G.R. No.

72494 August 11, 1989

HONGKONG AND SHANGHAI BANKING CORPORATION, petitioner,

vs.
JACK ROBERT SHERMAN, DEODATO RELOJ and THE INTERMEDIATE APPELLATE
COURT, respondents.

Quiason, Makalintal, Barot & Torres for petitioner.

Alejandro, Aranzaso & Associates for private respondents.

MEDIALDEA, J.:

This is a petition for review on certiorari of the decision of the Intermediate Appellate Court
(now Court of Appeals) dated August 2, 1985, which reversed the order of the Regional Trial
Court dated February 28,1985 denying the Motion to Dismiss filed by private respondents Jack
Robert Sherman and Deodato Reloj.

A complaint for collection of a sum of money (pp. 49-52, Rollo) was filed by petitioner
Hongkong and Shanghai Banking Corporation (hereinafter referred to as petitioner BANK)
against private respondents Jack Robert Sherman and Deodato Reloj, docketed as Civil Case
No. Q-42850 before the Regional Trial Court of Quezon City, Branch 84.

It appears that sometime in 1981, Eastern Book Supply Service PTE, Ltd. (hereinafter referred
to as COMPANY), a company incorporated in Singapore applied with, and was granted by, the
Singapore branch of petitioner BANK an overdraft facility in the maximum amount of Singapore
dollars 200,000.00 (which amount was subsequently increased to Singapore dollars
375,000.00) with interest at 3% over petitioner BANK prime rate, payable monthly, on amounts
due under said overdraft facility; as a security for the repayment by the COMPANY of sums
advanced by petitioner BANK to it through the aforesaid overdraft facility, on October 7, 1982,
both private respondents and a certain Robin de Clive Lowe, all of whom were directors of the
COMPANY at such time, executed a Joint and Several Guarantee (p. 53, Rollo) in favor of
petitioner BANK whereby private respondents and Lowe agreed to pay, jointly and severally,
on demand all sums owed by the COMPANY to petitioner BANK under the aforestated
overdraft facility.

The Joint and Several Guarantee provides, inter alia, that:

This guarantee and all rights, obligations and liabilities arising hereunder shall be
construed and determined under and may be enforced in accordance with the
laws of the Republic of Singapore. We hereby agree that the Courts of Singapore
shall have jurisdiction over all disputes arising under this guarantee. ... (p. 33-
A, Rollo).

The COMPANY failed to pay its obligation. Thus, petitioner BANK demanded payment of the
obligation from private respondents, conformably with the provisions of the Joint and Several
Guarantee. Inasmuch as the private respondents still failed to pay, petitioner BANK filed the
above-mentioned complaint.
On December 14,1984, private respondents filed a motion to dismiss (pp 54-56, Rollo) which
was opposed by petitioner BANK (pp. 58-62, Rollo). Acting on the motion, the trial court issued
an order dated February 28, 1985 (pp, 64-65, Rollo), which read as follows:

In a Motion to Dismiss filed on December 14, 1984, the defendants seek the
dismissal of the complaint on two grounds, namely:

1. That the court has no jurisdiction over the subject matter of the complaint; and

2. That the court has no jurisdiction over the persons of the defendants.

In the light of the Opposition thereto filed by plaintiff, the Court finds no merit in
the motion. "On the first ground, defendants claim that by virtue of the provision
in the Guarantee (the actionable document) which reads —

This guarantee and all rights, obligations and liabilities arising

hereunder shall be construed and determined under and may be
enforced in accordance with the laws of the Republic of Singapore.
We hereby agree that the courts in Singapore shall have jurisdiction
over all disputes arising under this guarantee,

the Court has no jurisdiction over the subject matter of the case. The Court finds
and concludes otherwise. There is nothing in the Guarantee which says that the
courts of Singapore shall have jurisdiction to the exclusion of the courts of other
countries or nations. Also, it has long been established in law and jurisprudence
that jurisdiction of courts is fixed by law; it cannot be conferred by the will,
submission or consent of the parties.

