispute Resolution System in the Philippines and to Establish the
Office for Alternative Dispute Resolution, and for Other Purposes, promulgated on
April 2, 2004. Secs. 19 and 20 of Chapter 4 of the Model Law are the pertinent
provisions:
CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION
SEC. 19. Adoption of the Model Law on International Commercial Arbitration.
International commercial arbitration shall be governed by the Model Law on
International Commercial Arbitration (the "Model Law") adopted by the United
Nations Commission on International Trade Law on June 21, 1985 (United Nations
Document A/40/17) and recommended for enactment by the General Assembly in
Resolution No. 40/72 approved on December 11, 1985, copy of which is hereto
attached as Appendix "A".
SEC. 20. Interpretation of Model Law. In interpreting the Model Law, regard shall be
had to its international origin and to the need for uniformity in its interpretation and
resort may be made to the travaux preparatories and the report of the Secretary
General of the United Nations Commission on International Trade Law dated March
25, 1985 entitled, "International Commercial Arbitration: Analytical Commentary on
Draft Trade identified by reference number A/CN. 9/264."

Page 22 of 58

While RA 9285 was passed only in 2004, it nonetheless applies in the instant case
since it is a procedural law which has a retroactive effect. Likewise, KOGIES filed its
application for arbitration before the KCAB on July 1, 1998 and it is still pending
because no arbitral award has yet been rendered. Thus, RA 9285 is applicable to the
instant case. Well-settled is the rule that procedural laws are construed to be
applicable to actions pending and undetermined at the time of their passage, and are
deemed retroactive in that sense and to that extent. As a general rule, the retroactive
application of procedural laws does not violate any personal rights because no
vested right has yet attached nor arisen from them.42

SEC. 44. Foreign Arbitral Award Not Foreign Judgment. A foreign arbitral award
when confirmed by a court of a foreign country, shall be recognized and enforced as
a foreign arbitral award and not as a judgment of a foreign court.

Among the pertinent features of RA 9285 applying and incorporating the UNCITRAL
Model Law are the following:

Under Sec. 24, the RTC does not have jurisdiction over disputes that are properly
the subject of arbitration pursuant to an arbitration clause, and mandates the referral
to arbitration in such cases, thus:

SEC. 47. Venue and Jurisdiction. Proceedings for recognition and enforcement of an
arbitration agreement or for vacations, setting aside, correction or modification of an
arbitral award, and any application with a court for arbitration assistance and
supervision shall be deemed as special proceedings and shall be filed with the
Regional Trial Court (i) where arbitration proceedings are conducted; (ii) where the
asset to be attached or levied upon, or the act to be enjoined is located; (iii) where
any of the parties to the dispute resides or has his place of business; or (iv) in the
National Judicial Capital Region, at the option of the applicant.

SEC. 24. Referral to Arbitration. A court before which an action is brought in a matter
which is the subject matter of an arbitration agreement shall, if at least one party so
requests not later than the pre-trial conference, or upon the request of both parties
thereafter, refer the parties to arbitration unless it finds that the arbitration agreement
is null and void, inoperative or incapable of being performed.

SEC. 48. Notice of Proceeding to Parties. In a special proceeding for recognition and
enforcement of an arbitral award, the Court shall send notice to the parties at their
address of record in the arbitration, or if any part cannot be served notice at such
address, at such party's last known address. The notice shall be sent al least fifteen
(15) days before the date set for the initial hearing of the application.

(2) Foreign arbitral awards must be confirmed by the RTC

It is now clear that foreign arbitral awards when confirmed by the RTC are deemed
not as a judgment of a foreign court but as a foreign arbitral award, and when
confirmed, are enforced as final and executory decisions of our courts of law.

(1) The RTC must refer to arbitration in proper cases

Foreign arbitral awards while mutually stipulated by the parties in the arbitration
clause to be final and binding are not immediately enforceable or cannot be
implemented immediately. Sec. 3543 of the UNCITRAL Model Law stipulates the
requirement for the arbitral award to be recognized by a competent court for
enforcement, which court under Sec. 36 of the UNCITRAL Model Law may refuse
recognition or enforcement on the grounds provided for. RA 9285 incorporated these
provisos to Secs. 42, 43, and 44 relative to Secs. 47 and 48, thus:
SEC. 42. Application of the New York Convention. The New York Convention shall
govern the recognition and enforcement of arbitral awards covered by said
Convention.
The recognition and enforcement of such arbitral awards shall be filed with
the Regional Trial Court in accordance with the rules of procedure to be
promulgated by the Supreme Court. Said procedural rules shall provide that the
party relying on the award or applying for its enforcement shall file with the court the
original or authenticated copy of the award and the arbitration agreement. If the
award or agreement is not made in any of the official languages, the party shall
supply a duly certified translation thereof into any of such languages.
The applicant shall establish that the country in which foreign arbitration award was
made in party to the New York Convention.
xxx
SEC. 43. Recognition and Enforcement of Foreign Arbitral Awards Not Covered by
the New York Convention. The recognition and enforcement of foreign arbitral
awards not covered by the New York Convention shall be done in accordance with
procedural rules to be promulgated by the Supreme Court. The Court may, on
grounds of comity and reciprocity, recognize and enforce a non-convention award as
a convention award.

A foreign arbitral award, when confirmed by the Regional Trial Court, shall be
enforced in the same manner as final and executory decisions of courts of law of the
Philippines
xxx

Thus, it can be gleaned that the concept of a final and binding arbitral award is
similar to judgments or awards given by some of our quasi-judicial bodies, like the
National Labor Relations Commission and Mines Adjudication Board, whose final
judgments are stipulated to be final and binding, but not immediately executory in the
sense that they may still be judicially reviewed, upon the instance of any party.
Therefore, the final foreign arbitral awards are similarly situated in that they need first
to be confirmed by the RTC.
(3) The RTC has jurisdiction to review foreign arbitral awards
Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the RTC with
specific authority and jurisdiction to set aside, reject, or vacate a foreign arbitral
award on grounds provided under Art. 34(2) of the UNCITRAL Model Law. Secs. 42
and 45 provide:
SEC. 42. Application of the New York Convention. The New York Convention shall
govern the recognition and enforcement of arbitral awards covered by said
Convention.
The recognition and enforcement of such arbitral awards shall be filed with
the Regional Trial Court in accordance with the rules of procedure to be
promulgated by the Supreme Court. Said procedural rules shall provide that the
party relying on the award or applying for its enforcement shall file with the court the
original or authenticated copy of the award and the arbitration agreement. If the
award or agreement is not made in any of the official languages, the party shall
supply a duly certified translation thereof into any of such languages.
The applicant shall establish that the country in which foreign arbitration award was
made is party to the New York Convention.

Page 23 of 58

If the application for rejection or suspension of enforcement of an award has been

made, the Regional Trial Court may, if it considers it proper, vacate its decision and
may also, on the application of the party claiming recognition or enforcement of the
award, order the party to provide appropriate security.
xxx
SEC. 45. Rejection of a Foreign Arbitral Award. A party to a foreign arbitration
proceeding may oppose an application for recognition and enforcement of the
arbitral award in accordance with the procedures and rules to be promulgated by the
Supreme Court only on those grounds enumerated under Article V of the New York
Convention. Any other ground raised shall be disregarded by the Regional Trial
Court.
Thus, while the RTC does not have jurisdiction over disputes governed by arbitration
mutually agreed upon by the parties, still the foreign arbitral award is subject to
judicial review by the RTC which can set aside, reject, or vacate it. In this sense,
what this Court held in Chung Fu Industries (Phils.), Inc. relied upon by KOGIES is
applicable insofar as the foreign arbitral awards, while final and binding, do not oust
courts of jurisdiction since these arbitral awards are not absolute and without
exceptions as they are still judicially reviewable. Chapter 7 of RA 9285 has made it
clear that all arbitral awards, whether domestic or foreign, are subject to judicial
review on specific grounds provided for.
(4) Grounds for judicial review different in domestic and foreign arbitral
awards
The differences between a final arbitral award from an international or foreign arbitral
tribunal and an award given by a local arbitral tribunal are the specific grounds or
conditions that vest jurisdiction over our courts to review the awards.
For foreign or international arbitral awards which must first be confirmed by the RTC,
the grounds for setting aside, rejecting or vacating the award by the RTC are
provided under Art. 34(2) of the UNCITRAL Model Law.
For final domestic arbitral awards, which also need confirmation by the RTC
pursuant to Sec. 23 of RA 87644 and shall be recognized as final and executory
decisions of the RTC,45 they may only be assailed before the RTC and vacated on
the grounds provided under Sec. 25 of RA 876.46
(5) RTC decision of assailed foreign arbitral award appealable
Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of an
aggrieved party in cases where the RTC sets aside, rejects, vacates, modifies, or
corrects an arbitral award, thus:
SEC. 46. Appeal from Court Decision or Arbitral Awards. A decision of the Regional
Trial Court confirming, vacating, setting aside, modifying or correcting an arbitral
award may be appealed to the Court of Appeals in accordance with the rules and
procedure to be promulgated by the Supreme Court.
The losing party who appeals from the judgment of the court confirming an arbitral
award shall be required by the appellate court to post a counterbond executed in
favor of the prevailing party equal to the amount of the award in accordance with the
rules to be promulgated by the Supreme Court.

PGSMC has remedies to protect its interests

Thus, based on the foregoing features of RA 9285, PGSMC must submit to the
foreign arbitration as it bound itself through the subject contract. While it may have
misgivings on the foreign arbitration done in Korea by the KCAB, it has available
remedies under RA 9285. Its interests are duly protected by the law which requires
that the arbitral award that may be rendered by KCAB must be confirmed here by
the RTC before it can be enforced.
With our disquisition above, petitioner is correct in its contention that an arbitration
clause, stipulating that the arbitral award is final and binding, does not oust our
courts of jurisdiction as the international arbitral award, the award of which is not
absolute and without exceptions, is still judicially reviewable under certain conditions
provided for by the UNCITRAL Model Law on ICA as applied and incorporated in RA
9285.
Finally, it must be noted that there is nothing in the subject Contract which provides
that the parties may dispense with the arbitration clause.
Unilateral rescission improper and illegal
Having ruled that the arbitration clause of the subject contract is valid and binding on
the parties, and not contrary to public policy; consequently, being bound to the
contract of arbitration, a party may not unilaterally rescind or terminate the contract
for whatever cause without first resorting to arbitration.
What this Court held in University of the Philippines v. De Los Angeles47 and
reiterated in succeeding cases,48 that the act of treating a contract as rescinded on
account of infractions by the other contracting party is valid albeit provisional as it
can be judicially assailed, is not applicable to the instant case on account of a valid
stipulation on arbitration. Where an arbitration clause in a contract is availing, neither
of the parties can unilaterally treat the contract as rescinded since whatever
infractions or breaches by a party or differences arising from the contract must be
brought first and resolved by arbitration, and not through an extrajudicial rescission
or judicial action.
The issues arising from the contract between PGSMC and KOGIES on whether the
equipment and machineries delivered and installed were properly installed and
operational in the plant in Carmona, Cavite; the ownership of equipment and
payment of the contract price; and whether there was substantial compliance by
KOGIES in the production of the samples, given the alleged fact that PGSMC could
not supply the raw materials required to produce the sample LPG cylinders, are
matters proper for arbitration. Indeed, we note that on July 1, 1998, KOGIES
instituted an Application for Arbitration before the KCAB in Seoul, Korea pursuant to
Art. 15 of the Contract as amended. Thus, it is incumbent upon PGSMC to abide by
its commitment to arbitrate.
Corollarily, the trial court gravely abused its discretion in granting PGSMC's Motion
for Inspection of Things on September 21, 1998, as the subject matter of the motion
is under the primary jurisdiction of the mutually agreed arbitral body, the KCAB in
Korea.
In addition, whatever findings and conclusions made by the RTC Branch Sheriff from
the inspection made on October 28, 1998, as ordered by the trial court on October
19, 1998, is of no worth as said Sheriff is not technically competent to ascertain the
actual status of the equipment and machineries as installed in the plant.

Thereafter, the CA decision may further be appealed or reviewed before this Court
through a Petition for Review under Rule 45 of the Rules of Court.

Page 24 of 58

For these reasons, the September 21, 1998 and October 19, 1998 RTC Orders
pertaining to the grant of the inspection of the equipment and machineries have to
be recalled and nullified.
Issue on ownership of plant proper for arbitration
Petitioner assails the CA ruling that the issue petitioner raised on whether the total
contract price of USD 1,530,000 was for the whole plant and its installation is beyond
the ambit of a Petition for Certiorari.

(c) The order granting provisional relief may be conditioned upon the provision of
security or any act or omission specified in the order.
(d) Interim or provisional relief is requested by written application transmitted by
reasonable means to the Court or arbitral tribunal as the case may be and the party
against whom the relief is sought, describing in appropriate detail the precise relief,
the party against whom the relief is requested, the grounds for the relief, and the
evidence supporting the request.
(e) The order shall be binding upon the parties.

Petitioner's position is untenable.

It is settled that questions of fact cannot be raised in an original action
for certiorari .49 Whether or not there was full payment for the machineries and
equipment and installation is indeed a factual issue prohibited by Rule 65.
However, what appears to constitute a grave abuse of discretion is the order of the
RTC in resolving the issue on the ownership of the plant when it is the arbitral body
(KCAB) and not the RTC which has jurisdiction and authority over the said issue.
The RTC's determination of such factual issue constitutes grave abuse of discretion
and must be reversed and set aside.

(f) Either party may apply with the Court for assistance in implementing or enforcing
an interim measure ordered by an arbitral tribunal.
(g) A party who does not comply with the order shall be liable for all damages
resulting from noncompliance, including all expenses, and reasonable attorney's
fees, paid in obtaining the order's judicial enforcement. (Emphasis ours.)
Art. 17(2) of the UNCITRAL Model Law on ICA defines an "interim measure" of
protection as:
Article 17. Power of arbitral tribunal to order interim measures

RTC has interim jurisdiction to protect the rights of the parties

xxx xxx xxx
Anent the July 23, 1998 Order denying the issuance of the injunctive writ paving the
way for PGSMC to dismantle and transfer the equipment and machineries, we find it
to be in order considering the factual milieu of the instant case.
Firstly, while the issue of the proper installation of the equipment and machineries
might well be under the primary jurisdiction of the arbitral body to decide, yet the
RTC under Sec. 28 of RA 9285 has jurisdiction to hear and grant interim measures
to protect vested rights of the parties. Sec. 28 pertinently provides:
SEC. 28. Grant of interim Measure of Protection. - (a) It is not incompatible with
an arbitration agreement for a party to request, before constitution of the
tribunal, from a Court to grant such measure. After constitution of the arbitral
tribunal and during arbitral proceedings, a request for an interim measure of
protection, or modification thereof, may be made with the arbitral or to the extent
that the arbitral tribunal has no power to act or is unable to act effectivity, the
request may be made with the Court. The arbitral tribunal is deemed constituted
when the sole arbitrator or the third arbitrator, who has been nominated, has
accepted the nomination and written communication of said nomination and
acceptance has been received by the party making the request.
(b) The following rules on interim or provisional relief shall be observed:
Any party may request that provisional relief be granted against the adverse party.
Such relief may be granted:
(i) to prevent irreparable loss or injury;
(ii) to provide security for the performance of any obligation;
(iii) to produce or preserve any evidence; or
(iv) to compel any other appropriate act or omission.

(2) An interim measure is any temporary measure, whether in the form of an award
or in another form, by which, at any time prior to the issuance of the award by which
the dispute is finally decided, the arbitral tribunal orders a party to:
(a) Maintain or restore the status quo pending determination of the dispute;
(b) Take action that would prevent, or refrain from taking action that is likely to cause,
current or imminent harm or prejudice to the arbitral process itself;
(c) Provide a means of preserving assets out of which a subsequent award may be
satisfied; or
(d) Preserve evidence that may be relevant and material to the resolution of the
dispute.
Art. 17 J of UNCITRAL Model Law on ICA also grants courts power and jurisdiction
to issue interim measures:
Article 17 J. Court-ordered interim measures
A court shall have the same power of issuing an interim measure in relation to
arbitration proceedings, irrespective of whether their place is in the territory of this
State, as it has in relation to proceedings in courts. The court shall exercise such
power in accordance with its own procedures in consideration of the specific features
of international arbitration.
In the recent 2006 case of Transfield Philippines, Inc. v. Luzon Hydro Corporation,
we were explicit that even "the pendency of an arbitral proceeding does not
foreclose resort to the courts for provisional reliefs." We explicated this way:
As a fundamental point, the pendency of arbitral proceedings does not foreclose
resort to the courts for provisional reliefs. The Rules of the ICC, which governs the
parties' arbitral dispute, allows the application of a party to a judicial authority for

Page 25 of 58

interim or conservatory measures. Likewise, Section 14 of Republic Act (R.A.) No.

876 (The Arbitration Law) recognizes the rights of any party to petition the court to
take measures to safeguard and/or conserve any matter which is the subject of the
dispute in arbitration. In addition, R.A. 9285, otherwise known as the "Alternative
Dispute Resolution Act of 2004," allows the filing of provisional or interim measures
with the regular courts whenever the arbitral tribunal has no power to act or to act
effectively.50

(4) PGSMC is hereby ALLOWED to dismantle and transfer the equipment and
machineries, if it had not done so, and ORDERED to preserve and maintain them
until the finality of whatever arbitral award is given in the arbitration proceedings.
No pronouncement as to costs.
SO ORDERED.

It is thus beyond cavil that the RTC has authority and jurisdiction to grant interim
measures of protection.
Secondly, considering that the equipment and machineries are in the possession of
PGSMC, it has the right to protect and preserve the equipment and machineries in
the best way it can. Considering that the LPG plant was non-operational, PGSMC
has the right to dismantle and transfer the equipment and machineries either for their
protection and preservation or for the better way to make good use of them which is
ineluctably within the management discretion of PGSMC.
Thirdly, and of greater import is the reason that maintaining the equipment and
machineries in Worth's property is not to the best interest of PGSMC due to the
prohibitive rent while the LPG plant as set-up is not operational. PGSMC was losing
PhP322,560 as monthly rentals or PhP3.87M for 1998 alone without considering the
10% annual rent increment in maintaining the plant.
Fourthly, and corollarily, while the KCAB can rule on motions or petitions relating to
the preservation or transfer of the equipment and machineries as an interim
measure, yet on hindsight, the July 23, 1998 Order of the RTC allowing the transfer
of the equipment and machineries given the non-recognition by the lower courts of
the arbitral clause, has accorded an interim measure of protection to PGSMC which
would otherwise been irreparably damaged.
Fifth, KOGIES is not unjustly prejudiced as it has already been paid a substantial
amount based on the contract. Moreover, KOGIES is amply protected by the arbitral
action it has instituted before the KCAB, the award of which can be enforced in our
jurisdiction through the RTC. Besides, by our decision, PGSMC is compelled to
submit to arbitration pursuant to the valid arbitration clause of its contract with
KOGIES.
PGSMC to preserve the subject equipment and machineries
Finally, while PGSMC may have been granted the right to dismantle and transfer the
subject equipment and machineries, it does not have the right to convey or dispose
of the same considering the pending arbitral proceedings to settle the differences of
the parties. PGSMC therefore must preserve and maintain the subject equipment
and machineries with the diligence of a good father of a family51 until final resolution
of the arbitral proceedings and enforcement of the award, if any.
WHEREFORE, this petition is PARTLY GRANTED, in that:
(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249
is REVERSED and SET ASIDE;
(2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil Case No. 98117 areREVERSED and SET ASIDE;
(3) The parties are hereby ORDERED to submit themselves to the arbitration of their
dispute and differences arising from the subject Contract before the KCAB;
andcralawlibrary

Page 26 of 58

[G.R. No. 73039. October 9, 1987.]

PERFECTA CAVILI, PRIMITIVO CAVILI and QUIRINO CAVILI, Petitioners, v.
HON. TEODORO N. FLORENDO, Presiding Judge, Branch XXXVI, Regional
Trial Court of Negros Oriental, 7th Judicial Region, CLARITA CAVILI, ULPIANO
CAVILI, ESTRELLA CAVILI, PLACIDA CAVILI, ET AL., Respondents.

had not been legally served with summons, and, with a meritorious defense that the
properties sought to be partitioned have already been the subject of a written
partition agreement between the direct heirs of the late Bernado Cavili who are the
predecessors of the parties in this case. In an order dated April 23, 1980, the court
granted said motion.chanroblesvirtualawlibrary
The plaintiffs filed a motion for reconsideration of the order granting new trial and at
the same time prayed that a writ of execution be issued but only in so far as
defendant Perfecta Cavili was concerned.

[G.R. No. L-68680. October 9, 1987.]

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

In an order dated July 21, 1981, Judge Cipriano Vamenta of Branch III of the Court
of First Instance of Negros Oriental, to whom the case had been assigned after a re
raffle, set aside the order of April 23, 1980 and directed the execution of the October
5, 1979 decision without qualification ruling that the petitioners remedy should have
been appeal rather than new trial.
Their motion for reconsideration having been denied on August 11, 1981, the
defendants, now petitioners, brought the case to this Court through a petition
for certiorari, G.R. NO. 57771, entitled "Quirino Cavili, Et Al., Petitioners versus Hon.
Cipriano Vamenta, Et Al., Respondents."cralaw virtua1aw library
On May 31, 1982, this Court rendered a decision, the dispositive portion of which
reads:jgc:chanrobles.com.ph
"WHEREFORE, Our resolution dismissing the petition is hereby reconsidered; the
petition is grunted; and the order dated July 21, 1981, is set aside while that of April
23, 1980, is revived. No special pronouncement as to costs." (Rollo, p. 21)

DECISION

GUTIERREZ, JR., J.:

This is a petition to review and set aside two orders of the then Court of First
Instance of Negros Oriental, namely: (1) the order dated October 11, 1985,
disqualifying Perfecta Cavili dela Cruz as a witness in Civil Case No. 6880 entitled
"Clarita Cavili, Et. Al. v. Perfecta Cavili, Quirino Cavili, and Primitivo Cavili" and (2)
the order dated November 26, 1985, refusing to reconsider the previous orders of
disqualification and resetting the reception of evidence for the defendants to
December 19 and 20, 1985 with a warning that should defendants witnesses fail to
appear in court on said date, they will be deemed to have waived their right to be
witnesses in this case.chanroblesvirtualawlibrary
The private respondents filed Civil Case No. 6880 with the Court of First Instance of
Negros Oriental against herein petitioners for Partition, Accounting, and Damages.
After the case was raffled to Branch I presided over by Judge Augusto S. Villarin,
summons was issued to the three petitioners, all at Bayawan, Negros Oriental which
was the address indicated in the complaint.
After trying to effect service, the process server went back to the court with the
following return of service "served to Quirino and Primitivo Cavili not contacted,
according to Perfecta Cavili, subject persons is (sic) staying in Kabangkalan, Negros
Occidental."cralaw virtua1aw library
Meanwhile, Atty. Jose P. Alamillo filed a motion for extension to answer in behalf of
the defendants, manifesting the representation of his client Perfecta Cavili that she
will inform her brothers Primitivo and Quirino about the case.
The defendants, however, failed to file their answer within the requested period and
upon motion of the plaintiffs, the defendants were declared in default, and on
October 5, 1979, a judgment by default was promulgated by Judge Augusto S.
Villarin.
The records of the case, however, show that a Manifestation was filed by Atty. Jose
P. Alamillo informing the court that since he never met Primitivo and Quirino Cavili,
who are residents of another province, he desisted from further appearing in the
case in their behalf.
On November 7, 1979, Atty. Jose P. Alamillo received a copy of the decision. On
December 7, 1979, he filed a motion for new trial in behalf of the defendants on
grounds of lack of jurisdiction over the persons of Primitivo and Quirino Cavili who

Thereafter, the pre-trial and trial of Civil Case No. 6880 was scheduled on October 9,
10, and 11, 1985 before Branch XXXVI of the Regional Trial Court, presided by
respondent Judge Teodoro N. Florendo. The defendants, (now petitioners),
presented Perfecta Cavili dela Cruz as their first witness. The respondents, through
counsel, moved for her disqualification as a witness on the ground that having been
declared in default, Perfecta Cavili has lost her standing in court and she cannot be
allowed to participate in all proceedings therein, even as a witness. The court,
through the respondent judge, sustained the respondents contention and
disqualified her from testifying.
The petitioners, through counsel, moved for a reconsideration of the ruling.
On November 26, 1985, the lower court issued an order denying reconsideration of
its Order dated October 11, 1985 disqualifying Perfecta Cavili dela Cruz as a witness
in Civil Case No. 6880.
Hence, this petition.
Petitioner Perfecta Cavilis competence as a witness is put in issue by the private
respondents.
Section 18, Rule 130 of the Revised Rules of Court states who are qualified to be
witnesses. It provides:jgc:chanrobles.com.ph
"Section 18. Witnesses; their qualifications. Except as provided in the next
succeeding section, all persons who, having organs of sense, can perceive, and
perceiving, can make known their perception to others, may be witnesses. Neither
parties nor other persons interested in the outcome of a case shall be excluded; nor
those who have been convicted of crime; nor any person on account of his opinion
on matters of religious belief."cralaw virtua1aw library
The generosity with which the Rule allows people to testify is apparent. Interest in
the outcome of a case, conviction of a crime unless otherwise provided by law, and
religious belief are not grounds for disqualification.
Sections 19 and 20 of Rule 130 provide for specific disqualifications. Section 19
disqualifies those who are mentally incapacitated and children whose tender age or
immaturity renders them incapable of being witnesses. Section 20 provides for
disqualification based on conflicts of interest or on relationship. Section 21 provides
for disqualifications based on privileged communications. Section 15 of Rule 132
may not be a rule on disqualification of witnesses but it states the grounds when a
witness may be impeached by the party against whom he was called.chanrobles law

Page 27 of 58

library : red
There is no provision of the Rules disqualifying parties declared in default from
taking the witness stand for non-disqualified parties. The law does not provide
default as an exception. The specific enumeration of disqualified witnesses excludes
the operation of causes of disability other than those mentioned in the Rules. It is a
maxim of recognized utility and merit in the construction of statutes that an express
exception, exemption, or saving clause excludes other exceptions. (In Re Estate of
Enriquez, 29 Phil. 167) As a general rule, where there are express exceptions these
comprise the only limitations on the operation of a statute and no other exception will
be implied. (Sutherland on Statutory Construction, Fourth Edition, Vol. 2A, p. 90) The
Rules should not be interpreted to include an exception not embodied
therein.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph
The respondents, however, cite Section 2, Rule 18 on Defaults, to
wit:jgc:chanrobles.com.ph
"Section 2. Effect of order of default. Except as provided in section 9 of Rule 13, a
party declared in default shall not be entitled to notice of subsequent proceedings
nor to take part in the trial."cralaw virtua1aw library
They advance the argument that to allow Perfecta Cavili to stand as witness would
be to permit a party in default "to take part in the trial."cralaw virtua1aw library
An explanation of the Rule is in order.
Loss of standing in court is the consequence of an order of default. Thus, a party
declared in default is considered out of court and cannot appear therein, adduce
evidence, and be heard and for that reason he is not entitled to notice. (Rule 18,
Rules of Court; Lim Toco v. Go Fay, 80 Phil. 166) However, "loss of standing" must
be understood to mean only the forfeiture of ones rights as a party litigant,
contestant or legal adversary. A party in default loses his right to present his defense,
control the proceedings, and examine or cross-examine witnesses. He has no right
to expect that his pleadings would be acted upon by the court nor may he object to
or refute evidence or motions filed against him. There is nothing in the rule, however,
which contemplates a disqualification to be a witness or a deponent in a case.
Default does not make him an incompetent.chanrobles.com : virtual law library
As opposed to a party litigant, a witness is merely a beholder, a spectator or
onlooker, called upon to testify to what he has seen, heard, or observed. As such, he
takes no active part in the contest of rights between the parties. Cast in the limited
role of witness, a party in default cannot be considered as "taking part in the trial."
He remains suffering the effects of an order of default.
A party in default may thus be cited as a witness by his co-defendants who have the
standing and the right to present evidence which the former may provide. The
incidental benefit giving the party in default the opportunity to present evidence
which may eventually redound to his advantage or bring about a desired result,
through his co-defendants, is of minor consequence.
Of greater concern or importance in allowing the presence of Perfecta Cavili as a
witness in the case at bar, is the preservation of the right of petitioners Quirino and
Primitivo Cavili to secure the attendance of witnesses and the production of
evidence in their behalf. To reject Perfecta Cavilis presentation of testimonial
evidence would be to treat Primitivo and Quirino as if they too were in default. There
is no reason why the latter should also be made to bear the consequences of
Perfectas omission. Moreover, we cannot deprive Quirino and Primitivo of the only
instrument of proof available to them, as Perfecta alone has been in possession and
administration of the property in question and more than anybody else she can
provide vital evidence to buttress their claim.chanrobles law library
WHEREFORE, in view of the foregoing, the petition is hereby GRANTED. The order
of the respondent court disqualifying Perfecta Cavili dela Cruz as a witness in Civil
Case No. 6880 is hereby SET ASIDE. The case is remanded to the court a quo for
further proceedings. The temporary restraining order issued on January 6, 1986 is
LIFTED.
SO ORDERED.

