Rule 3 - Parties to Civil Actions

CASE NO. 1 G.R. No. 179922 December 16, 2008

JUAN DE DIOS CARLOS, petitioner,

vs.
FELICIDAD SANDOVAL, also known as FELICIDAD S. VDA. DE CARLOS or
FELICIDAD SANDOVAL CARLOS or FELICIDAD SANDOVAL VDA. DE CARLOS,
and TEOFILO CARLOS II, respondents.

DECISION

REYES, R.T., J.:

ONLY a spouse can initiate an action to sever the marital bond for marriages
solemnized during the effectivity of the Family Code, except cases commenced prior to
March 15, 2003. The nullity and annulment of a marriage cannot be declared in a
judgment on the pleadings, summary judgment, or confession of judgment.

We pronounce these principles as We review on certiorari the Decision1 of the Court of

Appeals (CA) which reversed and set aside the summary judgment 2 of the Regional
Trial Court (RTC) in an action for declaration of nullity of marriage, status of a child,
recovery of property, reconveyance, sum of money, and damages.

The Facts

The events that led to the institution of the instant suitare unveiled as follows:

Spouses Felix B. Carlos and Felipa Elemia died intestate. They left six parcels of land to
their compulsory heirs, Teofilo Carlos and petitioner Juan De Dios Carlos. The lots are
particularly described as follows:

Parcel No. 1

Lot No. 162 of the MUNTINLUPA ESTATE SUBDIVISION, Case No. 6137 of the
Court of Land Registration.

Exemption from the provisions of Article 567 of the Civil Code is specifically
reserved.

Area: 1 hectare, 06 ares, 07 centares.

Parcel No. 2

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A parcel of land (Lot No. 159-B), being a portion of Lot 159, situated in the Bo. of
Alabang, Municipality of Muntinlupa, Province of Rizal, x x x containing an area
of Thirteen Thousand Four Hundred Forty One (13,441) square meters.

Parcel No. 3

A parcel of land (Lot 159-B-2 of the subd. plan [LRC] Psd-325903, approved as a
non-subd. project), being a portion of Lot 159-B [LRC] Psd- Alabang, Mun. of
Muntinlupa, Metro Manila, Island of Luzon. Bounded on the NE, points 2 to 4 by
Lot 155, Muntinlupa Estate; on the SE, point 4 to 5 by Lot 159-B-5; on the S,
points 5 to 1 by Lot 159-B-3; on the W, points 1 to 2 by Lot 159-B-1 (Road
widening) all of the subd. plan, containing an area of ONE HUNDRED THIRTY
(130) SQ. METERS, more or less.

PARCEL No. 4

A parcel of land (Lot 28-C of the subd. plan Psd-13-007090, being a portion of
Lot 28, Muntinlupa Estate, L.R.C. Rec. No. 6137), situated in the Bo. of Alabang,
Mun. of Muntinlupa, Metro Manila. Bounded on the NE, along lines 1-2 by Lot 27,
Muntinlupa Estate; on the East & SE, along lines 2 to 6 by Mangangata River;
and on the West., along line 6-1, by Lot 28-B of the subd. plan x x x containing
an area of ONE THUSAND AND SEVENTY-SIX (1,076) SQUARE METERS.

PARCEL No. 5

PARCELA DE TERRENO No. 50, Manzana No. 18, de la subd. de Solocan.

Linda por el NW, con la parcela 49; por el NE, con la parcela 36; por el SE, con
la parcela 51; y por el SW, con la calle Dos Castillas. Partiendo de un punto
marcado 1 en el plano, el cual se halla a S. gds. 01'W, 72.50 mts. Desde el
punto 1 de esta manzana, que es un mojon de concreto de la Ciudad de Manila,
situado on el esquina E. que forman las Calles Laong Laan y Dos. Castillas,
continiendo un extension superficial de CIENTO CINCUENTA (150) METROS
CUADRADOS.

PARCEL No. 6

PARCELA DE TERRENO No. 51, Manzana No. 18, de la subd. De Solocon.

Linda por el NW, con la parcela 50; por el NE, con la parcela 37; por el SE, con
la parcela 52; por el SW, con la Calle Dos Castillas. Partiendo de un punto
Marcado 1 en el plano, el cual se halla at S. 43 gds. 01'E, 82.50 mts. Desde el
punto 1 de esta manzana, que es un mojon de concreto de la Ciudad de Manila,
situado on el esquina E. que forman las Calles Laong Laan y Dos. Castillas,
continiendo una extension superficial de CIENTO CINCUENTA (150) METROS
CUADRADOS.3

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During the lifetime of Felix Carlos, he agreed to transfer his estate to Teofilo. The
agreement was made in order to avoid the payment of inheritance taxes. Teofilo, in turn,
undertook to deliver and turn over the share of the other legal heir, petitioner Juan De
Dios Carlos.

Eventually, the first three (3) parcels of land were transferred and registered in the
name of Teofilo. These three (3) lots are now covered by Transfer Certificate of Title
(TCT) No. 234824 issued by the Registry of Deeds of Makati City; TCT No. 139061
issued by the Registry of Deeds of Makati City; and TCT No. 139058 issued by the
Registry of Deeds of Makati City.

Parcel No. 4 was registered in the name of petitioner. The lot is now covered by TCT
No. 160401 issued by the Registry of Deeds of Makati City.

On May 13, 1992, Teofilo died intestate. He was survived by respondents Felicidad and
their son, Teofilo Carlos II (Teofilo II). Upon Teofilo's death, Parcel Nos. 5 & 6 were
registered in the name of respondent Felicidad and co-respondent, Teofilo II. The said
two (2) parcels of land are covered by TCT Nos. 219877 and 210878, respectively,
issued by the Registry of Deeds of Manila.

In 1994, petitioner instituted a suit against respondents before the RTC in Muntinlupa
City, docketed as Civil Case No. 94-1964. In the said case, the parties submitted and
caused the approval of a partial compromise agreement. Under the compromise, the
parties acknowledged their respective shares in the proceeds from the sale of a portion
of the first parcel of land. This includes the remaining 6,691-square-meter portion of
said land.

On September 17, 1994, the parties executed a deed of extrajudicial partition, dividing
the remaining land of the first parcel between them.

Meanwhile, in a separate case entitled Rillo v. Carlos,4 2,331 square meters of the
second parcel of land were adjudicated in favor of plaintiffs Rillo. The remaining 10,000-
square meter portion was later divided between petitioner and respondents.

The division was incorporated in a supplemental compromise agreement executed on

August 17, 1994, with respect to Civil Case No. 94-1964. The parties submitted the
supplemental compromise agreement, which was approved accordingly.

Petitioner and respondents entered into two more contracts in August 1994. Under the
contracts, the parties equally divided between them the third and fourth parcels of land.

In August 1995, petitioner commenced an action, docketed as Civil Case No. 95-135,
against respondents before the court a quo with the following causes of action: (a)
declaration of nullity of marriage; (b) status of a child; (c) recovery of property; (d)
reconveyance; and (e) sum of money and damages. The complaint was raffled to
Branch 256 of the RTC in Muntinlupa.

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In his complaint, petitioner asserted that the marriage between his late brother Teofilo
and respondent Felicidad was a nullity in view of the absence of the required marriage
license. He likewise maintained that his deceased brother was neither the natural nor
the adoptive father of respondent Teofilo Carlos II.

Petitioner likewise sought the avoidance of the contracts he entered into with
respondent Felicidad with respect to the subject real properties. He also prayed for the
cancellation of the certificates of title issued in the name of respondents. He argued that
the properties covered by such certificates of title, including the sums received by
respondents as proceeds, should be reconveyed to him.

Finally, petitioner claimed indemnification as and by way of moral and exemplary

damages, attorney's fees, litigation expenses, and costs of suit.

On October 16, 1995, respondents submitted their answer. They denied the material
averments of petitioner's complaint. Respondents contended that the dearth of details
regarding the requisite marriage license did not invalidate Felicidad's marriage to
Teofilo. Respondents declared that Teofilo II was the illegitimate child of the deceased
Teofilo Carlos with another woman.

On the grounds of lack of cause of action and lack of jurisdiction over the subject
matter, respondents prayed for the dismissal of the case before the trial court. They also
asked that their counterclaims for moral and exemplary damages, as well as attorney's
fees, be granted.

But before the parties could even proceed to pre-trial, respondents moved for summary
judgment. Attached to the motion was the affidavit of the justice of the peace who
solemnized the marriage. Respondents also submitted the Certificate of Live Birth of
respondent Teofilo II. In the certificate, the late Teofilo Carlos and respondent Felicidad
were designated as parents.

On January 5, 1996, petitioner opposed the motion for summary judgment on the
ground of irregularity of the contract evidencing the marriage. In the same breath,
petitioner lodged his own motion for summary judgment. Petitioner presented a
certification from the Local Civil Registrar of Calumpit, Bulacan, certifying that there is
no record of birth of respondent Teofilo II.

Petitioner also incorporated in the counter-motion for summary judgment the testimony
of respondent Felicidad in another case. Said testimony was made in Civil Case No. 89-
2384, entitled Carlos v. Gorospe, before the RTC Branch 255, Las Piñas. In her
testimony, respondent Felicidad narrated that co-respondent Teofilo II is her child with
Teofilo.5

Subsequently, the Office of the City Prosecutor of Muntinlupa submitted to the trial court
its report and manifestation, discounting the possibility of collusion between the parties.

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 RTC and CA Dispositions

On April 8, 1996, the RTC rendered judgment, disposing as follows:

WHEREFORE, premises considered, defendant's (respondent's) Motion for

Summary Judgment is hereby denied. Plaintiff's (petitioner's) Counter-Motion for
Summary Judgment is hereby granted and summary judgment is hereby
rendered in favor of plaintiff as follows:

1. Declaring the marriage between defendant Felicidad Sandoval and Teofilo

Carlos solemnized at Silang, Cavite on May 14, 1962, evidenced by the Marriage
Certificate submitted in this case, null and void ab initio for lack of the requisite
marriage license;

2. Declaring that the defendant minor, Teofilo S. Carlos II, is not the natural,
illegitimate, or legally adopted child of the late Teofilo E. Carlos;

3. Ordering defendant Sandoval to pay and restitute to plaintiff the sum

of P18,924,800.00 together with the interest thereon at the legal rate from date of
filing of the instant complaint until fully paid;

4. Declaring plaintiff as the sole and exclusive owner of the parcel of land, less
the portion adjudicated to plaintiffs in Civil Case No. 11975, covered by TCT No.
139061 of the Register of Deeds of Makati City, and ordering said Register of
Deeds to cancel said title and to issue another title in the sole name of plaintiff
herein;

5. Declaring the Contract, Annex "K" of complaint, between plaintiff and

defendant Sandoval null and void, and ordering the Register of Deeds of Makati
City to cancel TCT No. 139058 in the name of Teofilo Carlos, and to issue
another title in the sole name of plaintiff herein;

6. Declaring the Contract, Annex M of the complaint, between plaintiff and

defendant Sandoval null and void;

7. Ordering the cancellation of TCT No. 210877 in the names of defendant

Sandoval and defendant minor Teofilo S. Carlos II and ordering the Register of
Deeds of Manila to issue another title in the exclusive name of plaintiff herein;

8. Ordering the cancellation of TCT No. 210878 in the name of defendant

Sandoval and defendant Minor Teofilo S. Carlos II and ordering the Register of
Deeds of Manila to issue another title in the sole name of plaintiff herein.

Let this case be set for hearing for the reception of plaintiff's evidence on his
claim for moral damages, exemplary damages, attorney's fees, appearance fees,
and litigation expenses on June 7, 1996 at 1:30 o'clock in the afternoon.

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 SO ORDERED.6

Dissatisfied, respondents appealed to the CA. In the appeal, respondents argued, inter
alia, that the trial court acted without or in excess of jurisdiction in rendering summary
judgment annulling the marriage of Teofilo, Sr. and Felicidad and in declaring Teofilo II
as not an illegitimate child of Teofilo, Sr.

On October 15, 2002, the CA reversed and set aside the RTC ruling, disposing as
follows:

WHEREFORE, the summary judgment appealed from is REVERSED and SET

ASIDE and in lieu thereof, a new one is entered REMANDING the case to the
court of origin for further proceedings.

SO ORDERED.7

The CA opined:

We find the rendition of the herein appealed summary judgment by the court a
quo contrary to law and public policy as ensconced in the aforesaid safeguards.
The fact that it was appellants who first sought summary judgment from the trial
court, did not justify the grant thereof in favor of appellee. Not being an action "to
recover upon a claim" or "to obtain a declaratory relief," the rule on summary
judgment apply (sic) to an action to annul a marriage. The mere fact that no
genuine issue was presented and the desire to expedite the disposition of the
case cannot justify a misinterpretation of the rule. The first paragraph of Article
88 and 101 of the Civil Code expressly prohibit the rendition of decree of
annulment of a marriage upon a stipulation of facts or a confession of judgment.
Yet, the affidavits annexed to the petition for summary judgment practically
amount to these methods explicitly proscribed by the law.

We are not unmindful of appellee's argument that the foregoing safeguards have
traditionally been applied to prevent collusion of spouses in the matter of
dissolution of marriages and that the death of Teofilo Carlos on May 13, 1992
had effectively dissolved the marriage herein impugned. The fact, however, that
appellee's own brother and appellant Felicidad Sandoval lived together as
husband and wife for thirty years and that the annulment of their marriage is the
very means by which the latter is sought to be deprived of her participation in the
estate left by the former call for a closer and more thorough inquiry into the
circumstances surrounding the case. Rather that the summary nature by which
the court a quo resolved the issues in the case, the rule is to the effect that the
material facts alleged in the complaint for annulment of marriage should always
be proved. Section 1, Rule 19 of the Revised Rules of Court provides:

"Section 1. Judgment on the pleadings. - Where an answer fails to tender

an issue, or otherwise admits the material allegations of the adverse

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 party's pleading, the court may, on motion of that party, direct judgment on
such pleading. But in actions for annulment of marriage or for legal
separation, the material facts alleged in the complaint shall always be
proved." (Underscoring supplied)

Moreover, even if We were to sustain the applicability of the rules on summary

judgment to the case at bench, Our perusal of the record shows that the finding
of the court a quo for appellee would still not be warranted. While it may be
readily conceded that a valid marriage license is among the formal requisites of
marriage, the absence of which renders the marriage void ab initio pursuant to
Article 80(3) in relation to Article 58 of the Civil Code the failure to reflect the
serial number of the marriage license on the marriage contract evidencing the
marriage between Teofilo Carlos and appellant Felicidad Sandoval, although
irregular, is not as fatal as appellee represents it to be. Aside from the dearth of
evidence to the contrary, appellant Felicidad Sandoval's affirmation of the
existence of said marriage license is corroborated by the following statement in
the affidavit executed by Godofredo Fojas, then Justice of the Peace who
officiated the impugned marriage, to wit:

"That as far as I could remember, there was a marriage license issued at

Silang, Cavite on May 14, 1962 as basis of the said marriage contract
executed by Teofilo Carlos and Felicidad Sandoval, but the number of
said marriage license was inadvertently not placed in the marriage
contract for the reason that it was the Office Clerk who filled up the blanks
in the Marriage Contract who in turn, may have overlooked the same."

Rather than the inferences merely drawn by the trial court, We are of the
considered view that the veracity and credibility of the foregoing statement as
well as the motivations underlying the same should be properly threshed out in a
trial of the case on the merits.

If the non-presentation of the marriage contract - the primary evidence of

marriage - is not proof that a marriage did not take place, neither should
appellants' non-presentation of the subject marriage license be taken as proof
that the same was not procured. The burden of proof to show the nullity of the
marriage, it must be emphasized, rests upon the plaintiff and any doubt should
be resolved in favor of the validity of the marriage.

Considering that the burden of proof also rests on the party who disputes the
legitimacy of a particular party, the same may be said of the trial court's rejection
of the relationship between appellant Teofilo Carlos II and his putative father on
the basis of the inconsistencies in appellant Felicidad Sandoval's statements.
Although it had effectively disavowed appellant's prior claims regarding the
legitimacy of appellant Teofilo Carlos II, the averment in the answer that he is the
illegitimate son of appellee's brother, to Our mind, did not altogether foreclose the

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 possibility of the said appellant's illegitimate filiation, his right to prove the same
or, for that matter, his entitlement to inheritance rights as such.

Without trial on the merits having been conducted in the case, We find appellee's
bare allegation that appellant Teofilo Carlos II was merely purchased from an
indigent couple by appellant Felicidad Sandoval, on the whole, insufficient to
support what could well be a minor's total forfeiture of the rights arising from his
putative filiation. Inconsistent though it may be to her previous statements,
appellant Felicidad Sandoval's declaration regarding the illegitimate filiation of
Teofilo Carlos II is more credible when considered in the light of the fact that,
during the last eight years of his life, Teofilo Carlos allowed said appellant the
use of his name and the shelter of his household. The least that the trial court
could have done in the premises was to conduct a trial on the merits in order to
be able to thoroughly resolve the issues pertaining to the filiation of appellant
Teofilo Carlos II.8

On November 22, 2006, petitioner moved for reconsideration and for the inhibition of
the ponente, Justice Rebecca De Guia-Salvador. The CA denied the twin motions.

Issues

In this petition under Rule 45, petitioner hoists the following issues:

1. That, in reversing and setting aside the Summary Judgment under the
Decision, Annex A hereof, and in denying petitioner's Motion for reconsideration
under the Resolution, Annex F hereof, with respect to the nullity of the impugned
marriage, petitioner respectfully submits that the Court of Appeals committed a
grave reversible error in applying Articles 88 and 101 of the Civil Code, despite
the fact that the circumstances of this case are different from that contemplated
and intended by law, or has otherwise decided a question of substance not
theretofore decided by the Supreme Court, or has decided it in a manner
probably not in accord with law or with the applicable decisions of this Honorable
Court;

2. That in setting aside and reversing the Summary Judgment and, in lieu
thereof, entering another remanding the case to the court of origin for further
proceedings, petitioner most respectfully submits that the Court of Appeals
committed a serious reversible error in applying Section 1, Rule 19 (now Section
1, Rule 34) of the Rules of Court providing for judgment on the pleadings, instead
of Rule 35 governing Summary Judgments;

3. That in reversing and setting aside the Summary Judgment and, in lieu
thereof, entering another remanding the case to the court of origin for further
proceedings, petitioner most respectfully submits that the Court of
Appeals committed grave abuse of discretion, disregarded judicial admissions,
made findings on ground of speculations, surmises, and conjectures, or

8
 otherwise committed misapplications of the laws and misapprehension of the
facts.9 (Underscoring supplied)

Essentially, the Court is tasked to resolve whether a marriage may be declared void ab
initio through a judgment on the pleadings or a summary judgment and without the
benefit of a trial. But there are other procedural issues, including the capacity of one
who is not a spouse in bringing the action for nullity of marriage.

Our Ruling

I. The grounds for declaration of absolute nullity of marriage must be proved.

Neither judgment on the pleadings nor summary judgment is allowed. So is
confession of judgment disallowed.

Petitioner faults the CA in applying Section 1, Rule 1910 of the Revised Rules of Court,
which provides:

SECTION 1. Judgment on the pleadings. - Where an answer fails to tender an

issue, or otherwise admits the material allegations of the adverse party's
pleading, the court may, on motion of that party, direct judgment on such
pleading. But in actions for annulment of marriage or for legal separation, the
material facts alleged in the complaint shall always be proved.