On the second ground, it is asserted that defendant Robert' , Sherman is not a

citizen nor a resident of the Philippines. This argument holds no water.
Jurisdiction over the persons of defendants is acquired by service of summons
and copy of the complaint on them. There has been a valid service of summons
on both defendants and in fact the same is admitted when said defendants filed a
'Motion for Extension of Time to File Responsive Pleading on December 5, 1984.

WHEREFORE, the Motion to Dismiss is hereby DENIED.

SO ORDERED.

A motion for reconsideration of the said order was filed by private respondents which was,
however, denied (p. 66,Rollo).

Private respondents then filed before the respondent Intermediate Appellate Court (now Court
of Appeals) a petition for prohibition with preliminary injunction and/or prayer for a restraining
order (pp. 39-48, Rollo). On August 2, 1985, the respondent Court rendered a decision (p.
37, Rollo), the dispositive portion of which reads:

WHEREFORE, the petition for prohibition with preliminary injuction is hereby

GRANTED. The respondent Court is enjoined from taking further cognizance of
the case and to dismiss the same for filing with the proper court of Singapore
which is the proper forum. No costs.
 SO ORDERED.

The motion for reconsideration was denied (p. 38, Rollo), hence, the present petition.

The main issue is whether or not Philippine courts have jurisdiction over the suit.

The controversy stems from the interpretation of a provision in the Joint and Several
Guarantee, to wit:

(14) This guarantee and all rights, obligations and liabilites arising hereunder
shall be construed and determined under and may be enforced in accordance
with the laws of the Republic of Singapore. We hereby agree that the Courts in
Singapore shall have jurisdiction over all disputes arising under this guarantee. ...
(p. 53-A, Rollo)

In rendering the decision in favor of private respondents, the Court of Appeals made, the
following observations (pp. 35-36, Rollo):

There are significant aspects of the case to which our attention is invited. The
loan was obtained by Eastern Book Service PTE, Ltd., a company incorporated
in Singapore. The loan was granted by theSingapore Branch of Hongkong and
Shanghai Banking Corporation. The Joint and Several Guarantee was also
concluded in Singapore. The loan was in Singaporean dollars and the repayment
thereof also in the same currency. The transaction, to say the least, took place in
Singporean setting in which the law of that country is the measure by which that
relationship of the parties will be governed.

xxx xxx xxx

Contrary to the position taken by respondents, the guarantee agreement

compliance that any litigation will be before the courts of Singapore and that the
rights and obligations of the parties shall be construed and determined in
accordance with the laws of the Republic of Singapore. A closer examination of
paragraph 14 of the Guarantee Agreement upon which the motion to dismiss is
based, employs in clear and unmistakeable (sic) terms the word 'shall' which
under statutory construction is mandatory.

Thus it was ruled that:

... the word 'shall' is imperative, operating to impose a duty which may be
enforced (Dizon vs. Encarnacion, 9 SCRA 714).lâwphî1.ñèt

There is nothing more imperative and restrictive than what the agreement
categorically commands that 'all rights, obligations, and liabilities arising
hereunder shall be construed and determined under and may be enforced in
accordance with the laws of the Republic of Singapore.'

While it is true that "the transaction took place in Singaporean setting" and that the Joint and
Several Guarantee contains a choice-of-forum clause, the very essence of due process
dictates that the stipulation that "[t]his guarantee and all rights, obligations and liabilities arising
hereunder shall be construed and determined under and may be enforced in accordance with
the laws of the Republic of Singapore. We hereby agree that the Courts in Singapore shall
have jurisdiction over all disputes arising under this guarantee" be liberally construed. One
basic principle underlies all rules of jurisdiction in International Law: a State does not have
jurisdiction in the absence of some reasonable basis for exercising it, whether the proceedings
are in rem quasi in rem or in personam. To be reasonable, the jurisdiction must be based on
some minimum contacts that will not offend traditional notions of fair play and substantial
justice (J. Salonga, Private International Law, 1981, p. 46). Indeed, as pointed-out by petitioner
BANK at the outset, the instant case presents a very odd situation. In the ordinary habits of life,
anyone would be disinclined to litigate before a foreign tribunal, with more reason as a
defendant. However, in this case, private respondents are Philippine residents (a fact which
was not disputed by them) who would rather face a complaint against them before a foreign
court and in the process incur considerable expenses, not to mention inconvenience, than to
have a Philippine court try and resolve the case. Private respondents' stance is hardly
comprehensible, unless their ultimate intent is to evade, or at least delay, the payment of a just
obligation.

