G.R. No. 141538. March 23, 2004. * petition for relief, which was denied with finality.
ion for relief, which was denied with finality. Thus, Mrs. Cerezo may no longer avail
HERMANA R. CEREZO, petitioner, vs. DAVID TUAZON, respondent.
Remedial Law; Default; Remedies available to a party declared in default.—Lina
v. Court of Appeals enumerates the remedies available to a party 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 appealfrom 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).
Same; Same; 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.—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.
Same; Annulment of Judgments; Annulment is available only on the grounds of
extrinsic fraud and lack of jurisdiction.—After our resolution denying Mrs. Cerezo’s
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.
Same; Same; Same; 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. 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. Cerezo could have availed of a new
trial or appeal but through her own fault she erroneously availed of the remedy of a
of the remedy of annulment.
Criminal Law; Quasi-Delict; Civil Liability; An action based on a quasi-delict may
proceed independently from the criminal action.—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
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.
Same; Same; Same; Labor Law; Employer’s Liability; An employer’s liability in
an action for a quasi-delict is not only solidary, it is also primary and direct.—Contrary
to Mrs. Cerezo’s assertion, Foronda is not an indispensable party to the case. An
indispensable party is one whose interest is affected by the court’s action in the litigation,
and without whom no final resolution of the case is possible. However, Mrs. Cerezo’s
liability as an employer in an action for a quasi-delict is not only solidary, it is also
primary and direct. Foronda is not an indispensable party to the final resolution of
Tuazon’s action for damages against Mrs. Cerezo.
Same; Same; Same; Same; The responsibility of two or more persons who are
liable for a quasi-delict is solidary; Where the obligation of the parties is solidary,
either of the parties is indispensable and the other is not even a necessary party because
complete relief is available from either.— 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 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,
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 Foronda is not even
necessary as Tuazon may collect damages from Mrs. Cerezo alone.
Same; Same; Same; Same; An employer’s liability based on a quasi-delict is
primary and direct while the employer’s liability based on a delict is merely
subsidiary.—Moreover, an employer’s liability based on a quasi-delict is primary and
direct, while the employer’s liability based on a delict is merely subsidiary. The words
“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 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 employee’s 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 employer’s liability is solely subsidiary is wrong.
Same; Same; Same; Same; To hold the employer liable in a subsidiary capacity
under a delict, the aggrieved party must initiate a criminal action where the employee’s
delict and corresponding primary liability are established.—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 employee’s delict and corresponding primary liability
are established. If the present action proceeds from a delict, then the trial court’s
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.
CARPIO, J.:
The Case
This is a petition for review on certiorari to annul 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. The Court of Appeals
denied the petition for annulment of the Decision dated 30 May 1995 rendered by
3 to file a comment to the opposition to the bill of particulars. Atty. Elpidio B. Valera
the Regional Trial 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[.]
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.
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 the Cerezo spouses
(“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 Tuazon’s 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.
On 30 August 1994, the trial court issued an order resolving Tuazon’s 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 family’s 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.
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. Tuazon did not testify but presented documentary evidence to prove the
participation of the Cerezo spouses in the case. Tuazon presented the following
exhibits:

On 27 September 1994, the Cerezo spouses filed an urgent ex-parte motion for Exhibit “1” —Sheriff ’s return and summons;
reconsideration. The trial court denied the motion for reconsideration. Exhibit “1-A” —Alias summons dated April 20, 1994;
Exhibit “2” —Comment with Motion;
On 14 November 1994, the trial court issued an order directing the Cerezo spouses
Exhibit “3” —Minutes of the hearing held on August 1, 1994;
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 Exhibit “3-A” —Signature of defendant’s counsel;
Cerezo spouses in default. On 6 February 1995, the trial court issued an order Exhibit “4” —Minutes of the hearing held on August 30, 1994;
declaring the Cerezo spouses in default and authorizing Tuazon to present his Exhibit “4-A” —Signature of the defendant’s counsel;
evidence. Exhibit “5” —Appearance and Urgent Ex-Parte Motion;
Exhibit “6” —Order dated November 14, 1994;
On 30 May 1995, after considering Tuazon’s testimonial and documentary
Exhibit “6-A” —Postal certification dated January 13, 1995;
evidence, the trial court ruled in Tuazon’s favor. The trial court made no
pronouncement on Foronda’s liability because there was no service of summons on Exhibit “7” —Order dated February [illegible];
him. The trial court did not hold Atty. Cerezo liable as Tuazon failed to show that Exhibit “7-A” —Court’s return slip addressed to Atty. Elpidio Valera;
Mrs. Cerezo’s business benefited the family, pursuant to Article 121(3) of the Family Exhibit “7-B” —Court’s return slip addressed to Spouses Juan
Code. The trial court held Mrs. Cerezo solely liable for the damages sustained by and Hermana Cerezo;
Tuazon arising from the negligence of Mrs. Cerezo’s employee, pursuant to Article Exhibit “8” —Decision dated May [30], 1995;
2180 of the Civil Code. The dispositive portion of the trial court’s decision reads:
Exhibit “8-A” —Court’s return slip addressed to defendant
“WHEREFORE, judgment is hereby rendered ordering the defendant Hermana Hermana Cerezo;
Cerezo to pay the plaintiff: Exhibit “8-B” —Court’s return slip addressed to defendant’s counsel,
Atty. Elpidio Valera;
a) For Actual Damages
1) Expenses for operation and medical treatment—P69,485.35
2) Cost of repair of the tricycle—39,921.00 Exhibit “9” —Order dated September 21, 1995;
b) For loss of earnings—43,300.00 Exhibit “9-A” —Second Page of Exhibit 9;
c) For moral damages—20,000.00 Exhibit “9-B” —Third page of Exhibit 9;
d) And to pay the cost of the suit. Exhibit “9-C” —Fourth page of Exhibit 9;
Exhibit “9-D” —Court’s return slip addressed to Atty. Elpidio
“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.” Valera; and
Exhibit “9-E” —Court’s return slip addressed to plaintiff ’s counsel,
Mrs. Cerezo received a copy of the decision on 25 June 1995. On 10 July 1995, Atty. Norman Dick de Guzman.
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,
 On 4 March 1998, the trial court issued an order denying the petition for 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 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 for certiorari and affirmed the trial court’s
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 Court’s resolution was entered in the Book of Entries and Judgments when it
became final and executory on 28 June 1999.
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 the trial court and for the issuance of a writ of
preliminary injunction enjoining execution of the trial court’s 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.”
On 20 January 2000, the Court of Appeals denied the Cerezo spouses’ motion for
reconsideration. The Court of Appeals stated:
“A distinction should be made between a court’s 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 court’s jurisdiction because petitioner and her The Court’s Ruling
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.
The petition has no merit. As the issues are interrelated, we shall discuss
Records show that the petitioner previously filed with the lower court a Petition
them jointly.
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 Remedies Available to a Party Declared in Default
quo correctly ruled that such petition is without merit, jurisdiction having been
acquired by the voluntary appearance of defendant spouses. 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,
Once again, it bears stressing that having availed of a petition for relief, the
and Atty. Cerezo. Despite their number, Mrs. Cerezo’s counsels failed to avail of 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 proper remedies. It is either by sheer ignorance or by malicious manipulation of legal
ORDERED.” technicalities that they have managed to delay the disposition of the present case, to
the detriment of pauper litigant Tuazon.
The Issues
Mrs. Cerezo claims she did not receive any copy of the order declaring the Cerezo
On 7 February 2000, Mrs. Cerezo, this time with Atty. Daga alone representing spouses in default. Mrs. Cerezo asserts that she only came to know of the default
her, filed the present petition for review on certiorari before this Court. Mrs. Cerezo order on 25 June 1995, when she received a copy of the decision. On 10 July 1995,
claims that: 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. Cerezo’s petition for relief from judgment. The trial court
1. In dismissing the Petition for Annulment of Judgment, the Court of Appeals
stated that Mrs. Cerezo could have availed of appeal as a remedy and that she failed
assumes that the issues raised in the petition for annulment is based on
to prove that the judgment was entered through fraud, accident, mistake, or
extrinsic fraud related to the denied petition for relief notwithstanding that
excusable negligence. Mrs. Cerezo then filed before the Court of Appeals a petition
the grounds relied upon involves questions of lack of jurisdiction.
for certiorari under Section 1 of Rule 65 assailing the denial of the petition for relief
2. In dismissing the Petition for Annulment, the Court of Appeals disregarded
from judgment. On 21 January 1999, the Court of Appeals dismissed Mrs. Cerezo’s
the allegation that the lower court[‘s] findings of negligence against
petition. On 24 February 1999, the appellate court denied Mrs. Cerezo’s motion for
defendant-driver Danilo Foronda [whom] the lower court did not summon is
reconsideration. On 11 March 1999, Mrs. Cerezo filed before this Court a petition for
null and void for want of due process and consequently, such findings of
review on certiorariunder Rule 45, questioning the denial of the petition for relief
negligence which is [sic] null and void cannot become the basis of the lower
from judgment. We denied the petition and our resolution became final and
court to adjudge petitioner-employer liable for civil damages.
executory on 28 June 1999.
3. In dismissing the Petition for Annulment, the Court of Appeals ignored the
allegation that defendant-driver Danilo A. Foronda whose negligence is the
On 6 July 1999, a mere eight days after our resolution became final and executory,
main issue is an indispensable party whose presence is compulsory but
Mrs. Cerezo filed before the Court of Appeals a petition for annulment of the
[whom] the lower court did not summon.
judgment of the trial court under Rule 47. Meanwhile, on 25 August 1999, the trial
4. In dismissing the Petition for Annulment, the Court of Appeals ruled that court issued over the objection of Mrs. Cerezo an order of execution of the judgment
assuming arguendo that private respondent failed to reserve his right to
in Civil Case No. 7415. On 21 October 1999, the Court of Appeals dismissed the
institute a separate action for damages in the criminal action, the petitioner
petition for annulment of judgment. On 20 January 2000, the Court of Appeals
cannot now raise such issue and question the lower court’s jurisdiction
denied Mrs. Cerezo’s motion for reconsideration. On 7 February 2000, Mrs. Cerezo
because petitioner [has] waived such right by voluntarily appearing in the
filed the present petition for review on certiorariunder Rule 45 challenging the
civil case for damages notwithstanding that lack of jurisdiction cannot be
dismissal of her petition for annulment of judgment.
waived.
 Lina v. Court of Appeals enumerates the remedies available to a party 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.
Mrs. Cerezo admitted that she received a copy of the trial court’s 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 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.
Mrs. Cerezo also had the option to file under Rule 37 a motion for new trial 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.
Mrs. Cerezo also had the alternative of filing under Rule 65 a petition
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. Court of
Appeals explained the nature of a petition for relief from judgment:
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. Cerezo’s 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.
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. 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. Cerezo’s
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.
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 the present petition to
clear any doubt about the correctness of the decision of the trial court.
Mrs. Cerezo’s Liability and the Trial Court’s 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. Cerezo’s 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 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.
Tuazon chose to file an action for damages based on a quasidelict. 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 Foronda’s “recklessness,
gross negligence and imprudence,” aggravated by Mrs. Cerezo’s “lack of due care and
diligence in the selection and supervision of her employees, particularly Foronda.”
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. Cerezo’s assertion, Foronda is not an indispensable party to the
case. An indispensable party is one whose interest is affected by the court’s action in
the litigation, and without whom no final resolution of the case is possible. However,
Mrs. Cerezo’s liability as an employer in an action for a quasi-delict is not only
solidary, it is also primary and direct. Foronda is not an indispensable party to the
final resolution of Tuazon’s 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 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, 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 Foronda is not even
necessary as Tuazon may collect damages from Mrs. Cerezo alone.
Moreover, an employer’s liability based on a quasi-delict is primary and direct,
while the employer’s liability based on a delict is merely subsidiary. The words
“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 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
employee’s 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 employer’s liability is solely
subsidiary is wrong.
 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.
Thus, there is no need in this case for the trial court to acquire jurisdiction over
Foronda. The trial court’s acquisition of jurisdiction over Mrs. Cerezo is sufficient to
dispose of the present case on the merits.
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.
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 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.

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 employee’s
delict and corresponding primary liability are established. If the present action
proceeds from a delict, then the trial court’s 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.
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 court’s 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.

The Cerezo spouses’ contention that summons be served anew on them is Note.—The annulment of a judgment may be based only on the grounds of
untenable in light of their participation in the trial court proceedings. To uphold the extrinsic fraud and lack of jurisdiction. (Republic vs. Heirs of Sancho Magdato, 340
Cerezo spouses’ contention would make a fetish of a technicality. Moreover, any SCRA 115[2000])
irregularity in the service of summons that might have vitiated the trial court’s
jurisdiction over the persons of the Cerezo spouses was deemed waived when the ——o0o——
Cerezo spouses filed a petition for relief from judgment.

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. Cerezo’s 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 defendant’s liability effective,
and that is, to sue the driver and exhaust his (the latter’s) 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
 G.R. No. 193753. September 26, 2012
LIVING @ SENSE, INC., petitioner, vs. MALAYAN INSURANCE
COMPANY, INC., respondent.
Remedial Law; Civil Procedure; Indispensable Parties; An indispensable party is
a party-in-interest without whom no final determination can be had of an action, and
who shall be joined mandatorily either as plaintiffs or defendants.―The nature of the
solidary obligation under the surety does not make one an indispensable party. An
indispensable party is a party-in-interest without whom no final determination can be
had of an action, and who shall be joined mandatorily either as plaintiffs or defendants.
The presence of indispensable parties is necessary to vest the court with jurisdiction,
thus, without their presence to a suit or proceeding, the judgment of a court cannot attain
real finality. The absence of an indispensable party renders all subsequent actions of the
court null and void for want of authority to act, not only as to the absent parties but even
as to those present.
Same; Same; Same; Failure to implead an indispensable party is not a ground for
the dismissal of an action, as the remedy in such case is to implead the party claimed to
be indispensable, considering that parties may be added by order of the court, on
motion of the party or on its own initiative at any stage of the action.―Even on the
assumption that DMI was, indeed, an indispensable party, the RTC committed reversible
error in dismissing the complaint. Failure to implead an indispensable party is not a
ground for the dismissal of an action, as the remedy in such case is to implead the party
claimed to be indispensable, considering that parties may be added by order of the court,
on motion of the party or on its own initiative at any stage of the action.
RESOLUTION
PERLAS-BERNABE, J.:
This Petition for Review on Certiorari assails, on pure question of law, the Orders
dated April 8, 2010 and August 25, 2010 of the Regional Trial Court (RTC) of
Parañaque City, Branch 257 dismissing, without prejudice, the complaint for specific
performance and breach of contract filed by petitioner Living @ Sense, Inc.
(petitioner) for failure to implead Dou Mac, Inc. (DMI) as an indispensable party.
The Factual Antecedents
Records show that petitioner was the main contractor of the FOC Network Project
of Globe Telecom in Mindanao. In connection with the project, petitioner entered
into a Sub-Contract Agreement (Agreement) with DMI, under which the latter was
tasked to undertake an underground open-trench work. Petitioner required DMI to
give a bond, in the event that DMI fails to perform its obligations under the
Agreement. Thus, DMI secured surety and performance5bonds, both in the amount of
P5,171,488.00, from respondent Malayan Insurance Company, Inc. (respondent) to
answer: (1) for the unliquidated portion of the downpayment, and (2) for the loss and
damage that petitioner may suffer, respectively, should DMI fail to perform its
obligations under the Agreement. Under the bonds, respondent bound itself jointly
and severally liable with DMI.
During the course of excavation and restoration works, the Department of Public
Works and Highways (DPWH) issued a work stoppage order against DMI after
finding the latter’s work unsatisfactory. Notwithstanding the said order, however,
DMI still failed to adopt corrective measures, prompting petitioner to terminate7 the
Agreement and seek indemnification from respondent in the total amount of
P1,040,895.34. However, respondent effectively denied petitioner’s claim on the
ground that the liability of its principal, DMI, should first be ascertained before its
own liability as a surety attaches.
Hence, the instant complaint, premised on respondent’s liability under the surety
and performance bonds secured by DMI.
Seeking the dismissal of the complaint, respondent claimed that DMI is an
indispensable party that should be impleaded and whose liability should first be
determined before respondent can be held liable.
On the other hand, petitioner asserted that respondent is a surety who is directly
and primarily liable to indemnify petitioner, and that the bond is “callable on
demand” in the event DMI fails to perform its obligations under the Agreement.
The RTC’s Ruling
In its April 8, 2010 Order, the RTC dismissed the complaint without prejudice, for
failure to implead DMI as a party defendant. It ruled that before respondent could be
held liable on the surety and performance bonds, it must first be established that
DMI, with whom petitioner had originally contracted, had indeed violated the
Agreement. DMI, therefore, is an indispensable party that must be impleaded in the
instant suit.
On August 25, 2010, the RTC denied petitioner’s motion for reconsideration for
failure to set the same for hearing as required under the rules.
The Issue Before The Court
The sole issue to be resolved by the Court is whether DMI is an indispensable
party in this case.
 The Court’s Ruling
Petitioner maintains that the rule on solidary obligations permits it, as creditor, to
proceed against any of the solidary debtors, citing Article 1216 of the Civil Code
which provides:
Article 1216. The creditor may proceed against any one of the solidary debtors
or some or all of them simultaneously. The demand made against one of them shall
not be an obstacle to those which may subsequently be directed against the others, so
long as the debt has not been fully collected.
The petition is meritorious.
Records show that when DMI secured the surety and performance bonds from
respondent in compliance with petitioner’s requirement, respondent bound itself
“jointly and severally” with DMI for the damages and actual loss that petitioner may
suffer should DMI fail to perform its obligations under the Agreement, as follows:
That we, DOU MAC INC. as Principal, and MALAYAN INSURANCE CO., INC., x
x x are held firmly bound unto LIVING @ SENSE INC. in the sum of FIVE MILLION
ONE HUNDRED SEVENTY ONE THOUSAND FOUR HUNDRED EIGHTY EIGHT
AND 00/100 PESOS ONLY (PHP ***5,171,488.00), PHILIPPINE Currency, for the
payment of which sum, well and truly to be made, we bind ourselves, our heirs,
executors, administrators, successors and assigns, jointly and severally, firmly by
these presents x x x (Emphasis Supplied)
Moreover, even on the assumption that DMI was, indeed, an indispensable party,
the RTC committed reversible error in dismissing the complaint. Failure to implead
an indispensable party is not a ground for the dismissal of an action, as the remedy in
such case is to implead the party claimed to be indispensable, considering that
parties may be added by order of the court, on motion of the party or on its own
initiative at any stage of the action.
Accordingly, the Court finds that the RTC erred in holding that DMI is an
indispensable party and, consequently, in dismissing the complaint filed by
petitioner without prejudice.
WHEREFORE, the assailed April 8, 2010 and August 25, 2010 Orders of the
Regional Trial Court (RTC) of Parañaque City, Branch 257 are hereby SET ASIDE.
Petitioner’s complaint is ordered REINSTATED and the case remanded to the RTC
for further proceedings. SO ORDERED.
Notes.―The non-joinder of an indispensable party is not a ground for the
dismissal of an action. (Nocom vs. Camerino, 578 SCRA 390 [2009])
Courts must exercise utmost caution before allowing a class suit, which is the
exception to the requirement of joinder of all indispensable parties. (Banda vs.
Ermita, 618 SCRA 488 [2010])
――o0o――

The term “jointly and severally” expresses a solidary obligation granting

petitioner, as creditor, the right to proceed against its debtors, i.e.,
respondent or DMI.

The nature of the solidary obligation under the surety does not make one an
indispensable party. An indispensable party is a party-in-interest without whom no
final determination can be had of an action, and who shall be joined mandatorily
either as plaintiffs or defendants. The presence of indispensable parties is necessary
to vest the court with jurisdiction, thus, without their presence to a suit or
proceeding, the judgment of a court cannot attain real finality. The absence of an
indispensable party renders all subsequent actions of the court null and void for want
of authority to act, not only as to the absent parties but even as to those present.