He argues that the CA should have applied Rule 35 of the Rules of Court governing
summary judgment, instead of the rule on judgment on the pleadings.

Petitioner is misguided. The CA did not limit its finding solely within the provisions of the
Rule on judgment on the pleadings. In disagreeing with the trial court, the CA likewise
considered the provisions on summary judgments, to wit:

Moreover, even if We are to sustain the applicability of the rules on summary

judgment to the case at bench, Our perusal of the record shows that the finding
of the court a quo for appellee would still not be warranted. x x x11

But whether it is based on judgment on the pleadings or summary judgment, the CA

was correct in reversing the summary judgment rendered by the trial court. Both the
rules on judgment on the pleadings and summary judgments have no place in cases of
declaration of absolute nullity of marriage and even in annulment of marriage.

With the advent of A.M. No. 02-11-10-SC, known as "Rule on Declaration of Absolute
Nullity of Void Marriages and Annulment of Voidable Marriages," the question on the
application of summary judgments or even judgment on the pleadings in cases of nullity
or annulment of marriage has been stamped with clarity. The significant principle laid
down by the said Rule, which took effect on March 15, 200312 is found in Section
17, viz.:

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 SEC. 17. Trial. - (1) The presiding judge shall personally conduct the trial of the
case. No delegation of evidence to a commissioner shall be allowed except as to
matters involving property relations of the spouses.

(2) The grounds for declaration of absolute nullity or annulment of marriage must
be proved. No judgment on the pleadings, summary judgment, or confession of
judgment shall be allowed. (Underscoring supplied)

Likewise instructive is the Court's pronouncement in Republic v. Sandiganbayan.13 In

that case, We excluded actions for nullity or annulment of marriage from the application
of summary judgments.

Prescinding from the foregoing discussion, save for annulment of marriage or

declaration of its nullity or for legal separation, summary judgment is applicable
to all kinds of actions.14 (Underscoring supplied)

By issuing said summary judgment, the trial court has divested the State of its lawful
right and duty to intervene in the case. The participation of the State is not terminated
by the declaration of the public prosecutor that no collusion exists between the parties.
The State should have been given the opportunity to present controverting evidence
before the judgment was rendered.15

Both the Civil Code and the Family Code ordain that the court should order the
prosecuting attorney to appear and intervene for the State. It is at this stage when the
public prosecutor sees to it that there is no suppression of evidence. Concomitantly,
even if there is no suppression of evidence, the public prosecutor has to make sure that
the evidence to be presented or laid down before the court is not fabricated.

To further bolster its role towards the preservation of marriage, the Rule on Declaration
of Absolute Nullity of Void Marriages reiterates the duty of the public prosecutor, viz.:

SEC. 13. Effect of failure to appear at the pre-trial. - (a) x x x

(b) x x x If there is no collusion, the court shall require the public prosecutor to
intervene for the State during the trial on the merits to prevent suppression or
fabrication of evidence. (Underscoring supplied)

Truly, only the active participation of the public prosecutor or the Solicitor General will
ensure that the interest of the State is represented and protected in proceedings for
declaration of nullity of marriages by preventing the fabrication or suppression of
evidence.16

II. A petition for declaration of absolute nullity of void marriage may be filed
solely by the husband or wife. Exceptions: (1) Nullity of marriage cases
commenced before the effectivity of A.M. No. 02-11-10-SC; and (2) Marriages
celebrated during the effectivity of the Civil Code.

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Under the Rule on Declaration of Absolute Nullity of Void Marriages and Annulment
of Voidable Marriages, the petition for declaration of absolute nullity of marriage may not
be filed by any party outside of the marriage. The Rule made it exclusively a right of the
spouses by stating:

SEC. 2. Petition for declaration of absolute nullity of void marriages. -

(a) Who may file. - A petition for declaration of absolute nullity of void marriage
may be filed solely by the husband or the wife. (Underscoring supplied)

Section 2(a) of the Rule makes it the sole right of the husband or the wife to file a
petition for declaration of absolute nullity of void marriage. The rationale of the Rule is
enlightening, viz.:

Only an aggrieved or injured spouse may file a petition for annulment of voidable
marriages or declaration of absolute nullity of void marriages. Such petition
cannot be filed by compulsory or intestate heirs of the spouses or by the State.
The Committee is of the belief that they do not have a legal right to file the
petition. Compulsory or intestate heirs have only inchoate rights prior to the death
of their predecessor, and, hence, can only question the validity of the marriage of
the spouses upon the death of a spouse in a proceeding for the settlement of the
estate of the deceased spouse filed in the regular courts. On the other hand, the
concern of the State is to preserve marriage and not to seek its
dissolution.17 (Underscoring supplied)

The new Rule recognizes that the husband and the wife are the sole architects of a
healthy, loving, peaceful marriage. They are the only ones who can decide when and
how to build the foundations of marriage. The spouses alone are the engineers of their
marital life. They are simultaneously the directors and actors of their matrimonial true-to-
life play. Hence, they alone can and should decide when to take a cut, but only in
accordance with the grounds allowed by law.

The innovation incorporated in A.M. No. 02-11-10-SC sets forth a demarcation line
between marriages covered by the Family Code and those solemnized under the Civil
Code. The Rule extends only to marriages entered into during the effectivity of the
Family Code which took effect on August 3, 1988. 18

The advent of the Rule on Declaration of Absolute Nullity of Void Marriages marks the
beginning of the end of the right of the heirs of the deceased spouse to bring a nullity of
marriage case against the surviving spouse. But the Rule never intended to deprive the
compulsory or intestate heirs of their successional rights.

While A.M. No. 02-11-10-SC declares that a petition for declaration of absolute nullity of
marriage may be filed solely by the husband or the wife, it does not mean that the
compulsory or intestate heirs are without any recourse under the law. They can still
protect their successional right, for, as stated in the Rationale of the Rules on

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Annulment of Voidable Marriages and Declaration of Absolute Nullity of Void Marriages,
compulsory or intestate heirs can still question the validity of the marriage of the
spouses, not in a proceeding for declaration of nullity but upon the death of a spouse in
a proceeding for the settlement of the estate of the deceased spouse filed in the regular
courts.19

It is emphasized, however, that the Rule does not apply to cases already commenced
before March 15, 2003 although the marriage involved is within the coverage of the
Family Code. This is so, as the new Rule which became effective on March 15,
200320 is prospective in its application. Thus, the Court held in Enrico v. Heirs of Sps.
Medinaceli,21 viz.:

As has been emphasized, A.M. No. 02-11-10-SC covers marriages under the
Family Code of the Philippines, and is prospective in its
22
application. (Underscoring supplied)

Petitioner commenced the nullity of marriage case against respondent Felicidad in

1995. The marriage in controversy was celebrated on May 14, 1962. Which law would
govern depends upon when the marriage took place.23

The marriage having been solemnized prior to the effectivity of the Family Code, the
applicable law is the Civil Code which was the law in effect at the time of its
celebration.24 But the Civil Code is silent as to who may bring an action to declare the
marriage void. Does this mean that any person can bring an action for the declaration of
nullity of marriage?

We respond in the negative. The absence of a provision in the Civil Code cannot be
construed as a license for any person to institute a nullity of marriage case. Such
person must appear to be the party who stands to be benefited or injured by the
judgment in the suit, or the party entitled to the avails of the suit. 25 Elsewise stated,
plaintiff must be the real party-in-interest. For it is basic in procedural law that every
action must be prosecuted and defended in the name of the real party-in-interest.26

Interest within the meaning of the rule means material interest or an interest in issue to
be affected by the decree or judgment of the case, as distinguished from mere curiosity
about the question involved or a mere incidental interest. One having no material
interest to protect cannot invoke the jurisdiction of the court as plaintiff in an action.
When plaintiff is not the real party-in-interest, the case is dismissible on the ground of
lack of cause of action.27

Illuminating on this point is Amor-Catalan v. Court of Appeals,28 where the Court held:

True, under the New Civil Code which is the law in force at the time the
respondents were married, or even in the Family Code, there is no specific
provision as to who can file a petition to declare the nullity of marriage; however,
only a party who can demonstrate "proper interest" can file the same. A petition

12
 to declare the nullity of marriage, like any other actions, must be prosecuted or
defended in the name of the real party-in-interest and must be based on a cause
of action. Thus, in Niñal v. Badayog, the Court held that the children have the
personality to file the petition to declare the nullity of marriage of their deceased
father to their stepmother as it affects their successional rights.

xxxx

In fine, petitioner's personality to file the petition to declare the nullity of marriage
cannot be ascertained because of the absence of the divorce decree and the
foreign law allowing it. Hence, a remand of the case to the trial court for reception
of additional evidence is necessary to determine whether respondent Orlando
was granted a divorce decree and whether the foreign law which granted the
same allows or restricts remarriage. If it is proved that a valid divorce decree was
obtained and the same did not allow respondent Orlando's remarriage, then the
trial court should declare respondent's marriage as bigamous and void ab
initio but reduced the amount of moral damages from P300,000.00 to P50,000.00
and exemplary damages from P200,000.00 to P25,000.00. On the contrary, if it is
proved that a valid divorce decree was obtained which allowed Orlando to
remarry, then the trial court must dismiss the instant petition to declare nullity of
marriage on the ground that petitioner Felicitas Amor-Catalan lacks legal
personality to file the same.29 (Underscoring supplied)

III. The case must be remanded to determine whether or not petitioner is a real-
party-in-interest to seek the declaration of nullity of the marriage in controversy.

In the case at bench, the records reveal that when Teofilo died intestate in 1992, his
only surviving compulsory heirs are respondent Felicidad and their son, Teofilo II. Under
the law on succession, successional rights are transmitted from the moment of death of
the decedent and the compulsory heirs are called to succeed by operation of law. 30

Upon Teofilo's death in 1992, all his property, rights and obligations to the extent of the
value of the inheritance are transmitted to his compulsory heirs. These heirs were
respondents Felicidad and Teofilo II, as the surviving spouse and child, respectively.

Article 887 of the Civil Code outlined who are compulsory heirs, to wit:

(1) Legitimate children and descendants, with respect to their legitimate parents
and ascendants;

(2) In default of the foregoing, legitimate parents and ascendants, with respect to
their legitimate children and descendants;

(3) The widow or widower;

(4) Acknowledged natural children, and natural children by legal fiction;

13
 (5) Other illegitimate children referred to in Article 287 of the Civil Code. 31

Clearly, a brother is not among those considered as compulsory heirs. But although a
collateral relative, such as a brother, does not fall within the ambit of a compulsory heir,
he still has a right to succeed to the estate. Articles 1001 and 1003 of the New Civil
Code provide:

ART. 1001. Should brothers and sisters or their children survive with the widow
or widower, the latter shall be entitled to one-half of the inheritance and the
brothers and sisters or their children to the other half.

ART. 1003. If there are no descendants, ascendants, illegitimate children, or a

surviving spouse, the collateral relatives shall succeed to the entire estate of the
deceased in accordance with the following articles. (Underscoring supplied)

Indeed, only the presence of descendants, ascendants or illegitimate children excludes

collateral relatives from succeeding to the estate of the decedent. The presence of
legitimate, illegitimate, or adopted child or children of the deceased precludes
succession by collateral relatives.32 Conversely, if there are no descendants,
ascendants, illegitimate children, or a surviving spouse, the collateral relatives shall
succeed to the entire estate of the decedent. 33

If respondent Teofilo II is declared and finally proven not to be the legitimate,

illegitimate, or adopted son of Teofilo, petitioner would then have a personality to seek
the nullity of marriage of his deceased brother with respondent Felicidad. This is so,
considering that collateral relatives, like a brother and sister, acquire successional right
over the estate if the decedent dies without issue and without ascendants in the direct
line.

The records reveal that Teofilo was predeceased by his parents. He had no other
siblings but petitioner. Thus, if Teofilo II is finally found and proven to be not a
legitimate, illegitimate, or adopted son of Teofilo, petitioner succeeds to the other half of
the estate of his brother, the first half being allotted to the widow pursuant to Article
1001 of the New Civil Code. This makes petitioner a real-party-interest to seek the
declaration of absolute nullity of marriage of his deceased brother with respondent
Felicidad. If the subject marriage is found to be void ab initio, petitioner succeeds to the
entire estate.

It bears stressing, however, that the legal personality of petitioner to bring the nullity of
marriage case is contingent upon the final declaration that Teofilo II is not a legitimate,
adopted, or illegitimate son of Teofilo.

If Teofilo II is proven to be a legitimate, illegitimate, or legally adopted son of Teofilo,

then petitioner has no legal personality to ask for the nullity of marriage of his deceased
brother and respondent Felicidad. This is based on the ground that he has no
successional right to be protected, hence, does not have proper interest. For although

14
the marriage in controversy may be found to be void from the beginning, still, petitioner
would not inherit. This is because the presence of descendant, illegitimate, 34 or even an
adopted child35 excludes the collateral relatives from inheriting from the decedent.

Thus, the Court finds that a remand of the case for trial on the merits to determine the
validity or nullity of the subject marriage is called for. But the RTC is strictly instructed
to dismiss the nullity of marriage case for lack of cause of action if it is proven by
evidence that Teofilo II is a legitimate, illegitimate, or legally adopted son of
Teofilo Carlos, the deceased brother of petitioner.

IV. Remand of the case regarding the question of filiation of respondent Teofilo II
is proper and in order. There is a need to vacate the disposition of the trial court as to
the other causes of action before it.

Petitioner did not assign as error or interpose as issue the ruling of the CA on the
remand of the case concerning the filiation of respondent Teofilo II. This
notwithstanding, We should not leave the matter hanging in limbo.

This Court has the authority to review matters not specifically raised or assigned as
error by the parties, if their consideration is necessary in arriving at a just resolution of
the case.36

We agree with the CA that without trial on the merits having been conducted in the
case, petitioner's bare allegation that respondent Teofilo II was adopted from an
indigent couple is insufficient to support a total forfeiture of rights arising from his
putative filiation. However, We are not inclined to support its pronouncement that the
declaration of respondent Felicidad as to the illegitimate filiation of respondent Teofilo II
is more credible. For the guidance of the appellate court, such declaration of respondent
Felicidad should not be afforded credence. We remind the CA of the guaranty provided
by Article 167 of the Family Code to protect the status of legitimacy of a child, to wit:

ARTICLE 167. The child shall be considered legitimate although the mother may
have declared against its legitimacy or may have been sentenced as an
adulteress. (Underscoring supplied)

It is stressed that Felicidad's declaration against the legitimate status of Teofilo II is the
very act that is proscribed by Article 167 of the Family Code. The language of the law is
unmistakable. An assertion by the mother against the legitimacy of her child cannot
affect the legitimacy of a child born or conceived within a valid marriage. 37

Finally, the disposition of the trial court in favor of petitioner for causes of action
concerning reconveyance, recovery of property, and sum of money must be vacated.
This has to be so, as said disposition was made on the basis of its finding that the
marriage in controversy was null and void ab initio.

WHEREFORE, the appealed Decision is MODIFIED as follows:

15
 1. The case is REMANDED to the Regional Trial Court in regard to the action on
the status and filiation of respondent Teofilo Carlos II and the validity or nullity of
marriage between respondent Felicidad Sandoval and the late Teofilo Carlos;

2. If Teofilo Carlos II is proven to be the legitimate, or illegitimate, or legally

adopted son of the late Teofilo Carlos, the RTC is
strictly INSTRUCTED to DISMISS the action for nullity of marriage for lack of
cause of action;

3. The disposition of the RTC in Nos. 1 to 8 of the fallo of its decision

is VACATED AND SET ASIDE.

The Regional Trial Court is ORDERED to conduct trial on the merits with dispatch and
to give this case priority in its calendar.

No costs.

SO ORDERED.

RUBEN T. REYES
Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ MINITA V. CHICO-NAZARIO

Associate Justice Associate Justice

ANTONIO EDUARDO B. NACHURA

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court's Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

16
 CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Court's
Division.

REYNATO S. PUNO
Chief Justice

17
CASE NO. 2 G.R. No. 138497 January 16, 2002

IMELDA RELUCIO, petitioner,

vs.
ANGELINA MEJIA LOPEZ, respondent.

PARDO, J.:

The Case

The case is a petition for review on certiorari 1 seeking to set aside the decision2 of the
Court of Appeals that denied a petition for certiorari assailing the trial court‘s order
denying petitioner‘s motion to dismiss the case against her inclusion as party defendant
therein.

The Facts

The facts, as found by the Court of Appeals, are as follows:

―On September 15, 1993, herein private respondent Angelina Mejia Lopez
(plaintiff below) filed a petition for ―APPOINTMENT AS SOLE ADMINISTRATIX
OF CONJUGAL PARTNERSHIP OF PROPERTIES, FORFEITURE, ETC.,‖
against defendant Alberto Lopez and petition Imelda Relucio, docketed as Spec.
Proc. M-3630, in the Regional Trial Court of Makati, Branch 141. In the petition,
private-respondent alleged that sometime in 1968, defendant Lopez, who is
legally married to the private respondent, abandoned the latter and their four
legitimate children; that he arrogated unto himself full and exclusive control and
administration of the conjugal properties, spending and using the same for his
sole gain and benefit to the total exclusion of the private respondent and their
four children; that defendant Lopez, after abandoning his family, maintained an
illicit relationship and cohabited with herein petitioner since 1976.

―It was further alleged that defendant Lopez and petitioner Relucio, during their
period of cohabitation since 1976, have amassed a fortune consisting mainly of
stockholdings in Lopez-owned or controlled corporations, residential, agricultural,
commercial lots, houses, apartments and buildings, cars and other motor
vehicles, bank accounts and jewelry. These properties, which are in the names of
defendant Lopez and petitioner Relucio singly or jointly or their dummies and
proxies, have been acquired principally if not solely through the actual
contribution of money, property and industry of defendant Lopez with minimal, if
not nil, actual contribution from petitioner Relucio.

―In order to avoid defendant Lopez obligations as a father and husband, he

excluded the private respondent and their four children from sharing or benefiting
from the conjugal properties and the income or fruits there from. As such,
defendant Lopez either did not place them in his name or otherwise removed,

18
 transferred, stashed away or concealed them from the private-respondent. He
placed substantial portions of these conjugal properties in the name of petitioner
Relucio.1âwphi1.nêt

―It was also averred that in the past twenty five years since defendant Lopez
abandoned the private-respondent, he has sold, disposed of, alienated,
transferred, assigned, canceled, removed or stashed away properties, assets
and income belonging to the conjugal partnership with the private-respondent
and either spent the proceeds thereof for his sole benefit and that of petitioner
Relucio and their two illegitimate children or permanently and fraudulently placed
them beyond the reach of the private-respondent and their four children.

―On December 8, 1993, a Motion to Dismiss the Petition was filed by herein
petitioner on the ground that private respondent has no cause of action against
her.

―An Order dated February 10, 1994 was issued by herein respondent Judge
denying petitioner Relucio‘s Motion to Dismiss on the ground that she is
impleaded as a necessary or indispensable party because some of the subject
properties are registered in her name and defendant Lopez, or solely in her
name.

