MANGALIAG VS. PASTORAL AUSTRIA-MARTINEZ, J.

: Before us is a petition for certiorari, with a prayer for the issuance of a temporary restraining order, to set aside the Order dated April 17, 2000 of the Regional Trial Court (RTC), Branch 56, San Carlos City in Civil Case No. SCC-2240, which denied petitioners motion to dismiss; and the Order dated June 13, 2000, which denied petitioners motion for reconsideration. The factual background of the case is as follows: On May 10, 1999, private respondent Apolinario Serquina, Jr. filed before the RTC a complaint for damages against petitioners Norma Mangaliag and Narciso Solano. The complaint alleges that: on January 21, 1999, from 9:00 to 10:00 a.m., private respondent, together with Marco de Leon, Abner Mandapat and Manuel de Guzman, was on board a tricycle driven by Jayson Laforte; while in Pagal, San Carlos City, a dump truck owned by petitioner Mangaliag and driven by her employee, petitioner Solano, coming from the opposite direction, tried to overtake and bypass a tricycle in front of it and thereby encroached the left lane and sideswiped the tricycle ridden by private respondent; due to the gross negligence, carelessness and imprudence of petitioner Solano in driving the truck, private respondent and his co-passengers sustained serious injuries and permanent deformities; petitioner Mangaliag failed to exercise due diligence required by law in the selection and supervision of her employee; private respondent was hospitalized and spent P71,392.00 as medical expenses; private respondent sustained a permanent facial deformity due to a fractured nose and suffers from severe depression as a result thereof, for which he should be compensated in the amount ofP500,000.00 by way of moral damages; as a further result of his hospitalization, private respondent lost income of P25,000.00; private respondent engaged the services of counsel on a contingent basis equal to 25% of the total award.[1] On July 21, 1999, petitioners filed their answer with counterclaim denying that private respondent has a cause of action against them. They attributed fault or negligence in the vehicular accident on the tricycle driver, Jayson Laforte, who was allegedly driving without license.[2] Following pre-trial conference, trial on the merits ensued. When private respondent rested his case, petitioner Solano testified in his defense. Subsequently, on March 8, 2000, petitioners, assisted by a new counsel, filed a motion to dismiss on the ground of lack of jurisdiction over the subject matter of the claim, alleging that the Municipal Trial Court (MTC) has jurisdiction over the case since the principal amount prayed for, in the amount ofP71,392.00, falls within its jurisdiction.[3] Private respondent

opposed petitioners motion to dismiss.[4] On March 24, 2000, petitioners filed a supplement in support of their motion to dismiss.[5] On April 17, 2000, the respondent RTC Judge, Edelwina CatubigPastoral, issued the first assailed Order denying petitioners motion to dismiss,[6] relying upon the mandate of Administrative Circular No. 09-94, paragraph 2 of which reads: 2. The exclusion of the term damages of whatever kind in determining the jurisdictional amount under Section 19 (8) and Section 33 (1) of B.P. Blg. 129, as amended by R.A. No. 7691, applied to cases where the damages are merely incidental to or a consequence of the main cause of action. However, in cases where the claim for damages is the main cause of action, or one of the causes of action, the amount of such claim shall be considered in determining the jurisdiction of the court. The respondent RTC Judge also cited the 1999 case of Ong vs. Court of Appeals,[7] where an action for damages due to a vehicular accident, with prayer for actual damages of P10,000.00 and moral damages of P1,000,000.00, was tried in a RTC. On May 19, 2000, petitioners filed a motion for reconsideration[8] but it was denied by the respondent RTC Judge in her second assailed Order, dated June 13, 2000.[9] Hence, the present petition for certiorari, with prayer for the issuance of a temporary restraining order.[10] On August 9, 2000, the Court resolved to issue the temporary restraining order prayed for by petitioners. Consequently, the respondent RTC Judge desisted from hearing further Civil Case No. SCC-2240.[11] Petitioners propound this issue for consideration: In an action for recovery of damages, does the amount of actual damages prayed for in the complaint provide the sole test for determining the courts jurisdiction, or is the total amount of all the damages claimed, regardless of kind and nature, such as moral, exemplary, nominal damages, and attorneys fees, etc., to be computed collectively with the actual damages to determine what court whether the MTC or the RTC has jurisdiction over the action? Petitioners maintain that the courts jurisdiction should be based exclusively on the amount of actual damages, excluding therefrom the amounts claimed as moral, exemplary, nominal damages and attorneys fee, etc. They submit that the specification in Administrative Circular No. 09-94 that in cases where the claim for damages is the main cause of

action. . . the amount of such claim shall be considered in determining the jurisdiction of the court signifies that the courts jurisdiction must be tested solely by the amount of that damage which is principally and primarily demanded, and not the totality of all the damages sought to be recovered. Petitioners insist that private respondents claim for actual damages in the amount of P71,392.00 is the principal and primary demand, the same being the direct result of the alleged negligence of petitioners, while the moral damages for P500,000.00 and attorneys fee, being the consequent effects thereof, may prosper only upon a prior finding by the court of the existence of petitioners negligence that caused the actual damages. Considering that the amount of actual damages claimed by private respondent in Civil Case No. SCC-2240 does not exceed P200,000.00, which was then the jurisdictional amount of the MTC, the jurisdiction over the case clearly pertains to the MTC, and not to the RTC. Therefore, the RTC should have dismissed the case for lack of jurisdiction. Petitioners cite as relevant the case of Movers-Baseco Integrated Port Services, Inc. vs. Cyborg Leasing Corporation[12] wherein the Court, in disposing of the jurisdictional issue, limited its consideration only to the actual or compensatory damages. Furthermore, while admitting that the defense of lack of jurisdiction was only raised during the trial, petitioners nevertheless contend that jurisdiction may be raised anytime, even after judgment, but before it is barred by laches or estoppel. They submit that they seasonably presented the objection to the RTCs lack of jurisdiction, i.e., during the trial stage where no decision had as yet been rendered, must less one unfavorable to them. At any rate, they argue that when the jurisdictional flaw is evident from the record of the case, the court may, even without the urgings of the parties, take judicial notice of such fact, and thereupon dismiss the case motu proprio. Thus, even if lack of jurisdiction was not initially raised in a motion to dismiss or in the answer, no waiver may be imputed to them. Private respondent, on the other hand, submits that in an action for recovery of damages arising from a tortious act, the claim of moral damages is not merely an incidental or consequential claim but must be considered in the amount of demand which will determine the courts jurisdiction. He argues that the position taken by petitioners is a misreading of paragraph 2 of Administrative Circular No. 09-94. The clear and explicit language of said circular leaves no room for doubt; hence, needs no interpretation. He further submits that petitioners reliance on Movers-Baseco Integrated Port Services, Inc. is misplaced since that case is for recovery of the value of vehicle and unpaid rentals on the lease of the same. He contends that Section 18, paragraph 8 of Batas Pambansa Blg. 129, as amended by Republic Act No. 7691, upon which petitioners anchor their

stand, refers to all the demands involving collection of sums of money based on obligations arising from contract, express or implied, where the claim for damages is just incidental thereto and it does not apply to actions for damages based on obligations arising from quasi-delict where the claim for damages of whatever kind is the main action. Private respondent also contends that, being incapable of pecuniary computation, the amount of moral damages that he may be awarded depends on the sound discretion of the trial court, not restrained by the limitation of the jurisdictional amount. Should the Court follow petitioners line of reasoning, private respondent argues that it will result in an absurd situation where he can only be awarded moral damages of not more than P200,000.00 although he deserves more than this amount, taking into consideration his physical suffering, as well as social and financial standing, simply because his claim for actual damages does not exceed P200,000.00 which amount falls under the jurisdiction of the MTC. Lastly, he asserts that it is too late in the day for petitioners to question the jurisdiction of the RTC since they are estopped from invoking this ground. He contends that after actively taking part in the trial proceedings and presenting a witness to seek exoneration, it would be unfair and legally improper for petitioners to seek the dismissal of the case. At the outset, it is necessary to stress that generally a direct recourse to this Court is highly improper, for it violates the established policy of strict observance of the judicial hierarchy of courts. Although this Court, the RTCs and the Court of Appeals (CA) have concurrent jurisdiction to issue writs of certiorari, prohibition, mandamus, quo warranto, habeas corpus and injunction, such concurrence does not give the petitioner unrestricted freedom of choice of court forum. This Court is a court of last resort, and must so remain if it is to satisfactorily perform the functions assigned to it by the Constitution and immemorial tradition.[13] Thus, this Court, as a rule, will not entertain direct resort to it unless the redress desired cannot be obtained in the appropriate courts, and exceptional and compelling circumstances, such as cases of national interest and of serious implications, justify the availment of the extraordinary remedy of writ of certiorari,calling for the exercise of its primary jurisdiction.[14] Such exceptional and compelling circumstances were present in the following cases: (a) Chavez vs. Romulo[15] on the citizens right to bear arms; (b) Government of the United States of America vs. Purganan[16] on bail in extradition proceedings; (c)Commission on Elections vs. Quijano-Padilla[17] on a government contract on the modernization and computerization of the voters registration list; (d) Buklod ng Kawaning EIIB vs. Zamora[18] on the status and existence of a public office; and (e) Fortich vs. Corona[19] on the so-called Win-Win Resolution of the Office of the President which modified the approval of the

conversion to agro-industrial area of a 144-hectare land. Be that as it may, the judicial hierarchy of courts is not an iron-clad rule. It generally applies to cases involving warring factual allegations. For this reason, litigants are required to repair to the trial courts at the first instance to determine the truth or falsity of these contending allegations on the basis of the evidence of the parties. Cases which depend on disputed facts for decision cannot be brought immediately before appellate courts as they are not triers of facts.[20] Therefore, a strict application of the rule of hierarchy of courts is not necessary when the cases brought before the appellate courts do not involve factual but legal questions. In the present case, petitioners submit a pure question of law involving the interpretation and application of paragraph 2 of Administrative Circular No. 09-94. This legal question and in order to avoid further delay are compelling enough reasons to allow petitioners invocation of this Courts jurisdiction in the first instance. Before resolving this issue, the Court shall deal first on the question of estoppel posed by private respondent. Private respondent argues that the defense of lack of jurisdiction may be waived by estoppel through active participation in the trial. Such, however, is not the general rule but an exception, best characterized by the peculiar circumstances in Tijam vs. Sibonghanoy.[21] In Sibonghanoy, the party invoking lack of jurisdiction did so only after fifteen years and at a stage when the proceedings had already been elevated to the CA. Sibonghanoy is an exceptional case because of the presence of laches, which was defined therein as failure or neglect for an unreasonable and unexplained length of time to do that which, by exercising due diligence, could or should have been done earlier; it is the negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert has abandoned it or declined to assert it.[22] As enunciated in Calimlim vs. Ramirez,[23] this Court held: A rule that had been settled by unquestioned acceptance and upheld in decisions so numerous to cite is that the jurisdiction of a court over the subject matter of the action is a matter of law and may not be conferred by consent or agreement of the parties. The lack of jurisdiction of a court may be raised at any stage of the proceedings, even on appeal. This doctrine has been qualified by recent pronouncements which stemmed principally from the ruling in the cited case of Sibonghanoy. It is to be regretted, however, that the holding in said case had been applied to situations which were obviously not contemplated therein. The exceptional circumstances involved

in Sibonghanoy which justified the departure from the accepted concept of non-waivability of objection to jurisdiction has been ignored and, instead a blanket doctrine had been repeatedly upheld that rendered the supposed ruling in Sibonghanoy not as the exception, but rather the general rule, virtually overthrowing altogether the time honored principle that the issue of jurisdiction is not lost by waiver or by estoppel. ... It is neither fair nor legal to bind a party by the result of a suit or proceeding which was taken cognizance of in a court which lacks jurisdiction over the same irrespective of the attendant circumstances. The equitable defense of estoppel requires knowledge or consciousness of the facts upon which it is based. The same thing is true with estoppel by conduct which may be asserted only when it is shown, among others, that the representation must have been made with knowledge of the facts and that the party to whom it was made is ignorant of the truth of the matter (De Castro vs. Gineta, 27 SCRA 623). The filing of an action or suit in a court that does not possess jurisdiction to entertain the same may not be presumed to be deliberate and intended to secure a ruling which could later be annulled if not favorable to the party who filed such suit or proceeding. Instituting such an action is not a one-sided affair. It can just as well be prejudicial to the one who file the action or suit in the event that he obtains a favorable judgment therein which could also be attacked for having been rendered without jurisdiction. The determination of the correct jurisdiction of a court is not a simple matter. It can raise highly debatable issues of such importance that the highest tribunal of the land is given the exclusive appellate jurisdiction to entertain the same. The point simply is that when a party commits error in filing his suit or proceeding in a court that lacks jurisdiction to take cognizance of the same, such act may not at once be deemed sufficient basis of estoppel. It could have been the result of an honest mistake or of divergent interpretations of doubtful legal provisions. If any fault is to be imputed to a party taking such course of action, part of the blame should be placed on the court which shall entertain the suit, thereby lulling the parties into believing that they pursued their remedies in the correct forum. Under the rules, it is the duty of the court to dismiss an action whenever it appears that court has no jurisdiction over the subject matter. (Section 2, Rule 9, Rules of Court) Should

the Court render a judgment without jurisdiction, such judgment may be impeached or annulled for lack of jurisdiction (Sec. 30, Rule 132, Ibid), within ten (10) years from the finality of the same (Art. 1144, par. 3, Civil Code).[24] In the present case, no judgment has yet been rendered by the RTC. As a matter of fact, as soon as the petitioners discovered the alleged jurisdictional defect, they did not fail or neglect to file the appropriate motion to dismiss. Hence, finding the pivotal element of laches to be absent, the Sibonghanoy doctrine does not control the present controversy. Instead, the general rule that the question of jurisdiction of a court may be raised at any stage of the proceedings must apply. Therefore, petitioners are not estopped from questioning the jurisdiction of the RTC.
[25]

the complaint and the law, irrespective of whether or not the plaintiff is entitled to recover all or some of the claims or reliefs sought therein.[29] In the present case, the allegations in the complaint plainly show that private respondent seeks to recover not only his medical expenses, lost income but also damages for physical suffering and mental anguish due to permanent facial deformity from injuries sustained in the vehicular accident. Viewed as an action for quasi-delict, the present case falls squarely within the purview of Article 2219 (2),[30] which provides for the payment of moral damages in cases of quasi-delict causing physical injuries. Private respondents claim for moral damages of P500,000.00 cannot be considered as merely incidental to or a consequence of the claim for actual damages. It is a separate and distinct cause of action or an independent actionable tort. It springs from the right of a person to the physical integrity of his or her body, and if that integrity is violated, damages are due and assessable.[31] Hence, the demand for moral damages must be considered as a separate cause of action, independent of the claim for actual damages and must be included in determining the jurisdictional amount, in clear consonance with paragraph 2 of Administrative Circular No. 09-94. If the rule were otherwise, i.e., the courts jurisdiction in a case of quasi-delict causing physical injuries would only be based on the claim for actual damages and the complaint is filed in the MTC, it can only award moral damages in an amount within its jurisdictional limitations, a situation not intended by the framers of the law. It must be remembered that moral damages, though incapable of pecuniary estimation, are designed to compensate and alleviate in some way the physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury unjustly caused a person.[32] Moral damages are awarded to enable the injured party to obtain means, diversions or amusements that will serve to alleviate the moral suffering he/she has undergone, by reason of the defendants culpable action. Its award is aimed at restoration, as much as possible, of the spiritual status quo ante; thus, it must be proportionate to the suffering inflicted. Since each case must be governed by its own peculiar circumstances, there is no hard and fast rule in determining the proper amount.[33] The petitioners reliance in the case of Movers-Baseco Integrated Port Services, Inc. vs. Cyborg Leasing Corporation[34] is misplaced. The claim for damages therein was based on a breach of a contract of lease, not a quasi-delict causing physical injuries, as in this case. Besides, there was no claim therein for moral damages. Furthermore, moral damages are generally not recoverable in damage actions predicated on a breach of contract in view of the provisions of Article 2220[35] of the Civil Code.

In any event, the petition for certiorari is bereft of merit. Section 1 of Republic Act (R.A.) No. 7691, which took effect on April 15, 1994, provides inter alia that where the amount of the demand in civil cases exceeds P100,000.00,[26] exclusive of interest, damages of whatever kind, attorneys fees, litigation expenses, and costs, the exclusive jurisdiction thereof is lodged with in the RTC. Under Section 3 of the same law, where the amount of the demand in the complaint does not exceed P100,000.00, exclusive of interest, damages of whatever kind, attorneys fees, litigation expenses, and costs, the exclusive jurisdiction over the same is vested in the Metropolitan Trial Court, MTC and Municipal Circuit Trial Court. The jurisdictional amount was increased to P200,000.00, [27] effective March 20, 1999, pursuant to Section 5[28] of R.A. No. 7691 and Administrative Circular No. 21-99. In Administrative Circular No. 09-94 dated March 14, 1994, the Court specified the guidelines in the implementation of R.A. No. 7691. Paragraph 2 of the Circular provides: 2. The exclusion of the term damages of whatever kind in determining the jurisdictional amount under Section 19 (8) and Section 33 (1) of B.P. Blg. 129, as amended by R.A. No. 7691, applied to cases where the damages are merely incidental to or a consequence of the main cause of action. However, in cases where the claim for damages is the main cause of action, or one of the causes of action, the amount of such claim shall be considered in determining the jurisdiction of the court. (Emphasis supplied) The well-entrenched principle is that the jurisdiction of the court over the subject matter of the action is determined by the material allegations of

In view of the foregoing, the Court is convinced that the respondent RTC Judge committed no grave abuse of discretion in issuing the assailed Orders dated April 17, 2000 and June 13, 2000. WHEREFORE, the instant petition for certiorari is DISMISSED for lack of merit. The temporary restraining order issued by this Court on August 9, 2000 is LIFTED. The Regional Trial Court, Branch 56, San Carlos City is DIRECTED to continue with the trial proceedings in Civil Case No. SCC-2240 and resolve the case with dispatch. Costs against petitioners. SO ORDERED.