In this case, DMI is not an indispensable party because petitioner can claim
indemnity directly from respondent, having made itself jointly and severally liable
with DMI for the obligation under the bonds. Therefore, the failure to implead DMI
is not a ground to dismiss the case, even if the same was without prejudice.
 G.R. No. 168979. December 2, 2013.*
REBECCA PACAÑA-CONTRERAS and ROSALIE PACAÑA,
petitioners, vs. ROVILA WATER SUPPLY, INC., EARL U. KOKSENG, LILIA
TORRES, DALLA P. ROMANILLOS and MARISA GABUYA, respondents.
Remedial Law; Civil Procedure; Dismissal of Actions; Actions; Interlocutory
Orders; While an order denying a motion to dismiss is interlocutory and non-
appealable, certiorari and prohibition are proper remedies to address an order of
denial made without or in excess of jurisdiction.—In Barrazona v. RTC, Branch 61,
Baguio City, 486 SCRA 555 (2006), the Court held that while an order denying a motion
to dismiss is interlocutory and nonappealable, certiorari and prohibition are proper
remedies to address an order of denial made without or in excess of jurisdiction. The writ
of certiorari is granted to keep an inferior court within the bounds of its jurisdiction or to
prevent it from committing grave abuse of discretion amounting to lack or excess of
jurisdiction.
Same; Same; Same; Same; Real Party-in-Interest; A suit that is not brought in the
name of the real party in interest is dismissible on the ground that the complaint “fails
to state a cause of action.”—Preliminarily, a suit that is not brought in the name of the
real party in interest is dismissible on the ground that the complaint “fails to state a cause
of action.” Pursuant to jurisprudence, this is also the ground invoked when the
respondents alleged that the petitioners are not the real parties in interest because: 1) the
petitioners should not have filed the case in their own names, being merely attorneys-in-
fact of their mother; and 2) the petitioners should first be declared as heirs. A review of
the 1940, 1964 and the present 1997 Rules of Court shows that the fundamentals of the
ground for dismissal based on “failure to state a cause of action” have drastically changed
over time.
Same; Same; Same; Failure to State a Cause of Action; In the present rules, there
was a deletion of the ground of “failure to state a cause of action” from the list of those
which may be waived if not invoked either in a motion to dismiss or in the answer.—In
the present rules, there was a deletion of the ground of “failure to state a cause of action”
from the list of those which may be waived if not invoked either in a motion to dismiss or
in the answer. Another novelty introduced by the present Rules, which was totally absent
in its two precedents, is the addition of the period of time within which a motion to
dismiss should be filed as provided under Section 1, Rule 16 and we quote: Section
1. Grounds.—Within the time for but before filing the answer to the complaint or
pleading asserting a claim, a motion to dismiss may be made on any of the following
grounds: xxx [underscoring supplied] All these considerations point to the legal reality
that the new Rules effectively restricted the dismissal of complaints in general, especially
when what is being invoked is the ground of “failure to state a cause of action.” Thus,
jurisprudence governed by the 1940 and 1964 Rules of Court to the effect that the ground
for dismissal based on failure to state a cause of action may be raised anytime during the
proceedings, is already inapplicable to cases already governed by the present Rules of
Court which took effect on July 1, 1997. As the rule now stands, the failure to invoke this
ground in a motion to dismiss or in the answer would result in its waiver. According to
Oscar M. Herrera, the reason for the deletion is that failure to state a cause of action may
be cured under Section 5, Rule 10 and we quote: Section 5. Amendment to conform to or
authorize presentation of evidence.—When issues not raised by the pleadings are tried
with the express or implied consent of the parties they shall be treated in all respects as if
they had been raised in the pleadings. Such amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to raise these issues may be
made upon motion of any party at any time, even after judgment; but failure to amend
does not effect the result of the trial of these issues. If evidence is objected to at the trial
on the ground that it is not within the issues made by the pleadings, the court may allow
the pleadings to be amended and shall do so with liberality if the presentation of the
merits of the action and the ends of substantial justice will be subserved thereby. The
court may grant a continuance to enable the amendment to be made.
Same; Same; Same; Same; Rule 16 of the Rules of Court provides for the grounds
for the dismissal of a civil case, particularly, failure to state a cause of action and
failure to comply with a condition precedent (substitution of parties), respectively.—
Applying Rule 16 of the Rules of Court which provides for the grounds for the dismissal
of a civil case, the respondents’ grounds for dismissal fall under Section 1(g) and (j), Rule
16 of the Rules of Court, particularly, failure to state a cause of action and failure to
comply with a condition precedent (substitution of parties), respectively. The first
paragraph of Section 1, Rule 16 of the Rules of Court provides for the period within which
to file a motion to dismiss under the grounds enumerated. Specifically, the motion
should be filed within the time for, but before the filing of, the answer to the complaint or
pleading asserting a claim. Equally important to this provision is Section 1, Rule 9 of the
Rules of Court which states that defenses and objections not pleaded either in a motion
to dismiss or in the answer are deemed waived, except for the following grounds: 1) the
court has no jurisdiction over the subject matter; 2) litis pendencia; 3) res judicata; and
4) prescription. Therefore, the grounds not falling under these four exceptions may be
considered as waived in the event that they are not timely invoked. As the respondents’
motion to dismiss was based on the grounds which should be timely invoked, material to
the resolution of this case is the period within which they were raised.
Same; Same; Same; Pursuant to Section 1, Rule 9 of the Rules of Court, a motion to
dismiss based on the grounds invoked by the respondents may be waived if not raised
in a motion to dismiss or alleged in their answer.—The rules are clear and require no
interpretation. Pursuant to Section 1, Rule 9 of the Rules of Court, a motion to dismiss
based on the grounds invoked by the respondents may be waived if not raised in a motion
to dismiss or alleged in their answer. On the other hand, “the pre-trial is primarily
intended to make certain that all issues necessary to the disposition of a case are properly
raised. The purpose is to obviate the element of surprise, hence, the parties are expected
to disclose at the pre-trial conference all issues of law and fact which they intend to raise
at the trial, except such as may involve privileged or impeaching matter.” The issues
submitted during the pre-trial are thus the issues that would govern the trial proper. The
dismissal of the case based on the grounds invoked by the respondents are specifically
covered by Rule 16 and Rule 9 of the Rules of Court which set a period when they should
be raised; otherwise, they are deemed waived.
Same; Same; Parties; “Real Party-in-Interest” and “Indispensable Party,”
Distinguished.—A distinction between a real party in interest and an indispensable party
is in order. In Carandang v. Heirs of de Guzman, et al., 508 SCRA 469 (2006), the Court
clarified these two concepts and held that “[a] real party in interest is the party who
stands to be benefited or injured by the judgment of the suit, or the party entitled to the
avails of the suit. On the other hand, an indispensable party is a party in interest
without whom no final determination can be had of an action, in contrast to a necessary
party, which is one who is not indispensable but who ought to be joined as a party if
complete relief is to be accorded as to those already parties, or for a complete
determination or settlement of the claim subject of the action. x x x If a suit is not
brought in the name of or against the real party in interest, a motion to dismiss may be
filed on the ground that the complaint states no cause of action. However, the dismissal
on this ground entails an examination of whether the parties presently pleaded are
interested in the outcome of the litigation, and not whether all persons interested in such
outcome are actually pleaded. The latter query is relevant in discussions
concerning indispensable and necessary parties, but not in discussions concerning real
parties in interest. Both indispensable and necessary parties are considered as real
parties in interest, since both classes of parties stand to be benefited or injured by the
judgment of the suit.”
Same; Same; Indispensable Parties; Without the inclusion of the indispensable
parties, there can be no final determination of the case.—At the inception of the present
case, both the spouses Pacaña were not impleaded as parties-plaintiffs. The Court notes,
however, that they are indispensable parties to the case as the alleged owners of Rovila
Water Supply. Without their inclusion as parties, there can be no final determination of
the present case. They possess such an interest in the controversy that a final decree
would necessarily affect their rights, so that the courts cannot proceed without their
presence. Their interest in the subject matter of the suit and in the relief sought is
inextricably intertwined with that of the other parties.
Same; Same; Same; Pursuant to Section 9, Rule 3 of the Rules of Court, parties
may be added by order of the court on motion of the party or on its own initiative at
any stage of the action.—The Court is of the view that the proper remedy in the present
case is to implead the indispensable parties especially when their non-inclusion is merely
a technical defect. To do so would serve proper administration of justice and prevent
further delay and multiplicity of suits. Pursuant to Section 9, Rule 3 of the Rules of Court,
parties may be added by order of the court on motion of the party or on its own initiative
at any stage of the action. If the plaintiff refuses to implead an indispensable party
despite the order of the court, then the court may dismiss the complaint for the plaintiff’s
failure to comply with a lawful court order. The operative act that would lead to the
dismissal of the case would be the refusal to comply with the directive of the court for the
joinder of an indispensable party to the case.
Same; Same; Same; In Orbeta, et al. v. Sendiong, 463 SCRA 180 (2005), the
Supreme Court acknowledged that the heirs, whose hereditary rights are to be affected
by the case, are deemed indispensable parties who should have been impleaded by the
trial court.—Obviously, in the present case, the deceased Pacañas can no longer be
included in the complaint as indispensable parties because of their death during the
pendency of the case. Upon their death, however, their ownership and rights over their
properties were transmitted to their heirs, including herein petitioners, pursuant to
Article 774 in relation with Article 777 of the Civil Code. In Orbeta, et al. v. Sendiong,
463 SCRA 180 (2005), the Court acknowledged that the heirs, whose hereditary rights
are to be affected by the case, are deemed indispensable parties who should have been
impleaded by the trial court.
BRION, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules
of Court seeking the reversal of the decision dated January 27, 2005 and the
resolution dated June 6, 2005 of the Court of Appeals (CA) in CA-G.R. SP No. 71551.
The CA set aside the orders dated February 28, 2002 and April 1, 2002 of the
Regional Trial Court (RTC), Branch 8, Cebu City, which denied the motion to dismiss
and the motion for reconsideration, respectively, of respondents Rovila Water
Supply, Inc. (Rovila Inc.), Earl U. Kokseng, Lilia Torres, Dalla P. Romanillos and
Marisa Gabuya.
The Factual Antecedents
Petitioners Rebecca Pacaña-Contreras and Rosalie Pacaña, children of Lourdes
Teves Pacaña and Luciano Pacaña, filed the present case against Rovila Inc., Earl,
Lilia, Dalla and Marisa for accounting and damages. The petitioners claimed that
their family has long been known in the community to be engaged in the water
supply business; they operated the “Rovila Water Supply” from their family residence
and were engaged in the distribution of water to customers in Cebu City.
The petitioners alleged that Lilia was a former trusted employee in the family
business who hid business records and burned and ransacked the family files. Lilia
also allegedly posted security guards and barred the members of the Pacaña family
from operating their business. She then claimed ownership over the family business
through a corporation named “Rovila Water Supply, Inc.” (Rovila Inc.) Upon inquiry
with the Securities and Exchange Commission (SEC), the petitioners claimed that
Rovila Inc. was surreptitiously formed with the respondents as the majority
stockholders. The respondents did so by conspiring with one another and forming
the respondent corporation to takeover and illegally usurp the family business’
registered name.
 In forming the respondent corporation, the respondents allegedly used the name
of Lourdes as one of the incorporators and made it appear in the SEC documents that
the family business was operated in a place other than the Pacaña residence.
Thereafter, the respondents used the Pacaña family’s receipts and the deliveries and
sales were made to appear as those of the respondent Rovila Inc. Using this scheme,
the respondents fraudulently appropriated the collections and payments.
The petitioners filed the complaint in their own names although Rosalie was
authorized by Lourdes through a sworn declaration and special power of attorney
(SPA). The respondents filed a first motion to dismiss on the ground that the RTC
had no jurisdiction over an intra-corporate controversy. The RTC denied the motion.
On September 26, 2000, Lourdes died and the petitioners amended their
complaint, with leave of court, on October 2, 2000 to reflect this development. 11 They
still attached to their amended complaint the sworn declaration with SPA, but the
caption of the amended complaint remained the same. On October 10, 2000, Luciano
also died.
The respondents filed their Answer on November 16, 2000. The petitioners’
sister, Lagrimas Pacaña-Gonzales, filed a motion for leave to intervene and her
answer-in-intervention was granted by the trial court. At the subsequent pre-trial,
the respondents manifested to the RTC that a substitution of the parties was
necessary in light of the deaths of Lourdes and Luciano. They further stated that they
would seek the dismissal of the complaint because the petitioners are not the real
parties in interest to prosecute the case. The pre-trial pushed through as scheduled
and the RTC directed the respondents to put into writing their earlier manifestation.
The RTC issued a pre-trial order where one of the issues submitted was whether the
complaint should be dismissed for failure to comply with Section 2, Rule 3 of the
Rules of Court which requires that every action must be prosecuted in the name of
the real party in interest.
On January 23, 2002, the respondents again filed a motion to dismiss on the
grounds, among others, that the petitioners are not the real parties in interest to
institute and prosecute the case and that they have no valid cause of action against
the respondents.
The RTC Ruling
The RTC denied the respondents’ motion to dismiss. It ruled that, save for the
grounds for dismissal which may be raised at any stage of the proceedings, a motion
to dismiss based on the grounds invoked by the respondents may only be filed within
the time for, but before, the filing of their answer to the amended complaint. Thus,
even granting that the defenses invoked by the respondents are meritorious, their
motion was filed out of time as it was filed only after the conclusion of the pre-trial
conference. Furthermore, the rule on substitution of parties only applies when the
parties to the case die, which is not what happened in the present case.
The RTC likewise denied the respondents’ motion for reconsideration.
The respondents filed a petition for certiorari under Rule 65 of the Rules of Court
with the CA, invoking grave abuse of discretion in the denial of their motion to
dismiss. They argued that the deceased spouses Luciano and Lourdes, not the
petitioners, were the real parties in interest. Thus, the petitioners violated Section 16,
Rule 3 of the Rules of Court on the substitution of parties. Furthermore, they
seasonably moved for the dismissal of the case and the RTC never acquired
jurisdiction over the persons of the petitioners as heirs of Lourdes and Luciano.
The CA Ruling
The CA granted the petition and ruled that the RTC committed grave abuse of
discretion as the petitioners filed the complaint and the amended complaint as
attorneys-in-fact of their parents. As such, they are not the real parties in interest and
cannot bring an action in their own names; thus, the complaint should be
dismissed pursuant to the Court’s ruling in Casimiro v. Roque and Gonzales.
Neither are the petitioners suing as heirs of their deceased parents. Pursuant to
jurisprudence, the petitioners should first be declared as heirs before they can be
considered as the real parties in interest. This cannot be done in the present ordinary
civil case but in a special proceeding for that purpose.
The CA agreed with the respondents that they alleged the following issues as
affirmative defenses in their answer: 1) the petitioners are not the real parties in
interest; and 2) that they had no legal right to institute the action in behalf of their
parents. That the motion to dismiss was filed after the period to file an answer has
lapsed is of no moment. The RTC judge entertained it and passed upon its merit. He
was correct in doing so because in the pre-trial order, one of the submitted issues was
whether the case must be dismissed for failure to comply with the requirements of
the Rules of Court. Furthermore, in Dabuco v. Court of Appeals, the Court held that
the ground of lack of cause of action may be raised in a motion to dismiss at anytime.
The CA further ruled that, in denying the motion to dismiss, the RTC judge acted
contrary to established rules and jurisprudence which may be questioned via a
petition for certiorari. The phrase “grave abuse of discretion” which was traditionally
confined to “capricious and whimsical exercise of judgment” has been expanded to
include any action done “contrary to the Constitution, the law or jurisprudence[.]”
 The Parties’ Arguments
The petitioners filed the present petition and argued that, first, in annulling the
interlocutory orders, the CA unjustly allowed the motion to dismiss which did not
conform to the rules. Specifically, the motion was not filed within the time for, but
before the filing of, the answer to the amended complaint, nor were the grounds
raised in the answer. Citing Section 1, Rule 9 of the Rules of Court, the respondents
are to have waived these grounds, as correctly held by the RTC.
Second, even if there is non-joinder and misjoinder of parties or that the suit is
not brought in the name of the real party in interest, the remedy is not outright
dismissal of the complaint, but its amendment to include the real parties in interest.
Third, the petitioners sued in their own right because they have actual and
substantial interest in the subject matter of the action as heirs or co-owners,
pursuant to Section 2, Rule 3 of the Rules of Court. Their declaration as heirs in a
special proceeding is not necessary, pursuant to the Court’s ruling in Marabilles, et
al. v. Quito. Finally, the sworn declaration is evidentiary in nature which remains to
be appreciated after the trial is completed.
The respondents reiterated in their comment that the petitioners are not the real
parties in interest. They likewise argued that they moved for the dismissal of the case
during the pre-trial conference due to the petitioners’ procedural lapse in refusing to
comply with a condition precedent, which is, to substitute the heirs as plaintiffs.
Besides, an administrator of the estates of Luciano and Lourdes has already been
appointed.
The respondents also argued that the grounds invoked in their motion to dismiss
were timely raised, pursuant to Section 2, paragraphs g and i, Rule 18 of the Rules of
Court. Specifically, the nature and purposes of the pre-trial include, among others,
the dismissal of the action, should a valid ground therefor be found to exist; and such
other matters as may aid in the prompt disposition of the action. Finally, the special
civil action of certiorari was the proper remedy in assailing the order of the RTC.
The Court’s Ruling
We find the petition meritorious.
Petition for certiorari under Rule 65 is a proper remedy for a denial of a motion to
dismiss attended by grave abuse of discretion
In Barrazona v. RTC, Branch 61, Baguio City, the Court held that while an order
denying a motion to dismiss is interlocutory and nonappealable, certiorari and
prohibition are proper remedies to address an order of denial made without or in
excess of jurisdiction. The writ of certiorari is granted to keep an inferior court
within the bounds of its jurisdiction or to prevent it from committing grave abuse of
discretion amounting to lack or excess of jurisdiction.
The history and development of the ground “fails to state a cause of action” in the
1940, 1964 and the present 1997 Rules of Court
Preliminarily, a suit that is not brought in the name of the real party in interest is
dismissible on the ground that the complaint “fails to state a cause of
action.” Pursuant to jurisprudence, this is also the ground invoked when the
respondents alleged that the petitioners are not the real parties in interest because: 1)
the petitioners should not have filed the case in their own names, being merely
attorneys-in-fact of their mother; and 2) the petitioners should first be declared as
heirs.
A review of the 1940, 1964 and the present 1997 Rules of Court shows that the
fundamentals of the ground for dismissal based on “failure to state a cause of action”
have drastically changed over time. A historical background of this particular ground
is in order to preclude any confusion or misapplication of jurisprudence decided
prior to the effectivity of the present Rules of Court.
The 1940 Rules of Court provides under Section 10, Rule 9 that:
Section 10. Waiver of defenses.—Defenses and objections not pleaded either in
a motion to dismiss or in the answer are deemed waived; except the defense of failure
to state a cause of action, which may be alleged in a later pleading, if one is permitted,
or by motion for judgment on the pleadings, or at the trial on the merits; but in the
last instance, the motion shall be disposed of as provided in section 5 of Rule 17 in the
light of any evidence which may have been received. Whenever it appears that the
court has no jurisdiction over the subject-matter, it shall dismiss the action.
[underscoring supplied]
This provision was essentially reproduced in Section 2, Rule 9 of the 1964 Rules of
Court, and we quote:
Section 2. Defenses and objections not pleaded deemed waived.—Defenses and
objections not pleaded either in a motion to dismiss or in the answer are deemed
waived; except the failure to state a cause of action which may be alleged in a later
pleading, if one is permitted, or by motion for judgment on the pleadings, or at the
trial on the merits; but in the last instance, the motion shall be disposed of as
provided in section 5 of Rule 10 in the light of any evidence which may have been
received. Whenever it appears that the court has no jurisdiction over the subject-
matter, it shall dismiss the action. [underscoring supplied]
Under the present Rules of Court, this provision was reflected in Section 1, Rule 9,
and we quote:
 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. [underscoring
supplied]
Notably, in the present rules, there was a deletion of the ground of “failure to state
a cause of action” from the list of those which may be waived if not invoked either in
a motion to dismiss or in the answer.
Another novelty introduced by the present Rules, which was totally absent in its
two precedents, is the addition of the period of time within which a motion to dismiss
should be filed as provided under Section 1, Rule 16 and we quote:
Section 1. Grounds.—Within the time for but before filing the answer to the
complaint or pleading asserting a claim, a motion to dismiss may be made on any of
the following grounds: xxx [underscoring supplied]
All these considerations point to the legal reality that the new Rules effectively
restricted the dismissal of complaints in general, especially when what is being
invoked is the ground of “failure to state a cause of action.” Thus, jurisprudence
governed by the 1940 and 1964 Rules of Court to the effect that the ground for
dismissal based on failure to state a cause of action may be raised anytime during the
proceedings, is already inapplicable to cases already governed by the present Rules of
Court which took effect on July 1, 1997.
As the rule now stands, the failure to invoke this ground in a motion to dismiss or
in the answer would result in its waiver. According to Oscar M. Herrera,41 the reason
for the deletion is that failure to state a cause of action may be cured under Section 5,
Rule 10 and we quote:
Section 5. Amendment to conform to or authorize presentation of evidence.—
When issues not raised by the pleadings are tried with the express or implied consent
of the parties they shall be treated in all respects as if they had been raised in the
pleadings. Such amendment of the pleadings as may be necessary to cause them to
conform to the evidence and to raise these issues may be made upon motion of any
party at any time, even after judgment; but failure to amend does not effect the result
of the trial of these issues. If evidence is objected to at the trial on the ground that it is
not within the issues made by the pleadings, the court may allow the pleadings to be
amended and shall do so with liberality if the presentation of the merits of the action
and the ends of substantial justice will be subserved thereby. The court may grant a
continuance to enable the amendment to be made.
With this clarification, we now proceed to the substantial issues of the petition.
The motion to dismiss in the present case based on failure to state a cause of action
was not timely filed and was thus waived
Applying Rule 16 of the Rules of Court which provides for the grounds for the
dismissal of a civil case, the respondents’ grounds for dismissal fall under Section
1(g) and (j), Rule 16 of the Rules of Court, particularly, failure to state a cause of
action and failure to comply with a condition precedent (substitution of parties),
respectively.
The first paragraph of Section 1, Rule 16 of the Rules of Court provides for the
period within which to file a motion to dismiss under the grounds enumerated.
Specifically, the motion should be filed within the time for, but before the filing of,
the answer to the complaint or pleading asserting a claim. Equally important to this
provision is Section 1, Rule 9 of the Rules of Court which states that defenses and
objections not pleaded either in a motion to dismiss or in the answer are deemed
waived, except for the following grounds: 1) the court has no jurisdiction over the
subject matter; 2) litis pendencia; 3) res judicata; and 4) prescription.
Therefore, the grounds not falling under these four exceptions may be considered
as waived in the event that they are not timely invoked. As the respondents’ motion
to dismiss was based on the grounds which should be timely invoked, material to the
resolution of this case is the period within which they were raised.
Both the RTC and the CA found that the motion to dismiss was only filed after the
filing of the answer and after the pre-trial had been concluded. Because there was no
motion to dismiss before the filing of the answer, the respondents should then have
at least raised these grounds as affirmative defenses in their answer. The RTC’s
assailed orders did not touch on this particular issue but the CA ruled that the
respondents did, while the petitioners insist that the respondents did not. In the
present petition, the petitioners reiterate that there was a blatant non-observance of
the rules when the respondents did not amend their answer to invoke the grounds for
dismissal which were raised only during the pre-trial and, subsequently, in the
subject motion to dismiss.
The divergent findings of the CA and the petitioners’ arguments are essentially
factual issues. Time and again, we have held that the jurisdiction of the Court in a
petition for review on certiorari under Rule 45, such as the present case, is limited
only to questions of law, save for certain exceptions. One of these is attendant herein,
which is, when the findings are conclusions without citation of specific evidence on
which they are based.
In the petition filed with the CA, the respondents made a passing allegation that,
as affirmative defenses in their answer, they raised the issue that the petitioners are
not the real parties in interest. On the other hand, the petitioners consistently argued
otherwise in their opposition to the motion to dismiss, and in their comment and in
their memorandum on the respondents’ petition before the CA.
Our examination of the records shows that the CA had no basis in its finding that
the respondents alleged the grounds as affirmative defenses in their answer. The
respondents merely stated in their petition for certiorarithat they alleged the subject
grounds in their answer. However, nowhere in the petition did they support this
allegation; they did not even attach a copy of their answer to the petition. It is basic
that the respondents had the duty to prove by substantial evidence their positive
assertions. Considering that the petition for certiorari is an original and not an
appellate action, the CA had no records of the RTC’s proceedings upon which the CA
could refer to in order to validate the respondents’ claim. Clearly, other than the
respondents’ bare allegations, the CA had no basis to rule, without proof, that the
respondents alleged the grounds for dismissal as affirmative defenses in the answer.
The respondents, as the parties with the burden of proving that they timely raised
their grounds for dismissal, could have at least attached a copy of their answer to the
petition. This simple task they failed to do.
That the respondents did not allege in their answer the subject grounds is made
more apparent through their argument, both in their motion to dismiss and in their
comment, that it was only during the pre-trial stage that they verbally manifested
and invited the attention of the lower court on their grounds for dismissal. In order
to justify such late invocation, they heavily relied on Section 2(g) and (i), Rule 18 of
the Rules of Court that the nature and purpose of the pre-trial include, among others,
the propriety of dismissing the action should there be a valid ground therefor and
matters which may aid in the prompt disposition of the action.
The respondents are not correct. The rules are clear and require no interpretation.
Pursuant to Section 1, Rule 9 of the Rules of Court, a motion to dismiss based on the
grounds invoked by the respondents may be waived if not raised in a motion to
dismiss or alleged in their answer. On the other hand, “the pre-trial is primarily
intended to make certain that all issues necessary to the disposition of a case are
properly raised. The purpose is to obviate the element of surprise, hence, the parties
are expected to disclose at the pre-trial conference all issues of law and fact which
they intend to raise at the trial, except such as may involve privileged or impeaching
matter.” The issues submitted during the pre-trial are thus the issues that would
govern the trial proper. The dismissal of the case based on the grounds invoked by
the respondents are specifically covered by Rule 16 and Rule 9 of the Rules of Court
which set a period when they should be raised; otherwise, they are deemed waived.
The Dabuco ruling is inapplicable in the present case; the ground for dismissal
“failure to state a cause of action” distinguished from “lack of cause of action”
To justify the belated filing of the motion to dismiss, the CA reasoned out that the
ground for dismissal of “lack of cause of action” may be raised at any time during the
proceedings, pursuant to Dabuco v. Court of Appeals. This is an erroneous
interpretation and application of Dabuco as will be explained below.
First, in Dabuco, the grounds for dismissal were raised as affirmative defenses in
the answer which is in stark contrast to the present case. Second, in Dabuco, the
Court distinguished between the dismissal of the complaint for “failure to state a
cause of action” and “lack of cause of action.” The Court emphasized that in a
dismissal of action for lack of cause of action, “questions of fact are involved,
[therefore,] courts hesitate to declare a plaintiff as lacking in cause of action. Such
declaration is postponed until the insufficiency of cause is apparent from a
preponderance of evidence. Usually, this is done only after the parties have been
given the opportunity to present all relevant evidence on such questions of fact.” In
fact, in Dabuco, the Court held that even the preliminary hearing on the propriety of
lifting the restraining order was declared insufficient for purposes of dismissing the
complaint for lack of cause of action. This is so because the issues of fact had not yet
been adequately ventilated at that preliminary stage. For these reasons, the Court
declared in Dabuco that the dismissal by the trial court of the complaint was
premature.
In the case of Macaslang v. Zamora, the Court noted that the incorrect
appreciation by both the RTC and the CA of the distinction between the dismissal of
an action, based on “failure to state a cause of action” and “lack of cause of action,”
prevented it from properly deciding the case, and we quote:
Failure to state a cause of action and lack of cause of action are really different
from each other. On the one hand, failure to state a cause of action refers to the
insufficiency of the pleading, and is a ground for dismissal under Rule 16 of the Rules
of Court. On the other hand, lack of cause [of] action refers to a situation where the
evidence does not prove the cause of action alleged in the pleading. Justice Regalado,
a recognized commentator on remedial law, has explained the distinction:
xxx What is contemplated, therefore, is a failure to state a cause of action which is
provided in Sec. 1(g) of Rule 16. This is a matter of insufficiency of the pleading. Sec.
5 of Rule 10, which was also included as the last mode for raising the issue to the
court, refers to the situation where the evidence does not prove a cause of action. This
is, therefore, a matter of insufficiency of evidence. Failure to state a cause of action is
different from failure to prove a cause of action. The remedy in the first is to move for
dismissal of the pleading, while the remedy in the second is to demur to the evidence,
hence reference to Sec. 5 of Rule 10 has been eliminated in this section. The
procedure would consequently be to require the pleading to state a cause of action, by
timely objection to its deficiency; or, at the trial, to file a demurrer to evidence, if such
motion is warranted. [italics supplied]
 Based on this discussion, the Court cannot uphold the dismissal of the present
case based on the grounds invoked by the respondents which they have waived for
failure to invoke them within the period prescribed by the Rules. The Court cannot
also dismiss the case based on “lack of cause of action” as this would require at least a
preponderance of evidence which is yet to be appreciated by the trial court.
Therefore, the RTC did not commit grave abuse of discretion in issuing the
assailed orders denying the respondents’ motion to dismiss and motion for
reconsideration. The Court shall not resolve the merits of the respondents’ grounds
for dismissal which are considered as waived.
Other heirs of the spouses Pacaña to be impleaded in the case
It should be emphasized that insofar as the petitioners are concerned, the
respondents have waived the dismissal of the complaint based on the ground of
failure to state a cause of action because the petitioners are not the real parties in
interest.
At this juncture, a distinction between a real party in interest and an
indispensable party is in order. In Carandang v. Heirs of de Guzman, et al., the
Court clarified these two concepts and held that “[a] real party in interest is the
party who stands to be benefited or injured by the judgment of the suit, or the party
entitled to the avails of the suit. On the other hand, anindispensable party is a
party in interest without whom no final determination can be had of an action, in
contrast to a necessary party, which is one who is not indispensable but who
ought to be joined as a party if complete relief is to be accorded as to those already
parties, or for a complete determination or settlement of the claim subject of the
action. xxx If a suit is not brought in the name of or against the real party in interest,
a motion to dismiss may be filed on the ground that the complaint states no cause of
action. However, the dismissal on this ground entails an examination of whether the
parties presently pleaded are interested in the outcome of the litigation,
and not whether all persons interested in such outcome are actually pleaded. The
latter query is relevant in discussions concerning indispensable and necessary
parties, but not in discussions concerning real parties in interest. Both indispensable
and necessary parties are considered as real parties in interest, since both classes of
parties stand to be benefited or injured by the judgment of the suit.”
At the inception of the present case, both the spouses Pacaña were not impleaded
as parties-plaintiffs. The Court notes, however, that they are indispensable parties to
the case as the alleged owners of Rovila Water Supply. Without their inclusion as
parties, there can be no final determination of the present case. They possess such an
interest in the controversy that a final decree would necessarily affect their rights, so
that the courts cannot proceed without their presence. Their interest in the subject
matter of the suit and in the relief sought is inextricably intertwined with that of the
other parties.
Jurisprudence on the procedural consequence of the inclusion or non-inclusion of
an indispensable party is divided in our jurisdiction. Due to the non-inclusion of
indispensable parties, the Court dismissed the case in Lucman v. Malawi, et al.
and Go v. Distinction Properties Development Construction, Inc., while in Casals, et
al. v. Tayud Golf and Country Club et al., the Court annulled the judgment which
was rendered without the inclusion of the indispensable parties.
In Arcelona et al. v. Court of Appeals and Bulawan v. Aquende, and Metropolitan
Bank & Trust Company v. Alejo et al. the Court ruled that the burden to implead or
order the impleading of an indispensable party rests on the plaintiff and on the trial
court, respectively. Thus, the non-inclusion of the indispensable parties, despite
notice of this infirmity, resulted in the annulment of these cases.
In Plasabas, et al. v. Court of Appeals, et al., the Court held that the trial court
and the CA committed reversible error when they summarily dismissed the case,
after both parties had rested their cases following a protracted trial, on the sole
ground of failure to implead indispensable parties. Non-joinder of indispensable
parties is not a ground for the dismissal of an action. The remedy is to implead the
non-party claimed to be indispensable.
However, in the cases of Quilatan, et al. v. Heirs of Quilatan, et al. and Lagunilla,
et al. v. Monis, et al., the Court remanded the case to the RTC for the impleading of
indispensable parties. On the other hand, in Lotte Phil. Co., Inc. v. Dela Cruz,
PepsiCo, Inc. v. Emerald Pizza, and Valdez-Tallorin v. Heirs of Tarona, et al., the
Court directly ordered that the indispensable parties be impleaded.
Mindful of the differing views of the Court as regards the legal effects of the non-
inclusion of indispensable parties, the Court clarified in Republic of the Philippines v.
Sandiganbayan, et al., that the failure to implead indispensable parties is a curable
error and the foreign origin of our present rules on indispensable parties permitted
this corrective measure. This cited case held:
Even in those cases where it might reasonably be argued that the failure of the
Government to implead the sequestered corporations as defendants is indeed a
procedural aberration xxx, slight reflection would nevertheless lead to the conclusion
that the defect is not fatal, but one correctible under applicable adjective rules — e.g.,
Section 10, Rule 5 of the Rules of Court [specifying the remedy of amendment during
trial to authorize or to conform to the evidence]; Section 1, Rule 20 [governing
amendments before trial], in relation to the rule respecting omission of so-called
necessary or indispensable parties, set out in Section 11, Rule 3 of the Rules of Court.
It is relevant in this context to advert to the old familiar doctrines that the omission to
 implead such parties “is a mere technical defect which can be cured at any stage of
the proceedings even after judgment”; and that, particularly in the case of
indispensable parties, since their presence and participation is essential to the very
life of the action, for without them no judgment may be rendered, amendments of the
complaint in order to implead them should be freely allowed, even on appeal, in fact
even after rendition of judgment by this Court, where it appears that the complaint
otherwise indicates their identity and character as such indispensable parties.”
Although there are decided cases wherein the non-joinder of indispensable parties
in fact led to the dismissal of the suit or the annulment of judgment, such cases do
not jibe with the matter at hand. The better view is that non-joinder is not a ground to
dismiss the suit or annul the judgment. The rule on joinder of indispensable parties is
founded on equity. And the spirit of the law is reflected in Section 11, Rule 3 of the
1997 Rules of Civil Procedure. It prohibits the dismissal of a suit on the ground of
non-joinder or misjoinder of parties and allows the amendment of the complaint at
any stage of the proceedings, through motion or on order of the court on its own
initiative.
Obviously, in the present case, the deceased Pacañas can no longer be included in
the complaint as indispensable parties because of their death during the pendency of
the case.
Upon their death, however, their ownership and rights over their properties were
transmitted to their heirs, including herein petitioners, pursuant to Article 774 in
relation with Article 777 of the Civil Code. In Orbeta, et al. v. Sendiong, the Court
acknowledged that the heirs, whose hereditary rights are to be affected by the case,
are deemed indispensable parties who should have been impleaded by the trial court.
Therefore, to obviate further delay in the proceedings of the present case and
given the Court’s authority to order the inclusion of an indispensable party at any
stage of the proceedings, the heirs of the spouses Pacaña, except the petitioners who
are already parties to the case and Lagrimas Pacaña-Gonzalez who intervened in the
case, are hereby ordered impleaded as parties-plaintiffs.