―Subsequently thereafter, petitioner Relucio filed a Motion for Reconsideration to

the Order of the respondent Judge dated February 10, 1994 but the same was
likewise denied in the Order dated May 31, 1994.‖3

On June 21, 1994, petitioner filed with the Court of Appeals a petition for certiorari
assailing the trial court‘s denial of her motion to dismiss.4

On May 31, 1996, the Court of Appeals promulgated a decision denying the
petition.5 On June 26, 1996, petitioner filed a motion for reconsideration. 6 However, on
April 6, 1996, the Court of Appeals denied petitioner‘s motion for reconsideration.7

Hence, this appeal.8

The Issues

1. Whether respondent‘s petition for appointment as sole administratrix of the

conjugal property, accounting, etc. against her husband Alberto J. Lopez
established a cause of action against petitioner.

2. Whether petitioner‘s inclusion as party defendant is essential in the

proceedings for a complete adjudication of the controversy. 9

The Court‘s Ruling

19
We grant the petition. We resolve the issues in seriatim.

First issue: whether a cause of action exists against petitioner in the proceedings below.
―A cause of action is an act or omission of one party the defendant in violation of the
legal right of the other.‖10 The elements of a cause of action are:

(1) a right in favor of the plaintiff by whatever means and under whatever law it
arises or is created;

(2) an obligation on the part of the named defendant to respect or not to violate
such right; and

(3) an act or omission on the part of such defendant in violation of the right of the
plaintiff or constituting a breach of the obligation of the defendant to the plaintiff
for which the latter may maintain an action for recovery of damages.11

A cause of action is sufficient if a valid judgment may be rendered thereon if the alleged
facts were admitted or proved.12

In order to sustain a motion to dismiss for lack of cause of action, the complaint must
show that the claim for relief does not exist, rather than that a claim has been merely
defectively stated or is ambiguous, indefinite or uncertain. 13

Hence, to determine the sufficiency of the cause of action alleged in Special

Proceedings M-3630, we assays its allegations.

In Part Two on the ―Nature of [the] Complaint,‖ respondent Angelina Mejia Lopez
summarized the causes of action alleged in the complaint below.

The complaint is by an aggrieved wife against her husband.

Nowhere in the allegations does it appear that relief is sought against petitioner.
Respondent‘s causes of action were all against her husband.

The first cause of action is for judicial appointment of respondent as administratrix of

the conjugal partnership or absolute community property arising from her marriage to
Alberto J. Lopez. Petitioner is a complete stranger to this cause of action. Article 128 of
the Family Code refers only to spouses, to wit:

―If a spouse without just cause abandons the other or fails to comply with his or
her obligations to the family, the aggrieved spouse may petition the court for
receivership, for judicial separation of property, or for authority to be the sole
administrator of the conjugal partnership property xxx‖

The administration of the property of the marriage is entirely between them, to the
exclusion of all other persons. Respondent alleges that Alberto J. Lopez is her husband.

20
Therefore, her first cause of action is against Alberto J. Lopez. There is no right-duty
relation between petitioner and respondent that can possibly support a cause of action.
In fact, none of the three elements of a cause of action exists.

The second cause of action is for an accounting ―by respondent husband.‖14 The
accounting of conjugal partnership arises from or is an incident of marriage.

Petitioner has nothing to do with the marriage between respondent Alberto J. Lopez.
Hence, no cause of action can exist against petitioner on this ground.

Respondent‘s alternative cause of action is for forfeiture of Alberto J. Lopez‘ share in

the co-owned property ―acquired during his illicit relationship and cohabitation with
[petitioner]‖15 and for the ―dissolution of the conjugal partnership of gains between him
[Alberto J. Lopez] and the [respondent].‖

The third cause of action is essentially for forfeiture of Alberto J. Lopez‘ share in
property co-owned by him and petitioner. It does not involve the issue of validity of the
co-ownership between Alberto J. Lopez and petitioner. The issue is whether there is
basis in law to forfeit Alberto J. Lopez‘ share, if any there be, in property co-owned by
him with petitioner.

Respondent‘s asserted right to forfeit extends to Alberto J. Lopez‘ share alone. Failure
of Alberto J. Lopez to surrender such share, assuming the trial court finds in
respondent‘s favor, results in a breach of an obligation to respondent and gives rise to a
cause of action.16 Such cause of action, however, pertains to Alberto J. Lopez, not
petitioner.

The respondent also sought support. Support cannot be compelled from a stranger.

The action in Special Proceedings M-3630 is, to use respondent Angelina M. Lopez‘
own words, one by ―an aggrieved wife against her husband.‖17 References to petitioner
in the common and specific allegations of fact in the complaint are merely incidental, to
set forth facts and circumstances that prove the causes of action alleged against Alberto
J. Lopez.

Finally, as to the moral damages, respondent‘s claim for moral damages is against
Alberto J. Lopez, not petitioner.

To sustain a cause of action for moral damages, the complaint must have the character
of an action for interference with marital or family relations under the Civil Code.

A real party in interest is one who stands ―to be benefited or injured by the judgment of
the suit.‖18 In this case, petitioner would not be affected by any judgment in Special
Proceedings M-3630.

21
If petitioner is not a real party in interest, she cannot be an indispensable party. An
indispensable party is one without whom there can be no final determination of an
action.19 Petitioner‘s participation in Special Proceedings M-36-30 is not indispensable.
Certainly, the trial court can issue a judgment ordering Alberto J. Lopez to make an
accounting of his conjugal partnership with respondent, and give support to respondent
and their children, and dissolve Alberto J. Lopez‘ conjugal partnership with respondent,
and forfeit Alberto J. Lopez‘ share in property co-owned by him and petitioner. Such
judgment would be perfectly valid and enforceable against Alberto J. Lopez.

Nor can petitioner be a necessary party in Special Proceedings M-3630. A necessary

party as one who is not indispensable but who ought to be joined as party if complete
relief is to be accorded those already parties, or for a complete determination or
settlement of the claim subject of the action. 20 In the context of her petition in the lower
court, respondent would be accorded complete relief if Alberto J. Lopez were ordered to
account for his alleged conjugal partnership property with respondent, give support to
respondent and her children, turn over his share in the co-ownership with petitioner and
dissolve his conjugal partnership or absolute community property with respondent.

The Judgment

WHEREFORE, the Court GRANTS the petition and REVERSES the decision of the
Court of Appeals.21 The Court DISMISSES Special Proceedings M-3630 of the Regional
Trial Court, Makati, Branch 141 as against petitioner.1âwphi1.nêt

No costs.

SO ORDERED.

22
CASE NO. 3 [G.R. No. 141970. September 10, 2001]

METROPOLITAN BANK, & TRUST COMPANY, petitioner, vs. Hon. FLORO T.

ALEJO, in His Capacity as Presiding Judge of Branch 172 of the Regional
Trial Court of Valenzuela; and SY TAN SE, represented by his Attorney-in-
Fact, SIAN SUAT NGO, respondents.

DECISION
PANGANIBAN, J.:

In a suit to nullify an existing Torrens Certificate of Title (TCT) in which a real estate
mortgage is annotated, the mortgagee is an indispensable party.In such suit, a decision
canceling the TCT and the mortgage annotation is subject to a petition for annulment of
judgment, because the non-joinder of the mortgagee deprived the court of jurisdiction to
pass upon the controversy.

The Case

Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of the Rules
of Court, assailing the March 25, 1999 Resolution of the Court of Appeals (CA) in CA-
GR SP No. 50638, which states in full:

This resolves the petition for annulment of judgment based on external (sic) fraud filed
by petitioner Metropolitan Bank and Trust Company seeking to annul the Decision dated
August 12, 1998 rendered by respondent judge, Honorable Floro T. Alejo, Presiding
Judge of the Regional Trial Court, Branch 172, Valenzuela, Metro Manila, in Civil Case
No. 4930-V-96 entitled Sy Tan Se, represented by his attorney-in-fact Sian Suat Ngo v.
Raul Acampado, et al.

This Court has observed that petitioner knew of the questioned Decision sometime [i]n
October 1998 (Petition, Rollo, p. 3). This being the case, petitioner should have first
sought recourse by way of petition for relief from judgment under Rule 38 of the 1997
Rules of Civil Procedure. Accordingly, the petition for annulment of judgment is DENIED
DUE COURSE and DISMISSED outright for being insufficient in form and substance
(Section 2, Rule 47, 1997 Rules of Civil Procedure).

Also challenged is the January 27, 2000 CA Resolution[2] denying petitioners Motion
for Reconsideration.

The Facts

23
 On November 21, 1995[3] and January 30, 1996,[4] Spouses Raul and Cristina
Acampado obtained loans from petitioner in the amounts of P5,000,000
and P2,000,000, respectively. As security for the payment of these credit
accommodations, the Acampados executed in favor of petitioner a Real Estate
Mortgage[5] and an Amendment of Real Estate Mortgage[6] over a parcel of land
registered in their names. The land was covered by TCT No. V-41319 in the Registry of
Deeds of Valenzuela City, where the contracts were also registered on November 20,
1995 and January 23, 1996, respectively.[7]
On June 3, 1996, a Complaint for Declaration of Nullity of TCT No. V-41319 was
filed by Respondent Sy Tan Se against Spouses Acampado. In the Regional Trial Court
(RTC) of Valenzuela, Branch 172, it was docketed as Civil Case No. 4930-V-96,[8] the
progenitor of the present controversy.
Despite being the registered mortgagee of the real property covered by the title
sought to be annulled, petitioner was not made a party to Civil Case No. 4930-V-
96,[9] nor was she notified of its existence.
Because the spouses defaulted in the payment of their loan, extrajudicial
foreclosure proceedings over the mortgaged property were initiated on April 19, 1997.
On June 17, 1997, the sheriff of Valenzuela conducted an auction sale of the
property, during which petitioner submitted the highest and winning bid. [10] On July 15,
1997, a Certificate of Sale was issued in its favor.[11] This sale was entered in the
Registry of Deeds of Valenzuela on July 28, 1997.
When the redemption period lapsed exactly a year after, on July 28, 1998, petitioner
executed an Affidavit of Consolidation of Ownership to enable the Registry of Deeds of
Valenzuela to issue a new TCT in its name.
Upon presentation to the Register of Deeds of the Affidavit of Consolidation of
Ownership, petitioner was informed of the existence of the August 12, 1998 RTC
Decision in Civil Case No. 4930-V-96, annulling TCT No. V-41319. The dispositive
portion of the Decision[12] stated:

WHEREFORE, judgment is hereby rendered declaring as null and void Transfer

Certificate of Title No.V-41319 in the name of defendant Raul Acampado for having
proceeded from an illegitimate source. With costs against the defendant.

SO ORDERED.

On January 27, 1999, petitioner filed with the Court of Appeals a Petition for
Annulment of the RTC Decision.

Ruling of the Court of Appeals

24
 For being insufficient in form and substance, the Petition for Annulment was
outrightly dismissed by the CA. It ruled that petitioner ought to have filed, instead, a
petition for relief from judgment or an action for quieting of title.
Hence, this Petition.[13]

Issues

In its Memorandum, petitioner presents the following issues:

I

x x x [W]hether or not a petition for annulment of judgment under Rule 47 of the 1997
Rules of Civil Procedure is the proper remedy available to petitioner under the
circumstances.

II

x x x [W]hether or not the judgment of the trial court in Civil Case No. 4930-V-96 should
be annulled.[14]

The Courts Ruling

The Petition is meritorious.

First Issue: Proper Remedy

Respondents aver that a petition for annulment is not proper, because there were
three different remedies available but they were not resorted to by petitioner.
We are not persuaded. First, a petition for relief, the remedy pointed to by the Court
of Appeals, was not available to petitioner. Section 1, Rule 38 of the Rules of Court,
states:

Petition for relief from judgment, order, or other proceedings.-When a judgment or final
order is entered, or any other proceeding is thereafter taken against a party in any court
through fraud, accident, mistake, or excusable negligence, he may file a petition in such
court and in the same case praying that the judgment, order or proceeding be set aside.
(Italics supplied)

It must be emphasized that petitioner was never a party to Civil Case No. 4930-V-
96. In Lagula et al. v. Casimiro et al.,[15] the Court held that -- relative to a motion for
relief on the ground of fraud, accident, mistake, or excusable negligence -- Rule 38 of

25
the Rules of Court only applies when the one deprived of his right is a party to the
case. Since petitioner was never a party to the case or even summoned to appear
therein, then the remedy of relief from judgment under Rule 38 of the Rules of Court
was not proper. This is plainly provided in the italicized words of the present provision
just quoted.
Second, in denying petitioners Motion for Reconsideration of the Decision
dismissing the Petition for Annulment of Judgment, the Court of Appeals reasoned that
another remedy, an action for quieting of title, was also available to petitioner.
We do not agree. It should be stressed that this case was instituted to ask for relief
from the peremptory declaration of nullity of TCT No. V-41319, which had been issued
without first giving petitioner an opportunity to be heard. Petitioner focused on the
judgment in Civil Case No. 4930-V-96 which adversely affected it, and which it therefore
sought to annul. Filing an action for quieting of title will not remedy what it perceived as
a disregard of due process; it is therefore not an appropriate remedy.
Equally important, an action for quieting of title is filed only when there is a cloud on
title to real property or any interest therein. As defined, a cloud on title is a semblance of
title which appears in some legal form but which is in fact unfounded. [16] In this case, the
subject judgment cannot be considered as a cloud on petitioners title or interest over the
real property covered by TCT No. V-41319, which does not even have a semblance of
being a title.
It would not be proper to consider the subject judgment as a cloud that would
warrant the filing of an action for quieting of title, because to do so would require the
court hearing the action to modify or interfere with the judgment or order of another co-
equal court. Well-entrenched in our jurisdiction is the doctrine that a court has no power
to do so, as that action may lead to confusion and seriously hinder the administration of
justice.[17] Clearly, an action for quieting of title is not an appropriate remedy in this case.
Third, private respondent cites a last remedy: the intervention by petitioner in Civil
Case No. 4930-V-96. The availability of this remedy hinges on petitioners knowledge of
the pendency of that case, which would have otherwise been alerted to the need to
intervene therein. Though presumed by private respondent, any such knowledge prior
to October 1998 is, however, emphatically denied by petitioner.
The Petition for Annulment before the Court of Appeals precisely alleged that
private respondent purposely concealed the case by excluding petitioner as a defendant
in Civil Case No. 4930-V-96, even if the latter was an indispensable party. Without due
process of law, the former intended to deprive petitioner of the latters duly registered
property right. Indeed, the execution of the Decision in Civil Case No. 4930-V-96
necessarily entailed its enforcement against petitioner, even though it was not a party to
that case. Hence, the latter concludes that annulment of judgment was the only effective
remedy open to it.
The allegation of extrinsic fraud, if fully substantiated by a preponderance of
evidence, may be the basis for annulling a judgment. [18] The resort to annulment
becomes proper because of such allegation, coupled with the unavailability of the other
remedies pointed to by respondents.

26
 Second Issue: Lack of Jurisdiction

It is undisputed that the property covered by TCT No. V-41319 was mortgaged to
petitioner, and that the mortgage was annotated on TCT No. V-41319 before the
institution of Civil Case No. 4930-V-96. It is also undisputed that all subsequent
proceedings pertaining to the foreclosure of the mortgage were entered in the Registry
of Deeds. The nullification and cancellation of TCT No. V-41319 carried with it the
nullification and cancellation of the mortgage annotation.
Although a mortgage affects the land itself and not merely the TCT covering it, the
cancellation of the TCT and the mortgage annotation exposed petitioner to real
prejudice, because its rights over the mortgaged property would no longer be known
and respected by third parties. Necessarily, therefore, the nullification of TCT No. V-
41319 adversely affected its property rights, considering that a real mortgage is a real
right and a real property by itself.[19]
Evidently, petitioner is encompassed within the definition of an indispensable party;
thus, it should have been impleaded as a defendant in Civil Case No. 4930-V-96.

An indispensable party is a party who has such an interest in the controversy or subject
matter that a final adjudication cannot be made, in his absence, without injuring or
affecting that interest[;] a party who has not only an interest in the subject matter of the
controversy, but also has an interest of such nature that a final decree cannot be made
without affecting his interest or leaving the controversy in such a condition that its final
determination may be wholly inconsistent with equity and good conscience. It has also
been considered that an indispensable party is a person in whose absence there cannot
be a determination between the parties already before the court which is effective,
complete, or equitable. Further, an indispensable party is one who must be included in
an action before it may properly go forward.

A person is not an indispensable party, however, if his interest in the controversy or

subject matter is separable from the interest of the other parties, so that it will not
necessarily be directly or injuriously affected by a decree which does complete justice
between them.[20]

The joinder of indispensable parties to an action is mandated by Section 7, Rule 3

of the Revised Rules of Civil Procedures, which we quote:

SEC 7. Compulsory joinder of indispensable parties. Parties in interest without whom no

final determination can be had of an action shall be joined either as plaintiffs or
defendants.

Aside from the above provision, jurisprudence requires such joinder, as the
following excerpts indicate:

Indispensable parties must always be joined either as plaintiffs or defendants, for the
court cannot proceed without them. x x x. Indispensable parties are those with such an

27
interest in the controversy that a final decree would necessarily affect their rights, so
that the courts cannot proceed without their presence. [21]

"x x x. Without the precence of indispensable parties to a suit or proceeding, a judgment

of a Court cannot attain real finality."[22]

Whenever it appears to the court in the course of a proceeding that an indispensable

party has not been joined, it is the duty of the court to stop the trial and to order the
inclusion of such party. (The Revised Rules of Court, Annotated & Commented by
Senator Vicente J. Francisco, Vol. I, p. 271, 1973 ed., See also Cortez vs. Avila, 101
Phil. 705.) Such an order is unavoidable, for the general rule with reference to the
making of parties in a civil action requires the joinder of all necessary parties wherever
possible, and the joinder of all indispensable parties under any and all conditions, the
presence of those latter parties being a sine qua non of the exercise of judicial
power. (Borlasa vs. Polistico, 47 Phil. 345, at p. 347.) It is precisely when an
indispensable party is not before the court (that) the action should be
dismissed. (People vs. Rodriguez, 106 Phil. 325. at p. 327.) The absence of an
indispensable party renders all subsequent actuations of the court null and void, for
want of authority to act, not only as to the absent parties but even as to those
present.[23] (emphasis supplied)

The evident aim and intent of the Rules regarding the joinder of indispensable and
necessary parties is a complete determination of all possible issues, not only between
the parties themselves but also as regards to other persons who may be affected by the
judgment. A valid judgment cannot even be rendered where there is want of
indispensable parties.[24]

From the above, it is clear that the presence of indispensable parties is necessary
to vest the court with jurisdiction, which is the authority to hear and determine a cause,
the right to act in a case.[25] We stress that the absence of indispensable parties renders
all subsequent actuations of the court null and void, because of that courts want of
authority to act, not only as to the absent parties but even as to those present.
It is argued that petitioner cannot possibly be an indispensable party, since the
mortgage may not even be valid because of the possible absence of compliance with
the requirement[26] that the mortgagor be the absolute owner of the thing mortgaged. It
should be emphasized, however, that at the time the mortgage was constituted, there
was an existing TCT (No. V-41319), which named the mortgagors, the Acampado
spouses, as the registered owners of the property. In Seno v. Mangubat[27] this Court
held as follows:

The well-known rule in this jurisdiction is that a person dealing with a registered land
has a right to rely upon the face of the Torrens Certificate of Title and to dispense with
the need of inquiring further, except when the party concerned has actual knowledge of
facts and circumstances that would impel a reasonably cautious man to make such
inquiry.

