G.R. No.

101083 July 30, 1993

JUAN ANTONIO, ANNA ROSARIO and JOSE ALFONSO, all surnamed OPOSA, minors,
and represented by their parents ANTONIO and RIZALINA OPOSA, ROBERTA NICOLE
SADIUA, minor, represented by her parents CALVIN and ROBERTA SADIUA, CARLO,
AMANDA SALUD and PATRISHA, all surnamed FLORES, minors and represented by
their parents ENRICO and NIDA FLORES, GIANINA DITA R. FORTUN, minor,
represented by her parents SIGRID and DOLORES FORTUN, GEORGE II and MA.
CONCEPCION, all surnamed MISA, minors and represented by their parents GEORGE
and MYRA MISA, BENJAMIN ALAN V. PESIGAN, minor, represented by his parents
ANTONIO and ALICE PESIGAN, JOVIE MARIE ALFARO, minor, represented by her
parents JOSE and MARIA VIOLETA ALFARO, MARIA CONCEPCION T. CASTRO,
minor, represented by her parents FREDENIL and JANE CASTRO, JOHANNA
DESAMPARADO,
minor, represented by her parents JOSE and ANGELA DESAMPRADO, CARLO
JOAQUIN T. NARVASA, minor, represented by his parents GREGORIO II and
CRISTINE CHARITY NARVASA, MA. MARGARITA, JESUS IGNACIO, MA. ANGELA and
MARIE GABRIELLE, all surnamed SAENZ, minors, represented by their parents
ROBERTO and AURORA SAENZ, KRISTINE, MARY ELLEN, MAY, GOLDA MARTHE
and DAVID IAN, all surnamed KING, minors, represented by their parents MARIO and
HAYDEE KING, DAVID, FRANCISCO and THERESE VICTORIA, all surnamed ENDRIGA,
minors, represented by their parents BALTAZAR and TERESITA ENDRIGA, JOSE MA.
and REGINA MA., all surnamed ABAYA, minors, represented by their parents
ANTONIO and MARICA ABAYA, MARILIN, MARIO, JR. and MARIETTE, all surnamed
CARDAMA, minors, represented by their parents MARIO and LINA CARDAMA,
CLARISSA, ANN MARIE, NAGEL, and IMEE LYN, all surnamed OPOSA, minors and
represented by their parents RICARDO and MARISSA OPOSA, PHILIP JOSEPH,
STEPHEN JOHN and ISAIAH JAMES, all surnamed QUIPIT, minors, represented by
their parents JOSE MAX and VILMI QUIPIT, BUGHAW CIELO, CRISANTO, ANNA,
DANIEL and FRANCISCO, all surnamed BIBAL, minors, represented by their parents
FRANCISCO, JR. and MILAGROS BIBAL, and THE PHILIPPINE ECOLOGICAL
NETWORK, INC., petitioners,
vs.
THE HONORABLE FULGENCIO S. FACTORAN, JR., in his capacity as the Secretary of
the Department of Environment and Natural Resources, and THE HONORABLE
ERIBERTO U. ROSARIO, Presiding Judge of the RTC, Makati, Branch 66, respondents.

Oposa Law Office for petitioners.

The Solicitor General for respondents.

DAVIDE, JR., J.:

In a broader sense, this petition bears upon the right of Filipinos to a balanced and healthful
ecology which the petitioners dramatically associate with the twin concepts of "inter-
generational responsibility" and "inter-generational justice." Specifically, it touches on the
issue of whether the said petitioners have a cause of action to "prevent the misappropriation
or impairment" of Philippine rainforests and "arrest the unabated hemorrhage of the country's
vital life support systems and continued rape of Mother Earth."
The controversy has its genesis in Civil Case No. 90-77 which was filed before Branch 66
(Makati, Metro Manila) of the Regional Trial Court (RTC), National Capital Judicial Region.
The principal plaintiffs therein, now the principal petitioners, are all minors duly represented
and joined by their respective parents. Impleaded as an additional plaintiff is the Philippine
Ecological Network, Inc. (PENI), a domestic, non-stock and non-profit corporation organized
for the purpose of, inter alia, engaging in concerted action geared for the protection of our
environment and natural resources. The original defendant was the Honorable Fulgencio S.
Factoran, Jr., then Secretary of the Department of Environment and Natural Resources
(DENR). His substitution in this petition by the new Secretary, the Honorable Angel C. Alcala,
was subsequently ordered upon proper motion by the petitioners.1 The complaint2 was
instituted as a taxpayers' class suit3 and alleges that the plaintiffs "are all citizens of the
Republic of the Philippines, taxpayers, and entitled to the full benefit, use and enjoyment of
the natural resource treasure that is the country's virgin tropical forests." The same was filed
for themselves and others who are equally concerned about the preservation of said
resource but are "so numerous that it is impracticable to bring them all before the Court." The
minors further asseverate that they "represent their generation as well as generations yet
unborn."4 Consequently, it is prayed for that judgment be rendered:

. . . ordering defendant, his agents, representatives and other persons acting

in his behalf to —

(1) Cancel all existing timber license agreements in the country;

(2) Cease and desist from receiving, accepting, processing, renewing or

approving new timber license agreements.

and granting the plaintiffs ". . . such other reliefs just and equitable under the premises."5

The complaint starts off with the general averments that the Philippine archipelago of 7,100
islands has a land area of thirty million (30,000,000) hectares and is endowed with rich, lush
and verdant rainforests in which varied, rare and unique species of flora and fauna may be
found; these rainforests contain a genetic, biological and chemical pool which is
irreplaceable; they are also the habitat of indigenous Philippine cultures which have existed,
endured and flourished since time immemorial; scientific evidence reveals that in order to
maintain a balanced and healthful ecology, the country's land area should be utilized on the
basis of a ratio of fifty-four per cent (54%) for forest cover and forty-six per cent (46%) for
agricultural, residential, industrial, commercial and other uses; the distortion and disturbance
of this balance as a consequence of deforestation have resulted in a host of environmental
tragedies, such as (a) water shortages resulting from drying up of the water table, otherwise
known as the "aquifer," as well as of rivers, brooks and streams, (b) salinization of the water
table as a result of the intrusion therein of salt water, incontrovertible examples of which may
be found in the island of Cebu and the Municipality of Bacoor, Cavite, (c) massive erosion
and the consequential loss of soil fertility and agricultural productivity, with the volume of soil
eroded estimated at one billion (1,000,000,000) cubic meters per annum — approximately
the size of the entire island of Catanduanes, (d) the endangering and extinction of the
country's unique, rare and varied flora and fauna, (e) the disturbance and dislocation of
cultural communities, including the disappearance of the Filipino's indigenous cultures, (f) the
siltation of rivers and seabeds and consequential destruction of corals and other aquatic life
leading to a critical reduction in marine resource productivity, (g) recurrent spells of drought
as is presently experienced by the entire country, (h) increasing velocity of typhoon winds
which result from the absence of windbreakers, (i) the floodings of lowlands and agricultural
plains arising from the absence of the absorbent mechanism of forests, (j) the siltation and
shortening of the lifespan of multi-billion peso dams constructed and operated for the
purpose of supplying water for domestic uses, irrigation and the generation of electric power,
and (k) the reduction of the earth's capacity to process carbon dioxide gases which has led
to perplexing and catastrophic climatic changes such as the phenomenon of global warming,
otherwise known as the "greenhouse effect."

Plaintiffs further assert that the adverse and detrimental consequences of continued and
deforestation are so capable of unquestionable demonstration that the same may be
submitted as a matter of judicial notice. This notwithstanding, they expressed their intention
to present expert witnesses as well as documentary, photographic and film evidence in the
course of the trial.

As their cause of action, they specifically allege that:

CAUSE OF ACTION

7. Plaintiffs replead by reference the foregoing allegations.

8. Twenty-five (25) years ago, the Philippines had some sixteen (16) million
hectares of rainforests constituting roughly 53% of the country's land mass.

9. Satellite images taken in 1987 reveal that there remained no more than 1.2
million hectares of said rainforests or four per cent (4.0%) of the country's
land area.

10. More recent surveys reveal that a mere 850,000 hectares of virgin old-
growth rainforests are left, barely 2.8% of the entire land mass of the
Philippine archipelago and about 3.0 million hectares of immature and
uneconomical secondary growth forests.

11. Public records reveal that the defendant's, predecessors have granted
timber license agreements ('TLA's') to various corporations to cut the
aggregate area of 3.89 million hectares for commercial logging purposes.

A copy of the TLA holders and the corresponding areas covered is hereto
attached as Annex "A".

12. At the present rate of deforestation, i.e. about 200,000 hectares per
annum or 25 hectares per hour — nighttime, Saturdays, Sundays and
holidays included — the Philippines will be bereft of forest resources after the
end of this ensuing decade, if not earlier.

13. The adverse effects, disastrous consequences, serious injury and

irreparable damage of this continued trend of deforestation to the plaintiff
minor's generation and to generations yet unborn are evident and
incontrovertible. As a matter of fact, the environmental damages enumerated
in paragraph 6 hereof are already being felt, experienced and suffered by the
generation of plaintiff adults.

14. The continued allowance by defendant of TLA holders to cut and deforest
the remaining forest stands will work great damage and irreparable injury to
plaintiffs — especially plaintiff minors and their successors — who may never
see, use, benefit from and enjoy this rare and unique natural resource
treasure.

This act of defendant constitutes a misappropriation and/or impairment of the

natural resource property he holds in trust for the benefit of plaintiff minors
and succeeding generations.

15. Plaintiffs have a clear and constitutional right to a balanced and healthful
ecology and are entitled to protection by the State in its capacity as
the parens patriae.

16. Plaintiff have exhausted all administrative remedies with the defendant's
office. On March 2, 1990, plaintiffs served upon defendant a final demand to
cancel all logging permits in the country.

A copy of the plaintiffs' letter dated March 1, 1990 is hereto attached as

Annex "B".

17. Defendant, however, fails and refuses to cancel the existing TLA's to the
continuing serious damage and extreme prejudice of plaintiffs.

18. The continued failure and refusal by defendant to cancel the TLA's is an
act violative of the rights of plaintiffs, especially plaintiff minors who may be
left with a country that is desertified (sic), bare, barren and devoid of the
wonderful flora, fauna and indigenous cultures which the Philippines had
been abundantly blessed with.

19. Defendant's refusal to cancel the aforementioned TLA's is manifestly

contrary to the public policy enunciated in the Philippine Environmental Policy
which, in pertinent part, states that it is the policy of the State —

(a) to create, develop, maintain and improve conditions under which man and
nature can thrive in productive and enjoyable harmony with each other;

(b) to fulfill the social, economic and other requirements of present and future
generations of Filipinos and;

(c) to ensure the attainment of an environmental quality that is conductive to

a life of dignity and well-being. (P.D. 1151, 6 June 1977)

20. Furthermore, defendant's continued refusal to cancel the aforementioned

TLA's is contradictory to the Constitutional policy of the State to —

a. effect "a more equitable distribution of opportunities, income and wealth"

and "make full and efficient use of natural resources (sic)." (Section 1, Article
XII of the Constitution);

b. "protect the nation's marine wealth." (Section 2, ibid);

 c. "conserve and promote the nation's cultural heritage and resources (sic)"
(Section 14, Article XIV, id.);

d. "protect and advance the right of the people to a balanced and healthful
ecology in accord with the rhythm and harmony of nature." (Section 16,
Article II, id.)

21. Finally, defendant's act is contrary to the highest law of humankind — the
natural law — and violative of plaintiffs' right to self-preservation and
perpetuation.

22. There is no other plain, speedy and adequate remedy in law other than
the instant action to arrest the unabated hemorrhage of the country's vital life
support systems and continued rape of Mother Earth. 6

On 22 June 1990, the original defendant, Secretary Factoran, Jr., filed a Motion to Dismiss
the complaint based on two (2) grounds, namely: (1) the plaintiffs have no cause of action
against him and (2) the issue raised by the plaintiffs is a political question which properly
pertains to the legislative or executive branches of Government. In their 12 July 1990
Opposition to the Motion, the petitioners maintain that (1) the complaint shows a clear and
unmistakable cause of action, (2) the motion is dilatory and (3) the action presents a
justiciable question as it involves the defendant's abuse of discretion.

On 18 July 1991, respondent Judge issued an order granting the aforementioned motion to
dismiss.7 In the said order, not only was the defendant's claim — that the complaint states no
cause of action against him and that it raises a political question — sustained, the
respondent Judge further ruled that the granting of the relief prayed for would result in the
impairment of contracts which is prohibited by the fundamental law of the land.

Plaintiffs thus filed the instant special civil action for certiorari under Rule 65 of the Revised
Rules of Court and ask this Court to rescind and set aside the dismissal order on the ground
that the respondent Judge gravely abused his discretion in dismissing the action. Again, the
parents of the plaintiffs-minors not only represent their children, but have also joined the
latter in this case.8

On 14 May 1992, We resolved to give due course to the petition and required the parties to
submit their respective Memoranda after the Office of the Solicitor General (OSG) filed a
Comment in behalf of the respondents and the petitioners filed a reply thereto.

Petitioners contend that the complaint clearly and unmistakably states a cause of action as it
contains sufficient allegations concerning their right to a sound environment based on
Articles 19, 20 and 21 of the Civil Code (Human Relations), Section 4 of Executive Order
(E.O.) No. 192 creating the DENR, Section 3 of Presidential Decree (P.D.) No. 1151
(Philippine Environmental Policy), Section 16, Article II of the 1987 Constitution recognizing
the right of the people to a balanced and healthful ecology, the concept of generational
genocide in Criminal Law and the concept of man's inalienable right to self-preservation and
self-perpetuation embodied in natural law. Petitioners likewise rely on the respondent's
correlative obligation per Section 4 of E.O. No. 192, to safeguard the people's right to a
healthful environment.
It is further claimed that the issue of the respondent Secretary's alleged grave abuse of
discretion in granting Timber License Agreements (TLAs) to cover more areas for logging
than what is available involves a judicial question.

Anent the invocation by the respondent Judge of the Constitution's non-impairment clause,
petitioners maintain that the same does not apply in this case because TLAs are not
contracts. They likewise submit that even if TLAs may be considered protected by the said
clause, it is well settled that they may still be revoked by the State when the public interest so
requires.

On the other hand, the respondents aver that the petitioners failed to allege in their complaint
a specific legal right violated by the respondent Secretary for which any relief is provided by
law. They see nothing in the complaint but vague and nebulous allegations concerning an
"environmental right" which supposedly entitles the petitioners to the "protection by the state
in its capacity as parens patriae." Such allegations, according to them, do not reveal a valid
cause of action. They then reiterate the theory that the question of whether logging should be
permitted in the country is a political question which should be properly addressed to the
executive or legislative branches of Government. They therefore assert that the petitioners'
resources is not to file an action to court, but to lobby before Congress for the passage of a
bill that would ban logging totally.

As to the matter of the cancellation of the TLAs, respondents submit that the same cannot be
done by the State without due process of law. Once issued, a TLA remains effective for a
certain period of time — usually for twenty-five (25) years. During its effectivity, the same can
neither be revised nor cancelled unless the holder has been found, after due notice and
hearing, to have violated the terms of the agreement or other forestry laws and regulations.
Petitioners' proposition to have all the TLAs indiscriminately cancelled without the requisite
hearing would be violative of the requirements of due process.

Before going any further, We must first focus on some procedural matters. Petitioners
instituted Civil Case No. 90-777 as a class suit. The original defendant and the present
respondents did not take issue with this matter. Nevertheless, We hereby rule that the said
civil case is indeed a class suit. The subject matter of the complaint is of common and
general interest not just to several, but to all citizens of the Philippines. Consequently, since
the parties are so numerous, it, becomes impracticable, if not totally impossible, to bring all
of them before the court. We likewise declare that the plaintiffs therein are numerous and
representative enough to ensure the full protection of all concerned interests. Hence, all the
requisites for the filing of a valid class suit under Section 12, Rule 3 of the Revised Rules of
Court are present both in the said civil case and in the instant petition, the latter being but an
incident to the former.

This case, however, has a special and novel element. Petitioners minors assert that they
represent their generation as well as generations yet unborn. We find no difficulty in ruling
that they can, for themselves, for others of their generation and for the succeeding
generations, file a class suit. Their personality to sue in behalf of the succeeding generations
can only be based on the concept of intergenerational responsibility insofar as the right to a
balanced and healthful ecology is concerned. Such a right, as hereinafter expounded,
considers
the "rhythm and harmony of nature." Nature means the created world in its entirety.9 Such
rhythm and harmony indispensably include, inter alia, the judicious disposition, utilization,
management, renewal and conservation of the country's forest, mineral, land, waters,
fisheries, wildlife, off-shore areas and other natural resources to the end that their
exploration, development and utilization be equitably accessible to the present as well as
future generations. 10Needless to say, every generation has a responsibility to the next to
preserve that rhythm and harmony for the full enjoyment of a balanced and healthful ecology.
Put a little differently, the minors' assertion of their right to a sound environment constitutes,
at the same time, the performance of their obligation to ensure the protection of that right for
the generations to come.

The locus standi of the petitioners having thus been addressed, We shall now proceed to the
merits of the petition.

After a careful perusal of the complaint in question and a meticulous consideration and
evaluation of the issues raised and arguments adduced by the parties, We do not hesitate to
find for the petitioners and rule against the respondent Judge's challenged order for having
been issued with grave abuse of discretion amounting to lack of jurisdiction. The pertinent
portions of the said order reads as follows:

xxx xxx xxx

After a careful and circumspect evaluation of the Complaint, the Court cannot
help but agree with the defendant. For although we believe that plaintiffs
have but the noblest of all intentions, it (sic) fell short of alleging, with
sufficient definiteness, a specific legal right they are seeking to enforce and
protect, or a specific legal wrong they are seeking to prevent and redress
(Sec. 1, Rule 2, RRC). Furthermore, the Court notes that the Complaint is
replete with vague assumptions and vague conclusions based on unverified
data. In fine, plaintiffs fail to state a cause of action in its Complaint against
the herein defendant.

Furthermore, the Court firmly believes that the matter before it, being
impressed with political color and involving a matter of public policy, may not
be taken cognizance of by this Court without doing violence to the sacred
principle of "Separation of Powers" of the three (3) co-equal branches of the
Government.

The Court is likewise of the impression that it cannot, no matter how we

stretch our jurisdiction, grant the reliefs prayed for by the plaintiffs, i.e., to
cancel all existing timber license agreements in the country and to cease and
desist from receiving, accepting, processing, renewing or approving new
timber license agreements. For to do otherwise would amount to "impairment
of contracts" abhored (sic) by the fundamental law. 11

We do not agree with the trial court's conclusions that the plaintiffs failed to allege with
sufficient definiteness a specific legal right involved or a specific legal wrong committed, and
that the complaint is replete with vague assumptions and conclusions based on unverified
data. A reading of the complaint itself belies these conclusions.

The complaint focuses on one specific fundamental legal right — the right to a balanced and
healthful ecology which, for the first time in our nation's constitutional history, is solemnly
incorporated in the fundamental law. Section 16, Article II of the 1987 Constitution explicitly
provides:
 Sec. 16. The State shall protect and advance the right of the people to a
balanced and healthful ecology in accord with the rhythm and harmony of
nature.

This right unites with the right to health which is provided for in the preceding
section of the same article:

Sec. 15. The State shall protect and promote the right to health of the people
and instill health consciousness among them.

While the right to a balanced and healthful ecology is to be found under the Declaration of
Principles and State Policies and not under the Bill of Rights, it does not follow that it is less
important than any of the civil and political rights enumerated in the latter. Such a right
belongs to a different category of rights altogether for it concerns nothing less than self-
preservation and self-perpetuation — aptly and fittingly stressed by the petitioners — the
advancement of which may even be said to predate all governments and constitutions. As a
matter of fact, these basic rights need not even be written in the Constitution for they are
assumed to exist from the inception of humankind. If they are now explicitly mentioned in the
fundamental charter, it is because of the well-founded fear of its framers that unless the
rights to a balanced and healthful ecology and to health are mandated as state policies by
the Constitution itself, thereby highlighting their continuing importance and imposing upon
the state a solemn obligation to preserve the first and protect and advance the second, the
day would not be too far when all else would be lost not only for the present generation, but
also for those to come — generations which stand to inherit nothing but parched earth
incapable of sustaining life.

The right to a balanced and healthful ecology carries with it the correlative duty to refrain
from impairing the environment. During the debates on this right in one of the plenary
sessions of the 1986 Constitutional Commission, the following exchange transpired between
Commissioner Wilfrido Villacorta and Commissioner Adolfo Azcuna who sponsored the
section in question:

MR. VILLACORTA:

Does this section mandate the State to provide sanctions

against all forms of pollution — air, water and noise pollution?

MR. AZCUNA:

Yes, Madam President. The right to healthful (sic)

environment necessarily carries with it the correlative duty of
not impairing the same and, therefore, sanctions may be
provided for impairment of environmental balance. 12

The said right implies, among many other things, the judicious management and
conservation of the country's forests.

Without such forests, the ecological or environmental balance would be irreversiby

disrupted.
Conformably with the enunciated right to a balanced and healthful ecology and the right to
health, as well as the other related provisions of the Constitution concerning the
conservation, development and utilization of the country's natural resources, 13 then President
Corazon C. Aquino promulgated on 10 June 1987 E.O. No. 192, 14 Section 4 of which
expressly mandates that the Department of Environment and Natural Resources "shall be
the primary government agency responsible for the conservation, management,
development and proper use of the country's environment and natural resources, specifically
forest and grazing lands, mineral, resources, including those in reservation and watershed
areas, and lands of the public domain, as well as the licensing and regulation of all natural
resources as may be provided for by law in order to ensure equitable sharing of the benefits
derived therefrom for the welfare of the present and future generations of Filipinos." Section
3 thereof makes the following statement of policy:

Sec. 3. Declaration of Policy. — It is hereby declared the policy of the State

to ensure the sustainable use, development, management, renewal, and
conservation of the country's forest, mineral, land, off-shore areas and other
natural resources, including the protection and enhancement of the quality of
the environment, and equitable access of the different segments of the
population to the development and the use of the country's natural resources,
not only for the present generation but for future generations as well. It is also
the policy of the state to recognize and apply a true value system including
social and environmental cost implications relative to their utilization,
development and conservation of our natural resources.

This policy declaration is substantially re-stated it Title XIV, Book IV of the Administrative
Code of 1987,15 specifically in Section 1 thereof which reads:

Sec. 1. Declaration of Policy. — (1) The State shall ensure, for the benefit of
the Filipino people, the full exploration and development as well as the
judicious disposition, utilization, management, renewal and conservation of
the country's forest, mineral, land, waters, fisheries, wildlife, off-shore areas
and other natural resources, consistent with the necessity of maintaining a
sound ecological balance and protecting and enhancing the quality of the
environment and the objective of making the exploration, development and
utilization of such natural resources equitably accessible to the different
segments of the present as well as future generations.

(2) The State shall likewise recognize and apply a true value system that
takes into account social and environmental cost implications relative to the
utilization, development and conservation of our natural resources.

The above provision stresses "the necessity of maintaining a sound ecological balance and
protecting and enhancing the quality of the environment." Section 2 of the same Title, on the
other hand, specifically speaks of the mandate of the DENR; however, it makes particular
reference to the fact of the agency's being subject to law and higher authority. Said section
provides:

Sec. 2. Mandate. — (1) The Department of Environment and Natural

Resources shall be primarily responsible for the implementation of the
foregoing policy.
 (2) It shall, subject to law and higher authority, be in charge of carrying out
the State's constitutional mandate to control and supervise the exploration,
development, utilization, and conservation of the country's natural resources.

Both E.O. NO. 192 and the Administrative Code of 1987 have set the objectives which will
serve as the bases for policy formulation, and have defined the powers and functions of the
DENR.

It may, however, be recalled that even before the ratification of the 1987 Constitution,
specific statutes already paid special attention to the "environmental right" of the present and
future generations. On 6 June 1977, P.D. No. 1151 (Philippine Environmental Policy) and
P.D. No. 1152 (Philippine Environment Code) were issued. The former "declared a
continuing policy of the State (a) to create, develop, maintain and improve conditions under
which man and nature can thrive in productive and enjoyable harmony with each other, (b) to
fulfill the social, economic and other requirements of present and future generations of
Filipinos, and (c) to insure the attainment of an environmental quality that is conducive to a
life of dignity and well-being." 16 As its goal, it speaks of the "responsibilities of each
generation as trustee and guardian of the environment for succeeding generations." 17 The
latter statute, on the other hand, gave flesh to the said policy.

Thus, the right of the petitioners (and all those they represent) to a balanced and healthful
ecology is as clear as the DENR's duty — under its mandate and by virtue of its powers and
functions under E.O. No. 192 and the Administrative Code of 1987 — to protect and advance
the said right.

A denial or violation of that right by the other who has the corelative duty or obligation to
respect or protect the same gives rise to a cause of action. Petitioners maintain that the
granting of the TLAs, which they claim was done with grave abuse of discretion, violated
their right to a balanced and healthful ecology; hence, the full protection thereof requires that
no further TLAs should be renewed or granted.

A cause of action is defined as:

. . . an act or omission of one party in violation of the legal right or rights of

the other; and its essential elements are legal right of the plaintiff, correlative
obligation of the defendant, and act or omission of the defendant in violation
of said legal right. 18

It is settled in this jurisdiction that in a motion to dismiss based on the ground that the
complaint fails to state a cause of action, 19 the question submitted to the court for resolution
involves the sufficiency of the facts alleged in the complaint itself. No other matter should be
considered; furthermore, the truth of falsity of the said allegations is beside the point for the
truth thereof is deemed hypothetically admitted. The only issue to be resolved in such a case
is: admitting such alleged facts to be true, may the court render a valid judgment in
accordance with the prayer in the complaint? 20 In Militante vs. Edrosolano, 21 this Court laid
down the rule that the judiciary should "exercise the utmost care and circumspection in
passing upon a motion to dismiss on the ground of the absence thereof [cause of action] lest,
by its failure to manifest a correct appreciation of the facts alleged and deemed
hypothetically admitted, what the law grants or recognizes is effectively nullified. If that
happens, there is a blot on the legal order. The law itself stands in disrepute."
After careful examination of the petitioners' complaint, We find the statements under the
introductory affirmative allegations, as well as the specific averments under the sub-heading
CAUSE OF ACTION, to be adequate enough to show, prima facie, the claimed violation of
their rights. On the basis thereof, they may thus be granted, wholly or partly, the reliefs
prayed for. It bears stressing, however, that insofar as the cancellation of the TLAs is
concerned, there is the need to implead, as party defendants, the grantees thereof for they
are indispensable parties.

The foregoing considered, Civil Case No. 90-777 be said to raise a political question. Policy
formulation or determination by the executive or legislative branches of Government is not
squarely put in issue. What is principally involved is the enforcement of a right vis-a-
vis policies already formulated and expressed in legislation. It must, nonetheless, be
emphasized that the political question doctrine is no longer, the insurmountable obstacle to
the exercise of judicial power or the impenetrable shield that protects executive and
legislative actions from judicial inquiry or review. The second paragraph of section 1, Article
VIII of the Constitution states that:

Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and enforceable,
and to determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government.

Commenting on this provision in his book, Philippine Political Law, 22 Mr. Justice Isagani A.
Cruz, a distinguished member of this Court, says:

The first part of the authority represents the traditional concept of judicial
power, involving the settlement of conflicting rights as conferred as law. The
second part of the authority represents a broadening of judicial power to
enable the courts of justice to review what was before forbidden territory, to
wit, the discretion of the political departments of the government.

As worded, the new provision vests in the judiciary, and particularly the
Supreme Court, the power to rule upon even the wisdom of the decisions of
the executive and the legislature and to declare their acts invalid for lack or
excess of jurisdiction because tainted with grave abuse of discretion. The
catch, of course, is the meaning of "grave abuse of discretion," which is a
very elastic phrase that can expand or contract according to the disposition of
the judiciary.

In Daza vs. Singson, 23 Mr. Justice Cruz, now speaking for this Court, noted:

In the case now before us, the jurisdictional objection becomes even less
tenable and decisive. The reason is that, even if we were to assume that the
issue presented before us was political in nature, we would still not be
precluded from revolving it under the expanded jurisdiction conferred upon us
that now covers, in proper cases, even the political question. Article VII,
Section 1, of the Constitution clearly provides: . . .

The last ground invoked by the trial court in dismissing the complaint is the non-impairment
of contracts clause found in the Constitution. The court a quo declared that:
 The Court is likewise of the impression that it cannot, no matter how we
stretch our jurisdiction, grant the reliefs prayed for by the plaintiffs, i.e., to
cancel all existing timber license agreements in the country and to cease and
desist from receiving, accepting, processing, renewing or approving new
timber license agreements. For to do otherwise would amount to "impairment
of contracts" abhored (sic) by the fundamental law. 24

We are not persuaded at all; on the contrary, We are amazed, if not shocked, by such a
sweeping pronouncement. In the first place, the respondent Secretary did not, for obvious
reasons, even invoke in his motion to dismiss the non-impairment clause. If he had done so,
he would have acted with utmost infidelity to the Government by providing undue and
unwarranted benefits and advantages to the timber license holders because he would have
forever bound the Government to strictly respect the said licenses according to their terms
and conditions regardless of changes in policy and the demands of public interest and
welfare. He was aware that as correctly pointed out by the petitioners, into every timber
license must be read Section 20 of the Forestry Reform Code (P.D. No. 705) which provides:

. . . Provided, That when the national interest so requires, the President may
amend, modify, replace or rescind any contract, concession, permit, licenses
or any other form of privilege granted herein . . .

Needless to say, all licenses may thus be revoked or rescinded by executive action.
It is not a contract, property or a property right protested by the due process clause
of the Constitution. In Tan vs. Director of Forestry, 25 this Court held:

. . . A timber license is an instrument by which the State regulates the

utilization and disposition of forest resources to the end that public welfare is
promoted. A timber license is not a contract within the purview of the due
process clause; it is only a license or privilege, which can be validly
withdrawn whenever dictated by public interest or public welfare as in this
case.

A license is merely a permit or privilege to do what otherwise would be

unlawful, and is not a contract between the authority, federal, state, or
municipal, granting it and the person to whom it is granted; neither is it
property or a property right, nor does it create a vested right; nor is it taxation
(37 C.J. 168). Thus, this Court held that the granting of license does not
create irrevocable rights, neither is it property or property rights (People vs.
Ong Tin, 54 O.G. 7576).

We reiterated this pronouncement in Felipe Ysmael, Jr. & Co., Inc. vs. Deputy Executive
Secretary: 26

. . . Timber licenses, permits and license agreements are the principal

instruments by which the State regulates the utilization and disposition of
forest resources to the end that public welfare is promoted. And it can hardly
be gainsaid that they merely evidence a privilege granted by the State to
qualified entities, and do not vest in the latter a permanent or irrevocable right
to the particular concession area and the forest products therein. They may
be validly amended, modified, replaced or rescinded by the Chief Executive
when national interests so require. Thus, they are not deemed contracts
within the purview of the due process of law clause [See Sections 3(ee) and
 20 of Pres. Decree No. 705, as amended. Also, Tan v. Director of Forestry,
G.R. No. L-24548, October 27, 1983, 125 SCRA 302].

Since timber licenses are not contracts, the non-impairment clause, which reads:

Sec. 10. No law impairing, the obligation of contracts shall be passed. 27

cannot be invoked.

In the second place, even if it is to be assumed that the same are contracts, the instant case
does not involve a law or even an executive issuance declaring the cancellation or
modification of existing timber licenses. Hence, the non-impairment clause cannot as yet be
invoked. Nevertheless, granting further that a law has actually been passed mandating
cancellations or modifications, the same cannot still be stigmatized as a violation of the non-
impairment clause. This is because by its very nature and purpose, such as law could have
only been passed in the exercise of the police power of the state for the purpose of
advancing the right of the people to a balanced and healthful ecology, promoting their health
and enhancing the general welfare. In Abe vs. Foster Wheeler
Corp. 28 this Court stated:

The freedom of contract, under our system of government, is not meant to be

absolute. The same is understood to be subject to reasonable legislative
regulation aimed at the promotion of public health, moral, safety and welfare.
In other words, the constitutional guaranty of non-impairment of obligations of
contract is limited by the exercise of the police power of the State, in the
interest of public health, safety, moral and general welfare.

The reason for this is emphatically set forth in Nebia vs. New York, 29 quoted in Philippine
American Life Insurance Co. vs. Auditor General,30 to wit:

Under our form of government the use of property and the making of
contracts are normally matters of private and not of public concern. The
general rule is that both shall be free of governmental interference. But
neither property rights nor contract rights are absolute; for government
cannot exist if the citizen may at will use his property to the detriment of his
fellows, or exercise his freedom of contract to work them harm. Equally
fundamental with the private right is that of the public to regulate it in the
common interest.

In short, the non-impairment clause must yield to the police power of the state. 31

Finally, it is difficult to imagine, as the trial court did, how the non-impairment clause could
apply with respect to the prayer to enjoin the respondent Secretary from receiving, accepting,
processing, renewing or approving new timber licenses for, save in cases of renewal, no
contract would have as of yet existed in the other instances. Moreover, with respect to
renewal, the holder is not entitled to it as a matter of right.

WHEREFORE, being impressed with merit, the instant Petition is hereby GRANTED, and the
challenged Order of respondent Judge of 18 July 1991 dismissing Civil Case No. 90-777 is
hereby set aside. The petitioners may therefore amend their complaint to implead as
defendants the holders or grantees of the questioned timber license agreements.
No pronouncement as to costs.

SO ORDERED.

Cruz, Padilla, Bidin, Griño-Aquino, Regalado, Romero, Nocon, Bellosillo, Melo and Quiason,
JJ., concur.

Narvasa, C.J., Puno and Vitug, JJ., took no part.

Separate Opinions

FELICIANO, J., concurring

I join in the result reached by my distinguished brother in the Court, Davide, Jr., J., in this
case which, to my mind, is one of the most important cases decided by this Court in the last
few years. The seminal principles laid down in this decision are likely to influence profoundly
the direction and course of the protection and management of the environment, which of
course embraces the utilization of all the natural resources in the territorial base of our polity.
I have therefore sought to clarify, basically to myself, what the Court appears to be saying.

The Court explicitly states that petitioners have the locus standi necessary to sustain the
bringing and, maintenance of this suit (Decision, pp. 11-12). Locus standi is not a function of
petitioners' claim that their suit is properly regarded as a class suit. I understand locus
standi to refer to the legal interest which a plaintiff must have in the subject matter of the suit.
Because of the very broadness of the concept of "class" here involved — membership in this
"class" appears to embrace everyone living in the country whether now or in the
future — it appears to me that everyone who may be expected to benefit from the course of
action petitioners seek to require public respondents to take, is vested with the
necessary locus standi. The Court may be seen therefore to be recognizing a beneficiaries'
right of action in the field of environmental protection, as against both the public
administrative agency directly concerned and the private persons or entities operating in the
field or sector of activity involved. Whether such beneficiaries' right of action may be found
under any and all circumstances, or whether some failure to act, in the first instance, on the
part of the governmental agency concerned must be shown ("prior exhaustion of
administrative remedies"), is not discussed in the decision and presumably is left for future
determination in an appropriate case.

The Court has also declared that the complaint has alleged and focused upon "one specific
fundamental legal right — the right to a balanced and healthful ecology" (Decision, p. 14).
There is no question that "the right to a balanced and healthful ecology" is "fundamental" and
that, accordingly, it has been "constitutionalized." But although it is fundamental in character,
I suggest, with very great respect, that it cannot be characterized as "specific," without doing
excessive violence to language. It is in fact very difficult to fashion language more
comprehensive in scope and generalized in character than a right to "a balanced and
healthful ecology." The list of particular claims which can be subsumed under this rubic
appears to be entirely open-ended: prevention and control of emission of toxic fumes and
smoke from factories and motor vehicles; of discharge of oil, chemical effluents, garbage and
raw sewage into rivers, inland and coastal waters by vessels, oil rigs, factories, mines and
whole communities; of dumping of organic and inorganic wastes on open land, streets and
thoroughfares; failure to rehabilitate land after strip-mining or open-pit mining; kaingin or
slash-and-burn farming; destruction of fisheries, coral reefs and other living sea resources
through the use of dynamite or cyanide and other chemicals; contamination of ground water
resources; loss of certain species of fauna and flora; and so on. The other statements
pointed out by the Court: Section 3, Executive Order No. 192 dated 10 June 1987; Section 1,
Title XIV, Book IV of the 1987 Administrative Code; and P.D. No. 1151, dated 6 June 1977
— all appear to be formulations of policy, as general and abstract as the constitutional
statements of basic policy in Article II, Section 16 ("the right — to a balanced and healthful
ecology") and 15 ("the right to health").

P.D. No. 1152, also dated 6 June 1977, entitled "The Philippine Environment Code," is, upon
the other hand, a compendious collection of more "specific environment management
policies" and "environment quality standards" (fourth "Whereas" clause, Preamble) relating to
an extremely wide range of topics:

(a) air quality management;

(b) water quality management;

(c) land use management;

(d) natural resources management and conservation embracing:

(i) fisheries and aquatic resources;

(ii) wild life;

(iii) forestry and soil conservation;

(iv) flood control and natural calamities;

(v) energy development;

(vi) conservation and utilization of surface and ground water

(vii) mineral resources

Two (2) points are worth making in this connection. Firstly, neither petitioners nor the Court
has identified the particular provision or provisions (if any) of the Philippine Environment
Code which give rise to a specific legal right which petitioners are seeking to enforce.
Secondly, the Philippine Environment Code identifies with notable care the particular
government agency charged with the formulation and implementation of guidelines and
programs dealing with each of the headings and sub-headings mentioned above. The
Philippine Environment Code does not, in other words, appear to contemplate action on the
part of private persons who are beneficiaries of implementation of that Code.
As a matter of logic, by finding petitioners' cause of action as anchored on a legal right
comprised in the constitutional statements above noted, the Court is in effect saying that
Section 15 (and Section 16) of Article II of the Constitution are self-executing and judicially
enforceable even in their present form. The implications of this doctrine will have to be
explored in future cases; those implications are too large and far-reaching in nature even to
be hinted at here.

My suggestion is simply that petitioners must, before the trial court, show a more specific
legal right — a right cast in language of a significantly lower order of generality than Article II
(15) of the Constitution — that is or may be violated by the actions, or failures to act, imputed
to the public respondent by petitioners so that the trial court can validly render judgment
granting all or part of the relief prayed for. To my mind, the Court should be understood as
simply saying that such a more specific legal right or rights may well exist in our corpus of
law, considering the general policy principles found in the Constitution and the existence of
the Philippine Environment Code, and that the trial court should have given petitioners an
effective opportunity so to demonstrate, instead of aborting the proceedings on a motion to
dismiss.

It seems to me important that the legal right which is an essential component of a cause of
action be a specific, operable legal right, rather than a constitutional or statutory policy, for at
least two (2) reasons. One is that unless the legal right claimed to have been violated or
disregarded is given specification in operational terms, defendants may well be unable to
defend themselves intelligently and effectively; in other words, there are due process
dimensions to this matter.

The second is a broader-gauge consideration — where a specific violation of law or

applicable regulation is not alleged or proved, petitioners can be expected to fall back on the
expanded conception of judicial power in the second paragraph of Section 1 of Article VIII of
the Constitution which reads:

Section 1. . . .

Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and enforceable,
and to determine whether or not there has been a grave abuse of
discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the Government. (Emphasis supplied)

When substantive standards as general as "the right to a balanced and healthy

ecology" and "the right to health" are combined with remedial standards as broad
ranging as "a grave abuse of discretion amounting to lack or excess of jurisdiction,"
the result will be, it is respectfully submitted, to propel courts into the uncharted
ocean of social and economic policy making. At least in respect of the vast area of
environmental protection and management, our courts have no claim to special
technical competence and experience and professional qualification. Where no
specific, operable norms and standards are shown to exist, then the policy making
departments — the legislative and executive departments — must be given a real
and effective opportunity to fashion and promulgate those norms and standards, and
to implement them before the courts should intervene.

