G.R. No.

109910 April 5, 1995

REMEDIOS G. SALVADOR and GRACIA G. SALVADOR, petitioners,
vs.
COURT OF APPEALS, ALBERTO and ELPIA YABO, FRANCISCA YABO,
et al., respondents.
DAVIDE, JR., J.:
Assailed in this petition is the legal determination made by the Court of
Appeals on the issues of which portion of Lot No. 6080 and Lot No. 6180
formed part of the conjugal assets of the spouses Pastor Makibalo and Maria
Yabo, and of whether or not the rights of Pastor's co-heirs in the estate of
Maria Yabo were extinguished through prescription or laches.
Alipio Yabo was the owner of Lot No. 6080 and Lot No. 6180 situated in Barrio
Bulua, Cagayan de Oro City, containing an area of 1,267 and 3,816 square
meters, respectively. Title thereto devolved upon his nine children, namely,
Victoriano, Procopio, Lope, Jose, Pelagia, Baseliza, Francisca, Maria, and
Gaudencia, upon his death sometime before or during the second world war.
On 28 April 1976, Pastor Makibalo, who is the husband of Maria Yabo, one of
Alipio's children, filed with the then Court of First Instance of Misamis Oriental
a complaint, docketed as Civil Case No. 5000, against the spouses Alberto
and Elpia Yabo for "Quieting of Title, Annulment of Documents, and
Damages." In the complaint, he alleged that he owned a total of eight shares
of the subject lots, having purchased the shares of seven of Alipio's children
and inherited the share of his wife, Maria, and that except for the portion
corresponding to Gaudencia's share which he did not buy, he occupied,
cultivated, and possessed continuously, openly, peacefully, and exclusively
the two parcels of land. He then prayed that he be declared the absolute
owner of 8/9 of the lots in question. 1
On 8 October 1976, the grandchildren and great-grandchildren of the late
Alipio Yabo 2 lodged with the same court a complaint for partition and quieting
of title with damages, 3 docketed as Civil Case No. 5174, against Pastor
Makibalo, Enecia Cristal, and the spouses Eulogio and Remedies Salvador.
They alleged that Lot No. 6080 and Lot No. 6180 are the common property of
the heirs of Alipio Yabo, namely, the plaintiffs, defendant Enecia Cristal, Maria
Yabo and Jose Yabo, whose share had been sold to Alberto Yabo; that after
Alipio's death, the spouses Pastor and Maria Makibalo, Enecia Cristal and
Jose Yabo became the de facto administrators of the said properties; and that
much to their surprise, they discovered that the Salvador spouses, who were
strangers to the family, have been harvesting coconuts from the lots, which
act as a cloud on the plaintiffs' title over the lots.
The plaintiffs then prayed that (a) they, as well as defendant Pastor Makibalo,
in representation of his wife, and Enecia Cristal, in representation of
Gaudencia, be declared as the owners of the lots; (b) the Salvador spouses

be declared as having no rights thereto except as possible assignees of their

co-defendants, Pastor Makibalo and Enecia Cristal; (c) the lots be partitioned
according to law among the aforementioned co-owners; and (d) the
defendants be made to pay for the value of the fruits they harvested from the
lots and for moral and exemplary damages, attorney's fees, expenses of the
litigation, and costs of the suit.
The two cases were consolidated and jointly heard by Branch 5 of the Court
of First Instance of Cagayan de Oro City.
By evidence, Pastor, Makibalo sought to prove the following allegations:
He was married to Maria Yabo who died on 17 March 1962. 4 In August 1949,
Jose and Victoriano, both surnamed Yabo, sold their respective shares in the
disputed lots to one Pedro Ebarat, and in 1952 the latter sold both shares to
Pastor Makibalo. 5 Ebarat formalized this conveyance by executing an Affidavit
of Waiver and Quitclaim dated 30 May 1969 in favor of Pastor. 6
On 16 January 1951, the heirs of the late Lope Yabo sold Lope's shares in the
litigated properties to one Dominador Canomon, 7 who, in turn, sold the same
to Pastor. 8 Canomon afterwards executed an Affidavit of Waiver and
Quitclaim in favor of the latter. 9
Pastor Makibalo likewise purchased the shares of Baseliza in the two lots in
1942, of Procopio in 1957, of Francisca in 1958, and of Pelagia in 1967. The
only share he did not buy was that of Gaudencia. After every purchase, he
took possession of the portions bought and harvested the products thereof. 10
In 1966, Pastor sold back to Alberto a portion of Lot No. 6180 which was
formerly the share of Alberto's father, Procopio. 11
In December 1968, Pastor mortgaged the two lots to the spouses Eulogio and
Remedios Salvador. 12 On 26 September 1978, he executed a document
denominated as a "Confirmation and Quitclaim" whereby he waived all his
rights, interests, and participation in the lots in favor of the Salvador
spouses. 13
On the other hand, by their evidence, l4 the spouses Alberto and Elpia Yabo
tried to prove that they had repurchased from Pastor Makibalo the share of
Procopio, which was previously sold to Pastor, and had bought the shares of
Jose and Maria. 15
Filoteo Yabo denied having sold the share of his father, Lope Yabo, in the
contested lots and disowned his signature and those of his mother, brothers,
and sisters appearing at the back of Exhibit "C". 16
Ignacio Yabo testified that his father, Victoriano Yabo, did not know how to
write and sign his name. He further declared that he had no knowledge that
his father affixed his thumbmark in the document marked as Exhibit "A"
purporting to alienate his father's share in the disputed lots. l7

On 15 January 1983, the trial court rendered its decision

18

holding as follows:

Assuming that the thumbmark on the typewritten name "Jose Yabo" in

Exh. 3 was that of Jose Yabo, Alberto Yabo and Elpia R. Yabo
purchased the share of Jose Yabo in bad faith because they knew
before and up to the execution of Exh. 3 on October 24, 1972 that Jose
Yabo was no longer the owner of that area because from the
documents she borrowed from Mrs. Salvador they came to know that
Jose Yabo had sold his shares to Pedro Ebarat, and they have seen
that Pastor Makibalo has been in possession of those shares together
with the seven others exclusively as owner, he having mortgaged them
to Mrs. Salvador.
As Jose Yabo was no longer the owner of the one-ninth (1/9) shares
which he sold to Alberto Yabo and Elpia Yabo under Exh. 3, the sale is
null and void, and Alberto and Elpia acquired nothing because Jose
Yabo had no more title, right or interest to dispose of.
...
Pastor Makibalo had been in possession of Jose Yabo's share since
1949 after purchasing it from Ebarat, and has been in possession
thereof up to September 26, 1978 when he sold it to the spouses
Eulogio Salvador and Remedios Salvador, who are now in possession
of the same.
Exh. A, evidencing the sale of Victoriano Yabo's share to Pedro Ebarat
was identified by the latter who testified that he sold it to Pastor
Makibalo in 1951. Exh. A is an ancient document 1949 when the
document came to existence up to now is more than 30 years, and the
document had been in the possession of Pastor Makibalo, then
Remedios Salvador who had interest in its preservation.
As regards the shares of Lope Yabo, the same had been sold by his
surviving spouse Juana Legaspi, and his children Filoteo, Andresa,
Jovita, Bonifacio, and Rundino for P105.00 on January 16, 1951 to
Dominador Conomon (Exh. C and C-1), who in turn sold it to Pastor
Makibalo in 1952, executing a formal Deed of Waiver and Quitclaim on
May 30, 1969
(Exh. D).
Exh. C is an ancient document, being more than 30 years old and has
been in the possession of Pastor Makibalo and then the spouses
Eulogio and Remedios Salvador who had an interest in its
preservation. The claim of Filoteo Yabo that the signatures appearing in
Exh. C are not his and those of his brothers and sisters are of no avail,
for if they were not the ones who affixed those signatures and so they
did not sell the shares of their father Lope Yabo, why did they not then
take possession of said shares they remained silent from 1951 to

September 16, 1976 a period of 25 years. They are now [e]stopped by

laches.
And as regards the shares of Baseliza, Francisca and Pelagia, there is
no evidence presented to effectively rebut the testimony of Pastor
Makibalo that he acquired the shares of Baseliza Yabo in 1942 by
changing it with a buffalo; that he bought the shares of Francisca Yabo in
1958 and that he bought the shares of Pelagia Yabo in 1967; Pastor
Makibalo had been in possession of these shares from the time he
acquired them, continuously, adversely, openly, and peacefully, as owner
up to the time he sold his rights and interest therein to the spouses
Eulogio and Remedies Salvador. The heirs of Baseliza, Francisca and
Pelagia have not taken any step to protect their rights over those shares
for over 40 years in the case of Baseliza's share, for about 20 years in
the case of Francisca's share, and for more than 10 years in the case of
Pelagia's share. Laches, likewise has rendered their rights stale.
On March 10, 1966 Pastor Makibalo sold back to Alberto Yabo the share
of Procopio Yabo in Lot 6180 (Exh. 1 and 2), but there is nothing to show
that. Pastor Makibalo also sold back Procopio's share in Lot 6080.
So then, by purchase, Pastor Makibalo and Maria Yabo acquired the
shares of Baseliza, Victoriano, Jose, Lope, Procopio and Francisca, or
six (6) shares from Lots 6080 and 6180. These belonged to the conjugal
partnership of Pastor Makibalo and Maria Yabo. Maria Yabo had also a
share from Lots 6080 and 6180, and Pastor Makibalo acquired the
shares of Pelagia Yabo in both Lots 6080 and 6180. All in all; Pastor
Makibalo acquired eight shares in both Lot 6080 and 6180.
While Maria Yabo died on March 17, 1962, and so one-fourth (1/4) of the
shares of Baseliza, Victoriano, Jose, Lope, and Francisca, or one-fourth
of five-ninth (5/9) of both lots and one-fourth (1/4) of Lot 6080 should go
to the children of the brothers and sisters of Maria Yabo by virtue of the
provisions of Article 1001 of the New Civil Code, the latter have lost their
rights thereto by laches for their inaction for a very long period and their
rights have become stale. On the other hand, Pastor Makibalo who had
been in possession of the whole of the eight shares in both Lots 6080
and 6180, enjoying the fruits thereof exclusively, uninterruptedly, publicly,
peacefully, and continuously from the death of Maria Yabo up to the filing
of the complaint in Civil Case No. 5174 on October 8, 1976, or a period
of 14 years, had acquired title to the whole of the eight shares in Lot
6080 and seven shares in Lot 6180 (the share of Procopio in Lot 6180
had been sold back to Alberto Yabo).
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered
finding Pastor Makibalo, now Eulogio Salvador and Remedios Salvador
the owner of eight (8) shares, equivalent to eight-ninth (8/9) of Lot No.
6080, and of seven (7) shares, equivalent to seven-ninth (7/9) of Lot No.
6180, and therefore, ordering the partition of Lot 6080 so that the oneninth (1/9) alloted to Gaudencia Yabo will go to her heirs or their assigns,

and the remaining eight-ninth (8/9) will go to the spouses Eulogio

Salvador and Remedios Salvador, as successor of Pastor Makibalo, and
the partition of Lot 6180 so that the seven-ninth (7/9) portion which
formerly belonged to Baseliza, Victoriano, Jose, Lope, Maria, Francisca,
and Pelagia will go to the spouses Eulogio and Remedios Salvador, the
one-ninth (1/9) which formerly belonged to Procopio, will go to Alberto
Yabo, and the remaining one-ninth (1/9) which formerly belonged to
Gaudencia, will go to Gaudencia's heirs or their assigns.
Doc. No. 720, recorded on page 28 of Notarial Register No. VII, and
acknowledged before Notary Public Isidro S. Baculio (Exh. E)
[purportedly executed by Maria Yabo and Pastor Makibalo] is hereby
declared null and void, and so the Office of the City Fiscal is directed to
cause an investigation of this matter to find out the person or persons
responsible for the falsification of the said document, and if the evidence
warrants, to file the corresponding criminal action in court. The Office of
the City Assessor of Cagayan de Oro City is, likewise, directed to cause
the cancellation of Tax Declarations Nos. 33553, marked as Exh. H-3,
33557, marked as Exh. H-2, both in the name of Alberto Yabo, for having
been issued on the basis of a falsified document. Let copies of this
decision be furnished the Offices of the City Fiscal and City Assessor,
both of Cagayan de Oro City.
No pronouncement as to damages, attorney's fees and costs.
SO ORDERED. 19
The defendants in Civil Case No. 5000 and the plaintiffs in Civil Case No.
5174 appealed from the decision to the Court of Appeals on 19 August
1983. 20
In its decision of 3 February 1993, 21 the Court of Appeals held that (a) Maria
Yabo did not sell her share to Alberto and Elpia Yabo; (b) prescription and
laches have not run against the private respondents with respect to the 1/9
share of Maria Yabo in the estate of her father and to her conjugal share in the
portions acquired from her brothers and sisters; and (c) Procopio never sold
his share in Lot No. 6080 to Pastor Makibalo. More specifically it stated:
Exh. E is the document found by the lower court to be a falsification. This
finding appellants do not dispute and have not raised an error.
...
While acknowledging. that upon the death of Maria Yabo on March 17,
1962, one-half (1/2) of the share of Maria Yabo in Lots 6080 and 6180
and one-half (1/2) of Maria Yabo's conjugal share in the portions bought
from Basiliza, Victoriano, Jose, Lope, Pelagia and Francisca should go
to the children of the brothers and sisters of Maria in accordance with
Article 1001 of the Civil Code, the lower court rule that said children have

lost their rights by laches "for their inaction for a very long period and
their rights have become stale" (Decision, p. 16; Record, Vol. 2, p. 158).
Appellants in their second assignment of error aver that this is an error.
We agree that the lower court erred.
While between March 17, 1962 when Maria Yabo died and October 8,
1976, when Civil Case No. 5174 for partition was filed, was a period of
more than fourteen (14) years, that alone to our mind would not suffice
to establish laches or prescription. Upon the death of Maria Yabo,
appellee Pastor Makibalo and appellants and the other children of the
brothers and sisters of Maria, by operation of law become co-owners of
the one-ninth (1/9) share of Maria as heir of her father Alipio and the
conjugal share of Maria in the portions acquired from Basiliza,
Victoriano, Jose, Lope, Pelagia and Francisca. Time alone is not a
decisive factor. Appellee Pastor Makibalo, it must be remembered, is the
husband of Maria and, therefore, an uncle in-law of appellants. In our
culture, a demand by an heir or heirs for partition immediately upon the
death of a relative is more often taken not as a legitimate assertion of a
right but of something else, like greed. It must also be noted that the
spouses, the appellee Pastor Makibalo and his deceased wife Maria,
were childless and, therefore, appellants and the other children of the
brothers and sisters of Maria must have felt that at any rate the property
would go to them in the course of time. This probably explains why
appellants started asserting their right over the property only after
appellee Pastor Makibalo sold the same to the spouses Eulogio and
Remedios Salvador. Besides, Lots 6080 and 6180 have a combined
area only of 5,083 square meters and before the development of
Northern Mindanao, and even in 1962 when Maria Yabo died, were not
that valuable. This is shown by the fact that each heir sold his other
share only for P110.00.
As we have said not time alone. In the early case of Cortes v. Oliva, 33
Phil. 480, it was held that"(o)rdinarily, possession by one joint owner will
not be presumed to be adverse to the others, but will, as a rule, be held
to be for the benefit of all. Much stronger evidence is required to show
an adverse holding by one of several joint owners than by a stranger;
and in such cases, to sustain a plea of prescription, it must always
clearly appear that one who was originally a joint owner has repudiated
the claims of his co-owners, and that his co-owners were apprised or
should have been apprised of his claim of adverse and exclusive
ownership before the alleged prescription began to run (at page 484).
This ruling on prescription should apply with equal force to laches.
The third assignment of error challenges the finding of the lower court
that "there is nothing to show that Pastor Makibalo also sold back
Procopio's share in Lot 6080" (Decision, p. 16; Records, Vol. 2,p. 158).

Exhibits 1 and 2 cover only Procopio's share in Lot 6180. In other words,
Exhibits 1 and. 2 conveyed back to Alberto Yabo only his father,
Procopio's share in Lot 6180.
There is indeed no evidence that Pastor Makibalo also sold back to
Alberto, his father Procopio's share in Lot 6080.
But from the evidence it appears that Procopio Yabo never sold his
share in Lot 6080 to Pastor Makibalo. So there was no need to convey
back Procopio's share in Lot 6080.
This fact is evident from the Affidavit of Confirmation of Sale (Exh. M)
dated April 22, 1970, executed by Alberto Yabo, which is the very
document relied upon by the lower court (Decision, p. 11; Record, Vol. 2,
p. 153) in finding that "Alberto Yabo admitted that the share of his father
Procopio Yabo was previously bought by Pastor Makibalo." A look at
Exh. M, particularly par. 3 thereof, reveals that AlbertoYabo merely
acknowledged or confirmed the sale of his father's share to Pastor
Makibalo in Lot 6180. In effect, it at the same time proves that Lot 6080
was never sold by Procopio to appellee Pastor Makibalo; otherwise, it
would have been included in the said Affidavit of Confirmation of Sale.
The Deed of Absolute Sale (Exh. 2) subsequently executed by Pastor
Makibalo in favor of Alberto Yabo on April 23, 1970, further proves this
point, since the latter merely bought back what was previously sold, his
father's share in Lot 6180. 22
The respondent court then concluded and held as follows:
In summary, appellee Pastor Makibalo and his assigns, the spouses
Eulogio and Remedios Salvador, are entitled only to one-half () of the
one-ninth (1/9) share of Maria and three-fourths (3/4) of the six-ninth
(6/9) shares acquired from Basiliza, Victoriano, Jose, Lope, Pelagia and
Francisca. Accordingly, the partition should be done as follows:
(1) 1/9 of Lots 6080 end 6180 should be given to the heirs of
Gaudencia Yabo or their successors and assigns;
(2) 1/9 of Lot 6180 should go to Alberto Yabo and his wife Elpia
Yabo;
(3) 1/9 of Lot 6080 should be given to the heirs of Procopio Yabo
and their successors end assigns, including Alberto Yabo;
(4) The 1/9 share of Maria Yabo in Lots 6080 and 6180 should be
partitioned: One-half (1/2) for the surviving spouse Pastor Makibalo
(now the spouses Eulogio Salvador and Remedios Salvador) and
the other half for the children of the brothers and sisters of Maria
Yabo in equal shares.

(5) The remaining 6/9, one-half (1/2) of which is conjugal between

Maria Yabo and appellee Pastor Makibalo should be partitioned
three-fourths (3/4) for Pastor Makibalo (now the spouses Eulogio
Salvador and Remedios Salvador) and one-fourth (1/4) for the
children of the brothers and sisters of Maria Yabo in equal shares.
(6) Jose Yabo if he is still alive should participate in the partition as
heir of Maria otherwise he shall be represented by his children.
WHEREFORE, premises considered, subject to the modification in the
partition, as indicated above, the decision appealed from is AFFIRMED,
without pronouncement as to costs. The lower court is directed if
necessary to fully effect the partition, to conduct further hearings and
determine whether Jose Yabo is still alive and who are the children of
the brothers and sisters of Maria Yabo. 23
Unable to obtain a reconsideration of the said-decision, Remedios Salvador,
together with her daughter, Ma. Gracia Salvador, as one of the successors-ininterest of Eulogio M. Salvador who died during the pendency of the
appeal, 24 elevated the case to this Court contending that the respondent court
erred in ruling that: (1) the shares of Pelagia Yabo should be included in the
partition; (2) prescription and laches have not run against the private
respondents in relation to the 1/9 share of Maria Yabo in the estate of her
father and to her conjugal share in those acquired by purchase; (3)
Procopio Yabo never sold to Pastor Makibalo his share in Lot No. 6080;
and(4) Jose Yabo should be allowed to participate as heir of Maria even as he
had openly rejected this option by refusing to participate in both civil cases. 25
Article 160 of the Civil Code provides that all property of the marriage is
presumed to belong to the conjugal partnership, unless it be proved that it
pertains .exclusively to the husband or to the wife. Since the shares of Jose,
Victoriano, Lope, Baseliza, Procopio, and Francisca in Lot No. 6180 and Lot
No. 6080 had been purchased by Pastor during his marriage with Maria, and
there is no proof that these were acquired with his exclusive money, the same
are deemed conjugal properties. Not forming part of the conjugal partnership
are: (1) the 1/9 share inherited by Maria which remained as her exclusive
property pursuant to Article 146 (2) of the Civil Code; (2) the 1/9 share of
Gaudencia which was not sold to Pastor; and (3) the 1/9 share of Pelagia
which was acquired by Pastor in 1967 or five years after the death of his wife
and which was therefore his exclusive property.
There is, thus; merit in the petitioners' first assigned error. The Court of
.Appeals should have excluded from the conjugal partnership the share of
Pelagia which Pastor had acquired after his wife's death.
Upon Maria's death in 1962, the conjugal partnership of gains was
dissolved. 26 Half of the conjugal properties, together with Maria's l/9
hereditary share in the disputed lots, constituted Maria's estate and should
thus go to her surviving heirs. 27 Under Article 1001 of the Civil Code, her heirs
are her spouse, Pastor Makibalo, who shall be entitled to-one-half (1/2) of her

estate, her brother, Jose, and the children of her other brothers and sisters,
who shall inherit the other half. There having been no actual partition of the
estate yet, the said heirs became co-owners thereof by operation of law. 28
We now determine whether prescription and laches can be applied against
the co-heirs of Pastor Makibalo.
It has been said that Article 494 of the Civil Code which provides that each coowner may demand at any time the partition of the common property implies
that an action to demand partition is imprescriptible or cannot be barred by
laches. 29 The imprescriptibility of the action cannot, however, be invoked
when one of the co-owners has possessed the property as exclusive owner
and for a period sufficient to acquire it by prescription. 30
What needs to be addressed first is whether or not Pastor Makibalo has
acquired by prescription the shares of his other co-heirs or co-owners.
Prescription as a mode of acquiring ownership requires a continuous, open,
peaceful, public, and adverse possession for a period of time fixed by law.
This Court has held that the possession of a co-owner is like that of a trustee
and shall not be regarded as adverse to the other co-owners but in fact as
beneficial to all of them. 31 Acts which may be considered adverse to
strangers may not be considered adverse insofar as co-owners are
concerned. A mere silent possession by a co-owner, his receipt of rents, fruits
or profits from the property, the erection of buildings and fences and the
planting of trees thereon, and the payment of land taxes, cannot serve as
proof of exclusive ownership, if it is not borne out by clear and convincing
evidence that he exercised acts of possession which unequivocably
constituted an ouster or deprivation of the rights of the other co-owners. 32
Thus, in order that a co-owner's possession may be deemed adverse to
the cestui que trust or the other co-owners, the following elements must
concur: (1) that he has performed unequivocal acts of repudiation amounting
to an ouster of the cestui que trust or the other co-owners; (2) that such
positive acts of repudiation have been made known to the cestui que trust or
the other co-owners; and (3) that the evidence thereon must be clear and
convincing. 33
In Pangan vs. Court of Appeals, 34 this Court had occasion to lay down
specific acts which are considered as acts of repudiation:
Filing by a trustee of an action in court against the trustor to quiet title to
property, or for recovery of ownership thereof, held in possession by the
former, may constitute an act of repudiation of the trust reposed on him
by the latter.
The issuance of the certificate of title would constitute an open and clear
repudiation of any trust, and the lapse of more than 20 years, open and
adverse possession as owner would certainly suffice to vest title by
prescription.

An action for the reconveyance of land based on implied or constructive

trust prescribes within 10 years. And it is from the date of the issuance of
such title that the effective assertion of adverse title for purposes of the
statute of limitation is counted.
The prescriptive period may only be counted from the time petitioners
repudiated the trust relation in 1955 upon the filing of the complaint for
recovery of possession against private respondents so that the
counterclaim of the private respondents contained in their amended
answer wherein they asserted absolute ownership of the disputed realty
by reason of the continuous and adverse possession of the same is well
within the l0-year prescriptive period.
There is clear repudiation of a trust when one who is an apparent
administrator of property causes the cancellation of the title thereto in
the name of the apparent beneficiaries and gets a new certificate of title
in his own name.
It is only when the defendants, alleged co-owners of the property in
question, executed a deed of partition and on the strength thereof
obtained the cancellation of the title in the name of their predecessor
and the issuance of a new one wherein they appear as the new owners
of a definite area each, thereby in effect denying or repudiating the
ownership of one of the plaintiffs over his alleged share in the entire lot,
that the statute of limitations started to run for the purposes of the action
instituted by the latter seeking a declaration of the existence of the coownership and of their rights thereunder.
The records do not show that Pastor Makibalo adjudicated to himself the
whole estate of his wife by means of an affidavit filed with the Office of the
Register of Deeds as allowed under Section 1 Rule 74 of the Rules of Court,
or that he caused the issuance of a certificate of title in his name or the
cancellation of the tax declaration in Alipio's name and the issuance of a new
one in his own name. The only act which may be deemed as a repudiation by
Pastor of the co-ownership over the lots is his filing on 28 April 1976 of an
action to quiet title (Civil Case No. 5000). The period of prescription started to
run only from this repudiation. However, this was tolled when his co-heirs, the
private respondents herein, instituted on 8 October 1976 an action for partition
(Civil Case No. 5174) of the lots. Hence, the adverse possession by Pastor
being for only about six months would not vest in him exclusive ownership of
his wife's estate, and absent acquisitive prescription of ownership, laches and
prescription of the action for partition will not lie in favor of Pastor. 35
The issue presented by the petitioners in their third assigned error involves a
question of fact. This Court is not ordinarily a trier of facts, its jurisdiction being
limited to errors of law. Thus; the findings of facts of the Court of Appeals are
as a rule deemed conclusive. However, when the findings of facts of the
appellate court vary with those of the trial court, this Court has to review the
evidence in order to arrive at the correct findings. 36

In the instant case, a conflict in the findings of facts of the lower courts exists.
The trial court found that Pastor was the owner of Procopio's share in Lot No.
6080, as there was nothing to show that he sold it back to Alberto Yabo. The
respondent court on the other hand, held that Procopio Yabo never sold his
share in Lot No. 6080 to pastor, thus, there was no need to convey it back to
Procopio's son, Alberto.
At this juncture, it is worthy to quote pertinent portions of the testimony of
Pastor Makibalo:
COURT: (To the witness.)
Q Where is AlbertoYabo living?
A It is there in their house at Bulua.
ATTY. JARAULA: (Continuing.)
Q In whose land?
A Alipio Yabo's land.
Q What relation has that land to the two (2) parcels of land under
litigation?
A I bought already.
Q So, will you please tell the Honorable Court, why Alberto Yabo is
staying on that land when you said you have bought that land already.
A So, I sold back a portion to them because they requested me.
COURT: (To the witness.)
Q When was that when you said that Alberto Yabo requested a portion?
A In 1967.
COURT:
Q Did you give that portion which they requested?
A Their share being inherited from their father Procopio was the portion
they requested.
COURT
Q Yes. Did you grant that?
A Yes.

Q That is the area you sold to Alberto Yabo, pursuant to his request?
A Because that was the land they inherited from their father that was
what they requested.
Q All right. So that, the area now being occupied by Alberto Yabo?
A Yes. That land in the Centro.
Q This is now identified as Lot No. 6180?
A Yes, Your Honor.
ATTY. JARAULA: (Continuing.)
Q Where did you sign a document ceding that portion requested by
Alberto Yabo?
A We did not make any receipt in favor of AlbertoYabo because they got
only the receipt of that of his father.
COURT: (To the witness.)
Q You mean to say, that the receipt which Procopio signed when he sold
his share for [sic] the document which Alberto got?
A Yes.
COURT:
All right.
ATTY. JARAULA (Continuing.)
Q Now, for how much did you buy. the shares of each of the brothers
and sisters of your wife?
A One Hundred Ten (P110.00) Pesos.
Q When you sold back to Alberto Yabo, the portion corresponding to the
share of his father Procopio in the Poblacion, how much did he pay you?
A The same.
Q By the same, you are referring by the same amount of One Hundred
Ten (P110.00) Pesos?
A Yes, Sir. The same amount. 37

The petitioners contend that the sales or conveyances made by Alipio's heirs
were for their consolidated shares in the two lots. If this was so, and the
receipt which Procopio signed when he sold his consolidated share to Pastor
was turned over to Alberto, the inevitable conclusion is that Alberto redeemed
his father's share in both lots, not only in Lot: No. 6180. This conclusion is
further buttressed by the above-quoted testimony of Pastor that he bought the
shares (consolidated) of each of Alipio's heirs for P110.00 and that when he
sold back to Alberto the former share of Procopio, Alberto paid him the same
amount of P110.00.
However, since the share of Procopio in the two litigated parcels of land was
purchased by Pastor during his marriage with Maria, the same became
conjugal property, and half of it formed part of Maria's estate upon her death
in 1962. Accordingly, Pastor's resale in favor of Alberto could only be valid
with respect to Pastor's one-half (1/2) conjugal share and one-fourth (1/4)
hereditary share as heir of Maria. 38 The remaining one-fourth (1/4) should go
to Pastor's co-heirs, the private respondents herein.
Now on the fourth assigned error.
Section 1, Rule 69 of the Rules of Court requires that all persons interested in
the land sought to be partitioned must be joined as defendants in the
complaints. All co-owners and persons having an interest in the property are
considered indispensable parties and an action for partition will not lie without
the joinder of said persons. 39 It has been held that the absence of an
indispensable party in a case renders ineffective all the proceedings
subsequent to the filing of the complaint including the judgment. 40
It must be recalled that in Civil Case No. 5174 the private respondents sought
the partition of the two lots based on the co-ownership which arose from the
right of succession to Alipio's estate. Since Jose Yabo confirmed, through his
thumbmark in the verification of the complaint, that he had already parted with
his share in Alipio's estate, he in effect admitted that he had ceased to be a
co-owner of the two lots which comprised his father's estate. Thus, his nonjoinder as a party-plaintiff in the complaint would appear to be proper. He
does not, as well, appear to be an indispensable party in Civil Case No. 5000.
As it turned out, however, the evidence and the issues which cropped up
rendered imperative the determination of the conjugal assets of Pastor
Makibalo and Maria Yabo and the partition of the latter's estate among her
heirs. Her estate consists of one-half() of the conjugal properties, which
should then be divided pursuant to Article 1001 of the Civil Code since the
marriage produced no child; thus: one-half () to Pastor, and the other half to
her brother Jose, and to her nephews and nieces.
Insofar as the partition of Maria Yabo's estate is concerned, Jose is an
indispensable party. Strictly, the rule on indispensable parties may bar a
partition of Maria's estate. Considering, however, that such estate or its
partition are but incidents in Civil Case No. 5000 and Civil Case No. 5174,
and the parties have not offered any objection to the propriety of the

determination and partition of her estate, then in the light of Section 11 of Rule
3 41 and Sections 1 and 5, Rule 10 42 of the Rules of Court, and following the
rulings of this Court in the 1910 case of Alonso vs. Villamor 43 and the 1947
case of Cuyugan vs. Dizon, 44 an amendment of the complaint in Civil Case
No. 5174 to implead Jose Yabo as party plaintiff would be in order.
In Alonso, it was held that under Section 110 of the Code of Civil Procedure
whose first paragraph is substantially the same as the aforesaid Section 1
of Rule 10 and Section 503 thereof, this Court "has full power, apart from
that power and authority which is inherent, to amend the process, pleadings,
proceedings, and decision in this case by substituting, as party plaintiff, the
real party in interest." Our ruling in Cuyugan states:
We, however, do not believe that the case should be dismissed for
plaintiff's failure to join her husband. (Sec. 11, Rule 2, Rules of Court).
Nor should the case be remanded to the court below and a new trial
ordered on this account. The complaint may and should be amended
here, to cure the defect of party plaintiffs, after final decision is rendered.
Section 11, Rule 2, and Section 2, Rule 17, explicitly authorize such
procedure. As this Court had occasion to say in Quison vs. Salud, (12
Phil., 109, 116), "a second action would be but a repetition of the first
and would involve both parties, plaintiffs and defendant, in much
additional expense and would cause much delay, in that way defeating
the purpose of the section, which is expressly stated to be "that the
actual merits of the controversy may speedily be determined without
regard to technicalities and in the most expeditious and inexpensive
manner." (See also Diaz vs. De la Rama, 73 Phil., 104)
To avoid further delay in the disposition of this case, we declare Civil Case
No. 5174 as thus duly amended. Consequently, Jose Yabo may participate in
the partition of the estate of Maria Yabo. The fourth assigned error must then
be rejected.
In view of the foregoing disquisitions, the appealed judgment should be
modified as follows: (a) the former 1/9 share of Pelagia Yabo in Lots No. 6180
and 6080 which she sold to Pastor should be treated as the latter's exclusive
property which should now pertain to the petitioners, his successors-ininterest; and (b) the former 1/9 share of Procopio Yabo in both lots should be
divided as follows: 3/4 (respondent Pastor's 1/2 conjugal share and 1/4
representing his share therein as Maria's heir) for the spouses Alberto and
Elpia Yabo, and 1/4 (representing the share therein of Maria's collateral
relatives as Maria's heirs) for the private respondents, including Alberto and
Jose Yabo. The partition of the two lots in controversy should therefore be
made in this wise:
(1) 1/9 share of Gaudencia Yabo should be allotted to her heirs or
successors-in-interest;
(2) 1/9 share formerly belonging to Pelagia Yabo to the petitioners as
successors-in-interest of Pastor Makibalo;

(3) 1/9 hereditary share of Maria Yabo to be divided as follows:

(a) 1/2 for the petitioners (as successors-in-interest of Pastor
Makibalo), and
(b) 1/2 for the private respondents, including Jose Yabo or his
heirs;
(4) 1/9 share formerly belonging to Procopio Yabo to be divided thus:
(a) 3/4 for Spouses Alberto and Elpia Yabo, and
(b) 1/4 for the other private respondents, including Jose Yabo or his
heirs;
(5) 5/9 shares which became the conjugal properties of Pastor Makibalo
and Maria Yabo to be divided thus:
(a) 3/4 for the petitioners (as successors-in-interest of Pastor
Makibalo), and
(b) for the private respondents, including Jose Yabo or his heirs.
In sum, Lots Nos. 6180 anid 6080 should be partitioned as follows:
1/9 or 4/36 to Guadencia Yabo's heirs or successors-ininterest;
3/4 of 1/9 or 3/36 to the spouses Alberto and Elpina Yabo;
8/36 to the private respondents, including Jose Yabu or his
heirs;
21/36 to the petitioners as successors-in-interest of Pastor
Makibalo.
WHEREFORE, the challenged decision of the Court of Appeals of 8 February
1993 in CA-G.R. CV No. 12839 is AFFIRMED, subject to the modifications
indicated above. Upon the finality of this decision, let this case be forthwith
remanded to the court a quo for further proceedings on the partition of Lots
Nos. 6180 and 6080 in conformity with this decision.
No pronouncement as to costs.
SO ORDERED.
Padilla, Bellosillo, Quiason and Kapunan, JJ., concur.

Footnotes
41 It provides:
Sec. 11. Misjoinder and non-joinder of parties. Misjoinder of parties is not
ground for dismissal of an action. Parties may be dropped or added by order
of the court on motion of any party or on its own initiative at any stage of the
action and on such terms as are just. Any claim against a party may be
severed and proceeded with separately.
42 They provide:
Sec. 1. Amendments in general. Pleadings may be amended by adding or
striking out an allegation or the name of any party, or by correcting a mistake
in the name of a party or a mistaken or inadequate allegation or description in
any other respect, so that the actual merits of the controversy may speedily
be determined, without regard to technicalities, and in the most expeditious
and inexpensive manner.
xxx xxx xxx
Sec. 5. Amendment to conform to or authorize presentation of evidence.
When issues not raised by the pleadings are tried by express or implied
consent of the parties, they shall be treated in all respects, as if they had been
raised in the pleadings. Such amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to raise these issues
may be made upon motion of any party at anytime, even after judgment; but
failure so to amend does not affect the result of the trial of these issues. If
evidence is objected to at the trial on the ground that it is not within the issues
made by the pleadings, the court may allow the pleadings to be amended and
shall do so freely when the presentation of the merits of the action will be
subserved thereby and the objecting party fails to satisfy the court that the
admission of such evidence would prejudice him in maintaining his action or
defense upon the merits. The court may grant a continuance to enable the
objecting party to meet such evidence.
G.R. No. 103301 December 8, 1995
SERVICEWIDE SPECIALISTS INCORPORATED, petitioner, vs. HON.
COURT OF APPEALS and ARMANDO CUSTODIO, JR., respondents.
VITUG, J.:
This petition of Servicewide Specialists, Incorporated, seeks a review
on certiorari of the 30th August 1991 decision of the Court of Appeals 1 in CAG.R. CV No. 20289 setting aside the judgment of the Regional Trial Court of
Manila, Branch 19, 2 which disposed of then Civil Case No. 83-18536, a suit
for replevin and damages, as follows:
WHEREFORE, judgment is hereby rendered, in favor of plaintiff and
against the defendant Armando Custodio, Jr., ordering him to deliver and

return the motor vehicle in question, complete with accessories and

equipment; and in the event that manual delivery of the said meter
vehicle cannot be effected, ordering said defendant to pay the sum of
P54,642.50, plus interest at the rate of 14%per annum, from June 18,
1983 until fully paid, and to pay the costs.
SO ORDERED. 3
The litigation concerns a motor vehicle, a Colt Galant Sigma 1600E, 1977
model, 4-door sedan, colored Baikal White, with Serial No. A-121-UL-493 and
Engine No. 2G-171-34. The decisions of both the appellate court and the trial
court rest on the following representation of the facts:
Plaintiff's evidence shows that, on August 29, 1977, Eleuterio Bondoc
executed and delivered to Carmark Philippines a promissory note in the
sum of P66,119.04, payable in installments, Exhibit A, and in order to
secure payment, a chattel mortgage was executed in favor of Carmark
Philippines over the aforementioned motor vehicle, Exhibit B, which was
subsequently assigned in favor of Filinvest Corporation, with the
conformity of Eleuterio Bondoc, Exhibit C.
On July 27, 1979, Eleuterio Bondoc, as vendor, executed a deed of sale
with assumption of mortgage of the balance of the account in favor of
Cesar Dollente, Exhibits D and D-1, which, upon approval by Filinvest
Corporation, Cesar Dollente executed and delivered to Filinvest
Corporation a promissory note in the amount of P37,528.83, payable in
installments, Exhibit E. On October 26, 1979, Cesar Dollente, as vendor,
executed a deed of sale with assumption of mortgage over the
aforementioned vehicle for the balance of his account in favor of Ernesto
Dollente, Exhibit E. On September 28, 1979, Ernesto Dollente executed
and delivered to Filinvest Corporation a promissory note for the sum of
P37,528.83, payable in monthly installments. This obligation was
secured by a chattel mortgage executed between Cesar Dollente and
Ernesto Dollente, which was annotated and registered, Exhibit B-1.
Subsequently, Filinvest Corporation assigned all its rights and interests
on the promissory note and chattel mortgage to plaintiff, with notice to
Ernesto Dollente. The original defendant Ernesto Dollente, having
defaulted in the payment of the monthly installments which fell due on
June 15, 1979 up to September 15, 1981, plaintiff demanded from said
defendant the payment of the entire balance, which includes interest
thereon and to return the motor vehicle in question. By reason of the
refusal of the original defendant to pay the entire balance and to
surrender possession of the subject motor vehicle, this case was filed
and, upon its filing, upon motion, a writ of seizure was issued and the
same was implemented by the sheriff. A counter-replevin bond having
been filed, defendant Armando Custodio, Jr. had obtained possession of
the mortgaged vehicle.
Traversing the plaintiffs claim, defendant's evidence shows that, on
September 8, 1978, defendant Armando Custodio, Jr. obtained the

motor vehicle in question by purchase from Ernesto Dollente, Exhibit 1.