Likewise, jurisprudence on the Federal Rules of Procedure, from which our
Section 7, Rule 3 on indispensable parties was copied, allows the joinder of
indispensable parties even after judgment has been entered if such is needed to afford
the moving party full relief. Mere delay in filing the joinder motion does not
necessarily result in the waiver of the right as long as the delay is excusable.
In Galicia, et al. v. Vda. De Mindo, et al., the Court ruled that in line with its
policy of promoting a just and inexpensive disposition of a case, it allowed the
intervention of the indispensable parties instead of dismissing the complaint.
Furthermore, in Commissioner Domingo v. Scheer, the Court cited Salvador, et al. v.
Court of Appeals, et al. and held that the Court has full powers, apart from that
power and authority which are inherent, to amend the processes, pleadings,
proceedings and decisions by substituting as party-plaintiff the real party in interest.
The Court has the power to avoid delay in the disposition of this case, and to order its
amendment in order to implead an indispensable party.
WHEREFORE, the petition is GRANTED. The decision dated January 27,
2005 and the resolution dated June 6, 2005 of the Court of Appeals in CA-G.R. SP
No. 71551 are REVERSED and SET ASIDE. The heirs of the spouses Luciano and
Lourdes Pacaña, except herein petitioners and Lagrimas Pacaña-Gonzalez,
are ORDERED IMPLEADED as partiesplaintiffs and the RTC is directed to
proceed with the trial of the case with DISPATCH. SO ORDERED.
Note.—Failure to state a cause of action and lack of cause of action are really
different from each other. (Macaslang vs. Zamora, 649 SCRA 92 [2011])
——o0o——

With these discussions as premises, the Court is of the view that the proper
remedy in the present case is to implead the indispensable parties especially when
their non-inclusion is merely a technical defect. To do so would serve proper
administration of justice and prevent further delay and multiplicity of suits. Pursuant
to Section 9, Rule 3 of the Rules of Court, parties may be added by order of the court
on motion of the party or on its own initiative at any stage of the action. If the
plaintiff refuses to implead an indispensable party despite the order of the court,
then the court may dismiss the complaint for the plaintiff’s failure to comply with a
lawful court order. The operative act that would lead to the dismissal of the case
would be the refusal to comply with the directive of the court for the joinder of an
indispensable party to the case.
 G.R. No. 174353. September 10, 2014.*
NESTOR CHING and ANDREW WELLINGTON, petitioners, vs. SUBIC
BAY GOLF AND COUNTRY CLUB, INC., HU HO HSIU LIEN alias SUSAN
HU, HU TSUNG CHIEH alias JACK HU, HU TSUNG HUI, HU TSUNG
TZU and REYNALD R. SUAREZ, respondents.
Remedial Law; Actions; Jurisdiction; The nature of an action, as well as which
court or body has jurisdiction over it, is determined based on the allegations contained
in the complaint of the plaintiff, irrespective of whether or not the plaintiff is entitled to
recover upon all or some of the claims asserted therein.—On the issue of whether the
Complaint is indeed a derivative suit, we are mindful of the doctrine that the nature of an
action, as well as which court or body has jurisdiction over it, is determined based on the
allegations contained in the complaint of the plaintiff, irrespective of whether or not the
plaintiff is entitled to recover upon all or some of the claims asserted therein. We have
also held that the body rather than the title of the complaint determines the nature of an
action.
Corporation Law; Derivative Suits; It is settled that a stockholder’s right to
institute a derivative suit is not based on any express provision of the Corporation
Code, or even the Securities Regulation Code, but is impliedly recognized when the said
laws make corporate directors or officers liable for damages suffered by the
corporation and its stockholders for violation of their fiduciary duties.—As minority
stockholders, petitioners do not have any statutory right to override the business
judgments of SBGCCI’s officers and Board of Directors on the ground of the latter’s
alleged lack of qualification to manage a golf course. Contrary to the arguments of
petitioners, Presidential Decree No. 902-A, which is entitled REORGANIZATION OF
THE SECURITIES AND EXCHANGE COMMISSION WITH ADDITIONAL POWERS
AND PLACING THE SAID AGENCY UNDER THE ADMINISTRATIVE SUPERVISION
OF THE OFFICE OF THE PRESIDENT, does not grant minority stockholders a cause of
action against waste and diversion by the Board of Directors, but merely identifies the
jurisdiction of the SEC over actions already authorized by law or jurisprudence. It is
settled that a stockholder’s right to institute a derivative suit is not based on any express
provision of the Corporation Code, or even the Securities Regulation Code, but is
impliedly recognized when the said laws make corporate directors or officers liable for
damages suffered by the corporation and its stockholders for violation of their fiduciary
duties.
Same; Same; The legal standing of minority stockholders to bring derivative suits
is not a statutory right, there being no provision in the Corporation Code or related
statutes authorizing the same, but is instead a product of jurisprudence based on
equity.—We should take note that while there were allegations in the Complaint of fraud
in their subscription agreements, such as the misrepresentation of the Articles of
Incorporation, petitioners do not pray for the rescission of their subscription or seek to
avail of their appraisal rights. Instead, they ask that defendants be enjoined from
managing the corporation and to pay damages for their mismanagement. Petitioners’
only possible cause of action as minority stockholders against the actions of the Board of
Directors is the common law right to file a derivative suit. The legal standing of minority
stockholders to bring derivative suits is not a statutory right, there being no provision in
the Corporation Code or related statutes authorizing the same, but is instead a product of
jurisprudence based on equity. However, a derivative suit cannot prosper without first
complying with the legal requisites for its institution.
Same; Same; Even if petitioners thought it was futile to exhaust intra-corporate
remedies, they should have stated the same in the Complaint and specified the reasons
for such opinion.—We find that petitioners failed to state with particularity in the
Complaint that they had exerted all reasonable efforts to exhaust all remedies available
under the articles of incorporation, bylaws, and laws or rules governing the corporation
to obtain the relief they desire. The Complaint contained no allegation whatsoever of any
effort to avail of intra-corporate remedies. Indeed, even if petitioners thought it was futile
to exhaust intra-corporate remedies, they should have stated the same in the Complaint
and specified the reasons for such opinion. Failure to do so allows the RTC to dismiss the
Complaint, even motu proprio, in accordance with the Interim Rules. The requirement of
this allegation in the Complaint is not a useless formality which may be disregarded at
will.
LEONARDO-DE CASTRO, ** J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
seeking the review of the Decision dated October 27, 2005 of the Court of Appeals in
C.A.-G.R. CV No. 81441, which affirmed the Order2 dated July 8, 2003 of the
Regional Trial Court (RTC), Branch 72 of Olongapo City in Civil Case No. 03-001
dismissing the Complaint filed by herein petitioners.
On February 26, 2003, petitioners Nestor Ching and Andrew Wellington filed a
Complaint with the RTC of Olongapo City on behalf of the members of Subic Bay Golf
and Country Club, Inc. (SBGCCI) against the said country club and its Board of
Directors and officers under the provisions of Presidential Decree No. 902-A in
relation to Section 5.2 of the Securities Regulation Code. The Subic Bay Golfers and
Shareholders, Incorporated (SBGSI), a corporation composed of shareholders of the
defendant corporation, was also named as plaintiff. The officers impleaded as
defendants were the following: (1) its President, Hu Ho Hsiu Lien alias Susan Hu; (2)
its treasurer, Hu Tsung Chieh alias Jack Hu; (3) corporate secretary Reynald Suarez;
and (4) directors Hu Tsung Hui and Hu Tsung Tzu. The case was docketed as Civil
Case No. 03-001.
The complaint alleged that the defendant corporation sold shares to plaintiffs at
US$22,000.00 per share, presenting to them the Articles of Incorporation which
contained the following provision:
 No profit shall inure to the exclusive benefit of any of its shareholders, hence, no
dividends shall be declared in their favor. Shareholders shall be entitled only to a pro
rata share of the assets of the Club at the time of its dissolution or liquidation.
However, on June 27, 1996, an amendment to the Articles of Incorporation was
approved by the Securities and Exchange Commission (SEC), wherein the above
provision was changed as follows:
No profit shall inure to the exclusive benefit of any of its shareholders, hence, no
dividends shall be declared in their favor. In accordance with the Lease and
Development Agreement by and between Subic Bay Metropolitan Authority and The
Universal International Group of Taiwan, where the golf course and clubhouse
component thereof was assigned to the Club, the shareholders shall not have
proprietary rights or interests over the properties of the Club. x x x. 5 defied this Order.
(Emphasis supplied)
Petitioners claimed in the Complaint that defendant corporation did not disclose
to them the above amendment which allegedly makes the shares nonproprietary, as it
takes away the right of the shareholders to participate in the pro rata distribution of
the assets of the corporation after its dissolution. According to petitioners, this is in
fraud of the stockholders who only discovered the amendment when they filed a case
for injunction to restrain the corporation from suspending their rights to use all the
facilities of the club. Furthermore, petitioners alleged that the Board of Directors and
officers of the corporation did not call any stockholders’ meeting from the time of the
incorporation, in violation of Section 50 of the Corporation Code and the By-Laws of
the corporation. Neither did the defendant directors and officers furnish the
stockholders with the financial statements of the corporation nor the financial report
of the operation of the corporation in violation of Section 75 of the Corporation
Code. Petitioners also claim that on August 15, 1997, SBGCCI presented to the SEC
an amendment to the By-Laws of the corporation suspending the voting rights of the
shareholders except for the five founders’ shares. Said amendment was allegedly
passed without any stockholders’ meeting or notices to the stockholders in violation
of Section 48 of the Corporation Code.
The Complaint furthermore enumerated several instances of fraud in the
management of the corporation allegedly committed by the Board of Directors and
officers of the corporation, particularly:
a. The Board of Directors and the officers of the corporation did not indicate in its
financial report for the year 1999 the amount of P235,584,000.00 collected from the
subscription of 409 shareholders who paid US$22,000.00 for one (1) share of stock
at the then prevailing rate of P26.18 to a dollar. The stockholders were not informed
how these funds were spent or its whereabouts.
b. The Corporation has been collecting green fees from the patrons of the golf
course at an average sum of P1,600.00 per eighteen (18) holes but the income is not
reported in their yearly report. The yearly report for the year 1999 contains the report
of the Independent Public Accountant who stated that the company was incorporated
on April 1, 1996 but has not yet started its regular business operation. The golf course
has been in operation since 1997 and as such has collected green fees from
nonmembers and foreigners who played golf in the club. There is no financial report
as to the income derived from these sources.
c. There is reliable information that the Defendant Corporation has not paid its
rentals to the Subic Bay Metropolitan Authority which up to the present is estimated
to be not less than one (1) million US Dollars. Furthermore, the electric billings of the
corporation [have] not been paid which amounts also to several millions of pesos.
d. That the Supreme Court sustained the pretermination of its contract with the
SBMA and presently the club is operating without any valid contract with SBMA. The
defendant was ordered by the Supreme Court to yield the possession, the operation
and the management of the golf course to SBMA. Up to now the defendants [have]
e. That the value of the shares of stock of the corporation has drastically declined
from its issued value of US$22,000.00 to only Two Hundred Thousand Pesos,
(P200,000.00) Philippine Currency. The shareholders [have] lost in terms of
investment the sum estimated to be more than two hundred thousand pesos. This
loss is due to the fact that the Club is mismanaged and the golf course is poorly
maintained. Other amenities of the Club has (sic) not yet been constructed and are
not existing despite the lapse of more than five (5) years from the time the stocks
were offered for sale to the public. The cause of the decrease in value of the shares of
stocks is the fraudulent mismanagement of the club.
Alleging that the stockholders suffered damages as a result of the fraudulent
mismanagement of the corporation, petitioners prayed in their Complaint for the
following:
WHEREFORE, it is most respectfully prayed that upon the filing of this case a
temporary restraining order be issued enjoining the defendants from acting as
Officers and Board of Directors of the Corporation. After hearing[,] a writ of
preliminary injunction be issued enjoining defendants to act as Board of Directors
and Officers of the Corporation. In the meantime a Receiver be appointed by the
Court to act as such until a duly constituted Board of Directors and Officers of the
Corporation be elected and qualified.
That defendants be ordered to pay the stockholders damages in the sum of Two
Hundred Thousand Pesos each representing the decrease in value of their shares of
stocks plus the sum of P100,000.00 as legal expense and attorney’s fees, as well as
appearance fee of P4,000.00 per hearing.
In their Answer, respondents specifically denied the allegations of the Complaint
and essentially averred that:
(a) The subscriptions of the 409 shareholders were paid to Universal
International Group Development Corporation (UIGDC), the majority shareholder of
SBGCCI, from whom plaintiffs and other shareholders bought their shares;
 (b) Contrary to the allegations in the Complaint, said subscriptions were
reflected in SBGCCI’s balance sheets for the fiscal years 1998 and 1999;
(c) Plaintiffs were never presented the original Articles of Incorporation of
SBGCCI since their shares were purchased after the amendment of the Articles of
Incorporation and such amendment was publicly known to all members prior and
subsequent to the said amendment;
(d) Shareholders’ meetings had been held and the corporate acts complained of
were approved at shareholders’ meetings;
(e) Financial statements of SBGCCI had always been presented to shareholders
justifiably requesting copies;
(f) Green fees collected were reported in SBGCCI’s audited financial statements;
(g) Any unpaid rentals are the obligation of UIGDC with SBMA and SBGCCI
continued to operate under a valid contract with the SBMA; and
(h) SBGCCI’s Board of Directors was not guilty of any mismanagement and in
fact the value of members’ shares have increased.
Respondents further claimed by way of defense that petitioners failed (a) to show
that it was authorized by SBGSI to file the Complaint on the said corporation’s
behalf; (b) to comply with the requisites for filing a derivative suit and an action for
receivership; and (c) to justify their prayer for injunctive relief since the Complaint
may be considered a nuisance or harassment suit under Section 1(b), Rule 1 of the
Interim Rules of Procedure for Intra-Corporate Controversies.16 Thus, they prayed for
the dismissal of the Complaint.
On July 8, 2003, the RTC issued an Order dismissing the Complaint. The RTC
held that the action is a derivative suit, explaining thus:
The Court finds that this case is intended not only for the benefit of the two
petitioners. This is apparent from the caption of the case which reads Nestor Ching,
Andrew Wellington and the Subic Bay Golfers and Shareholders, Inc., for and in
behalf of all its members as petitioners.
This is also shown in the allegations of the petition[.] x x x.
On the bases of these allegations of the petition, the Court finds that the case is a
derivative suit. Being a derivative suit in accordance with Rule 8 of the Interim
Rules, the stockholders and members may bring an action in the name of the
corporation or association provided that he (the minority stockholder) exerted all
reasonable efforts and allege[d] the same with particularity in the complaint to
exhaust of (sic) all remedies available under the articles of incorporation, bylaws or
rules governing the corporation or partnership to obtain the reliefs he desires. An
examination of the petition does not show any allegation that the petitioners applied
for redress to the Board of Directors of respondent corporation there being no
demand, oral or written on the respondents to address their complaints. Neither did
the petitioners appl[y] for redress to the stockholders of the respondent corporation
and ma[k]e an effort to obtain action by the stockholders as a whole. Petitioners
should have asked the Board of Directors of the respondent corporation and/or its
stockholders to hold a meeting for the taking up of the petitioners’ rights in this
petition.
The RTC held that petitioners failed to exhaust their remedies within the
respondent corporation itself. The RTC further observed that petitioners Ching and
Wellington were not authorized by their co-petitioner Subic Bay Golfers and
Shareholders, Inc. to file the Complaint, and therefore had no personality to file the
same on behalf of the said shareholders’ corporation. According to the RTC, the
shareholdings of petitioners comprised of two shares out of the 409 alleged
outstanding shares or 0.24% is an indication that the action is a nuisance or
harassment suit which may be dismissed either motu proprio or upon motion in
accordance with Section 1(b) of the Interim Rules of Procedure for Intra-Corporate
Controversies.
Petitioners Ching and Wellington elevated the case to the Court of Appeals, where
it was docketed as C.A.-G.R. CV No. 81441. On October 27, 2005, the Court of
Appeals rendered the assailed Decision affirming that of the RTC.
Hence, petitioners resort to the present Petition for Review, wherein they argue
that the Complaint they filed with the RTC was not a derivative suit. They claim that
they filed the suit in their own right as stockholders against the officers and Board of
Directors of the corporation under Section 5(a) of Presidential Decree No. 902-A,
which provides:
Sec. 5. In addition to the regulatory and adjudicative functions of the
Securities and Exchange Commission over corporations, partnerships and other
forms of associations registered with it as expressly granted under existing laws and
decrees, it shall have original and exclusive jurisdiction to hear and decide cases
involving:
(a) Devices or schemes employed by or any acts of the board of directors,
business associates, its officers or partners, amounting to fraud and
misrepresentation which may be detrimental to the interest of the public and/or of
the stockholders, partners, members of associations or organizations registered with
the Commission.
According to petitioners, the above provision (which should be read in relation to
Section 5.2 of the Securities Regulation Code which transfers jurisdiction over such
cases to the RTC) allows any stockholder to file a complaint against the Board of
Directors for employing devices or schemes amounting to fraud and
misrepresentation which is detrimental to the interest of the public and/or the
stockholders.
 In the alternative, petitioners allege that if this Court rules that the Complaint is a
derivative suit, it should nevertheless reverse the RTC’s dismissal thereof on the
ground of failure to exhaust remedies within the corporation. Petitioners
cite Republic Bank v. Cuaderno wherein the Court allowed the derivative suit even
without the exhaustion of said remedies as it was futile to do so since the Board of
Directors were all members of the same family. Petitioners also point out that
in Cuaderno this Court held that the fact that therein petitioners had only one share
of stock does not justify the denial of the relief prayed for.
To refute the lower courts’ ruling that there had been non-exhaustion of intra-
corporate remedies on petitioners’ part, they claim that they filed in Court a case for
Injunction docketed as Civil Case No. 103-0-01, to restrain the corporation from
suspending their rights to use all the facilities of the club, on the ground that the club
cannot collect membership fees until they have completed the amenities as
advertised when the shares of stock were sold to them. They allegedly asked the Club
to produce the minutes of the meeting of the Board of Directors allowing the
amendments of the Articles of Incorporation and By-Laws. Petitioners likewise assail
the dismissal of the Complaint for being a harassment or nuisance suit before the
presentation of evidence. They claim that the evidence they were supposed to present
will show that the members of the Board of Directors are not qualified managers of a
golf course.
We find the petition unmeritorious.
At the outset, it should be noted that the Complaint in question appears to have
been filed only by the two petitioners, namely Nestor Ching and Andrew Wellington,
who each own one stock in the respondent corporation SBGCCI. While the caption of
the Complaint also names the “Subic Bay Golfers and Shareholders, Inc. for and in
behalf of all its members,” petitioners did not attach any authorization from said
alleged corporation or its members to file the Complaint. Thus, the Complaint is
deemed filed only by petitioners and not by SBGSI.
On the issue of whether the Complaint is indeed a derivative suit, we are mindful
of the doctrine that the nature of an action, as well as which court or body has
jurisdiction over it, is determined based on the allegations contained in the
complaint of the plaintiff, irrespective of whether or not the plaintiff is entitled to
recover upon all or some of the claims asserted therein. We have also held that the
body rather than the title of the complaint determines the nature of an action.
In Cua, Jr. v. Tan, the Court previously elaborated on the distinctions among a
derivative suit, an individual suit, and a representative or class suit:
A derivative suit must be differentiated from individual and representative or
class suits, thus:
“Suits by stockholders or members of a corporation based on wrongful or
fraudulent acts of directors or other persons may be classified into individual suits,
class suits, and derivative suits. Where a stockholder or member is denied the right of
inspection, his suit would be individual because the wrong is done to him
personally and not to the other stockholders or the corporation. Where the wrong is
done to a group of stockholders, as where preferred stockholders’ rights are violated,
a class or representative suit will be proper for the protection of all stockholders
belonging to the same group. But where the acts complained of constitute a wrong to
the corporation itself, the cause of action belongs to the corporation and not to the
individual stockholder or member. Although in most every case of wrong to the
corporation, each stockholder is necessarily affected because the value of his interest
therein would be impaired, this fact of itself is not sufficient to give him an individual
cause of action since the corporation is a person distinct and separate from him, and
can and should itself sue the wrongdoer. Otherwise, not only would the theory of
separate entity be violated, but there would be multiplicity of suits as well as a
violation of the priority rights of creditors. Furthermore, there is the difficulty of
determining the amount of damages that should be paid to each individual
stockholder.
However, in cases of mismanagement where the wrongful acts are committed by
the directors or trustees themselves, a stockholder or member may find that he has
no redress because the former are vested by law with the right to decide whether or
not the corporation should sue, and they will never be willing to sue themselves. The
corporation would thus be helpless to seek remedy. Because of the frequent
occurrence of such a situation, the common law gradually recognized the right of a
stockholder to sue on behalf of a corporation in what eventually became known as a
“derivative suit.” It has been proven to be an effective remedy of the minority
against the abuses of management. Thus, an individual stockholder is permitted to
institute a derivative suit on behalf of the corporation wherein he holds stock in order
to protect or vindicate corporate rights, whenever officials of the corporation refuse to
sue or are the ones to be sued or hold the control of the corporation. In such actions,
the suing stockholder is regarded as the nominal party, with the corporation as the
party-in-interest.”
xxxx
Indeed, the Court notes American jurisprudence to the effect that a derivative
suit, on one hand, and individual and class suits, on the other, are mutually
exclusive, viz.:
“As the Supreme Court has explained: A shareholder’s derivative suit seeks to
recover for the benefit of the corporation and its whole body of shareholders when
injury is caused to the corporation that may not otherwise be redressed because of
failure of the corporation to act. Thus, ‘the action is derivative, i.e., in the corporate
right, if the gravamen of the complaint is injury to the corporation, or to the whole
body of its stock and property without any severance or distribution among
 individual holders, or it seeks to recover assets for the corporation or to prevent the
dissipation of its assets.’ x x x. In contrast, a directaction [is one] filed by the
shareholder individually (or on behalf of a class of shareholders to which he or she
belongs) for injury to his or her interest as a shareholder. x x x. [T]he two actions
are mutually exclusive: i.e., the right of action and recovery belongs to
either the shareholders (direct action) *651 or
the corporation (derivative action).” x x x.
Thus, in Nelson v. Anderson (1999), x x x, the **289 minority shareholder alleged
that the other shareholder of the corporation negligently managed the business,
resulting in its total failure. x x x. The appellate court concluded that the plaintiff
could not maintain the suit as a direct action: “Because the gravamen of the
complaint is injury to the whole body of its stockholders, it was for the corporation to
institute and maintain a remedial action. x x x. A derivative action would have been
appropriate if its responsible officials had refused or failed to act.” x x x. The court
went on to note that the damages shown at trial were the loss of corporate profits.
x x x. Since “[s]hareholders own neither the property nor the earnings of the
corporation,” any damages that the plaintiff alleged that resulted from such loss of
corporate profits “were incidental to the injury to the corporation.” (Citations
omitted)
The reliefs sought in the Complaint, namely that of enjoining defendants from
acting as officers and Board of Directors of the corporation, the appointment of a
receiver, and the prayer for damages in the amount of the decrease in the value of the
shares of stock, clearly show that the Complaint was filed to curb the alleged
mismanagement of SBGCCI. The causes of action pleaded by petitioners do not
accrue to a single shareholder or a class of shareholders but to the corporation itself.
However, as minority stockholders, petitioners do not have any statutory right to
override the business judgments of SBGCCI’s officers and Board of Directors on the
ground of the latter’s alleged lack of qualification to manage a golf course. Contrary
to the arguments of petitioners, Presidential Decree No. 902-A, which is entitled
REORGANIZATION OF THE SECURITIES AND EXCHANGE COMMISSION WITH
ADDITIONAL POWERS AND PLACING THE SAID AGENCY UNDER THE
ADMINISTRATIVE SUPERVISION OF THE OFFICE OF THE PRESIDENT, does
not grant minority stockholders a cause of action against waste and diversion by the
Board of Directors, but merely identifies the jurisdiction of the SEC over actions
already authorized by law or jurisprudence. It is settled that a stockholder’s right to
institute a derivative suit is not based on any express provision of the Corporation
Code, or even the Securities Regulation Code, but is impliedly recognized when the
said laws make corporate directors or officers liable for damages suffered by the
corporation and its stockholders for violation of their fiduciary duties.
At this point, we should take note that while there were allegations in the
Complaint of fraud in their subscription agreements, such as the misrepresentation
of the Articles of Incorporation, petitioners do not pray for the rescission of their
subscription or seek to avail of their appraisal rights. Instead, they ask that
defendants be enjoined from managing the corporation and to pay damages for their
mismanagement. Petitioners’ only possible cause of action as minority stockholders
against the actions of the Board of Directors is the common law right to file a
derivative suit. The legal standing of minority stockholders to bring derivative suits is
not a statutory right, there being no provision in the Corporation Code or related
statutes authorizing the same, but is instead a product of jurisprudence based on
equity. However, a derivative suit cannot prosper without first complying with the
legal requisites for its institution.
Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate
Controversies imposes the following requirements for derivative suits:
(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,
bylaws, 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.
The RTC dismissed the Complaint for failure to comply with the second and
fourth requisites above.
Upon a careful examination of the Complaint, this Court finds that the same
should not have been dismissed on the ground that it is a nuisance or harassment
suit. Although the shareholdings of petitioners are indeed only two out of the 409
alleged outstanding shares or 0.24%, the Court has held that it is enough that a
member or a minority of stockholders file a derivative suit for and in behalf of a
corporation.
With regard, however, to the second requisite, we find that petitioners failed to
state with particularity in the Complaint that they had exerted all reasonable efforts
to exhaust all remedies available under the articles of incorporation, by-laws, and
laws or rules governing the corporation to obtain the relief they desire. The
Complaint contained no allegation whatsoever of any effort to avail of intra-
corporate remedies. Indeed, even if petitioners thought it was futile to exhaust intra-
corporate remedies, they should have stated the same in the Complaint and specified
the reasons for such opinion. Failure to do so allows the RTC to dismiss the
Complaint, even motu proprio, in accordance with the Interim Rules. The
requirement of this allegation in the Complaint is not a useless formality which may
be disregarded at will. We ruled in Yu v. Yukayguan:
 The wordings of Section 1, Rule 8 of the Interim Rules of Procedure Governing
Intra-Corporate Controversies are simple and do not leave room for statutory
construction. The second paragraph thereof requires that the stockholder filing a
derivative suit should have exerted all reasonable efforts to exhaust all
remedies available under the articles of incorporation, bylaws, laws or rules
governing the corporation or partnership to obtain the relief he desires; and
to allege such fact with particularityin the complaint. The obvious intent
behind the rule is to make the derivative suit the final recourse of the stockholder,
after all other remedies to obtain the relief sought had failed.