Page 28 of 58

[G.R. NO. 151098 : March 21, 2006]

ERLINDA GAJUDO, FERNANDO GAJUDO, JR., ESTELITA GAJUDO, BALTAZAR
GAJUDO and DANILO ARAHAN CHUA, Petitioners, v. TRADERS ROYAL
BANK,1 Respondent.
DECISION
PANGANIBAN, C.J.:
The mere fact that a defendant is declared in default does not automatically result in
the grant of the prayers of the plaintiff. To win, the latter must still present the same
quantum of evidence that would be required if the defendant were still present. A
party that defaults is not deprived of its rights, except the right to be heard and to
present evidence to the trial court. If the evidence presented does not support a
judgment for the plaintiff, the complaint should be dismissed, even if the defendant
may not have been heard or allowed to present any countervailing evidence.
The Case
Before us is a Petition for Review2 under Rule 45 of the Rules of Court, assailing the
June 29, 2001 Decision3 and December 6, 2001 Resolution4 of the Court of Appeals
(CA) in CA-GR CV No. 43889. The CA disposed as follows:
"UPON THE VIEW WE TAKE OF THIS CASE, THUS, the partial judgment appealed
from, must be, as it hereby is, VACATED and SET ASIDE, and another one entered
DISMISSING the complaint at bench. Without costs."5
The assailed Resolution denied petitioners' Motion for Reconsideration6 for lack of
merit.
The Facts
The CA narrated the facts as follows:
"[Petitioners] filed a complaint before the Regional Trial Court of Quezon City,
Branch 90, against [respondent] Traders Royal Bank, the City Sheriff of Quezon City
and the Register of Deeds of Quezon City. Docketed thereat as Civil Case No. Q41203, the complaint sought the annulment of the extra-judicial foreclosure and
auction sale made by [the] city sheriff of Quezon City of a parcel of land covered by
TCT No. 16711 of the Register of Deeds of Quezon City, the conventional
redemption thereof, and prayed for damages and the issuance of a writ of
preliminary injunction.
"The complaint alleged that in mid 1977[, Petitioner] Danilo Chua obtained a loan
from [respondent] bank in the amount of P75,000.00 secured by a real estate
mortgage over a parcel of land covered by TCT No. 16711, and owned in common
by the [petitioners]; that when the loan was not paid, [respondent] bank commenced
extra-judicial foreclosure proceedings on the property; that the auction sale of the
property was set on 10 June 1981, but was reset to 31 August 1981, on [Petitioner
Chua's] request, which, however, was made without the knowledge and conformity
of the other [petitioners]; that on the re-scheduled auction sale, [the] Sheriff of
Quezon City sold the property to the [respondent] bank, the highest bidder therein,
for the sum of P24,911.30; that the auction sale was tainted with irregularity
because, amongst others, the bid price was shockingly or unconscionably, low; that
the other [petitioners] failed to redeem the property due to their lack of knowledge of
their right of redemption, and want of sufficient education; that, although the period
of redemption had long expired, [Petitioner] Chua offered to buy back, and
[respondent] bank also agreed to sell back, the foreclosed property, on the

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

Page 29 of 58

"Thus, on 16 January 1992, upon proof that [petitioners] had indeed served
[respondent] bank with a copy of said motion, the Trial Court issued an Order of
default against [respondent] bank.
"Upon 01 December 1992, on [petitioners'] motion, they were by the Court allowed to
present evidence ex parte on 07 January 1993, insofar as [respondent] bank was
concerned.
"Thereafter, or on 08 February 1993, the Trial Court rendered the new questioned
partial decision.7
"Aggrieved, [respondent] bank filed a motion to set aside [the] partial decision by
default against Traders Royal Bank and admit [respondent] Traders Royal Bank's x x
x Answer with counterclaim: thereunder it averred, amongst others, that the
erroneous filing of said answer was due to an honest mistake of the typist and
inadvertence of its counsel.
"The [trial court] thumbed down the motion in its Order of 26 July 1993."8

Moreover, petitioners failed to prove that the bank had agreed to sell the property
back to them. After pointing out that the redemption period had long expired,
respondent's written communications to Petitioner Chua only showed, at most, that
the former had made a proposal for the latter to buy back the property at the current
market price; and that Petitioner Chua was requested to make an offer to repurchase
the property, because another buyer had already made an offer to buy it. On the
other hand, respondent noted that the Interbank check for P4,000 was for "deposit
only." Thus, there was no showing that the check had been issued to cover part of
the repurchase price.
The appellate court also held that the Compromise Agreement had not resulted in
the novation of the Partial Decision, because the two were not incompatible. In fact,
the bank was not even a party to the Agreement. Petitioners' recognition of
Ceroferr's title to the mortgaged property was intended to preclude future litigation
against it.
Hence this Petition.16
Issues

Respondent bank appealed the Partial Decision to the CA. During the pendency of
that appeal, Ceroferr Realty Corporation and/or Cesar and/or Lorna Roque filed a
Manifestation with Motion10asking the CA to discharge them as parties, because the
case against them had already been dismissed on the basis of their Compromise
Agreement11 with petitioners. On May 14, 1996, the CA issued a
Resolution12 granting Ceroferr et al.'s Manifestation with Motion to discharge
movants as parties to the appeal. The Court, though, deferred resolution of the
matters raised in the Comment13of respondent bank. The latter contended that the
Partial Decision had been novated by the Compromise Agreement, whose effect
of res judicata had rendered that Decision functus officio.
Ruling of the Court of Appeals
The CA ruled in favor of respondent bank. Deemed, however, to have rested on
shaky ground was the latter's "Motion to Set Aside Partial Decision by Default
Against Traders Royal Bank and Admit Defendant Traders Royal Bank's
Answer."14 The reasons offered by the bank for failing to file an answer were
considered by the appellate court to be "at once specious, shallow and sophistical
and can hardly be dignified as a 'mistake' or 'excusable negligence,' which ordinary
prudence could not have guarded against."15
In particular, the CA ruled that the erroneous docket number placed on the Answer
filed before the trial court was not an excusable negligence by the bank's counsel.
The latter had a bounden duty to be scrupulously careful in reviewing pleadings.
Also, there were several opportunities to discover and rectify the mistake, but these
were not taken. Moreover, the bank's Motion to Set Aside the Partial Decision and to
Admit [the] Answer was not accompanied by an affidavit of merit. These mistakes
and the inexcusable negligence committed by respondent's lawyer were binding on
the bank.
On the issue of whether petitioners had convincingly established their right to relief,
the appellate court held that there was no ground to invalidate the foreclosure sale of
the mortgaged property. First, under Section 3 of Act No. 3135, an extrajudicial
foreclosure sale did not require personal notice to the mortgagor. Second, there was
no allegation or proof of noncompliance with the publication requirement and the
public posting of the notice of sale, provided under Act No. 3135, as amended. Third,
there was no showing of inadequacy of price as no competent evidence was
presented to show the real market value of the land sold or the readiness of another
buyer to offer a price higher than that at which the property had been sold.

In their Memorandum, petitioners raise the following issues:

"1. Whether or not the Respondent Court of Appeals erred in failing to apply the
provisions of Section 3, Rule 9 of the 1997 Rules of Civil Procedure [and in applying
instead] the rule on preponderance of evidence under Section 1, Rule 133 of the
Rules of Court.
"2. Whether or not the respondent appellate court failed to apply the conventional
redemption rule provided for under Article 1601 of the New Civil Code.
"3. Whether or not this Honorable Court can exercise its judicial prerogative to
evaluate the findings of facts."17
The first issue is one of law and may be taken up by the Court without hindrance,
pursuant to Section 1 of Rule 45 of the Rules of Court.18 The second and the third
issues, however, would entail an evaluation of the factual findings of the appellate
court, a function ordinarily not assumed by this Court, unless in some excepted
cases. The Court will thus rule on the first issue before addressing the second and
the third issues jointly.
The Court's Ruling
The Petition has no merit.
First Issue:
Quantum of Proof
Petitioners challenge the CA Decision for applying Section 3 of Rule 9 of the Rules
of Court, rather than Section 1 of Rule 133 of the same Rules. In essence,
petitioners argue that the quantum of evidence for judgments flowing from a default
order under Section 3 of Rule 9 is not the same as that provided for in Section 1 of
Rule 133.
For ease of discussion, these two rules will be reproduced below, starting with
Section 3 of Rule 9 of the Rules of Court:
"Sec. 3. Default; declaration of. - If the defending party fails to answer within the time
allowed therefor, the court shall, upon motion of the claiming party with notice to the

Page 30 of 58

defending party, and proof of such failure, declare the defending party in default.
Thereupon, the court shall proceed to render judgment granting the claimant such
relief as his pleading may warrant, unless the court in its discretion requires the
claimant to submit evidence. Such reception of evidence may be delegated to the
clerk of court.
"(a) Effect of order of default. - A party in default shall be entitled to notice of
subsequent proceedings but not to take part in the trial.
"(b) Relief from order of default. - A party declared in default may at any time after
notice thereof and before judgment file a motion under oath to set aside the order of
default upon proper showing that his failure to answer was due to fraud, accident,
mistake or excusable negligence and that he has a meritorious defense. In such
case, the order of default may be set aside on such terms and conditions as the
judge may impose in the interest of justice.
"(c) Effect of partial default. - When a pleading asserting a claim states a common
cause of action against several defending parties, some of whom answer and the
others fail to do so, the court shall try the case against all upon the answers thus
filed and render judgment upon the evidence presented.
"(d) Extent of relief to be awarded. - A judgment rendered against a party in default
shall not exceed the amount or be different in kind from that prayed for nor award
unliquidated damages.
"(e) Where no defaults allowed. - If the defending party in an action for annulment or
declaration of nullity of marriage or for legal separation fails to answer, the court shall
order the prosecuting attorney to investigate whether or nor a collusion between the
parties exists, and if there is no collusion, to intervene for the State in order to see to
it that the evidence submitted is not fabricated."
We now quote Section 1 of Rule 133:
"SECTION 1. Preponderance of evidence, how determined. - In civil cases, the party
having the burden of proof must establish his case by a preponderance of evidence.
In determining where the preponderance or superior weight of evidence on the
issues involved lies, the court may consider all the facts and circumstances of the
case, the witnesses' manner of testifying, their intelligence, their means and
opportunity of knowing the facts to which they are testifying, the nature of the facts to
which they testify, the probability or improbability of their testimony, their interest or
want of interest, and also their personal credibility so far as the same may
legitimately appear upon the trial. The court may also consider the number of
witnesses, though the preponderance is not necessarily with the greater number."
Between the two rules, there is no incompatibility that would preclude the application
of either one of them. To begin with, Section 3 of Rule 9 governs the procedure
which the trial court is directed to take when a defendant fails to file an answer.
According to this provision, the court "shall proceed to render judgment granting the
claimant such relief as his pleading may warrant," subject to the court's discretion on
whether to require the presentation of evidence ex parte. The same provision also
sets down guidelines on the nature and extent of the relief that may be granted. In
particular, the court's judgment "shall not exceed the amount or be different in kind
from that prayed for nor award unliquidated damages."
As in other civil cases, basic is the rule that the party making allegations has the
burden of proving them by a preponderance of evidence.19 Moreover, parties must
rely on the strength of their own evidence, not upon the weakness of the defense
offered by their opponent.20 This principle holds true, especially when the latter has
had no opportunity to present evidence because of a default order. Needless to say,

the extent of the relief that may be granted can only be as much as has been alleged
and proved21 with preponderant evidence required under Section 1 of Rule 133.
Regarding judgments by default, it was explained in Pascua v. Florendo22 that
complainants are not automatically entitled to the relief prayed for, once the
defendants are declared in default. Favorable relief can be granted only after the
court has ascertained that the relief is warranted by the evidence offered and the
facts proven by the presenting party. In Pascua, this Court ruled that "x x x it would
be meaningless to require presentation of evidence if every time the other party is
declared in default, a decision would automatically be rendered in favor of the nondefaulting party and exactly according to the tenor of his prayer. This is not
contemplated by the Rules nor is it sanctioned by the due process clause."23
The import of a judgment by default was further clarified in Lim Tanhu v.
Ramolete.24 The following disquisition is most instructive:
"Unequivocal, in the literal sense, as these provisions [referring to the subject of
default then under Rule 18 of the old Rules of Civil Procedure] are, they do not
readily convey the full import of what they contemplate. To begin with, contrary to the
immediate notion that can be drawn from their language, these provisions are not to
be understood as meaning that default or the failure of the defendant to answer
should 'be interpreted as an admission by the said defendant that the plaintiff's
cause of action find support in the law or that plaintiff is entitled to the relief prayed
for.' x x x.
xxx
"Being declared in default does not constitute a waiver of rights except that of being
heard and of presenting evidence in the trial court. x x x.
"In other words, a defaulted defendant is not actually thrown out of court. While in a
sense it may be said that by defaulting he leaves himself at the mercy of the court,
the rules see to it that any judgment against him must be in accordance with law.
The evidence to support the plaintiff's cause is, of course, presented in his absence,
but the court is not supposed to admit that which is basically incompetent. Although
the defendant would not be in a position to object, elementary justice requires that
only legal evidence should be considered against him. If the evidence presented
should not be sufficient to justify a judgment for the plaintiff, the complaint must be
dismissed. And if an unfavorable judgment should be justifiable, it cannot exceed in
amount or be different in kind from what is prayed for in the complaint."25
In sum, while petitioners were allowed to present evidence ex parte under Section 3
of Rule 9, they were not excused from establishing their claims for damages by the
required quantum of proof under Section 1 of Rule 133. Stated differently, any
advantage they may have gained from the ex parte presentation of evidence does
not lower the degree of proof required. Clearly then, there is no incompatibility
between the two rules.
Second and Third Issues:
Review of the Evidence
Petitioners urge this Court to depart from the general rule that the lower courts'
findings of fact are not reviewable in a Petition for Review .26 In support of their plea,
they cite the conflicting findings of the trial and the appellate courts, as well as the
alleged conjectures and surmises made by the CA in arriving at its Decision.
Indeed, the differences between the findings of the two courts a quo, leading to
entirely disparate dispositions, is reason enough for this Court to review the

Page 31 of 58

evidence in this case.27 Whether the CA indulged in surmises and conjectures when
it issued the assailed Decision will thus be determined.

had the right to repurchase the property through conventional redemption, as

provided under Article 1601 of the Civil Code, worded as follows:

At the outset, it behooves this Court to clarify the CA's impression that no evidence
was presented in the case which might have contributed to petitioners' challenge to
its Decision. The appellate court's observation was based on the notation by the
lower court's clerk of court that there were no separate folders for exhibits and
transcripts, because "there was no actual hearing conducted in this case."28

"ART. 1601. Conventional redemption shall take place when the vendor reserves the
right to repurchase the thing sold, with the obligation to comply with the provisions of
Article 1616 and other stipulations which may have been agreed upon."

True, there was no hearing conducted between petitioners and respondent, precisely
because the latter had been declared in default, and petitioners had therefore been
ordered to present their evidence ex parte. But the absence of a hearing did not
mean that no evidence was presented. The Partial Decision dated February 8, 1993,
in fact clearly enumerated the pieces of evidence adduced by petitioners during the
ex parte presentation on January 7, 1993. The documentary evidence they
presented consisted of the following:
1. A copy of respondent bank's Petition for the extrajudicial foreclosure and auction
sale of the mortgaged parcel of land29
2. The Certificate of Sale that was a consequence of the foreclosure sale

30

3. A Statement of Account dated February 15, 1984, showing Petitioner Chua's

outstanding debt in the amount of P40,135.5331
4. A copy of the Interbank check dated February 16, 1984, in the amount of P4,00032
5. The Official Receipt issued by the bank acknowledging the check33
6. The bank's letter dated February 20, 1984, advising Petitioner Chua of the sale of
the property at an extrajudicial public auction; the lapse of the period of redemption;
and an invitation to purchase the property at its current market price 34
7. Another letter from the bank dated March 22, 1984, inviting Petitioner Chua to
submit, within five days, an offer to buy the same property, which another buyer had
offered to buy35
8. A copy of the Notice of Lis Pendens, the filing of which was done after that of the
Amended Complaint36
9. A copy of the title showing the inscription of the Notice of Lis Pendens37
10. A copy of the Absolute Deed of Sale to Cerrofer38
11. A copy of a letter dated August 29, 1986, made and signed by petitioners'
counsel, requesting the cancellation of the Notice of Lis Pendens39
12. A copy of a page of the Memorandum of Encumbrance from TCT No. (314341)
7778/T-3940
Having clarified this matter, we proceed to review the facts.
Petitioners do not deny that the one-year period for legal redemption had already
lapsed when respondent bank supposedly offered to sell the property in question.
The records clearly show that the Certificate of Sale following the extrajudicial public
auction of the property was registered on June 21, 1982, the date from which the
legal redemption period was to be reckoned.41 Petitioners insist, though, that they

It is true that the one-year period of redemption provided in Act No. 3135, as
amended - - the law under which the property here was sold in a foreclosure sale - is only directory and, as such can be extended by agreement of the
parties.42 However, it has also been held that for legal redemption to be converted
into conventional redemption, two requisites must be established: 1) voluntary
agreement of the parties to extend the redemption period; and 2) the debtor's
commitment to pay the redemption price on a fixed date.43 Thus, assuming that an
offer was made to Petitioner Chua to buy back the property after the lapse of the
period of legal redemption, petitioners needed to show that the parties had agreed to
extend the period, and that Petitioner Chua had committed to pay the redemption
price on a fixed date.
The letters sent by the bank to Petitioner Chua on February 20 and March 22, 1984,
do not convincingly show that the parties arrived at a firm agreement for the
repurchase of the property. What can be gleaned from the February 20 letter is that
Petitioner Chua proposed to pay the redemption price for the property, but that the
bank refused to accede to his request, because the one-year redemption period had
already lapsed.44 The bank, though, had offered to sell back the property to him at
the current market value. Indeed, an examination of his earlier letter of February 17,
1984, readily reveals that he expressed willingness to settle his account with the
bank, but that his "present financial situation precludes [him] from effecting an
immediate settlement x x x."45
On the other hand, the letter dated March 22, 1984, clearly states that "x x x the
Bank rejected [his] request to redeem said property due to [the] lapse of [the] one (1)
year legal redemption period."46Nonetheless, he was "[invited] to submit an offer to
buy the same property in five (5) days from receipt [of the letter]." 47 Petitioner Chua
was also informed that the bank had received an offer to purchase the foreclosed
property. As to the P4,000 check enclosed in his proposal dated February 17, 1984,
as a token of his good faith, he was advised that the amount was still outstanding in
the books of the bank and could be claimed by him if he thought the invitation was
not feasible.
More important, there was no showing that petitioners had committed to pay the
redemption price on a fixed date. True, Petitioner Chua had attempted to establish a
previous agreement to repurchase the property for less than its fair market value. He
had submitted in evidence a Statement of Account48 dated February 15, 1984,
showing a balance of P40,135.53; the Interbank check dated February 16, 1984,
for P4,000, which was deposited to the account of respondent bank;49 and the
Official Receipt for the check.50
Granting that these documents evinced an agreement, petitioners were still unable
to establish a firm commitment on their part to pay the redemption price on a fixed
date. On the contrary, the February 17 letter of Petitioner Chua to the bank clearly
manifested that he was not capable of paying the account immediately. For this
reason, he proposed to pay in "three or four installments" without a specification of
dates for the payments, but with a plea for a reduction of the interest charges. That
proposal was rejected.
Indeed, other than the Interbank check marked "for deposit" by respondent bank, no
other evidence was presented to establish that petitioners had offered to pay the
alleged redemption price ofP40,135.53 on a fixed date. For that matter, petitioners
have not shown that they tendered payment of the balance and/or consigned the

Page 32 of 58

payment to the court, in order to fulfill their part of the purported agreement. These
remedies are available to an aggrieved debtor under Article 1256 of the Civil
Code,51 when the creditor unjustly refuses to accept the payment of an obligation.
The next question that presents itself for resolution is the propriety of the CA's ruling
vacating the Partial Decision of the regional trial court (RTC) and dismissing the
case. To recall, the RTC had resolved to withhold a ruling on petitioners' right to
redeem conventionally and/or order the reconveyance of the property in question,
pending a determination of the validity of the sale to Cerrofer Realty Corporation and
Spouses Cesar and Lorna Roque. The trial court, however, granted the prayer for
damages against respondent bank. The RTC ruled as follows:

In sum, petitioners have failed to convince this Court of the cogency of their position,
notwithstanding the advantage they enjoyed in presenting their evidence ex parte.
Not in every case of default by the defendant is the complainant entitled to win
automatically.
WHEREFORE, this Petition is hereby DENIED and the assailed Decision and
Resolution AFFIRMED. Costs against petitioners.
SO ORDERED.

"The evidence presented by [petitioners] in so far as the cause of action against

[respondent] Traders Royal Bank is concerned are preponderant to support the
claims of the [petitioners]. However, in view of the fact that the property subject
matter of this case has already been conveyed to defendant Cerrofer Realty
Corporation thus the issue as to whether or not the said conveyance or sale is valid
is sill pending between the [petitioners] and [respondents] Cerrofer Realty
Corporation and Cesar Roque and Lorna Roque. Hence, this Court resolves to grant
the prayer for damages against Traders Royal Bank.
"The claims of the [petitioners] as against [respondent] Traders Royal Bank having
been established and proved by evidence, judgment is hereby rendered ordering
[respondent] Traders Royal Bank to pay [petitioners] actual damage or the market
value of the land in question in the sum ofP500,000.00; the sum of P70,000.00 as
compensatory damages; the sum of P200,000.00 to the heirs of [petitioner] Danilo
Chua; and attorney's fees in the sum of P30,000.00."52
In the light of the pending issue as to the validity of the sale of the property to the
third parties (Cerrofer Realty Corporation and Spouses Roque), the trial court
properly withheld judgment on the matter and thus left the prayer for damages as the
sole issue for resolution.
To adjudge damages, paragraph (d) of Section 3 of Rule 9 of the Rules of Court
provides that a judgment against a party in default "shall not exceed the amount or
be different in kind from that prayed for nor award unliquidated damages." The
proscription against the award of unliquidated damages is significant, because it
means that the damages to be awarded must be proved convincingly, in accordance
with the quantum of evidence required in civil cases.
Unfortunately for petitioners, the grant of damages was not sufficiently supported by
the evidence for the following reasons.
First, petitioners were not deprived of their property without cause. As correctly
pointed out by the CA, Act No. 3135, as amended, does not require personal notice
to the mortgagor.53 In the present case, there has been no allegation - - much less,
proof - - of noncompliance with the requirement of publication and public posting of
the notice of sale, as required by ct No. 3135. Neither has there been competent
evidence to show that the price paid at the foreclosure sale was inadequate.54 To be
sure, there was no ground to invalidate the sale.
Second, as previously stated, petitioners have not convincingly established their
right to damages on the basis of the purported agreement to repurchase. Without
reiterating our prior discussion on this point, we stress that entitlement to actual and
compensatory damages must be proved even under Section 3 of Rule 9 of the Rules
of Court. The same is true with regard to awards for moral damages and attorney's
fees, which were also granted by the trial court.