Ernesto Dollente bought the same on April 14, 1978 from Venus Motor
Sales, Exhibits 2 and 3. When defendant bought the said vehicle from
Ernesto Dollente, he was issued a clearance from the Constabulary
Highway Patrol Group, Exhibits 4 and 4-A. Since then defendant has
been possessing the vehicle in question. This vehicle was previously
registered at Urdaneta, Pangasinan.4
Finding preponderance of the evidence in favor of herein petitioner, the
lower court ruled:
The claim of herein defendant that, Ernesto Dollente's breach of the
chattel mortgage should not bind him, because he is not a privy to such
contract, is hardly acceptable, for the reason that the registration of the
chattel mortgage is an effective and binding notice to him of its
existence. The transaction of Ernesto Dollente, which led to the transfer
of the registration of this motor vehicle in favor of defendant Armando
Custodio, Jr., is doubtful and must have been conveniently arranged or
manipulated to effect this transfer. It is settled that once a mortgage is
registered with the Register of Deeds and in the Land Transportation
Commission, it is binding against anybody, including defendant Armando
Custodio, Jr. As correctly pointed out, in purchasing the motor vehicle in
question, defendant Armando Custodio, Jr. knew or, at least, was
presumed to know, by the mere fact that the mortgage was registered in
the Office of the Register of Deeds, as in this case, the said chattel
mortgage was subject to a mortgage lien. 5
On appeal to it, the Court of Appeals saw merit in the contention of private
respondent that the dismissal at the instance of petitioner himself of the
amended complaint against Ernesto Dollente after a failure of summons on
him, was "fatal to the entire action" Dollente being, in the considered view of
the appellate court, an indispensable party to the proceedings. The appellate
court elaborated:
. . . it is abundantly clear that the dismissal of the complaint as against
the principal defendant Dollente has robbed the action of any cause for
survival. The replevin suit owed its existence to an alleged right to
possession of the motor vehicle, which right in turn was founded on the
alleged default of Dollente. Now, since "the case against Ernesto
Dollente" was dismissed, albeit without prejudice, there remains no
cause of action against said defendant in the case. And since, there is
no distinct cause of action against the remaining defendant, herein
appellant Custodio, there remains no provable cause in the action. The
plaintiff's right to possession of the car in case which is "conditioned
upon the fact of actual default on the part of the principal obligor" the
existence of which fact "may naturally be the subject of controversy"
could not properly be established in the absence, and after the plaintiffinitiated exclusion, of the principal obligor and principal defendant. There
is no question, under the circumstances, that Dollente was an
indispensable party in the action. His presence is indispensable,

essential and compulsory if a final determination of the action should be

achieved (Sec. 7, Rule 3).
It was clearly an error for the trial court to have proceeded with the case
without the indispensable Dollente. The judgment rendered by the trial
court following such flawed proceedings is therefore ineffectual and
ineffective. 6
While, in its present petition for review on certiorari, Servicewide has raised a
number of points, the crucial issue still remains, however, to be whether or not
an action filed by the mortgagee for replevin to effect a foreclosure of the
property covered by the chattel mortgage would require that the mortgagor be
so impleaded as an indispensable party thereto.
Rule 60 of the Rules of Court allows a plaintiff, in an action for the recovery of
possession of personal property, to apply for a writ of replevin if it can be
shown that he is "the owner of the property claimed . . . or is entitled to the
possession thereof." 7 The plaintiff need not be the owner so long as he is able
to specify his right to the possession of the property and his legal basis
therefor. The question then, insofar as the matter finds relation to the instant
case, is whether or not the plaintiff (herein petitioner) who has predicated his
right on being the mortgagee of a chattel mortgage should implead the
mortgagor in his complaint that seeks to recover possession of the
encumbered property in order to effect its foreclosure.
The answer has to be in the affirmative. 8 In a suit for replevin, a clear right of
possession must be established. A foreclosure under a chattel mortgage may
properly be commenced only once there is default on the part of the
mortgagor of his obligation secured by the mortgage. The replevin in the
instant case has been sought to pave the way for the foreclosure of the object
covered by the chattel mortgage. The conditions essential for that foreclosure
would be to show, firstly, the existence of the chattel mortgage and, secondly,
the default of the mortgagor. These requirements must be established since
the validity of the plaintiffs exercise of the right of foreclosure are inevitably
dependent thereon. It would thus seem, considering particularly an adverse
and independent claim of ownership by private respondent, that the lower
court acted improvidently when it granted the dismissal of the complaint
against Dollente, albeit on petitioner's (then plaintiff) plea, on the ground that
the "non-service of summons upon Ernesto Dollente (would) only delay the
determination of the merits of the case, to the prejudice of the
parties." 9 In Imson v. Court of Appeals, we have explained:
. . . An indispensable party is one whose interest will be affected by the
court's action in the litigation, and without whom no final determination of
the case can be had. The party's interest in the subject matter of the suit
and in the relief sought are so inextricably intertwined with the other
parties' that his legal presence as a party to the proceeding is an
absolute necessity. In his absence there cannot be a resolution of the
dispute of the parties before the court which is effective, complete, or
equitable.

Conversely, a party is not indispensable to the suit if his interest in the

controversy or subject matter is distinct and divisible from the interest of
the other parties and will not necessarily be prejudiced by a judgment
which does complete justice to the parties in court. He is not
indispensable if his presence would merely permit complete relief
between him and those already parties to the action or will simply avoid
multiple litigation. 10
Without the presence of indispensable parties to a suit or proceeding, a
judgment of a court cannot attain real finality. 11
Having arrived at the foregoing conclusion, the Court need not take up the
other issues raised by petitioner.
In passing, the failure of summons upon Ernesto Dollente, per the Sheriffs
Return dated July 19, 1983, 12 is said to have been due to defendant's being
no longer a resident "at the given address as per information gathered from
the present occupant of the premises." It appears that the remedial measures
provided in Rule 14 of the Rules of Court regrettably have not been properly
availed of; for instance, substitute service of summons under Section 8
thereof could have been resorted to. 13
WHEREFORE, the decision of the Court of Appeals is AFFIRMED. Costs
against petitioner.
SO ORDERED.
Footnotes
7 Section 1. Application. Whenever the complaint in an action
prays for the recovery of possession of personal property, the
plaintiff may, at the commencement of the action or at any time
before answer, apply for an order for the delivery of such
property to him, in the manner hereinafter provided.
Section. 2. Affidavit and bond. Upon applying for such order
the plaintiff must show by his own affidavit or that of some other
person who personally knows the facts:
(a) That the plaintiff is the owner of the property claimed,
particularly describing it, or is entitled to the possession thereof;
(b) That the property is wrongfully detained by the defendant,
alleging the cause of detention thereof according to his best
knowledge, information, and belief;
(c) That it has not been taken for a tax assessment or fine
pursuant to law, or seized under an execution, or an attachment
against the property of the plaintiff, or if so seized, that it is
exempt from such seizure; and

(d) The actual value of the property.

The plaintiff must also give a bond, executed to the defendant in
double the value of the property as stated in the affidavit
aforementioned, for the return of the property to the defendant if
the return thereof be adjudged, and for the payment to the
defendant of such sum he may recover from the plaintiff in the
action.
8 Sec. 7 Compulsory joinder of indespensable parties.
Parties in interest without whom no final determination can be
had of an action shall be joined either as plaintiffs or defendants.
(Rule 3, Rules of Court)
THIRD DIVISION
[G.R. No. 141970. September 10, 2001]
METROPOLITAN BANK, & TRUST COMPANY, petitioner, vs. Hon. FLORO
T. ALEJO, in His Capacity as Presiding Judge of Branch 172 of
the Regional Trial Court of Valenzuela; and SY TAN SE,
represented
by
his
Attorney-in-Fact,
SIAN
SUAT
NGO, respondents.
DECISION
PANGANIBAN, J.:
In a suit to nullify an existing Torrens Certificate of Title (TCT) in which a
real estate mortgage is annotated, the mortgagee is an indispensable
party. In such suit, a decision canceling the TCT and the mortgage annotation
is subject to a petition for annulment of judgment, because the non-joinder of
the mortgagee deprived the court of jurisdiction to pass upon the controversy.
The Case
Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of
the Rules of Court, assailing the March 25, 1999 Resolution of the Court of
Appeals (CA) in CA-GR SP No. 50638, which states in full:
This resolves the petition for annulment of judgment based on external (sic)
fraud filed by petitioner Metropolitan Bank and Trust Company seeking to
annul the Decision dated August 12, 1998 rendered by respondent judge,
Honorable Floro T. Alejo, Presiding Judge of the Regional Trial Court, Branch
172, Valenzuela, Metro Manila, in Civil Case No. 4930-V-96 entitled Sy Tan
Se, represented by his attorney-in-fact Sian Suat Ngo v. Raul Acampado, et
al.
This Court has observed that petitioner knew of the questioned Decision
sometime [i]n October 1998 (Petition, Rollo, p. 3). This being the case,

petitioner should have first sought recourse by way of petition for relief from
judgment under Rule 38 of the 1997 Rules of Civil Procedure. Accordingly,
the petition for annulment of judgment is DENIED DUE COURSE and
DISMISSED outright for being insufficient in form and substance (Section 2,
Rule 47, 1997 Rules of Civil Procedure).
Also challenged is the January 27, 2000 CA Resolution [2] denying
petitioners Motion for Reconsideration.
The Facts
On November 21, 1995[3] and January 30, 1996,[4] Spouses Raul and
Cristina Acampado obtained loans from petitioner in the amounts
of P5,000,000 and P2,000,000, respectively. As security for the payment of
these credit accommodations, the Acampados executed in favor of petitioner
a Real Estate Mortgage[5] and an Amendment of Real Estate Mortgage [6] over
a parcel of land registered in their names. The land was covered by TCT No.
V-41319 in the Registry of Deeds of Valenzuela City, where the contracts were
also registered on November 20, 1995 and January 23, 1996, respectively.[7]
On June 3, 1996, a Complaint for Declaration of Nullity of TCT No. V41319 was filed by Respondent Sy Tan Se against Spouses Acampado. In
the Regional Trial Court (RTC) of Valenzuela, Branch 172, it was docketed as
Civil Case No. 4930-V-96,[8] the progenitor of the present controversy.
Despite being the registered mortgagee of the real property covered by
the title sought to be annulled, petitioner was not made a party to Civil Case
No. 4930-V-96,[9] nor was she notified of its existence.
Because the spouses defaulted in the payment of their loan, extrajudicial
foreclosure proceedings over the mortgaged property were initiated on April
19, 1997.
On June 17, 1997, the sheriff of Valenzuela conducted an auction sale of
the property, during which petitioner submitted the highest and winning bid.
[10]
On July 15, 1997, a Certificate of Sale was issued in its favor.[11] This sale
was entered in the Registry of Deeds of Valenzuela on July 28, 1997.
When the redemption period lapsed exactly a year after, on July 28, 1998,
petitioner executed an Affidavit of Consolidation of Ownership to enable the
Registry of Deeds of Valenzuela to issue a new TCT in its name.
Upon presentation to the Register of Deeds of the Affidavit of
Consolidation of Ownership, petitioner was informed of the existence of the
August 12, 1998 RTC Decision in Civil Case No. 4930-V-96, annulling TCT
No. V-41319. The dispositive portion of the Decision[12] stated:
WHEREFORE, judgment is hereby rendered declaring as null and void
Transfer Certificate of Title No.V-41319 in the name of defendant Raul
Acampado for having proceeded from an illegitimate source. With costs
against the defendant.

SO ORDERED.
On January 27, 1999, petitioner filed with the Court of Appeals a Petition
for Annulment of the RTC Decision.
Ruling of the Court of Appeals
For being insufficient in form and substance, the Petition for Annulment
was outrightly dismissed by the CA. It ruled that petitioner ought to have filed,
instead, a petition for relief from judgment or an action for quieting of title.
Hence, this Petition.[13]
Issues
In its Memorandum, petitioner presents the following issues:
I
x x x [W]hether or not a petition for annulment of judgment under Rule 47 of
the 1997 Rules of Civil Procedure is the proper remedy available to petitioner
under the circumstances.
II
x x x [W]hether or not the judgment of the trial court in Civil Case No. 4930-V96 should be annulled.[14]
The Courts Ruling
The Petition is meritorious.
First Issue: Proper Remedy
Respondents aver that a petition for annulment is not proper, because
there were three different remedies available but they were not resorted to by
petitioner.
We are not persuaded. First, a petition for relief, the remedy pointed to by
the Court of Appeals, was not available to petitioner. Section 1, Rule 38 of the
Rules of Court, states:
Petition for relief from judgment, order, or other proceedings.-When a
judgment or final order is entered, or any other proceeding is thereafter
taken against a party in any court through fraud, accident, mistake,

or excusable negligence, he may file a petition in such court and in the same
case praying that the judgment, order or proceeding be set aside. (Italics
supplied)
It must be emphasized that petitioner was never a party to Civil Case No.
4930-V-96. In Lagula et al. v. Casimiro et al.,[15] the Court held that -- relative
to a motion for relief on the ground of fraud, accident, mistake, or excusable
negligence -- Rule 38 of the Rules of Court only applies when the one
deprived of his right is a party to the case. Since petitioner was never a party
to the case or even summoned to appear therein, then the remedy of relief
from judgment under Rule 38 of the Rules of Court was not proper. This is
plainly provided in the italicized words of the present provision just quoted.
Second, in denying petitioners Motion for Reconsideration of the Decision
dismissing the Petition for Annulment of Judgment, the Court of Appeals
reasoned that another remedy, an action for quieting of title, was also
available to petitioner.
We do not agree. It should be stressed that this case was instituted to
ask for relief from the peremptory declaration of nullity of TCT No. V-41319,
which had been issued without first giving petitioner an opportunity to be
heard. Petitioner focused on the judgment in Civil Case No. 4930-V-96 which
adversely affected it, and which it therefore sought to annul. Filing an action
for quieting of title will not remedy what it perceived as a disregard of due
process; it is therefore not an appropriate remedy.
Equally important, an action for quieting of title is filed only when there is a
cloud on title to real property or any interest therein. As defined, a cloud on
title is a semblance of title which appears in some legal form but which is in
fact unfounded.[16] In this case, the subject judgment cannot be considered as
a cloud on petitioners title or interest over the real property covered by TCT
No. V-41319, which does not even have a semblance of being a title.
It would not be proper to consider the subject judgment as a cloud that
would warrant the filing of an action for quieting of title, because to do so
would require the court hearing the action to modify or interfere with the
judgment or order of another co-equal court. Well-entrenched in our
jurisdiction is the doctrine that a court has no power to do so, as that action
may lead to confusion and seriously hinder the administration of justice.
[17]
Clearly, an action for quieting of title is not an appropriate remedy in this
case.
Third, private respondent cites a last remedy: the intervention by
petitioner in Civil Case No. 4930-V-96. The availability of this remedy hinges
on petitioners knowledge of the pendency of that case, which would have
otherwise been alerted to the need to intervene therein. Though presumed by
private respondent, any such knowledge prior to October 1998 is, however,
emphatically denied by petitioner.
The Petition for Annulment before the Court of Appeals precisely alleged
that private respondent purposely concealed the case by excluding petitioner
as a defendant in Civil Case No. 4930-V-96, even if the latter was an
indispensable party. Without due process of law, the former intended to

deprive petitioner of the latters duly registered property right. Indeed, the
execution of the Decision in Civil Case No. 4930-V-96 necessarily entailed its
enforcement against petitioner, even though it was not a party to that
case. Hence, the latter concludes that annulment of judgment was the only
effective remedy open to it.
The allegation of extrinsic fraud, if fully substantiated by a preponderance
of evidence, may be the basis for annulling a judgment. [18] The resort to
annulment becomes proper because of such allegation, coupled with the
unavailability of the other remedies pointed to by respondents.
Second Issue: Lack of Jurisdiction
It is undisputed that the property covered by TCT No. V-41319 was
mortgaged to petitioner, and that the mortgage was annotated on TCT No. V41319 before the institution of Civil Case No. 4930-V-96. It is also undisputed
that all subsequent proceedings pertaining to the foreclosure of the mortgage
were entered in the Registry of Deeds. The nullification and cancellation of
TCT No. V-41319 carried with it the nullification and cancellation of the
mortgage annotation.
Although a mortgage affects the land itself and not merely the TCT
covering it, the cancellation of the TCT and the mortgage annotation exposed
petitioner to real prejudice, because its rights over the mortgaged property
would no longer be known and respected by third parties. Necessarily,
therefore, the nullification of TCT No. V-41319 adversely affected its property
rights, considering that a real mortgage is a real right and a real property by
itself.[19]
Evidently, petitioner is encompassed within the definition of an
indispensable party; thus, it should have been impleaded as a defendant in
Civil Case No. 4930-V-96.
An indispensable party is a party who has such an interest in the controversy
or subject matter that a final adjudication cannot be made, in his absence,
without injuring or affecting that interest[;] a party who has not only an interest
in the subject matter of the controversy, but also has an interest of such
nature that a final decree cannot be made without affecting his interest or
leaving the controversy in such a condition that its final determination may be
wholly inconsistent with equity and good conscience. It has also been
considered that an indispensable party is a person in whose absence there
cannot be a determination between the parties already before the court which
is effective, complete, or equitable. Further, an indispensable party is one
who must be included in an action before it may properly go forward.
A person is not an indispensable party, however, if his interest in the
controversy or subject matter is separable from the interest of the other
parties, so that it will not necessarily be directly or injuriously affected by a
decree which does complete justice between them. [20]

The joinder of indispensable parties to an action is mandated by Section

7, Rule 3 of the Revised Rules of Civil Procedures, which we quote:
SEC 7. Compulsory joinder of indispensable parties. Parties in interest
without whom no final determination can be had of an action shall be joined
either as plaintiffs or defendants.
Aside from the above provision, jurisprudence requires such joinder, as
the following excerpts indicate:
Indispensable parties must always be joined either as plaintiffs or
defendants, for the court cannot proceed without them. x x x. Indispensable
parties are those with such an interest in the controversy that a final decree
would necessarily affect their rights, so that the courts cannot proceed without
their presence.[21]
"x x x. Without the precence of indispensable parties to a suit or proceeding, a
judgment of a Court cannot attain real finality." [22]
Whenever it appears to the court in the course of a proceeding that an
indispensable party has not been joined, it is the duty of the court to stop the
trial and to order the inclusion of such party. (The Revised Rules of Court,
Annotated & Commented by Senator Vicente J. Francisco, Vol. I, p. 271, 1973
ed., See also Cortez vs. Avila, 101 Phil. 705.) Such an order is unavoidable,
for the general rule with reference to the making of parties in a civil action
requires the joinder of all necessary parties wherever possible, and the joinder
of all indispensable parties under any and all conditions, the presence of
those latter parties being a sine qua non of the exercise of judicial
power. (Borlasa vs. Polistico, 47 Phil. 345, at p. 347.) It is precisely when an
indispensable party is not before the court (that) the action should be
dismissed. (People vs. Rodriguez, 106 Phil. 325. at p. 327.) The absence of
an indispensable party renders all subsequent actuations of the court null and
void, for want of authority to act, not only as to the absent parties but even as
to those present.[23] (emphasis supplied)
The evident aim and intent of the Rules regarding the joinder of
indispensable and necessary parties is a complete determination of all
possible issues, not only between the parties themselves but also as regards
to other persons who may be affected by the judgment. A valid judgment
cannot even be rendered where there is want of indispensable parties. [24]
From the above, it is clear that the presence of indispensable parties is
necessary to vest the court with jurisdiction, which is the authority to hear and
determine a cause, the right to act in a case. [25] We stress that the absence of
indispensable parties renders all subsequent actuations of the court null and
void, because of that courts want of authority to act, not only as to the absent
parties but even as to those present.
It is argued that petitioner cannot possibly be an indispensable party,
since the mortgage may not even be valid because of the possible absence of

compliance with the requirement[26] that the mortgagor be the absolute owner
of the thing mortgaged. It should be emphasized, however, that at the time
the mortgage was constituted, there was an existing TCT (No. V-41319),
which named the mortgagors, the Acampado spouses, as the registered
owners of the property. In Seno v. Mangubat[27] this Court held as follows:
The well-known rule in this jurisdiction is that a person dealing with a
registered land has a right to rely upon the face of the Torrens Certificate of
Title and to dispense with the need of inquiring further, except when the party
concerned has actual knowledge of facts and circumstances that would impel
a reasonably cautious man to make such inquiry.
xxx

xxx

xxx

Thus, where innocent third persons relying on the correctness of the

certificate of title issued, acquire rights over the property, the court cannot
disregard such rights and order the total cancellation of the certificate for that
would impair public confidence in the certificate of title; otherwise everyone
dealing with property registered under the Torrens system would have to
inquire in every instance as to whether the title ha[s] been regularly or
irregularly issued by the court. Indeed this is contrary to the evident purpose
of the law.
The peremptory disregard of the annotations registered and entered in
TCT No. V-41319 constituted a deprivation of private property without due
process of law and was therefore unquestionably unjust and iniquitous. This,
we cannot countenance.
Clearly, it was the trial courts duty to order petitioners inclusion as a party
to Civil Case No. 4930-V-96. This was not done. Neither the court nor private
respondents bothered to implead petitioner as a party to the case. In the
absence of petitioner, an indispensable party, the trial court had no authority
to act on the case. Its judgment therein was null and void due to lack of
jurisdiction over an indispensable party.
In Leonor v. Court of Appeals[28] and Arcelona v. Court of Appeals,[29] we
held thus:
A void judgment for want of jurisdiction is no judgment at all. It cannot be the
source of any right nor the creator of any obligation. All acts performed
pursuant to it and all claims emanating from it have no legal effect. Hence, it
can never become final and any writ of execution based on it is void:x x x it
may be said to be a lawless thing which can be treated as an outlaw and slain
at sight, or ignored wherever and whenever it exhibits its head.
WHEREFORE, the Petition is GRANTED and the assailed Resolutions of
the Court of Appeals are REVERSED. The Decision of the Regional Trial
Court in Civil Case No. 4930-V-41319 is herebyNULLIFIED and SET
ASIDE. No costs.
SO ORDERED.

Melo, (Chairman),
JJ., concur.

Vitug,

Gonzaga-Reyes, and Sandoval-Gutierrez,

[13]

This case was deemed submitted for resolution on January 25, 2001, upon
receipt by this Court of respondents 3-page Memorandum, which was signed
by Atty. Melencio A. Cea. Petitioners Memorandum, signed by Atty. Renato
B. Corpuz Jr. of Santiago Corpuz & Ejercito, was filed earlier on December
29, 2000.
THIRD DIVISION
[G.R. No. 139306. August 29, 2000]
MARIA MERCEDES NERY, BENJAMIN NERY, MARIA PAZ NERY,
APOLINAR NERY and ROBERTO FRANCISCO NERY -- all
represented by LICINIUS ABADIANO and LOURDES DEL RIO
ESPIRITU, petitioners, vs. GABRIEL LEYSON, JOSEFINA LEYSON
POBLETE, FE LEYSON, ESPERANZA LEYSON, CARIDAD
LEYSON, ESTATES OF DECEASED Spouses JOSE LEYSON and
LOURDES VELEZ, respondents.
DECISION
PANGANIBAN, J.:
The Court of Appeals has exclusive jurisdiction over actions for annulment
of trial court decisions. Hence, a regional trial court has no authority to annul
the final judgment of a co-equal court.
The Case

Before us is a Petition for Review on Certiorari of the Decision[1] dated

February 10, 1999 and the Resolution [2] dated June 30, 1999, issued by the
Court of Appeals (CA) in CA-GR CV No. 43655 affirming the dismissal of the
Complaint, instituted by the petitioners against the respondents, for the
declaration of nullity of the subject certificate of title and judicial proceedings,
with damages. The assailed Decision disposed as follows: [3]
WHEREFORE, premises considered, the Decision dated February 10, 1993
is hereby AFFIRMED in toto.
Costs against the plaintiffs-appellants.
The assailed Resolution denied reconsideration.
The Facts

The facts of this case are summarized by the CA, as follows: [4]
The [Petitioners] Maria Mercedes, Benjamin, Maria Paz, Apolinar and
Roberto Francisco, all surnamed Nery[,] claim that they xxx are the children of
xxx Mercedes del Rio, who died during World War II. They are also heirs of
their maternal grandmother Agatona del Corro, who as a widow, died in
1976. When Mercedes del Rio died, she left a share in the parcel of land in
Lapu-Lapu City covered by O.C.T. No. RO-0083 in the name of Agatona del
Corro, et al. The land is being managed by [petitioners] uncle Eduardo del
Rio and Lourdes del Rio Espiritu.
After the death of Mercedes del Rio, her heirs executed an Extrajudicial
Partition and Declaration of Heirs dated January 28, 1964 covering the share
of Mercedes del Rio in the land in question. The death of Mercedes del Rio
was duly annotated on O.C.T. No. RO-0083 (Exh. A-1) on February 27,
1964. On December 2, 1964, a Notice of Lis Pendens (Re-Civil Case No. R8646 C.F.I. of Cebu) was executed and annotated on the title by Atty. Regino
Hermosisima representing Lourdes Leyson, et al. It appears that the Leysons
had filed a case for annulment and cancellation of O.C.T. No. RO-0083. The
[petitioners] claim that they were not made parties to said case and that
although their mother Mercedes del Rio was impleaded as defendant, she
was already dead when Civil Case No. [R-]8646 was filed in 1964. They
maintain that the decision in Civil Case No. [R-]8646 does not bind them for
they [were] not parties thereto, hence, the same [was] null and void.
They therefore filed this case [docketed as Civil Case No. 2379-L] seeking
the declaration of nullity of T.C.T. No. 119747 in the name of the Leysons and
of the judicial proceedings in Civil Case No. [R-]8646.
[Respondents] evidence, on the other hand, show that the land in dispute,
Lot No. 73 of Cadastral Survey of Opon (now Lapu-Lapu City) is titled in their
names under T.C.T. No. 19747 which was derived from O.C.T. No.
15615. Appearing in the said title is the name of their father Jose S. Leyson
who acquired the land through purchase from Rosario Miranda. They were in
possession of the property until 1963 when Agatona del Corro and her
children took over the possession of the same. Lot No. 73 of the Cadastral
Survey of Opon (now Lapu-Lapu City) covered by T.C.T. No. 19747 became
the subject of litigation in Civil Case No. R-8646 entitled Lourdes Velez
Leyson, Josefina Leyson Poblete, Fe Leyson, Esperanza Leyson, Caridad
Leyson and Gabriel Leyson versus Agatona del Corro, Antolin del Rio,
Consuelo del Rio, Mercedes del Rio, Socorro del Rio, Lourdes del Rio and
Eduardo del Rio. The case was filed on December 2, 1964 before the then
Court of First Instance of Cebu, Branch V.
The trial court in Civil Case No. [R-]8646 rendered a Decision on May 2,
1968 in favor of plaintiffs Lourdes V. Leyson, et al., and against therein
defendants Agatona del Corro, et al. The dispositive portion of said decision
reads as follows:

IN VIEW OF THE FOREGOING findings, the Court hereby renders judgment

in favor of the plaintiffs and against the defendants:
(1)
Setting aside the order of this Court dated September 23, 1963
reconstituting the Original Certificate of Title for Lot No. 73 of the Opon
Cadastre;
(2)
Declaring the reconstituted Original Certificate of Title No. RO-0083
covering Lot No. 73 in the name of the defendants as cancelled, null and void,
and, without legal force and effect; and, ordering, therefore, the defendants to
turn over the possession of the lot in question to the plaintiffs who have the
right to possess it;
(3)
Declaring the plaintiffs Transfer Certificate of Title No. 19747 for Lot
No. 73 valid and with legal force and effect;
(4)
Declaring the herein plaintiffs to be the real and absolute owners of
Lot No. 73;
(5)
Ordering the defendants to pay jointly and severally to the plaintiffs
the sum of P4,800.00 as actual damages;
(6)
To pay P2,000.00 representing attorneys fees and to pay the costs
of the suit.
SO ORDERED.
Defendants Agatona, et al. appealed the aforesaid decision to the Court of
Appeals where it was docketed as CA-G.R. No. 45878-R. In its Decision
promulgated on March 15, 1976, the appellate court affirmed in all respects
the decision appealed from (Exh. 2 and 2-A).
For failure of the defendants Agatona del Corro, et al. to appeal the decision
of the Court of Appeals, the same xxx [became] final and executory on April
10, 1976 as shown by the Entry of Judgment (Exh. 3 and 3-A).
Subsequent to the finality of the appellate courts decision in Civil Case No.
R-8646 on April 10, 1976, there were efforts on the part of the Leysons to
execute the decision in Civil Case No. R-8646 but for one reason or another,
the same did not materialize as testified to by one of the [respondents] in the
present case, Caridad V. Leyson. x x x.
On January 16, 1991, the petitioners instituted against the respondents an
action for the declaration of nullity of TCT No. 19747 and the judicial
proceedings in Civil Case No. R-8646. The Regional Trial Court of Lapu-Lapu
City, Branch 27,[5] rendered a Decision[6] dated February 10, 1993, in favor of
the respondents. It disposed as follows:[7]

WHEREFORE, premises considered, judgment is hereby rendered in favor of

the [herein respondents] and against the [herein petitioners], dismissing the
case with cost against the [petitioners].
As earlier stated, the CA denied the petitioners appeal.
Ruling of the Court of Appeals
The CA ruled that petitioners action for annulment of title and judicial
proceedings was not barred by res judicata, which was inapplicable, but by
the principle of conclusiveness of judgment under Rule 39, Section 49, par. (c)
of the Rules of Court. The issue of which between the two reconstituted titles
was valid and genuine was settled by the CA in the earlier case docketed as
CA-GR No. 45678-R, which ruled:
Insofar as the two titles existing over the same parcel of land are concerned,
[w]e agree with the lower court that TCT No. 19747 should prevail, and that
the reconstituted OCT No. RO-0083 should be cancelled. Upon the facts set
forth above, it is evident that OCT No. 15615 and TCT No. 8834, both in the
names of the defendants, have been cancelled. Said title[s], or either of them,
therefore, may no longer be validly reconstituted. The provisions of Republic
Act No. 26 are applicable and their mandate must be obeyed. According to
said law, reconstitution of the lost or destroyed title may be ordered by the
court only if, after hearing, it finds, among others, that the documents
represented as supported by parole evidence or otherwise, are sufficient and
proper to warrant the reconstitution, and that the petitioner is the registered
owner of the property or has an interest therein, and that said certificate of title
was in force at the time it was lost or destroyed (Section 15). As plaintiffs title
had already cancelled the title relied upon by the defendants in their petition
for reconstitution, it follows that the reconstitution of the latter was null and
void and, therefore, the court a quo was correct in ordering its cancellation.
The petitioners action for annulment was filed fifteen years after the
above-mentioned judgment had become final on April 10, 1976. The long
period of time that had lapsed precluded them from further prosecuting the
same issue. Finally, a regional trial court has no jurisdiction to annul the
judgment of a co-equal court; jurisdiction in such cases lies in the Court of
Appeals.
Hence, this Petition.[8]
Issues
Insisting that they were deprived of their day in court, petitioners, in their
Memorandum, raise the following issues:[9]
1. Whether or not the Court of Appeals erred in ruling that the petitioners
cause of action was barred by the principle of conclusiveness of judgment
under Rule 39, Section 49, Paragraph (c) of the Rules of Court.

2. Whether or not the Court of Appeals erred in ruling that the decision in Civil
Case No. R-8646, as affirmed by the Court of Appeals in CA-GR No. 45678R, [became] final and executory against herein petitioners.
This Courts Ruling
The Court, after due deliberation, resolves to deny the Petition.
First Issue: Conclusiveness of Judgment
Petitioners challenge the application to this case of the principle of
conclusiveness of judgment, arguing that jurisdiction over them was never
acquired by the trial court. Barring their action would be tantamount to
deprivation of property without due process of law, they argue.
Respondents, on the other hand, insist that the trial court in Civil Case No.
R-8646 acquired jurisdiction over the persons of the defendants therein
including the petitioners because (1) it was the duty of the attorney for the
deceased Mercedes del Rio to inform the court of the clients death, and (2)
the attorney represented the same interest as the other defendants -- their
grandmother, uncles and aunts. Respondents add that petitioners failure to
raise this defense in the Answer and Amended Answer constituted a waiver of
this defense; hence, the latter are estopped from raising it now.
Rule 39, Section 49 of the Rules of Court, which the CA cited as the basis
for the assailed Decision, provides:
SEC. 49. Effect of judgments.The effect of a judgment or final order
rendered by a court or judge of the Philippines, having jurisdiction to
pronounce the judgment or order, may be as follows:
(a)
In case of a judgment or order against a specific thing, or in respect
to the probate of a will, or the administration of the estate of a deceased
person, or in respect to the personal, political, or legal condition or status of a
particular person or his relationship to another, the judgment or order is
conclusive upon the title to the thing, the will or administration, or the
condition, status or relationship of the person; however, the probate of a will or
granting of letters of administration shall only be prima facie evidence of the
death of the testator or intestate;
(b)
In other cases, the judgment or order is, with respect to the matter
directly adjudged or as to any other matter that could have been raised in
relation thereto, conclusive between the parties and their successors in
interest by title subsequent to the commencement of the action or special
proceeding, litigating for the same thing and under the same title and in the
same capacity;
(c)
In any other litigation between the same parties or their successors
in interest, that only is deemed to have been adjudged in a former judgment
which appears upon its face to have been so adjudged, or which was actually
and necessarily included therein or necessary thereto. [10]

To bar the petitioners action for annulment on the ground of res judicata,
the following elements should be present: (1) the judgment being sought to
bar the new action must be final; (2) the decision must have been rendered by
a court having jurisdiction over the subject matter and the parties; (3) the
disposition of the case must be based on a judgment or an order on the
merits; and (4) there must be identity of parties, subject matter and causes of
action.[11]
There is clearly no identity of parties between Civil Case R-8646 and
2379-L.[12] The petitioners were indispensable parties in Civil Case R-8646, as
they were the legal heirs of Mercedes del Rio, who was one of the registered
owners in OCT RO-0083/15615 which covered the disputed
land. Furthermore, she has been dead since 1942 or years before Civil Case
R-8646 was filed in 1964. The joinder of indispensable parties or parties in
interest, without whom there can be no final determination of an action is
compulsory under Rule 3, Section 7 of the Rules of Court. [13]
However, petitioners were never served summons; neither did they join
their relatives in filing the Answer and Amended Answer. Nor were they given
a chance to set up their own defenses against the respondents claim of
ownership over the disputed lot. Plainly then, the trial court did not acquire
jurisdiction over them.
Respondents, on the other hand, contend that the trial court acquired
jurisdiction over the petitioners when they failed to notify the lower court of the
death of Mercedes del Rio during the trial of Civil Case R-8646. We
disagree. Under Section 16, Rule 3 of the Rules of Court, only in a pending
case is the counsel of a party required to inform the court in case the client
dies or becomes incapacitated or incompetent. A pending case necessarily
implies that the court has already acquired jurisdiction over the person of the
party who died or became incapacitated or incompetent. Prior to this
development, the trial court cannot impose such requirement on the counsel
for the defendants; Section 16 of Rule 3 thus finds no application to this
case. On the other hand, it is the duty of the plaintiff to implead all the
necessary or indispensable parties for the complete determination of the
action. OCT RO-0083/15615 reveals that Mercedes del Rio was a registered
co-owner of the disputed lot, but she was not placed under the jurisdiction of
the trial court in Civil Case No. R-8646. Neither were her heirs.
Respondents also posit that the service of summons on the petitioners
could be dispensed with, since there is substantial identity between the
mother and the siblings of Mercedes del Rio, on the one hand, and the
petitioners on the other. The reason for this substantial identity is that the
petitioners represent the same interest as the other defendants in Civil Case
R-8646. Again, we disagree. True, res judicata is not defeated by a minor
difference of parties, as it does not require absolute but only substantial
identity of parties.[14] But there is substantial identity only when the additional
party acts in the same capacity or is in privity with the parties in the former
action.[15] This is not so in the present case. Co-owners are not parties inter
se in relation to the property owned in common. [16] A subsequent action by a
co-heir, who did not join the earlier dismissed action for recovery of property,

should not be barred by prior judgment. [17] Neither will conclusiveness of

judgment apply because there was no identity of parties.
In view of the foregoing discussion, petitioners should not be bound by the
decision in Civil Case No. R-8646. This, however, does not justify the
reversal of the assailed Decision. As will now be explained, the petitioners
action suffers from a fatal defect which prevents their action for annulment
from prospering.
Second Issue: Annulment of Judgment
The reason why the herein Petition cannot be granted is the trial courts
lack of jurisdiction to annul a final judgment of a co-equal court. Petitioners
allege that the decision in Civil Case R-8646 passed upon the validity of OCT
RO-0083/15615. Such allegation makes the root of their present action one
for annulment of a final judgment. This Court cannot ignore the fact that such
action is outside the jurisdiction of the RTC. On this point, the CA ruled, albeit
in passing, that xxx the court a quo does not have the jurisdiction to annul the
judgment of a regional trial court as jurisdiction thereon is lodged with the
Court of Appeals.[18] We sustain the Court of Appeals on this point.
Section 9 of BP 129, [19] as amended, vests in the CA [e]xclusive
jurisdiction over actions for annulment of judgments of regional trial courts
xxx.[20] Hence, even if the trial court in Civil Case No. R-8646 did not acquire
jurisdiction over the petitioners, the trial court in Civil Case No. 2379-L cannot
annul the final judgment in Civil Case No. R-8646, as jurisdiction over the
subject matter, which in this case is annulment of final judgment, is vested by
law in a higher court, the CA.[21]
WHEREFORE, the Petition is DENIED and, for the reasons above-stated,
the assailed Decision and Resolution are AFFIRMED. Costs against the
petitioners.
SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.

THIRD DIVISION
ELPIDIO S. UY, doing business under the
name and style EDISON DEVELOPMENT
& CONSTRUCTION,
Petitioner,

- versus -

G.R. No. 157065

Present:
QUISUMBING, J., Chairperson,
CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.

HONORABLE
COURT
OF
Promulgated:
APPEALS and the HERITAGE PARK
MANAGEMENT
CORPORATION
(HPMC),
July 11, 2006
Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
QUISUMBING, J.:
This is a Petition for Review seeking to reverse and set aside the
Decision[1] dated January 31, 2003 of the Court of Appeals in CA-G.R. SP. No.
69771.
The Heritage Memorial Park is a flagship project of the Bases
Conversion Development Authority (BCDA) in Fort Bonifacio. To implement
the project, the BCDA, onSeptember 9, 1994, entered into an agreement
denominated as the Pool Formation Trust Agreement [2] (PFTA) with the
Philippine National Bank (PNB) and the Public Estates Authority (PEA). The
BCDA was designated as the Project Owner; PEA, the Project Manager; and
PNB as the Trustee.
As project owner, the BCDA was tasked to sell the Heritage Park
Investment Certificates to the public and buyers become certificate
holders. The certificate gives the PNB the absolute legal and beneficial title
to Heritage Park in trust for the certificate holders. The PNB, as trustee, shall
protect the values of the assets in the trust, receive and have custody over the
proceeds from the sale of the certificates, administer the various funds,
including disbursements for project costs and related expenses, turnover the
Perpetual Care Fund to the Successor Trustee, turnover custody over
documents pertaining to the Heritage Park and the residual funds to BCDA,
and turnover all the documents and records to the Board of Trustees after
completion of the project.[3]
PEA, as project manager, is tasked to implement and complete the
various engineering works and improvements of Heritage Park.
On November 20, 1996, PEA and the petitioner, a single proprietorship
doing business under the name and style of Edison Development and
Construction, executed a Landscaping and Construction Agreement whereby
the petitioner undertook to do all the landscaping, including the construction of
a terrasoleum of the Heritage Park. The Heritage Park Executive
Committee[4] approved the agreement on May 29, 1997.[5]
Pursuant to Section 11.01[6] of the PFTA, in April 1999, the certificate
holders of the project organized themselves into a non-stock, non-profit

corporation, the Heritage Park Management Corporation (HPMC), now the

private respondent herein.
In October 1999, alleging delay in the construction of the projects and
huge discrepancy between the Accomplishment Report and the actual
physical accomplishment of petitioners construction firm, the Heritage Park
Executive Committee terminated the two construction contracts namely, the
landscaping and nursery works, and the construction of the terrasoleum.
On March 17, 2000, pursuant to the terms of the PFTA, HPMC
assumed all the functions, duties and responsibilities of the PEA, including
those under an assailed contract.[7]
On May 31, 2001, petitioner filed a complaint [8] against the PEA before
the Construction Industry Arbitration Commission (CIAC) where it sought to
recover payment for its progress billings on the said projects.
On December 18, 2001, CIAC promulgated its decision, holding that:
On the basis of the evidence presented and the findings,
judgment is hereby rendered in favor of the Claimant Contractor
ELPIDIO S. UY and Award is hereby made on its monetary
claims as follows:
P 2,354,607.40
2,949,767.71
8,197,396.65
16,210,108.28

6,421,398.50
1,045,532.07
2,211,148.26
489,535.02
3,987,949.39
445,665.15
[P 44,313,108.43]

- Progress Billing No. 09

- Progress Billing No. 10
- Performed Work on Change Order
No. 1
- Equipment Stand-by Costs
- Manpower Stand-by Costs
- Escalation of Contract Price
- Unpaid Balance on Materials on Site
- Interest on Billing Nos. 9 and 10
- Attorneys Fees
- Reimbursement of Arbitration fees
- Total Amount

[9]

Interest at the rate of 6% per annum on the total amount of

P39,879,493.89 (Attorneys fees and reimbursement of
arbitration fees exclude) shall be paid from the date this
Decision is promulgated until finality of this Decision, after which
interest at the rate of 12% per annum shall be paid on the total
amount of P39,879,493.89 until full payment of the awarded
amount shall have been made.
SO ORDERED.[10]

On March 14, 2002, an Alias Writ of Execution [11] was issued by CIAC
and on the following day, a Notice of Garnishment was served on private
respondent.
Private respondent HPMC then filed a petition for Injunction/Prohibition
before the Court of Appeals on the ground that CIAC had no jurisdiction over
the subject matter since HPMC was not impleaded as a party thereby
depriving it of its right to be heard. [12] The appellate court ruled in favor of
respondent, as follows
WHEREFORE, premises considered, the Petition is
GRANTED and the assailed three (3) rulings of public
respondent in CIAC 21-2001 are hereby declared VOID AB
INITIO and produces no legal effect insofar as
the HPMCs interests are concerned. No costs.
SO ORDERED.[13]
Petitioner before us ascribes the following as errors on the part of the
appellate court:
I
THE
COURT OF APPEALS
COMMITTED
GROSS
REVERSIBLE ERROR AND DECIDED QUESTIONS OF
SUBSTANCE IN A WAY NOT IN ACCORDANCE WITH LAW
AND THE APPLICABLE DECISIONS OF THE HONORABLE
COURT WHEN IT DECLARED VOID THE CIAC DECISION
DATED 18 DECEMBER 2001, THE AMENDED WRIT OF
EXECUTION DATED 25 MARCH 2002, AND THE AMENDED
NOTICE OF GARNISHMENT DATED 27 MARCH 2002, ON
THE SOLE GROSSLY ERRONEOUS BASIS THAT
RESPONDENT HPMC IS ALLEGEDLY A REAL PARTY-ININTEREST AND AN INDISPENSABLE PARTY IN CIAC CASE
NO. 21-2001 FOR WHICH REASON IT SHOULD ALLEGEDLY
HAVE BEEN IMPLEADED IN SAID ARBITRATION CASE,
CONSIDERING THAT:
A.