The defense of private respondents that the complaint should have been filed in Singapore is
based merely on technicality. They did not even claim, much less prove, that the filing of the
action here will cause them any unnecessary trouble, damage, or expense. On the other hand,
there is no showing that petitioner BANK filed the action here just to harass private
respondents.

In the case of Polytrade Corporation vs. Blanco, G.R. No. L-27033, October 31, 1969, 30
SCRA 187, it was ruled:

... An accurate reading, however, of the stipulation, 'The parties agree to sue and
be sued in the Courts of Manila,' does not preclude the filing of suits in the
residence of plaintiff or defendant. The plain meaning is that the parties merely
consented to be sued in Manila. Qualifying or restrictive words which would
indicate that Manila and Manila alone is the venue are totally absent therefrom.
We cannot read into that clause that plaintiff and defendant bound themselves to
file suits with respect to the last two transactions in question only or exclusively in
Manila. For, that agreement did not change or transfer venue. It simply is
permissive. The parties solely agreed to add the courts of Manila as tribunals to
which they may resort. They did not waive their right to pursue remedy in the
courts specifically mentioned in Section 2(b) of Rule 4. Renuntiatio non
praesumitur.

This ruling was reiterated in the case of Neville Y. Lamis Ents., et al. v. Lagamon, etc., et al.,
G.R. No. 57250, October 30, 1981, 108 SCRA 740, where the stipulation was "[i]n case of
litigation, jurisdiction shall be vested in the Court of Davao City." We held:

Anent the claim that Davao City had been stipulated as the venue, suffice it to
say that a stipulation as to venue does not preclude the filing of suits in the
residence of plaintiff or defendant under Section 2 (b), Rule 4, Rules of Court, in
the absence of qualifying or restrictive words in the agreement which would
indicate that the place named is the only venue agreed upon by the parties.

Applying the foregoing to the case at bar, the parties did not thereby stipulate that only the
courts of Singapore, to the exclusion of all the rest, has jurisdiction. Neither did the clause in
question operate to divest Philippine courts of jurisdiction. In International Law, jurisdiction is
often defined as the light of a State to exercise authority over persons and things within its
boundaries subject to certain exceptions. Thus, a State does not assume jurisdiction over
travelling sovereigns, ambassadors and diplomatic representatives of other States, and foreign
military units stationed in or marching through State territory with the permission of the latter's
authorities. This authority, which finds its source in the concept of sovereignty, is exclusive
within and throughout the domain of the State. A State is competent to take hold of any judicial
matter it sees fit by making its courts and agencies assume jurisdiction over all kinds of cases
brought before them (J. Salonga, Private International Law, 1981, pp. 37-38).lâwphî1.ñèt

As regards the issue on improper venue, petitioner BANK avers that the objection to improper
venue has been waived. However, We agree with the ruling of the respondent Court that:

While in the main, the motion to dismiss fails to categorically use with exactitude
the words 'improper venue' it can be perceived from the general thrust and
context of the motion that what is meant is improper venue, The use of the word
'jurisdiction' was merely an attempt to copy-cat the same word employed in the
guarantee agreement but conveys the concept of venue. Brushing aside all
technicalities, it would appear that jurisdiction was used loosely as to be
synonymous with venue. It is in this spirit that this Court must view the motion to
dismiss. ... (p. 35, Rollo).

At any rate, this issue is now of no moment because We hold that venue here was properly
laid for the same reasons discussed above.

The respondent Court likewise ruled that (pp. 36-37, Rollo):

... In a conflict problem, a court will simply refuse to entertain the case if it is not
authorized by law to exercise jurisdiction. And even if it is so authorized, it may
still refuse to entertain the case by applying the principle of forum non
conveniens. ...