Page 33 of 58

[G.R. No. L-39047. April 30, 1985.]

ALBERTO PASCUA, CRISPINA PASCUA, SOTERA PASCUA, and EDUARDO
MOLINA, Petitioners, v. HON. ALFREDO C. FLORENDO, CFI of Cagayan,
CLEMENTE CASTRO, and JULIANA O. CASTRO, Respondents.
Hermenigildo G. Rapanan for Petitioner.

SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; PREVIOUS DENIAL OF MOTION TO

DISMISS; TRIAL COURT NOT ESTOPPED FROM PASSING UPON ISSUE OF
PRESCRIPTION. The trial court denied the motion to dismiss because the
grounds relied upon by the respondents for their motion did not appear on the face
of the complaint. There was no finding that the allegation of prescription had no
merit. It cannot be said, therefore, that the trial court was already stopped from
passing upon the issue of prescription. The issue was not adjudicated on its merits
and the doctrine of res judicata had not set in yet.
2. ID.; ID.; ACTION; BARRED BY STATUTE OF LIMITATIONS; CASE AT BAR.
We likewise find the petitioners contention, that they came to know of the deed of
sale by Martin Pascua in favor of the respondents only in 1973, highly improbable.
As the trial court correctly observed, it is inconceivable that the petitioners did not
come to know about the purchase by the respondents of the property from Martin
Pascua. They admitted that they have been neighbors of the respondents since
before the war or for a period of about 30 years and that the latter had deprived them
of the fruits of the land in question for more than 20 years. Alberto Pascua, one of
the petitioners testified that his parents from whom they inherited the property died
more than 25 years ago yet the children never exerted any effort to have the
property partitioned. This fact indicates that petitioners had knowledge of the sale,
which explains why they had no interest at all in any project of partition. More
important is the fact that after the respondents purchased the land they worked to
secure an Original Certificate of Title on the basis of a free patent application. This
was way back in 1958, 15 years before the petitioners decided to file the action
below. Clearly, the petitioners action is now barred by the statute of limitations.
3. CIVIL LAW; ACTION FOR RELIEF BASED ON FRAUD; ACTION BROUGHT
WITHIN FOUR YEARS FROM DISCOVERY OF FRAUD. Even if we add the
lower courts finding that there was fraud on the part of Martin Pascua when he
effected the sale of the disputed lot in favor of the respondents, the petitioners are
still barred from recovering the lot because their action should have been filed within
four (4) years from their discovery of the fraud, which in turn, is deemed at the latest
to have taken place in 1958, when the respondents were issued an original
certificate of title.
4. REMEDIAL LAW; CIVIL PROCEDURE; JUDGMENT BY DEFAULT PREVAILING
PARTY NOT AUTOMATICALLY ENTITLED TO RELIEF; CASE AT BAR. Nowhere
in the aforequoted provision nor in the summons issued by the respondent court is it
stated that the petitioners are automatically entitled to the relief prayed for, once the
respondents are declared in default. Favorable relief can be granted only after the
court has ascertained that the evidence offered and the facts proven by the
presenting party, petitioners in this case, warrant the grant of the same. Otherwise, it
would be meaningless to require presentation of evidence if everytime the other
party is declared in default, a decision would automatically be rendered in favor of
the non-defaulting party and exactly according to the tenor of his prayer. This is not
contemplated by the Rules nor is it sanctioned by the due process clause. In the
instant case, from the evidence presented ex-parte by the petitioners and from their
very own allegations, the only judgment that is warranted is the dismissal of the
complaint. It is barred by the statute of limitations.

DECISION

GUTIERREZ, JR., J.:

This is a petition for review on certiorari, seeking to annul the decision of the Court of
First Instance of Cagayan which dismissed the petitioners action for reconveyance
with damages on the ground that the period within which to file the same had already
prescribed.
Petitioners, as plaintiffs, filed a complaint for reconveyance with damages against
the private respondents, spouses Clemente and Juliana Castro. The latter, as
defendants, in lieu of filing an answer, filed a motion to dismiss the complaint on the
grounds that the complaint states no cause of action and that the same is already
barred by the statute of limitations.
The trial court denied the respondents motion after finding that the grounds relied
upon by them did not appear on the face of the complaint. The court subsequently
declared the respondents in default for their having failed to file an answer within the
reglementary period. Thus, the petitioners proceeded to present their evidence exparte.
After receiving the petitioners evidence, the trial court made the following
findings:jgc:chanrobles.com.ph
"From the evidence adduced during the presentation of evidence by plaintiffs, it was
shown that Alberto Pascua is one of the plaintiffs, in this case; that he knows his coplaintiffs Crispina, Sotera, surnamed Pascua, and Eduardo Molina, the first two
being his sisters while the last is his nephew being the son of his sister Alejandra;
that his father is Jordan Pascua while his mother is Magdalena Dumadag; that both
his parents are already dead (Exhibits A, B, and C); that Alejandra Pascua is also
dead; that during the lifetime of Jordan and Magdalena Dumadag, they begot five
children, namely Alberto, Alejandra, Crispina, Martin and Sotera; that Jordan Pascua
and Magdalena Dumadag acquired a parcel of land located at Dacalafugo,
Camalaniugan, Cagayan, consisting of 1.02.20 hectares and described in paragraph
3 of the complaint; that lately they came to know that their brother Martin Pascua
sold the property to Clemente Castro, a resident of Camalaniugan, Cagayan; that
when they went to complain to the Agrarian office in Tuguegarao, Clemente Castro
showed them the deed of sale which they xerox copied (Exhibit D); that the signature
Alberto Pascua appearing in Exhibit D is not his signature; that the genuine
signature of Alberto Pascua appears in Exhibit E; that he and his co- plaintiffs did not
give consent to the sale of the land subject matter of this case; that the signature
Sotera Pascua, appearing in Exhibit D is not also the signature of Sotera Pascua;
that he and his co-plaintiffs did not appear before the Notary Public; that the land
subject matter of this case was never given to Martin Pascua by their deceased
father; that Martin Pascua is already dead; that the land is now titled in the name of
the defendant Juliana O. Castro (Exhibits F and F-1) while the deed of sale was
executed in favor of Clemente Castro (Exhibit D); that the land is declared for
taxation purposes under Tax Declaration No. 157 (Exhibit G) in the name of Juliana
Castro; that plaintiffs and the defendants have been neighbors since before the war
and defendants know that the land sold to them and subject matter of this suit was
inherited by the plaintiffs from their deceased father; that they (plaintiffs) have been
deprived of the fruits of the land for more than 20 years; that the land yields from
thirty to forty sacks of palay valued at P30.00 each; and that plaintiffs agreed to pay
their counsel the amount of P1,200.00 out of which they have already paid P200.00.
"From. Exhibit D of the plaintiffs, it appears that the deed of sale was executed in
favor of the defendant Clemente Castro married to Juliana Orteza by Martirs Pascua
on May 8, 1951. Alberto Pascua and Sotera Pascua testified that lately they came to
know that this land was conveyed by Martin Pascua to the defendants and that said
defendants have been in possession of the land in question for more than 20 years.
They testified further, however, that they have been deprived of the fruits of the land
for more than twenty years. If such is the case, it is clear that the defendants have
entered and occupied the property for more than twenty years and it is inconceivable
that the plaintiffs did not come to know that the defendants bought the property from
their brother Martin Pascua when they admitted that they have suffered damages by
virtue of the dispossession for more than twenty years. The conclusion is obvious
that the plaintiffs had knowledge of the transaction made by their brother about
twenty years ago.
"From the evidence of the plaintiffs, the Court finds that there was really fraud
committed by Martin Pascua in selling the entire property which said Martin Pascua
and plaintiffs inherited from their parents thus excluding the shares of the plaintiffs.
Certainly, Martin Pascua could only sell one-fifth of the property and that the fourfifths were fraudulently conveyed by him. It is clear that there was fraud on the part

Page 34 of 58

of Martin Pascua in selling the shares of his brother and sisters. The action for relief
on the ground of fraud, however, may be brought only within four years from the
discovery of the fraud. (Article 1391, New Civil Code; Section 43 (c) Act 190).
x

"In view of the fact that the deed of sale was executed on May 8, 1951, or over
twenty years before the filing of the complaint on May 31, 1973, it is hard to believe
that plaintiffs did not come to know of this deed of sale executed by their brother.
The Court, therefore, comes to the inevitable conclusion that this action, having been
filed 22 years after the execution of the deed of sale, has long prescribed."cralaw
virtua1aw library
Not satisfied with the trial courts decision, petitioners elevated the case to this Court
through this petition. The petitioners ask us to examine the following alleged errors
of the respondent court:chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph
1. THE TRIAL COURT ERRED IN DISMISSING THE CASE ON GROUND OF
PRESCRIPTION ALTHOUGH IT HAS PREVIOUSLY DENIED A MOTION TO
DISMISS BASED ON THE SAME GROUND.
2. THE TRIAL COURT ERRED IN NOT GRANTING RELIEF TO PLAINTIFFS
ALTHOUGH THE DEFENDANTS WERE DECLARED IN DEFAULT.
The petitioners contend that the trial court acted with grave abuse of discretion
when, after hearing their evidence presented ex-parte, the respondents having been
declared in default, it dismissed the case on the ground that the action had already
prescribed. When the same ground was earlier raised, the court denied the motion to
dismiss filed by the respondents. The petitioners argue that because of its denying
the motion to dismiss, the trial court is stopped from dismissing the case on the
same ground. Petitioners further contend that the courts conclusion that they had
knowledge of the sale executed by their deceased brother, Martin Pascua about
twenty years ago is based merely on surmises and conjectures because, in reality, it
was only in 1973 when they came to learn of the deed of sale executed by their
deceased brother in 1951. In 1973, the deed was shown to them by respondent
Clemente Castro at the Agrarian office. Therefore, the period of prescription should
be counted from the knowledge of the petitioners of the deed of sale and not from
the date it was executed.chanrobles law library : red
Petitioners contention are without merit.
The trial court denied the motion to dismiss because the grounds relied upon by the
respondents for their motion did not appear on the face of the complaint. There was
no finding that the allegation of prescription had no merit. It cannot be said,
therefore, that the trial court was already stopped from passing upon the issue of
prescription. The issue was not adjudicated on its merits and the doctrine of res
judicata had not set in yet.
We likewise find the petitioners contention, that they came to know of the deed of
sale by Martin Pascua in favor of the respondents only in 1973, highly improbable.
As the trial court correctly observed, it is inconceivable that the petitioners did not
come to know about the purchase by the respondents of the property from Martin
Pascua. They admitted that they have been neighbors of the respondents since
before the war or for a period of about 30 years and that the latter had deprived them
of the fruits of the land in question for more than 20 years. Alberto Pascua, one of
the petitioners testified that his parents from whom they inherited the property died
more than 25 years ago yet the children never exerted any effort to have the
property partitioned. This fact indicates that petitioners had knowledge of the sale,
which explains why they had no interest at all in any project of partition. More
important is the fact that after the respondents purchased the land they worked to
secure an Original Certificate of Title on the basis of a free patent application. This
was way back in 1958, 15 years before the petitioners decided to file the action
below. Clearly, the petitioners action is now barred by the statute of limitations.
In the case of Iglesia ni Cristo v. Hon. Judge, Court of First Instance of Nueva Ecija,
Br. I (123 SCRA 523), quoting the case of Labora v. Dayang-hirang (37 SCRA 346),
we ruled:jgc:chanrobles.com.ph

"The rule in this jurisdiction, regarding public patents and the character of the
certificate of title that may be issued by virtue thereof, is that where land is granted
by the government to a private individual, the corresponding patent therefor, is
recorded and the certificate of title is issued to the grantee; thereafter, the land is
automatically brought within the operation of the Land Registration Act, the title
issued to the grantee becoming entitled to all the safeguards provided in Section 38
of said Act. In other words, upon the expiration of one year from its issuance, the
certificate of title becomes irrevocable and indefeasible like a certificate issued in a
registration proceeding."cralaw virtua1aw library
It is quite obvious, therefore, that the respondents title has already become
indefeasible and irrevocable, the one-year period provided by law having expired in
1959.
Moreover, even if we add the lower courts finding that there was fraud on the part of
Martin Pascua when he effected the sale of the disputed lot in favor of the
respondents, the petitioners are still barred from recovering the lot because their
action should have been filed within four (4) years from their discovery of the fraud,
which in turn, is deemed at the latest to have taken place in 1958, when the
respondents were issued an original certificate of title. This was our ruling in the
case of Balbin v. Medalla (108 SCRA 666) where we stated:chanrobles lawlibrary :
rednad
"An action for reconveyance of real property resulting from fraud may be barred by
the statute of limitations, which requires that the action shall be filed within four (4)
years from the discovery of the fraud. Such discovery is deemed to have taken place
when the petitioners herein were issued original certificates of title through either
homestead or free patent grants, for the registration of said patents constitutes
constructive notice to the whole world. (Gerona v. de Guzman, 11 SCRA 153, and
cited cases thereof).
"In the case at bar, the latest patent war issued on October 14, 1959. There is,
therefore, merit in petitionerss contention that if any action for reconveyance should
be commenced, the same should be filed on or before October 14, 1963. But private
respondents complaint for reconveyance and annulment of titles with damages was
filed only on August 30, 1973 or more than 14 years had already elapsed from the
date of the issuance of the respective titles of the defendants. Consequently, the
action for reconveyance of land titled in the names of defendants (petitioners herein)
had already prescribed."cralaw virtua1aw library
The petitioners raise as a second issue that the respondent court had no alternative
but to grant the relief prayed for in their complaint as this was evident in the tenor of
the summons issued by said court which in part stated:jgc:chanrobles.com.ph
". . . if you fail to appear within the time aforesaid, the plaintiff will take judgment
against you by default and demand from this Court the relief applied for in said
complaint . . ."cralaw virtua1aw library
Petitioners also anchor their contention on Rule 18, Section 1 of the Rules of Court
which provides:jgc:chanrobles.com.ph
"Judgment by default. If the defendant fails to answer within the time specified in
these roles, the court shall, upon motion of the plaintiff and proof of such failure,
declare the defendant in default. Thereupon the court shall proceed to receive the
plaintiffs evidence and render judgment granting him such relief as the complaint
and the facts proven may warrant. This provision applies where no answer is made
to a counter-claim, cross-claim or third-party complaint within the period provided in
this Rule."cralaw virtua1aw library
Nowhere in the aforequoted provision nor in the summons issued by the respondent
court is it stated that the petitioners are automatically entitled to the relief prayed for,
once the respondents are declared in default.
Favorable relief can be granted only after the court has ascertained that the
evidence offered and the facts proven by the presenting party, petitioners in this
case, warrant the grant of the same. Otherwise, it would be meaningless to require
presentation of evidence if everytime the other party is declared in default, a decision
would automatically be rendered in favor of the non-defaulting party and exactly
according to the tenor of his prayer. This is not contemplated by the Rules nor is it
sanctioned by the due process clause.chanrobles.com.ph : virtual law library

Page 35 of 58

In the case of Lim Tanhu v. Ramolete (66 SCRA 452-453), we had occasion to
elaborate on this point. We ruled:jgc:chanrobles.com.ph
"The Rules of Court contain a separate rule on the subject of default, Rule 18. But
said rule is concerned solely with default resulting from failure of the defendant or
defendants to answer within the reglementary period. Referring to the simplest form
of default, that is, where there is only one defendant in the action and he fails to
answer on time, Section l of the rule provides that upon proof of such failure, (the
court shall) declare the defendant in default. Thereupon the court shall proceed to
receive the plaintiffs evidence and render judgment granting him such relief as the
complaint and the facts proven may warrant. This last clause is clarified by Section 5
which says that a judgment entered against a party in default shall not exceed the
amount or be different in kind from that prayed for.
"Unequivocal, in the literal sense, as these provisions are, they do not readily convey
the full import of what they contemplate. To begin with, contrary to the immediate
notion that can be drawn from their language, these provisions are not to be
understood as meaning that default or the failure of the defendant to answer should
be interpreted as an admission by the said defendant that the plaintiffs cause of
action find support in the law or that plaintiff is entitled to the relief prayed for.
(Moran, supra, p. 535 citing Macondray & Co. v. Eustaquio, 64 Phil. 466. citing with
approval Chaffin v. Mc Fadden, 41 Ark. 42; Johnson v. Pierce, 12 Ark. 599; Mayden
v. Johnson, 59 Ga. 105; People v. Rust, 292 Ill. 328; Ken v. Leopold, 21 Ill. A. 163;
Chicago, etc. Electric R. Co. v. Krempel, 116 Ill. A. 253.)
x

"In other words, a defaulted defendant is not actually thrown out of court. While in a
sense it may be said that by defaulting he leaves himself at the mercy of the court,
the rules see to it that any judgment against him must be in accordance with law.
The evidence to support the plaintiffs cause is, of course, presented in his absence,
but the court is not supposed to admit that which is basically incompetent. Although
the defendant would not be in a position to object, elementary justice requires that
only legal evidence should be considered against him. If the evidence presented
should not be sufficient to justify a judgment for the plaintiff, the complaint must be
dismissed. And if an unfavorable judgment should be justifiable, it cannot exceed in
amount or be different in kind from what is prayed for in the complaint."cralaw
virtua1aw library
In the instant case, from the evidence presented ex-parte by the petitioners and from
their very own allegations, the only judgment that is warranted is the dismissal of the
complaint. It is barred by the statute of limitations.
WHEREFORE, the petition is hereby DISMISSED for lack of merit. No costs.
SO ORDERED.

Page 36 of 58

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

SPOUSES PEPITO AND LORETO LAUS, Petitioners, v. HON. COURT OF
APPEALS, HON. SALVADOR C. CEGUERA, in his capacity as Presiding Judge
of the Regional Trial Court of Quezon City, Branch 82; NILO SM. CABANG, in
his capacity as Deputy Sheriff of Quezon City and CONSUELO P.
TORRES, Respondents.
Alberto E. Venturanza, for Petitioners.
Leonardo Byron R. Perez, Jr. for Private Respondent.

SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; JURISDICTION; HOW JURISDICTION

OVER PERSON OF DEFENDANT ACQUIRED; EFFECT OF INVALID SERVICE OF
SUMMONS; CASE AT BAR. The focal issue is whether or not the trial court
acquired jurisdiction over the persons of the petitioners by virtue of the substituted
service of summons effected by Deputy Sheriff Cruz. Since the petitioners did not
voluntarily submit to the jurisdiction of the trial court, proper service of summons
became imperative. If the service effected in the case at bar was, as claimed by the
petitioners, invalid, the trial court acquired no jurisdiction over their persons. In such
an instance, the order of default, judgment by default and writ of execution issued by
the trial court would be null and void. . . . Since the substituted service of summons
in this case was not validly effected, the trial court did not acquire jurisdiction over
the persons of the petitioners. The order of default, the judgment by default, the writ
of execution issued by it, as well as the auction sale of the petitioners properties
levied on execution are, therefore, all null and void.
2. ID.; ID.; SUMMONS; PERSONAL SERVICE; GENERAL RULE; SUBSTITUTED
SERVICE NATURE THEREOF; PHRASE "WITHIN A REASONABLE TIME"
CONSTRUED. The general rule in this jurisdiction is that summons must be
personally served; pursuant to Section 7, Rule 14 of the Revised Rules of Court,
such personal service is to be accomplished by "handing a copy thereof to the
defendant in person, or, if he refuses to receive it, by tendering it to him." However, if
this mode of service cannot be effected within a reasonable time, substituted service
may be resorted to under Section 8 of the same Rule. Section 8 provides: "SEC. 8.
Substituted Service. If the defendant cannot be served within a reasonable time
as provided in the preceding section, service may be effected (a) by leaving copies
of the summons at the defendants dwelling house or residence with some person of
suitable age and discretion then residing therein, or (b) by leaving the copies at
defendants office or regular place of business with some competent person in
charge thereof." This provision is a reproduction of Section 8, Rule 7 of the 1940
Rules of Court except that inter alia, "promptly" in the latter was changed to "within a
reasonable time" in the former. "Within a reasonable time" contemplates a period of
time longer than that demarcated by the word "prompt," and presupposes that a prior
attempt at personal service, within a justifiable time frame as would be necessary to
bring the defendant within the jurisdiction of the court, had failed. Since substituted
service is in derogation of the common law and is extraordinary in character, it must
be used only as prescribed and in the circumstances authorized by statute. Statutes
prescribing modes other than personal service of summons must be strictly complied
with to give the court jurisdiction, and such compliance must appear affirmatively in
the return.
3. ID.; ID.; ID.; HOW IMPOSSIBILITY OF PROMPT PERSONAL SERVICE SHOWN;
CASE AT BAR. In Keister v. Navarro, this Court described how the impossibility of
personal service should be shown: "Impossibility of prompt service should be shown
by stating the efforts made to find the defendant personally and the fact that such
efforts failed. This statement should be made in the proof of service (I Moran,
Comments on the Rules of Court, 1970 Ed., p. 444). This is necessary because
substituted service is in derogation of the usual method of service. It has been held
that this method of service is `in derogation of the common law; it is a method
extraordinary in character, and hence may be used only as prescribed and in the
circumstances authorized by statute. . . . (72 C.J.S. 1053)." A perusal of the sheriffs
return in the case at bar readily reveals that it does not (a) indicate the impossibility
of service of summons within a reasonable time, (b) specify the efforts exerted to
locate the petitioners and (c) state that it was served on a person of sufficient age

and discretion residing therein. The fact of the matter is that as disclosed in his
testimony taken in connection with the motion for reconsideration, and the affidavit
he prepared in conjunction with such hearing. Deputy Sheriff Cruz resorted to a
substituted service on his first and only attempt to effect a personal service.
Upon being informed that the petitioners were not around at that time, he
immediately resorted to a substituted service through Josephine Areola, a person
whose age he did not even know or attempt to discover. He did not even inquire
about the whereabouts of the petitioners, the time they were expected to return
home, the hours of the day they could be contacted at their house or the location of
their offices, if any, in order that he could faithfully comply with the requirement of
personal service.
4. ID.; ID.; ID.; SERVICE OF SUMMONS MAY BE MADE AT NIGHT, DURING THE
DAY, ON A SUNDAY OR A HOLIDAY; REASON THEREFOR; CASE AT BAR. It is
all too obvious that no earnest efforts were exerted by Deputy Sheriff Cruz to effect
the personal service of summons. His testimony thus attests to an undue, if not
indecent, haste to serve the summons at the first attempt without making sure that
personal service was, by then and even thereafter, an impossibility because either
the petitioners had left for a foreign country or an unknown destination with not
definite date of returning within a reasonable period or had gone into hiding to avoid
service of any process from the courts. If he had only made the inquiries suggested
above, he could have returned in the evening of 10 October 1989 or on any of the
succeeding days including the following Saturday and Sunday. Service of
summons may be made at night as well as during the day, or even on a Sunday or
holiday because of its ministerial character.
5. ID.; ID.; MOTION TO DISMISS ON GROUND OF LACK OF JURISDICTION
OVER DEFENDANTS PERSON; PERIOD FOR FILING DOES NOT COMMENCE
TO RUN UNTIL DEFENDANT VOLUNTARILY SUBMITS TO COURTS
JURISDICTION; REASON THEREFOR; CASE AT BAR. Some further comments,
en passant, on the ratiocination of the respondent Court are in order. It is not
accurate for the latter to have said that the petitioners motion to dismiss was not
filed seasonably because it was filed beyond the reglementary period provided in the
Revised Rules of Court. Such a conclusion would doubtless be correct if there was a
valid service of summons. If, however, a defendant has not been properly
summoned, the period to file a motion to dismiss for lack of jurisdiction over his
person does not commence to run until he voluntarily submits to the jurisdiction of
the court, since the court has no jurisdiction to adjudicate the controversy as to him
until such time. In this case, petitioners did not voluntarily submit to the jurisdiction of
the trial court. Consequently, the period to file a responsive pleading did not even
commence to run.
6. ID.; SPECIAL CIVIL ACTIONS; CERTIORARI; WHEN INTERLOCUTORY ORDER
MAY BE THE SUBJECT THEREOF; CASE AT BAR. Nor are We persuaded by
the respondent Courts declaration that even if the motion to dismiss had been filed
on time, the trial courts order denying the same, being interlocutory, still cannot be
the subject of a petition for certiorari. To be sure, this rule admits of an exception, as
when the trial court clearly acted outside of its jurisdiction or with grave abuse of
discretion in denying the motion to dismiss. This is exactly what happened in the
case while it was pending before the trial court; the denial of the motion to dismiss
was based solely on the ground that a judgment by default had already been
entered. Certainly, this does not constitute a valid ground for the denial because the
motion raises a fundamental and prejudicial issue affecting the validity of the
decision by default.
7. ID.; EVIDENCE DISPUTABLE PRESUMPTIONS; PRESUMPTION OF
REGULARITY IN PERFORMANCE OF OFFICIAL FUNCTIONS; DOES NOT APPLY
WHERE SHERIFFS RETURN IS PATENTLY DEFECTIVE. Finally, respondent
Courts reliance on the presumption of regularity in the performance of official
functions is misplaced. We have held that such a presumption does not apply where
it is patent that the sheriffs return is defective.
8. ID.; VOID JUDGMENT CAN NEVER BECOME FINAL AND EXECUTORY;
ACTION TO DECLARE NULLITY OF VOID JUDGMENT IMPRESCRIPTIBLE; CASE
AT BAR. Equally unmeritorious is the respondent Courts statement that the
failure of the petitioners to appeal from the judgment by default rendered such
judgment final and unassailable. In the first place, it is axiomatic that a void judgment
can never become final and executory and may even be assailed or impugned at
any time. An action to declare the nullity of a void judgment does not prescribe.
Secondly, the motion to dismiss in this case was filed before the petitioners received

Page 37 of 58

a copy of the decision by default. Since the said motion is based on the lack of
jurisdiction over the persons of the petitioners which, if true in fact, We have found
it to be so would result in the nullification not only of the default order but of the
decision as well, then for all legal intents and purposes, the latter was covered by the
motion. This was precisely the orientation of the trial court when it allowed the
parties to submit evidence to support the motion to reconsider the Order of 5 March
1990 denying the motion to dismiss. It would certainly not have gone that far if it
thought otherwise for by then, the decision had already become final.

pay attorneys fees equivalent to twenty-five percent (25%) of the entire amount due"
to the private Respondent. 8

DECISION

In its Order of 5 March 1990, the trial court denied the motion to dismiss for lack of
merit on the ground that it had already rendered a judgment by default on 24
January 1990. 10 Petitioners received a copy of this order on 24 March 1990. In the
meantime, the trial court issued a writ of execution.