UNDER THE POOL FORMATION TRUST

AGREEMENT (PFTA) WHICH PROVIDES FOR THE
CREATION OF RESPONDENT HPMC, THE
TRUSTEESHIP RIGHTS CONFERRED UPON IT
INSOFAR AS THE HERITAGE FUNDS ARE
CONCERNED WERE EXPRESSLY LIMITED BY THE
PFTA
ITSELF
WHICH
EARMARKED
OR
ALLOCATED SAID FUNDS TO ANSWER FOR
LIABILITIES
UNDER
THE
CONSTRUCTION
AGREEMENTS ENTERED INTO BY THE PEA,
THEREBY CONSTITUTING RESPONDENT HPMC
AS A MERE CUSTODIAN OR ESCROW AGENT OF
SAID FUNDS; ACCORDINGLY, RESPONDENT
HPMC IS NOT A REAL PARTY-IN-INTEREST OR

INDISPENSABLE PARTY TO CIAC CASE NO. 212001.

B.

BY CLAIMING TO BE THE TRUSTEE OF THE

CONSTRUCTION/DEVELOPMENT
FUND,
RESPONDENT HPMC IS ESTOPPED FROM
ASSERTING ITS ALLEGED OWNERSHIP OF SAID
FUND.

C.

THE CONSTRUCTION/DEVELOPMENT FUND

WAS EXPRESSLY EARMARKED TO PAY FOR THE
COSTS OF DEVELOPMENT OF THE HERITAGE
PARK, INCLUDING ARBITRAL AWARDS; AND
THUS, CIAC ACTED WITHIN ITS DISCRETION
WHEN IT ISSUED A WRIT OF EXECUTION
DIRECTED AGAINST THE SAID FUND.
II

THE COURT OF APPEALS COMMITTED GROSS AND

REVERSIBLE ERROR AND DECIDED QUESTIONS OF
SUBSTANCE IN A WAY NOT IN ACCORDANCE WITH LAW
AND THE APPLICABLE DECISIONS OF THE HONORABLE
COURT WHEN IT RULED THAT RESPONDENT HPMC IS
ALLEGEDLY A REAL PARTY-IN-INTEREST OR AN
INDISPENSABLE PARTY CONSIDERING THAT THE
HONORABLE COURT HAS ALREADY CONCLUSIVELY
RULED THAT THERE WAS NO VALID NOVATION OF THE
CONSTRUCTION AGREEMENTS BETWEEN PETITIONER UY
AND PEA. IN FACT, THE COURT OF APPEALS ALREADY
DISMISSED A SIMILAR PETITION FILED BY RESPONDENT
HPMC INVOKING THE SAME GROUNDS AS IN ITS
PETITION A QUO.
III
THE
COURT OF APPEALS
COMMITTED
GROSS
REVERSIBLE ERROR IN GRANTING THE EXTRAORDINARY
REMEDIES OF PROHIBITION AND INJUNCTION TO ENJOIN
THE EXECUTION OF THE AWARD IN CIAC CASE NO. 212001, CONSIDERING THAT:
A.

RESPONDENT HPMC DOES NOT HAVE ANY

RIGHT, MUCH LESS A CLEAR AND UNMISTAKABLE
RIGHT, WHICH WOULD ENTITLE IT TO THE
EXTRAORDINARY REMEDIES OF PROHIBITION
AND INJUNCTION.

B.

RESPONDENT HPMC MISERABLY FAILED TO

ESTABLISH THAT IT WOULD SUFFER ANY INJURY,
MUCH LESS GRAVE AND IRREPARABLE INJURY,
AS A RESULT OF THE EXECUTION OF THE SAID
AWARD.

C.

RESPONDENT HPMCS SAID PETITION FOR

INJUNCTION/PROHIBITION
WAS
FATALLY
DEFECTIVE IN BOTH FORM AND SUBSTANCE;
AND HENCE, SHOULD HAVE BEEN DISMISSED.

D.

RESPONDENT HPMC WAS CLEARLY GUILTY OF

FORUM-SHOPPING WHEN IT FILED ITS PETITION
FOR
INJUNCTION/PROHIBITION
WITH
THE
COURT OF APPEALS DURING THE PENDENCY OF
A SIMILAR PETITION WITH THE HONORABLE
COURT (G.R. NO. 148133).
IV

THE
COURT OF APPEALS
COMMITTED
GROSS
REVERSIBLE ERROR WHEN IT WENT BEYOND THE ISSUES
OF THE CASE AND THE ALLEGATIONS IN RESPONDENT
HPMCS PETITION BY DECLARING THE CIAC DECISION
DATED 18 DECEMBER 2001, THE AMENDED WRIT OF
EXECUTION DATED 25 MARCH 2002, AND THE AMENDED
NOTICE OF GARNISHMENT DATED 27 MARCH 2002 AS
ALLEGEDLY VOID AB INITIO.[14]
Simply stated, the issues for our resolution are: (1) Is HPMC a real
party-in-interest or an indispensable party? (2) Does CIAC have jurisdiction
over the dispute? and (3) Was the grant of the writs of injunction/prohibition
proper?
Petitioners contention is that private respondent HPMC is not a partyin-interest to the case since it is a mere trustee of the construction and
development funds and would not be directly benefited or injured by the
outcome of the case.
Private respondent contends that upon its incorporation and election of
its Board of Trustees, it assumed ownership of the Heritage Park
Project. Further, since it is a non-stock, non-profit corporation, with the
certificate holders as its members, any claim against the PEA is in reality a
claim against all the parties who pooled and contributed their resources for
the project; hence, it is an indispensable party.[15]
An indispensable party is one whose interest will be affected by the
courts action in the litigation, and without whom no final determination of the
case can be had. The partys interest in the subject matter of the suit and in
the relief sought are so inextricably intertwined with the other parties that his
legal presence as a party to the proceeding is an absolute necessity.[16]
Based on the Construction Agreement, PEA entered into it in its
capacity as Project Manager, pursuant to the PFTA. According to the
provisions of the PFTA,[17] upon the formation of the HPMC, the PEA would
turn over to the HPMC all the contracts relating to the Heritage Park. At the
time of the filing of the CIAC Case on May 31, 2001, PEA ceased to be the

Project Manager of the Heritage Park Project, pursuant to Section 11 of the

PFTA. Through a Deed of Assignment, [18] PEA assigned its interests in all the
existing contracts it entered into as the Project Manager for Heritage Park to
HPMC. As early as March 17, 2000, PEA officially turned over to HPMC all
the documents and equipment in its possession related to the Heritage Park
Project. Petitioner was duly informed of these incidents through a letter
dated March 13, 2000.[19] Apparently, as of the date of the filing of the CIAC
Case, PEA is no longer a party-in-interest. Instead, it is now private
respondent HPMC, as the assignee, who stands to be benefited or injured by
the judgment in the suit. In its absence, there cannot be a resolution of the
dispute of the parties before the court which is effective, complete or
equitable.[20] We thus reiterate that HPMC is an indispensable party.
Does CIAC have jurisdiction over the dispute? Section 4 [21] of Executive
Order No. 1008[22] is pertinent. It provides that the jurisdiction of the CIAC
over the parties is dependent on the agreement and consent of the parties to
the construction contract, to submit their dispute for arbitration. Absent such
consent, the CIAC cannot validly proceed against a party for lack of
jurisdiction.
In this instance, both parties agreed to submit the dispute for
arbitration. However, the CIAC should have dismissed the same on the
ground that the private respondent was not impleaded, it being an
indispensable party to the case.
Indispensable parties must be joined either as plaintiffs or defendants.
Whenever it appears to the court in the course of a proceeding that an
indispensable party has not been joined, it is the duty of the court to stop the
trial and to order the inclusion of such party.[24] The absence of an
indispensable party renders all subsequent actuations of the court null and
void, for want of authority to act, not only as to the absent parties, but even as
to those present.[25]
[23]

It has come to the Courts attention that from the inception of the case,
PEA informed the CIAC that pursuant to the PFTA and the Deed of
Assignment, all its rights and obligations under the contract have already
been assigned to private respondent.[26]
The responsibility of impleading all the indispensable parties rests on
the plaintiff. The defendant does not have the right to compel the plaintiff to
prosecute the action against a party if he does not wish to do so, but the
plaintiff will have to suffer the consequences of any error he might commit in
exercising his option.[27]
As to the third issue -- on the propriety of the writs of
injunction/prohibition -- the matter has been mooted by our disquisitions
above, and the issue has become academic.

WHEREFORE, the petition is DENIED, without prejudice to the re-filing

of the case against the proper party in interest.
Costs against petitioner.
SO ORDERED.
[6]

[17]

[21]

CIAC records, p. 794. Section 11.01. Organization of a non-stock, nonprofit corporation. At any time within the three (3) year development
period, but not later than sixty (60) days prior to the completion of the
Project as estimated by the PEA/Works Engineer, BCDA shall organize or
cause to be organized, under the laws of the Republic of the Philippines, a
non-stock, non-profit corporation, with the Certificate holders as its
members, whose voting rights correspond to the type of lot covered by
their Certificates in accordance with Section 9.05 and Section 11.03 of this
Agreement.
It is the full intent and understanding of BCDA, PEA, and the Trustee that
the non-stock, non-profit corporation shall be organized and registered
with the Securities and Exchange Commission. It shall have all the
powers and obligations of a non-stock, non-profit corporation. Its Board of
Trustees shall have all the rights, powers and duties under Section 11.06
of this Agreement.
xxxx
CIAC records, p. 796. Section 11.07. Delivery of Documents and the
Park. Upon the election of the Board of Trustees, the PNB shall turn over
to the Board of Trustee all its functions and responsibilities, and all
documents in its custody, including all Heritage Park Accounts, except the
General Fund which will go to BCDA. Upon such turn over and upon
complete and faithful performance by PNB and PEA of their respective
obligations under this Agreement, the respective obligations of PNB and
PEA under this Agreement shall be deemed terminated. PEA shall turn
over to the Board of Trustees all the documents and equipment it has in its
possession relating to the Project and the Park, including the computer
hardware and software pertaining to the geographical information system
of the Park.
SECTION 4. Jurisdiction. The CIAC shall have original and exclusive
jurisdiction over disputes arising from, or connected with, contracts
entered into by parties involved in construction in the Philippines, whether
the disputes arises before or after the completion of the contract, or after
the abandonment or breach thereof. These disputes may involve
government or private contracts. For the Board to acquire jurisdiction, the
parties to a dispute must agree to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to
violation of specifications for materials and workmanship; violation of the
terms of agreement; interpretation and/or application of contractual
provisions; amount of damages and penalties; commencement time and
delays; maintenance and defects; payment default of employer or
contractor and changes in contract cost.

[22]

[23]

Excluded from the coverage of this law are disputes arising from
employer-employee relationships which shall continue to be covered by
the Labor Code of the Philippines.
CREATING AN ARBITRATION MACHINERY FOR THE PHILIPPINE
CONSTRUCTION INDUSTRY (February 4, 1985).
RULES OF COURT, Rule 3, Sec. 7. Compulsory joinder of
indispensable parties. Parties in interest without whom no final
determination can be had of an action shall be joined either as plaintiffs or
defendants.

G.R. No. 141538

March 23, 2004

HERMANA R. CEREZO, petitioner, vs. DAVID TUAZON, respondent.

DECISION
CARPIO, J.:
The Case
This is a petition for review on certiorari1 to annul the Resolution2 dated 21
October 1999 of the Court of Appeals in CA-G.R. SP No. 53572, as well as its
Resolution dated 20 January 2000 denying the motion for reconsideration.
The Court of Appeals denied the petition for annulment of the Decision 3 dated
30 May 1995 rendered by the Regional Trial Court of Angeles City, Branch 56
("trial court"), in Civil Case No. 7415. The trial court ordered petitioner
Hermana R. Cerezo ("Mrs. Cerezo") to pay respondent David Tuazon
("Tuazon") actual damages, loss of earnings, moral damages, and costs of
suit.
Antecedent Facts
Around noontime of 26 June 1993, a Country Bus Lines passenger bus with
plate number NYA 241 collided with a tricycle bearing plate number TC RV
126 along Captain M. Palo Street, Sta. Ines, Mabalacat, Pampanga. On 1
October 1993, tricycle driver Tuazon filed a complaint for damages against
Mrs. Cerezo, as owner of the bus line, her husband Attorney Juan Cerezo
("Atty. Cerezo"), and bus driver Danilo A. Foronda ("Foronda"). The complaint
alleged that:
7. At the time of the incident, plaintiff [Tuazon] was in his proper lane
when the second-named defendant [Foronda], being then the driver
and person in charge of the Country Bus with plate number NYA 241,
did then and there willfully, unlawfully, and feloniously operate the said
motor vehicle in a negligent, careless, and imprudent manner without
due regard to traffic rules and regulations, there being a "Slow Down"
sign near the scene of the incident, and without taking the necessary
precaution to prevent loss of lives or injuries, his negligence,
carelessness and imprudence resulted to severe damage to the tricycle

and serious physical injuries to plaintiff thus making him unable to walk
and becoming disabled, with his thumb and middle finger on the left
hand being cut[.]4
On 1 October 1993, Tuazon filed a motion to litigate as a pauper.
Subsequently, the trial court issued summons against Atty. Cerezo and Mrs.
Cerezo ("the Cerezo spouses") at the Makati address stated in the complaint.
However, the summons was returned unserved on 10 November 1993 as the
Cerezo spouses no longer held office nor resided in Makati. On 18 April 1994,
the trial court issued alias summons against the Cerezo spouses at their
address in Barangay Sta. Maria, Camiling, Tarlac. The alias summons and a
copy of the complaint were finally served on 20 April 1994 at the office of Atty.
Cerezo, who was then working as Tarlac Provincial Prosecutor. Atty. Cerezo
reacted angrily on learning of the service of summons upon his person. Atty.
Cerezo allegedly told Sheriff William Canlas: "Punyeta, ano ang gusto mong
mangyari? Gusto mong hindi ka makalabas ng buhay dito? Teritoryo ko ito.
Wala ka sa teritoryo mo."5
The records show that the Cerezo spouses participated in the proceedings
before the trial court. The Cerezo spouses filed a comment with motion for bill
of particulars dated 29 April 1994 and a reply to opposition to comment with
motion dated 13 June 1994.6 On 1 August 1994, the trial court issued an order
directing the Cerezo spouses to file a comment to the opposition to the bill of
particulars. Atty. Elpidio B. Valera ("Atty. Valera") of Valera and Valera Law
Offices appeared on behalf of the Cerezo spouses. On 29 August 1994, Atty.
Valera filed an urgent ex-parte motion praying for the resolution of Tuazons
motion to litigate as a pauper and for the issuance of new summons on the
Cerezo spouses to satisfy proper service in accordance with the Rules of
Court.7
On 30 August 1994, the trial court issued an order resolving Tuazons motion
to litigate as a pauper and the Cerezo spouses urgent ex-parte motion. The
order reads:
At the hearing on August 30, 1994, the plaintiff [Tuazon] testified that
he is presently jobless; that at the time of the filing of this case, his son
who is working in Malaysia helps him and sends him once in a while
P300.00 a month, and that he does not have any real property.
Attached to the Motion to Litigate as Pauper are his Affidavit that he is
unemployed; a Certification by the Barangay Captain of his poblacion
that his income is not enough for his familys subsistence; and a
Certification by the Office of the Municipal Assessor that he has no
landholding in the Municipality of Mabalacat, Province of Pampanga.
The Court is satisfied from the unrebutted testimony of the plaintiff that
he is entitled to prosecute his complaint in this case as a pauper under
existing rules.
On the other hand, the Court denies the prayer in the Appearance and
Urgent Ex-Parte Motion requiring new summons to be served to the

defendants. The Court is of the opinion that any infirmity in the service
of the summons to the defendant before plaintiff was allowed to
prosecute his complaint in this case as a pauper has been cured by
this Order.
If within 15 days from receipt of this Order, the defendants do not
question on appeal this Order of this Court, the Court shall proceed to
resolve the Motion for Bill of Particulars. 8
On 27 September 1994, the Cerezo spouses filed an urgent ex-parte motion
for reconsideration. The trial court denied the motion for reconsideration.
On 14 November 1994, the trial court issued an order directing the Cerezo
spouses to file their answer within fifteen days from receipt of the order. The
Cerezo spouses did not file an answer. On 27 January 1995, Tuazon filed a
motion to declare the Cerezo spouses in default. On 6 February 1995, the trial
court issued an order declaring the Cerezo spouses in default and authorizing
Tuazon to present his evidence. 9
On 30 May 1995, after considering Tuazons testimonial and documentary
evidence, the trial court ruled in Tuazons favor. The trial court made no
pronouncement on Forondas liability because there was no service of
summons on him. The trial court did not hold Atty. Cerezo liable as Tuazon
failed to show that Mrs. Cerezos business benefited the family, pursuant to
Article 121(3) of the Family Code. The trial court held Mrs. Cerezo solely
liable for the damages sustained by Tuazon arising from the negligence of
Mrs. Cerezos employee, pursuant to Article 2180 of the Civil Code. The
dispositive portion of the trial courts decision reads:
WHEREFORE, judgment is hereby rendered ordering the defendant
Hermana Cerezo to pay the plaintiff:

a) For Actual Damages

P69,485.35

b) For loss of earnings

39,921.00

c) For moral damages

43,300.00

1) Expenses for operation and medical Treatment

2) Cost of repair of the tricycle

d) And to pay the cost of the suit.

The docket fees and other expenses in the filing of this suit shall be lien
on whatever judgment may be rendered in favor of the plaintiff.
SO ORDERED.10
Mrs. Cerezo received a copy of the decision on 25 June 1995. On 10 July
1995, Mrs. Cerezo filed before the trial court a petition for relief from judgment
on the grounds of "fraud, mistake or excusable negligence." Testifying before
the trial court, both Mrs. Cerezo and Atty. Valera denied receipt of notices of
hearings and of orders of the court. Atty. Valera added that he received no
notice before or during the 8 May 1995 elections, "when he was a senatorial
candidate for the KBL Party, and very busy, using his office and residence as
Party National Headquarters." Atty. Valera claimed that he was able to read
the decision of the trial court only after Mrs. Cerezo sent him a copy.11
Tuazon did not testify but presented documentary evidence to prove the
participation of the Cerezo spouses in the case. Tuazon presented the
following exhibits:

Exhibit 1

Sheriffs return and summons;

Exhibit 1-A

Alias summons dated April 20, 1994;

Exhibit 2

Comment with Motion;

Exhibit 3

Minutes of the hearing held on August 1, 1994;

Exhibit 3-A

Signature of defendants counsel;

Exhibit 4

Minutes of the hearing held on August 30, 1994;

Exhibit 4-A

Signature of the defendants counsel;

Exhibit 5

Appearance and Urgent Ex-Parte Motion;

20,000.00

Exhibit 6

Order dated November 14, 1994;

Exhibit 6-A

Postal certification dated January 13, 1995;

Exhibit 7

Order dated February [illegible];

Exhibit 7-A

Courts return slip addressed to Atty. Elpidio Valera;

Exhibit 7-B

Courts return slip addressed to Spouses Juan and Hermana Cerez

Exhibit 8

Decision dated May [30], 1995

Exhibit 8-A

Courts return slip addressed to defendant Hermana Cerezo;

Exhibit 8-B

Courts return slip addressed to defendants counsel, Atty. Elpidio V

Exhibit 9

Order dated September 21, 1995;

Exhibit 9-A

Second Page of Exhibit 9;

Exhibit 9-B

Third page of Exhibit 9;

Exhibit 9-C

Fourth page of Exhibit 9;

Exhibit 9-D

Courts return slip addressed to Atty. Elpidio Valera;

Courts return slip addressed to plaintiffs counsel,

and

Exhibit 9-E

Atty. Norman Dick de Guzman.12

On 4 March 1998, the trial court issued an order 13 denying the petition for
relief from judgment. The trial court stated that having received the decision
on 25 June 1995, the Cerezo spouses should have filed a notice of appeal
instead of resorting to a petition for relief from judgment. The trial court
refused to grant relief from judgment because the Cerezo spouses could have
availed of the remedy of appeal. Moreover, the Cerezo spouses not only failed
to prove fraud, accident, mistake or excusable negligence by conclusive
evidence, they also failed to prove that they had a good and substantial
defense. The trial court noted that the Cerezo spouses failed to appeal
because they relied on an expected settlement of the case.
The Cerezo spouses subsequently filed before the Court of Appeals a petition
for certiorari under Section 1 of Rule 65. The petition was docketed as CAG.R. SP No. 48132.14 The petition questioned whether the trial court acquired
jurisdiction over the case considering there was no service of summons on
Foronda, whom the Cerezo spouses claimed was an indispensable party. In a
resolution15 dated 21 January 1999, the Court of Appeals denied the petition
for certiorari and affirmed the trial courts order denying the petition for relief
from judgment. The Court of Appeals declared that the Cerezo spouses
failure to file an answer was due to their own negligence, considering that
they continued to participate in the proceedings without filing an answer.
There was also nothing in the records to show that the Cerezo spouses
actually offered a reasonable settlement to Tuazon. The Court of Appeals also
denied Cerezo spouses motion for reconsideration for lack of merit.
The Cerezo spouses filed before this Court a petition for review
on certiorari under Rule 45. Atty. Cerezo himself signed the petition, docketed
as G.R. No. 137593. On 13 April 1999, this Court rendered a resolution
denying the petition for review on certiorari for failure to attach an affidavit of
service of copies of the petition to the Court of Appeals and to the adverse
parties. Even if the petition complied with this requirement, the Court would
still have denied the petition as the Cerezo spouses failed to show that the
Court of Appeals committed a reversible error. The Courts resolution was
entered in the Book of Entries and Judgments when it became final and
executory on 28 June 1999.16
Undaunted, the Cerezo spouses filed before the Court of Appeals on 6 July
1999 a petition for annulment of judgment under Rule 47 with prayer for
restraining order. Atty. Valera and Atty. Dionisio S. Daga ("Atty. Daga")
represented Mrs. Cerezo in the petition, docketed as CA-G.R. SP No.
53572.17 The petition prayed for the annulment of the 30 May 1995 decision of
the trial court and for the issuance of a writ of preliminary injunction enjoining
execution of the trial courts decision pending resolution of the petition.
The Court of Appeals denied the petition for annulment of judgment in a
resolution dated 21 October 1999. The resolution reads in part:

In this case, records show that the petitioner previously filed with the
lower court a Petition for Relief from Judgment on the ground that they
were wrongfully declared in default while waiting for an amicable
settlement of the complaint for damages. The court a quo correctly
ruled that such petition is without merit. The defendant spouses admit
that during the initial hearing they appeared before the court and even
mentioned the need for an amicable settlement. Thus, the lower court
acquired jurisdiction over the defendant spouses.
Therefore, petitioner having availed of a petition for relief, the remedy
of an annulment of judgment is no longer available. The proper action
for the petitioner is to appeal the order of the lower court denying the
petition for relief.
Wherefore, the instant petition could not be given due course and
should accordingly be dismissed.
SO ORDERED.18
On 20 January 2000, the Court of Appeals denied the Cerezo spouses motion
for reconsideration.19 The Court of Appeals stated:
A distinction should be made between a courts jurisdiction over a
person and its jurisdiction over the subject matter of a case. The former
is acquired by the proper service of summons or by the parties
voluntary appearance; while the latter is conferred by law.
Resolving the matter of jurisdiction over the subject matter, Section
19(1) of B[atas] P[ambansa] 129 provides that Regional Trial Courts
shall exercise exclusive original jurisdiction in all civil actions in which
the subject of the litigation is incapable of pecuniary estimation. Thus it
was proper for the lower court to decide the instant case for damages.
Unlike jurisdiction over the subject matter of a case which is absolute
and conferred by law; any defects [sic] in the acquisition of jurisdiction
over a person (i.e., improper filing of civil complaint or improper service
of summons) may be waived by the voluntary appearance of parties.
The lower court admits the fact that no summons was served on
defendant Foronda. Thus, jurisdiction over the person of defendant
Foronda was not acquired, for which reason he was not held liable in
this case. However, it has been proven that jurisdiction over the other
defendants was validly acquired by the court a quo.
The defendant spouses admit to having appeared in the initial hearings
and in the hearing for plaintiffs motion to litigate as a pauper. They
even mentioned conferences where attempts were made to reach an
amicable settlement with plaintiff. However, the possibility of amicable
settlement is not a good and substantial defense which will warrant the
granting of said petition.

xxx
Assuming arguendo that private respondent failed to reserve his right
to institute a separate action for damages in the criminal action, the
petitioner cannot now raise such issue and question the lower courts
jurisdiction because petitioner and her husband have waived such right
by voluntarily appearing in the civil case for damages. Therefore, the
findings and the decision of the lower court may bind them.
Records show that the petitioner previously filed with the lower court a
Petition for Relief from Judgment on the ground that they were
wrongfully declared in default while waiting for an amicable settlement
of the complaint for damages. The court a quo correctly ruled that such
petition is without merit, jurisdiction having been acquired by the
voluntary appearance of defendant spouses.
Once again, it bears stressing that having availed of a petition for relief,
the remedy of annulment of judgment is no longer available.
Based on the foregoing, the motion for reconsideration could not be
given due course and is hereby DENIED.
SO ORDERED.20
The Issues
On 7 February 2000, Mrs. Cerezo, this time with Atty. Daga alone
representing her, filed the present petition for review on certiorari before this
Court. Mrs. Cerezo claims that:
1. In dismissing the Petition for Annulment of Judgment, the Court of
Appeals assumes that the issues raised in the petition for annulment is
based on extrinsic fraud related to the denied petition for relief
notwithstanding that the grounds relied upon involves questions of lack
of jurisdiction.
2. In dismissing the Petition for Annulment, the Court of Appeals
disregarded the allegation that the lower court[s] findings of negligence
against defendant-driver Danilo Foronda [whom] the lower court did not
summon is null and void for want of due process and consequently,
such findings of negligence which is [sic] null and void cannot become
the basis of the lower court to adjudge petitioner-employer liable for
civil damages.
3. In dismissing the Petition for Annulment, the Court of Appeals
ignored the allegation that defendant-driver Danilo A. Foronda whose
negligence is the main issue is an indispensable party whose presence
is compulsory but [whom] the lower court did not summon.

4. In dismissing the Petition for Annulment, the Court of Appeals ruled

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

for review on certiorari under Rule 45 challenging the dismissal of her petition
for annulment of judgment.
Lina v. Court of Appeals22 enumerates the remedies available to a party
declared in default:
a) The defendant in default may, at any time after discovery thereof and
before judgment, file a motion under oath to set aside the order of
default on the ground that his failure to answer was due to fraud,
accident, mistake or excusable negligence, and that he has a
meritorious defense (Sec. 3, Rule 18 [now Sec. 3(b), Rule 9]);
b) If the judgment has already been rendered when the defendant
discovered the default, but before the same has become final and
executory, he may file a motion for new trial under Section 1 (a) of
Rule 37;
c) If the defendant discovered the default after the judgment has
become final and executory, he may file apetition for relief under
Section 2 [now Section 1] of Rule 38; and
d) He may also appeal from the judgment rendered against him as
contrary to the evidence or to the law, even if no petition to set aside
the order of default has been presented by him (Sec. 2, Rule 41).
(Emphasis added)
Moreover, a petition for certiorari to declare the nullity of a judgment by default
is also available if the trial court improperly declared a party in default, or even
if the trial court properly declared a party in default, if grave abuse of
discretion attended such declaration.23
Mrs. Cerezo admitted that she received a copy of the trial courts decision on
25 June 1995. Based on this admission, Mrs. Cerezo had at least three
remedies at her disposal: an appeal, a motion for new trial, or a petition
for certiorari.
Mrs. Cerezo could have appealed under Rule 41 24 from the default judgment
within 15 days from notice of the judgment. She could have availed of the
power of the Court of Appeals to try cases and conduct hearings, receive
evidence, and perform all acts necessary to resolve factual issues raised in
cases falling within its appellate jurisdiction.25
Mrs. Cerezo also had the option to file under Rule 37 26 a motion for new trial
within the period for taking an appeal. If the trial court grants a new trial, the
original judgment is vacated, and the action will stand for trial de novo. The
recorded evidence taken in the former trial, as far as the same is material and
competent to establish the issues, shall be used at the new trial without
retaking the same.27

Mrs. Cerezo also had the alternative of filing under Rule 65 28 a petition
for certiorari assailing the order of default within 60 days from notice of the
judgment. An order of default is interlocutory, and an aggrieved party may file
an appropriate special civil action under Rule 65. 29 In a petition for certiorari,
the appellate court may declare void both the order of default and the
judgment of default.
Clearly, Mrs. Cerezo had every opportunity to avail of these remedies within
the reglementary periods provided under the Rules of Court. However, Mrs.
Cerezo opted to file a petition for relief from judgment, which is availableonly
in exceptional cases. A petition for relief from judgment should be filed within
the reglementary period of 60 days from knowledge of judgment and six
months from entry of judgment, pursuant to
Rule 38 of the Rules of Civil Procedure. 30 Tuason v. Court of
Appeals31 explained the nature of a petition for relief from judgment:
When a party has another remedy available to him, which may either
be a motion for new trial or appeal from an adverse decision of the trial
court, and he was not prevented by fraud, accident, mistake or
excusable negligence from filing such motion or taking such appeal, he
cannot avail himself of this petition. Indeed, relief will not be granted to
a party who seeks avoidance from the effects of the judgment when the
loss of the remedy at law was due to his own negligence; otherwise the
petition for relief can be used to revive the right to appeal which has
been lost thru inexcusable negligence.
Evidently, there was no fraud, accident, mistake, or excusable negligence that
prevented Mrs. Cerezo from filing an appeal, a motion for new trial or a
petition for certiorari. It was error for her to avail of a petition for relief from
judgment.
After our resolution denying Mrs. Cerezos petition for relief became final and
executory, Mrs. Cerezo, in her last ditch attempt to evade liability, filed before
the Court of Appeals a petition for annulment of the judgment of the trial court.
Annulment is available only on the grounds of extrinsic fraud and lack of
jurisdiction. If based on extrinsic fraud, a party must file the petition within four
years from its discovery, and if based on lack of jurisdiction, before laches or
estoppel bars the petition. Extrinsic fraud is not a valid ground if such fraud
was used as a ground, or could have been used as a ground, in a motion for
new trial or petition for relief from judgment.32
Mrs. Cerezo insists that lack of jurisdiction, not extrinsic fraud, was her ground
for filing the petition for annulment of judgment. However, a party may avail of
the remedy of annulment of judgment under Rule 47 only if the ordinary
remedies of new trial, appeal, petition for relief from judgment, or other
appropriate remedies are no longer available through no fault of the
party.33 Mrs. Cerezo could have availed of a new trial or appeal but through
her own fault she erroneously availed of the remedy of a petition for relief,

which was denied with finality. Thus, Mrs. Cerezo may no longer avail of the
remedy of annulment.
In any event, the trial court clearly acquired jurisdiction over Mrs. Cerezos
person. Mrs. Cerezo actively participated in the proceedings before the trial
court, submitting herself to the jurisdiction of the trial court. The defense of
lack of jurisdiction fails in light of her active participation in the trial court
proceedings. Estoppel or laches may also bar lack of jurisdiction as a ground
for nullity especially if raised for the first time on appeal by a party who
participated in the proceedings before the trial court, as what happened in this
case.34
For these reasons, the present petition should be dismissed for utter lack of
merit. The extraordinary action to annul a final judgment is restricted to the
grounds specified in the rules. The reason for the restriction is to prevent this
extraordinary action from being used by a losing party to make a complete
farce of a duly promulgated decision that has long become final and
executory. There would be no end to litigation if parties who have
unsuccessfully availed of any of the appropriate remedies or lost them
through their fault could still bring an action for annulment of
judgment.35 Nevertheless, we shall discuss the issues raised in the present
petition to clear any doubt about the correctness of the decision of the trial
court.
Mrs. Cerezos Liability and the Trial Courts Acquisition of Jurisdiction
Mrs. Cerezo contends that the basis of the present petition for annulment is
lack of jurisdiction. Mrs. Cerezo asserts that the trial court could not validly
render judgment since it failed to acquire jurisdiction over Foronda. Mrs.
Cerezo points out that there was no service of summons on Foronda.
Moreover, Tuazon failed to reserve his right to institute a separate civil action
for damages in the criminal action. Such contention betrays a faulty
foundation. Mrs. Cerezos contention proceeds from the point of view of
criminal law and not of civil law, while the basis of the present action of
Tuazon is quasi-delict under the Civil Code, not delict under the Revised
Penal Code.
The same negligent act may produce civil liability arising from a delict under
Article 103 of the Revised Penal Code, or may give rise to an action for a
quasi-delict under Article 2180 of the Civil Code. An aggrieved party may
choose between the two remedies. An action based on a quasi-delict may
proceed independently from the criminal action. 36 There is, however, a
distinction between civil liability arising from a delict and civil liability arising
from a quasi-delict. The choice of remedy, whether to sue for a delict or a
quasi-delict, affects the procedural and jurisdictional issues of the action. 37
Tuazon chose to file an action for damages based on a quasi-delict. In his
complaint, Tuazon alleged that Mrs. Cerezo, "without exercising due care and
diligence in the supervision and management of her employees and buses,"
hired Foronda as her driver. Tuazon became disabled because of Forondas

"recklessness, gross negligence and imprudence," aggravated by Mrs.

Cerezos "lack of due care and diligence in the selection and supervision of
her employees, particularly Foronda."38
The trial court thus found Mrs. Cerezo liable under Article 2180 of the Civil
Code. Article 2180 states in part:
Employers shall be liable for the damages caused by their employees
and household helpers acting within the scope of their assigned tasks,
even though the former are not engaged in any business or industry.
Contrary to Mrs. Cerezos assertion, Foronda is not an indispensable party to
the case. An indispensable party is one whose interest is affected by the
courts action in the litigation, and without whom no final resolution of the case
is possible.39 However, Mrs. Cerezos liability as an employer in an action for a
quasi-delict is not only solidary, it is also primary and direct. Foronda is not an
indispensable party to the final resolution of Tuazons action for damages
against Mrs. Cerezo.
The responsibility of two or more persons who are liable for a quasi-delict is
solidary.40 Where there is a solidary obligation on the part of debtors, as in this
case, each debtor is liable for the entire obligation. Hence, each debtor is
liable to pay for the entire obligation in full. There is no merger or renunciation
of rights, but only mutual representation.41 Where the obligation of the parties
is solidary, either of the parties is indispensable, and the other is not even a
necessary party because complete relief is available from either.42 Therefore,
jurisdiction over Foronda is not even necessary as Tuazon may collect
damages from Mrs. Cerezo alone.
Moreover, an employers liability based on a quasi-delict is primary and direct,
while the employers liability based on a delict is merely subsidiary.43 The
words "primary and direct," as contrasted with "subsidiary," refer to the
remedy provided by law for enforcing the obligation rather than to the
character and limits of the obligation.44Although liability under Article 2180
originates from the negligent act of the employee, the aggrieved party may
sue the employer directly. When an employee causes damage, the law
presumes that the employer has himself committed an act of negligence in not
preventing or avoiding the damage. This is the fault that the law condemns.
While the employer is civilly liable in a subsidiary capacity for the employees
criminal negligence, the employer is also civilly liable directly and separately
for his own civil negligence in failing to exercise due diligence in selecting and
supervising his employee. The idea that the employers liability is solely
subsidiary is wrong.45
The action can be brought directly against the person responsible (for
another), without including the author of the act. The action against the
principal is accessory in the sense that it implies the existence of a
prejudicial act committed by the employee, but it is not subsidiary in the
sense that it can not be instituted till after the judgment against the
author of the act or at least, that it is subsidiary to the principal action;

the action for responsibility (of the employer) is in itself a principal

action.46
Thus, there is no need in this case for the trial court to acquire jurisdiction
over Foronda. The trial courts acquisition of jurisdiction over Mrs. Cerezo is
sufficient to dispose of the present case on the merits.
In contrast, an action based on a delict seeks to enforce the subsidiary liability
of the employer for the criminal negligence of the employee as provided in
Article 103 of the Revised Penal Code. To hold the employer liable in a
subsidiary capacity under a delict, the aggrieved party must initiate a criminal
action where the employees delict and corresponding primary liability are
established.47 If the present action proceeds from a delict, then the trial courts
jurisdiction over Foronda is necessary. However, the present action is clearly
for the quasi-delict of Mrs. Cerezo and not for the delict of Foronda.
The Cerezo spouses contention that summons be served anew on them is
untenable in light of their participation in the trial court proceedings. To uphold
the Cerezo spouses contention would make a fetish of a
technicality.48Moreover, any irregularity in the service of summons that might
have vitiated the trial courts jurisdiction over the persons of the Cerezo
spouses was deemed waived when the Cerezo spouses filed a petition for
relief from judgment.49
We hold that the trial court had jurisdiction and was competent to decide the
case in favor of Tuazon and against Mrs. Cerezo even in the absence of
Foronda. Contrary to Mrs. Cerezos contention, Foronda is not an
indispensable party to the present case. It is not even necessary for Tuazon to
reserve the filing of a separate civil action because he opted to file a civil
action for damages against Mrs. Cerezo who is primarily and directly liable for
her own civil negligence. The words of Justice Jorge Bocobo in Barredo v.
Garcia still hold true today as much as it did in 1942:
x x x [T]o hold that there is only one way to make defendants liability
effective, and that is, to sue the driver and exhaust his (the latters)
property first, would be tantamount to compelling the plaintiff to follow a
devious and cumbersome method of obtaining relief. True, there is
such a remedy under our laws, but there is also a more expeditious
way, which is based on the primary and direct responsibility of the
defendant under article [2180] of the Civil Code. Our view of the law is
more likely to facilitate remedy for civil wrongs, because the procedure
indicated by the defendant is wasteful and productive of delay, it being
a matter of common knowledge that professional drivers of taxis and
other similar public conveyances do not have sufficient means with
which to pay damages. Why, then, should the plaintiff be required in all
cases to go through this roundabout, unnecessary, and probably
useless procedure? In construing the laws, courts have endeavored to
shorten and facilitate the pathways of right and justice. 50

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

adjudged by the trial court.51 The 6% per annum interest shall commence from
30 May 1995, the date of the decision of the trial court. Upon finality of this
decision, interest at 12% per annum, in lieu of 6% per annum, is due on the
amount of damages adjudged by the trial court until full payment.
WHEREFORE, we DENY the instant petition for review. The Resolution dated
21 October 1999 of the Court of Appeals in CA-G.R. SP No. 53572, as well as
its Resolution dated 20 January 2000 denying the motion for reconsideration,
is AFFIRMED with the MODIFICATION that the amount due shall earn legal
interest at 6% per annum computed from 30 May 1995, the date of the trial
courts decision. Upon finality of this decision, the amount due shall earn
interest at 12% per annum, in lieu of 6% per annum, until full payment.
SO ORDERED.
26

Section 1. Grounds of and period for filing motion for new trial or
reconsideration. Within the period for taking an appeal, the
aggrieved party may move the trial court to set aside the judgment or
final order and grant a new trial for one or more of the following causes
materially affecting the substantial rights of said party:
(a) Fraud, accident, mistake or excusable negligence which
ordinary prudence could not have guarded against and by
reason of which such aggrieved party has probably been
impaired in his rights; or
(b) Newly discovered evidence, which he could not, with
reasonable diligence, have discovered and produced at the trial,
and which if presented would probably alter the result.
xxx
27

Sections 1 and 6, Rule 37.

28

Section 1. Petition for certiorari. When any tribunal, board, or officer

exercising judicial or quasi-judicial functions has acted without or in
excess of its or his jurisdiction, or with grave abuse of discretion
amounting to lack or excess of jurisdiction, and there is no appeal, or
any plain, speedy, and adequate remedy in the ordinary course of law,
a person aggrieved thereby may file a verified petition in the proper
court, alleging the facts with certainty and praying that judgment be
rendered annulling or modifying the proceedings of such tribunal, board
or officer, and granting such incidental reliefs as law and justice may
require.
xxx
Section 4. Where petition filed. The petition may be filed not later
than sixty (60) days from notice of judgment, order or resolution sought

to be assailed in the Supreme Court; or, if it relates to the acts or

omissions of a lower court or of a corporation, board, officer or person,
in the Regional Trial Court exercising jurisdiction over the territorial
area as defined by the Supreme Court. It may also be filed in the Court
of Appeals whether or not the same is in aid of its appellate jurisdiction,
or in the Sandiganbayan if it is in aid of its jurisdiction. If it involves acts
or omissions of a quasi-judicial agency, and unless otherwise provided
by law or these Rules, the petition shall be filed in and cognizable only
by the Court of Appeals.
29

Section 1, Rule 41.

30

Section 1. Petition for relief from judgment, order, or other

proceedings. When a judgment or final order is entered, or any other
proceeding is thereafter taken against a party in any court through
fraud, accident, mistake, or excusable negligence, he may file a
petition in such court and in the same case praying that the judgment,
order or proceeding be set aside.
Section 3. Time for filing petition; contents and verification. A petition
provided for in either of the preceding sections of this Rule must be
verified, filed within sixty (60) days after the petitioner learns of the
judgment, final order, or other proceeding to be set aside, and not more
than six (6) months after such judgment or final order was entered, or
such proceeding was taken; x x x.
See Turqueza v. Hernando, No. L-51626, 30 April 1980, 97 SCRA 483.
32

Sections 2 and 3, Rule 47.