My learned brother Davide, Jr., J., rightly insists that the timber companies, whose
concession agreements or TLA's petitioners demand public respondents should cancel, must
be impleaded in the proceedings below. It might be asked that, if petitioners' entitlement to
the relief demanded is not dependent upon proof of breach by the timber companies of one
or more of the specific terms and conditions of their concession agreements (and this,
petitioners implicitly assume), what will those companies litigate about? The answer I
suggest is that they may seek to dispute the existence of the specific legal right petitioners
should allege, as well as the reality of the claimed factual nexus between petitioners' specific
legal rights and the claimed wrongful acts or failures to act of public respondent
administrative agency. They may also controvert the appropriateness of the remedy or
remedies demanded by petitioners, under all the circumstances which exist.

I vote to grant the Petition for Certiorari because the protection of the environment, including
the forest cover of our territory, is of extreme importance for the country. The doctrines set
out in the Court's decision issued today should, however, be subjected to closer
examination.

# Separate Opinions

FELICIANO, J., concurring

I join in the result reached by my distinguished brother in the Court, Davide, Jr., J., in this
case which, to my mind, is one of the most important cases decided by this Court in the last
few years. The seminal principles laid down in this decision are likely to influence profoundly
the direction and course of the protection and management of the environment, which of
course embraces the utilization of all the natural resources in the territorial base of our polity.
I have therefore sought to clarify, basically to myself, what the Court appears to be saying.

The Court explicitly states that petitioners have the locus standi necessary to sustain the
bringing and, maintenance of this suit (Decision, pp. 11-12). Locus standi is not a function of
petitioners' claim that their suit is properly regarded as a class suit. I understand locus
standi to refer to the legal interest which a plaintiff must have in the subject matter of the suit.
Because of the very broadness of the concept of "class" here involved — membership in this
"class" appears to embrace everyone living in the country whether now or in the
future — it appears to me that everyone who may be expected to benefit from the course of
action petitioners seek to require public respondents to take, is vested with the
necessary locus standi. The Court may be seen therefore to be recognizing a beneficiaries'
right of action in the field of environmental protection, as against both the public
administrative agency directly concerned and the private persons or entities operating in the
field or sector of activity involved. Whether such beneficiaries' right of action may be found
under any and all circumstances, or whether some failure to act, in the first instance, on the
part of the governmental agency concerned must be shown ("prior exhaustion of
administrative remedies"), is not discussed in the decision and presumably is left for future
determination in an appropriate case.

The Court has also declared that the complaint has alleged and focused upon "one specific
fundamental legal right — the right to a balanced and healthful ecology" (Decision, p. 14).
There is no question that "the right to a balanced and healthful ecology" is "fundamental" and
that, accordingly, it has been "constitutionalized." But although it is fundamental in character,
I suggest, with very great respect, that it cannot be characterized as "specific," without doing
excessive violence to language. It is in fact very difficult to fashion language more
comprehensive in scope and generalized in character than a right to "a balanced and
healthful ecology." The list of particular claims which can be subsumed under this rubic
appears to be entirely open-ended: prevention and control of emission of toxic fumes and
smoke from factories and motor vehicles; of discharge of oil, chemical effluents, garbage and
raw sewage into rivers, inland and coastal waters by vessels, oil rigs, factories, mines and
whole communities; of dumping of organic and inorganic wastes on open land, streets and
thoroughfares; failure to rehabilitate land after strip-mining or open-pit mining; kaingin or
slash-and-burn farming; destruction of fisheries, coral reefs and other living sea resources
through the use of dynamite or cyanide and other chemicals; contamination of ground water
resources; loss of certain species of fauna and flora; and so on. The other statements
pointed out by the Court: Section 3, Executive Order No. 192 dated 10 June 1987; Section 1,
Title XIV, Book IV of the 1987 Administrative Code; and P.D. No. 1151, dated 6 June 1977
— all appear to be formulations of policy, as general and abstract as the constitutional
statements of basic policy in Article II, Section 16 ("the right — to a balanced and healthful
ecology") and 15 ("the right to health").

P.D. No. 1152, also dated 6 June 1977, entitled "The Philippine Environment Code," is, upon
the other hand, a compendious collection of more "specific environment management
policies" and "environment quality standards" (fourth "Whereas" clause, Preamble) relating to
an extremely wide range of topics:

(a) air quality management;

(b) water quality management;

(c) land use management;

(d) natural resources management and conservation embracing:

(i) fisheries and aquatic resources;

(ii) wild life;

(iii) forestry and soil conservation;

(iv) flood control and natural calamities;

(v) energy development;

(vi) conservation and utilization of surface and ground water

(vii) mineral resources

Two (2) points are worth making in this connection. Firstly, neither petitioners nor the Court
has identified the particular provision or provisions (if any) of the Philippine Environment
Code which give rise to a specific legal right which petitioners are seeking to enforce.
Secondly, the Philippine Environment Code identifies with notable care the particular
government agency charged with the formulation and implementation of guidelines and
programs dealing with each of the headings and sub-headings mentioned above. The
Philippine Environment Code does not, in other words, appear to contemplate action on the
part of private persons who are beneficiaries of implementation of that Code.

As a matter of logic, by finding petitioners' cause of action as anchored on a legal right

comprised in the constitutional statements above noted, the Court is in effect saying that
Section 15 (and Section 16) of Article II of the Constitution are self-executing and judicially
enforceable even in their present form. The implications of this doctrine will have to be
explored in future cases; those implications are too large and far-reaching in nature even to
be hinted at here.

My suggestion is simply that petitioners must, before the trial court, show a more specific
legal right — a right cast in language of a significantly lower order of generality than Article II
(15) of the Constitution — that is or may be violated by the actions, or failures to act, imputed
to the public respondent by petitioners so that the trial court can validly render judgment
granting all or part of the relief prayed for. To my mind, the Court should be understood as
simply saying that such a more specific legal right or rights may well exist in our corpus of
law, considering the general policy principles found in the Constitution and the existence of
the Philippine Environment Code, and that the trial court should have given petitioners an
effective opportunity so to demonstrate, instead of aborting the proceedings on a motion to
dismiss.

It seems to me important that the legal right which is an essential component of a cause of
action be a specific, operable legal right, rather than a constitutional or statutory policy, for at
least two (2) reasons. One is that unless the legal right claimed to have been violated or
disregarded is given specification in operational terms, defendants may well be unable to
defend themselves intelligently and effectively; in other words, there are due process
dimensions to this matter.

The second is a broader-gauge consideration — where a specific violation of law or

applicable regulation is not alleged or proved, petitioners can be expected to fall back on the
expanded conception of judicial power in the second paragraph of Section 1 of Article VIII of
the Constitution which reads:

Section 1. . . .

Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and enforceable,
and to determine whether or not there has been a grave abuse of
discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of the Government. (Emphasis supplied)

When substantive standards as general as "the right to a balanced and healthy

ecology" and "the right to health" are combined with remedial standards as broad
ranging as "a grave abuse of discretion amounting to lack or excess of jurisdiction,"
the result will be, it is respectfully submitted, to propel courts into the uncharted
ocean of social and economic policy making. At least in respect of the vast area of
environmental protection and management, our courts have no claim to special
technical competence and experience and professional qualification. Where no
specific, operable norms and standards are shown to exist, then the policy making
departments — the legislative and executive departments — must be given a real
and effective opportunity to fashion and promulgate those norms and standards, and
to implement them before the courts should intervene.
My learned brother Davide, Jr., J., rightly insists that the timber companies, whose
concession agreements or TLA's petitioners demand public respondents should cancel, must
be impleaded in the proceedings below. It might be asked that, if petitioners' entitlement to
the relief demanded is not dependent upon proof of breach by the timber companies of one
or more of the specific terms and conditions of their concession agreements (and this,
petitioners implicitly assume), what will those companies litigate about? The answer I
suggest is that they may seek to dispute the existence of the specific legal right petitioners
should allege, as well as the reality of the claimed factual nexus between petitioners' specific
legal rights and the claimed wrongful acts or failures to act of public respondent
administrative agency. They may also controvert the appropriateness of the remedy or
remedies demanded by petitioners, under all the circumstances which exist.

I vote to grant the Petition for Certiorari because the protection of the environment, including
the forest cover of our territory, is of extreme importance for the country. The doctrines set
out in the Court's decision issued today should, however, be subjected to closer
examination.

# Footnotes

1 Rollo, 164; 186.

2 Id., 62-65, exclusive of annexes.

3 Under Section 12, Rule 3, Revised Rules of Court.

4 Rollo, 67.

5 Id., 74.

6 Rollo, 70-73.

7 Annex "B" of Petitions; Id., 43-44.

8 Paragraph 7, Petition, 6; Rollo, 20.

9 Webster's Third New International Dictionary, unabridged, 1986, 1508.

10 Title XIV (Environment and Natural Resources), Book IV of the

Administrative Code of 1987, E.O. No. 292.

11 Annex "B" of Petition; Rollo, 43-44.

12 Record of the Constitutional Commission, vol. 4, 913.

13 For instance, the Preamble and Article XII on the National Economy and
Patrimony.

14 The Reorganization Act of the Department of Environment and Natural

Resources.
15 E.O. No. 292.

16 Section 1.

17 Section 2.

18 Ma-ao Sugar Central Co. vs. Barrios, 79 Phil. 666 [1947]; Community
Investment and Finance Corp. vs. Garcia, 88 Phil. 215 [1951]; Remitere vs.
Vda. de Yulo, 16 SCRA 251 [1966]; Caseñas vs. Rosales, 19 SCRA 462
[1967]; Virata vs. Sandiganbayan, 202 SCRA 680 [1991]; Madrona vs. Rosal,
204 SCRA 1 [1991].

19 Section 1(q), Rule 16, Revised Rules of Court.

20 Adamos vs. J.M. Tuason and Co., Inc. 25 SCRA 529 [1968]; Virata vs.
Sandiganbayn, supra; Madrona vs. Rosal, supra.

21 39 SCRA 473, 479 [1971].

22 1991 ed., 226-227.

23 180 SCRA 496, 501-502 [1989]. See also, Coseteng vs. Mitra, 187 SCRA
377 [1990]; Gonzales vs. Macaraig, 191 SCRA 452 [1990]; Llamas vs.
Orbos, 202 SCRA 844 [1991]; Bengzon vs. Senate Blue Ribbon Committee,
203 SCRA 767 [1991].

24 Rollo, 44.

25 125 SCRA 302, 325 [1983].

26 190 SCRA 673, 684 [1990].

27 Article III, 1987 Constitution.

28 110 Phil. 198, 203 [1960]; footnotes omitted.

29 291 U.S. 502, 523, 78 L. ed. 940, 947-949.

30 22 SCRA 135, 146-147 [1968].

31 Ongsiako vs. Gamboa, 86 Phil. 50 [1950]; Abe vs. Foster Wheeler

Corp. supra.; Phil. American Life Insurance Co. vs. Auditor General, supra.;
Alalayan vs. NPC, 24 SCRA 172[1968]; Victoriano vs. Elizalde Rope
Workers' Union, 59 SCRA 54 [1974]; Kabiling vs. National Housing Authority,
156 SCRA 623 [1987].
Hermana R. Cerezo, petitioner, vs. David Tuazon, respondent.

DECISION
CARPIO, J.:

The Case

This is a petition for review on certiorari to annul the Resolution dated 21

[1] [2]

October 1999 of the Court of Appeals in CA-G.R. SP No. 53572, as well as its
Resolution dated 20 January 2000 denying the motion for reconsideration. The
Court of Appeals denied the petition for annulment of the Decision dated 30 May
[3]

1995 rendered by the RegionalTrial Court of Angeles City, Branch 56 (trial court),
in Civil Case No. 7415. The trial court ordered petitioner Hermana R. Cerezo
(Mrs. Cerezo) to pay respondent David Tuazon (Tuazon) actual damages, loss of
earnings, moral damages, and costs of suit.

Antecedent Facts

Around noontime of 26 June 1993, a Country Bus Lines passenger bus with
plate number NYA 241 collided with a tricycle bearing plate number TC RV 126
along Captain M. Palo Street, Sta. Ines, Mabalacat, Pampanga. On 1 October
1993, tricycle driver Tuazon filed a complaint for damages against Mrs. Cerezo,
as owner of the bus line, her husband Attorney Juan Cerezo (Atty. Cerezo), and
bus driver Danilo A. Foronda (Foronda). The complaint alleged that:

7. At the time of the incident, plaintiff [Tuazon] was in his proper lane when
the second-named defendant [Foronda], being then the driver and person in
charge of the Country Bus with plate number NYA 241, did then and there
willfully, unlawfully, and feloniously operate the said motor vehicle in a
negligent, careless, and imprudent manner without due regard to traffic rules
and regulations, there being a Slow Down sign near the scene of the incident,
and without taking the necessary precaution to prevent loss of lives or injuries,
his negligence, carelessness and imprudence resulted to severe damage to the
tricycle and serious physical injuries to plaintiff thus making him unable to
walk and becoming disabled, with his thumb and middle finger on the left hand
being cut[.] [4]

On 1 October 1993, Tuazon filed a motion to litigate as a

pauper. Subsequently, the trial court issued summons against Atty. Cerezo and
Mrs. Cerezo (the Cerezo spouses) at the Makati address stated in the
complaint. However, the summons was returned unserved on 10 November
1993 as the Cerezo spouses no longer held office nor resided in Makati. On 18
April 1994, the trial court issued alias summons against the Cerezo spouses at
their address in Barangay Sta. Maria, Camiling, Tarlac. The alias summons and
a copy of the complaint were finally served on 20 April 1994 at the office of Atty.
Cerezo, who was then working as Tarlac Provincial Prosecutor. Atty. Cerezo
reacted angrily on learning of the service of summons upon his person. Atty.
Cerezo allegedly told Sheriff William Canlas: Punyeta, ano ang gusto mong
mangyari? Gusto mong hindi ka makalabas ng buhay dito? Teritoryo ko ito. Wala
ka sa teritoryo mo.[5]

The records show that the Cerezo spouses participated in the proceedings
before the trial court. The Cerezo spouses filed a comment with motion for bill of
particulars dated 29 April 1994 and a reply to opposition to comment with motion
dated 13 June 1994. On 1 August 1994, the trial court issued an order directing
[6]

the Cerezo spouses to file a comment to the opposition to the bill of

particulars. Atty. Elpidio B. Valera (Atty. Valera) of Valera and Valera Law Offices
appeared on behalf of the Cerezo spouses. On 29 August 1994, Atty. Valera filed
an urgent ex-parte motion praying for the resolution of Tuazons motion to litigate
as a pauper and for the issuance of new summons on the Cerezo spouses to
satisfy proper service in accordance with the Rules of Court. [7]

On 30 August 1994, the trial court issued an order resolving Tuazons motion
to litigate as a pauper and the Cerezo spouses urgent ex-parte motion. The order
reads:

At the hearing on August 30, 1994, the plaintiff [Tuazon] testified that he is
presently jobless; that at the time of the filing of this case, his son who is
working in Malaysia helps him and sends him once in a while P300.00 a
month, and that he does not have any real property. Attached to the Motion to
Litigate as Pauper are his Affidavit that he is unemployed; a Certification by
the Barangay Captain of his poblacion that his income is not enough for his
familys subsistence; and a Certification by the Office of the Municipal
Assessor that he has no landholding in
the Municipality of Mabalacat, Province of Pampanga.

The Court is satisfied from the unrebutted testimony of the plaintiff that he is
entitled to prosecute his complaint in this case as a pauper under existing rules.

On the other hand, the Court denies the prayer in the Appearance and Urgent
Ex-Parte Motion requiring new summons to be served to the defendants. The
Court is of the opinion that any infirmity in the service of the summons to the
defendant before plaintiff was allowed to prosecute his complaint in this case as
a pauper has been cured by this Order.

If within 15 days from receipt of this Order, the defendants do not question on
appeal this Order of this Court, the Court shall proceed to resolve the Motion
for Bill of Particulars. [8]
 On 27 September 1994, the Cerezo spouses filed an urgent ex-parte motion
for reconsideration. The trial court denied the motion for reconsideration.
On 14 November 1994, the trial court issued an order directing the Cerezo
spouses to file their answer within fifteen days from receipt of the order. The
Cerezo spouses did not file an answer. On 27 January 1995, Tuazon filed a
motion to declare the Cerezo spouses in default. On 6 February 1995, the trial
court issued an order declaring the Cerezo spouses in default and authorizing
Tuazon to present his evidence. [9]

On 30 May 1995, after considering Tuazons testimonial and documentary

evidence, the trial court ruled in Tuazons favor. The trial court made no
pronouncement on Forondas liability because there was no service of summons
on him. The trial court did not hold Atty. Cerezo liable as Tuazon failed to show
that Mrs. Cerezos business benefited the family, pursuant to Article 121(3) of the
Family Code. The trial court held Mrs. Cerezo solely liable for the damages
sustained by Tuazon arising from the negligence of Mrs. Cerezos employee,
pursuant to Article 2180 of the Civil Code. The dispositive portion of the trial
courts decision reads:

WHEREFORE, judgment is hereby rendered ordering the defendant Hermana

Cerezo to pay the plaintiff:

a) For Actual Damages

1) Expenses for operation and medical
Treatment - P69,485.35
2) Cost of repair of the tricycle - 39,921.00
b) For loss of earnings - 43,300.00
c) For moral damages - 20,000.00
d) And to pay the cost of the suit.

The docket fees and other expenses in the filing of this suit shall be lien on
whatever judgment may be rendered in favor of the plaintiff.

SO ORDERED. [10]

Mrs. Cerezo received a copy of the decision on 25 June 1995. On 10 July

1995, Mrs. Cerezo filed before the trial court a petition for relief from judgment on
the grounds of fraud, mistake or excusable negligence. Testifying before the trial
court, both Mrs. Cerezo and Atty. Valera denied receipt of notices of hearings
and of orders of the court. Atty. Valera added that he received no notice before or
during the 8 May 1995 elections, when he was a senatorial candidate for the KBL
Party, and very busy, using his office and residence as Party National
Headquarters. Atty. Valera claimed that he was able to read the decision of the
trial court only after Mrs. Cerezo sent him a copy.[11]
 Tuazon did not testify but presented documentary evidence to prove the
participation of the Cerezo spouses in the case. Tuazon presented the following
exhibits:
Exhibit 1 - Sheriffs return and summons;
Exhibit 1-A - Alias summons dated April 20, 1994;
Exhibit 2 - Comment with Motion;
Exhibit 3 - Minutes of the hearing held on August 1, 1994;
Exhibit 3-A - Signature of defendants counsel;
Exhibit 4 - Minutes of the hearing held on August 30, 1994;
Exhibit 4-A - Signature of the defendants counsel;
Exhibit 5 - Appearance and Urgent Ex-Parte Motion;
Exhibit 6 - Order dated November 14, 1994;
Exhibit 6-A - Postal certification dated January 13, 1995;
Exhibit 7 - Order dated February [illegible];
Exhibit 7-A - Courts return slip addressed to Atty. Elpidio
Valera;
Exhibit 7-B - Courts return slip addressed to Spouses Juan
and Hermana Cerezo;
Exhibit 8 - Decision dated May [30], 1995
Exhibit 8-A - Courts return slip addressed to defendant Hermana
Cerezo;
Exhibit 8-B - Courts return slip addressed to defendants counsel,
Atty. Elpidio Valera;
Exhibit 9 - Order dated September 21, 1995;
Exhibit 9-A - Second Page of Exhibit 9;
Exhibit 9-B - Third page of Exhibit 9;
Exhibit 9-C - Fourth page of Exhibit 9;
Exhibit 9-D - Courts return slip addressed to Atty. Elpidio Valera;
and
Exhibit 9-E - Courts return slip addressed to plaintiffs counsel,
Atty. Norman Dick de Guzman. [12]

On 4 March 1998, the trial court issued an order denying the petition for
[13]

relief from judgment. The trial court stated that having received the decision
on 25 June 1995, the Cerezo spouses should have filed a notice of appeal
instead of resorting to a petition for relief from judgment. The trial court refused to
grant relief from judgment because the Cerezo spouses could have availed of the
remedy of appeal. Moreover, the Cerezo spouses not only failed to prove fraud,
accident, mistake or excusable negligence by conclusive evidence, they also
failed to prove that they had a good and substantial defense. The trial court noted
that the Cerezo spouses failed to appeal because they relied on an expected
settlement of the case.
The Cerezo spouses subsequently filed before the Court of Appeals a
petition for certiorari under Section 1 of Rule 65. The petition was docketed as
CA-G.R. SP No. 48132. The petition questioned whether the trial court acquired
[14]

jurisdiction over the case considering there was no service of summons on

Foronda, whom the Cerezo spouses claimed was an indispensable party. In a
resolution dated 21 January 1999, the Court of Appeals denied the petition
[15]

for certiorari and affirmed the trial courts order denying the petition for relief from
judgment. The Court of Appeals declared that the Cerezo spouses failure to file
an answer was due to their own negligence, considering that they continued to
participate in the proceedings without filing an answer. There was also nothing in
the records to show that the Cerezo spouses actually offered a reasonable
settlement to Tuazon. The Court of Appeals also denied Cerezo spouses motion
for reconsideration for lack of merit.
The Cerezo spouses filed before this Court a petition for review
on certiorari under Rule 45. Atty. Cerezo himself signed the petition, docketed as
G.R. No. 137593. On 13 April 1999, this Court rendered a resolution denying the
petition for review on certiorari for failure to attach an affidavit of service of copies
of the petition to the Court of Appeals and to the adverse parties. Even if the
petition complied with this requirement, the Court would still have denied the
petition as the Cerezo spouses failed to show that the Court of Appeals
committed a reversible error. The Courts resolution was entered in the Book of
Entries and Judgments when it became final and executory on 28 June 1999. [16]

Undaunted, the Cerezo spouses filed before the Court of Appeals on 6 July
1999 a petition for annulment of judgment under Rule 47 with prayer for
restraining order. Atty. Valera and Atty. Dionisio S. Daga (Atty. Daga)
represented Mrs. Cerezo in the petition, docketed as CA-G.R. SP No.
53572. The petition prayed for the annulment of the 30 May 1995 decision of
[17]

the trial court and for the issuance of a writ of preliminary injunction enjoining
execution of the trial courts decision pending resolution of the petition.
The Court of Appeals denied the petition for annulment of judgment in a
resolution dated 21 October 1999. The resolution reads in part:

In this case, records show that the petitioner previously filed with the lower
court a Petition for Relief from Judgment on the ground that they were
wrongfully declared in default while waiting for an amicable settlement of the
complaint for damages. The court a quo correctly ruled that such petition is
without merit. The defendant spouses admit that during the initial hearing they
appeared before the court and even mentioned the need for an amicable
settlement. Thus, the lower court acquired jurisdiction over the defendant
spouses.

Therefore, petitioner having availed of a petition for relief, the remedy of an

annulment of judgment is no longer available. The proper action for the
petitioner is to appeal the order of the lower court denying the petition for
relief.

Wherefore, the instant petition could not be given due course and should
accordingly be dismissed.
SO ORDERED. [18]

On 20 January 2000, the Court of Appeals denied the Cerezo spouses

motion for reconsideration. The Court of Appeals stated:
[19]

A distinction should be made between a courts jurisdiction over a person and

its jurisdiction over the subject matter of a case. The former is acquired by the
proper service of summons or by the parties voluntary appearance; while the
latter is conferred by law.

Resolving the matter of jurisdiction over the subject matter, Section 19(1) of
B[atas] P[ambansa] 129 provides that Regional Trial Courts shall exercise
exclusive original jurisdiction in all civil actions in which the subject of the
litigation is incapable of pecuniary estimation. Thus it was proper for the lower
court to decide the instant case for damages.

Unlike jurisdiction over the subject matter of a case which is absolute and
conferred by law; any defects [sic] in the acquisition of jurisdiction over a
person (i.e., improper filing of civil complaint or improper service of summons)
may be waived by the voluntary appearance of parties.

The lower court admits the fact that no summons was served on defendant
Foronda. Thus, jurisdiction over the person of defendant Foronda was not
acquired, for which reason he was not held liable in this case. However, it has
been proven that jurisdiction over the other defendants was validly acquired by
the court a quo.

The defendant spouses admit to having appeared in the initial hearings and in
the hearing for plaintiffs motion to litigate as a pauper. They even mentioned
conferences where attempts were made to reach an amicable settlement with
plaintiff. However, the possibility of amicable settlement is not a good and
substantial defense which will warrant the granting of said petition.

xxx

Assuming arguendo that private respondent failed to reserve his right to

institute a separate action for damages in the criminal action, the petitioner
cannot now raise such issue and question the lower courts jurisdiction because
petitioner and her husband have waived such right by voluntarily appearing in
the civil case for damages. Therefore, the findings and the decision of the lower
court may bind them.

Records show that the petitioner previously filed with the lower court a Petition
for Relief from Judgment on the ground that they were wrongfully declared in
default while waiting for an amicable settlement of the complaint for
damages. The court a quo correctly ruled that such petition is without merit,
jurisdiction having been acquired by the voluntary appearance of defendant
spouses.

Once again, it bears stressing that having availed of a petition for relief, the
remedy of annulment of judgment is no longer available.

Based on the foregoing, the motion for reconsideration could not be given due
course and is hereby DENIED.

SO ORDERED. [20]

The Issues

On 7 February 2000, Mrs. Cerezo, this time with Atty. Daga alone
representing her, filed the present petition for review on certiorari before this
Court. Mrs. Cerezo claims that:
1. In dismissing the Petition for Annulment of Judgment, the Court of Appeals
assumes that the issues raised in the petition for annulment is based on
extrinsic fraud related to the denied petition for relief notwithstanding that the
grounds relied upon involves questions of lack of jurisdiction.
2. In dismissing the Petition for Annulment, the Court of Appeals disregarded
the allegation that the lower court[s] findings of negligence against
defendant-driver Danilo Foronda [whom] the lower court did not summon is
null and void for want of due process and consequently, such findings of
negligence which is [sic] null and void cannot become the basis of the lower
court to adjudge petitioner-employer liable for civil damages.
3. In dismissing the Petition for Annulment, the Court of Appeals ignored the
allegation that defendant-driver Danilo A. Foronda whose negligence is the
main issue is an indispensable party whose presence is compulsory but
[whom] the lower court did not summon.
4. In dismissing the Petition for Annulment, the Court of Appeals ruled that
assuming arguendo that private respondent failed to reserve his right to
institute a separate action for damages in the criminal action, the petitioner
cannot now raise such issue and question the lower courts jurisdiction
because petitioner [has] waived such right by voluntarily appearing in the
civil case for damages notwithstanding that lack of jurisdiction cannot be
waived.[21]

The Courts Ruling

The petition has no merit. As the issues are interrelated, we shall discuss
them jointly.
 Remedies Available
to a Party Declared in Default
An examination of the records of the entire proceedings shows that three
lawyers filed and signed pleadings on behalf of Mrs. Cerezo, namely, Atty. Daga,
Atty. Valera, and Atty. Cerezo. Despite their number, Mrs. Cerezos counsels
failed to avail of the proper remedies. It is either by sheer ignorance or by
malicious manipulation of legal technicalities that they have managed to delay
the disposition of the present case, to the detriment of pauper litigant Tuazon.
Mrs. Cerezo claims she did not receive any copy of the order declaring the
Cerezo spouses in default. Mrs. Cerezo asserts that she only came to know of
the default order on 25 June 1995, when she received a copy of the
decision. On 10 July 1995, Mrs. Cerezo filed before the trial court a petition for
relief from judgment under Rule 38, alleging fraud, mistake, or excusable
negligence as grounds. On 4 March 1998, the trial court denied Mrs. Cerezos
petition for relief from judgment. The trial court stated that Mrs. Cerezo could
have availed of appeal as a remedy and that she failed to prove that the
judgment was entered through fraud, accident, mistake, or excusable
negligence. Mrs. Cerezo then filed before the Court of Appeals a petition
for certiorari under Section 1 of Rule 65 assailing the denial of the petition for
relief from judgment. On 21 January 1999, the Court of Appeals dismissed Mrs.
Cerezos petition. On 24 February 1999, the appellate court denied Mrs. Cerezos
motion for reconsideration. On 11 March 1999, Mrs. Cerezo filed before this
Court a petition for review on certiorari under Rule 45, questioning the denial of
the petition for relief from judgment. We denied the petition and our resolution
became final and executory on 28 June 1999.
On 6 July 1999, a mere eight days after our resolution became final and
executory, Mrs. Cerezo filed before the Court of Appeals a petition for annulment
of the judgment of the trial court under Rule 47. Meanwhile, on 25 August 1999,
the trial court issued over the objection of Mrs. Cerezo an order of execution of
the judgment in Civil Case No. 7415.On 21 October 1999, the Court of Appeals
dismissed the petition for annulment of judgment. On 20 January 2000, the Court
of Appeals denied Mrs. Cerezos motion for reconsideration. On 7 February 2000,
Mrs. Cerezo filed the present petition for review on certiorari under Rule 45
challenging the dismissal of her petition for annulment of judgment.
Lina v. Court of Appeals enumerates the remedies available to a party
[22]

declared in default:
a) The defendant in default may, at any time after discovery thereof and before
judgment, file a motion under oath to set aside the order of default on
the ground that his failure to answer was due to fraud, accident, mistake or
excusable negligence, and that he has a meritorious defense (Sec. 3, Rule
18 [now Sec. 3(b), Rule 9]);
b) If the judgment has already been rendered when the defendant discovered
the default, but before the same has become final and executory, he may file
a motion for new trial under Section 1 (a) of Rule 37;
 c) If the defendant discovered the default after the judgment has become final
and executory, he may file a petition for relief under Section 2 [now Section
1] of Rule 38; and
d) He may also appeal from the judgment rendered against him as contrary to
the evidence or to the law, even if no petition to set aside the order of default
has been presented by him (Sec. 2, Rule 41). (Emphasis added)
Moreover, a petition for certiorari to declare the nullity of a judgment by
default is also available if the trial court improperly declared a party in default, or
even if the trial court properly declared a party in default, if grave abuse of
discretion attended such declaration. [23]

Mrs. Cerezo admitted that she received a copy of the trial courts decision
on 25 June 1995. Based on this admission, Mrs. Cerezo had at least three
remedies at her disposal: an appeal, a motion for new trial, or a petition
for certiorari.
Mrs. Cerezo could have appealed under Rule 41 from the default judgment
[24]

within 15 days from notice of the judgment. She could have availed of the power
of the Court of Appeals to try cases and conduct hearings, receive evidence, and
perform all acts necessary to resolve factual issues raised in cases falling within
its appellate jurisdiction.
[25]

Mrs. Cerezo also had the option to file under Rule 37 a motion for new trial
[26]

within the period for taking an appeal. If the trial court grants a new trial, the
original judgment is vacated, and the action will stand for trial de novo. The
recorded evidence taken in the former trial, as far as the same is material and
competent to establish the issues, shall be used at the new trial without retaking
the same. [27]

Mrs. Cerezo also had the alternative of filing under Rule 65 a petition [28]

for certiorari assailing the order of default within 60 days from notice of the
judgment. An order of default is interlocutory, and an aggrieved party may file an
appropriate special civil action under Rule 65. In a petition for certiorari, the
[29]

appellate court may declare void both the order of default and the judgment of
default.
Clearly, Mrs. Cerezo had every opportunity to avail of these remedies within
the reglementary periods provided under the Rules of Court. However, Mrs.
Cerezo opted to file a petition for relief from judgment, which is available only in
exceptional cases. A petition for relief from judgment should be filed within the
reglementary period of 60 days from knowledge of judgment and six months from
entry of judgment, pursuant to
Rule 38 of the Rules of Civil Procedure. Tuason v. [30]
Court of
Appeals explained the nature of a petition for relief from judgment:
[31]

When a party has another remedy available to him, which may either be a
motion for new trial or appeal from an adverse decision of the trial court, and
he was not prevented by fraud, accident, mistake or excusable negligence from
filing such motion or taking such appeal, he cannot avail himself of this
petition. Indeed, relief will not be granted to a party who seeks avoidance from
the effects of the judgment when the loss of the remedy at law was due to his
own negligence; otherwise the petition for relief can be used to revive the right
to appeal which has been lost thru inexcusable negligence.

Evidently, there was no fraud, accident, mistake, or excusable negligence

that prevented Mrs. Cerezo from filing an appeal, a motion for new trial or a
petition for certiorari. It was error for her to avail of a petition for relief from
judgment.
After our resolution denying Mrs. Cerezos petition for relief became final and
executory, Mrs. Cerezo, in her last ditch attempt to evade liability, filed before the
Court of Appeals a petition for annulment of the judgment of the trial
court. Annulment is available only on the grounds of extrinsic fraud and lack of
jurisdiction. If based on extrinsic fraud, a party must file the petition within four
years from its discovery, and if based on lack of jurisdiction, before laches or
estoppel bars the petition. Extrinsic fraud is not a valid ground if such fraud was
used as a ground, or could have been used as a ground, in a motion for new trial
or petition for relief from judgment.[32]

Mrs. Cerezo insists that lack of jurisdiction, not extrinsic fraud, was her
ground for filing the petition for annulment of judgment. However, a party may
avail of the remedy of annulment of judgment under Rule 47 only if the ordinary
remedies of new trial, appeal, petition for relief from judgment, or other
appropriate remedies are no longer available through no fault of the party. Mrs. [33]

Cerezo could have availed of a new trial or appeal but through her own fault she
erroneously availed of the remedy of a petition for relief, which was denied with
finality. Thus, Mrs. Cerezo may no longer avail of the remedy of annulment.
In any event, the trial court clearly acquired jurisdiction over Mrs. Cerezos
person. Mrs. Cerezo actively participated in the proceedings before the trial
court, submitting herself to the jurisdiction of the trial court. The defense of lack of
jurisdiction fails in light of her active participation in the trial court
proceedings. Estoppel or laches may also bar lack of jurisdiction as a ground for
nullity especially if raised for the first time on appeal by a party who participated
in the proceedings before the trial court, as what happened in this case. [34]

For these reasons, the present petition should be dismissed for utter lack of
merit. The extraordinary action to annul a final judgment is restricted to the
grounds specified in the rules. The reason for the restriction is to prevent this
extraordinary action from being used by a losing party to make a complete farce
of a duly promulgated decision that has long become final and executory. There
would be no end to litigation if parties who have unsuccessfully availed of any of
the appropriate remedies or lost them through their fault could still bring an action
for annulment of judgment. Nevertheless, we shall discuss the issues raised in
[35]

the present petition to clear any doubt about the correctness of the decision of
the trial court.
 Mrs. Cerezos Liability and the
Trial Courts Acquisition of Jurisdiction

Mrs. Cerezo contends that the basis of the present petition for annulment is
lack of jurisdiction. Mrs. Cerezo asserts that the trial court could not validly render
judgment since it failed to acquire jurisdiction over Foronda. Mrs. Cerezo points
out that there was no service of summons on Foronda. Moreover, Tuazon failed
to reserve his right to institute a separate civil action for damages in the criminal
action. Such contention betrays a faulty foundation. Mrs. Cerezos contention
proceeds from the point of view of criminal law and not of civil law, while the
basis of the present action of Tuazon is quasi-delict under the Civil Code, not
delict under the Revised Penal Code.
The same negligent act may produce civil liability arising from a delict under
Article 103 of the Revised Penal Code, or may give rise to an action for a quasi-
delict under Article 2180 of the Civil Code. An aggrieved party may choose
between the two remedies. An action based on a quasi-delict may proceed
independently from the criminal action. There is, however, a distinction between
[36]

civil liability arising from a delict and civil liability arising from a quasi-delict. The
choice of remedy, whether to sue for a delict or a quasi-delict, affects the
procedural and jurisdictional issues of the action. [37]

Tuazon chose to file an action for damages based on a quasi-delict. In his

complaint, Tuazon alleged that Mrs. Cerezo, without exercising due care and
diligence in the supervision and management of her employees and buses, hired
Foronda as her driver. Tuazon became disabled because of Forondas
recklessness, gross negligence and imprudence, aggravated by Mrs. Cerezos
lack of due care and diligence in the selection and supervision of her employees,
particularly Foronda. [38]

The trial court thus found Mrs. Cerezo liable under Article 2180 of the Civil
Code. Article 2180 states in part:

Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even though
the former are not engaged in any business or industry.

Contrary to Mrs. Cerezos assertion, Foronda is not an indispensable party to

the case. An indispensable party is one whose interest is affected by the courts
action in the litigation, and without whom no final resolution of the case is
possible. However, Mrs. Cerezos liability as an employer in an action for a
[39]

quasi-delict is not only solidary, it is also primary and direct. Foronda is not an
indispensable party to the final resolution of Tuazons action for damages against
Mrs. Cerezo.
The responsibility of two or more persons who are liable for a quasi-delict is
solidary. Where there is a solidary obligation on the part of debtors, as in this
[40]

case, each debtor is liable for the entire obligation. Hence, each debtor is liable
to pay for the entire obligation in full. There is no merger or renunciation of rights,
but only mutual representation. Where the obligation of the parties is solidary,
[41]

either of the parties is indispensable, and the other is not even a necessary party
because complete relief is available from either. Therefore, jurisdiction over
[42]

Foronda is not even necessary as Tuazon may collect damages from Mrs.
Cerezo alone.
Moreover, an employers liability based on a quasi-delict is primary and direct,
while the employers liability based on a delict is merely subsidiary. The words
[43]

primary and direct, as contrasted with subsidiary, refer to the remedy provided by
law for enforcing the obligation rather than to the character and limits of the
obligation. Although liability under Article 2180 originates from the negligent act
[44]

of the employee, the aggrieved party may sue the employer directly. When an
employee causes damage, the law presumes that the employer has himself
committed an act of negligence in not preventing or avoiding the damage. This is
the fault that the law condemns. While the employer is civilly liable in a subsidiary
capacity for the employees criminal negligence, the employer is also civilly liable
directly and separately for his own civil negligence in failing to exercise due
diligence in selecting and supervising his employee. The idea that the employers
liability is solely subsidiary is wrong.[45]

The action can be brought directly against the person responsible (for another),
without including the author of the act. The action against the principal is
accessory in the sense that it implies the existence of a prejudicial act
committed by the employee, but it is not subsidiary in the sense that it can not
be instituted till after the judgment against the author of the act or at least, that
it is subsidiary to the principal action; the action for responsibility (of the
employer) is in itself a principal action. [46]

Thus, there is no need in this case for the trial court to acquire jurisdiction
over Foronda. The trial courts acquisition of jurisdiction over Mrs. Cerezo is
sufficient to dispose of the present case on the merits.
In contrast, an action based on a delict seeks to enforce the subsidiary
liability of the employer for the criminal negligence of the employee as provided
in Article 103 of the Revised Penal Code. To hold the employer liable in a
subsidiary capacity under a delict, the aggrieved party must initiate a criminal
action where the employees delict and corresponding primary liability are
established. If the present action proceeds from a delict, then the trial courts
[47]

jurisdiction over Foronda is necessary. However, the present action is clearly for
the quasi-delict of Mrs. Cerezo and not for the delict of Foronda.
The Cerezo spouses contention that summons be served anew on them is
untenable in light of their participation in the trial court proceedings. To uphold
the Cerezo spouses contention would make a fetish of a technicality. Moreover,
[48]

any irregularity in the service of summons that might have vitiated the trial courts
jurisdiction over the persons of the Cerezo spouses was deemed waived when
the Cerezo spouses filed a petition for relief from judgment. [49]
 We hold that the trial court had jurisdiction and was competent to decide the
case in favor of Tuazon and against Mrs. Cerezo even in the absence of
Foronda. Contrary to Mrs. Cerezos contention, Foronda is not an indispensable
party to the present case. It is not even necessary for Tuazon to reserve the filing
of a separate civil action because he opted to file a civil action for damages
against Mrs. Cerezo who is primarily and directly liable for her own civil
negligence. The words of Justice Jorge Bocobo in Barredo v. Garcia still hold
true today as much as it did in 1942:

x x x [T]o hold that there is only one way to make defendants liability effective,
and that is, to sue the driver and exhaust his (the latters) property first, would
be tantamount to compelling the plaintiff to follow a devious and cumbersome
method of obtaining relief. True, there is such a remedy under our laws, but
there is also a more expeditious way, which is based on the primary and direct
responsibility of the defendant under article [2180] of the Civil Code. Our view
of the law is more likely to facilitate remedy for civil wrongs, because the
procedure indicated by the defendant is wasteful and productive of delay, it
being a matter of common knowledge that professional drivers of taxis and
other similar public conveyances do not have sufficient means with which to
pay damages. Why, then, should the plaintiff be required in all cases to go
through this roundabout, unnecessary, and probably useless procedure? In
construing the laws, courts have endeavored to shorten and facilitate the
pathways of right and justice. [50]

Interest at the rate of 6% per annum is due on the amount of damages

adjudged by the trial court. The 6% per annum interest shall commence from 30
[51]

May 1995, the date of the decision of the trial court. Upon finality of this decision,
interest at 12% per annum, in lieu of 6% per annum, is due on the amount of
damages adjudged by the trial court until full payment.
WHEREFORE, we DENY the instant petition for review. The Resolution
dated 21 October 1999 of the Court of Appeals in CA-G.R. SP No. 53572, as well
as its Resolution dated 20 January 2000 denying the motion for reconsideration,
is AFFIRMED with the MODIFICATION that the amount due shall earn legal
interest at 6% per annum computed from 30 May 1995, the date of the trial
courts decision. Upon finality of this decision, the amount due shall earn interest
at 12% per annum, in lieu of 6% per annum, until full payment.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, and Azcuna, JJ., concur.
Panganiban, J., on official leave.
A.M. No. 88-1-646-0 March 3, 1988

RE: REQUEST OF THE PLAINTIFFS, HEIRS OF THE PASSENGERS OF THE DOÑA PAZ
TO SET ASIDE THE ORDER DATED JANUARY 4, 1988 OF JUDGE B.D.
CHINGCUANGCO.