WHEREFORE, the Petition for Review is hereby DENIED. The Decision of the
Court of Appeals in C.A.-G.R. CV No. 81441 which affirmed the Order of the Regional
Trial Court (RTC) of Olongapo City dismissing the Complaint filed thereon by herein
petitioners is AFFIRMED. SO ORDERED.

Notes.—Since the ones to be sued are the directors/officers of the corporation

itself, a stockholder, like petitioner Cruz, may validly institute a “derivative suit” to
vindicate the alleged corporate injury, in which case Cruz is only a nominal party
while Filport is the real party-in-interest. (Filipinas Port Services, Inc. vs. Go, 518
SCRA 453 [2007])

Requisites for the existence of a derivative suit are: a. the party bringing suit
should be a shareholder during the time of the act or transaction complained of, the
number of shares not being material; b. the party has tried to exhaust intra-corporate
remedies, i.e., has made a demand on the board of directors for the appropriate
relief, but the latter has failed or refused to heed his plea; and c. the cause of action
actually devolves on the corporation; the wrongdoing or harm having been or being
caused to the corporation and not to the particular stockholder bringing the suit.
(Reyes vs. Regional Trial Court of Makati, Br. 142, 561 SCRA 593 [2008])
——o0o——
 G.R. No. 148606. June 30, 2008.*
CHARLES LIMBAUAN, petitioner, vs. FAUSTINO ACOSTA, respondent.
Lease; Unlawful Detainer; The demand to pay rent and vacate is necessary if the
action for unlawful detainer is anchored on the non-payment of rentals, as in the
instant case.—As contemplated in the aforecited rule, the demand to pay rent and vacate
is necessary if the action for unlawful detainer is anchored on the non-payment of
rentals, as in the instant case. The same rule explicitly provides that the unlawful
detainer suit must be commenced only if the lessee fails to comply after the lapse or
expiration of fifteen (15) days in case of lands and five (5) days in case of buildings, from
the time the demand is made upon the lessee. The demand required and contemplated in
Section 2 of Rule 70 is a jurisdictional requirement for the purpose of bringing an
unlawful detainer suit for failure to pay rent. It partakes of an extrajudicial remedy that
must be pursued before resorting to judicial action such that full compliance with the
demand would render unnecessary a court action.
Same; Same; It is settled that for the purpose of bringing an ejectment suit, two
requisites must concur, namely: 1) there must be failure to pay rent or to comply with
the conditions of the lease and 2) there must be demand both to pay or to comply and
vacate within the periods specified in Section 2, particularly, 15 days in the case of land
and 5 days in the case of buildings.—It is settled that for the purpose of bringing an
ejectment suit, two requisites must concur, namely: (1) there must be failure to pay rent
or to comply with the conditions of the lease and (2) there must be demand both to pay
or to comply and vacate within the periods specified in Section 2, particularly, 15 days in
the case of land and 5 days in the case of buildings. The first requisite refers to the
existence of the cause of action for unlawful detainer while the second refers to the
jurisdictional requirement of demand in order that said cause of action may be pursued.
Same; Same; As the subject of the instant case is a parcel of land, the expiration of
the aforesaid fifteen-day period is a prerequisite to the filing of an action for unlawful
detainer.—As the subject matter of the instant case is a parcel of land, the expiration of
the aforesaid fifteen-day period is a prerequisite to the filing of an action for unlawful
detainer. As to whether respondent observed this fifteen-day period, an affirmative
answer can be gleaned from the evidence on record. Respondent’s first demand letter
dated January 2, 1996 gave petitioner five (5) days from receipt within which to pay the
unpaid rentals and vacate the premises. Petitioner received the demand letter on January
10, 1996 while respondent brought the action for unlawful detainer on February 7, 1996,
which was clearly more than 15 days from the time petitioner received the demand letter
on January 10, 1996 and well within the one-year period set forth by Section 1, Rule 70.
Thus, the fact that respondent’s demand letter granted petitioner five (5) days to pay and
to vacate the subject property is of no moment because what is important and required
under Section 2 of Rule 70 is for the lessor to allow a period of fifteen (15) days to lapse
before commencing an action for unlawful detainer. Evidently, respondent actually
complied with this requirement. For this reason, we find no error in the MTC assuming
jurisdiction over respondent’s complaint and in not dismissing the same.
Pleadings and Practice; It is well-settled that amendment of pleadings is favored
and should be liberally allowed in the furtherance of justice in order to determine every
case as far as possible on its merits without regard to technicalities.—It is well-settled
that amendment of pleadings is favored and should be liberally allowed in the
furtherance of justice in order to determine every case as far as possible on its merits
without regard to technicalities. This principle is generally recognized in order that the
real controversies between the parties are presented, their rights determined and the case
decided on the merits without unnecessary delay to prevent circuity of action and
needless expense.
Lease; Unlawful Detainer; A complaint for unlawful detainer is deemed sufficient
if it alleges that the withholding of the possession or the refusal to vacate is unlawful,
without necessarily employing the terminology of the law.—It is a well-settled rule that
what determines the nature of an action as well as which court has jurisdiction over it are
the allegations of the complaint and the character of the relief sought. A complaint for
unlawful detainer is deemed sufficient if it alleges that the withholding of the possession
or the refusal to vacate is unlawful, without necessarily employing the terminology of the
law. Here, respondent alleged that he acquired possessory rights over the subject
property by virtue of a government grant. He leased the property to petitioner for a
monthly rental of P60.00. When petitioner failed to pay the rentals, respondent
eventually sent two demand letters asking petitioner to pay and vacate the premises.
Petitioner refused, thereby depriving respondent of possession of the subject property.
Clearly, the complaint alleges the basic elements of an unlawful detainer case, which are
sufficient for the purpose of vesting jurisdiction over it in the MTC.
Same; Questions of Fact; The issue of whether or not a lessor-lessee relationship
existed between the herein parties is a question of fact which we cannot pass upon as it
would entail a re-evaluation of the evidence and a review of the factual findings thereon
of the courts a quo.—Petitioner next argues that no lessor-lessee relationship existed
between him and respondent. This argument clearly deals with a question of fact. In
petitions for review on certiorari under Rule 45 of the Rules of Court, only questions of
law may be put in issue. Questions of fact cannot be entertained. The issue of whether or
not a lessor-lessee relationship existed between the herein parties is a question of fact
which we cannot pass upon as it would entail a re-evaluation of the evidence and a review
of the factual findings thereon of the courts a quo. As a rule, factual findings of the trial
court, especially those affirmed by the CA, are conclusive on this Court when supported
by the evidence on record. We find no cogent reason to disturb the findings of the MTC
and the RTC, which the Court of Appeals had affirmed.
Attorneys; Pleadings and Practice; It is well-settled that the failure of counsel to
comply with his duty under Section 16 to inform the court of the death of his client and
no substitution of such party is effected, will not invalidate the proceedings and the
judgment thereon if the action survives the death of such party.—It is well-settled that
the failure of counsel to comply with his duty under Section 16 to inform the court of the
death of his client and no substitution of such party is effected, will not invalidate the
proceedings and the judgment thereon if the action survives the death of such party.
Moreover, the decision rendered shall bind his successor-in-interest. The instant action
for unlawful detainer, like any action for recovery of real property, is a real action and as
such survives the death of Faustino Acosta. His heirs have taken his place and now
represent his interests in the instant petition. Hence, the present case cannot be rendered
moot despite the death of respondent.
LEONARDO-DE CASTRO, J.:
In this petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, petitioner seeks to set aside and annul the Decision dated June 26, 2001
rendered by the Court of Appeals (CA), Thirteenth Division, in CA-G.R. SP No.
49144.
The CA decision affirmed an earlier decision of the Regional Trial Court (RTC) of
Caloocan City, Branch 125, dated March 12, 1998 which also affirmed the decision
dated December 29, 1997 of the Metropolitan Trial Court (MTC), Caloocan City,
Branch 52, ordering herein petitioner to surrender possession of the property in
question and pay the unpaid monthly rentals thereon.
The pertinent facts, as found by the CA, are quoted hereunder:
“Sometime in 1938, the Government acquired the Tala Estate consisting of 808
hectares, located in Kalookan, primarily for a leprosarium. However, the State
utilized only one-fifth of the property for the purpose. More, under Republic Act
4085, it was no longer mandatory for the segregation of hansenites. Consequently,
the State needed a lesser portion of the property for the leprosarium. In the
meantime, the State found it necessary to establish new residential areas within a 20-
kilometer radius from the center of the Metropolitan Manila and/or utilizing
inexpensive land in order to serve low-income families whose housing needs can only
be met by the Government. On April 26, 1971, President Ferdinand E. Marcos issued
Proclamation No. 843 allocating the property to the Department of Health, the
National Housing Corporation, the PHHC and Department of Social Welfare and
Development x x x.
It was also decreed that, more precise identities of the parcels of land allocated to
the government will be made only after a final survey shall have been completed. A
joint PHHC-Bureau of Lands team was tasked to undertake the necessary
segregation survey and inquiries on private rights within the Estate. In
the Interim, it was decreed that no transfer of title shall be made until the enactment
of a law allowing the use of the site for purposes other than that of a leprosarium.
In the meantime, Faustino Acosta took possession of a vacant portion of the Tala
Estate and constructed his house thereon, bearing address No. 786, Barrio San
Roque, Barangay 187, Tala, Caloocan City. In August, 1982, Faustino Acosta, who
was then a Barangay Councilman, executed a deed styled “Registration of
Property,” attested by the Barangay Captain, over anothervacant portion of the
Estate, west of the Barangay Hall, with an area of 150 square meters, bearing the
following boundaries:
NORTH: WAITING SHED……SOUTH: JUAN DAMIAN WEST: NITA CRUZ,
RESTAURANT…..EAST: BRGY. HALL…187 (at page 7, Records)
Faustino Acosta then took possession of the property, constructed a fence around
the perimeter of the property and planted vegetables thereon. However, in 1984,
Paulino Calanday took possession of the said property without the consent of
Faustino, constructed an edifice thereon and used the same as a beerhouse. When
Faustino remonstrated, Paulino filed two (2) criminal complaints against Faustino
with the Metropolitan Trial Court, entitled and docketed “People versus Faustino
Acosta,Criminal Case Nos. 143550-51,” for “Malicious Michief” and “Unjust
Vexation.” However, on September 27, 1985, the Court issued an Order dismissing
the cases for failure of Paulino to comply with PD 1508.
Paulino, in the meantime, conveyed the beerhouse to Juanita Roces. The latter
and Faustino entered into an oral contract of lease over the parcel of land for a
monthly rental of P60.00. About a year thereafter, Juanita suddenly stopped paying
to Faustino her rentals for the property. It turned out that Juanita conveyed the
beerhouse to her nephew, Charles Limbauan, who forthwith assumed the lease from
his aunt and who, thenceforth, paid the monthly rentals for the property in the
amount of P60.00 to Faustino. However, in November, 1987, Charles stopped paying
rentals to Faustino claiming that, since the property was government property,
Faustino had no right to lease the same and collect the rentals therefore. However,
Faustino did not file any complaint nor unlawful detainer against Charles.
Sometime in February, 1995, Congress approved Republic Act 7999 under which
the State converted a portion of the Estate, with a total area of 120 hectares, for
use as a housing site for residents and employees of the Department of Health, with
the National Housing Authority as the leading implementing agency:
(a) Seventy (70) hectares of the one hundred thirty (130) hectares reserved for
the leprosarium and settlement site of the hansenites and their families under
Proclamation No. 843 are hereby declared alienable and disposable for use as a
housing site for the bona fide residents, hansenites and their immediate families and
for qualified employees of the Department of Health: Provided, That if the said
beneficiary is an employee of the Deparment of Health, the said employee must have
been assigned in the Tala Leprosarium and must have been a resident thereat for at
least five (5) years: Provided, further, That the residential lot awarded to the
 beneficiaries under this Act shall not be transferred, conveyed or assigned to any
other person for a period of twenty-five (25) years, except to legal heirs by way of
succession; and
(b) The fifty (50) hectares reserved for the plants, installations and pilot
housing project of the National Housing Corporation, as provided in the same
proclamation, are hereby declared as alienable and disposable: Provided, That
twenty-nine (29) hectares of the said fifty (50) hectares shall be converted into a
housing site exclusively for the bona fide and qualified residents of the area. (idem,
supra)
After the passage by Congress of Republic Act 7999, Faustino filed a complaint
against Charles with the Lupon for ejectment for failure of Charles to pay his rentals
from October, 1987. On April 15, 1995, the Lupon issued a “Certification to File
Action” (at page 9, Records). Republic Act 7999 became law on April 22, 1995,
without the signature of the President.
On January 2, 1996, Faustino, through Law Interns in the office of Legal Aid of
the University of the Philippines, sent a letter to Charles demanding that the latter
vacate the property within five (5) days from notice for his failure to pay the monthly
rentals in the amount of P60.00 a month since October, 1987. Charles Limbauan
ignored the letter and refused to vacate the property.
Faustino, forthwith, filed, on February 7, 1996, a complaint for “Unlawful
Detainer” against Charles with the Metropolitan Trial Court, entitled and docketed
“Faustino Acosta versus Charles Limbauan, Civil Case No. 22521,” praying
that, after due proceedings, judgment be rendered in his favor as follows:
PRAYER
WHEREFORE, it is respectfully prayed of this Honorable Court that judgment
be rendered in favor of plaintiff and against the defendant as follows:
1. To order the immediate restoration of the premises to plaintiff in
accordance with Rule 70, Sec. 3 of the Rules of Court;
2. Ordering the defendants to pay to plaintiff the sum of P60.00 a month plus
interest from November 1987 until they vacate the premises;
2.(sic) Ordering defendant to pay plaintiff the sum of P10,000.00 by way of
moral damages;
3. Such other remedies as may be just and equitable under the premises. (at
page 4, Records)
Upon suggestion of the Court, Faustino Acosta, through the Law Interns, sent
another letter of demand to Charles Limbauan, dated March 7, 1996, demanding that
the latter vacate the property this time within fifteen (15) days from notice,
otherwise, Faustino will institute the appropriate action for his eviction from the
property. Charles Limbauan received the letter, on March 13, 1996, but refused to
vacate the property. Faustino forthwith filed a “Motion to Approve Attached
Amended Complaint” with the Court which was granted by the Court.
In his Answer to the Complaint, Charles alleged, inter aliathat Faustino had no
cause of action against him because the property on which the beerhouse was
constructed is owned by the government since the government is the owner of the
property, Faustino had no right of possession over the property and collect rentals
therefore. Besides, it was unfair for Faustino, who was already in possession of the lot
at No. 786 B. San Roque, Barangay 187 to still claim possession over the subject
property. The Defendant interposed the defense that the Court had no jurisdiction
over the action of the Plaintiff as it was one of accion publiciana and not one for
unlawful detainer.
On December 29, 1997, the Court promulgated a Decision in favor of the Plaintiff
and against the Defendant, the decretal portion of which reads as follows:
DISPOSITION BY THE COURT:
Premises considered, decision is rendered for the plaintiff, Faustino Acosta,
and against the defendant, Charles Limbauan, directing the latter and all those
claiming under him to vacate the premises specifically described as the parcel of
commercial land located at the west portion of the barangay hall, barangay 187,
Zone 16, B. Sto. Nino, Tala, Caloocan City, to surrender peaceful possession of the
same to the former, and to pay him the following amounts:
a. P60.00 monthly from November, 1987, as reasonable compensation for the
use and occupancy of the parcel of land subject matter of this case with legal
interests from today up to the actual surrender of the same.
b. P130.00 by way of reimbursement for costs of suit as shown by the receipts
on record.
Given in Chambers. (at page 79, Records)
The Court found and declared that the Plaintiff adduced evidence that the
Defendant was the lessee of the Plaintiff over the property and, hence, the latter was
estopped from assailing Plaintiff’s title over the property.
The Defendant interposed an appeal from said Decision to the Regional Trial
Court which, on August 28, 1998, rendered a Decision affirming the Decision of the
Court a quo.
The Petitioner forthwith filed a “Petition for Review” with this Court (Court of
Appeals), under Rule 42 of the 1997 Rules of Civil Procedure, and posed, for our
resolution, the following issues: (a) whether or not the remedy of the Respondent in
the Metropolitan Trial Court for unlawful detainer was proper; (b) the subject
property was government property and, hence, cannot be the lawful subject of a lease
contract between the Petitioner and Respondent and, hence, the latter had no right
to have the Petitioner evicted from the property and to collect rentals from him. It
was inappropriate for the trial court, and the Regional Trial Court, to apply and rely
on Section 2(b), Rule 131 of the Rules of Evidence.”
On June 26, 2001, the CA dismissed the aforementioned Petition for Review and
affirmed the decision of the RTC.
Hence, this petition for review which seeks the reversal of the said CA decision on
the basis of the issues quoted hereunder:
a) DID THE HONORABLE COURT OF APPEALS IN RENDERING THE
ASSAILED DECISION COMMIT GRAVE ABUSE OF DISCRETION AMOUNTING
TO EXCESS OF JURISDICTION?
b) WHETHER OR NOT THE CASE IS RENDERED MOOT AND ACADEMIC
ON ACCOUNT OF THE DEATH OF THE RESPONDENT.
In relation to the aforequoted issues, the petitioner adduces the following
arguments:
(1) The right application of laws under Rule 70 and Rule 10 in relation with the
law on jurisdiction over the case was ignored.
(2) The amendment under Section 2, Rule 10, Rules of Court is a futile remedy
when the Court has no jurisdiction over the case.
(3) The alleged existence of lessor-lessee relationship between the parties had
not been sufficiently established.
(4) The fact of death of respondent rendered the case moot and academic.
The first and second arguments advanced by petitioner are interrelated. Thus,
they shall be discussed jointly. Petitioner argues that there must be a prior demand
to vacate the leased premises and pay the rent and a 15-day period from the time of
demand must have lapsed before a complaint for unlawful detainer may be
commenced pursuant to Section 2, Rule 70. According to petitioner, respondent’s
demand letter gave the petitioner a five-day period only instead of fifteen (15) days
within which to comply with the demand to vacate. A jurisdictional requisite, not
having been complied with, the MTC did not acquire jurisdiction over the case.
Section 2, Rule 70 of the Revised Rules of Court provides as follows:
“Sec. 2. Lessor to proceed against lessee only after demand.—Unless otherwise
stipulated, such action by the lessor shall be commenced only after demand to pay or
comply with the conditions of the lease and to vacate is made upon the lessee, or by
serving written notice of such demand upon the person found on the premises, or by
posting such notice on the premises if no person be found thereon, and the lessee
fails to comply therewith after fifteen (15) days in the case of land or five (5) days in
the case of buildings.”
As contemplated in the aforecited rule, the demand to pay rent and vacate is
necessary if the action for unlawful detainer is anchored on the non-payment of
rentals, as in the instant case. The same rule explicitly provides that the unlawful
detainer suit must be commenced only if the lessee fails to comply after the lapse or
expiration of fifteen (15) days in case of lands and five (5) days in case of buildings,
from the time the demand is made upon the lessee. The demand required and
contemplated in Section 2 of Rule 70 is a jurisdictional requirement for the purpose
of bringing an unlawful detainer suit for failure to pay rent. It partakes of an