[G.R. No. 104796. March 6, 1998] SPOUSES ROSALINA S. DE LEON and ALEJANDRO L. DE LEON, petitioners, vs. THE COURT OF APPEALS, GLICERIO MA. ELAYDA II, FEDERICO ELAYDA and DANILO ELAYDA, respondents. DECISION MENDOZA, J.:

The question for decision is whether in assessing the docket fees to be paid for the filing of an action for annulment or rescission of a contract of sale, the value of the real property, subject matter of the contract, should be used as basis, or whether the action should be considered as one which is not capable of pecuniary estimation and therefore the fee charged should be a flat rate of P400.00 as provided in Rule 141, 7(b)(1) of the Rules of Court. The trial court held the fees should be based on the value of the property, but the Court of Appeals reversed and held that the flat rate should be charged. Hence this petition for review on certiorari. The facts are as follows: On August 8, 1991, private respondents filed in the Regional Trial Court of Quezon City a complaint for annulment or rescission of a contract of sale of two (2) parcels of land against petitioners, praying for the following reliefs: 1. Ordering the nullification or rescission of the Contract of Conditional Sale (Supplementary Agreement) for having violated the rights of plaintiffs (private respondents) guaranteed to them under Article 886 of the Civil Code and/or violation of the terms and conditions of the said contract. 2. Declaring void ab initio the Deed of Absolute Sale for being absolutely simulated; and 3. Ordering defendants (petitioners) to pay plaintiffs (private respondents) attorneys fees in the amount of P100,000.00. Other reliefs and remedies as are just and equitable in the premises are also prayed for.[1] Upon the filing of the complaint, the clerk of court required private respondents to pay docket and legal fees in the total amount of P610.00, broken down as follows: P450.00 Docket fee for the Judicial Development Fund under Official Receipt No. 1877773 150.00 Docket fee for the General Fund under Official Receipt No. 6834215 10.00 for the Legal Research Fund under Official Receipt No. 6834450.[2] On September 26, 1991, petitioners moved for the dismissal of the complaint on the ground that the trial court did not acquire jurisdiction over the case by reason of private respondents nonpayment of the correct amount of docket fees. Petitioners contended that in addition to the fees already paid based on the claim for P100,000.00 for attorneys fees, private respondents should have paid docket fees in the amount of P21,640.00, based on the alleged value of the two (2) parcels of land subject matter of the contract of sale sought to be annulled.[3] On September 30, 1991, private respondents filed opposition to the motion to dismiss, arguing that outright dismissal of their complaint was not warranted on the basis of the alleged nonpayment of the correct amount of docket fees, considering that the amount paid by them was that assessed by the clerk of court.[4] On October 9, 1991, petitioners filed a reply to which private respondents filed, on October 17, 1991, a rejoinder. On October 21, 1991, the trial court[5] denied petitioners motion to

dismiss but required private respondents to pay the amount of docket fees based on the estimated value of the parcels of land in litigation as stated in the complaint. Private respondents filed a motion for reconsideration but their motion was denied by the trial court. They therefore, brought the matter to the Court of Appeals which, on February 26, 1992, rendered a decision[6] annulling the orders of the trial court. The appellate court held that an action for rescission or annulment of contract is not susceptible of pecuniary estimation and, therefore, the docket fees should not be based on the value of the real property, subject matter of the contract sought to be annulled or rescinded. Petitioners moved for reconsideration, but their motion was denied in a resolution dated March 25, 1992 of the appellate court. Hence, this petition for review on certiorari. Rule 141 of the Rules of Court provides: SEC. 7. Clerks of Regional Trial Courts. - (a) For filing an action or a permissive counter-claim or money claim against an estate not based on judgment, or for filing with leave of court a third-party, fourth-party, etc. complaint, or a complaint in intervention, and for all clerical services in the same, if the total-sum claimed, exclusive of interest, or the stated value of the property in litigation, is: 1. Not more than P20,000.00 .............P120.00 2. More than P20,000.00 but less than P40,000.00 ......................... 150.00 3. P40,000.00 or more but less than P60,000.00 ......................... 200.00 4. P60,000.00 or more but less than P80,000.00 ... ...................... 250.00 5. P80,000.00 or more but less than P100,000.00 ........................... 400.00 6. P100,000.00 or more but less than P150,000.00 ........................... 600.00 7. For each P1,000.00 in excess of P150,000.00 ............................. 5.00 (b) For filing: 1. Actions where the value of the subject matter cannot be estimated ............. P400.00 2. Special civil actions except judicial foreclosure of mortgage which shall be governed by paragraph (a) above .... 400.00 3. All other actions not involving property........................... 400.00 In a real action, the assessed value of the property, or if there is none, the estimated value thereof shall be alleged by the claimant and shall be the basis in computing the fees. (emphasis added) Petitioners argue that an action for annulment or rescission of a contract of sale of real property is a real action and, therefore, the amount of the docket fees to be paid by private respondent should be based either

on the assessed value of the property, subject matter of the action, or its estimated value as alleged in the complaint, pursuant to the last paragraph of 7(b) of Rule 141, as amended by the Resolution of the Court dated September 12, 1990. Since private respondents alleged that the land, in which they claimed an interest as heirs, had been sold for P4,378,000.00 to petitioners, this amount should be considered the estimated value of the land for the purpose of determining the docket fees. On the other hand, private respondents counter that an action for annulment or rescission of a contract of sale of real property is incapable of pecuniary estimation and, so, the docket fees should be the fixed amount of P400.00 in Rule 141, 7(b)(1). In support of their argument, they cite the cases of Lapitan v. Scandia, Inc.[7] and Bautista v. Lim.[8] In Lapitan this Court, in an opinion by Justice J.B.L. Reyes, held: A review of the jurisprudence of this Court indicates that in determining whether an action is one the subject matter of which is not capable of pecuniary estimation, this Court has adopted the criterion of first ascertaining the nature of the principal action or remedy sought. If it is primarily for the recovery of a sum of money, the claim is considered capable of pecuniary estimation, and whether jurisdiction is in the municipal courts or in the courts of first instance would depend on the amount of the claim. However, where the basic issue is something other than the right to recover a sum of money, or where the money claim is purely incidental to, or a consequence of, the principal relief sought, like in suits to have the defendant perform his part of the contract (specific performance) and in actions for support, or for annulment of a judgment or to foreclose a mortgage, this Court has considered such actions as cases where the subject of the litigation may not be estimated in terms of money, and are cognizable exclusively by courts of first instance. The rationale of the rule is plainly that the second class cases, besides the determination of damages, demand an inquiry into other factors which the law has deemed to be more within the competence of courts of first instance, which were the lowest courts of record at the time that the first organic laws of the Judiciary were enacted allocating jurisdiction (Act 136 of the Philippine Commission of June 11, 1901). Actions for specific performance of contracts have been expressly pronounced to be exclusively cognizable by courts of first instance: De Jesus vs. Judge Garcia, L-26816, February 28, 1967; Manufacturers Distributors, Inc. vs. Yu Siu Liong, L-21285, April 29, 1966. And no cogent reason appears, and none is here advanced by the parties, why an action for rescission (or resolution) should be differently treated, a rescission being a counterpart, so to speak, of specific performance. In both cases, the court would certainly have to undertake an investigation into facts that would justify one act or the other. No award for damages may be had in an action for rescission without first conducting an inquiry into matters which would justify the setting aside of a contract, in the same manner that courts of first instance would have to make findings of fact and law in actions not capable of pecuniary estimation expressly held to be so by this Court, arising from

issues like those raised in Arroz v. Alojado, et al., L-22153, March 31, 1967 (the legality or illegality of the conveyance sought for and the determination of the validity of the money deposit made); De Ursua v. Pelayo, L-13285, April 18, 1950 (validity of a judgment); Bunayog v. Tunas, L-12707, December 23, 1959 (validity of a mortgage); Baito v. Sarmiento, L-13105, August 25, 1960 (the relations of the parties, the right to support created by the relation, etc., in actions for support); De Rivera, et al. v. Halili, L-15159, September 30, 1963 (the validity or nullity of documents upon which claims are predicated). Issues of the same nature may be raised by a party against whom an action for rescission has been brought, or by the plaintiff himself. It is, therefore, difficult to see why a prayer for damages in an action for rescission should be taken as the basis for concluding such action as one capable of pecuniary estimation a prayer which must be included in the main action if plaintiff is to be compensated for what he may have suffered as a result of the breach committed by defendant, and not later on precluded from recovering damages by the rule against splitting a cause of action and discouraging multiplicity of suits. Conformably with this discussion of actions where the value of the case cannot be estimated, the Court in Bautista v. Lim, held that an action for rescission of contract is one which cannot be estimated and therefore the docket fee for its filing should be the flat amount of P200.00 as then fixed in the former Rule 141, 5(10). Said this Court: We hold that Judge Dalisay did not err in considering Civil Case No. V-144 as basically one for rescission or annulment of contract which is not susceptible of pecuniary estimation (1 Morans Comments on the Rules of Court, 1970 Ed, p. 55; Lapitan vs. Scandia, Inc., L-24668, July 31, 1968, 24 SCRA 479, 481-483). Consequently, the fee for docketing it is P200, an amount already paid by plaintiff, now respondent Matilda Lim. (She should pay also the two pesos legal research fund fee, if she has not paid it, as required in Section 4 of Republic Act No. 3870, the charter of the U.P. Law Center). Thus, although eventually the result may be the recovery of land, it is the nature of the action as one for rescission of contract which is controlling. The Court of Appeals correctly applied these cases to the present one. As it said: We would like to add the observations that since the action of petitioners [private respondents] against private respondents [petitioners] is solely for annulment or rescission which is not susceptible of pecuniary estimation, the action should not be confused and equated with the value of the property subject of the transaction; that by the very nature of the case, the allegations, and specific prayer in the complaint, sans any prayer for recovery of money and/or value of the transaction, or for actual or compensatory damages, the assessment and collection of the legal fees should not be intertwined with the merits of the case and/or what may be its end result; and that to sustain private respondents [petitioners] position on what the respondent court may decide after all, then the assessment should be deferred and finally assessed only after the court had finally decided the

case, which cannot be done because the rules require that filing fees should be based on what is alleged and prayed for in the face of the complaint and paid upon the filing of the complaint. WHEREFORE, the decision of the Court of Appeals is AFFIRMED. SO ORDERED.

HEIRS OF VALERIANO CONCHA VS. SPS LUMOCSO DECISION PUNO, C.J.: On appeal by certiorari under Rule 45 of the Rules of Court are the

decision[3] and resolution[4] of the Court of Appeals (CA) in CA-G.R. SP No. 59499, annulling the resolutions[5] and order[6] of the Regional Trial Court (RTC) of Dipolog City, Branch 9, in Civil Case Nos. 5188, 5433 and 5434 which denied the separate motions to dismiss and Joint Motion for Reconsideration filed by the respondents. The relevant facts are undisputed. Petitioners, heirs of spouses Dorotea and Valeriano Concha, Sr., claim to be the rightful owners of Lot No. 6195 (Civil Case No. 5188), a one-hectare portion of Lot No. 6196-A (Civil Case No. 5433), and a one-hectare portion of Lot Nos. 6196-B and 7529-A (Civil Case No. 5434), all situated in Cogon, Dipolog City, under Section 48(b) of Commonwealth Act No. 141 (C.A. No. 141), otherwise known as the Public Land Act. Respondent siblings Gregorio Lumocso (Civil Case No. 5188), Cristita Lumocso Vda. de Daan (Civil Case No. 5433) and Jacinto Lumocso (Civil Case No. 5434), are the patent holders and registered owners of the subject lots. The records show that on August 6, 1997, Valeriano Sr.[7] and his children, petitioners Valeriano Jr., Ramon, Eduardo, Alberto, Bernardo, Teresita, Reynaldo, and Gloria, all surnamed Concha, filed a complaint for Reconveyance and/or Annulment of Title with Damages against "Spouses Gregorio Lomocso and Bienvenida Guya." They sought to annul Free Patent No. (IX-8)985 and the corresponding Original Certificate of Title (OCT) No. P22556 issued in the name of "Gregorio Lumocso" covering Lot No. 6195. The case was raffled to the RTC of Dipolog City, Branch 9, and docketed as Civil Case No. 5188. In their Amended Complaint, petitioners prayed that judgment be rendered: 1. Declaring Free Patent No. (IX-8)985 and Original Certificate of Title No. 22556 issued to defendants as null and void ab initio; 2. Declaring Lot No. 6195 or 1.19122-hectare as private property of the plaintiffs under Sec. 48(b) of CA No. 141 otherwise known as the Public Land Act as amended by RA 1942; 3. Ordering the defendant Lomocsos to reconvey the properties (sic) in question Lot No. 6195 or the 1.19122 hectares in favor of the plaintiffs within 30 days from the finality of the decision in this case and if they refuse, ordering the Clerk of Court of this Honorable Court to execute the deed of reconveyance with like force and effect as if executed by the defendant[s] themselves; 4. Ordering defendant Lomocsos to pay P60,000.00 for the 21 forest trees illegally cut; P50,000.00 for moral damages; P20,000.00 for Attorneys fees; P20,000.00 for litigation expenses; and to pay the cost of the proceedings; 5. Declaring the confiscated three (sic) flitches kept in the area of the plaintiffs at Dampalan San Jose, Dipolog with a total volume of 2000 board feet a[s] property of the plaintiff [they] being cut, collected and taken from the land possessed, preserved, and owned by the plaintiffs; 6. The plaintiffs further pray for such other reliefs and remedies which this Honorable Court may deem just and equitable in the premises.[8]

On September 3, 1999, two separate complaints for Reconveyance with Damages were filed by petitioners,[9] this time against "Cristita Lomocso Vda. de Daan" for a one-hectare portion of Lot No. 6196-A and "Spouses Jacinto Lomocso and Balbina T. Lomocso" for a one-hectare portion of Lot Nos. 6196-B and 7529-A. The two complaints were also raffled to Branch 9 of the RTC of Dipolog City and docketed as Civil Case Nos. 5433 and 5434, respectively. In Civil Case No. 5433, petitioners prayed that judgment be rendered: 1. Declaring [a] portion of Lot 6196-A titled under OCT (P23527) 4888 equivalent to one hectare located at the western portion of Lot 4888 as private property of the plaintiffs under Sec. 48(B) CA 141 otherwise known as Public Land OCT (sic) as amended by RA No. 1942; 2. Ordering the defendant to reconvey the equivalent of one (1) hectare forested portion of her property in question in favor of the plaintiffs within 30 days from the finality of the decision in this case segregating one hectare from OCT (P23527) 4888, located at its Western portion and if she refuse (sic), ordering the Clerk of Court of this Honorable Court to execute the deed of reconveyance with like force and effect, as if executed by the defenda[n]t herself; 3. Ordering defendant to pay P30,000.00 for the 22 forest trees illegally cut; P20,000.00 for moral damages; P20,000.00 for Attorney's fees; P20,000.00 for litigation expenses; and to pay the cost of the proceedings.[10] In Civil Case No. 5434, petitioners prayed that judgment be rendered: 1. Declaring [a] portion of Lot 7529-A under OCT (P-23207) 12870 and Lot 6196-B OCT (P-20845) 4889 equivalent to one hectare located as (sic) the western portion of said lots as private property of the plaintiffs under Sec. 48(b) of [C.A. No.] 141 otherwise know[n] as the [P]ublic [L]and [A]ct as amended by RA 1942; 2. Ordering the defendants to reconvey the equivalent of one (1) hectare forested portion of their properties in question in favor of the plaintiffs within 30 days from the finality of the decision in this case segregating one hectare from OCT (P-23207) 12870 and OCT (T-20845)-4889 all of defendants, located at its Western portion and if they refuse, ordering the Clerk of Court of this Honorable Court to execute the deed of reconveyance with like force and effect as if executed by the defendants themselves[;] 3. Ordering defendants to pay P20,000.00 for the six (6) forest trees illegally cut; P20,000.00 for moral damages; P20,000.00 for Attorney's fees; P20,000.00 for litigation expenses; and to pay the cost of the proceedings.[11] The three complaints[12] commonly alleged: a) that on May 21, 1958, petitioners' parents (spouses Valeriano Sr. and Dorotea Concha) acquired by homestead a 24-hectare parcel of land situated in Cogon, Dipolog City; b) that since 1931, spouses Concha "painstakingly preserved" the forest in the 24-hectare land, including the excess four (4) hectares "untitled forest land" located at its eastern portion; c) that they possessed this excess 4

hectares of land (which consisted of Lot No. 6195, one-hectare portion of Lot No. 6196-A and one-hectare portion of Lot Nos. 6196-B and 7529-A) "continuously, publicly, notoriously, adversely, peacefully, in good faith and in concept of the (sic) owner since 1931;" d) that they continued possession and occupation of the 4-hectare land after the death of Dorotea Concha on December 23, 1992 and Valeriano Sr. on May 12, 1999; e) that the Concha spouses "have preserved the forest trees standing in [the subject lots] to the exclusion of the defendants (respondents) or other persons from 1931" up to November 12, 1996 (for Civil Case No. 5188) or January 1997 (for Civil Case Nos. 5433 and 5434) when respondents, "by force, intimidation, [and] stealth forcibly entered the premises, illegally cut, collected, [and] disposed" of 21 trees (for Civil Case No. 5188), 22 trees (for Civil Case No. 5433) or 6 trees (for Civil Case No. 5434); f) that "the land is private land or that even assuming it was part of the public domain, plaintiffs had already acquired imperfect title thereto" under Sec. 48(b) of C.A. No. 141, as amended by Republic Act (R.A.) No. 1942; g) that respondents allegedly cut into flitches the trees felled in Lot No. 6195 (Civil Case No. 5188) while the logs taken from the subject lots in Civil Case Nos. 5433 and 5434 were sold to a timber dealer in Katipunan, Zamboanga del Norte; h) that respondents "surreptitiously" filed free patent applications over the lots despite their full knowledge that petitioners owned the lots; i) that the geodetic engineers who conducted the original survey over the lots never informed them of the survey to give them an opportunity to oppose respondents' applications; j) that respondents' free patents and the corresponding OCTs were issued "on account of fraud, deceit, bad faith and misrepresentation"; and k) that the lots in question have not been transferred to an innocent purchaser. On separate occasions, respondents moved for the dismissal of the respective cases against them on the same grounds of: (a) lack of jurisdiction of the RTC over the subject matters of the complaints; (b) failure to state causes of action for reconveyance; (c) prescription; and (d) waiver, abandonment, laches and estoppel.[13] On the issue of jurisdiction, respondents contended that the RTC has no jurisdiction over the complaints pursuant to Section 19(2) of Batas Pambansa Blg. (B.P.) 129, as amended by R.A. No. 7691, as in each case, the assessed values of the subject lots are less thanP20,000.00. Petitioners opposed,[14] contending that the instant cases involve actions the subject matters of which are incapable of pecuniary estimation which, under Section 19(1) of B.P. 129, as amended by R.A. 7691, fall within the exclusive original jurisdiction of the RTCs. They also contended that they have two main causes of action: for reconveyance and for recovery of the value of the trees felled by respondents. Hence, the totality of the claims must be considered which, if computed, allegedly falls within the exclusive original jurisdiction of the RTC. The trial court denied the respective motions to dismiss of respondents.[15] The respondents filed a Joint Motion for Reconsideration,[16] to no avail.[17] Dissatisfied, respondents jointly filed a Petition for Certiorari, Prohibition and Preliminary Injunction with Prayer for Issuance of Restraining Order Ex

Parte[18] with the CA, docketed as CA-G.R. SP No. 59499. In its Decision, [19] the CA reversed the resolutions and order of the trial court. It held that even assuming that the complaints state a cause of action, the same have been barred by the statute of limitations. The CA ruled that an action for reconveyance based on fraud prescribes in ten (10) years, hence, the instant complaints must be dismissed as they involve titles issued for at least twenty-two (22) years prior to the filing of the complaints. The CA found it unnecessary to resolve the other issues. Hence, this appeal in which petitioners raise the following issues, viz: FIRST WHETHER OR NOT RESPONDENT COURT OF APPEALS (FORMER FIRST DIVISION) ERRED IN REVERSING THE ORDER OF THE COURT A QUO DENYING THE MOTION FOR DISMISSAL, CONSIDERING THE DISMISSAL OF A PARTY COMPLAINT IS PREMATURE AND TRIAL ON THE MERITS SHOULD BE CONDUCTED TO THRESH OUT EVIDENTIARY MATTERS. SECOND WHETHER OR NOT THE RESPONDENT COURT OF APPEALS (FORMER FIRST DIVISION) ERRED IN DISMISSING THE PETITIONERS' COMPLAINTS ON [THE] GROUND OF PRESCRIPTION. THIRD WHETHER OR NOT THE RESPONDENT COURT OF APPEALS (FORMER FIRST DIVISION) ERRED IN CONCLUDING THAT THERE IS NO DOCUMENTARY EVIDENCE ON RECORD TO SHOW THAT PETITIONERS OWN THE SUBJECT FOREST PORTION OF THE PROPERTIES ERRONEOUSLY INCLUDED IN THE TITLES OF PRIVATE RESPONDENTS. FOURTH - WHETHER OR NOT THE PETITION OF HEREIN PRIVATE RESPONDENTS FILED WITH THE RESPONDENT COURT OF APPEALS (FORMER FIRST DIVISION) SHOULD HAVE BEEN DISMISSED OUTRIGHTLY FOR PRIVATE RESPONDENTS' THEREIN FAILURE TO COMPLY WITH THE MANDATORY REQUIREMENT OF SECTION 1 RULE 65 OF THE RULES OF COURT TO SUBMIT CERTIFIED TRUE COPIES OF THE ASSAILED ORDERS OF THE TRIAL COURT WHICH RENDERED THEIR PETITION (CA G.R. 59499) DEFICIENT IN FORM AND SUBSTANCE CITING THE CASE OF CATUIRA VS. COURT OF APPEALS (172 SCRA 136).[20] In their memorandum,[21] respondents reiterated their arguments in the courts below that: a) the complaints of the petitioners in the trial court do not state causes of action for reconveyance; b) assuming the complaints state causes of action for reconveyance, the same have already been barred by prescription; c) the RTC does not have jurisdiction over the subject matter of the instant cases; d) the claims for reconveyance in the complaints are barred by waiver, abandonment, or otherwise extinguished by laches and estoppel; and e) there is no special reason warranting a review by this Court. Since the issue of jurisdiction is determinative of the resolution of the instant case yet the CA skirted the question, we resolved to require the parties to submit their respective Supplemental Memoranda on the issue of jurisdiction.[22] In their Supplemental Memorandum,[23] petitioners contend that the nature of their complaints, as denominated therein and as borne by their