The Court deliberated on the letter-request of Atty. Pablito M. Rojas dated January 5, 1988,
the comments thereon of Quezon City Executive Judge B.D. Chingcuangco and of counsel
for Sulpicio Lines et al, and the reply to said comments.

It appears that on January 4, 1988 a complaint for damages amounting to more than one
and a half billion pesos was filed in the name and behalf of the relatives or heirs of the
victims of "the worst sea disaster in history:" the sinking of the vessel Doña Paz caused by
its collision with another vessel. The complaint characterized the action thereby instituted as
a "lass suit",prosecuted by the twenty-seven (27) named plaintiffs in their behalf and in
presentation of the approximately 4,000 persons . . . (who also) are all close relatives and
legal heirs of the passengers of the Doña Paz" (par. 5). The action's character as a class suit
results, it is claimed, from "the subject matter . . . (thereof being) of general or common
interest to 4,000 persons, more or less, all of whom are residing variously in Samar, Leyte
and Metro Manila;" and its institution is proper because the Identified plaintiffs are sufficiently
numerous and representative to fully protect the interests of all" (par. 3). The complaint
prayed that —

... judgment be rendered in favor of the plaintiffs and all other persons
embraced in this class suit, and against the defendants, ordering them to pay
to the former, jointly and severally, as follows:

a) From P200,000.00 to P400,000.00 per victim or passenger who perished

in the sinking of the vessel DOÑA PAZ, by way of actual or compensatory,
moral and exemplary damages, or the total amount of from P800,000,000.00
to Pl,200,000,000.00 (should be P1,600,000,000.00) for all of the 4,000
passengers on board said vessel;

b) an amount which this Honorable Court may deem just and reasonable as
and by way of attorney's fees and, under the circumstances of this case,
P10,000,000.00 would be reasonable;

xxx xxx xxx

Together with the complaint, the plaintiffs filed a "MOTION FOR LEAVE TO FILE CASE AS
PAUPER LITIGANT." They alleged that "a big majority ... (of them) are poor and have no
sufficient means to finance the filing of this case especially because, considering the
gargantuan amount of damages involved, the amount of filing fee alone will run to several
thousands of pesos," that in view thereof and the fact that the case was one of "national
concern as shown by the public outcry and sustained publicity that it has evoked,' the Court
"may be justified in ... (allowing them) to file the instant suit as pauper litigants or, in the
alternative, (ruling) that the legal fees incident to the filing of this case may constitute a lien
on whatever judgment may be recovered by the plaintiffs therein." On the same day, their
counsel submitted a certification of the City Assessor of Quezon City of even date to the
effect "that according to the assessment records x x there is no property whether land or
improvements registered for taxation purposes in the . . names of' seven (7) of the named
plaintiffs.

By Order dated January 4, 1988, the motion was granted by Judge Chingcuangco in his
capacity as Executive Judge only in so far as said seven (7) plaintiffs were concerned, but
not as regards the case.

It is this order that the plaintiffs, in their counsel's aforementioned letter of January 5, 1988,
request this Court to set aside. They ask that they all instead be allowed to prosecute the
case as pauper litigants and they be exempt from paying filing fees which they say have
"been assessed in the amount of P6,060,252.50 based on the total maximum claim of
P1,200,000,000.00 as per the complaint."

In the comment (dated January 22, 1988) submitted by him in response to this Court's
direction, Judge Chingcuangco declared that he had opted to leave the matter of the
propriety of the class suit "to the sound judgment of the branch to which this case may be
raffled," although he personally "would have freely allowed all plaintiffs to litigate as pauper
litigants and close ... (his) eyes to the fact that one of them is the present Clerk of this Court
and another regional trial court judge;"and that he had 'suggested to the plaintiffs' counsel to
seek the assistance of the highest tribunal of the land with the fond hope that it may once
again exercise its highly-regarded judicial activism by allowing that which this Executive
Judge cannot do, that is, allow, in the highest interest of public service, all plaintiffs to litigate
as pauper litigants, and consider the case as a class suit."

The defendants, Sulpicio Lines, Inc., et al., in their own comment, point out that there were
only 1,493 passengers on board the Doña Paz at the time of the tragedy, not 4,000; they
have not been remiss in attending to the immediate needs and claims of the the legal basis
for the claim and the amount of damages recoverable;"' it is doubtful whether 27 plaintiffs are
sufficiently numerous and representative to fully protect the interests of all the suit preempts
the other claimants' cause of action as to the amount of recovery and as to the venue of the
suit; there are in truth only seven plaintiffs qualified to sue as pauper litigants; and the
claimants not authorized to sue as paupers may continue with the action.

In the first place, it is not the rule governing class suits under Section 12, Rule 3 of the Rules
of Court that in truth is involved in the proceedings at bar, but that concerning permissive
joinder of parties in Section 6 of the same Rule 3. 1 It is perhaps not inappropriate for the
Court to avail of the opportunity that the proceeding at bar presents to point out the
distinctions between the two rules, as these appear to have been missed by the petitioners
and even by the Court a quo.

The first cited provision reads as follows:

SEC. 12. Class Suit. — When the subject matter of his controversy is one of
csurvivors and next of kin of the victims; each claimant is a class unto himself
in terms of ommon or general interest to many persons, and the parties are
so numerous that it is impracticable to bring them all before the court, one or
more may sue or defend for the benefit of all. But in such case the court shall
make sure that the parties actually before it are sufficiently numerous and
representative so that all interests concerned are fully protected. Any party in
interest shall have a right to intervene in protection of his individual interest.
What is contemplated, as will be noted, is that (a) the subject matter in controversy is of
common or general interest to many persons, and (b) those persons are so numerous as to
make it impracticable to bring them all before the court. Illustrative of the rule is a so-called
derivative suit brought in behalf of numerous stockholders of a corporation to perpetually
enjoin or nullify what is claimed to be a breach of trust or an ultra vires act of the company's
board of directors. 2 In such a suit, there is one, single right of action pertaining to numerous
stockholders, not multiple rights belonging separately to several, distinct persons.

On the other hand, if there are many persons who have distinct, separate rights against the
same party or group of parties, but those rights arise from the same transaction or series of
transactions and there are common questions of fact or law resulting therefrom, the former
may join as plaintiffs in one action against the same defendant. This is authorized by the
above mentioned joinder-of- parties rule in Section 6 of Rule 3.

SEC. 6. Permissive joinder of parties. — All persons in whom or against

whom any right to relief in respect to or arising out of the same transaction or
series of transaction is alleged to exist, whether jointly, severally, or in the
alternative, may, except as otherwise provided in these rules, join as plaintiffs
or be joined as defendants in one complaint, where any question of law or
fact common to all such plaintiffs or to all such defendants may arise in the
action; but the court may make such orders as may be just to prevent any
plaintiff or defendant from being embarrassed or put texpense in connection
with any proceedings in which he may have no interests.

For instance, it has been held that employees dismissed by their employer on the same
occasion for substantially the same reasons, allegedly without cause or justification, may join
as plaintiff in a single action to obtain relief from their employer. 3 In such a case, the plaintiff
each have a material interest only in the damages properly due to him, not in those that may
be payable to the others, although their rights thereto arise from the same transaction. In
other words, there are as many rights of action as there are plaintiffs joined in the action.
Similarly, the owner of a tract of land whose property has been illegally occupied by many
persons claiming different portions thereof, may bring a single action against all illegal
occupants thereof, in accordance with this rule of permissive joinder of parties. 4 The right of
action is not unal but plural, there being as many rights asserted in the action as there are
defendants, each defendant having an interest only in the portion of the land occupied by
him.

It is true that in both juridical situations, similar essential factors exist i.e., the same
transaction or series of transactions is involved; and common questions of fact or law are at
issue. What makes the situation a proper case for a class suit is the circumstance that there
is only one right or cause of action pertaining or belonging in common to many persons, not
separately or severally to distinct individuals.

The "true" class action, which is the invention of equity, is one which involves
the enforcement of a right which is joint, common, or secondary or derivative.
... (It) is a suit wherein, but for the class action device, the joinder of all
interested parties would be essential. 5

A "true class actions" — distinguished from the so-called hybrid and

the spurious class action in U.S. Federal Practice-involves principles of
compulsory joinder, since . . (were it not) for the numerosity of the class
members all should ... (be) before the court. Included within the true class
 suit ... (are) the shareholders' derivative suit and a class action by or against
an unincorporated association. ... A judgment in a class suit, whether
favorable or unfavorable to the class, is binding under res judicata principles
upon all the members of the class, whether or not they were before the court.
It is the non-divisible nature of the right sued on which determines both the
membership of the class and the res judicata effect of the final determination
of the right. 6

The object of the suit is to obtain relief for or against numerous persons as a group or as an
integral entity, and not as separate, distinct individuals whose rights or liabilities are separate
from and independent of those affecting the others. 7

An action instituted by several hundred members of a voluntary association against their

officers to compel them to wind up the association's affairs and render an accounting of the
money and property in their possession has been held to be a class suit. 8 In that case there
was in truth only one single right of action sought to be enforced by the numerous plaintiff,
not separate, individual, distinct rights pertaining independently to them. 9

On the other hand — unlike an action by numerous stockholders (which is properly a class
suit) to restrain an unauthorized act of a corporation's board of directors, e.g., to extend or
shorten the corporate life or increase capital stock of incur bonded indebtedness without the
specified majority vote prescribed by the Corporation Law, in which the right sought to be
vindicated is single, common and general, not multiple and separate and distinct from each
other's 10 — an action by shareholders of a banking corporation, for example, to enforce their
right to subscribe to stock left unsubscribed by other stockholders who failed to exercise their
own right to do so on or before a stipulated date, was held not to be a class suit since each
one of them 'had determinable interest; each one had a right, if any, only to his respective
portion of the stocks (or a definite number of shares) ... and (no one) of them had any right
to, or any interest in, the stock to which another was entitled."11So, too, an action for libel flied
in behalf of 8,500 sugarcane planters has been held not to be a class suit since 'each of the
plaintiffs has a separate and distinct reputation in the community ... (and) do not have a
common or general interest in the subject matter of the controversy. 12 But in all these
instances, and prescinding from pragmatic considerations, a permissive joinder of parties
would have been perfectly proper in accordance with the aforecited Section 6 of Rule 3 .13

The other factor that serves to distinguish the rule on class suits from that of permissive
joinder of parties is, of course, the numerousness of parties involved in the former. The rule
is that for a class suit to be allowed, it is needful inter alia that the parties be so numerous
that it would be impracticable to bring them all before the court.

The case at bar not being a proper one for a class suit, it follows that the action may not be
maintained by a representative few in behalf of all the others. Be all this as it may, as regards
the computation of the amount involved in the action for purposes of determining the original
jurisdiction over it, and the correlative matter of the amount of filing fees to be paid, it is
immaterial whether the rule applied be that on class suits or permissive joinder of parties. For
in either case, it is the totality of the amounts claimed by or against the parties that
determines jurisdiction, exclusive only of interest and costs. 14

The second question-whether or not the numerous claimants, should they join as parties
plaintiff, may be allowed to sue as pauper litigants, not because they are shown to be without
means to maintain their suits, but on the ground of the alleged "national importance" of the
subject matter, or upon an unverified averment that most of them are impecunious-yields
another negative answer.

The rule on the matter is clear. A party may be allowed to litigate in forma
pauper is only. . 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. 15

Thus, every would be litigant who seeks exemption from the payment of the fees prescribed
for maintaining an action must establish, not simply allege, his lack of means Where there is
a multiplicity of such parties, each must show such lack, in propria persona as it were. And
that the particular circumstances or possible consequences of an actual or contemplated suit
are such as to transcend the narrow personal interests of the immediate parties thereto and
to so impinge upon the wider interests of the people at large as to assume an aspect of
"national importance," does not under any existing law or rule justify excusing such parties
from paying the requisite judicial fees or costs.

It should moreover be quite obvious that the denial of the privilege to prosecute as paupers
litigant to those who do not qualify as such cannot in any sense be deemed a denial of free
access to the courts by reason of poverty, 16 as counsel for the plaintiffs suggests.

Everyone — and the members of the Court are no exception — deplores that tragedy that
claimed so many unsuspecting victims in what has been described, to repeat, as 'the worst
single -disaster' in maritime history. Everyone condoles and symphatizes with those whom
the victims, both known and unknown, left behind, many of whom were denied even the
small consolation of being able to bury their dead. Everyone undoubtedly hopes and wishes
that these survivors may quickly obtain adequate recompense for the untimely loss of their
loved ones. But sympathy and commiseration however-well-deserved, are not considerations
that would justifiably argue for bending or dispensing with the observance of the rules which
prescribe now such vindication may be obtained in the courts of law.

WHEREFORE, the order complained of being in accordance with law, the solicitation to set
aside the same, and to be exempted from observance of the rule on paupers litigant, is
DENIED. The authority to litigate in the form of a class action is likewise DENIED.

Footnotes

1 Not to be confused with joinder of causes of action under Sec. 5, Rule 2.

2 Pascual v. Orozco 19 Phil. 82; Angeles, et al., etc. for Parañaque Rice Mill,
Inc., etc. v. Santos, 64 Phil. 697, 707.

3 Soriano y Cia. v. Jose, et al., 86 Phil. 523; Argonza v. International College,

90 Phil. 470; Abrasaldo v. Cia. Maritima, L- 1918, July 31, 1958.

4 SEE Berses v. Villanueva, 25 Phil. 473; Rallonza v. Villanueva, 15 Phil.

531; Sulo ng Bayan, Inc. v. Araneta, Inc., 72 SCRA 347 in which this Court
ruled that in such a situation, a class suit was not proper.

5 59 Am Jur 2d, 415.

6 SEE Moore, Federal Practice, 2d ed., Vol. 3B pp. 23- 257, 23258.

7 The community of interest requirement is not satisfied if every member of

the class would be required to litigate numerous and substantial questions
determining his individual right to recover following a class judgment
determining issues common to the purported class. ... (A) class action statue
is limited in application to persons who have a common grievance as to
which only a common defense may be asserted, and where it appears that
there are separate defenses applicable to different members of the class
which would require separate adjudication a class action is not maintainable'
(67A CJS 694- 695). "Separate wrongs to separate persons, though
committed by similar means and even pursuant to a single plan, do not alone
create a common or general interest in those who are wronged. Laudable
desire to avoid multiplicity of actions by persons who have suffered wrong at
the hands of the same person is insufficient as a ground for a court of
equity's taking j jurisdiction of a representative action in which complete relief
may be obtained by all who have claims. ... A class action may not be
maintained where the wrongs asserted are individual to the different persons
involved and each of the persons aggrieved may determine for himself the
remedy which he will seek and may be subject to a defense not available
against others. ... The community of interest requirement is lacking, and
separate and distinct claims are present, in those situations where each
member of the class must establish his right to recover, on the of acts
peculiar to his own case" (59 Am Jur 2d 441; emphasis supplied).

8 Borlasa v. Polistico, 47 Phil. 345.

9 See, also, Federation of Free Farmers v. C.A., 107 SCRA 353 (an action in
behalf of plantation laborers against sugar planters and a sugar central for
enforcement of the laborers' rights under the Sugar Act of 1952 [RA 8091);
and Ernesto v. CA, 131 SCRA 347 (an action for payment of laborers' share
in the p of sugar cane raffled in a sugar mill during certain crop years under
the same Sugar Act of 1952).

10 See footnote No. 2 and related text, at page 3, supra.

11 Mathay v. Consolidated Bank & Trust Co., 58 SCRA 559, 572.

12 Newsweek, Inc. v. I.A.C. 142 SCRA 171,176-177. A noted authority

makes the following observation: "A "mass accident" resulting in injuries to
numerous persons is ordinarily not appropriate for a class action because of
the likelihood that significant questions, not only of damages but of liability
and defenses to liability, would be present, affecting the individuals in
different ways. In these circumstances, an action conducted nominally as a
class action would degenerate in practice into multiple lawsuits" (Moore,
Federal Practice, 2nd ed., Vol. 38, p 23-27, citing the Committee Note of
1966 to Rule 23 of the Federal Rules of Civil Procedure).

13 Groups could be formed in such number of persons as would preclude

unwieldiness.

14 Sec. 33 (1), B.P. Blg, 129, The Judiciary Reorgazation Act of 1980.
15 Sec.Rule 3, Rules of Court.

16 Sec. 11, ART. III, 1987 Constitution

G.R. No. L-23136 August 26, 1974

ISMAEL MATHAY, JOSEFINA MATHAY, DIOGRACIAS T. REYES and S. ADOR

DIONISIO, plaintiffs-appellants,
vs.
THE CONSOLIDATED BANK AND TRUST COMPANY, JOSE MARINO OLONDRIZ,
WILFRIDO C. TECSON, SIMON R. PATERNO, FERMIN Z. CARAM, JR., ANTONIO P.
MADRIGAL, JOSE P. MADRIGAL, CLAUDIO TEEHANKEE, and ALFONSO JUAN
OLONDRIZ, defendants-appellees. CIPRIANO AZADA, MARIA CRISTINA OLONDRIZ
PERTIERRA jointly with her husband ARTURO PERTIERRA, and MARIA DEL PUY
OLONDRIZ DE STEVENS, movants-intervenors-appellants.

Deogracias T. Reyes & Associates for appellants.

Tañada, Teehankee & Carreon for appellees.

Paterno Pedrena for appellee Fermin Z. Caram, Jr.

ZALDIVAR, J.:p

In this appeal, appellants-plaintiffs and movants-intervenors seek the reversal of the order dated March 21, 1964 of the Court of
First Instance of Manila dismissing the complaint together with all other pending incidents in Civil Case No. 55810.

The complaint in this case, filed on December 24, 1963 as a class suit, under Section 12,
Rule 3, of the Rules of Court, contained six causes of action. Under the first cause of action,
plaintiffs-appellants alleged that they were, on or before March 28, 1962, stockholders in the
Consolidated Mines, Inc. (hereinafter referred to as CMI), a corporation duly organized and
existing under Philippine laws; that the stockholders of the CMI, including the plaintiffs-
appellants, passed, at a regular stockholders' meeting, a Resolution providing: (a) that the
Consolidated Bank & Trust Co. (hereinafter referred to as Bank) be organized with an
authorized capital of P20,000,000.00; (b) that the organization be undertaken by a Board of
Organizers composed of the President and Members of the Board of Directors of the CMI;
(c) that all stockholders of the CMI, who were legally qualified to become stockholders, would
be entitled to subscribe to the capital stock of the proposed Bank "at par value to the same
extent and in the same amount as said stockholders' respective share holdings in the CMI,"
as shown in its stock books on a date to be fixed by the Board of Directors [which date was
subsequently fixed as January 15, 1963], provided that the right to subscribe should be
exercised within thirty days from the date so fixed, and "that if such right to subscription be
not so exercised then the stockholders concerned shall be deemed to have thereby waived
and released ipso factotheir right to such subscription in favor of the Interim Board of
Organizers of the Defendant Bank or their assignees;" and (d) that the Board of Directors of
the CMI be authorized to declare a "special dividend" in an amount it would fix, which the
subscribing stockholders might authorize to be paid directly to the treasurer of the proposed
Bank in payment of the subscriptions; that the President and members of the Board of
Directors of the CMI, who are the individuals-defendants-appellees in the instant case,
constituted themselves as the Interim Board of Organizers; that said Board sent out, on or
about November 20, 1962, to the CMI stockholders, including the plaintiffs-appellants,
circular letters with "Pre-Incorporation Agreement to Subscribe" forms that provided that the
payment of the subscription should be made in cash from time to time or by the application of
the special dividend declared by the CMI, and that the subscription must be made within the
period from December 4, 1962 to January 15, 1963, "otherwise such subscription right shall
be deemed to have been thereby ipso facto waived and released in favor of the Board of
Organizers of the Defendant Bank and their assignees"; that the plaintiffs-appellants
accomplished and filed their respective "Pre-Incorporation Agreement to Subscribe" and paid
in full their subscriptions; that plaintiffs-appellants and the other CMI subscribing
stockholders in whose behalf the action was brought also subscribed to a very substantial
amount of shares; that on June 25, 1963, the Board of Organizers caused the execution of
the Articles or Incorporation of the proposed Bank indicating an original subscription of
50,000 shares worth P5,000,000 subscribed and paid only by six of the individuals-
defendants-appellees, namely, Antonio P. Madrigal, Jose P. Madrigal Simon R. Paterno,
Fermin Z. Caram, Jr., Claudio Teehankee, and Wilfredo C. Tecson, thereby excluding the
plaintiffs-appellants and the other CMI subscribing stockholders who had already subscribed;
that the execution of said Articles of Incorporation was "in violation of law and in breach of
trust and contractual agreement as a means to gain control of Defendant Bank by Defendant
Individuals and persons or entities chosen by them and for their personal profit or gain in
disregard of the rights of Plaintiffs and other CMI Subscribing Stockholders;" that the paid-in
capital stock was raised, as required by the Monetary Board, to P8,000,000.00, and
individuals-defendants-appellees caused to be issued from the unissued shares 30,000
shares amounting to P3,000,000.00, all of which were again subscribed and paid for entirely
by individuals-defendants-appellees or entities chosen by them "to the exclusion of Plaintiffs
and other CMI subscribing stockholders" "in violation of law and breach of trust and of the
contractual agreement embodied in the contractual agreement of March 28, 1962"; that the
Articles were filed with the Securities and Exchange Commission which issued the Certificate
of Incorporation on June 25, 1963; that as of the date of the Complaint, the plaintiffs-
appellants and other CMI subscribing stockholders had been denied, through the unlawful
acts and manipulation of the defendant Bank and Individuals-defendants-appellees, the right
to subscribe at par value, in proportion to their equities established under their respective
"Pre-Incorporation Agreements to Subscribe" to the capital stock, i.e., (a) to the original issue
of 50,000 shares and/or (b) to the additional issue of 30,000 shares, and/or (c) in that portion
of said original or additional issue which was unsubscribed; that the individuals-defendants-
appellees and the persons chosen by them had unlawfully acquired stockholdings in the
defendant-appellee Bank in excess of what they were lawfully entitled and held such shares
"in trust" for the plaintiffs-appellants and the other CMI stockholders; that it would have been
vain and futile to resort to intra corporate remedies under the facts and circumstances
alleged above. As relief on the first cause of action, plaintiffs-appellants prayed that the
subscriptions and share holdings acquired by the individuals-defendants- appellees and the
persons chosen by them, to the extent that plaintiffs-appellants and the other CMI
stockholders had been deprived of their right to subscribe, be annulled and transferred to
plaintiffs-appellants and other CMI subscribing stockholders.

Besides reproducing all the above allegations in the other causes of action, plaintiffs-
appellants further alleged under the second cause of action that on or about August 28,
1963, defendants-appellees Antonio P. Madrigal, Jose P. Madrigal: Fermin Z. Caram, Jr.,
and Wilfredo C. Tecson "falsely certified to the calling of a special stockholders' meeting
allegedly pursuant to due notice and call of Defendant Bank" although plaintiffs-appellants
and other CMI stockholders were not notified thereof, and amended the Articles of
Incorporation increasing the number of Directors from 6 to 7, and had the illegally created
Position of Director filled up by defendant-appellee Alfonso Juan Olondriz, who was not
competent or qualified to hold such position. In the third cause of action, plaintiffs-appellants
claimed actual damages in an amount equivalent to the difference between the par value of
the shares they were entitled, but failed, to acquire and the higher market value of the same
shares. In the fourth cause of action, Plaintiffs-appellants claimed moral damages; in the
fifth, exemplary damages; and in the sixth, attorney's fees.

In his manifestation to the court on January 4, 1964, Francisco Sevilla, who was one of the
original plaintiffs, withdrew. On January 15, 1964 Cipriano Azada, Maria Cristina Olondriz
Pertierra, Maria del Puy Olondriz de Stevens (who later withdrew as intervenors-appellants)
and Carmen Sievert de Amoyo, filed a motion to intervene, and to join the plaintiffs-
appellants on record, to which motion defendants-appellees, except Fermin Z. Caram, Jr.,
filed, on January 17, 1964 their opposition.

On February 7, 1964 defendants-appellees, except Fermin Z. Caram, Jr., filed a motion to

dismiss on the grounds that (a) plaintiffs-appellants had no legal standing or capacity to
institute the alleged class suit; (b) that the complaint did not state a sufficient and valid cause
of action; and (c) that plaintiffs-appellants' complaint against the increase of the number of
directors did not likewise state a cause of action. Plaintiffs-appellants filed their opposition
thereto on February 21, 1964.

On March 4, 1964 appellants, plaintiffs and intervenors, filed a verified petition for a writ of
preliminary injunction to enjoin defendants-appellees from considering or ratifying by
resolution, at the meeting of the stockholders of defendant-appellee Bank to be held the
following day, the unlawful apportionment of the shares of the defendant-appellee Bank and
the illegal amendment to its Articles of Incorporation increasing the number of Directors, The
Court, after hearing, granted the writ, but subsequently set it aside upon the appellees' filing
a counter bond.

Some subscribers to the capital stock of the Bank like Concepcion Zuluaga, et al., and
Carlos Moran Sison, et al., filed separate manifestations that they were opposing and
disauthorizing the suit of plaintiffs-appellants.

On March 7, 1964 defendants-appellees, except Fermin Z. Caram, Jr., filed a supplemental

ground for their motion to dismiss, to wit, that the stockholders, except Fermin Z. Caram, Jr.,
who abstained, had unanimously, at their regular annual meeting held on March 5, 1964,
ratified and confirmed all the actuations of the organizers-directors in the incorporation,
organization and establishment of the Bank.

In its order, dated March 21, 1964, the trial court granted the motion to dismiss, holding,
among other things, that the class suit could not be maintained because of the absence of a
showing in the complaint that the plaintiffs-appellants were sufficiently numerous and
representative, and that the complaint failed to state a cause of action. From said order,
appellants, plaintiffs and intervenors, interposed this appeal to this Court on questions of law
and fact, contending that the lower court erred as follows:

1. In holding that plaintiffs-appellants could not maintain the present class

suit because of the absence of a showing in the complaint that they were
sufficiently numerous and representative;

II. In holding that the instant action could not be maintained as a class suit
because plaintiffs-appellants did not have a common legal interest in the
subject matter of the suit;

III. In dismissing the present class suit on the ground that it did not meet the
requirements of Rule 3, section 12 of the Rules of Court;
 IV. In holding that the complaint was fatally defective in that it failed to state
with particularity that plaintiffs-appellants had resorted to, and exhausted,
intra-corporate remedies;

V. In resolving defendants-appellees' motion on the basis of facts not alleged

in the complaint;

VI. In holding that plaintiffs-appellants' complaint stated no valid cause of

action against defendants-appellees;

VII. In not holding that a trust relationship existed between the Interim Board
of Organizers of defendant-appellee Bank and the CMI subscribing
stockholders and in not holding that the waiver was in favor of the Board of
Trustees for the CMI subscribing stockholders;

VIII. In holding that the failure of plaintiffs-appellants to allege that they had
paid or had offered to pay for the shares allegedly pertaining to them
constituted another ground for dismissal;

XI. In holding that the allegations under the second cause of action stated no
valid cause of action due to a fatal omission to allege that plaintiffs-appellants
were stockholders of record at the time of the holding of the special
stockholders' meeting;

X. In holding that plaintiffs-appellants' complaint stated no cause of action

against defendant-appellee Bank; and

XI. In considering the resolution of ratification and confirmation and in holding

that the resolution rendered the issues in this case moot.

The assigned error revolve around two questions namely: (1) whether the instant action
could be maintained as a class suit, and (2) whether the complaint stated a cause of action.
These issues alone will be discussed.

1. Appellants contended in the first three assigned errors that the trial court erred in holding
that the present suit could not be maintained as a class suit, and in support thereof argued
that the propriety of a class suit should be determined by the common interest in the subject
matter of the controversy; that in the instant case there existed such common interest which
consisted not only in the recovery of the shares of which the appellants were unlawfully
deprived, but also in divesting the individuals-defendants-appellees and the person or
entities chosen by them of control of the appellee Bank.1 ; that the complaint showed that
besides the four plaintiff-appellants of record, and the four movant-intervenors-appellants
there were in the appellee Bank many other stockholders who, tough similarly situated as the
appellants, did not formally include themselves as parties on record in view of the
representative character of the suit; that the test, in order to determine the legal standing of a
party to institute a class suit, was not one, of number, but whether or not the interest of said
party was representative of the persons in whose behalf the class suit was instituted; that
granting arguendo, that the plaintiffs-appellants were not sufficiently numerous and
representative, the court should not have dismissed the action, for insufficiency of number in
a class suit was not a ground for a motion to dismiss, and the court should have treated the
suit as an action under Rule 3, section 6, of the Rules of Court which permits a joinder of
parties.
Defendants-appellees, on the contrary, stressed that the instant suit was instituted as a class
suit and the plaintiffs-appellants did not sue in their individual capacities for the protection of
their individual interests; that the plaintiffs appellants of record could not be considered
numerous and representative, as said plaintiffs-appellants were only four out of 1,500
stockholders, and owned only 8 shares out of the 80,000 shares of stock of the appellee
Bank; that even if to the four plaintiffs-appellants were added the four movants-intervenors-
appellants the situation would be the same as two of the intervenors, to wit, Ma. Cristina
Olondriz Pertierra and Ma. del Puy Olondriz de Stevens, could not sue as they did not have
their husbands' consent; that it was necessary that in a class suit the complaint itself should
allege facts showing that the plaintiffs were sufficiently numerous and representative, and
this did not obtain in the instant case, as the complaint did not. even allege how many other
CMI stockholders were "similarly situated"; that the withdrawal of one plaintiff, Francisco
Sevilla, the subsequent disclaimers of any interest in the suit made in two separate pleadings
by other CMI stockholders and the disauthorization of their being represented by plaintiffs-
appellants by the 986 (out of 1,663) stockholders who attended the annual meeting of bank
stockholders on March 5, 1964, completely negated plaintiffs-appellants' pretension that they
were sufficiently numerous and representative or that there were many other stockholders
similarly situated whom the plaintiffs-appellants allegedly represented; that plaintiffs-
appellants did not have that common or general interest required by the Rules of Court in the
subject matter of the suit.2

In their Reply Brief, appellants insisted that non-compliance with Section 12, Rule 3, not
being one enumerated in Rules 16 and 17, was not a ground for dismissal; that the
requirements for a class had been complied with; that the required common interest existed
even if the interests were several for there was a common question of law or fact and a
common relief was sought; that the common or general interest could be in the object of the
action, in the result of the proceedings, or in the question involved in the action, as long as
there was a common right based on the same essential facts; that plaintiffs-appellants
adequately represented the aggrieved group of bank stockholders, inasmuch as appellants'
interests were not antagonistic to those of the latter, and appellants were in the same
position as the group in whose behalf the complaint was filed.

The governing statutory provision for the maintenance of a class suit is Section 12 of Rule 3
of the Rules of Court, which reads as follows:

Sec. 12. Class suit — When the subject matter of the controversy is one of
common or general interest to many persons, and the parties are so
numerous that it is impracticable to bring them all before the court, one or
more may sue or defend for the benefit of -ill. But in such case the court shall
make sure that the parties actually before it are sufficiently numerous and
representative so that all interests concerned are fully protected. Any party in
interest shall have a right to intervene in protection of his individual interest.

The necessary elements for the maintenance of a class suit are accordingly: (1) that the
subject matter of the controversy be one of common or general interest to many persons,
and (2) that such persons be so numerous as to make it impracticable to bring them all to the
court. An action does not become a class suit merely because it is designated as such in the
pleadings. Whether the suit is or is not a class quit depends upon the attending facts, and
the complaint, or other pleading initiating the class action should allege the existence of the
necessary facts, to wit, the existence of a subject matter of common interest, and the
existence of a class and the number of persons in the alleged class,3 in order that the court
might be enabled to determine whether the members of the class are so numerous as to
make it impracticable to bring them all before the court, to contrast the number appearing on
the record with the number in the class and to determine whether claimants on record
adequately represent the class and the subject matter of general or common interest.4

The complaint in the instant case explicitly declared that the plaintiffs- appellants instituted
the "present class suit under Section 12, Rule 3, of the Rules of Court in. behalf of CMI
subscribing stockholders"5 but did not state the number of said CMI subscribing stockholders
so that the trial court could not infer, much less make sure as explicitly required by the
sufficiently numerous and representative in order that all statutory provision, that the parties
actually before it were interests concerned might be fully protected, and that it was
impracticable to bring such a large number of parties before the court.

The statute also requires, as a prerequisite to a class suit, that the subject-matter of the
controversy be of common or general interest to numerous persons. Although it has been
remarked that the "innocent 'common or general interest' requirement is not very helpful in
determining whether or not the suit is proper",6 the decided cases in our jurisdiction have
more incisively certified the matter when there is such common or general interest in the
subject matter of the controversy. By the phrase "subject matter of the action" is meant "the
physical facts, the things real or personal, the money, lands, chattels, and the like, in relation
to which the suit is prosecuted, and not the delict or wrong committed by the defendant."7

This Court has ruled that a class suit did not lie in an action for recovery of real property
where separate portions of the same parcel were occupied and claimed individually by
different parties to the exclusion of each other, such that the different parties had
determinable, though undivided interests, in the property in question.8 It his likewise held that
a class suit would not lie against 319 defendants individually occupying different portions of a
big parcel of land, where each defendant had an interest only in the particular portion he was
occupying, which portion was completely different from the other portions individually
occupied by other defendants, for the applicable section 118 of the Code of Civil Procedure
relates to a common and general interest in single specific things and not to distinct ones.9In
an action for the recovery of amounts that represented surcharges allegedly collected by the
city from some 30,000 customers of four movie houses, it was held that a class suit did not
lie, as no one plaintiff had any right to, or any share in the amounts individually claimed by
the others, as each of them was entitled, if at all, only to the return of what he had personally
paid. 10

The interest, subject matter of the class suits in the above cited cases, is analogous to the
interest claimed by appellants in the instant case. The interest that appellants, plaintiffs and
intervenors, and the CMI stockholders had in the subject matter of this suit — the portion of
stocks offering of the Bank left unsubscribed by CMI stockholders who failed to exercise their
right to subscribe on or before January 15, 1963 — was several, not common or general in
the sense required by the statute. Each one of the appellants and the CMI stockholders had
determinable interest; each one had a right, if any, only to his respective portion of the
stocks. No one of them had any right to, or any interest in, the stock to which another was
entitled. Anent this point, the trial court correctly remarked:

It appears to be the theory of the plaintiffs borne out by the prayer, that each
subscribing CMI stockholder is entitled to further subscribe to a certain
Proportion depending upon his stockholding in the CMI, of the P8 million
capital stock of the defendant bank open to subscription (out of the 20 million
authorized capital stock) as well as the unsubscribed portion of the P8 million
stock offering which were left unsubscribed by those CMI stockholders who
for one reason or another had failed to exercise their subscription rights on or
 before January 15, 1963. Under the plaintiffs' theory therefore, each
subscribing CMI stockholder was entitled to subscribe to a definite number of
shares both in the original offering of P8 million and in that part thereof not
subscribed on or before the deadline mentioned, so that one subscribing CMI
stockholder may be entitled to subscribe to one share, another to 3 shares
and a third to 11 shares, and so on, depending upon the amount and extent of CMI stockholding. But
except for the fact that a question of law — the proper interpretation of the waiver provisions of the CMI
stockholders' resolution of March 28, 1962 — is common to all, each CMI subscribing stock holder has a
legal interest in, and a claim to, only his respective proportion of shares in the defendant bank, and none
with regard to any of the shares to which another stockholder is entitled. Thus plaintiff Ismael Mathay has no
legal interest in, or claim to, any share claimed by any or all of his co-plaintiffs from the defendant
individuals. Hence, no CMI subscribing stockholder or, for that matter, not any number of CMI stockholders
can maintain a class suit in behalf of others,... 11

Even if it be assumed, for the sake of argument, that the appellants and the CMI
stockholders suffered wrongs that had been committed by similar means and even pursuant
to a single plan of the Interim Board of Organizers of the Bank, the wrong suffered by each of
them would constitute a wrong separate from those suffered by the other stockholders, and
those wrongs alone would not create that common or general interest in the subject matter of
the controversy as would entitle any one of them to bring a class suit on behalf of the others.
Anent this point it has been said that:

Separate wrongs to separate persons, although committed by similar means

and even pursuant to a single plan, do not alone create a 'common' or
'general' interest in those who are wronged so as to entitle them to maintain a
representative action. 12

Appellants, however, insisted, citing American authorities, 13 that a class suit might be
brought even if the interests of plaintiffs-appellants might be several as long as there was a
common question of law or fact affecting them and a common relief was sought. We have no
conflict with the authorities cited; those were rulings under the Federal Rules of Civil
Procedure, pursuant to Rule 23 of which, there were three types of class suits, namely: the
true, the hybrid, and the spurious, and these three had only one feature in common, that is,
in each the persons constituting the class must be so numerous as to make it impracticable
to bring them all before the court. The authorities cited by plaintiffs-appellants refer to the
spurious class action (Rule 23 (a) (3) which involves a right sought to be enforced, which is
several, and there is a common question of law or fact affecting the several rights and a
common relief is sought. 14 The spurious class action is merely a permissive joinder device;
between the members of the class there is no jural relationship, and the right or liability of
each is distinct, the class being formed solely by the presence of a common question of law
or fact. 15 This permissive joinder is provided in Section 6 of Rule 3, of our Rules of Court.
Such joinder is not and cannot be regarded as a class suit, which this action purported and
was intended to be as per averment of the complaint.