DAVIDE, JR., J.:

Petitioners seek the review and reversal of the 30 May 1991 Decision 1 of
respondent Court of Appeals in CA-G.R. SP No. 22232 2 and the 30 July 1991
Resolution denying their motion to reconsider the said decision. The challenged
decision dismissed, for lack of merit, their petition forcertiorari, prohibition and
injunction to annul the Orders dated 5 March 1990 and 9 July 1990 of Branch 82 of
the Regional Trial Court (RTC) of Quezon City in Civil Case No. Q-89-3327 which,
respectively, declared them in default and denied their motion to reconsider such
declaration.
The antecedents of this case are not controverted.
On 24 August 1989, private respondent Consuelo P. Torres filed against "Loredo
(sic) Alfaro-Laus and John Doe" a complaint, docketed as Civil Case No. Q-89-3327,
for the collection of a sum of money. The defendants in the said case are the
petitioners in the instant petition. The complaint alleges that petitioner Loreto AlfaroLaus executed a promissory note in favor of the private respondent under which the
former undertook to pay the latter the amount of Sixty-Six Thousand Pesos
(P66,000.00) after three (3) months from the date thereof. Upon maturity of the said
promissory note, however, only Eleven Thousand Pesos (P11,000.00) was paid;
despite the receipt of a demand letter from the private respondent, petitioners made
no further payments. Thus, the former filed the aforementioned complaint praying for
the payment of the unpaid balance of P55,000.00 "plus interest at the rate of ten per
cent (10%), compounded monthly beginning February 21, 1989, and twenty-five per
cent (25%) of the entire amount due for and as attorneys fees, such being in
accordance with the terms and conditions set forth in the promissory note." 3
On 10 October 1989, Deputy Sheriff Romero S. Cruz proceeded to the petitioners
address at 122 Molave Park Subdivision, Paraaque, Metro Manila to serve the
summons and a copy of the complaint. Failing to serve the summons personally
upon the petitioners after waiting for ten (10) minutes, he resorted to a substituted
service through one Josephine Areola, who purportedly represented herself to be the
maid of the said petitioners. 4 On the same date, Deputy Sheriff Cruz executed and
filed a return 5 which reads:jgc:chanrobles.com.ph
"Respectfully returned to the REGIONAL TRIAL COURT Branch 82, QUEZON CITY,
the attached original copy of the summons issued in connection with Civil Case No.
89-3327 entitled CONSUELO P. TORRES versus LOREDO (sic) LAUS & JOHN
DOE with the information that duplicate copy of the same together with the complaint
and its annexes was duly served upon defendant Loredo (sic) Laus of 122 Molave
Park Subd. Paraaque M. M. thru JOSEPHINE AREOLA, maid of Loredo Daus (sic)
of same address, received as evidenced by her signature appearing
thereon." chanrobles.com:cralaw:red
The petitioners did not file any answer. Consequently, upon motion of the private
respondent, the trial court 6 issued on 29 December 1989 an order declaring the
former in default and setting the ex parte presentation of the private respondents
evidence for 16 January 1990. 7 The petitioners claim that they received this 29
December 1989 Order only on 22 January 1990.
On 24 January 1990, the trial court rendered a judgment by default against the
petitioners; it ordered the latter" [T]o pay the plaintiff (private respondent) the amount
of FIFTY-FIVE Thousand Pesos (P55,000.00) at the rate of ten per cent (10%),
compounded monthly beginning February 21, 1989 up to the present; and . . . [T]o

On 2 February 1990, before receiving a copy of the 22 January 1990

decision, Petitioners, by way of a special appearance, filed a motion to dismiss the
case for lack of jurisdiction over their persons. They allege that the service of
summons was ineffective because it was not indicated in the return that the sheriff
had first exerted efforts to serve the same personally before resorting to substituted
service. 9

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

Page 38 of 58

the reglementary period for filing a responsive pleading and before such responsive
pleading is filed (Rule 16, Sec. 1[a]). In this case, the defendants-petitioners motion
to dismiss was filed five (5) months after the complaint was filed and only after a
default judgment had already been rendered by the respondent Court. Thus, it was
rather too late in the day for the defendants-petitioners motion to dismiss to be
considered by the respondent Court. In the proper exercise of its sound judicial
discretion, the respondent Court did not err in denying the motion to dismiss on the
ground that a judgment by default had already been rendered.
Besides, even if the motion to dismiss was filed on time, and yet, was still denied by
the respondent Court, the order of the court denying the motion to dismiss is
interlocutory and cannot be the subject of a petition for certiorari, such as this instant
petition (National Investment and Development Corp. v. Aquino, 163 SCRA 153).
The denial of a motion to dismiss cannot be questioned in a petition forcertiorari,
which is an extra-ordinary writ that is not allowed as a substitute for ordinary appeal
(Tan v. Intermediate Appellate Court, 164 SCRA 130).chanrobles virtual lawlibrary
Be that as it may, the defendants-petitioners had other remedies available to them,
but which they failed to avail of. In a long line of cases decided by the Supreme
Court, it has been repeatedly provided that the remedies of a defaulted defendant
are:chanrob1es virtual 1aw library
(a) The defendant in default may, at any time after discovery thereof and before
judgment, file a motion, under oath, to set aside the order of default on the ground
that his failure to answer was due to fraud, accident, mistake, excusable negligence,
and that he has a meritorious defense;
(b) If the judgment has already been rendered when the defendant discovered the
default, but before the same has become final and executory, he may file a Motion
for New Trial under Section 1[a] of Rule 37;
(c) If the defendant discovered the default after the judgment has become final and
executory, he may file a petition for relief under Sec. 2 of Rule 38; and
(d) He may also appeal from the judgment rendered against him as contrary to the
evidence or to law, even if no petition to set aside the order of default has been
presented by him (Sec. 2, Rule 41). (Lina v. Court of Appeals, 135 SCRA 637;
Tiburcio v. Castro, 161 SCRA 583).
As it is, the defendants-petitioners failed, after they received notice of the order
declaring them in default and before the default judgment was rendered, to file a
motion, under oath, to set aside the order of default on the ground that they failed to
file a timely answer due to fraud, accident, mistake, or excusable negligence, and
showing (sic) that they had a meritorious defense.
The other applicable remedy which they failed to employ is the remedy of appeal
from the judgment rendered against them as contrary to the evidence or the law,
even in the absence of a motion/petition to set aside the order of default. This instant
petition for certiorari cannot be a substitute for the remedy of appeal, which the
defendants-petitioners did not pursue, as they must first exhaust the remedies
available to them (Lina v. Court of Appeals, supra.). That the judgment by default
had already become final and is about to be executed is the result of the defendantspetitioners failure to file a timely appeal. As such, the default judgment may no
longer be challenged (Tiburcio v. Castro, supra.)
Lastly, We find that the respondent Court was liberal enough in hearing the
defendants-petitioners motion for reconsideration of the denial of their motion to
dismiss. As the pivotal issue therein, the defendant-petitioners were given their day
in court to prove that the service of summons to them was both improper and invalid.
After weighing the evidence and testimonies of the parties and other persons
involved, the respondent Court ruled that there was valid service of summons. We
find no compelling reason to rule otherwise.
There is such a presumption of regularity in the performance of official functions by
the sheriff, and it was up to the defendants-petitioners to convince the respondent
Court that there was, indeed, invalid service of summons. This they failed to do.
They could not substantiate their claim that Josephine Areola was a child of 10 to 11
years who would not know what to do with the court documents received by her. The
defendants-petitioners contention that Josephine Areola stayed with them for only a
few days backfired when the private respondent presented documentary evidence to

show that Josephine Areola was already residing in the defendants-petitioners

house at least three (3) months before the summons was served. No other proof
was presented by the defendants-petitioners to bolster their allegations apart from
their self-serving, and sometimes conflicting, testimonies. Thus, We find no error or
grave abuse of discretion on the part of the respondent Court in denying the
defendants-petitioners motion for reconsideration." 20
Meanwhile, on 13 June 1991, respondent sheriff Nilo Cabang sold at a public
auction the levied mens ring - on oval diamond set in yellow gold to the private
respondent for P140,000.00, and the Galant car to Atty. Leonardo Perez, Jr., counsel
for the latter, for P180,000.00. Both were the highest bidders. 21
Their motion for the reconsideration of the aforesaid decision having been denied in
the respondent Courts Resolution of 30 July 1991, 22 petitioners availed of this
recourse under Rule 45 of the Revised Rules of Court and raise the following
issues:jgc:chanrobles.com.ph
"1. WHETHER OR NOT THE COURT A QUO ACQUIRED JURISDICTION OVER
THE REASONS OF THE PETITIONERS BY VIRTUE OF THE SUBSTITUTED
SERVICE OF SUMMONS EFFECTED BY DEPUTY SHERIFF ROMEO CRUZ;
2. WHETHER OR NOT THE REMEDY OF CERTIORARI CAN BE AVAILED OF BY
A PARTY IMPROVIDENTLY DECLARED IN DEFAULT TO CHALLENGE THE
ORDER OF DEFAULT AND THE SUBSEQUENT JUDGMENT BY DEFAULT." 23
On 10 February 1992, after the filing of the private respondents comment and the
petitioners reply thereto, We resolved to give due course to the petition and required
the parties to file their respective memoranda which they subsequently complied
with.
We find merit in this petition.chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph
The focal issue is whether or not the trial court acquired jurisdiction over the persons
of the petitioners by virtue of the substituted service of summons effected by Deputy
Sheriff Cruz. Since the petitioners did not voluntarily submit to the jurisdiction of the
trial court, proper service of summons became imperative. If the service effected in
the case at bar was, as claimed by the petitioners, invalid, the trial court acquired no
jurisdiction over their persons. 24 In such an instance, the order of default, judgment
by default and writ of execution issued by the trial court would be null and
void.25cralaw:red
The general rule in this jurisdiction is that summons must be personally served;
pursuant to Section 7, Rule 14 of the Revised Rules of Court, such personal service
is to be accomplished by "handing a copy thereof to the defendant in person, or, if he
refuses to receive it, by tendering it to him." However, if this mode of service cannot
be effected within a reasonable time, substituted service may be resorted to under
Section 8 of the same Rule. Section 8 provides:jgc:chanrobles.com.ph
"SECTION 8. Substituted Service. If the defendant cannot be served within a
reasonable time as provided in the preceding section, service may be effected (a) by
leaving copies of the summons at the defendants dwelling house or residence with
some person of suitable age and discretion then residing therein, or (b) by leaving
the copies at defendants office or regular place of business with some competent
person in charge thereof."cralaw virtua1aw library
This provision is a reproduction of Section 8, Rule 7 of the 1940 Rules of Court
except that inter alia, "promptly" in the latter was changed to "within a reasonable
time" in the former. "Within a reasonable time" contemplates a period of time longer
than that demarcated by the word "prompt," and presupposes that a prior attempt at
personal service, within a justifiable time frame as would be necessary to bring the
defendant within the jurisdiction of the court, had failed. 26 Since substituted service
is in derogation of the common law and is extraordinary in character, it must be used
only as prescribed and in the circumstances authorized by statute. 27 Statutes
prescribing modes other than personal service of summons must be strictly complied
with to give the court jurisdiction, and such compliance must appear affirmatively in
the return. 28
In Keister v. Navarro, 29 this Court described how the impossibility of personal
service should be shown:jgc:chanrobles.com.ph

Page 39 of 58

A According to the maid.

"Impossibility of prompt service should be shown by stating the efforts made to find
the defendant personally and the fact that such efforts failed. This statement should
be made in the proof of service (I Moran, Comments on the Rules of Court, 1970
Ed., p. 444). This is necessary because substituted service is in derogation of the
usual method of service. It has been held that this method of service is in derogation
of the common law; it is a method extraordinary in character, and hence may be
used only as prescribed and in the circumstances authorized by statute. . . . (72
C.J.S. 1053)."cralaw virtua1aw library

Q So upon being informed that the defendant was not around you served the
summons, according to paragraph 4 to one Josephine Ariola, is that correct?
A Yes, sir.
Q In other words, you relied on the information given to you by somebody that the
defendant was not around?

Emphasizing the need for strict compliance with the requirements of substituted
service, this Court issued Administrative Circular No. 59, the pertinent portions of
which read as follows:chanrobles.com.ph : virtual law library

A: I waited there for around ten (10) minutes and then two (2) women arrived in the
tricycle and I waited them (sic) to get inside and I asked them if Mr. and Mrs. Laus
will be coming.chanrobles.com:cralaw:red

"SUBJECT: Service of Summons.

Q And they answered they were not around at that time?

Delays in court proceedings have been caused by faulty and erroneous

implementation of Section 8, Rule 14, Rules of Court on Substituted Service of
Summons.

A Yes, sir.

The Trial Judges of all lower courts, as well as the Clerks of Court in their capacity
as Ex-Officio Sheriffs together with the Deputy Sheriffs are reminded of the provision
of Section 8, Rule 14, Rules of Court on substituted service as follows:chanrob1es
virtual 1aw library

A Yes, sir.

Q So, you immediately served the summons upon the persons arriving (sic)?

Q And who were these persons who arrived?

A Josephine Ariola.

The manner of effecting substituted service as prescribed in Venturanza v. Court of

Appeals, 156 SCRA 305, must be strictly complied with, thus:chanrob1es virtual 1aw
library
The substituted service should be availed only when the defendant cannot be
served promptly in person. Impossibility of prompt service should be shown by
stating the efforts made to find the defendant personally and the failure of such
efforts. The statement should be made in the proof of service. This is necessary
because substituted service is in derogation of the usual method of service.

Q And who is her companion?

A I did not ask anymore?
x

Q Who is older, is this Josephine Ariola or her companion?

A Josephine Ariola, she was the one who signed the summons.
Q Did you ask her age?

Substituted service is a method extraordinary in character, and hence may be used

only as prescribed in the circumstances authorized by statute. Thus, the statutory
requirements of substituted service must be followed strictly, faithfully, and any
substituted service other than that authorized by the statute is considered
ineffective.

A I did not ask anymore because she look already (sic) of sufficient age.
Q Thats your conclusion?
A Yes because she was the maid there and she was the older one." 31

For immediate compliance."cralaw virtua1aw library

A perusal of the sheriffs return in the case at bar readily reveals that it does not (a)
indicate the impossibility of service of summons within a reasonable time, (b) specify
the efforts exerted to locate the petitioners and (c) state that it was served on a
person of sufficient age and discretion residing therein. The fact of the matter is that
as disclosed in his testimony taken in connection with the motion for reconsideration,
and the affidavit he prepared in conjunction with such hearing. Deputy Sheriff Cruz
resorted to a substituted service on his first and only attempt to effect a
personal service. Upon being informed that the petitioners were not around at that
time, he immediately resorted to a substituted service through Josephine Areola, a
person whose age he did not even know or attempt to discover. He did not even
inquire about the whereabouts of the petitioners, the time they were expected to
return home, the hours of the day they could be contacted at their house or the
location of their offices, if any, in order that he could faithfully comply with the
requirement of personal service. Thus, he declared and
admitted:jgc:chanrobles.com.ph
"Q In this case, you went to the residence of the defendant once as you stated on
paragraph 3 30 on October 10, 1989?

As it turns out, the unrebutted evidence for the petitioners establishes that Areola (or
Ariola) was only 11 to 12 years old at the time substituted service was attempted. 32
It is all too obvious that no earnest efforts were exerted by Deputy Sheriff Cruz to
effect the personal service of summons. His testimony thus attests to an undue, if
not indecent, haste to serve the summons at the first attempt without making sure
that personal service was, by then and even thereafter, an impossibility because
either the petitioners had left for a foreign country or an unknown destination with not
definite date of returning within a reasonable period or had gone into hiding to avoid
service of any process from the courts. If he had only made the inquiries suggested
above, he could have returned in the evening of 10 October 1989 or on any of the
succeeding days including the following Saturday and Sunday. Service of
summons may be made at night as well as during the day, or even on a Sunday or
holiday because of its ministerial character. 33
Since the substituted service of summons in this case was not validly effected, the
trial court did not acquire jurisdiction over the persons of the petitioners. The order of
default, the judgment by default, the writ of execution issued by it, as well as the
auction sale of the petitioners properties levied on execution are, therefore, all null
and void.

A Yes, sir.
Q And you did not wait the (sic) defendant to come because according to you in
paragraph 4, you were informed that the defendant was not around, is that correct?

There is more in this case which further unmasks the nullity of the decision of the
trial court. Both parties agree that the petitioners were the defendants in Civil Case
No. Q-89-3327. However, petitioner Loreto Alfaro-Laus is erroneously mentioned in
the complaint as Loredo. On the other hand, petitioner Pepito Laus, the husband of

Page 40 of 58

Loreto, is merely designated as JOHN DOE. The latter was impleaded as a codefendant presumably on the theory that the liability sought to be enforced is a
conjugal partnership liability. In short, Loretos husband was sued as an
indispensable party; it is clear that the trial court treated him as such when in its
decision, ordered the defendants, not just Loreto, to pay the adjudged amounts.
The sheriffs return of service indisputably discloses that no summons was even
attempted to be served on petitioner Pepito Laus. Sheriff Cruz unequivocally states
therein that the "duplicate copy of the same together with the complaint and its
annexes was duly served upon defendant Loredo (sic) Laus of 122 Molave Park
Subd. Paraaque M. M. thru JOSEPHINE AREOLA, maid of Loredo Daus (sic) of
same address, . . . ." 34
Neither Deputy Sheriff Cruz nor the private respondent had volunteered additional
information to the effect that at some other time, summons was in fact served on
Pepito Laus. Accordingly, the trial court never acquired jurisdiction over his person.
And yet, while it concedes in its 29 December 1989 Order that the substituted
service of summons was valid only for Loreto, it declared the defendants and not
only her in default. The court could have easily avoided this misdoing if it only
examined the records before issuing the order. On this score alone, the judgment by
default is fatally flawed.
There is still another fact which betrays the trial courts unusual haste in rendering
the judgment by default. In the dispositive portion of the decision, the defendants
were ordered, inter alia:jgc:chanrobles.com.ph
"1. To pay the plaintiff the amount of FIFTY-FIVE Thousand Pesos (P55,000.00) at
the rate of ten per cent (10%), compounded monthly beginning February 21, 1989
up to the present;" 35
While this rate of ten per cent (10%) could only refer to the imposable interest, the
court failed to state whether its application shall be on a monthly or yearly basis. The
body of the decision, however, speaks of ten per cent (10%) interest PER MONTH;
36 this seems to have been the basis relied on by respondent sheriff Cabang in
computing for the petitioners alleged liability for purposes of execution. 37 This
award of interest in effect amounting to one hundred twenty per cent (120%) per
annum and the additional twenty-five per cent (25%) of the total amount due
ordered paid as attorneys fees, are unreasonable and unconscionable.

to dismiss in this case was filed before the petitioners received a copy of the
decision by default. Since the said motion is based on the lack of jurisdiction over the
persons of the petitioners which, if true in fact, We have found it to be so would
result in the nullification not only of the default order but of the decision as well, then
for all legal intents and purposes, the latter was covered by the motion. This was
precisely the orientation of the trial court when it allowed the parties to submit
evidence to support the motion to reconsider the Order of 5 March 1990 denying the
motion to dismiss. It would certainly not have gone that far if it thought otherwise for
by then, the decision had already become final.
Its suggestion that the petitioners should have filed a motion to set aside the order of
default on the ground that they had failed to file the answer on grounds of fraud,
accident, mistake or excusable negligence or a motion for new trial or a petition for
relief from judgment, is untenable for it begs the question. Besides, as shown above,
petitioners failure to file the answer was not based on any of these grounds, but
stood on the void service of summons.
Finally, respondent Courts reliance on the presumption of regularity in the
performance of official functions is misplaced. We have held that such a presumption
does not apply where it is patent that the sheriffs return is defective. 42
WHEREFORE, the Decision of the respondent Court of Appeals of 30 May 1991 and
the Resolution dated 30 July 1991 in CA-G.R. SP No. 22232 are hereby
REVERSED and SET ASIDE. The Order of Branch 82 of the Regional Trial Court of
Quezon City of 29 December 1989 (Civil Case No. Q-89-3327) declaring petitioners
in default, its Decision of 24 January 1990, Orders of 5 March 1990 and 9 July 1990
and the writ of execution issued therein, as well as all proceedings had pursuant to
the writ of execution, are declared NULL and VOID. The case is hereby remanded to
the court of origin for further proceedings which shall include the valid service of
summons.
SO ORDERED.

Since the trial courts default order and judgment by default are null and void, the
respondent Court gravely erred in affirming them.chanrobles lawlibrary : rednad
Some further comments, en passant, on the ratiocination of the respondent Court
are in order. It is not accurate for the latter to have said that the petitioners motion to
dismiss was not filed seasonably because it was filed beyond the reglementary
period provided in the Revised Rules of Court. Such a conclusion would doubtless
be correct if there was a valid service of summons. If, however, a defendant has not
been properly summoned, the period to file a motion to dismiss for lack of jurisdiction
over his person does not commence to run until he voluntarily submits to the
jurisdiction of the court, since the court has no jurisdiction to adjudicate the
controversy as to him until such time. 38 In this case, petitioners did not voluntarily
submit to the jurisdiction of the trial court. Consequently, the period to file a
responsive pleading did not even commence to run.
Nor are We persuaded by the respondent Courts declaration that even if the motion
to dismiss had been filed on time, the trial courts order denying the same, being
interlocutory, still cannot be the subject of a petition for certiorari. To be sure, this rule
admits of an exception, as when the trial court clearly acted outside of its jurisdiction
or with grave abuse of discretion in denying the motion to dismiss. 39 This is exactly
what happened in the case while it was pending before the trial court; the denial of
the motion to dismiss was based solely on the ground that a judgment by default had
already been entered. Certainly, this does not constitute a valid ground for the denial
because the motion raises a fundamental and prejudicial issue affecting the validity
of the decision by default.
Equally unmeritorious is the respondent Courts statement that the failure of the
petitioners to appeal from the judgment by default rendered such judgment final and
unassailable. In the first place, it is axiomatic that a void judgment can never become
final and executory and may even be assailed or impugned at any time. 40 An action
to declare the nullity of a void judgment does not prescribe. 41 Secondly, the motion

Page 41 of 58

[G.R. No. L-33720-21. March 10, 1975.]

THE PHILIPPINE BRITISH CO., INC. and THE CIBELES INSURANCE
CORPORATION,Petitioners, v. THE HON. WALFRIDO DE LOS ANGELES in his
capacity as Presiding Judge, Branch IV of the Court of First Instance of
Quezon City, THE HON. VICENTE S. OCOL in his capacity as Clerk of Court of
First Instance of Quezon City and Ex-Oficio Sheriff of Quezon City and
MULTIFIELD ENTERPRISES and MOISES M. TAPIA, Respondents.
Alfonso Felix, Jr., for Petitioners.
B.M. Grecia & Associates and D.G. Garin & Associates for Respondents.
SYNOPSIS
For filing belated joint answer by mail, petitioners were declared in default and
private respondents evidence was received ex parte. On April 28, 1971 default
judgments against petitioners were rendered, and duly docketed, were released for
service by registered mail on May 17,1971 addressed to petitioners counsel, Felix,
Jr. The postman delivered three notices to counsels secretary, the first on May 19,
1971, the second on May 30,1971 and the last on June 15, 1971.
According to Felix , Jr., he examined the expedientes of the cases in May 24, 1971
and he did not find his joint answer therein and instead saw that orders of default
had been issued and that private respondents evidence had been ex parte. He
claimed that he did not find any copy of any decision. Two days later he filed a joint
motion to lift the order of default, unverified and unaccompanied by any affidavit of
merit, which he set for hearing on June 1, 1971. This was declared a public holiday;
and according to Felix. Jr., the next day he went to court and the respondent judge
advised him to set motion for hearing anew.
Felix, Jr. received a notice that his motion had been set for hearing on June 30,
1971, but on June 22, 1971, respondent judge issued an order canceling this notice
for the reason that the court can no longer set aside its order of default since
petitioners failed to comply with section 3 of Rule 18. On June 28, 1971, on private
respondents motion, an order for the immediate execution of the default judgments
was issued. Petitioners filed a joint petition for relief from judgment but before said
petition could be acted upon by the trial court, the instant petition was filed and
summons, together with the writ of preliminary injunction, were served on
respondents.
The Supreme Court gave due course to the present petition notwithstanding the fact
that a petition for relief from judgment had been filed with the trial court because the
petition hinted possible irregularities in the actuations of the respondent judge and
his employees, and the Court felt it was in the best interest of justice to inquire into
what actually happened. On this point, the Court ruled that the official records and
the affidavits of the employees of the trial court as well as those of the Bureau of
Posts conclusively belie counsels allegations.
Finding that there were enough incontrovertible facts in the record on the basis of
which the litigation between the parties can be terminated, the Court resolved the
cases instead of remanding them to the trial court for further proceedings and final
determination of the issues. It compared the conflicting allegations of the parties in
the light of their respective supporting affidavits and documents and concluded that
petitioners have not shown that they have good and valid defenses against the claim
of respondent Tapia.
The Court noted counsels failure to substantiate his charges against the actuation of
the judge and his personnel and the fact that he made positive allegations that his
clients have good and valid defenses knowing the truth to be otherwise. He was
made to show cause why no administrative action should be taken against him as a
member of the bar.
Petition dismissed.