28
 xxxxxxxxx

Thus, where innocent third persons relying on the correctness of the certificate of title
issued, acquire rights over the property, the court cannot disregard such rights and
order the total cancellation of the certificate for that would impair public confidence in
the certificate of title; otherwise everyone dealing with property registered under the
Torrens system would have to inquire in every instance as to whether the title ha[s]
been regularly or irregularly issued by the court. Indeed this is contrary to the evident
purpose of the law.

The peremptory disregard of the annotations registered and entered in TCT No. V-
41319 constituted a deprivation of private property without due process of law and was
therefore unquestionably unjust and iniquitous. This, we cannot countenance.
Clearly, it was the trial courts duty to order petitioners inclusion as a party to Civil
Case No. 4930-V-96. This was not done. Neither the court nor private respondents
bothered to implead petitioner as a party to the case. In the absence of petitioner, an
indispensable party, the trial court had no authority to act on the case. Its judgment
therein was null and void due to lack of jurisdiction over an indispensable party.
In Leonor v. Court of Appeals[28] and Arcelona v. Court of Appeals,[29] we held thus:

A void judgment for want of jurisdiction is no judgment at all. It cannot be the source of
any right nor the creator of any obligation. All acts performed pursuant to it and all
claims emanating from it have no legal effect. Hence, it can never become final and any
writ of execution based on it is void:x x x it may be said to be a lawless thing which can
be treated as an outlaw and slain at sight, or ignored wherever and whenever it exhibits
its head.

WHEREFORE, the Petition is GRANTED and the assailed Resolutions of the Court
of Appeals are REVERSED. The Decision of the Regional Trial Court in Civil Case No.
4930-V-41319 is hereby NULLIFIED and SET ASIDE. No costs.
SO ORDERED.
Melo, (Chairman), Vitug, Gonzaga-Reyes, and Sandoval-Gutierrez, JJ., concur.

29
CASE NO. 4 G.R. No. 185544 January 13, 2015

THE LAW FIRM OF LAGUESMA MAGSALIN CONSULTA AND

GASTARDO, Petitioner,
vs.
THE COMMISSION ON AUDIT and/or REYNALDO A. VILLAR and JUANITO G.
ESPINO, JR. in their capacities as Chairman and Commissioner,
respectively, Respondents.

DECISION

LEONEN, J.:

When a government entity engages the legal services of private counsel, it must do so
with the necessary authorization required by law; otherwise, its officials bind themselves
to be personally liable for compensating private counsel‘s services.

This is a petition1 for certiorari filed pursuant to Rule XI, Section 1 of the 1997 Revised
Rules of Procedure of the Commission on Audit. The petition seeks to annul the
decision2 dated September 27, 2007 and resolution3 dated November 5, 2008 of the
Commission on Audit, which disallowed the payment of retainer fees to the law firm of
Laguesma Magsalin Consulta and Gastardo for legal services rendered to Clark
Development Corporation.4

Sometime in 2001, officers of Clark Development Corporation,5 a government-owned

and controlled corporation, approached the law firm of Laguesma Magsalin Consulta
and Gastardo for its possible assistance in handling the corporation‘s labor cases.6

Clark Development Corporation, through its legal officers and after the law firm‘s
acquiescence, "sought from the Office of the Government Corporate Counsel [‗OGCC‘]
its approval for the engagement of [Laguesma Magsalin Consulta and Gastardo] as
external counsel."7

On December 4, 2001, the Office of the Government Corporate Counsel denied the
request.8 Clark Development Corporation then filed a request for reconsideration. 9

On May 20, 2002, the Office of the Government Corporate Counsel, through
Government Corporate Counsel Amado D. Valdez (Government Corporate Counsel
Valdez), reconsidered the request and approved the engagement of Laguesma
Magsalin Consulta and Gastardo.10 It also furnished Clark Development Corporation a
copy of a pro-forma retainership contract11 containing the suggested terms and
conditions of the retainership.12 It instructed Clark Development Corporation to submit a
copy of the contract to the Office of the Government Corporate Counsel after all the
parties concerned have signed it.13

30
In the meantime, Laguesma Magsalin Consulta and Gastardo commenced rendering
legal services to Clark Development Corporation. At this point, Clark Development
Corporation had yet to secure the authorization and clearance from the Office of the
Government Corporate Counsel or the concurrence of the Commission on Audit of the
retainership contract. According to the law firm, Clark Development Corporation‘s
officers assured the law firm that it was in the process of securing the approval of the
Commission on Audit.14

On June 28, 2002, Clark Development Corporation, through its Board of Directors,
approved Laguesma Magsalin Consulta and Gastardo‘s engagement as private
counsel.15 In 2003, it also approved the assignment of additional labor cases to the law
firm.16

On July 13, 2005, Clark Development Corporation requested the Commission on Audit
for concurrence of the retainership contract it executed with Laguesma Magsalin
Consulta and Gastardo.17 According to the law firm, it was only at this pointwhen Clark
Development Corporation informed them that the Commission on Audit required the
clearance and approval of the Office of the Government Corporate Counsel before it
could approve the release of Clark Development Corporation‘s funds to settle the legal
fees due to the law firm.18

On August 5, 2005, State Auditor IVElvira G. Punzalan informed Clark Development

Corporation that itsrequest for clearance could not be acted upon until the Office of the
Government Corporate Counsel approves the retainership contract with finality.19

On August 10, 2005, Clark Development Corporation sent a letterrequest to the Office
of the Government Corporate Counsel for the final approval of the retainership contract,
in compliance with the Commission on Audit‘s requirements. 20

On December 22, 2005, GovernmentCorporate Counsel Agnes VST Devanadera

(Government Corporate Counsel Devanadera) denied Clark Development Corporation‘s
request for approval on the ground that the proforma retainership contract given to them
was not "based on the premise that the monthly retainer‘s fee and concomitant charges
are reasonable and could pass in audit by COA."21 She found that Clark Development
Corporation adopted instead the law firm‘s proposals concerning the payment of a
retainer‘s fee on a per case basis without informing the Office of the Government
Corporate Counsel. She, however, ruled that the law firm was entitled to payment under
the principle of quantum meruitand subject to Clark Development Corporation Board‘s
approval and the usual government auditing rules and regulations. 22

On December 27, 2005, Clark Development Corporation relayed Government

Corporate Counsel Devanadera‘s letter to the Commission‘s Audit Team Leader,
highlighting the portion on the approval of payment to Laguesma Magsalin Consulta and
Gastardo on the basis of quantum meruit.23

31
On November 9, 2006, the Commission on Audit‘s Office of the General Counsel, Legal
and Adjudication Sector issued a "Third Indorsement" 24 denying Clark Development
Corporation‘s request for clearance, citing its failure to secure a prior written
concurrence of the Commission on Audit and the approval with finality of the Office of
the Government Corporate Counsel.25 It also stated that its request for concurrence was
made three (3) years after engaging the legal services of the law firm. 26

On December 4, 2006, Laguesma Magsalin Consulta and Gastardo appealed the "Third
Indorsement"to the Commission on Audit. On December 12, 2006, Clark Development
Corporation also filed a motion for reconsideration.27

On September 27, 2007, the Commission on Audit rendered the assailed decision
denying the appeal and motion for reconsideration. It ruled that Clark Development
Corporation violated Commission on Audit Circular No. 98-002 dated June 9, 1998 and
Office of the President Memorandum Circular No. 9 dated August 27, 1998 whenit
engaged the legal services of Laguesma Magsalin Consulta and Gastardo without the
final approval and written concurrence of the Commission on Audit.28 It also ruled that it
was not the government‘s responsibility to pay the legal fees already incurred by Clark
Development Corporation, but rather by the government officials who violated the
regulations on the matter.29

Clark Development Corporation and Laguesma Magsalin Consulta and Gastardo

separately filed motions for reconsideration,30 which the Commission on Audit denied in
the assailed resolution dated November 5, 2008. The resolution also disallowed the
payment of legal fees to the law firm on the basis of quantum meruitsince the
Commission on Audit Circular No. 86-255 mandates that the engagementof private
counsel without prior approval "shall be a personal liability of the officials concerned."31

Laguesma Magsalin Consulta and Gastardo filed this petition for certiorari on December
19, 2008.32 Respondents, through the Office of the Solicitor General, filed their
comment33 dated May 7, 2009. The reply34 was filed on September 1, 2009.

The primordial issue to be resolved by this court is whether the Commission on Audit
erred in disallowing the payment of the legal fees to Laguesma Magsalin Consulta and
Gastardo as Clark Development Corporation‘s private counsel.

To resolve this issue, however, several procedural and substantive issues must first be
addressed:

Procedural:

1. Whether the petition was filed on time; and

2. Whether petitioner is the real party-in-interest.

Substantive:

32
 1. Whether the Commission on Audit erred in denying Clark Development
Corporation‘s requestfor clearance in engaging petitioner as private counsel;

2. Whether the Commission on Audit correctly cited Polloso v. Gangan35 and

PHIVIDEC Industrial Authority v. Capitol Steel Corporation36 in support of its
denial; and

3. Whether the Commission on Audit erred in ruling that petitioner should not be
paid on the basis of quantum meruitand that any payment for its legal services
should be the personal liability of Clark Development Corporation‘s officials.

Petitioner argues that Pollosoand PHIVIDEC are not applicable to the circumstances at
hand because in both cases, the government agency concerned had failed to secure
the approval of both the Office of the Government Corporate Counsel and the
Commission on Audit.37 Petitioner asserts that it was able to secure authorization from
the Office of the Government Corporate Counsel prior to rendering services to Clark
Development Corporation for all but two (2) of the labor cases assigned to it. 38 It argues
that the May 20, 2002 letter from Government Corporate Counsel Valdez was
tantamount to a grant of authorization since it granted Clark Development Corporation‘s
request for reconsideration.39

In their comment,40 respondents argue that petitioner is not a real party-in-interest to the
case.41 They argue that it is Clark Development Corporation, and not petitioner, who isa
real party-in-interest since the subject of the assailed decision was the denial of the
corporation‘s request for clearance.42

Respondents also allege that it was only on July 13, 2005, or three (3) years after the
hiring of petitioner, when Clark Development Corporation requested the Commission on
Audit‘s concurrence of the retainership contract between Clark Development
Corporation and petitioner.43 They argue that the retainership contract was not
approved with finality by the Office of the Government Corporate Counsel. 44 Further,
Polloso and PHIVIDE Care applicable to this case since both cases involve the
"indispensability of [the] prior written concurrence of both [the Office of the Government
Corporate Counsel] and the [Commission on Audit] before any [government-owned and
controlled corporation] can hire an external counsel."45

In its reply,46 petitioner argues that it is a real party-in-interest since "it rendered its
services to [Clark Development Corporation], which ultimately redounded to the benefit
of the Republic"47 and that "it deserves to be paid what is its due as a matter of
right."48 Petitioner also reiterates its argument that Polloso and PHIVIDE Care not
applicable to this case since the factual antecedents are not the same.49

The petition is denied.

The petition was filed out of time

33
Petitioner states that it filed this petition under Rule XI, Section 1 of the 1997 Revised
Rules of Procedure of the Commission on Audit.50 The rule states:

RULE XI

JUDICIAL REVIEW SECTION

1. Petition for Certiorari.— Any decision, order or resolution of the Commission may be
brought to the Supreme Court on certiorari by the aggrieved party within thirty (30) days
from receipt of a copy thereof in the manner provided by law, the Rules of Court 51 and
these Rules.

This rule is based on Article IX-A, Section 7 of the Constitution, which states:

Section 7. Each Commission shall decide by a majority vote of all its Members, any
case or matter brought before it within sixty days from the date of its submission for
decision or resolution. A case or matter is deemed submitted for decision or resolution
upon the filing of the last pleading, brief, or memorandum required by the rules of the
Commission or by the Commission itself. Unless otherwise provided by this Constitution
or by law, any decision, order, or ruling of each Commission may be brought to the
Supreme Court on certiorari by the aggrieved party within thirty days from receipt of a
copy thereof. (Emphasis supplied)

Ordinarily, a petition for certiorari under Rule 65 of the Rules of Court has a
reglementary period of 60 days from receipt of denial of the motion for reconsideration.
The Constitution, however, specifies that the reglementary period for assailing the
decisions, orders, or rulings of the constitutional commissions is thirty (30) days from
receipt of the decision, order, or ruling. For this reason, a separate rule was enacted in
the Rules of Court.

Rule 64 of the Rules of Civil Procedure provides the guidelines for filing a petition for
certiorari under this rule. Section 2 of the rule specifies that "[a] judgment or final order
or resolution of the Commission on Elections and the Commission on Audit may be
brought by the aggrieved party to the Supreme Court on certiorari under Rule 65,
except as hereinafter provided."

The phrase, "except as hereinafter provided," specifies that any petition for certiorari
filed under this rule follows the same requisites as those of Rule 65 except for certain
provisions found only in Rule 64. One of these provisions concerns the time given to file
the petition.

Section 3 of Rule 64 of the Rules of Civil Procedure states:

SEC. 3. Time to file petition. — The petition shall be filed within thirty (30) days from
notice of the judgment or final order or resolution sought to be reviewed. The filing of a
motion for new trial or reconsideration of said judgment or final order or resolution, if

34
allowed under the procedural rules of the Commission concerned, shall interrupt the
period herein fixed. If the motion is denied, the aggrieved party may file the petition
within the remaining period, but which shall not be less than five (5) days in any event,
reckoned from notice of denial.(Emphasis supplied)

Under this rule, a party may file a petition for review on certiorari within 30 days from
notice of the judgment being assailed. The reglementary period includes the time taken
to file the motion for reconsideration and is only interrupted once the motion is filed. If
the motion is denied, the party may filethe petition only within the period remaining from
the notice of judgment.

The difference between Rule 64 and Rule 65 has already been exhaustively discussed
by this court in Pates v. Commission on Elections:52

Rule 64, however, cannot simply be equated to Rule 65 even if it expressly refers to the
latter rule. They exist as separate rules for substantive reasons as discussed below.
Procedurally, the most patent difference between the two – i.e., the exception that
Section 2, Rule 64 refers to – is Section 3 which provides for a special period for the
filing of petitions for certiorari from decisions or rulings of the COMELEC en banc. The
period is 30 days from notice of the decision or ruling (instead of the 60 days that Rule
65 provides), with the intervening period used for the filing of any motion for
reconsideration deductible from the originally granted 30 days (instead of the fresh
period of 60 days that Rule 65 provides).53 (Emphasis supplied)

In this case, petitioner received the decision of the Commission on Audit on October 16,
2007.54 It filed a motion for reconsideration on November 6, 2007, 55 or after 21 days. It
received notice of the denial of its motion on November 20, 2008. 56 The receipt of this
notice gave petitioner nine (9) days, or until November 29, 2008, to file a petition for
certiorari. Since November 29, 2008 fell on a Saturday, petitioner could still have filed
on the next working day, or on December 1, 2008. It, however, filed the petition on
December 19, 2008,57 which was well beyond the reglementary period.

This petition could have been dismissed outright for being filed out of time. This court,
however, recognizes that there are certain exceptions that allow a relaxation of the
procedural rules. In Barranco v. Commission on the Settlement of Land Problems: 58

The Court is fully aware that procedural rules are not to be belittled or simply
disregarded for these prescribed procedures insure an orderly and speedy
administration of justice. However, it is equally true that litigation is not merely a game
of technicalities. Law and jurisprudence grant to courts the prerogative to relax
compliance with procedural rules of even the most mandatory character, mindful of the
duty to reconcile both the need to put an end to litigation speedily and the parties‘ right
to an opportunity to be heard.

In Sanchez v. Court of Appeals, the Court restated the reasons which may provide
justification for a court to suspend a strict adherence to procedural rules, such as: (a)

35
matters of life, liberty, honor or property[,] (b) the existence of special or compelling
circumstances, (c) the merits of the case, (d) a cause not entirely attributable to the fault
or negligence of the party favored by the suspension of the rules, (e) a lack of any
showing that the review sought is merely frivolous and dilatory, and (f) the other party
will not be unjustly prejudiced thereby. 59 (Emphasis supplied)

Considering that the issues in thiscase involve the right of petitioner to receive due
compensation on the one hand and respondents‘ duty to prevent the unauthorized
disbursement of public funds on the other, a relaxation of the technical rules is in order.

Petitioner is a real party-in-interest

Respondents argue that it is Clark Development Corporation, and not petitioner, which
is the real party-in-interest since the subject of the assailed decision and resolution was
the corporation‘s request for clearance to pay petitioner its legal fees. Respondents
argue that any interest petitioner may have in the case is merely incidental. 60This is
erroneous.

Petitioner is a real party-in-interest, as defined in Rule 3, Section 2 of the 1997 Rules of

Civil Procedure:

SEC. 2. Parties in interest.— A real party in interest is the party who stands to be
benefited or injured by the judgment in the suit, or the party entitled to the avails of the
suit. Unless otherwise authorized by law or these Rules, every action must be
prosecuted or defended in the name of the real party in interest.

Petitioner does not have a "mere incidental interest,"61 and its interest is not "merely
consequential."62 Respondents mistakenly narrow down the issue to whether they erred
in denying Clark Development Corporation‘s request for clearance of the retainership
contract.63 In doing so, they argue that the interested parties are limited only to Clark
Development Corporation and respondents.64

The issue at hand, however, relates to the assailed decision and resolution of
respondents, which disallowed the disbursement of public funds for the payment of legal
fees to petitioner. Respondents admit that legal services were performed by petitioner
for which payment of legal fees are due. The question that they resolved was which
among the parties, the government, or the officials of Clark Development Corporation
were liable.

The net effect of upholding or setting aside the assailed Commission on Audit rulings
would be to either disallow or allow the payment of legal fees to petitioner. Petitioner,
therefore, stands to either be benefited or injured by the suit, or entitled to its avails. It is
a real party-in-interest. Clark Development Corporation‘s Board of Directors, on the
other hand, should have been impleaded inthis case as a necessary party.

36
A necessary party is defined as "onewho is not indispensable but who ought to be
joined as a party if complete relief is to be accorded as to those already parties, or for a
complete determination or settlement of the claim subject of the action." 65

The actions of the Board of Directors precipitated the issues in this case. If the petition
is granted, then the officers are relieved of liability to petitioner. If the rulings of
respondents are upheld, then it is the Board of Directors that will be liable to petitioner.
Any relief in this case would be incomplete without joining the members of the Board of
Directors.

The Commission on Audit did not

commit grave abuse of discretion in
denying the corporation’s request
for clearance to engage the services
of petitioner as private counsel

Book IV, Title III, Chapter 3, Section 10 of the Administrative Code of 1987 provides:

Section. 10. Office of the Government Corporate Counsel. - The Office of the
Government Corporate Counsel (OGCC) shall act as the principal law office of all
government-owned or controlled corporations, their subsidiaries, other corporate off-
springs and government acquired asset corporations and shall exercise control and
supervision over all legal departments or divisions maintained separately and such
powers and functions as are now or may hereafter be provided by law. In the exercise
of such control and supervision, the Government Corporate Counsel shall promulgate
rules and regulations toeffectively implement the objectives of this Office. (Emphasis
supplied)

The Office of the Government Corporate Counsel is mandated by law to provide legal
services to government-owned and controlled corporations such as Clark Development
Corporation.