It may be granted that the claims of all the appellants involved the same question of law. But
this alone, as said above, did not constitute the common interest over the subject matter
indispensable in a class suit. The right to purchase or subscribe to the shares of the
proposed Bank, claimed by appellants herein, is analogous to the right of preemption that
stockholders have when their corporation increases its capital. The right to preemption, it has
been said, is personal to each stockholder, 16 and while a stockholder may maintain a suit to
compel the issuance of his proportionate share of stock, it has been ruled, nevertheless, that
he may not maintain a representative action on behalf of other stockholders who are similarly
situated. 17 By analogy, the right of each of the appellants to subscribe to the waived stocks
was personal, and no one of them could maintain on behalf of others similarly situated a
representative suit.
Straining to make it appear that appellants and the CMI subscribing stockholders had a
common or general interest in the subject matter of the suit, appellants stressed in their brief
that one of the reliefs sought in the instant action was "to divest defendant individuality and
the persons or entities chosen by them of control of the defendant bank." 18 This relief
allegedly sought by appellants did not, however, appear either in the text or in the prayer of
the complaint.

Appellants, furthermore, insisted that insufficiency of number in a class suit was not a ground
for dismissal of one action. This Court has, however, said that where it appeared that no
sufficient representative parties had been joined, the dismissal by the trial court of the action,
despite the contention by plaintiffs that it was a class suit, was correct. 19 Moreover, insofar
as the instant case is concerned, even if it be granted for the sake of argument, that the suit
could not be dismissed on that ground, it could have been dismissed, nevertheless, on the
ground of lack of cause of action which will be presently discussed. .

2. Appellants supported their assigned error that the court erred in holding that the complaint
stated no valid cause of action, by claiming that paragraph 15 together with the other
allegations of the complaint to the effect that defendants-appellees had unlawfully acquired
stockholdings in the capital stock of defendant-appellee Bank in excess of what they were
lawfully entitled to, in violation of law and in breach of trust and the contractual agreement,
constituted a valid and sufficient cause of action; 20 and that only the allegations in the
complaint should have been considered by the trial court in determining whether the
complaint stated a cause of action or not.

Defendants-appellees, on the contrary, maintained that the allegations of the complaint

should not be the only ones to be considered in determining whether there is a cause of
action; that even if the ultimate facts alleged in the first cause of action of the complaint be
the only ones considered the complaint would still fail to state a valid cause of action on the
following grounds: first, there was no allegation regarding appellants' qualification to
subscribe to the capital stock of the appellee Bank, for under the CMI stockholders'
resolution of March 28, 1962, only those qualified under the law were entitled to subscribe,
and under the regulations of the Monetary Board, only natural-born Filipino citizens could be
stockholders of a banking corporation organized under the laws of the Philippines, and
nowhere did the complaint alleged that plaintiffs-appellants were natural born Filipino
citizens. 21 Second, appellants' averment in paragraph 8 that they "subscribed," and their
averment in paragraph 15 that they were "denied the right to subscribe ... to the capital stock
of the defendant Bank", were inconsistent, and hence neutralized each other, thereby
leaving in shambles the first cause of action. Third, there was no allegation that appellants
had not yet received or had not been issued the corresponding certificates of stock covering
the shares they had subscribed and paid for. Fourth, the allegations failed to show the
existence of the supposed trust; and fifth, the complaint failed to allege that plaintiffs-
appellants had paid or offered to pay for the shares allegedly pertaining to them. 22

Let us premise the legal principles governing the motion to dismiss on the ground of lack of
cause of action.

Section 1, Rule 16 of the Rules of Court providing in part that: .

Within the time for pleading a motion to dismiss may be made on any of the
following grounds: ....

(g) That the complaint states no cause of action. ..1.

explicitly requires that the sufficiency of the complaint must be tested exclusively on the
basis of the complaint itself and no other should be considered when the ground for motion
to dismiss is that the complaint states no cause of action. Pursuant thereto this Court has
ruled that:

As a rule the sufficiency of the complaint, when Challenged in a motion to dismiss, must be
determined exclusively on the basis of the facts alleged therein. 23

It has been likewise held that a motion to dismiss based on lack of cause of action
hypothetically admits the truth of the allegations of fact made in the complaint. 24 It is to be
noted that only the facts well pleaded in the complaint, and likewise, any inferences fairly
deducible therefrom, are deemed admitted by a motion to dismiss. Neither allegations of
conclusions 25 nor allegations of facts the falsity of which the court may take judicial notice
are deemed admitted. 26 The question, therefore, submitted to the Court in a motion to
dismiss based on lack of cause of action is not whether the facts alleged in the complaint are
true, for these are hypothetically admitted, but whether the facts alleged are sufficient to
constitute a cause of action such that the court may render a valid judgment upon the facts
alleged therein.

A cause of action is an act or omission of one party in violation of the legal right of the other.
Its essential elements are, namely: (1) the existence of a legal right in the plaintiff, (2) a
correlative legal duty in the defendant, and (3) an act or omission of the defendant in
violation of plaintiff's right with consequential injury or damage to the plaintiff for which he
may maintain an action for the recovery of damages or other appropriate relief. 27 On the
other hand, Section 3 of Rule 6 of the Rules of Court provides that the complaint must state
the ultimate facts constituting the plaintiff's cause of action. Hence, where the complaint
states ultimate facts that constitute the three essential elements of a cause of action, the
complaint states a cause of action; 28 otherwise, the complaint must succumb to a motion to
dismiss on that ground.

The legal principles having been premised, let us now analyze and discuss appellant's
various causes of action.

Appellants' first cause of action, pursuant to what has been premised above, should have
consisted of: (1) the right of appellants as well as of the other CMI stockholders to subscribe,
in proportion to their equities established under their respective "Pre-Incorporation
Agreements to Subscribe", to that portion of the capital stock which was unsubscribed
because of failure of the CMI stockholders to exercise their right to subscribe thereto; (2) the
legal duty of the appellant to have said portion of the capital stock to be subscribed by
appellants and other CMI stockholders; and (3) the violation or breach of said right of
appellants and other CMI stockholders by the appellees.

Did the complaint state the important and substantial facts directly forming the basis of the
primary right claimed by plaintiffs? Before proceeding to elucidate this question, it should be
noted that a bare allegation that one is entitled to something is an allegation of a conclusion.
Such allegations adds nothing to the pleading, it being necessary to plead specifically the
facts upon which such conclusion is founded. 29 The complaint alleged that appellants were
stockholders of the CMI; that as such stockholders, they were entitled; by virtue of the
resolution of March 28, 1962, to subscribe to the capital stock of the proposed Consolidated
Bank and Trust Co., at par value to the same extent and in the same amount as said
stockholders' respective share holdings in the CMI as shown in the latter's stock book as of
January 15, 1963, the right to subscribe to be exercised until January 15, 1963, provided
said stockholders of the CMI were qualified under the law to become stockholders of the
proposed Bank; 30 that appellants accomplished and filed their respective "Pre-Incorporation
Agreements to Subscribe" and fully paid the subscription. 31

These alleged specific facts did not even show that appellants were entitled to subscribe to
the capital stock of the proposed Bank, for said right depended on a condition precedent,
which was, that they were qualified under the law to become stockholders of the Bank, and
there was no direct averment in the complaint of the facts that qualified them to become
stockholders of the Bank. The allegation of the fact that they subscribed to the stock did not,
by necessary implication, show that they were possessed of the necessary qualifications to
become stockholders of the proposed Bank.

Assuming arguendo that appellants were qualified to become stockholders of the Bank, they
could subscribe, pursuant to the explicit terms of the resolution of March 28, 1962, "to the
same extent and in the same amount as said stockholders' respective stockholdings in the
CMI" as of January 15, 1963. 32 This was the measure of the right they could claim to
subscribe to waived stocks. Appellants did not even aver that the stocks waived to the
subscription of which they claimed the right to subscribe, were comprised in "the extent and
amount" of their respective share holdings in the CMI. It is not surprising that they did not
make such an averment for they did not even allege the amount of shares of stock to which
they claimed they were entitled to subscribe. The failure of the complaint to plead specifically
the above facts rendered it impossible for the court to conclude by natural reasoning that the
appellants and other CMI stockholders had a right to subscribe to the waived shares of
stock, and made any allegation to that effect a conclusion of the pleader, not an ultimate fact,
in accordance with the test suggested by the California Supreme Court, to wit:

If from the facts in evidence, the result can be reached by that process of
natural reasoning adopted in the investigation of truth, it becomes an ultimate
fact, to be found as such. If, on the other hand, resort must be had to the
artificial processes of the law, in order to reach a final determination, the
result is a conclusion of law. 33

Let us now pass to the second and third elements that would have constituted the first cause
of action. Did the complaint allege as ultimate facts the legal duty of defendants-appellees to
have a portion of the capital stock subscribed to by appellants? Did the complaint allege as
ultimate facts that defendants appellees had violated appellants' right?

Even if it be assumed arguendo that defendants-appellees had the duty to have the waived
stocks subscribed to by the CMI stockholders, this duty was not owed to all the CMI
stockholders, but only to such CMI stockholders as were qualified to become stockholders of
the proposed Bank. Inasmuch as it has been shown that the complaint did not contain
ultimate facts to show that plaintiffs-appellants were qualified to become stockholders of the
Bank, it follows that the complaint did not show that defendants-appellees were under duty to
have plaintiffs-appellants subscribe to the stocks of the proposed Bank. It inevitably follows
also that the complaint did not contain ultimate facts to show that the right of the plaintiffs-
appellants to subscribe to the shares of the proposed Bank had been violated by defendants-
appellees. How could a non-existent right be violated?

Let us continue the discussion further. The complaint alleged that by virtue of the resolution
of March 28, 1962, the President and Members of the Board of Directors of the CMI would
be constituted as a Board of Organizers to undertake and carry out the organization of the
Bank; 34 that the Board of Organizers was constituted and proceeded with the establishment
of the Bank, 35 that the persons composing the Board of Organizers were the individuals-
defendants-appellees; 36 that the Board of Organizers sent our circular letters with "Pre-
Incorporation Agreement to Subscribe" forms 37 which specified, among others, "such
subscription right shall be deemed ipso facto waived and released in favor of the Board of
Organizers of the defendant Bank and their assignees"; 38 that in the Articles of Incorporation
prepared by the Board of Organizers, the individuals-defendants-appellees alone appeared
to have subscribe to the 50, shares; 39 and that individuals-defendants-appellees again
subscribe to all the additional 30,000 shares. 40 From these facts, appellants concluded that
they were denied their right to subscribe in proportion to their equities; 41 that the individuals-
defendants-appellees unlawfully acquired stockholdings far in excess of what they were
lawfully entitled in violation of law and in breach of trust and of contractual agreement; 42and
that, because of matters already alleged, the individuals-defendants-appellees "hold their
shares in the defendant bank in trust for plaintiffs." 43

The allegation in the complaint that the individuals-defendants-appellees held their shares "in
trust" for plaintiffs-appellants without averment of the facts from which the court could
conclude the existence of the alleged trust, was not deemed admitted by the motion to
dismiss for that was a conclusion of law. Express averments "that a party was the beneficial
owner of certain property; ... that property or money was received or held in trust, or for the
use of another; that particular funds were trust funds; that a particular transaction created an
irrevocable trust; that a person held Property as constructive trustee; that on the transfer of
certain property a trust resulted" have been considered as mere conclusions of law. 44 The
facts alleged in the complaint did not, by logical reasoning, necessarily lead to the conclusion
that defendants-appellees were trustees in favor of appellants of the shares of stock waived
by the CMI stockholders who failed to exercise their right to subscribe. In this connection, it
has been likewise said that:

"The general rule is that an allegation of duty in terms unaccompanied by a statement of the
facts showing the existence of the duty, is a mere conclusion of law, unless there is a relation
set forth from which the law raises the duty." 45

In like manner, the allegation that individuals-defendants-appellees held said shares in trust
was no more than an interpretation by appellants of the effect of the waiver clause of the
Resolution and as such it was again a mere conclusion of law. It has been said that:

The following are also conclusions of law: ... an allegation characterizing an

instrument or purporting to interpret it and state its effects, ... 46

Allegations in petition in the nature of conclusions about the meaning of contract,

inconsistent with stated terms of the contract, cannot be considered. 47

The allegation that the defendants-appellee acquired stockholdings far in excess of what
they were lawfully entitled, in violation of law and in breach of trust and of contractual
agreement, is also mere conclusion of law.

Of course, the allegation that there was a violation of trust duty was plainly a conclusion of
law, for "a mere allegation that it was the duty of a party to do this or that, or that he was
guilty of a breach of duty, is a statement of a conclusion not of fact." 48

An averment ... that an act was 'unlawful' or 'wrongful' is a mere legal

conclusion or opinion of the pleader. 49
Moreover, plaintiffs-appellants did not state in the complaint the amount of subscription the
individual defendant-appellee were entitled to; hence there was no basis for the court to
determine what amount subscribed to by them was excessive.

From what has been said, it is clear that the ultimate facts stated under the first cause of
action are not sufficient to constitute a cause of action.

The further allegations in the second cause of action that the calling of a special meeting was
"falsely certified", that the seventh position of Director was "illegally created" and that
defendant Alfonso Juan Olondriz was "not competent or qualified" to be a director are mere
conclusions of law, the same not being necessarily inferable from the ultimate facts stated in
the first and second causes of action. It has been held in this connection that:

An averment that ... an act was 'unlawful' or 'wrongful' is a mere legal

conclusion or opinion of the pleader. The same is true of allegations that an
instrument was 'illegally' certified or ... that an act was arbitrarily done ..." 50

A pleader states a mere conclusion when he makes any of the following

allegations: that a party was incapacitated to enter into a contract or convey
property ... 51

The third, fourth, fifth and sixth causes of action depended on the first cause of action, which,
as has been shown, did not state ultimate facts sufficient to constitute a cause of action. It
stands to reason, therefore, that said causes of action would also be fatally defective.

It having been shown that the complaint failed to state ultimate facts to constitute a cause of
action, it becomes unnecessary to discuss the other assignments of errors.

WHEREFORE, the instant appeal is dismissed, and the order dated March 21, 1964 of the
Court of First Instance of Manila dismissing the complaint in Civil Case No. 55810 is
affirmed, with costs in this instance against appellants. It is so ordered.

Fernando, Barredo, Fernandez and Aquino, JJ, concur.

Antonio, J., took no part.

Footnotes

1 Brief for Plaintiffs-Appellants and Movants-Intervenors-Appellants, page 25.

2 Brief for Defendants-Appellees, pages 54-70.

3 The existence of persons similarly situated must be a reality, not a

possibility. A likelihood that there are other persons similarly situated is not
enough, Barron and Holts off, Federal Practice and Procedure, Vol. 2, page
156.
4 Cf. Moore's Federal Practice 2d ed., Vol. III, pages 3423-3424; 4 Federal
Rules Service, Pages 454-455; Johnson, et al., vs. Riverland Levee Dist., et
al., 117 F 2d 711, 715.

5 Record on Appeal. Pages 2, 8-9.

6 Moore's Federal Practice, 2ed., Vol. III, page 3417.

7 Moran. Comments on the Rules of Court, 1963 ed., Vol. 1, page 92 citing
Pomeroy's Code Remedies. 492.

8 Rallonza vs. Evangelists, 15 Phil. 531; Valencia vs. City of Dumaguete,

L-17799, August 31, 1962, 5 SCRA 1096, 1101; Borlasa vs. Polistico, 47
Phil. 345, 349.

9 Berses vs. Villanueva, 25 Phil. 473. It is to be noted that Section 12 of Rule

3 is the same as section 12 of former Rule 3, which was taken from section
118 of Act. 190. Moran, Comments on the Rules of Court. 1963 ed., Vol. 1,
page 167.

10 Valencia vs. City of Dumaguete, L-17799, August 31, 1962, 5 SCRA

1096, 1101.

11 Record on Appeal. pages 284-285.

12 Society Milion Athena, Inc., et a]. vs. National Bank of Greece, et al., 22
N.E. 2ed 374.

13 Prof. Sutherland's address before the Cincinati Bar Association regarding

the new Federal Rules, December 10, 1938; 1 Cincinnati Law Review, page
1: Clark vs. Chase National Bank, 6 Fed. Rule Service 256 cited in
Francisco, The Revised Rules of Court, 1973, Vol I. pages 294, 295.

14 See Barron and Holtsoff. Federal Practice and Procedure, Vol. 2, page
139.

15 Moore's Federal Practice, Vol. 3, pages 3442-3443.

16 11 Fletcher's Cyclopedia of the Law of Private Corporation, 1932, Page

231.

17 Dousman v. Wisconsin & L. S. Min. & Smelting Co., 40 Wis. 418 in 12

L.R.A., New Series, 1908, page 972.

18 Brief for the Plaintiffs-Appellants and Movants-Intervenors-Appellants,

page 25.

19 Niembra, et al., vs. Director of Lands, L-20084, July 17, 1964, 11 SCRA
525, 528.
20 Brief for Plaintiffs-Appellants and Movants-Intervenors-Appellants, pages
32-34.

21 Brief for Defendants-Appellees, pages 94-96.

22 Brief for Defendants-Appellees, pages 94-99.

23 Uy Chao vs. De la Rama Steamship Co., Inc. L-14495, September 21.9,

1962, 6 SCRA 69, 72. See also De Jesus, et al. vs. Belarmino, et al., 95 Phil.
365, 371; Dalandan, et al. vs. Julio, et al., L-19101, February 29,1964, 10
SCRA 400; Remitere et al. vs. Montinola Vda. de Yulo, et al.,
L-19751, February 28, 1966, 16 SCRA 250, 254; Acuña vs. Batac Producers
Cooperative Marketing Association, Inc., et al., L-20338, June 30, 1967, 20
SCRA 526, 531.

24 Alquigue vs. De Leon, L-15059, March 30, 1963, 7 SCRA 513, 515;
Salazar, et al. vs. Ortizano, L-20480, 16 SCRA 662, 665; Acuna vs. Batac
Producers Cooperative Marketing Association, Inc., et al., L-20338, June 30,
1967, 20 SCRA 526, 531.

25 Dalandan vs. Julio, L-19101, February 29, 1964, 10 SCRA 400, 410.

26 71 CJS pages 906-912.

27 Ma-ao Sugar Central Co., Inc. vs. Barrios, et al., 79 Phil. 66, 667;
Ramitere et al. vs. Montinola Vda. de Yulo, et. al., L-19751, February,
28,1966, 16 SCRA 251, 255.

28 Community Investment and Finance Corp. vs. Garcia, 88 Phil. 215, 218.

29 41 Am. Jur., page 303.

30 Paragraphs 7 and 7 of Complaint, Record on Appeal, pages 5, 7, 8.

31 Paragraph 8 of Complaint, Record on Appeal, page 8.

32 Paragraph 4 of Complaint, Record on Appeal, page 5.

33 Levins vs. Rovegno, 71 Cal. 273,12 Pa. 161, 164.

34 Paragraph 4(a) of Complaint; Record on Appeal pages 4-5.

35 Paragraph 5 of Complaint; Record on Appeal, pages 6-7.

36 Paragraph 5 of Complaint; Record on Appeal, page 7.

37 Paragraph 7 of Complaint; Record on Appeal, page 7.

38 Paragraph 7(b) of Complaint; Record on Appeal; page 8.

39 Paragraph 9 of Complaint; Record on Appeal, page 9.

40 Paragraphs 11 and 12 of Complaint; Record on Appeal, page 11.

41 Paragraph 15 of Complaint.

42 Paragraph 15 of Complaint.

43 Paragraph 16 of Complaint; Record on Appeal, page 13.

44 C.J.S., page 78.

45 71 C.J.S., pages 49-50.

46 41 Am. Jur., page 304.

47 71 C.J.S., page 41, citing D'Oench v. Gillioz, 139 SW 2d 921, 346 Mo.
179.

48 41 Am. Jur., page 303.

49 41 Am. Jur., page 303.

50 41 Am. Jur., page 303.

51 41 Am. Jur., page 304.

 SECOND DIVISION

[G.R. No. 140954. April 12, 2005]

HEIRS OF BERTULDO[1] HINOG: Bertuldo Hinog II, Bertuldo

Hinog III, Bertuldo Hinog, Jr., Jocelyn Hinog, Bertoldo
Hinog IV, Bertoldo Hinog V, Edgardo Hinog, Milagros H.
Pabatao, Lilian H. King, Victoria H. Engracia, Terisita C.
Hinog, Paz H. Besana, Roberto C. Hinog, Vicente C. Hinog,
Roel C. Hinog, Marilyn C. Hinog, Bebot C. Hinog, lordes C.
Hinog, Pablo Chiong, Arlene Lanasang (All respresented
by Bertuldo Hinog III), petitioners, vs. HON. ACHILLES
MELICOR, in his capacity as Presiding Judge, RTC, Branch
4, 7th Judicial Region, Tagbiliran City, Bohol, and
CUSTODIO BALANE, RUFO BALANE, HONORIO BALANE,
and TOMAS BALANE, respondents.

DECISION
AUSTRIA-MARTINEZ, J.:

Before us is a petition for certiorari and prohibition under Rule 65 of the

Rules of Court which assails the Orders dated March 22, 1999, August 13, 1999
and October 15, 1999 of the Regional Trial Court, Branch 4, of Tagbilaran City,
Bohol in Civil Case No. 4923.
The factual background of the case is as follows:
On May 21, 1991, private respondents Custodio, Rufo, Tomas and Honorio,
all surnamed Balane, filed a complaint for Recovery of Ownership and
Possession, Removal of Construction and Damages against Bertuldo Hinog
(Bertuldo for brevity). They alleged that: they own a 1,399- square meter parcel
of land situated in Malayo Norte, Cortes, Bohol, designated as Lot No. 1714;
sometime in March 1980, they allowed Bertuldo to use a portion of the said
property for a period of ten years and construct thereon a small house of light
materials at a nominal annual rental of P100.00 only, considering the close
relations of the parties; after the expiration of the ten-year period, they demanded
the return of the occupied portion and removal of the house constructed thereon
but Bertuldo refused and instead claimed ownership of the entire property.
Accordingly, private respondents sought to oust Bertuldo from the premises
of the subject property and restore upon themselves the ownership and
possession thereof, as well as the payment of moral and exemplary damages,
attorneys fees and litigation expenses in amounts justified by the evidence. [2]
On July 2, 1991, Bertuldo filed his Answer. He alleged ownership of the
disputed property by virtue of a Deed of Absolute Sale dated July 2, 1980,
executed by one Tomas Pahac with the knowledge and conformity of private
respondents.[3]
After the pre-trial, trial on the merits ensued. On November 18, 1997, private
respondents rested their case. Thereupon, Bertuldo started his direct
examination. However, on June 24, 1998, Bertuldo died without completing his
evidence.
On August 4, 1998, Atty. Sulpicio A. Tinampay withdrew as counsel for
Bertuldo as his services were terminated by petitioner Bertuldo Hinog III. Atty.
Veronico G. Petalcorin then entered his appearance as new counsel for
Bertuldo.[4]
On September 22, 1998, Atty. Petalcorin filed a motion to expunge the
complaint from the record and nullify all court proceedings on the ground that
private respondents failed to specify in the complaint the amount of damages
claimed so as to pay the correct docket fees; and that under Manchester
Development Corporation vs. Court of Appeals,[5] non-payment of the correct
docket fee is jurisdictional.[6]
In an amended motion, filed on October 2, 1998, Atty. Petalcorin further
alleged that the private respondents failed to pay the correct docket fee since the
main subject matter of the case cannot be estimated as it is for recovery of
ownership, possession and removal of construction.[7]
Private respondents opposed the motion to expunge on the following
grounds: (a) said motion was filed more than seven years from the institution of
the case; (b) Atty. Petalcorin has not complied with Section 16, Rule 3 of the
Rules of Court which provides that the death of the original defendant requires a
substitution of parties before a lawyer can have legal personality to represent a
litigant and the motion to expunge does not mention of any specific party whom
he is representing; (c) collectible fees due the court can be charged as lien on
the judgment; and (d) considering the lapse of time, the motion is merely a
dilatory scheme employed by petitioners.[8]
In their Rejoinder, petitioners manifested that the lapse of time does not vest
the court with jurisdiction over the case due to failure to pay the correct docket
fees. As to the contention that deficiency in payment of docket fees can be made
as a lien on the judgment, petitioners argued that the payment of filing fees
cannot be made dependent on the result of the action taken.[9]
On January 21, 1999, the trial court, while ordering the complaint to be
expunged from the records and the nullification of all court proceedings taken for
failure to pay the correct docket fees, nonetheless, held:
The Court can acquire jurisdiction over this case only upon the payment of the
exact prescribed docket/filing fees for the main cause of action, plus additional
docket fee for the amount of damages being prayed for in the complaint, which
amount should be specified so that the same can be considered in assessing the
amount of the filing fees. Upon the complete payment of such fees, the Court
may take appropriate action in the light of the ruling in the case of Manchester
Development Corporation vs. Court of Appeals, supra.[10]

Accordingly, on January 28, 1999, upon payment of deficiency docket fee,

private respondents filed a manifestation with prayer to reinstate the
case.[11] Petitioners opposed the reinstatement[12] but on March 22, 1999, the trial
court issued the first assailed Order reinstating the case.[13]
On May 24, 1999, petitioners, upon prior leave of court,[14] filed their
supplemental pleading, appending therein a Deed of Sale dated November 15,
1982.[15] Following the submission of private respondents opposition
thereto,[16] the trial court, in its Order dated July 7, 1999, denied the supplemental
pleading on the ground that the Deed of Absolute Sale is a new matter which
was never mentioned in the original answer dated July 2, 1991, prepared by
Bertuldos original counsel and which Bertuldo verified; and that such new
document is deemed waived in the light of Section 1, Rule 9[17] of the Rules of
Court. The trial court also noted that no formal substitution of the parties was
made because of the failure of defendants counsel to give the names and
addresses of the legal representatives of Bertuldo, so much so that the supposed
heirs of Bertuldo are not specified in any pleading in the case. [18]
On July 14, 1999, petitioners manifested that the trial court having expunged
the complaint and nullified all court proceedings, there is no valid case and the
complaint should not be admitted for failure to pay the correct docket fees; that
there should be no case to be reinstated and no case to proceed as there is no
complaint filed.[19]
After the submission of private respondents opposition[20] and petitioners
rejoinder,[21] the trial court issued the second assailed Order on August 13, 1999,
essentially denying petitioners manifestation/rejoinder. The trial court held that
the issues raised in such manifestation/rejoinder are practically the same as
those raised in the amended motion to expunge which had already been passed
upon in the Order dated January 21, 1999. Moreover, the trial court observed
that the Order dated March 22, 1999 which reinstated the case was not objected
to by petitioners within the reglementary period or even thereafter via a motion
for reconsideration despite receipt thereof on March 26, 1999.[22]
On August 25, 1999, petitioners filed a motion for reconsideration[23] but the
same was denied by the trial court in its third assailed Order dated October 15,
1999. The trial court held that the Manchester rule was relaxed in Sun Insurance
Office, Ltd. vs. Asuncion.[24] Noting that there has been no substitution of parties
following the death of Bertuldo, the trial court directed Atty. Petalcorin to comply
with the provisions of Section 16, Rule 3 of the Rules of Court. The trial court
also reiterated that the Order dated March 22, 1999 reinstating the case was not
assailed by petitioners within the reglementary period, despite receipt thereof on
March 26, 1999.[25]
On November 19, 1999, Atty. Petalcorin complied with the directive of the
trial court to submit the names and addresses of the heirs of Bertuldo.[26]
On November 24, 1999, petitioners filed before us the present petition
for certiorari and prohibition.[27] They allege that the public respondent committed
grave abuse of discretion in allowing the case to be reinstated after private
respondents paid the docket fee deficiency since the trial court had earlier
expunged the complaint from the record and nullified all proceedings of the case
and such ruling was not contested by the private respondents. Moreover, they
argue that the public respondent committed grave abuse of discretion in allowing
the case to be filed and denying the manifestation with motion to dismiss, despite
the defect in the complaint which prayed for damages without specifying the
amounts, in violation of SC Circular No. 7, dated March 24, 1988.
In their Comment, private respondents aver that no grave abuse of discretion
was committed by the trial court in reinstating the complaint upon the payment of
deficiency docket fees because petitioners did not object thereto within the
reglementary period. Besides, Atty. Petalcorin possessed no legal personality to
appear as counsel for the heirs of Bertuldo until he complies with Section 16,
Rule 3 of the Rules of Court.[28]
At the outset, we note the procedural error committed by petitioners in
directly filing the instant petition before this Court for it violates the established
policy of strict observance of the judicial hierarchy of courts.
Although the Supreme Court, Court of Appeals and the Regional Trial Courts
have concurrent jurisdiction to issue writs of certiorari, prohibition, mandamus,
quo warranto, habeas corpus and injunction, such concurrence does not give the
petitioner unrestricted freedom of choice of court forum.[29] As we stated
in People vs. Cuaresma:[30]

This Court's original jurisdiction to issue writs of certiorari is not exclusive. It

is shared by this Court with Regional Trial Courts and with the Court of
Appeals. This concurrence of jurisdiction is not, however, to be taken as
according to parties seeking any of the writs an absolute, unrestrained freedom
of choice of the court to which application therefor will be directed. There is
after all a hierarchy of courts. That hierarchy is determinative of the venue of
appeals, and also serves as a general determinant of the appropriate forum for
petitions for the extraordinary writs. A becoming regard for that judicial
hierarchy most certainly indicates that petitions for the issuance of
extraordinary writs against first level (inferior) courts should be filed with the
Regional Trial Court, and those against the latter, with the Court of Appeals. A
direct invocation of the Supreme Courts original jurisdiction to issue these
writs should be allowed only when there are special and important reasons
therefor, clearly and specifically set out in the petition. This is [an] established
policy. It is a policy necessary to prevent inordinate demands upon the Courts
time and attention which are better devoted to those matters within its exclusive
jurisdiction, and to prevent further over-crowding of the Courts docket.[31]

The rationale for this rule is two-fold: (a) it would be an imposition upon the
precious time of this Court; and (b) it would cause an inevitable and resultant
delay, intended or otherwise, in the adjudication of cases, which in some
instances had to be remanded or referred to the lower court as the proper forum
under the rules of procedure, or as better equipped to resolve the issues
because this Court is not a trier of facts.[32]
Thus, this Court will not entertain direct resort to it unless the redress desired
cannot be obtained in the appropriate courts, and exceptional and compelling
circumstances, such as cases of national interest and of serious implications,
justify the availment of the extraordinary remedy of writ of certiorari, calling for
the exercise of its primary jurisdiction. Exceptional and compelling circumstances
were held present in the following cases: (a) Chavez vs. Romulo[33] on citizens
right to bear arms; (b) Government of the United States of America vs.
Purganan[34] on bail in extradition proceedings; (c) Commission on Elections vs.
Quijano-Padilla[35] on government contract involving modernization and
computerization of voters registration list; (d) Buklod ng Kawaning EIIB vs.
Zamora[36] on status and existence of a public office; and (e) Fortich vs.
Corona[37] on the so-called Win-Win Resolution of the Office of the President
which modified the approval of the conversion to agro-industrial area.
In this case, no special and important reason or exceptional and compelling
circumstance analogous to any of the above cases has been adduced by the
petitioners so as to justify direct recourse to this Court. The present petition
should have been initially filed in the Court of Appeals in strict observance of the
doctrine on the hierarchy of courts. Failure to do so is sufficient cause for the
dismissal of the petition at bar.
In any event, even if the Court disregards such procedural flaw, the
petitioners contentions on the substantive aspect of the case fail to invite
judgment in their favor.
The unavailability of the writ of certiorari and prohibition in this case is borne
out of the fact that petitioners principally assail the Order dated March 22, 1999
which they never sought reconsideration of, in due time, despite receipt thereof
on March 26, 1999. Instead, petitioners went through the motion of filing a
supplemental pleading and only when the latter was denied, or after more than
three months have passed, did they raise the issue that the complaint should not
have been reinstated in the first place because the trial court had no jurisdiction
to do so, having already ruled that the complaint shall be expunged.
After recognizing the jurisdiction of the trial court by seeking affirmative relief
in their motion to serve supplemental pleading upon private respondents,
petitioners are effectively barred by estoppel from challenging the trial courts
jurisdiction.[38] If a party invokes the jurisdiction of a court, he cannot thereafter
challenge the courts jurisdiction in the same case.[39] To rule otherwise would
amount to speculating on the fortune of litigation, which is against the policy of
the Court.[40]
Nevertheless, there is a need to correct the erroneous impression of the trial
court as well as the private respondents that petitioners are barred from assailing
the Order dated March 22, 1999 which reinstated the case because it was not
objected to within the reglementary period or even thereafter via a motion for
reconsideration despite receipt thereof on March 26, 1999.
It must be clarified that the said order is but a resolution on an incidental
matter which does not touch on the merits of the case or put an end to the
proceedings.[41] It is an interlocutory order since there leaves something else to
be done by the trial court with respect to the merits of the case.[42] As such, it is
not subject to a reglementary period. Reglementary period refers to the period
set by the rules for appeal or further review of a final judgment or order, i.e., one
that ends the litigation in the trial court.
Moreover, the remedy against an interlocutory order is generally not to resort
forthwith to certiorari, but to continue with the case in due course and, when an
unfavorable verdict is handed down, to take an appeal in the manner authorized
by law.[43] Only when the court issued such order without or in excess of
jurisdiction or with grave abuse of discretion and when the assailed interlocutory
order is patently erroneous and the remedy of appeal would not afford adequate
and expeditious relief will certiorari be considered an appropriate remedy to
assail an interlocutory order.[44] Such special circumstances are absolutely
wanting in the present case.
Time and again, the Court has held that the Manchester rule has been
modified in Sun Insurance Office, Ltd. (SIOL) vs. Asuncion[45] which defined the
following guidelines involving the payment of docket fees:
1. It is not simply the filing of the complaint or appropriate initiatory pleading, but
the payment of the prescribed docket fee, that vests a trial court with
jurisdiction over the subject-matter or nature of the action. Where the filing of
the initiatory pleading is not accompanied by payment of the docket fee, the
court may allow payment of the fees within a reasonable time but in no case
beyond the applicable prescriptive or reglementary period.
2. The same rule applies to permissive counterclaims, third-party claims and
similar pleadings, which shall not be considered filed until and unless the
filing fee prescribed therefor is paid. The court may also allow payment of
said fee within a reasonable time but also in no case beyond its applicable
prescriptive or reglementary period.
3. Where the trial court acquires jurisdiction over a claim by the filing of the
appropriate pleading and payment of the prescribed filing fee but,
subsequently, the judgment awards a claim not specified in the pleading, or
if specified the same has been left for determination by the court, the
additional filing fee therefor shall constitute a lien on the judgment. It shall be
 the responsibility of the Clerk of Court or his duly authorized deputy to
enforce said lien and assess and collect the additional fee.
Plainly, while the payment of the prescribed docket fee is a jurisdictional
requirement, even its non-payment at the time of filing does not automatically
cause the dismissal of the case, as long as the fee is paid within the applicable
prescriptive or reglementary period, more so when the party involved
demonstrates a willingness to abide by the rules prescribing such
payment.[46] Thus, when insufficient filing fees were initially paid by the plaintiffs
and there was no intention to defraud the government, the Manchester ruledoes
not apply.[47]
Under the peculiar circumstances of this case, the reinstatement of the
complaint was just and proper considering that the cause of action of private
respondents, being a real action, prescribes in thirty years,[48] and private
respondents did not really intend to evade the payment of the prescribed docket
fee but simply contend that they could not be faulted for inadequate assessment
because the clerk of court made no notice of demand or reassessment.[49] They
were in good faith and simply relied on the assessment of the clerk of court.
Furthermore, the fact that private respondents prayed for payment of
damages in amounts justified by the evidence does not call for the dismissal of
the complaint for violation of SC Circular No. 7, dated March 24, 1988 which
required that all complaints must specify the amount of damages sought not only
in the body of the pleadings but also in the prayer in order to be accepted and
admitted for filing. Sun Insurance effectively modified SC Circular No. 7 by
providing that filing fees for damages and awards that cannot be estimated
constitute liens on the awards finally granted by the trial court.[50]
Thus, while the docket fees were based only on the real property valuation,
the trial court acquired jurisdiction over the action, and judgment awards which
were left for determination by the court or as may be proven during trial would
still be subject to additional filing fees which shall constitute a lien on the
judgment. It would then be the responsibility of the Clerk of Court of the trial court
or his duly authorized deputy to enforce said lien and assess and collect the
additional fees.[51]
It is worth noting that when Bertuldo filed his Answer on July 2, 1991, he did
not raise the issue of lack of jurisdiction for non-payment of correct docket fees.
Instead, he based his defense on a claim of ownership and participated in the
proceedings before the trial court. It was only in September 22, 1998 or more
than seven years after filing the answer, and under the auspices of a new
counsel, that the issue of jurisdiction was raised for the first time in the motion to
expunge by Bertuldos heirs.
After Bertuldo vigorously participated in all stages of the case before the trial
court and even invoked the trial courts authority in order to ask for affirmative
relief, petitioners, considering that they merely stepped into the shoes of their
predecessor, are effectively barred by estoppel from challenging the trial courts
jurisdiction. Although the issue of jurisdiction may be raised at any stage of the
proceedings as the same is conferred by law, it is nonetheless settled that a
party may be barred from raising it on ground of laches or estoppel.[52]
Moreover, no formal substitution of the parties was effected within thirty days
from date of death of Bertuldo, as required by Section 16, Rule 3[53] of the Rules
of Court. Needless to stress, the purpose behind the rule on substitution is the
protection of the right of every party to due process. It is to ensure that the
deceased party would continue to be properly represented in the suit through the
duly appointed legal representative of his estate.[54] Non-compliance with the rule
on substitution would render the proceedings and judgment of the trial court
infirm because the court acquires no jurisdiction over the persons of the legal
representatives or of the heirs on whom the trial and the judgment would be
binding.[55] Thus, proper substitution of heirs must be effected for the trial court to
acquire jurisdiction over their persons and to obviate any future claim by any heir
that he was not apprised of the litigation against Bertuldo or that he did not
authorize Atty. Petalcorin to represent him.
The list of names and addresses of the heirs was submitted sixteen months
after the death of Bertuldo and only when the trial court directed Atty. Petalcorin
to comply with the provisions of Section 16, Rule 3 of the Rules of Court. Strictly
speaking therefore, before said compliance, Atty. Petalcorin had no standing in
the court a quo when he filed his pleadings. Be that as it may, the matter has
been duly corrected by the Order of the trial court dated October 15, 1999.
To be sure, certiorari under Rule 65[56] is a remedy narrow in scope and
inflexible in character. It is not a general utility tool in the legal workshop.[57] It
offers only a limited form of review. Its principal function is to keep an inferior
tribunal within its jurisdiction.[58] It can be invoked only for an error of jurisdiction,
that is, one where the act complained of was issued by the court, officer or a
quasi-judicial body without or in excess of jurisdiction, or with grave abuse of
discretion which is tantamount to lack or in excess of jurisdiction,[59] not to be
used for any other purpose,[60] such as to cure errors in proceedings or to correct
erroneous conclusions of law or fact.[61] A contrary rule would lead to confusion,
and seriously hamper the administration of justice.
Petitioners utterly failed to show that the trial court gravely abused its
discretion in issuing the assailed resolutions. On the contrary, it acted prudently,
in accordance with law and jurisprudence.
WHEREFORE, the instant petition for certiorari is DISMISSED for lack of
merit.
No costs.
SO ORDERED.
Puno, (Chairman), Callejo, Sr., Tinga and Chico-Nazario, JJ., concur.
[1]
Also spelled as Bertoldo in the records.
[2]
Original Records, p. 1.
[3]
Id., p. 17.
[4]
Id., p. 163.
[5]
G. R. No. 101550, May 7, 1987, 149 SCRA 562; cited in SC Circular No. 7, dated March 24,
1988.
[6]
Original Records, p. 169.
[7]
Id., p. 182.
[8]
Id., p. 197.
[9]
Id., p. 200.
[10]
Id., p. 207.
[11]
Id., p. 210.
[12]
Id., p. 218.
[13]
Id., p. 225.
[14]
Id., p. 238.
[15]
Id., p. 241.
[16]
Id., p. 250.
[17]
SECTION 1. Defenses and objections not pleaded. - Defenses and objections not pleaded
either in a motion to dismiss or in the answer are deemed waived. However, when it
appears from the pleadings or the evidence on record that the court has no jurisdiction
over the subject matter, that there is another action pending between the same parties for
the same cause, or that the action is barred by a prior judgment or by statute of
limitations, the court shall dismiss the claim.
[18]
Id., p. 252.
[19]
Id., p. 255.
[20]
Id., p. 269.
[21]
Id., p. 275.
[22]
Id., p. 279.
[23]
Id., p. 282.
[24]
G.R. Nos. 79937-38, February 13, 1989, 170 SCRA 274, 285.
[25]
Original Records, p. 294.
[26]
Id., p. 299.
[27]
SC Rollo, p. 4.
[28]
SC Rollo, p. 38.
[29]
Zamboanga Barter Goods Retailers Association, Inc. (ZAMBAGORA) vs. Lobregat, et al., G.R.
No. 145466, July 7, 2004; Yared vs. Ilarde, G.R. No. 114732, August 1, 2000, 337 SCRA
53, 61; People vs. Court of Appeals, G.R. No. 128297, January 21, 1999, 301 SCRA 566,
 569-570; Aleria, Jr. vs. Velez, G.R. No. 127400, November 16, 1998, 298 SCRA 611,
618-619; Tano vs. Socrates, G.R. No. 110249, August 21, 1997, 278 SCRA 154, 172-
174.
[30]
G.R. No. 67787, April 18, 1989, 172 SCRA 415.
[31]
Id., pp. 423-424.
[32]
Liga ng mga Barangay National vs. City Mayor of Manila, G.R. No. 154599, January 21, 2004,
420 SCRA 562, 573; Santiago vs. Vasquez, G.R. Nos. 99289-90, January 27, 1993, 217
SCRA 633, 652.
[33]
G.R. No. 157036, June 9, 2004, 431 SCRA 534.
[34]
G.R. No. 148571, September 24, 2002, 389 SCRA 623.
[35]
G.R. No. 151992, September 18, 2002, 389 SCRA 353.
[36]
G.R. Nos. 142801-802, July 10, 2001, 360 SCRA 718.
[37]
G.R. No. 131457, April 24, 1998, 289 SCRA 624.
[38]
Soliven vs. Fastforms Philippines, Inc. G.R. No. 139031, October 18, 2004; Sta. Lucia Realty
and Development, Inc. vs. Cabrigas, G.R. No. 134895, June 19, 2001, 358 SCRA 715,
732.
[39]
Ibid.
[40]
Tomas Claudio Memorial College, Inc. vs. Court of Appeals, G. R. No. 124262, October 12,
1999, 316 SCRA 502, 509.
[41]
Law Firm of Abrenica, Tungol and Tibayan vs. Court of Appeals, G.R. No. 143706, April 5,
2002, 380 SCRA 285, 292; Diesel Construction Company, Inc. vs. Jollibee Foods
Corporation, G.R. No. 136805, January 28, 2000, 323 SCRA 844, 854.
[42]
Ong vs. Mazo, G.R. No. 145542, June 4, 2004, 431 SCRA 65, 63; Tolentino vs. Natanauan,
G.R. No. 135441, November 20, 2003, 416 SCRA 273, 280.
[43]
Resoso vs. Sandiganbayan, G.R. No. 124140, November 25, 1999, 319 SCRA 238,
244; Quion vs. Sandiganbayan , G.R. Nos. 113908 & 114819, April 18, 1997, 271 SCRA
575, 592.
[44]
Philippine American Life and General Insurance Company vs. Valencia-Bagalasca, G.R. No.
139776, August 1, 2002, 386 SCRA 103, 109; J.L. Bernardo Construction vs. Court of
Appeals, G.R. No. 105827, January 31, 2000, 324 SCRA 24, 34.
[45]
Supra, Note No. 24.
[46]
Go vs. Tong, G.R. No. 151942, November 27, 2003, 416 SCRA 557, 567.
[47]
Soriano vs. Court of Appeals, G.R. No. 100633, August 28, 2001, 363 SCRA 725, 743.
[48]
Article 1141 of the Civil Code provides: Real actions over immovables prescribe after thirty
years. xxx
[49]
Original Records, p. 210.
[50]
Supra, Note No. 24.
[51]
Vlason Enterprises Corporation vs. Court of Appeals, G.R. Nos. 121662-64, July 6, 1999, 310
SCRA 26, 63; Ballatan vs. Court of Appeals, G.R. No. 125683. March 2, 1999, 304 SCRA
34, 42; Moskowsky vs. Court of Appeals, G.R. No. 122860, April 30, 1999, 306 SCRA
516, 521-522; Tacay vs. RTC of Tagum, Davao del Norte, G.R. Nos. 880075-77,
December 20, 1989, 180 SCRA 433, 444.
[52]
Alday vs. FGU Insurance Corporation, G.R. No. 138822, January 23, 2001, 350 SCRA 113,
120; National Steel Corporation vs. Court of Appeals, G.R. No. 123215, February 2,
1999, 302 SCRA 522, 532.
[53]
SECTION 16. Death of 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 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.
[54]
Imperial vs. Court of Appeals, G.R. No. 112483, October 8, 1999, 316 SCRA 393, 400; Torres,
Jr. vs. Court of Appeals, G.R. No. 120138, September 5, 1997, 278 SCRA 793, 811.
[55]
Brioso vs. Rili-Mariano, G.R. No. 132765, January 31, 2003, 396 SCRA 549, 557.
[56]
Rules of Court.
[57]
Land Bank of the Philippines vs. Court of Appeals, G.R. No. 129368, August 25, 2003, 409
SCRA 455, 479; San Miguel Foods, Inc.-Cebu B-Meg Feed Plant vs. Laguesma, G.R.
No. 116172, October 10, 1996, 263 SCRA 68, 84-85.
[58]
Almuete vs. Andres, G.R. No. 122276, November 20, 2001, 369 SCRA 619, 628; Republic vs.
Court of Appeals, G.R. No. 95533, 20 November 2000, 345 SCRA 63, 70.
[59]
Toyota Motor Phils. Corporation Workers Association (TMPCWA) vs. Court of Appeals, G.R.
No. 148924, September 24, 2003, 412 SCRA 69; Land Bank of the Philippines vs. Court
of Appeals, supra, p. 480.
[60]
Commissioner of Internal Revenue vs. Court of Appeals, G.R. No. 119322, June 4, 1996, 257
SCRA 200, 232; Garcia vs. Ranada, G.R. No. 60935, September 27, 1988, 166 SCRA 9.
[61]
Commissioner of Internal Revenue vs. Court of Appeals, supra; Gold City Integrated Ports
Services, Inc. vs. Intermediate Appellate Court, G.R. Nos. 71771-73, March 31, 1989,
171 SCRA 579.
G.R. No. 74854 April 2, 1991