SYLLABUS

1. SPECIAL CIVIL ACTION; CERTIORARI; PETITION GIVEN DUE COURSE

DESPITE ADEQUATE REMEDY IN ORDINARY COURSE OF LAW IF IT ASSAILS
INTEGRITY OF JUDGE, PERSONNEL AND PROCEEDINGS. Ordinarily, petition
for relief from judgment will be deemed as an adequate remedy in the ordinary
course of law that constitutes a bar to a certiorari review or any other kind of special
civil action. But where the petition for certiorari strongly hints possible irregularities in
the actuations of the judge and the employees which could involve their honesty and
good faith as well as the integrity of judicial and proceedings, the Supreme Court, in
the best interest of justice, will inquire into what actually happened and give the
petition due course.
2. ID.; ID.; ID.; ACCUSATION OF IRREGULARITIES BELIED BY OFFICIAL
RECORDS IN CASE AT BAR. The official records and the affidavits of the
employees of the court as well as allegation that respondent judge connived with his
co-respondents to make it appear that proper judgments by default had been
regularly rendered when in truth there was none.
3. ID.; ID.; SUPREME COURT WILL RESOLVE RATHER THAN REMAND CASE
TO LOWER COURT IF THERE ARE ENOUGH FACTS ON RECORD. Where in a
petition for certiorari, the Supreme Court finds that there are enough incontrovertible
facts in the record on the basis of which the litigation between the parties can be
terminated, the Court will resolve the whole case instead of returning the case to the
trial court for further proceeding and final determination of the issues. It is a
primordial principle that the courts must always strive for a just, speedy and
inexpensive determination of all actions and proceedings.
4. ID.; ID.; ID.; PETITIONERS HAVE NOT SHOWN VALID DEFENSE AGAINST
PRIVATE RESPONDENTS CLAIM IN CASE AT BAR. In an unsworn
memorandum, petitioners questioned the default judgments rendered against them
on private respondents insurance claims, stating that he was guilty of fraud and
arson and because of this he availed of every means to secure judgments without
going to trial. In support of this allegation they presented the supposed expert
opinion of the former Chief of the PC crime laboratory regarding the gasoline traces
found in private respondents premises. Private respondent replied that the experts
findings were worthless as the adjusters trusted by petitioners had investigated
private respondents claim and found no well-grounded reason to warrant nonpayment and had recommended out-of-court settlement. Held: Comparing the
conflicting allegations, the Court concluded that petitioners have not shown that they
have good and valid defenses against private respondents claim.
5. DEFAULTS: DEFENDANTS DECLARED IN DEFAULT FOR FAILURE TO FILE
ANSWER. When the incontrovertible facts in the record show that petitioners
joint answer was undoubtedly filed out of time, their contention that they were
erroneously declared in default has no merit and they cannot justly say that the
respondent judge committed a grave abuse of discretion in making such declaration.
6. ID.; ID.; MOTION TO LIFT ORDER OF DEFAULT; MOTION MUST BE UNDER
OATH, ACCOMPANIED BY AFFIDAVIT OF MERIT. A motion to lift an order of
default should be under oath and accompanied by an affidavit of merit. These are
substantial requirements and the omission thereof justifies the denial of the motion.
7. ID.; ID.; ID.; OMISSION OF AFFIDAVIT OF MERIT; TRIAL COURT CANNOT
CONSIDER MOTION. The requirements of Section 3 of Rule 18 (Relief from
order of default) are practically identical to those of Section 3 of Rule 38 (Relief from
judgment) regarding the need to show the existence of fraud, accident, mistake or
excusable negligence that caused the default and to accompany the motion to set
aside with affidavits of merit. The ruling which states that a petition to set aside a
judgment which is not accompanied by an affidavit of merit has no standing in court,
is applicable to a motion to lift an order of default. Thus, the trial court has no
authority to consider a motion to lift an order of default if the affidavit of merit is
omitted.
8. ID.; ID.; ID.; FATALLY DEFECTIVE MOTION CANNOT REVIVE RIGHT TO
NOTICE OF FURTHER PROCEEDINGS. The mere filing of a fatally defective
motion to set aside an order of default does not entitle the defaulting defendants to
notice of all subsequent proceedings. Section 9 of Rule 13 must be read in
conjunction with section 3 of Rule 18. The motion to set aside default, which effects
the revival of the right to notice of further proceedings, referred to in Section 9 of
Rule 13 must be one the contents of which are precisely those provided for in
Section 3 Rule 18. Thus, where the motion to lift the order of default did not comply

Page 42 of 58

with section 3 of Rule 18, the movant cannot contend that the failure of the judge to
notify him of the motions for immediate execution of the default judgments fatally
vitiated the order granting the same and the writs and levies pursuant thereto.
9. JUDGMENTS; EXECUTION: PREVAILING PARTY CAN HAVE FINAL
JUDGMENT EXECUTED AS A MATTER OF RIGHT. Once a judgment becomes
final and executory, the prevailing party can have it executed as a matter of right and
the granting of execution becomes a ministerial duty of the court. In the case at bar,
where it is indisputably borne by the records that the impugned judgments became
final and executory on June 23, 1971, the action taken by the trial court June 28,
1971 granting respondents motion for immediate execution assumed the character
of an order of execution of a final and executory judgment and has therefore,
become a matter of right to the prevailing party and ministerial on the court to grant.
10. ATTORNEY-AT-LAW; DISCIPLINE; COUNSEL IN CASE AT BAR ORDERED TO
SHOW CAUSE WHY NO ADMINISTRATIVE ACTION SHOULD BE TAKEN
AGAINST HIM. The court cannot begrudge any lawyer of his right to be assiduous
and zealous, even tenacious, in the prosecution or defense of the cause of his client.
But when counsel fails to substantiate his charges directly assailing the personal
integrity of the judge and his personnel as well as that of the proceedings, and
makes positive allegations that his clients have good and valid defenses knowing the
truth to be otherwise, he must be made to show cause why no administrative action
should be taken against him as a member of the bar.

DECISION

BARREDO, J.:

Petition for certiorari to annul and set aside the default proceedings, the judgments
and the writs of execution of respondent judge in Civil cases Nos. Q-15377-8 of the
Court of First Instance of Quezon City entitled Multifield Enterprises, Et. Al. v.
Philippine British Assurance Co., Inc. and Multifield Enterprises Et. Al. v. Cibeles
Insurance Corporation, respectively, and for prohibition to enjoin the execution of
said judgments. Upon the filing of the petition, the Court issued the writ of
preliminary injunction prayed for. Respondents were required to answer and after
issued were joined, the parties filed their respective memoranda in lieu of oral
argument.
On June 12, 1970, a fire broke out in the premises of private respondents (Tapia, for
short) at No. 245 Roosevelt Avenue, San Francisco del Monte, Quezon City. Being
holders of fire insurance policies from different companies, among them the
petitioners, and having failed to secure extrajudicial settlement of their claims, they
filed corresponding civil actions in the Court of First Instance of Quezon City. All of
said cases, dealing as they did with the same facts and issues, were assigned to
respondent judge, to whom by raffle the first of them had fallen. Petitioner British (for
short) was served summons in Civil Case No. Q-15377 on March 29, 1971 while
petitioner Cibeles (for short) was served theirs for Civil Case No. Q-15378 on April 2,
1971, hence their answers were due on April 13 and 17, respectively.

1971, addressed to petitioners counsel, Atty. Alfonso Felix, Jr. at his given address
at Room 212 Lopez Building, Aduana Street, Intramuros, Manila.
According to the postman assigned in that area, Alfredo E. Sugatan, the first registry
notice of said mail matter, Registered Mail No. 13648, was delivered by him actually
to counsels secretary who was known to him personally, a certain Miss Tuliao, in the
morning of May 19, 1971, as he similarly delivered to her subsequently the second
and third notices on May 30, 1971 and June 15, 1971.
According to Atty. Felix, Jr., on May 24, 1971, the day he received the order of
default in Q-13577 (Par. 12 and Annex C-1 of Petition) he found himself in the
respondent court and to his great surprise, in the corresponding expedientes, he
found neither (1) his motion for extension of time to file answer in Q-13577 nor (2)
the aforementioned joint answer he had filed on behalf of petitioners and that instead
he saw therein that orders of default had been issued in both cases and, further, that
evidence of the plaintiffs had been received ex-parte on April 26 and 27, 1971. 2 He
claims also that on said occasion, when he examined the expedientes of the cases,
he did not find therein any copy of any decision. To be noted, however, he does not
pretend that he made any inquiry from any of the officials and employees of the court
as to what was the exact status of his cases as of that date.
Two days later or on May 26, 1971, he filed a joint motion, dated May 25, 1971, to lift
the order of default, unverified and unaccompanied by any affidavit of merit, which
he set for hearing on June 1, 1971. According to him, "the motion to set aside the
Order of Default could not be heard on June 1 the day on which it was set for
hearing for the reason that day had been declared a public holiday, undersigned
counsel went to respondent court the next day, June 2, 1971, consulted the
expedientes and seeing respondent Judge de los Angeles showed him a copy of the
Joint Motion Annex `D to lift the Order of Default. Respondent Judge de los Angeles
after reading in the presence of undersigned counsel that Joint Motion Annex `D
asked him to set it for hearing anew and told him that it was always his practice to
give parties a chance to present evidence." (Par. 17 of Petition). And so, counsel did
as told.
Thus, on June 10, 1971, a notice was received by Atty. Felix, Jr. Advising him that
the motion had been set for hearing on June 30, 1971, but on June 22, 1971,
respondent judge issued an order cancelling this notice for the reason that "for
failure of defendants in the above-entitled cases to comply with the requirements
imposed by Section 3 of Rule 18, Rules of Court and pursuant to the decisions of the
Supreme Court on the matter, this Court can no longer set aside its order dated April
24, 1971." (Annex H of the Petition). And on June 28, 1971, respondent judge issued
the following order:jgc:chanrobles.com.ph
"Acting on the motion for immediate execution of judgments filed by the plaintiffs
through counsel in the above-entitled cases, this Court finds and the records of
these cases bear out and show that the judgments adverted to were rendered by this
Court on April 28, 1971 and copies thereof were sent and posted as registered mail
No. 13648 to the counsel for defendants on May 17, 1971 by the Clerk of this Court.
The copies of the decisions as registered mail No. 13648 were returned to this Court
by the Post Office as unclaimed by the addressee, the counsel for the defendants,
on June 23, 1971.

On April 13, 1971, counsel for British filed by mail a motion asking for fifteen (15)
days extension of its time to answer, claiming that due to the intervening Holy Week
and pressure of other works, he would be unable to prepare his answer within the
reglementary period. He was granted only five (5) days ending April 19. 1 No answer
came until April 28, 1971, albeit it was mailed by registered service on April 22, 1971.
Cibeles in turn filed its own motion for extension on April 19, 1971, two days after
due date. Obviously, the period could not be extended anymore. Just the same, it
filed its answer on April 22, 1971, which was joint with that of British.

"Both the certification (Annex "A" of the motion for immediate execution) and the
proof of service of the notices sent by the postmaster stamped on the envelop-cover
of the decisions show that the first notice of this registered mail was sent to the
counsel for defendants at his office address on May 19, 1971 by the postmaster.
Again, on May 30, 1971, a notice was sent to him by the postmaster on these
decisions as registered mail No. 13648. The last and third notice by the postmaster
was sent to him by the postmaster on June 15, 1971. Still counsel for defendants did
not claim from the Post Office his copies of the decisions for which no less than
three notices were sent to him by the postmaster.

In the meanwhile, on April 24, 1971, Tapia filed separate motions in the two cases
praying that petitioners be declared in default. Not having received by then any
answer of petitioners, (Petitioners did file a joint answer, but as will be seen later, the
same was actually received by respondent court only on April 28, 1971.) an order of
default was issued, directing at the same time that plaintiffs evidence be received by
the clerk of court. This reception of evidence was done on April 26 and 27, and on
April 28, 1971, the judgments complained of herein were rendered. After being duly
docketed, these judgments were released for service by registered mail on May 17,

"Completeness of service of the decisions on defendants counsel was thus

accomplished after the expiration of five days from the date of the first notice which
is May 19, 1971, pursuant to Section 8 of Rule 13, Rules of Court and the numerous
decisions of the Supreme Court on this particular matter. The period of thirty (30) day
within which to interpose an appeal from these decisions rendered by this Court in
the above-entitled cases commenced on May 25, 1971 the day after the fifth day
from May 19, 1971 and expired after June 23, 1971, the thirtieth day. From May 25,
1971 to June 23, 1971, no appeal from these decisions was taken by the

Page 43 of 58

defendants. Considering that the period of thirty (30) days has already expired and
no appeal has been taken by the defendants from the decisions rendered by this
Court on April 28, 1971, they are by law now final, unappealable and, as matter of
right, the plaintiffs are entitled to their immediate execution.
"WHEREFORE, the immediate execution of the judgments in the above-entitled
cases are hereby granted. Let the corresponding writs of execution be issued.
SO ORDERED."cralaw virtua1aw library
Pursuant to the writs issued under this order, the Hongkong & Shanghai Banking
Corporation paid to respondent Sheriff P294,750.00 for the account of British and
the First National City Bank of New York the sum of P75,000 for the account of
Cibeles (Pars. 30 and 31, Petition), but all the amounts thus paid were returned to
the respective banks by virtue of the writ of preliminary injunction of this Court of July
9, 1971.
On July 1, 1971, petitioners filed a joint "Petition for Relief from Judgment." But
before said petition could be acted upon by the court, the instant petition was filed
with this Court on July 2, 1971 and summons, together with the writ of preliminary
injunction was served on public respondents on July 10, 1971. (Annex N, Petition).
In the meantime, on the same day that the petition for relief was set for hearing, July
7, 1971, respondent judge found it to be "sufficient in form and substance" and
ordered the respondents "to answer the same within a period of fifteen (15) days
from receipt hereof." (Annex A, Respondents Motion to Dismiss of September 5,
1972.) Nothing else developed in the trial court later because the injunction of this
Court which was served on respondent judge on July 10, 1971 enjoined him from
"taking further action" in the two subject cases.
At this juncture, it becomes necessary to discuss and resolve a point of procedure
before going any further. As may be noted, We could have refused to give due
course to the present petition when it was filed on July 2, 1971, considering that it
already avers that a petition for relief from judgment dated June 30, 1971 (Annex N
of Petition) had been filed by petitioners with the trial court on July 1, 1971, which,
pursuant to the usual practice, We could have deemed as an adequate remedy in
the ordinary course of law that constitutes a bar to a certiorari review or any other
kind of special civil action. But the petition, on its face, presented the situation that
obtained in the trial court in such an alarming manner, to the point of strongly hinting
possible irregularities in the actuations of the respondent judge and the employees in
his sala, which could involve their honesty and good faith as well as the integrity of
judicial records and proceedings, that the Court felt it was in the best interest of
justice for the Court itself to inquire without further loss of time into what actually
happened. Indeed, even after the parties had filed their respective memoranda and
the Court had by resolution of October 21, 1971 declared these cases submitted for
decision, when the respondents filed their motion to dismiss of September 5, 1972,
based precisely on the ground that on July 7, 1971 the trial court had given due
course to petitioners petition for relief, We resolved to defer determination of the
dismissal motion until this decision on the merits.
Now, having thus disregarded the existence of an ordinary remedy in the court below
at the earlier stages of these cases, it is but proper and logical for Us to pursue such
course of action to its ultimate conclusion, since anyway, counsel for petitioners has
himself vehemently objected to said motion to dismiss, and, after all, as We see it,
there are enough incontrovertible facts in the record, furnished by both parties, on
the basis of which the Court can put an end to the litigation between the parties
regarding the insurance claims of private respondents against petitioners, the
subject matter of the actions in the court below. To now confine Ourselves to holding
that the trial court should be accorded the opportunity to resolve the petition for relief
of British and Cibeles therein pending would serve no purpose than to proliferate
proceedings, only to end in the same inevitable result which even here is already
obvious and unavoidable. That would be sacrificing substance to achieve nothing
more than perfection of form and procedure, which is inconsistent with the primordial
principle that the courts must always strive for a just, speedy and inexpensive
determination of all actions and proceedings. And so, the Court has decided to
determine here even the question of whether the petition for relief filed by petitioners
with the respondent court should be granted or denied, thereby avoiding any
possible doubt that petitioners might entertain as to the impartiality and integrity of
future actuations of the respondents. Indeed, petitioners have placed before Us by
their petition, memorandum and subsequent pleadings, complete with appropriate
annexes, consisting of affidavits, letters and other documents, all the facts which

they must believe are relevant, whereas respondents have duly joined issued with
them as to all said facts in their own answer, memorandum and other papers,
complete also with similar corresponding annexes, and there being no serious, much
less any credible indication that any of the parties annexes are not authentic, We
deem it unnecessary to prolong further the main controversy between the parties.
We will resolve the whole case here.
The contention of petitioners that they were erroneously declared in default has no
merit. From the incontrovertible facts in the record, We cannot see how it can be
justly said that respondent judge committed a grave abuse of discretion in making
such declaration. As regards Cibeles, there can be no question that even its motion
for extension to file its answer was filed out of time. It was served summons on April
2, 1971, and it is not disputed that its motion for extension was filed on April 19th,
two days late. With respect to British, its answer was admittedly due on April 13,
1971, and although it asked for an extension of fifteen (15) days, it was given only
five (5) days ending April 19, 1971; 3 consequently, its answer jointly filed with
Cibeles on April 22, 1971 was undoubtedly out of time.
Counsel suggests that he was not given enough time, considering that there was the
Holy Week to take into account, but His Honor ruled that precisely, counsel would
have more time because of the holidays. Again, We perceive no grave abuse of
discretion in such a pragmatic ratiocination. Besides, it is settled that parties and
counsel should not assume that courts are bound to grant the time they ask for
compliance with the rules, and, therefore, the fact that counsel received the order of
extension by mail only on April 26, 1971, is no reason for him to complain. Likewise,
that he was not notified of the motion to declare his clients in default is not against
the rules, for he had no right to such notice. (Pielago v. Generosa, 73 Phil. 654.)
Anent the motion to lift the orders of default, counsel invites attention to the alleged
directive of respondent judge to him to have the hearing of his said motion reset
because it is the judges "practice to give parties a chance to present evidence." We
take it, however, that seemingly what happened then must have been that His Honor
was just trying to figure out how counsel could be helped out of his self-imposed
predicament, but, evidently, upon further reflection, he must have realized the legal
obstacles on the way and consequently found no alternative than to rule that the
motion to lift did not have to be reset for hearing anymore. Upon perusing the motion
when it was filed, he must have noted that it did not comply, as he so stated in his
order, with the requirements of Section 3 of Rule 18.
As may be seen, petitioners joint motion to lift the order of default, Annex D of the
Petition, the same is neither under oath nor accompanied by any affidavit of merit.
And in Ong Peng v. Custodio, 111 Phil. 382, We held as
follows:jgc:chanrobles.com.ph
". . . Upon examination of the motion to set aside the order of default, we find it to be
lacking in the following substantial requirements: it does not contain an affidavit of
merits, the motion to set aside the default order is not under oath and contains only a
promise or an assurance, not an affidavit of merits, that defendant has a good
defense. The court was, therefore, fully justified in denying the motion to set aside
the order of default."cralaw virtua1aw library
In fact, in view of the omission of petitioners to accompany their motion with any
affidavit of merit, the trial court had no authority to consider the same. It is to be
noted that the requirements of Section 3 of Rule 18 are practically identical to those
of Section 3 of Rule 38 regarding the need to show the existence of fraud, accident,
mistake or excusable negligence that caused the default and to accompany the
motion to set aside with affidavits of merit. Consequently, it is but proper to apply to
such a motion the same ruling applicable to petitions for relief under Rule 38, which
is to the effect that:jgc:chanrobles.com.ph
"Furthermore, it appears that appellants petition to set aside the judgment and
reopen the case, is grounded on his alleged excusable negligence in failing to
appear and testify during the hearing of the case on February 3, 1959, namely, his
becoming ill with flu (influenza) on said date. We find, however, that appellant failed
to accompany said petition with affidavits of merit showing the excusable negligence
relied upon, and the facts constituting his good and substantial cause of action or
defense, as expressly required under Section 3, Rule 38 of the Rules of Court. We
have repeatedly held that such a defect is fatal (Abao v. Virtucio, Et Al., 109 Phil.,
821; Price Stabilization Corporation v. Court of First Instance of Manila, Et Al., 97
Phil., 153) which warrants the denial of the relief sought (Abao v. Virtucio, Et Al.,

Page 44 of 58

supra, citing Coombs v. Santos, 24 Phil., 446; McGrath v. Del Rosario, 49 Phil., 330;
Villanueva, Et. Al. v. Alcoba, 101 Phil., 277). The reason for the rule is that it is the
affidavits of merit which serve as jurisdictional basis for a court to entertain a petition
for relief (Abao v. Virtucio, Et Al., supra; Omandam v. Director of Lands, 95 Phil.,
450; Off. Gaz., 4840). Stated differently, where a petition to set aside a judgment or
reopen a case pursuant to Rule 38 of the Rules of Court is not accompanied with
said affidavits of merit, the court with which it is filed is not called upon to entertain
the petition. Applied to the instant case, appellants petition to set aside the judgment
in question and reopen the case acquired no standing in court and, consequently, it
was rightly denied." (Fernandez v. Tan Tiong Tick, 111 Phil. 773 at pp. 780-781.)
Indeed, the identity of these two remedies is such that in Ong Peng, supra, We
already expressed Our "doubt if the same issue raised in the original motion to set
aside the order of default, may again be raised in a petition for relief under Rule 38
of the Rules of Court. The general rule is that once a matter in issue has been
decided by the court, it may no longer be brought again in the form of another
objection, and in the guise of a motion under another provision of the rules" (at p.
387). True it is that as a matter of form, under Section 3 of Rule 18 it is not essential
that the affidavit of merit be separate from the motion and may instead be
incorporated therein, but in the instant case of petitioners motion, even if it makes
general allegations of merit, these allegations are not supported by oath of anyone
who has knowledge of the fact. As already stated, not even Atty. Felix Jr. swore to
the truth thereof. Accordingly, We find no error in the subsequent action of
respondent judge of cancelling the notice of hearing of the joint motion to lift the
order of default.
Besides, the same section expressly provides that motions to lift orders of default
may be filed only before judgment, and petitioners joint motion was filed only on
May 26, 1971, whereas the judgments in question were rendered on April 28, 1971.
But counsel would attach importance to another aspect of his motion to lift the
default orders, regardless of its legal untenability. He contends that having filed such
a motion, he became entitled under Section 9 of Rule 13 to notice "of all further
proceedings" and, therefore, the failure of respondents to notify him of the motions
for immediate execution of the default judgments fatally vitiated the order granting
the same and the writs and levies pursuant thereto.
It is quite obvious that counsels reliance on the provision cited by him is misplaced.
Textually, the said section reads thus:jgc:chanrobles.com.ph
"SEC. 9. Service upon party in default. No service of papers other than
substantially amended or supplemental pleadings and final orders or judgments shall
be necessary on a party in default unless he files a motion to set aside the order of
default, in which event he shall be entitled to notice of all further proceedings
regardless of whether the order of default is set aside or not."cralaw virtua1aw library
We are not prepared to agree with counsel that the right of a party in default to
notice of further proceedings which this rule revives as a result of the filing of a
motion to set aside the default order is intended by the rule to be so easily
reacquired that just by the mere filing of any motion with a prayer to set aside the
default, the provision may be deemed as already complied with. Logic and principle
dictate that the effects of default may not be treated as lightly as if it were of no
juridical essence. While the Court has generally been liberal in giving a party in
default a chance to participate in the trial, We cannot sanction any proposition that
would so reduce the effect of an order of default that to have it set aside all that has
to be done is for the party concerned to file any perfunctory motion therefor. A party
who by inaction or negligence allows himself to be declared in default offends the
rule requiring him to answer the summons without unnecessary delay to the end that
the issues may be duly joined and the litigation be expeditiously terminated. To
purge himself of the effects of such offense, it should not be enough for him to just
tell the court he has, after all, decided to wake up and take part in the proceedings. It
is but proper that he must justify his failure to comply with the rule before he is
relieved from the adverse consequences of his omission. Thus, Section 9 of Rule 13
must be read in conjunction with Section 3 of Rule 18. In other words, the motion to
set aside default referred to in Section 9 of Rule 13 must be one the contents of
which are precisely those provided for in Section 3 of Rule 18. Thus, the filing of
such a motion to set aside short of the requirements of this latter provision may not
as it cannot produce the revival of the right to notice contemplated in Section 9 of
Rule 13. Any other construction in line with the position of petitioners would render
the intent and purpose of the pertinent provisions nugatory and ineffective.