36

See Article 2177, Civil Code of the Philippines. Compare Sections 1

and 3, Rule 111, 1988 Rules of Criminal Procedure with Sections 1 and
3, Rule 111, 2000 Rules of Criminal Procedure.
37

See Barredo v. Garcia, 73 Phil. 607 (1942).

SECOND DIVISION

[G.R. No. 135796. October 3, 2002]

CHINA BANKING CORPORATION, petitioner,

OLIVER, respondent.
RESOLUTION
QUISUMBING, J.:

vs. MERCEDES

M.

This petition for review[1] seeks the reversal of the decision dated June 1,
1998, of the Court of Appeals in CA-G.R. SP No. 43836, dismissing China
Banking Corporations petition for certiorari to annul the two orders of the
Regional Trial Court of Muntinlupa City, Branch 276, which earlier denied
petitioners motion to dismiss and then declared the bank in default in Civil
Case No. 96-219. The appellate court also denied petitioners motion for
reconsideration in a resolution dated September 30, 1998.
The facts of this case are culled from the records.
In August 1995, Pangan Lim, Jr. and a certain Mercedes M. Oliver opened
a joint account in China Banking Corporation (hereinafter Chinabank) at
EDSA Balintawak Branch. Lim introduced Oliver to the banks branch
manager as his partner in the rice and palay trading business. Thereafter,
Lim and Oliver applied for a P17 million loan, offering as collateral a 7,782
square meter lot located in Tunasan, Muntinlupa and covered by TCT No. S50195 in the name of Oliver. The bank approved the application. On
November 17, 1995, Lim and Oliver executed in favor of Chinabank a
promissory note for P16,650,000, as well as a Real Estate Mortgage on the
property. The mortgage was duly registered and annotated on the original
title under the custody of the Registry of Deeds of Makati and on the owners
duplicate copy in the banks possession. The mortgage document showed
Mercedes Olivers address to be No. 95 Malakas Street, Diliman, Quezon
City. For brevity, she is hereafter referred to as Oliver One.
On November 18, 1996, respondent claiming that she is Mercedes M.
Oliver with postal office address at No. 40 J.P. Rizal St., San Pedro, Laguna,
filed an action for annulment of mortgage and cancellation of title with
damages against Chinabank, Register of Deeds Atty. Mila G. Flores, and
Deputy Register of Deeds Atty. Ferdinand P. Ignacio. Respondent, whom we
shall call as Oliver Two, claimed that she was the registered and lawful
owner of the land subject of the real estate mortgage; that the owners
duplicate copy of the title had always been in her possession; and that she did
not apply for a loan or surrender her title to Chinabank. [2] She prayed that: (1)
the owners duplicate copy surrendered to Chinabank as well as the original
title with the Registry of Deeds be cancelled; (2) the mortgage be declared
null and void; and (3) the Registry of Deeds be ordered to issue a new and
clean title in her name.[3]
On January 31, 1997, Chinabank moved to dismiss the case for lack of
cause of action and non-joinder of an indispensable party, the mortgagor.
On March 13, 1997, Judge Norma C. Perello issued an order denying the
motion to dismiss, stating that:
A reading of the COMPLAINT which of course is hypothetically admitted, will
show that a valid judgment can be rendered against defendant. Plaintiff
having sufficiently averred that defendants negligently failed to ascertain the
genuineness or not (sic) of the title of the land mortgaged to it upon the claim
of ownership by the mortgagors. Furthermore, the matters alleged in the
MOTION TO DISMISS are all evidentiary which Defendants may substantiate
at the appointed hours.[4]

On April 7, 1997, Chinabank filed with the Court of Appeals a petition for
certiorari with prayer for the issuance of a writ of preliminary injunction and/or
restraining order to enjoin enforcement of the March 13, 1997 order and
further action on the case. The Court of Appeals directed respondent Oliver
Two to file her comment and deferred action on the prayer for the issuance of
the preliminary injunction pending submission of the comment.
On June 30, 1997, respondent Oliver Two moved to declare petitioner
Chinabank in default. She pointed out that since petitioner received the order
denying the motion to dismiss on March 21, 1997, it had only until April 7,
1997 to file its answer to the complaint. However, until the filing of the motion
for default, no answer had been filed yet. The trial court granted the motion
and declared petitioner in default in its order dated July 17, 1997, thus:
Acting on the Motion To Declare Defendant Bank in Default, and finding the
same to be legally tenable is granted.
Accordingly, the Defendant Bank is declared in default as summons was
served on It as early as December 16, 1996, but until date they have not filed
an Answer nor any responsive pleading and instead, It filed a Motion to
Dismiss, which was denied by this Court on March 13, 1997.
The filing of a CERTIORARI to question the Orders by this Court did not toll
the period for Defendants to answer the complaint.
Therefore, the reglementary period for the filing of responsive pleading has
long expired.
Let the case be submitted for Decision based on the complaint.
It is SO ORDERED.[5]
Consequently, petitioner Chinabank filed a supplemental petition on
August 11, 1997, seeking annulment of the July 17, 1997 order. It argued that
the special civil action for certiorari filed in the Court of Appeals interrupted the
proceedings before the trial court, thereby staying the period for filing the
answer.
On June 1, 1998, the Court of Appeals promulgated the assailed decision,
finding no grave abuse of discretion committed by the trial judge in ruling that
the Rules of Court provided the manner of impleading parties to a case and in
suggesting that petitioner file an appropriate action to bring the mortgagor
within the courts jurisdiction. The appellate court said that Rule 6, Section 11
of the Rules of Court allows petitioner to file a third-party complaint against
the mortgagor. As to the judgment by default, the Court of Appeals said that
an order denying the motion to dismiss is interlocutory and may not be
questioned through a special civil action for certiorari. The defendant must
proceed with the case and raise the issues in his motion to dismiss when he
appeals to a higher court. In this case, petitioner Chinabank should have filed
its answer when it received the March 13, 1997 order denying the motion to
dismiss. The special civil action for certiorari with the Court of Appeals did not

interrupt the period to file an answer, there being no temporary restraining

order or writ of preliminary injunction issued.
The
Court
of
Appeals
denied
petitioners
motion
reconsideration. Hence, this petition anchored on the following grounds:

for

I
SEC. 11, RULE 3, OF THE 1997 RULES OF CIVIL PROCEDURE DOES
NOT APPLY WHERE THE PARTY WHO WAS NOT IMPLEADED IS AN
INDISPENSABLE PARTY; INSTEAD, SECTION 7, RULE 3 THEREOF,
APPLIES.
II
THE MORTGAGOR MERCEDES M. OLIVER IS AN INDISPENSABLE
PARTY UNDER SECTION 7, RULE 3, OF THE 1997 RULES OF CIVIL
PROCEDURE, AND MUST THEREFORE INDISPENSABLY BE JOINED AS
A PARTY-DEFENDANT.
III
RESPONDENTS CAUSE OF ACTION IS ANCHORED ON HER CLAIM AS
THE REGISTERED AND LAWFUL OWNER OF THE PROPERTY IN
QUESTION AND THAT HER OWNERS DUPLICATE COPY OF THE TITLE
(ANNEX A) IS THE TRUE AND GENUINE TITLE. THUS, THE ACTION
BEFORE THE HONORABLE COURT-A-QUO IS A LAND DISPUTE
BETWEEN TWO (2) PERSONS CLAIMING OWNERSHIP.
IV
THE ANNULMENT OF THE MORTGAGE AND THE CANCELLATION OF
ANNEXES B AND C AS PRAYED FOR IN THE COMPLAINT IN CIVIL
CASE NO. 96-219 ARE INEXTRICABLY INTERTWINED WITH THE ISSUE
OF OWNERSHIP. HENCE, THE LATTER MUST FIRST BE RESOLVED TO
DETERMINE THE FORMER.
V
THE OWNERS DUPLICATE COPY OF THE TITLE OF MORTGAGOR
MERCEDES M. OLIVER OWNERS DUPLICATE COPY CANNOT, IN HER
ABSENCE, BE DECLARED NULL AND VOID. CONSEQUENTLY,
INASMUCH AS THE MORTGAGE IN FAVOR OF PETITIONER IS
DEPENDENT UPON THE OWNERS DUPLICATE COPY OF THE
MORTGAGOR, THE COMPLAINT IN CIVIL CASE NO. 96-219 CAN NOT
RESOLVE THE CONTROVERSY WITH FINALITY.
VI
THE CASE OF CHURCH OF CHRIST VS. VALLESPIN, G.R. NO. 53726,
AUGUST 15, 1988, DOES NOT APPLY INASMUCH AS THE USE OF TERM

INDISPENSABLE PARTY IN SAID CASE WAS LOOSELY USED AND IN

TRUTH WAS INTENDED TO MEAN PARTIES-IN-INTEREST AS
CONTEMPLATED BY SECTION 2, RULE 3 OF THE RULES OF COURT.
VII
THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT
SANCTIONED THE TRIAL COURTS ERROR IN DECLARING DEFENDANT
CBC IN DEFAULT FOR FAILURE TO FILE AN ANSWER,
NOTWITHSTANDING THE SETTLED DOCTRINE THAT WHERE AN
INDISPENSABLE PARTY IS NOT IN COURT, THE TRIAL COURT SHOULD
NOT PROCEED BUT INSTEAD SHOULD DISMISS THE CASE.
VIII
THE DISMISSAL/WITHDRAWAL OF THE COMPLAINT AGAINST
DEFENDANTS REGISTER AND DEPUTY REGISTER OF DEEDS
NECESSARILY GIVE RISE TO, AND BOLSTERS, THE CONCLUSION THAT
THE OWNERS DUPLICATE COPY OF TCT NO. S-50195 OF MORTGAGOR
MERCEDES M. OLIVER IS THE GENUINE AND AUTHENTIC COPY.[6]
For a clearer discussion of the issues in this controversy, we may state
them as follows:
1. Is the mortgagor who goes by the name of Mercedes M. Oliver,
herein called Oliver One, an indispensable party in Civil Case No.
96219?
2. Should Section 7 Rule 3
Procedure[7] apply in this case?

of

the

1997

Rules

of

Civil

3. Did the Court of Appeals err when it sustained the trial courts
declaration that petitioner was in default?
4. Were the withdrawal and consequent dismissal of the complaint
against the Registry of Deeds officials indicative of the authenticity
of mortgagor Oliver Ones copy of TCT No. S-50195?
Petitioner Chinabank alleges that there are two owners duplicate copies
of TCT No. S-50195 involved in this case and two persons claiming to be the
real MERCEDES MARAVILLA OLIVER. One is the mortgagor, Oliver
One. The other is the respondent, Oliver Two. Respondents complaint
before the trial court was one for cancellation of the transfer certificate of title
in petitioners possession (Annex B). According to petitioner, the issue below
is the genuineness of the titles, which is intertwined with the issue of
ownership. This being the case, said the petitioner, the mortgagor Oliver One
must necessarily be impleaded for she is the registered owner under Annex
B. Petitioner argues that mortgagor Oliver One is in a better position to
defend her title. She stands to suffer if it is declared fake. Further, petitioner
claims that the validity and enforceability of the mortgage entirely depends on
the validity and authenticity of Annex B. The mortgage cannot be declared a
nullity without the trial court declaring Annex B a nullity. Hence, mortgagor

Oliver Ones participation in the suit is indispensable, according to

petitioner. In brief, what petitioner Chinabank is saying is that it was
indispensable for respondent Oliver Two to implead mortgagor Oliver One in
the case before the trial court. Failing to do that, the complaint of herein
respondent Oliver Two should have been dismissed.
Petitioners contention is far from tenable. An indispensable party is a
party in interest, without whom no final determination can be had of an action.
[8]
It is true that mortgagor Oliver One is a party in interest, for she will be
affected by the outcome of the case. She stands to be benefited in case the
mortgage is declared valid, or injured in case her title is declared fake.
[9]
However, mortgagor Oliver Ones absence from the case does not hamper
the trial court in resolving the dispute between respondent Oliver Two and
petitioner. A perusal of Oliver Twos allegations in the complaint below shows
that it was for annulment of mortgage due to petitioners negligence in not
determining the actual ownership of the property, resulting in the mortgages
annotation on TCT No. S-50195 in the Registry of Deeds custody. To support
said allegations, respondent Oliver Two had to prove (1) that she is the real
Mercedes M. Oliver referred to in the TCT, and (2) that she is not the same
person using that name who entered into a deed of mortgage with the
petitioner. This, respondent Oliver Two can do in her complaint without
necessarily impleading the mortgagor Oliver One. Hence, Oliver One is not
an indispensable party in the case filed by Oliver Two.
In Noceda vs. Court of Appeals, et al., 313 SCRA 504 (1999), we held
that a party is not indispensable to the suit if his interest in the controversy or
subject matter is distinct and divisible from the interest of the other parties and
will not necessarily be prejudiced by a judgment which does complete justice
to the parties in court. In this case, Chinabank has interest in the loan which,
however, is distinct and divisible from the mortgagors interest, which involves
the land used as collateral for the loan.
Further, a declaration of the mortgages nullity in this case will not
necessarily prejudice mortgagor Oliver One. The bank still needs to initiate
proceedings to go after the mortgagor, who in turn can raise other defenses
pertinent to the two of them. A party is also not indispensable if his presence
would merely permit complete relief between him and those already parties to
the action, or will simply avoid multiple litigation, as in the case of Chinabank
and mortgagor Oliver One. [10] The latters participation in this case will simply
enable petitioner Chinabank to make its claim against her in this case, and
hence, avoid the institution of another action. Thus, it was the bank who
should have filed a third-party complaint or other action versus the mortgagor
Oliver One.
As to the second issue, since mortgagor Oliver One is not an
indispensable party, Section 7, Rule 3 of the 1997 Rules of Civil Procedure,
which requires compulsory joinder of indispensable parties in a case, does not
apply. Instead, it is Section 11, Rule 3, that applies. [11] Non-joinder of parties is
not a ground for dismissal of an action. Parties may be added by order of the
court, either on its own initiative or on motion of the parties. [12] Hence, the
Court of Appeals committed no error when it found no abuse of discretion on
the part of the trial court for denying Chinabanks motion to dismiss and,

instead, suggested that petitioner file an appropriate action against mortgagor

Oliver One. A person who is not a party to an action may be impleaded by the
defendant either on the basis of liability to himself or on the ground of direct
liability to the plaintiff.[13]
Now, the third issue, did the Court of Appeals err when it sustained the
trial courts ruling that petitioner Chinabank was in default? As found by the
Court of Appeals, petitioner did not file its answer, although it received the
March 13, 1997 order denying the motion to dismiss. Instead, petitioner filed a
petition for certiorari under Rule 65 of the Rules of Court. Said petition,
however, does not interrupt the course of the principal case unless a
temporary restraining order or writ of preliminary injunction is issued. [14] No
such order or writ was issued in this case. Hence, Chinabank as defendant
below was properly declared in default by the trial court, after the 15-day
period to file its answer or other responsive pleading lapsed.
Lastly, were the withdrawal and consequent dismissal of the complaint
against officials of the Registry of Deeds conclusive of the authenticity of
mortgagor Oliver Ones copy of TCT No. S-50195? This is a question of fact,
which is not a proper subject for review in this petition. Here, we are limited
only to questions of law,[15] as a general rule. Petitioner failed to show that this
case falls under any of the exceptions to this rule. We need not tarry on this
issue now.
WHEREFORE, the petition is DENIED for lack of merit. The assailed
decision dated June 1, 1998 and the resolution dated September 30, 1998 of
the Court of Appeals in CA-G.R. SP No. 43836 are AFFIRMED. Costs
against petitioner.
SO ORDERED.
Bellosillo, (Chairman), Austria-Martinez, and Callejo, Sr., JJ., concur.
Mendoza, J., on official leave.
[7]

SEC. 7, Rule 3, 1997 Revised Rules of Court: 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.
[9]

SEC. 2, Rule 3, Rules of Court: Parties in interest. A real party in interest

is the party who stands to be benefited or injured by the judgment in the suit,
or the party entitled to the avails of the suit. Unless otherwise authorized by
law or these Rules, every action must be prosecuted or defended in the name
of the real party in interest.
[11]

SEC. 11, Rule 3, 1997 Rules of Civil Procedure: Misjoinder and nonjoinder of parties. Neither misjoinder nor non-joinder of parties is ground for
dismissal of an action. Parties may be dropped or added by order of the court
on motion of any party or on its own initiative at any stage of the action and on

such terms as are just. Any claim against a misjoined party may be severed
and proceeded with separately.
[14]

SEC. 7, Rule 65, 1997 Rules of Civil Procedure: Expediting proceedings;

injunctive relief. The court in which the petition is filed may issue
orders expediting the proceedings, and it may also grant a temporary
restraining order or a writ of preliminary injunction for the preservation
of the rights of the parties pending such proceedings. The petition
shall not interrupt the course of the principal case unless a temporary
restraining order or a writ of preliminary injunction has been issued
against the public respondent from further proceeding in the case.

THIRD DIVISION

AUTOCORP GROUP and PETER Y.

RODRIGUEZ,
Petitioners,

- versus -

G.R. No. 166662

Present:

YNARES-SANTIAGO, J.,
Chairperson,

INTRA
STRATA
ASSURANCE
CORPORATION and BUREAU OF
CUSTOMS,
Respondents.

AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
Promulgated:

June 27, 2008

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

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari from the Decision[1] of the

Court of Appeals dated 30 June 2004 in CA-G.R. CV No. 62564 which
affirmed with modification the Decision [2] of the Regional Trial Court (RTC)
of Makati City, Branch 150 in Civil Case No. 95-1584 dated 16 September
1998.
The factual and procedural antecedents of this case are as follows:
On 19 August 1990, petitioner Autocorp Group, represented by its
President, petitioner Peter Y. Rodriguez, secured an ordinary re-export bond,
Instrata Bond No. 5770, from private respondent Intra Strata Assurance
Corporation (ISAC) in favor of public respondent Bureau of Customs (BOC),
in the amount of P327,040.00, to guarantee the re-export of one unit of
Hyundai Excel 4-door 1.5 LS and/or to pay the taxes and duties thereon.
On 21 December 1990, petitioners obtained another ordinary re-export
bond, Instrata Bond No. 7154, from ISAC in favor of the BOC, in the amount
of P447,671.00, which was eventually increased to P707,609.00 per Bond
Endorsement No. BE-0912/91 dated 10 January 1991, to guarantee the reexport of one unit of Hyundai Sonata 2.4 GLS and/or to pay the taxes and
duties thereon.
Petitioners executed and signed two Indemnity Agreements with
identical stipulations in favor of ISAC, agreeing to act as surety of the subject
bonds. Petitioner Rodriguez signed the Indemnity Agreements both as
President of the Autocorp Group and in his personal capacity. Petitioners thus
agreed to the following provisions:
INDEMNITY: - The undersigned agree at all times to jointly and
severally indemnify the COMPANY and keep it indemnified and
hold and save it harmless from and against any and all
damages, losses, costs, stamps, taxes, penalties, charges and
expenses of whatsoever kind and nature including counsel or
attorneys fee which the COMPANY shall or may at any time
sustain or incur in consequence of having become surety upon
the bond herein above referred to or any extension, renewal,
substitution or alteration thereof, made at the instance of the
undersigned or any of them, or any other bond executed on
behalf of the undersigned or any of them, and to pay; reimburse
and make good to the COMPANY, its successors and assigns,
alls sums and amounts of money which it or its representatives
shall pay or cause to be paid, or become liable to pay on
accounts of the undersigned or any of them, of whatsoever kind
and nature, including 25% of the amount involved in the
litigation or other matters growing out of or connected therewith,
for and as attorneys fees, but in no case less than P300.00 and
which shall be payable whether or not the case be extrajudicially
settled, it being understood that demand made upon anyone of
the undersigned herein is admitted as demand made on all of
the signatories hereof. It is hereby further agreed that in case of

any extension or renewal of the bond, we equally bind ourselves

to the COMPANY under the same terms and conditions as
therein provided without the necessity of executing another
indemnity agreement for the purpose and that we may be
granted under this indemnity agreement.
MATURITY OF OUR OBLIGATIONS AS CONTRACTED
HEREWITH AND ACCRUAL OF ACTION: - Notwithstanding of
(sic) the next preceding paragraph where the obligation involves
a liquidated amount for the payment of which the COMPANY
has become legally liable under the terms of the obligation and
its suretyship undertaking, or by the demand of the obligee or
otherwise and the latter has merely allowed the COMPANYs
aforesaid liability irrespective of whether or not payment has
actually been made by the COMPANY, the COMPANY for the
protection of its interest may forthwith proceed against the
undersigned or either of them by court action or otherwise to
enforce payment, even prior to making payment to the obligee
which may hereafter be done by the COMPANY.
INTEREST IN CASE OF DELAY: - In the event of delay
in payment of the said sum or sums by the undersigned they will
pay interest at the rate of 12% per annum or same, which
interest, if not paid, will be liquidated and accumulated to the
capital quarterly, and shall earn the same interest as the capital;
all this without prejudice to the COMPANYs right to demand
judicially or extrajudicially the full payment of its claims.
INCONTESTABILITY OF PAYMENT MADE BY THE
COMPANY: - Any payment or disbursement made by the
COMPANY on account of the above-mentioned Bond, its
renewals, extensions or substitutions, replacement or novation
in the belief either that the COMPANY was obligated to make
such payment or that said payment was necessary in order to
avoid greater losses or obligations for which the COMPANY
might be liable by virtue of the terms of the above-mentioned
Bond, its renewal, extensions or substitutions, shall be final and
will not be disputed by the undersigned, who bind themselves to
jointly and severally indemnify the COMPANY of any such
payments, as stated in the preceding clauses:
WAIVER OF VENUE OF ACTION: - We hereby agree
that any question which may arise between the COMPANY and
the undersigned by reason of this document and which has to
be submitted for decision to a court of justice shall be brought
before the court of competent jurisdiction in Makati, Rizal,
waiving for this purpose any other venue.
WAIVER: - The undersigned hereby waive all the
rights[,] privileges and benefits that they have or may have

under Articles 2077, 2078, 2079, 2080 and 2081, of the Civil
Code of thePhilippines.
The undersigned, by this instrument, grant a special
power of attorney in favor of all or any of the other undersigned
so that any of the undersigned may represent all the others in all
transactions related to this Bond, its renewals, extensions, or
any other agreements in connection with this Counter-Guaranty,
without the necessity of the knowledge or consent of the others
who hereby promise to accept as valid each and every act done
or executed by any of the attorneys-in-fact by virtue of the
special power of attorney.
OUR LIABILITY HEREUNDER: - It shall not be
necessary for the COMPANY to bring suit against the principal
upon his default or to exhaust the property of the principal, but
the liability hereunder of the undersigned indemnitors shall be
jointly and severally, a primary one, the same as that of the
principal, and shall be exigible immediately upon the occurrence
of such default.
CANCELLATION OF BOND BY THE COMPANY: - The
COMPANY may at any time cancel the above-mentioned Bond,
its renewals, extensions or substitutions, subject to any liability
which might have accrued prior to the date of cancellation
refunding the proportionate amount of the premium unearned on
the date of cancellation.
RENEWALS, ALTERATIONS AND SUBSTITUTIONS: The undersigned hereby empower and authorize the
COMPANY to grant or consent to the granting of any extension,
continuation, increase, modification, change, alteration and/or
renewal of the original bond herein referred to, and to execute
or consent to the execution of any substitution for said Bond
with the same or different, conditions and parties, and the
undersigned hereby hold themselves jointly and severally liable
to the COMPANY for the original Bond herein above-mentioned
or for any extension, continuation, increase, modification,
change, alteration, renewal or substitution thereof without the
necessary of any new indemnity agreement being executed until
the full amount including principal, interest, premiums, costs,
and other expenses due to the COMPANY thereunder is fully
paid up.
SEVERABILITY OF PROVISIONS: - It is hereby agreed
that should any provision or provisions of this agreement be
declared by competent public authority to be invalid or otherwise
unenforceable, all remaining provisions herein contained shall
remain in full force and effect.

NOTIFICATION: - The undersigned hereby accept due

notice of that the COMPANY has accepted this guaranty,
executed by the undersigned in favor of the COMPANY.[3]
In sum, ISAC issued the subject bonds to guarantee compliance by
petitioners with their undertaking with the BOC to re-export the imported
vehicles within the given period and pay the taxes and/or duties due
thereon. In turn, petitioners agreed, as surety, to indemnify ISAC for the
liability the latter may incur on the said bonds.
Petitioner Autocorp Group failed to re-export the items guaranteed by
the bonds and/or liquidate the entries or cancel the bonds, and pay the taxes
and duties pertaining to the said items despite repeated demands made by
the BOC, as well as by ISAC. By reason thereof, the BOC considered the two
bonds, with a total face value ofP1,034,649.00, forfeited.
Failing to secure from petitioners the payment of the face value of the
two bonds, despite several demands sent to each of them as surety under the
Indemnity Agreements, ISAC filed with the RTC on 24 October 1995 an action
against petitioners to recover the sum of P1,034,649.00, plus 25% thereof
or P258,662.25 as attorneys fees. ISAC impleaded the BOC as a necessary
party plaintiff in order that the reward of money or judgment shall be adjudged
unto the said necessary plaintiff. [4] The case was docketed as Civil Case No.
95-1584.
Petitioners filed a Motion to Dismiss on 11 December 1995 on the
grounds that (1) the Complaint states no cause of action; and (2) the BOC is
an improper party.
The RTC, in an Order[5] dated 27 February 1996, denied petitioners
Motion to Dismiss. Petitioners thus filed their Answer to the Complaint,
claiming that they sought permission from the BOC for an extension of time to
re-export the items covered by the bonds; that the BOC has yet to issue an
assessment for petitioners alleged default; and that the claim of ISAC for
payment is premature as the subject bonds are not yet due and demandable.
During the pre-trial conference, petitioners admitted the genuineness
and due execution of Instrata Bonds No. 5770 and No. 7154, but specifically
denied those of the corresponding Indemnity Agreements. The parties agreed
to limit the issue to whether or not these bonds are now due and
demandable.
On 16 September 1998, the RTC rendered its Decision ordering
petitioners to pay ISAC and/or the BOC the face value of the subject bonds in
the total amount ofP1,034,649.00, and to pay ISAC P258,662.25 as attorneys
fees, thus:
WHEREFORE, judgment is hereby rendered in favor of
the [herein private respondent ISAC] and as against the [herein

petitioners] who are ordered to pay the [private respondent] Intra

Strata Assurance Corporation and/or the Bureau of Customs the
amount of P1,034,649.00 which is the equivalent amount of the
subject bonds as well as to pay the plaintiff corporation the sum
ofP258,662.25 as and for attorneys fees.[6]
Petitioners Motion for Reconsideration was denied by the RTC in a
Resolution dated 15 January 1999.[7]
Petitioners appealed to the Court of Appeals. On 30 June 2004, the
Court of Appeals rendered its Decision affirming the RTC Decision, only
modifying the amount of the attorneys fees awarded:
WHEREFORE,
the
appealed 16
September
1998 Decision is MODIFIED to reduce the award of attorneys
fees to One Hundred Three Thousand Four Hundred Sixty Four
Pesos & Ninety Centavos (P103,464.90). The rest is affirmed in
toto. Costs against [herein petitioners].[8]
In a Resolution dated 5 January 2005, the Court of Appeals refused to
reconsider its Decision.
Petitioners thus filed the instant Petition for Review on Certiorari,
assigning the following errors allegedly committed by the Court of Appeals:
I.

THE HONORABLE COURT OF APPEALS

GRAVELY ERRED IN RENDERING JUDGMENT
AGAINST PETITIONERS BASED ON A PREMATURE
ACTION
AND/OR
RULING
IN
FAVOR
OF
RESPONDENTS WHO HAVE NO CAUSE OF ACTION
AGAINST PETITIONERS.

II.

THE HONORABLE COURT OF APPEALS

GRAVELY ERRED IN AFFIRMING THE DECISION OF
BRANCH
150, REGIONAL TRIAL COURT OF MAKATI CITY BASE
D
ON
MISAPPREHENSION
OF
FACTS,
UNSUPPORTED BY EVIDENCE ON RECORD &
CONTRARY TO LAW.

III.

THE HONORABLE COURT OF APPEALS

GRAVELY ERRED IN NOT GIVING MERIT TO THE
ISSUE RAISED BY PETITIONERS THAT THE BUREAU
OF CUSTOMS IS IMPROPERLY IMPLEADED BY INTRA
STRATA.

IV.

THE HONORABLE COURT OF APPEALS

GRAVELY ERRED [IN] AFFIRMING THE PORTION OF

THE DECISION HOLDING PETITIONER PETER Y.

RODRIGUEZ
AS
JOINTLY
LIABLE
WHEN
AMENDMENTS WERE INTRODUCED, WITHOUT HIS
CONSENT AND APPROVAL.[9]

The present Petition is without merit.

Absence of actual forfeiture of the

subject bonds
Petitioners contend that their obligation to ISAC is not yet due and
demandable. They cannot be made liable by ISAC in the absence of an
actual forfeiture of the subject bonds by the BOC and/or an explicit
pronouncement by the same bureau that ISAC is already liable on the said
bonds. In this case, there is yet no actual forfeiture of the bonds, but merely a
recommendation of forfeiture, for no writ of execution has been issued against
such bonds.[10] Hence, Civil Case No. 95-1584 was prematurely filed by
ISAC. Petitioners further argue that:
Secondly, it bears emphasis that as borne by the records,
not only is there no writ of forfeiture against Surety Bond No.
7154, there is likewise no evidence adduced on record to prove
that respondent Intra Strata has made legal demand against
Surety Bond No. 5770 neither is there a showing that
respondent BOC initiated a demand or issued notice for its
forfeiture and/or confiscation.[11]
The Court of Appeals, in its assailed Decision, already directly
addressed petitioners arguments by ruling that an actual forfeiture of the
subject bonds is not necessaryfor petitioners to be liable thereon to ISAC as
surety under the Indemnity Agreements.
According to the relevant provision of the Indemnity Agreements
executed between petitioner and ISAC, which reads:
[W]here the obligation involves a liquidated amount for the
payment of which [ISAC] has become legally liable under the
terms of the obligation and its suretyship undertaking or by the
demand of the [BOC] or otherwise and the latter has merely
allowed the [ISACs] aforesaid liability, irrespective of whether or
not payment has actually been made by the [ISAC], the [ISAC]
for the protection of its interest may forthwith proceed against
[petitioners Autocorp Group and Rodriguez] or either of them by
court action or otherwise to enforce payment, even prior to

making payment to the [BOC] which may hereafter be done by

[ISAC][,][12]
petitioners obligation to indemnify ISAC became due and demandable the
moment the bonds issued by ISAC became answerable for petitioners noncompliance with its undertaking with the BOC. Stated differently, petitioners
became liable to indemnify ISAC at the same time the bonds issued by ISAC
were placed at the risk of forfeiture by the BOC for non-compliance by
petitioners with its undertaking.
The subject bonds, Instrata Bonds No. 5770 and No. 7154, became
due and demandable upon the failure of petitioner Autocorp Group to comply
with a condition set forth in its undertaking with the BOC, specifically to reexport the imported vehicles within the period of six months from their date of
entry. Since it issued the subject bonds, ISAC then also became liable to the
BOC. At this point, the Indemnity Agreements already give ISAC the right to
proceed against petitioners via court action or otherwise.
The Indemnity Agreements, therefore, give ISAC the right to recover
from petitioners the face value of the subject bonds plus attorneys fees at the
time ISAC becomes liable on the said bonds to the BOC, regardless of
whether the BOC had actually forfeited the bonds, demanded payment
thereof and/or received such payment. It must be pointed out that the
Indemnity Agreements explicitly provide that petitioners shall be liable to
indemnify ISAC whether or not payment has actually been made by the
[ISAC] and ISAC may proceed against petitioners by court action or
otherwise even prior to making payment to the [BOC] which may hereafter be
done by [ISAC].
Even when the BOC already admitted that it not only made a demand
upon ISAC for the payment of the bond but even filed a complaint against
ISAC for such payment,[13] such demand and complaint are not necessary to
hold petitioners liable to ISAC for the amount of such bonds. Petitioners
attempts to prove that there was no actual forfeiture of the subject bonds are
completely irrelevant to the case at bar.
It is worthy to note that petitioners did not impugn the validity of the
stipulation in the Indemnity Agreements allowing ISAC to proceed against
petitioners the moment the subject bonds become due and demandable, even
prior to actual forfeiture or payment thereof. Even if they did so, the Court
would be constrained to uphold the validity of such a stipulation for it is but a
slightly expanded contractual expression of Article 2071 of the Civil Code
which provides, inter alia, that the guarantor may proceed against the
principal debtor the moment the debt becomes due and demandable. Article
2071 of the Civil Code provides:
Art. 2071. The guarantor, even before having paid,
may proceed against the principal debtor:

(1) When he is sued for the payment;

(2) In case of insolvency of the principal debtor;
(3) When the debtor has bound himself to relieve him
from the guaranty within a specified period, and this period has
expired;
(4) When the debt has become demandable, by
reason of the expiration of the period for payment;
(5) After the lapse of ten years, when the principal
obligation has no fixed period for its maturity, unless it be of
such nature that it cannot be extinguished except within a period
longer than ten years;
(6) If there are reasonable grounds to fear that the
principal debtor intends to abscond;
(7) If the principal debtor is in imminent danger of
becoming insolvent.
In all these cases, the action of the guarantor is to obtain
release from the guaranty, or to demand a security that shall
protect him from any proceedings by the creditor and from the
danger of insolvency of the debtor. (Emphases ours.)
Petitioners also invoke the alleged lack of demand on the part of ISAC
on petitioners as regards Instrata Bond No. 5770 before it instituted Civil Case
No. 95-1584. Even if proven true, such a fact does not carry much weight
considering that demand, whether judicial or extrajudicial, is not required
before an obligation becomes due and demandable. A demand is only
necessary in order to put an obligor in a due and demandable obligation in
delay,[14] which in turn is for the purpose of making the obligor liable for
interests or damages for the period of delay.[15] Thus, unless stipulated
otherwise, an extrajudicial demand is not required before a judicial
demand, i.e., filing a civil case for collection, can be resorted to.
Inclusion of the Bureau
Customs as a party to the case

of

ISAC included the BOC as a necessary party plaintiff in order that the
reward of money or judgment shall be adjudged unto the said necessary
plaintiff.[16]
Petitioners assail this inclusion of the BOC as a party in Civil Case No.
95-1584 on the ground that it was not properly represented by the Solicitor
General. Petitioners also contend that the inclusion of the BOC as a party in

Civil Case No. 95-1584 is highly improper and should not be countenanced
as the net result would be tantamount to collusion between Intra Strata and
the Bureau of Customs which would deny and deprive petitioners their
personal defenses against the BOC.[17]
In its assailed Decision, the Court of Appeals did not find merit in
petitioners arguments on the matter, holding that when the BOC forfeited the
subject bonds issued by ISAC, subrogation took place so that whatever right
the BOC had against petitioners were eventually transferred to ISAC. As
ISAC merely steps into the shoes of the BOC, whatever defenses petitioners
may have against the BOC would still be available against ISAC.
The Court likewise cannot sustain petitioners position.
The misjoinder of parties does not warrant the dismissal of the
action. Section 11, Rule 3 of the Rules of Court explicitly states:
SEC. 11. Misjoinder and non-joinder of parties.Neither
misjoinder nor non-joinder of parties is ground for
dismissal of an action. Parties may be dropped or added by
order of the court on motion of any party or on its own initiative
at any stage of the action and on such terms as are just. Any
claim against a misjoined party may be severed and proceeded
with separately.
Consequently, the purported misjoinder of the BOC as a party cannot result in
the dismissal of Civil Case No. 95-1584. If indeed the BOC was improperly
impleaded as a party in Civil Case No. 95-1584, at most, it may be dropped
by order of the court, on motion of any party or on its own initiative, at any
stage of the action and on such terms as are just.
Should the BOC then be dropped as a party to Civil Case No. 951584?
ISAC alleged in its Complaint [18] that the BOC is being joined as a
necessary party in Civil Case No. 95-1584.
A necessary party is defined in Section 8, Rule 3 of the Rules of Court
as follows:
SEC. 8. Necessary party.A necessary party is one who
is not indispensable but who ought to be joined as a party if
complete relief is to be accorded as to those already parties, or
for a complete determination or settlement of the claim subject
of the action.
The subject matter of Civil Case No. 95-1584 is the liability of Autocorp
Group to the BOC, which ISAC is also bound to pay as the guarantor who

issued the bonds therefor. Clearly, there would be no complete settlement of

the subject matter of the case at bar the liability of Autocorp Group to the
BOC should Autocorp Group be merely ordered to pay its obligations with
the BOC to ISAC. BOC is, therefore, a necessary party in the case at bar,
and should not be dropped as a party to the present case.
It can only be conceded that there was an irregularity in the manner the
BOC was joined as a necessary party in Civil Case No. 95-1584. As the
BOC, through the Solicitor General, was not the one who initiated Civil Case
No. 95-1584, and neither was its consent obtained for the filing of the same, it
may be considered an unwilling co-plaintiff of ISAC in said action. The proper
way to implead the BOC as a necessary party to Civil Case No. 95-1584
should have been in accordance with Section 10, Rule 3 of the Rules of
Court, viz:
SEC. 10. Unwilling co-plaintiff. If the consent of any
party who should be joined as plaintiff can not be obtained, he
may be made a defendant and the reason therefor shall be
stated in the complaint.
Nonetheless, the irregularity in the inclusion of the BOC as a party to Civil
Case No. 95-1584 would not in any way affect the disposition thereof. As the
Court already found that the BOC is a necessary party to Civil Case No. 951584, it would be a graver injustice to drop it as a party.
Petitioners argument that the inclusion of the BOC as a party to this
case would deprive them of their personal defenses against the BOC is utterly
baseless.
First, as ruled by the Court of Appeals, petitioners defenses against the
BOC are completely available against ISAC, since the right of the latter to
seek indemnity from petitioner depends on the right of the BOC to proceed
against the bonds.
The Court, however, deems it essential to qualify that ISACs right to
seek indemnity from petitioners does not constitute subrogation under the
Civil Code, considering that there has been no payment yet by ISAC to the
BOC. There are indeed cases in the aforementioned Article 2071 of the Civil
Code wherein the guarantor or surety, even before having paid, may proceed
against the principal debtor, but in all these cases, Article 2071 of the Civil
Code merely grants the guarantor or surety an action to obtain release from
the guaranty, or to demand a security that shall protect him from any
proceedings by the creditor and from the danger of insolvency of the
debtor. The benefit of subrogation, an extinctive subjective novation by a
change of creditor, which transfers to the person subrogated, the credit and
all the rights thereto appertaining, either against the debtor or against third
persons,[19] is granted by the Article 2067 of the Civil Code only to the
guarantor (or surety) who pays. [20]

ISAC cannot be said to have stepped into the shoes of the BOC,
because the BOC still retains said rights until it is paid. ISACs right to file
Civil Case No. 95-1584 is based on the express provision of the Indemnity
Agreements making petitioners liable to ISAC at the very moment ISACs
bonds become due and demandable for the liability of Autocorp Group to the
BOC, without need for actual payment by ISAC to the BOC. But it is still
correct to say that all the defenses available to petitioners against the BOC
can likewise be invoked against ISAC because the latters contractual right to
proceed against petitioners only arises when the Autocorp Group becomes
liable to the BOC for non-compliance with its undertakings. Indeed, the
arguments and evidence petitioners can present against the BOC to prove
that Autocorp Groups liability to the BOC is not yet due and demandable
would also establish that petitioners liability to ISAC under the Indemnity
Agreements has not yet arisen.
Second, making the BOC a necessary party to Civil Case No. 95-1584
actually allows petitioners to simultaneously invoke its defenses against both
the BOC and ISAC. Instead of depriving petitioners of their personal defenses
against the BOC, Civil Case No. 95-1584 actually gave them the opportunity
to kill two birds with one stone: to disprove its liability to the BOC and, thus,
negate its liability to ISAC.
Liability of petitioner Rodriguez
Petitioner Rodriguez posits that he is merely a guarantor, and that his
liability arises only when the person with whom he guarantees the credit,
Autocorp Group in this case, fails to pay the obligation. Petitioner Rodriguez
invokes Article 2079 of the Civil Code on Extinguishment of Guaranty, which
states:

Art. 2079. An extension granted to the debtor by the

creditor without the consent of the guarantor extinguishes the
guaranty. The mere failure on the part of the creditor to demand
payment after the debt has become due does not of itself
constitute any extension of time referred to herein.