JESUS DACOYCOY, petitioner,

vs.
HON. INTERMEDIATE APPELLATE COURT, HON. ANTONIO V. BENEDICTO, Executive
Judge, Regional Trial Court, Branch LXXI, Antipolo, Rizal, and RUFINO DE
GUZMAN, respondents.

Ramon V. Sison for petitioner.

Public Attorney's Office for private respondent.

FERNAN, C.J.:

May the trial court motu proprio dismiss a complaint on the ground of improper venue? This
is the issue confronting the Court in the case at bar.

On March 22, 1983, petitioner Jesus Dacoycoy, a resident of Balanti, Cainta, Rizal, filed
before the Regional Trial Court, Branch LXXI, Antipolo, Rizal, a complaint against private
respondent Rufino de Guzman praying for the annulment of two (2) deeds of sale involving a
parcel of riceland situated in Barrio Estanza, Lingayen, Pangasinan, the surrender of the
produce thereof and damages for private respondent's refusal to have said deeds of sale set
aside upon petitioner's demand.

On May 25, 1983, before summons could be served on private respondent as defendant
therein, the RTC Executive Judge issued an order requiring counsel for petitioner to confer
with respondent trial judge on the matter of venue. After said conference, the trial court
dismissed the complaint on the ground of improper venue. It found, based on the allegations
of the complaint, that petitioner's action is a real action as it sought not only the annulment of
the aforestated deeds of sale but also the recovery of ownership of the subject parcel of
riceland located in Estanza, Lingayen, Pangasinan, which is outside the territorial jurisdiction
of the trial court.

Petitioner appealed to the Intermediate Appellate Court, now Court of Appeals, which in its
decision of April 11, 1986,1 affirmed the order of dismissal of his complaint.

In this petition for review, petitioner faults the appellate court in affirming what he calls an
equally erroneous finding of the trial court that the venue was improperly laid when the
defendant, now private respondent, has not even answered the complaint nor waived the
venue.2

Petitioner claims that the right to question the venue of an action belongs solely to the
defendant and that the court or its magistrate does not possess the authority to confront the
plaintiff and tell him that the venue was improperly laid, as venue is waivable. In other words,
petitioner asserts, without the defendant objecting that the venue was improperly laid, the
trial court is powerless to dismiss the case motu proprio.

Private respondent, on the other hand, maintains that the dismissal of petitioner's complaint
is proper because the same can "readily be assessed as (a) real action." He asserts that
"every court of justice before whom a civil case is lodged is not even obliged to wait for the
defendant to raise that venue was improperly laid. The court can take judicial notice
and motu proprio dismiss a suit clearly denominated as real action and improperly filed
before it. . . . the location of the subject parcel of land is controlling pursuant to Sec. 2, par.
(a), Rule 4 of the New Rules of Court . . .3

We grant the petition.

The motu proprio dismissal of petitioner's complaint by respondent trial court on the ground
of improper venue is plain error, obviously attributable to its inability to distinguish between
jurisdiction and venue.

Questions or issues relating to venue of actions are basically governed by Rule 4 of the
Revised Rules of Court. It is said that the laying of venue is procedural rather than
substantive. It relates to the jurisdiction of the court over the person rather than the subject
matter. Provisions relating to venue establish a relation between the plaintiff and the
defendant and not between the court and the subject matter. Venue relates to trial not to
jurisdiction, touches more of the convenience of the parties rather than the substance of the
case.4

Jurisdiction treats of the power of the court to decide a case on the merits; while venue deals
on the locality, the place where the suit may be had.5

In Luna vs. Carandang,6 involving an action instituted before the then Court of First Instance
of Batangas for rescission of a lease contract over a parcel of agricultural land located in
Calapan, Oriental Mindoro, which complaint said trial court dismissed for lack of jurisdiction
over the leased land, we emphasized:

(1) A Court of First Instance has jurisdiction over suits involving title to, or possession
of, real estate wherever situated in the Philippines, subject to the rules on venue of
actions (Manila Railroad Company vs. Attorney General, etc., et al., 20 Phil. 523;
Central Azucarera de Tarlac vs. De Leon, et al., 56 Phil. 169; Navarro vs. Aguila, et
al., 66 Phil. 604; Lim Cay, et al. vs. Del Rosario, etc., et al., 55 Phil. 692);

(2) Rule 4, Section 2, of the Rules of Court requiring that an action involving real
property shall be brought in the Court of First Instance of the province where the land
lies is a rule on venue of actions, which may be waived expressly or by implication.

In the instant case, even granting for a moment that the action of petitioner is a real action,
respondent trial court would still have jurisdiction over the case, it being a regional trial court
vested with the exclusive original jurisdiction over "all civil actions which involve the title to, or
possession of, real property, or any interest therein . . ." in accordance with Section 19 (2) of
Batas Pambansa Blg. 129. With respect to the parties, there is no dispute that it acquired
jurisdiction over the plaintiff Jesus Dacoycoy, now petitioner, the moment he filed his
complaint for annulment and damages. Respondent trial court could have acquired
jurisdiction over the defendant, now private respondent, either by his voluntary appearance
in court and his submission to its authority, or by the coercive power of legal process
exercised over his person.7

Although petitioner contends that on April 28, 1963, he requested the City Sheriff of
Olongapo City or his deputy to serve the summons on defendant Rufino de Guzman at his
residence at 117 Irving St., Tapinac, Olongapo City,8 it does not appear that said service had
been properly effected or that private respondent had appeared voluntarily in court9 or filed
his answer to the complaint.10 At this stage, respondent trial court should have required
petitioner to exhaust the various alternative modes of service of summons under Rule 14 of
the Rules of Court, i.e., personal service under Section 7, substituted service under Section
8, or service by publication under Section 16 when the address of the defendant is unknown
and cannot be ascertained by diligent inquiry.

Dismissing the complaint on the ground of improper venue is certainly not the appropriate
course of action at this stage of the proceeding, particularly as venue, in inferior courts as
well as in the courts of first instance (now RTC), may be waived expressly or impliedly.
Where defendant fails to challenge timely the venue in a motion to dismiss as provided by
Section 4 of Rule 4 of the Rules of Court, and allows the trial to be held and a decision to be
rendered, he cannot on appeal or in a special action be permitted to challenge belatedly the
wrong venue, which is deemed waived.11

Thus, unless and until the defendant objects to the venue in a motion to dismiss, the venue
cannot be truly said to have been improperly laid, as for all practical intents and purposes,
the venue, though technically wrong, may be acceptable to the parties for whose
convenience the rules on venue had been devised. The trial court cannot pre-empt the
defendant's prerogative to object to the improper laying of the venue by motu
proprio dismissing the case.

Indeed, it was grossly erroneous for the trial court to have taken a procedural short-cut by
dismissing motu propriothe complaint on the ground of improper venue without first allowing
the procedure outlined in the Rules of Court to take its proper course. Although we are for
the speedy and expeditious resolution of cases, justice and fairness take primary
importance. The ends of justice require that respondent trial court faithfully adhere to the
rules of procedure to afford not only the defendant, but the plaintiff as well, the right to be
heard on his cause.

WHEREFORE, in view of the foregoing, the decision of the Intermediate Appellate Court,
now Court of Appeals, dated April 11, 1986, is hereby nullified and set aside. The complaint
filed by petitioner before the Regional Trial Court of Antipolo, Branch LXXI is revived and
reinstated. Respondent court is enjoined to proceed therein in accordance with law.

SO ORDERED.

Gutierrez, Jr., Feliciano, Bidin and Davide, Jr., JJ., concur.

Footnotes

1
Penned by Presiding Justice Ramon G. Gaviola, Jr. and concurred in by Associate
Justice Ma. Rosario Quetulio-Losa and Leonor Ines Luciano.

2
Page 4, Rollo.

3
P. 69, Rollo.
4
Manila Railroad Co. vs. Attorney General, 20 Phil. 523.

5
67 C.J. 12.

6
G.R. No. L-27145, November 29, 1968, 26 SCRA 306.

7
Banco Espanol-Filipino vs. Palanca, 37 Phil. 921.

8
Page 3, Rollo.

9
Section 23, Rule 14, Rules of Court.

10
Section 6, Rule 6; Section 1, Rule 11, Rules of Court.

11
Ocampo vs. Domingo, 38 SCRA 134 (1971).
G.R. No. 87434 August 5, 1992

PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC. and TAGUM PLASTICS,

INC., petitioners,
vs.
SWEET LINES, INC., DAVAO VETERANS ARRASTRE AND PORT SERVICES, INC. and
HON. COURT OF APPEALS, respondents.

De Lara, De Lunas & Rosales for petitioners.

Carlo L. Aquino for Sweet Lines, Inc.

REGALADO, J.:

A maritime suit 1 was commenced on May 12, 1978 by herein Petitioner Philippine American
General Insurance Co., Inc. (Philamgen) and Tagum Plastics, Inc. (TPI) against private
respondents Sweet Lines, Inc. (SLI) and Davao Veterans Arrastre and Port Services, Inc.
(DVAPSI), along with S.C.I. Line (The Shipping Corporation of India Limited) and F.E.
Zuellig, Inc., as co-defendants in the court a quo, seeking recovery of the cost of lost or
damaged shipment plus exemplary damages, attorney's fees and costs allegedly due to
defendants' negligence, with the following factual backdrop yielded by the findings of the
court below and adopted by respondent court:

It would appear that in or about March 1977, the vessel SS "VISHVA YASH"
belonging to or operated by the foreign common carrier, took on board at
Baton Rouge, LA, two (2) consignments of cargoes for shipment to Manila
and later for transhipment to Davao City, consisting of 600 bags Low Density
Polyethylene 631 and another 6,400 bags Low Density Polyethylene 647,
both consigned to the order of Far East Bank and Trust Company of Manila,
with arrival notice to Tagum Plastics, Inc., Madaum, Tagum, Davao City. Said
cargoes were covered, respectively, by Bills of Lading Nos. 6 and 7 issued by
the foreign common carrier (Exhs. E and F). The necessary packing or
Weight List (Exhs. A and B), as well as the Commercial Invoices (Exhs. C
and D) accompanied the shipment. The cargoes were likewise insured by the
Tagum Plastics Inc. with plaintiff Philippine American General Insurance Co.,
Inc., (Exh. G).

In the course of time, the said vessel arrived at Manila and discharged its
cargoes in the Port of Manila for transhipment to Davao City. For this
purpose, the foreign carrier awaited and made use of the services of the
vessel called M/V "Sweet Love" owned and operated by defendant
interisland carrier.

Subject cargoes were loaded in Holds Nos. 2 and 3 of the interisland carrier.
These were commingled with similar cargoes belonging to Evergreen
Plantation and also Standfilco.
 On May 15, 1977, the shipment(s) were discharged from the interisland
carrier into the custody of the consignee. A later survey conducted on July 8,
1977, upon the instance of the plaintiff, shows the following:

Of the cargo covered by Bill of Lading No. 25 or (2)6, supposed to contain

6,400 bags of Low Density Polyethylene 647 originally inside 160 pallets,
there were delivered to the consignee 5,413 bags in good order condition.
The survey shows shortages, damages and losses to be as follows:

Undelivered/Damaged bags as tallied during discharge from

vessel-173 bags; undelivered and damaged as noted and
observed whilst stored at the pier-699 bags; and shortlanded-
110 bags (Exhs. P and P-1).

Of the 600 bags of Low Density Polyethylene 631, the survey conducted on
the same day shows an actual delivery to the consignee of only 507 bags in
good order condition. Likewise noted were the following losses, damages
and shortages, to wit:

Undelivered/damaged bags and tally sheets during discharge

from vessel-17 bags.

Undelivered and damaged as noted and observed whilst

stored at the pier-66 bags; Shortlanded-10 bags.

Therefore, of said shipment totalling 7,000 bags, originally contained in 175

pallets, only a total of 5,820 bags were delivered to the consignee in good
order condition, leaving a balance of 1,080 bags. Such loss from this
particular shipment is what any or all defendants may be answerable to (sic).

As already stated, some bags were either shortlanded or were missing, and
some of the 1,080 bags were torn, the contents thereof partly spilled or were
fully/partially emptied, but, worse, the contents thereof contaminated with
foreign matters and therefore could no longer serve their intended purpose.
The position taken by the consignee was that even those bags which still had
some contents were considered as total losses as the remaining contents
were contaminated with foreign matters and therefore did not (sic) longer
serve the intended purpose of the material. Each bag was valued, taking into
account the customs duties and other taxes paid as well as charges and the
conversion value then of a dollar to the peso, at P110.28 per bag (see Exhs.
L and L-1 M and O). 2

Before trial, a compromise agreement was entered into between petitioners, as plaintiffs, and
defendants S.C.I. Line and F.E. Zuellig, upon the latter's payment of P532.65 in settlement of
the claim against them. Whereupon, the trial court in its order of August 12, 1981 3 granted
plaintiffs' motion to dismiss grounded on said amicable settlement and the case as to S.C.I.
Line and F.E. Zuellig was consequently "dismissed with prejudice and without
pronouncement as to costs."

The trial court thereafter rendered judgment in favor of herein petitioners on this dispositive
portion:
 WHEREFORE, judgment is hereby rendered in favor of the plaintiff Philippine
General American Insurance Company Inc. and against the remaining
defendants, Sweet Lines Inc. and Davao Veterans Arrastre Inc. as follows:

Defendant Sweet Lines, Inc. is ordered to pay said plaintiff the sum of
P34,902.00, with legal interest thereon from date of extrajudicial demand on
April 28, 1978 (Exh. M) until fully paid;

Defendant Sweet Lines Inc. and Davao Veterans Arrastre and (Port)
Services Inc. are directed to pay jointly and severally, the plaintiff the sum of
P49,747.55, with legal interest thereon from April 28, 1978 until fully paid;

Each of said defendants are ordered to pay the plaintiffs the additional sum
of P5,000 is reimbursable attorney's fees and other litigation expenses;

Each of said defendants shall pay one-fourth (1/4) costs. 4

Due to the reversal on appeal by respondent court of the trial court's decision on the ground
of prescription, 5 in effect dismissing the complaint of herein petitioners, and the denial of
their motion for reconsideration, 6 petitioners filed the instant petition for review on certiorari,
faulting respondent appellate court with the following errors: (1) in upholding, without proof,
the existence of the so-called prescriptive period; (2) granting arguendo that the said
prescriptive period does exist, in not finding the same to be null and void; and (3)
assuming arguendo that the said prescriptive period is valid and legal, in failing to conclude
that petitioners substantially complied therewith. 7

Parenthetically, we observe that herein petitioners are jointly pursuing this case, considering
their common interest in the shipment subject of the present controversy, to obviate any
question as to who the real party in interest is and to protect their respective rights as insurer
and insured. In any case, there is no impediment to the legal standing of Petitioner
Philamgen, even if it alone were to sue herein private respondents in its own capacity as
insurer, it having been subrogated to all rights of recovery for loss of or damage to the
shipment insured under its Marine Risk Note No. 438734 dated March 31, 1977 8 in view of the
full settlement of the claim thereunder as evidenced by the subrogation receipt 9 issued in its favor by Far East Bank and Trust
Co., Davao Branch, for the account of petitioner TPI.

Upon payment of the loss covered by the policy, the insurer's entitlement to subrogation pro
tanto, being of the highest equity, equips it with a cause of action against a third party in case
of contractual breach. 10 Further, the insurer's subrogatory right to sue for recovery under the
bill of lading in case of loss of or damage to the cargo is jurisprudentially upheld. 11 However,
if an insurer, in the exercise of its subrogatory right, may proceed against the erring carrier
and for all intents and purposes stands in the place and in substitution of the consignee, a
fortiori such insurer is presumed to know and is just as bound by the contractual terms under
the bill of lading as the insured.

On the first issue, petitioners contend that it was error for the Court of Appeals to reverse the
appealed decision on the supposed ground of prescription when SLI failed to adduce any
evidence in support thereof and that the bills of lading said to contain the shortened periods
for filing a claim and for instituting a court action against the carrier were never offered in
evidence. Considering that the existence and tenor of this stipulation on the aforesaid
periods have allegedly not been established, petitioners maintain that it is inconceivable how
they can possibly comply therewith. 12 In refutation, SLI avers that it is standard practice in its
operations to issue bills of lading for shipments entrusted to it for carriage and that it in fact
issued bills of lading numbered MD-25 and MD-26 therefor with proof of their existence
manifest in the records of the case. 13 For its part, DVAPSI insists on the propriety of the
dismissal of the complaint as to it due to petitioners' failure to prove its direct responsibility
for the loss of and/or damage to the cargo. 14

On this point, in denying petitioner's motion for reconsideration, the Court of Appeals
resolved that although the bills of lading were not offered in evidence, the litigation obviously
revolves on such bills of lading which are practically the documents or contracts sued upon,
hence, they are inevitably involved and their provisions cannot be disregarded in the
determination of the relative rights of the parties thereto. 15

Respondent court correctly passed upon the matter of prescription, since that defense was
so considered and controverted by the parties. This issue may accordingly be taken
cognizance of by the court even if not inceptively raised as a defense so long as its existence
is plainly apparent on the face of relevant pleadings. 16 In the case at bar, prescription as an
affirmative defense was seasonably raised by SLI in its answer, 17 except that the bills of
lading embodying the same were not formally offered in evidence, thus reducing the bone of
contention to whether or not prescription can be maintained as such defense and, as in this
case, consequently upheld on the strength of mere references thereto.

As petitioners are suing upon SLI's contractual obligation under the contract of carriage as
contained in the bills of lading, such bills of lading can be categorized as actionable
documents which under the Rules must be properly pleaded either as causes of action or
defenses, 18 and the genuineness and due execution of which are deemed admitted unless
specifically denied under oath by the adverse party. 19 The rules on actionable documents
cover and apply to both a cause of action or defense based on said documents. 20

In the present case and under the aforestated assumption that the time limit involved is a
prescriptive period, respondent carrier duly raised prescription as an affirmative defense in
its answer setting forth paragraph 5 of the pertinent bills of lading which comprised the
stipulation thereon by parties, to wit:

5. Claims for shortage, damage, must be made at the time of delivery to

consignee or agent, if container shows exterior signs of damage or shortage.
Claims for non-delivery, misdelivery, loss or damage must be filed within 30
days from accrual. Suits arising from shortage, damage or loss, non-delivery
or misdelivery shall be instituted within 60 days from date of accrual of right
of action. Failure to file claims or institute judicial proceedings as herein
provided constitutes waiver of claim or right of action. In no case shall carrier
be liable for any delay, non-delivery, misdelivery, loss of damage to cargo
while cargo is not in actual custody of carrier. 21

In their reply thereto, herein petitioners, by their own assertions that —

2. In connection with Pars. 14 and 15 of defendant Sweet Lines, Inc.'s

Answer, plaintiffs state that such agreements are what the Supreme Court
considers as contracts of adhesion (see Sweet Lines, Inc. vs. Hon. Bernardo
Teves, et al., G.R. No. L-37750, May 19, 1978) and, consequently, the
provisions therein which are contrary to law and public policy cannot be
availed of by answering defendant as valid defenses. 22
thereby failed to controvert the existence of the bills of lading and the aforequoted provisions
therein, hence they impliedly admitted the same when they merely assailed the validity of
subject stipulations.

Petitioners' failure to specifically deny the existence, much less the genuineness and due
execution, of the instruments in question amounts to an admission. Judicial admissions,
verbal or written, made by the parties in the pleadings or in the course of the trial or other
proceedings in the same case are conclusive, no evidence being required to prove the same,
and cannot be contradicted unless shown to have been made through palpable mistake or
that no such admission was made. 23 Moreover, when the due execution and genuineness of
an instrument are deemed admitted because of the adverse party's failure to make a specific
verified denial thereof, the instrument need not be presented formally in evidence for it may
be considered an admitted fact. 24

Even granting that petitioners' averment in their reply amounts to a denial, it has the
procedural earmarks of what in the law on pleadings is called a negative pregnant, that is, a
denial pregnant with the admission of the substantial facts in the pleading responded to
which are not squarely denied. It is in effect an admission of the averment it is directed
to. 25 Thus, while petitioners objected to the validity of such agreement for being contrary to
public policy, the existence of the bills of lading and said stipulations were nevertheless
impliedly admitted by them.

We find merit in respondent court's comments that petitioners failed to touch on the matter of
the non-presentation of the bills of lading in their brief and earlier on in the appellate
proceedings in this case, hence it is too late in the day to now allow the litigation to be
overturned on that score, for to do so would mean an over-indulgence in technicalities.
Hence, for the reasons already advanced, the non-inclusion of the controverted bills of lading
in the formal offer of evidence cannot, under the facts of this particular case, be considered a
fatal procedural lapse as would bar respondent carrier from raising the defense of
prescription. Petitioners' feigned ignorance of the provisions of the bills of lading, particularly
on the time limitations for filing a claim and for commencing a suit in court, as their excuse
for non-compliance therewith does not deserve serious attention.

It is to be noted that the carriage of the cargo involved was effected pursuant to an
"Application for Delivery of Cargoes without Original Bill of Lading" issued on May 20, 1977
in Davao City 26 with the notation therein that said application corresponds to and is subject to
the terms of bills of lading MD-25 and MD-26. It would be a safe assessment to interpret this
to mean that, sight unseen, petitioners acknowledged the existence of said bills of lading. By
having the cargo shipped on respondent carrier's vessel and later making a claim for loss on
the basis of the bills of lading, petitioners for all intents and purposes accepted said bills.
Having done so they are bound by all stipulations contained therein. 27 Verily, as petitioners
are suing for recovery on the contract, and in fact even went as far as assailing its validity by
categorizing it as a contract of adhesion, then they necessarily admit that there is such a
contract, their knowledge of the existence of which with its attendant stipulations they cannot
now be allowed to deny.

On the issue of the validity of the controverted paragraph 5 of the bills of lading above
quoted which unequivocally prescribes a time frame of thirty (30) days for filing a claim with
the carrier in case of loss of or damage to the cargo and sixty (60) days from accrual of the
right of action for instituting an action in court, which periods must concur, petitioners posit
that the alleged shorter prescriptive period which is in the nature of a limitation on petitioners'
right of recovery is unreasonable and that SLI has the burden of proving otherwise, citing the
earlier case of Southern Lines, Inc. vs. Court of Appeals, et al. 28 They postulate this on the
theory that the bills of lading containing the same constitute contracts of adhesion and are,
therefore, void for being contrary to public policy, supposedly pursuant to the dictum
in Sweet Lines, Inc. vs. Teves, et al. 29

Furthermore, they contend, since the liability of private respondents has been clearly
established, to bar petitioners' right of recovery on a mere technicality will pave the way for
unjust enrichment. 30 Contrarily, SLI asserts and defends the reasonableness of the time
limitation within which claims should be filed with the carrier; the necessity for the same, as
this condition for the carrier's liability is uniformly adopted by nearly all shipping companies if
they are to survive the concomitant rigors and risks of the shipping industry; and the
countervailing balance afforded by such stipulation to the legal presumption of negligence
under which the carrier labors in the event of loss of or damage to the cargo. 31

It has long been held that Article 366 of the Code of Commerce applies not only to overland
and river transportation but also to maritime
transportation. 32 Moreover, we agree that in this jurisdiction, as viewed from another angle, it
is more accurate to state that the filing of a claim with the carrier within the time limitation
therefor under Article 366 actually constitutes a condition precedent to the accrual of a right
of action against a carrier for damages caused to the merchandise. The shipper or the
consignee must allege and prove the fulfillment of the condition and if he omits such
allegations and proof, no right of action against the carrier can accrue in his favor. As the
requirements in Article 366, restated with a slight modification in the assailed paragraph 5 of
the bills of lading, are reasonable conditions precedent, they are not limitations of
action. 33 Being conditions precedent, their performance must precede a suit for
enforcement 34and the vesting of the right to file spit does not take place until the happening
of these conditions. 35

Now, before an action can properly be commenced all the essential elements of the cause of
action must be in existence, that is, the cause of action must be complete. All valid
conditions precedent to the institution of the particular action, whether prescribed by statute,
fixed by agreement of the parties or implied by law must be performed or complied with
before commencing the action, unless the conduct of the adverse party has been such as to
prevent or waive performance or excuse non-performance of the condition. 36

It bears restating that a right of action is the right to presently enforce a cause of action, while
a cause of action consists of the operative facts which give rise to such right of action. The
right of action does not arise until the performance of all conditions precedent to the action
and may be taken away by the running of the statute of limitations, through estoppel, or by
other circumstances which do not affect the cause of action. 37 Performance or fulfillment of
all conditions precedent upon which a right of action depends must be sufficiently
alleged, 38considering that the burden of proof to show that a party has a right of action is
upon the person initiating the suit. 39

More particularly, where the contract of shipment contains a reasonable requirement of

giving notice of loss of or injury to the goods, the giving of such notice is a condition
precedent to the action for loss or injury or the right to enforce the carrier's liability. Such
requirement is not an empty formalism. The fundamental reason or purpose of such a
stipulation is not to relieve the carrier from just liability, but reasonably to inform it that the
shipment has been damaged and that it is charged with liability therefor, and to give it an
opportunity to examine the nature and extent of the injury. This protects the carrier by
affording it an opportunity to make an investigation of a claim while the matter is fresh and
easily investigated so as to safeguard itself from false and fraudulent claims. 40

Stipulations in bills of lading or other contracts of shipment which require notice of claim for
loss of or damage to goods shipped in order to impose liability on the carrier operate to
prevent the enforcement of the contract when not complied with, that is, notice is a condition
precedent and the carrier is not liable if notice is not given in accordance with the
stipulation, 41 as the failure to comply with such a stipulation in a contract of carriage with
respect to notice of loss or claim for damage bars recovery for the loss or damage suffered. 42

On the other hand, the validity of a contractual limitation of time for filing the suit itself against
a carrier shorter than the statutory period therefor has generally been upheld as such
stipulation merely affects the shipper's remedy and does not affect the liability of the carrier.
In the absence of any statutory limitation and subject only to the requirement on the
reasonableness of the stipulated limitation period, the parties to a contract of carriage may fix
by agreement a shorter time for the bringing of suit on a claim for the loss of or damage to
the shipment than that provided by the statute of limitations. Such limitation is not contrary to
public policy for it does not in any way defeat the complete vestiture of the right to recover,
but merely requires the assertion of that right by action at an earlier period than would be
necessary to defeat it through the operation of the ordinary statute of limitations. 43

In the case at bar, there is neither any showing of compliance by petitioners with the
requirement for the filing of a notice of claim within the prescribed period nor any allegation
to that effect. It may then be said that while petitioners may possibly have a cause of action,
for failure to comply with the above condition precedent they lost whatever right of action
they may have in their favor or, token in another sense, that remedial right or right to relief
had prescribed.44

The shipment in question was discharged into the custody of the consignee on May 15,
1977, and it was from this date that petitioners' cause of action accrued, with thirty (30) days
therefrom within which to file a claim with the carrier for any loss or damage which may have
been suffered by the cargo and thereby perfect their right of action. The findings of
respondent court as supported by petitioners' formal offer of evidence in the court below
show that the claim was filed with SLI only on April 28, 1978, way beyond the period
provided in the bills of lading 45 and violative of the contractual provision, the inevitable
consequence of which is the loss of petitioners' remedy or right to sue. Even the filing of the
complaint on May 12, 1978 is of no remedial or practical consequence, since the time limits
for the filing thereof, whether viewed as a condition precedent or as a prescriptive period,
would in this case be productive of the same result, that is, that petitioners had no right of
action to begin with or, at any rate, their claim was time-barred.

What the court finds rather odd is the fact that petitioner TPI filed a provisional claim with
DVAPSI as early as June 14, 1977 46 and, as found by the trial court, a survey fixing the
extent of loss of and/or damage to the cargo was conducted on July 8, 1977 at the instance
of petitioners. 47 If petitioners had the opportunity and awareness to file such provisional claim
and to cause a survey to be conducted soon after the discharge of the cargo, then they could
very easily have filed the necessary formal, or even a provisional, claim with SLI
itself 48 within the stipulated period therefor, instead of doing so only on April 28, 1978 despite
the vessel's arrival at the port of destination on May 15, 1977. Their failure to timely act
brings us to no inference other than the fact that petitioners slept on their rights and they
must now face the consequences of such inaction.
The ratiocination of the Court of Appeals on this aspect is worth reproducing:

xxx xxx xxx

It must be noted, at this juncture, that the aforestated time limitation in the
presentation of claim for loss or damage, is but a restatement of the rule
prescribed under Art. 366 of the Code of Commerce which reads as follows:

Art. 366. Within the twenty-four hours following the receipt of

the merchandise, the claim against the carrier for damage or
average which may be found therein upon opening the
packages, may be made, provided that the indications of the
damage or average which gives rise to the claim cannot be
ascertained from the outside part of the packages, in which
case the claims shall be admitted only at the time of the
receipt.

After the periods mentioned have elapsed, or the

transportation charges have been paid, no claim shall be
admitted against the carrier with regard to the condition in
which the goods transported were delivered.

Gleanable therefrom is the fact that subject stipulation even lengthened the
period for presentation of claims thereunder. Such modification has been
sanctioned by the Supreme Court. In the case of Ong Yet (M)ua Hardware
Co., Inc. vs. Mitsui Steamship Co., Ltd., et al., 59 O.G. No. 17, p. 2764, it
ruled that Art. 366 of the Code of Commerce can be modified by a bill of
lading prescribing the period of 90 days after arrival of the ship, for filing of
written claim with the carrier or agent, instead of the 24-hour time limit after
delivery provided in the aforecited legal provision.

Tested, too, under paragraph 5 of said Bill of Lading, it is crystal clear that
the commencement of the instant suit on May 12, 1978 was indeed fatally
late. In view of the express provision that "suits arising from
. . . damage or loss shall be instituted within 60 days from date of accrual of
right of action," the present action necessarily fails on ground of prescription.

In the absence of constitutional or statutory prohibition, it is

usually held or recognized that it is competent for the parties
to a contract of shipment to agree on a limitation of time
shorter than the statutory period, within which action for
breach of the contract shall be brought, and such limitation
will be enforced if reasonable . . . (13 C.J.S. 496-497)

A perusal of the pertinent provisions of law on the matter would disclose that
there is no constitutional or statutory prohibition infirming paragraph 5 of
subject Bill of Lading. The stipulated period of 60 days is reasonable enough
for appellees to ascertain the facts and thereafter to sue, if need be, and the
60-day period agreed upon by the parties which shortened the statutory
period within which to bring action for breach of contract is valid and binding.
. . . (Emphasis in the original text.) 49
As explained above, the shortened period for filing suit is not unreasonable and has in fact
been generally recognized to be a valid business practice in the shipping industry.
Petitioners' advertence to the Court's holding in the Southern Lines case, supra, is futile as
what was involved was a claim for refund of excess payment. We ruled therein that non-
compliance with the requirement of filing a notice of claim under Article 366 of the Code of
Commerce does not affect the consignee's right of action against the carrier because said
requirement applies only to cases for recovery of damages on account of loss of or damage
to cargo, not to an action for refund of overpayment, and on the further consideration that
neither the Code of Commerce nor the bills of lading therein provided any time limitation for
suing for refund of money paid in excess, except only that it be filed within a reasonable time.

The ruling in Sweet Lines categorizing the stipulated limitation on venue of action provided in
the subject bill of lading as a contract of adhesion and, under the circumstances therein, void
for being contrary to public policy is evidently likewise unavailing in view of the discrete
environmental facts involved and the fact that the restriction therein was unreasonable. In
any case, Ong Yiu vs. Court of Appeals, et al., 50 instructs us that "contracts of adhesion
wherein one party imposes a ready-made form of contract on the other . . . are contracts not
entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if
he adheres he gives his consent." In the present case, not even an allegation of ignorance of
a party excuses non-compliance with the contractual stipulations since the responsibility for
ensuring full comprehension of the provisions of a contract of carriage devolves not on the
carrier but on the owner, shipper, or consignee as the case may be.

While it is true that substantial compliance with provisions on filing of claim for loss of or
damage to cargo may sometimes suffice, the invocation of such an assumption must be
viewed vis-a-vis the object or purpose which such a provision seeks to attain and that is to
afford the carrier a reasonable opportunity to determine the merits and validity of the claim
and to protect itself against unfounded impositions. 51 Petitioners' would nevertheless adopt
an adamant posture hinged on the issuance by SLI of a "Report on Losses and Damages,"
dated May 15, 1977, 52 from which petitioners theorize that this charges private respondents
with actual knowledge of the loss and damage involved in the present case as would obviate
the need for or render superfluous the filing of a claim within the stipulated period.