As a general rule, government-owned and controlled corporations are not allowed to

engage the legal services of private counsels. However, both respondent and the Office
of the President have made issuances that had the effect of providing certain
exceptions to the general rule, thus: Book IV, Title III, Chapter 3, Section 10 of
Executive Order No. 292, otherwise known as the Administrative Code of 1987,
provides that the Office of the Government Corporate Counsel (OGCC) shall act as the
principal law office of all GOCCs, their subsidiaries, other corporate off-springs, and
government acquired asset corporations. Administrative Order No. 130, issued by the
Office of the President on 19 May 1994, delineating the functions and responsibilities of
the OSG and the OGCC, clarifies that all legal matters pertaining to GOCCs, their
subsidiaries, other corporate off[-]springs, and government acquired asset corporations
shall be exclusively referred to and handled by the OGCC, unless their respective
charters expressly name the OSG as their legal counsel. Nonetheless, the GOCC may
hire the services of a private counsel in exceptional cases with the written conformity

37
and acquiescence of the Government Corporate Counsel, and with the concurrence of
the Commission on Audit (COA).66 (Emphasis supplied)

The rules and regulations concerning the engagement of private counsel by

government-owned and controlled corporations is currently provided for by Commission
on Audit Circular No. 86-25567 dated April 2, 1986, and Office of the President
Memorandum Circular No. 9 dated August 27, 1998.

Commission on Audit Circular No. 86-255, dated April 2, 1986, as amended, states:

Accordingly and pursuant to this Commission's exclusive authority to promulgate

accounting and auditing rules and regulations, including for the prevention and
disallowance of irregular, unnecessary, excessive, extravagant and/or unconscionable
expenditure or uses of public funds and property (Sec. 2-2, Art. IX-D, Constitutional,
public funds shall not be utilized for payment of the services of a private legal counsel or
law firm to represent government agencies and instrumentalities, including government-
owned or controlled corporations and local government units in court or to render legal
services for them. In the event that such legal services cannot be avoided or isjustified
under extraordinary or exceptional circumstances for government agencies and
instrumentalities, including government-owned or controlled corporations, the written
conformity and acquiescence of the Solicitor General or the Government Corporate
Counsel, as the case maybe, and the written concurrence of the Commission on Audit
shall first be secured before the hiring or employment of a private lawyer or law
firm.(Emphasis supplied)

The Office of the President Memorandum Circular No. 9, on the other hand, states:

SECTION 1.All legal matters pertainingto government-owned or controlled corporations,

their subsidiaries, other corporate offsprings and government acquired asset
corporations (GOCCs) shall be exclusively referred to and handled by the Office of the
Government Corporate Counsel (OGCC).

GOCCs are thereby enjoined from referring their cases and legal matters to the Office
of the Solicitor General unless their respective charters expressly name the Office of the
Solicitor General as their legal counsel.

However, under exceptional circumstances, the OSG may represent the GOCC
concerned, Provided: This is authorized by the President; or by the head of the office
concerned and approved by the President.

SECTION 2. All pending cases of GOCCs being handled by the OSG, and all pending
requests for opinions and contract reviews which have been referred by saidGOCCs to
the OSG, may be retained and acted upon by the OSG; but the latter shall inform the
OGCC of the said pending cases, requests for opinions and contract reviews, if any, to
ensure proper monitoring and coordination.

38
SECTION 3. GOCCs are likewise enjoined to refrain from hiring private lawyers or law
firms to handle their cases and legal matters. But in exceptional cases, the written
conformity and acquiescence of the Solicitor General or the Government Corporate
Counsel, as the case may be, and the written concurrence of the Commission on Audit
shall first be secured before the hiring or employment of a private lawyer or law firm.
(Emphasis supplied)

According to these rules and regulations, the general rule is that government-owned
and controlled corporations must refer all their legal matters to the Office of the
Government Corporate Counsel. It is only in "extraordinary or exceptional
circumstances" or "exceptional cases" that it is allowed to engage the services of private
counsels.

Petitioner claims that it was hired by Clark Development Corporation due to "numerous
labor cases which need urgent attention[.]"68 In its request for reconsideration to the
Office of the Government Corporate Counsel, Clark Development Corporation claims
that it was obtaining the services of petitioner "acting through Atty. Ariston Vicente R.
Quirolgico, known expert in the field of labor law and relations."69

The labor cases petitioner handled were not of a complicated or peculiar nature that
could justify the hiring of a known expert in the field. On the contrary, these appear to be
standard labor cases of illegal dismissal and collective bargaining agreement
negotiations,70 which Clark Development Corporation‘s lawyers or the Office of the
Government Corporate Counsel could have handled.

Commission on Audit Circular No. 86-255 dated April 2, 1986 and Office of the
President Memorandum Circular No. 9 also require that "before the hiring or
employment"of private counsel, the "written conformity and acquiescence of the
[Government Corporate Counsel] and the written concurrence of the Commissionon
Audit shall first be secured. . . ."

In this case, Clark Development Corporation had failed to secure the final approval of
the Office of the Government Corporate Counsel and the written concurrence of
respondent before it engaged the services of petitioner.

When Government Corporate Counsel Valdez granted Clark Development

Corporation‘s request for reconsideration, the approval was merely conditional and
subject to its submission of the signed pro-forma retainership contract provided for by
the Office of the Government Corporate Counsel. In the letter dated May 20, 2002,
Government Corporate Counsel Valdez added:

For the better protection of the interests of CDC, we hereby furnish you with a Pro-
Forma Retainership Agreement containing the suggested terms and conditions of the
retainership, which you may adopt for this purpose.

39
After the subject Retainership Agreement shall have been executed between your
corporation and the retained counsel, please submit a copy thereof to our Office for our
information and file.71

Upon Clark Development Corporation‘s failure to submit the retainership contract, the
Office of the Government Corporate Counsel denied Clark Development Corporation‘s
request for final approval of its legal services contracts, including that of petitioner. In
the letter72 dated December 22, 2005, Government Corporate Counsel Devanadera
informed Clark Development Corporation that:

[i]t appears, though, that our Pro-Forma Retainership Agreement was not followed and
CDC merely adopted the proposal of aforesaid retainers/consultants. Also, this Office
was never informed that CDC agreed on payment of retainer‘s fee on a per case
basis.73

In view of Clark Development Corporation‘s failure to secure the final conformity and
acquiescence of the Office of the Government Corporate Counsel, its retainership
contract with petitioner could not have been considered as authorized.

The concurrence of respondents was also not secured by Clark Development

Corporation priorto hiring petitioner‘s services. The corporation only wrote a letter-
request to respondents three (3) years after it had engaged the services of petitioner as
private legal counsel.

The cases that the private counsel was asked to manage are not beyond the range of
reasonable competence expected from the Office of the Government Corporate
Counsel. Certainly, the issues do not appear to be complex or of substantial national
interest to merit additional counsel. Even so, there was no showing that the delays in
the approval also were due to circumstances not attributable to petitioner nor was there
a clear showing that there was unreasonable delay in any action of the approving
authorities. Rather, it appears that the procurement of the proper authorizations was
mere afterthought.

Respondents, therefore, correctly denied Clark Development Corporation‘s request for

clearance in the disbursement of funds to pay petitioner its standing legal fees.

Polloso v. Ganganand PHIVIDEC

Industrial Authority v. Capitol Steel
Corporationapply in this case

Petitioner argues that Polloso does not apply since the denial was based on the
"absence of a written authority from the OSG or OGCC[.]" 74 It also argues that the
PHIVIDEC case does not apply since "the case [was] represented by a private lawyer
whose engagement was secured without the conformity of the OGCC andthe
COA."75 Petitioner argues that, unlike these cases, Clark Development Corporation was

40
able to obtain the written conformity of the Office of the Government Corporate Counsel
to engage petitioner‘s services.

In Polloso, the legal services of Atty. Benemerito A. Satorre were engaged by the
National Power Corporation for its Leyte-Cebu and Leyte Luzon Interconnection
Projects.76 The Commission on Audit disallowed the payment of services to Atty. Satore
on the basis of quantum meruit, citing Commission on Audit Circular No. 86-255 dated
April 2, 1986.77 In upholding the disallowance by the Commission on Audit, this court
ruled:

It bears repeating that the purpose of the circular is to curtail the unauthorized and
unnecessary disbursement of public funds to private lawyers for services rendered to
the government. This is in line with the Commission on Audit‘s constitutional mandate to
promulgate accounting and auditing rules and regulations including those for the
prevention and disallowance of irregular, unnecessary, excessive, extravagant or
unconscionable expenditures or uses of government fundsand properties. Having
determined the intent of the law, this Court has the imperative duty to give it effect even
if the policy goes beyond the letter or words of the statute.

Hence, as the hiring of Atty. Satorre was clearly done without the prior conformity and
acquiescence of the Office of the Solicitor General or the Government Corporate
Counsel, as well as the written concurrence of the Commission on Audit, the payment of
fees to Atty. Satorre was correctly disallowed in audit by the COA. 78

In PHIVIDEC, this court found the engagement by PHIVIDEC Industrial Authority, a

government-owned and controlled corporation, of Atty. Cesilo Adaza‘s legal services to
be unauthorized for the corporation‘s failure to secure the written conformity of the
Office of the Government Corporate Counsel and the Commission on Audit. 79Citing the
provisions of Office of the President Memorandum Circular No. 9, this court ruled that:

[i]t was only with the enactment of Memorandum Circular No. 9 in 1998 that an
exception to the general prohibition was allowed for the first time since P.D. No. 1415
was enacted in 1978. However, indispensable conditions precedent were imposed
before any hiring of private lawyer could be effected. First, private counsel can be hired
only in exceptional cases. Second, the GOCC must first secure the written conformity
and acquiescence of the Solicitor General or the Government Corporate Counsel, as
the case may be, before any hiring can be done. And third, the written concurrence of
the COA must also be secured prior to the hiring. 80 (Emphasis supplied)

The same ruling was likewise reiterated in Vargas v. Ignes, 81 wherein this court stated:

Under Section 10, Chapter 3, Title III, Book IV of the Administrative Code of1987, it is
the OGCC which shall act as the principal law office of all GOCCs. And Section 3 of
Memorandum Circular No. 9, issued by President Estrada on August 27, 1998, enjoins
GOCCs to refrain from hiring private lawyers or law firms to handle their cases and legal
matters. But the same Section 3 provides that in exceptional cases, the written

41
conformity and acquiescence of the Solicitor General or the Government Corporate
Counsel, as the case may be, and the written concurrence of the COA shall first be
secured before the hiring or employment of a private lawyer or law firm. In Phividec
Industrial Authority v. Capitol Steel Corporation, we listed three (3) indispensable
conditions before a GOCC can hirea private lawyer: (1) private counsel can only be
hired in exceptional cases; (2) the GOCC must first secure the written conformity and
acquiescence of the Solicitor General or the Government Corporate Counsel, as the
case may be; and (3) the written concurrence of the COA must also be
secured.82 (Emphasis supplied) On the basis of Pollosoand PHIVIDEC, petitioner‘s
arguments are unmeritorious.

Petitioner fails to understand that Commission on Audit Circular No. 86-255 requires not
only the conformity and acquiescence of the Office of the Solicitor General or Office of
the Government Corporate Counsel but also the written conformity of the Commission
on Audit. The hiring of private counsel becomes unauthorized if it is only the Office of
the Government Corporate Counsel that gives its conformity. The rules and
jurisprudence expressly require that the government-owned and controlled corporation
concerned must also secure the concurrence of respondents.

It is also erroneous for petitioner to assume that it had the conformity and acquiescence
of the Office of the Government Corporate Counsel since Government Corporate
Counsel Valdez‘s approval of Clark Development Corporation‘s request was merely
conditional on its submission of the retainership contract. Clark Development
Corporation‘s failure to submit the retainership contract resulted in itsfailure to securea
final approval.

The Commission on Audit did not

commit grave abuse of discretion in
disallowing the payment to
petitioner on the basis of quantum
meruit

When Government Corporate Counsel Devanadera denied Clark Development

Corporation‘s request for final approval of its legal services contracts, she, however,
allowed the payment to petitioner for legal services already rendered on a quantum
meruitbasis.83

Respondents disallowed Clark Development Corporation from paying petitioner on this

basis as the contract between them was executed "in clear violation of the provisions of
COA Circular No. 86-255 and OP Memorandum Circular No. 9[.]"84 It then ruled that the
retainership contract between them should be deemed a private contract for which the
officials of Clark Development Corporation should be liable, citing Section 103 85 of
Presidential Decree No. 1445, otherwise known as the Government Auditing Code of
the Philippines.86

In National Power Corporation v. Heirs of Macabangkit Sangkay, quantum meruit: 87

42
— literally meaning as much as he deserves — is used as basis for determining an
attorney‘s professional fees in the absence of an express agreement. The recovery
ofattorney‘s fees on the basis of quantum meruitis a device that prevents an
unscrupulous client from running away with the fruits of the legal services of counsel
without paying for it and also avoids unjust enrichment on the part of the attorney
himself. An attorney must show that he is entitled to reasonable compensation for the
effort in pursuing the client‘s cause, taking into account certain factors in fixing the
amount of legal fees.88

Here, the Board of Directors, acting on behalf of Clark Development Corporation,

contracted the services of petitioner, without the necessary prior approvals required by
the rules and regulations for the hiring of private counsel. Their actions were clearly
unauthorized.

It was, thus, erroneous for Government Corporate Counsel Devanadera to bind Clark
Development Corporation, a government entity, to pay petitioner on a quantum meruit
basis for legal services, which were neither approved nor authorized by the government.
Even granting that petitioner ought to be paid for services rendered, it should not be the
government‘s liability, but that of the officials who engaged the services of petitioner
without the required authorization. The amendment of Commission on

Audit Circular No. 86-255 by

Commission on Audit Circular No.
98-002 created a gap in the law

Commission on Audit Circular No. 86-255 dated April 2, 1986 previously stated that:
[a]ccordingly, it is hereby directed that, henceforth, the payment out of public funds of
retainer fees to private law practitioners who are so hired or employed without the prior
written conformity and acquiescence of the Solicitor General or the Government
Corporate Counsel, as the case may be, as well as the written concurrence of the
Commission on Audit shall be disallowed in audit and the same shall be a personal
liability of the officials concerned. (Emphasis supplied) However, when Commission on
Audit Circular No. 86-255 was amended by Commission on Audit Circular No. 98-002
on June 9, 1998, it failed to retain the liability of the officials who violated the
circular.89 This gap in the law paves the way for both the erring officials of the
government owned and controlled corporations to disclaim any responsibility for the
liabilities owing to private practitioners.

It cannot be denied that petitioner rendered legal services to Clark Development

Corporation.1âwphi1 It assisted the corporation in litigating numerous labor
cases90 during the period of its engagement. It would be an injustice for petitioner not to
be compensated for services rendered even if the engagement was unauthorized.

The fulfillment of the requirements of the rules and regulations was Clark Development
Corporation‘s responsibility, not petitioner‘s. The Board of Directors, by its irresponsible

43
actions, unjustly procured for themselves petitioner‘s legal services without
compensation.

To fill the gap created by the amendment of Commission on Audit Circular No. 86-255,
respondents correctly held that the officials of Clark, Development Corporation who
violated the provisions of Circular No. 98-002 and Circular No. 9 should be personally
liable to pay the legal fees of petitioner, as previously provided for in Circular No. 86-
255.

This finds support in Section 103 of the Government Auditing Code of the
Philippines,91 which states:

SEC. 103. General liability for unlawful expenditures. -Expenditures of government

funds or uses of government property in violation of law or regulations shall be a
personal liability of the official or employee found to be directly responsible therefor.

This court has also previously held in Gumaru v. Quirino State College92 that:

the fee of the lawyer who rendered legal service to the government in lieu of the OSG or
the OGCC is the personal liability of the government official who hired his services
without the prior written conformity of the OSG or the OGCC, as the case may be. 93

WHEREFORE, the petition is DISMISSED without prejudice to petitioner filing another

action against the proper parties.

SO ORDERED.

44
CASE NO. 5

JUDGE ANTONIO C. SUMALJAG, G.R. No. 149787

Petitioner,
Present:

QUISUMBING, J., Chairperson,

- versus - TINGA,
BRION,
*
REYES, and
**
LEONARDO-DE CASTRO, JJ.
SPOUSES DIOSDIDIT and
MENENDEZ M. LITERATO; and Promulgated:
MICHAELES MAGLASANG
RODRIGO, June 18, 2008
Respondents.

x --------------------------------------------------------------------------------x

DECISION

BRION, J.:

Before this Court is the Petition for Review on Certiorari under Rule 45 of the Rules of

Court assailing the Decision[1] of the Court of Appeals (CA) dated June 26, 2001 and its

related Resolution[2] dated September 4, 2001 in CA-G.R. SP No. 59712. The assailed

Decision dismissed the petition for certiorari filed by petitioner Judge Antonio

C. Sumaljag (the petitioner) in the interlocutory matter outlined below in Civil Cases B-

1239 and B-1281 before the trial court. The challenged Resolution denied the

petitioners motion for reconsideration.

ANTECEDENT FACTS

45
 On November 16, 1993, Josefa D. Maglasang (Josefa) filed with the Regional

Trial Court (RTC), Branch 14, Baybay, Leyte a complaint[3] (docketed as Civil Case No.

B-1239) for the nullity of the deed of sale of real property purportedly executed between

her as vendor and the spouses Diosdidit and Menendez Literato (the respondent

spouses) as vendees. The complaint alleged that this deed of sale dated October 15,

1971 of Lot 1220-D is spurious. Josefa was the sister of

Menendez Maglasang Literato (Menendez).They were two (2) of the six (6) heirs who

inherited equal parts of a 6.3906-hectare property (Lot 1220) passed on to them by their

parents Cristito and Inecita Diano Maglasang.[4] Lot 1220-D was partitioned to Josefa,

while Lot 1220-E was given to Menendez.

The respondent spouses response to the complaint was an amended answer with

counterclaim[5] denying that the deed of sale was falsified. They impleaded the petitioner

with Josefa as counterclaim defendant on the allegation that the petitioner, at the

instance of Josefa, occupied Lot 1220-D and Lot 1220-E without their (the respondent

spouses) authority; Lot 1220-E is theirs by inheritance while 1220-D had been sold to

them by Josefa. They also alleged that the petitioner acted in bad faith in acquiring the

two (2) lots because he prepared and notarized on September 26, 1986 the contract of

lease over the whole of Lot 1220 between all the Maglasang heirs (but

excluding Josefa) and Vicente Tolo, with the lease running from 1986 to 1991; thus, the

petitioner then knew that Josefa no longer owned Lot 1220-D.

46
 Civil Case No. 1281[6] is a complaint that Menendez filed on April 4, 1996 with the

RTC for the declaration of the inexistence of lease contract, recovery of possession of

land, and damages against the petitioner and Josefa after the RTC dismissed the

respondent spouses counterclaim in Civil Case No. 1239. The complaint alleged

that Josefa, who had previously sold Lot 1220-D to Menendez, leased it, together

with Lot 1220-E, to the petitioner. Menendez further averred that the petitioner

and Josefa were in bad faith in entering their contract of lease as they both knew

that Josefa did not own the leased lots. Menendez prayed, among others, that this lease

contract between Josefa and the petitioner be declared null and void.

Josefa died on May 3, 1999 during the pendency of Civil Case Nos. B-1239 and B-

1281.

On August 13, 1999, Atty. Zenen A. Puray (Atty. Puray) - the petitioners

and Josefas common counsel - asked the RTC in Civil Case No. 1239 that he be given

an extended period or up to September 10, 1999 within which to file a formal notice of

death and substitution of party.