allegations, are suits for reconveyance, or annulment or cancellation of OCTs and damages. The cases allegedly involve more than just the issue of title and possession since the nullity of the OCTs issued to respondents and the reconveyance of the subject properties were also raised as issues. Thus, the RTC has jurisdiction under Section 19(1) of B.P. 129, which provides that the RTC has jurisdiction "[i]n all civil actions in which the subject of the litigation is incapable of pecuniary estimation." Petitioners cited: a) Raymundo v. CA[24] which set the criteria for determining whether an action is one not capable of pecuniary estimation; b) Swan v. CA[25]Santos v. CA[26] where it was similarly held that an action for annulment of title, reversion and damages was within the jurisdiction of the RTC; and d) Commodities Storage and ICE Plant Corporation v. CA[27]P20,000.00). Hence, they contend that the RTC has jurisdiction under Section 19(2) of B.P. 129. where it was held that an action for annulment of title is under the jurisdiction of the RTC; c) where it was held that "[w]here the action affects title to the property, it should be filed in the RTC where the property is located." Petitioners also contend that while it may be argued that the assessed values of the subject properties are within the original jurisdiction of the municipal trial court (MTC), they have included in their prayers "any interest included therein" consisting of 49 felled natural grown trees illegally cut by respondents. Combining the assessed values of the properties as shown by their respective tax declarations and the estimated value of the trees cut, the total amount prayed by petitioners exceeds twenty thousand pesos ( Jurisdiction over the subject matter is the power to hear and determine cases of the general class to which the proceedings in question belong.[28] It is conferred by law and an objection based on this ground cannot be waived by the parties.[29] To determine whether a court has jurisdiction over the subject matter of a case, it is important to determine the nature of the cause of action and of the relief sought.[30] The trial court correctly held that the instant cases involve actions for reconveyance.[31] An action for reconveyance respects the decree of registration as incontrovertible but seeks the transfer of property, which has been wrongfully or erroneously registered in other persons' names, to its rightful and legal owners, or to those who claim to have a better right.[32] There is no special ground for an action for reconveyance. It is enough that the aggrieved party has a legal claim on the property superior to that of the registered owner[33] and that the property has not yet passed to the hands of an innocent purchaser for value.[34] The reliefs sought by the petitioners in the instant cases typify an action for reconveyance. The following are also the common allegations in the three complaints that are sufficient to constitute causes of action for reconveyance, viz: (a) That plaintiff Valeriano S. Concha, Sr. together with his spouse Dorotea Concha have painstakingly preserve[d] the forest standing in the area [of their 24-hectare homestead] including the four hectares untitled forest land located at the eastern portion of the forest from 1931 when they

were newly married, the date they acquired this property by occupation or possession;[35] (b) That spouses Valeriano S. Concha Sr. and Dorotea P. Concha have preserved the forest trees standing in [these parcels] of land to the exclusion of the defendants Lomocsos or other persons from 1931 up to November 12, 1996 [for Civil Case No. 5188] and January 1997 [for Civil Case Nos. 5433 and 5434] when defendants[,] by force, intimidation, [and] stealth[,] forcibly entered the premises, illegal[ly] cut, collected, disposed a total of [twenty-one (21) trees for Civil Case No. 5188, twenty-two (22) trees for Civil Case No. 5433 and six (6) trees for Civil Case No. 5434] of various sizes;[36] (c) That this claim is an assertion that the land is private land or that even assuming it was part of the public domain, plaintiff had already acquired imperfect title thereto under Sec. 48(b) of [C.A.] No. 141[,] otherwise known as the Public Land Act[,] as amended by [R.A.] No. [7691];[37] (d) That [respondents and their predecessors-in-interest knew when they] surreptitiously filed[38] [their respective patent applications and were issued their respective] free patents and original certificates of title [that the subject lots belonged to the petitioners];[39] (e) [That respondents' free patents and the corresponding original certificates of titles were issued] on account of fraud, deceit, bad faith and misrepresentation;[40] and (f) The land in question has not been transferred to an innocent purchaser. [41] These cases may also be considered as actions to remove cloud on one's title as they are intended to procure the cancellation of an instrument constituting a claim on petitioners' alleged title which was used to injure or vex them in the enjoyment of their alleged title.[42] Being in the nature of actions for reconveyance or actions to remove cloud on one's title, the applicable law to determine which court has jurisdiction is Section 19(2) of B.P. 129, as amended by R.A. No. 7691, viz: Section 19. Jurisdiction in Civil Cases.-- Regional Trial Courts shall exercise exclusive original jurisdiction: x x x (2) In all civil actions which involve the title to, or possession of, real property, or any interest therein, where the assessed value of the property involved exceeds Twenty thousand pesos (P20,000.00) or for civil actions in Metro Manila, where such value exceeds Fifty thousand pesos (P50,000.00) except actions for forcible entry into and unlawful detainer of lands or buildings, original jurisdiction over which is conferred upon the Metropolitan Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts; x x x. In the cases at bar, it is undisputed that the subject lots are situated in Cogon, Dipolog City and their assessed values are less than P20,000.00, to wit: Civil Case No. Lot No. Assessed Value 5188 6195 P1,030.00 5433 6196-A 4,500.00

5434 6196-B 4,340.00 7529-A 1,880.00.[43] Hence, the MTC clearly has jurisdiction over the instant cases. Petitioners' contention that this case is one that is incapable of pecuniary estimation under the exclusive original jurisdiction of the RTC pursuant to Section 19(1) of B.P. 129 is erroneous. In a number of cases, we have held that actions for reconveyance[44] of or for cancellation of title[45] to or to quiet title[46] over real property are actions that fall under the classification of cases that involve "title to, or possession of, real property, or any interest therein." The original text of Section 19(2) of B.P. 129 as well as its forerunner, Section 44(b) of R.A. 296,[47] as amended, gave the RTCs (formerly courts of first instance) exclusive original jurisdiction "[i]n all civil actions which involve the title to, or possession of, real property, or any interest therein,except actions for forcible entry into and unlawful detainer of lands or buildings, original jurisdiction over which is conferred upon Metropolitan Trial Courts, [MTCs], and Municipal Circuit Trial Courts (conferred upon the city and municipal courts under R.A. 296, as amended)." Thus, under the old law, there was no substantial effect on jurisdiction whether a case is one, the subject matter of which was incapable of pecuniary estimation, under Section 19(1) of B.P. 129 or one involving title to property under Section 19(2). The distinction between the two classes became crucial with the amendment introduced by R.A. No. 7691[48]where the assessed value of the property or interest therein does not exceed Twenty thousand pesos (P20,000.00) or, in civil actions in Metro Manila, where such assessed value does not exceed Fifty thousand pesos (P50,000.00) exclusive of interest, damages of whatever kind, attorney's fees, litigation expenses and costs." Thus, under the present law, original jurisdiction over cases the subject matter of which involves "title to, possession of, real property or any interest therein" under Section 19(2) of B.P. 129 is divided between the first and second level courts, with the assessed value of the real property involved as the benchmark. This amendment was introduced to "unclog the overloaded dockets of the RTCs which would result in the speedier administration of justice."[49] in 1994 which expanded the exclusive original jurisdiction of the first level courts to include "all civil actions which involve title to, or possession of, real property, or any interest therein The cases of Raymundo v. CA[50] and Commodities Storage and ICE Plant Corporation v. CA,[51] relied upon by the petitioners, are inapplicable to the cases at bar. Raymundoinvolved a complaint for mandatory injunction, not one for reconveyance or annulment of title. The bone of contention was whether the case was incapable of pecuniary estimation considering petitioner's contention that the pecuniary claim of the complaint was only attorney's fees of P10,000, hence, the MTC had jurisdiction. The Court defined the criterion for determining whether an action is one that is incapable of pecuniary estimation and held that the issue of whether petitioner violated the provisions of the Master Deed and Declaration of Restriction of the Corporation is one that is incapable of pecuniary

estimation. The claim for attorney's fees was merely incidental to the principal action, hence, said amount was not determinative of the court's jurisdiction. Nor can Commodities Storage and ICE Plant Corporation provide any comfort to petitioners for the issue resolved by the Court in said case was venue and not jurisdiction. The action therein was for damages, accounting and fixing of redemption period which was filed on October 28, 1994, before the passage of R.A. No. 7691. In resolving the issue of venue, the Court held that "[w]here the action affects title to property, it should be instituted in the [RTC] where the property is situated. The Sta. Maria Ice Plant & Cold Storage is located in Sta. Maria, Bulacan. The venue in Civil Case No. 94-727076 was therefore improperly laid." Worse, the cases of Swan v. CA[52] and Santos v. CA[53] cited by the petitioners, contradict their own position that the nature of the instant cases falls under Section 19(1) of B.P. 129. The complaints in Swan and Santos were filed prior to the enactment of R.A. No. 7691. In Swan, the Court held that the action being one for annulment of title, the RTC had original jurisdiction under Section 19(2) of B.P. 129. InSantos, the Court similarly held that the complaint for cancellation of title, reversion and damages is also one that involves title to and possession of real property under Section 19(2) of B.P. 129. Thus, while the Court held that the RTC had jurisdiction, the Court classified actions for "annulment of title" and "cancellation of title, reversion and damages" as civil actions that involve "title to, or possession of, real property, or any interest therein" under Section 19(2) of B.P. 129. Petitioners' contention that the value of the trees cut in the subject properties constitutes "any interest therein (in the subject properties)" that should be computed in addition to the respective assessed values of the subject properties is unavailing. Section 19(2) of B.P. 129, as amended by R.A. No. 7691, is clear that the RTC shall exercise jurisdiction "in all civil actions which involve the title to, or possession of, real property, or any interest therein, where the assessed value of the property involved exceeds Twenty thousand pesos (P20,000.00) or for civil actions in Metro Manila, where such value exceeds Fifty thousand pesos (P50,000.00)." It is true that the recovery of the value of the trees cut from the subject properties may be included in the term "any interest therein." However, the law is emphatic that in determining which court has jurisdiction, it is only the assessed value of the realty involved that should be computed.[54] In this case, there is no dispute that the assessed values of the subject properties as shown by their tax declarations are less thanP20,000.00. Clearly, jurisdiction over the instant cases belongs not to the RTC but to the MTC. IN VIEW WHEREOF, the decision of the Court of Appeals is hereby AFFIRMED that the RTC of Dipolog City, Branch 9, has no jurisdiction in Civil Case Nos. 5188, 5433 and 5434. No costs. SO ORDERED.

PIONEER INTERNATIONAL, LTD., VS. GUADIZ . DECISION CARPIO, J.: The Case This is a petition for review on certiorari[1] of the Decision[2] dated 27 September 2001 and of the Resolution[3] dated 14 January 2003 of the Court of Appeals (appellate court) in CA-G.R. SP No. 54062. The Decision affirmed the Orders[4] dated 4 January 1999[5] and 3 June 1999[6] of Branch 147 of theRegional Trial Court of Makati City (trial court) in Civil Case No. 98124. The trial court denied the motion to dismiss filed by Pioneer International, Ltd. (PIL)[7] in its special appearance. The Facts On 16 January 1998, Antonio D. Todaro (Todaro) filed a complaint for sum of money and damages with preliminary attachment against PIL, Pioneer Concrete Philippines, Inc. (PCPI), Pioneer Philippines Holdings, Inc. (PPHI), John G. McDonald (McDonald), and Philip J. Klepzig (Klepzig). PIL and its co-defendants were served copies of the summons and of the complaint at PPHI and PCPIs office in Alabang, Muntinlupa, through Cecille L. De Leon (De Leon), who was Klepzigs Executive Assistant. Todaro alleged that PIL is a corporation duly organized under Australian laws, while PCPI and PPHI are corporations duly organized under Philippine laws. PIL is engaged in the ready-mix and concrete aggregates business and has established a presence worldwide. PIL established PPHI as the holding company of the stocks of its operating company in the Philippines, PCPI. McDonald is the Chief Executive Officer of PILs Hong Kong office while Klepzig is the President and Managing Director of PPHI and PCPI. For his part, Todaro further alleged that he was the managing director of Betonval Readyconcrete, Inc. (Betonval) from June 1975 up to his resignation in February 1996. Before Todaro filed his complaint, there were several meetings and exchanges of letters between Todaro and the officers of Pioneer Concrete (Hong Kong) Limited, Pioneer Concrete Group HK, PPHI, and PIL. According to Todaro, PIL contacted him in May 1996 and asked if he could join it in establishing a pre-mixed concrete plant and in overseeing its operations in the Philippines. Todaro confirmed his availability and expressed interest in

joining PIL. Todaro met with several of PILs representatives and even gave PIL the names of three of his subordinates in Betonval whom he would like to join him in PIL. Todaro attached nine letters, marked as Annexes A to I, to his complaint. Annex A[8] shows that on 15 July 1996, Todaro, under the letterhead of Ital Tech Distributors, Inc., sent a letter to Max Lindsay (Lindsay) of Pioneer Concrete (Hong Kong) Limited. Todaro wrote that [m]y aim is to run again a ready-mix concrete company in the Philippines and not to be a part-time consultant. Otherwise, I could have charged your company with a much higher fee. Annex B[9] shows that on 4 September 1996, Lindsay, under the letterhead of Pioneer Concrete (Hong Kong) Limited, responded by fax to Todarosfaxed letter to McDonald and proposed that Todaro join Pioneer on a retainer basis for 2 to 3 months on the understanding that [Todaro] would become a permanent employee if as we expect, our entry proceeds. The faxed letter to McDonald referred to by Lindsay is not found in the rollo and was not attached toTodaros complaint. Annex C[10] shows that on the same date as that of Annex B, Todaro, under the letterhead of Ital Tech Distributors, Inc., faxed another letter to Lindsay of Pioneer Concrete (Hong Kong) Limited. Todaro asked for a formal letter addressed to him about the proposed retainer. Todaro requested that the letter contain a statement on his remuneration package and on his permanent employment with PIONEER once it has established itself on a permanent basis in thePhilippines. Annex D[11] shows that Todaro, under the letterhead of Ital Tech Distributors, Inc., sent a letter to McDonald of PIL. Todaro confirmed the following to McDonald: 1. That I am accepting the proposal of PIONEER INTL. as a consultant for three (3) months, starting October 1, 1996, with a retainer fee of U.S. $15,000.00 per month; That after three (3) months consultancy, I should be employed by PIONEER INTL., on a permanent basis, as its Managing Director or CEO in the Philippines. Remuneration package will be mutually agreed upon by PIONEER and the undersigned; That Gino Martinel and the Sales Manager Jun Ong, will be hired as well, on a permanent basis, by PIONEER as soon as the company is established. Salary, likewise, will be accepted by

both PIONEER and the respective parties. Annex E[12] is a faxed letter dated 18 November 1996 of McDonald, under the letterhead of Pioneer Concrete Group HK, to Todaro of Ital Tech Distributors, Inc. The first three paragraphs of McDonalds letter read: Further to our recent meeting in Hong Kong, I am now able to confirm my offer to engage you as a consultant to Pioneer International Ltd. Should Pioneer proceed with an investment in the Philippines, then Pioneer would offer you a position to manage the premixed concrete operations. Pioneer will probably be in a position to make a decision on proceeding with an investment by mid January 97. The basis for your consultancy would be: n n n n Monthly fee USD 15,000 per month billed on monthly basis and payable 15 days from billing date. Additional pre-approved expenses to be reimbursed. Driver and secretarial support-basis for reimbursement of this to be agreed. Arrangement to commence from 1st November 96, reflecting your contributions so far and to continue until Pioneer makes a decision.

Annex F[13] shows Todaros faxed reply, under the letterhead of Ital Tech Distributors, Inc., to McDonald of Pioneer Concrete Group HK dated 19 November 1996. Todaro confirmed McDonalds package concerning the consultancy and reiterated his desire to be the manager of Pioneers Philippine business venture. Annex G[14] shows Todaros faxed reply, under the letterhead of Ital Tech Distributors, Inc., to McDonald of PIL dated 8 April 1997. Todaro informed McDonald that he was willing to extend assistance to the Pioneer representative from Queensland. The tenor of the letter revealed that Todaro had not yet occupied his expected position. Annex H[15] shows Klepzigs letter, under the letterhead of PPHI, to Todaro dated 18 September 1997. Klepzigs message reads: It has not proven possible for this company to meet with your expectations regarding the conditions of your providing Pioneer with consultancy services. This, and your refusal to consider my terms of offer of permanent employment, leave me no alternative but to withdraw these offers of employment with this company. As you provided services under your previous agreement

2.

3.

with our Pioneer Hong Kong office during the month of August, I will see that they pay you at the previous rates until the end of August. They have authorized me on behalf of Pioneer International Ltd. to formally advise you that the agreement will cease from August 31st as per our previous discussions. Annex I[16] shows the letter dated 20 October 1997 of K.M. Folwell (Folwell), PILs Executive General Manager of Australia and Asia, to Todaro. Folwell confirmed the contents of Klepzigs 18 September 1997 letter. Folwells message reads: Thank you for your letter to Dr. Schubert dated 29th September 1997 regarding the alleged breach of contract with you. Dr. Schubert has asked me to investigate this matter. I have discussed and examined the material regarding your association with Pioneer over the period from mid 1996 through to September 1997. Clearly your consultancy services to Pioneer Hong Kong are well documented and have been appropriately rewarded. However, in regard to your request and expectation to be given permanent employment with Pioneer Philippines Holdings, Inc. I am informed that negotiations to reach agreement on appropriate terms and conditions have not been successful. The employment conditions you specified in your letter to John McDonald dated 11th September are well beyond our expectations. Mr. Todaro, I regret that we do not wish to pursue our association with you any further. Mr. Klepzig was authorized to terminate this association and the letter he sent to you dated 18th September has my support. Thank you for your involvement with Pioneer. I wish you all the best for the future. (Emphasis added) PIL filed, by special appearance, a motion to dismiss Todaros complaint. PILs co-defendants, PCPI, PPHI, and Klepzig, filed a separate motion to dismiss.[17] PIL asserted that the trial court has no jurisdiction over PIL because PIL is a foreign corporation not doing business in the Philippines. PIL also questioned the service of summons on it. Assuming arguendo that Klepzig is PILs agent in the Philippines, it was not Klepzig but De Leon who received the summons for PIL. PIL further stated that the National Labor Relations Commission (NLRC), and not the trial court, has jurisdiction over the subject matter of the action. It claimed that assuming that the trial court has jurisdiction over the subject matter of the action, the complaint should be dismissed on the ground of forum nonconveniens. Finally, PIL maintained that the complaint does not state a

cause of action because there was no perfected contract, and no personal judgment could be rendered by the trial court against PIL because PIL is a foreign corporation not doing business in the Philippines and there was improper service of summons on PIL. Todaro filed a Consolidated Opposition dated 26 August 1998 to refute PILs assertions. PIL filed, still by special appearance, a Reply on 2 October 1998. The Ruling of the Trial Court On 4 January 1999, the trial court issued an order [18] which ruled in favor of Todaro. The trial court denied the motions to dismiss filed by PIL, PCPI, PPHI, and Klepzig. The trial court stated that the merits of a motion to dismiss a complaint for lack of cause of action are tested on the strength of the allegation of facts in the complaint. The trial court found that the allegations in the complaint sufficiently establish a cause of action. The trial court declared that Todaros cause of action is based on an alleged breach of a contractual obligation and an alleged violation of Articles 19 and 21 of the Civil Code. Therefore, the cause of action does not lie within the jurisdiction of the NLRC but with the trial court. The trial court also asserted its jurisdiction over PIL, holding that PIL did business in the Philippines when it entered into a contract with Todaro. Although PIL questions the service of summons on Klepzig, whom PIL claims is not its agent, the trial court ruled that PIL failed to adduce evidence to prove its contention. Finally, on the issue of forum nonconveniens, the trial court found that it is more convenient to hear and decide the case in the Philippines because Todaro resides in the Philippines and the contract allegedly breached involves employment in the Philippines. PIL filed an urgent omnibus motion for the reconsideration of the trial courts 4 January 1999 order and for the deferment of filing its answer. PCPI, PPHI, and Klepzig likewise filed an urgent omnibus motion. Todaro filed a consolidated opposition, to which PIL, PCPI, PPHI, and Klepzig filed a joint reply. The trial court issued an order[19] on 3 June 1999 denying the motions of PIL, PCPI, PPHI, and Klepzig. The trial court gave PIL, PCPI, PPHI, and Klepzig 15 days within which to file their respective answers. PIL did not file an answer before the trial court and instead filed a petition for certiorari before the appellate court.