extrajudicial remedy that must be pursued before resorting to judicial action such
that full compliance with the demand would render unnecessary a court action.
Hence, it is settled that for the purpose of bringing an ejectment suit, two
requisites must concur, namely: (1) there must be failure to pay rent or to comply
with the conditions of the lease and (2) there must be demand both to pay or to
comply and vacate within the periods specified in Section 2, particularly, 15 days in
the case of land and 5 days in the case of buildings. The first requisite refers to the
existence of the cause of action for unlawful detainer while the second refers to the
jurisdictional requirement of demand in order that said cause of action may be
pursued.
As the subject matter of the instant case is a parcel of land, the expiration of the
aforesaid fifteen-day period is a prerequisite to the filing of an action for unlawful
detainer. As to whether respondent observed this fifteen-day period, an affirmative
answer can be gleaned from the evidence on record. Respondent’s first demand letter
dated January 2, 1996 gave petitioner five (5) days from receipt within which to pay
the unpaid rentals and vacate the premises. Petitioner received the demand letter on
January 10, 1996 while respondent brought the action for unlawful detainer on
February 7, 1996, which was clearly more than 15 days from the time petitioner
received the demand letter on January 10, 1996 and well within the one-year period
set forth by Section 1, Rule 70. Thus, the fact that respondent’s demand letter granted
petitioner five (5) days to pay and to vacate the subject property is of no moment
because what is important and required under Section 2 of Rule 70 is for the lessor to
allow a period of fifteen (15) days to lapse before commencing an action for unlawful
detainer. Evidently, respondent actually complied with this requirement. For this
reason, we find no error in the MTC assuming jurisdiction over respondent’s
complaint and in not dismissing the same.
Moreover, upon the advice of the MTC, respondent sent another demand letter
dated March 7, 1996 to petitioner, this time giving the latter fifteen (15) days within
which to vacate the subject property and when petitioner still refused, respondent
was compelled to file a Motion to Approve Attached Amended Complaint. The said
motion was rightly granted by the MTC in accordance with Section 2, Rule 10 of the
Revised Rules of Court, to wit:
 “Sec. 2. Amendments as a matter of right.—A party may amend his pleading
once as a matter of course at any time before a responsive pleading is
served or, in the case of a reply, at any time within ten (10) days after it is served.”
Under this provision, a party has the absolute right to amend his pleading
whether a new cause of action or change in theory is introduced, at any time before
the filing of any responsive pleading. Undoubtedly, when respondent filed his
Amended Complaint on May 16, 1996, no responsive pleading had yet been filed by
petitioner, thus, the MTC validly admitted the said amended complaint.
It is well-settled that amendment of pleadings is favored and should be liberally
allowed in the furtherance of justice in order to determine every case as far as
possible on its merits without regard to technicalities. This principle is generally
recognized in order that the real controversies between the parties are presented,
their rights determined and the case decided on the merits without unnecessary
delay to prevent circuity of action and needless expense.
Petitioner also contends that the MTC’s purpose for admitting the amended
complaint was to eliminate the jurisdictional defect of the original complaint.
Petitioner cites the cases of Rosario v. Carandang and Gaspar v. Dorado which
declared that the amendment of the complaint could not be allowed when its purpose
is to confer jurisdiction upon the court, since the court must first acquire jurisdiction
over the case in order to act validly therein. Petitioner’s contention is devoid of merit.
As earlier discussed, respondent’s original complaint was free from any jurisdictional
flaw and the MTC had jurisdiction over the case to begin with. Thus, the cited cases
are not applicable in the instant case. Hence, the MTC was correct in allowing the
amendment.
Furthermore, it is a well-settled rule that what determines the nature of an action
as well as which court has jurisdiction over it are the allegations of the complaint and
the character of the relief sought. A complaint for unlawful detainer is deemed
sufficient if it alleges that the withholding of the possession or the refusal to vacate is
unlawful, without necessarily employing the terminology of the law. Here,
respondent alleged that he acquired possessory rights over the subject property by
virtue of a government grant. He leased the property to petitioner for a monthly
rental of P60.00. When petitioner failed to pay the rentals, respondent eventually
sent two demand letters asking petitioner to pay and vacate the premises. Petitioner
refused, thereby depriving respondent of possession of the subject property. Clearly,
the complaint alleges the basic elements of an unlawful detainer case, which are
sufficient for the purpose of vesting jurisdiction over it in the MTC.
Likewise, petitioner’s allegation in his petition that he received respondent’s
second demand letter on May 8, 1996 was belied by the records of this case, the truth
being that, the said demand letter dated March 7, 1996 was received by petitioner on
March 13, 1996. The letter granted petitioner fifteen (15) days within which to pay
and vacate the subject property. Respondent’s Amended Complaint was filed on May
16, 1996 which was obviously two (2) months from the time petitioner had notice of
the demand, and again more than 15 days as required by Section 2, Rule 70.
In sum, respondent clearly satisfied the jurisdictional requirement of prior
demand to vacate within the period set by the rules. The MTC validly acquired
jurisdiction over both the original complaint and the amended complaint.
Petitioner next argues that no lessor-lessee relationship existed between him and
respondent. This argument clearly deals with a question of fact. In petitions for
review on certiorari under Rule 45 of the Rules of Court, only questions of law may
be put in issue. Questions of fact cannot be entertained. The issue of whether or not a
lessor-lessee relationship existed between the herein parties is a question of fact
which we cannot pass upon as it would entail a re-evaluation of the evidence and a
review of the factual findings thereon of the courts a quo. As a rule, factual findings
of the trial court, especially those affirmed by the CA, are conclusive on this Court
when supported by the evidence on record. We find no cogent reason to disturb the
findings of the MTC and the RTC, which the Court of Appeals had affirmed.
Lastly, petitioner capitalizes on the failure of respondent’s counsel to inform the
court of the death of his client, Faustino Acosta, who passed away on October 22,
2000 while the case was pending appeal with the CA. He avers that such failure
rendered the case moot and academic as no proper substitution of a party was
effected in compliance with Rule 3, Section 16 of the Rules of Court.
Section 16, Rule 3 of the Revised Rules of Court provides that:
“Sec. 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 first 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. x x x.”
 It is well-settled that the failure of counsel to comply with his duty under Section
16 to inform the court of the death of his client and no substitution of such party is
effected, will not invalidate the proceedings and the judgment thereon if the action
survives the death of such party. Moreover, the decision rendered shall bind his
successor-in-interest. The instant action for unlawful detainer, like any action for
recovery of real property, is a real action and as such survives the death of Faustino
Acosta. His heirs have taken his place and now represent his interests in the instant
petition. Hence, the present case cannot be rendered moot despite the death of respondent.

WHEREFORE, the petition for review is hereby DENIED. The assailed decision of the
Court of Appeals in CA-G.R. SP No. 49144 is hereby AFFIRMED. SO ORDERED.
 G.R. No. 121510. November 23, 1995.
FABIANA C. VDA. DE SALAZAR, petitioner, vs. COURT OF APPEALS,
PRIMITIVO NEPOMUCENO and EMERENCIANA NEPOMUCENO,
respondents.
* and conversion of land for useful non-agricultural purposes against petitioner’s
deceased husband, Benjamin Salazar. After protracted proceedings in the agrarian
court and then the Regional Trial Court spanning from 1970 to 1993, the trial court
rendered its joint decision in favor of private respondents. An appeal therefrom was
4

Remedial Law; Civil Procedure; Parties; Substitution of heirs is based on the right
to due process accruing to every party in any proceeding.—The need for substitution of
heirs is based on the right to due process accruing to every party in any proceeding.
Same; Same; Same; Formal substitution of heirs is not necessary when the heirs
themselves voluntarily appeared, participated in the case and presented evidence in
defense of deceased defendant.—We are not unaware of several cases where we have
ruled that a party having died in an action that survives, the trial held by the court
without appearance of the deceased’s legal representative or substitution of heirs and the
judgment rendered after such trial, are null and void because the court acquired no
jurisdiction over the persons of the legal representatives or of the heirs upon whom the
trial and the judgment would be binding. This general rule notwithstanding, in denying
petitioner’s motion for reconsideration, the Court of Appeals correctly ruled that formal
substitution of heirs is not necessary when the heirs themselves voluntarily appeared,
participated in the case and presented evidence in defense of deceased defendant.
Same; Same; Same; Ejectment; Ejectment being an action involving recovery of
real property is a real action which is not extinguished by the defendant’s death.—
Respondent Court of Appeals also correctly ruled that ejectment, being an action
involving recovery of real property, is a real action which as such, is not extinguished by
the defendant’s death.
Same; Same; Same; Same; An ejectment case survives the death of a party which
death did not extinguish the deceased’s civil personality.—There is no dispute that an
ejectment case survives the death of a party, which death did not extinguish the
deceased’s civil personality. More significantly, a judgment in an ejectment case is
conclusive between the parties and their successors in interest by title subsequent to the
commencement of the action.
interposed in the name of petitioner’s deceased husband on the ground that private
respondents herein failed to satisfy the requirements pertaining to personal
cultivation and conversion of the landholdings into non-agricultural uses. The Court
of Appeals rejected such contention upon finding that the record was replete with
evidence justifying private respondents’ assertion of their right of cultivation and
conversion of their landholdings.
Almost a year after the termination of that appeal, the same trial court decision
subject thereof was once again assailed before the Court of Appeals through a
petition for annulment of judgment. Herein petitioner assailed the same trial court
decision as having been rendered by a court that did not have jurisdiction over her
and the other heirs of her deceased husband because notwithstanding the fact that
her husband had already died on October 3, 1991, the trial court still proceeded to
render its decision on August 23, 1993 without effecting the substitution of heirs in
accordance with Section 17, Rule 3, of the Rules of Court thereby depriving her of her
day in court.
Petitioner, not having asserted the matter of fraud or collusion in her petition for
annulment of judgment, the Court of Appeals decided the same on the basis of the
sole issue of non-jurisdiction resulting from the alleged deprivation of petitioner’s
right to due process and ruled in favor of the validity of the challenged
decision. Petitioner filed a motion for reconsideration of the decision of the appellate
court reiterating the trial court’s lack of jurisdiction over the heirs of petitioner’s
deceased husband as a consequence of the failure of the trial court to effectuate a
valid substitution of heirs. Said motion was denied in a resolution promulgated on
August 14, 1995. Hence this petition.
The petition is bereft of merit.

HERMOSISIMA, JR., J.:
Where the defendant in an ejectment case dies before the rendition by the trial
court of its decision therein, does the trial court’s failure to effectuate a substitution
of heirs before its rendition of judgment render such judgment jurisdictionally
infirm?
On July 23, 1970, both private respondents Primitivo Nepomuceno and
Emerenciana Nepomuceno filed separate complaints with the then Court of Agrarian
1 protestee pending the proceedings below such that unless and until a legal
Relations of Malolos, Bulacan, for ejectment on the ground of personal cultivation
The need for substitution of heirs is based on the right to due process accruing to
every party in any proceeding. The rationale underlying this requirement in case a
party dies during the pendency of proceedings of a nature not extinguished by such
death, is that
“x x x the exercise of judicial power to hear and determine a cause implicitly
presupposes in the trial court, amongst other essentials, jurisdiction over the persons
of the parties. That jurisdiction was inevitably impaired upon the death of the
representative is for him duly named and within the jurisdiction of the trial court, no
 adjudication in the cause could have been accorded any validity or binding effect
upon any party, in representation of the deceased, without trenching upon the
fundamental right to a day in court which is the very essence of the constitutionally
enshrined guarantee of due process.”
We are not unaware of several cases where we have ruled that a party having died
in an action that survives, the trial held by the court without appearance of the
deceased’s legal representative or substitution of heirs and the judgment rendered
after such trial, are null and void because the court acquired no jurisdiction over the
persons of the legal representatives or of the heirs upon whom the trial and the
judgment would be binding. This general rule notwithstanding, in denying
petitioner’s motion for reconsideration, the Court of Appeals correctly ruled that
formal substitution of heirs is not necessary when the heirs themselves voluntarily
appeared, participated in the case and presented evidence in defense of deceased
defendant. Attending the case at bench, after all, are these particular circumstances
which negate petitioner’s belated and seemingly ostensible claim of violation of her
rights to due process. We should not lose sight of the principle underlying the general
rule that formal substitution of heirs must be effectuated for them to be bound by a
subsequent judgment. Such had been the general rule established not because the
rule on substitution of heirs and that on appointment of a legal representative are
jurisdictional requirements per se but because non-compliance therewith results in
the undeniable violation of the right to due process of those who, though not duly
notified of the proceedings, are substantially affected by the decision rendered
therein. Viewing the rule on substitution of heirs in this light, the Court of Appeals, in
the resolution denying petitioner’s motion for reconsideration, thus expounded:
“Although the jurisprudential rule is that failure to make the substitution is a
jurisdictional defect, it should be noted that the purpose of this procedural rule is to
comply with due process requirements. The original party having died, he could not
continue to defend himself in court despite the fact that the action survived him. For
the case to continue, the real party in interest must be substituted for the deceased.
The real party in interest is the one who would be affected by the judgment. It could
be the administrator or executor or the heirs. In the instant case, the heirs are the
proper substitutes. Substitution gives them the opportunity to continue the defense
for the deceased. Substitution is important because such opportunity to defend is a
requirement to comply with due process. Such substitution consists of making the
proper changes in the caption of the case which may be called the formal aspect of it.
Such substitution also includes the process of letting the substitutes know that they
shall be bound by any judgment in the case and that they should therefore actively
participate in the defense of the deceased. This part may be called the substantive
aspect. This is the heart of the procedural rule because this substantive aspect is the
one that truly embodies and gives effect to the purpose of the rule. It is this court’s
view that compliance with the substantive aspect of the rule despite failure to comply
with the formal aspect may be considered substantial compliance. Such is the
situation in the case at bench because the only inference that could be deduced from
the following facts was that there was active participation of the heirs in the defense
of the deceased after his death:
1. The original lawyer did not stop representing the deceased. It would be absurd to
think that the lawyer would continue to represent somebody if nobody is paying
him his fees. The lawyer continued to represent him in the litigation before the
trial court which lasted for about two more years. A dead party cannot pay him
any fee. With or without payment of fees, the fact remains that the said counsel
was allowed by the petitioner who was well aware of the instant litigation to
continue appearing as counsel until August 23, 1993 when the challenged
decision was rendered;
2. After the death of the defendant, his wife, who is the petitioner in the instant
case, even testified in the court and declared that her husband is already
deceased. She knew therefore that there was a litigation against her husband and
that somehow her interest and those of her children were involved;
3. This petition for annulment of judgment was filed only after the appeal was
decided against the defendant on April 3, 1995, more than one and a half year
(sic) after the decision was rendered (even if we were to give credence to
petitioner’s manifestation that she was not aware that an appeal had been made);
4. The Supreme Court has already established that there is such a thing as
jurisdiction by estoppel. This principle was established even in cases where
jurisdiction over the subject matter was being questioned. In the instant case,
only jurisdiction over the person of the heirs is in issue. Jurisdiction over the
person may be acquired by the court more easily than jurisdiction over the
subject matter. Jurisdiction over the person may be acquired by the simple
appearance of the person in court as did herein petitioner appear;
5. The case cited by the herein petitioner (Ferreria et al. vs. Manuela Ibarra vda. de
Gonzales, et al.) cannot be availed of to support the said petitioner’s contention
relative to non-acquisition of jurisdiction by the court. In that case, Manolita
Gonzales was not served notice and, more importantly, she never appeared in
court, unlike herein petitioner who appeared and even testified regarding the
death of her husband.”
Consequently, we rule that, as in the case at bench, the defendant in an ejectment
case having died before the rendition by the trial court of its decision therein, its
failure to effectuate a formal substitution of heirs before its rendition of judgment,
does not invalidate such judgment where the heirs themselves appeared before the
trial court, participated in the proceedings therein, and presented evidence in
defense of deceased defendant, it undeniably being evident that the heirs themselves
sought their day in court and exercised their right to due process.
Respondent Court of Appeals also correctly ruled that ejectment, being an action
involving recovery of real property, is a real action which as such, is not extinguished
by the defendant’s death.
 “x x x The question as to whether an action survives or not depends on the nature
of the action and the damage sued for. In the causes of action which survive, the
wrong complained affects primarily and principally property and property rights, the
injuries to the person being merely incidental, while in the causes of action which do
not survive, the injury complained of is to the person, the property and rights of
property affected being incidental.”

There is no dispute that an ejectment case survives the death of a party, which
death did not extinguish the deceased’s civil personality. More significantly, a
judgment in an ejectment case is conclusive between the parties and their successors
in interest by title subsequent to the commencement of the action. Thus, we have
held that:

“x x x In such a case and considering that the supervening death of appellant did
not extinguish her civil personality, the appellate court was well within its jurisdiction
to proceed as it did with the case. There is no showing that the appellate court’s
proceedings in the case were tainted with irregularities.

It appears that petitioners are heirs of Adela Salindon. In fact, it was because of
this relationship that the petitioners were able to transfer the title of Adela Salindon
over the subject lot to their names. x x x Considering all this, the appellate decision is
binding and enforceable against the petitioners as successors-in-interest by title
subsequent to the commencement of the action (Section 49 (b) Rule 39, Rules of
Court). Furthermore, x x x judgment in an ejectment case may be enforced not only
against defendants therein but also against the members of their family, their
relatives, or privies who derive their right of possession from the defendants (Ariem
v. De los Angeles, 49 SCRA 343). Under the circumstances of this case, the same rule
should apply to the successors-in-interest x x x.”