However, whether a suit should be entertained or dismissed on the basis of the principle
of forum non conveniensdepends largely upon the facts of the particular case and is
addressed to the sound discretion of the trial court (J. Salonga, Private International Law,
1981, p. 49).lâwphî1.ñèt Thus, the respondent Court should not have relied on such principle.

Although the Joint and Several Guarantee prepared by petitioner BANK is a contract of
adhesion and that consequently, it cannot be permitted to take a stand contrary to the
stipulations of the contract, substantial bases exist for petitioner Bank's choice of forum, as
discussed earlier.

Lastly, private respondents allege that neither the petitioner based at Hongkong nor its
Philippine branch is involved in the transaction sued upon. This is a vain attempt on their part
to further thwart the proceedings below inasmuch as well-known is the rule that a defendant
cannot plead any defense that has not been interposed in the court below.

ACCORDINGLY, the decision of the respondent Court is hereby REVERSED and the decision
of the Regional Trial Court is REINSTATED, with costs against private respondents. This
decision is immediately executory.

SO ORDERED.

Narvasa, Cruz, Gancayco and Griñ;o-Aquino, JJ., concur.

G.R. No. 162894 February 26, 2008

RAYTHEON INTERNATIONAL, INC., petitioner,

vs.
STOCKTON W. ROUZIE, JR., respondent.

DECISION

TINGA, J.:

Before this Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure which seeks the reversal of the Decision1 and Resolution2 of the Court of Appeals in
CA-G.R. SP No. 67001 and the dismissal of the civil case filed by respondent against
petitioner with the trial court.

As culled from the records of the case, the following antecedents appear:

Sometime in 1990, Brand Marine Services, Inc. (BMSI), a corporation duly organized and
existing under the laws of the State of Connecticut, United States of America, and respondent
Stockton W. Rouzie, Jr., an American citizen, entered into a contract whereby BMSI hired
respondent as its representative to negotiate the sale of services in several government
projects in the Philippines for an agreed remuneration of 10% of the gross receipts. On 11
March 1992, respondent secured a service contract with the Republic of the Philippines on
behalf of BMSI for the dredging of rivers affected by the Mt. Pinatubo eruption and mudflows. 3

On 16 July 1994, respondent filed before the Arbitration Branch of the National Labor
Relations Commission (NLRC) a suit against BMSI and Rust International, Inc. (RUST),
Rodney C. Gilbert and Walter G. Browning for alleged nonpayment of commissions, illegal
termination and breach of employment contract.4 On 28 September 1995, Labor Arbiter Pablo
C. Espiritu, Jr. rendered judgment ordering BMSI and RUST to pay respondent’s money
claims.5 Upon appeal by BMSI, the NLRC reversed the decision of the Labor Arbiter and
dismissed respondent’s complaint on the ground of lack of jurisdiction.6 Respondent elevated
the case to this Court but was dismissed in a Resolution dated 26 November 1997. The
Resolution became final and executory on 09 November 1998.

On 8 January 1999, respondent, then a resident of La Union, instituted an action for damages
before the Regional Trial Court (RTC) of Bauang, La Union. The Complaint, 7 docketed as Civil
Case No. 1192-BG, named as defendants herein petitioner Raytheon International, Inc. as well
as BMSI and RUST, the two corporations impleaded in the earlier labor case. The complaint
essentially reiterated the allegations in the labor case that BMSI verbally employed respondent
to negotiate the sale of services in government projects and that respondent was not paid the
commissions due him from the Pinatubo dredging project which he secured on behalf of BMSI.
The complaint also averred that BMSI and RUST as well as petitioner itself had combined and
functioned as one company.