Petitioner Rodriguez argues that there was an amendment as to the effectivity

of the bonds, and this constitutes a modification of the agreement without his
consent, thereby exonerating him from any liability.
We must take note at this point that petitioners have not presented any
evidence of this alleged amendment as to the effectivity of the bonds. [21] Be

that as it may, even if there was indeed such an amendment, such would not
cause the exoneration of petitioner Rodriguez from liability on the bonds.
The Court of Appeals, in its assailed Decision, held that the use of the
term guarantee in a contract does not ipso facto mean that the contract is one
of guaranty. It thus ruled that both petitioners assumed liability as a regular
party and obligated themselves as original promissors, i.e., sureties, as shown
in the following provisions of the Indemnity Agreement:
INDEMNITY: - The undersigned [Autocorp Group and
Rodriguez] agree at all times to jointly and severally
indemnify the COMPANY [ISAC] and keep it indemnified and
hold and save it harmless from and against any and all
damages, losses, costs, stamps, taxes, penalties, charges and
expenses of whatsoever kind and nature including counsel or
attorneys fee which the COMPANY [ISAC] shall or may at any
time sustain or incur in consequence of having become surety
upon the bond herein above referred to x x x
xxxx
OUR LIABILITY HEREUNDER: - It shall not be necessary
for the COMPANY [ISAC] to bring suit against the principal
[Autocorp Group] upon his default or to exhaust the property of
the principal [Autocorp Group], but the liability hereunder of
the undersigned indemnitors [Rodriguez] shall be jointly
and severally, a primary one, the same as that of the
principal [Autocorp Group], and shall be exigible
immediately
upon
the
occurrence
of
such
default. (Emphases supplied.)
The Court of Appeals concluded that since petitioner Rodriguez was a
surety, Article 2079 of the Civil Code does not apply. The appellate court
further noted that both petitioners authorized ISAC to consent to the granting
of an extension of the subject bonds.
The Court of Appeals committed a slight error on this point. The
provisions of the Civil Code on Guarantee, other than the benefit of
excussion, are applicable and available to the surety.[22] The Court finds no
reason why the provisions of Article 2079 would not apply to a surety.
This, however, would not cause a reversal of the Decision of the Court
of Appeals. The
Court
of Appeals
was
correct
that
even
granting arguendo that there was a modification as to the effectivity of the
bonds, petitioners would still not be absolved from liability since they had
authorized ISAC to consent to the granting of any extension, modification,
alteration and/or renewal of the subject bonds, as expressly set out in the
Indemnity Agreements:

RENEWALS, ALTERATIONS AND SUBSTITUTIONS:

- The undersigned [Autocorp Group and Rodriguez] hereby
empower and authorize the COMPANY [ISAC] to grant or
consent to the granting of any extension, continuation,
increase, modification, change, alteration and/or renewal of
the original bond herein referred to, and to execute or
consent to the execution of any substitution for said Bond with
the same or different, conditions and parties, and the
undersigned [Autocorp Group and Rodriguez] hereby hold
themselves jointly and severally liable to the COMPANY
[ISAC] for the original Bond herein above-mentioned or for
any extension, continuation, increase, modification,
change, alteration, renewal or substitution thereof without
the necessary of any new indemnity agreement being
executed until the full amount including principal, interest,
premiums, costs, and other expenses due to the COMPANY
[ISAC] thereunder is fully paid up.[23] (Emphases supplied.)
The foregoing provision in the Indemnity Agreements clearly authorized
ISAC to consent to the granting of any extension, modification, alteration
and/or renewal of the subject bonds.
There is nothing illegal in such a provision. In Philippine American
General Insurance Co., Inc. v. Mutuc,[24] the Court held that an agreement
whereby the sureties bound themselves to be liable in case of an extension or
renewal of the bond, without the necessity of executing another indemnity
agreement for the purpose and without the necessity of being notified of such
extension or renewal, is valid; and that there is nothing in it that militates
against the law, good customs, good morals, public order or public policy.
WHEREFORE,
the
instant
Petition
for
Review
on Certiorari is DENIED. The Decision of the Court of Appeals dated 30 June
2004 in CA-G.R. CV No. 62564 which affirmed with modification the Decision
of the Regional Trial Court of Makati City, in Civil Case No. 95-1584 dated 16
September 1998 is AFFIRMED in toto. Costs against petitioners.
SO ORDERED.
[14]

Art. 1169. Those obliged to deliver or to do something

incur in delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation. However, the
demand by the creditor shall not be necessary in order that delay may
exist: (1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the
obligation it appears that the designation of the time when the thing is
to be delivered or the service is to be rendered was a controlling
motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has

rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner with
what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins.
[15]

Article 1170 of the Civil Code provides:

Art. 1170. Those who in the performance of their
obligations are guilty of fraud, negligence, or delay, and those who in
any manner contravene the tenor thereof, are liable for damages.

[19]

Civil Code, Article 1303 provides:

Art. 1303. Subrogation transfers to the persons subrogated the
credit with all the rights thereto appertaining, either against the debtor
or against third person, be they guarantors or possessors of
mortgages, subject to stipulation in a conventional subrogation.

[20]

Civil Code, Article 2067 provides::

Art. 2067. The guarantor who pays is subrogated by virtue
thereof to all the rights which the creditor had against the debtor.

THIRD DIVISION

[G.R. No. 137857. September 11, 2000]

REPUBLIC OF THE PHILIPPINES, represented by ASSET PRIVATIZATION

TRUST, petitioner, vs. The Heirs of SANCHO MAGDATO,
represented by NELSON M. FERRIOL, respondents.
DECISION
PANGANIBAN, J.:
In an action for quieting of title, recovery of possession and ownership of
a parcel of land, and damages, the mortgagee of the equipment and other
improvements located on the land is not an indispensable party, if the said
mortgagee does not claim any right to ownership or possession of such real
estate. Hence, the non-joinder of the mortgagee in such suit does not justify
an annulment of the judgment thereon on the ground of extrinsic fraud.

The Case
Before us is a Petition for Review under Rule 45 of the Rules of Court.
The Petition assails the January 18, 1999 Resolution [1] of the Court of Appeals
(CA) in CA-GR SP No. 49976, which reads as follows:
"The petition for annulment of judgment in Civil Case No. V-1040 of Branch 81
of the Regional Trial Court of Romblon raising essentially intrinsic fraud and
factual issues, in addition, the Court resolved to DISMISS the petition." [2] (sic)
Also assailed is the May 5, 1999 CA Resolution, [3] which denied the
Motion for Reconsideration.
The trial court ruling[4] sought to be annulled by petitioner was issued by
the Regional Trial Court (RTC) of Romblon, Romblon on January 31, 1994 in
Civil Case No. V-1040. The case -- for quieting of title, recovery of possession
and ownership, and damages - was entitled "Heirs of Sancho Magdato, herein
represented by Nelson M. Ferriol[,] v. Imperial Marble and Exploration
Corporation and Ramon S. Dino, President and General Manager; Filipinas
Marble Corporation and Vicente D. Millora, President and/or Chairman of the
Board." It disposed as follows:[5]
"WHEREFORE, judgment is rendered:
a) Ordering the defendants to vacate lot 898 and restoring plaintiff
in possession thereof as true and lawful owner of the same;
b) Ordering the defendants jointly and severally to pay plaintiff the
rentals due on the property from January 1970 up to
December 1993 in the amount of seventeen thousand six
hundred two pesos and thirty six centavos (P17,602.36), and
the amount of three hundred ninety six pesos and ninety
centavos (P396.90) every six months thereafter until the
plaintiff is restored in possession of the land, with interest on
both amounts at the legal rate from January 15, 1990 until fully
paid;
c) Ordering the defendants jointly and severally to pay plaintiff
moral damages in the sum of thirty thousand pesos
(P30,000.00) and the amount of fifty thousand pesos
(P50,000.00) as exemplary damages; and ten thousand pesos
(P10,000.00) as attorney's fees."
The Facts
The following undisputed facts may be gleaned from the pleadings of the
parties.

The land in question was Lot No. 898 of the Romblon Cadastre with a
total area of 10,891 square meters. It was originally leased from Sancho
Magdato by Cebu Portland Cement Corporation (CEPOC), a governmentowned and controlled corporation.
In 1961, CEPOC sold its buildings, equipment, machinery and other
structures to Filipinas Marble Corporation (FILMARCO), which continued
paying rentals to Magdato. FILMARCO, in turn, subleased the premises to
Imperial Marble & Exploration Corporation (IMEC).
Subsequently, FILMARCO obtained a loan in the amount of US$5 million
from the Development Bank of the Philippines (DBP). As a security, it
executed a chattel mortgage over its properties on the land. In 1987, DBP
transferred to the Asset Privatization Trust (APT) its financial claim against
FILMARCO. In 1990, APT placed a caretaker in the area to oversee the
safekeeping of the mortgaged properties.
When FILMARCO failed to pay rentals, the heirs of Sancho Magdato filed
before the RTC Civil Case No. V-1040 for quieting of title, recovery of
possession and ownership of the land, and damages against FILMARCO and
IMEC.
For failure to file an answer to the Complaint, both FILMARCO and IMEC
were declared in default. Respondents were then allowed to present evidence
ex parte. Thereafter, the trial court rendered its assailed Decision, which
became final and executory when neither FILMARCO nor IMEC appealed.
APT allegedly learned of the suit only on December 20, 1994 when the
Writ of Execution was served on its caretakers at the leased premises. The
caretakers refused to vacate the premises.
Respondent narrated the subsequent events in this wise: "A series of
motions and manifestations were filed by respondents and APT. Respondents
moved to have the APT-appointed caretakers cited in contempt; this was
denied by the trial court. On the other hand, APT asked for quashal of the Writ
on ground that it was not a party to the case and could, thus, not be forced to
comply with the Writ of Execution; furthermore, APT asked also for the pull-out
and removal of respondents from the property. The first prayer of APT was not
granted by the trial court even as it confirmed that APT was not party to the
case; the latter prayer of APT was denied by the trial court. A motion for
reconsideration by APT of the denial of the latter relief proved fruitless as the
trial court remained steadfast in its decision to confirm respondents as the
owners of the property."
On December 21, 1998, APT filed before the Court of Appeals a Petition
for the annulment of the RTC Decision. As earlier stated, the CA resolved to
dismiss the Petition.
Hence, this recourse to this Court.[6]
The Issues

In its Memorandum, petitioner submits the following issues for our

consideration:[7]
I
"Whether or not sufficient ground exists for the annulment of the trial court's
decision dated January 31, 1994 due to extrinsic fraud.
II
"Whether or not APT is an indispensable party and should have been
impleaded in Civil Case No. V-1040.
III
"Whether or not the decision dated January 31, 1994 of the trial court may be
enforced against APT despite the fact that APT [was] not a party in Civil Case
No. V-1040.
IV
"Whether or not APT was denied due process in the proceeding before the
trial court held in Civil Case No. V-1040.
V
"Whether or not private respondents heirs of Sancho Magdato were able to
prove their ownership over Lot 898, CAD 311-D, C-1 of the Romblon
Cadastre.
In the main, petitioner asks the Court to resolve two issues: (a) whether
the RTC Decision should be annulled due to extrinsic fraud, and (b) whether
the respondents were able to prove ownership of the parcel of land.
The Court's Ruling
The Petition is not meritorious.
First Issue: Extrinsic Fraud
Section 2, Rule 47 of the 1997 Rules of Court, provides that the
annulment of a judgment may "be based only on the grounds of extrinsic fraud
and lack of jurisdiction."[8] There is extrinsic fraud when "the unsuccessful
party had been prevented from exhibiting fully his case, by fraud or deception
practiced on him by his opponent, as by keeping him away from court, x x x or
where the defendant never had knowledge of the suit, being kept in ignorance
by the acts of the plaintiff; x x x." [9]

In this case, petitioner contends that there was extrinsic fraud because
respondents did not implead it as a defendant in the civil action, "[d]espite
their knowledge that the building and equipment of FILMARCO standing on
the subject property were mortgaged to DBP/APT." [10]
We disagree. A close examination of the records and the arguments
presented shows that there was no reason for respondents to implead
petitioner before the trial court.
Petitioner Not an Indispensable Party
Petitioner contends that it should have been impleaded as an
indispensable party,[11] because it was the "transferee of [DBP's] FILMARCO
account which includes the leasehold rights and mortgage over the subject
properties."[12]
The precise nature of the interest of APT was explained more clearly in its
other pronouncements. Hence, in its Comment [13] to the Motion to declare its
caretakers in contempt of court, it averred that what had been transferred to it
by the DBP was the latter's "financial claim" against FILMARCO.
This assertion was reiterated in the February 16, 1999 letter [14] addressed
to a Malacanang official,[15]15 in which Renato B. Valdecantos, APT chief
executive trustee, affirmed that what had been transferred by DBP to APT was
the bank's "financial claim" against FILMARCO. Pertinent portions of the
letter are reproduced hereunder:
On February 3, 1987, Administrative Order No. 14 was issued (Approving the
Identification of and Transfer to the National Government of Certain Assets
and Liabilities of the Development Bank of the Philippines and the Philippine
National Bank) as implemented by the Deed of Transfer dated February 27,
1987, executed by and between DBP and the Government of the Republic of
the Philippines, whereby DBP's rights, title and interest over the financial
claim against Filipinas Marble Corporation (FILMARCO) were transferred to
the National Government.
On February 27, 1987, the Trust Agreement was executed by and between
the National Government and the APT under which the former constituted the
latter as its trustee over the Trust Properties defined therein, among which
[was] the above-mentioned financial claim against FILMARCO.
Thus, what was transferred by DBP to the National Government through the
APT, consisted merely of the financial claim against FILMARCO. APT, even
up to the present, remains to be a mere director, or, in other words, the holder
of a financial claim against FILMARCO."[16] (Emphasis found in the original.)
More significant, Valdecantos also averred that APT was, in effect, a mere
creditor of FILMARCO and was not the owner or possessor of the said
mortgaged property. In his words:

Since the National Government/APT is not the owner of the subject

properties, it was explained to Mr. Ferriol that APT could not immediately
exercise the rights of an owner, or more particularly, allow the unilateral "turnover" of the properties which he wants the APT to do, which rights are vested
only [in] the owners of property under Article 428 of the New Civil Code of the
Philippines."[17]
Furthermore, he rejected the claim of Nelson Ferriol, respondents'
representative, that the equipment had been "transferred to APT.
The allegation of Mr. Ferriol, to wit:
`x x x that Filipinas Marble Corporationr[s] properties ha[d] been transferred
[to] the APT and the latter assumed full control including liabilities. Total
unpaid rentals of FILMARCO to the Heirs of Sancho Magdato is
approximately P4,243,443.16 as against FILRMARCO's property valued
at P277,550.00 only. APT refused to pay us the amount due to the Heirs of
Sancho Magdato for dubious reasons.
is without basis. APT should not and can not be held liable to settle other
separate liabilities of FILMARCO."[18] (Emphasis supplied.)
From the foregoing, it is quite clear that APT does not claim to be either
the owner or the possessor of the land or of the FILMARCO equipment
thereon. APT was merely the creditor of FILMARCO.
Because APT has no interest in the parcel of land, it does not stand to be
benefitted or injured by the suit before the trial court, which, as earlier noted,
sought the recovery of possession and ownership only of the land, not of the
mortgaged property located thereon.
The concern of APT was to collect the loan, which had been acquired by
FILMARCO from DBP and secured by a mortgage over FILMARCO's
equipment. That interest has not been affected by the action seeking the
recovery of the land on which the property is located. Verily, the ownership
and the possession of the land are immaterial to APT's claim against the
equipment.
That the action for recovery of possession necessarily includes the
removal of equipment located thereon does not make APT an a indispensable
party. As noted earlier, FILMARCO, not APT or DBP, was the owner of the
said equipment. Hence, respondents acted correctly in impleading
FILMARCO, not APT or DBP. Certainly, if the claim of APT is adversely
affected by the removal or transfer of the property to another place, it should
proceed against FILMARCO, not against respondents. Such transfer or
removal is the concern of FILMARCO, not the respondents. In any event, it
should be underscored that the civil action seeks the recovery of the land, not
of the equipment thereon.
In sum, the Court finds that petitioner failed to show substantial interest in
the civil action which would render it an indispensable party. Accordingly,
there was no reason for respondents to implead it as defendant before the
trial court. Hence, its non-joinder does not constitute an extrinsic fraud.

Second Issue: Ownership of theLand

Petitioner also contends that respondents failed to prove the disputed
parcel of land. It avers that the appellate court failed to consider the alleged
defects in the respondents' testimonial and documentary evidence.
This argument is bereft of merit. Petitioner is here seeking the annulment
of a trial court judgment. Such recourse is based only on extrinsic fraud and
lack of jurisdiction.[19] Because it is not an appeal, the correctness of the
judgment is not in issue here. Accordingly, there is no need to address each
error allegedly committed by the trial court.
WHEREFORE, the Petition is DENIED and the assailed Resolutions
AFFIRMED.
SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.

The case was deemed submitted for resolution on December 8, 1999, upon
receipt by this Court of the petitioners Memorandum signed by Solicitor
General Ricardo P. Galvez, Assistant Solicitor General Fernanda
Lampas Peralta and solicitor Norma B. Cajulis. Filed earlier on
November 17, 1999, was respondents Memorandum, signed by Atty.
Theodore O. Te of Sanidad Abaya Te Viterbo Enriquez & Tan.

Alarcon v. CA, GR No. 126802, January 28, 2000; Spouses Isagani Miranda
and Miguela Joguilon v. CA, GR No. 114243, February 23,
2000. Cf. Macabingkil v. Peoples Homesite and housing Corporation,
72 SCRA 326, August 17, 1976, in which the Court has recognized that
a patently void decision may also be set aside, where mere inspection
demonstrates its nullity for want of jurisdiction or noncompliance with
due process requirements.

Strait Times v. CA, 294 SCRA 714, 722, August 28, 1998, per Panganiban,
J.; citing Palanca v. The American Food Manufacturing Co., 24 SCRA
819, August 30, 1968. See also Serna v. CA, 308 SCRA 527, June 18,
1999; Arcelona v. CA, 280 SCRA 20, October 2, 1997.

11

An indispensable party is one without whom no final determination can be

had of an action. Section 9, Rule 3 of the Rules of Court. See also
Nufable v. Nufable, 309 SCRA 692, July 2, 1999; Uy v. CA, GR No.
120465, September 9, 1999; Zarate v. RTC of Kalibo, Aklan, GR No.
102305, October 13, 1999.

SECOND DIVISION

CHRISTINE CHUA
Petitioner,

G.R. No. 151900

Present:

- versus -

PUNO, J.
Chairman,
AUSTRIA-MARTINEZ,
CALLEJO,
TINGA, and
CHICO-NAZARIO, JJ.

JORGE TORRES and

ANTONIO BELTRAN,
Respondents.
August 30, 2005
x---------------------------------------------------------------------x
DECISION
TINGA, J.:
The Court settles an issue, heretofore undecided, on whether the
absence of the signature in the required verification and certification against
forum-shopping of a party misjoined as a plaintiff is a valid ground for the
dismissal of the complaint. We rule in the negative.
The relevant facts in this Petition for Review are culled from the records.
On 24 October 2001, a complaint for damages was lodged before the
Regional Trial Court (RTC) of Caloocan City, Branch 126. [1] The complaint was
filed by Christine Chua, herein petitioner, impleading her brother Jonathan
Chua as a necessary co-plaintiff. Named as defendants in the suit were
herein respondents Jorge Torres and Antonio Beltran. Torres was the owner
of the 9th Avenue Caltex Service Center (Caltex Service Center), while
Beltran was an employee of the said establishment as the head of its Sales
and Collection Division.[2]
The complaint alleged that on 3 April 2000, Jonathan Chua issued in
favor of the Caltex Service Center his personal Rizal Commercial Banking
Corporation (RCBC) Check No. 0412802 in the amount of Nine Thousand
Eight Hundred Forty Nine Pesos and Twenty Centavos (P9,849.20) in
payment for purchases of diesel oil. However, the check was dishonored by
the drawee bank when presented for payment on the ground that the account
was closed. Beltran then sent petitioner a demand letter informing her of the
dishonor of the check and demanding the payment thereof. Petitioner ignored
the demand letter on the ground that she was not the one who issued the said
check.
Without bothering to ascertain who had actually issued the check,
Beltran instituted against petitioner a criminal action for violation of Batas

Pambansa Bilang 22 (B.P. 22). Subsequently, a criminal information was filed

against petitioner with the Metropolitan Trial Court (MTC) of Caloocan City,
Branch 50.[3] The MTC then issued a warrant of arrest against petitioner. The
police officers tasked with serving the warrant looked for her in her residence,
in the auto repair shop of her brother, and even at the Manila Central
University were she was enrolled as a medical student, all to the alleged
embarrassment and social humiliation of petitioner.[4]
Beltrans purported negligence amounted to either malicious
prosecution or serious defamation in prosecuting petitioner resulting from the
issuance of a check she herself did not draw, and served cause for a claim of
moral damages. On the other hand, Torres, as employer of Beltran, was
alleged to have failed to observe the diligence of a good father of the family to
prevent the damage suffered by petitioner. Exemplary damages and
attorneys fees were likewise sought, thus bringing the aggregate total of
damages claimed to Two Million Pesos (P2,000,000.00), plus costs of suit.[5]
Significantly, while Jonathan Chua was named as a plaintiff to the suit,
it was explicitly qualified in the second paragraph of the complaint that he was
being impleaded here-in as a necessary party-plaintiff. [6] There was no
allegation in the complaint of any damage or injury sustained by Jonathan,
and the prayer therein expressly named petitioner as the only party to whom
respondents were sought to recompense. [7] Neither did Jonathan Chua sign
any verification or certification against forum-shopping, although petitioner did
sign an attestation, wherein she identified herself as the principal plaintiff. [8]
Upon motion of respondents, the RTC ordered the dismissal of the
complaint[9] on the ground that Jonathan Chua had not executed a certification
against forum-shopping. The RTC stressed that Section 5, Rule 7 of the
Rules of Civil Procedure, the rule requiring the certification, makes no
distinction whether the plaintiff required to execute the certification is a
principal party, a nominal party or a necessary party. Instead, the provision
requires that a plaintiff or principal party who files a complaint or initiatory
pleading execute such certification. Jonathan Chua, being a plaintiff in this
case, was obliged to execute or sign such certification. [10] Hence, his failure to
do so in violation of the mandatory rule requiring the certification against
forum-shopping constituted valid cause for the dismissal of the petition. [11]
After the RTC denied the motion for reconsideration [12] lodged by
petitioner, the matter was elevated directly to this Court by way of petition for
review under Rule 45, raising a purely legal question, [13] cast, if somewhat
unwieldily, as whether or not a co-plaintiff impleaded only as a necessary
party, who however has no claim for relief or is not asserting any claim for
relief in the complaint, should also make a certification against forum
shopping.[14]
Preliminarily, it bears noting that Jonathan Chua did not sign as well
any verification to the complaint, ostensibly in violation of Section 7, Rule 4 of
the Rules of Civil Procedure. The RTC failed to mention such fact, as does

petitioner in her present petition. In their arguments before this Court,

respondents do refer in passing to the verification requirement [15], but do not
place any particular focus thereto. The verification requirement is separate
from the certification requirement. [16] It is noted that as a matter of practice, the
verification is usually accomplished at the same time as the certification
against forum-shopping; hence the customary nomenclature, Verification and
Certification of Non Forum-Shopping or its variants. For this reason, it is quite
possible that the RTC meant to assail as well the failure of Jonathan Chua to
verify the complaint.
The verification requirement is significant, as it is intended to secure an
assurance that the allegations in the pleading are true and correct and not the
product of the imagination or a matter of speculation, and that the pleading is
filed in good faith.[17] The absence of a proper verification is cause to treat the
pleading as unsigned and dismissible. [18] It would be as well that the Court
discuss whether under the circumstances, Jonathan Chua is also required to
execute a verification in respect to petitioners complaint.
Having established the proper parameters of the petition, we proceed
to the core issues. We find the petition has merit, although we appreciate the
situation differently from petitioner. Our decision proceeds from the
fundamental premise that Jonathan Chua was misjoined as a party plaintiff in
this case.
It is elementary that it is only in the name of a real party in interest that
a civil suit may be prosecuted. [19] Under Section 2, Rule 3 of the Rules of Civil
Procedure, a real party in interest is the party who stands to be benefited or
injured by the judgment in the suit, or the party entitled to the avails of the suit.
"Interest" within the meaning of the rule means material interest, an interest in
issue and to be affected by the decree, as distinguished from mere interest in
the question involved, or a mere incidental interest. [20] One having no right or
interest to protect cannot invoke the jurisdiction of the court as a party plaintiff
in an action.[21] To qualify a person to be a real party in interest in whose name
an action must be prosecuted, he must appear to be the present real owner of
the right sought to enforced.[22]
The subject complaint does not allege any rights of Jonathan Chua
violated by respondents, present any rights of his to be enforced, or seek in
his behalf any rights to the avails of suit. In short, Jonathan claims nothing,
and for nothing, in the subject complaint. If he alone filed the complaint, it
would have been dismissed on the ground that the complaint states no cause
of action, instituted as it was by a person who was not a real party in interest.
But was it proper for petitioner to have even impleaded Jonathan as a
co-plaintiff in the first place? Petitioner alleged in her complaint that Jonathan
was a necessary party, and remains consistent to that claim even before this
Court. She however fails to demonstrate how Jonathan can be considered as
a necessary party, other than by noting that he was the one who really issued
the check in controversy. [23] Such fact, if proven, may establish the malice of
respondents in filing the criminal case against petitioner for violation of B.P.

22, but does not create the need to require Jonathans participation as a
necessary party.
Section 8, Rule 7 of the Rules of Civil Procedure defines a necessary
party as one who is not indispensable but who ought to be joined as a party if
complete relief is to be accorded as to those already parties, or for a complete
determination or settlement of the claim subject of the action. [24] Necessary
parties are those whose presence is necessary to adjudicate the whole
controversy, but whose interests are so far separable that a final decree can
be made in their absence without affecting them.[25]
An example of a necessary party may be found in Seno v. Mangubat.
Petitioner therein sold her property through a deed of sale to three
vendees. Two of the vendees then sold their shares to the third buyer, who
then sold the property to another set of persons. Thereafter, petitioner, who
claimed that the true intent of the first sale was an equitable mortgage, filed a
complaint seeking the reformation of the deed of sale and the annulment of
the second sale. The question arose whether the two vendees who had since
disposed of their shares should be considered as indispensable parties or
necessary parties. In concluding that they were only necessary parties, the
Court reasoned:
[26]

In the present case, there are no rights of defendants Andres

Evangelista and Bienvenido Mangubat to be safeguarded if the sale
should be held to be in fact an absolute sale nor if the sale is held to
be an equitable mortgage. Defendant Marcos Mangubat became
the absolute owner of the subject property by virtue of the sale to
him of the shares of the aforementioned defendants in the
property. Said defendants no longer have any interest in the
subject property. However, being parties to the instrument
sought to be reformed, their presence is necessary in order to
settle all the possible issues of the controversy. Whether the
disputed sale be declared an absolute sale or an equitable
mortgage, the rights of all the defendants will have been amply
protected. Defendants-spouses Luzame in any event may enforce
their rights against defendant Marcos Mangubat. [27]
In Seno, the persons deemed by the Court as necessary parties may
have had already disposed of their interests in the property. However, should
the lower court therein grant the prayer for the reformation of the deed of sale,
the ruling will undoubtedly have an effect on such parties, on matters such as
the purchase price which they may have received, and on whatever
transmission of rights that may have occurred between them and the vendor.
In contrast, Jonathan Chua does not stand to be affected should the RTC
rule either favorably or unfavorably of the complaint. This is due to the nature
of the cause of action of the complaint, which alleges an injury personal to
petitioner, and the relief prayed for, which is to be adjudicated solely to

petitioner. There is no allegation in the complaint alleging any violation or

omission of any right of Jonathan, either arising from contract or from law.
It may be so that Jonathan may be called to testify by his sister, in
order to prove the essential allegation that she did not issue the check in
question, and perhaps such testimony would be vital to petitioners cause of
action. But this does not mean that Jonathan should be deemed a necessary
party, as such circumstance would merely place him in the same class as
those witnesses whose testimony would be necessary to prove the allegations
of the complaint. But the fact remains that Jonathan would stand unaffected
by the final ruling on the complaint. The judicial confirmation or rejection of the
allegations therein, or grant or denial of the reliefs prayed for will not infringe
on or augment any of his rights under the law. If there would be any effect to
Jonathan of the RTCs ultimate decision on the complaint, it would be merely
emotional, arising from whatever ties of kinship he may retain towards his
sister, and no different from whatever effects that may be similarly sustained
on petitioners immediate family.
Since we are unconvinced by petitioners basic premise that Jonathan
was a necessary party, it is unnecessary to directly settle the issue as
couched by petitioner of whether or not a co-plaintiff impleaded only as a
necessary party, who however has no claim for relief or is not asserting any
claim for relief in the complaint, should also make a certification against forum
shopping.[28] We can note, as the RTC did, that Section 5, Rule 7 of the 1997
Rules of Civil Procedure makes no distinctions that would expressly exempt a
necessary party from executing the certification against forum shopping.
Nonetheless, there are dimensions to the matter, heretofore unraised, that
may unsettle a strict application of the rule, such as if the necessary party is
impleaded as a plaintiff or counterclaimant without his knowledge or against
his will.[29] But these circumstances relevant to a necessary party are not
present in this case, and thus require no further comment upon for now.
Instead, what the Court may rule upon is whether the absence of the
signature of the person misjoined as a party-plaintiff in either the verification
page or certification against forum-shopping is ground for the dismissal of the
action. We rule that it is not so, and that the RTC erred in dismissing the
instant complaint. There is no judicial precedent affirming or rejecting such a
view, but we are comfortable with making such a pronouncement. A misjoined
party plaintiff has no business participating in the case as a plaintiff in the first
place, and it would make little sense to require the misjoined party in
complying with all the requirements expected of plaintiffs.
At the same time, Section 11, Rule 3 of the 1997 Rules of Civil
Procedure states:
Neither misjoinder nor non-joinder of parties is ground
for dismissal of an action. Parties may be dropped or added by
order of the court on motion of any party or on its own initiative at
any stage of the action and on such terms as are just. Any claim

against a misjoined party may be severed and proceeded with

separately.[30]
Clearly, misjoinder of parties is not fatal to the complaint. The rule
prohibits dismissal of a suit on the ground of non-joinder or misjoinder of
parties.[31] Moreover, the dropping of misjoined parties from the complaint may
be done motu proprio by the court, at any stage, without need for a motion to
such effect from the adverse party.[32] Section 11, Rule 3 indicates that the
misjoinder of parties, while erroneous, may be corrected with ease through
amendment, without further hindrance to the prosecution of the suit.
It should then follow that any act or omission committed by a misjoined
party plaintiff should not be cause for impediment to the prosecution of the
case, much less for the dismissal of the suit. After all, such party should not
have been included in the first place, and no efficacy should be accorded to
whatever act or omission of
the party.[33] Since the misjoined party plaintiff receives no recognition from the
court as either an indispensable or necessary party-plaintiff, it then follows that
whatever action or inaction the misjoined party may take on the verification or
certification against forum-shopping is inconsequential. Hence, it should not
have mattered to the RTC that Jonathan Chua had failed to sign the
certification against forum-shopping, since he was misjoined as a plaintiff in
the first place. The fact that Jonathan was misjoined is clear on the face of the
complaint itself, and the error of the RTC in dismissing the complaint is not
obviated by the fact that the adverse party failed to raise this point. After all,
the RTC could have motu proprio dropped Jonathan as a plaintiff, for the
reasons above-stated which should have been evident to it upon examination
of the complaint.
There may be a school of thought that would nonetheless find some
satisfaction in petitioners woes before the RTC, as it was her error in the first
place of wrongfully impleading her brother as a party plaintiff which ultimately
served as cause for the dismissal of the complaint. The blame may in the final
analysis lie with petitioner, yet we should not construe the rules of procedure
to quench an unnecessary thirst to punish at the expense of the intellectual
integrity of the rules. For our Rules of Court do not regard the misjoinder of
parties as an error of fatal consequence, and the logical extension of this
principle is to consider those procedural acts or omissions of misjoined parties
as of similar import.
WHEREFORE, the Petition is GRANTED. The Orders dated 3 December
2001 and 15 January 2002 of the Regional Trial Court of Caloocan City,
Branch 126, in Civil Case No. C-19863 are SET ASIDE, and the Complaint in
the aforementioned case is REINSTATED. The lower court isENJOINED to
hear and decide the case with deliberate dispatch. No pronouncement as to
costs.
SO ORDERED.

[3]

Docketed as Criminal Case No. 205058. Neither the parties nor the
case record offer any account of any succeeding developments in this
criminal case, although those developments would bear no relevance to the
resolution of this petition.

[7]

The prayer states: WHEREFORE, it is respectfully prayed that, after

due notice and hearing, judgment be rendered by this Honorable Court
ordering the defendants, jointly and severally, to pay plaintiff Christine Chua
the following amounts: xxx Id. at 14.

[13]

An appeal to a final order of the RTC wherein only questions of law

are raised or involved shall be to the Supreme Court by petition for review on
certiorari in accordance with Rule 45. See Section 2(c), Rule 41, Rules of Civil
Procedure, in relation to Section 1, Rule 41.

[18]

See Section 4, Rule 7, Rules of Civil Procedure.

[19]

See Section 2, Rule 3, Rules of Civil Procedure.

[27]

Id. at 119. In an action to reform a deed, all parties claiming an

interest in the land or any part thereof purportedly conveyed by the instrument
sought to be reformed, and whose interests will be affected by the reformation
of the instrument are necessary parties to the action. Toyota Motor Phil. v.
Court of Appeals, G.R. No. 102881, 7 December 1992 citing Kemp v.
Funderburk, 224 NC 353, 30 SE 2d 155.

[29]

Under Section 10, Rule 3 of the 1997 Rules of Civil Procedure, if the
consent of a party who should be joined as plaintiff cannot be obtained, he
may instead be joined as a defendant and the reasons therefore to be stated
in the complaint.

[32]

It is thus clear that in a case of misjoinder of parties which in this

case is the co-filing of the petition for suspension of payments by both the
Yutingcos and the EYCO group the remedy has never been to dismiss the
petition in its entirety but to dismiss it only as against the party upon whom the
tribunal or body cannot acquire jurisdiction. The result, therefore, is that the
petition with respect to EYCO shall subsist and may be validly acted upon by
the SEC. The Yutingcos, on the other hand, shall be dropped from the petition
and be required to pursue their remedies in the regular courts of competent
jurisdiction. Union Bank of the Philippines v. Court of Appeals, 352 Phil. 808,
828 (1998).

[33]

This is assuming of course that those plaintiffs who stand as real

parties in interest do not concurrently or similarly perform those same acts or
omissions as the misjoined parties that would serve to prejudice the cause of
action. Thus, assuming that the plaintiff standing as a real party in interest and
the misjoined plaintiff both fail to verify the complaint, the suit may be
dismissed but on account of the failure of the plaintiff/real party in interest. In
the same situation, the similar failure of the misjoined plaintiff to verify the
complaint will not be sufficient to justify the non-dismissal of the complaint,
citing this decision as basis.

G.R. No. L-44339 December 2, 1987

CRISANTA F. SENO, CAROLA SENO SANTOS, MANUEL SENO, JR.,
DIANA SENO CONDER, EMILY SENO and WALTER SENO, plaintiffs,
vs.
MARCOS MANGUBAT and Spouses FRANCISCO LUZAME and VERGITA
PENAFLOR, ANDRES EVANGELISTA and BIENVENIDO
MANGUBAT, defendants.

GANCAYCO, J.:
This is an appeal that was certified to this Court by the Court of
Appeals 1 from the order of the Court of First Instance of Rizal, Branch 1,
dated September 29,1972 in Civil Case No. 12205 dismissing the action for
reformation of instrument and annulment of subsequent sale. 2
This case stemmed from a complaint filed by plaintiffs on August 29, 1969
seeking 1) the reformation of a Deed of Sale executed in favor of defendant
Marcos Mangubat and, 2) the annulment of a subsequent sale to defendant
spouses Francisco Luzame and Vergita Penaflor of a parcel of land in Barrio
Dongalo, Paranaque, Rizal covered by OCT No. 1197 of the Land Registry of
Rizal.

The material allegations of the complaint so far as they affect the present
appeal are to the following effect: that plaintiff Crisanta Seno, a widow,
approached defendant Marcos Mangubat sometime in 1961 to negotiate with
him a mortgage over the subject parcel of land so she can pay off a previous
indebtedness; that she had herein defendant agreed on a mortgage for the
sum of P15,000.00 with interest of 2% a month payable every month and that
as long as the interest is being paid, the mortgage over the property will not
be foreclosed; that on the assurance of defendant Marcos Mangubat, a
practicing lawyer, that he win respect their true agreement on the mortgage,
plaintiff Crisanta F. Seno agreed to the execution of a Deed of Absolute Sale
over the subject property for a consideration of P5,000.00 in favor of
defendant Marcos Mangubat and certain Andres Evangelista and Bienvenido
Mangubat on July 17, 1961; 3 that defendant Marcos Mangubat was able to
obtain a title in his name and the other alleged vendees Andres Evangelista
and Bienvenido Mangubat; that on January 8, 1962 Andres Evangelista and
Bienvenido Mangubat executed a Deed of Absolute Sale transferring their
share in the subject property to defendant Marcos Mangubat; that defendant
Marcos Mangubat was able to obtain a title over the subject property in his
name by virtue of this latter sale; that plaintiff Crisanta F. Seno continued
paying defendant Marcos Mangubat the usurious 2% interest per month; that
sometime in 1963, when plaintiff Crisanta F. Seno failed to pay the monthly
interest of 2%, she was sued for ejectment by defendant Marcos Mangubat
alleging non-payment of rentals; that sometime in the later week of January
1969, plaintiff Crisanta F. Seno learned that defendant Marcos Mangubat sold
the subject property in favor of spouses Francisco Luzame and Vergita
Penaflor for the sum of P10,000.00 on January 14, 1969; 4 that defendant
spouses Francisco Luzame and Vergita Penaflor bought the property in bad
faith since they had knowledge of the circumstances surrounding the
transaction between plaintiff and defendant Marcos Mangubat; that defendant
spouses Luzame filed an ejectment case against plaintiff Crisanta Seno for
alleged non-payment of rentals.
On motion of defendant spouses Luzame and Penaflor, the trial court ordered
on October 20, 1975 the inclusion as defendants of Andres Evangelista and
Bienvenido Mangubat on the ground that they are indispensable parties, on
December 29, 1971, plaintiffs filed their amended complaint in compliance
with the court's order of October 20, impleading Andres Evangelista and
Bienvenido Mangubat as defendants.
The newly impleaded defendants moved for the dismissal of the case against
them on the ground of prescription which motion was granted by the court in
its order of July 3, 1972, the dispositive portion of which reads
xxx xxx xxx
Considering that under Art. 1144 of the Civil Code of the
Philippines, an action upon a written contract must be brought
within 10 years from the time the right of action accrued, and
considering further the opposition of plaintiffs which we find to
be justified and meritorious, this Court resolves to dismiss as it

hereby dismisses the case only as against defendants Andres

Evangelista and Bienvenido Mangubat.
xxx xxx xxx 5
Defendants Luzame and Penaflor in their motion for reconsideration
represented by Atty. Jose Manacop and defendant Marcos Mangubat in his
Supplement to motion for reconsideration or in support of Atty. Manacop's
motion for reconsideration asked the court a quo to dismiss the case against
all the defendants. The court a quoin its order of September 27, 1972
reconsidered its order of July 3rd and dismissed the case against all the
defendants holding that the court is no longer in a position to grant plaintiffs'
demands, principally the reformation of subject Deed of Absolute Sale.
The motion for reconsideration filed by the plaintiffs of the foregoing order was
denied by the trial court in its order of January 17, 1973; 6 hence, an appeal
was brought before the Court of Appeals praying for the reversal of the orders
of the court a quo dated September 27, 1972 and January 17, 1973 and for
the remand of the case to the court a quo for further proceedings.
The Court of Appeals certified the instant case to this Court holding that the
assignment of errors made by plaintiffs in their appeal raised purely legal
questions, to wit
1) Are defendants Andres Evangelista and Bienvenido
Mangubat indispensable parties in the case without whom no
action can be properly taken thereon?
2) If they are such, has the action prescribed against them in
view of Art. I 1 44, Civil Code?
3) If they are not, was the dismissal of said defendants a legal
grounds for dismissal of the complaint as against the other
defendants? and
4) Was the dismissal of the case without a hearing on the merits
in accordance with law? 7
The first issue We need to resolve is whether or not defendants Andres
Evangelista and Bienvenido Mangubat are indispensable parties. Plaintiffs
contend that said defendants being more dummies of defendant Marcos
Mangubat and therefore not real parties in interest, there is no room for the
application of Sec. 7, Rule 3 of the Revised Rules of Court.
For the determination of this issue, We find it necessary to consider the
distinction between indispensable and proper parties as clearly stated in
Sections 7 and 8, Rule 3 of the Revised Rules of Court which provide:

Sec. 7. Compulsory joinder of indispensable parties. Parties

in interest without whom no final determination can be had of an
action shall be joined either as plaintiffs or defendants.
Sec. 8. Joinder of proper parties. When persons who are not
indispensable but who ought to be parties if complete relief is to
be accorded as between those already parties, have not been
made parties and are subject to the jurisdiction of the court as to
both service of process and venue, the court shall order them
summoned to appear in the action. But the court may, in its
discretion, proceed in the action without making such persons
parties, and the judgment rendered therein shall be without
prejudice to the rights of such persons.
Under Section 7, indispensable parties must always be joined either as
plaintiffs or defendants, for the court cannot proceed without them. Necessary
parties 8 must be joined, under Section 8, in order to adjudicate the whole
controversy and avoid multiplicity of suits. 9
Indispensable parties are those with such an interest in the controversy that a
final decree would necessarily affect their rights, so that the courts cannot
proceed without their presence. Necessary parties are those whose presence
is necessary to adjudicate the whole controversy, but whose interests are so
far separable that a final decree can be made in their absence without
affecting them. 10
Defendants cite Alberto vs. Mananghala 11 to support their theory that
defendants Andres Evangelista and Bienvenido Mangubat are indispensable
parties. Thus
xxx xxx xxx
One of the issues raised by the parties is whether the
transactions carried out by and between Arcadio Ramos and the
deceased Vicente Feliciano is a sale with pacto de retro or
simply an equitable mortgage. If it be held that it is an equitable
mortgage, then their right would be defeated and they would be
held liable for warranty and eviction under the law to Casimiro
Mananghala This being so, it would seem clear that the
presence of all the heirs of Vicente Feliciano in this case is
indispensable in order that they may protect their interests. They
are entitled to be heard. They may have a valid defense which
may have the effect of defeating the claim of the plaintiffs. This
however, was not done, for some of the heirs of Vicente
Feliciano were not served with summons and consequently
have not entered their appearance. This is in violation of Section
7, Rule 3 of the Rules of Court.
xxx xxx xxx

We, however, find this case inapplicable to the case at bar.