While it is true that a decision in an action for ejectment is enforceable not only
against the defendant himself but also against members of his family, his relatives,
and his privies who derived their right of possession from the defendant and his
successors-in-interest, it had been established that petitioner had, by her own acts,
16

submitted to the jurisdiction of the trial court. She is now estopped to deny that she
had been heard in defense of her deceased husband in the proceedings therein. As
such, this petition evidently has no leg to stand on.

WHEREFORE, the instant petition is dismissed for lack of merit. Costs against
petitioner. SO ORDERED.

Note.—A party not impleaded in an action cannot be held subject to the writ of
execution issued herein. (Ang Yu Asuncion vs. Court of Appeals, 238 SCRA
602 [1994])

——o0o——
 G.R. No. 192877. March 23, 2011.*
SPOUSES HERMES P. OCHOA and ARACELI D. OCHOA,
petitioners, vs. CHINA BANKING CORPORATION, respondent.
Mortgages; Foreclosure of Mortgage; Act No. 3135; Venue; The extrajudicial
foreclosure sale of a real estate mortgage cannot be made legally outside of the
province in which the property sold is situated.—The extrajudicial foreclosure sale of a
real estate mortgage is governed by Act No. 3135, as amended by Act No. 4118, otherwise
known as “An Act to Regulate the Sale of Property Under Special Powers Inserted In or
Annexed to Real-Estate Mortgages.” Sections 1 and 2 thereof clearly state: Section 1.
When a sale is made under a special power inserted in or attached to any real-estate
mortgage hereafter made as security for the payment of money or the fulfillment of any
other obligation, the provisions of the following sections shall govern as to the manner
in which the sale and redemption shall be effected, whether or not provision for the
same is made in the power. Sec. 2. Said sale cannot be made legally outside of the
province in which the property sold is situated; and in case the place within said
province in which the sale is to be made is the subject of stipulation, such sale shall be
made in said place or in the municipal building of the municipality in which the
property or part thereof is situated. The case at bar involves petitioners’ mortgaged real
property located in Parañaque City over which respondent bank was granted a special
power to foreclose extrajudicially. Thus, by express provision of Section 2, the sale can
only be made in Parañaque City.
Same; Same; Same; Venue; Actions; Section 4, Rule 4 of the Rules of Court (Venue
of Actions), cannot be made to apply to a Petition for Extrajudicial Foreclosure because
the provisions of Rule 4 pertain to venue of actions, which an extrajudicial foreclosure
is not.—The exclusive venue of Makati City, as stipulated by the parties and sanctioned by
Section 4, Rule 4 of the Rules of Court, cannot be made to apply to the Petition for
Extrajudicial Foreclosure filed by respondent bank because the provisions of Rule 4
pertain to venue of actions, which an extrajudicial foreclosure is not. Pertinent are the
following disquisitions in Supena v. De la Rosa: Section 1, Rule 2 [of the Rules of Court]
defines an action in this wise: “Action means an ordinary suit in a court of justice, by
which one party prosecutes another for the enforcement or protection of a right, or the
prevention or redress of a wrong.” Hagans v. Wislizenus does not depart from this
definition when it states that “[A]n action is a formal demand of one’s legal rights in a
court of justice in the manner prescribed by the court or by the law. x x x.” It is clear that
the determinative or operative fact which converts a claim into an “action or suit” is the
filing of the same with a “court of justice.” Filed elsewhere, as with some other body or
office not a court of justice, the claim may not be categorized under either term. Unlike
an action, an extrajudicial foreclosure of real estate mortgage is initiated by filing a
petition not with any court of justice but with the office of the sheriff of the province
where the sale is to be made. By no stretch of the imagination can the office of the sheriff
come under the category of a court of justice. And as aptly observed by the complainant,
if ever the executive judge comes into the picture, it is only because he exercises
administrative supervision over the sheriff. But this administrative supervision, however,
does not change the fact that extrajudicial foreclosures are not judicial proceedings,
actions or suits.
Same; Same; Same; Same; With respect to the venue of extrajudicial foreclosure
sales, Act No. 3135, as amended, applies, it being a special law dealing particularly with
extrajudicial foreclosure sales of real estate mortgages, and not the general provisions
of the Rules of Court on Venue of Actions—stipulated venue is relevant only to actions
arising from or related to the mortgage, such as a complaint for Annulment of
Foreclosure, Sale, and Damages.—With respect to the venue of extrajudicial foreclosure
sales, Act No. 3135, as amended, applies, it being a special law dealing particularly with
extrajudicial foreclosure sales of real estate mortgages, and not the general provisions of
the Rules of Court on Venue of Actions. Consequently, the stipulated exclusive venue of
Makati City is relevant only to actions arising from or related to the mortgage, such as
petitioners’ complaint for Annulment of Foreclosure, Sale, and Damages.
RESOLUTION
NACHURA, J.:
For resolution is petitioners’ motion for reconsideration of our January 17, 2011
Resolution denying their petition for review on certiorari3 for failing to sufficiently
show any reversible error in the assailed judgment4 of the Court of Appeals (CA).
Petitioners insist that it was error for the CA to rule that the stipulated exclusive
venue of Makati City is binding only on petitioners’ complaint for Annulment of
Foreclosure, Sale, and Damages filed before the Regional Trial Court of Parañaque
City, but not on respondent bank’s Petition for Extrajudicial Foreclosure of
Mortgage, which was filed with the same court.
We disagree.
The extrajudicial foreclosure sale of a real estate mortgage is governed by Act No.
3135, as amended by Act No. 4118, otherwise known as “An Act to Regulate the Sale
of Property Under Special Powers Inserted In or Annexed to Real-Estate
Mortgages.” Sections 1 and 2 thereof clearly state:
“Section 1. When a sale is made under a special power inserted in or attached to
any real-estate mortgage hereafter made as security for the payment of money or the
fulfillment of any other obligation, the provisions of the following sections shall
govern as to the manner in which the sale and redemption shall be effected, whether
or not provision for the same is made in the power.
Sec. 2. Said sale cannot be made legally outside of the province in which the
property sold is situated; and in case the place within said province in which the
sale is to be made is the subject of stipulation, such sale shall be made in said place
 or in the municipal building of the municipality in which the property or part
thereof is situated.”
The case at bar involves petitioners’ mortgaged real property located in
Parañaque City over which respondent bank was granted a special power to foreclose
extrajudicially. Thus, by express provision of Section 2, the sale can only be made in
Parañaque City.
The exclusive venue of Makati City, as stipulated by the parties and sanctioned by
Section 4, Rule 4 of the Rules of Court, cannot be made to apply to the Petition
for Extrajudicial Foreclosure filed by respondent bank because the provisions of
Rule 4 pertain to venue of actions, which an extrajudicial foreclosure is not.
Pertinent are the following disquisitions in Supena v. De la Rosa:
“Section 1, Rule 2 [of the Rules of Court] defines an action in this wise:
“Action means an ordinary suit in a court of justice, by which one party
prosecutes another for the enforcement or protection of a right, or the prevention or
redress of a wrong.”
Hagans v. Wislizenus does not depart from this definition when it states that
“[A]n action is a formal demand of one’s legal rights in a court of justice in the
manner prescribed by the court or by the law. x x x.” It is clear that the determinative
or operative fact which converts a claim into an “action or suit” is the filing of the
same with a “court of justice.” Filed elsewhere, as with some other body or office not a
court of justice, the claim may not be categorized under either term. Unlike an action,
an extrajudicial foreclosure of real estate mortgage is initiated by filing a petition not
with any court of justice but with the office of the sheriff of the province where the
sale is to be made. By no stretch of the imagination can the office of the sheriff come
under the category of a court of justice. And as aptly observed by the complainant, if
ever the executive judge comes into the picture, it is only because he exercises
administrative supervision over the sheriff. But this administrative supervision,
however, does not change the fact that extrajudicial foreclosures are not judicial
proceedings, actions or suits.
enforcement of their duties under the law, the following procedures are hereby
prescribed in extrajudicial foreclosure of mortgages:
1. All applications for extrajudicial foreclosure of mortgage whether under the
direction of the sheriff or a notary public, pursuant to Act 3135, as amended by Act
4118, and Act 1508, as amended, shall be filed with the Executive Judge, through the
Clerk of Court who is also the Ex-Officio Sheriff.”
Verily then, with respect to the venue of extrajudicial foreclosure sales, Act No.
3135, as amended, applies, it being a special law dealing particularly with
extrajudicial foreclosure sales of real estate mortgages, and not the general
provisions of the Rules of Court on Venue of Actions.
Consequently, the stipulated exclusive venue of Makati City is relevant only
to actions arising from or related to the mortgage, such as petitioners’ complaint
for Annulment of Foreclosure, Sale, and Damages.
The other arguments raised in the motion are a mere reiteration of those already
raised in the petition for review. As declared in this Court’s Resolution on January 17,
2011, the same failed to show any sufficient ground to warrant the exercise of our
appellate jurisdiction.
WHEREFORE, premises considered, the motion for reconsideration is hereby
DENIED. SO ORDERED.
Note.—In a foreclosure of a mortgage undertaken by an attorney-in-fact, the
validity of a loan contract cannot be raised against said agent, as the matter is solely
between the principal and the other party to the contract. (Philippine National Bank
vs. Ritratto Group, Inc., 362 SCRA 216 [2001])
——o0o——

These pronouncements were confirmed on August 7, 2001 through A.M. No. 99-
10-05-0, entitled “Procedure in Extra-judicial Foreclosure of Mortgage,” the
significant portions of which provide:

“In line with the responsibility of an Executive Judgeunder

Administrative Order No. 6, date[d] June 30, 1975, for the management of
courts within his administrative area, included in which is the task of
supervising directly the work of the Clerk of Court, who is also the Ex-
OfficeSheriff, and his staff, and the issuance of commissions to notaries public and
 G.R. No. 190071. August 15, 2012.*
UNION BANK OF THE PHILIPPINES, petitioner, vs.MAUNLAD HOMES, INC.
and all other persons or entities claiming rights under it, respondents.
Remedial Law; Special Civil Actions; Ejectment; Unlawful Detainer; Words and
Phrases; Unlawful detainer is an action to recover possession of real property from one
who unlawfully withholds possession after the expiration or termination of his right to
hold possession under any contract, express or implied.―Unlawful detainer is an action
to recover possession of real property from one who unlawfully withholds possession
after the expiration or termination of his right to hold possession under any contract,
express or implied. The possession of the defendant in unlawful detainer is originally
legal but became illegal due to expiration or termination of the right to possess. Under
Section 1, Rule 70 of the Rules of Court, the action must be filed “within one (1) year after
[the] unlawful deprivation or withholding of possession[.]”
Civil Law; Sales; Contract to Sell; In a contract to sell, the full payment of the
purchase price is a positive suspensive condition whose non-fulfillment is not a breach
of contract, but merely an event that prevents the seller from conveying title to the
purchaser.―In a contract to sell, the full payment of the purchase price is a positive
suspensive condition whose non-fulfillment is not a breach of contract, but merely an
event that prevents the seller from conveying title to the purchaser. “The non-payment of
the purchase price renders the contract to sell ineffective and without force and effect.”
Maunlad Homes’ act of withholding the installment payments rendered the contract
ineffective and without force and effect, and ultimately deprived itself of the right to
continue possessing Maunlad Shopping Mall.
Special Civil Actions; Ejectment; Venue; The Supreme Court upheld the validity of
a stipulation in a contract providing for a venue for ejectment actions other than that
stated in the Rules of Court.―While Section 1, Rule 4 of the Rules of Court states that
ejectment actions shall be filed in “the municipal trial court of the municipality or city
wherein the real property involved x x x is situated[,]” Section 4 of the same Rule
provides that the rule shall not apply “[w]here the parties have validly agreed in writing
before the filing of the action on the exclusive venue thereof.” Precisely, in this case, the
parties provided for a different venue. In Villanueva v. Judge Mosqueda, etc., et al., 115
SCRA 904 (1982), the Court upheld the validity of a stipulation in a contract providing
for a venue for ejectment actions other than that stated in the Rules of Court. Since the
unlawful detainer action is connected with the contract, Union Bank rightfully filed the
complaint with the MeTC of Makati City.
BRION, J.:
Before the Court is the petition for review on certiorari1under Rule 45 of the Rules
of Court filed by petitioner Union Bank of the Philippines (Union Bank), assailing the
decision dated October 28, 2009 of the Court of Appeals (CA) in CA-G.R. SP No.
107772.
The Facts
Union Bank is the owner of a commercial complex located in Malolos,
Bulacan, known as the Maunlad Shopping Mall.
Sometime in August 2002, Union Bank, as seller, and respondent Maunlad
Homes, Inc. (Maunlad Homes), as buyer, entered into a contract to sell involving
the Maunlad Shopping Mall. The contract set the purchase price at P151 million, P2.4
million of which was to be paid by Maunlad Homes as down payment payable on or
before July 5, 2002, with the balance to be amortized over the succeeding 180-month
period. Under the contract, Union Bank authorized Maunlad Homes to take
possession of the property and to build or introduce improvements thereon. The
parties also agreed that if Maunlad Homes violates any of the provisions of the
contract, all payments made will be applied as rentals for the use and possession of
the property, and all improvements introduced on the land will accrue in favor of
Union Bank. In the event of rescission due to failure to pay or to comply
with the terms of the contract, Maunlad Homes will be required to
immediately vacate the property and must voluntarily turn possession
over to Union Bank.
When Maunlad Homes failed to pay the monthly amortization, Union Bank sent
the former a Notice of Rescission of Contract7 dated February 5, 2003,
demanding payment of the installments due within 30 days from receipt; otherwise,
it shall consider the contract automatically rescinded. Maunlad Homes failed to
comply. Hence, on November 19, 2003, Union Bank sent Maunlad Homes a
letter demanding payment of the rentals due and requiring that the
subject property be vacated and its possession turned over to the bank.
When Maunlad Homes continued to refuse, Union Bank instituted an
ejectment suit before the Metropolitan Trial Court (MeTC) of Makati
City, Branch 64, on February 19, 2004. Maunlad Homes resisted the suit by
claiming, among others, that it is the owner of the property as Union Bank did not
reserve ownership of the property under the terms of the contract. By virtue of its
ownership, Maunlad Homes claimed that it has the right to possess the property.
On May 18, 2005, the MeTC dismissed Union Bank’s ejectment
complaint. It found that Union Bank’s cause of action was based on a breach of
contract and that both parties are claiming a better right to possess the property
based on their respective claims of ownership of the property. The MeTC ruled that
the appropriate action to resolve these conflicting claims was an accion
reivindicatoria, over which it had no jurisdiction.
On appeal, the Regional Trial Court (RTC) of Makati City, Branch 139,
affirmed the MeTC in its decision dated July 17, 2008; it agreed with the MeTC
that the issues raised in the complaint extend beyond those commonly involved in an
unlawful detainer suit. The RTC declared that the case involved a determination of
the rights of the parties under the contract. Additionally, the RTC noted that the
property is located in Malolos, Bulacan, but the ejectment suit was filed by Union
Bank in Makati City, based on the contract stipulation that “[t]he venue of all suits
and actions arising out or in connection with [the] Contract to Sell shall be [in]
Makati City.” The RTC ruled that the proper venue for the ejectment action is in
Malolos, Bulacan, pursuant to the second paragraph of Section 1, Rule 4 of the Rules
of Court, which states:
Section 1. Venue of real actions.―Actions affecting title to or possession of real
property, or interest therein, shall be commenced and tried in the proper court which
has jurisdiction over the area wherein the real property involved, or a portion thereof,
is situated.
Forcible entry and detainer actions shall be commenced and tried in
the municipal trial court of the municipality or city wherein the real
property involved, or a portion thereof, is situated. [emphasis ours]
The RTC declared that Union Bank cannot rely on the waiver of venue
provision in the contract because ejectment is not an action arising out of
or connected with the contract.
Union Bank appealed the RTC decision to the CA through a petition for review
under Rule 42 of the Rules of Court. The CA affirmed the RTC decision in its
October 28, 2009 decision, ruling that Union Bank’s claim of possession is based on
its claim of ownership which in turn is based on its interpretation of the terms and
conditions of the contract, particularly, the provision on the consequences of
Maunlad Homes’ breach of contract. The CA determined that Union Bank’s cause of
action is premised on the interpretation and enforcement of the contract and the
determination of the validity of the rescission, both of which are matters beyond the
jurisdiction of the MeTC. Therefore, it ruled that the dismissal of the ejectment
suit was proper. The CA, however, made no further ruling on the issue of venue of
the action.
From the CA’s judgment, Union Bank appealed to the Court by filing the present
petition for review on certiorariunder Rule 45 of the Rules of Court.
The Parties’ Arguments
Union Bank disagreed with the CA’s finding that it is claiming ownership over the
property through the ejectment action. It claimed that it never lost ownership over
the property despite the execution of the contract, since only the right to possess was
conceded to Maunlad Homes under the contract; Union Bank never transferred
ownership of the property to Maunlad Homes. Because of Maunlad Homes’ failure to
comply with the terms of the contract, Union Bank believes that it rightfully
rescinded the sale, which rescission terminated Maunlad Homes’ right to possess the
subject property. Since Maunlad Homes failed to turn over the possession of the
subject property, Union Bank believes that it correctly instituted the ejectment suit.
The Court initially denied Union Bank’s petition in its Resolution dated March 17,
2010. Upon motion for reconsideration filed by Union Bank, the Court set aside its
Resolution of March 17, 2010 (in a Resolution dated May 30, 2011) and required
Maunlad Homes to comment on the petition.
Maunlad Homes contested Union Bank’s arguments, invoking the rulings of the
lower courts. It considered Union Bank’s action as based on the propriety of the
rescission of the contract, which, in turn, is based on a determination of whether
Maunlad Homes indeed failed to comply with the terms of the contract; the propriety
of the rescission, however, is a question that is within the RTC’s jurisdiction. Hence,
Maunlad Homes contended that the dismissal of the ejectment action was proper.
The Court’s Ruling
We find the petition meritorious.
The authority of the MeTC to interpret contracts in an unlawful
detainer action
In any case involving the question of jurisdiction, the Court is guided by the
settled doctrine that the jurisdiction of a court is determined by the nature of the
action pleaded by the litigant through the allegations in his complaint.
Unlawful detainer is an action to recover possession of real property from one
who unlawfully withholds possession after the expiration or termination of his right
to hold possession under any contract, express or implied. The possession of the
defendant in unlawful detainer is originally legal but became illegal due to expiration
or termination of the right to possess. Under Section 1, Rule 70 of the Rules of Court,
the action must be filed “within one (1) year after [the] unlawful deprivation or
withholding of possession[.]” Thus, to fall within the jurisdiction of the MeTC, the
complaint must allege that ―
1. the defendant originally had lawful possession of the property, either by
virtue of a contract or by tolerance of the plaintiff;
2. eventually, the defendant’s possession of the property became illegal or
unlawful upon notice by the plaintiff to defendant of the expiration or the
termination of the defendant’s right of possession;
 3. thereafter, the defendant remained in possession of the property and express or implied; corollarily, the termination of the defendant’s right to possess
deprived the plaintiff the enjoyment thereof; and would be governed by the terms of the same contract. Interpretation of the contract
4. within one year from the unlawful deprivation or withholding of between the plaintiff and the defendant is inevitable because it is the contract that
possession, the plaintiff instituted the complaint for ejectment. initially granted the defendant the right to possess the property; it is this same
contract that the plaintiff subsequently claims was violated or extinguished,
Contrary to the findings of the lower courts, all four requirements were alleged in terminating the defendant’s right to possess. We ruled in Sps. Refugia v. CA that―
Union Bank’s Complaint. Union Bank alleged that Maunlad Homes “maintained
possession of the subject properties” pursuant to the Contract to Sell. Maunlad where the resolution of the issue of possession hinges on a determination of the
Homes, however, “failed to faithfully comply with the terms of payment,” prompting validity and interpretation of the document of title or any other contract on which the
Union Bank to “rescind the Contract to Sell in a Notice of Rescission dated February claim of possession is premised, the inferior court may likewise pass upon these
issues.
5, 2003[.]” When Maunlad Homes “refused to turn over and vacate the subject
premises[,]” Union Bank sent another Demand Letter on November 19, 2003 to
The MeTC’s ruling on the rights of the parties based on its interpretation of their
Maunlad Homes requiring it (1) “[t]o pay the equivalent rentals-in-arrears as of
contract is, of course, not conclusive, but is merely provisional and is binding only
October 2003 in the amount of P15,554,777.01 and monthly thereafter until the
with respect to the issue of possession.
premises are fully vacated and turned over” to Union Bank, and (2) to vacate the
property peacefully and turn over possession to Union Bank. As the demand went
Thus, despite the CA’s opinion that Union Bank’s “case involves a determination
unheeded, Union Bank instituted an action for unlawful detainer before the MeTC on
of the rights of the parties under the Contract to Sell,” it is not precluded from
February 19, 2004, within one year from the date of the last demand. These
resolving this issue. Having acquired jurisdiction over Union Bank’s action, the
allegations clearly demonstrate a cause of action for unlawful detainer
MeTC can resolve the conflicting claims of the parties based on the facts presented
and vested the MeTC jurisdiction over Union Bank’s action.
and proved.
Maunlad Homes denied Union Bank’s claim that its possession of the property
The right to possess the property was extinguished when the contract to
had become unlawful. It argued that its failure to make payments did not terminate
sell failed to materialize
its right to possess the property because it already acquired ownership when Union
Bank failed to reserve ownership of the property under the contract. Despite
Maunlad Homes acquired possession of the property based on its contract with
Maunlad Homes’ claim of ownership of the property, the Court rules that
Union Bank. While admitting that it suspended payment of the installments,
the MeTC retained its jurisdiction over the action; a defendant may not
Maunlad Homes contended that the suspension of payment did not affect its right to
divest the MeTC of its jurisdiction by merely claiming ownership of the
possess the property because its contract with Union Bank was one of sale and not to
property. Under Section 16, Rule 70 of the Rules of Court, “[w]hen the defendant
sell; hence, ownership of the property has been transferred to it, allowing it to retain
raises the defense of ownership in his pleadings and the question of possession
possession notwithstanding nonpayment of installments. The terms of the contract,
cannot be resolved without deciding the issue of ownership, the issue of ownership
however, do not support this conclusion.
shall be resolved only to determine the issue of possession.” Section 18, Rule 70 of
the Rules of Court, however, states that “[t]he judgment x x x shall be conclusive with
Section 11 of the contract between Union Bank and Maunlad Homes provides that
respect to the possession only and shall in no wise bind the title or affect the
“[u]pon payment in full of the Purchase Price of the Property x x x, the SELLER shall
ownership of the land or building.”
execute and deliver a Deed of Absolute Sale conveying the Property to the
BUYER.” “Jurisprudence has established that where the seller promises to execute a
The authority granted to the MeTC to preliminarily resolve the issue of
deed of absolute sale upon the completion by the buyer of the payment of the price,
ownership to determine the issue of possession ultimately allows it to
the contract is only a contract to sell.” The presence of this provision generally
interpret and enforce the contract or agreement between the plaintiff
identifies the contract as being a mere contract to sell. After reviewing the terms of
and the defendant. To deny the MeTC jurisdiction over a complaint merely
the contract between Union Bank and Maunlad Homes, we find no reasonable
because the issue of possession requires the interpretation of a contract will
ground to exempt the present case from the general rule; the contract between Union
effectively rule out unlawful detainer as a remedy. As stated, in an action for unlawful
Bank and Maunlad Homes is a contract to sell.
detainer, the defendant’s right to possess the property may be by virtue of a contract,
 In a contract to sell, the full payment of the purchase price is a positive suspensive
condition whose non-fulfillment is not a breach of contract, but merely an event that
prevents the seller from conveying title to the purchaser. “The non-payment of the
purchase price renders the contract to sell ineffective and without force and
effect.” Maunlad Homes’ act of withholding the installment payments rendered the
contract ineffective and without force and effect, and ultimately deprived itself of the
right to continue possessing Maunlad Shopping Mall.
The propriety of filing the unlawful detainer action in Makati City
pursuant to the venue stipulation in the contract
Maunlad Homes questioned the venue of Union Bank’s unlawful detainer action
which was filed in Makati City while the contested property is located in Malolos,
Bulacan. Citing Section 1, Rule 4 of the Rules of Court, Maunlad Homes claimed that
the unlawful detainer action should have been filed with the municipal trial court of
the municipality or city where the real property involved is situated. Union Bank, on
the other hand, justified the filing of the complaint with the MeTC of Makati City on
the venue stipulation in the contract which states that “[t]he venue of all suits and
actions arising out [of] or in connection with this Contract to Sell shall be at Makati
City.”
to vacate was made, up to the finality of this Decision. Thereafter, an interest of
twelve percent (12%) per annumshall be imposed on the total amount due until full
payment is made. SO ORDERED.
Notes.―The sole issue for resolution in an unlawful detainer case is physical or
material possession; Courts in ejectment cases decide questions of ownership only as
it is necessary to decide the question of possession. (Deanon vs. Mag-abo, 622 SCRA
180 [2010])
The fact that unlawful detainer cases fall under summary procedure, speedy
resolution thereof is thus deemed a matter of public policy; To do otherwise would
ultimately defeat the very essence of the creation of the Rules on Summary
Procedure. (Diaz vs. Gestopa, Jr., 652 SCRA 434 [2011])
――o0o――

While Section 1, Rule 4 of the Rules of Court states that ejectment actions shall be
filed in “the municipal trial court of the municipality or city wherein the real property
involved x x x is situated[,]” Section 4 of the same Rule provides that the rule shall
not apply “[w]here the parties have validly agreed in writing before the filing of the
action on the exclusive venue thereof.” Precisely, in this case, the parties provided for
a different venue. In Villanueva v. Judge Mosqueda, etc., et al., the Court upheld the
validity of a stipulation in a contract providing for a venue for ejectment actions
other than that stated in the Rules of Court. Since the unlawful detainer action is
connected with the contract, Union Bank rightfully filed the complaint with the
MeTC of Makati City.