In its Answer,8 petitioner alleged that contrary to respondent’s claim, it was a foreign
corporation duly licensed to do business in the Philippines and denied entering into any
arrangement with respondent or paying the latter any sum of money. Petitioner also denied
combining with BMSI and RUST for the purpose of assuming the alleged obligation of the said
companies.9 Petitioner also referred to the NLRC decision which disclosed that per the written
agreement between respondent and BMSI and RUST, denominated as "Special Sales
Representative Agreement," the rights and obligations of the parties shall be governed by the
laws of the State of Connecticut.10Petitioner sought the dismissal of the complaint on grounds
of failure to state a cause of action and forum non conveniens and prayed for damages by way
of compulsory counterclaim.11

On 18 May 1999, petitioner filed an Omnibus Motion for Preliminary Hearing Based on
Affirmative Defenses and for Summary Judgment12 seeking the dismissal of the complaint on
grounds of forum non conveniens and failure to state a cause of action. Respondent opposed
the same. Pending the resolution of the omnibus motion, the deposition of Walter Browning
was taken before the Philippine Consulate General in Chicago.13

In an Order14 dated 13 September 2000, the RTC denied petitioner’s omnibus motion. The trial
court held that the factual allegations in the complaint, assuming the same to be admitted,
were sufficient for the trial court to render a valid judgment thereon. It also ruled that the
principle of forum non conveniens was inapplicable because the trial court could enforce
judgment on petitioner, it being a foreign corporation licensed to do business in the
Philippines.15

Petitioner filed a Motion for Reconsideration16 of the order, which motion was opposed by
respondent.17 In an Order dated 31 July 2001,18 the trial court denied petitioner’s motion. Thus,
it filed a Rule 65 Petition19 with the Court of Appeals praying for the issuance of a writ of
certiorari and a writ of injunction to set aside the twin orders of the trial court dated 13
September 2000 and 31 July 2001 and to enjoin the trial court from conducting further
proceedings.20

On 28 August 2003, the Court of Appeals rendered the assailed Decision 21 denying the petition
for certiorari for lack of merit. It also denied petitioner’s motion for reconsideration in the
assailed Resolution issued on 10 March 2004.22

The appellate court held that although the trial court should not have confined itself to the
allegations in the complaint and should have also considered evidence aliunde in resolving
petitioner’s omnibus motion, it found the evidence presented by petitioner, that is, the
deposition of Walter Browning, insufficient for purposes of determining whether the complaint
failed to state a cause of action. The appellate court also stated that it could not rule one way
or the other on the issue of whether the corporations, including petitioner, named as
defendants in the case had indeed merged together based solely on the evidence presented
by respondent. Thus, it held that the issue should be threshed out during trial. 23 Moreover, the
appellate court deferred to the discretion of the trial court when the latter decided not to desist
from assuming jurisdiction on the ground of the inapplicability of the principle of forum non
conveniens.

Hence, this petition raising the following issues:

WHETHER OR NOT THE COURT OF APPEALS ERRED IN REFUSING TO DISMISS

THE COMPLAINT FOR FAILURE TO STATE A CAUSE OF ACTION AGAINST
RAYTHEON INTERNATIONAL, INC.

WHETHER OR NOT THE COURT OF APPEALS ERRED IN REFUSING TO DISMISS

THE COMPLAINT ON THE GROUND OF FORUM NON CONVENIENS.24

Incidentally, respondent failed to file a comment despite repeated notices. The Ceferino Padua
Law Office, counsel on record for respondent, manifested that the lawyer handling the case,
Atty. Rogelio Karagdag, had severed relations with the law firm even before the filing of the
instant petition and that it could no longer find the whereabouts of Atty. Karagdag or of
respondent despite diligent efforts. In a Resolution25 dated 20 November 2006, the Court
resolved to dispense with the filing of a comment.

The instant petition lacks merit.

Petitioner mainly asserts that the written contract between respondent and BMSI included a
valid choice of law clause, that is, that the contract shall be governed by the laws of the State
of Connecticut. It also mentions the presence of foreign elements in the dispute – namely, the
parties and witnesses involved are American corporations and citizens and the evidence to be
presented is located outside the Philippines – that renders our local courts inconvenient
forums. Petitioner theorizes that the foreign elements of the dispute necessitate the immediate
application of the doctrine of forum non conveniens.