In the present case, there are no rights of defendants Andres Evangelista and
Bienvenido Mangubat to be safeguarded if the sale should be held to be in
fact an absolute sale nor if the sale is held to be an equitable mortgage.
Defendant Marcos Mangubat became the absolute owner of the subject
property by virtue of the sale to him of the shares of the aforementioned
defendants in the property. Said defendants no longer have any interest in the
subject property. However, being parties to the instrument sought to be
reformed, their presence is necessary in order to settle all the possible issues
of tile controversy. Whether the disputed sale be declared an absolute sale or
an equitable mortgage, the rights of all the defendants will have been amply
protected. Defendants-spouses Luzame in any event may enforce their rights
against defendant Marcos Mangubat.
In fact the plaintiffs were not after defendants Andres Evangelista and
Bienvenido Mangubat as shown by their non-inclusion in the complaint and
their opposition to the motion to include said defendants in the complaint as
indispensable parties. It was only because they were ordered by the court a
quo that they included the said defendants in the complaint. The lower court
erroneously held that the said defendants are indispensable parties.
Notwithstanding, defendants Andres Evangelista and Bienvenido Mangubat
not being indispensable parties but only proper parties, their joinder as parties
defendants was correctly ordered being in accordance with Sec. 8 of Rule 3.
We, therefore, need to settle the next issue of whether the action against
them has prescribed in view of Art. 1144, Civil Code, which provides:
The following actions must be brought ten years from the time
the right of action accrues:
1) Upon a written contract;
xxx xxx xxx
The complaint clearly alleged that the deed of sale executed on July 17, 1961
did not express the true intention of the parties and should be reformed into
the mortgage it actually was. Such allegations are binding for purposes of
determining the motion to dismiss (which hypothetically admits the allegations
in the complaint). The prescriptive period for such actions based upon a
written contract and for reformation thereof is ten years as provided in Article
1144 of the Civil Code. Such right to reformation is expressly recognized in
Article 1365 of the same Code which provides:
If two parties agree upon the mortgage or pledge of real or
personal property, but the instrument states that the property is
sold absolutely or with a right of repurchase, reformation of the
instrument is proper. 12

Article 1605 of the Civil Code 13 in conjunction with Article 1604 14 likewise
allows the apparent vendor to ask for the reformation of the instrument.
Plaintiffs argue that:
A grave and palpable error was committed by the court a quo in
holding that the prescriptive period must be counted from the
date of execution of the deed of sale on July 17, 1961 up to the
date of filing of the Amended Complaint on December 29, 1971.
The important reckoning point is the date of filing of the original
complaint on August 29, 1969. It has been held that
amendments in pleadings do not necessarily expunge those
previously filed; That amendments made, more so when ordered
by the court, relate back to the date of the original complaint, as
in the case at bar, the claim asserted in the amended pleading
arose out of the same conduct, transaction or occurrence, and
that amendment presupposes the existence of something to be
amended, and, therefore, the tolling of the period should relate
back to the filing of the pleading sought to be amended
(Philippine Independent Church v. Mateo, et al., L-14793, April
28, 1961). 15
In the case of Pangasinan Transportation Co. vs. Philippine Farming Co.,
Ltd., 16 this Court held that where the original complaint states a cause of
action but does it imperfectly and afterwards an amended complaint is filed
correcting the defect, the plea of prescription will relate to the time of the filing
of the original complaint. However, in the case of Aetna Insurance Co. vs.
Luzon Stevedoring Corporation, 17 We held that this rule would not apply to
the party impleaded for the first time in the amended complaint.
In Aetna, the defendant Barber Lines Far East Service was impleaded for the
first time in the amended complaint which was filed after the one-year period
for prescription. The order of the lower court dismissing the amended
complaint against the said defendant was affirmed by this Court.
In the instant case, defendants Andres Evangelista and Bienvenido Mangubat
were only impleaded in the amended complaint of December 29, 1971 or ten
(10) years, five (5) months and twelve (12) days from July 17, 1961 the date
of execution of the subject Deed of Absolute Sale, clearly more than the ten
(10) year prescriptive period.
Anent the third and fourth issues, the theory of the plaintiffs is that the
complaint should not have been dismiss as against said defendants but
instead the court a quo should have proceeded with a trial on the merits
because there is an issue of fact appearing on the pleadings, that is, that
defendants Andres Evangelista and Bienvenido Mangubat were mere
dummies of defendant Marcos Mangubat.

It should be remembereenvenidd that the court a quo dismissed the complaint

against defendants Andres Evangelista and Bio Mangubat upon their motion
to dismiss on the ground of prescription.
Section 3, Rule 16 relating to motion to dismiss , provides that "after hearing,
the court may deny or grant the motion or allow amendment, or may defer the
hearing and determination of the motion until the trial if the ground alleged
therein does not appear to be indubitable."
A motion to dismiss on the ground of prescription will be given due course
only if the complaint shows upon its face that the action has already
prescribed. 18 If it does not so appear, the determination of the motion to
dismiss must be deferred until trial. 19
Under the circumstances of this case, the ground of prescription alleged by
aforementioned defendants was apparent on the face of the complaint. As
earlier pointed out in this decision, the action against said defendants has
prescribed. The court a quo properly ordered its dismissal as what it originally
did in its order of July 3, 1972.
The plaintiffs now maintain that assuming the action against defendants
Andres Evangelista and Bienvenido Mangubat had already prescribed, this
defense was personal to them and could not legally encompass the position
of defendant Marcos Mangubat; that the latter defendant, could be held solely
responsible to plaintiffs, having become absolute owner of the property
subject matter of the July 17, 1961 instrument, or in the least he could be held
accountable for his 1/3 share of the property. 20
One case which the lower court particularly applied to justify dismissal of the
case against the other defendants was Pillado vs. Francisco. 21 In said case,
plaintiffs filed an action for the annulment of the contract of sale of a certain
real estate executed by the Philippine National Bank (PNB) in favor of the
spouses Estela Francisco and Vivencio Lasala Defendant PNB submitted an
answer while defendant spouses filed a motion to dismiss on the ground that
the complaint stated no cause of action and that plaintiffs have no legal
capacity to sue. Said defendant spouses subsequently filed an additional
motion to dismiss on the ground that the cause of action of plaintiff, if any, had
prescribed. The court ordered the dismissal of the complaint which dismissal
became final. Plaintiffs then asked the court to continue the case against PNB
but the latter moved for the dismissal on the ground that the court had lost, or
had been divested of its jurisdiction over the case through the release of the
defendant spouses, who were indispensable parties. The court granted the
motion to dismiss holding that defendant spouses who were the vendees
were indispensable parties in an action for the rescission of the sale. From
this order, the plaintiff appealed to this Court. This Court affirmed the order
holding that the indispensable parties having been discharged by the trial
court, the Court is no longer in a position to grant the plaintiff's demands,
principally the revocation of the Deed of Sale in their favor.

As We have already held that defendants Andres Evangelista and Bienvenido

Mangubat are not indispensable but proper parties, Pillado cannot therefore,
be applied to the case at bar. In that case, the parties discharged were
indispensable being the purchasers and the present holders of the subject
property. In the instant case, the parties discharged were the original vendees
who have since transferred their interest in the subject property to one of the
original co-vendees, and the latter after having been vested with absolute title
over the subject property sold the same to defendants spouses Luzame.
Whereas in the former case, the court was no longer in a position to grant the
relief sought by the plaintiffs, in the latter, the trial court may still be able to
grant plaintiffs' demands for reformation of the instrument and annulment of
subsequent sale if after trial on the merits, plaintiffs prove their allegations that
defendants Andres Evangelista and Bienvenido Mangubat were in fact were
dummies of Marcos Mangubat and that the sale executed on July 17, 1961
was in reality an equitable mortgage.
By the dismissal of the case against defendants Andres Evangelista and
Bienvenido Mangubat, the court a quohad lost jurisdiction over them. We
have already pointed out that the joinder of proper parties is necessary in
order to determine all the possible issues of the controversy; but if for some
reason or another it is not possible to join them, as when they are out of the
jurisdiction of the Court, the court may proceed without them, and the
judgment that may be rendered shall be without prejudice to their
rights. 22 Hence, notwithstanding the absence of said defendants, the court
could still proceed with the trial of the case as against the remaining
defendants in accordance with Sec. 8 of Rule 3.
Nevertheless, the court is constrained to affirm the dismissal of the complaint
against all the defendants as there is merit in the argument raised by
defendants-appellees that plaintiffs are barred by laches to bring suit against
them.
Laches (or estoppel by laches) is unreasonable delay in the bringing of a
cause of action before the courts of justice. 23 As defined by this Court,
"laches is 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 negligence or omission to assert a right within a reasonable
time, warranting a presumption that the party entitled thereto either has
abandoned it or declined to assert it. 24
A perusal of the records shows that from t he time of the execution of the
deed of sale on July 17, 1961 to the time of the filing of the present complaint
on August 29, 1969 or a period of 8 years, I month and 12 days, plaintiffs
never took any step to enforce their rights which they claim to have despite
the several opportunities available to them.
Defendant Marcos Mangubat filed an ejectment suit against plaintiff Crisanta
Seno in 1963 and this fact was admitted by the plaintiffs in their complaint. For
failure of plaintiff to appear in the case, a decision was rendered by the trial

court ordering plaintiffs to vacate the subject property

duly executed. 26

25

which decision was

It further appears from the complaint that plaintiffs were well aware of the
transfer of the title from the name of plaintiff Crisanta Seno to the names of
defendants Marcos Mangubat, Andres Evangelista and Bienvenido Mangubat
and subsequently to the name of defendant Marcos Mangubat alone as early
as 1963 when the ejectment case was filed against plaintiffs, and also they
did not do anything about it.
In January 1969, plaintiffs learned of the sale of the subject property to
defendants-spouses Luzame. but it was only on August 29, 1969 when
plaintiffs brought this action and only after an ejectment case was filed by said
defendant spouses against plaintiff Crisanta Seno before the Municipal Court
of Paranaque, Rizal on August 4, 1969.
As defendants-appellees contend, before the nine-year period lapsed,
plaintiffs never raised a voice to protest against all these proceedings. They
chose to sleep on their rights and to rely on defendants' alleged word that
their true agreement would be respected rather than bring their grievances to
a court of law. However, when an ejectment case was filed against them just
when the 10-year prescriptive period for bringing of their suit was nearly over,
they finally decided to stake their claim against the defendants.
The essence of laches is not merely lapse of time. It is essential that there be
also acquiescence in the alleged wrong or lack of diligence in seeking a
remedy. 27 The doctrine of laches or of "stale demands" is based on public
policy which requires, for the peace of society, the discouragement of stale
claims and, unlike the statute of limitations not a mere question of time but is
principally a question of the inequity or unfairness of permitting a right or claim
to be enforced or asserted. 28
By the negligence of plaintiffs in asserting their rights for an unreasonable
length of time, they are now forever precluded from enforcing whatever right
they may have against defendants. Indeed, it is an indicia of the infirmity of
their claim.
Moreover, as against plaintiff's allegation that the defendant spouses Luzame
are purchasers in bad faith. We hold that the legal presumption of good faith
on the part of said defendant spouses must prevail.
Plaintiffs would have Us believe that defendant spouses being their erstwhile
neighbors and friends had knowledge of the circumstances surrounding the
transaction between plaintiff Crisanta Seno and Defendant Marcos Mangubat
which therefore makes them purchasers in bad faith.
Defendant spouses, however, claim that they came to know of the existence
of the original title of plaintiff Crisanta Seno only when they verified the title to
the land in 1969 when it was being offered to them by co-defendant Marcos
Mangubat. They deny that they are neighbors much less friends of plaintiffs,

In order that a purchaser of land with a Torrens title may be considered as a

purchaser in good faith, it is enough that he examines the latest certificate of
title which in this case is that issued in the name of the immediate
transferor. 29 The purchaser is not bound by the original certificate of title but
only by the certificate of title of the person from whom he has purchased the
property. 30
Good faith, while it is always to be presumed in the absence of proof to the
contrary, requires a well-founded belief that the person from whom title was
received was himself the owner of the land, with the right to convey it. 31 In this
regard, a buyer of real estate should exercise ordinary care in purchasing
land, 32 so that one who purchases real property should make inquiries about
the right of those in possession thereof. 33
The well-known rule in this jurisdiction is that a person dealing with a
registered land has a right to rely upon the face of the Torrens Certificate of
Title and to dispense with the need of inquiring further, except when the party
concerned has actual knowledge of facts and circumstances that would impel
a reasonably cautious man to make such inquiry. 34
It is true that by the possession of plaintiffs of the subject property, defendant
spouses Luzame should have been put on their guard and should have taken
precautionary steps in ascertaining the interest of the possessors of the land.
The defendant spouses did verify the title to the property with the Register of
Deeds and finding that the latest title was in the name of defendant Marcos
Mangubat, they, had every reason to rely on such title. Besides, there was the
ejectment suit filed by defendant Marcos Mangubat against plaintiff Crisanta
Seno which was decided in favor of the former. The defendant spouses could
not be faulted for believing that the possession of the plaintiffs was in the
concept of lessee; in fact said defendant spouses also filed an ejectment suit
against plaintiffs.
This Court had occasion to rule that possession by the appellees, either by
themselves or through their predecessors in interest, if there was such
possession at all, would be unavailing against the holder of a Torrens
Certificate of Title covering the parcels of land now in question. 35
Thus, where innocent third persons relying on the correctness of the
certificate of title issued, acquire rights over the property, the court cannot
disregard such rights and order the total cancellation of the certificate for that
would impair public confidence in the certificate of title; otherwise everyone
dealing with property registered under the torrens system would have to
inquire in every instance as to whether the title had been regularly or
irregularly issued by the court. Indeed, this is contrary to the evident purpose
of the law. Every person dealing with registered land may safely rely on the
correctness of the certificate of title issued therefore and the law will in no way
oblige him to go behind the certificate to determine the condition of the
property. Stated differently, an innocent purchaser for value relying on a
torrens title issued is protected . 36

We therefore hold and find that defendants spouses Luzame are purchasers
in good faith and for value of the questioned property.
IN VIEW OF THE FOREGOING CONSIDERATIONS, the order of dismissal
dated September 29, 1972 and the order denying the motion for
reconsideration dated January 13, 1973 of the Court of First Instance of Rizal,
Branch I, are hereby AFFIRMED. No costs.
SO ORDERED.
Teehankee, C.J., Narvasa, Cruz and Paras, JJ., concur.

8 Under the Old Rules of Court, Sec. 8, Rule 3, the term used
was "necessary parties", while under the present rules, the
same section uses the term "proper parties". The present
section is a total reproduction of the old rule except for these two
terms. It is therefore to be understood that all references to the
term "necessary parties' shall mean "proper parties."
13 Art. 1605. In the cases referred to in Articles 1602 and 1604,
the apparent vendor may ask for the reformation of the
instrument."
14 "Art. 1604. The provisions of Article 1602 shall also apply to a
contract purporting to be an absolute sale."
FIRST DIVISION

ARCADIO and
CARANDANG,

MARIA

LUISA

G.R. No. 160347

Petitioners,
Present:
- versus HEIRS OF QUIRINO A.
DE
GUZMAN, namely: MILAGROS DE
GUZMAN, VICTOR DE GUZMAN,
REYNALDO DE GUZMAN, CYNTHIA
G. RAGASA and QUIRINO DE
GUZMAN, JR.,
Respondents.

PANGANIBAN, C.J.
Chairperson,
YNARES-SANTIAGO,
AUSTRIA-MARTINEZ,
CALLEJO, SR., and

CHICO-NAZARIO, JJ.
Promulgated:
November 29, 2006
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari assailing the Court of
Appeals Decision[1] and Resolution affirming the Regional Trial Court (RTC)
Decision rendering herein petitioners Arcadio and Luisa Carandang
[hereinafter referred to as spouses Carandang] jointly and severally liable for
their loan to Quirino A. de Guzman.
The Court of Appeals summarized the facts as follows:
[Quirino de Guzman] and [the Spouses Carandang] are
stockholders as well as corporate officers of Mabuhay
Broadcasting System (MBS for brevity), with equities at fifty four
percent (54%) and forty six percent (46%) respectively.
On November 26, 1983, the capital stock of MBS was
increased, from P500,000 to P1.5 million and P345,000 of this
increase
was
subscribed
by
[the
spouses
Carandang]. Thereafter, onMarch 3, 1989, MBS again
increased its capital stock, from P1.5 million to P3 million, [the
spouses Carandang] yet again subscribed to the increase. They
subscribed to P93,750 worth of newly issued capital stock.
[De Guzman] claims that, part of the payment for these
subscriptions were paid by him, P293,250 for the November 26,
1983 capital stock increase and P43,125 for the March 3, 1989
Capital Stock increase or a total of P336,375. Thus, on March
31, 1992, [de Guzman] sent a demand letter to [the spouses
Carandang] for the payment of said total amount.
[The spouses Carandang] refused to pay the amount,
contending that a pre-incorporation agreement was executed
between [Arcadio Carandang] and [de Guzman], whereby the
latter promised to pay for the stock subscriptions of the former
without cost, in consideration for [Arcadio Carandangs]
technical expertise, his newly purchased equipment, and his skill

in repairing and upgrading radio/communication equipment

therefore, there is no indebtedness on their part [sic].
On June 5, 1992, [de Guzman] filed his complaint,
seeking to recover the P336,375 together with damages. After
trial on the merits, the trial court disposed of the case in this
wise:
WHEREFORE,
premises
considered,
judgment is hereby rendered in favor of [de
Guzman]. Accordingly, [the spouses Carandang]
are ordered to jointly and severally pay [de
Guzman], to wit:
(1) P336,375.00 representing [the spouses
Carandangs] loan to de Guzman;
(2) interest on the preceding amount at the
rate of twelve percent (12%) per annum from June
5, 1992 when this complaint was filed until the
principal amount shall have been fully paid;
(3) P20,000.00 as attorneys fees;
(4) Costs of suit.
The spouses Carandang appealed the RTC Decision to the Court of
Appeals, which affirmed the same in the 22 April 2003 assailed Decision:
WHEREFORE, in view of all the foregoing the assailed
Decision is hereby AFFIRMED. No costs.[2]
The Motion for Reconsideration filed by the spouses Carandang was
similarly denied by the Court of Appeals in the 6 October 2003 assailed
Resolution:
WHEREFORE, in view thereof, the motion for
reconsideration is hereby DENIED and our Decision of April 22,
2003, which is based on applicable law and jurisprudence on the
matter is hereby AFFIRMED and REITERATED.[3]
The spouses Carandang then filed before this Court the instant Petition
for Review on Certiorari, bringing forth the following issues:
I.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS

COMMITTED MANIFEST ERROR IN FAILING TO STRICTLY
COMPLY WITH SECTION 16, RULE 3 OF THE 1997 RULES
OF CIVIL PROCEDURE.
II.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
SERIOUSLY ERRED IN ITS FINDING THAT THERE IS AN
ALLEGED LOAN FOR WHICH PETITIONERS ARE LIABLE,
CONTRARY TO EXPRESS PROVISIONS OF BOOK IV, TITLE
XI, OF THE NEW CIVIL CODE PERTAINING TO LOANS.
III.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
SERIOUSLY ERRED IN FINDING THAT THE RESPONDENTS
WERE ABLE TO DISCHARGE THEIR BURDEN OF PROOF, IN
COMPLETE DISREGARD OF THE REVISED RULES ON
EVIDENCE.
IV.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
COMMITTED REVERSIBLE ERROR WHEN IT FAILED TO
APPLY SECTIONS 2 AND 7, RULE 3 OF THE 1997 RULES OF
CIVIL PROCEDURE.
V.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
SERIOUSLY ERRED IN FINDING THAT THE PURPORTED
LIABILITY OF PETITIONERS ARE JOINT AND SOLIDARY, IN
VIOLATION OF ARTICLE 1207 OF THE NEW CIVIL CODE.[4]
Whether or not the RTC Decision is void
for failing to comply with Section 16,
Rule 3 of the Rules of Court
The spouses Carandang claims that the Decision of the RTC, having
been rendered after the death of Quirino de Guzman, is void for failing to
comply with Section 16, Rule 3 of the Rules of Court, which provides:
SEC. 16. Death of party; duty of counsel. Whenever a
party to a pending action dies, and the claim is not thereby
extinguished, it shall be the duty of his counsel to inform the
court within thirty (30) days after such death of the fact thereof,
and to give the name and address of his legal representative or

representatives. Failure of counsel to comply with this duty shall

be a ground for disciplinary action.
The heirs of the deceased may be allowed to be
substituted for the deceased, without requiring the appointment
of an executor or administrator and the court may appoint a
guardian ad litemfor the minor heirs.
The court shall forthwith order the 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 spouses Carandang posits that such failure to comply with the
above rule renders void the decision of the RTC, in adherence to the following
pronouncements inVda. de Haberer v. Court of Appeals [5] and Ferreria v. Vda.
de Gonzales[6]:
Thus, it has been held that when a party dies in an action that
survives and no order is issued by the court for the appearance
of the legal representative or of the heirs of the deceased in
substitution of the deceased, and as a matter of fact no
substitution has ever been effected, the trial held by the court
without such legal representatives or heirs and the judgment
rendered after such trial are null and void because the court
acquired no jurisdiction over the persons of the legal
representatives or of the heirs upon whom the trial and judgment
would be binding.[7]
In the present case, there had been no court order for the
legal representative of the deceased to appear, nor had any
such legal representative appeared in court to be substituted for
the deceased; neither had the complainant ever procured the
appointment of such legal representative of the deceased,
including appellant, ever asked to be substituted for the
deceased. As a result, no valid substitution was effected,
consequently, the court never acquired jurisdiction over
appellant for the purpose of making her a party to the case and

making the decision binding upon her, either personally or as a

representative of the estate of her deceased mother.[8]
However, unlike jurisdiction over the subject matter which is conferred
by law and is not subject to the discretion of the parties, [9] jurisdiction over the
person of the parties to the case may be waived either expressly or impliedly.
[10]
Implied waiver comes in the form of either voluntary appearance or a
failure to object.[11]
In the cases cited by the spouses Carandang, we held that there had
been no valid substitution by the heirs of the deceased party, and therefore
the judgment cannot be made binding upon them. In the case at bar, not only
do the heirs of de Guzman interpose no objection to the jurisdiction of the
court over their persons; they are actually claiming and embracing such
jurisdiction. In doing so, their waiver is not even merely implied (by their
participation in the appeal of said Decision), but express (by their explicit
espousal of such view in both the Court of Appeals and in this Court). The
heirs of de Guzman had no objection to being bound by the Decision of the
RTC.
Thus, lack of jurisdiction over the person, being subject to waiver, is a
personal defense which can only be asserted by the party who can thereby
waive it by silence.
It also pays to look into the spirit behind the general rule requiring a
formal substitution of heirs. The underlying principle therefor is not really
because substitution of heirs is a jurisdictional requirement, but because noncompliance therewith results in the undeniable violation of the right to due
process of those who, though not duly notified of the proceedings, are
substantially affected by the decision rendered therein. [12] Such violation of
due process can only be asserted by the persons whose rights are claimed to
have been violated, namely the heirs to whom the adverse judgment is sought
to be enforced.
Care should, however, be taken in applying the foregoing
conclusions. In People v. Florendo,[13] where we likewise held that the
proceedings that took place after the death of the party are void, we gave
another reason for such nullity: the attorneys for the offended party ceased to
be the attorneys for the deceased upon the death of the latter, the principal x x
x. Nevertheless, the case at bar had already been submitted for decision
before the RTC on 4 June 1998, several months before the passing away of
de Guzman on 19 February 1999. Hence, no further proceedings requiring
the appearance of de Guzmans counsel were conducted before the
promulgation of the RTC Decision. Consequently, de Guzmans counsel
cannot be said to have no authority to appear in trial, as trial had already
ceased upon the death of de Guzman.
In sum, the RTC Decision is valid despite the failure to comply with
Section 16, Rule 3 of the Rules of Court, because of the express waiver of the

heirs to the jurisdiction over their persons, and because there had been,
before the promulgation of the RTC Decision, no further proceedings requiring
the appearance of de Guzmans counsel.
Before proceeding with the substantive aspects of the case, however,
there is still one more procedural issue to tackle, the fourth issue presented by
the spouses Carandang on the non-inclusion in the complaint of an
indispensable party.
Whether or not the RTC should have
dismissed the case for failure to state a
cause of action, considering that
Milagros de Guzman, allegedly an
indispensable party, was not included as
a party-plaintiff
The spouses Carandang claim that, since three of the four checks used
to pay their stock subscriptions were issued in the name of Milagros de
Guzman, the latter should be considered an indispensable party. Being such,
the spouses Carandang claim, the failure to join Mrs. de Guzman as a partyplaintiff should cause the dismissal of the action because (i)f a suit is not
brought in the name of or against the real party in interest, a motion to dismiss
may be filed on the ground that the complaint states no cause of action. [14]
The Court of Appeals held:
We disagree. The joint account of spouses Quirino A de
Guzman and Milagros de Guzman from which the four (4)
checks were drawn is part of their conjugal property and under
both the Civil Code and the Family Code the husband alone
may institute an action for the recovery or protection of the
spouses conjugal property.
Thus, in Docena v. Lapesura [355 SCRA 658], the
Supreme Court held that x x x Under the New Civil Code, the
husband is the administrator of the conjugal partnership. In fact,
he is the sole administrator, and the wife is not entitled as a
matter of right to join him in this endeavor. The husband may
defend the conjugal partnership in a suit or action without being
joined by the wife. x x x Under the Family Code, the
administration of the conjugal property belongs to the husband
and the wife jointly. However, unlike an act of alienation or
encumbrance where the consent of both spouses is required,
joint management or administration does not require that the
husband and wife always act together. Each spouse may validly
exercise full power of management alone, subject to the
intervention of the court in proper cases as provided under
Article 124 of the Family Code. x x x.

The Court of Appeals is correct. Petitioners erroneously interchange

the terms real party in interest and indispensable party. A real party in
interest is the party who stands to be benefited or injured by the judgment of
the suit, or the party entitled to the avails of the suit. [15] On the other hand,
an indispensable party is a party in interest without whom no final
determination can be had of an action, [16] in contrast to a necessary party,
which is one who is not indispensable but who ought to be joined as a party if
complete relief is to be accorded as to those already parties, or for a complete
determination or settlement of the claim subject of the action. [17]
The spouses Carandang are indeed correct that (i)f a suit is not
brought in the name of or against the real party in interest, a motion to dismiss
may be filed on the ground that the complaint states no cause of
action.[18] However, what dismissal on this ground entails is an examination
of whether the parties presently pleaded are interested in the outcome of the
litigation, and not whether all persons interested in such outcome are actually
pleaded. The latter query is relevant in discussions concerning indispensable
and necessary parties, but not in discussions concerning real parties in
interest. Both indispensable and necessary parties are considered as real
parties in interest, since both classes of parties stand to be benefited or
injured by the judgment of the suit.
Quirino and Milagros de Guzman were married before the effectivity of
the Family Code on 3 August 1988. As they did not execute any marriage
settlement, the regime of conjugal partnership of gains govern their property
relations.[19]
All property acquired during the marriage, whether the acquisition
appears to have been made, contracted or registered in the name of one or
both spouses, is presumed to be conjugal unless the contrary is proved.
[20]
Credits are personal properties,[21] acquired during the time the loan or
other credit transaction was executed. Therefore, credits loaned during the
time of the marriage are presumed to be conjugal property.
Consequently, assuming that the four checks created a debt for which
the spouses Carandang are liable, such credits are presumed to be conjugal
property. There being no evidence to the contrary, such presumption
subsists. As such, Quirino de Guzman, being a co-owner of specific
partnership property,[22] is certainly a real party in interest. Dismissal on the
ground of failure to state a cause of action, by reason that the suit was
allegedly not brought by a real party in interest, is therefore unwarranted.
So now we come to the discussion concerning indispensable and
necessary parties. When an indispensable party is not before the court, the
action should likewise be dismissed. [23] The absence of an indispensable
party renders all subsequent actuations of the court void, for want of authority
to act, not only as to the absent parties but even as to those present. [24] On
the other hand, the non-joinder of necessary parties do not result in the

dismissal of the case. Instead, Section 9, Rule 3 of the Rules of Court

provides for the consequences of such non-joinder:
Sec. 9. Non-joinder of necessary parties to be pleaded.
Whenever in any pleading in which a claim is asserted a
necessary party is not joined, the pleader shall set forth his
name, if known, and shall state why he is omitted. Should the
court find the reason for the omission unmeritorious, it may
order the inclusion of the omitted necessary party if jurisdiction
over his person may be obtained.
The failure to comply with the order for his inclusion,
without justifiable cause, shall be deemed a waiver of the claim
against such party.
The non-inclusion of a necessary party does not prevent
the court from proceeding in the action, and the judgment
rendered therein shall be without prejudice to the rights of such
necessary party.
Non-compliance with the order for the inclusion of a necessary party
would not warrant the dismissal of the complaint. This is an exception to
Section 3, Rule 17 which allows the dismissal of the complaint for failure to
comply with an order of the court, as Section 9, Rule 3 specifically provides
for the effect of such non-inclusion: it shall not prevent the court from
proceeding in the action, and the judgment rendered therein shall be without
prejudice to the rights of such necessary party. Section 11, Rule 3 likewise
provides that the non-joinder of parties is not a ground for the dismissal of the
action.
Other than the indispensable and necessary parties, there is a third set
of parties: the pro-forma parties, which are those who are required to be
joined as co-parties in suits by or against another party as may be provided by
the applicable substantive law or procedural rule. [25] An example is provided
by Section 4, Rule 3 of the Rules of Court:
Sec. 4. Spouses as parties. Husband and wife shall
sue or be sued jointly, except as provided by law.
Pro-forma parties can either be indispensable, necessary or neither
indispensable nor necessary. The third case occurs if, for example, a
husband files an action to recover a property which he claims to be part of his
exclusive property. The wife may have no legal interest in such property, but
the rules nevertheless require that she be joined as a party.
In cases of pro-forma parties who are neither indispensable nor
necessary, the general rule under Section 11, Rule 3 must be followed: such
non-joinder is not a ground for dismissal. Hence, in a case concerning an
action to recover a sum of money, we held that the failure to join the spouse in

that case was not a jurisdictional defect. [26] The non-joinder of a spouse does
not warrant dismissal as it is merely a formal requirement which may be cured
by amendment.[27]
Conversely, in the instances that the pro-forma parties are also
indispensable or necessary parties, the rules concerning indispensable or
necessary parties, as the case may be, should be applied. Thus, dismissal is
warranted only if the pro-forma party not joined in the complaint is an
indispensable party.
Milagros de Guzman, being presumed to be a co-owner of the credits
allegedly extended to the spouses Carandang, seems to be either an
indispensable or a necessary party. If she is an indispensable party, dismissal
would be proper. If she is merely a necessary party, dismissal is not
warranted, whether or not there was an order for her inclusion in the
complaint pursuant to Section 9, Rule 3.
Article 108 of the Family Code provides:
Art. 108. The conjugal partnership shall be governed by
the rules on the contract of partnership in all that is not in conflict
with what is expressly determined in this Chapter or by the
spouses in their marriage settlements.
This provision is practically the same as the Civil Code provision it
superceded:
Art. 147. The conjugal partnership shall be governed by
the rules on the contract of partnership in all that is not in conflict
with what is expressly determined in this Chapter.
In this connection, Article 1811 of the Civil Code provides that [a]
partner is a co-owner with the other partners of specific partnership
property. Taken with the presumption of the conjugal nature of the funds
used to finance the four checks used to pay for petitioners stock
subscriptions, and with the presumption that the credits themselves are
part of conjugal funds, Article 1811 makes Quirino and Milagros de
Guzman co-owners of the alleged credit.
Being co-owners of the alleged credit, Quirino and Milagros de
Guzman may separately bring an action for the recovery thereof. In the fairly
recent cases of Baloloy v. Hular[28] and Adlawan v. Adlawan,[29] we held that, in
a co-ownership, co-owners may bring actions for the recovery of co-owned
property without the necessity of joining all the other co-owners as co-plaintiffs
because the suit is presumed to have been filed for the benefit of his coowners. In the latter case and in that of De Guia v. Court of Appeals,[30] we
also held that Article 487 of the Civil Code, which provides that any of the coowners may bring an action for ejectment, covers all kinds of action for the
recovery of possession.[31]

In sum, in suits to recover properties, all co-owners are real parties in

interest. However, pursuant to Article 487 of the Civil Code and relevant
jurisprudence, any one of them may bring an action, any kind of action, for the
recovery of co-owned properties. Therefore, only one of the co-owners,
namely the co-owner who filed the suit for the recovery of the co-owned
property, is an indispensable party thereto. The other co-owners are not
indispensable parties. They are not even necessary parties, for a complete
relief can be accorded in the suit even without their participation, since the suit
is presumed to have been filed for the benefit of all co-owners. [32]
We therefore hold that Milagros de Guzman is not an indispensable
party in the action for the recovery of the allegedly loaned money to the
spouses Carandang. As such, she need not have been impleaded in said
suit, and dismissal of the suit is not warranted by her not being a party
thereto.
Whether or not respondents were able to
prove the loan sought to be collected
from petitioners
In the second and third issues presented by the spouses Carandang,
they claim that the de Guzmans failed to prove the alleged loan for which the
spouses Carandang were held liable. As previously stated, spouses Quirino
and Milagros de Guzman paid for the stock subscriptions of the spouses
Carandang, amounting to P336,375.00. The de Guzmans claim that these
payments were in the form of loans and/or advances and it was agreed upon
between the late Quirino de Guzman, Sr. and the spouses Carandang that the
latter would repay him. Petitioners, on the other hand, argue that there was
an oral pre-incorporation agreement wherein it was agreed that Arcardio
Carandang would always maintain his 46% equity participation in the
corporation even if the capital structures were increased, and that Quirino de
Guzman would personally pay the equity shares/stock subscriptions of
Arcardio Carandang with no cost to the latter.
On this main issue, the Court of Appeals held:
[The spouses Carandang] aver in its ninth assigned error
that [the de Guzmans] failed to prove by preponderance of
evidence, either the existence of the purported loan or the nonpayment thereof.
Simply put, preponderance of evidence means that the
evidence as a whole adduced by one side is superior to that of
the other. The concept of preponderance of evidence refers to
evidence that is of greater weight, or more convincing, than that
which is offered in opposition to it; it means probability of truth.
[The spouses Carandang] admitted that it was indeed
[the de Guzmans] who paid their stock subscriptions and their

reason for not reimbursing the latter is the alleged preincorporation agreement, to which they offer no clear proof as to
its existence.
It is a basic rule in evidence that each party must prove
his affirmative allegation. Thus, the plaintiff or complainant has
to prove his affirmative allegations in the complaints and the
defendant or respondent has to prove the affirmative allegations
in his affirmative defenses and counterclaims.[33]
The spouses Carandang, however, insist that the de Guzmans have
not proven the loan itself, having presented evidence only of the payment in
favor of the Carandangs. They claim:
It is an undeniable fact that payment is not equivalent to a
loan. For instance, if Mr. A decides to pay for Mr. Bs
obligation, that payment by Mr. A cannot, by any stretch of
imagination, possibly mean that there is now a loan by Mr. B to
Mr. A. There is a possibility that such payment by Mr. A is
purely out of generosity or that there is a mutual agreement
between them. As applied to the instant case, that mutual
agreement is the pre-incorporation agreement (supra) existing
between Mr. de Guzman and the petitioners --- to the effect that
the former shall be responsible for paying stock subscriptions of
the latter. Thus, when Mr. de Guzman paid for the stock
subscriptions of the petitioners, there was no loan to speak of,
but only a compliance with the pre-incorporation agreement. [34]
The spouses Carandang are mistaken. If indeed a Mr. A decides to
pay for a Mr. Bs obligation, the presumption is that Mr. B is indebted to Mr.
A for such amount that has been paid. This is pursuant to Articles 1236 and
1237 of the Civil Code, which provide:
Art. 1236. The creditor is not bound to accept payment or
performance by a third person who has no interest in the
fulfillment of the obligation, unless there is a stipulation to the
contrary.
Whoever pays for another may demand from the
debtor what he has paid, except that if he paid without the
knowledge or against the will of the debtor, he can recover only
insofar as the payment has been beneficial to the debtor.
Art. 1237. Whoever pays on behalf of the debtor without
the knowledge or against the will of the latter, cannot compel the
creditor to subrogate him in his rights, such as those arising
from a mortgage, guarantee, or penalty.

Articles 1236 and 1237 are clear that, even in cases where the debtor
has no knowledge of payment by a third person, and even in cases where the
third person paid against the will of the debtor, such payment would produce a
debt in favor of the paying third person. In fact, the only consequences for the
failure to inform or get the consent of the debtor are the following: (1) the third
person can recover only insofar as the payment has been beneficial to the
debtor; and (2) the third person is not subrogated to the rights of the creditor,
such as those arising from a mortgage, guarantee or penalty.[35]
We say, however, that this is merely a presumption. By virtue of the
parties freedom to contract, the parties could stipulate otherwise and thus, as
suggested by the spouses Carandang, there is indeed a possibility that such
payment by Mr. A was purely out of generosity or that there was a mutual
agreement between them. But such mutual agreement, being an exception to
presumed course of events as laid down by Articles 1236 and 1237, must be
adequately proven.
The de Guzmans have successfully proven their payment of the
spouses Carandangs stock subscriptions. These payments were, in fact,
admitted by the spouses Carandang. Consequently, it is now up to the
spouses Carandang to prove the existence of the pre-incorporation
agreement that was their defense to the purported loan.
Unfortunately for the spouses Carandang, the only testimony which
touched on the existence and substance of the pre-incorporation agreement,
that of petitioner Arcardio Carandang, was stricken off the record because he
did not submit himself to a cross-examination of the opposing party. On the
other hand, the testimonies of Romeo Saavedra, [36] Roberto S. Carandang,
[37]
Gertrudes
Z.
Esteban,[38] Ceferino
Basilio,[39] and
Ma.
Luisa
[40]
Carandang
touched on matters other than the existence and substance of
the pre-incorporation agreement. So aside from the fact that these witnesses
had no personal knowledge as to the alleged existence of the preincorporation agreement, the testimonies of these witnesses did not even
mention the existence of a pre-incorporation agreement.
Worse, the testimonies of petitioners Arcadio Carandang and Ma. Luisa
Carandang even contradicted the existence of a pre-incorporation agreement
because when they were asked by their counsel regarding the matter of the
check payments made by the late Quirino A. de Guzman, Sr. in their behalf,
they said that they had already paid for it thereby negating their own defense
that there was a pre-incorporation agreement excusing themselves from
paying Mr. de Guzman the amounts he advanced or loaned to them. This
basic and irrefutable fact can be gleaned from their testimonies which the
private respondents are quoting for easy reference:
a. With respect to the testimony of Ma. Luisa Carandang
Q:

Now, can you tell this Honorable Court how do you feel
with respect to the Complaint of the plaintiff in this case

charging you that you paid for this year and asking
enough to paid (sic) your tax?
A:

We have paid already, so, we are not liable for anything

payment (sic).[41]

b. With respect to the testimony of Arcadio Carandang

Q:

How much?

A:

P40,000.00 to P50,000.00 per month.

Q:

The plaintiff also claimed thru witness Edgar Ragasa, that

there were receipts issued for the payment of your shares;
which receipts were marked as Exhibits G to L
(Plaintiff).
Im showing to you these receipts so marked by the
plaintiff as their exhibits which were issued in the name of
Ma. Luisa Carandang, your wife; and also, Arcadio M.
Carandang. Will you please go over this Official Receipt
and state for the records, who made for the payment
stated in these receipts in your name?
I paid for those shares.[42]

A:

There being no testimony or documentary evidence proving the

existence of the pre-incorporation agreement, the spouses Carandang are
forced to rely upon an alleged admission by the original plaintiff of the
existence of the pre-incorporation agreement.
Petitioners claim that the late Quirino A. de Guzman, Sr. had admitted
the existence of the pre-incorporation agreement by virtue of paragraphs 13
and 14 of their Answer and paragraph 4 of private respondents Reply.
Paragraphs 13 and 14 of petitioners Answer dated 7 July 1992 state in
full:
13. Sometime in November, 1973 or thereabout, herein plaintiff
invited defendant Arcadio M. Carandang to a joint venture
by pooling together their technical expertise, equipments,
financial resources and franchise. Plaintiff proposed to
defendant and mutually agreed on the following:
1.

That they would organize a corporation known as

Mabuhay Broadcasting Systems, Inc.

2.

Considering the technical expertise and talent of

defendant Arcadio M. Carandang and his new
equipments he bought, and his skill in repairing and
modifying radio/communication equipments into high
proficiency, said defendant would have an equity
participation in the corporation of 46%, and plaintiff 54%
because of his financial resources and franchise.

3.