WHEREFORE, we hereby GRANT the petition and SET ASIDE the decision dated
October 28, 2009 of the Court of Appeals in CA-G.R. SP No. 107772. Respondent
Maunlad Homes, Inc. is ORDERED TO VACATE the Maunlad Shopping Mall, the
property subject of the case, immediately upon the finality of this Decision.
Respondent Maunlad Homes, Inc. is further ORDERED TO PAY the rentals-in-
arrears, as well as rentals accruing in the interim until it vacates the property.

The case is REMANDED to the Metropolitan Trial Court of Makati City, Branch
64, to determine the amount of rentals due. In addition to the amount determined as
unpaid rent, respondent Maunlad Homes, Inc. is ORDERED TO PAY legal interest of
six percent (6%) per annum, from November 19, 2003, when the demand to pay and
 G.R. No. 189496. February 1, 2012.*
D.M. FERRER & ASSOCIATES CORPORATION,
petitioner, vs. UNIVERSITY OF SANTO TOMAS, respondent.
Remedial Law; Special Civil Actions; Certiorari; A petition for certiorari under
Rule 65 is the proper remedy to question the dismissal of an action against one of the
parties while the main case is still pending.—In Jan-Dec Construction Corp. v. Court of
Appeals, 481 SCRA 556 (2006), we held that a petition for certiorari under Rule 65 is the
proper remedy to question the dismissal of an action against one of the parties while the
main case is still pending. This is the general rule in accordance with Rule 41, Sec. 1(g).
Same; Civil Procedure; Cause of Action; The existence of a cause of action is
determined by the allegations in the complaint.—Anent the second issue, we also agree
with petitioner that the Complaint states a cause of action against respondent UST.
In Abacan v. Northwestern University, Inc., 455 SCRA 136 (2005), we said: It is settled
that the existence of a cause of action is determined by the allegations in the complaint.
In resolving a motion to dismiss based on the failure to state a cause of action, only the
facts alleged in the complaint must be considered. The test is whether the court can
render a valid judgment on the complaint based on the facts alleged and the prayer asked
for. Indeed, the elementary test for failure to state a cause of action is whether the
complaint alleges facts which if true would justify the relief demanded. Only ultimate
facts and not legal conclusions or evidentiary facts, which should not be
alleged in the complaint in the first place, are considered for purposes of
applying the test.
SERENO, J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Revised
Rules of Court. Petitioner assails the Court of Appeals (CA) Resolution promulgated
on 26 June 2009 dismissing the former’s Petition for Certiorari, and the
Resolution dated 3 September 2009 denying the subsequent Motion for
Reconsideration.
The facts are undisputed:
On 25 November 2005, petitioner and University of Santo Tomas Hospital, Inc.
(USTHI) entered into a Project Management Contract for the renovation of the 4th
and 5th floors of the Clinical Division Building, Nurse Call Room and Medical
Records, Medical Arts Tower, Diagnostic Treatment Building and Pay Division
Building.
On various dates, petitioner demanded from USTHI the payment of the
construction costs amounting to P17,558,479.39. However, on 16 April 2008, the
University of Santo Tomas (UST), through its rector, Fr. Rolando V. Dela Rosa, wrote
a letter informing petitioner that its claim for payment had been denied, because the
Project Management Contract was without the required prior approval of the board
of trustees. Thus, on 23 May 2008, petitioner filed a Complaint 3 for sum of money,
breach of contract and damages against herein respondent UST and USTHI when the
latter failed to pay petitioner despite repeated demands.
In impleading respondent UST, petitioner alleged that the former took complete
control over the business and operation of USTHI, as well as the completion of the
construction project.
It also pointed out that the Articles of Incorporation of USTHI provided that,
upon dissolution, all of the latter’s assets shall be transferred without any
consideration and shall inure to the benefit of UST. It appears that USTHI passed a
Resolution on 10 January 2008 dissolving the corporation by shortening its
corporate term of existence from 16 March 2057 to 31 May 2008.
Finally, petitioner alleged that respondent, through its rector, Fr. Dela Rosa, O.P.,
verbally assured the former of the payment of USTHI’s outstanding obligations.
Thus, petitioner posited in part that UST may be impleaded in the case under the
doctrine of “piercing the corporate veil,” wherein respondent UST and USTHI would
be considered to be acting as one corporate entity, and UST may be held liable for the
alleged obligations due to petitioner.
Subsequently, respondent filed its Motion to Dismiss dated 12 June 2008.4 It
alleged that the Complaint failed to state a cause of action, and that the claim was
unenforceable under the provisions of the Statute of Frauds.
On 4 August 2008, Judge Bernelito R. Fernandez of Branch 97 of the Regional
Trial Court (RTC) of Quezon City granted the motion and dismissed the Complaint
insofar as respondent UST was concerned.
First, basing its findings on the documents submitted in support of the
Complaint, the RTC held that respondent was not a real party-in-interest, and that it
was not privy to the contract executed between USTHI and petitioner. Second, the
court pointed out that the alleged verbal assurances of Fr. Dela Rosa should have
been in writing to make these assurances binding and demandable.
Petitioner sought a reconsideration of the RTC Order and asserted that only
allegations of the Complaint, and not the attached documents, should have been the
basis of the trial court’s ruling, consistent with the rule that the cause of action can be
determined only from the facts alleged in the Complaint. It also insisted that the
Statute of Frauds was inapplicable, since USTHI’s obligation had already been
partially executed.
On 5 October 2008, petitioner filed an Urgent Motion for Voluntary Inhibition7 on
the ground that Judge Fernandez was an alumnus of respondent UST.
Thereafter, Judge Fernandez issued an Order8inhibiting himself from the case,
which was consequently re-raffled to Branch 76 presided by Judge Alexander S.
Balut.
On 16 April 2009, Judge Balut dismissed the Motion for Reconsideration filed by
petitioner, upholding the initial findings of Judge Fernandez declaring that
respondent UST was not a real party-in-interest, and that Fr. Dela Rosa’s alleged
assurances of payment were unenforceable.
Subsequently, petitioner filed a Petition for Certiorariunder Rule 65 with the CA.
Petitioner alleged that the trial court committed grave abuse of discretion when it
granted respondent’s Motion to Dismiss on the basis of the documents submitted in
support of the Complaint, and not solely on the allegations stated therein. Petitioner
pointed out that the allegations raised questions of fact and law, which should have
been threshed out during trial, when both parties would have been given the chance
to present evidence supporting their respective allegations.
However, on 26 June 2009, the CA issued the assailed Resolution and dismissed
the Petition on the ground that a petition under Rule 65 is the wrong remedy to
question the RTC’s Order that completely disposes of the case. Instead, petitioner
should have availed itself of an appeal under Rule 41 of the Rules of Court.
Petitioner moved for a reconsideration of the Resolution. It pointed out that the
present case falls under the enumerated exceptions of Rule 41, in particular, while
the main case is still pending, no appeal may be made from a judgment or final order
for or against one or more of several parties or in separate claims, counterclaims,
cross-claims and third-party complaints.
On 3 September 2009, the CA denied the Motion for Reconsideration through its
second assailed Resolution, holding that the motion raised no new issues or
substantial grounds that would merit the reconsideration of the court.
Hence this Petition.
Petitioner raises two grounds in the present Petition: first, whether the CA erred
in dismissing the Petition for Certiorari by failing to consider the exception in Sec.
1(g) of Rule 41 of the Rules of Court; second, whether the trial court committed grave
abuse of discretion when it held that the Complaint stated no cause of action.
We rule for petitioner.
Respondent insists that petitioner should have first filed a notice of appeal before
the RTC, and the appeal should have been subsequently denied before recourse to
the CA was made. This contention holds no water.
In Jan-Dec Construction Corp. v. Court of Appeals, we held that a petition for
certiorari under Rule 65 is the proper remedy to question the dismissal of an action
against one of the parties while the main case is still pending. This is the general rule
in accordance with Rule 41, Sec. 1(g). In that case, ruled thus:
“Evidently, the CA erred in dismissing petitioner’s petition for certiorari from the
Order of the RTC dismissing the complaint against respondent. While Section 1, Rule
41 of the 1997 Rules of Civil Procedure states that an appeal may be taken only from a
final order that completely disposes of the case, it also provides several exceptions to
the rule, to wit: (a) an order denying a motion for new trial or reconsideration; (b) an
order denying a petition for relief or any similar motion seeking relief from judgment;
(c) an interlocutory order; (d) an order disallowing or dismissing an appeal; (e) an
order denying a motion to set aside a judgment by consent, confession or
compromise on the ground of fraud, mistake or duress, or any other ground vitiating
consent; (f) an order of execution; (g) a judgment or final order for or against one or
more of several parties or in separate claims, counterclaims, cross-claims and third-
party complaints, while the main case is pending, unless the court allows an appeal
therefrom; and (h) an order dismissing an action without prejudice. In the foregoing
instances, the aggrieved party may file an appropriate special civil action
for certiorari under Rule 65.
In the present case, the Order of the RTC dismissing the complaint
against respondent is a final order because it terminates the proceedings
against respondent but it falls within exception (g) of the Rule since the
case involves two defendants, Intermodal and herein respondent and the
complaint against Intermodal is still pending. Thus, the remedy of a
special civil action for certiorari availed of by petitioner before the CA
was proper and the CA erred in dismissing the petition.” (Emphasis
supplied)
Clearly, in the case at bar, the CA also erred when it dismissed the Petition filed
before it.
Anent the second issue, we also agree with petitioner that the Complaint states a
cause of action against respondent UST. In Abacan v. Northwestern University, Inc.,
we said:
 “It is settled that the existence of a cause of action is determined by the allegations
in the complaint. In resolving a motion to dismiss based on the failure to state a cause
of action, only the facts alleged in the complaint must be considered. The test is
whether the court can render a valid judgment on the complaint based on the facts
alleged and the prayer asked for. Indeed, the elementary test for failure to state a
cause of action is whether the complaint alleges facts which if true would justify the
relief demanded. Only ultimate facts and not legal conclusions or
evidentiary facts, which should not be alleged in the complaint in the first
place, are considered for purposes of applying the test.” (Emphasis
supplied)

While it is admitted that respondent UST was not a party to the contract,
petitioner posits that the former is nevertheless liable for the construction costs. In
support of its position, petitioner alleged that (1) UST and USTHI are one and the
same corporation; (2) UST stands to benefit from the assets of USTHI by virtue of
the latter’s Articles of Incorporation; (3) respondent controls the business of USTHI;
and (4) UST’s officials have performed acts that may be construed as an
acknowledgement of respondent’s liability to petitioner.

Obviously, these issues would have been best resolved during trial. The RTC
therefore committed grave abuse of discretion when it dismissed the case against
respondent for lack of cause of action. The trial court relied on the contract executed
between petitioner and USTHI, when the court should have instead considered
merely the allegations stated in the Complaint.

WHEREFORE, in view of the foregoing, the Petition is GRANTED. Branch 76 of

the Regional Trial Court of Quezon City is hereby ordered to REINSTATE respondent
University of Santo Tomas as a defendant in C.C. No. 0862635. SO ORDERED.

Note.—A complaint states a cause of action when it contains three essential

elements: (1) a right in favor of the plaintiff by whatever means and whatever law it
arises; (2) the correlative obligation of the defendant to respect such right; and (3)
the act or omission of the defendant violates the right of the plaintiff. (Development
Bank of the Philippines vs. Castillo, 655 SCRA 602 [2011])