Withal, it has merely to be pointed out that the aforementioned report bears this notation at
the lower part thereof: "Damaged by Mla. labor upon unloading; B/L noted at port of origin,"
as an explanation for the cause of loss of and/or damage to the cargo, together with an
iterative note stating that "(t)his Copy should be submitted together with your claim invoice or
receipt within 30 days from date of issue otherwise your claim will not be honored."

Moreover, knowledge on the part of the carrier of the loss of or damage to the goods
deducible from the issuance of said report is not equivalent to nor does it approximate the
legal purpose served by the filing of the requisite claim, that is, to promptly apprise the carrier
about a consignee's intention to file a claim and thus cause the prompt investigation of the
veracity and merit thereof for its protection. It would be an unfair imposition to require the
carrier, upon discovery in the process of preparing the report on losses or damages of any
and all such loss or damage, to presume the existence of a claim against it when at that time
the carrier is expectedly concerned merely with accounting for each and every shipment and
assessing its condition. Unless and until a notice of claim is therewith timely filed, the carrier
cannot be expected to presume that for every loss or damage tallied, a corresponding claim
therefor has been filed or is already in existence as would alert it to the urgency for an
immediate investigation of the soundness of the claim. The report on losses and damages is
not the claim referred to and required by the bills of lading for it does not fix responsibility for
the loss or damage, but merely states the condition of the goods shipped. The claim
contemplated herein, in whatever form, must be something more than a notice that the
goods have been lost or damaged; it must contain a claim for compensation or indicate an
intent to claim. 53

Thus, to put the legal effect of respondent carrier's report on losses or damages, the
preparation of which is standard procedure upon unloading of cargo at the port of
destination, on the same level as that of a notice of claim by imploring substantial
compliance is definitely farfetched. Besides, the cited notation on the carrier's report itself
makes it clear that the filing of a notice of claim in any case is imperative if carrier is to be
held liable at all for the loss of or damage to cargo.

Turning now to respondent DVAPSI and considering that whatever right of action petitioners
may have against respondent carrier was lost due to their failure to seasonably file the
requisite claim, it would be awkward, to say the least, that by some convenient process of
elimination DVAPSI should proverbially be left holding the bag, and it would be pure
speculation to assume that DVAPSI is probably responsible for the loss of or damage to
cargo. Unlike a common carrier, an arrastre operator does not labor under a presumption of
negligence in case of loss, destruction or deterioration of goods discharged into its custody.
In other words, to hold an arrastre operator liable for loss of and/or damage to goods
entrusted to it there must be preponderant evidence that it did not exercise due diligence in
the handling and care of the goods.

Petitioners failed to pinpoint liability on any of the original defendants and in this seemingly
wild goose-chase, they cannot quite put their finger down on when, where, how and under
whose responsibility the loss or damage probably occurred, or as stated in paragraph 8 of
their basic complaint filed in the court below, whether "(u)pon discharge of the cargoes from
the original carrying vessel, the SS VISHVA YASH," and/or upon discharge of the cargoes
from the interisland vessel the MV "SWEET LOVE," in Davao City and later while in the
custody of defendant arrastre operator. 54

The testimony of petitioners' own witness, Roberto Cabato, Jr., Marine and Aviation Claims
Manager of petitioner Philamgen, was definitely inconclusive and the responsibility for the
loss or damage could still not be ascertained therefrom:

Q In other words, Mr. Cabato, you only computed the loss on

the basis of the figures submitted to you and based on the
documents like the survey certificate and the certificate of the
arrastre?

A Yes, sir.

Q Therefore, Mr. Cabato, you have no idea how or where

these losses were incurred?

A No, sir.

xxx xxx xxx

Q Mr. Witness, you said that you processed and investigated

the claim involving the shipment in question. Is it not a fact
that in your processing and investigation you considered how
the shipment was transported? Where the losses could have
 occurred and what is the extent of the respective
responsibilities of the bailees and/or carriers involved?

xxx xxx xxx

A With respect to the shipment being transported, we have of

course to get into it in order to check whether the shipment
coming in to this port is in accordance with the policy
condition, like in this particular case, the shipment was
transported to Manila and transhipped through an interisland
vessel in accordance with the policy. With respect to the
losses, we have a general view where losses could have
occurred. Of course we will have to consider the different
bailees wherein the shipment must have passed through, like
the ocean vessel, the interisland vessel and the arrastre, but
definitely at that point and time we cannot determine the
extent of each liability. We are only interested at that point
and time in the liability as regards the underwriter in
accordance with the policy that we issued.

xxx xxx xxx

Q Mr. Witness, from the documents, namely, the survey of

Manila Adjusters and Surveyors Company, the survey of
Davao Arrastre contractor and the bills of lading issued by the
defendant Sweet Lines, will you be able to tell the respective
liabilities of the bailees and/or carriers concerned?

A No, sir. (Emphasis ours.) 55

Neither did nor could the trial court, much less the Court of Appeals, precisely establish the
stage in the course of the shipment when the goods were lost, destroyed or damaged. What
can only be inferred from the factual findings of the trial court is that by the time the cargo
was discharged to DVAPSI, loss or damage had already occurred and that the same could
not have possibly occurred while the same was in the custody of DVAPSI, as demonstrated
by the observations of the trial court quoted at the start of this opinion.

ACCORDINGLY, on the foregoing premises, the instant petition is DENIED and the
dismissal of the complaint in the court a quo as decreed by respondent Court of Appeals in
its challenged judgment is hereby AFFIRMED.

SO ORDERED.

Narvasa, C.J., Padilla and Nocon, JJ., concur.

Footnotes

1 Civil Case No. 115376, Regional Trial Court of Manila, Branch II.
2 Annex F, Petition; Rollo, 47-49.

3 Original Record, 88.

4 Annex E, Petition; Rollo, 40; Judge Rosalio A. De Leon, presiding.

5 C.A.-G.R. CV No. 04620; Per Justice Fidel P. Purisima, with Justices

Segundino Chua and Nicolas P. Lapeña, Jr., concurring; Annex F,
Petition; Rollo, 41-55.

6 Annex I, Petition; Rollo, 66-70.

7 Rollo, 10.

8 Exhibit G; Original Record, 176.

9 Exhibit R; ibid., 197.

10 Fireman's Fund Insurance Company, Inc., et al., vs. Jamila & Company,
Inc., et al., 70 SCRA 323 (1976).

11 National Development Company vs. Court of Appeals. et al., 164 SCRA

593 (1988).

12 Rollo, 11.

13 Comment of SLI; Rollo, 4-5.

14 Comment of DVAPSI; ibid., 148-149.

15 Annex I, Petition; Rollo, 68.

16 Vda. de Portugal, et al. vs. Intermediate Appellate Court, et al., 159 SCRA
178 (1988).

17 Original Record, 31; Annex B, Petition; Rollo, 23.

18 Sec. 7, Rule 8, Rules of Court.

19 Sec. 8, id., ibid.

20 Toribio, et al. vs. Bidin, et al., 134 SCRA 162 (1985).

21 Original Record, 31; Annex B, Petition; Rollo, 26.

22 Ibid., 44; Annex C, id.; ibid., 29.

23 See Sec. 4, Rule 129, Rules of Court; Sta. Ana vs. Maliwat, et al., 24
SCRA 1018 (1968); Solivio vs. Court of Appeals, et al., 182 SCRA 119
(1990).
24 Asia Banking Corporation vs. Olsen, 48 Phil. 529 (1925).

25 61A Am. Jur. 2d, Pleadings 172-173; Galofa vs. Nee Bon Sing, 22 SCRA
48 (1968); Tamayo vs. Callejo, et al., 46 SCRA 27 (1972).

26 Exhibits H and I; Original Record, 177-178.

27 Sea-Land Service, Inc. vs. Intermediate Appellate Court, et al., 153 SCRA
552 (1987).

28 4 SCRA 258 (1962).

29 83 SCRA 361 (1978).

30 Rollo, 11-13.

31 Comment of SLI; Rollo, 102-103.

32 Government of the Philippine Islands vs. Inchausti & Co., 24 Phil. 315
(1913), citing Cordoba vs. Warner, Barnes & Co., 1 Phil. 7 (1901).

33 Id.; Triton Insurance Company, Ltd. vs. Jose, 33 Phil. 194 (1916).

34 Dikowski vs. Metropolitan Life Ins., Co., 24 A.2d 173, 175, 128 N.J.L. 124.

35 Newark Gas & Fuel Co. vs. City of Newark, 8 Ohio Dec. 418, 421, 7 Ohio
N.P. 76.

36 1 Am. Jur. 2d, Actions 608.

37 Ibid., id., 541.

38 61A Am. Jur. 2d, Pleading 89.

39 13 C.J.S., Carriers 537.

40 Ibid., 463, 508; 14 Am. Jur. 2d, Carriers 97; Cf. Roldan vs. Lim Ponzo &
Co., 37 Phil. 285 (1917); Consunji vs. Manila Port Service, et al., 110 Phil.
231 (1960).

41 Ibid., 462.

42 14 Am. Jur. 2d, Carriers 104-105.

43 Ibid., id., 98, 117; Ang, et al. vs. Fulton Fire Insurance Co., et al., 2 SCRA
945 (1961).

44 There can be no right of action without a cause of action being first

established (see Español vs. The Chairman etc. of the Philippine Veterans
Administration, (137 SCRA 314 [1985]). On the other hand, the cause of
action is distinct from the remedy (Tonn vs. Inner Shoe Tire Co., Tex. Civ.
App., 260 S.W. 1078, 1080) and the cause of action may exist though the
remedy does not (Chandler vs. Horne, 23 Ohio App. 1, 154 N.E. 748, 750.)

45 Annex F, Petition; Rollo, 52; Exhibit M, Original Record, 184.

46 Exhibit N; Original Record, 186.

47 Annex F, Petition; Rollo, 48.

48 See Esso Standard Eastern, Inc. vs. Manila Railroad Co., 93 SCRA 307
(1979).

49 Rollo, 52-54.

50 91 SCRA 223 (1979).

51 14 Am. Jur. 2d, Carriers 104-105.

52 Exhibit J; Original Record, 180.

53 14 Am. Jur. 2d, Carriers 106.

54 Annex A, Petition; Rollo, 18-19.

55 TSN, June 26, 1981, 16-19, 22.

SPOUSES RODOLFO CARPIO G.R. No. 153171
and REMEDIOS ORENDAIN,
Petitioners, Present:
*
PUNO, J., Chairperson,
SANDOVAL-GUTIERREZ,
-versus- CORONA,
AZCUNA, and
GARCIA, JJ.

RURAL BANK OF STO. TOMAS Promulgated:

(BATANGAS), INC.,
Respondent. May 4, 2006

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

DECISION

SANDOVAL-GUTIERREZ, J.:

Before us for resolution is the instant Petition for Review

on Certiorari[1] assailing the Decision[2] dated September 28, 2001 of the
Court of Appeals in CA-G.R. SP No. 58995, and its Resolution dated April
2, 2002, denying the Motion for Reconsideration.

The facts are:

On May 17, 1999, spouses Rodolfo Carpio and Remedios Orendain,

petitioners, filed with the Regional Trial Court (RTC), Branch
83, Tanauan, Batangas, a Complaint (for annulment of foreclosure sale and
damages) against the Rural Bank of Sto. Tomas, Batangas, Inc., respondent,
and Jaime Ozaeta, clerk of court and ex-officio sheriff of the same court. In
their Complaint, petitioners alleged that they are the absolute owners of a
parcel of land with an area of 19,405 square meters, more or less, located
at Barangay San Vicente, Sto. Tomas, Batangas. On May 30, 1996, they
obtained a loan from respondent bank in the amount of P515,000.00,
payable on January 27, 1996. To secure the loan, they executed on May 30,
1996 a real estate mortgage over the same property in favor of respondent
bank. On July 26, 1996, without prior demand or notice to petitioners,
respondent bank filed a Petition for Extra-Judicial Foreclosure of
Mortgage. On September 26, 1996, sheriff Jaime Ozaetaconducted a public
auction sale of the mortgaged property. Respondent bank was the only
bidder for P702,889.77.

Petitioners further alleged that the sale was conducted without proper
publication as the sheriffs notice of sale was published in a newspaper which
is not of general circulation. On the same day the property was sold, the
sheriff issued a certificate of sale in favor of respondent bank. On February
25, 1999, respondent bank executed an affidavit of consolidation of
ownership over petitioners property. They claimed that they were not
notified of the foreclosure sale and were not given an opportunity to redeem
their property.

On August 9, 1999, respondent bank filed its Answer with

Counterclaim, denying specifically the material allegations of the
complaint. It alleged inter alia that oral and written demands were made
upon petitioners to pay their loan but they ignored the same; that they were
properly notified of the filing of the petition for extra-judicial foreclosure of
the mortgage; that there was proper publication and notices of the scheduled
sale through public auction; and that petitioners were actually given more
than two (2) years to redeem the property but they failed to do so.

By way of counterclaim, respondent bank alleged that it suffered: (a)

actual damages of P100,000.00; (b) compensatory damages of P100,000.00;
(c) moral damages of P500,000.00; and (d) litigation expenses of not less
than P50,000.00.
 On September 8, 1999, petitioners filed a motion to dismiss the
counterclaim on the ground that respondent banks counterclaim was not
accompanied by a certification against forum shopping.

Respondent bank filed an opposition to the motion, contending that its

counterclaim, which is compulsory in nature, is not
a complaint or initiatory pleading that requires a certification against
forum shopping.

On November 3, 1999, the RTC issued an Order denying the motion

to dismiss the counterclaim for lack of merit, thus:

xxx

Under Section 5, Rule 7 of the Rules of Court, the same

requires the plaintiff or principal party to certify under oath the
complaint or other initiatory pleading purposely to prevent forum
shopping.

In the case at bar, defendant Rural Banks counterclaim

could not be considered a complaint or initiatory pleading because
the filing of the same is but a result of plaintiffs complaint and,
being a compulsory counterclaim, is outside the coverage of
Section 5, Rule 7 of the Rules of Court.

WHEREFORE, premises considered, the instant Motion is

hereby denied for lack of merit.

SO ORDERED.

Petitioners filed a Motion for Reconsideration of the above Order but

it was likewise denied by the RTC in its Order dated April 4, 2000.

Thereafter, petitioners filed with the Court of Appeals a Petition

for Certiorari under Rule 65 of the 1997 Rules of Civil Procedure, as
amended, alleging that the RTC acted with grave abuse of discretion in
holding that respondent banks counterclaim need not be accompanied by a
certification against forum shopping.

In its Decision[3] dated September 28, 2001, the Court of Appeals

affirmed the assailed twin Orders of the RTC denying petitioners motion to
dismiss the counterclaim and dismissed the petition. Petitioners motion for
reconsideration was also denied in a Resolution dated April 2, 2002.

Hence, the instant Petition for Review on Certiorari.

The petition must fail.

Section 5, Rule 7[4] of the 1997 Rules of Civil Procedure, as amended,

provides:

Sec. 5. Certification against forum shopping.

The plaintiff or principal party shall certify under oath in
the complaint or other initiatory pleading asserting a claim for
relief, or in a sworn certification annexed thereto and
simultaneously filed therewith: (a) that he
has not theretofore commenced any action or filed any claim
involving the same issues in any court, tribunal or quasi-
judicial agency and, to the best of his knowledge, no such other
action or claim is pending therein; (b) if there is such other
pending action or claim, a complete statement of the present status
thereof; and (c) if he should thereafter learn that the same or
similar action or claim has been filed or is pending, he shall report
that fact within five (5) days therefrom to the court wherein his
aforesaid complaint or initiatory pleading has been filed.

Failure to comply with the foregoing requirements shall not

be curable by mere amendment of the complaint or other initiatory
pleading but shall be cause for the dismissal of the case without
prejudice, unless otherwise provided, upon motion and after
hearing. The submission of a false certification or non-compliance
with any of the undertakings therein shall constitute indirect
contempt of court, without prejudice to the corresponding
administrative and criminal actions. If the acts of the party or his
counsel clearly constitute willful and deliberate forum shopping,
 the same shall be ground for summary dismissal with prejudice
and shall constitute direct contempt, as well as a cause for
administrative sanctions. (Underscoring supplied)

The rationale of the above provisions is to curb the malpractice

commonly referred to as forum shopping an act of a party against whom an
adverse judgment has been rendered in one forum of seeking and possibly
getting a favorable opinion in another forum, other than by appeal or the
special civil action of certiorari, or the institution of two or more actions or
proceedings grounded on the same cause on the supposition that one or the
other court would make a favorable disposition.[5]

Petitioners contend that the trial court and the Court of Appeals
gravely abused their discretion in not dismissing respondent banks
counterclaim for lack of a certification against forum shopping.

Petitioners contention is utterly baseless. It bears stressing that the

Rule distinctly provides that the required certification against forum
shopping is intended to cover an initiatory pleading, meaning
an incipient application of a party asserting a claim for relief.[6] Certainly,
respondent banks Answer with Counterclaim is a responsive pleading, filed
merely to counter petitioners complaint that initiates the civil action. In other
words, the rule requiring such certification does not contemplate a
defendants/respondents claim for relief that is derived only from, or is
necessarily connected with, the main action or complaint. In fact, upon
failure by the plaintiff to comply with such requirement, Section 5, quoted
above, directs the dismissal of the case without prejudice, not the dismissal
of respondents counterclaim.

In sum, we find no reversible error committed by the Court of

Appeals in issuing the challenged Decision and Resolution in CA-G.R.
SP No. 58995.

WHEREFORE, the petition is DENIED. The assailed Decision and

Resolution of the Court of Appeals in CA-G.R. SP No. 58995
are AFFIRMED. Costs against petitioners.
 SO ORDERED.

ANGELINA SANDOVAL-GUTIERREZ
Associate Justice

WE CONCUR:

(On leave)
REYNATO S. PUNO
Associate Justice
Chairperson

RENATO C. CORONA ADOLFO S. AZCUNA

Associate Justice Associate Justice

CANCIO C. GARCIA
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in

consultation before the case was assigned to the writer of the opinion of the
Court's Division.

ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
Acting Chairperson, Second Division
 CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the

Division Chairpersons Attestation, it is hereby certified that the conclusions
in the above Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court.

ARTEMIO V. PANGANIBAN
 FIRST DIVISION

[G.R. No. L-56605. January 28, 1983.]

ANDRES C. SARMIENTO, Petitioner, v. THE HON. CELESTINO C. JUAN, PRESIDING JUDGE,

BRANCH X, COURT OF FIRST INSTANCE OF MANILA and BELFAST SURETY & INSURANCE
CO., INC., Respondent.

Andres C. Sarmiento in his own behalf.

Federico T. Castillo, Jr., for Respondents.

SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; PRE-TRIAL; HEARING SCHEDULED AFTER THE FILING OF
THE LAST PLEADING; PURPOSE AND APPROPRIATE CONSTRUCTION OF THE REQUIREMENT. — The
requirement that the pre-trial shall be scheduled "after the last pleading has been filed" (Section 1,
Rule 20, Rules of Court) is intended to fully apprise the court and the parties of all the issues in the
case before the pre-trial is conducted. It must be remembered that the issues may only be
ascertained from the allegations contained in the pleadings filed by the parties. The last permissible
pleading that a party may file would be the reply to the answer to the last pleading of claim that
had been filed in the ease, which may either be the complaint, a cross-claim, a counter-claim or a
third party complaint, etc. (Secs. 2 and 11, Rule 6, Rules of Court.) The requirement that the last
pleading must have been filed before a pre-trial may be scheduled should more appropriately be
construed to mean not only if the last pleading had been actually filed, but also if the period for
filing the same had expired.

2. ID.; ID.; PLEADING ASSERTING A CLAIM; NOT ANSWERED BY ADVERSE PARTY; RENDERS THE
LATTER IN DEFAULT; EXCEPTIONS. — Any pleading asserting a claim must be answered, and the
failure to do so by the party against whom the claim is asserted renders him liable to be declared in
default in respect of such claim. (Sec. 10, ibid.) There are, however, recognized exceptions to the
rule, making the failure to answer a pleading of claim as a ground for a default declaration, such as
the failure to answer a complaint in intervention (Sec. 2[c], Rule 12, Rules of Court), or a
compulsory counterclaim so intimately related to the complaint such that to answer the same would
merely require a repetition of the allegations contained in the complaint. (Zamboanga Colleges, Inc.
v. Court of Appeals, 1 SCRA 870; Ballecer v. Bernardo, 18 SCRA 291; Agaton v. Perez, 18 SCRA
1165).

3. ID.; ID.; COMPULSORY COUNTER CLAIM; ANSWER NOT NECESSARY; FAILURE TO DO SO NOT A
GROUND FOR DEFAULT. — In the case presently considered, the nature of the counter-claim in the
petitioner’s answer has not been made clear, except to categorize it as a compulsory counterclaim.
Such being the case, it is likely to be one where the answering thereof is not necessary, and the
failure to do so would not be a ground to be declared in default. In any event, the private
respondent’s failure to answer the petitioner’s counterclaim after the period to file the answer had
lapsed is no obstacle to holding a pre-trial.

4. ID.; ID.; DEFAULT JUDGMENT; MOTION FOR RECONSIDERATION; PRONOUNCEMENT OF THE

COURT AGAINST LAYING MORE EMPHASIS ON PROCEDURAL NICETIES. — We, however, find merit
in the petitioner’s two other contentions. The denial by Judge Juan of the petitioner’s motion to
postpone the pre-trial scheduled on February 5, 1980 may have appeared valid at the outset,
considering that it was filed at the last minute and was not accompanied by a medical certificate
although the ground alleged was illness on the part of the petitioner. Nonetheless, a different
appraisal of the petitioner’s plea should have been made after the petitioner filed a motion for
reconsideration which was made under oath. Due regard should have been given to the repeated
pronouncements by this Court against default judgments and proceedings that lay more emphasis
on procedural niceties to the sacrifice of substantial justice. After all, the ex-parte presentation of
evidence had not yet been conducted nor had a decision been rendered in the case. It appeared to
be a simple matter of giving the petitioner a chance to have his day in court in order to defend
himself against the claim filed by the private Respondent. As it turned out, the procedure adopted
by the trial court proved unprofitable and disadvantageous to all parties concerned, including the
courts. The case would have been disposed of in a much easier and more expeditious manner if the
trial court had heeded the petitioner’s simple plea for a chance to be heard. Thereby, all the
proceedings taken subsequent to the disputed orders of the trial court could have been avoided, and
the Court of Appeals and the Supreme Court spared from the trouble of resolving the petitions filed
before them.

5. ID.; ID.; ID.; IMPROPER WHERE ONLY ONE OF THE COUNSELS APPEARED; CASE AT BAR. — The
declaration of default on the part of the petitioner may not be considered as entirely proper under
the circumstances surrounding the same. It is undenied that nobody appeared at the pre-trial
except the counsel for the private Respondent. Under settled doctrines, not even the private
respondent may be considered as having appeared at the said pre-trial, it not having made
appearance thereat through a duly authorized representative. In such a situation, the trial court
would have acted more properly if it dismissed the case, or declared the private respondent as
plaintiff therein as non-suited, instead of declaring the petitioner as in default (erroneously stated
by it as "non-suited.’’) This is because while the court may declare the plaintiff non-suited for non-
appearance at the pre-trial or dismiss the case for his non-appearance at the trial without motion on
the part of the defendant (Sec. 3, Rule 17), the latter may not be declared in default without such
motion on the part of the plaintiff. (Sec. 1, Rule 18; Trajano v. Cruz, 80 SCRA 712.) A plaintiff who
makes no valid appearance at pre-trial may not ask that the defendant be punished for the same
shortcoming it was equally guilty of.

DECISION

VASQUEZ, J.:

In this petition for review on certiorari, petitioner Andres C. Sarmiento seeks to set aside a decision
rendered by the respondent Court of Appeals in CA-G.R. No. SP-10649 which denied due course to
a petition for certiorari filed therein by the herein petitioner to annul two orders issued by the Court
of First Instance of Manila in Civil Case No. 126113. The instant petition was given due course in the
Resolution of September 14, 1981 and the parties ordered to submit their respective memoranda.
The petitioner filed a memorandum in his behalf but the private respondent merely adopted its
comment on the petition as its memorandum. chanroblesvirtualawlibrary

Civil Case No. 126113 was an action filed by private respondent Belfast Surety & Insurance Co., Inc.
against herein petitioner and his father Benjamin R. Sarmiento, Sr. for indemnification under an
Indemnity Agreement executed by them in connection with a bail bond. The case was assigned to
Branch X of the Court of First Instance of Manila presided over by respondent Judge Celestino C.
Juan who had since retired.

After the petitioner filed an answer with compulsory counterclaim, private respondent filed a motion
to dismiss the case against defendant Benjamin R. Sarmiento, Sr., and to schedule the case for pre-
trial. This motion was granted by Judge Juan and the pre-trial was set on February 5, 1980, at 8:30
a.m.

At the said pre-trial, nobody appeared except Atty. Federico T. Castillo, Jr., counsel for the
private Respondent. However, the petitioner sent to the Court on the same date an urgent motion
for postponement stating therein that when he was preparing to go to the Court, he felt severe
stomach pain followed by loose bowel movements, and he accordingly prayed that the pre-trial be
postponed to another date.

The urgent motion for postponement filed by the petitioner was denied in the order of Judge Juan
dated February 5, 1980. On motion of Atty. Castillo, the petitioner was "declared nonsuited" (should
have been "as in default") and the private respondent allowed to present its evidence ex-parte on
February 26, 1980, at 8:30 a.m. chanrobles virtual lawlibrary

On February 25, 1980, the petitioner filed a motion for reconsideration of the order of February 5,
1980. In his order of February 26, 1980, Judge Juan denied the said motion for reconsideration "for
lack of merit," and reiterated the permission for the private respondent to present its evidence ex-
parte.

It does not appear whether the ex-parte presentation of evidence by the private respondent had
already been accomplished, nor that a decision thereon had been rendered. That such proceedings
had not taken place could, however, be gathered from the fact that on March 19, 1980, the
petitioner filed a petition for certiorari with the Supreme Court docketed as G.R. No. 53399 to annul
the aforementioned orders of Judge Juan dated February 5, 1980 and February 26, 1980. The said
petition was remanded to the Court of Appeals pursuant to the Resolution of the First Division of
this Court dated March 28, 1980. It was docketed in the Court of Appeals as CA-G.R. No. SP-14649.
In a decision promulgated on August 29, 1980 by the Special First Division of the Court of Appeals,
the petition was denied due course and ordered dismissed for lack of merit. Said decision is the
subject of the present appeal by certiorari.

The petitioner assails the refusal of the respondent Court of Appeals to disturb the questioned
orders of Judge Juan which petitioner claims to have been issued in excess of jurisdiction and with
grave abuse of discretion. He contends that (a) the pre-trial was premature inasmuch as, there
having been no answer filed by the private respondent to the petitioner’s counterclaim alleged in his
answer, the "last pleading" has not yet been filed so as to authorize a pre-trial to be conducted in
accordance with Section 1, Rule 20, of the Rules of Court; (b) there being no valid pre-trial, the trial
court had no authority to declare him as "non-suited", or more correctly, as in default, for his failure
to appear at the said pre-trial; (b) assuming that there was a valid pre-trial, the trial court could not
legally declare the petitioner as in default due to his failure to be present thereat inasmuch as the
private respondent itself made no valid appearance at said pre-trial because only its counsel
appeared without any special authority to represent his client at the said pre-trial; and (c) it was a
grave abuse of discretion on the part of the trial court to deny the petitioner’s urgent motion for
postponement despite the merit of the ground alleged therein, and the same thing is true with the
denial of his motion to set aside or lift the order declaring him in default. chanrobles law library : red

We see no merit in the petitioner’s contention that the pretrial was prematurely scheduled on the
supposed ground that the last pleading had not been filed. In the petition for certiorari docketed as
G.R. No. 53399, the petitioner has alleged that he filed his answer to the complaint containing a
compulsory counterclaim on December 21, 1979 which was served on the counsel for the private
respondent on the same date. (Rollo, p. 19.) The pre-trial was scheduled to be held on February 5,
1980 or a month and a half after the petitioner had filed his answer to the complaint in Civil Case
No. 126113 and private respondent served with a copy of the same. While it may be true that the
private respondent had not filed any answer to the counterclaim contained in the petitioner’s
answer, such circumstance does not prevent the trial court from conducting the pre-trial. As was
observed by the respondent Court of Appeals in its questioned decision: "If no answer (to the
counterclaim) is timely filed, the pre-trial order may issue. Otherwise, an unscrupulous party litigant
can hold court processes by the simple expedient of failing to answer." cralaw virtua1aw library

The requirement that the pre-trial shall be scheduled "after the last pleading has been filed"
(Section 1, Rule 20, Rules of Court) is intended to fully apprise the court and the parties of all the
issues in the case before the pre-trial is conducted. It must be remembered that the issues may
only be ascertained from the allegations contained in the pleadings filed by the parties. The last
permissible pleading that a party may file would be the reply to the answer to the last pleading of
claim that had been filed in the case, which may either be the complaint, a cross-claim. a
counterclaim or a third party complaint, etc. (Secs. 2 and 11, Rule 6, Rules of Court.) Any pleading
asserting a claim must be answered, and the failure to do so by the party against whom the claim is
asserted renders him liable to be declared in default in respect of such claim. (Sec. 10, Ibid.) There
are, however, recognized exceptions to the rule, making the failure to answer a pleading of claim as
a ground for a default declaration, such as the failure to answer a complaint in intervention (Sec.
2(c), Rule 12, Rules of Court), or a compulsory counterclaim so intimately related to the complaint
such that to answer to same would merely require a repetition of the allegations contained in the
complaint. (Zamboanga Colleges, Inc. v. Court of Appeals, 1 SCRA 870; Ballecer v. Bernardo, 18
SCRA 291; Agaton v. Perez, 18 SCRA 1165.)

In the case presently considered, the nature of the counterclaim in the petitioner’s answer has not
been made clear, except to categorize it as a compulsory counterclaim. Such being the case, it is
likely to be one where the answering thereof is not necessary, and the failure to do so would not be
a ground to be declared in default. In any event, the private respondent’s failure to answer the
petitioner’s counterclaim after the period to file the answer had lapsed is obstacle to holding a pre-
trial. The requirement that the last pleading must have been filed before a pre-trial may be
scheduled should more appropriately be construed to mean not only if the last pleading had been
actually filed, but also if the period for filing the same had expired.
chanroblesvirtualawlibrary

We, however, find merit in the petitioner’s two other contentions. The denial by Judge Juan of the
petitioner’s motion to postpone the pre-trial scheduled on February 5, 1980 may have appeared
valid at the outset, considering that it was filed at the last minute and was not accompanied by a
medical certificate although the ground alleged was illness on the part of the petitioner.
Nonetheless, a different appraisal of the petitioner’s plea should have been made after the
petitioner filed a motion for reconsideration which was made under oath. Due regard should have
been given to the repeated pronouncements by this Court against default judgments and
proceedings that lay more emphasis on procedural niceties to the sacrifice of substantial justice.
After all, the ex-parte presentation of evidence had not yet been conducted nor had a decision been
rendered in the case. It appeared to be a simple matter of giving the petitioner a chance to have his
day in court in order to defend himself against the claim filed by the private Respondent. As it
turned out, the procedure adopted by the trial court proved unprofitable and disadvantageous to all
parties concerned, including the courts. The case would have been disposed of in a much easier and
more expeditious manner if the trial court had heeded the petitioner’s simple plea for a chance to be
heard. Thereby, all the proceedings taken subsequent to the disputed orders of the trial court could
have been avoided, and the Court of Appeals and the Supreme Court spared from the trouble of
resolving the petitions filed before them.

The petitioner also has valid reason to complain about the apparent overanxiousness of the trial
court to finish the case in summary fashion. The petitioner bad manifested to the Court that his
inability to appear before the pre-trial was due to a sudden ailment that befell him while he was
preparing to go to Court. While it is true that the motion for postponement was not accompanied by
a medical certificate, it must be considered that not every ailment is attended to by a physician, or
if so, a medical certificate under oath as required by the Rules could be secured within the limited
time available. There has been no refutation of the cause of the non-appearance of the petitioner as
claimed by the latter. Said cause had been reiterated under oath in the petitioner’s motion for
reconsideration to which the trial court turned a deaf ear. Any suspicion that the petitioner was
merely suing for delay is readily dispelled by the fact that the pre-trial was being set for the first
time, and that the petitioner took immediate steps against the refusal of the trial court to set aside
the default declaration and to pursue remedies steadfastly against the same in the higher tribunals.

The declaration default on the part of the petitioner may not be considered as entirely proper under
the circumstances surrounding the same. It is undenied that nobody appeared at the pre-trial
except the counsel for the private Respondent. Under settled doctrines, not even the private
respondent may be considered as having appeared at the said pre-trial, it not having made
appearance thereat through a duly authorized representative. In such a situation, the trial court
would have acted more properly if it dismissed the case, or declared the private respondent as
plaintiff therein as non-suited, instead of declaring the petitioner as in default (erroneously stated
by it as "non-suited.") This is because while the court may declare the plaintiff non-suited for non-
appearance at the pre-trial or dismiss the case for his non-appearance at the trial without motion on
the part of the defendant (Sec. 3, Rule 17), the latter may not be declared in default without such
motion on the part of the plaintiff. (Sec. 1. Rule 18; Trajano v. Cruz, 80 SCRA 712.) A plaintiff who
makes no valid appearance at pre-trial may not ask that the defendant be punished for the same
shortcoming it was equally guilty of.

WHEREFORE, the judgment of the Court of Appeals rendered in CA-G.R. No. 10649 promulgated on
August 29, 1980, and the Resolution issued in said case dated March 29, 1981 which denied a
motion for the reconsideration of the said judgment are hereby REVERSED and SET ASIDE. The
orders of the Court of First Instance of Manila in Civil Case No. 126113 dated February 5, 1980 and
February 26, 1980 are ordered ANNULLED and SET ASIDE. Let the said case be rescheduled for pre-
trial and for subsequent proceedings thereafter. Costs against the private Respondent. chanrobles lawlibrary : rednad

SO ORDERED.
PHILIPPINE AIRLINES, INC., G.R. No. 143088
MANOLO AQUINO, JORGE
MA. CUI, JR. and PATRICIA Present:
CHIONG,
Petitioners, PUNO, J., Chairperson,
SANDOVAL-GUTIERREZ,
CORONA,
-versus- AZCUNA, and
GARCIA, JJ.
Promulgated:
FLIGHT ATTENDANTS AND
STEWARDS ASSOCIATION OF
THE PHILIPPINES (FASAP) and January 24, 2006
LEONARDO BHAGWANI,
Respondents.
x----------------------------------------------------------------------------------------x

DECISION
AZCUNA, J.:

This petition for review on certiorari under Rule 45 of the Rules of

Court presents a recurring question regarding the Courts
requirement of a certification of non-forum shopping.

Petitioners Philippine Airlines, Inc. (PAL) and Manolo Aquino,

Jorge Ma. Cui, Jr. and Patricia Chiong, in their capacity as Executive
Vice-President Administration and Services, Manager International
Cabin Crew and Assistant Vice-President Cabin Services,
respectively, are before the Court seeking the reversal of the
resolution of the Court of Appeals in C.A. G.R. No. SP-56850,
dated January 31, 2000, dismissing their appeal and the resolution
of May 11, 2000, denying the motion for reconsideration.

The facts on the conflict between PAL and respondents Flight

Attendants and Stewards Association of the Philippines (FASAP) and
Leonardo Bhagwani are not necessary for the Courts resolution of the
petition. It is enough to state that on May 14, 1997 FASAP and
Leonardo Bhagwani filed a complaint for unfair labor practice, illegal
suspension and illegal dismissal against petitioners before the Labor
Arbiter of the National Labor Relations Commission (NLRC). The
Labor Arbiter rendered a decision holding that PAL committed
unfair labor practice and illegal dismissal of Bhagwani and,
consequently, ordered the payment of damages. The NLRC later
modified the decision by setting aside the finding that PAL was
guilty of unfair labor practice, but affirming the rest of the decision.

What is relevant to the case is the subsequent appeal to the

Court of Appeals. When petitioners filed a petition for certiorari
against the decision with the Court of Appeals, it was accompanied
by a Certification of Non-Forum Shopping executed by Cesar R.
Lamberte and Susan Del Carmen, Vice-President Human Resources
and Assistant Vice-President Cabin Services of PAL, respectively,
who are not parties to the case. The certification, however, was
without proof that the two affiants had authority to sign in behalf of
petitioners. As a result, the Court of Appeals dismissed the case for
failure to show the authority of affiants to sign for PAL and for
failure of the other petitioners to join in the execution of the
certification. A motion for reconsideration was filed with a Secretarys
Certificate attached evidencing that affiants Cesar R. Lamberte and
Susan Del Carmen have been authorized by Board Resolution No. 00-
02-03 to initiate and/or cause to be filed on behalf of PAL petitions
and pleadings in all labor-related cases. As to the other petitioners, it
was argued that they are mere nominal parties so that their failure to
execute the certification does not justify dismissal of the petition.
Despite this submission, the Court of Appeals denied the motion for
reconsideration. Hence, the case is now before this Court.

The petition is without merit.

The necessity for a certification of non-forum shopping in filing

petitions for certiorari is found in Rule 65, Section 1, in relation to
Rule 46, Section 3 of the Rules of Court. These provisions require it to
be executed by the corresponding petitioner or petitioners. As no
distinction is made as to which party must execute the certificate, this
requirement is made to apply to both natural and juridical
entities.[1] When the petitioner is a corporation, the certification
should be executed by a natural person. Furthermore, not just any
person can be called upon to execute the certification, although such
a person may have personal knowledge of the facts to be attested
to.[2]

This Court has explained that a corporation has no power

except those conferred on it by the Corporation Code and those that
are implied or incidental to its existence. The exercise of these powers
is done through the board of directors and/or duly authorized
officers and agents. Given these corporate features, the power of a
corporation to sue in any court is generally lodged with the board of
directors. The board, in turn, can delegate the physical acts needed to
sue, which may be performed only by natural persons, to its
attorneys-in-fact by a board resolution, if not already authorized
under the corporate by-laws.[3]

Thus, only individuals vested with authority by a valid board

resolution may sign the certificate of non-forum shopping in behalf of
a corporation. In addition, the Court has required that proof of said
authority must be attached. Failure to provide a certificate of non-
forum shopping is sufficient ground to dismiss the petition. Likewise,
the petition is subject to dismissal if a certification was submitted
unaccompanied by proof of the signatorys authority.[4]

The petition filed with the Court of Appeals had a certification

of non-forum shopping executed by Cesar R. Lamberte and Susan
Del Carmen. The certification, however, was without proof of
authority to sign. When a motion for reconsideration was filed, a
Secretarys Certificate was submitted as proof that the board of
directors of PAL had authorized the two to execute the certificate.
Nonetheless, the Court finds that this belated submission is an
insufficient compliance with the certification requirement.

This Court has allowed the reinstatement of petitions that were

dismissed due to lack of proof of authority to sign the certification
upon its subsequent submission, saying that this amounted to
substantial compliance. The rationale was that the signatories, at the
time of execution of the certification, were in fact authorized to sign,
although proof of their authority was lacking.[5]

This is not what happened in this case. A perusal of the

Secretarys Certificate submitted reveals that the authority to cause
the filing of the petition was granted on February 15, 2000.[6] The
petition, on the other hand, was filed on January 24, 2000 and was
dismissed by the Court of Appeals on January 31, 2000. This means
that at the time the certification was signed, Cesar R. Lamberte and
Susan Del Carmen were not duly authorized by the Board of
Directors of PAL and, consequently, their signing and attestations
were not in representation of PAL. This effectively translates to a
petition that was filed without a certification at all as none was issued
by PAL, the principal party to the case.