Considering, therefore, that counsels joint motion to lift the order of default in the
subject cases did not comply with Section 3 of Rule 18, there is no justification at all
for his gripe that he was not notified of further proceedings.
The next point raised by petitioners is more basic. They maintain that the
circumstances related by their counsel should prove to Us that there were in fact no
judgments yet against them on June 2, 1971, the day when said counsel verbally
took up with respondent judge the matter of having the orders of default lifted. It is
the emphatic charge of counsel that when he examined the records of the subject
cases on May 24, 1971 "no decision of any sort appeared" therein. (Par. 11-d,
Petition). He also "affirms under oath that on June 2, 1971, no decision of any sort
appeared in these expedientes nor did respondent Judge de los Angeles ever aver
that any decision had been rendered." (Par. 18, Petition). He further adds that "the
clearest evidence that we can furnish the Supreme Court that as late as June 3,
1971, no decision had (yet) been rendered" is that he had received on June 10,
1971 a notice setting his motion to lift the order of default for hearing on June 30,
1971, "for had any decision been rendered, clearly the deputy clerk of court who is
under the control and supervision of respondent judge and who is doubtless familiar
with the expedientes of these cases would have not set a Motion to Lift the Order of
default for hearing had any decision been rendered (already)" (Pars. 20 and 21,
Petition). Additionally, he points out that even in the order of June 22nd cancelling
the notice of hearing issued by the clerk of court of the motion to lift, His Honor made
no hint that he had already decided counsels cases. Finally, counsel surmises that it
is rather strange that respondent judge had the material time to prepare his
decisions on April 28, when the reception of the evidence took place only on April 26
and 27.
In plain language, the accusation is that the decisions in question must have been
prepared subsequent to June 3, 1971. Undoubtedly, the indictment is serious. It
directly implies misfeasance on the part of the officials and employees of the trial
court, not excluding respondent judge. Upon the other hand, the rotund denial of the
respondents is coupled with their own counter-accusation that counsel is frantically
but vainly trying only to make up with his clients for his failure to act on their behalf
on time. In the face of these sharply opposite positions, We could do no less than
scrutinize the record minutely and carefully, if only to be able to pin proper
responsibility on whosoever might be guilty of violating his sacred oath as
functionary of the court, either as judge, clerk of court or mere employee thereof or
as counsel.
After a conscientious review of the pertinent facts extant in the record, it is our
considered opinion that counsels suspicion is unfounded. To begin with,
respondents have in their favor the presumption heretofore invariably relied upon by
the Court in similar situations that official duty has been regularly performed by them
and that they have acted in good faith. It has been the constant ruling of this Court
that this kind of presumption must stand, even against the most well reasoned
allegations seemingly pointing to some possible irregularity or anomaly. "In the
absence of a showing to the contrary, a judicial proceeding is presumed to be
regular, and all steps required by law to be taken before the Court may validly render
judgment, had been so taken." (El Banco Espaol-Filipino v. Palanca, 37 Phil. 921;
Ongsiako v. Natividad, L-1371, Aug. 5, 1947; People v. Baco, L-2633, Feb. 23, 1958;
Go Chi, Et. Al. v. Go Chi, Et Al., L-5203, Feb. 23, 1955; People v. Nazario, L-7629,
Sept. 29, 1955). And so far, We have not seen anything in the record to support the
charges of Atty. Felix Jr. beyond his own allegations which, considering they do not
necessarily belie the contrary representations of the adverse party, do not appear to
Us to have any added weight just because counsel has taken pains to emphasize he
has made them "under oath."cralaw virtua1aw library
As to the disputed existence of the judgments in question prior to June 3, 1971, or
for that matter, before May 24, 1971, We are fully convinced that said judgments
were entered in the docket on April 28, 1971. We do not feel justified under the
circumstances revealed in the record to say that such entry was made days before
the judgments were actually prepared and signed. The vital fact of such entry is
borne out by the certification to such effect of the respondent Clerk of Court Vicente
S. Ocol, Annex 9 of the answer herein, and the affidavit of Branch Clerk of Court
Leon D. Paradero, Annex 9-B, attesting to the rendition of said judgments on the
same date, the truth of which can easily be checked with the regularity or irregularity
of the entries in the docket of the trial court. If the corresponding entries in the docket
do not appear to be regular, Atty. Felix Jr. could have completely rebutted these
annexes with proof based on what appears in said docket itself. The utter silence of
counsel in this respect is eloquent evidence against him.

Page 45 of 58

Besides, the apparent thrust of counsels theory is that respondents were in such
hurry to make the impugned judgments effective that they allegedly overlooked
compliance with the rules cited by him, but, to Our mind, the incontrovertible fact that
it was not until May 17, 1971, or almost three weeks after April 28, 1971, that Jesus
B. Marzan, the Chief of the Civil Cases Section in the court below, released the said
judgments, according to his affidavit (Annex 9-A, id.), belies entirely such claim. This
somewhat belated release is also proven by the evidence, to be discussed anon, as
to when the postal authorities got the decision for delivery to petitioners counsel. If it
were true that respondents were acting in haste, such release would have been
immediate.
The reality of the existence of the judgments in controversy prior to the dates when
counsel claims he did not see them is corroborated by evidence coming from
sources other than the office of respondent court. Annex 11-A of the respondents
answer herein is the certification of Mr. H. G. Guzman, Postmaster of the Port Area
Post Office, Manila, to the effect that Registered Letter No. 13648 of sender, "CFI
Branch IV, Quezon City" was received by his office on May 19, 1971 "and the
corresponding Registry Notice was issued on said date, and sent to addressee on
same day," that "the succeeding second and third notices was (sic) issued after
about weeks intervals (sic) the exact date of which was noted on the envelope cover
of the said letter" and further "that the Registered Letter was return (sic) to the
sender, it being (sic) remain(ed) unclaimed for more than thirty days, on June 22,
1971 under our Registry Bill No. 199 for Quezon City line 1, page 1 as shown by our
records." Annex 10 is the affidavit of Alfredo E. Sugatan, the postman assigned to
the Port Area Post Office, Manila, entrusted specifically with the delivery of "letters,
notices of mails and other mail matters" in the area "composed of Aduana and
Arsobispo Streets, Intramuros, City of Manila", stating in detail that in the morning of
May 19, 1971 he personally delivered at Room 212 Lopez Building, Aduana,
Intramuros, Manila, to Miss Tuliao, known to him to be the secretary of Atty. Alfonso
Felix, Jr., also personally known to him, by reason of the performance of his duties
for a "long period of time" in that area, "the FIRST NOTICE on (sic) Registered Mail
No. 13648" (the same number referred to in Annex 11-A above) and that he also
delivered to her on May 31, 1971 and June 15, 1971, the second and third notices
corresponding to the same registered letter, respectively. Annex 11 is the photostat
copy of the face and the dorsal portion of the envelope addressed to "Atty. Alfonso
Felix Jr., Rm. 212 Lopez Bldg., Intramuros, Manila", with notations such as: the
number 13648 enclosed in an oblong figure; "Q-15378-D and Q-15377-D" (which are
precisely the numbers of the subject cases); "Reg. Mail w/ return card" ; and
"Republic of the Philippines, Court of First Instance, Branch IV Quezon City" ; and
marked with rubber stamp data as follows: "Registered, Quezon City, Philippines,
May 17, 1971", "Port Area, Manila, Philippines received May 19, 1971" as well as
"Second Notice, 5-30-71" and "Third Notice, 6-15-71."
Considered in the light of ordinary official practice and experience, all the foregoing
prove that mail matter related to Civil Cases Nos. Q-15377-D and Q-15378-D of
Branch IV of the Court of First Instance of Quezon City duly addressed to Atty.
Alfonso Felix, Jr. was posted by registered mail, No. 13648, at the Quezon City Post
Office on May 17, 1971 and received by the Port Area Manila Post Office on May 19,
1971 and received back by the Quezon City Post Office on June 23, 1971,
unclaimed after a second notice on May 30, 1971 and a third notice on June 15,
1971. And since it has not been shown that any other notices referring to the same
cases had proceeded from the trial court on or about the dates mentioned, it stands
to reason that what the envelope, Annex 10, contained were precisely the judgments
in question, as attested by the affidavit, Annex 9-A, of the mailing clerk of the
respondent court who released the same.
This telling mass of official evidence stands unrebutted in the record by any
evidence legally worthy of consideration. Atty. Felix, Jr. has not shown the Court any
evidence which can effectively dent the effect thereof other than his own allegations
"under oath" and the inconclusive and general assertions in (1) the affidavit of Miss
Cleofe V. Tuliao, "in charge of the clerical work in the office including the issuance
and receipt of the correspondence" to the effect that "She knows in (sic) of her own
knowledge that the (sic) matter of practice which has never been deviated from (is
that) the postman gives her the notice cards for registered mail, she then brings
these cards to Atty. Alfonso Felix, Jr., who signs them and these cards are then given
to Carlos de la Cruz, the office messenger who collects them" and that "on no
occasion did she fail to present any of these notice cards to Atty. Alfonso Felix, Jr.
nor did she fail to deliver the cards thus signed to Carlos de la Cruz for collection",
Annex A of Annex 1 of Respondents Petition for dissolution of Writ of Preliminary

Injunction dated July 13, 1971 4 and (2) the affidavit of said Carlos de la Cruz stating
that "he knows that it is the practice of the office which is never deviated from that he
receives the notice cards for registered mail from Miss Cleofe Tuliao either in hand
or by having them put on his desk and he then picks up all such registered mail at
the proper post office" and that "on no occasion whatsoever that he failed to collect
registered mail covered by card notices." (Annex B, id.). At a glance, anyone can see
that these assertions do not disprove the facts evidenced by the official records just
referred to. It is not an exaggeration to say that the regularity of the actuations of the
respondents in relation to the declaration of default and rendition and execution of
the judgment here in question has been proven by such convincing evidence as to
relieve Us from any doubt about it.
Now, very little needs be said as regards the contention that petitioners should have
been notified of respondents motion for execution. Prescinding already from the
consideration discussed above that the mere filing of petitioners motion to set aside
did not, because of the fatal defects of the same, have the effect of entitling them to
notice of all subsequent proceedings, with the regularity of the rendition of the
impugned judgments as well as the fact of their having become final and executory
on June 23, 1971 5 being indisputably borne by the record, the action taken by the
trial court on June 28, 1971, Annex 12 of the Answer, of granting respondents
motion for immediate execution assumed the character of an order of execution of a
final and executory judgment, as so stated in the order itself, and has, therefore,
become a matter of right to the prevailing party and ministerial on the part of the
court to grant. In Pamintuan v. Muoz, 22 SCRA 1109, the Court
held:jgc:chanrobles.com.ph
"Regarding the first point, it is by now axiomatic that a judgment on a compromise
like the one in the case at bar is at once final and Immediately executory. Also of
the same stature is the rule that once a judgment becomes final and executory, the
prevailing party can have it executed as a matter of right and the granting of
execution becomes a ministerial duty of the court. Otherwise stated, once sought by
the prevailing party, execution of a final judgment will just follow as a matter of
course. Hence, the judgment debtor need not be given advance notice of the
application for execution nor be afforded prior hearing. (Rule 39, Sec. 1, Rules of
Court; Luther v. Clay, 100 Ga. 236, 28 S. E. 46.) This renders of little significance
then the fact alleged by petitioners that they received copy of respondents motion
for execution only on the afternoon of the day set for its hearing."cralaw virtua1aw
library
At this point, it should be noted that viewed strictly, petitioners fundamental pose
rests exclusively on a claim of denial of due process in that they have been
improperly declared in default and that writs of execution were issued against them
without notice. Neither in the petition herein nor even earlier in the motion to lift the
order of default, Annex D, or the petition for relief from judgment, Annex N, filed with
the court below, is there the adequate showing required by the rules to make the
Court inquire into the possible existence of good and valid defenses on the part of
petitioners so as to justify granting them an opportunity to prove them. To be sure, in
the joint motion, Annex D, counsel does make mention in paragraphs 4 and 9 thereof
of "good and valid reasons for the denial of plaintiffs claim by defendant company"
(British) and "good and valid defenses" of Cibeles. The trouble however is that to
support the same, counsel only makes reference to the joint answer, Annex B, he
had filed on behalf of the two petitioners but, neither the motion itself nor the joint
answer is supported by any corresponding oath. The same observations may be
made with regard to the petition for relief, Annex N. And as to the allegations on the
point in question in the petition herein, all that is stated in paragraph 9 thereof is as
follows:jgc:chanrobles.com.ph
"(9) In the meantime, undersigned counsel had on behalf of both petitioners filed a
joint answer on April 22, 1971 which was received by the Court on April 28, 1971.
This answer signed in behalf of both petitioners alleges meritorious defenses. A copy
of the Joint Answer is annexed to the present pleading as Annex "B" hereof."cralaw
virtua1aw library
While the petition appears to be verified by Atty. Felix Jr., it is obvious that said
verification may not be deemed sufficient for the purpose of attesting to the truth of
the allegations of fact in the joint answer, Annex B, not only because no direct
reference is made to them by counsel but also because said counsel cannot pretend
he has adequate personal knowledge of said facts.
Fatal as such inadequacies are in the light of established jurisprudence too well

Page 46 of 58

known to need being cited, if only to satisfy Our curiousity which was aroused by the
alarming allegations of the petition, We have opted to look into the purported
defenses of the petitioners, on the basis of the allegations pertinent thereto in the
memoranda of the parties, to which are annexed, as noted earlier above,
corresponding documents supposed to evidence the truth of the facts stated in said
allegations. After careful and mature consideration and evaluation of their respective
allegations, We are convinced that petitioners alleged defenses cannot stand close
scrutiny.

the case in secrecy so that your petitioners would not learn of the judgment, and to
execute in haste so that your petitioners would find themselves deprived of their
property without due process of law and before they even knew what was happening
to them. Fortunately, this Supreme Court intervened. We rely on its continued
intervention" (Pp. 209-210, Record.)

Thus, counsel for petitioners opens his unsworn memorandum with the following
"preliminary statement" :jgc:chanrobles.com.ph

"To give their cause some semblance of cogency, which it does not possess,
petitioners would want this Honorable Supreme Court to believe that they have a
good defense. The alleged defense consists of a report made by one ex-Lt. Col.
Jose Fernandez and related papers attached as Annexes A to M to petitioners
Memorandum. Petitioners purpose cannot prosper, for the following
reasons:chanrob1es virtual 1aw library

"In his memorandum of August 17, 1971 filed in these certiorari proceedings, Moises
Tapia avers that we have resorted to these proceedings purely to cause further
delays for we have no real defense. This is not true. The truth of the matter is that
the evidence clearly shows Moises Tapia to be guilty of arson and fraud. It was
because of this respondent Moises Tapia availed himself of every means, even
those frowned upon by law, in order to secure judgment in his favor without going to
trial. The evidence against Moises Tapia was such that be had to avoid going to trial.
In support of this averment, we now present the following documents:chanrob1es
virtual 1aw library
1. A certification from Lt. Col. Jose Fernandez, former chief of the Philippine
Constabulary Crime Laboratory showing that there were gasoline residues in
fourteen (14) different places of the burned bodega and that one of these places was
the steel cabinet presumably containing the company papers so that even these
papers would burn. All these places had been saturated with gasoline. (Annex A).
2. A sketch of the bodega premises showing the widespread distribution of the
gasoline. (Annex B).
3. Twenty-two (22) photographs of the burned bodega. (Annexes C, D, E, F, G, H
and I).
4. Chromatographic specimens of the fourteen (14) gasoline residues found in the
fourteen (14) aforesaid areas. (Annexes J, K, L and M).
"Moises Tapia claims that on occasion of the fire suffered by his bodega, be suffered
damages in the amount of five hundred thousand (P500,000.00) pesos. We have
annexed twenty-two (22) photographs taken of his bodega after the fire. (Annexes C,
D, E, F G, H and I) showing that his bodega hardly contained anything. Please note
that the alleged contents of this bodega were iron and steel spare parts which do not
burn. The conclusion to be drawn from all these photographs, chemical analysis and
chromatographic specimens is obvious. Moises Tapia having withdrawn his
merchandise from his bodega saturated fourteen (14) different places in his bodega
with gasoline including his steel cabinet so as to make sure that even his papers
would burn and then caused his bodega to be burned.
"Under these circumstances, it was imperative for Moises Tapia to avoid having to go
to trial. It was imperative for him also, that we, your petitioners herein should not be
allowed to present evidence of these acts. That is why Moises Tapia exerted every
effort to avoid trial proceeding and that is why we submit to this Supreme Court it is
in the interest of justice for trial proceedings to be had.
"The foregoing statements are addressed to the equity of this Supreme Court. They
have become particularly necessary since Moises Tapia in his memorandum filed on
August 17, 1971, before this Supreme Court has gone so far as to allege that your
petitioners are merely seeking to delay for they have no real defense. This Supreme
Court may now judge for itself." (Pp. 189-191, Record.)
and closes the same with "final remarks" thus:jgc:chanrobles.com.ph
"Should this Supreme Court be puzzled as to why all these unbecoming things were
done, the answer is as we have said in our opening statement that respondents
could not afford the luxury of a trial. A trial with a corresponding presentation of
evidence, part of which is annexed to this present memorandum as Annexes A to M
would have shown respondent Tapias case to be baseless so that even a decision
had been rendered in his favor in the trial court, it would certainly have been
reversed by this Supreme Court. It was necessary to declare your petitioners in
default so that your petitioners would not be around to present evidence, to adjudge

The foregoing allegations are traversed squarely in respondents Reply

Memorandum as follows:jgc:chanrobles.com.ph

1. The said Lt. Col. Jose Fernandez is a biased and unreliable source. He was hired
and paid by petitioners to conduct an analysis on specimens he himself did not
gather. Naturally his findings had to tally with his employers theory and must serve
their purpose and interest. That was what he was paid for.
2. The falsity and baselessness of said findings are irrefutably proven by the fact that
no criminal action was instituted against respondent Tapia. Yet petitioners have the
effrontery to assert before this Honorable Supreme Court that "the evidence clearly
shows Moises Tapia to be guilty of arson and fraud," for which reason he allegedly
wanted to avoid going to trial. If that was his intention he would not have filed the
cases against petitioners in the lower court.
As a matter of fact, in the two other cases filed by him against two other insurance
companies (Civil Case No. 15376 Multifield, et al v. Monarch Insurance Co., Inc.,
and Civil Case No. 15379 Philippine Home Insurance Corp.) for loss arising from
the same conflagration, and involving the same evidence and proof of loss and with
which petitioners have a common adjuster and investigator, respondent Tapia has
gone to trial. There, the defendant insurance companies were not declared in default
because they answered on time.
If petitioners herein were declared in default, it was because their counsel failed to
observe the reglementary period for answering and could not or failed to obtain relief
from the order of default in accordance with the Rules of Court. Now an attempt is
being made to shift the blame to respondent Tapia by falsely attributing to him a
desire to avoid going to trial purportedly because the evidence will show he is guilty
of arson and fraud. Such foul tactics are beneath the dignity of the Bench and Bar.
The Worthless Findings of Mr. Jose Fernandez:chanrob1es virtual 1aw library
3. The said findings were not even believed and accepted by the petitioners
commissioned and employed adjustment company which, after a thorough and
careful investigation of respondent Tapias claim, had recommended that petitioners
better pay. The reports and findings of the petitioners adjuster are attached as
Annexes "A" and "B" and form integral parts of this reply. These reports completely
refute the petitioners allegations that respondent Tapia is guilty of arson and that he
fraudulently removed the contents from his bodega before it was destroyed by fire.
Petitioners commissioned and employed investigator and adjuster, the Manila
Adjustment Company, in its report dated February 26, 1971 (Annex "A") to the four
insurance companies, is very explicit in its findings and recommendation that there is
no basis to deny respondent Tapias claim on the ground of fraud. The petitioners
hired investigator had examined respondent Tapia under the "Examination-under
Oath-Clause" of the policies and it was satisfied that no such fraud exists.
The same Adjustment Company to which the much vaunted report of the private
chemist, Mr. Jose Fernandez, was submitted, brushed aside the same and
concluded, in its report of March 11, 1971, that the said findings are not sufficient
basis for denying the claim of respondent Tapia. Even this Honorable Supreme
Court, in several cases, has categorically ruled that the existence of traces of
gasoline in the burned premises does not necessarily indicate that there was arson.
(Ya Hun & Co. v. British Traders Ins. Co., L-5719-25, May 18, 1954; Hua Chu Gan, v.
Law Union & Rock Ins. Co., Ltd., L-4611, Dec. 17, 1955.)
4. These reports conclusively prove that petitioners counsel told a brazen lie when

Page 47 of 58

he claimed that there were no goods destroyed in the burned bodega. As said
reports clearly indicate, the items therein inventoried after the fire had a total value of
P367,311.00. Respondent Tapia was able to prove, through the proofs of loss he
submitted in the lower court and which proofs were the same ones he submitted to
the herein petitioners, that he suffered loss and damage in the amount of
P446,781.60.
Incidentally, both Monarch Insurance and Philippine Home Insurance, defendants in
Civil Cases Nos. 15376 and 15379, for collection of insurance proceeds in the
amounts of P100,000.00 and P50,000.00, respectively, have just recently paid and
satisfied respondent Tapias claim. In paving respondent Tapia, these two defendants
also acted upon the findings of the Manila Adjustment Company that there is neither
fraud nor arson involved in the claim of respondent Tapia. Dr. Alberto B. Guevarra,
Jr., counsel for Monarch Insurance Company and Philippine Home Insurance
Company, was in full accord with the Adjustment Companys findings and
recommendation and he did not hesitate to recommend to his clients full settlement
of the claim of respondent Tapia. (Photostat copies of joint motions to dismiss and
corresponding orders of respondent judge granting said motions are attached as
Annexes "C", "C-1" and "D" - "D-1" and form integral parts of this reply).
5. Petitioners stand on quick-sand. Their counsel himself, Mr. Felix, in his letter to his
clients, marked as Annex "7" of respondents Answer to the instant petition, stated
that their case is "far from strong." Hence, petitioners case is not even strong. How
can he say now that they have a good defense? And if the evidence did show that
respondent Tapia was guilty of arson and fraud, why does Mr. Felix consider
petitioners case as `far from strong? 6
"6. This contention should have been interposed in the lower court through the
motion to lift the order of default, by means of affidavits of merits. Had this been
done, respondents could have opposed the same with counter affidavits. That would
have been the proper procedure. Apparently, petitioners counsel does not believe in
the Rules of Court. He would instead burden this Honorable Supreme Court with the
task of hearing and deciding a question which was not even raised in his petition.
Respondents submit that this particular point has been raised by petitioners rather
too late. In one case, where a similar belated effort was attempted, this Honorable
Supreme Court made the following sagacious ruling:chanrob1es virtual 1aw library
We believe that this is a last minute attempt to defend a losing case. If defendants
really had any valid defense, this should have been brought at the first opportunity,
that is, by the first motion to set aside the order of default. (Ong Peng v. Custodio, L14911, March 25, 1961)." (Pp. 227-232, Record.)
Anyone would see from a simple comparison of the foregoing conflicting allegations
of the parties in the light of their respective supporting affidavits and documents that
it is rather petitioners, not Tapia, who may have more reason to avoid a full-blown
trial, contrary to the charge made by Atty. Felix Jr. in all his papers filed with this
Tribunal and the court below. The attorney himself must have felt the subject cases
of his clients to be weak when he advised them in his letter, Annex 7 of respondents
answer, that the same are "far from being strong." At the time he wrote that letter, he
was well aware of the various reports of his clients adjusters minimizing the
significance of the supposed expert opinion of Col. Fernandez regarding the
gasoline traces found in Tapias premises after the fire and referring to them as being
innocuously insufficient to indicate arson. The attorney also knew that said adjusters,
the ones trusted by insurance companies to give them reliable advice on whether or
not insured persons making claims on their policies are more or less guilty of fraud
and other improper schemes to collect unjustified claims, had investigated Tapias
claims thoroughly and had found no well-grounded reason to warrant non-payment,
and that, in fact, they had recommended out of court settlement. There is no
showing at all that Tapia has ever been criminally charged with arson. On the
contrary, the record reveals that two other insurance companies serviced by the
same adjusting company as that of petitioners have already compromised their
cases with Tapia without the latter having them declared in default. In other words, in
these cases against the other two companies, Tapia was prepared to proceed to
trial, and if he had secured default judgments against petitioners, the cause was
none other than counsels omissions already discussed earlier in this opinion.

rendition of the impugned judgments and to the issuance of all the writs of execution
thereunder to have been regular and legal. And as to whether or not petitioners have
been able to make the requisite showing that they have good and valid defenses,
We likewise hold that they have failed to do so. It would be idle ceremony to still
require respondent court to take further action on the petition for relief, Annex N. The
order of respondent judge of July 7, 1971, giving due course to said petition has in
effect become functus officio. We are persuaded that the respective situations of the
parties can no longer be possibly altered, should We prolong this judicial battle in
any way.
What has been said so far should suffice to settle once and for all the litigation
between petitioners and private respondents. But there is another aspect of these
cases which cannot be left unresolved, since it affects matters related to the integrity
of judicial proceedings and the attitude and conduct displayed by counsel for
petitioners in connection therewith. The Court cannot begrudge any lawyer of his
right to be assiduous and zealous, even tenacious, in the prosecution or defense of
the cause of his client. But when, as in these cases, counsel makes charges against
the actuations of a judge and the personnel of his court directly assailing their
personal integrity as well as that of the proceedings by alleging irregularities implying
bad faith and outright misfeasance, he should be prepared to substantiate the same.
This Court will be the last to overlook, much less to tolerate the kind of misconduct
alleged by counsel in his instant petition. This is not to say, however, that trial judges
may be maligned at random with accusations that cannot be proven. Anyone who
deliberately moves this Court to act on such kind of representations may do so only
at his peril of being called to account therefor, should his charges turn out to be a
mere attempt to hide his own inadequacies and omissions in order to escape
criticism of his clients.
We hold that Atty. Felix Jr.s implied accusation that respondent judge connived with
his co-respondents to make it appear that proper judgments by default had been
regularly rendered against petitioners on April 28, 1971, when in truth there was no
such judgments, has not been proven by him. On the contrary, the official records
and the affidavits of the employees of the trial court as well as those of the Bureau of
Posts belie conclusively counsels allegations, and the mere fact that he did not see
said judgments and other pertinent pleadings and papers in the corresponding
expedientes on May 24, 1971, assuming the same to be true, cannot disprove their
existence, particularly, when it is considered that counsel has never pretended that
he had actually made inquiries and asked the proper personnel of the court about
them, which he would naturally have done, considering that before then he had filed
motions for extension followed by the joint answer. It is particularly unfortunate that
counsel made positive allegations in his petition in the instant cases purporting to
show that his clients have good and valid defenses and that respondent Tapias
insurance claim was fraudulent and maliciously exaggerated, when, as may be
readily seen from the communications of the petitioners own adjusting company,
Annexes A and B of respondents reply memorandum, of which communications
counsel must have been, in the ordinary course of client and lawyer relationship,
duly informed, and from counsels own letter to his client, Annex 7 of respondents
answer, it is more than obvious that he knew the truth to be otherwise. It is indeed
regrettable that on the basis of such unjustified allegations, the Court had been
induced to issue a writ of preliminary mandatory injunction counter-manding the writ
of execution issued by the court below, thereby causing undue prejudice to all
parties concerned. Such lack of candor bordering on conscious misstatements of
fact which has actually misled the Court calls for at least an appropriate explanation
from counsel.
IN VIEW OF ALL, THE FOREGOING, judgment is hereby rendered dismissing the
petition in these cases and setting aside the writ of preliminary injunction issued on
July 8, 1971, with the consequence that the executions enjoined thereby may now
proceed in accordance with law and the rules, with costs against petitioner. And for
the reasons above-stated, Atty. Alfonso Felix, Jr. is hereby ordered to show cause
within ten (10) days from notice hereof why no administrative action should be taken
against him as a member of the Philippine Bar.