The Ruling of the Appellate Court The appellate court denied PILs petition and affirmed the trial courts ruling in toto. The dispositive portion of the appellate courts decision reads: WHEREFORE, premises considered, the present petition for certiorari is hereby DENIED DUE COURSE and accordingly DISMISSED. The assailed Orders dated January 4, 1999 and June 3, 1999 of the Regional Trial Court of Makati City, Branch 147, in Civil Case No, 98-124 are hereby AFFIRMED in toto. SO ORDERED.[20] On 14 January 2003, the appellate court dismissed[21] PILs motion for reconsideration for lack of merit. The appellate court stated that PILs motion raised no new substantial or weighty arguments that could impel the appellate court from departing or overturning its previous decision. PIL then filed a petition for review on certiorari before this Court. The Issues PIL raised the following issues before this Court: A. [The trial court] did not and cannot acquire jurisdiction over the person of [PIL] considering that: A.1. [PIL] is a foreign corporation not doing business in the Philippines. A.2. Moreover, the complaint does not contain appropriate allegations of ultimate facts showing that [PIL] is doing or transacting business in the Philippines. A.3. Assuming arguendo that jurisdiction may be acquired over the person of [PIL], [the trial court] still failed to acquire jurisdiction since summons was improperly served on [PIL]. B. [Todaro] does not have a cause of action and the complaint fails to state a cause of action. Jurisprudence is settled in that in resolving a motion to dismiss, a court can consider all the pleadings filed in the case, including annexes, motions and all evidence on record. [The trial court] did not and cannot acquire

jurisdiction over the subject matter of the complaint since the allegations contained therein indubitably show that [Todaro] bases his claims on an alleged breach of an employment contract. Thus, exclusive jurisdiction is vested with the [NLRC]. D. Pursuant to the principle of forum non-conveniens, [the trial court] committed grave abuse of discretion when it took cognizance of the case.[22] The Ruling of the Court The petition has partial merit. We affirm with modification the rulings of the trial and appellate courts. Apart from the issue on service of summons, the rulings of the trial and appellate courts on the issues raised by PIL are correct. Cause of Action Section 2, Rule 2 of the 1997 Rules of Civil Procedure states that a cause of action is the act or omission by which a party violates a right of another. The general rule is that the allegations in a complaint are sufficient to constitute a cause of action against the defendants if, admitting the facts alleged, the court can render a valid judgment upon the same in accordance with the prayer therein. A cause of action exists if the following elements are present, namely: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right; and (3) an act or omission on the part of such defendant violative of the right of the plaintiff or constituting a breach of the obligation of the defendant to the plaintiff for which the latter may maintain an action for recovery of damages.[23] In the present case, the summary of Todaros allegations states that PIL, PCPI, PPHI, McDonald, and Klepzig did not fulfill their contractual obligation to employ Todaro on a permanent basis in PILs Philippine office. Todaros allegations are thus sufficient to establish a cause of action. We quote with approval the trial courts ruling on this matter: On the issue of lack of cause of action It is wellsettled that the merits of a motion to dismiss a complaint for lack of cause of action is tested on the strength of the

C.

allegations of fact contained in the complaint and no other (De Jesus, et al. vs. Belarmino, et al., 95 Phil. 366 [1954]). This Court finds that the allegations of the complaint, specifically paragraphs 13-33 thereof, paragraphs 30-33 alleging as follows: 30. All of the acts set forth in the foregoing have been done with the knowledge, consent and/or approval of the defendants who acted in concert and/or in conspiracy with one another. 31. Under the circumstances, there is a valid contract entered into between [Todaro] and the Pioneer Group, whereby, among others, the Pioneer Group would employ [Todaro], on a permanent basis, to manage and operate the ready-mix concrete operations, if the Pioneer Group decides to invest in the Philippines. 32. The Pioneer Group has decided to invest in the Philippines. The refusal of the defendants to comply with the Pioneer Groups undertaking to employ [Todaro] to manage their Philippine ready-mix operations, on a permanent basis, is a direct breach of an obligation under a valid and perfected contract. 33. Alternatively, assuming without conceding, that there was no contractual obligation on the part of the Pioneer Group to employ [Todaro] on a permanent basis, in their Philippine operations, the Pioneer Group and the other defendants did not act with justice, give [Todaro] his due and observe honesty and good faith and/or they have willfully caused injury to [Todaro] in a manner that is contrary to morals, good customs, and public policy, as mandated under Arts. 19 and 21 of the New Civil Code. sufficiently establish a cause of action for breach of contract and/or violation of Articles 19 and 21 of the New Civil Code. Whether or not these allegations are true is immaterial for the court cannot inquire into the truth thereof, the test being whether, given the allegations of fact in the complaint, a valid judgment could be rendered in accordance with the prayer in the complaint.[24] It should be emphasized that the presence of a cause of action rests

on the sufficiency, and not on the veracity, of the allegations in the complaint. The veracity of the allegations will have to be examined during the trial on the merits. In resolving a motion to dismiss based on lack of cause of action, the trial court is limited to the four corners of the complaint and its annexes. It is not yet necessary for the trial court to examine the truthfulness of the allegations in the complaint. Such examination is proper during the trial on the merits. Forum Non-Conveniens The doctrine of forum non-conveniens requires an examination of the truthfulness of the allegations in the complaint. Section 1, Rule 16 of the 1997 Rules of Civil Procedure does not mention forum non-conveniens as a ground for filing a motion to dismiss. The propriety of dismissing a case based on forum non-conveniens requires a factual determination; hence, it is more properly considered a matter of defense. While it is within the discretion of the trial court to abstain from assuming jurisdiction on this ground, the trial court should do so only after vital facts are established to determine whether special circumstances require the courts desistance.[25] Jurisdiction over PIL PIL questions the trial courts exercise of jurisdiction over it on two levels. First, that PIL is a foreign corporation not doing business in the Philippines and because of this, the service of summons on PIL did not follow the mandated procedure. Second, that Todaros claims are based on an alleged breach of an employment contract so Todaro should have filed his complaint before the NLRC and not before the trial court. Transacting Business in the Philippines and Service of Summons The first level has two sub-issues: PILs transaction of business in the Philippines and the service of summons on PIL. Section 12, Rule 14 of the 1997 Rules of Civil Procedure provides the manner by which summons may be served upon a foreign juridical entity which has transacted business in the Philippines. Thus: Service upon foreign private juridical entity. When the defendant is a foreign juridical entity which has transacted business in the Philippines, service may be made on its resident agent designated in accordance with law for that purpose, or, if there be no such agent, on the government official designated by law to that effect, or any of its officers or agents within the Philippines.

As to the first sub-issue, PIL insists that its sole act of transacting or doing business in the Philippines consisted of its investment in PPHI. Under Philippine law, PILs mere investment in PPHI does not constitute doing business. However, we affirm the lower courts ruling and declare that, based on the allegations in Todaros complaint, PIL was doing business in the Philippines when it negotiated Todaros employment with PPHI. Section 3(d) of Republic Act No. 7042, Foreign Investments Act of 1991, states: The phrase doing business shall include soliciting orders, service contracts, opening offices, whether called liaison offices or branches; appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in the country for a period or periods totaling one hundred eighty [180] days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of commercial gain or of the purpose and object of the business organization: Provided, however, That the phrase doing business shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account; (Emphases added) PILs alleged acts in actively negotiating to employ Todaro to run its pre-mixed concrete operations in the Philippines, which acts are hypothetically admitted in PILs motion to dismiss, are not mere acts of a passive investor in a domestic corporation. Such are managerial and operational acts in directing and establishing commercial operations in the Philippines. The annexes that Todaro attached to his complaint give us an idea on the extent of PILs involvement in the negotiations regarding Todaros employment. In Annex E, McDonald of Pioneer Concrete Group HK confirmed his offer to engage Todaro as a consultant of PIL. In Annex F, Todaro accepted the consultancy. In Annex H, Klepzig of PPHI stated that PIL authorized him to tell Todaro about the cessation of his consultancy. Finally, in Annex I, Folwell of PIL wrote to Todaro to confirm that Pioneer no longer wishes to be associated

with Todaro and that Klepzig is authorized to terminate this association. Folwell further referred to a Dr. Schubert and to Pioneer Hong Kong. These confirmations and references tell us that, in this instance, the various officers and companies under the Pioneer brand name do not work independently of each other. It cannot be denied that PIL had knowledge of and even authorized the non-implementation of Todaros alleged permanent employment. In fact, in the letters to Todaro, the word Pioneer was used to refer not just to PIL alone but also to all corporations negotiating with Todaro under the Pioneer name. As further proof of the interconnection of the various Pioneer corporations with regard to their negotiations with Todaro, McDonald of Pioneer Concrete Group HK confirmed Todaros engagement as consultant of PIL (Annex E) while Folwell of PIL stated that Todaro rendered consultancy services to Pioneer HK (Annex I). In this sense, the various Pioneer corporations were not acting as separate corporations. The behavior of the various Pioneer corporations shoots down their defense that the corporations have separate and distinct personalities, managements, and operations. The various Pioneer corporations were all working in concert to negotiate an employment contract between Todaro and PPHI, a domestic corporation. Finally, the phrase doing business in the Philippines in the former version of Section 12, Rule 14 now reads has transacted business in the Philippines. The scope is thus broader in that it is enough for the application of the Rule that the foreign private juridical entity has transacted business in thePhilippines.[26] As to the second sub-issue, the purpose of summons is not only to acquire jurisdiction over the person of the defendant, but also to give notice to the defendant that an action has been commenced against it and to afford it an opportunity to be heard on the claim made against it. The requirements of the rule on summons must be strictly followed; otherwise, the trial court will not acquire jurisdiction over the defendant. When summons is to be served on a natural person, service of summons should be made in person on the defendant.[27] Substituted service is resorted to only upon the concurrence of two requisites: (1) when the defendant cannot be served personally within a reasonable time and (2) when there is impossibility of prompt service as shown by the statement in the proof of service in the efforts made to find the defendant personally and that such efforts failed.[28] The statutory requirements of substituted service must be followed strictly, faithfully, and fully, and any substituted service other than by the statute is considered ineffective. Substituted service is in derogation of the usual method of service. It is a method extraordinary in character and

may be used only as prescribed and in the circumstances authorized by the statute.[29] The need for strict compliance with the requirements of the rule on summons is also exemplified in the exclusive enumeration of the agents of a domestic private juridical entity who are authorized to receive summons. At present, Section 11 of Rule 14 provides that when the defendant is a domestic private juridical entity, service may be made on the president, managing partner, general manager, corporate secretary, treasurer, or inhouse counsel. The previous version of Section 11 allowed for the service of summons on the president, manager, secretary, cashier, agent, or any of its directors. The present Section 11 qualified manager to general manager and secretary to corporate secretary. The present Section 11 also removed cashier, agent, or any of its directors from the exclusive enumeration. When summons is served on a foreign juridical entity, there are three prescribed ways: (1) service on its resident agent designated in accordance with law for that purpose, (2) service on the government official designated by law to receive summons if the corporation does not have a resident agent, and (3) service on any of the corporations officers or agents within the Philippines.[30] In the present case, service of summons on PIL failed to follow any of the prescribed processes. PIL had no resident agent in the Philippines. Summons was not served on the Securities and Exchange Commission (SEC), the designated government agency,[31] since PIL is not registered with the SEC. Summons for PIL was served on De Leon, Klepzigs Executive Assistant. Klepzig is PILs agent within the Philippines because PIL authorized Klepzig to notify Todaroof the cessation of his consultancy (Annexes H and I).[32] The authority given by PIL to Klepzig to notify Todaro implies that Klepzig was likewise authorized to receive Todaros response to PILs notice. Todaro responded to PILs notice by filing a complaint before the trial court. However, summons was not served personally on Klepzig as agent of PIL. Instead, summons was served on De Leon, Klepzigs Executive Assistant. In this instance, De Leon was not PILs agent but a mere employee of Klepzig. In effect, the sheriff[33] resorted to substituted service. For symmetry, we apply the rule on substituted service of summons on a natural person and we find that no reason was given to justify the service of PILs summons on De Leon. Thus, we rule that PIL transacted business in the Philippines and Klepzig was its agent within the Philippines. However, there was improper service of summons on PIL since summons was not served personally on Klepzig.

NLRC Jurisdiction As to the second level, Todaro prays for payment of damages due him because of PILs non-implementation of Todaros alleged employment agreement with PPHI. The appellate court stated its ruling on this matter, thus: It could not be denied that there was no existing contract yet to speak of between PIONEER INTL. and [Todaro]. Since there was an absence of an employment contract between the two parties, this Court is of the opinion and so holds that no employer-employee relationship actually exists. Record reveals that all that was agreed upon by [Todaro] and the Pioneer Concrete, acting in behalf of PIONEER INTL., was the confirmation of the offer to engage the services of the former as consultant of PIONEER INTL. (Rollo, p. 132). The failure on the part of PIONEER INTL. to abide by the said agreement, which was duly confirmed by PIONEER INTL., brought about a breach of an obligation on a valid and perfected agreement. There being no employeremployee relationship established between [PIL] and [Todaro], it could be said that the instant case falls within the jurisdiction of the regular courts of justice as the money claim of [Todaro] did not arise out of or in connection with [an] employer-employee relationship.[34] Todaros employment in the Philippines would not be with PIL but with PPHI as stated in the 20 October 1997 letter of Folwell. Assuming the existence of the employment agreement, the employer-employee relationship would be between PPHI and Todaro, not between PIL and Todaro. PILs liability for the non-implementation of the alleged employment agreement is a civil dispute properly belonging to the regular courts. Todaros causes of action as stated in his complaint are, in addition to breach of contract, based on violation of Articles 19 and 21 of the New Civil Code for the clear and evident bad faith and malice[35] on the part of defendants. The NLRCs jurisdiction is limited to those enumerated under Article 217 of the Labor Code.[36] WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated 27 September 2001 and the Resolution dated 14 January 2003 of the appellate court are AFFIRMED with the MODIFICATION that there was improper service of summons on Pioneer International, Ltd. The case is remanded to the trial court for proper service of summons and trial. No costs. SO ORDERED.

SPS. GALICIA VS. MANLIQUEZ DECISION AUSTRIA-MARTINEZ, J.: Before the Court is a Petition for Review on Certiorari seeking to annul and set aside the Decision[1] of the Court of Appeals (CA) dated January 14, 2002in CA-G.R. SP No. 58834 and its Resolution[2] of October 21, 2002 denying petitioners Motion for Reconsideration. The present case originated from a complaint filed with the Regional Trial Court (RTC) of Odiongan, Romblon by herein petitioners, in their capacity as heirs of Juan Galicia (Juan), against Milagros Rico-Glori (Milagros) and her tenants Dominador Musca and Alfonso Fallar, Jr. for Recovery of Possession and Ownership, Annulment of Title, Documents and Other Papers. The case is docketed as Civil Case No. OD-306. In their Complaint, petitioners contended that their predecessor, Juan, was the true and lawful owner of a parcel of land situated in Concepcion Sur, Sta. Maria, Romblon known as Lot No. 139 and containing an area of 5.5329 hectares, the same having been declared in his name under various tax declarations the latest of which being Tax Declaration No. 0037, Series of 1994; after years of possession of the said land, Juan was driven away from the property through force by the heirs of a certain Ines Ramirez (Ines), one of whom is defendant Milagros; because of poverty and lack of knowledge, Juan was not able to assert his right to the said property but he informed his children that they own the abovedescribed parcel of land; and the continuous possession of the property by Milagros and her co-defendants, tenants has further deprived herein petitioners of their right over the same. Defendants denied the allegations of petitioners in their complaint asserting that Juan was not the owner and never took possession of the disputed lot. They also contended that the subject property was part of a larger parcel of land which was acquired by Ines, Milagross predecessor-ininterest in 1947 from a certain Juan Galicha who is a different person from Juan Galicia. During the scheduled pre-trial conference on May 21, 1997, none of the defendants appeared. They filed a motion for postponement of the pretrial conference but it was belatedly received by the trial court. As a consequence, defendants were declared in default. Herein petitioners, as plaintiffs, were then allowed to present evidence ex parte.

On December 2, 1997, following dispositive portion:

the

RTC rendered

judgment

with

the

WHEREFORE, premises considered, and by preponderance of evidence, judgment is hereby rendered in favor of the plaintiffs and against the defendants: 1. Declaring plaintiffs as the true and absolute owner of the property subject of the case and particularly described in paragraph II of the complaint; Affirming and confirming the validity and legality of plaintiffs ownership over the property; Ordering defendants to vacate the land adverted to in paragraph II of the complaint; For the defendants to respect plaintiffs' peaceful possession and ownership of the land aforesaid; and To pay the costs.

2. 3. 4.

5.

SO ORDERED.[3] On December 15, 1997, the RTC received a Motion for Leave of Court to Intervene with an attached Answer-in-Intervention filed by the compulsory heirs of Ines, among whom are herein respondents, who are also co-heirs of defendant Milagros. The intervenors contended that the subject parcel of land forms part of the estate of Ines which is yet to be partitioned among them; an intestate proceeding is presently pending in the RTC of Odiongan, Romblon, Branch 81; the outcome of Civil Case No. OD306, one way or the other, would adversely affect their interest; their rights would be better protected in the said civil case; and their intervention would not unduly delay, or in any way prejudice the rights of the original parties. In its Order of December 23, 1997, the RTC denied the said motion to intervene on the ground that it has already rendered judgment and under Section 2, Rule 19 of the Rules of Court, the motion to intervene should have been filed before rendition of judgment by the trial court. Meanwhile, the defendants in Civil Case No. OD-306 filed an appeal with the CA. Their Notice of Appeal was filed on February 27, 1998. On June 23, 1999, the CA issued a Resolution dismissing the appeal for failure of the defendants-appellants to file their brief within the extended period granted by the appellate court. On August 13, 1999, the abovementioned CA

Resolution became final and executory. Subsequently, the trial court issued a writ of execution dated March 3, 2000. On May 23, 2000, herein respondents filed a petition for annulment of judgment with the CA anchored on grounds of lack of jurisdiction over their persons and property and on extrinsic fraud. On January 14, 2002, the CA promulgated the presently assailed Decision with the following dispositive portion: WHEREFORE, the present petition is hereby GRANTED. The Decision dated December 2, 1997 and Writ of Execution dated March 3, 2000 of Branch 82 of the Regional Trial Court of Odiongan, Romblon are hereby ANNULLED and SET ASIDE. SO ORDERED.[4] Herein petitioners filed a Motion for Reconsideration but it was denied by the CA in its Resolution[5] dated October 21, 2002. Hence, the instant petition for review based on the following assignment of errors: 1. THAT THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN ANNULLING AND SETTING ASIDE THE DECISION DATED 2 DECEMBER 1997 AND WRIT OF EXECUTION DATED 3 MARCH 2000 OF BRANCH 82 OF THE REGIONAL TRIAL COURT OF ODIONGAN, ROMBLON FOR LACK OF JURISDICTION OVER THE PERSONS OF PETITIONERS (NOW RESPONDENTS IN THE ABOVE-ENTITLED CASE), A DECISION NOT IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT. 2. THAT THE COURT OF APPEALS COMMITTED SERIOUS ERROR OF LAW IN NOT DISMISSING THE PETITION FOR ANNULMENT OF JUDGMENT ON THE GROUND OF ESTOPPEL ON THE PART OF THE PETITIONERS IN CA-G.R. SP. NO. 58834.[6] As to their first assigned error, petitioners invoke the principle that jurisdiction over the person is acquired by the voluntary appearance of a party in court and his submission to its authority. Applying this rule in the present case, petitioners argue that by filing their Motion for Leave to Intervene in the RTC, herein respondents voluntarily submitted themselves

to the authority of the trial court, hence placing themselves under its jurisdiction; that by filing the said Motion, they recognized the authority of the court to hear and decide not only their Motion but the case itself; and that by acting on their Motion, the court actually exercised jurisdiction over the persons of petitioners. With respect to their second assigned error, petitioners contend that by respondents voluntary submission to the jurisdiction of the trial court they are alreadyestopped in denying the authority of the court which they invoked when they filed their Motion. Petitioners also contend that respondents had several opportunities to raise the issue of the courts lack of jurisdiction over their persons but they remained silent and did not pursue the remedies available to them for an unreasonable length of time; hence, they are now barred by laches from questioning the courts jurisdiction. On the other hand, respondents counter that the CA did not err in setting aside the trial court's decision on the ground that defendants, as indispensable parties, were not joined in the complaint. Respondents argue that the CA correctly held that when an indispensable party is not before the court then the action should be dismissed because the absence of such indispensable party renders all subsequent actions of the court null and void for want of authority to act not only as against him but even as against those present. Respondents also aver that even assuming that herein petitioners were the true owners of the subject land, they have lost such ownership by extinctive prescription because respondents and their predecessors had been in uninterrupted adverse possession of the subject lot for more than 40 years. As such, they had become the owners thereof by acquisitive prescription. The petition lacks merit but the CA Decision will have to be modified in the interest of substantial justice and for the orderly administration of justice, as will be shown forthwith. It is true that the allowance and disallowance of a motion to intervene is addressed to the sound discretion of the court hearing the case. [7] However,jurisprudence is replete with cases wherein the Court ruled that a motion to intervene may be entertained or allowed even if filed after judgment was rendered by the trial court, especially in cases where the intervenors are indispensable parties.[8] In Pinlac v. Court of Appeals, this Court held: The rule on intervention, like all other rules of procedure, is intended to make the powers of the Court fully and completely available for justice. It is aimed to facilitate a comprehensive adjudication of rival claims overriding

technicalities on the timeliness of the filing thereof. Indeed, in exceptional cases, the Court has allowed intervention notwithstanding the rendition of judgment by the trial court.
[9]