The RTC granted the motion in an order dated August 13, 1999.[7] On August 26, 1999,

Atty. Puray filed with the RTC a notice of death and substitution of party, [8] praying

that Josefa in his capacity as plaintiff and third party counterclaim defendant be

47
substituted by the petitioner. The submission alleged that prior to Josefas death, she

executed a Quitclaim Deed[9] over Lot 1220-D in favor

of Remismundo D. Maglasang[10] who in turn sold this property to the petitioner.

Menendez, through counsel, objected to the proposed substitution, alleging that

Atty. Puray filed the notice of death and substitution of party beyond the thirty-day

period provided under Section 16, Rule 3 of the 1997 Rules of Civil Procedure, as

amended. She recommended instead that Josefa be substituted by the latters full-blood

sister, Michaeles Maglasang Rodrigo (Michaeles).

The RTC denied Atty. Purays motion for substitution and instead ordered the

appearance of Michaeles as representative of the deceased Josefa. This Order

provides:

WHEREFORE, in view of the foregoing, the motion is hereby

DENIED for lack of merit and instead order the appearance of
Mrs. Mechailes Maglasang-Rodrigo of Brgy. Binulho, Albuera, Leyte, as
representative of the deceased Josefa Maglasang.

SO ORDERED.[11]

The RTC subsequently denied the petitioners motion for reconsideration in an

order[12] dated May 25, 2000.

48
 The petitioner went to the CA on a petition for certiorari (docketed as CA-G.R. SP

No. 59712) to question the above interlocutory orders. In a Decision[13] dated June 26,

2001, the CA dismissed the petition for lack of merit. The appellate court similarly

denied the petitioners motion for reconsideration in its Resolution [14] dated September 4,

2001.

The present petition essentially claims that the CA erred in dismissing CA-G.R.

No. SP 59712 since: (a) the property under litigation was no longer part

of Josefas estate since she was no longer its owner at the time of her death; (b) the

petitioner had effectively been subrogated to the rights of Josefa over the property

under litigation at the time she died; (c) without an estate, the heir who was appointed

by the lower court no longer had any interest to represent; (d) the notice of death was

seasonably submitted by the counsel of Josefa to the RTC within the extended period

granted; and (e) the petitioner is a transferee pendente lite who the courts should

recognize pursuant to Rule 3, Section 20 of the Rules of Court.

THE COURTS RULING

We resolve to deny the petition for lack of merit.

The Governing Rule.

The rule on substitution in case of death of a party is governed by Section 16,

Rule 3 of the 1997 Rules of Civil Procedure, as amended, which provides:

Section 16. Death of a party; duty of counsel. Whenever a party to a
pending action dies, and the claim is not thereby extinguished, it shall be the duty
of his counsel to inform the court within thirty (30) days after such death of the

49
 fact thereof, and to give the name and address of his legal representative or
representatives. Failure of counsel to comply with this duty shall be a ground for
disciplinary action.

The heirs of the deceased may be allowed to be substituted for the

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

The court shall forthwith order said legal representative or representatives

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

If no legal representative is named by the counsel for the deceased party,

or if the one so named shall fail to appear within the specified period, the court
may order the opposing party, within a specified time, to procure the appointment
of an executor or administrator for the estate of the deceased, and the latter shall
immediately appear for and on behalf of the deceased. The court charges in
procuring such appointment, if defrayed by the opposing party, may be recovered
as costs. (Emphasis ours)

The purpose behind this rule is the protection of the right to due process of every party

to the litigation who may be affected by the intervening death. The deceased litigant is

herself or himself protected as he/she continues to be properly represented in the suit

through the duly appointed legal representative of his estate.[15]

Application of the Governing Rule.

a. Survival of the pending action

A question preliminary to the application of the above provision is whether Civil

Case Nos. B-1239 and B-1281 are actions that survive the death of Josefa. We said

in Gonzalez v. Pagcor:[16]

The criteria for determining whether an action survives the death of a

plaintiff or petitioner was elucidated upon in Bonilla v. Barcena (71 SCRA 491
(1976). as follows:

. . . The question as to whether an action survives or not depends

on the nature of the action and the damage sued for. In the causes

50
 of action which survive, the wrong complained [of] affects primarily
and principally property and property rights, the injuries to the
person being merely incidental, while in the causes of action which
do not survive, the injury complained of is to the person, the
property and rights of property affected being incidental. . . .

Since the question involved in these cases relate to property and property rights,

then we are dealing with actions that survive so that Section 16, Rule 3 must

necessarily apply.

b. Duty of Counsel under the Rule.

The duty of counsel under the aforecited provision is to inform the court within

thirty (30) days after the death of his client of the fact of death, and to give the name

and address of the deceaseds legal representative or representatives. Incidentally,

this is the only representation that counsel can undertake after the death of a client as

the fact of death terminated any further lawyer-client relationship.[17]

In the present case, it is undisputed that the counsel for Josefa did in fact notify

the lower court, although belatedly, of the fact of her death. [18] However, he did as well

inform the lower court that

2. That before she died she executed a QUITCLAIM DEED in favor of

REMISMUNDO D. MAGLASANG over the land in question (Lot No. 1220-
D of Benolho, Albuera, Leyte), evidenced by a QUITCLAIM DEED, copy of
which is hereto attached as Annex B who in turn sold it in favor of JUDGE
ANTONIO SUMALJAG, evidenced by a DEED OF ABSOLUTE SALE,
copy of which is hereto attached as Annex C.

51
Further, counsel asked that the deceased Josefa Maglasang in her capacity as plaintiff

and as Third Party Counterclaim Defendant be substituted in the case at bar by JUDGE

ANTONIO SUMALJAG whose address is 38 Osmena Street, Ormoc City pursuant

to Section 16, Rule 3 of the 1997 Rules of Civil Procedure.

This notification, although filed late, effectively informed the lower court of the

death of litigant Josefa Maglasang so as to free her counsel of any liability for failure to

make a report of death under Section 16, Rule 3 of the Rules of Court. In our view,

counsel satisfactorily explained to the lower court the circumstances of the late

reporting, and the latter in fact granted counsel an extended period. The timeliness of

the report is therefore a non-issue.

The reporting issue that goes into the core of this case is whether counsel

properly gave the court the name and address of the legal representative of the

deceased that Section 16, Rule 3 specifies. We rule that he did not. The legal

representatives that the provision speaks of, refer to those authorized by law the

administrator, executor or guardian[19] who, under the rule on settlement of estate of

deceased persons,[20] is constituted to take over the estate of the deceased. Section 16,

Rule 3 likewise expressly provides that the heirs of the deceased may be allowed to be

substituted for the deceased, without requiring the appointment of an executor or

administrator . . .. Significantly, the person now the present petitioner - that counsel

52
gave as substitute was not one of those mentioned under Section 16, Rule 3. Rather,

he is a counterclaim co-defendant of the deceased whose proferred justification for the

requested substitution is the transfer to him of the interests of the deceased in the

litigation prior to her death.

Under the circumstances, both the lower court and the CA were legally correct in

not giving effect to counsels suggested substitute.

First, the petitioner is not one of those allowed by the Rules to be a

substitute. Section 16, Rule 3 speaks for itself in this respect.

Second, as already mentioned above, the reason for the Rule is to protect all

concerned who may be affected by the intervening death, particularly the deceased and

her estate. We note in this respect that the Notice that counsel filed in fact reflects a

claim against the interest of the deceased through the transfer of her remaining interest

in the litigation to another party.Interestingly, the transfer is in favor of the very same

person who is suggested to the court as the substitute. To state the obvious, the

suggested substitution effectively brings to naught the protection that the Rules intend;

plain common sense tells us that the transferee who has his own interest to protect,

cannot at the same time represent and fully protect the interest of the deceased

transferor.

53
 Third, counsel has every authority to manifest to the court changes in interest

that transpire in the course of litigation. Thus, counsel could have validly manifested to

the court the transfer of Josefas interests in the subject matter of litigation pursuant to

Section 19, Rule 3.[21] But this can happen only while the client-transferor was

alive and while the manifesting counsel was still the effective and authorized counsel for

the client-transferor, not after the death of the client when the lawyer-client relationship

has terminated. The fact that the alleged transfer may have actually taken place is

immaterial to this conclusion, if only for the reason that it is not for counsel, after the

death of his client, to make such manifestation because he then has lost the authority to

speak for and bind his client. Thus, at most, the petitioner can be said to be a

transferee pendente lite whose status is pending with the lower court.

Lastly, a close examination of the documents attached to the records disclose

that the subject matter of the Quitclaim allegedly executed by Josefa in favor

of Remismundo is Lot 1220-E, while the subject matter of the deed of sale executed

by Remismundo in the petitioners favor is Lot 1220-D. This circumstance alone raises

the possibility that there is more than meets the eye in the transactions related to this

case.

c. The Heirs as Legal Representatives.

54
 The CA correctly harked back to the plain terms of Section 16, Rule 3 in

determining who the appropriate legal representative/s should be in the absence of an

executor or administrator. The second paragraph of the Section 16, Rule 3 of the 1997

Rules of Court, as amended, is clear - the heirs of the deceased may be allowed to be

substituted for the deceased, without requiring the appointment of an executor or

administrator. Our decisions on this matter have been clear and unequivocal. In San

Juan, Jr. v. Cruz, this Court held:

The pronouncement of this Court in Lawas v. Court of

Appeals x x x that priority is given to the legal representative of the
deceased (the executor or administrator) and that it is only in case of
unreasonable delay in the appointment of an executor or administrator, or
in cases where the heirs resort to an extra-judicial settlement of the estate
that the court may adopt the alternative of allowing the heirs of the
deceased to be substituted for the deceased, is no longer
true.[22] (Emphasis ours)

We likewise said in Gochan v. Young: [23]

For the protection of the interests of the decedent, this Court has in
previous instances recognized the heirs as proper representatives of the
decedent, even when there is already an administrator appointed by the
court. When no administrator has been appointed, as in this case, there is
all the more reason to recognize the heirs as the proper representatives of
the deceased.

55
 Josefas death certificate[24] shows that she was single at the time of her death.

The records do not show that she left a will.Therefore, as correctly held by the CA, in

applying Section 16, Rule 3, her heirs are her surviving sisters (Michaelis,

Maria, Zosima, and Consolacion) and the children of her deceased sister, Lourdes

(Manuel, Cesar, Huros and Regulo) who should be her legal

representatives. Menendez, although also a sister, should be excluded for being one of

the adverse parties in the cases before the RTC.

WHEREFORE, premises considered, we DENY the petition for lack of merit.

We AFFIRM the Court of Appeals decision that the surviving heirs of the

deceased Josefa namely Michaelis M. Rodrigo; Maria

M. Cecilio; Zosima D. Maglasang; Consolacion M. Bag-aw; and the children of Lourdes

M. Lumapas, namely Manuel Lumapas,

Cesar Lumapas, Huros Lumapas and ReguloMaquilan should be her substitutes and

are hereby so ordered to be substituted for her in Civil Case Nos. B-1239 and B-1281.

Costs against the petitioner.

SO ORDERED.

56
CASE NO. 6 G.R. No. 150135 October 30, 2006

SPOUSES ANTONIO F. ALGURA and LORENCITA S.J. ALGURA, petitioners,

vs.
THE LOCAL GOVERNMENT UNIT OF THE CITY OF NAGA, ATTY. MANUEL
TEOXON, ENGR. LEON PALMIANO, NATHAN SERGIO and BENJAMIN NAVARRO,
SR., respondents.

DECISION

VELASCO, JR., J.:

Anyone who has ever struggled with poverty

knows how extremely expensive it is to be poor.
–– James Baldwin

The Constitution affords litigants—moneyed or poor—equal access to the courts;

moreover, it specifically provides that poverty shall not bar any person from having
access to the courts.1 Accordingly, laws and rules must be formulated, interpreted, and
implemented pursuant to the intent and spirit of this constitutional provision. As such,
filing fees, though one of the essential elements in court procedures, should not be an
obstacle to poor litigants' opportunity to seek redress for their grievances before the
courts.

The Case

This Petition for Review on Certiorari seeks the annulment of the September 11, 2001
Order of the Regional Trial Court (RTC) of Naga City, Branch 27, in Civil Case No. 99-
4403 entitled Spouses Antonio F. Algura and Lorencita S.J. Algura v. The Local
Government Unit of the City of Naga, et al., dismissing the case for failure of petitioners
Algura spouses to pay the required filing fees. 2 Since the instant petition involves only a
question of law based on facts established from the pleadings and documents
submitted by the parties,3 the Court gives due course to the instant petition sanctioned
under Section 2(c) of Rule 41 on Appeal from the RTCs, and governed by Rule 45 of
the 1997 Rules of Civil Procedure.

The Facts

On September 1, 1999, spouses Antonio F. Algura and Lorencita S.J. Algura filed a
Verified Complaint dated August 30, 19994 for damages against the Naga City
Government and its officers, arising from the alleged illegal demolition of their residence
and boarding house and for payment of lost income derived from fees paid by their
boarders amounting to PhP 7,000.00 monthly.

Simultaneously, petitioners filed an Ex-Parte Motion to Litigate as Indigent Litigants,5 to

which petitioner Antonio Algura's Pay Slip No. 2457360 (Annex "A" of motion) was

57
appended, showing a gross monthly income of Ten Thousand Four Hundred Seventy
Four Pesos (PhP 10,474.00) and a net pay of Three Thousand Six Hundred Sixteen
Pesos and Ninety Nine Centavos (PhP 3,616.99) for [the month of] July 1999. 6 Also
attached as Annex "B" to the motion was a July 14, 1999 Certification 7 issued by the
Office of the City Assessor of Naga City, which stated that petitioners had no property
declared in their name for taxation purposes.

Finding that petitioners' motion to litigate as indigent litigants was meritorious, Executive
Judge Jose T. Atienza of the Naga City RTC, in the September 1, 1999 Order, 8 granted
petitioners' plea for exemption from filing fees.

Meanwhile, as a result of respondent Naga City Government's demolition of a portion of

petitioners' house, the Alguras allegedly lost a monthly income of PhP 7,000.00 from
their boarders' rentals. With the loss of the rentals, the meager income from Lorencita
Algura's sari-sari store and Antonio Algura's small take home pay became insufficient
for the expenses of the Algura spouses and their six (6) children for their basic needs
including food, bills, clothes, and schooling, among others.

On October 13, 1999, respondents filed an Answer with Counterclaim dated October
10, 1999,9 arguing that the defenses of the petitioners in the complaint had no cause of
action, the spouses' boarding house blocked the road right of way, and said structure
was a nuisance per se.

Praying that the counterclaim of defendants (respondents) be dismissed, petitioners

then filed their Reply with Ex-Parte Request for a Pre-Trial Setting10 before the Naga
City RTC on October 19, 1999. On February 3, 2000, a pre-trial was held wherein
respondents asked for five (5) days within which to file a Motion to Disqualify Petitioners
as Indigent Litigants.

On March 13, 2000, respondents filed a Motion to Disqualify the Plaintiffs for Non-
Payment of Filing Fees dated March 10, 2000.11 They asserted that in addition to the
more than PhP 3,000.00 net income of petitioner Antonio Algura, who is a member of
the Philippine National Police, spouse Lorencita Algura also had a mini-store and a
computer shop on the ground floor of their residence along Bayawas St., Sta. Cruz,
Naga City. Also, respondents claimed that petitioners' second floor was used as their
residence and as a boarding house, from which they earned more than PhP 3,000.00 a
month. In addition, it was claimed that petitioners derived additional income from their
computer shop patronized by students and from several boarders who paid rentals to
them. Hence, respondents concluded that petitioners were not indigent litigants.

On March 28, 2000, petitioners subsequently interposed their Opposition to the

Motion12 to respondents' motion to disqualify them for non-payment of filing fees.

On April 14, 2000, the Naga City RTC issued an Order disqualifying petitioners as
indigent litigants on the ground that they failed to substantiate their claim for exemption

58
from payment of legal fees and to comply with the third paragraph of Rule 141, Section
18 of the Revised Rules of Court—directing them to pay the requisite filing fees. 13

On April 28, 2000, petitioners filed a Motion for Reconsideration of the April 14, 2000
Order. On May 8, 2000, respondents then filed their Comment/Objections to petitioner's
Motion for Reconsideration.

On May 5, 2000, the trial court issued an Order14 giving petitioners the opportunity to
comply with the requisites laid down in Section 18, Rule 141, for them to qualify as
indigent litigants.

On May 13, 2000, petitioners submitted their Compliance15 attaching the affidavits of
petitioner Lorencita Algura16and Erlinda Bangate,17 to comply with the requirements of
then Rule 141, Section 18 of the Rules of Court and in support of their claim to be
declared as indigent litigants.

In her May 13, 2000 Affidavit, petitioner Lorencita Algura claimed that the demolition of
their small dwelling deprived her of a monthly income amounting to PhP 7,000.00. She,
her husband, and their six (6) minor children had to rely mainly on her husband's salary
as a policeman which provided them a monthly amount of PhP 3,500.00, more or less.
Also, they did not own any real property as certified by the assessor's office of Naga
City. More so, according to her, the meager net income from her small sari-sari store
and the rentals of some boarders, plus the salary of her husband, were not enough to
pay the family's basic necessities.

To buttress their position as qualified indigent litigants, petitioners also submitted the
affidavit of Erlinda Bangate, who attested under oath, that she personally knew spouses
Antonio Algura and Lorencita Algura, who were her neighbors; that they derived
substantial income from their boarders; that they lost said income from their boarders'
rentals when the Local Government Unit of the City of Naga, through its officers,
demolished part of their house because from that time, only a few boarders could be
accommodated; that the income from the small store, the boarders, and the meager
salary of Antonio Algura were insufficient for their basic necessities like food and
clothing, considering that the Algura spouses had six (6) children; and that she knew
that petitioners did not own any real property.

Thereafter, Naga City RTC Acting Presiding Judge Andres B. Barsaga, Jr. issued his
July 17, 200018 Order denying the petitioners' Motion for Reconsideration.

Judge Barsaga ratiocinated that the pay slip of Antonio F. Algura showed that the
"GROSS INCOME or TOTAL EARNINGS of plaintiff Algura [was] ₧10,474.00 which
amount [was] over and above the amount mentioned in the first paragraph of Rule 141,
Section 18 for pauper litigants residing outside Metro Manila."19 Said rule provides that
the gross income of the litigant should not exceed PhP 3,000.00 a month and shall not
own real estate with an assessed value of PhP 50,000.00. The trial court found that, in

59
Lorencita S.J. Algura's May 13, 2000 Affidavit, nowhere was it stated that she and her
immediate family did not earn a gross income of PhP 3,000.00.

The Issue

Unconvinced of the said ruling, the Alguras instituted the instant petition raising a
solitary issue for the consideration of the Court: whether petitioners should be
considered as indigent litigants who qualify for exemption from paying filing fees.

The Ruling of the Court

The petition is meritorious.

A review of the history of the Rules of Court on suits in forma pauperis (pauper litigant)
is necessary before the Court rules on the issue of the Algura spouses' claim to
exemption from paying filing fees.