We reiterate that these circumstances make it unnecessary for Us to adhere to the

technical procedure of returning these cases to the trial court for further proceedings
and final determination of the issue of whether or not petitioners petition for relief
from judgment should be granted. We find all the proceedings leading to the

Page 48 of 58

[G.R. No. 135384. April 4, 2001.]

MARIANO DE GUIA and APOLONIA DE GUIA, Petitioners, v. CIRIACO, LEON,
VICTORINA, TOMASA and PABLO, all surnamed DE GUIA, Respondents.
DECISION

PANGANIBAN, J.:

Under the pre-1997 Rules of Civil Procedure, a notice of pretrial must be served
separately on the counsel and the client. If served only on the counsel, the notice
must expressly direct the counsel to inform the client of the date, the time and the
place of the pretrial conference. The absence of such notice renders the
proceedings void, and the judgment rendered therein cannot acquire finality and may
be attacked directly or collaterally.chanrob1es virtua1 1aw 1ibrary
The Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the
February 17, 1998 Decision 1 of the Court of Appeals (CA) in CA-GR CV No. 42971.
The dispositive portion of the CA Decision reads as follows:jgc:chanrobles.com.ph
"WHEREFORE, without anymore touching on the merit of the judgment, we hereby
SET ASIDE the default Order of June 18, 1992 which the lower court had
improvidently issued as well as the ensuing judgment which suffers from the same
fatal infirmity. Let the case be remanded to the lower court, which is directed to
promptly set the case for pre-trial conference in accordance with the present Rules,
and for further proceedings." 2
Also assailed is the September 11, 1998 CA Resolution 3 which denied petitioners
Motion for Reconsideration.
The Facts
The appellate court summarized the antecedents of the case as
follows:jgc:chanrobles.com.ph
"The record shows that on October 11, 1990; plaintiffs Mariano De Guia, Apolonia
De Guia, Tomasa De Guia and Irene Manuel filed with the court below a complaint
for partition against defendants Ciriaco, Leon, Victorina and Pablo De Guia. They
alleged . . . that the real properties therein described were inherited by plaintiffs and
defendants from their predecessors-in-interest, and that the latter unjustly refused to
have the properties subdivided among them. Shortly after defendants filed their
traverse, an amended complaint was admitted by the lower court, in which plaintiff
Tomasa De Guia was impleaded as one of the defendants for the reason that she
had become an unwilling co-plaintiff.
"It is further shown in the record that on June 11, 1992, the Branch Clerk of Court
issued a Notice setting the case for pre-trial conference on June 18, 1992 at 8:30
a.m. Copies of said notices were sent by registered mail to parties and their counsel.
It turned out that both defendants and counsel failed to attend the pre-trial
conference. Hence, upon plaintiffs motion, defendants were declared as in default
and plaintiffs were allowed to present their evidence ex-parte.
"It appears that on July 6, 1992, defendants filed their Motion for Reconsideration of
the June 16, 1992 Order which declared them as in default. They explained therein
that they received the Notice of pre-trial only in the afternoon of June 18, 1992,
giving them no chance to appear for such proceeding in the morning of that day. The
Motion was opposed by plaintiffs who pointed out that per Postal Delivery Receipt,
defendants counsel actually received his copy of the Notice on June 17, 1992 or
one day before the date of pre-trial. Citing Section 2, Rule 13 of the Rules of Court,
plaintiffs further urged that counsels receipt of the said notice on June 17, 1992 was
sufficient to bind defendants who received said notice on the next day. Finally, they
faulted defendants for failing to support their Motion for Reconsideration with an
affidavit of merit showing among others that they had a meritorious defense.

Page 49 of 58

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

When the present dispute arose in 1992, the applicable rule was Section 1, Rule 20
of the pre-1997 Rules of Civil Procedure, which provided as
follows:jgc:chanrobles.com.ph

The CA Ruling

"SECTION 1. Pre-trial mandatory. In any action after the last pleading has been
filed, the court shall direct the parties and their attorneys to appear before it for a
conference to consider:chanrob1es virtual 1aw library

The CA sustained respondents claim that the trial court had improperly declared
them in default. It held that the Notice of pretrial received by their counsel a day
before the hearing did not bind the clients, because the Rules of Court in effect at
the time mandated separate service of such Notice upon the parties and their
counsel. Said the appellate court:chanrob1es virtua1 1aw 1ibrary
"In fine, we hold that the lower court committed a reversible error in declaring
appellants as in default for their failure to attend the pre-trial conference [of] which
they were not properly served . . . notice and in subsequently rendering the herein
appealed judgment. And while we commend the lower court for its apparent interest
in disposing of the case with dispatch, the imperatives of procedural due process
constrain us to set aside the default order and the appealed judgment, both of which
were entered in violation of appellants right to notice of pre-trial as required by the
Rules." 5
Hence, this Petition. 6
Issues
Petitioners impute the following alleged errors to the CA:chanrob1es virtual 1aw
library
"I
The Respondent Court of Appeals, with grave abuse of discretion, erred in not
finding private respondents as in default despite the existence of fraud, for being
contrary to law, and for being contrary to the findings of the trial court.
"II
The Respondent Court, with grave abuse of discretion, erred in reversing the trial
courts Decision notwithstanding private respondents violations of Rule 15, Sections
4 and 5 and Administrative Circular No. 04-94 and Revised Circular No. 28-91.
"III
The Respondent Court of Appeals, with grave abuse of discretion, erred in not
affirming the compromise agreement which has the effect and authority of res
judicata even if not judicially approved.
"IV
The Respondent Court gravely erred in not applying Rule 135, Section 8 as
warranted by the facts, admission and the evidence of the parties." 7
In the main, petitioners raise the following core issues: (1) the propriety of the trial
courts order declaring respondents in default; and (2) petitioners allegation of
procedural prejudice.
The Courts Ruling
The Petition has no merit.
First Issue:chanrob1es virtual 1aw library
The Propriety of the Default Order

x."cralaw virtua1aw library

This provision mandated separate service of the notice of pretrial upon the parties
and their lawyers. 8 In Taroma v. Sayo, 9 the Court explained:jgc:chanrobles.com.ph
"For the guidance of the bench and bar, therefore, the Court in reaffirming the ruling
that notice of pre-trial must be served separately upon the party and his counsel of
record, restates that while service of such notice to party may be made directly to the
party, it is best that the trial courts uniformly serve such notice to party through or
care of his counsel at counsels address with the express imposition upon counsel of
the obligation of notifying the party of the date, time and place of the pre-trial
conference and assuring that the party either appear thereat or deliver counsel a
written authority to represent the party with power to compromise the case, with the
warning that a party who fails to do so may be non-suited or declared in default."
(Emphasis supplied)chanrob1es virtua1 1aw 1ibrary
Hence, before being declared non-suited or considered in default, parties and their
counsel must be shown to have been served with notice of the pretrial conference.
10 Moreover, if served only on the counsel, the notice must expressly direct him or
her to inform the client of the date, the time and the place of the pretrial conference.
The absence of such notice renders the proceedings void, and the judgment
rendered therein cannot acquire finality and may be attacked directly or collaterally.
11
In this case, respondents received the notice on the afternoon of June 18, 1994, or
after the pretrial scheduled on the morning of that day. Moreover, although the
Notice was also sent to their counsel, it did not contain any imposition or directive
that he inform his clients of the pretrial conference. The Notice merely stated: "You
are hereby notified that the above-entitled case will be heard before this court on the
18th day of June, 1992, at 8:30 a.m. for pre-trial." 12
Such belated receipt of the notice, which was not attributable to respondents,
amounted to a lack of notice. Thus, the lower court erred in declaring them in default
and in denying them the opportunity to fully ventilate and defend their claim in court.
Of course, this situation would not have arisen under Section 3, 13 Rule 18 of the
1997 Rules of Civil Procedure. It specifically provides that notice of pretrial shall be
served on counsel, who is charged with the duty of notifying the client. Considering
the milieu of the present case, however, such amended proviso is not applicable.
Second Issue:chanrob1es virtual 1aw library
Allegation of Procedural Bias
Petitioners allege that, to their detriment, the appellate court disregarded established
procedural precepts in resolving the case, and that it did so for three reasons. First,
respondents Manifestation and Motion to Lift the Order of Default, filed with the trial
court, was merely pro forma because the former lacked the requisite notice of
hearing. Second, it also lacked an affidavit of merit. Third, respondents Appeal Brief
did not contain a certificate of non-forum shopping.
Granting that respondents Manifestation and Motion to Lift the Order of Default was
pro forma, this issue has become moot, not only because the trial court had denied
such Motion, but also because what was appealed was the judgment rendered by
the lower court. For the same reason, we must also reject petitioners insistence that
an affidavit of merit was absent. In any case, there was no need to attach an affidavit
of merit to the Motion, as the defenses of respondents had been set out in their
Answer.
With regard to the absence of a certification of non-forum shopping, substantial
justice behooves us to agree with the disquisition of the appellate court. We do not

Page 50 of 58

condone the shortcomings of respondents counsel, but we simply cannot ignore the
merits of their claim. Indeed, it has been held that" [i]t is within the inherent power of
the Court to suspend its own rules in a particular case in order to do justice." 14
One last point. Petitioners fault the CA for remanding the case to the trial court,
arguing that the appellate court should have resolved the case on its merit.
We understand petitioners apprehension at the prospect of re-hearing the case;
after all, it has been nine years since the filing of the Complaint. However, their claim
and the evidence supporting it and respondents as well can be best threshed
out and justly resolved in the lower court. In this regard, we cannot pass upon the
validity of the Agreement of Partition between Mariano de Guia and Ciriaco de Guia,
for such action would amount to a prejudgment of the case.
WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution
AFFIRMED. No pronouncement as to costs.chanrob1es virtua1 1aw 1ibrary
SO ORDERED.

Page 51 of 58

[G.R. No. 63397. April 9, 1985.]

an order declaring defendant (herein petitioner) in default and allowing plaintiff

(herein private respondent) to adduce its evidence ex parte.

ALEX LINA, Petitioner, v. THE HONORABLE COURT OF APPEALS;

HONORABLE GREGORIO PINEDA, as Presiding Judge of the Court of First
Instance of Rizal, Branch XXI at Pasig; and NORTHERN MOTORS,
INC., Respondents.

On May 27, 1982, defendant (petitioner) filed his answer to the complaint.
On July 28, 1982, respondent court rendered its decision in favor of plaintiff (herein
private respondent).

Olalia, Cabrera, Aguila & Bautista Law Office for Private Respondent.
On August 11, 1982, petitioner filed a motion to set aside decision dated July 28,
1982.
SYLLABUS

On August 25, 1982, respondent judge issued an order denying petitioners motion
to set aside decision.

1. REMEDIAL LAW; CIVIL PROCEDURE; MOTION; GRANT OF EXTENSION TO

FILE ANSWER, DISCRETIONARY; CASE AT BAR. We are in agreement with
respondent appellate courts affirmance of the questioned order of the trial court. The
granting of additional time within which to file an answer to a complaint is a matter
largely addressed to the sound discretion of the trial court. "While trial courts are
persuaded, as a matter of policy, to adopt a basically flexible attitude in favor of the
defendant in this area of our adjective law, the defense should never be lulled into
the belief that whenever trial courts refuse a second request for extension to file an
answer, the appellate courts will grant relief (Naga Development Corporation v. Court
of Appeals, 41 SCRA 105)." In the case at bar, it was on May 5, 1982 or two (2) days
before the expiration of the fifteen-day reglementary period given to defendant to file
his responsive pleading when petitioner moved for an extension of twenty (20) days
from May 7 within which to file his answer. Upon motion of private respondent and
over the objection of petitioner, respondent judge issued an order declaring petitioner
in default.
2. ID.; ID.; JUDGMENT; ORDER OF DEFAULT; REMEDIES AVAILABLE TO
ADVERSE PARTY UNDER THE RULES. Petitioner in this case did not avail
himself of any of the above remedies. Instead, he went to the appellate court
on certiorari prohibition. On this point, respondent appellate court aptly said: ". . .
where the judgment rendered by the respondent court is the one sought to be
annulled, a petition for relief, under Rule 38 of the Revised Rules of Court, which is a
remedy in the ordinary course of law, could have been just as plain, adequate and
speedy as certiorari. Such a remedy could have been granted by the respondent
court. And if the respondent court still denies the petition, then petitioner can take an
appeal on the order denying the petition, and in the course of such appeal petitioner
can also assail the judgment on the merits upon the ground that it is supported by
the evidence, or it is contrary to law." (p. 25, Rollo)

DECISION

RELOVA, J.:

Appeal by certiorari from the decision of the then Court of Appeals in CA-G.R. No.
14943-SP, dated November 29, 1982, affirming (a) the order of default issued by
respondent judge in a collection suit instituted by private respondent Northern
Motors, Inc. against petitioner; and, (b) the judgment of default in the same
case.chanrobles virtual lawlibrary
On March 31, 1982, private respondent Northern Motors, Inc. filed with the then
Court of First Instance of Rizal (Pasig) a case for sum of money with damages;
docketed as Civil Case No. 4520.
On April 22, 1982, petitioner Alex Lina was served with summons together with a
copy of the complaint.
On May 8, 1982, when no answer or motion to dismiss was filed by petitioner, private
respondent Northern Motors, Inc. filed a motion to declare him in default. The motion
was set for hearing on May 21, 1982.
On May 19, 1982, petitioner filed his opposition to the aforesaid motion inviting
attention to the fact that he had filed a motion for extension of time to file responsive
pleading within the reglementary period. On May 26, 1982, respondent judge issued

On October 6, 1982, petitioner filed with the then Court of Appeals a petition
for certiorari/prohibition, which was denied in its decision dated November 29, 1982
on the ground that
". . . when the private respondent filed on May 8, 1982, its motion to declare
defendant in default because the last day for him to file an answer under the
summons was May 7, 1982, the petitioner has not filed an answer. So, there was
actually a valid ground for the motion, and the respondent court could have validly
declared the defendant in default, especially because, at that time it was still
unaware of the fact that on May 5, 1982, the herein petitioner had sent to it, by
registered mail, a motion for extension of twenty days from May 7, 1982, within
which to file an answer, and which motion was received by the respondent court only
on May 19, 1982.
"But, then the respondent court did not immediately act on the motion to declare
defendant in default, so that by May 19, 1982, the herein petitioner was still able to
file an opposition to the motion asking him to be declared in default. The principal
ground of the opposition of the petitioner was the fact that he had sent, by registered
mail, a motion for extension of time to file responsive pleading, and he even attached
to his opposition a copy of the motion for extension.
"On May 26, 1982, the respondent court resolved the motion to declare defendant in
default by granting the motion. Now since on May 26, 1982, the motion for extension
of time to file responsive pleading was already before the court, as it received the
same on May 19, 1982, and aside from this, a copy thereof was attached to the
petitioners opposition to the private respondents motion to declare defendant in
default, it is conclusively assumed that the respondent court, in resolving the motion
to declare defendant in default, had taken into consideration the motion for
extension, especially because the ground of petitioners opposition to the motion to
declare defendant in default is the fact that he had asked for extension of time to file
responsive pleading. Now, then, when the respondent court declared the defendant
in default, it is a clear and inevitable implication, without the need of an express
statement to that effect, although it would have been more desirable, that the motion
for extension of time to file responsive pleading was denied. In other words, the
Order of May 26, 1982 had the necessary and logical implication that the petitioners
opposition to the motion to declare defendant in default, based upon the ground that
he had asked for extension of time to file responsive pleading, was disapproved or
denied by the court." (pp. 22-23, Rollo)
Coming to this Court on a petition for certiorari/prohibition, petitioner raised the
following issues, to wit:chanrob1es virtual 1aw library
1. Whether or not the order of default was issued in grave abuse of discretion
amounting to lack of jurisdiction.
2. Whether or not certiorari is proper in a case where judgment by default was
rendered without an order of default being furnished petitioner and where meritorious
defenses exist, which are for the trial court to evaluate and which evaluation was not
done in this case.
We are in agreement with respondent appellate courts affirmance of the questioned
order of the trial court. The granting of additional time within which to file an answer
to a complaint is a matter largely addressed to the sound discretion of the trial court.
"While trial courts are persuaded, as a matter of policy, to adopt a basically flexible
attitude in favor of the defendant in this area of our adjective law, the defense should
never be lulled into the belief that whenever trial courts refuse a second request for

Page 52 of 58

extension to file an answer, the appellate courts will grant relief (Naga Development
Corporation v. Court of Appeals, 41 SCRA 105)."cralaw virtua1aw library
In the case at bar, it was on May 5, 1982 or two (2) days before the expiration of the
fifteen-day reglementary period given to defendant to file his responsive pleading
when petitioner moved for an extension of twenty (20) days from May 7 within which
to file his answer. Upon motion of private respondent and over the objection of
petitioner, respondent judge issued an order declaring petitioner in default.
Under the Rules of Court, the remedies available to a defendant in the Court of First
Instance (now Regional Trial Court) are:chanrob1es virtual 1aw library
a) The defendant in default may, at any time after discovery thereof and before
judgment, file a motion, under oath, to set aside the order of default on the ground
that his failure to answer was due to fraud, accident, mistake or excusable neglect,
and that he has a meritorious defense; (Sec. 3, Rule 18)
b) If the judgment has already been rendered when the defendant discovered the
default, but before the same has become final and executory, he may file a motion
for new trial under Section 1 (a) of Rule 37;
c) If the defendant discovered the default after the judgment has become final and
executory, he may file a petition for relief under Section 2 of Rule 38; and
d) He may also appeal from the judgment rendered against him as contrary to the
evidence or to the law, even if no petition to set aside the order of default has been
presented by him. (Sec. 2, Rule 41)
Petitioner in this case did not avail himself of any of the above remedies. Instead, he
went to the appellate court on certiorari prohibition. On this point, respondent
appellate court aptly said:chanrobles virtual lawlibrary
". . . where the judgment rendered by the respondent court is the one sought to be
annulled, a petition for relief, under Rule 38 of the Revised Rules of Court, which is a
remedy in the ordinary course of law, could have been just as plain, adequate and
speedy as certiorari. Such a remedy could have been granted by the respondent
court. And if the respondent court still denies the petition, then petitioner can take an
appeal on the order denying the petition, and in the course of such appeal petitioner
can also assail the judgment on the merits upon the ground that it is supported by
the evidence, or it is contrary to law." (p. 25, Rollo)
ACCORDINGLY, the petition is DISMISSED. Without costs.
SO ORDERED.

Page 53 of 58

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

HON. GUILLERMO E. TORRES, as Presiding Judge of the Court of First
Instance of Rizal, Branch VIII, THE PROVINCIAL SHERIFF OF THE PROVINCE
OF RIZAL, JAIME E. LAICO and LUZ LOS BANOS-LAICO, PetitionersAppellants, v. HON. COURT OF APPEALS, JOSE CHIVI and ANGELINA CHIVI,
as representative of the deceased MARTA B. CHIVI, Respondents-Appellees.
Ernesto J . Seva for Petitioners-Appellants.
Ordoez, Cervo and Sanchez for Respondents-Appellees.

SYLLABUS

1. REMEDIAL LAW; PLEADINGS; CROSS-CLAIM; DEFINITION. A cross-claim,

as defined in Section 7 of Rule 6, Rules of Court, is "any claim by one party against
a co-party arising out of the transaction or occurrence that is the subject matter
either of the original action or of a counterclaim therein."cralaw virtua1aw library
2. ID.; ID.; ID.; DISMISSAL THEREOF; INSTANT CASE. Where in the complaint
for the repurchase of a parcel of land under the provisions of the Public Land Act
filed by the Sierras against the Chivis and the Laicos, the Chivis, having bought the
land from the Sierras and the Laicos from the Chivis, the Sierras at the time of sale
to the Chivis and even that of the sale of the Chivis to the Laicos, misrepresenting
that the land was not registered when in truth a free patent title had already been
issued to him, a cross-claim was filed by the Laicos against the Chivis based on the
warranty in the sale between them that should the Chivis fail to secure and transfer
title to the Laicos, the Chivis would return to them twice the amount of the purchase
price of P25,647.00, and the complaint for repurchase was dismissed as regards the
Sierras and the Laicos by reason of an amicable settlement between them, unknown
to the Chivis, the Sierras reconveying the title of the land to the Laicos and the
Laicos paying the Sierras P10,000, the dismissal of the complaint should have
caused the dismissal of the cross-claim as a matter of course. The Laicos crossclaim on Chivis warranty to deliver title to them was so inextricably linked with and
so utterly dependent upon the success of the complaint of the Sierras that when the
complaint was dismissed the cross-claim could not possibly survive. For as the
cross-claimants themselves alleged, the cross-defendants (the Chivis) would be
liable on the warranty "should the plaintiffs (the Laicos) finally obtain favorable
judgment in their favor." The warranty became functus oficio after the Sierras, who
turned out after all to have a free patent title to the land issued way back in 1932,
agreed to transfer and did transfer said title to the Laicos first by the deed of sale
executed directly in their favor by the Sierras on January 17, 1960 and again in the
amicable settlement of the case between them. The fact that the Laicos paid
P10,000.00 to the Sierras in the amicable settlement created no liability on the part
of the Chivis: first, because the latter neither knew nor consented to such settlement;
second, because the Laicos had already acquired the land directly from the Sierras
by virtue of the said sale of January 17, 1960; and third, because the said sum of
P10,000.00 was not the subject of the cross-claim against them.

DECISION

made that assurance because Chivi was not willing to buy the land if it was covered
by a patent, since it would then be subject to repurchase. They agreed that the
purchase price of P10,800.00 was not to be fully paid until the vendors could have
the land registered under Act 496.
At the instance of the Sierras, Chivi filed an application for registration of the land in
the Court of First Instance of Rizal. While the application was pending Chivi, on 24
May 1958, sold her rights and interests in the land to the herein petitioners-spouses
Jaime Laico and Luz Los Baos for P25,647.00, with the stipulation that should Chivi
fail to secure and transfer title to the Laicos she would return to them twice the
amount of the aforesaid purchase price. To induce the Laicos to buy Chivis rights
and interests, the Sierras showed them a petition withdrawing their free patent
application. The Laicos thereupon continued with the registration proceeding in
substitution of Chivi, who signed a deed of transfer of her rights.
In December, 1959 the Laicos discovered, and in January, 1960 Chivi learned, that a
free patent title had been previously issued to Isidro Sierra as early as 26 February
1932. The Laicos went to see the Sierras, who agreed to execute, as they did
execute on January 17, 1960, another deed of sale in favor of the Laicos. The Laicos
then withdrew their application for registration and filed instead a petition for the
reconstitution of the title issued to Isidro Sierra.
On 14 June 1960, however, the Sierras filed a complaint against Marta B. Chivi,
assisted by her husband, and the Laicos in the Court of First Instance of Rizal,
docketed as Civil Case No. 6184, praying that they (plaintiffs) be allowed to
repurchase the land under the provisions of the Public Land Act. The Chivis and the
Laicos filed their answers to the complaint and counter-claimed for damages by
reason of the alleged bad faith, misrepresentation and fraudulent acts of the Sierras,
as hereinbefore recounted. The Laicos filed a cross-claim against the Chivis for
collection of twice the amount of the price paid under their sales contract for the
latters failure to deliver title to the Laicos, alleging that "the defendants Chivi are/or
will be liable on these warranties and conditions should the plaintiffs finally obtain
favorable judgment in their favor" (sic).
On 12 March 1964 the Sierras and the Laicos entered into a compromise to
amicably settle Civil Case No. 6184 as between themselves, stipulating therein,
among other things, that the Laicos were now the absolute owners of the land and
that the Sierras would withdraw their objection to the reconstitution of the patent title
and the said title would be transferred in the name of the Laicos, who would pay
P10,000.00 to the Sierras; that the Sierras would ask for the dismissal of Civil Case
No. 6184 insofar as the Laicos were concerned and would convert their action in the
case from one for repurchase to one for collection of the balance of the sales price
and of damages against the Chivis; that the Laicos would pursue their cross-claim
against the Chivis and in the event they obtained a favorable judgment thereon they
would pay to the Sierras one-half (1/2) of any amount awarded to them in excess of
the purchase price of P25,647.00.
The compromise, which was executed without the knowledge of or notice to the
Chivis, was approved by the trial court on 12 March 1964. On the same date the
court, on joint motion of the Sierras and the Laicos, dismissed with prejudice the
complaint in Civil Case No. 6184 insofar as the Laicos were concerned as well as
the counterclaim of the Laicos against the Sierras. Chivi was not notified of the
dismissal.

The facts as found by the Court of Appeals are as follows:chanrob1es virtual 1aw
library

The court set the case for pre-trial on 14 July 1964. Despite notice to the Sierras and
the Chivis, only cross-claimant Jaime Laico and his counsel appeared, whereupon
the court declared the Chivis in default and allowed Laico to present evidence on the
cross-claim before the deputy clerk of court. Counsel for the Chivis filed an urgent
motion for reconsideration, explaining why he failed to appear at the pre-trial, but the
motion was denied. On 5 February 1965 the court rendered judgment for the Laicos,
sentencing the cross-defendants to pay them a total amount of P15,000.00, plus
costs, and on 1 April 1965 issued a writ of execution. Pursuant to the writ the sheriff
levied upon the properties of the Chivis and issued a notice that the properties would
be sold at public auction on 14 April 1965.