Since it is not disputed that herein respondents are compulsory heirs of Ines who stand to be affected by the judgment of the trial court, the latter should have granted their Motion to Intervene and should have admitted their Answer-in-Intervention. Section 7, Rule 3 of the Rules of Court, defines indispensable parties as parties-in-interest without whom there can be no final determination of an action. As such, they must be joined either as plaintiffs or as defendants. The general rule with reference to the making of parties in a civil action requires the joinder of all necessary parties where possible and the joinder of all indispensable parties under any and all conditions, their presence being a sine qua non for the exercise of judicial power.[10] It is precisely when an indispensable party is not before the court that the action should be dismissed.[11] 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.[12] The evident aim and intent of the Rules regarding the joinder of indispensable and necessary parties is a complete determination of all possible issues, not only between the parties themselves but also as regards to other persons who may be affected by the judgment.[13] A valid judgment cannot even be rendered where there is want of indispensable parties.[14] As to the question of whether the trial court acquired jurisdiction over the persons of herein respondents, the Court has held that the filing of motions seeking affirmative relief, such as, to admit answer, for additional time to file answer, for reconsideration of a default judgment, and to lift order of default with motion for reconsideration, are considered voluntary submission to the jurisdiction of the court.[15] Hence, in the present case, when respondents filed their Motion for Leave to Intervene, attaching thereto their Answer-in-Intervention, they have effectively submitted themselves to the jurisdiction of the court and the court, in turn, acquired jurisdiction over their persons. But this circumstance did not cure the fatal defect of non-inclusion of respondents as indispensable parties in the complaint filed by petitioner. It must be emphasized that respondents were not able to participate during the pre-trial much less present evidence in support of their claims. In other words, the court acquired jurisdiction over the persons of herein respondents only when they filed their Motion for Leave to Intervene with the RTC. Prior to that, they were strangers to Civil Case No. OD-306. It is basic that no man shall be affected by any proceeding to which

he is a stranger, and strangers to a case are not bound by judgment rendered by the court.[16] In the present case, respondents and their coheirs are adversely affected by the judgment rendered by the trial court considering their ostensible ownership of the property. It will be the height of inequity to declare herein petitioners as owners of the disputed lot without giving respondents the opportunity to present any evidence in support of their claim that the subject property still forms part of the estate of their deceased predecessor and is the subject of a pending action for partition among the compulsory heirs. Much more, it is tantamount to a violation of the constitutional guarantee that no person shall be deprived of property without due process of law.[17] This Court held in Metropolitan Bank and Trust Company v. Alejo that: A void judgment for want of jurisdiction is no judgment at all. It cannot be the source of any right nor the creator of any obligation. All acts performed pursuant to it and all claims emanating from it have no legal effect. Hence, it can never become final and any writ of execution based on it is void: x x x it may be said to be a lawless thing which can be treated as an outlaw and slain at sight, or ignored wherever and whenever it exhibits its head.[18] In the absence of herein respondents and their co-heirs who are indispensable parties, the trial court had in the first place no authority to act on the case. Thus, the judgment of the trial court was null and void due to lack of jurisdiction over indispensable parties.[19] The CA correctly annulled the RTC Decision and writ of execution. As to the timeliness of the petition for annulment of judgment filed with the CA, Section 3, Rule 47 of the Rules of Court provides that a petition for annulment of judgment based on extrinsic fraud must be filed within four years from its discovery; and if based on lack of jurisdiction, before it is barred by lachesor estoppel. The principle of laches or stale demands ordains that the failure or neglect, for an unreasonable and unexplained length of time, to do that which by exercising due diligence could or should have been done earlier, or the negligence or omission to assert a right within a reasonable time, warrants a presumption that the party entitled to assert it either has abandoned it or declined to assert it.[20] There is no absolute rule as to what constitutes laches or staleness of demand; each case is to be determined according to its particular circumstances.[21] The question of laches is addressed to the sound discretion of the court and, being an equitable doctrine, its application is controlled by equitable considerations.[22] It cannot be used to defeat justice or perpetrate fraud and injustice.[23] It is the better rule that courts, under the principle of equity, will not be guided or bound strictly by the statute of

limitations or the doctrine of laches when to do so, manifest wrong or injustice would result.[24] In the present case, the CA found no evidence to show when respondents acquired knowledge of the complaint that petitioners filed with the RTC. Moreover, the Court finds that herein respondents' right to due process is the overriding consideration in allowing them to intervene in Civil Case No. OD-306. Petitioners also fault herein respondents for their failure to avail of other remedies before filing a petition for annulment of judgment with the CA. Petitioners cited the remedies enumerated by the RTC in its Order of December 23, 1997. However, the Court notes that the remedies enumerated therein refer to those available to a party who has been declared in default. In the present case, herein respondents could not have been declared in default, and thus could not have availed of these remedies, because they never became parties to Civil Case No. OD-306. The settled rule is that a judgment rendered or final order issued by the RTC without jurisdiction is null and void and may be assailed any time either collaterally or in a direct action or by resisting such judgment or final order in any action or proceeding whenever it is invoked, unless barred by laches.[25] Indeed, jurisprudence upholds the soundness of an independent action to declare as null and void a judgment rendered without jurisdiction as in this case.[26] As a result of and in consonance with the foregoing discussions, the complaint filed by herein petitioners with the trial court should have been dismissed at the outset, in the absence of indispensable parties. Inevitably, the following questions come to mind: what happens to the original defendants who were declared as in default and judgment by default was rendered against them? What happens to the final and executory dismissal of the appeal of the defaulted defendants by the CA? It is an accepted rule of procedure for this Court to strive to settle the entire controversy in a single proceeding, leaving no root or branch to bear the seeds of future litigation.[27] In concurrence therewith, the Court makes the following observations: To dismiss the complaint of herein petitioners for non-inclusion of herein respondents as indispensable parties, the former would have no other recourse but to file anew a complaint against the latter and the original defendants. This would not be in keeping with the Court's policy of promoting a just and inexpensive disposition of a case. It is best that the

complaint remains which is deemed amended by the admission of the Answer-in-Intervention of the indispensable parties. The trial courts declaration of the defendants as in default in Civil Case No. OD-306 for their failure to attend the pre-trial conference and the consequent final and executory judgment by default, are altogether void and of no effect considering that the RTC acted without jurisdiction from the very beginning because of non-inclusion of indispensable parties. The Court reiterates the ruling in Metropolitan Bank and Trust Company that void judgment for want of jurisdiction is no judgment at all; it cannot be the source of any right nor the creator of any obligation.[28] Parties are reverted back to the stage where all the defendants have filed their respective Answers. WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals are AFFIRMED with MODIFICATION to theeffect that the Regional Trial Court of Odiongan, Romblon, Branch 82 is ordered to GRANT the Motion for Leave to Intervene of respondents and their other co-heirs, ADMIT their Answer-in-Intervention, MAINTAIN the Answer of original defendants, and from there to PROCEED with Civil Case No. OD-306 in accordance with the Rules of Court. Costs against petitioners. SO ORDERED. [G.R. No. 140945. May 16, 2005] NATIONAL HOUSING AUTHORITY, petitioner, vs. JOSE EVANGELISTA, respondent. DECISION AUSTRIA-MARTINEZ, J.: A person who was not impleaded in the complaint cannot be bound by the decision rendered therein, for no man shall be affected by a proceeding in which he is a stranger.[1] This refers to the petition for review on certiorari filed by the National Housing Authority assailing the decision[2] of the Court of Appeals (CA) in CAG.R. SP No. 51646, granting respondents petition for annulment of judgment. The dispositive portion of the decision reads: WHEREFORE, the petition is granted. The assailed part of paragraph No. 3 of the dispositive portion of the decision dated November 29, 1995 of the Regional Trial Court, Br. CIII, Quezon City in Civil Case No. Q-91-10071 is hereby declared void, non-binding and inapplicable in so far as petitioners TCT No. 122944 is concerned. Let a copy hereof be furnished the Register of Deeds of Quezon City for the proper annotation. No pronouncement as to costs. SO ORDERED.[3]

Petitioner now comes before the Court with the following assignment of errors allegedly committed by the CA: I THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE DECISION OF THE LOWER COURT IS NOT BINDING ON HEREIN RESPONDENT JOSE EVANGELISTA BECAUSE THE LOWER COURT DID NOT ACQUIRE JURISDICTION OVER HIS PERSON. II THE HONORABLE COURT LIKEWISE ERRED IN ANNULLING THE DECISION OF THE LOWER COURT ON THE GROUND OF LACK OF DUE PROCESS OF LAW BECAUSE RESPONDENT JOSE EVANGELISTA WAS NOT IMPLEADED AS A PARTY DEFENDANT IN PETITIONERS ACTION FOR RECOVERY OF TITLE.[4] The assailed decision of the CA originated from a civil case filed by petitioner before the Regional Trial Court of Quezon City (Branch CIII) for recovery of real property, docketed as Civil Case No. Q-91-10071.[5] Said case involves a real property measuring 915.50 square meters and located in V. Luna Road, Quezon City, originally awarded in 1968 by the Peoples Homesite and Housing Corporation (petitioners predecessor) to a certain Adela Salindon. After the death of Salindon, her heirs executed an extrajudicial settlement where the property was transferred to Arsenio Florendo, Jr., Milagros Florendo, Beatriz Florendo and Eloisa FlorendoKulphongpatana. However, in a decision in G.R. No. L-60544, entitled Arsenio Florendo, Jr., et al. vs. Hon. Perpetuo D. Coloma, Presiding Judge of Branch VII, City Court of Quezon City, et al., rendered by the Court on May 19, 1984, the award in favor of Salindon was nullified and set aside for having been issued in excess of jurisdiction and with grave abuse of discretion, and petitioner was declared the owner of the property. Despite said decision, the property was auctioned off by the Quezon City Treasurers Office on April 23, 1986, for unpaid real property taxes by the Florendos. The highest bidder was Luisito Sarte. Because the Register of Deeds refused to register the final deed of sale issued by the City Treasurer, Sarte filed a petition for issuance of title and confirmation of sale, which was granted by the Regional Trial Court of Quezon City (Branch 84). Consequently, the Register of Deeds issued Transfer Certificate of Title (TCT) No. 28182 in the name of Sarte, who divided the property into Lot 1-A, measuring 570.50 square meters and covered by TCT No. 108070, and Lot 1-B, measuring 345 square meters and covered by TCT No. 108071.[6] It was in 1991 that petitioner filed Civil Case No. Q-91-10071 with Sarte, the City Treasurer of Quezon City and the Quezon City Register of Deeds, as defendants. While the case was pending, Sarte executed in favor of respondent Jose Evangelista, a Deed of Assignment dated December 2, 1994, covering Lot 1-A.[7] TCT No. 108070 was cancelled and TCT No. 122944 was issued in the name of respondent on December 21, 1994. Subsequently, the Register of Deeds annotated on TCT No. 122944 an Affidavit of Adverse Claim of petitioner, to wit: Entry No. 7159/T-No. 122944: AFFIDAVIT OF ADVERSE CLAIM Executed under oath by Manuel V. Fernandez (in behalf of NHA), adverse

claimant, claiming among others that NHA has the right of the ownership of the property being the subject of controversy in Civil Case No. Q-91-10071, entitled National Housing Authority vs. Luisito Sarte, et al., now pending before RTC, Br. 103, Q.C., Doc. No. 76, page 16, Bk. I, s. of 1995 of Not. Pub. of Q.C. Belsie Cailipan Sy. Date of the instrument May 4, 1995 Date of the inscription May 4, 1995.[8] and Notice of Lis Pendens, to wit: Entry No. 1367/T-No. 122944: NOTICE OF LIS PENDENS By virtue of a notice of lis pendens presented and filed by Oscar I. Garcia & Virgilio C. Abejo, notice is hereby given that a case has been pending RTC, Q.C. in Civil Case No. Q-95-23940 entitled National Housing Authority, plaintiff, -vs.-Luistio Sarte, Jose Evangelista, Northern Star Agri-Business Corporation, BPI Agricultural Development Bank & the Register of Deeds of Quezon City, defendants, plaintiff praying for Annulment of the Deed of Assignment, Deed of Absolute Sale, Real Estate Mortgage, Cancellation of TCT Nos. 122944 and 126639 & damages. Date of the Instrument May 24, 1995 Date of the Inscription - May 31, 1995[9] On May 1, 1995, petitioner filed a motion for leave to file supplemental complaint in Civil Case No. Q-91-10071, seeking to include respondent Evangelista, Northern Star Agri-Business Corporation and BPI Agricultural Development Bank as defendants. The proposed additional defendants were the subsequent purchasers of Lots 1-A and 1-B.[10]The trial court, however, denied the motion in its Order dated May 17, 1995.[11] Thus, petitioner, on May 31, 1995, filed before the Regional Trial Court of Quezon City (Branch 82) a complaint for Annulment of Deed of Assignment, Deed of Absolute Sale, Real Estate Mortgage, Cancellation of TCT Nos. 122944 and 126639, and Damages, against Sarte, respondent Evangelista, Northern Star Agri-Business Corporation, BPI Agricultural Development Bank and the Register of Deeds of Quezon City, docketed as Civil Case No. Q-95-23940.[12] But the trial court dismissed without prejudice said case on October 23, 1995, on the ground of the pendency of Civil Case No. Q-91-10071.[13] In a decision dated November 29, 1995, the trial court, in Civil Case No. Q-91-10071, rendered its decision in favor of petitioner, with the following dispositive portion: ACCORDINGLY, judgment is hereby rendered in favor of the plaintiff National Housing Authority as follows: 1. The auction sale conducted by the Quezon City Treasurer in 1986 of the parcel of land consisting of 915.50 sq. m. subject of this case previously covered by TCT No. 138007 of the Register of Deeds of Quezon City issued in the name of Adela Salindon and wherein defendant Luisito Sarte was the auction buyer and TCT No. 239729 in the name of Arsenio Florendo, Milagros Florendo, Beatriz Florendo and Eloisa F. Kulphongpatana is hereby declared null and void ab initio; 2. TCT No. 28182 subsequently issued in the name of defendant Luisito

Sarte by the Quezon City Registry of Deeds is hereby declared null and void ab initio and the herein defendant Quezon City Register of Deeds is hereby ordered to cancel said TCT 28182 in the name of Luisito Sarte; 3. Any transfers, assignment, sale or mortgage of whatever nature of the parcel of land subject of this case made by defendant Luisito Sarte or his/her agents or assigns before or during the pendency of the instant case are hereby declared null and void, together with any transfer certificates of title issued in connection with the aforesaid transactions by the Register of Deeds of Quezon City who is likewise ordered to cancel or cause the cancellation of such TCTs; 4. The defendant Register of Deeds of Quezon City is hereby ordered to issue a new transfer certificate of title over the entire parcel of land (915.50 sq. m.) subject of this case in favor of the National Housing Authority by way of satisfying the Supreme Court in G.R. No. 50544 promulgated on May 1984; 5. The NHA is hereby required and authorized to put in place on the property at bar a notice, readable, bold, and stable, sufficiently signifying the essence of this courts decision so that no person may err as to the real ownership of the instant parcel of land and to fence the same to prevent entry of squatters or other illegal intruders. The court further renders judgment as follows: 1. No pronouncement as to attorneys fees, costs and other damages as fundamentally the main responsible character here are the public officers sued in their official capacity. 2. The complaint-in-intervention by Teresita Vasquez is held premature in view of the disposition herein made in favor of NHA which can only fully act with regard to the claim of said intervenor after this decision becomes final. Moreover, insofar as and to the extent in which intervenor Vasquez has joined the NHA in the case at bench, her assertions and prayers have already been adjudged in this decision in favor of the plaintiff National Housing Authority. SO ORDERED.[14] (Emphasis supplied) Respondent then filed with the CA a petition for annulment of the trial courts judgment, particularly paragraph 3 of the dispositive portion, referring to the nullity of any transfer, assignment, sale or mortgage made by Sarte. In his petition, respondent alleged extrinsic fraud as ground. According to respondent, since he was not a party to Civil Case No. Q-9110071, he was prevented from ventilating his cause, right or interest over the property, and the judgment was not binding on him, as the trial court did not acquire jurisdiction over his person.[15] The CA granted the petition and declared null and void paragraph 3 of the dispositive portion of the trial courts decision insofar as petitioners title to the property is concerned.[16] The CA found that respondent was not a party to Civil Case No. Q-91-10071 and the trial court did not acquire any jurisdiction over his person. The CA also ruled that the judgment violated respondents right against deprivation of the property without due process

of law.[17] Its motion for reconsideration having been denied by the CA, petitioner took the present recourse. Petitioner insists that it should not be faulted for the trial courts denial of its motion to include respondent as defendant in Civil Case No. Q-9110071. Petitioner also claims that the auction sale of the property by the City Treasurer of Quezon City is void ab initio because it was never supposed to be included in the auction sale as petitioner, which has been declared by the Court in G.R. No. L-60544 as the owner of the property, is exempt from payment of taxes. Hence, Sarte cannot claim any right over the same and respondent, having bought it from Sarte, does not acquire any better right thereto. Petitioner also alleges that respondent is not a buyer in good faith because the latter was aware of the pending litigation involving the property.[18] The sole issue in this case is whether or not the CA erred in annulling paragraph 3 of the trial courts decision on grounds of lack of jurisdiction and lack of due process of law. Annulment of judgment is a recourse equitable in character, allowed only in exceptional cases as where there is no available or other adequate remedy.[19] Jurisprudence and Section 2, Rule 47 of the Rules of Court lay down the grounds upon which an action for annulment of judgment may be brought, i.e., (1) extrinsic fraud, and (2) lack of jurisdiction or denial of due process.[20] Lack of jurisdiction refers to either lack of jurisdiction over the person of the defending party or over the subject matter of the claim, and in either case, the judgment or final order and resolution are void.[21] A trial court acquires jurisdiction over the person of the defendant either by his voluntary appearance in court and his submission to its authority or by service of summons.[22] In this case, it is undisputed that respondent was never made a party to Civil Case No. Q-91-10071. It is basic that no man shall be affected by any proceeding to which he is a stranger, and strangers to a case are not bound by judgment rendered by the court.[23] Yet, the assailed paragraph 3 of the trial courts decision decreed that (A)ny transfers, assignment, sale or mortgage of whatever nature of the parcel of land subject of this case made by defendant Luisito Sarte or his/her agents or assigns before or during the pendency of the instant case are hereby declared null and void, together with any transfer certificates of title issued in connection with the aforesaid transactions by the Register of Deeds of Quezon City who is likewise ordered to cancel or cause the cancellation of such TCTs. Respondent is adversely affected by such judgment, as he was the subsequent purchaser of the subject property from Sarte, and title was already transferred to him. It will be the height of inequity to allow respondents title to be nullified without being given the opportunity to present any evidence in support of his ostensible ownership of the property. Much more, it is tantamount to a violation of the constitutional guarantee that no person shall be deprived of property without due process of law.[24] Clearly, the trial courts judgment is