The required certification of non-forum shopping must be valid

at the time of filing of the petition. An invalid certificate cannot be
remedied by the subsequent submission of a Secretarys Certificate
that vests authority only after the petition had been filed.
 e defendant, the Court notes that the defendant heavily relies
on the argument that the subject letter of guarantee executed by
Alfredo Asuncion is void for lack of authority from the PNCC
Board of Directors. This is misplaced in light of the fact that
when a corporation such as the defendant in this case presents an
officer to be the duly authorized signatory to a document coupled
with submission of a duly notarized Secretarys Certificate said
third party has every right to rely on the regularity of actions
done by said corporation. . . .

xxx

As regards the issue of whether or not the condition

precedent for filing the instant suit has not been complied with,
the [C]ourt finds the contention asserted by defendant to be
bereft of merit. In setting up this ground of prematurity,
defendant argues that plaintiff failed to comply with the
provisions on arbitration embodied in the advance agreement
executed on August 9, 1978 and loan Agreement executed
on May 19, 1980. Apparently however, this case is being filed
against defendant PNCC under the letters of guarantee [sic].
[P]laintiff is not filing this case against CDCP-M under the loan
agreement and the advance payment agreement entered between
Marubeni and CDPM wherein [sic] arbitration clauses are
provided.
xxx

Lastly, the defendant contended that the plaintiff has no legal

capacity to sue and in support thereof it claims that RADSTOCK
is engaged in business in the Philippineswithout any proof that it
has a required license. This argument is erroneous. The plaintiff
in this case is suing on an isolated transaction. As correctly stated
by the Plaintiff, it does not intend to engage in any other business
in the Philippines except to sue and collect what has been
assigned to it by Marubeni Corporation.

If error had been committed by the trial court, it was not of the
character of grave abuse that relief through the extraordinary remedy
of certiorari may be availed. Indeed, the grounds relied upon by PNCC
are matters that are better threshed out during the trial since they can only
be considered after evidence has been adduced and weighed.
With its affirmative defenses thus disposed of, the settlement by means of
the compromise agreement would surely work to the benefit of PNCC and
its stockholders.

IV
Compromise Agreement Was Not Contrary to Law,
Morals, Good Customs, Public Order and Public Policy

Was the compromise agreement between PNCC and

Radstock contrary to law, morals, good customs, public order and public
policy?

A
Compromise Agreement Did Not
Require Congressional Approval

During the oral arguments held on January 13, 2009, a concern about
the validity of the compromise agreement due to the lack of presidential or
congressional approval was raised. Allegedly, the lack of presidential or
congressional approval contravened the law, particularly Section 20, Chapter
4, Sub-Title B, Title 1, Book 5, of Executive Order No. 292,[55] which
required such approval in the disposition of properties valued at more
than P100,000.00.[56]

I contend and hold that the cited law did not apply, considering that
the liability of PNCC to Radstock was not yet settled at the time of the
execution of the compromise agreement.

In Benedicto v. Board of Administrators of Television

Stations and Guingona, Jr. v. PCGG,[57] the Court clarified that Section 20,
Chapter 4, Sub-Title B, Title 1, Book 5, of Executive Order No. 292, was
applicable only to a settled claim or liability, to wit:

Prior congressional approval is not required for the PCGG to enter

into a compromise agreement with persons against whom it has filed
actions for recovery of ill-gotten wealth. Section 20, Chapter 4, Subtitle B,
 Title I, Book V of the Revised Administrative Code of 1987 (E.O. No.
292) cited by Senator Guingona is inapplicable as it refers to a settled
claim or liability. The provision reads:

Section 20. Power to Compromise Claims.

(1) When the interest of the Government so requires, the

Commission may compromise or release, in whole or in
part, any settled claim or liability to any government agency not
exceeding ten thousand pesos arising out of any matter or case
before it or within its jurisdiction, and with the written approval
of the President, it may likewise compromise or release any
similar claim or liability not exceeding one hundred thousand
pesos. In case the claim or liability exceeds one hundred
thousand pesos, the application for relief therefrom shall be
submitted, through the Commission and the President, with their
recommendations, to the Congress;
xxx xxx xxx

The Governments claim against Benedicto is not yet settled, and the
ownership of the alleged ill-gotten assets is still being litigated in the
Sandiganbayan. Hence, the PCGGs compromise agreement with
Benedicto need not be submitted to the Congress for approval. (Underline
supplied for emphasis)

The exception of a compromise or release of a claim or liability yet to

be settled from the requirement for presidential and congressional approval
is realistic and practical. In a settlement by compromise agreement, the
negotiating party must have the freedom to negotiate and bargain with the
other party. Otherwise, tying the hands of the Government representative by
requiring him to submit each step of the negotiation to the President and to
Congress will unduly hinder him from effectively entering into
any compromise agreement.

The majority opinion stresses that Benedicto v. Board of

Administrators of Television Stations is inapplicable, arguing that the claim
in Benedicto was not yetsettled because no party therein ever admitted
liability, while the claim subject of this case was already settled upon the
PNCC Boards recognition of PNCCs obligation to Marubeni.
 I cannot agree with the majority, considering that the recognition by
PNCC of its obligation to Marubeni did not signify that the claim was
already settled. On the contrary, the claim of Marubeni was far from settled,
inasmuch as it still became the subject of litigation in the courts in which
PNCC resisted liability by pleading various defenses. In fact, the PNCC
Boards resolution dated June 19, 2001 essentially revoked the previous
resolutions (i.e., Resolution No. BD-092-2000 and Resolution No. BD-099-
2000) recognizing PNCCs debts to Marubeni.

The majority hold that the PNCC Board had no autonomous power to
compromise. They cite Section 36(2) of Presidential Decree (P.D.) 1445
(Government Auditing Code of the Philippines), which requires the express
grant by the charters of the government-owned or government-controlled
corporations (GOCCs) involved of the power to enter into compromise
agreements, and insist that nowhere in P.D. 1113, as amended, was the
PNCCs Board given the authority to enter into compromise agreements.
Thus, they conclude that the compromise agreement was illegal.

With all due respect, I believe that the majority err.

Firstly, it is incorrect to state that P.D. 1113 and its amendatory law,
P.D. 1894, constituted the charter of PNCC, because said laws merely
granted to PNCC a secondary franchise. The existence of PNCC was
independent of the operation of said laws. Hence, the silence of P.D. 1113
and P.D. 1894 on the grant to PNCC of the power to enter into compromise
agreements was irrelevant.

It becomes appropriate to stress, for purposes of clarity, that

the primary franchise of a corporation should not be confused with
its secondary franchise, if any. According to J.R.S. Business Corp. v.
Imperial Insurance, Inc.:[58]

For practical purposes, franchises, so far as relating to corporations,

are divisible into (1) corporate or general franchises; and (2) special or
secondary franchises. The former is the franchise to exist as a
corporation, while the latter are certain rights and privileges
conferred upon existing corporations, such as the right to use the
 streets of a municipality to lay pipes or tracks, erect poles or string
wires.

The distinction between the two franchises of a corporation should

always be delineated. The primary franchise (or the right to exist as such) is
vested in the individuals composing the corporation, not in the corporation
itself, and cannot be conveyed in the absence of a legislative authority to do
so; but the special or secondary franchise of a corporation is vested in the
corporation itself, and may ordinarily be conveyed or mortgaged under a
general power granted to the corporation to dispose of its property, except
such special or secondary franchises as are charged with a public use.[59]

The general law under which a private corporation is formed or

organized is the Corporation Code, whose requirements must be complied
with by individuals desiring to incorporate themselves. Only upon such
compliance will the corporation come into being and acquire a juridical
personality, as to give rise to its right to exist and to act as a legal entity.
This right is a corporations primary franchise. In contrast, a government
corporation is normally created by special law, often referred to as
its charter.[60]
And, secondly, PNCC, prior to its acquisition by the Government, was
a private corporation organized under the Corporation Code, and, as such, it
was governed by the Corporation Code and its own articles of incorporation.
This fact has been judicially recognized in PNCC v. Pabion,[61] to wit:

xxx GOCCs may either be (1) with original charter or created by

special law; or (2) incorporated under general law, via either the Old
Corporation Code or the New Corporation Code.

xxx xxx xxx

xxx, we have no doubt that over GOCCs established or

organized under the Corporation Code, SEC can exercise jurisdiction.
These GOCCs are regarded as private corporations despite common
misconceptions. That the government may own the controlling shares
in the corporation does not diminish the fact that the latter owes its
existence to the Corporation Code. More pointedly, Section 143 of the
Corporation Code gives SEC the authority and power to implement its
provisions, specifically for the purpose of regulating the entities created
 pursuant to such provisions. These entities include corporations in which
the controlling shares are owned by the government or its agencies.

Glaringly erroneous, therefore, is petitioner's reliance on Quimpo

v. Tanodbayan and its theory that it is immaterial "whether a corporation
is acquired by purchase or through the conversion of the loans of the GFIs
into equity in a corporation [because] such corporation loses its status as a
private corporation and attains a new status as a GOCC." First, based on
the discussion above, PNCC does not "lose" its status as a private
corporation, even if we were to assume that it is a GOCC. Second,
neither would such loss of status prevent it from being further
classified into an acquired asset corporation, as will be discussed
below.

xxx xxx xxx

Lest the focus of our disposition of this case be lost in the maze of
arguments strewn before us, we stress that PNCC is a corporation
created in accordance with the general corporation statute. Hence, it
is essentially a private corporation, notwithstanding the government's
interest therein through the debt-to-equity conversion imposed by PD
1295. Being a private corporation, PNCC is subject to SEC regulation and
jurisdiction.

Not being a government corporation created by special law, PNCC

does not owe its creation to some charter or special law, but to the Corporati
on Code. Its powers are enumerated in the Corporation Code[62] and its
articles of incorporation. As an autonomous entity, it undoubtedly has the
power to compromise and to enter into a settlement through its Board of
Directors, just like any other private corporation organized under
the Corporation Code. To maintain otherwise is to ignore the character of
PNCC as a corporate entity organized under the Corporation Code, by
which it was vested with a personality and an identity distinct and separate
from those of its stockholders or members.[63]

B
Public Bidding Was not Required
 Sison opposes the disposition of PNCCs assets through
the compromise agreement as against public policy for lack of a public
bidding.

I cannot agree with Sison.

The rationale for requiring a public bidding is the need to prevent the
Government from being shortchanged by minimizing the occasions for
corruption and the temptations to commit abuse of discretion on the part of
government authorities.[64]

As a rule, divestment or disposal of government property should be

undertaken primarily through public bidding. The mode of disposition of
Government properties and assets is not limited to public bidding, however,
because there are recognized exceptions, including when public bidding is
not the most advantageous means for the Government to divest or dispose of
its properties.

The compromise agreement was not entered into one-sidedly in favor

of Radstock, for, as in all compromises, it involved reciprocal concessions
from both parties. PNCCs decision to enter into the compromise
agreement was apparently an exercise of a business judgment to advance its
interests. The obvious direct consequence of the compromise agreement was
to limit PNCCs adjudged liability of P13,151,956,528 (which would
be higher due to increments from interest charges) to a
lesser liability of P6,185,000,000. Under the circumstances, the compromise
agreement could not be considered as disadvantageous to PNCC and the
National Government.

The Court itself referred the compromise agreement to the COA, the
primary guardian of public accountability. In due time, the COA
recommended the approval of the compromise agreement, stating in
its compliance dated October 3, 2006 submitted to the Court,[65] thus:
 The Government Accounting and Auditing Manual (GAAM)
Volume I, prescribed under COA Circular No. 91-368 dated January 1,
1992, specifically under Title 7, Chapter 3 thereof, primarily governs the
disposal/divestment of government assets. Section 501 of the said Chapter
states:

Sec. 501. Authority or responsibility for property

disposal/divestment. The full and sole authority and
responsibility for the divestment and disposal of property and
other assets owned by the national government agencies or
instrumentalities, local government units and government-owned
and/or controlled corporations and their subsidiaries shall be
lodged in the heads of the departments, bureaus, and offices of
the national government, the local government units and the
governing bodies or managing heads of government-owned or
controlled corporations and their subsidiaries conformably to
their respective corporate charters or articles of incorporation,
who shall constitute the appropriate committee or body to
undertake the same.

The sale or disposal of the properties of the government is based on

their assessed value and not just on a percentage thereof. Admittedly, and
as discussed earlier, the audit guidelines under COA Circular No. 89-296
as reiterated in the Government Accounting and Auditing Manual are not
applicable in the herein case. Nonetheless, consistent with the objective of
public bidding, COA favors the disposal of government properties in the
amount most advantageous to the government. It is noted that the transfer
value of 70% of assessed value still falls within the standards set by
government financial institutions which invariably range from 70% to
100% of the appraised value for properties situated in urban areas. The
maximum percentage prescribed in Section 37 of Republic Act No. 8791,
the Banking Law of 2000, provides that loans and other credit
accommodations against real estate shall not exceed 75% of the appraised
value of the respective real estate security. Taking this into account and
the declared policy that the authority to dispose its assets is lodged with
the head of the entity, COA deems the herein transfer valuation
reasonable.

Under the regular procedure involving disposal of government

property, COA would have initially conducted an appraisal of the property
to determine its valuation. However, considering the exceptional
circumstances in the instant case, the appraisals performed by the
established independent appraisers are allowable. The parties engaged the
services of Royal Asia Appraisal Corporation, Cuervo Appraisers, Inc.,
Asian Appraisal Co., Inc. and Valencia Appraisal Corporation which are
 reputable appraisal firms. Even COA has had occasions to engage the
services of the last three independent appraisers mentioned above to help
ensure that the government will not be disadvantaged in any
manner. Hence, COA finds no reason to doubt the reasonableness of their
appraisal.

The other terms and conditions of the compromise agreement appear

to be fair and above board and COA finds no compelling grounds to
oppose the same. Accordingly, COA recommends the approval of the
parties compromise agreement appended in their Joint
[66]
Motion for Judgment Based on Compromise.

COA Circular No. 89-296 (dated January 27, 1989) relevantly

provides:

III. DEFINITION AND SCOPE: - These audit guidelines shall be

observed and adhered to in the divestment or disposal of property and
other assets of all government entities/instrumentalities, whether national,
local or corporate, including the subsidiaries thereof but shall not apply to
the disposal of merchandise or inventory held for sale in the regular course
of business nor to the disposal by government financial institutions of
foreclosed assets or collaterals acquired in the regular course of business
and not transferred to the National Government under Proclamation No.
50. They shall not also cover dation in payment as contemplated under
Article 1245 of the New Civil Code. [67]

In this regard, it is well to point out that the majority also invoke COA
Circular No. 89-296, citing Part V thereof entitled Modes of
Disposal/Divestment.

The cited rule does provide an exception. According to

COAs compliance, supra, the audit guidelines under COA Circular No. 89-
296 did not apply to the compromise agreement due to its being akin to
a dacion en pago. Under Article 1245 of the Civil Code, a dacion en pago or
a dation in payment involves the alienation of property to the creditor in
satisfaction of a debt in money. The modern concept of dation in payment
considers it as a novation by change of the object.[68] Thus, the compromise
agreement was a dacion en pago, in that a novation by a change of the
object took place due to the original obligation of PNCC to pay its liability
(adjudged in the amount of P13,151,956,528) being thereby converted into
another obligation whereby PNCC would transfer the real properties listed in
the compromise agreement to the qualified assignees nominated by
Radstock. Regardless of the pegging of the values of the listed properties at
specified amounts, the transfer to Radstocks assignees would already
constitute a performance of PNCCs obligations. In other words, the
obligation of PNCC to Radstock would be deemed fulfilled, although
Radstock might realize a lesser value from the assignees for the properties.

Verily, the dispositions made in the compromise agreement, being in

the nature of a dacion en pago, did not require public bidding. This
conclusion accords with the holding in Uy v. Sandiganbayan,[69] where the
Court sustained the argument of PCGG that the dacion en pago transactions
were beyond the ambit of COA Circular No. 89-296.

C
Expiration of PNCCS Legislative Franchise
Did Not Affect the Compromise Agreement

Sison argues that the legislative franchise granted to PNCC already

expired on May 1, 2007 and was not extended or renewed by Congress; that
upon the expiration of the legislative franchise of PNCC, all its assets,
including those derived from its operations, reverted to the National
Government; and that the disposition of PNCC funds under the compromise
agreement, being beyond the expiration of PNCCs franchise, would violate
the constitutional provision requiring an appropriation law for the
expenditure of National Government funds.

I consider Sisons submissions not well-taken.

Section 5 of Presidential Decree (P.D.) No. 1894,[70] amendatory of

P.D. No. 1113, PNCCs legislative franchise, provides:

Section 5. In consideration of this franchise, the GRANTEE shall:

(a) Construct, operate and maintain at its own expense the

Expressways; and
 (b) Turn over, without cost, the toll facilities and all
equipment, directly related thereto to the Government upon expiration of
the franchise period.[71]

The law is clear enough. The mandated reversion applied only

to the toll facilities and all equipment directly related thereto, and did not
extend to all the assets of PNCC. Sisons interpretation was plainly at war
with what the law itself explicitly contemplated. Worse, his interpretation
would nullify PNCCs right to due process as to its other assets, and even
tended to thwart the national policy to encourage the private sector to invest
and participate in public works involving toll operations.

P.D. No. 1894 likewise contemplated the continuance of PNCCs

tollways operations beyond the expiration of its legislative franchise on May
1, 2007. That is clear from Section 2 of P.D. No. 1894, which states:

Section 2. The term of the franchise provided under Presidential

Decree No. 1113 for the North Luzon Expressway and the South Luzon
Expressway which is thirty (30) years from 1 May 1977 shall remain the
same; provided that, the franchise granted for the Metro Manila
Expressway and all extensions linkages, stretches and diversions that may
beconstructed after the date of approval of this decree shall likewise have
a term of thirty (30) years commencing from the date of completion of the
project.

If the reversion covered all assets, PNCC would be unable to exist and
to continue to operate upon the expiration of its legislative franchise under
P.D. No. 1113.

Yet, the majority pointedly assert that Radstocks counsel already

admitted during the oral argument that all of PNCCs assets and properties
had reverted to the National Government.

The assertion of the majority is too sweeping. It ignores that the so-
called admission of Radstocks counsel was not, properly speaking, a judicial
admission that bound Radstock on the matter of reversion.
 To begin with, the statements in question made by Radstocks counsel
did not relate to facts, but to conclusions of law. Indeed, a judicial admission
is an admission made in the course of the proceeding in the same case,
verbal or written, by a party accepting for the purposes of the suit the truth
of some alleged fact, which said party cannot thereafter disprove.[72] Clearly,
the rule on admissions does not apply to a wrong interpretation
and mistaken application of the laws, and the Court is not to be bound by a
mistaken interpretation of the law made by a counsel, even if said
interpretation is adverse to the client.

Even granting, arguendo, that PNCCs secondary franchise

expired, all the properties and funds of PNCC might not automatically revert
to the National Government, to the detriment and in violation of the right to
due process of PNCCs private creditors, particularly those that transacted
with it when it was still a purely private corporation. We have always
sustained the view that a GOCC has a personality of its own, distinct and
separate from that of the National Government; and has all the powers of the
corporation under the Corporation Law pursuant to which it has been
established.[73] To accord with our precedent rulings, we should not declare
the PNCCs funds to be beyond reach for being by nature public funds of the
National Government.[74]

Secondly, the majority thereby sweep aside the principle of parity

between contracting parties. We ought to remember that when
the National Government enters into a commercial transaction, it abandons
its sovereign capacity and descends to the level of the other party, to be
treated like the latter. By engaging in a particular business through the
instrumentality of a corporation (that is, PNCC), therefore,
the National Government should be considered as divesting itself pro hac
vice of its sovereign character, so as to render the corporation subject to the
rules of law governing private corporations.[75] This is only fair.

Thirdly, to have all the properties and assets of PNCC deemed

reverted to the Government upon expiration of PNCCs franchise to operate
the tollways would definitely violate the right to due process of PNCCs
private creditors. Such a sudden change in the characterization of PNCCs
properties and assets from private to public would leave PNCCs private
creditors with very limited recourses, despite their valid claims.

Incidentally, the compromise agreement listed the properties to be

affected by the agreement between PNCC and Radstock, as follows:

1. PNCCs right over that parcel of land located

in Pasay City with a total area of 129,548 square meters,
more or less, particularly described in Transfer Certificate of
Title No. T-34997 of the Registry of Deeds for Pasay City.
The transfer value is P3,817,779,000.00;

2. T-452587 (T-23646) Paraaque (5,123 square meters) subject

to the clarification of the PMO claims thereon. The transfer
value is P45,000,900.00;

3. T-49499 (529715 including T-68146-G (S-29716) (1,9747-

A)-Paraaque (107 square meters) (54 square meters) subject
to the clarification of the PMO claims thereon. The transfer
value is P1,409,100.00;

4. 5(sic)-29716-Paraaque (27,762 square meters) subject to the

clarification of the PMO claims thereon. The transfer value
is P242,917,500.00;

5. P-169 Tagaytay (49,107 square meters). The transfer value

is P13,749,400.00;

6. P-170 Tagaytay (49,100 square meters). The transfer value

is P13,749,400.00;

7. N-3320Town and Country Estate; Antipolo (10,000 square

meters). The transfer value is P16,800,000.00;

8. N-7424 Antipolo (840 square meters). The transfer value

is P940,800.00;
 9. N-7425 Antipolo (850 square meters) The transfer value
is P952,000.00;

10. N-7426 Antipolo (958 square meters). The transfer value

is P1,073,100.00;

11. T-485276 Antipolo (741 square meters) The transfer value

is P830,200.00;

12. T-485277 Antipolo (741 square meters). The transfer value

is P761,600.00;

13. T-485278 Antipolo (701 square meters). The transfer value

is P785,400.00;

14. T-131500-Bulacan (CDCP Farms Corp.) (4,945 square

meters). The transfer value is P6,475,000.00;

15. T-131501-Bulacan (678 square meters). The transfer value

is P887,600.00;

16. T-26,154 (M) Bocaue, Bulacan (2,841 square meters) The

transfer value is P3,779,300.00;

17. T-29,308 (M) Bocaue, Bulacan (733 square meters). The

transfer value is P974,400.00;

18. T-29,309 (M) Bocaue, Bulacan (1,141 square meters). The

transfer value is P1,517,600.00; and

19. T- 260578 (R. Bengzon) Sta. Rita, Guiguinto, Bulacan

(20,000 square meters). The transfer value
is P25,2000,0000.00.

Rather than generalizing that all the aforecited properties reverted to

the National Government upon the expiration of PNCCs legislative
franchise, Sison should first establish in proceedings appropriate for the
purpose a premise for his jealously argued interpretation that such properties
were directly related to the operation and maintenance of the tollways
covered by its expired secondary franchise. Before that is done, it is not
reasonable to generalize on the matter. Consequently, Sisons insistence that
PNCC became a mere trustee of the National Government upon the
expiration of the legislative franchise is dismissed for being unfounded.

D
Toll Operation Certificate from TRB to PNCC
Was Legal Basis for PNCC to Collect and Appropriate
Revenues Generated from PNCC-operated Tollways
and Its Share in Gross Receipts of NLEX Tollway Development

Sison insists that upon the expiration of its legislative franchise,

PNCC could not validly dispose of the revenues collected from its operated
tollways and of its share in the gross receipts of the tollway development and
operation contractors, because such revenues and receipts already belonged
to the National Government.

However, the fact is that the Manila North Tollway Corporation

(MNTC), a joint-venture company between PNCC and Metro Pacific Group,
was granted a toll operation certificate (TOC) by the Toll Regulatory Board
(TRB) authorizing MNTC to operate and maintain the NLEX from 2005 to
2035 through its operations and maintenance company, the Tollway
Management Corporation (TMC).[76]

Sison counters that the TOC was not the equivalent of and could not
replace the legislative franchise of PNCC under P.D. No. 1849.

Sisons arguments are not persuasive.

Under P.D. No. 1112,[77] TRB has the following powers, among others:

Section 3. Powers and Duties of the Board. The Board shall have in
addition to its general powers of administration the following powers and
duties:
 (a) Subject to the approval of the President of the Philippines,
to enter into contracts in behalf of the Republic of the Philippines with
persons, natural or juridical, for the construction, operation and
maintenance of toll facilities such as but not limited to national highways,
roads, bridges, and public thoroughfares. Said contract shall be open to
citizens of the Philippines and/or to corporations or associations qualified
under the Constitution and authorized by law to engage in toll operations;

(b) Determine and decide the kind, type and nature of public
improvement that will be constructed and/or operated as toll facilities;

xxx xxx xxx

(e) To grant authority to operate a toll facility and to issue therefore

the necessary "Toll Operation Certificate" subject to such conditions as
shall be imposed by the Board including inter alia the following:[78]
xxx xxx xxx

Undoubtedly, TRB had the statutory authority to enter in behalf of the

National Government into a contract for the construction, operation and
maintenance of toll facilities; to determine and decide the kind, type, and
nature of public improvement to be constructed and operated as toll
facilities; and to issue a TOC to authorize a grantee to operate a toll facility.

In addition, P.D. No. 1894, amending P.D. No. 1113, invested TRB
with the jurisdiction and supervision over PNCC as the grantee with respect
to the Expressways, and the toll facilities necessarily appurtenant thereto. Its
Section 4 states, viz:

Section 4. The Toll Regulatory Board is hereby given jurisdiction

and supervision over the GRANTEE with respect to the Expressways, the
toll facilities necessarily appurtenant thereto and, subject to the provisions
of Section 8 and 9 hereof, the toll that the GRANTEE will charge the
users thereof.

By its issuance of the TOC, therefore, TRB was simply exercising its
powers under P.D. No. 1112. It did not thereby extend PNCCs legislative
franchise, which it could not legally do. Its issuance of the TOC was proper,
not ultra vires, even if the effect was to permit PNCC, through MNTC, to
continue to operate the toll facilities.
 In this jurisdiction, the power of administrative agencies to issue
operating permits or franchises to public utilities has long been
recognized. In Philippine Airlines v. Civil Aeronautics Board,[79] for
instance, the Court pronounced:

Given the foregoing postulates, we find that the Civil Aeronautics

Board has the authority to issue a Certificate of Public Convenience and
Necessity, or Temporary Operating Permit to a domestic air transport
operator, who, though not possessing a legislative franchise, meets all the
other requirements prescribed by law. Such requirements were enumerated
in Section 21 of R.A. 776.

There is nothing in the law nor in the Constitution, which indicates

that a legislative franchise is an indispensable requirement for an entity to
operate as a domestic air transport operator. Although Section 11 of
Article XII recognizes Congress control over any franchise, certificate or
authority to operate a public utility, it does not mean Congress has
exclusive authority to issue the same. Franchises issued by Congress are
not required before each and every public utility may operate. In many
instances, Congress has seen it fit to delegate this function to government
agencies, specialized particularly in their respective areas of public
service.

A reading of Section 10 of the same reveals the clear intent of

Congress to delegate the authority to regulate the issuance of a license to
operate domestic air transport services:

SECTION 10. Powers and Duties of the Board. (A) Except

as otherwise provided herein, the Board shall have the power to
regulate the economic aspect of air transportation, and shall have
general supervision and regulation of, the carriers, general sales
agents, cargo sales agents, and air freight forwarders as well as
their property rights, equipment, facilities and franchise, insofar
as may be necessary for the purpose of carrying out the provision
of this Act.[80]

Likewise, we said in Metropolitan Cebu Water District v. Adala:[81]

Moreover, this Court, in Philippine Airlines, Inc. vs. Civil

Aeronautics Board, has construed the term franchise broadly so as to
include, not only authorizations issuing directly from Congress in the form
 of statute, but also those granted by administrative agencies to which the
power to grant franchises has been delegated by Congress, to wit:

Congress has granted certain administrative agencies the

power to grant licenses for, or to authorize the operation of
certain public utilities. With the growing complexity of modern
life, the multiplication of the subjects of governmental
regulation, and the increased difficulty of administering the laws,
there is constantly growing tendency towards the delegation of
greater powers by the legislature, and towards the generally
recognized that a franchise may be derived indirectly from the
state through a duly designated agency, and to this extent, the
power to grant franchises has frequently been delegated, even to
agencies other than those of legislative in nature. In pursuance of
this, it has been held that privileges conferred by grant by local
authorities as agents for the state constitute as much a legislative
franchise as though the grant had been made by an act of the
Legislature. [82]

For its part, the Executive Department has also recognized the power
of TRB to issue the TOC to PNCC independently of the legislative franchise
that was due to expire on May 1, 2007. This recognition was reflected in the
opinion dated November 24, 1995 of then Justice Secretary Teofisto T.
Guingona, Jr., to wit:[83]

Upon re-examination of P.D. No. 1113 (PNCC Charter), as amended

by P.D. No. 1894, we reiterate the view expressed in Opinion No. 45, s.
1995 that TRB has no authority to extend the legislative franchise of
PNCC over the existing NSLE. However, TRB is not precluded under
Section 3(e) of P.D. No. 1112 (TRB Charter) to grant PNCC and its joint
venture partner the authority to operate the existing toll facility of the
NSLE and to issue therefore the necessary Toll Operation Certificate for a
period coinciding with the term of the proposed Metro Manila Skyway.

xxx xxx xxx

It should be noted that the existing franchise of PNCC over the

NSLE, which will expire on May 1, 2007, gives it the right, privilege and
authority to construct, maintain and operate the NSLE. The Toll Operation
Certificate which TRB may issue to the PNCC and its joint venture partner
after the expiration of its franchise on May 1, 2007 is an entirely new
authorization, this time for the operation and maintenance of the NSLE,
which is already an existing toll facility. In other words, the right of PNCC
and its joint venture partner, after May 1, 2007, to operate and maintain
 the existing NSLE will no longer be founded on its legislative franchise
which is not thereby extended, but on the new authorization to be granted
by the TRB pursuant to Section 3(e), abovequoted, of P.D. 1112. [84]

It serves well to note, too, that the TOC was not for the same project
covered by PNCCs legislative franchise under P.D. No. 1894, but for a new
project, the rehabilitation of the NLEX, which was completed in 2005. In the
effort to rehabilitate the NLEX, the MNTC incurred substantial costs. The
authority to collect reasonable toll fees from users of that expressway was
the consideration given to the MNTC as the tollway operator to enable it to
recoup the investment.

In this connection, the claim of the majority that Radstocks counsel

admitted during the oral arguments that an appropriation law was needed to
authorize the payment by PNCC out of the toll fees is unwarranted. The
supposed admission was apparently counsels response to the query of
whether the collection of toll fees went to the general fund of the National
Government. As such, the response was an expression of counsels
interpretation of the law, which, albeit sounding like an admission, has no
legal significance for purposes of this resolution. It hardly requires
clarification that an opinion on a matter of law given in the course of the
proceedings is not binding on the party on whose behalf it is made, because
the question of law is best left to the determination of the court.

Besides, the interpretation that the TRB could not contract out the
rehabilitation and expansion of existing government-owned public works,
particularly our national roads and highways, is unacceptable, because it will
wreak havoc to the operations and maintenance not only of the NLEX, but
also of other and future public constructions and developments. Similarly
unacceptable is an interpretation that the expiration of the franchise of
PNCC vis--vis the NLEX operated to bar PNCC or any other participating
private entity from collecting toll fees from the operations of the NLEX,
because it would unfairly outlaw the current operation of the MNTC, a joint-
venture company between PNCC and the Metro Pacific Group, which had
spent substantially for the rehabilitation and expansion works of the NLEX.
 At any rate, the majoritys interpretation will hinder the efforts of the
National Government, through the TRB, of effecting improvements in
existing national highways through the private sector, which will surely
hesitate to involve itself in projects in which it will not be permitted to
recoup or recover the substantial costs entailed in construction and
development.
Lastly, Sisons plea for the nullification of the compromise
agreement, on the ground of the invalidity of the assignment to Radstock of
the share of PNCC in the toll operation for the NLEX, has no basis. The
right of PNCC, through MNTC, to the revenues from the operation of the
tollways is to be deemed settled for purposes of these cases. We cannot
delve into whether or not the TOC issued to PNCC for the years from 2007
until 2035 was valid or not, because that is not a proper issue for the Court to
consider and decide herein. We should not forget that the issue was not
presented to the CA at the time it considered and approved the compromise
agreement. Besides, PNCC continued to have the right to the revenues from
the toll operation by authority of the TOC.

E
Compromise Agreement Is Not In Fraud
of the National Government

Another submission of Sison is that the disposition of PNCCs assets

through the compromise agreement would be in fraud of the National
Government, because Radstock would be thereby preferred to the National
Government in relation to the assets of PNCC, in violation of the credit
preference provided in the Civil Code. He avers that the satisfaction of the
PNCC obligation to the State or the National Government clearly takes
preference and has priority over the satisfaction of the obligation to
RADSTOCK; and that the terms of the compromise agreement which call for
the transfer of PNCC assets xxx to Radstock is in contravention of the order
and preference of credits under the New Civil Code, hence void.[85]

However, Sisons submission does not really show how the compromise
agreement would contravene the credit preference in favor of the National
Government.
 To begin with, the credit preference set by the Civil Code may not be
invoked herein to assail the compromise agreement, considering that these
cases were neither proceedings for bankruptcy or insolvency, nor general
judicial liquidation proceedings. Cogently, the Court explained when
preference of credit may be invoked in Development Bank of the Philippines
v. Secretary of Labor,[86] thus:

xxx A preference of credit bestows upon the preferred creditor an

advantage of having his credit satisfied first ahead of other claims which
may be established against the debtor. Logically, it becomes material only
when the properties and assets of the debtor are insufficient to pay his
debts in full; for if the debtor is amply able to pay his various creditors in
full, how can the necessity exist to determine which of his creditors shall
be paid first or whether they shall be paid out of the proceeds of the sale of
the debtors specific property? Indubitably, the preferential right of credit
attains significance only after the properties of the debtor have been
inventoried and liquidated, and the claims held by his various creditors
have been established.

In this jurisdiction, bankruptcy, insolvency and general judicial

liquidation proceedings provide the only proper venue for the enforcement
of a creditors preferential right xxx for these are in rem proceedings
binding against the whole world where all persons having interest in the
assets of the debtors are given the opportunity to establish their respective
credits.[87]

Nor will it be automatic for the National Government to be preferred

as to the assets of any individual or corporation in financial straits. In In Re:
Petition for Assistance in the Liquidation of the Rural Bank of Bokod
(Benguet), Inc., Philippine Deposit Insurance Corporation v. Bureau of
Internal Revenue,[88] the Court clarifies:

xxx The Government, in this case, cannot generally claim preference of

credit, and receive payments ahead of the other creditors of RBBI. Duties,
taxes, and fees due the Government enjoy priority only when they are with
reference to a specific movable property, under Article 2241 (1) of the
Civil Code, or immovable property, under Article 2242 (1) of the same
Code. However, with reference to the other real and personal property of
the debtor, sometimes referred to as free property, the taxes and
assessments due the National Government, other than those in Articles
 2241(1) and 2242 (1) of the Civil Code will come only in ninth place in
the order of the preference.[89]

Verily, any creditor who may feel aggrieved by the compromise

agreement (such that his rights over PNCCs assets may be prejudiced by
the compromise agreement) should initiate the proper proceedings to protect
his rights. Yet, no bankruptcy, insolvency, or general judicial liquidation
proceedings have been initiated or filed by any of PNCCs creditors. With
none, including the Government, having done so as yet, it is improper and
premature for Sison to cry fraud against the Government.

Secondly, Sison insists that PNCC was technically insolvent.[90]

Sisons insistence cannot be given any significance in relation to

the compromise agreement. The meanings of the
terms insolvent and insolvency have not been fixed, their definitions being
dependent upon the business or factual situation to which the terms are
applied.[91] Ordinarily, a person is insolvent when all his properties are not
sufficient to pay all of his debts.[92] This definition is the general and popular
meaning of the term insolvent. In this jurisdiction, the state of insolvency is
governed by special laws to the extent that they are not inconsistent with
the Civil Code.[93] In other words, the state of insolvency is primarily
governed by the Civil Code and subsidiarily by the Insolvency Law (Act No.
1956, as amended).[94]

Under Act No. 1956, there are two distinct proceedings by which to
declare a person insolvent, namely: a) the voluntary or debtor-initiated
proceedings;[95] and b) the involuntary or creditor-initiated proceedings,
which require that the petition be filed by three or more creditors.[96] The
judicial declaration that a person (either natural or juridical) is insolvent
produces legal effects, particularly on the disposition of the debtors
assets.[97] Until and unless there is an insolvency proceeding or a judicial
declaration that a person is insolvent, however, any state of insolvency of a
debtor remains legally insignificant as far as his capacity to dispose of his
properties is concerned. This capacity to dispose is not in itself iniquitous or
questionable, for the creditor is not meanwhile left without recourse. There
are remedies for the creditor in case any disposition of the debtors assets is
in fraud of creditors.

Should the creditors not feel that an insolvency or even rehabilitation

proceeding (in the case of corporations like PNCC) is appropriate or
beneficial for them, their decision to desist from commencing such
proceeding is a business judgment that fully lies within their
discretion. Without any proceeding being initiated by either the debtor or the
creditors, no court has the power to declare that a debtor is insolvent and to
bring to bear upon the debtor the legal consequences of the Insolvency
Law. A court that does so risks meddling in business affairs or policies that
are best left to those who know the appropriate actions to take and decide
what action or actions to take. A unilateral court intervention can result in a
premature cessation of business that can produce untoward and unexpected
effects on either or both the debtor and the creditors.

The Court may not even try to determine whether PNCC was
insolvent or not, considering that the original jurisdiction to take cognizance
of such issue does not pertain to the Court. Neither was such issue properly
raised in the lower courts. For sure, the term technically insolvent as applied
to PNCC cannot be competently ascertained in these cases. It is relevant to
note, however, that only the COA report has been made available to show
the financial condition of PNCC to the Court, but even said report favored
the approval of the compromise agreement.[98]

Thirdly, Sison argues that with the compromise agreement, PNCCs

business would wind down to merely the operation of the South Luzon
Expressway, the holding of shares in investee subsidiaries and affiliates, and
the minor participation in the gross receipt of the tollway development and
operation contractors.[99] He then concludes that the compromise
agreement would amount to transferring or disposing of substantially all of
the assets of PNCC, in violation of the requirement under Section 40 of
the Corporation Code for stockholders approval thereof.

The argument is fallacious, because it is based on a mistaken premise.

Section 40 of the Corporation Code provides:

Sec. 40. Sale or other disposition of assets. - Subject to the

provisions of existing laws on illegal combinations and monopolies, a
corporation may, by a majority vote of its board of directors or trustees,
sell, lease, exchange, mortgage, pledge or otherwise dispose of all or
substantially all of its property and assets, including its goodwill, upon
such terms and conditions and for such consideration, which may be
money, stocks, bonds or other instruments for the payment of money or
other property or consideration, as its board of directors or trustees may
deem expedient, when authorized by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock, or in
case of non-stock corporation, by the vote of at least to two-thirds (2/3) of
the members, in a stockholder's or member's meeting duly called for the
purpose. Written notice of the proposed action and of the time and place of
the meeting shall be addressed to each stockholder or member at his place
of residence as shown on the books of the corporation and deposited to the
addressee in the post office with postage prepaid, or served personally:
Provided, That any dissenting stockholder may exercise his appraisal right
under the conditions provided in this Code.

A sale or other disposition shall be deemed to cover substantially all

the corporate property and assets if thereby the corporation would be
rendered incapable of continuing the business or accomplishing the
purpose for which it was incorporated.

After such authorization or approval by the stockholders or

members, the board of directors or trustees may, nevertheless, in its
discretion, abandon such sale, lease, exchange, mortgage, pledge or other
disposition of property and assets, subject to the rights of third parties
under any contract relating thereto, without further action or approval by
the stockholders or members.