On 1 January 1955 the spouses Isidro Sierra and Antonia Magtaas sold a parcel of
land to Marta E. Chivi, representing to her that the land was not registered either
under the Land Registration Act or under the Spanish Mortgage Law and assuring
her that although the land was covered by a pre-war free patent application, the
application had not been approved and no patent had been issued. The Sierras

In due time the Chivis filed with the Court of Appeals a petition for certiorari and
prohibition with preliminary injunction to annul: (1) the order of the trial court
authorizing the Laicos to adduce evidence ex parte on their cross-claim against
Marta B. Chivi; (2) the decision rendered on said cross-claim; and (3) the order
directing the issuance of a writ of execution, the levy on execution, and the notice of

MAKALINTAL, J.:

Appeal by certiorari to review the decision of the Court of Appeals in CA-G.R. No.
35677-R, dated 31 August 1965.

Page 54 of 58

execution sale of the properties of Chivi. Chivi prayed further that the therein
respondents be prohibited from conducting any further proceedings in said Civil
Case No. 6184 on the ground that the trial court was without jurisdiction in the
premises.
Upon giving due course to the petition the Court of Appeals issued a writ of
preliminary injunction, restraining the therein respondents from proceedings with the
execution and with the sale at public auction set for 14 April 1965, until further order.
On 31 August 1965 the Court of Appeals rendered a decision declaring null and void
all the proceedings on the cross-claim of the spouses Laico against Chivi, as well as
the orders, decisions, writs and processes issued in connection therewith, and
restraining the therein respondents Judge and sheriff of the Court of First Instance of
Rizal from further proceeding in Civil Case No. 6184. The Laicos moved for
reconsideration. Pending resolution of the motion for reconsideration, Marta B. Chivi
died and was substituted by Angelina Chivi. In an order dated 16 March 1966, the
motion for reconsideration was denied. Hence, the instant appeal
by certiorari brought by the Laicos.
The principal issue in this case is: Could the cross-claim in this particular action
stand after the complaint in the same action was dismissed with prejudice?
In the resolution of this issue the following considerations are pertinent:chanrob1es
virtual 1aw library
(1) A cross-claim, as defined in Section 7 of Rule 6, is "any claim by one party
against a co-party arising out of the transaction or occurrence that is the subject
matter either of the original action or of a counterclaim therein."cralaw virtua1aw
library
(2) The cross-claim of the Laicos against the Chivis was for the recovery of the sum
of P51,294.00, upon the allegations that according to the contract of sale between
them, "should the defendants Chivi fail to transfer the title to the land in question to
the VENDEE (defendant Laico) then the former shall return to the latter (the
aforesaid sum) which is double the amount of the purchase price received by the
defendants Chivi;" and that "the defendants Chivi are/or will be liable on these
warranties and conditions should the plaintiffs (Sierras) finally obtain favorable
judgment in their favor" (sic).
(3) When Marta B. Chivi sold her "rights and interests" to the land in question to the
Laicos on 24 May 1958 the latter knew that Chivi had yet no registered title, and in
fact substituted her in the registration proceeding which she had initiated.
(4) In their counterclaim for damages against the Sierras in Civil Case No. 6184, the
Laicos alleged that the "plaintiffs, in fraudulently misrepresenting to the defendants
Chivi, as well as to the defendants Laico, that the land in question is unregistered
and is not covered by a patent, thereby inducing the latter to purchase the land in
question, which they would not have done had they known that the land is covered
by a patent, should be adjudged to pay. . ."cralaw virtua1aw library

again in the amicable settlement of the case between them. The fact that the Laicos
paid P10,000.00 to the Sierras in that amicable settlement created no liability on the
part of the Chivis: first, because the latter neither knew nor consented to such
settlement; second, because the Laicos had already acquired the land directly, from
the Sierras by virtue of the aforesaid sale of January 17, 1960; and third because the
said sum of P10,000.00 was not the subject of the cross-claim against them.
Apropos is the following statement of the legal principle:jgc:chanrobles.com.ph
"A cross-bill strictly speaking is one brought by a defendant in an equity suit against .
. . other defendants in the same suit, touching the matters in question in the original
bill. It is considered as an auxiliary suit dependent upon the original bill, and can be
sustained only on matters growing out of the original bill. There is a well-defined
distinction between a cross-bill merely defensive in character, and one seeking
affirmative relief. The dismissal of the original bill carries with it a purely defensive
cross-bill but not one seeking affirmative relief." 1
The cross-claim in this case was purely defensive in nature. It arose entirely out of
the complaint and could prosper only if the plaintiffs succeeded. Hence, under the
principle above enunciated, it could not be the subject of independent adjudication
once it lost the nexus upon which its life depended.
Under the circumstances above set forth the dismissal of the cross-claim should
have followed the dismissal of the complaint as a matter of course, without further
proceeding; and in setting the said cross-claim for pre-trial and receiving evidence
thereon and then rendering judgment against the cross-defendants the court
committed such grave abuse of discretion amounting to lack of jurisdiction
correctible by certiorari.
Concerning the argument that the respondents here were guilty of laches because
they filed their petition for certiorari after the lapse of over 9 months from the time the
judgment of the Court of First Instance was rendered, respondent Court of Appeals
ruled in our opinion correctly as follows:jgc:chanrobles.com.ph
"x

"To the contention that the petitioners action is barred by laches, we are bound to
disagree. The judgment by default was rendered on February 5, 1965 It is not known
when the petitioners received copy of this judgment, but the fact is that on April 13,
or after the lapse of only 2 months and 7 days from the rendition of the judgment, the
petition for certiorari was filed with this Court. Principally, the petition assails the
decision and the writ of execution thereof which was issued on April 1. Assuming that
the decision complained of was actually received by the petitioners on the date it
was rendered, the intervening period to the filing of the petition is only 2 months and
7 days, which is shorter than the shortest period of 2 months and 26 days cited in
the respondents ex-Parte motion for reconsideration in support of their theory of
laches. And a mere 12 days intervened between the issuance of the writ of execution
and the filing of the petition for certiorari.
"x

(5) The warranty undertaken by Marta B. Chivi, judging by its terms and by the
surrounding circumstances, was in respect of the transfer of ownership not of the
registered title to the Laicos. The action filed by the Sierras was not for recovery
of such ownership but for the exercise of their alleged right of repurchase under the
Public Land Act on the ground that the land they had sold was covered by a patent
title. In other words, the filing of the action did not militate against the warranty to
transfer title, for the very fact that the plaintiffs wished to enforce their alleged right of
repurchase was predicated on the assumption that the title, that is, ownership, had
been effectively transferred first to Chivi and subsequently by the latter to the Laicos.

x"

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

(6) In any event, even viewing the situation in the light most favorable to the Laicos,
their cross-claim on Chivis warranty to deliver title to them was so inextricably linked
with and so utterly dependent upon the success of the complaint of the Sierras for
the repurchase of the land that when the complaint was dismissed the cross-claim
could not possibly survive. For as the cross-claimants themselves alleged, the crossdefendants would be liable on the warranty "should the plaintiffs finally obtain
favorable judgment in their favor" (sic). The warranty became functus oficio after the
Sierras, who turned out after all to have a free patent title to the land issued way
back in 1932, agreed to transfer and did transfer said title to the Laicos first by the
deed of sale executed directly in their favor by the Sierras on January 17, 1960, and

Page 55 of 58

[G.R. No. 139884. February 15, 2001.]

SPOUSES OCTAVIO and EPIFANIA LORBES, Petitioners, v. COURT OF
APPEALS, RICARDO DELOS REYES and JOSEFINA CRUZ, Respondents.
DECISION

GONZAGA-REYES, J.:

This petition for review on certiorari arose from an action for reformation of
instrument and damages originally filed with the Regional Trial Court of Antipolo,
Rizal, Branch 74, the decision on which was reviewed and reversed by the Third
Division of the Court of Appeals.chanrob1es virtua1 1aw 1ibrary
Petitioners were the registered owners of a 225-square meter parcel of land located
in Antipolo, Rizal covered by Transfer Certificate of Title No. 165009. Sometime in
August 1991, petitioners mortgaged this property to Florencio and Nestor Carlos in
the amount of P150,000.00.
About a year later, the mortgage obligation had increased to P500,000.00 and
fearing foreclosure of the property, petitioners asked their son-in-law, herein private
respondent Ricardo delos Reyes, for help in redeeming their property. Private
respondent delos Reyes agreed to redeem the property but because he allegedly
had no money then for the purpose he solicited the assistance of private respondent
Josefina Cruz, a family friend of the delos Reyes and an employee of the Land Bank
of the Philippines.
It was agreed that petitioners will sign a deed of sale conveying the mortgaged
property in favor of private respondent Cruz and thereafter, Cruz will apply for a
housing loan with Land Bank, using the subject property as collateral. It was further
agreed that out of the proceeds of the loan, P500,000.00 will be paid to the Carloses
as mortgagees, and any such balance will be applied by petitioners for capital gains
tax, expenses for the cancellation of the mortgage to the Carloses, transfer of title to
Josefina Cruz, and registration of a mortgage in favor of Land Bank. 1 Moreover, the
monthly amortization on the housing loan which was supposed to be deducted from
the salary of private respondent Cruz will be reimbursed by private respondent delos
Reyes.
On September 29, 1992, the Land Bank issued a letter of guarantee in favor of the
Carloses, informing them that Cruzs loan had been approved. On October 22, 1992,
Transfer Certificate of Title No. 165009 was cancelled and Transfer Certificate of
Title No. 229891 in the name of Josefina Cruz was issued in lieu thereof. 2 On
November 25, 1992, the mortgage was discharged.
Sometime in 1993, petitioners notified private respondent delos Reyes that they
were ready to redeem the property but the offer was refused. Aggrieved, petitioners
filed on July 22, 1994 a complaint for reformation of instrument and damages with
the RTC of Antipolo, Rizal, docketed as Civil Case No. 94-3296.
In the complaint, petitioners claimed that the deed was merely a formality to meet
the requirements of the bank for the housing loan, and that the real intention of the
parties in securing the loan was to apply the proceeds thereof for the payment of the
mortgage obligation. 3 They alleged that the deed of sale did not reflect the true
intention of the parties, and that the transaction was not an absolute sale but an
equitable mortgage, considering that the price of the sale was inadequate
considering the market value of the subject property and because they continued
paying the real estate taxes thereto even after the execution of the said deed of sale.
Petitioners averred that they did not see any reason why private respondents would
retract from their original agreement other than that they (petitioners) and the
members of their family resigned en masse from the Mahal Namin Organization, of
which private respondent delos Reyes was the president and chairman of the board
of directors, and private respondent Cruz was the treasurer. In the same complaint,
they demanded moral damages, exemplary damages, and attorneys fees.
On July 29, 1996, the trial court issued a temporary restraining order enjoining
private respondents from ejecting petitioners from the premises of the disputed
property; this was soon replaced by a writ of preliminary injunction.

Summons and a copy of the complaint were served upon private respondents on
August 1, 1994. Private respondents filed their answer beyond the reglementary
period, or only on September 1, 1994. Thus, on September 5, 1994, petitioners filed
a motion to declare private respondents in default, which the trial court granted in an
order dated September 16, 1994. On September 30 of the same year, petitioners
presented their evidence ex parte before the trial court. The principal witness
presented was petitioner Octavio Lorbes, whose testimony was corroborated by his
son, Atty. Salvador Lorbes.
On October 12, 1994, private respondents filed a motion to lift order of default and to
strike out evidence presented ex parte, which the court denied in an order dated
October 26, 1994.
On June 20, 1995, the trial court rendered judgment in favor of petitioners, upon
finding that: (1) the Deed of Absolute Sale dated October 21, 1992 did not reflect the
true intention of the parties, and (2) the transaction entered into between petitioners
and Cruz was not an absolute sale but an equitable mortgage, considering that the
price stated in the Deed of Absolute Sale was insufficient compared to the value of
the property, petitioners are still in possession of the property, and petitioners had
continued to pay the real estate taxes thereon after the execution of the said deed of
sale. As explained by the trial court in its decision:chanrob1es virtua1 1aw 1ibrary
The foregoing uncontroverted facts clearly show that the transaction entered into
between the plaintiffs and the defendants is not an absolute sale but merely an
equitable mortgage as the sale was executed in order to secure a loan from a certain
bank to save the property from the danger of foreclosure and to use it as collateral
thereof for bank loan purposes and that the same does not reflect the real intention
of the parties in executing the said Deed of Sale. The court notes that at the time the
transaction and the Deed of Absolute Sale was executed by the plaintiffs sometime
in 1992, the prevailing market value of the lot alone was P400,000.00 per square
meter such that the lot alone consisting of 255 square meters, excluding the house
and improvements thereon would already cost more than a million pesos already
hence, the consideration of P600,000.00 in the said Deed of Sale is considerably
insufficient compared to the value of the property. Further, the plaintiffs are still in
possession of the subject property and had been paying the realty taxes thereon
even after the execution of the sale and the transfer of the title from the plaintiffs to
defendant Josephine Cruz which clearly evinces the true badge of the transaction
which occurred between the plaintiffs and defendants as that of an equitable
mortgage and not an absolute sale and that the plaintiffs were only compelled to
enter into the said transaction of sale with the defendants as the former were in
extreme need of money in order to redeem their only conjugal property and to save it
from being foreclosed for non-payment of the mortgage obligation and that it was
never the intention of the plaintiffs to sell the property to the defendants, as it was
their agreement that plaintiffs can redeem the property or any member of the family
thereof, when they become financially stable. 4
The dispositive portion of the trial courts decision thus provides:chanrob1es virtual
1aw library
WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the
plaintiffs and against the defendants, ordering the latter jointly and severally, as
follows:chanrob1es virtual 1aw library
1. To reconvey the subject property to the plaintiffs upon payment of the price
stipulated in the contract of sale;
2. To pay plaintiffs the sum of P50,000.00 as moral damages;
3. To pay plaintiffs the sum of P50,000.00 as and by way of attorneys fees plus
P1,000.00 per court appearance;
4. To pay the costs of suit.
SO ORDERED. 5
The Court of Appeals reversed the above decision, finding that private respondents
were denied due process by the refusal of the trial court to lift the order of default
against them, and that the transaction between petitioners and Cruz was one of
absolute sale, not of equitable mortgage. It also held the RTC decision to be

Page 56 of 58

constitutionally infirm for its failure to clearly and distinctly state the facts and the law
on which it is based.
The Court of Appeals held that the reformation of the Deed of Absolute Sale in the
instant case is improper because there is no showing that such instrument failed to
express the true intention of the parties by reason of mistake, fraud, inequitable
conduct, or accident in the execution thereof. 6 To the Court of Appeals, the
transaction was unmistakably a contract of sale, as evidenced by the numerous
supporting documents thereto, such as the Contract to Sell dated June 1992,
Affidavit of Waiver/Assignment dated August 14, 1992, Receipt of Partial Advance
Payment dated September 9, 1992, and Transfer Certificate of Title No. 229891
issued in the name of private respondent Cruz. Going over the indicators giving rise
to a presumption of equitable mortgage cited in the decision of the RTC, the Court of
Appeals held: (1) inadequacy of price is material only in a sale with right to
repurchase, which is not the case with herein petitioners and Cruz; moreover, the
estimate of the market value of the property came only from the bare testimony of
petitioner Octavio Lorbes, (2) petitioners remaining in possession of the property
resulted only from their refusal to vacate the same despite the lawful demands of
private respondent Cruz, and (3) there was no documentary evidence that
petitioners continued paying the taxes on the disputed property after the execution of
the Deed of Absolute Sale.
In its decision, the Court of Appeals also pointed out that under the usual
arrangement of pacto de retro the vendor of the property is a debtor of the vendee,
and the property is used as security for his obligation. In the instant case, the
mortgage creditors (the Carloses) are third persons to the Deed of Absolute Sale.
This petition raises three issues before the Court: (1) whether respondent court erred
in ruling that the Deed of Absolute Sale dated October 21, 1992 was an equitable
mortgage, (2) whether respondent court erred in ruling that by declaring private
respondents in default they were denied due process of law, and (3) whether
respondent court erred in ruling that the trial courts decision violates the
constitutional requirement that it should clearly and distinctly state the facts and the
law on which it is based. 7
We shall first deal with the second and third issues, these being preliminary
matters.chanrob1es virtua1 1aw 1ibrary
Well-settled is the rule that courts should be liberal in setting aside orders of default
for judgments of default are frowned upon, unless in cases where it clearly appears
that the reopening of the case is intended for delay. 8 The issuance of orders of
default should be the exception rather than the rule, to be allowed only in clear cases
of obstinate refusal by the defendant to comply with the orders of the trial court. 9
Under the factual milieu of this case, the RTC was indeed remiss in denying private
respondents motion to lift the order of default and to strike out the evidence
presented by petitioners ex parte, especially considering that an answer was filed,
though out of time. We thus sustain the holding of the Court of Appeals that the
default order of the RTC was immoderate and in violation of private respondents
due process rights. However, we do not think that the violation was of a degree as to
justify a remand of the proceedings to the trial court, first, because such relief was
not prayed for by private respondents, and second, because the affirmative defenses
and evidence that private respondents would have presented before the RTC were
capably ventilated before respondent court, and were taken into account by the latter
in reviewing the correctness of the evaluation of petitioners evidence by the RTC
and ultimately, in reversing the decision of the RTC. This is evident from the
discussions in the decision of the Court of Appeals, which cited with approval a
number of private respondents arguments and evidence, including the documents
annexed to their opposition to the issuance of a writ of preliminary injunction filed
with the RTC. 10 To emphasize, the reversal of respondent court was not simply on
due process grounds but on the merits, going into the issue of whether the
transaction was one of equitable mortgage or of sale, and so we find that we can
properly take cognizance of the substantive issue in this case, while of course
bearing in mind the inordinate manner by which the RTC issued its default order.
As regards the third issue, we reverse for being unfounded the holding of the Court
of Appeals since the RTC decision, some parts of which we even reproduced in our
earlier discussions, clearly complied with the constitutional requirement to state
clearly and distinctly the facts and the law on which it was based.

Thus, the one issue essential to the resolution of this case is the nature of the
transaction between petitioners and private respondent Cruz concerning the subject
parcel of land. Did the parties intend for the contested Deed of Absolute Sale to be a
bona fide and absolute conveyance of the property, or merely an equitable
mortgage?
On the outset, it must be emphasized that there is no conclusive test to determine
whether a deed absolute on its face is really a simple loan accommodation secured
by a mortgage. 11 "The decisive factor in evaluating such agreement is the intention
of the parties, as shown not necessarily by the terminology used in the contract but
by all the surrounding circumstances, such as the relative situation of the parties at
that time, the attitude, acts, conduct, declarations of the parties, the negotiations
between them leading to the deed, and generally, all pertinent facts having a
tendency to fix and determine the real nature of their design and understanding. As
such, documentary and parol evidence may be submitted and admitted to prove the
intention of the parties. 12
The conditions which give way to a presumption of equitable mortgage, as set out in
Article 1602 of the Civil Code, apply with equal force to a contract purporting to be
one of absolute sale. 13 Moreover, the presence of even one of the circumstances
laid out in Article 1602, and not a concurrence of the circumstances therein
enumerated, suffices to construe a contract of sale to be one of equitable mortgage.
14 This is simply in consonance with the rule that the law favors the least
transmission of property rights. 15
Thus, under Article 1602 of the Civil Code, a contract shall be presumed to be an
equitable mortgage when (a) the price of a sale with right to repurchase is
unusually inadequate; (b) the vendor remains in possession as lessee or otherwise;
(c) upon or after the expiration of the right of repurchase another instrument
extending the period of redemption or granting a new period is executed; (d) the
purchaser retains for himself a part of the purchase price; (e) the vendor binds
himself to pay the taxes on the thing sold; and, (f) in any other case where it may be
fairly inferred that the real intention of the parties is that the transaction shall secure
the payment of a debt or the performance of any other obligation.
Applying the foregoing considerations to the instant case, the Court finds that the
true intention between the parties for executing the Deed of Absolute Sale was not to
convey ownership of the property in question but merely to secure the housing loan
of Cruz, in which petitioners had a direct interest since the proceeds thereof were to
be immediately applied to their outstanding mortgage obligation to the
Carloses.cralaw : red
It is not disputed that before the execution of the Deed of Absolute Sale petitioners
mortgage obligation to the Carloses was nearing maturity and they were in dire need
of money to meet the same. Hence, they asked for the help of their son-in-law delos
Reyes who in turn requested Cruz to take out a housing loan with Land Bank. Since
collateral is a standard requirement of banks in giving out loans, it was made to
appear that the subject property was sold to Cruz so she can declare the same as
collateral for the housing loan. This was simply in line with the basic requirement in
our laws that the mortgagor be the absolute owner of the property sought to be
mortgaged. 16 Consistent with their agreement, as soon as the housing loan was
approved, the full amount of the proceeds were immediately turned over to
petitioners, who promptly paid P500,000.00 therefrom to the Carloses in full
satisfaction of their mortgage obligation. The balance was spent by petitioners in
transferring title to the property to Cruz and registering the new mortgage with Land
Bank.
Understandably, the Deed of Absolute Sale and its supporting documents do not
reflect the true arrangement between the parties as to how the loan proceeds are to
be actually applied because it was not the intention of the parties for these
documents to do so. The sole purpose for preparing these documents was to satisfy
Land Bank that the requirement of collateral relative to Cruzs application for a
housing loan was met.
Were we to accept, as respondent court had, that the loan that Cruz took out with
Land Bank was indeed a housing loan, then it is rather curious that Cruz kept none
of the loan proceeds but allowed for the bulk thereof to be immediately applied to the
payment of petitioners outstanding mortgage obligation. It also strains credulity that
petitioners, who were exhausting all means to save their sole conjugal real property
from being foreclosed by the Carloses, would concurrently part with the same in

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favor of Cruz.
Such urgent prospect of foreclosure helps to explain why petitioners would subscribe
to an agreement like the Deed of Absolute Sale in the herein case, which on its face
represents their unconditional relinquishment of ownership over their property.
Passing upon previous similar situations the Court has declared that "while it was
true that plaintiffs were aware of the contents of the contracts, the preponderance of
the evidence showed however that they signed knowing that said contracts did not
express their real intention, and if they did so notwithstanding this, it was due to the
urgent necessity of obtaining funds. "Necessitous men are not, truly speaking, free
men; but to answers a present emergency, will submit to any terms that the crafty
may impose upon them." 17
The facts further bear out that petitioners remained in possession of the disputed
property after the execution of the Deed of Absolute Sale and the transfer of
registered title to Cruz in October 1992; Cruz made no demand on petitioners to
vacate the subject premises until March 19, 1994; 18 interestingly, this was two days
after petitioners signified their intention to redeem the property by paying the full
amount of P600,000.00. 19 On this basis, the finding of respondent court that
petitioners remained in possession of the property only because they refused to
vacate on Cruzs demand is not accurate because the records reflect that no such
demand was made until more than a year since the purported sale of the property.
Copies of realty tax receipts attached to the record also show that petitioners
continued paying for the taxes on the property for the period 1992 to 1994, 20 or
after the property was supposed to have been sold to Cruz.
From the above, the Court is satisfied that enough of the circumstances set out in
Article 1602 of the Civil Code are attendant in the instant case, as to show that the
true arrangement between petitioners and private respondent Cruz was an equitable
mortgage.
That a transfer certificate of title was issued in favor of private respondent Cruz also
does not import conclusive evidence of ownership or that the agreement between
the parties was one of sale. As was stated in Oronce v. Court of Appeals, 21 citing
Macapinlac v. Gutierrez Repide 22 :chanrob1es virtual 1aw library
. . . it must be borne in mind that the equitable doctrine . . . to the effect that any
conveyance intended as security for a debt will be held in effect to be a mortgage,
whether so actually expressed in the instrument or not, operates regardless of the
form of the agreement chosen by the contracting parties as the repository of their

will. Equity looks through the form and considers the substance; and no kind of
engagement can be adopted which will enable the parties to escape from the
equitable doctrine to which reference is made. In other words, a conveyance of land,
accompanied by registration in the name of the transferee and the issuance of a new
certificate, is no more secured from the operation of the equitable doctrine than the
most informal conveyance that could be devised.chanrob1es virtua1 1aw 1ibrary
Before we fully set aside this issue, it will be recalled that the instant petition
originated as a complaint for reformation filed before the RTC of Antipolo, Rizal. The
Court of Appeals found petitioners action for reformation unmeritorious because
there was no showing that the failure of the deed of sale to express the parties true
intention was because of mistake, fraud, inequitable conduct, or accident. 23 Indeed,
under the facts of the present case, reformation may not be proper for failure to fully
meet the requisites in Article 1359 of the Civil Code, and because as the evidence
eventually bore out the contested Deed of Absolute Sale was not intended to reflect
the true agreement between the parties but was merely to comply with the collateral
requirements of Land Bank. However, the fact that the complaint filed by petitioners
before the trial court was categorized to be one for reformation of instrument should
not preclude the Court from passing upon the issue of whether the transaction was
in fact an equitable mortgage as the same has been squarely raised in the complaint
and had been the subject of arguments and evidence of the parties. Thus we have
held that it is not the caption of the pleading but the allegations therein that
determine the nature of the action, and the Court shall grant relief warranted by the
allegations and the proof even if no such relief is prayed for. 24
Finally, on the award of damages. Considering the due process flaws that attended
the default judgment of the RTC, and applying the rule adopted by this Court that in
instances where no actual damages are adjudicated the awards for moral and
exemplary damages may be reduced, 25 we reduce the award for moral damages in
the instant case from P50,000.00 to P30,000.00. At the same time, we sustain the
award of attorneys fees in the amount of P50,000.00, it being clear that petitioners
were compelled to incur expenses and undergo the rigors of litigation to recover their
property.
WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE.
The decision of the Regional Trial Court of Antipolo, Rizal is REINSTATED, with the
MODIFICATION that the award of moral damages is reduced to P30,000.00, and in
all other respects AFFIRMED. Costs against private respondents.
SO ORDERED.

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