That defendant would always maintain his 46% equity

participation in the corporation even if the capital
structures are increased, and that plaintiff would
personally pay the equity shares/stock subscriptions of
defendant with no cost to the latter.

4.

That because of defendants expertise in the trade

including the marketing aspects, he would be the
President and General Manager, and plaintiff the
Chairman of the Board.

5.

That considering their past and trustworthy relations,

they would maintain such relations in the joint venture
without any mental reservation for their common benefit
and success of the business.

14. Having mutually agreed on the above arrangements, the

single proprietorship of plaintiff was immediately spun-off
into a corporation now known as Mabuhay Broadcasting
System, Inc. The incorporators are plaintiff and his family
members/nominees controlling jointly 54% of the stocks
and defendant Arcadio M. Carandang controlling singly
46% as previously agreed.[43]
Meanwhile, paragraphs 3 and 4 of private respondents Reply dated 29
July 1992 state in full:
3. Plaintiffs admits the allegation in paragraph 13.1 of the
Answer only insofar the plaintiff and defendant Arcadio M.
Carandang
organized
a
corporation
known
as
Mabuhay Broadcasting Systems, Inc. Plaintiff specifically
denies the other allegations in paragraph 13 of the Answer, the
same being devoid of any legal or factual bases. The truth of
the matter is that defendant Arcadio M. Carandang was not able
to pay plaintiff the agreed amount of the lease for a number of
months forcing the plaintiff to terminate lease. Additionally, the
records would show that it was the defendant Arcadio M.
Carandang who proposed a joint venture with the plaintiff.
It appears that plaintiff agreed to the formation of the
corporation principally because of a directive of then President

Marcos indicating the need to broaden the ownership of radio

broadcasting stations. The plaintiff owned the franchise, the
radio transmitter, the antenna tower, the building containing the
radio transmitter and other equipment. Verily, he would be
placed in a great disadvantage if he would still have to
personally pay for the shares of defendant Arcadio M.
Carandang.
4. Plaintiff admits the allegations in paragraph 14 of the
Answer.[44]
In effect, the spouses Carandang are relying on the fact that Quirino de
Guzman stated that he admitted paragraph 14 of the Answer, which
incidentally contained the opening clause (h)aving mutually agreed on the
above arrangements, x x x.
Admissions, however, should be clear and unambiguous. This
purported admission by Quirino de Guzman reeks of ambiguity, as the clause
(h)aving mutually agreed on the above arrangements, seems to be a mere
introduction to the statement that the single proprietorship of Quirino de
Guzman had been converted into a corporation. If Quirino de Guzman had
meant to admit paragraph 13.3, he could have easily said so, as he did the
other paragraphs he categorically admitted. Instead, Quirino de Guzman
expressly stated the opposite: that (p)laintiff specifically denies the other
allegations of paragraph 13 of the Answer. [45] The Reply furthermore states
that the only portion of paragraph 13 which Quirino de Guzman had admitted
is paragraph 13.1, and only insofar as it said that Quirino de Guzman and
Arcardio Carandang organized Mabuhay Broadcasting Systems, Inc. [46]
All the foregoing considered, we hold that Quirino de Guzman had not
admitted the alleged pre-incorporation agreement. As there was no
admission, and as the testimony of Arcardio Carandang was stricken off the
record, we are constrained to rule that there was no pre-incorporation
agreement rendering Quirino de Guzman liable for the spouses Carandangs
stock subscription. The payment by the spouses de Guzman of the stock
subscriptions of the spouses Carandang are therefore by way of loan which
the spouses Carandang are liable to pay.
Whether or not the liability of the
spouses Carandang is joint and solidary
Finally, the Court of Appeals also upheld the RTC Decision insofar as it
decreed a solidary liability. According to the Court of Appeals:
With regards (sic) the tenth assigned error, [the spouses
Carandang] contend that:

There is absolutely no evidence, testimonial or

documentary, showing that the purported obligation of [the
spouses Carandang] is joint and solidary. x x x
Furthermore, the purported obligation of [the spouses
Carandang] does not at all qualify as one of the obligations
required by law to be solidary x x x.
It is apparent from the facts of the case that [the spouses
Carandang] were married way before the effectivity of the
Family Code hence; their property regime is conjugal
partnership under the Civil Code.
It must be noted that for marriages governed by the rules
of conjugal partnership of gains, an obligation entered into by
the husband and wife is chargeable against their conjugal
partnership and it is the partnership, which is primarily bound for
its repayment. Thus, when the spouses are sued for the
enforcement of the obligation entered into by them, they are
being impleaded in their capacity as representatives of the
conjugal partnership and not as independent debtors, such that
the concept of joint and solidary liability, as between them, does
not apply.[47]
The Court of Appeals is correct insofar as it held that when the spouses
are sued for the enforcement of the obligation entered into by them, they are
being impleaded in their capacity as representatives of the conjugal
partnership and not as independent debtors. Hence, either of them may be
sued for the whole amount, similar to that of a solidary liability, although the
amount is chargeable against their conjugal partnership property. Thus, in the
case cited by the Court of Appeals, Alipio v. Court of Appeals,[48]the two sets of
defendant-spouses therein were held liable for P25,300.00 each, chargeable
to their respective conjugal partnerships.
WHEREFORE, the Decision of the Court of Appeals, affirming the
judgment
rendered
against
the
spouses
Carandang,
is
hereby AFFIRMED with
the
followingMODIFICATION: The
spouses
Carandang are ORDERED to pay the following amounts from their conjugal
partnership properties:
(1)
(2)
(3)

P336,375.00 representing the spouses Carandangs loan to

Quirino de Guzman; and
Interest on the preceding amount at the rate of twelve
percent (12%) per annum from 5 June 1992 when the complaint
was filed until the principal amount can be fully paid; and
P20,000.00 as attorneys fees.

No costs.
SO ORDERED.

[21]

CIVIL CODE, Article 417 provides:

The following are also considered as personal property:
(1)

Obligations and actions which have for their object movables

and demandable sums, and

(2)

Shares of stock of agricultural, commercial and industrial

entities, although they may have real estate.

According to the eminent civilist Arturo M. Tolentino, the term

obligations in this article really means credits, and includes all kinds
of credits. (Tolentino, Commentaries and Jurisprudence on the Civil
Code of the Philippines, Vol. II, 1992 Ed., p. 25.) Blacks Law
Dictionary defines credit as (t)he correlative of a debt; that is, a debt
considered from the creditors standpoint, or that is incoming or due to
one. (Blacks Law Dictionary, Sixth Ed., p. 367.)
[22]

CIVIL CODE, Article 1811, in connection with Family Code, Article

108.
[32]

[35]

Take note, however, that this applies only with respect to coowners as party-plaintiffs, by virtue of Article 487 of the Civil Code. As
party-defendants, the same co-owners are all indispensable
parties. (See Arcelona v. Court of Appeals, G.R. No. 102900, 2
October 1997, 280 SCRA 20, 39.
See also Article 1425.
Art. 1425. When without the knowledge or against the will of the
debtor, a third person pays a debt which the obligor is not legally
bound to pay because the action thereon has prescribed, but the
debtor later voluntarily reimburses the third person, the obligor cannot
recover what he has paid.
SECOND DIVISION

[G.R. No. 118305. February 12, 1998]

AYALA INVESTMENT & DEVELOPMENT CORP. and ABELARDO

MAGSAJO, petitioners, vs. COURT OF APPEALS and SPOUSES
ALFREDO & ENCARNACION CHING, respondents.
DECISION

MARTINEZ, J.:
Under Article 161 of the Civil Code, what debts and obligations contracted
by the husband alone are considered for the benefit of the conjugal
partnership which are chargeable against the conjugal partnership? Is a
surety agreement or an accommodation contract entered into by the husband
in favor of his employer within the contemplation of the said provision?
These are the issues which we will resolve in this petition for review.
The petitioner assails the decision dated April 14, 1994 of the respondent
Court of Appeals in Spouses Alfredo and Encarnacion Ching vs. Ayala
Investment and Development Corporation, et. al., docketed as CA-G.R. CV
No. 29632,[1] upholding the decision of the Regional Trial Court of Pasig,
Branch 168, which ruled that the conjugal partnership of gains of
respondents-spouses Alfredo and Encarnacion Ching is not liable for the
payment of the debts secured by respondent-husband Alfredo Ching.
A chronology of the essential antecedent facts is necessary for a clear
understanding of the case at bar.
Philippine Blooming Mills (hereinafter referred to as PBM) obtained
a P50,300,000.00 loan from petitioner Ayala Investment and Development
Corporation (hereinafter referred to as AIDC). As added security for the credit
line extended to PBM, respondent Alfredo Ching, Executive Vice President of
PBM, executed security agreements on December 10, 1980 and on March 20,
1981 making himself jointly and severally answerable with PBMs
indebtedness to AIDC.
PBM failed to pay the loan. Thus, on July 30, 1981, AIDC filed a case for
sum of money against PBM and respondent-husband Alfredo Ching with the
then Court of First Instance of Rizal (Pasig), Branch VIII, entitled Ayala
Investment and Development Corporation vs. Philippine Blooming Mills and
Alfredo Ching, docketed as Civil Case No. 42228.
After trial, the court rendered judgment ordering PBM and respondenthusband Alfredo Ching to jointly and severally pay AIDC the principal amount
of P50,300,000.00 with interests.
Pending appeal of the judgment in Civil Case No. 42228, upon motion of
AIDC, the lower court issued a writ of execution pending appeal. Upon AIDCs
putting up of an P8,000,000.00 bond, a writ of execution dated May 12, 1982
was issued. Thereafter, petitioner Abelardo Magsajo, Sr., Deputy Sheriff of
Rizal and appointed sheriff in Civil Case No. 42228, caused the issuance and
service upon respondents-spouses of a notice of sheriff sale dated May 20,
1982 on three (3) of their conjugal properties. Petitioner Magsajo then
scheduled the auction sale of the properties levied.
On June 9, 1982, private respondents filed a case of injunction against
petitioners with the then Court of First Instance of Rizal (Pasig), Branch XIII,
to enjoin the auction sale alleging that petitioners cannot enforce the judgment
against the conjugal partnership levied on the ground that, among others, the
subject loan did not redound to the benefit of the said conjugal partnership.
[2]
Upon application of private respondents, the lower court issued a temporary

restraining order to prevent petitioner Magsajo from proceeding with the

enforcement of the writ of execution and with the sale of the said properties at
public auction.
AIDC filed a petition for certiorari before the Court of Appeals,
questioning the order of the lower court enjoining the sale. Respondent
Court of Appeals issued a Temporary Restraining Order on June 25, 1982,
enjoining the lower court[4] from enforcing its Order of June 14, 1982, thus
paving the way for the scheduled auction sale of respondents-spouses
conjugal properties.
[3]

On June 25, 1982, the auction sale took place. AIDC being the only
bidder, was issued a Certificate of Sale by petitioner Magsajo, which was
registered on July 2, 1982. Upon expiration of the redemption period,
petitioner sheriff issued the final deed of sale on August 4, 1982 which was
registered on August 9, 1983.
In the meantime, the respondent court, on August 4, 1982, decided CAG.R. SP No. 14404, in this manner:
WHEREFORE, the petition for certiorari in this case is granted and
the challenged order of the respondent Judge dated June 14, 1982
in Civil Case No. 46309 is hereby set aside and nullified. The same
petition insofar as it seeks to enjoin the respondent Judge from
proceeding with Civil Case No. 46309 is, however, denied. No
pronouncement is here made as to costs. x x x x.[5]
On September 3, 1983, AIDC filed a motion to dismiss the petition for
injunction filed before Branch XIII of the CFI of Rizal (Pasig) on the ground
that the same had become moot and academic with the consummation of the
sale. Respondents filed their opposition to the motion arguing, among others,
that where a third party who claims ownership of the property attached or
levied upon, a different legal situation is presented; and that in this case, two
(2) of the real properties are actually in the name of Encarnacion Ching, a
non-party to Civil Case No. 42228.
The lower court denied the motion to dismiss. Hence, trial on the merits
proceeded. Private respondents presented several witnesses. On the other
hand, petitioners did not present any evidence.
On September 18, 1991, the trial court promulgated its decision declaring
the sale on execution null and void. Petitioners appealed to the respondent
court, which was docketed as CA-G.R. CV No. 29632.
On April 14, 1994, the respondent court promulgated the assailed
decision, affirming the decision of the regional trial court. It held that:
The loan procured from respondent-appellant AIDC was for the
advancement and benefit of Philippine Blooming Mills and not for
the benefit of the conjugal partnership of petitioners-appellees.
xxx

xxx

xxx

As to the applicable law, whether it is Article 161 of the New Civil

Code or Article 1211 of the Family Code-suffice it to say that the two

provisions are substantially the same. Nevertheless, We agree with

the trial court that the Family Code is the applicable law on the
matter x x x x x x.
Article 121 of the Family Code provides that The conjugal
partnership shall be liable for: x x x (2) All debts and obligations
contracted during the marriage by the designated AdministratorSpouse for the benefit of the conjugal partnership of gains x x
x. The burden of proof that the debt was contracted for the benefit
of the conjugal partnership of gains, lies with the creditor-party
litigant claiming as such. In the case at bar, respondent-appellant
AIDC failed to prove that the debt was contracted by appelleehusband, for the benefit of the conjugal partnership of gains.
The dispositive portion of the decision reads:
WHEREFORE, in view of all the foregoing, judgment is hereby
rendered DISMISSING the appeal. The decision of the Regional
Trial Court is AFFIRMED in toto.[6]
Petitioner filed a Motion for Reconsideration which was denied by the
respondent court in a Resolution dated November 28, 1994. [7]
Hence, this petition for review. Petitioner contends that the respondent
court erred in ruling that the conjugal partnership of private respondents is not
liable for the obligation by the respondent-husband.
Specifically, the errors allegedly committed by the respondent court are as
follows:
I. RESPONDENT COURT ERRED IN RULING THAT THE
OBLIGATION INCURRED BY RESPONDENT HUSBAND DID
NOT REDOUND TO THE BENEFIT OF THE CONJUGAL
PARTNERSHIP OF THE PRIVATE RESPONDENT.
II

RESPONDENT COURT ERRED IN RULING THAT THE ACT OF

RESPONDENT HUSBAND IN SECURING THE SUBJECT LOAN
IS NOT PART OF HIS INDUSTRY, BUSINESS OR CAREER
FROM WHICH HE SUPPORTS HIS FAMILY.

Petitioners in their appeal point out that there is no need to prove that
actual benefit redounded to the benefit of the partnership; all that is
necessary, they say, is that the transaction was entered into for the benefit of
the conjugal partnership. Thus, petitioners aver that:
The wordings of Article 161 of the Civil Code is very clear: for the
partnership to be held liable, the husband must have contracted the
debt for the benefit of the partnership, thus:
Art. 161. The conjugal partnership shall be liable for:
1)

all debts and obligations contracted by the

husband for the benefit of the conjugal
partnership x x x.

There is a difference between the phrases: redounded to the benefit

of or benefited from (on the one hand) and for the benefit of (on
the other). The former require that actual benefit must have been
realized; the latter requires only that the transaction should be one
which normally would produce benefit to the partnership, regardless
of whether or not actual benefit accrued. [8]
We do not agree with petitioners that there is a difference between the
terms redounded to the benefit of or benefited from on the one hand; and
for the benefit of on the other. They mean one and the same thing. Article
161 (1) of the Civil Code and Article 121 (2) of the Family Code are similarly
worded, i.e., both use the term for the benefit of. On the other hand, Article
122 of the Family Code provides that The payment of personal debts by the
husband or the wife before or during the marriage shall not be charged to the
conjugal partnership except insofar as they redounded to the benefit of the
family. As can be seen, the terms are used interchangeably.
Petitioners further contend that the ruling of the respondent court runs
counter to the pronouncement of this Court in the case of Cobb-Perez vs.
Lantin,[9] that the husband as head of the family and as administrator of the
conjugal partnership is presumed to have contracted obligations for the
benefit of the family or the conjugal partnership.
Contrary to the contention of the petitioners, the case of Cobb-Perez is
not applicable in the case at bar. This Court has, on several instances,
interpreted the term for the benefit of the conjugal partnership.
In the cases of Javier vs. Osmea,[10] Abella de Diaz vs. Erlanger &
Galinger, Inc.,[11] Cobb-Perez vs. Lantin[12] and G-Tractors, Inc. vs. Court of
Appeals,[13] cited by the petitioners, we held that:
The debts contracted by the husband during the marriage relation,
for and in the exercise of the industry or profession by which he
contributes toward the support of his family, are not his personal and
private debts, and the products or income from the wifes own
property, which, like those of her husbands, are liable for the
payment of the marriage expenses, cannot be excepted from the
payment of such debts. (Javier)
The husband, as the manager of the partnership (Article 1412, Civil
Code), has a right to embark the partnership in an ordinary
commercial enterprise for gain, and the fact that the wife may not
approve of a venture does not make it a private and personal one of
the husband. (Abella de Diaz)
Debts contracted by the husband for and in the exercise of the
industry or profession by which he contributes to the support of the
family, cannot be deemed to be his exclusive and private debts.
(Cobb-Perez)
x x x if he incurs an indebtedness in the legitimate pursuit of his
career or profession or suffers losses in a legitimate business, the
conjugal partnership must equally bear the indebtedness and the

losses, unless he deliberately acted to the prejudice of his family.

(G-Tractors)
However, in the cases of Ansaldo vs. Sheriff of Manila, Fidelity Insurance
& Luzon Insurance Co.,[14] Liberty Insurance Corporation vs. Banuelos,[15] and
Luzon Surety Inc. vs. De Garcia,[16]cited by the respondents, we ruled that:
The fruits of the paraphernal property which form part of the assets
of the conjugal partnership, are subject to the payment of the debts
and expenses of the spouses, but not to the payment of the
personal obligations (guaranty agreements) of the husband, unless
it be proved that such obligations were productive of some benefit to
the family. (Ansaldo; parenthetical phrase ours.)
When there is no showing that the execution of an indemnity
agreement by the husband redounded to the benefit of his family,
the undertaking is not a conjugal debt but an obligation personal to
him. (Liberty Insurance)
In the most categorical language, a conjugal partnership under
Article 161 of the new Civil Code is liable only for such debts and
obligations contracted by the husband for the benefit of the conjugal
partnership. There must be the requisite showing then of some
advantage which clearly accrued to the welfare of the
spouses. Certainly, to make a conjugal partnership respond for a
liability that should appertain to the husband alone is to defeat and
frustrate the avowed objective of the new Civil Code to show the
utmost concern for the solidarity and well-being of the family as a
unit. The husband, therefore, is denied the power to assume
unnecessary and unwarranted risks to the financial stability of the
conjugal partnership. (Luzon Surety, Inc.)
From the foregoing jurisprudential rulings of this Court, we can derive the
following conclusions:
(A) If the husband himself is the principal obligor in the contract, i.e., he
directly received the money and services to be used in or for his own business
or his own profession, that contract falls within the term x x x x obligations for
the benefit of the conjugal partnership. Here, no actual benefit may be
proved. It is enough that the benefit to the family is apparent at the time of the
signing of the contract. From the very nature of the contract of loan or
services, the family stands to benefit from the loan facility or services to be
rendered to the business or profession of the husband. It is immaterial, if in
the end, his business or profession fails or does not succeed. Simply stated,
where the husband contracts obligations on behalf of the family business, the
law presumes, and rightly so, that such obligation will redound to the benefit
of the conjugal partnership.
(B) On the other hand, if the money or services are given to another person or
entity, and the husband acted only as a surety or guarantor, that contract
cannot, by itself, alone be categorized as falling within the context of
obligations for the benefit of the conjugal partnership. The contract of loan

or services is clearly for the benefit of the principal debtor and not for the
surety or his family. No presumption can be inferred that, when a husband
enters into a contract of surety or accommodation agreement, it is for the
benefit of the conjugal partnership. Proof must be presented to establish
benefit redounding to the conjugal partnership.
Thus, the distinction between the Cobb-Perez case, and we add, that
of the three other companion cases, on the one hand, and that of Ansaldo,
Liberty Insurance and Luzon Surety, is that in the former, the husband
contracted the obligation for his own business; while in the latter, the husband
merely acted as a surety for the loan contracted by another for the latters
business.
The evidence of petitioner indubitably show that co-respondent Alfredo
Ching signed as surety for the P50M loan contracted on behalf of
PBM. Petitioner should have adduced evidence to prove that Alfredo Chings
acting as surety redounded to the benefit of the conjugal partnership. The
reason for this is as lucidly explained by the respondent court:
The loan procured from respondent-appellant AIDC was for the
advancement and benefit of Philippine Blooming Mills and not for
the benefit of the conjugal partnership of petitionersappellees. Philippine Blooming Mills has a personality distinct and
separate from the family of petitioners-appellees - this despite the
fact that the members of the said family happened to be
stockholders of said corporate entity.
xxx

xxx

xxx

x x x. The burden of proof that the debt was contracted for the
benefit of the conjugal partnership of gains, lies with the creditorparty litigant claiming as such. In the case at bar, respondentappellant AIDC failed to prove that the debt was contracted by
appellee-husband, for the benefit of the conjugal partnership of
gains. What is apparent from the facts of the case is that the
judgment debt was contracted by or in the name of the Corporation
Philippine Blooming Mills and appellee-husband only signed as
surety thereof. The debt is clearly a corporate debt and respondentappellants right of recourse against appellee-husband as surety is
only to the extent of his corporate stockholdings. It does not extend
to the conjugal partnership of gains of the family of petitionersappellees. x x x
x x x. [17]
Petitioners contend that no actual benefit need accrue to the conjugal
partnership. To support this contention, they cite Justice J.B.L. Reyes
authoritative opinion in the Luzon Surety Company case:
I concur in the result, but would like to make of record that, in my
opinion, the words all debts and obligations contracted by the
husband for the benefit of the conjugal partnership used in Article
161 of the Civil Code of the Philippines in describing the charges
and obligations for which the conjugal partnership is liable do not
require that actual profit or benefit must accrue to the conjugal

partnership from the husbands transaction; but it suffices that the

transaction should be one that normally would produce such benefit
for the partnership. This is the ratio behind our ruling in Javier vs.
Osmea, 34 Phil. 336, that obligations incurred by the husband in
the practice of his profession are collectible from the conjugal
partnership.
The aforequoted concurring opinion agreed with the majority decision that
the conjugal partnership should not be made liable for the surety agreement
which was clearly for the benefit of a third party. Such opinion merely
registered an exception to what may be construed as a sweeping statement
that in all cases actual profit or benefit must accrue to the conjugal
partnership. The opinion merely made it clear that no actual benefits to the
family need be proved in some cases such as in the Javier case. There, the
husband was the principal obligor himself. Thus, said transaction was found
to be one that would normally produce x x x benefit for the partnership. In
the later case of G-Tractors, Inc., the husband was also the principal obligor not merely the surety. This latter case, therefore, did not create any
precedent. It did not also supersede the Luzon Surety Company case, nor
any of the previous accommodation contract cases, where this Court ruled
that they were for the benefit of third parties.
But it could be argued, as the petitioner suggests, that even in such kind
of contract of accommodation, a benefit for the family may also result, when
the guarantee is in favor of the husbands employer.
In the case at bar, petitioner claims that the benefits the respondent family
would reasonably anticipate were the following:
(a)
The employment of co-respondent Alfredo Ching would be
prolonged and he would be entitled to his monthly salary
of P20,000.00 for an extended length of time because of the loan he
guaranteed;
(b)
The shares of stock of the members of his family would
appreciate if the PBM could be rehabilitated through the loan
obtained;
(c)
His prestige in the corporation would be enhanced and his
career would be boosted should PBM survive because of the loan.
However, these are not the benefits contemplated by Article 161 of the
Civil Code. The benefits must be one directly resulting from the loan. It
cannot merely be a by-product or a spin-off of the loan itself.
In all our decisions involving accommodation contracts of the husband,
we underscored the requirement that: there must be the requisite showing
x x x of some advantage which clearly accrued to the welfare of the spouses
or benefits to his family or that such obligations are productive of some
benefit to the family. Unfortunately, the petition did not present any proof to
show: (a) Whether or not the corporate existence of PBM was prolonged and
for how many months or years; and/or (b) Whether or not the PBM was saved
by the loan and its shares of stock appreciated, if so, how much and how
substantial was the holdings of the Ching family.
[18]

Such benefits (prospects of longer employment and probable increase in

the value of stocks) might have been already apparent or could be anticipated
at the time the accommodation agreement was entered into. But would those
benefits qualify the transaction as one of the obligations x x x for the benefit
of the conjugal partnership? Are indirect and remote probable benefits, the
ones referred to in Article 161 of the Civil Code? The Court of Appeals in
denying the motion for reconsideration, disposed of these questions in the
following manner:
No matter how one looks at it, the debt/credit extended by
respondents-appellants is purely a corporate debt granted to PBM,
with petitioner-appellee-husband merely signing as surety. While
such petitioner-appellee-husband, as such surety, is solidarily liable
with the principal debtor AIDC, such liability under the Civil Code
provisions is specifically restricted by Article 122 (par. 1) of the
Family Code, so that debts for which the husband is liable may not
be charged against conjugal partnership properties. Article 122 of
the Family Code is explicit The payment of personal debts
contracted by the husband or the wife before or during the marriage
shall not be charged to the conjugal partnership except insofar as
they redounded to the benefit of the family.
Respondents-appellants insist that the corporate debt in question
falls under the exception laid down in said Article 122 (par.
one). We do not agree. The loan procured from respondentappellant AIDC was for the sole advancement and benefit of
Philippine Blooming Mills and not for the benefit of the conjugal
partnership of petitioners-appellees.
x x x appellee-husband derives salaries, dividends benefits from
Philippine Blooming Mills (the debtor corporation), only because
said husband is an employee of said PBM. These salaries and
benefits, are not the benefits contemplated by Articles 121 and 122
of the Family Code. The benefits contemplated by the exception in
Article 122 (Family Code) is that benefit derived directly from the
use of the loan. In the case at bar, the loan is a corporate loan
extended to PBM and used by PBM itself, not by petitionerappellee-husband or his family. The alleged benefit, if any,
continuously harped by respondents-appellants, are not only
incidental but also speculative.[19]
We agree with the respondent court. Indeed, considering the odds
involved in guaranteeing a large amount (P50,000,000.00) of loan, the
probable prolongation of employment in PBM and increase in value of its
stocks, would be too small to qualify the transaction as one for the benefit of
the suretys family. Verily, no one could say, with a degree of certainty, that
the said contract is even productive of some benefits to the conjugal
partnership.
We likewise agree with the respondent court (and this view is not
contested by the petitioners) that the provisions of the Family Code is
applicable in this case. These provisions highlight the underlying concern of

the law for the conservation of the conjugal partnership; for the husbands
duty to protect and safeguard, if not augment, not to dissipate it.
This is the underlying reason why the Family Code clarifies that the
obligations entered into by one of the spouses must be those that redounded
to the benefit of the family and that the measure of the partnerships liability is
to the extent that the family is benefited. [20]
These are all in keeping with the spirit and intent of the other provisions of
the Civil Code which prohibits any of the spouses to donate or convey
gratuitously any part of the conjugal property.[21] Thus, when co-respondent
Alfredo Ching entered into a surety agreement he, from then on, definitely put
in peril the conjugal property (in this case, including the family home) and
placed it in danger of being taken gratuitously as in cases of donation.
In the second assignment of error, the petitioner advances the view that
acting as surety is part of the business or profession of the respondenthusband.
This theory is new as it is novel.
The respondent court correctly observed that:
Signing as a surety is certainly not an exercise of an industry or
profession, hence the cited cases of Cobb-Perez vs. Lantin; Abella
de Diaz vs. Erlanger & Galinger; G-Tractors, Inc. vs. CA do not
apply in the instant case. Signing as a surety is not embarking in a
business.[22]
We are likewise of the view that no matter how often an executive acted or
was persuaded to act, as a surety for his own employer, this should not be
taken to mean that he had thereby embarked in the business of suretyship or
guaranty.
This is not to say, however, that we are unaware that executives are often
asked to stand as surety for their companys loan obligations. This is
especially true if the corporate officials have sufficient property of their own;
otherwise, their spouses signatures are required in order to bind the conjugal
partnerships.
The fact that on several occasions the lending institutions did not require
the signature of the wife and the husband signed alone does not mean that
being a surety became part of his profession. Neither could he be presumed
to have acted for the conjugal partnership.
Article 121, paragraph 3, of the Family Code is emphatic that the payment
of personal debts contracted by the husband or the wife before or during the
marriage shall not be charged to the conjugal partnership except to the extent
that they redounded to the benefit of the family.
Here, the property in dispute also involves the family home. The loan is a
corporate loan not a personal one. Signing as a surety is certainly not an
exercise of an industry or profession nor an act of administration for the
benefit of the family.

On the basis of the facts, the rules, the law and equity, the assailed
decision should be upheld as we now uphold it. This is, of course, without
prejudice to petitioners right to enforce the obligation in its favor against the
PBM receiver in accordance with the rehabilitation program and payment
schedule approved or to be approved by the Securities & Exchange
Commission.
WHEREFORE, the petition for review should be, as it is hereby, DENIED
for lack of merit.
SO ORDERED.
Regalado, (Chairman), Melo, Puno, and Mendoza, JJ., concur.
THIRD DIVISION

JUANA COMPLEX I HOMEOWNERS

ASSOCIATION, INC., ANDRES C.
BAUTISTA, BRIGIDO
DIMACULANGAN, DOLORES P.
PRADO, IMELDA DE LA CRUZ,
EDITHA C. DY, FLORENCIA M.
MERCADO, LEOVINO C. DATARIO,
AIDA
A. ABAYON, NAPOLEON M.
DIMAANO, ROSITA G. ESTIGOY and
NELSON A.
LOYOLA,
Petitioners,

- versus -

FIL-ESTATE LAND, INC.,

FIL ESTATE ECOCENTRUM
CORPORATION, LA PAZHOUSING
AND DEVELOPMENT
CORPORATION, WARBIRD
SECURITY AGENCY,

G.R. No. 152272

ENRIQUE RIVILLA,
MICHAEL E. JETHMAL
and MICHAEL ALUNAN,
Respondents.
x-------------------------------------------x
FIL-ESTATE LAND, INC.,
FIL ESTATE ECOCENTRUM
CORPORATION, LA PAZHOUSING
AND DEVELOPMENT
CORPORATION, WARBIRD
SECURITY AGENCY, ENRIQUE
RIVILLA, MICHAEL E. JETHMAL and
MICHAEL
ALUNAN,
Petitioners,
G. R. No. 152397
- versus JUANA COMPLEX I HOMEOWNERS
ASSOCIATION, INC., ANDRES C.
BAUTISTA, BRIGIDO
DIMACULANGAN, DOLORES P.
PRADO, IMELDA DE LA CRUZ,
EDITHA C. DY, FLORENCIA M.
MERCADO, LEOVINO C. DATARIO,
AIDA
A. ABAYON, NAPOLEON M.
DIMAANO, ROSITA G. ESTIGOY and
NELSON A. LOYOLA,
Respondents.

Present:

VELASCO, JR., J.,Chairperson,

PERALTA,
ABAD,
MENDOZA, and
PERLAS-BERNABE, JJ.

Promulgated:
March 5, 2012
X -------------------------------------------------------------------------------------- X
DECISION
MENDOZA, J.:
Before the Court are two (2) consolidated petitions assailing the July
31, 2001 Decision[1] and February 21, 2002 Resolution [2] of the Court of
Appeals (CA) in CA-G.R. SP No. 60543, which annulled and set aside the
March 3, 1999 Order[3] of the Regional Trial Court, Branch 25, Bian,
Laguna (RTC), granting the application for the issuance of a writ of
preliminary injunction, and upheld the June 16, 2000 Omnibus
Order[4] denying the motion to dismiss.
The Facts:
On January 20, 1999, Juana Complex I Homeowners Association,
Inc. (JCHA), together with individual residents of Juana Complex I and other
neighboring subdivisions (collectively referred as JCHA, et. al.), instituted a
complaint[5] for damages, in its own behalf and as a class suit representing the
regular commuters and motorists of Juana Complex I and neighboring
subdivisions who were deprived of the use of La Paz Road, against Fil-Estate
Land, Inc. (Fil-Estate), Fil-estate Ecocentrum Corporation(FEEC), La Paz
Housing & Development Corporation (La Paz), and Warbird Security Agency
and their respective officers (collectively referred as Fil-Estate, et al.).
The complaint alleged that JCHA, et al. were regular commuters and
motorists who constantly travelled towards the direction of Manila and
Calamba; that they used the entry and exit toll gates of South Luzon

Expressway (SLEX) by passing through right-of-way public road known as La

Paz Road; that they had been using La Paz Road for more than ten (10)
years; that in August 1998, Fil-estate excavated, broke and deliberately ruined
La Paz Road that led to SLEX so JCHA, et al. would not be able to pass
through the said road; that La Paz Road was restored by the residents to
make it passable but Fil-estate excavated the road again; that JCHA reported
the matter to the Municipal Government and the Office of the Municipal
Engineer but the latter failed to repair the road to make it passable and safe to
motorists and pedestrians; that the act of Fil-estate in excavating La Paz
Road caused damage, prejudice, inconvenience, annoyance, and loss of
precious hours to them, to the commuters and motorists because traffic was
re-routed to narrow streets that caused terrible traffic congestion and hazard;
and that its permanent closure would not only prejudice their right to free and
unhampered use of the property but would also cause great damage and
irreparable injury.
Accordingly, JCHA, et al. also prayed for the immediate issuance of a
Temporary Restraining Order (TRO) or a writ of preliminary injunction (WPI) to
enjoin Fil-Estate, et al. from stopping and intimidating them in their use of La
Paz Road.
On February 10, 1999, a TRO was issued ordering Fil-Estate, et al, for
a period of twenty (20) days, to stop preventing, coercing, intimidating or
harassing the commuters and motorists from using the La Paz Road. [6]
Subsequently, the RTC conducted several hearings to determine the
propriety of the issuance of a WPI.
On February 26, 1999, Fil-Estate, et al. filed a motion to
dismiss[7] arguing that the complaint failed to state a cause of action and that
it was improperly filed as a class suit. On March 5, 1999, JCHA, et al. filed
their comment[8] on the motion to dismiss to which respondents filed a reply.[9]
On March 3, 1999, the RTC issued an Order [10] granting the WPI and
required JCHA, et al. to post a bond.
On March 19, 1999, Fil-Estate, et al. filed a motion for
reconsideration[11] arguing, among others, that JCHA, et al. failed to satisfy the
requirements for the issuance of a WPI. On March 23, 1999, JCHA, et al. filed
their opposition to the motion.[12]
The RTC then issued its June 16, 2000 Omnibus Order, denying both
the motion to dismiss and the motion for reconsideration filed by Fil-Estate, et
al.
Not satisfied, Fil-Estate, et al. filed a petition for certiorari and
prohibition before the CA to annul (1) the Order dated March 3, 1999 and (2)
the Omnibus Order datedJune 16, 2000. They contended that the complaint
failed to state a cause of action and that it was improperly filed as a class suit.
With regard to the issuance of the WPI, the defendants averred that JCHA, et

al. failed to show that they had a clear and unmistakable right to the use of La
Paz Road; and further claimed that La Paz Road was a torrens registered
private road and there was neither a voluntary nor legal easement constituted
over it.[13]
On July 31, 2001, the CA rendered the decision partially granting the
petition, the dispositive portion of which reads:
WHEREFORE, the petition is hereby partially GRANTED.
The Order dated March 3, 1999 granting the writ of preliminary
injunction is hereby ANNULLED and SET ASIDE but the portion
of the Omnibus Order dated June 16, 2000 denying the motion
to dismiss is upheld.
SO ORDERED.[14]
The CA ruled that the complaint sufficiently stated a cause of action
when JCHA, et al. alleged in their complaint that they had been using La Paz
Road for more than ten (10) years and that their right was violated when FilEstate closed and excavated the road. It sustained the RTC ruling that the
complaint was properly filed as a class suit as it was shown that the case was
of common interest and that the individuals sought to be represented were so
numerous that it was impractical to include all of them as parties. The CA,
however, annulled the WPI for failure of JCHA, et al. to prove their clear and
present right over La Paz Road. The CA ordered the remand of the case to
the RTC for a full-blown trial on the merits.
Hence, these petitions for review.
In G.R. No. 152272, JCHA, et al. come to this Court, raising the
following issues:
(A)
THE HONORABLE COURT OF APPEALS, IN
HOLDING THAT A FULL-BLOWN TRIAL ON THE MERITS IS
REQUIRED TO DETERMINE THE NATURE OF THE LA PAZ
ROAD, HAD DEPARTED FROM THE ACCEPTED AND
USUAL COURSE OF JUDICIAL PROCEEDINGS AS TO CALL
FOR AN EXERCISE OF THE POWER OF SUPERVISION.
(B)
THE HONORABLE COURT OF APPEALS, IN
HOLDING THAT THE PETITIONERS FAILED TO SATISFY
THE REQUIREMENTS FOR THE ISSUANCE OF A WRIT OF
PRELIMINARY INJUNCTION, HAD DECIDED NOT IN
ACCORD WITH LAW AND WITH THE APPLICABLE
DECISIONS OF THE SUPREME COURT.[15]

In G.R. No. 152397, on the other hand, Fil-Estate, et al. anchor their
petition on the following issues:
I.
The Court of Appeals declaration that respondents
Complaint states a cause of action is contrary to existing
law and jurisprudence.
II.
The Court of Appeals pronouncement that respondents
complaint was properly filed as a class suit is contrary to
existing law and jurisprudence.
III.
The Court of Appeals conclusion that full blown trial on the
merits is required to determine the nature of the La Paz
Road is contrary to existing laws and jurisprudence. [16]
JCHA, et al. concur with the CA that the complaint sufficiently stated a
cause of action. They, however, disagree with the CAs pronouncement that a
full-blown trial on the merits was necessary. They claim that during the
hearing on the application of the writ of injunction, they had sufficiently proven
that La Paz Road was a public road and that commuters and motorists of their
neighboring villages had used this road as their means of access to the San
Agustin Church, Colegio De San Agustin and to SLEX in going to Metro
Manila and to Southern Tagalog particularly during the rush hours when traffic
at Carmona Entry/Exit and Susana Heights Entry/Exit was at its worst.
JCHA, et al. argue that La Paz Road has attained the status and
character of a public road or burdened by an apparent easement of public
right of way. They point out thatLa Paz Road is the widest road in the
neighborhood used by motorists in going to Halang Road and in entering the
SLEX-Halang toll gate and that there is no other road as wide as La Paz
Road existing in the vicinity. For residents of San Pedro, Laguna, the shortest,
convenient and safe route towards SLEX Halang is along Rosario
Avenuejoining La Paz Road.
Finally, JCHA, et al. argue that the CA erred when it voided the WPI
because the public nature of La Paz Road had been sufficiently proven and,
as residents of San Pedro and Bian, Laguna, their right to use La Paz Road
is undeniable.
In their Memorandum,[17] Fil-Estate, et al. explain that La Paz Road is
included in the parcels of land covered by Transfer Certificates of
Title (TCT) Nos. T-120008, T-90321 and T-90607, all registered in the name
of La Paz. The purpose of constructing La Paz Road was to provide a
passageway for La Paz to its intended projects to the south, one of which was

the Juana Complex I. When Juana Complex I was completed, La Paz

donated the open spaces, drainage, canal, and lighting facilities inside the
Juana Complex I to the Municipality of Bian. The streets within the
subdivisions were then converted to public roads and were opened for use of
the general public. The La Paz Road, not being part of the Juana Complex I,
was excluded from the donation. Subsequently, La Paz became a shareholder
of FEEC, a consortium formed to develop several real properties in Bian,
Laguna, known as Ecocentrum Project. In exchange for shares of stock, La
Paz contributed some of its real properties to the Municipality of Bian,
including the properties constituting La Paz Road, to form part of the
Ecocentrum Project.
Fil-Estate, et al. agree with the CA that the annulment of the WPI was
proper since JCHA, et al. failed to prove that they have a clear right over La
Paz Road. Fil-Estate, et al. assert that JCHA, et al. failed to prove the
existence of a right of way or a right to pass over La Paz Road and that the
closure of the said road constituted an injury to such right. According to
them, La Paz Road is a torrens registered private road and there is neither a
voluntary nor legal easement constituted over it. They claim that La Paz
Road is a private property registered under the name of La Paz and the
beneficial ownership thereof was transferred to FEEC when La Paz joined the
consortium for the Ecocentrum Project.
Fil-Estate, et al., however, insist that the complaint did not sufficiently
contain the ultimate facts to show a cause of action. They aver the bare
allegation that one is entitled to something is an allegation of a conclusion
which adds nothing to the pleading.
They likewise argue that the complaint was improperly filed as a class
suit for it failed to show that JCHA, et al. and the commuters and motorists they
are representing have a well-defined community of interest over La Paz Road. They
claim that the excavation of La Paz Road would not necessarily give rise to a
common right or cause of action for JCHA, et al. against them since each of them
has a separate and distinct purpose and each may be affected differently than the
others.
The Courts Ruling
The issues for the Courts resolution are: (1) whether or not the
complaint states a cause of action; (2) whether the complaint has been
properly filed as a class suit; and (2) whether or not a WPI is warranted.
Section 2, Rule 2 of the Rules of Court defines a cause of action as an
act or omission by which a party violates the right of another. A complaint
states a cause of action when it contains three (3) essential elements of a
cause of action, namely:
(1)
(2)
(3)

the legal right of the plaintiff,

the correlative obligation of the defendant, and
the act or omission of the defendant in violation of said legal
right.[18]

The question of whether the complaint states a cause of action is

determined by its averments regarding the acts committed by the defendant.
[19]
Thus, it must contain a concise statement of the ultimate or essential facts
constituting the plaintiffs cause of action. [20] To be taken into account are only
the material allegations in the complaint; extraneous facts and circumstances
or other matters aliunde are not considered.[21]
The test of sufficiency of facts alleged in the complaint as constituting a
cause of action is whether or not admitting the facts alleged, the court could
render a valid verdict in accordance with the prayer of said complaint.
[22]
Stated differently, if the allegations in the complaint furnish sufficient basis
by which the complaint can be maintained, the same should not be dismissed
regardless of the defense that may be asserted by the defendant. [23]
In the present case, the Court finds the allegations in the complaint
sufficient to establish a cause of action. First, JCHA, et al.s averments in the
complaint show a demandable right over La Paz Road. These are: (1) their
right to use the road on the basis of their allegation that they had been using
the road for more than 10 years; and (2) an easement of a right of way has
been constituted over the said roads. There is no other road as wide as La
Paz Road existing in the vicinity and it is the shortest, convenient and safe
route towards SLEX Halang that the commuters and motorists may
use. Second, there is an alleged violation of such right committed by FilEstate, et al. when they excavated the road and prevented the commuters
and motorists from using the same. Third, JCHA, et al. consequently suffered
injury and that a valid judgment could have been rendered in accordance with
the relief sought therein.
With respect to the issue that the case was improperly instituted as a
class suit, the Court finds the opposition without merit.
Section 12, Rule 3 of the Rules of Court defines a class suit, as follows:
Sec. 12. Class suit. When the subject matter of the
controversy is one of common or general interest to many
persons so numerous that it is impracticable to join all as
parties, a number of them which the court finds to be sufficiently
numerous and representative as to fully protect the interests of
all concerned may sue or defend for the benefit of all. Any party
in interest shall have the right to intervene to protect his
individual interest.
The necessary elements for the maintenance of a class suit are: 1) the
subject matter of controversy is one of common or general interest to many
persons; 2) the parties affected are so numerous that it is impracticable to
bring them all to court; and 3) the parties bringing the class suit are sufficiently
numerous or representative of the class and can fully protect the interests of
all concerned.[24]

In this case, the suit is clearly one that benefits all commuters and
motorists who use La Paz Road. As succinctly stated by the CA:
The subject matter of the instant case, i.e., the closure
and excavation of the La Paz Road, is initially shown to be of
common or general interest to many persons. The records
reveal that numerous individuals have filed manifestations with
the lower court, conveying their intention to join private
respondents in the suit and claiming that they are similarly
situated with private respondents for they were also prejudiced
by the acts of petitioners in closing and excavating the La Paz
Road. Moreover, the individuals sought to be represented by
private respondents in the suit are so numerous that it is
impracticable to join them all as parties and be named
individually as plaintiffs in the complaint. These individuals claim
to be residents of various barangays in Bian, Laguna and other
barangays in San Pedro, Laguna.
Anent the issue on the propriety of the WPI, Section 3, Rule 58 of the
Rules of Court lays down the rules for the issuance thereof. Thus:
(a)
That the applicant is entitled to the relief demanded,
and the whole or part of such relief consists in restraining the
commission or continuance of the acts complained of, or in the
performance of an act or acts, either for a limited period or
perpetually;
(b)
That the commission, continuance or nonperformance of the act or acts complained of during the litigation
would probably work injustice to the applicant; or
(c)
That a party, court, or agency or a person is doing,
threatening, or attempting to do, or is procuring or suffering to be
done, some act or acts probably in violation of the rights of the
applicant respecting the subject of the action or proceeding, and
tending to render the judgment ineffectual.
A writ of preliminary injunction is available to prevent a threatened or
continuous irremediable injury to parties before their claims can be thoroughly
studied and adjudicated.[25] The requisites for its issuance are: (1) the existence of a
clear and unmistakable right that must be protected; and (2) an urgent and
paramount necessity for the writ to prevent serious damage.[26] For the writ to issue,
the right sought to be protected must be a present right, a legal right which must be
shown to be clear and positive. [27] This means that the persons applying for the
writ must show that they have an ostensible right to the final relief prayed for
in their complaint.[28]
In the case at bench, JCHA, et al. failed to establish a prima facie proof of
violation of their right to justify the issuance of a WPI. Their right to the use of La Paz

Road is disputable since they have no clear legal right therein. As correctly ruled by
the CA:
Here, contrary to the ruling of respondent Judge, private
respondents failed to prove as yet that they have a clear and
unmistakable right over the La Paz Road which was sought to be
protected by the injunctive writ. They merely anchor their purported
right over the La Paz Road on the bare allegation that they have
been using the same as public road right-of-way for more than ten
years. A mere allegation does not meet the standard of proof that
would warrant the issuance of the injunctive writ. Failure to establish
the existence of a clear right which should be judicially protected
through the writ of injunction is a sufficient ground for denying the
injunction.
Consequently, the case should be further heard by the RTC so that the
parties can fully prove their respective positions on the issues.
Due process considerations dictate that the assailed injunctive writ is
not a judgment on the merits but merely an order for the grant of a provisional
and ancillary remedy to preserve the status quo until the merits of the case
can be heard. The hearing on the application for issuance of a writ of
preliminary injunction is separate and distinct from the trial on the merits of the
main case. [29] The evidence submitted during the hearing of the incident is not
conclusive or complete for only a "sampling" is needed to give the trial court
an idea of the justification for the preliminary injunction pending the decision
of the case on the merits.[30] There are vital facts that have yet to be presented
during the trial which may not be obtained or presented during the hearing on
the application for the injunctive writ. [31] Moreover, the quantum of evidence
required for one is different from that for the other.[32]
WHEREFORE, the petitions are DENIED. Accordingly, the July 31,
2001 Decision and February 21, 2002 Resolution of the Court of Appeals in
CA-G.R. SP No. 60543 are AFFIRMED.
SO ORDERED.