Nothing in this section is intended to restrict the power of any

corporation, without the authorization by the stockholders or members, to
sell, lease, exchange, mortgage, pledge or otherwise dispose of any of its
property and assets if the same is necessary in the usual and regular course
of business of said corporation or if the proceeds of the sale or other
disposition of such property and assets be appropriated for the conduct of
its remaining business.

In non-stock corporations where there are no members with voting

rights, the vote of at least a majority of the trustees in office will be
sufficient authorization for the corporation to enter into any transaction
authorized by this section. (28 1/2a) [100]
 The law defines a sale or disposition of substantially all assets and
property as one by which the corporation would be rendered incapable of
continuing the business or accomplishing the purpose for which it was
incorporated. Any disposition short of this will not need stockholder
action.[101] The text and tenor of Section 40, supra, are clear and do not
require interpretation, that the Court must not read any other meaning to the
law.

Sison himself admitted that even after the compromise agreement was
approved, PNCC still had assets by which to continue its
businesses.[102] Thus, because the assets to be covered by the compromise
agreement were not substantially all the assets of PNCC within the context
of Section 40, supra, the stockholders approval was not required. The
disposition through the compromise agreement, although involving a
substantial portion of the total assets, would not amount to the sale or
disposition of substantially all assets and property as to render PNCC
incapable of continuing the business or accomplishing the purpose for which
it was incorporated.

Fourthly, Sison contends that PNCC would be reduced to a holding

company, which would constitute an abandonment of the business for which
it was organized.

The contention is unfounded.

For one, the records before us show that PNCC is not abandoning the
business for which it was organized. PNCC sought a legislative franchise to
operate the NLEX, but it was not granted the franchise. PNCC was granted
the TOC by TRB, which authorized PNCC, through MNTC, to operate the
rehabilitated and extended NLEX.[103] PNCC currently operates tollways and
plans to enter into other tollways development projects.[104]

It is noteworthy that the COA, in its compliance submitted to the

Court,[105] recognized the efforts of PNCC to improve the latters operations:
 It is the assessment of the Government Corporate Counsel that
PNCC has only a 50-50 chance of winning the case, thus, entering into
a compromise agreement will spare the corporation from losing at least
P13 billion of its assets. COA shares the view that with this settlement, the
PNCC, armed with its remaining assets can start anew and pursue its plans
to revitalize its operations. [106]

Also, the investing corporation assumes risks in every business

venture. There may be many factors affecting the business that may force the
corporation to reduce or downsize its operations in the
meanwhile. Nonetheless, the downsizing of the operations does not mean the
abandonment of the business for which the corporation has been
organized. Accordingly, the wisdom of the execution of the compromise
agreement should not be questioned, absent any clear and convincing proof
establishing that the compromise agreement would truly render PNCC
incapable of continuing its business.

G
Compromise Agreement Does Not Violate
Constitutional Ban on Foreign Ownership of Land

The compromise agreement between PNCC and Radstock provides:

2. This Compromise amount shall be paid by PNCC to RADSTOCK

in the following manner:

a. PNCC shall assign to a third party assignee to be designated by

RADSTOCK all its rights and interests to the following real
properties provided the assignees shall be duly qualified to
own real properties in the Philippines:
xxx

Sison holds that this provision in the compromise agreement would

vest in Radstock, a foreign corporation, the rights of ownership over the 19
parcels of land listed in the compromise agreement and thereby violate the
constitutional provision prohibiting ownership by foreign entities of land in
the Philippines; that the right to assign rights and interests in real property is
an attribute of ownership; that Radstock would be, for all intents and
purposes, the beneficial owner of the real properties during the period from
the execution of the compromise agreement until the actual transfer of the
ownership of the properties to third parties designated by Radstock; and that
in the meantime PNCC would be holding the properties only in trust.

Section 7, Article XII of the 1987 Constitution reads:

Section 7. Save in cases of hereditary succession, no private

lands shall be transferred or conveyed except to individuals, corporations,
or associations qualified to acquire or hold lands of the public domain.

Sisons submissions are unacceptable.

In interpreting the aforecited provision of the Constitution, the following

instruction given in J.M. Tuason & Co. Inc. v. Land Tenure
Administration[107] is useful:

We look to the language of the document itself in search for its

meaning. We do not of course stop there, but that is where we begin. It is
to be assumed that the words in which constitutional provisions are
couched express the objective sought to be attained. They are to be given
their ordinary meaning except where technical terms are employed in
which case the significance thus attached to them prevails. As the
Constitution is not primarily a lawyers document, it being essential for the
rule of law to obtain that it should ever be present in the peoples
consciousness, its language, as much as possible, should be understood in
the sense they have in common use. What it says according to the text of
the provision construed compels acceptance and negates the power of the
courts to alter it, based on the postulate that the framers and the people
mean what they say. Thus there are cases where the need for construction
is reduced to a minimum.

Well-settled principles of constitutional construction are also firm guides for

interpretation. These principles are reiterated in Francisco v. The House of
Representatives,[108] to wit:

First, verba legis, that is, wherever possible, the words used in the
Constitution must be given their ordinary meaning except where technical
terms are employed. xxx.

xxx xxx xxx

 Second, where there is ambiguity, ratio legis et anima. The words of
the Constitution should be interpreted in accordance with the intent of the
framers. xxx.

Finally, ut magis valeat quam pereat. The Constitution is to be

interpreted as a whole.

A plain reading of the aforecited provision of the Constitution and

the compromise agreement does not support the conclusion that the latter
violates the former.The compromise agreement nowhere stated that any
lands or real properties are to be transferred to Radstock, or any non-
qualified person. Indeed, the transfer of any lands or real properties
contemplated by the compromise agreement is in favor of a party duly
qualified to own and hold real properties under the Constitution. The
arrangement would not give to Radstock any right other than to
designate qualified assignees, who should only be a Filipino citizen, or a
corporation organized under the Philippine law, but with at least 60%
Filipino equity. During the time that Radstock would be looking for
qualified assignees, ownership over the real properties subject of
the compromise agreement would not be transferred to it, but would remain
with PNCC.

Although it may be argued that the right to designate the qualified

assignee to the property is an attribute of ownership, it does not necessarily
follow that the presence of such right already means that the person holding
the right has become the owner of the property. There is more to ownership
than being able to designate an assignee for the property. The attributes of
ownership are: jus utendi (right to possess and enjoy), jus fruendi (right to
the fruits), jus abutendi (right to abuse or consume), jus disponendi (right to
dispose or alienate), and jus vindicandi (right to recover or vindicate).[109] An
owner of a thing or property may agree to transfer, assign, or limit the rights
attributed to his ownership, but this does not mean that he loses his
ownership over the thing. Accordingly, one may lease his property to others
without affecting his title over it; or he may enter into a contract limiting his
enjoyment or use of the property; or he may bind himself to first offer a
thing for sale to a particular person before selling it to another; or he may
agree to let another person designate an assignee to whom the property will
be transferred or sold in consideration of an obligation. In any of such
situations, there is no actual or legal transfer of ownership, for ownership
still pertains, legally and for all intents and purposes, to the owner, not to the
other person to whom an attribute of ownership has been transferred.

Nowhere in the compromise agreement is Radstock given any of the

attributes of ownership, like the right to control and use the properties, or the
right to benefit from the properties (e.g., rent), or the right to exclude others
from the properties, or, for that matter, any other right of an owner. Neither
is Radstock thereby put in any position to demand or to ask PNCC to lease
the properties to an assignee. What it has under the compromise
agreement is only the right to designate a qualified assignee for the property.

It is also wrong for Sison to insist that the compromise

agreement would create a trust relationship between PNCC and Radstock.
Trust is the legal relationship between one person having an equitable
ownership in property and another person owning the legal title to such
property, the equitable ownership of the former entitling him to the
performance of certain duties and the exercise of certain powers by the
latter.[110] By definition, trust relations between parties are either express or
implied.[111] Express trusts are created by the direct and positive acts of the
parties, by some writing or deed, or will, or by words evincing
an intention to create a trust.[112]

The compromise agreement would not vest in Radstock any equitable

ownership over the property. The required performance of certain duties by
PNCC (mainly the transfer of the real properties to the qualified assignees
nominated by Radstock) under the compromise agreement would not
emanate from Radstocks equitable ownership, which Radstock would not
have. The performance of such duty would not arise either upon the approval
of the compromise agreement, but upon the fulfillment by Radstock of its
obligation to nominate the qualified assignees. PNCC and Radstock had no
intention to create a trust, because the circumstances of the transaction
negated the formation of a trust agreement between them resulting from
the compromise agreement.
 On the assumption, for the sake of argument, that the compromise
agreement gives Radstock a right that is an attribute of ownership, such
grant may still be justified nonetheless by the totality of the circumstances as
the end result of the whole operation of the compromise agreement; and, as
such, it would still be consistent with, not violative of, the constitutional ban
on foreign ownership of lands. In La Bugal-BLaan Tribal Association, Inc.
v. Ramos,[113] the Court ratiocinated:
Petitioners sniff at the citation of Chavez v. Public Estates Authority,
and Halili v. C.A., claiming that the doctrines in these cases are wholly
inapplicable to the instant case.

Chavez clearly teaches: Thus, the Court has ruled consistently that
where a Filipino citizen sells land to an alien who later sells land to a
Filipino, the invalidity of the first transfer is corrected by the
subsequent sale to a citizen. Similarly, where the alien who buys the land
subsequently acquires Philippine citizenship, the sale is validated since the
purpose of the constitutional ban to limit land ownership to Filipinos has
been achieved. In short, the law disregards the constitutional
disqualification of the buyer to hold land if the land is subsequently
transferred to a qualified party, or the buyer himself becomes a
qualified party.

In their Comment, petitioners contend that in Chavez and Halili, the

object of the transfer (the land) was not what was assailed for alleged
unconstitutionality. Rather, it was the transaction that was assailed; hence
subsequent compliance with constitutional provisions would cure its
infirmity. In contrast, the instant case it is the FTAA itself, the object of
the transfer, that is being assailed as invalid and unconstitutional. So,
petitioners claim that the subsequent transfer of a void FTAA to a Filipino
corporation would not cure the defect.

Petitioners are confusing themselves. The present Petition has been

filed, precisely because the grantee of the FTAA was a wholly owned
subsidiary of a foreign corporation. It cannot be gainsaid that anyone
would have asserted that the same FTAA was void if it had at the outset
been issued to a Filipino corporation. The FTAA, therefore, is not per se
defective or unconstitutional. It was questioned only because it has been
issued to an allegedly non-qualified, foreign-owned corporation.

We believe that this case is clearly analogous to Halili, in which the

land acquired by a non-Filipino was re-conveyed to a qualified vendee and
the original transaction was thereby cured. Paraphrasing Halili, the same
rationale applies to the instant case: assuming arguendo the invalidity
 of its prior grant to a foreign corporation, the disputed FTAA - being
now held by a Filipino corporation - can no longer be assailed; the
objective of the constitutional provision - to keep the exploration,
development and utilization of our natural resources in Filipino hands
- has been served.

More accurately speaking, the present situation is one degree

better than obtaining in Halili, in which the original sale to a non-
Filipino was clearly and indisputably violative of the constitutional
prohibition and thus void ab initio. In the present case, the
issuance/grant of the subject FTAA to the foreign-owned WMCP was
not illegal, void or unconstitutional at the time. The matter had to be
brought to court, precisely for adjudication as to whether the FTAA and
the Mining Law had indeed violated the Constitution. Since up to this
point, the decision of this Court declaring the FTAA void has yet to
become final, to all intents and purposes, the FTAA must be deemed valid
and constitutional.

The situation herein is even more favorable than that in La

Bugal. Firstly, the compromise agreement does not attempt to transfer any of
the subject real properties to any non-qualified person. The title or
ownership of the lands is to be transferred only upon designation by
Radstock of a qualified assignee, and the transfer is to be effected by PNCC
directly to the assignee, without the title passing to Radstock in the
interim. Secondly, the compromise agreement does not attempt to create any
kind of title over the properties in favor of Radstock. It simply allows
Radstock to designate a qualified assignee to whom the properties may be
assigned or transferred. It does not give any other right to Radstock. Thirdly,
the arrangement may even be more beneficial to PNCC, considering that
PNCC gets to settle its much lessened obligation for a definite and sure
amount of 75% of the assessed values of the subject properties, regardless of
the price that Radstock gets from its designated assignee. Incidentally, this is
a better bargain for PNCC (and ultimately for the Government), compared to
a bidding out of the properties in which there are ever-present risks of
recovering a much lower value). Fourthly, the arrangement transfers from
PNCC to Radstock the obligation and task of looking for a qualified
assignee of the properties. And, lastly, the present case involves a series of
interrelated and dependent transactions that will always result in a situation
not inconsistent with the Constitution, considering that the assignee will
always be a qualified person or entity.

H
The Obligation of PNCC to
Marubeni Was Established

In the RTC, PNCC urged the following grounds as affirmative

defenses, namely: 1) that the plaintiff had no capacity to sue; 2) that the loan
obligation had already prescribed, because no valid demand had been made;
and 3) that the letter of guarantee had been signed by a person not authorized
by a valid board resolution.

On appeal (C.A.-G.R. SP No. 66654), PNCC raised the same grounds,

to wit: 1) that the cause of action was barred by prescription; 2) that the
pleading asserting the claim stated no cause of action; 3) that the condition
precedent for the filing of the instant suit had not been complied with; and 4)
that the plaintiff had no legal capacity to sue.
As the excerpts of the Courts decision in G.R. No. 156887
show, the defense of prescription of the claim and the other defenses of
[114]

PNCC were passed upon, and the Court upheld the CAs affirmance of the
RTCs denial of PNCCs motion to dismiss based on such
defenses. The ruling in G.R. No. 156887 bars the re-litigation in these
consolidated cases of the same issues, particularly a bar by prescription,
because of the application of the doctrine of law of the case.
Law of the case is defined as the opinion delivered on a former appeal.
More specifically, it means that whatever is once irrevocably established as
the controlling legal rule between the same parties in the same
case continues to be the law of the case, whether correct on general
principles or not, so long as the facts on which such decision was predicated
continue to be facts of the case before the court,[115] notwithstanding that the
rule laid down may have been reversed in other cases.[116] Indeed, after the
appellate court has issued a pronouncement on a point presented to it with a
full opportunity to be heard having been accorded to the parties, that
pronouncement should be regarded as the law of the case and should not be
reopened on a remand of the case.[117]
The concept of the law of the case is explained in Mangold v. Bacon,[118] thus:
The general rule, nakedly and badly put, is that legal conclusions
announced on a first appeal, whether on the general law or the law as
applied to the concrete facts, not only prescribe the duty and limit the
power of the trial court to strict obedience and conformity thereto, but they
become and remain the law of the case in all after steps below or above on
subsequent appeal. The rule is grounded on convenience, experience, and
reason. Without the rule there would be no end to criticism, re-agitation,
re-examination, and reformulation. In short, there would be endless
litigation. It would be intolerable if parties litigant were allowed to
speculate on changes in the personnel of a court, or on the change of our
rewriting propositions once gravely ruled on solemn argument and handed
down as the law of a given case. An itch to reopen questions foreclosed on
a first appeal would result in the foolishness of the inquisitive youth who
pulled up his corn to see how it grew. Courts are allowed, if they so
choose, to act like ordinary sensible persons. The administration of justice
is a practical affair. The rule is a practical and a good one of frequent and
beneficial use.

Resultantly, the liability of PNCC to Radstock was established,

rendering the decision to enter into a compromise agreement a wise move on
the part of PNCC. The same result cannot be contemplated if the
nullification of the compromise agreement were decreed herein, because
PNCC would probably lose by an adjudgment against it of a larger liability.

I
The Resolution of PNCCs Board Recognizing
Its Obligation to Marubeni Bound PNCC

Board Resolution No. BD-092-2000 dated October 20, 2000 proves

that PNCC incurred an obligation in favor of Marubeni. PNCCs Board of
Directors would not have issued the resolution if the obligation was
unfounded, considering that the resolution admitted its liability, to wit:

RESOLUTION NO. BD-09202000

RESOLVED, That the Board recognizes, acknowledges and confirms

PNCCs obligations as of September 30, 1999 with the following entities,
 exclusive of interests and other charges that may subsequently accrue and
still become due therein, to wit:

a). the Government of the Republic of the Philippines in the amount of

P36,023,784,751.00; and

b). Marubeni Corporation in the amount of P10,743,103,388.00.

Yet, the majority would have the Court strike down the resolution,
and not give it effect, because it was null and void. They opine that the
PNCC Board approved a transaction that was manifestly and grossly
disadvantageous to the National Government, and that such transaction was
even a corrupt and unlawful act. They conclude that the resolution, being
unlawful and a criminal act, was void ab initio and could not be
implemented or in any way given effect by the Executive or Judicial Branch
of the Government.

I am not persuaded.

That its issuance might have been unwise or disadvantageous to

PNCC, which I do not concede, did not invalidate Resolution No. BD-092-
1000. The resolution, being simply a recognition of a prior indebtedness in
favor of Marubeni and the Government, was clearly issued within the
corporations powers; hence, it was neither illegal nor ultra vires. Indeed, had
PNCC remained a purely private corporation, no issue would be raised
against the propriety of its Board of Directors thereby recognizing an
indebtedness.

The majority rely heavily on the transcripts of the Senate Committee

hearings to buttress the imputation of bad faith behind the passage of the
board resolution that recognized PNCCs debts to Marubeni. They copiously
quote the privilege speech of Senator Franklin Drilon delivered during the
plenary session of December 21, 2006; and the transcripts of the Senate
Committee hearings held on December 14, 2006.

To me, the reliance on the privilege speech and the transcripts of the
Senate Committee hearings is unwarranted and misplaced.
 The speeches of legislators delivered on the floor and the testimonies
of resource persons given in Congressional committee hearings, like those
quoted in the majority opinion, have no probative value in judicial
adjudication, for they are not recognized as evidence under the Rules of
Court. Even the rule on judicial notice embodied in Section 1,[119] Rule 129,
of the Rules of Court does not accord probative value to such speeches and
testimonies, because the rule extends only to the official acts of the
Legislative Department. The term official acts, in its general sense, may
encompass all activities of the Congress, like the laws enacted and
resolutions adopted, but the statements of the legislators and testimonies
cannot be regarded, by any stretch of legal understanding, as the official act
of the legislative department. At best, the courts can only take judicial
notice of the fact that such statements or speeches were made by such
persons, or that such hearings were conducted.

Although this Court can take cognizance of the proceedings of the

Senate, as acts of a department of the National Government, the testimonies
or statements of the persons during the hearings or sessions may not be used
to prove disputed facts in the courts of law. They cannot substitute actual
testimony as basis for making findings of fact necessary for the
determination of a controversy by the courts. In other words, they are
incompetent for purposes of judicial proceedings.
Moreover, in Bengzon, Jr. v. Senate Blue Ribbon Committee, [120] the
Court defined the limitation on the power of the Legislative Department to
investigate a controversy exclusively pertaining to the Judicial Department,
and regarded as an encroachment into the exclusive domain of judicial
jurisdiction any probe or inquiry by the Senate Blue Ribbon Committee into
the same justiciable controversy already before the
Sandiganbayan, declaring:

In fine, for the respondent [Senate Blue Ribbon] Committee to probe

and inquire into that same justiciable controversy already before the
Sandiganbayan, would be an encroachment into the exclusive domain
of judicial jurisdiction that had much earlier set in. In Baremblatt v.
United States, it was held that:
 Broad as it is, the power is not, however, without
limitations. Since Congress may only investigate into those areas
in which it may potentially legislate or appropriate, it cannot
inquire into matters which are within the exclusive province of
one of the other branches of the government. Lacking the
judicial power given to the Judiciary, it cannot inquire into
matters that are exclusively the concern of the
Judiciary. Neither can it supplant the Executive in what
exclusively belongs to the Executive. xxx.

Indeed, the distinctions between court proceedings, on one hand, and

legislative investigations in aid of legislation, on the other hand, derive from
their different purposes. Courts conduct hearings to settle, through the
application of law, actual controversies arising between adverse litigants and
involving demandable rights.[121]In court proceedings, the persons rights to
life, liberty and property may be directly and adversely affected. The Rules
of Court prescribes procedural safeguards consistent with the principles of
due process and equal protection guaranteed by the Constitution. The
manner in which disputed matters can be proven in judicial proceedings as
provided in the Rules of Court must be followed. In contrast, the legislative
bodies conduct their inquiries under less safeguards and restrictions,
because inquiries in aid of legislation are undertaken as tools to gather
information, in order to enable the legislators to act wisely and effectively,
and in order to determine whether there is a need to improve existing laws,
or to enact new or remedial legislation.[122]

In particular, the Senate is not bound by the Rules of Court. Its

inquiries permit witnesses to relate matters that are hearsay, or to give mere
opinion, or to transmit information considered incompetent under the Rules
of Court. The witnesses serve as resource persons, often unassisted by
counsel, and appear before the legislators, who are the inquisitors. The latter
have no obligation to act as impartial judges during the proceedings. The
inquiries do not include direct examinations and cross-examinations, and
leading questions are frequent.

Cogently, the proper treatment of the findings of congressional

committees by courts of law became the subject of the following
observations made in Agan, Jr. v. Philippine International Air Terminals
Co., Inc.:[123]

Finally, the respondent Congressmen assert that at least two (2)

committee reports by the House of Representatives found the PIATCO
contracts valid and contend that this Court, by taking cognizance of the
cases at bar, reviewed an action of a co-equal body. They insist that the
Court must respect the findings of the said committees of the House of
Representatives. With due respect, we cannot subscribe to their
submission. There is a fundamental difference between a case in court
and an investigation of a congressional committee. The purpose of a
judicial proceeding is to settle the dispute in controversy by
adjudicating the legal rights and obligations of the parties to the
case. On the other hand, a congressional investigation is conducted in
aid of legislation. Its aim is to assist and recommend to the legislature a
possible action that the body may take with regard to a particular issue,
specifically as to whether or not to enact a new law or amend an existing
one. Consequently, this Court cannot treat the findings in a
congressional committee report as binding because the facts elicited in
congressional hearings are not subject to the rigors of the Rules of
Court on admissibility of evidence. The Court in assuming jurisdiction
over the petitions at bar simply performed its constitutional duty as the
arbiter of legal disputes properly brought before it, especially in this
instance when public interest requires nothing less.

V
Asiavests Intervention
Had No Leg to Stand On

Asiavest was a judgment creditor of PNCC by virtue of the Courts judgment

in G.R. No. 110263. After 5 years from the issuance of a writ of execution in
its favor, Asiavests judgment award is yet to be satisfied.[124]
In G.R. No. 178158, Asiavest filed its urgent motion for leave to
intervene and to file the attached opposition and motion-in-intervention,
claiming that it had a legal interest as an unpaid judgment creditor of PNCC,
nay a superior right, over the properties subject of the compromise
agreement.[125] It prayed, if allowed to intervene, that the compromise
agreement be nullified because, otherwise, PNCC might no longer have
properties sufficient to satisfy the judgment in favor of the former.
 The Court granted the urgent motion of movant-intervenor Asiavest
for leave to intervene and to file opposition and motion in intervention [re:
judgment based on compromise].[126] However, Asiavest was not required to
file a comment.

The position of Asiavest cannot be sustained.

To start with, Asiavest has no direct and material interest in the

approval (or disapproval) of the compromise agreement between PNCC and
Radstock.
Secondly, Asiavests request to intervene was made too late in the
proceedings. Under Section 2, Rule 19, 1997 Rules of Civil Procedure, an
intervention, to be permitted, must be sought prior to the rendition of the
judgment by the trial court.

Thirdly, the avowed interest of Asiavest in PNCCs assets emanated

from its being a creditor of PNCC by final judgment, and was not related to
the personal obligations of PNCC in favor of Marubeni (that is, the
guarantees for the loans) that were the subject of the compromise agreement.
Such interest did not entitle Asiavest to attack the compromise
agreement between PNCC and Radstock. The interest that entitles a person
to intervene in a suit already commenced between other persons must be in
the matter in litigation and of such character that the intervenor will either
gain or lose by direct legal operation and effect of the judgment.[127] The
conditions for a proper intervention in relation to Asiavest simply did not
exist. Moreover, sustaining Asiavests posture may mean allowing other
creditors to intervene in an action involving their debtor brought by another
creditor against such debtor upon the broad pretext that they were thereby
prejudiced. The absurdity of Asiavests posture, being plain, can never be
permitted under the rules on intervention.[128]

Fourthly, that Asiavest is yet to recover from PNCC under the final
judgment rendered in G.R. No. 110263 gave the former no standing to
intervene in the action Radstock brought against PNCC to enforce the latters
guarantees. Asiavest was an absolute stranger to the juridical situation
arising between Radstock and PNCC. The proper recourse of Asiavest was,
instead, to pursue the execution of the judgment until satisfaction, a remedy
that is amply provided for in Rule 39 of the Rules of Court.

Lastly, Asiavests argument that the compromise agreement might be

in fraud of it as a judgment creditor of PNCC, in support of which
newspaper reports are cited,[129] is unpersuasive. The allegation of fraud
remains unsupported by admissible and credible evidence presented by
Asiavest, considering that mere newspaper reports are incompetent and
inadmissible hearsay.[130]

IN VIEW OF ALL THE FOREGOING CONSIDERATIONS, I

vote to dismiss the petitions in G.R. No. 178158 and G.R. No. 180428; to
disallow the intervention of Asiavest Merchant Bankers Berhad; to affirm
the decision dated January 25, 2007, the resolution dated May 31, 2007
promulgated in C.A.-G.R. CV No. 87971, and the resolution dated June 12,
2007 promulgated in C.A.-G.R. SP No. 97982.

LUCAS P. BERSAMIN
Associate Justice

[1]
Philippine National Construction Corporation v. Hon. Amalia F. Dy, et al., G.R. No. 156887, October 3,
2005, 472 SCRA 1, 5. Penned by Associate Justice Azcuna and concurred in by Chief Justice Davide,
Jr., Associate Justice Quisimbing, Associate Justice Ynares-Santiago, and Associate Justice Carpio.

[2]
Rollo, G.R. No. 178158, pp. 31- 43 (CA decision dated January 25, 2007; penned by Associate Justice
Del Castillo (now a Member of the Court) and concurred in by Presiding Justice Reyes (now retired
Member of the Court) and Associate Justice Romilla-Lontok.

[3]
Rollo, G.R. No. 178158, pp. 259-271 (the resolution in G.R. No. 156887 dated November 22, 2006).

[4]
Id., pp. 31- 43.

[5]
Id., pp. 3-26.

[6]
Id.
[7]
Rollo, G.R. No. 180428, pp. 3-42.

[8]
Id., pp. 107-140.

[9]
Id., pp. 45-46 (CA decision in CA-G.R. SP No. 97982, penned by Justice Pizarro, and concurred in by
Justice Cruz and Justice Lampas-Peralta).

[10]
The narrative contained in the section Common Antecedents is partly derived from the background facts
rendered in Philippine National Construction Corporation v. Hon. Amalia F. Dy, et al., G.R. No.
156887, October 3, 2005, 472 SCRA 1.

[11]
Rollo, G.R. No. 178158, p. 416.

[12]
Id., pp. 259-271.

[13]
Id., p. 270.

[14]
Id., pp. 31-43.

[15]
Id., pp. 113-117.

[16]
Id., p. 48.

[17]
Id., pp. 46-54.

[18]
Rollo, G.R. No. 180428, pp. 107-140.

[19]
Rollo, G.R. No. 180428, at pp. 45-46 (penned by Justice Pizarro, and concurred in by Justice Cruz and
Justice Lampas-Peralta).

[20]
Id., pp. 47-49.

[21]
Rollo, G.R. No. 178158, pp. 3-26.

[22]
Id., pp. 142-145.

[23]
Id., pp. 237-241.

[24]
Rollo, G.R. No. 180428, pp. 3-42.

[25]
Rollo, G.R. No. 178158, p. 358.

[26]
Id., p. 8.

[27]
Id., p. 11.

[28]
Id., pp. 9-10.

[29]
Id., p. 11.

[30]
Id., pp. 11-13.
[31]
Id., pp. 55-69.

[32]
Id., pp. 113-134.

[33]
Rollo, G.R. 180428, p. 17.

[34]
Rollo, G.R. 178158, pp. 402-443; pp. 444-540.

[35]
Id., between pp. 393 and 394.

[36]
Rollo, G.R. No. 178158, pp. 265-269 (CA decision dated January 25, 2007).

[37]
Garcia v. David, 67 Phil. 279.

[38]
Nieto, Jr. v. Court of Appeals, G.R. No. 166984, August 7, 2007, 529 SCRA 285; citing Garcia v.
David, 67 Phil. 279, 282-283.

[39]
Big Country Ranch Corporation v. Court of Appeals, G.R. No. 102927, October 12, 1993, 227 SCRA
161, 165.

[40]
Garcia v. David, supra, note 37, pp. 282-283.

[41]
Sec. 1, Rule 19, 1997 Rules of Civil Procedure.

[42]
Rollo, G.R. No. 178158, p. 266.

[43]
Rollo, G.R. No. 180428, pp. 45-46 (CA Resolution in CA-GR SP No. 97982).

[44]
Id., pp. 3-44.

[45]
Id., p 46.

[46]
G.R. No. 148456, September 15, 2006, 502 SCRA 67, 70.

[47]
G.R. No. 70443, September 15, 1986, 144 SCRA 144.

[48]
Id., pp 148-151.

[49]
Id., p. 149.

[50]
Rollo, G.R. 18042, p. 7.

[51]
Sec. 2, Corporation Code; Solidbank Corporation v. Mindanao Ferroalloy Corporation, G.R. No.
153535, July 28, 2005, 464 SCRA 409, 420.

[52]
Section 1. Derivative action.- A stockholder or member may bring an action in the name of a
corporation or association, as the case may be, provided, that:
(1) He was a stockholder or member at the time the acts or transactions subject of the action occurred
and at the time the action was filed;
 (2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to
exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the
corporation or partnership to obtain the relief he desires;
(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit.
In case of nuisance or harassment suit, the court shall forthwith dismiss the case.

[53]
Yu v. Yukayguan, G.R. No. 177549, June 18, 2009.

[54]
PNCC v. Dy, G.R. No. 156887, October 3, 2005, 472 SCRA 1, 8-9.

[55]
Revised Administrative Code of 1987.

[56]
TSN, January 13, 2009, pp. 269-278.

[57]
G.R. No. 87710 & G.R. No. 96087, March 31, 1992, 207 SCRA 659, 667-668.

[58]
G.R. No. L-19891, July 31, 1964, 11 SCRA 634.
[59]
Villanueva, C., Philippine Corporate Law, Rex Bookstore, Inc., p. 18 (2003).
[60]
I Campos and Lopez-Campos, The Corporation Code, Central Lawbook Publishing, Co., Inc., p. 2
(1990).
[61]
G.R. No. 131715, December 8, 1999, 320 SCRA 188.

[62]
Section 36, Corporation Code, enumerates some of the powers of a private corporation:

Sec. 36. Corporate powers and capacity. - Every corporation incorporated under this Code has the
power and capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of time stated in the articles of incorporation and
the certificate of incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with the provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the same in
accordance with this Code;
6. In case of stock corporations, to issue or sell stocks to subscribers and to sell stocks to subscribers
and to sell treasury stocks in accordance with the provisions of this Code; and to admit members to the
corporation if it be a non-stock corporation;
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise
deal with such real and personal property, including securities and bonds of other corporations,
as the transaction of the lawful business of the corporation may reasonably and necessarily
require, subject to the limitations prescribed by law and the Constitution;
8. To enter into merger or consolidation with other corporations as provided in this Code;
9. To make reasonable donations, including those for the public welfare or for hospital, charitable,
cultural, scientific, civic, or similar purposes: Provided, That no corporation, domestic or foreign, shall
give donations in aid of any political party or candidate or for purposes of partisan political activity;
10. To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers
and employees; and
11. To exercise such other powers as may be essential or necessary to carry out its purpose or
purposes as stated in the articles of incorporation.

[63]
Section 2, Corporation Code, provides:
Sec. 2. Corporation defined. - A corporation is an artificial being created by operation of law, having the
right of succession and the powers, attributes and properties expressly authorized by law or incident to
its existence.

[64]
Manila International Airport Authority v. Olongapo Maintenance Services, Inc., G.R. No. 146184-85,
January 31, 2008, 543 SCRA 269, 275.

[65]
Rollo, G.R. No. 178158, pp. 265-269.

[66]
Underline supplied for emphasis.

[67]
Underline supplied for emphasis.

[68]
IV Tolentino, Civil Code of the Philippines, p. 293 (1997).

[69]
G.R. No. 1115444, July 6, 2004, 433 SCRA 424,

[70]
Entitled Amending the Franchise of the Philippine National Construction Corporation to Construct,
Maintain and Operate Toll Facilities in the North Luzon and South Luzon Expressways to include the
Metro Manila Expressway to serve as an Additional Artery in the Transportation of Trade and
Commerce in Metro Manila.

[71]
Underline supplied for emphasis.

[72]
Section 4, Rule 129, Rules of Court; 5 Herrera, Remedial Law, Rex Book Store, p. 107 (1999).

[73]
PNCC v. Pabion, supra, at footnote 61; also National Shipyard & Steel v. Court of Industrial
Relations, 118 Phil. 782, 789.

[74]
National Shipyard & Steel v. Court of Industrial Relations, supra.

[75]
Philippine National Bank v. Court of Industrial Relations, G.R. No. L-32667, January 31, 1978, 81
SCRA 314, 319.

[76]
Rollo, G.R. No. 178185, p. 511.

[77]
Entitled Authorizing the Establishment Of Toll Facilities On Public Improvements, Creating A Board
For The Regulation Thereof And For Other Purposes.

[78]
Underlines supplied for emphasis.

[79]
G.R. No. 119528, March 26, 1997, 270 SCRA 538, 550-551.

[80]
Underlines supplied for emphasis.

[81]
G.R. No. 168914, July 4, 2007, 526 SCRA 465, 476.

[82]
Underlines supplied for emphasis.

[83]
DOJ Opinion No. 122, s. 1995.
[84]
Underlines supplied for emphasis.

[85]
Rollo, G.R. No. 178158, p. 247.

[86]
G.R. No. 79351, November 28, 1989, 179 SCRA 630, 634-635.

[87]
Underlines supplied for emphasis.

[88]
G.R. No. 158261, December 18, 2006, 511 SCRA 123, 147.

[89]
Underlines supplied for emphasis.

[90]
Rollo, G.R. No. 180428, p. 248.

[91]
21A Words and Phrases, p. 397; citing Howell v. Knox, Tex.Civ.App., 211 S.W.2d 324, 328.

[92]
Id., p. 396; citing Sturgill v. Lovell Lumber Co., 67 S.E. 2d 321, 323, 13 W. Va. 259.

[93]
Article 2237, Civil Code.

[94]
De Leon, The Law on Insurance (with Insolvency Law), p. 254 (2003).

[95]
Section 14, Act No. 1956.

[96]
Section 20, Act No. 1956.

[97]
Section 52, Act No. 1956, provides in part that:

SECTION 52. Corporations and sociedades anonimas; Banking. The provisions of this Act shall
apply to corporations and sociedades anonimas x x x. Whenever any corporation is declared insolvent,
its property and assets shall be distributed to the creditors; x x x

[98]
Rollo, G.R. No. 178158, pp. 265-269.

[99]
Rollo, G.R. 180428, p. 249.

[100]
Underlines supplied for emphasis.

[101]
II Campos and Lopez-Campos, The Corporation Code, p. 464 (1990).

[102]
Rollo, G.R. No. 180428, p. 249.

[103]
Rollo, G.R. No. 178185, p. 511.

[104]
Rollo, G.R. No. 180428, p. 423 (COAs Audit Report on PNCC For the Year End[ing] 31 December
2005). The report summarizes PNCCs ongoing and projected projects, thus:
 TOLLWAYS DEVELOPMENT CONTRACTS

The company has entered into Joint Venture Partnerships with internationally notable engineering
companies and other reputable local corporations, under the Build-Operate-Transfer scheme, for the
construction, rehabilitation, refurbishment, modernization, and expansion of the existing Expressways.

A product of this partnership is the Metro Manila Skyway Project, the first elevated tollway in the
country built in joint partnership with the Indonesian firm P.T. Citra Gung Persada (CITRA). Another
project of the joint undertaking efforts is the Manila North Tollway Project with First Philippine
Infrastructure Development Corporation (FPIDC), which involves the rehabilitation of the North
Luzon Tollway and its expansion to the special economic zones in Zambales, Clark Pampanga, Bataan,
and Subic, Olongapo City. The rehabilitation and extension of the South Luzon Tollway has been
entered into by the Company through a Joint Venture Agreement (JVA) and subsequently an amended
JVA with Hopewell Crown Infrastructure, Inc. (HCII). The objective of which is to refurbish the
Alabang to Calamba, Laguna segment of the South Luzon Expressway and extend the same
to Lucena Cityin Quezon Province.

An Alternative to the JVA with HCII, if the same does not materialize, is an on-going negotiation
with the NDC to develop design, construct, finance, operate, and maintain the SLEX Project. The
proposed Project involves the rehabilitation of the Alabang Viaduct and the extension of the SLEX
from Calamba, Laguna to Sto. Tomas, Batangas. This will be documented likewise by a JVA.

[105]
Rollo, G.R. No. 178158, p. 256.

[106]
Underlines supplied for emphasis.

[107]
G.R. No. L-21064, February 18, 2970, 31 SCRA 413, 422-423.

[108]
G.R. Nos. 160261, 160262, 160263, 160277, 160292, 160295, 160310, 160318, 160342, 160343,
160360, 160365, 160370, 160376, 160392, 160397, 160403, and 160405, November 10, 2003; 415
SCRA 44.

[109]
Samartino v. Raon, 433 Phil. 173, 189 (July 3, 2002).

[110]
Morales v. Court of Appeals, G. R. No. 117228, June 19, 1997, 274 SCRA 282, 297-300; IV
Tolentino, Civil Code of the Philippines, p. 669 (1997).

[111]
Article 1441, Civil Code.

[112]
Ramos v. Ramos, No. L-19872, December 3, 1974, 61 SCRA 284.

[113]
G.R. No. 127882, December 1, 2004, 445 SCRA 1, 91-93.

[114]
Supra, at pp. 22-23.

[115]
21 C.J.S. 330.

[116] Zarate v. Director of Lands, 39 Phil. 747.

[117] Bachrach Motor Co.v. Esteva, 67 Phil 16.

[118] 237 Mo. 496; cited in Zarate v. Director of Lands, supra

[119]
Section 1. Judicial notice, when mandatory. - A court shall take judicial notice, without the
introduction of evidence, of the existence and territorial extent of states, their political history, forms of
government and symbols of nationality, the law of nations, the admiralty and maritime courts of the
world and their seals, the political constitution and history of the Philippines, the official acts of the
legislative, executive and judicial departments of the Philippines, the laws of nature, the measure of
time, and the geographical divisions. (1a)

[120]
G.R. No. 89914, November 20, 1991, 203 SCRA 767, 784.

[121]
Romero v. Senator Estrada, G.R. No. 174105, April 2, 2009.

[122]
Id.

[123]
G.R. No. 155001, January 21, 2004, 420 SCRA 575, 606.

[124]
Rollo, G.R. No. 178158, pp. 237-238.

[125]
Id., pp. 238-239.

[126]
Rollo, G.R. No. 178158, p. 291.

[127]
Nordic Asia Limited v. Court of Appeals, 451 Phil. 482, 492-493.

[128]
Batama Farmers Cooperative Marketing Association, Inc. v. Hon. Rosal, 149 Phil. 514, 524.

[129]
Rollo, G.R. 178158, pp. 254-258.

[130]
People v. Fajardo, 373 Phil. 915, 925.