Recently in Hasegawa v. Kitamura,26 the Court outlined three consecutive phases involved in
judicial resolution of conflicts-of-laws problems, namely: jurisdiction, choice of law, and
recognition and enforcement of judgments. Thus, in the instances27 where the Court held that
the local judicial machinery was adequate to resolve controversies with a foreign element, the
following requisites had to be proved: (1) that the Philippine Court is one to which the parties
may conveniently resort; (2) that the Philippine Court is in a position to make an intelligent
decision as to the law and the facts; and (3) that the Philippine Court has or is likely to have
the power to enforce its decision.28

On the matter of jurisdiction over a conflicts-of-laws problem where the case is filed in a
Philippine court and where the court has jurisdiction over the subject matter, the parties and
the res, it may or can proceed to try the case even if the rules of conflict-of-laws or the
convenience of the parties point to a foreign forum. This is an exercise of sovereign
prerogative of the country where the case is filed.29

Jurisdiction over the nature and subject matter of an action is conferred by the Constitution and
the law30 and by the material allegations in the complaint, irrespective of whether or not the
plaintiff is entitled to recover all or some of the claims or reliefs sought therein. 31 Civil Case No.
1192-BG is an action for damages arising from an alleged breach of contract. Undoubtedly, the
nature of the action and the amount of damages prayed are within the jurisdiction of the RTC.

As regards jurisdiction over the parties, the trial court acquired jurisdiction over herein
respondent (as party plaintiff) upon the filing of the complaint. On the other hand, jurisdiction
over the person of petitioner (as party defendant) was acquired by its voluntary appearance in
court.32

That the subject contract included a stipulation that the same shall be governed by the laws of
the State of Connecticut does not suggest that the Philippine courts, or any other foreign
tribunal for that matter, are precluded from hearing the civil action. Jurisdiction and choice of
law are two distinct concepts. Jurisdiction considers whether it is fair to cause a defendant to
travel to this state; choice of law asks the further question whether the application of a
substantive law which will determine the merits of the case is fair to both parties. 33The choice
of law stipulation will become relevant only when the substantive issues of the instant case
develop, that is, after hearing on the merits proceeds before the trial court.

Under the doctrine of forum non conveniens, a court, in conflicts-of-laws cases, may refuse
impositions on its jurisdiction where it is not the most "convenient" or available forum and the
parties are not precluded from seeking remedies elsewhere.34 Petitioner’s averments of the
foreign elements in the instant case are not sufficient to oust the trial court of its jurisdiction
over Civil Case No. No. 1192-BG and the parties involved.

Moreover, the propriety of dismissing a case based on the principle of forum non
conveniens requires a factual determination; hence, it is more properly considered as a matter
of defense. While it is within the discretion of the trial court to abstain from assuming
jurisdiction on this ground, it should do so only after vital facts are established, to determine
whether special circumstances require the court’s desistance.35

Finding no grave abuse of discretion on the trial court, the Court of Appeals respected its
conclusion that it can assume jurisdiction over the dispute notwithstanding its foreign elements.
In the same manner, the Court defers to the sound discretion of the lower courts because their
findings are binding on this Court.

Petitioner also contends that the complaint in Civil Case No. 1192-BG failed to state a cause of
action against petitioner. Failure to state a cause of action refers to the insufficiency of
allegation in the pleading.36 As a general rule, the elementary test for failure to state a cause of
action is whether the complaint alleges facts which if true would justify the relief demanded.37

The complaint alleged that petitioner had combined with BMSI and RUST to function as one
company. Petitioner contends that the deposition of Walter Browning rebutted this allegation.
On this score, the resolution of the Court of Appeals is instructive, thus:

x x x Our examination of the deposition of Mr. Walter Browning as well as other

documents produced in the hearing shows that these evidence aliunde are not quite
sufficient for us to mete a ruling that the complaint fails to state a cause of action.