EN BANC
January 28, 1925
G.R. No. 22909
VICTORIANO BORLASA, ET AL., plaintiffs-appellants,
vs.
VICENTE POLISTICO, ET AL., defendants-appellees.
Sumulong and Lavides for appellants.
Ramon Diokno for appellees.

STREET, J.:
This action was instituted in the Court of First Instance of Laguna on July 25,
1917, by Victoriano Borlasa and others against Vicente Polistico and others,
chiefly for the purpose of securing the dissolution of a voluntary association
named Turuhan Polistico & Co., and to compel the defendants to account for
and surrender the money and property of the association in order that its
affairs may be liquidated and its assets applied according to law. The trial
judge having sustained a demurrer for defect of parties and the plaintiffs
electing not to amend, the cause was dismissed, and from this order an
appeal was taken by the plaintiffs to this court.
The material allegations of the complaint, so far as affects the present appeal,
are to the following effect: In the month of April, 1911, the plaintiffs and
defendants, together with several hundred other persons, formed an
association under the name of Turuhan Polistico & Co. Vicente Polistico, the
principal defendant herein, was elected president and treasurer of the
association, and his house in Lilio, Laguna, was made its principal place of
business. The life of the association was fixed at fifteen years, and under the
by-laws each member obligated himself to pay to Vicente Polistico, as
president-treasurer, before 3 o'clock in the afternoon of every Sunday the sum
of 50 centavos, except that on every fifth Sunday the amount was P1, if the
president elected to call this amount, as he always did. It is alleged that from
April, 1911, until April, 1917, the sums of money mentioned above were paid
weekly by all of the members of the society with few irregularities. The
inducement to these weekly contributions was found in provisions of the bylaws to the effect that a lottery should be conducted weekly among the
members of the association and that the successful member should be paid
the amount collected each week, from which, however, the presidenttreasurer of the society was to receive the sum of P200, to be held by him as
funds of the society.
It is further alleged that by virtue of these weekly lotteries Vicente Polistico, as
president-treasurer of the association, received sums of money amounting to
P74,000, more or less, in the period stated, which he still retains in his power
or has applied to the purchase of real property largely in his own name and
partly in the names of others. The defendants in the complaint are the
members of the board of directors of the association, including Vicente
Polistico, as president-treasurer, Alfonso Noble, secretary, Felix Garcia and
Vivencio Zulaybar, as promoter (propagandistas), and Afroniano de la Pea
and Tomas Orencia, as members (vocales) of the board.
In an amended answer the defendants raised the question of lack of parties
and set out a list of some hundreds of persons whom they alleged should be
brought in as parties defendant on the ground, among others, that they were
in default in the payment of their dues to the association. On November 28,
1922, the court made an order requiring the plaintiffs to amend their complaint
within a stated period so as to include all of the members of the Turnuhan
Polistico & Co. either as plaintiffs or defendants. The plaintiffs excepted to this
order, but acquiesced to the extent of amending their complaint by adding as

additional parties plaintiff some hundreds of persons, residents of Lilio, said to

be members of the association and desirous of being joined as plaintiffs.
Some of these new plaintiffs had not been named in the list submitted by the
defendants with their amended answer; and on the other hand many names in
said list were here omitted, it being claimed by the plaintiffs that the persons
omitted were not residents of Lilio but residents of other places and that their
relation to the society, so far as the plaintiffs could discover, was fictitious. The
defendants demurred to the amended complaint on the ground that it showed
on its face a lack of necessary parties and this demurrer was sustained, with
the ultimate result of the dismissal of the action, as stated in the first
paragraph of this opinion.
The trial judge appears to have supposed that all the members of
the Turnuhan Polistico & Co. should be brought in either plaintiffs or
defendants. This notion is entirely mistaken. The situation involved is precisely
the one contemplated in section 118 of the Code of Civil Procedure, where
one or more may sue for the benefit of all. It is evident from the showing made
in the complaint, and from the proceedings in the court below, that it would be
impossible to make all of the persons in interest parties to the cases and to
require all of the members of the association to be joined as parties would be
tantamount to a denial of justice.
The general rule with reference to the making of parties in a civil action
requires, of course, the joinder of all necessary parties wherever possible, and
the joinder of all indispensable parties under any and all conditions, the
presence of those latter being asine qua non of the exercise of judicial power.
The class suit contemplates an exceptional situation where there are
numerous persons all in the same plight and all together constituting a
constituency whose presence in the litigation is absolutely indispensable to
the administration of justice. Here the strict application of the rule as to
indispensable parties would require that each and every individual in the class
should be present. But at this point the practice is so far relaxed as to permit
the suit to proceed, when the class is sufficient represented to enable the
court to deal properly and justly with that interest and with all other interest
involved in the suit. In the class suit, then, representation of a class interest
which will be affected by the judgment is indispensable; but it is not
indispensable to make each member of the class an actual party.
A common illustration in American procedure of the situation justifying a class
suit is that presented by the creditors' bill, which is filed by one party
interested in the estate of an insolvent, to secure the distribution of the assets
distributable among all the creditors. In such cases the common practice is for
one creditor to sue as plaintiff in behalf of himself and other creditors.
(Johnson vs. Waters, 111 U.S., 640; 28 Law. ed., 547.) Another illustration is
found in the case of Smith vs. Swormstedt (16 How., 288; 14 Law. ed., 942),
where a limited number of individuals interested in a trust for the benefit of
superannuated preachers were permitted to maintain an action in their own
names and as representatives of all other persons in the same right.

His Honor, the trial judge, in sustaining this demurrer was possibly influenced
to some extent by the case of Rallonza vs. Evangelista (15 Phil., 531); but we
do not consider that case controlling, inasmuch as that was an action for the
recovery of real property and the different parties in interest had determinable,
though undivided interests, in the property there in question. In the present
case, the controversy involves an indivisible right affecting many individuals
whose particular interest is of indeterminate extent and is incapable of
separation.
The addition of some hundreds of persons to the number of the plaintiffs,
made in the amendment to the complaint of December 13, 1922, was
unnecessary, and as the presence of so many parties is bound to prove
embarrassing to the litigation from death or removal, it is suggested that upon
the return of this record to the lower court for further proceedings, the plaintiff
shall again amend their complaint by dismissing as to unnecessary parties
plaintiffs, but retaining a sufficient number of responsible persons to secure
liability for costs and fairly to present all the members of the association.
There is another feature of the complaint which makes a slight amendment
desirable, which is, that the complaint should be made to show on its face that
the action is intended to be litigated as a class suit. We accordingly
recommend that the plaintiffs further amend by adding after the names of the
parties plaintiffs the words, "in their own behalf and in behalf of other
members of Turuhan Polistico & Co."
The order appealed from is reversed, the demurrer of the defendants based
upon supposed lack of parties is overruled, and the defendants are required
to answer to the amended complaint within the time allowed by law and the
rules of the court. The costs of this appeal will be paid by the defendants. So
ordered.
Johnson, Malcolm, Villamor, Ostrand, Johns, and Romualdez, JJ., concur.

EN BANC
G.R. No. L-63559 May 30, 1986
NEWSWEEK, INC., petitioner,
vs.
THE INTERMEDIATE APPELLATE COURT, and NATIONAL FEDERATION
OF SUGARCANE PLANTERS INC., BINALBAGAN-ISABELA PLANTERS
ASSOCIATION, INC., ASOCIACION DE AGRICULTORES DE LA
CARLOTA, LA CASTELLANA y PONTEVEDRA, INC., DONEDCO
PLANTERS ASSOCIATION INC., ARMANDO GUSTILO, ENRIQUE ROJAS,
ALFREDO MONTELIBANO, JR., PABLO SOLA, JOSE MONTALVO,
VICENTE GUSTILO, JOSEPH MARANON, ROBERTO CUENCA, JOSE
SICANGCO, FLORENCIO ALONSO, MIGUEL GATUSLAO, PEDRO YULO,
MARINO RUBIN and BENJAMIN BAUTISTA, respondents.

San Juan, Africa, Gonzales & San Agustin Law Offices for private
respondents.

FERIA, J.:
Petitioner, Newsweek, Inc., a foreign corporation licensed to do business in
the Philippines, in this special action for certiorari, prohibition with preliminary
injunction, seeks to annul the decision of the Intermediate Appellate Court
dated December 17, 1982 sustaining the Order of the then Court of First
Instance of Bacolod City which denied petitioner's Motion to Dismiss the
complaint for libel filed by private respondents (Civil Case No. 15812), and the
Resolution dated March 10, 1983 which denied its Motion for
Reconsideration.
It appears that on March 5, 1981, private respondents, incorporated
associations of sugarcane planters in Negros Occidental claiming to have
8,500 members and several individual sugar planters, filed Civil Case No.
15812 in their own behalf and/or as a class suit in behalf of all sugarcane
planters in the province of Negros Occidental, against petitioner and two of
petitioners' non-resident correspondents/reporters Fred Bruning and Barry
Came. The complaint alleged that petitioner and the other defendants
committed libel against them by the publication of the article "An Island of
Fear" in the February 23, 1981 issue of petitioner's weekly news
magazine Newsweek. The article supposedly portrayed the island province of
Negros Occidental as a place dominated by big landowners or sugarcane
planters who not only exploited the impoverished and underpaid sugarcane
workers/laborers, but also brutalized and killed them with imprunity.
Complainants therein alleged that said article, taken as a whole, showed a
deliberate and malicious use of falsehood, slanted presentation and/or
misrepresentation of facts intended to put them (sugarcane planters) in bad
light, expose them to public ridicule, discredit and humiliation here in the
Philippines and abroad, and make them objects of hatred, contempt and
hostility of their agricultural workers and of the public in general. They prayed
that defendants be ordered to pay them PlM as actual and compensatory
damages, and such amounts for moral, exemplary and corrective damages as
the court may determine, plus expenses of litigation, attorney's fees and costs
of suit. A photo copy of the article was attached to the complaint.
On November 5, 1981, petitioner filed a motion to dismiss on the grounds that
(1) the printed article sued upon is not actionable in fact and in law; and (2)
the complaint is bereft of allegations that state, much less support a cause of
action. It pointed out the non-libelous nature of the article and, consequently,
the failure of the complaint to state a cause of action. Private respondents
filed an Opposition to the motion to dismiss and petitioner filed a reply.
On March 17, 1982, the trial court denied the motion to dismiss, stating that
the grounds on which the motion to dismiss are predicated are not indubitable
as the complaint on its face states a valid cause of action; and the question as

to whether the printed article sued upon its actionable or not is a matter of
evidence. Petitioner's motion for reconsideration was denied on May 28,
1982.
On June 18, 1982, petitioner filed a petition for certiorari with respondent
Court (CA-G. R. No. 14406) seeking the annulment of the aforecited trial
court's Orders for having been issued with such a grave abuse of discretion
as amounting to lack of jurisdiction and praying for the dismissal of the
complaint for failure to state a cause of action.
As earlier stated, respondent Court affirmed the trial court's Orders in a
Decision dated December 17, 1982 and ordered the case to be tried on the
merits on the grounds that -(1) the complaint contains allegations of fact which
called for the presentation of evidence; and (2) certiorari under Rule 65
cannot be made to substitute for an appeal where an appeal would lie at a
proper time. Subsequently, on March 10, 1983, the respondent Court denied
petitioner's Motion for Reconsideration of the aforesaid decision, hence this
petition.
The proper remedy which petitioner should have taken from the decision of
respondent Court is an appeal by certiorari under Rule 45 of the Rules of
Court and not the special civil action of certiorari and prohibition under Rule
65 of said Rules. However, since the petition was filed on time within fifteen
days from notice of the Resolution denying the motion for reconsideration, we
shall treat the same as a petition for review on certiorari. The two (2) issues
raised in the petition are: (1) whether or not the private respondents' complaint
failed to state a cause of action; and (2) whether or not the petition for
certiorari and prohibition is proper to question the denial of a motion to
dismiss for failure to state a cause of action.
First, petitioner argues that private respondents' complaint failed to state a
cause of action because the complaint made no allegation that anything
contained in the article complained of regarding sugarcane planters referred
specifically to any one of the private respondents; that libel can be committed
only against individual reputation; and that in cases where libel is claimed to
have been directed at a group, there is actionable defamation only if the libel
can be said to reach beyond the mere collectivity to do damage to a specific,
individual group member's reputation.
We agree with petitioner.
In the case of Corpus vs. Cuaderno, Sr. (16 SCRA 807) this Court ruled that
"in order to maintain a libel suit, it is essential that the victim be identifiable
(People vs. Monton, L-16772, November 30, 1962), although it is not
necessary that he be named (19 A.L.R. 116)." In an earlier case, this Court
declared that" ... defamatory matter which does not reveal the Identity of the
person upon whom the imputation is cast, affords no ground of action unless it
be shown that the readers of the libel could have Identified the personality of
the individual defamed." (Kunkle vs. Cablenews-American and Lyons 42 Phil.
760).

This principle has been recognized to be of vital importance, especially where

a group or class of persons, as in the case at bar, claim to have been
defamed, for it is evident that the larger the collectivity, the more difficult it is
for the individual member to prove that the defamatory remarks apply to him.
(Cf. 70 ALR 2d. 1384).
In the case of Uy Tioco vs. Yang Shu Wen , 32 Phil. 624, this Court held as
follows:
Defamatory remarks directed at a class or group of persons in
general language only, are not actionable by individuals
composing the class or group unless the statements are
sweeping; and it is very probable that even then no action would
lie where the body is composed of so large a number of persons
that common sense would tell those to whom the publication
was made that there was room for persons connected with the
body to pursue an upright and law abiding course and that it
would be unreasonable and absurd to condemn all because of
the actions of a part. (supra p. 628).
It is evident from the above ruling that where the defamation is alleged to
have been directed at a group or class, it is essential that the statement must
be so sweeping or all-embracing as to apply to every individual in that group
or class, or sufficiently specific so that each individual in the class or group
can prove that the defamatory statement specifically pointed to him, so that he
can bring the action separately, if need be.
We note that private respondents filed a "class suit" in representation of all the
8,500 sugarcane planters of Negros Occidental. Petitioner disagrees and
argues that the absence of any actionable basis in the complaint cannot be
cured by the filing of a class suit on behalf of the aforesaid sugar planters.
We find petitioner's contention meritorious.
The case at bar is not a class suit. It is not a case where one or more may sue
for the benefit of all (Mathay vs. Consolidated Bank and Trust Company, 58
SCRA 559) or where the representation of class interest affected by the
judgment or decree is indispensable to make each member of the class an
actual party (Borlaza vs. Polistico, 47 Phil. 348). We have here a case where
each of the plaintiffs has a separate and distinct reputation in the community.
They do not have a common or general interest in the subject matter of the
controversy.
The disputed portion of the article which refers to plaintiff Sola and which was
claimed to be libelous never singled out plaintiff Sola as a sugar planter. The
news report merely stated that the victim had been arrested by members of a
special police unit brought into the area by Pablo Sola, the mayor of
Kabankalan. Hence, the report, referring as it does to an official act performed
by an elective public official, is within the realm of privilege and protected by
the constitutional guarantees of free speech and press.

The article further stated that Sola and the commander of the special police
unit were arrested. The Court takes judicial notice of this fact. (People vs.
Sola, 103 SCRA 393.)
The second issue to be resolved here is whether or not the special civil action
of certiorari or prohibition is available to petitioner whose motion to dismiss
the complaint and subsequent motion for reconsideration were denied.
As a general rule, an order denying a motion to dismiss is merely interlocutory
and cannot be subject of appeal until final judgment or order is rendered.
(Sec. 2 of Rule 4 1). The ordinary procedure to be followed in such a case is
to file an answer, go to trial and if the decision is adverse, reiterate the issue
on appeal from the final judgment. The same rule applies to an order denying
a motion to quash, except that instead of filing an answer a plea is entered
and no appeal lies from a judgment of acquittal.
This general rule is subject to certain exceptions. If the court, in denying the
motion to dismiss or motion to quash, acts without or in excess of jurisdiction
or with grave abuse of discretion, then certiorari or prohibition lies. The reason
is that it would be unfair to require the defendant or accused to undergo the
ordeal and expense of a trial if the court has no jurisdiction over the subject
matter or offense, or is not the court of proper venue, or if the denial of the
motion to dismiss or motion to quash is made with grave abuse of discretion
or a whimsical and capricious exercise of judgment. In such cases, the
ordinary remedy of appeal cannot be plain and adequate. The following are a
few examples of the exceptions to the general rule.
In De Jesus vs. Garcia (19 SCRA 554), upon the denial of a motion to dismiss
based on lack of jurisdiction over the subject matter, this Court granted the
petition for certiorari and prohibition against the City Court of Manila and
directed the respondent court to dismiss the case.
In Lopez vs. City Judge (18 SCRA 616), upon the denial of a motion to quash
based on lack of jurisdiction over the offense, this Court granted the petition
for prohibition and enjoined the respondent court from further proceeding in
the case.
In Enriquez vs. Macadaeg (84 Phil. 674), upon the denial of a motion to
dismiss based on improper venue, this Court granted the petition for
prohibition and enjoined the respondent judge from taking cognizance of the
case except to dismiss the same.
In Manalo vs. Mariano (69 SCRA 80), upon the denial of a motion to dismiss
based on bar by prior judgment, this Court granted the petition for certiorari
and directed the respondent judge to dismiss the case.
In Yuviengco vs. Dacuycuy (105 SCRA 668), upon the denial of a motion to
dismiss based on the Statute of Frauds, this Court granted the petition for
certiorari and dismissed the amended complaint.

In Tacas vs. Cariaso (72 SCRA 527), this Court granted the petition for
certiorari after the motion to quash based on double jeopardy was denied by
respondent judge and ordered him to desist from further action in the criminal
case except to dismiss the same.
In People vs. Ramos (83 SCRA 11), the order denying the motion to quash
based on prescription was set aside on certiorari and the criminal case was
dismissed by this Court.
Respondent Court correctly stated the general rule and its exceptions.
However, it ruled that none of the exceptions is present in the case at bar and
that the case appears complex and complicated, necessitating a full-blown
trial to get to the bottom of the controversy.
Petitioner's motion to dismiss is based on the ground that the complaint states
no cause of action against it by pointing out the non-libelous nature of the
article sued upon. There is no need of a trial in view of the conclusion of this
Court that the article in question is not libelous. The specific allegation in the
complaint, to the effect that the article attributed to the sugarcane planters the
deaths and brutalization of sugarcane workers, is not borne out by a perusal
of the actual text.
The complaint contains a recital of the favorable working conditions of the
agricultural workers in the sugar industry and the various foundations and
programs supported by planters' associations for the benefit of their workers.
Undoubtedly, the statements in the article in question are sweeping and
exaggerated; but, paraphrasing the ruling in the Uy Tioco case above quoted,
it would be unreasonable and absurd to condemn the majority of the
sugarcane planters, who have at heart the welfare of their workers, because
of the actions of a part. Nonetheless, articles such as the one in question may
also serve to prick the consciences of those who have but are not doing
anything or enough for those who do not have.
On the other hand, petitioner would do well to heed the admonition of the
President to media that they should check the sources of their information to
ensure the publication of the truth. Freedom of the press, like all freedoms,
should be exercised with responsibility.
WHEREFORE, the decision of the Intermediate Appellate Court is reversed
and the complaint in Civil Case No. 15812 of the Court of First Instance of
Negros Occidental is dismissed, without pronouncement as to costs.
SO ORDERED.
Teehankee, C.J., Abad Santos, Yap, Fernan, Narvasa, Melencio-Herrera,
Alampay, Gutierrez, Jr., Cruz and Paras, JJ., concur.

SECOND DIVISION

G.R. No. L-31061 August 17, 1976

SULO NG BAYAN INC., plaintiff-appellant,
vs.
GREGORIO ARANETA, INC., PARADISE FARMS, INC., NATIONAL
WATERWORKS & SEWERAGE AUTHORITY, HACIENDA CARETAS, INC,
and REGISTER OF DEEDS OF BULACAN, defendants-appellees.
Hill & Associates Law Offices for appellant.
Araneta, Mendoza & Papa for appellee Gregorio Araneta, Inc.
Carlos, Madarang, Carballo & Valdez for Paradise Farms, Inc.
Leopoldo M. Abellera, Arsenio J. Magpale & Raul G. Bernardo, Office of the
Government Corporate Counsel for appellee National Waterworks &
Sewerage Authority.
Candido G. del Rosario for appellee Hacienda Caretas, Inc.

ANTONIO, J.:
The issue posed in this appeal is whether or not plaintiff corporation (nonstock may institute an action in behalf of its individual members for the
recovery of certain parcels of land allegedly owned by said members; for the
nullification of the transfer certificates of title issued in favor of defendants
appellees covering the aforesaid parcels of land; for a declaration of "plaintiff's
members as absolute owners of the property" and the issuance of the
corresponding certificate of title; and for damages.
On April 26, 1966, plaintiff-appellant Sulo ng Bayan, Inc. filed an accion de
revindicacion with the Court of First Instance of Bulacan, Fifth Judicial District,
Valenzuela, Bulacan, against defendants-appellees to recover the ownership
and possession of a large tract of land in San Jose del Monte, Bulacan,
containing an area of 27,982,250 square meters, more or less, registered
under the Torrens System in the name of defendants-appellees'
predecessors-in-interest. 1 The complaint, as amended on June 13, 1966,
specifically alleged that plaintiff is a corporation organized and existing under
the laws of the Philippines, with its principal office and place of business at
San Jose del Monte, Bulacan; that its membership is composed of natural
persons residing at San Jose del Monte, Bulacan; that the members of the
plaintiff corporation, through themselves and their predecessors-in-interest,
had pioneered in the clearing of the fore-mentioned tract of land, cultivated
the same since the Spanish regime and continuously possessed the said
property openly and public under concept of ownership adverse against the
whole world; that defendant-appellee Gregorio Araneta, Inc., sometime in the
year 1958, through force and intimidation, ejected the members of the plaintiff
corporation fro their possession of the aforementioned vast tract of land; that

upon investigation conducted by the members and officers of plaintiff

corporation, they found out for the first time in the year 1961 that the land in
question "had been either fraudelently or erroneously included, by direct or
constructive fraud, in Original Certificate of Title No. 466 of the Land of
Records of the province of Bulacan", issued on May 11, 1916, which title is
fictitious, non-existent and devoid of legal efficacy due to the fact that "no
original survey nor plan whatsoever" appears to have been submitted as a
basis thereof and that the Court of First Instance of Bulacan which issued the
decree of registration did not acquire jurisdiction over the land registration
case because no notice of such proceeding was given to the members of the
plaintiff corporation who were then in actual possession of said properties;
that as a consequence of the nullity of the original title, all subsequent titles
derived therefrom, such as Transfer Certificate of Title No. 4903 issued in
favor of Gregorio Araneta and Carmen Zaragoza, which was subsequently
cancelled by Transfer Certificate of Title No. 7573 in the name of Gregorio
Araneta, Inc., Transfer Certificate of Title No. 4988 issued in the name of, the
National Waterworks & Sewerage Authority (NWSA), Transfer Certificate of
Title No. 4986 issued in the name of Hacienda Caretas, Inc., and another
transfer certificate of title in the name of Paradise Farms, Inc., are therefore
void. Plaintiff-appellant consequently prayed (1) that Original Certificate of
Title No. 466, as well as all transfer certificates of title issued and derived
therefrom, be nullified; (2) that "plaintiff's members" be declared as absolute
owners in common of said property and that the corresponding certificate of
title be issued to plaintiff; and (3) that defendant-appellee Gregorio Araneta,
Inc. be ordered to pay to plaintiff the damages therein specified.
On September 2, 1966, defendant-appellee Gregorio Araneta, Inc. filed a
motion to dismiss the amended complaint on the grounds that (1) the
complaint states no cause of action; and (2) the cause of action, if any, is
barred by prescription and laches. Paradise Farms, Inc. and Hacienda
Caretas, Inc. filed motions to dismiss based on the same grounds. Appellee
National Waterworks & Sewerage Authority did not file any motion to dismiss.
However, it pleaded in its answer as special and affirmative defenses lack of
cause of action by the plaintiff-appellant and the barring of such action by
prescription and laches.
During the pendency of the motion to dismiss, plaintiff-appellant filed a
motion, dated October 7, 1966, praying that the case be transferred to
another branch of the Court of First Instance sitting at Malolos, Bulacan,
According to defendants-appellees, they were not furnished a copy of said
motion, hence, on October 14, 1966, the lower court issued an Order
requiring plaintiff-appellant to furnish the appellees copy of said motion,
hence, on October 14, 1966, defendant-appellant's motion dated October 7,
1966 and, consequently, prayed that the said motion be denied for lack of
notice and for failure of the plaintiff-appellant to comply with the Order of
October 14, 1966. Similarly, defendant-appellee paradise Farms, Inc. filed, on
December 2, 1966, a manifestation information the court that it also did not
receive a copy of the afore-mentioned of appellant. On January 24, 1967, the
trial court issued an Order dismissing the amended complaint.

On February 14, 1967, appellant filed a motion to reconsider the Order of

dismissal on the grounds that the court had no jurisdiction to issue the Order
of dismissal, because its request for the transfer of the case from the
Valenzuela Branch of the Court of First Instance to the Malolos Branch of the
said court has been approved by the Department of Justice; that the
complaint states a sufficient cause of action because the subject matter of the
controversy in one of common interest to the members of the corporation who
are so numerous that the present complaint should be treated as a class suit;
and that the action is not barred by the statute of limitations because (a) an
action for the reconveyance of property registered through fraud does not
prescribe, and (b) an action to impugn a void judgment may be brought any
time. This motion was denied by the trial court in its Order dated February 22,
1967. From the afore-mentioned Order of dismissal and the Order denying its
motion for reconsideration, plaintiff-appellant appealed to the Court of
Appeals.
On September 3, 1969, the Court of Appeals, upon finding that no question of
fact was involved in the appeal but only questions of law and jurisdiction,
certified this case to this Court for resolution of the legal issues involved in the
controversy.
I
Appellant contends, as a first assignment of error, that the trial court acted
without authority and jurisdiction in dismissing the amended complaint when
the Secretary of Justice had already approved the transfer of the case to any
one of the two branches of the Court of First Instance of Malolos, Bulacan.
Appellant confuses the jurisdiction of a court and the venue of cases with the
assignment of cases in the different branches of the same Court of First
Instance. Jurisdiction implies the power of the court to decide a case, while
venue the place of action. There is no question that respondent court has
jurisdiction over the case. The venue of actions in the Court of First Instance
is prescribed in Section 2, Rule 4 of the Revised Rules of Court. The laying of
venue is not left to the caprice of plaintiff, but must be in accordance with the
aforesaid provision of the rules. 2The mere fact that a request for the transfer
of a case to another branch of the same court has been approved by the
Secretary of Justice does not divest the court originally taking cognizance
thereof of its jurisdiction, much less does it change the venue of the action. As
correctly observed by the trial court, the indorsement of the Undersecretary of
Justice did not order the transfer of the case to the Malolos Branch of the
Bulacan Court of First Instance, but only "authorized" it for the reason given
by plaintiff's counsel that the transfer would be convenient for the parties. The
trial court is not without power to either grant or deny the motion, especially in
the light of a strong opposition thereto filed by the defendant. We hold that the
court a quo acted within its authority in denying the motion for the transfer the
case to Malolos notwithstanding the authorization" of the same by the
Secretary of Justice.
II

Let us now consider the substantive aspect of the Order of dismissal.

In dismissing the amended complaint, the court a quo said:
The issue of lack of cause of action raised in the motions to
dismiss refer to the lack of personality of plaintiff to file the
instant action. Essentially, the term 'cause of action' is
composed of two elements: (1) the right of the plaintiff and (2)
the violation of such right by the defendant. (Moran, Vol. 1, p.
111). For these reasons, the rules require that every action must
be prosecuted and defended in the name of the real party in
interest and that all persons having an interest in the subject of
the action and in obtaining the relief demanded shall be joined
as plaintiffs (Sec. 2, Rule 3). In the amended complaint, the
people whose rights were alleged to have been violated by
being deprived and dispossessed of their land are the members
of the corporation and not the corporation itself. The corporation
has a separate. and distinct personality from its members, and
this is not a mere technicality but a matter of substantive law.
There is no allegation that the members have assigned their
rights to the corporation or any showing that the corporation has
in any way or manner succeeded to such rights. The corporation
evidently did not have any rights violated by the defendants for
which it could seek redress. Even if the Court should find
against the defendants, therefore, the plaintiff corporation would
not be entitled to the reliefs prayed for, which are recoveries of
ownership and possession of the land, issuance of the
corresponding title in its name, and payment of damages.
Neither can such reliefs be awarded to the members allegedly
deprived of their land, since they are not parties to the suit. It
appearing clearly that the action has not been filed in the names
of the real parties in interest, the complaint must be dismissed
on the ground of lack of cause of action. 3
Viewed in the light of existing law and jurisprudence, We find that the trial
court correctly dismissed the amended complaint.
It is a doctrine well-established and obtains both at law and in equity that a
corporation is a distinct legal entity to be considered as separate and apart
from the individual stockholders or members who compose it, and is not
affected by the personal rights, obligations and transactions of its
stockholders or members. 4 The property of the corporation is its property and
not that of the stockholders, as owners, although they have equities in it.
Properties registered in the name of the corporation are owned by it as an
entity separate and distinct from its members. 5 Conversely, a corporation
ordinarily has no interest in the individual property of its stockholders unless
transferred to the corporation, "even in the case of a one-man
corporation. 6 The mere fact that one is president of a corporation does not
render the property which he owns or possesses the property of the
corporation, since the president, as individual, and the corporation are

separate similarities. 7 Similarly, stockholders in a corporation engaged in

buying and dealing in real estate whose certificates of stock entitled the holder
thereof to an allotment in the distribution of the land of the corporation upon
surrender of their stock certificates were considered not to have such legal or
equitable title or interest in the land, as would support a suit for title, especially
against parties other than the corporation. 8
It must be noted, however, that the juridical personality of the corporation, as
separate and distinct from the persons composing it, is but a legal fiction
introduced for the purpose of convenience and to subserve the ends of
justice. 9 This separate personality of the corporation may be disregarded, or
the veil of corporate fiction pierced, in cases where it is used as a cloak or
cover for fraud or illegality, or to work -an injustice, or where necessary to
achieve equity. 10
Thus, when "the notion of legal entity is used to defeat public convenience,
justify wrong, protect fraud, or defend crime, ... the law will regard the
corporation as an association of persons, or in the case of two corporations,
merge them into one, the one being merely regarded as part or instrumentality
of the other. 11 The same is true where a corporation is a dummy and serves
no business purpose and is intended only as a blind, or an alter ego or
business conduit for the sole benefit of the stockholders. 12 This doctrine of
disregarding the distinct personality of the corporation has been applied by
the courts in those cases when the corporate entity is used for the evasion of
taxes 13 or when the veil of corporate fiction is used to confuse legitimate
issue of employer-employee relationship, 14 or when necessary for the
protection of creditors, in which case the veil of corporate fiction may be
pierced and the funds of the corporation may be garnished to satisfy the debts
of a principal stockholder. 15 The aforecited principle is resorted to by the
courts as a measure protection for third parties to prevent fraud, illegality or
injustice. 16
It has not been claimed that the members have assigned or transferred
whatever rights they may have on the land in question to the plaintiff
corporation. Absent any showing of interest, therefore, a corporation, like
plaintiff-appellant herein, has no personality to bring an action for and in
behalf of its stockholders or members for the purpose of recovering property
which belongs to said stockholders or members in their personal capacities.
It is fundamental that there cannot be a cause of action 'without an antecedent
primary legal right conferred' by law upon a person. 17 Evidently, there can be
no wrong without a corresponding right, and no breach of duty by one person
without a corresponding right belonging to some other person. 18 Thus, the
essential elements of a cause of action are legal right of the plaintiff,
correlative obligation of the defendant, an act or omission of the defendant in
violation of the aforesaid legal right. 19 Clearly, no right of action exists in favor
of plaintiff corporation, for as shown heretofore it does not have any interest in
the subject matter of the case which is material and, direct so as to entitle it to
file the suit as a real party in interest.

III
Appellant maintains, however, that the amended complaint may be treated as
a class suit, pursuant to Section 12 of Rule 3 of the Revised Rules of Court.
In order that a class suit may prosper, the following requisites must be
present: (1) that the subject matter of the controversy is one of common or
general interest to many persons; and (2) that the parties are so numerous
that it is impracticable to bring them all before the court. 20
Under the first requisite, the person who sues must have an interest in the
controversy, common with those for whom he sues, and there must be that
unity of interest between him and all such other persons which would entitle
them to maintain the action if suit was brought by them jointly. 21
As to what constitutes common interest in the subject matter of the
controversy, it has been explained in Scott v. Donald 22 thus:
The interest that will allow parties to join in a bill of complaint, or
that will enable the court to dispense with the presence of all the
parties, when numerous, except a determinate number, is not
only an interest in the question, but one in common in the
subject Matter of the suit; ... a community of interest growing out
of the nature and condition of the right in dispute; for, although
there may not be any privity between the numerous parties,
there is a common title out of which the question arises, and
which lies at the foundation of the proceedings ... [here] the only
matter in common among the plaintiffs, or between them and the
defendants, is an interest in the Question involved which alone
cannot lay a foundation for the joinder of parties. There is
scarcely a suit at law, or in equity which settles a Principle or
applies a principle to a given state of facts, or in which a general
statute is interpreted, that does not involved a Question in which
other parties are interested. ... (Emphasis supplied )
Here, there is only one party plaintiff, and the plaintiff corporation does not
even have an interest in the subject matter of the controversy, and cannot,
therefore, represent its members or stockholders who claim to own in their
individual capacities ownership of the said property. Moreover, as correctly
stated by the appellees, a class suit does not lie in actions for the recovery of
property where several persons claim Partnership of their respective portions
of the property, as each one could alleged and prove his respective right in a
different way for each portion of the land, so that they cannot all be held to
have Identical title through acquisition prescription. 23
Having shown that no cause of action in favor of the plaintiff exists and that
the action in the lower court cannot be considered as a class suit, it would be
unnecessary and an Idle exercise for this Court to resolve the remaining issue
of whether or not the plaintiffs action for reconveyance of real property based
upon constructive or implied trust had already prescribed.

ACCORDINGLY, the instant appeal is hereby DISMISSED with costs against

the plaintiff-appellant.
Fernando, C.J., Barredo, Aquino and Concepcion, Jr., JJ., concur.

Footnotes
5 Stockholder of F. Guanzon and Sons, Inc. v. Register of
Deeds of Manila, 6 SCRA 373. A share of stock only typifies an
aliquot part of the corporation's property, or the right to share in
its proceeds to that extent when distributed according to law and
equity (Hall & Faley v. Alabama Terminal, 173 Ala., 398, 56 So.,
235), but its holder is not the owner of any definite portion of its
property or assets (Gottfried v. Miller, 104 U.S., 521; Jones v.
Davis 35 Ohio St. 474). The stockholder is not a co-owner or
tenant in common of the corporate property (Harton v.
Hohnston, 166 Ala., 317, 51 So., 992). (Ibid., pp. 375-376.)
12 McConnel v. Court of Appeals, 1 SCRA 722; NAMARCO v.
Associated Finance Co., Inc., 19 SCRA 962. The doctrine of
alter ego is based upon the misuse of a corporation by an
individual for wrongful or inequitable purposes, and in such case
the court merely disregards the corporate entity and holds the
individual responsible for acts knowingly and intentionally done
in the name of the corporation." (Ivy v. Plyler, 246 Cal. App. 2d.
678, 54 Cal. Reptr. 894.) The doctrine of alter ego imposes upon
the individual who uses a corporation merely as an
instrumentality to conduct his own business liability as a
consequence of fraud or injustice perpetuated not on the
corporation, but on third persons dealing with the corporation.