void insofar as paragraph 3 of its dispositive portion is concerned. Petitioner argues that it should not bear the consequence of the trial courts denial of its motion to include respondent as defendant in Civil Case No. Q-91-10071. True, it was not petitioners fault that respondent was not made a party to the case. But likewise, it was not respondents fault that he was not given the opportunity to present his side of the story. Whatever prompted the trial court to deny petitioners motion to include respondent as defendant is not for the Court to reason why. Petitioner could have brought the trial courts denial to the CA on certiorari but it did not. Instead, it filed Civil Case No. Q-95-23940 for Annulment of Deed of Assignment, Deed of Absolute Sale, Real Estate Mortgage, Cancellation of TCT Nos. 122944 and 126639, and Damages, against herein respondent Sarte and others. Unfortunately for petitioner, this was dismissed by the Regional Trial Court of Quezon City (Branch 82) on the ground of litis pendentia. Be that as it may, the undeniable fact remains -- respondent is not a party to Civil Case No. Q-91-10071, and paragraph 3, or any portion of the trial courts judgment for that matter, cannot be binding on him. Petitioner also claims that respondent is not a buyer in good faith, citing as badge of knowledge, respondents alleged awareness of the pending lawsuit over the property. Petitioner claims that respondent had admitted that before TCT No. 122944 was issued to the latter, the notice of lis pendens was already annotated at the back of the title. Respondent, however, denied having made such admission.[25] There is merit to respondents denial. Based on petitioners claim, one would assume that the notice of lis pendens was annotated on the title preceding TCT No. 122944, which is TCT No. 108070 in the name of Sarte. However, there is nothing in TCT No. 108070 which shows any annotation of a notice of lis pendens or adverse claim. The last entries on TCT No. 108070 were Entry No. 4172 made on May 24, 1994, canceling Entry No. 674, which is an annotation of a mortgage,[26] and a registration of the Deed of Assignment between Sarte and respondent, which was made on December 21, 1994.[27] It was already after respondent acquired the property and after TCT No. 122944 was issued in his name that petitioners adverse claim (Entry No. 7159) and a notice of lis pendens (Entry No. 1367) were annotated.[28] It should also be pointed out that the notice of lis pendens annotated on the back of respondents title refers to Civil Case No. Q-95-23940, and not Civil Case No. Q-91-10071. It was in petitioners Affidavit of Adverse Claim that Civil Case No. Q-91-10071 was indicated. To repeat, as records show, at the time the notice of lis pendens and adverse claim was annotated, the Deed of Assignment has already been entered into by respondent and Sarte, and TCT No. 122944 was already issued in respondents name on December 21, 1994. Petitioner filed Civil Case No. Q-91-10071 way back in 1991. TCT Nos. 108070 and 108071 were issued in Sartes name on May 13, 1994;[29] TCT No. 122944 was issued in respondents name on December 21, 1994. [30] Petitioner had enough opportunity to have its adverse claim and a notice

of lis pendens annotated on Sartes title before the latter assigned the property to Evangelista, but it did not do so. The adverse claim was annotated only on May 4, 1995 and the notice of lis pendens, on May 31, 1995.[31] While a notice of lis pendens serves as a warning to a prospective purchaser or incumbrancer that the particular property is in litigation; and that he should keep his hands off the same, unless he intends to gamble on the results of the litigation, such constructive notice operates as such from the date of the registration of the notice of lis pendens,[32] which in this case, was, at the earliest, on May 4, 1995. This was long after title to the property was transferred to respondent. Note also must be made that respondent was not furnished by petitioner of a copy of its motion for leave to file supplemental complaint. [33] Thus, it cannot be said that respondent knew of the existence of Civil Case No. Q-91-10071. Moreover, the filing of Civil Case No. Q-95-23940 against respondent and other defendants was made only on May 31, 1995, and at that point, TCT No. 122944 was already issued in respondents name. Lest it be misunderstood, the Court is not declaring that respondent is a purchaser of the property in good faith. This is an issue that cannot be dealt with by the Court in this forum, as the only issue in this case is whether or not the CA erred in annulling paragraph 3 of the trial courts decision on grounds of lack of jurisdiction and lack of due process of law. Whether or not respondent is a purchaser in good faith is an issue which is a different matter altogether that must be threshed out in a full-blown trial for that purpose in an appropriate case and in the proper forum. Also, CA-G.R. CV No. 52466, which is the appeal from the trial courts decision in Civil Case No. Q-91-10071, is pending before the CA, and it would be premature and unwarranted for the Court to render any resolution that would unnecessarily interfere with the appellate proceedings. Insofar as this petition is concerned, what the Court declares is that the notice of lis pendens cannot serve as constructive notice to respondent for having been annotated after the transfer of the property to him and that he is entitled to have paragraph 3 of the trial courts decision annulled. WHEREFORE, the petition for review on certiorari is DENIED for lack of merit and the assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 51646 are hereby AFFIRMED. Costs against petitioner. SO ORDERED.

[G.R. No. 162788. July 28, 2005] Spouses JULITA DE LA CRUZ and FELIPE DE LA CRUZ, petitioners, vs. PEDRO JOAQUIN, respondent.

DECISION PANGANIBAN, J.: The Rules require the legal representatives of a dead litigant to be substituted as parties to a litigation. This requirement is necessitated by due process. Thus, when the rights of the legal representatives of a decedent are actually recognized and protected, noncompliance or belated formal compliance with the Rules cannot affect the validity of the promulgated decision. After all, due process had thereby been satisfied. The Case Before us is a Petition for Review [1] under Rule 45 of the Rules of Court, assailing the August 26, 2003 Decision[2] and the March 9, 2004 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 34702. The challenged Decision disposed as follows: WHEREFORE, the foregoing considered, the appeal is DISMISSED and the assailed decision accordingly AFFIRMED in toto. No costs.[4] On the other hand, the trial courts affirmed Decision disposed as follows: WHEREFORE, judgment is hereby rendered: a) declaring the Deed of Absolute Sale (Exh. D) and Kasunduan (Exhibit B), to be a sale with right of repurchase; b) ordering the plaintiff to pay the defendants the sum of P9,000.00 by way of repurchasing the land in question; c) ordering the defendants to execute a deed of reconveyance of said land in favor of the plaintiff after the latter has paid them the amount of P9,000.00 to repurchase the land in question; d) ordering the defendants to yield possession of the subject land to the plaintiff after the latter has paid them the amount of P9,000.00 to repurchase the property from them; and e) ordering the defendants to pay the plaintiff the amount of P10,000.00 as actual and compensatory damages; the amount of P5,000[.00] as exemplary damages; the amount ofP5,000.00 as expenses of litigation and the amount of P5,000.00 by way of attorneys fees.[5] The Facts The case originated from a Complaint for the recovery of possession and ownership, the cancellation of title, and damages, filed by Pedro Joaquin against petitioners in the Regional Trial Court of Baloc, Sto. Domingo, Nueva Ecija.[6] Respondent alleged that he had obtained a loan from them in the amount of P9,000 on June 29, 1974, payable after five (5) years; that is, on June 29, 1979. To secure the payment of the obligation, he supposedly executed a Deed of Sale in favor of petitioners. The Deed was for a parcel of land in Pinagpanaan, Talavera, Nueva Ecija, covered by TCT No. T111802. The parties also executed another document entitled Kasunduan. [7]

Respondent claimed that the Kasunduan showed the Deed of Sale to be actually an equitable mortgage.[8] Spouses De la Cruz contended that this document was merely an accommodation to allow the repurchase of the property until June 29, 1979, a right that he failed to exercise.[9] On April 23, 1990, the RTC issued a Decision in his favor. The trial court declared that the parties had entered into a sale with a right of repurchase. [10] It further held that respondent had made a valid tender of payment on two separate occasions to exercise his right of repurchase.[11] Accordingly, petitioners were required to reconvey the property upon his payment.[12] Ruling of the Court of Appeals Sustaining the trial court, the CA noted that petitioners had given respondent the right to repurchase the property within five (5) years from the date of the sale or until June 29, 1979. Accordingly, the parties executed the Kasunduan to express the terms and conditions of their actual agreement.[13] The appellate court also found no reason to overturn the finding that respondent had validly exercised his right to repurchase the land.[14] In the March 9, 2004 Resolution, the CA denied reconsideration and ordered a substitution by legal representatives, in view of respondents death on December 24, 1988.[15] Hence, this Petition.[16] The Issues Petitioners assign the following errors for our consideration: I. Public Respondent Twelfth Division of the Honorable Court of Appeals seriously erred in dismissing the appeal and affirming in toto the Decision of the trial court in Civil Case No. SD-838; II. Public Respondent Twelfth Division of the Honorable Court of Appeals likewise erred in denying [petitioners] Motion for Reconsideration given the facts and the law therein presented.[17] Succinctly, the issues are whether the trial court lost jurisdiction over the case upon the death of Pedro Joaquin, and whether respondent was guilty of forum shopping.[18] The Courts Ruling The Petition has no merit. First Issue: Jurisdiction Petitioners assert that the RTCs Decision was invalid for lack of jurisdiction.[19] They claim that respondent died during the pendency of the case. There being no substitution by the heirs, the trial court allegedly lacked jurisdiction over the litigation.[20] Rule on Substitution When a party to a pending action dies and the claim is not extinguished,[21] the Rules of Court require a substitution of the deceased. The procedure is specifically governed by Section 16 of Rule 3, which reads thus: Section 16. Death of a party; duty of counsel. Whenever a party to a pending action dies, and the claim is not thereby extinguished, it shall be

the duty of his counsel to inform the court within thirty (30) days after such death of the fact thereof, and to give the name and address of his legal representative or representatives. Failure of counsel to comply with this duty shall be a ground for disciplinary action. The heirs of the deceased may be allowed to be substituted for the deceased, without requiring the appointment of an executor or administrator and the court may appoint a guardian ad litem for the minor heirs. The court shall forthwith order said legal representative or representatives to appear and be substituted within a period of thirty (30) days from notice. If no legal representative is named by the counsel for the deceased party, or if the one so named shall fail to appear within the specified period, the court may order the opposing party, within a specified time, to procure the appointment of an executor or administrator for the estate of the deceased, and the latter shall immediately appear for and on behalf of the deceased. The court charges in procuring such appointment, if defrayed by the opposing party, may be recovered as costs. The rule on the substitution of parties was crafted to protect every partys right to due process.[22] The estate of the deceased party will continue to be properly represented in the suit through the duly appointed legal representative.[23] Moreover, no adjudication can be made against the successor of the deceased if the fundamental right to a day in court is denied.[24] The Court has nullified not only trial proceedings conducted without the appearance of the legal representatives of the deceased, but also the resulting judgments.[25] In those instances, the courts acquired no jurisdiction over the persons of the legal representatives or the heirs upon whom no judgment was binding.[26] This general rule notwithstanding, a formal substitution by heirs is not necessary when they themselves voluntarily appear, participate in the case, and present evidence in defense of the deceased.[27] These actions negate any claim that the right to due process was violated. The Court is not unaware of Chittick v. Court of Appeals,[28] in which the failure of the heirs to substitute for the original plaintiff upon her death led to the nullification of the trial courts Decision. The latter had sought to recover support in arrears and her share in the conjugal partnership. The children who allegedly substituted for her refused to continue the case against their father and vehemently objected to their inclusion as parties. [29] Moreover, because he died during the pendency of the case, they were bound to substitute for the defendant also. The substitution effectively merged the persons of the plaintiff and the defendant and thus extinguished the obligation being sued upon.[30] Clearly, the present case is not similar, much less identical, to the factual milieu of Chittick. Strictly speaking, the rule on the substitution by heirs is not a matter of jurisdiction, but a requirement of due process. Thus, when due process is not violated, as when the right of the representative or heir is recognized

and protected, noncompliance or belated formal compliance with the Rules cannot affect the validity of a promulgated decision. [31] Mere failure to substitute for a deceased plaintiff is not a sufficient ground to nullify a trial courts decision. The alleging party must prove that there was an undeniable violation of due process. Substitution in the Instant Case The records of the present case contain a Motion for Substitution of Party Plaintiff dated February 15, 2002, filed before the CA. The prayer states as follows: WHEREFORE, it is respectfully prayed that the Heirs of the deceased plaintiff-appellee as represented by his daughter Lourdes dela Cruz be substituted as party-plaintiff for the said Pedro Joaquin. It is further prayed that henceforth the undersigned counsel[32] for the heirs of Pedro Joaquin be furnished with copies of notices, orders, resolutions and other pleadings at its address below. Evidently, the heirs of Pedro Joaquin voluntary appeared and participated in the case. We stress that the appellate court had ordered[33] his legal representatives to appear and substitute for him. The substitution even on appeal had been ordered correctly. In all proceedings, the legal representatives must appear to protect the interests of the deceased.[34] After the rendition of judgment, further proceedings may be held, such as a motion for reconsideration or a new trial, an appeal, or an execution.[35] Considering the foregoing circumstances, the Motion for Substitution may be deemed to have been granted; and the heirs, to have substituted for the deceased, Pedro Joaquin. There being no violation of due process, the issue of substitution cannot be upheld as a ground to nullify the trial courts Decision. Second Issue: Forum Shopping Petitioners also claim that respondents were guilty of forum shopping, a fact that should have compelled the trial court to dismiss the Complaint. [36] They claim that prior to the commencement of the present suit on July 7, 1981, respondent had filed a civil case against petitioners on June 25, 1979. Docketed as Civil Case No. SD-742 for the recovery of possession and for damages, it was allegedly dismissed by the Court of First Instance of Nueva Ecija for lack of interest to prosecute. Forum Shopping Defined Forum shopping is the institution of two or more actions or proceedings involving the same parties for the same cause of action, either simultaneously or successively, on the supposition that one or the other court would make a favorable disposition.[37] Forum shopping may be resorted to by a party against whom an adverse judgment or order has been issued in one forum, in an attempt to seek a favorable opinion in another, other than by an appeal or a special civil action for certiorari.[38] Forum shopping trifles with the courts, abuses their processes,

degrades the administration of justice, and congests court dockets. [39] Willful and deliberate violation of the rule against it is a ground for the summary dismissal of the case; it may also constitute direct contempt of court.[40] The test for determining the existence of forum shopping is whether the elements of litis pendentia are present, or whether a final judgment in one case amounts to res judicata in another.[41] We note, however, petitioners claim that the subject matter of the present case has already been litigated and decided. Therefore, the applicable doctrine is res judicata.[42] Applicability of Res Judicata Under res judicata, a final judgment or decree on the merits by a court of competent jurisdiction is conclusive of the rights of the parties or their privies, in all later suits and on all points and matters determined in the previous suit.[43] The term literally means a matter adjudged, judicially acted upon, or settled by judgment.[44] The principle bars a subsequent suit involving the same parties, subject matter, and cause of action. Public policy requires that controversies must be settled with finality at a given point in time. The elements of res judicata are as follows: (1) the former judgment or order must be final; (2) it must have been rendered on the merits of the controversy; (3) the court that rendered it must have had jurisdiction over the subject matter and the parties; and (4) there must have been -- between the first and the second actions -- an identity of parties, subject matter and cause of action.[45] Failure to Support Allegation The onus of proving allegations rests upon the party raising them.[46] As to the matter of forum shopping and res judicata, petitioners have failed to provide this Court with relevant and clear specifications that would show the presence of an identity of parties, subject matter, and cause of action between the present and the earlier suits. They have also failed to show whether the other case was decided on the merits. Instead, they have made only bare assertions involving its existence without reference to its facts. In other words, they have alleged conclusions of law without stating any factual or legal basis. Mere mention of other civil cases without showing the identity of rights asserted and reliefs sought is not enough basis to claim that respondent is guilty of forum shopping, or that res judicata exists.[47] WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution are AFFIRMED. Costs against petitioners. SO ORDERED.

[G.R. No. 138822. January 23, 2001] EVANGELINE ALDAY, petitioner, vs. FGU INSURANCE CORPORATION, respondent. DECISION GONZAGA-REYES, J.: On 5 May 1989, respondent FGU Insurance Corporation filed a complaint with the Regional Trial Court of Makati[1] alleging that petitioner Evangeline K. Alday owed it P114,650.76, representing unliquidated cash advances, unremitted costs of premiums and other charges incurred by petitioner in the course of her work as an insurance agent for respondent. [2] Respondent also prayed for exemplary damages, attorneys fees, and costs of suit.[3] Petitioner filed her answer and by way of counterclaim, asserted her right for the payment of P104,893.45, representing direct commissions, profit commissions and contingent bonuses earned from 1 July 1986 to 7 December 1986, and for accumulated premium reserves amounting to P500,000.00. In addition, petitioner prayed for attorneys fees, litigation expenses, moral damages and exemplary damages for the allegedly unfounded action filed by respondent.[4] On 23 August 1989, respondent filed a Motion to Strike Out Answer With Compulsory Counterclaim And To Declare Defendant In Default because petitioners answer was allegedly filed out of time.[5] However, the trial court denied the motion on 25 August 1989 and similarly rejected respondents motion for reconsideration on 12 March 1990.[6] A few weeks later, on 11 April 1990, respondent filed a motion to dismiss petitioners counterclaim, contending that the trial court never acquired jurisdiction over the same because of the non-payment of docket fees by petitioner.[7] In response, petitioner asked the trial court to declare her counterclaim as exempt from payment of docket fees since it is compulsory and that respondent be declared in default for having failed to answer such counterclaim.[8] In its 18 September 1990 Order, the trial court[9] granted respondents motion to dismiss petitioners counterclaim and consequently, denied petitioners motion. The court found petitioners counterclaim to be merely permissive in nature and held that petitioners failure to pay docket fees prevented the court from acquiring jurisdiction over the same.[10] The trial court similarly denied petitioners motion for reconsideration on 28 February 1991. On 23 December 1998, the Court of Appeals [11] sustained the trial court, finding that petitioners own admissions, as contained in her answer, show that her counterclaim is merely permissive. The relevant portion of the appellate courts decision[12] is quoted herewith Contrary to the protestations of appellant, mere reading of the allegations in the answer a quo will readily show that her counterclaim can in no way be compulsory. Take note of the following numbered paragraphs in her

answer: (14) That, indeed, FGUs cause of action which is not supported by any document other than the self-serving Statement of Account dated March 28, 1988 x x x (15) That it should be noted that the cause of action of FGU is not the enforcement of the Special Agents Contract but the alleged cash accountabilities which are not based on written agreement x x x. x x x x (19) x x x A careful analysis of FGUs three-page complaint will show that its cause of action is not for specific performance or enforcement of the Special Agents Contract rather, it is for the payment of the alleged cash accountabilities incurred by defendant during the period form [sic] 1975 to 1986 which claim is executory and has not been ratified. It is the established rule that unenforceable contracts, like this purported money claim of FGU, cannot be sued upon or enforced unless ratified, thus it is as if they have no effect. x x x. To support the heading Compulsory Counterclaim in her answer and give the impression that the counterclaim is compulsory appellant alleged that FGU has unjustifiably failed to remit to defendant despite repeated demands in gross violation of their Special Agents Contract x x x. The reference to said contract was included purposely to mislead. While on one hand appellant alleged that appellees cause of action had nothing to do with the Special Agents Contract, on the other hand, she claim that FGU violated said contract which gives rise of [sic] her cause of action. Clearly, appellants cash accountabilities cannot be the offshoot of appellees alleged violation of the aforesaid contract. On 19 May 1999, the appellate court denied petitioners motion for reconsideration,[13] giving rise to the present petition. Before going into the substantive issues, the Court shall first dispose of some procedural matters raised by the parties. Petitioner claims that respondent is estopped from questioning her non-payment of docket fees because it did not raise this particular issue when it filed its first motion - the Motion to Strike out Answer With Compulsory Counterclaim And To Declare Defendant In Default with the trial court; rather, it was only nine months after receiving petitioners answer that respondent assailed the trial courts lack of jurisdiction over petitioners counterclaims based on the latters failure to pay docket fees.[14] Petitioners position is unmeritorious. Estoppel by laches arises from the negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned or declined to assert it. [15] In the case at bar, respondent cannot be considered as estopped from assailing the trial courts jurisdiction over petitioners counterclaim since this issue was raised by respondent with the trial court itself the body where the action is pending even before the presentation of any evidence by the parties and definitely, way before any judgment could be rendered by the trial court. Meanwhile, respondent questions the jurisdiction of the Court of Appeals over the appeal filed by petitioner from the 18 September 1990 and