——o0o——
 G.R. No. 161909. April 25, 2012.*
PHILTRANCO SERVICE ENTERPRISES, INC., petitioner, vs. FELIX PARAS AND
INLAND TRAILWAYS, INC., AND HON. COURT OF APPEALS, respondents.
Civil Law; Damages; Moral Damages; Generally, moral damages are not
recoverable in an action predicated on a breach of contract because such an action is
not included in Article 2219 of the Civil Code as one of the actions in which moral
damages may be recovered; Exceptions.—As a general rule, indeed, moral damages are
not recoverable in an action predicated on a breach of contract. This is because such
action is not included in Article 2219 of the Civil Code as one of the actions in which
moral damages may be recovered. By way of exception, moral damages are recoverable in
an action predicated on a breach of contract: (a) where the mishap results in the death of
a passenger, as provided in Article 1764, in relation to Article 2206, (3), of the Civil Code;
and (b) where the common carrier has been guilty of fraud or bad faith, as provided in
Article 2220 of the Civil Code.
Remedial Law; Civil Procedure; Third-Party Complaints; Requisites for a Third-
party Action.—The requisites for a third-party action are, firstly, that the party to be
impleaded must not yet be a party to the action; secondly, that the claim against the
third-party defendant must belong to the original defendant; thirdly, the claim of the
original defendant against the third-party defendant must be based upon the plaintiff’s
claim against the original defendant; and, fourthly, the defendant is attempting to
transfer to the third-party defendant the liability asserted against him by the original
plaintiff.
Civil Law; Damages; Actual Damages; Actual damages, to be recoverable, must
not only be capable of proof, but must actually be proved with a reasonable degree of
certainty.—Actual damages, to be recoverable, must not only be capable of proof, but
must actually be proved with a reasonable degree of certainty. The reason is that the
court “cannot simply rely on speculation, conjecture or guesswork in determining the fact
and amount of damages,” but “there must be competent proof of the actual amount of
loss, credence can be given only to claims which are duly supported by receipts.”
Same; Same; Temperate Damages; Article 2224 of the Civil Code expressly
authorizes the courts to award temperate damages despite lack of certain proof of
actual damages.—There is no question that Article 2224 of the Civil Code expressly
authorizes the courts to award temperate damages despite the lack of certain proof of
actual damages, to wit: Article 2224. Temperate or moderate damages, which are more
than nominal but less than compensatory damages, may be recovered when the court
finds that some pecuniary loss has been suffered but its amount cannot, from the nature
of the case, be proved with certainty.
Same; Same; Loss of Earning Capacity; According to Article 2205, (1), of the Civil
Code, damages may be recovered for loss or impairment of earning capacity in cases of
temporary or permanent personal injury.—According to Article 2205, (1), of the Civil
Code, damages may be recovered for loss or impairment of earning capacity in cases of
temporary or permanent personal injury. Indeed, indemnification for damages
comprehends not only the loss suffered (actual damages or damnum emergens) but also
the claimant’s lost profits (compensatory damages or lucrum cessans). Even so, the
formula that has gained acceptance over time has limited recovery to net earning
capacity; hence, the entire amount of P72,000.00 is not allowable. The premise is
obviously that net earning capacity is the person’s capacity to acquire money, less the
necessary expense for his own living. To simplify the determination, therefore, the net
earning capacity of Paras during the 9-month period of his confinement, surgeries and
consequential therapy is pegged at only half of his unearned monthly gross income of
P8,000.00 as a trader, or a total of P36,000.00 for the 9-month period, the other half
being treated as the necessary expense for his own living in that period.
BERSAMIN, J.:
In an action for breach of contract of carriage commenced by a passenger against
his common carrier, the plaintiff can recover damages from a third-party defendant
brought into the suit by the common carrier upon a claim based on tort or quasi-
delict. The liability of the third-party defendant is independent from the liability of
the common carrier to the passenger.
Philtranco Service Enterprises, Inc. (Philtranco) appeals the affirmance with
modifications by the Court of Appeals (CA) of the decision of the Regional Trial Court
(RTC) awarding moral, actual and temperate damages, as well as attorney’s fees and
costs of suit, to respondent Felix Paras (Paras), and temperate damages to
respondent Inland Trailways, Inc. (Inland), respectively the plaintiff and the
defendant/third-party plaintiff in this action for breach of contract of carriage, upon
a finding that the negligence of the petitioner and its driver had caused the serious
physical injuries Paras sustained and the material damage Inland’s bus suffered in a
vehicular accident.
Antecedents
The antecedent facts, as summarized by the CA, are as follows:
“Plaintiff-appellant [respondent] Felix Paras (Paras for brevity), who hails from
Cainta, Rizal is engaged in the buy and sell of fish products. Sometime on 08
February 1987, on his way home to Manila from Bicol Region, he boarded a bus with
Body No. 101 and Plate No. EVE 508, owned and operated by Inland Trailways, Inc.
(Inland for brevity) and driven by its driver Calvin Coner (Coner for brevity).
At approximately 3:50 o’clock in the morning of 09 February 1987, while the said
bus was travelling along Maharlika Highway, Tiaong, Quezon, it was bumped at the
rear by another bus with Plate No. EVB 259, owned and operated by Philtranco
 Service Enterprises, Inc. (Philtranco for brevity). As a result of the strong and violent
impact, the Inland bus was pushed forward and smashed into a cargo truck parked
along the outer right portion of the highway and the shoulder thereof. Consequently,
the said accident bought considerable damage to the vehicles involved and caused
physical injuries to the passengers and crew of the two buses, including the death of
Coner who was the driver of the Inland Bus at the time of the incident.
Paras was not spared from the pernicious effects of the accident. After an
emergency treatment at the San Pablo Medical Center, San Pablo City, Laguna, Paras
was taken to the National Orthopedic Hospital. At the latter hospital, he was found
and diagnosed by Dr. Antonio Tanchuling, Jr. to be affected with the following
injuries: a) contusion/hematoma; b) dislocation of hip upon fracture of the fibula on
the right leg; c) fractured small bone on the right leg; and d) close fracture on the
tibial plateau of the left leg. (Exh. “A,” p. 157, record)
On 04 March 1987 and 15 April 1987, Paras underwent two (2) operations
affecting the fractured portions of his body. (Exhs. “A-2” and “A-3,” pp. 159 and 160
respectively, record)
Unable to obtain sufficient financial assistance from Inland for the costs of his
operations, hospitalization, doctors’ fees and other miscellaneous expenses, on 31
July 1989, Paras filed a complaint for damages based on breach of contract of
carriage against Inland.
In its answer, defendant Inland denied responsibility, by alleging, among others,
that its driver Coner had observed an utmost and extraordinary care and diligence to
ensure the safety of its passengers. In support of its disclaimer of responsibility,
Inland invoked the Police Investigation Report which established the fact that the
Philtranco bus driver of [sic] Apolinar Miralles was the one which violently bumped
the rear portion of the Inland bus, and therefore, the direct and proximate cause of
Paras’ injuries.
On 02 March 1990, upon leave of court, Inland filed a third-party complaint
against Philtranco and Apolinar Miralles (Third Party defendants). In this third-party
complaint, Inland, sought for exoneration of its liabilities to Paras, asserting that the
latter’s cause of action should be directed against Philtranco considering that the
accident was caused by Miralles’ lack of care, negligence and reckless imprudence.
(pp. 50 to 56, records).”
After trial, the RTC (Branch 71) in Antipolo, Rizal rendered its judgment on July
18, 1997,1 viz.:
“WHEREFORE, third-party defendant Philtranco and Apolinar Miralles are
hereby ordered to pay plaintiff jointly and severally, the following amounts:
1. P54,000.00 as actual damages;
2. P50,000.00 as moral damages;
3. P20,000.00 as attorney’s fees and costs. SO ORDERED.”
All the parties appealed to the CA on different grounds.
On his part, Paras ascribed the following errors to the RTC, to wit:
I. THE TRIAL COURT ERRED IN HOLDING THAT ONLY THIRD-PARTY
DEFENDANT-APPELLANT PHILTRANCO IS LIABLE FOR THE DAMAGES
SUFFERED BY APPELLANT PARAS.
II. THE TRIAL COURT ERRED IN NOT HOLDING APPELLANT INLAND
TRAILWAYS INC. TO BE JOINTLY AND SEVERALLY LIABLE FOR THE
DAMAGES SUFFERED BY PARAS.
III. THE TRIAL COURT ERRED IN NOT AWARDING UNEARNED INCOME AS
ADDITIONAL ACTUAL DAMAGES SUFFERED BY APPELLANT PARAS AS HIS
PHYSICAL DISABILITY IS PERMANENT IN NATURE.
IV. THE TRIAL COURT ERRED IN NOT AWARDING EXEMPLARY DAMAGES IN
FAVOR OF APPELLANT PARAS.
On the other hand, Inland assigned the following errors to the RTC, namely:
THE TRIAL COURT ERRED WHEN IT FAILED TO AWARD DAMAGES UNTO THE
THIRD PARTY PLAINTIFF NOTWITHSTANDING CLEAR FINDING THAT:
‘It is clear from the evidence that the plaintiff sustained injuries because of the
reckless, negligence, and lack of precaution of third party defendant Apolinar
Miralles, an employee of Philtranco.’
AND, COMPLETELY DISREGARDED THE UNCONTROVERTED ORAL AND
DOCUMENTARY EVIDENCES ESTABLISHING THE EXTENT AND DEGREE OF
DAMAGES SUSTAINED BY THE THIRD PARTY PLAINTIFF.
Lastly, Philtranco stated that the RTC erred thuswise:
I
THE COURT A QUO MISERABLY ERRED IN AWARDING ACTUAL DAMAGES GREATER THAN
WHAT WAS ALLEGED IN THE COMPLAINT ITSELF, AND EVEN MUCH MORE GREATER THAN
WHAT WERE PROVED DURING THE TRIAL, HENCE, PERPETUATING UNJUST ENRICHMENT.
II
THE COURT A QUO SERIOUSLY ERRED IN AWARDING MORAL DAMAGES TO A CAUSE OF
ACTION OF CULPA-CONTRACTUAL EVEN WITHOUT ANY EVIDENCE OF GROSS BAD FAITH;
HENCE, CONTRARY TO THE ESTABLISHED DOCTRINE IN THE CASES OF PHIL. RABBIT BUS
LINES VS. ESGUERRA; SOBERANO VS. BENGUET AUTO LINE AND FLORES VS. MIRANDA.
III
THE COURT A QUO MISERABLY ERRED IN HOLDING THAT MIRALLES WAS THE ONE AT FAULT
MERELY ON THE STRENGTH OF THE TESTIMONY OF THE POLICE INVESTIGATOR WHICH IS IN
TURN BASED ON THE STATEMENTS OF ALLEGED WITNESSES WHO WERE NEVER PRESENTED
ON THE WITNESS STAND.
IV
THE COURT A QUO COMMITTED A GRIEVOUS ERROR IN DISREGARDING THE TESTIMONY OF
APPELLANTS’ WITNESSES WHO TESTIFIED AS TO THE DEFENSE OF EXERCISE OF DUE
DILIGENCE IN THE SELECTION AND SUPERVISION OF EMPLOYEES PURSUANT TO ART. 2180,
LAST PARAGRAPH, NEW CIVIL CODE.
 On September 25, 2002, the CA promulgated its decision,2 disposing:
“WHEREFORE, in consideration of the foregoing premises, the assailed decision
dated 18 July 19(9)7 is perforce affirmed with the following modifications:
1. Third party defendants-appellants Philtranco and Apolinar Miralles are
ordered to pay plaintiff-appellant Felix Paras jointly and severally the following
amounts:
a) P1,397.95 as actual damages;
b) P50,000.00 as temperate damages;
c) P50,000.00 as moral damages; and
d) P20,000.00 as attorney’s fees and costs of suit.
2. On the third party plaintiff-appellant Inland’s claims, the third party
defendant-appellants Philtranco and Apolinar Miralles are hereby ordered to pay the
former (Inland) jointly and severally the amount of P250,000.00 as and by way of
temperate damages. SO ORDERED.”
The CA agreed with the RTC’s finding that no trace of negligence at the time of the
accident was attributable to Inland’s driver, rendering Inland not guilty of breach of
contract of carriage; that faulty brakes had caused Philtranco’s bus to forcefully
bump Inland’s bus from behind, making it hit the rear portion of a parked cargo
truck; that the impact had resulted in considerable material damage to the three
vehicles; and that Paras and others had sustained various physical injuries.
Accordingly, the CA: (a) sustained the award of moral damages of P50,000.00 in
favor of Paras pursuant to Article 2219 of the Civil Code based on quasi-delict
committed by Philtranco and its driver; (b) reduced the actual damages to be paid by
Philtranco to Paras from P54,000.00 to P1,397.95 because only the latter amount
had been duly supported by receipts; (c) granted temperate damages of P50,000.00
(in lieu of actual damages in view of the absence of competent proof of actual
damages for his hospitalization and therapy) to be paid by Philtranco to Paras; and
(d) awarded temperate damages of P250,000.00 under the same premise to be paid
by Philtranco to Inland for the material damage caused to Inland’s bus.
Philtranco moved for reconsideration,3 but the CA denied its motion for
reconsideration on January 21, 2004.4
Issues
Hence, this appeal, in which the petitioner submits that the CA committed grave
abuse of discretion amounting to lack of jurisdiction in awarding moral damages to
Paras despite the fact that the complaint had been anchored on breach of contract of
carriage; and that the CA committed a reversible error in substituting its own
judgment by motu proprio awarding temperate damages of P250,000.00 to Inland
and P50,000.00 to Paras despite the clear fact that temperate damages were not
raised on appeal by Paras and Inland.
Ruling
The appeal lacks merit.
The Court does not disturb the unanimous findings by the CA and the RTC on the
negligence of Philtranco and its driver being the direct cause of the physical injuries
of Paras and the material damage of Inland.
Nonetheless, we feel bound to pass upon the disparate results the CA and the RTC
reached on the liabilities of Philtranco and its driver.
1.
Paras can recover moral damages
in this suit based on quasi-delict
Philtranco contends that Paras could not recover moral damages because his suit
was based on breach of contract of carriage, pursuant to which moral damages could
be recovered only if he had died, or if the common carrier had been guilty of fraud or
bad faith. It argues that Paras had suffered only physical injuries; that he had not
adduced evidence of fraud or bad faith on the part of the common carrier; and that,
consequently, Paras could not recover moral damages directly from it (Philtranco),
considering that it was only being subrogated for Inland.
The Court cannot uphold the petitioner’s contention.
As a general rule, indeed, moral damages are not recoverable in an action
predicated on a breach of contract. This is because such action is not included in
Article 2219 of the Civil Code5 as one of the actions in which moral damages may be
recovered. By way of exception, moral damages are recoverable in an action
predicated on a breach of contract: (a) where the mishap results in the death of a
passenger, as provided in Article 1764,6 in relation to Article 2206, (3),7 of the Civil
Code; and (b) where the common carrier has been guilty of fraud or bad faith, 8 as
provided in Article 22209 of the Civil Code.
Although this action does not fall under either of the exceptions, the award of
moral damages to Paras was nonetheless proper and valid. There is no question that
Inland filed its third-party complaint against Philtranco and its driver in order to
establish in this action that they, instead of Inland, should be directly liable to Paras
for the physical injuries he had sustained because of their negligence. To be precise,
Philtranco and its driver were brought into the action on the theory of liability that
the proximate cause of the collision between Inland’s bus and Philtranco’s bus had
been “the negligent, reckless and imprudent manner defendant Apolinar Miralles
drove and operated his driven unit, the Philtranco Bus with Plate No. 259, owned
and operated by third-party defendant Philtranco Service Enterprises, Inc.”10 The
apparent objective of Inland was not to merely subrogate the third-party defendants
for itself, as Philtranco appears to suggest,11 but, rather, to obtain a different relief
whereby the third-party defendants would be held directly, fully and solely liable to
Paras and Inland for whatever damages each had suffered from the negligence
committed by Philtranco and its driver. In other words, Philtranco and its driver
were charged here as joint tortfeasors who would be jointly and severally be liable to
Paras and Inland.
Impleading Philtranco and its driver through the third-party complaint filed on
March 2, 1990 was correct. The device of the third-party action, also known as
impleader, was in accord with Section 12, Rule 6 of the Revised Rules of Court, the
rule then applicable, viz.:
“Section 12. Third-party complaint.—A third-party complaint is a claim that a
defending party may, with leave of court, file against a person not a party to the
action, called the third-party defendant, for contribution, indemnity, subrogation or
any other relief, in respect of his opponent’s claim.”
12
Explaining the application of Section 12, Rule 6, supra, the Court said
in Balbastro v. Court of Appeals,13 to wit:
“Section 12 of Rule 6 of the Revised Rules of Court authorizes a defendant to bring
into a lawsuit any person “not a party to the action . . . for contribution, indemnity,
subrogation or any other relief in respect of his opponent’s claim.” From its explicit
language it does not compel the defendant to bring the third-parties into the
litigation, rather it simply permits the inclusion of anyone who meets the standard set
forth in the rule. The secondary or derivative liability of the third-party is central—
whether the basis is indemnity, subrogation, contribution, express or implied
warranty or some other theory. The impleader of new parties under this rule
is proper only when a right to relief exists under the applicable
substantive law. This rule is merely a procedural mechanism, and cannot
be utilized unless there is some substantive basis under applicable law.
Apart from the requirement that the third-party complainant should
assert a derivative or secondary claim for relief from the third-party
defendant there are other limitations on said party’s ability to implead.
The rule requires that the third-party defendant is “not a party to the
action” for otherwise the proper procedure for asserting a claim against
one who is already a party to the suit is by means of counterclaim or
cross-claim under sections 6 and 7 of Rule 6. In addition to the aforecited
requirement, the claim against the third-party defendant must be based
upon plaintiff’s claim against the original defendant (third-party
claimant). The crucial characteristic of a claim under section 12 of Rule 6,
is that the original “defendant is attempting to transfer to the third-party
defendant the liability asserted against him by the original plaintiff.”
Accordingly, the requisites for a third-party action are, firstly, that the party to be
impleaded must not yet be a party to the action; secondly, that the claim against the
third-party defendant must belong to the original defendant; thirdly, the claim of the
original defendant against the third-party defendant must be based upon the
plaintiff’s claim against the original defendant; and, fourthly, the defendant is
attempting to transfer to the third-party defendant the liability asserted against him
by the original plaintiff.14
As the foregoing indicates, the claim that the third-party complaint asserts against
the third-party defendant must be predicated on substantive law. Here, the
substantive law on which the right of Inland to seek such other relief through its
third-party complaint rested were Article 2176 and Article 2180 of the Civil Code,
which read:
“Article 2176. Whoever by act or omission causes damage to another, there
being fault or negligence, is obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation between the parties, is
called a quasi-delict and is governed by the provisions of this chapter. (1902a)
Article 2180. The obligation imposed by article 2176 is demandable not only
for one’s own acts or omissions, but also for those of persons for whom one is
responsible.
xxx
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.
xxx
The responsibility treated of in this article shall cease when the persons herein
mentioned prove that they observed all the diligence of a good father of a family to
prevent damage.” (1903a)
Paras’ cause of action against Inland (breach of contract of carriage) did not need
to be the same as the cause of action of Inland against Philtranco and its driver (tort
or quasi-delict) in the impleader. It is settled that a defendant in a contract action
may join as third-party defendants those who may be liable to him in tort for the
plaintiff’s claim against him, or even directly to the plaintiff.15 Indeed, Prof. Wright, et
al., commenting on the provision of the Federal Rules of Procedure of the United
States from which Section 12, supra, was derived, observed so, to wit:16
“The third-party claim need not be based on the same theory as the main claim.
For example, there are cases in which the third-party claim is based on an express
 indemnity contract and the original complaint is framed in terms of negligence.
Similarly, there need not be any legal relationship between the third-party defendant
and any of the other parties to the action. Impleader also is proper even though the
third party’s liability is contingent, and technically does not come into existence
until the original defendant’s liability has been established. In addition, the words ‘is
or may be liable’ in Rule 14(a) make it clear that impleader is proper even though the
third-party defendant’s liability is not automatically established once the third-party
plaintiff’s liability to the original plaintiff has been determined.”
Nor was it a pre-requisite for attachment of the liability to Philtranco and its
driver that Inland be first declared and found liable to Paras for the breach of its
contract of carriage with him.17 As the Court has cogently discoursed in Samala v.
Judge Victor:18
“Appellants argue that since plaintiffs filed a complaint for damages against the
defendants on a breach of contract of carriage, they cannot recover from the third-
party defendants on a cause of action based on quasi-delict. The third party
defendants, they allege, are never parties liable with respect to plaintiff’s claim
although they are with respect to the defendants for indemnification, subrogation,
contribution or other reliefs. Consequently, they are not directly liable to the
plaintiffs. Their liability commences only when the defendants are adjudged liable
and not when they are absolved from liability as in the case at bar.
Quite apparent from these arguments is the misconception entertained by
appellants with respect to the nature and office of a third party complaint.
Section 16, Rule 6 of the Revised Rules of Court defines a third party complaint
as a “claim that a defending party may, with leave of court, file against a person not a
party to the action, called the third-party defendant, for contribution,
indemnification, subrogation, or any other relief, in respect of his opponent’s claim.”
In the case of Viluan vs. Court of Appeals, et al., 16 SCRA 742 [1966], this Court had
occasion to elucidate on the subjects covered by this Rule, thus:
... As explained in the Atlantic Coast Line R. Co. vs. U.S. Fidelity & Guaranty
Co., 52 F. Supp. 177 (1943:)
‘From the sources of Rule 14 and the decisions herein cited, it is clear that this
rule, like the admiralty rule, ‘covers two distinct subjects, the addition of parties
defendant to the main cause of action, and the bringing in of a third party for a
defendant’s remedy over.’ xxx
‘If the third party complaint alleges facts showing a third party’s
direct liability to plaintiff on the claim set out in plaintiff’s petition, then
third party ‘shall’ make his defenses as provided in Rule 12 and his
counterclaims against plaintiff as provided in Rule 13. In the case of
alleged direct liability, no amendment (to the complaint) is necessary or
required. The subject-matter of the claim is contained in plaintiff’s
complaint, the ground of third party’s liability on that claim is alleged in
third party complaint, and third party’s defense to set up in his answer
to plaintiff’s complaint. At that point and without amendment, the
plaintiff and third party are at issue as to their rights respecting the
claim.
The provision in the rule that, ‘The third-party defendant may assert any defense
which the third-party plaintiff may assert to the plaintiffs claim,’ applies to the other
subject, namely, the alleged liability of third party defendant. The next sentence in
the rule, ‘The third-party defendant is bound by the adjudication of the third party
plaintiffs liability to the plaintiff, as well as of his own to the plaintiff or to the third-
party plaintiff applies to both subjects. If third party is brought in as liable only to
defendant and judgment is rendered adjudicating plaintiff’s right to recover against
defendant and defendant’s rights to recover against third party, he is bound by both
adjudications. That part of the sentence refers to the second subject. If third party is
brought in as liable to plaintiff, then third party is bound by the adjudication as
between him and plaintiff. That refers to the first subject. If third party is brought in
as liable to plaintiff and also over to defendant, then third party is bound by both
adjudications. xxx
Under this Rule, a person not a party to an action may be impleaded by the
defendant either (a) on an allegation of liability to the latter; (b) on the ground of
direct liability to the plaintiff; or, (c) both (a) and (b). The situation in (a) is covered
by the phrase “for contribution, indemnity or subrogation”; while (b) and (c) are
subsumed under the catch all “or any other relief, in respect of his opponent’s
claim.”
The case at bar is one in which the third party defendants are brought
into the action as directly liable to the plaintiffs upon the allegation that
“the primary and immediate cause as shown by the police investigation
of said vehicular collision between (sic) the above-mentioned three
vehicles was the recklessness and negligence and lack of imprudence
(sic) of the third-party defendant Virgilio (should be Leonardo)
Esguerra y Ledesma then driver of the passenger bus.” The effects are
that “plaintiff and third party are at issue as to their rights respecting
the claim” and “the third party is bound by the adjudication as between
him and plaintiff.” It is not indispensable in the premises that the
defendant be first adjudged liable to plaintiff before the third-party
defendant may be held liable to the plaintiff, as precisely, the theory of
defendant is that it is the third party defendant, and not he, who
is directly liable to plaintiff. The situation contemplated by appellants
would properly pertain to situation (a) above wherein the third party
defendant is being sued for contribution, indemnity or subrogation, or
simply stated, for a defendant’s “remedy over.” 19
It is worth adding that allowing the recovery of damages by Paras based
on quasi-delict, despite his complaint being upon contractual breach, served
 the judicial policy of avoiding multiplicity of suits and circuity of actions by
disposing of the entire subject matter in a single litigation.20
2.
Award of temperate damages was in order
Philtranco assails the award of temperate damages by the CA considering
that, firstly, Paras and Inland had not raised the matter in the trial court and in their
respective appeals; secondly, the CA could not substitute the temperate damages
granted to Paras if Paras could not properly establish his actual damages despite
evidence of his actual expenses being easily available to him; and, thirdly, the CA
gravely abused its discretion in granting motu proprio the temperate damages of
P250,000.00 to Inland although Inland had not claimed temperate damages in its
pleading or during trial and even on appeal.
The Court cannot side with Philtranco.
Actual damages, to be recoverable, must not only be capable of proof, but must
actually be proved with a reasonable degree of certainty. The reason is that the court
“cannot simply rely on speculation, conjecture or guesswork in determining the fact
and amount of damages,” but “there must be competent proof of the actual amount
of loss, credence can be given only to claims which are duly supported by receipts.”21
The receipts formally submitted and offered by Paras were limited to the costs of
medicines purchased on various times in the period from February 1987 to July 1989
(Exhibits E to E-35, inclusive) totaling only P1,397.95.22The receipts by no means
included hospital and medical expenses, or the costs of at least two surgeries as well
as rehabilitative therapy. Consequently, the CA fixed actual damages only at that
small sum of P1,397.95. On its part, Inland offered no definite proof on the repairs
done on its vehicle, or the extent of the material damage except the testimony of its
witness, Emerlinda Maravilla, to the effect that the bus had been damaged beyond
economic repair.23The CA rejected Inland’s showing of unrealized income worth
P3,945,858.50 for 30 months (based on alleged average weekly income of
P239,143.02 multiplied by its guaranteed revenue amounting to 55% thereof, then
spread over a period of 30 months, the equivalent to the remaining 40% of the
vehicle’s un-depreciated or net book value), finding such showing arbitrary,
uncertain and speculative.24 As a result, the CA allowed no compensation to Inland
for unrealized income.
Nonetheless, the CA was convinced that Paras should not suffer from the lack of
definite proof of his actual expenses for the surgeries and rehabilitative therapy; and
that Inland should not be deprived of recourse to recover its loss of the economic
value of its damaged vehicle. As the records indicated, Paras was first rushed for
emergency treatment to the San Pablo Medical Center in San Pablo City, Laguna, and
was later brought to the National Orthopedic Hospital in Quezon City where he was
diagnosed to have suffered a dislocated hip, fracture of the fibula on the right leg,
fracture of the small bone of the right leg, and closed fracture on the tibial plateau of
the left leg. He underwent surgeries on March 4, 1987 and April 15, 1987 to repair the
fractures.25Thus, the CA awarded to him temperate damages of P50,000.00 in the
absence of definite proof of his actual expenses towards that end. As to Inland,
Maravilla’s testimony of the bus having been damaged beyond economic repair
showed a definitely substantial pecuniary loss, for which the CA fixed temperate
damages of P250,000.00. We cannot disturb the CA’s determination, for we are in no
position today to judge its reasonableness on account of the lapse of a long time from
when the accident occurred.26
In awarding temperate damages in lieu of actual damages, the CA did not err,
because Paras and Inland were definitely shown to have sustained substantial
pecuniary losses. It would really be a travesty of justice were the CA now to be held
bereft of the discretion to calculate moderate or temperate damages, and thereby
leave Paras and Inland without redress from the wrongful act of Philtranco and its
driver.27 We are satisfied that the CA exerted effort and practiced great care to ensure
that the causal link between the physical injuries of Paras and the material loss of
Inland, on the one hand, and the negligence of Philtranco and its driver, on the other
hand, existed in fact. It also rejected arbitrary or speculative proof of loss. Clearly, the
costs of Paras’ surgeries and consequential rehabilitation, as well as the fact that
repairing Inland’s vehicle would no longer be economical justly warranted the CA to
calculate temperate damages of P50,000.00 and P250,000.00 respectively for Paras
and Inland.
There is no question that Article 2224 of the Civil Code expressly authorizes the
courts to award temperate damages despite the lack of certain proof of actual
damages, to wit:
“Article 2224. Temperate or moderate damages, which are more than nominal
but less than compensatory damages, may be recovered when the court finds that
some pecuniary loss has been suffered but its amount cannot, from the nature of the
case, be proved with certainty.”
The rationale for Article 2224 has been stated in Premiere Development Bank v.
Court of Appeals28 in the following manner:
“Even if not recoverable as compensatory damages, Panacor may still be awarded
damages in the concept of temperate or moderate damages. When the court finds
that some pecuniary loss has been suffered but the amount cannot, from the nature of
the case, be proved with certainty, temperate damages may be recovered. Temperate
damages may be allowed in cases where from the nature of the case, definite proof of
 pecuniary loss cannot be adduced, although the court is convinced that the aggrieved
party suffered some pecuniary loss.
The Code Commission, in explaining the concept of temperate damages under
Article 2224, makes the following comment:
In some States of the American Union, temperate damages are allowed. There are
cases where from the nature of the case, definite proof of pecuniary loss cannot be
offered, although the court is convinced that there has been such loss. For instance,
injury to one’s commercial credit or to the goodwill of a business firm is often hard to
show with certainty in terms of money. Should damages be denied for that reason?
The judge should be empowered to calculate moderate damages in such cases, rather
than that the plaintiff should suffer, without redress from the defendant’s wrongful
act.”
3.
Paras’ loss of earning capacity must be compensated
In the body of its decision, the CA concluded that considering that Paras had a
minimum monthly income of P8,000.00 as a trader he was entitled to recover
compensation for unearned income during the 3-month period of his hospital
confinement and the 6-month period of his recovery and rehabilitation; and
aggregated his unearned income for those periods to P72,000.00. 29 Yet, the CA
omitted the unearned income from the dispositive portion.
The omission should be rectified, for there was credible proof of Paras’ loss of
income during his disability. According to Article 2205 (1), of the Civil Code,
damages may be recovered for loss or impairment of earning capacity in cases of
temporary or permanent personal injury. Indeed, indemnification for damages
comprehends not only the loss suffered (actual damages or damnum emergens) but
also the claimant’s lost profits (compensatory damages or lucrum cessans).30 Even so,
the formula that has gained acceptance over time has limited recovery to net earning
capacity; hence, the entire amount of P72,000.00 is not allowable. The premise is
obviously that net earning capacity is the person’s capacity to acquire money, less the
necessary expense for his own living.31 To simplify the determination, therefore, the
net earning capacity of Paras during the 9-month period of his confinement,
surgeries and consequential therapy is pegged at only half of his unearned monthly
gross income of P8,000.00 as a trader, or a total of P36,000.00 for the 9-month
period, the other half being treated as the necessary expense for his own living in that
period.
It is relevant to clarify that awarding the temperate damages (for the substantial
pecuniary losses corresponding to Paras’ surgeries and rehabilitation and for the
irreparability of Inland’s damaged bus) and the actual damages to compensate lost
earnings and costs of medicines give rise to no incompatibility. These damages cover
distinct pecuniary losses suffered by Paras and Inland,32 and do not infringe the
statutory prohibition against recovering damages twice for the same act or
omission.33
4.
Increase in award of attorney’s fees
Although it is a sound policy not to set a premium on the right to litigate, 34 we
consider the grant to Paras and Inland of reasonable attorney’s fees warranted. Their
entitlement to attorney’s fees was by virtue of their having been compelled to litigate
or to incur expenses to protect their interests,35 as well as by virtue of the Court now
further deeming attorney’s fees to be just and equitable.36
In view of the lapse of a long time in the prosecution of the claim, 37 the Court
considers it reasonable and proper to grant attorney’s fees to each of Paras and
Inland equivalent to 10% of the total amounts hereby awarded to them, in lieu of only
P20,000.00 for that purpose granted to Paras.
5.
Legal interest on the amounts awarded
Pursuant to Eastern Shipping Lines, Inc. v. Court of Appeals,38 legal interest at
the rate of 6% per annumaccrues on the amounts adjudged reckoned from July 18,
1997, the date when the RTC rendered its judgment; and legal interest at the rate of
12% per annum shall be imposed from the finality of the judgment until its full
satisfaction, the interim period being regarded as the equivalent of a forbearance of
credit.
WHEREFORE, the Court AFFIRMS WITH MODIFICATION the decision of the
Court of Appeals promulgated on September 25, 2002, by ordering PHILTRANCO
SERVICE ENTERPRISES, INC. and APOLINAR MIRALLES to pay, jointly and
severally, as follows:
1. To Felix Paras:
(a) P1,397.95, as reimbursement for the costs of medicines purchased
between February 1987 and July 1989;
(b) P50,000.00 as temperate damages;
(c) P50,000.00 as moral damages;
(d) P36,000.00 for lost earnings;
(e) 10% of the total of items (a) to (d) hereof as attorney’s fees; and
(f) Interest of 6% per annum from July 18, 1997 on the total of items (a)
to (d) hereof until finality of this decision, and 12% per annumthereafter
until full payment.
2. To Inland Trailways, Inc.:
 (a) P250,000.00 as temperate damages;
(b) 10% of item (a) hereof; and
(c) Interest of 6% per annum on item (a) hereof from July 18, 1997 until
finality of this decision, and 12% per annum thereafter until full
payment.
3. The petitioner shall pay the costs of suit.
SO ORDERED.

Notes.—The indemnity for loss of earning capacity of the deceased is awarded

not for loss of earnings, but for loss of capacity to earn money. (Philippine Hawk
Corporation vs. Lee, 612 SCRA 576 [2010])

The rule is that evidence not objected to is deemed admitted and may be validly
considered by the court in arriving at its judgment. (People vs. Lopez, 643 SCRA 524
[2011])
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