When the Rules of Court took effect on January 1, 1964, the rule on pauper litigants
was found in Rule 3, Section 22 which provided that:

Section 22. Pauper litigant.—Any court may authorize a litigant to prosecute his
action or defense as a pauper upon a proper showing that he has no means to
that effect by affidavits, certificate of the corresponding provincial, city or
municipal treasurer, or otherwise. Such authority[,] once given[,] shall include an
exemption from payment of legal fees and from filing appeal bond, printed record
and printed brief. The legal fees shall be a lien to any judgment rendered in the
case [favorable] to the pauper, unless the court otherwise provides.

From the same Rules of Court, Rule 141 on Legal Fees, on the other hand, did not
contain any provision on pauper litigants.

On July 19, 1984, the Court, in Administrative Matter No. 83-6-389-0 (formerly G.R. No.
64274), approved the recommendation of the Committee on the Revision of Rates and
Charges of Court Fees, through its Chairman, then Justice Felix V. Makasiar, to revise
the fees in Rule 141 of the Rules of Court to generate funds to effectively cover
administrative costs for services rendered by the courts. 20 A provision on pauper
litigants was inserted which reads:

Section 16. Pauper-litigants exempt from payment of court fees.—Pauper-

litigants include wage earners whose gross income do not exceed P2,000.00 a
month or P24,000.00 a year for those residing in Metro Manila, and P1,500.00 a
month or P18,000.00 a year for those residing outside Metro Manila, or those
who do not own real property with an assessed value of not more than
P24,000.00, or not more than P18,000.00 as the case may be.

60
 Such exemption shall include exemption from payment of fees for filing appeal
bond, printed record and printed brief.

The legal fees shall be a lien on the monetary or property judgment rendered in
favor of the pauper-litigant.

To be entitled to the exemption herein provided, the pauper-litigant shall execute

an affidavit that he does not earn the gross income abovementioned, nor own
any real property with the assessed value afore-mentioned [sic], supported by a
certification to that effect by the provincial, city or town assessor or treasurer.

When the Rules of Court on Civil Procedure were amended by the 1997 Rules of Civil
Procedure (inclusive of Rules 1 to 71) in Supreme Court Resolution in Bar Matter No.
803 dated April 8, 1997, which became effective on July 1, 1997, Rule 3, Section 22 of
the Revised Rules of Court was superseded by Rule 3, Section 21 of said 1997 Rules of
Civil Procedure, as follows:

Section 21. Indigent party.—A party may be authorized to litigate his action,
claim or defense as an indigent if the court, upon an ex parte application and
hearing, is satisfied that the party is one who has no money or property sufficient
and available for food, shelter and basic necessities for himself and his family.

Such authority shall include an exemption from payment of docket and other
lawful fees, and of transcripts of stenographic notes which the court may order to
be furnished him. The amount of the docket and other lawful fees which the
indigent was exempted from paying shall be a lien on any judgment rendered in
the case favorable to the indigent, unless the court otherwise provides.

Any adverse party may contest the grant of such authority at any time before
judgment is rendered by the trial court. If the court should determine after hearing
that the party declared as an indigent is in fact a person with sufficient income or
property, the proper docket and other lawful fees shall be assessed and collected
by the clerk of court. If payment is not made within the time fixed by the court,
execution shall issue for the payment thereof, without prejudice to such other
sanctions as the court may impose.

At the time the Rules on Civil Procedure were amended by the Court in Bar Matter No.
803, however, there was no amendment made on Rule 141, Section 16 on pauper
litigants.

On March 1, 2000, Rule 141 on Legal Fees was amended by the Court in A.M. No. 00-
2-01-SC, whereby certain fees were increased or adjusted. In this Resolution, the Court
amended Section 16 of Rule 141, making it Section 18, which now reads:

Section 18. Pauper-litigants exempt from payment of legal fees.—Pauper

litigants (a) whose gross income and that of their immediate family do not exceed

61
 four thousand (P4,000.00) pesos a month if residing in Metro Manila, and three
thousand (P3,000.00) pesos a month if residing outside Metro Manila, and (b)
who do not own real property with an assessed value of more than fifty thousand
(P50,000.00) pesos shall be exempt from the payment of legal fees.

The legal fees shall be a lien on any judgment rendered in the case favorably to
the pauper litigant, unless the court otherwise provides.

To be entitled to the exemption herein provided, the litigant shall execute an

affidavit that he and his immediate family do not earn the gross income
abovementioned, nor do they own any real property with the assessed value
aforementioned, supported by an affidavit of a disinterested person attesting to
the truth of the litigant's affidavit.

Any falsity in the affidavit of a litigant or disinterested person shall be sufficient

cause to strike out the pleading of that party, without prejudice to whatever
criminal liability may have been incurred.

It can be readily seen that the rule on pauper litigants was inserted in Rule 141 without
revoking or amendingSection 21 of Rule 3, which provides for the exemption of
pauper litigants from payment of filing fees. Thus, on March 1, 2000, there were two
existing rules on pauper litigants; namely, Rule 3, Section 21 and Rule 141, Section
18.

On August 16, 2004, Section 18 of Rule 141 was further amended in Administrative
Matter No. 04-2-04-SC, which became effective on the same date. It then became
Section 19 of Rule 141, to wit:

Sec. 19. Indigent litigants exempt from payment of legal fees.– INDIGENT
LITIGANTS (A) WHOSE GROSS INCOME AND THAT OF THEIR IMMEDIATE
FAMILY DO NOT EXCEED AN AMOUNT DOUBLE THE MONTHLY MINIMUM
WAGE OF AN EMPLOYEE AND (B) WHO DO NOT OWN REAL PROPERTY
WITH A FAIR MARKET VALUE AS STATED IN THE CURRENT TAX
DECLARATION OF MORE THAN THREE HUNDRED THOUSAND
(P300,000.00) PESOS SHALL BE EXEMPT FROM PAYMENT OF LEGAL
FEES.

The legal fees shall be a lien on any judgment rendered in the case favorable to
the indigent litigant unless the court otherwise provides.

To be entitled to the exemption herein provided, the litigant shall execute

an affidavit that he and his immediate family do not earn a gross income
abovementioned, and they do not own any real property with the fair value
aforementioned, supported by an affidavit of a disinterested person
attesting to the truth of the litigant's affidavit. The current tax declaration, if
any, shall be attached to the litigant's affidavit.

62
 Any falsity in the affidavit of litigant or disinterested person shall be sufficient
cause to dismiss the complaint or action or to strike out the pleading of that party,
without prejudice to whatever criminal liability may have been incurred.
(Emphasis supplied.)

Amendments to Rule 141 (including the amendment to Rule 141, Section 18) were
made to implement RA 9227 which brought about new increases in filing fees.
Specifically, in the August 16, 2004 amendment, the ceiling for the gross income of
litigants applying for exemption and that of their immediate family was increased from
PhP 4,000.00 a month in Metro Manila and PhP 3,000.00 a month outside Metro
Manila, to double the monthly minimum wage of an employee; and the maximum value
of the property owned by the applicant was increased from an assessed value of PhP
50,000.00 to a maximum market value of PhP 300,000.00, to be able to accommodate
more indigent litigants and promote easier access to justice by the poor and the
marginalized in the wake of these new increases in filing fees.

Even if there was an amendment to Rule 141 on August 16, 2004, there was still no
amendment or recall of Rule 3, Section 21 on indigent litigants.

With this historical backdrop, let us now move on to the sole issue—whether petitioners
are exempt from the payment of filing fees.

It is undisputed that the Complaint (Civil Case No. 99-4403) was filed on September 1,
1999. However, the Naga City RTC, in its April 14, 2000 and July 17, 2000
Orders, incorrectly applied Rule 141, Section 18 on Legal Feeswhen the applicable
rules at that time were Rule 3, Section 21 on Indigent Party which took effect on July
1, 1997 and Rule 141, Section 16 on Pauper Litigants which became effective on July
19, 1984 up to February 28, 2000.

The old Section 16, Rule 141 requires applicants to file an ex-parte motion to litigate as
a pauper litigant by submitting an affidavit that they do not have a gross income of PhP
2,000.00 a month or PhP 24,000.00 a year for those residing in Metro Manila and PhP
1,500.00 a month or PhP 18,000.00 a year for those residing outside Metro Manila or
those who do not own real property with an assessed value of not more than PhP
24,000.00 or not more than PhP 18,000.00 as the case may be. Thus, there are two
requirements: a) income requirement—the applicants should not have a gross monthly
income of more than PhP 1,500.00, and b) property requirement––they should not own
property with an assessed value of not more than PhP 18,000.00.

In the case at bar, petitioners Alguras submitted the Affidavits of petitioner Lorencita
Algura and neighbor Erlinda Bangate, the pay slip of petitioner Antonio F. Algura
showing a gross monthly income of PhP 10,474.00,21 and a Certification of the Naga
City assessor stating that petitioners do not have property declared in their names for
taxation.22 Undoubtedly, petitioners do not own real property as shown by the
Certification of the Naga City assessor and so the property requirement is met. However
with respect to the income requirement, it is clear that the gross monthly income of PhP

63
10,474.00 of petitioner Antonio F. Algura and the PhP 3,000.00 income of Lorencita
Algura when combined, were above the PhP 1,500.00 monthly income threshold
prescribed by then Rule 141, Section 16 and therefore, the income requirement was not
satisfied. The trial court was therefore correct in disqualifying petitioners Alguras as
indigent litigants although the court should have applied Rule 141, Section 16 which
was in effect at the time of the filing of the application on September 1, 1999. Even if
Rule 141, Section 18 (which superseded Rule 141, Section 16 on March 1, 2000) were
applied, still the application could not have been granted as the combined PhP
13,474.00 income of petitioners was beyond the PhP 3,000.00 monthly income
threshold.

Unrelenting, petitioners however argue in their Motion for Reconsideration of the April
14, 2000 Order disqualifying them as indigent litigants23 that the rules have been
relaxed by relying on Rule 3, Section 21 of the 1997 Rules of Civil procedure which
authorizes parties to litigate their action as indigents if the court is satisfied that the party
is "one who has no money or property sufficient and available for food, shelter and basic
necessities for himself and his family." The trial court did not give credence to this view
of petitioners and simply applied Rule 141 but ignored Rule 3, Section 21 on Indigent
Party.

The position of petitioners on the need to use Rule 3, Section 21 on their application to
litigate as indigent litigants brings to the fore the issue on whether a trial court has to
apply both Rule 141, Section 16 and Rule 3, Section 21 on such applications or should
the court apply only Rule 141, Section 16 and discard Rule 3, Section 21 as having
been superseded by Rule 141, Section 16 on Legal Fees.

The Court rules that Rule 3, Section 21 and Rule 141, Section 16 (later amended as
Rule 141, Section 18 on March 1, 2000 and subsequently amended by Rule 141,
Section 19 on August 16, 2003, which is now the present rule) are still valid and
enforceable rules on indigent litigants.

For one, the history of the two seemingly conflicting rules readily reveals that it was not
the intent of the Court to consider the old Section 22 of Rule 3, which took effect on
January 1, 1994 to have been amended and superseded by Rule 141, Section 16,
which took effect on July 19, 1984 through A.M. No. 83-6-389-0. If that is the case, then
the Supreme Court, upon the recommendation of the Committee on the Revision on
Rules, could have already deleted Section 22 from Rule 3 when it amended Rules 1 to
71 and approved the 1997 Rules of Civil Procedure, which took effect on July 1, 1997.
The fact that Section 22 which became Rule 3, Section 21 on indigent litigant was
retained in the rules of procedure, even elaborating on the meaning of an indigent party,
and was also strengthened by the addition of a third paragraph on the right to contest
the grant of authority to litigate only goes to show that there was no intent at all to
consider said rule as expunged from the 1997 Rules of Civil Procedure.

Furthermore, Rule 141 on indigent litigants was amended twice: first on March 1, 2000
and the second on August 16, 2004; and yet, despite these two amendments, there was

64
no attempt to delete Section 21 from said Rule 3. This clearly evinces the desire of the
Court to maintain the two (2) rules on indigent litigants to cover applications to litigate as
an indigent litigant.

It may be argued that Rule 3, Section 21 has been impliedly repealed by the recent
2000 and 2004 amendments to Rule 141 on legal fees. This position is bereft of merit.
Implied repeals are frowned upon unless the intent of the framers of the rules is
unequivocal. It has been consistently ruled that:

(r)epeals by implication are not favored, and will not be decreed, unless it is
manifest that the legislature so intended. As laws are presumed to be passed
with deliberation and with full knowledge of all existing ones on the subject, it is
but reasonable to conclude that in passing a statute[,] it was not intended to
interfere with or abrogate any former law relating to same matter, unless the
repugnancy between the two is not only irreconcilable, but also clear and
convincing, and flowing necessarily from the language used, unless the later act
fully embraces the subject matter of the earlier, or unless the reason for the
earlier act is beyond peradventure removed. Hence, every effort must be used to
make all acts stand and if, by any reasonable construction they can
be reconciled, the later act will not operate as a repeal of the earlier.24 (Emphasis
supplied).

Instead of declaring that Rule 3, Section 21 has been superseded and impliedly
amended by Section 18 and later Section 19 of Rule 141, the Court finds that the two
rules can and should be harmonized.

The Court opts to reconcile Rule 3, Section 21 and Rule 141, Section 19 because it is a
settled principle that when conflicts are seen between two provisions, all efforts must be
made to harmonize them. Hence, "every statute [or rule] must be so construed and
harmonized with other statutes [or rules] as to form a uniform system of
jurisprudence."25

In Manila Jockey Club, Inc. v. Court of Appeals, this Court enunciated that in the
interpretation of seemingly conflicting laws, efforts must be made to first harmonize
them. This Court thus ruled:

Consequently, every statute should be construed in such a way that will

harmonize it with existing laws. This principle is expressed in the legal maxim
'interpretare et concordare leges legibus est optimus interpretandi,' that is, to
interpret and to do it in such a way as to harmonize laws with laws is the best
method of interpretation.26

In the light of the foregoing considerations, therefore, the two (2) rules can stand
together and are compatible with each other. When an application to litigate as an
indigent litigant is filed, the court shall scrutinize the affidavits and supporting
documents submitted by the applicant to determine if the applicant complies with the

65
income and property standards prescribed in the present Section 19 of Rule 141—that
is, the applicant's gross income and that of the applicant's immediate family do not
exceed an amount double the monthly minimum wage of an employee; and the
applicant does not own real property with a fair market value of more than Three
Hundred Thousand Pesos (PhP 300,000.00). If the trial court finds that the applicant
meets the income and property requirements, the authority to litigate as indigent litigant
is automatically granted and the grant is a matter of right.

However, if the trial court finds that one or both requirements have not been met, then it
would set a hearing to enable the applicant to prove that the applicant has "no money or
property sufficient and available for food, shelter and basic necessities for himself and
his family." In that hearing, the adverse party may adduce countervailing evidence to
disprove the evidence presented by the applicant; after which the trial court will rule on
the application depending on the evidence adduced. In addition, Section 21 of Rule 3
also provides that the adverse party may later still contest the grant of such authority at
any time before judgment is rendered by the trial court, possibly based on newly
discovered evidence not obtained at the time the application was heard. If the court
determines after hearing, that the party declared as an indigent is in fact a person with
sufficient income or property, the proper docket and other lawful fees shall be assessed
and collected by the clerk of court. If payment is not made within the time fixed by the
court, execution shall issue or the payment of prescribed fees shall be made, without
prejudice to such other sanctions as the court may impose.

The Court concedes that Rule 141, Section 19 provides specific standards while Rule 3,
Section 21 does not clearly draw the limits of the entitlement to the exemption. Knowing
that the litigants may abuse the grant of authority, the trial court must use sound
discretion and scrutinize evidence strictly in granting exemptions, aware that the
applicant has not hurdled the precise standards under Rule 141. The trial court must
also guard against abuse and misuse of the privilege to litigate as an indigent litigant to
prevent the filing of exorbitant claims which would otherwise be regulated by a legal fee
requirement.

Thus, the trial court should have applied Rule 3, Section 21 to the application of the
Alguras after their affidavits and supporting documents showed that petitioners did not
satisfy the twin requirements on gross monthly income and ownership of real property
under Rule 141. Instead of disqualifying the Alguras as indigent litigants, the trial court
should have called a hearing as required by Rule 3, Section 21 to enable the petitioners
to adduce evidence to show that they didn't have property and money sufficient and
available for food, shelter, and basic necessities for them and their family.27 In that
hearing, the respondents would have had the right to also present evidence to refute the
allegations and evidence in support of the application of the petitioners to litigate as
indigent litigants. Since this Court is not a trier of facts, it will have to remand the case to
the trial court to determine whether petitioners can be considered as indigent litigants
using the standards set in Rule 3, Section 21.

66
Recapitulating the rules on indigent litigants, therefore, if the applicant for exemption
meets the salary and property requirements under Section 19 of Rule 141, then the
grant of the application is mandatory. On the other hand, when the application does not
satisfy one or both requirements, then the application should not be denied outright;
instead, the court should apply the "indigency test" under Section 21 of Rule 3 and use
its sound discretion in determining the merits of the prayer for exemption.

Access to justice by the impoverished is held sacrosanct under Article III, Section 11 of
the 1987 Constitution. The Action Program for Judicial Reforms (APJR) itself, initiated
by former Chief Justice Hilario G. Davide, Jr., placed prime importance on 'easy access
to justice by the poor' as one of its six major components. Likewise, the judicial
philosophy of Liberty and Prosperity of Chief Justice Artemio V. Panganiban makes it
imperative that the courts shall not only safeguard but also enhance the rights of
individuals—which are considered sacred under the 1987 Constitution. Without doubt,
one of the most precious rights which must be shielded and secured is the unhampered
access to the justice system by the poor, the underprivileged, and the marginalized.

WHEREFORE, the petition is GRANTED and the April 14, 2000 Order granting the
disqualification of petitioners, the July 17, 2000 Order denying petitioners' Motion for
Reconsideration, and the September 11, 2001 Order dismissing the case in Civil Case
No. RTC-99-4403 before the Naga City RTC, Branch 27 are ANNULLED and SET
ASIDE. Furthermore, the Naga City RTC is ordered to set the "Ex-Parte Motion to
Litigate as Indigent Litigants" for hearing and apply Rule 3, Section 21 of the 1997 Rules
of Civil Procedure to determine whether petitioners can qualify as indigent litigants.

No costs.

SO ORDERED.

67
CASE NO. 7

B. VAN ZUIDEN BROS., LTD., G.R. No. 147905

Petitioner,
Present:

QUISUMBING, J.,
Chairperson,
-versus- CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.

GTVL MANUFACTURING Promulgated:

INDUSTRIES, INC.,
Respondent. May 28, 2007
x-----------------------------------------------------------------------------------------x

DECISION

CARPIO, J.:

The Case

Before the Court is a petition for review[1] of the 18 April 2001 Decision[2] of the Court of

Appeals in CA-G.R. CV No. 66236.The Court of Appeals affirmed the Order [3] of the

Regional Trial Court, Branch 258, Paraaque City (trial court) dismissing the complaint

for sum of money filed by B. Van Zuiden Bros., Ltd. (petitioner) against GTVL

Manufacturing Industries, Inc. (respondent).

The Facts

On 13 July 1999, petitioner filed a complaint for sum of money against respondent,

docketed as Civil Case No. 99-0249. The pertinent portions of the complaint read:

68
 1. Plaintiff, ZUIDEN, is a corporation, incorporated under the laws of Hong
Kong. x x x ZUIDEN is not engaged in business in the Philippines, but is
suing before the Philippine Courts, for the reasons hereinafter stated.

xxxx

3. ZUIDEN is engaged in the importation and exportation of several

products, including lace products.