28 February 1991 orders of the trial court. It is significant to note that this objection to the appellate courts jurisdiction is raised for the first time before this Court; respondent never having raised this issue before the appellate court. Although the lack of jurisdiction of a court may be raised at any stage of the action, a party may be estopped from raising such questions if he has actively taken part in the very proceedings which he questions, belatedly objecting to the courts jurisdiction in the event that that the judgment or order subsequently rendered is adverse to him.[16] In this case, respondent actively took part in the proceedings before the Court of Appeals by filing its appellees brief with the same. [17] Its participation, when taken together with its failure to object to the appellate courts jurisdiction during the entire duration of the proceedings before such court, demonstrates a willingness to abide by the resolution of the case by such tribunal and accordingly, respondent is now most decidedly estopped from objecting to the Court of Appeals assumption of jurisdiction over petitioners appeal.[18] The basic issue for resolution in this case is whether or not the counterclaim of petitioner is compulsory or permissive in nature. A compulsory counterclaim is one which, being cognizable by the regular courts of justice, arises out of or is connected with the transaction or occurrence constituting the subject matter of the opposing partys claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction.[19] In Valencia v. Court of Appeals,[20] this Court capsulized the criteria or tests that may be used in determining whether a counterclaim is compulsory or permissive, summarized as follows: 1. Are the issues of fact and law raised by the claim and counterclaim largely the same? 2. Would res judicata bar a subsequent suit on defendants claim absent the compulsory counterclaim rule? 3. Will substantially the same evidence support or refute plaintiffs claim as well as defendants counterclaim? 4. Is there any logical relation between the claim and the counterclaim? Another test, applied in the more recent case of Quintanilla v. Court of Appeals,[21] is the compelling test of compulsoriness which requires a logical relationship between the claim and counterclaim, that is, where conducting separate trials of the respective claims of the parties would entail a substantial duplication of effort and time by the parties and the court. As contained in her answer, petitioners counterclaims are as follows: (20) That defendant incorporates and repleads by reference all the foregoing allegations as may be material to her Counterclaim against FGU. (21) That FGU is liable to pay the following just, valid and legitimate claims of defendant: (a) the sum of at least P104,893.45 plus maximum interest thereon representing, among others, direct commissions, profit commissions and contingent bonuses legally due to defendant; and

(b) the minimum amount of P500,000.00 plus the maximum allowable interest representing defendants accumulated premium reserve for 1985 and previous years, which FGU has unjustifiably failed to remit to defendant despite repeated demands in gross violation of their Special Agents Contract and in contravention of the principle of law that every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. (22) That as a result of the filing of this patently baseless, malicious and unjustified Complaint, and FGUs unlawful, illegal and vindictive termination of their Special Agents Contract, defendant was unnecessarily dragged into this litigation and to defense [sic] her side and assert her rights and claims against FGU, she was compelled to hire the services of counsel with whom she agreed to pay the amount of P30,000.00 as and for attorneys fees and stands to incur litigation expenses in the amount estimated to at least P20,000.00 and for which FGU should be assessed and made liable to pay defendant. (23) That considering further the malicious and unwarranted action of defendant in filing this grossly unfounded action, defendant has suffered and continues to suffer from serious anxiety, mental anguish, fright and humiliation. In addition to this, defendants name, good reputation and business standing in the insurance business as well as in the community have been besmirched and for which FGU should be adjudged and made liable to pay moral damages to defendant in the amount of P300,000.00 as minimum. (24) That in order to discourage the filing of groundless and malicious suits like FGUs Complaint, and by way of serving [as] an example for the public good, FGU should be penalized and assessed exemplary damages in the sum of P100,000.00 or such amount as the Honorable Court may deem warranted under the circumstances.[22] Tested against the abovementioned standards, petitioners counterclaim for commissions, bonuses, and accumulated premium reserves is merely permissive. The evidence required to prove petitioners claims differs from that needed to establish respondents demands for the recovery of cash accountabilities from petitioner, such as cash advances and costs of premiums. The recovery of respondents claims is not contingent or dependent upon establishing petitioners counterclaim, such that conducting separate trials will not result in the substantial duplication of the time and effort of the court and the parties. One would search the records in vain for a logical connection between the parties claims. This conclusion is further reinforced by petitioners own admissions since she declared in her answer that respondents cause of action, unlike her own, was not based upon the Special Agents Contract.[23] However, petitioners claims for damages, allegedly suffered as a result of the filing by respondent of its complaint, are compulsory.[24] There is no need for petitioner to pay docket fees for her compulsory counterclaim.[25] On the other hand, in order for the trial court to acquire

jurisdiction over her permissive counterclaim, petitioner is bound to pay the prescribed docket fees.[26] The rule on the payment of filing fees has been laid down by the Court in the case of Sun Insurance Office, Ltd. v. Hon. Maximiano Asuncion[27]1. It is not simply the filing of the complaint or appropriate initiatory pleading, but the payment of the prescribed docket fee, that vests a trial court with jurisdiction over the subject-matter or nature of the action. Where the filing of the initiatory pleading is not accompanied by payment of the docket fee, the court may allow payment of the fee within a reasonable time but in no case beyond the applicable prescriptive or reglementary period. 2. The same rule applies to permissive counterclaims, third-party claims and similar pleadings, which shall not be considered filed until and unless the filing fee prescribed therefor is paid. The court may allow payment of said fee within a reasonable time but also in no case beyond its applicable prescriptive or reglementary period. 3. Where the trial court acquires jurisdiction over a claim by the filing of the appropriate pleading and payment of the prescribed filing fee but, subsequently, the judgment awards a claim not specified in the pleading, or if specified the same has been left for determination by the court, the additional filing fee therefor shall constitute a lien on the judgment. It shall be the responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien and assess and collect the additional fee. The above mentioned ruling in Sun Insurance has been reiterated in the recent case of Suson v. Court of Appeals.[28] In Suson, the Court explained that although the payment of the prescribed docket fees is a jurisdictional requirement, its non-payment does not result in the automatic dismissal of the case provided the docket fees are paid within the applicable prescriptive or reglementary period. Coming now to the case at bar, it has not been alleged by respondent and there is nothing in the records to show that petitioner has attempted to evade the payment of the proper docket fees for her permissive counterclaim. As a matter of fact, after respondent filed its motion to dismiss petitioners counterclaim based on her failure to pay docket fees, petitioner immediately filed a motion with the trial court, asking it to declare her counterclaim as compulsory in nature and therefore exempt from docket fees and, in addition, to declare that respondent was in default for its failure to answer her counterclaim.[29] However, the trial court dismissed petitioners counterclaim. Pursuant to this Courts ruling in Sun Insurance, the trial court should have instead given petitioner a reasonable time, but in no case beyond the applicable prescriptive or reglementary period, to pay the filing fees for her permissive counterclaim. Petitioner asserts that the trial court should have declared respondent in default for having failed to answer her counterclaim.[30] Insofar as the permissive counterclaim of petitioner is concerned, there is obviously no need to file an answer until petitioner has paid the prescribed docket fees for only then shall the court acquire jurisdiction over such claim. [31] Meanwhile, the compulsory counterclaim of petitioner for damages based

on the filing by respondent of an allegedly unfounded and malicious suit need not be answered since it is inseparable from the claims of respondent. If respondent were to answer the compulsory counterclaim of petitioner, it would merely result in the former pleading the same facts raised in its complaint.[32] WHEREFORE, the assailed Decision of the Court of Appeals promulgated on 23 December 1998 and its 19 May 1999 Resolution are hereby MODIFIED. The compulsory counterclaim of petitioner for damages filed in Civil Case No. 89-3816 is ordered REINSTATED. Meanwhile, the Regional Trial Court of Makati (Branch 134) is ordered to require petitioner to pay the prescribed docket fees for her permissive counterclaim (direct commissions, profit commissions, contingent bonuses and accumulated premium reserves), after ascertaining that the applicable prescriptive period has not yet set in.

[G.R. No. 139018. April 11, 2005] ESTHERLITA CRUZ-AGANA, petitioner, vs. HON. JUDGE AURORA SANTIAGO-LAGMAN (In her capacity as Presiding Judge of Regional Trial Court, Branch 77, Malolos, Bulacan) and B. SERRANO ENTERPRISES, INC., respondents. DECISION CARPIO, J.: The Case This petition for certiorari[1] seeks to reverse the Order of the Regional Trial Court, Branch 77, Malolos, Bulacan (trial court), dated 4 June 1999, recalling its previous Order dated 25 May 1999 dismissing B. Serrano Enterprises, Inc.s (respondent) counterclaim upon a motion to dismiss filed by petitioner Estherlita Cruz-Agana (petitioner). Antecedent Facts On 18 March 1996, petitioner filed a Complaint for annulment of title with prayer for preliminary mandatory injunction against respondent. Petitioner claims that as the sole heir of one Teodorico Cruz, she is the sole owner of a lot covered by Transfer Certificate of Title No. T-3907. Petitioner further claims that the lot was fraudulently sold to Eugenio Lopez, Jr. who later on transferred the lot to respondent. The case was raffled to the

Regional Trial Court, Branch 77, Malolos, Bulacan presided by Judge Aurora Santiago-Lagman and docketed as Civil Case No. 210-M-96. Respondent seasonably filed its Answer with compulsory counterclaim. Petitioner moved to dismiss respondents counterclaim for lack of a certificate of non-forum shopping. In an Order dated 11 March 1999, the trial court denied petitioners motion to dismiss respondents counterclaim. The trial court reasoned that respondents counterclaim is compulsory and therefore excluded from the coverage of Section 5, Rule 7 of the Rules of Court. Petitioner moved that the trial court reconsider its Order invoking the mandatory nature of a certificate of non-forum shopping under Supreme Court Administrative Circular No. 04-94.[2] On 25 May 1999, the trial court reversed its 11 March 1999 Order and dismissed respondents counterclaim for lack of a certificate of non-forum shopping. Respondent seasonably filed a motion for reconsideration arguing that Administrative Circular No. 04-94 does not apply to compulsory counterclaims following the ruling inSanto Tomas University Hospital v. Surla.3 On 4 June 1999, the trial court again reversed itself and recalled its Order dismissing respondents counterclaim. Petitioner now comes before this Court through Rule 65 of the 1997 Rules of Civil Procedure. The Trial Courts Ruling The trial court found that respondents counterclaim is compulsory in nature. The trial court ruled that the filing of a compulsory counterclaim does not require a certificate of non-forum shopping. On the effect of Santo Tomas on Administrative Circular No. 04-94, the trial court explained: It is settled rule that it is one of the inherent powers of the court to amend and control its processes and orders so as to make them conformable to law and justice. This power includes the right to reverse itself, specially when in its honest opinion, it has committed an error or mistake in judgment, and that to adhere to its decision will cause injustice to a party litigant. The Issue Petitioner raises the following issue: WHETHER THE TRIAL COURT COMMITTED GRAVE ABUSE OF DISCRETION IN REFUSING TO DISMISS RESPONDENTS COUNTERCLAIM. The Ruling of the Court The petition lacks merit. The issue presented is not novel. This Court has squarely settled this issue in Santo Tomas University Hospital v. Surla.[3] Writing for the Court, Justice Jose C. Vitug began his ponencia thus: Can a compulsory counterclaim pleaded in an Answer be dismissed on the ground of a failure to accompany it with a certificate of non-forum shopping? This question is the core issue presented for resolution in the instant petition. Santo Tomas clarified the scope of Administrative Circular No. 04-94

with respect to counterclaims. The Court pointed out that this circular is intended primarily to cover an initiatory pleading or an incipient application of a party asserting a claim for relief. The distinction between a compulsory and a permissive counterclaim is vital in the application of the circular. The Court explained: It should not be too difficult, the foregoing rationale of the circular aptly taken, to sustain the view that the circular in question has not, in fact, been contemplated to include a kind of claim which, by its very nature as being auxiliary to the proceedings in the suit and as deriving its substantive and jurisdictional support therefrom, can only be appropriately pleaded in the answer and not remain outstanding for independent resolution except by the court where the main case pends. Prescinding from the foregoing, the proviso in the second paragraph of Section 5, Rule 8 of the 1997 Rules of Civil Procedure, i.e., that the violation of the anti-forum shopping rule shall not be curable by mere amendment xxx but shall be cause for the dismissal of the case without prejudice, being predicated on the applicability of the need for a certification against forum-shopping, obviously does not include a claim which cannot be independently set up. The Court reiterated this ruling in Ponciano v. Judge Parentela, Jr.[4] Administrative Circular No. 04-94 does not apply to compulsory counterclaims. The circular applies to initiatory and similar pleadings. A compulsory counterclaim set up in the answer is not an initiatory or similar pleading. The initiatory pleading is the plaintiffs complaint. A respondent has no choice but to raise a compulsory counterclaim the moment the plaintiff files the complaint. Otherwise, respondent waives the compulsory counterclaim.[5] In short, the compulsory counterclaim is a reaction or response, mandatory upon pain of waiver, to an initiatory pleading which is the complaint. Petitioner argues, however, that the Courts rulings in Santo Tomas and Ponciano are contrary to the mandate of Administrative Circular No. 04-94 and other procedural laws.[6] Petitioner is mistaken. The Constitution expressly bestows on this Court the power to promulgate rules concerning the pleading, practice and procedure in all courts.[7] Procedural matters are within the sole jurisdiction of this Court to prescribe. Administrative Circular No. 04-94 is an issuance of this Court. It covers a matter of procedure. Administrative Circular No. 04-94 is not an enactment of the Legislature. This Court has the exclusive jurisdiction to interpret, amend or revise the rules it promulgates, as long as the rules do not diminish, increase, or modify substantive rights. This is precisely the purpose of Santo Tomas as far as Administrative Circular No. 04-94 is concerned. Petitioners counsel fails or simply refuses to accept the distinction between a permissive counterclaim and a compulsory counterclaim. This distinction was the basis for the ruling in Santo Tomas and Ponciano. The sole issue for resolution in the present case is whether respondents counterclaim is compulsory or permissive. If it is a permissive counterclaim,

the lack of a certificate of non-forum shopping is fatal. If it is a compulsory counterclaim, the lack of a certificate of non-forum shopping is immaterial. A compulsory counterclaim is any claim for money or other relief, which a defending party may have against an opposing party, which at the time of suit arises out of, or is necessarily connected with, the same transaction or occurrence that is the subject matter of plaintiffs complaint. [8] It is compulsory in the sense that it is within the jurisdiction of the court, does not require for its adjudication the presence of third parties over whom the court cannot acquire jurisdiction, and will be barred in the future if not set up in the answer to the complaint in the same case. Any other counterclaim is permissive. Respondents counterclaim as set up in its answer states: 3. That because of the unwarranted, baseless, and unjustified acts of the plaintiff, herein defendant has suffered and continue to suffer actual damages in the sum of at least P400,000,000.00 which the law, equity, and justice require that to be paid by the plaintiff and further to reimburse the attorneys fees of P2,000,000.00;[9] It is clear that the counterclaim set up by respondent arises from the filing of plaintiffs complaint. The counterclaim is so intertwined with the main case that it is incapable of proceeding independently. The counterclaim will require a re-litigation of the same evidence if the counterclaim is allowed to proceed in a separate action. Even petitioner recognizes that respondents counterclaim is compulsory.[10] A compulsory counterclaim does not require a certificate of non-forum shopping because a compulsory counterclaim is not an initiatory pleading. WHEREFORE, the instant petition is DENIED for lack of merit. We AFFIRM the Order of the Regional Trial Court, Branch 77, Malolos Bulacan, dated 4 June 1999 recalling the Order dated 25 May 1999 which dismissed the compulsory counterclaim of respondent B. Serrano Enterprises, Inc. SO ORDERED.

[G.R. No. 155173. November 23, 2004] LAFARGE CEMENT PHILIPPINES, INC., (formerly Lafarge Philippines, Inc.), LUZON CONTINENTAL LAND CORPORATION, CONTINENTAL OPERATING CORPORATION and PHILIP ROSEBERG, petitioners, vs. CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM and ANTHONY A. MARIANO, respondents. DECISION PANGANIBAN, J.: May defendants in civil cases implead in their counterclaims persons who were not parties to the original complaints? This is the main question to be answered in this controversy. The Case Before us is a Petition for Review [1] under Rule 45 of the Rules of Court, seeking to nullify the May 22, 2002[2] and the September 3, 2002 Orders[3] of the Regional Trial Court (RTC) of Quezon City (Branch 80) in Civil Case No. Q-00-41103. The decretal portion of the first assailed Order reads: WHEREFORE, in the light of the foregoing as earlier stated, the plaintiffs motion to dismiss claims is granted. Accordingly, the defendants claims against Mr. Lim and Mr. Mariano captioned as their counterclaims are dismissed.[4] The second challenged Order denied petitioners Motion for Reconsideration. The Facts Briefly, the origins of the present controversy can be traced to the Letter of Intent (LOI) executed by both parties on August 11, 1998, whereby Petitioner Lafarge Cement Philippines, Inc. (Lafarge) -- on behalf of its affiliates and other qualified entities, including Petitioner Luzon Continental Land Corporation (LCLC) -- agreed to purchase the cement business of Respondent Continental Cement Corporation (CCC). On October 21, 1998, both parties entered into a Sale and Purchase Agreement (SPA). At the time of the foregoing transactions, petitioners were well aware that CCC had a

case pending with the Supreme Court. The case was docketed as GR No. 119712, entitled Asset Privatization Trust (APT) v. Court of Appeals and Continental Cement Corporation. In anticipation of the liability that the High Tribunal might adjudge against CCC, the parties, under Clause 2 (c) of the SPA, allegedly agreed to retain from the purchase price a portion of the contract price in the amount of P117,020,846.84 -- the equivalent of US$2,799,140. This amount was to be deposited in an interest-bearing account in the First National City Bank of New York (Citibank) for payment to APT, the petitioner in GR No. 119712. However, petitioners allegedly refused to apply the sum to the payment to APT, despite the subsequent finality of the Decision in GR No. 119712 in favor of the latter and the repeated instructions of Respondent CCC. Fearful that nonpayment to APT would result in the foreclosure, not just of its properties covered by the SPA with Lafarge but of several other properties as well, CCC filed before the Regional Trial Court of Quezon City on June 20, 2000, a Complaint with Application for Preliminary Attachment against petitioners. Docketed as Civil Case No. Q-00-41103, the Complaint prayed, among others, that petitioners be directed to pay the APT Retained Amount referred to in Clause 2 (c) of the SPA. Petitioners moved to dismiss the Complaint on the ground that it violated the prohibition on forum-shopping. Respondent CCC had allegedly made the same claim it was raising in Civil Case No. Q-00-41103 in another action, which involved the same parties and which was filed earlier before the International Chamber of Commerce. After the trial court denied the Motion to Dismiss in its November 14, 2000 Order, petitioners elevated the matter before the Court of Appeals in CA-GR SP No. 68688. In the meantime, to avoid being in default and without prejudice to the outcome of their appeal, petitioners filed their Answer and Compulsory Counterclaims ad Cautelambefore the trial court in Civil Case No. Q-0041103. In their Answer, they denied the allegations in the Complaint. They prayed -- by way of compulsory counterclaims against Respondent CCC, its majority stockholder and president Gregory T. Lim, and its corporate secretary Anthony A. Mariano -- for the sums of (a) P2,700,000 each as actual damages, (b) P100,000,000 each as exemplary damages, (c) P100,000,000 each as moral damages, and (d) P5,000,000 each as attorneys fees plus costs of suit. Petitioners alleged that CCC, through Lim and Mariano, had filed the baseless Complaint in Civil Case No. Q-00-41103 and procured the Writ of Attachment in bad faith. Relying on this Courts pronouncement in Sapugay v. CA,[5] petitioners prayed that both Lim and Mariano be held jointly and solidarily liable with Respondent CCC. On behalf of Lim and Mariano who had yet to file any responsive pleading, CCC moved to dismiss petitioners compulsory counterclaims on grounds that essentially constituted the very issues for resolution in the instant Petition. Ruling of the Trial Court On May 22, 2002, the Regional Trial Court of Quezon City (Branch 80)

dismissed petitioners counterclaims for several reasons, among which were the following: a) the counterclaims against Respondents Lim and Mariano were not compulsory; b) the ruling in Sapugay was not applicable; and c) petitioners Answer with Counterclaims violated procedural rules on the proper joinder of causes of action.[6] Acting on the Motion for Reconsideration filed by petitioners, the trial court -- in an Amended Order dated September 3, 2002[7] -- admitted some errors in its May 22, 2002 Order, particularly in its pronouncement that their counterclaim had been pleaded against Lim and Mariano only. However, the RTC clarified that it was dismissing the counterclaim insofar as it impleaded Respondents Lim and Mariano, even if it included CCC. Hence this Petition.[8] Issues In their Memorandum, petitioners raise the following issues for our consideration: [a] Whether or not the RTC gravely erred in refusing to rule that Respondent CCC has no personality to move to dismiss petitioners compulsory counterclaims on Respondents Lim and Marianos behalf. [b] Whether or not the RTC gravely erred in ruling that (i) petitioners counterclaims against Respondents Lim and Mariano are not compulsory; (ii) Sapugay v. Court of Appeals is inapplicable here; and (iii) petitioners violated the rule on joinder of causes of action.[9] For clarity and coherence, the Court will resolve the foregoing in reverse order. The Courts Ruling The Petition is meritorious. First Issue: Counterclaims and Joinder of Causes of Action. Petitioners Counterclaims Compulsory Counterclaims are defined in Section 6 of Rule 6 of the Rules of Civil Procedure as any claim which a defending party may have against an opposing party. They are generally allowed in order to avoid a multiplicity of suits and to facilitate the disposition of the whole controversy in a single action, such that the defendants demand may be adjudged by a counterclaim rather than by an independent suit. The only limitations to this principle are (1) that the court should have jurisdiction over the subject matter of the counterclaim, and (2) that it could acquire jurisdiction over third parties whose presence is essential for its adjudication.[10] A counterclaim may either be permissive or compulsory. It is permissive if it does not arise out of or is not necessarily connected with the subject matter of the opposing partys claim.[11] A permissive counterclaim is essentially an independent claim that may be filed separately in another case.

A counterclaim is compulsory when its object arises out of or is necessarily connected with the transaction or occurrence constituting the subject matter of the opposing partys claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction.[12] Unlike permissive counterclaims, compulsory counterclaims should be set up in the same action; otherwise, they would be barred forever. NAMARCO v. Federation of United Namarco Distributors [13] laid down the following criteria to determine whether a counterclaim is compulsory or permissive: 1) Are issues of fact and law raised by the claim and by the counterclaim largely the same? 2) Would res judicata bar a subsequent suit on defendants claim, absent the compulsory counterclaim rule? 3) Will substantially the same evidence support or refute plaintiffs claim as well as defendants counterclaim? 4) Is there any logical relation between the claim and the counterclaim? A positive answer to all four questions would indicate that the counterclaim is compulsory. Adopted in Quintanilla v. CA[14] and reiterated in Alday v. FGU Insurance Corporation,[15] the compelling test of compulsoriness characterizes a counterclaim as compulsory if there should exist a logical relationship between the main claim and the counterclaim. There exists such a relationship when conducting separate trials of the respective claims of the parties would entail substantial duplication of time and effort by the parties and the court; when the multiple claims involve the same factual and legal issues; or when the claims are offshoots of the same basic controversy between the parties. We shall now examine the nature of petitioners counterclaims against respondents with the use of the foregoing parameters. Petitioners base their counterclaim on the following allegations: Gregory T. Lim and Anthony A. Mariano were the persons responsible for making the bad faith decisions for, and causing plaintiff to file this baseless suit and to procure an unwarranted writ of attachment, notwithstanding their knowledge that plaintiff has no right to bring it or to secure the writ. In taking such bad faith actions, Gregory T. Lim was motivated by his personal interests as one of the owners of plaintiff while Anthony A. Mariano was motivated by his sense of personal loyalty to Gregory T. Lim, for which reason he disregarded the fact that plaintiff is without any valid cause. Consequently, both Gregory T. Lim and Anthony A. Mariano are the plaintiffs co-joint tortfeasors in the commission of the acts complained of in this answer and in the compulsory counterclaims pleaded below. As such they should be held jointly and solidarily liable as plaintiffs co-defendants to those compulsory counterclaims pursuant to the Supreme Courts decision in Sapugay v. Mobil. xxx xxx xxx The plaintiffs, Gregory T. Lim and Anthony A. Marianos bad faith filing of this baseless case has compelled the defendants to engage the services of counsel for a fee and to incur costs of litigation, in amounts to be proved at trial, but in no case less than P5 million for each of them and for which

plaintiff Gregory T. Lim and Anthony A. Mariano should be held jointly and solidarily liable. The plaintiffs, Gregory T. Lims and Anthony A. Marianos actions have damaged the reputations of the defendants and they should be held jointly and solidarily liable to them for moral damages of P100 million each. In order to serve as an example for the public good and to deter similar baseless, bad faith litigation, the plaintiff, Gregory T. Lim and Anthony A. Mariano should be held jointly and solidarily liable to the defendants for exemplary damages of P100 million each. [16] The above allegations show that petitioners counterclaims for damages were the result of respondents (Lim and Mariano) act of filing the Complaint and securing the Writ of Attachment in bad faith. Tiu Po v. Bautista[17] involved the issue of whether the counterclaim that sought moral, actual and exemplary damages and attorneys fees against respondents on account of their malicious and unfounded complaint was compulsory. In that case, we held as follows: Petitioners counterclaim for damages fulfills the necessary requisites of a compulsory counterclaim. They are damages claimed to have been suffered by petitioners as a consequence of the action filed against them. They have to be pleaded in the same action; otherwise, petitioners would be precluded by the judgment from invoking the same in an independent action. The pronouncement inPapa vs. Banaag (17 SCRA 1081) (1966) is in point: Compensatory, moral and exemplary damages, allegedly suffered by the creditor in consequence of the debtors action, are also compulsory counterclaim barred by the dismissal of the debtors action. They cannot be claimed in a subsequent action by the creditor against the debtor. Aside from the fact that petitioners counterclaim for damages cannot be the subject of an independent action, it is the same evidence that sustains petitioners counterclaim that will refute private respondents own claim for damages. This is an additional factor that characterizes petitioners counterclaim as compulsory.[18] Moreover, using the compelling test of compulsoriness, we find that, clearly, the recovery of petitioners counterclaims is contingent upon the case filed by respondents; thus, conducting separate trials thereon will result in a substantial duplication of the time and effort of the court and the parties. Since the counterclaim for damages is compulsory, it must be set up in the same action; otherwise, it would be barred forever. If it is filed concurrently with the main action but in a different proceeding, it would be abated on the ground of litis pendentia; if filed subsequently, it would meet the same fate on the ground of res judicata.[19] Sapugay v. Court of Appeals Applicable to the Case at Bar Sapugay v. Court of Appeals finds application in the present case. In Sapugay, Respondent Mobil Philippines filed before the trial court of Pasig an action for replevin against Spouses Marino and Lina Joel Sapugay. The Complaint arose from the supposed failure of the couple to keep their end of

their Dealership Agreement. In their Answer with Counterclaim, petitioners alleged that after incurring expenses in anticipation of the Dealership Agreement, they requested the plaintiff to allow them to get gas, but that it had refused. It claimed that they still had to post a surety bond which, initially fixed at P200,000, was later raised to P700,000. The spouses exerted all efforts to secure a bond, but the bonding companies required a copy of the Dealership Agreement, which respondent continued to withhold from them. Later, petitioners discovered that respondent and its manager, Ricardo P. Cardenas, had intended all along to award the dealership to Island Air Product Corporation. In their Answer, petitioners impleaded in the counterclaim Mobil Philippines and its manager -- Ricardo P. Cardenas -- as defendants. They prayed that judgment be rendered, holding both jointly and severally liable for pre-operation expenses, rental, storage, guarding fees, and unrealized profit including damages. After both Mobil and Cardenas failed to respond to their Answer to the Counterclaim, petitioners filed a Motion to Declare Plaintiff and its Manager Ricardo P. Cardenas in Default on Defendants Counterclaim. Among the issues raised in Sapugay was whether Cardenas, who was not a party to the original action, might nevertheless be impleaded in the counterclaim. We disposed of this issue as follows: A counterclaim is defined as any claim for money or other relief which a defending party may have against an opposing party. However, the general rule that a defendant cannot by a counterclaim bring into the action any claim against persons other than the plaintiff admits of an exception under Section 14, Rule 6 which provides that when the presence of parties other than those to the original action is required for the granting of complete relief in the determination of a counterclaim or cross-claim, the court shall order them to be brought in as defendants, if jurisdiction over them can be obtained. The inclusion, therefore, of Cardenas in petitioners counterclaim is sanctioned by the rules.[20] The prerogative of bringing in new parties to the action at any stage before judgment is intended to accord complete relief to all of them in a single action and to avert a duplicity and even a multiplicity of suits thereby. In insisting on the inapplicability of Sapugay, respondents argue that new parties cannot be included in a counterclaim, except when no complete relief can be had. They add that [i]n the present case, Messrs. Lim and Mariano are not necessary for petitioners to obtain complete relief from Respondent CCC as plaintiff in the lower court. This is because Respondent CCC as a corporation with a separate [legal personality] has the juridical capacity to indemnify petitioners even without Messrs. Lim and Mariano.[21] We disagree. The inclusion of a corporate officer or stockholder -Cardenas in Sapugay or Lim and Mariano in the instant case -- is not premised on the assumption that the plaintiff corporation does not have the financial ability to answer for damages, such that it has to share its liability with individual defendants. Rather, such inclusion is based on the allegations of fraud and bad faith on the part of the corporate officer or

stockholder. These allegations may warrant the piercing of the veil of corporate fiction, so that the said individual may not seek refuge therein, but may be held individually and personally liable for his or her actions. In Tramat Mercantile v. Court of Appeals,[22] the Court held that generally, it should only be the corporation that could properly be held liable. However, circumstances may warrant the inclusion of the personal liability of a corporate director, trustee, or officer, if the said individual is found guilty of bad faith or gross negligence in directing corporate affairs. Remo Jr. v. IAC[23] has stressed that while a corporation is an entity separate and distinct from its stockholders, the corporate fiction may be disregarded if used to defeat public convenience, justify a wrong, protect fraud, or defend crime. In these instances, the law will regard the corporation as an association of persons, or in case of two corporations, will merge them into one. Thus, there is no debate on whether, in alleging bad faith on the part of Lim and Mariano the counterclaims had in effect made them indispensable parties thereto; based on the alleged facts, both are clearly parties in interest to the counterclaim.[24] Respondents further assert that Messrs. Lim and Mariano cannot be held personally liable [because their assailed acts] are within the powers granted to them by the proper board resolutions; therefore, it is not a personal decision but rather that of the corporation as represented by its board of directors.[25] The foregoing assertion, however, is a matter of defense that should be threshed out during the trial; whether or not fraud is extant under the circumstances is an issue that must be established by convincing evidence.[26] Suability and liability are two distinct matters. While the Court does rule that the counterclaims against Respondent CCCs president and manager may be properly filed, the determination of whether both can in fact be held jointly and severally liable with respondent corporation is entirely another issue that should be ruled upon by the trial court. However, while a compulsory counterclaim may implead persons not parties to the original complaint, the general rule -- a defendant in a compulsory counterclaim need not file any responsive pleading, as it is deemed to have adopted the allegations in the complaint as its answer -does not apply. The filing of a responsive pleading is deemed a voluntary submission to the jurisdiction of the court; a new party impleaded by the plaintiff in a compulsory counterclaim cannot be considered to have automatically and unknowingly submitted to the jurisdiction of the court. A contrary ruling would result in mischievous consequences whereby a party may be indiscriminately impleaded as a defendant in a compulsory counterclaim; and judgment rendered against it without its knowledge, much less participation in the proceedings, in blatant disregard of rudimentary due process requirements. The correct procedure in instances such as this is for the trial court, per Section 12 of Rule 6 of the Rules of Court, to order [such impleaded parties] to be brought in as defendants, if jurisdiction over them can be obtained, by directing that summons be served on them. In this manner,

they can be properly appraised of and answer the charges against them. Only upon service of summons can the trial court obtain jurisdiction over them. In Sapugay, Cardenas was furnished a copy of the Answer with Counterclaim, but he did not file any responsive pleading to the counterclaim leveled against him. Nevertheless, the Court gave due consideration to certain factual circumstances, particularly the trial courts treatment of the Complaint as the Answer of Cardenas to the compulsory counterclaim and of his seeming acquiescence thereto, as evidenced by his failure to make any objection despite his active participation in the proceedings. It was held thus: It is noteworthy that Cardenas did not file a motion to dismiss the counterclaim against him on the ground of lack of jurisdiction. While it is a settled rule that the issue of jurisdiction may be raised even for the first time on appeal, this does not obtain in the instant case. Although it was only Mobil which filed an opposition to the motion to declare in default, the fact that the trial court denied said motion, both as to Mobil and Cardenas on the ground that Mobils complaint should be considered as the answer to petitioners compulsory counterclaim, leads us to the inescapable conclusion that the trial court treated the opposition as having been filed in behalf of both Mobil and Cardenas and that the latter had adopted as his answer the allegations raised in the complaint of Mobil. Obviously, it was this ratiocination which led the trial court to deny the motion to declare Mobil and Cardenas in default. Furthermore, Cardenas was not unaware of said incidents and the proceedings therein as he testified and was present during trial, not to speak of the fact that as manager of Mobil he would necessarily be interested in the case and could readily have access to the records and the pleadings filed therein. By adopting as his answer the allegations in the complaint which seeks affirmative relief, Cardenas is deemed to have recognized the jurisdiction of the trial court over his person and submitted thereto. He may not now be heard to repudiate or question that jurisdiction.[27] Such factual circumstances are unavailing in the instant case. The records do not show that Respondents Lim and Mariano are either aware of the counterclaims filed against them, or that they have actively participated in the proceedings involving them. Further, in dismissing the counterclaims against the individual respondents, the court a quo -- unlike in Sapugay -cannot be said to have treated Respondent CCCs Motion to Dismiss as having been filed on their behalf. Rules on Permissive Joinder of Causes of Action or Parties Not Applicable Respondent CCC contends that petitioners counterclaims violated the rule on joinder of causes of action. It argues that while the original Complaint was a suit for specific performance based on a contract, the counterclaim for damages was based on the tortuous acts of respondents. [28] In its Motion to Dismiss, CCC cites Section 5 of Rule 2 and Section 6 of Rule 3 of the Rules of Civil Procedure, which we quote:

Section 5. Joinder of causes of action. A party may in one pleading assert, in the alternative or otherwise, as many causes of action as he may have against an opposing party, subject to the following conditions: (a) The party joining the causes of action shall comply with the rules on joinder of parties; x x x Section 6. Permissive joinder of parties. All persons in whom or against whom any right to relief in respect to or arising out of the same transaction or series of transactions is alleged to exist whether jointly, severally, or in the alternative, may, except as otherwise provided in these Rules, join as plaintiffs or be joined as defendants in one complaint, where any question of law or fact common to all such plaintiffs or to all such defendants may arise in the action; but the court may make such orders as may be just to prevent any plaintiff or defendant from being embarrassed or put to expense in connection with any proceedings in which he may have no interest. The foregoing procedural rules are founded on practicality and convenience. They are meant to discourage duplicity and multiplicity of suits. This objective is negated by insisting -- as the court a quo has done -that the compulsory counterclaim for damages be dismissed, only to have it possibly re-filed in a separate proceeding. More important, as we have stated earlier, Respondents Lim and Mariano are real parties in interest to the compulsory counterclaim; it is imperative that they be joined therein. Section 7 of Rule 3 provides: Compulsory joinder of indispensable parties. Parties in interest without whom no final determination can be had of an action shall be joined either as plaintiffs or defendants. Moreover, in joining Lim and Mariano in the compulsory counterclaim, petitioners are being consistent with the solidary nature of the liability alleged therein. Second Issue: CCCs Personality to Move to Dismiss the Compulsory Counterclaims Characterizing their counterclaim for damages against Respondents CCC, Lim and Mariano as joint and solidary, petitioners prayed: WHEREFORE, it is respectfully prayed that after trial judgment be rendered: 1. Dismissing the complaint in its entirety; 2. Ordering the plaintiff, Gregory T. Lim and Anthony A. Mariano jointly and solidarily to pay defendant actual damages in the sum of at least P2,700,000.00; 3. Ordering the plaintiff, Gregory T. Lim and Anthony A, Mariano jointly and solidarily to pay the defendants LPI, LCLC, COC and Roseberg: a. Exemplary damages of P100 million each; b. Moral damages of P100 million each; and c. Attorneys fees and costs of suit of at least P5 million each. Other reliefs just and equitable are likewise prayed for.[29]

Obligations may be classified as either joint or solidary. Joint or jointly or conjoint means mancum or mancomunada or pro rata obligation; on the other hand, solidary obligations may be used interchangeably with joint and several or several. Thus, petitioners usage of the term joint and solidary is confusing and ambiguous. The ambiguity in petitioners counterclaims notwithstanding, respondents liability, if proven, is solidary. This characterization finds basis in Article 1207 of the Civil Code, which provides that obligations are generally considered joint, except when otherwise expressly stated or when the law or the nature of the obligation requires solidarity. However, obligations arising from tort are, by their nature, always solidary. We have assiduously maintained this legal principle as early as 1912 in Worcester v. Ocampo,[30] in which we held: x x x The difficulty in the contention of the appellants is that they fail to recognize that the basis of the present action is tort. They fail to recognize the universal doctrine that each joint tort feasor is not only individually liable for the tort in which he participates, but is also jointly liable with his tort feasors. x x x It may be stated as a general rule that joint tort feasors are all the persons who command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done for their benefit. They are each liable as principals, to the same extent and in the same manner as if they had performed the wrongful act themselves. x x x Joint tort feasors are jointly and severally liable for the tort which they commit. The persons injured may sue all of them or any number less than all. Each is liable for the whole damages caused by all, and all together are jointly liable for the whole damage. It is no defense for one sued alone, that the others who participated in the wrongful act are not joined with him as defendants; nor is it any excuse for him that his participation in the tort was insignificant as compared to that of the others. x x x Joint tort feasors are not liable pro rata. The damages can not be apportioned among them, except among themselves. They cannot insist upon an apportionment, for the purpose of each paying an aliquot part. They are jointly and severally liable for the whole amount. x x x A payment in full for the damage done, by one of the joint tort feasors, of course satisfies any claim which might exist against the others. There can be but satisfaction. The release of one of the joint tort feasors by agreement generally operates to discharge all. x x x Of course the court during trial may find that some of the alleged tort feasors are liable and that others are not liable. The courts may release some for lack of evidence while condemning others of the alleged tort feasors. And this is true even though they are charged jointly and severally. In a joint obligation, each obligor answers only for a part of the whole liability; in a solidary or joint and several obligation, the relationship between the active and the passive subjects is so close that each of them

must comply with or demand the fulfillment of the whole obligation. [31] The fact that the liability sought against the CCC is for specific performance and tort, while that sought against the individual respondents is based solely on tort does not negate the solidary nature of their liability for tortuous acts alleged in the counterclaims. Article 1211 of the Civil Code is explicit on this point: Solidarity may exist although the creditors and the debtors may not be bound in the same manner and by the same periods and conditions. The solidary character of respondents alleged liability is precisely why credence cannot be given to petitioners assertion. According to such assertion, Respondent CCC cannot move to dismiss the counterclaims on grounds that pertain solely to its individual co-debtors.[32] In cases filed by the creditor, a solidary debtor may invoke defenses arising from the nature of the obligation, from circumstances personal to it, or even from those personal to its co-debtors. Article 1222 of the Civil Code provides: A solidary debtor may, in actions filed by the creditor, avail itself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible. (Emphasis supplied). The act of Respondent CCC as a solidary debtor -- that of filing a motion to dismiss the counterclaim on grounds that pertain only to its individual codebtors -- is therefore allowed. However, a perusal of its Motion to Dismiss the counterclaims shows that Respondent CCC filed it on behalf of Co-respondents Lim and Mariano; it did not pray that the counterclaim against it be dismissed. Be that as it may, Respondent CCC cannot be declared in default. Jurisprudence teaches that if the issues raised in the compulsory counterclaim are so intertwined with the allegations in the complaint, such issues are deemed automatically joined.[33] Counterclaims that are only for damages and attorneys fees and that arise from the filing of the complaint shall be considered as special defenses and need not be answered.[34] CCCs Motion to Dismiss the Counterclaim on Behalf of Respondents Lim and Mariano Not Allowed While Respondent CCC can move to dismiss the counterclaims against it by raising grounds that pertain to individual defendants Lim and Mariano, it cannot file the same Motion on their behalf for the simple reason that it lacks the requisite authority to do so. A corporation has a legal personality entirely separate and distinct from that of its officers and cannot act for and on their behalf, without being so authorized. Thus, unless expressly adopted by Lim and Mariano, the Motion to Dismiss the compulsory counterclaim filed by Respondent CCC has no force and effect as to them. In summary, we make the following pronouncements: 1. The counterclaims against Respondents CCC, Gregory T. Lim and

Anthony A. Mariano are compulsory. 2. The counterclaims may properly implead Respondents Gregory T. Lim and Anthony A. Mariano, even if both were not parties in the original Complaint. 3. Respondent CCC or any of the three solidary debtors (CCC, Lim or Mariano) may include, in a Motion to Dismiss, defenses available to their co-defendants; nevertheless, the same Motion cannot be deemed to have been filed on behalf of the said co-defendants. 4. Summons must be served on Respondents Lim and Mariano before the trial court can obtain jurisdiction over them. WHEREFORE, the Petition is GRANTED and the assailed Orders REVERSED. The court of origin is hereby ORDERED to take cognizance of the counterclaims pleaded in petitioners Answer with Compulsory Counterclaims and to cause the service of summons on Respondents Gregory T. Lim and Anthony A. Mariano. No costs. SO ORDERED.