4. On several occasions, GTVL purchased lace products from [ZUIDEN].

5. The procedure for these purchases, as per the instructions of GTVL,

was that ZUIDEN delivers the products purchased by GTVL, to a certain
Hong Kong corporation, known as Kenzar Ltd. (KENZAR), x x x and the
products are then considered as sold, upon receipt by KENZAR of the
goods purchased by GTVL.
KENZAR had the obligation to deliver the products to
the Philippines and/or to follow whatever instructions GTVL had on the
matter.

Insofar as ZUIDEN is concerned, upon delivery of the goods to KENZAR

in Hong Kong, the transaction is concluded; and GTVL became obligated
to pay the agreed purchase price.

xxxx
7. However, commencing October 31, 1994 up to the present, GTVL has
failed and refused to pay the agreed purchase price for several deliveries
ordered by it and delivered by ZUIDEN, as above-mentioned.

xxxx

9. In spite [sic] of said demands and in spite [sic] of promises to pay and/or
admissions of liability, GTVL has failed and refused, and continues to fail
and refuse, to pay the overdue amount of U.S.$32,088.02 [inclusive of
interest].[4]

Instead of filing an answer, respondent filed a Motion to Dismiss[5] on the ground that

petitioner has no legal capacity to sue.Respondent alleged that petitioner is doing

business in the Philippines without securing the required license. Accordingly, petitioner

cannot sue before Philippine courts.

69
After an exchange of several pleadings[6] between the parties, the trial court issued an

Order on 10 November 1999 dismissing the complaint.

On appeal, the Court of Appeals sustained the trial courts dismissal of the complaint.

Hence, this petition.

The Court of Appeals Ruling

In affirming the dismissal of the complaint, the Court of Appeals relied on Eriks Pte., Ltd.

v. Court of Appeals.[7] In that case, Eriks, an unlicensed foreign corporation, sought to

collect US$41,939.63 from a Filipino businessman for goods which he purchased and

received on several occasions from January to May 1989. The transfers of goods took

place in Singapore, for the Filipinos account, F.O.B. Singapore, with a 90-day credit

term. Since the transactions involved were not isolated, this Court found Eriks to be

doing business in the Philippines. Hence, this Court upheld the dismissal of the

complaint on the ground that Eriks has no capacity to sue.

The Court of Appeals noted that in Eriks, while the deliveries of the goods were

perfected in Singapore, this Court still found Eriksto be engaged in business in the

Philippines. Thus, the Court of Appeals concluded that the place of delivery of the

70
goods (or the place where the transaction took place) is not material in determining

whether a foreign corporation is doing business in the Philippines. The Court of Appeals

held that what is material are the proponents to the transaction, as well as the parties to

be benefited and obligated by the transaction.

In this case, the Court of Appeals found that the parties entered into a contract of sale

whereby petitioner sold lace products to respondent in a series of transactions. While

petitioner delivered the goods in Hong Kong to Kenzar, Ltd. (Kenzar), another Hong

Kong company, the party with whom petitioner transacted was actually respondent, a

Philippine corporation, and not Kenzar. The Court of Appeals believed Kenzar is merely

a shipping company. The Court of Appeals concluded that the delivery of the goods in

Hong Kong did not exempt petitioner from being considered as doing business in the

Philippines.

The Issue

The sole issue in this case is whether petitioner, an unlicensed foreign corporation, has

legal capacity to sue before Philippine courts. The resolution of this issue depends on

whether petitioner is doing business in the Philippines.

The Ruling of the Court

71
The petition is meritorious.

Section 133 of the Corporation Code provides:

Doing business without license. No foreign corporation transacting

business in the Philippines without a license, or its successors or assigns,
shall be permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency of the Philippines; but
such corporation may be sued or proceeded against before Philippine
courts or administrative tribunals on any valid cause of action recognized
under Philippine laws.

The law is clear. An unlicensed foreign corporation doing business in the Philippines

cannot sue before Philippine courts. On the other hand, an unlicensed foreign

corporation not doing business in the Philippines can sue before Philippine courts.

In the present controversy, petitioner is a foreign corporation which claims that it is not

doing business in the Philippines. As such, it needs no license to institute a collection

suit against respondent before Philippine courts.

Respondent argues otherwise. Respondent insists that petitioner is doing business in

the Philippines without the required license.Hence, petitioner has no legal capacity to

sue before Philippine courts.

Under Section 3(d) of Republic Act No. 7042 (RA 7042) or The Foreign Investments Act

of 1991, the phrase doing business includes:

x x x soliciting orders, service contracts, opening offices, whether called

liaison offices or branches; appointing representatives or distributors

72
 domiciled in the Philippines or who in any calendar year stay in the
country for a period or periods totalling one hundred eighty (180) days or
more; participating in the management, supervision or control of any
domestic business, firm, entity or corporation in the Philippines; and any
other act or acts that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the performance of acts or
works, or the exercise of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and object
of the business organization: Provided, however, That the phrase doing
business shall not be deemed to include mere investment as a
shareholder by a foreign entity in domestic corporations duly registered to
do business, and/or the exercise of rights as such investor; nor having a
nominee director or officer to represent its interests in such corporation;
nor appointing a representative or distributor domiciled in the Philippines
which transacts business in its own name and for its own account.

The series of transactions between petitioner and respondent cannot be classified as

doing business in the Philippines under Section 3(d) of RA 7042. An essential condition

to be considered as doing business in the Philippines is the actual performance of

specific commercial acts within the territory of the Philippines for the plain reason that

the Philippines has no jurisdiction over commercial acts performed in foreign

territories. Here, there is no showing that petitioner performed within the Philippine

territory the specific acts of doing business mentioned in Section 3(d) of RA

7042. Petitioner did not also open an office here in the Philippines, appoint a

representative or distributor, or manage, supervise or control a local business. While

petitioner and respondent entered into a series of transactions implying a continuity of

commercial dealings, the perfection and consummation of these transactions were done

outside the Philippines.[8]

73
In its complaint, petitioner alleged that it is engaged in the importation and exportation of

several products, including lace products.Petitioner asserted that on several occasions,

respondent purchased lace products from it. Petitioner also claimed that respondent

instructed it to deliver the purchased goods to Kenzar, which is a Hong Kong company

based in Hong Kong. Upon Kenzars receipt of the goods, the products were considered

sold. Kenzar, in turn, had the obligation to deliver the lace products to the Philippines. In

other words, the sale of lace products was consummated in Hong Kong.

As earlier stated, the series of transactions between petitioner and respondent

transpired and were consummated in Hong Kong.[9]We also find no single activity which

petitioner performed here in the Philippines pursuant to its purpose and object as a

business organization.[10] Moreover, petitioners desire to do business within the

Philippines is not discernible from the allegations of the complaint or from its

attachments. Therefore, there is no basis for ruling that petitioner is doing business in

the Philippines.

In Eriks, respondent therein alleged the existence of a distributorship agreement

between him and the foreign corporation. If duly established, such distributorship

agreement could support respondents claim that petitioner was indeed doing business

in the Philippines. Here, there is no such or similar agreement between petitioner and

respondent.

74
We disagree with the Court of Appeals ruling that the proponents to the transaction

determine whether a foreign corporation is doing business in the Philippines, regardless

of the place of delivery or place where the transaction took place. To accede to such

theory makes it possible to classify, for instance, a series of transactions between a

Filipino in the United States and an American company based in the United States as

doing business in the Philippines, even when these transactions are negotiated and

consummated only within the United States.

An exporter in one country may export its products to many foreign importing countries

without performing in the importing countries specific commercial acts that would

constitute doing business in the importing countries. The mere act of exporting from

ones own country, without doing any specific commercial act within the territory of the

importing country, cannot be deemed as doing business in the importing country. The

importing country does not acquire jurisdiction over the foreign exporter who has not

performed any specific commercial act within the territory of the importing

country. Without jurisdiction over the foreign exporter, the importing country cannot

compel the foreign exporter to secure a license to do business in the importing country.

Otherwise, Philippine exporters, by the mere act alone of exporting their products, could

be considered by the importing countries to be doing business in those countries. This

75
will require Philippine exporters to secure a business license in every foreign country

where they usually export their products, even if they do not perform any specific

commercial act within the territory of such importing countries. Such a legal concept will

have a deleterious effect not only on Philippine exports, but also on global trade.

To be doing or transacting business in the Philippines for purposes of Section 133 of the

Corporation Code, the foreign corporation must actually transact business in the

Philippines, that is, perform specific business transactions within the Philippine territory

on a continuing basis in its own name and for its own account. Actual transaction of

business within the Philippine territory is an essential requisite for the Philippines to

acquire jurisdiction over a foreign corporation and thus require the foreign corporation to

secure a Philippine business license. If a foreign corporation does not transact such

kind of business in the Philippines, even if it exports its products to the Philippines, the

Philippines has no jurisdiction to require such foreign corporation to secure a Philippine

business license.

Considering that petitioner is not doing business in the Philippines, it does not need a

license in order to initiate and maintain a collection suit against respondent for the

unpaid balance of respondents purchases.

WHEREFORE, we GRANT the petition. We REVERSE the Decision dated 18 April

2001 of the Court of Appeals in CA-G.R. CV No. 66236. No costs.

SO ORDERED.

76
CASE NO. 8 G.R. No. 147999 February 27, 2004

SUI MAN HUI CHAN and GONZALO CO, petitioners

vs.
HON. COURT OF APPEALS and OSCAR D. MEDALLA, respondents.

DECISION

QUISUMBING, J.:

For review on certiorari is the Decision1 dated May 3, 2001, of the Court of Appeals in
CA-G.R. SP No. 61889, affirming the Order2 dated January 11, 2000, of the Regional
Trial Court (RTC) of Mandaluyong City, Branch 213, in Civil Case No. MC99-666, which
had denied petitioners‘ Motion to Dismiss the complaint filed by private respondent.

The facts, as culled from records, are as follows:

On March 30, 1999, private respondent Oscar Medalla filed a complaint before the RTC
of Mandaluyong City, docketed as Civil Case No. MC99-666, for collection of a sum of
money arising from breach of a contract of lease and damages, against petitioners Sui
Man Hui Chan and Gonzalo Co.

The complaint alleged that on November 14, 1988, Napoleon C. Medalla as lessor and
Ramon Chan as lessee entered into a Lease Contract3 over a hotel building located at
No. 29 Abanao Street, Baguio City. Chan would use the leased premises as a
restaurant named "Cypress Inn". Pertinently, the parties agreed on the following:

1. The period of lease shall be for ten (10) years or from 15 July 1988 to 15 July
1998.

2. The payment of the realty taxes due to the government on the leased
premises shall be for the account of the Lessee.

3. The agreement is binding upon the heirs and/or successors-in-interest of the

Lessor and the Lessee.

Petitioner Gonzalo Co was employed by Ramon Chan as the general manager of

"Cypress Inn" and acted as his agent in all his dealings with Napoleon Medalla.

On August 5, 1989, Ramon Chan died. He was survived by his wife, petitioner Sui Man
Hui Chan, who continued to operate the restaurant.

On July 17, 1996, Napoleon Medalla died. Among his heirs is private respondent Oscar
Medalla, who succeeded him as owner and lessor of the leased premises. The contract
was neither amended nor terminated after the death of the original parties but was
continued by their respective successors-in-interest pursuant to the terms thereof.

77
Petitioners Chan and Co, the latter, in his capacity as agent and general manager,
continued to deal with private respondent Medalla in all transactions pertaining to the
contract.

On various occasions, petitioners failed to pay the monthly rentals due on the leased
premises. Despite several Statements of Accounts sent by Medalla, petitioners failed to
pay the rentals due but, nonetheless, continued to use and occupy the leased premises.

On February 26, 1997, Medalla sent a letter addressed to Ramon Chan, indicating that
(1) the contract of lease would expire on July 15, 1998, and (2) he was not amenable to
a renewal of said contract after its expiration.

Medalla then sent demand letters to petitioners, but the latter still failed to pay the
unpaid rentals. He also found out that petitioners had not paid the realty taxes due on
the leased premises since 1991, amounting to ₱610,019.11. Medalla then asked
petitioners to settle the unpaid rentals, pay the unpaid real estate taxes, and vacate the
leased premises.

On January 1999, petitioners vacated the premises but without paying their unpaid
rentals and realty taxes. Aggrieved by petitioners‘ refusal to pay the amounts owing,
which had reached ₱4,147,901.80 by March 1999, private respondent Medalla instituted
Civil Case No. MC99-666.

In their Answer to the Complaint, petitioners denied owing private respondent the
amounts claimed by the latter. They alleged that the late Ramon Chan had paid all the
rentals due up to March 15, 1998. Moreover, they need not pay any balance owing on
the rentals as they were required to pay two (2) months advance rentals upon signing of
the contract and make a guarantee deposit amounting to ₱220,000. On the matter of
unpaid realty taxes, petitioners alleged that private respondent was responsible therefor
as the owner of the leased premises, notwithstanding any contrary stipulations in the
contract.

On July 19, 1999, petitioners filed a Supplemental Answer with Motion to Dismiss
alleging that they were neither parties nor privies to the Contract of Lease, hence they
are not the real parties-in-interest.

Private respondent filed a Reply and Opposition to petitioners‘ Supplemental Answer

with Motion to Dismiss dated August 2, 1999, praying for the denial of the Motion to
Dismiss for having been belatedly filed in direct contravention of Section 1, Rule 16, of
the 1997 Rules of Civil Procedure.4 He further alleged that petitioner Chan, as the
owner of the business and petitioner Co as the agent of petitioner Chan, are clearly real
parties-in-interest in the case. Private respondent pointed to their continuous dealings
with him in all transactions relating to the contract after the death of Ramon Chan and
even after the expiration of the Contract of Lease.

On January 11, 2000, the RTC denied petitioners‘ Motion to Dismiss, thus:

78
WHEREFORE, in view of the foregoing, the motion to dismiss dated July 19, 1999 filed
by defendant through counsel against plaintiff is hereby DENIED for lack of merit.

SO ORDERED.5

The trial court pointed out that petitioners continued to transact business with private
respondent after the death of Ramon Chan as shown by the communications between
the parties. It also declared that private respondent‘s acquiescence to petitioners‘
continued occupation and enjoyment of the leased premises and the latter‘s recognition
of the former‘s ownership of said premises reflected an oral agreement between the
parties to continue the Lease Contract.

Petitioners moved for reconsideration on the ground that any claim should be filed
against the estate of Ramon Chan in an estate proceeding pursuant to Section 5, Rule
86, of the Revised Rules of Court6 since Ramon Chan‘s estate is the real party-in-
interest. The court denied said motion and declared that Section 5, Rule 86 is
inapplicable in the case. It pointed out that the unpaid rentals being claimed were those
for the period April 1993 to December 1998. These were incurred by petitioners and not
by the late Ramon Chan, who died on August 5, 1989.

Dissatisfied, petitioners elevated the matter to the Court of Appeals through a special
civil action of certiorari, docketed as CA-G.R. SP No. 61889. The Court of Appeals,
however, affirmed the RTC Orders, as follows:

WHEREFORE, foregoing premises considered, the petition having no merit in fact and
in law is hereby DENIED DUE COURSE and ACCORDINGLY ORDERED DISMISSED.
The assailed Orders are resultantly AFFIRMED WITH COSTS TO PETITIONERS.

SO ORDERED.7

Hence, the instant petition submitting as sole issue for our resolution:

whether or not respondent Court of Appeals committed serious error in law in affirming
the RTC Orders denying petitioners‘ motion to dismiss and the subsequent motion for
reconsideration.8

Petitioners argue that the Court of Appeals erred in affirming the RTC‘s Orders because
they are not the real parties-in-interest and hence, were improperly impleaded in the
complaint as defendants. Petitioners insist that they were neither parties nor were they
privy to the Contract of Lease between the late Ramon Chan and Napoleon Medalla.
They vigorously assert that any claim for unpaid rentals should be made against the
estate of Ramon Chan pursuant to Section 5, Rule 86 of the Revised Rules of Court.

We find for private respondent. Prefatorily, it bears stressing that petitioners‘ Motion to
Dismiss was filed after an Answer had already been filed. This alone warranted an
outright dismissal of the motion for having been filed in contravention of the clear and

79
explicit mandate of Section 1, Rule 16, of the Revised Rules of Civil Procedure. Under
this section, a motion to dismiss shall be filed within the time for but before filing the
answer to the complaint or pleading asserting a claim. 9 Here, petitioners filed their
Supplemental Answer with Motion to Dismiss almost two months after filing their
Answer, in clear contravention of the aforecited rule.

The Court of Appeals stated that the grant or denial of a Motion to Dismiss is an
interlocutory order, and it cannot be the proper subject of a special civil action
for certiorari. The proper remedy in such a case is to appeal after a decision has been
rendered, the CA said. A writ of certiorari is not intended to correct every controversial
interlocutory ruling; it is resorted to only to correct a grave abuse of discretion or a
whimsical exercise of judgment equivalent to lack or excess of jurisdiction. The function
of a petition for certiorari is limited to keeping an inferior court within the bounds of its
jurisdiction and to relieve persons from arbitrary acts, acts which courts or judges have
no power or authority in law to perform. Certiorari is not designed to correct erroneous
findings and conclusions made by the court.10 On this score, we are in agreement with
the appellate court.

At any rate, we find no merit to petitioners‘ contention that they are not real parties-in-
interest since they are not parties nor signatories to the contract and hence should not
have been impleaded as defendants. It is undeniable that petitioner Chan is an heir of
Ramon Chan and, together with petitioner Co, was a successor-in-interest to the
restaurant business of the late Ramon Chan. Both continued to operate the business
after the death of Ramon. Thus, they are real parties-in-interest in the case filed by
private respondent, notwithstanding that they are not signatories to the Contract of
Lease.

A lease contract is not essentially personal in character. Thus, the rights and obligations
therein are transmissible to the heirs.11 The general rule, therefore, is that heirs are
bound by contracts entered into by their predecessors-in-interest except when the rights
and obligations arising therefrom are not transmissible by (1) their nature, (2) stipulation
or (3) provision of law.12 In the subject Contract of Lease, not only were there no
stipulations prohibiting any transmission of rights, but its very terms and conditions
explicitly provided for the transmission of the rights of the lessor and of the lessee to
their respective heirs and successors. The contract is the law between the parties. The
death of a party does not excuse nonperformance of a contract, which involves a
property right, and the rights and obligations thereunder pass to the successors or
representatives of the deceased. Similarly, nonperformance is not excused by the death
of the party when the other party has a property interest in the subject matter of the
contract.13

Finally, as to petitioners‘ contention that any claim should have been filed before the
estate proceeding of Ramon Chan pursuant to Section 5 of Rule 86, the trial court found
that the unpaid rentals sought to be claimed were for the period April 1993 to December
1998. Note that Ramon Chan, the original lessee, died on August 5, 1989. In other
words, as the unpaid rentals did not accrue during the lifetime of Ramon Chan, but well

80
after his death, his estate might not be held liable for them. Hence, there is no
indubitable basis to apply Section 5, Rule 86, of the Revised Rules of Court as
petitioners urge respondents to do.

WHEREFORE, the instant petition is DENIED and the Decision of the Court of Appeals
in CA-G.R. SP. No. 61889 is AFFIRMED. Costs against petitioners.

SO ORDERED.

81