Annexes "A" to "E" by themselves are not substantial, convincing and conclusive proofs
that Raytheon Engineers and Constructors, Inc. (REC) assumed the warranty
obligations of defendant Rust International in the Makar Port Project in General Santos
City, after Rust International ceased to exist after being absorbed by REC. Other
documents already submitted in evidence are likewise meager to preponderantly
conclude that Raytheon International, Inc., Rust International[,] Inc. and Brand Marine
Service, Inc. have combined into one company, so much so that Raytheon International,
Inc., the surviving company (if at all) may be held liable for the obligation of BMSI to
respondent Rouzie for unpaid commissions. Neither these documents clearly speak
otherwise.38

As correctly pointed out by the Court of Appeals, the question of whether petitioner, BMSI and
RUST merged together requires the presentation of further evidence, which only a full-blown
trial on the merits can afford.

WHEREFORE, the instant petition for review on certiorari is DENIED. The Decision and
Resolution of the Court of Appeals in CA-G.R. SP No. 67001 are hereby AFFIRMED. Costs
against petitioner.

SO ORDERED.
G.R. No. 149117 December 16, 2004

HEIRS OF CERILA GAMOS and RICARDO GALAG, Namely, FELICITAS G. GARCERA,

ENCARNACION G. FORTE, NARCISA G. GALAN; and DOMINGO, EDILBERTO,
ROBERTO, HELEN, VIRGILIO, RICARDO, CONSTANTINO and VIOLETA, All Surnamed
GALAG, Represented by VIOLETA GALAG as Their Attorney-in-Fact; AMBROCIO
GUATAO, MIGUEL FUNGO and The DIRECTOR, BUREAU OF LANDS, petitioners,
vs.
HEIRS OF JULIANO FRANDO, Namely, PACIENCIA GALLANOSA FUELLAS; and
RODOLFO, NERI, JUAN and ANTONIO, All Surnamed GIMPES, respondents.

DECISION

PANGANIBAN, J.:

A sales patent applicant who has complied with all the legal requirements is entitled to a grant
of the disposable land of the public domain applied for. The execution and formal delivery of
the patent becomes merely ministerial. Under these circumstances, the property applied for is,
for all purposes, considered segregated from the public domain. Hence, the subsequent
issuance to a third person of a free patent covering the same property is null and void. The
government can no longer convey the ownership of a parcel of land it no longer owns.

The Case

Before the Court is a Petition for Review1 under Rule 45, seeking to nullify the August 23, 2000
Decision2 and the July 12, 2001 Resolution3 of the Court of Appeals (CA) in GR CV No. 61230.
The decretal portion of the assailed Decision reads:

"WHEREFORE, upon the premises, the appealed decision is AFFIRMED in toto."4

The challenged Resolution denied petitioners’ Motion for Reconsideration.

The Facts

The subject of the present controversy is a parcel of agricultural land located in Sta.
Magdalena, Sorsogon, particularly described as follows:

"Location: Poblacion, Sta. Magdalena, Sorsogon

"Area: 2.4969 hectares

"Boundaries: N-R. Frando & P. Frilles

E-I. Gallanosa & P. Frilles

 S-I. Gallanosa & P. Frilles

W. Marcela de Galag"5

Juliana Frando, respondents’ predecessor-in-interest, was in possession of the above-

described property. Since 1925, she had planted several trees and other plants thereon,
including coconuts, pili, bananas and cacao.6Sometime in 1946, the property was traversed by
a national road that effectively divided it into two portions, denominated as Lot Nos. 7 and
1855, respectively.7 The latter, Lot No. 1855, is the subject of the present controversy.

Evident from certified copies of existing records of the Bureau of Lands introduced in evidence
is the fact that on February 14, 1952, Frando filed Insular Government Property Sales (IGPS)
Application No. 162 for the parcel in question. Pursuant thereto, a representative of the Bureau
of Lands inspected the area and found it to be inside an agricultural zone, free from private
claims and conflicts.

After the secretary of agriculture appraised the property at P240, a notice calling for bids was
published. At the auction sale conducted on April 22, 1955, the only bidder was Frando. On
even date she deposited P24, which represented 10 percent of the appraised value, as
evidenced by Official Receipt (OR) No. 9654851 dated April 22, 1955.

Full payment of the purchase price was effected approximately a year later, on April 6, 1956,
when Frando paid the balance of P216 as evidenced by OR No. A-2675530. On the same day,
an Order/Award was made in her favor by Director of Lands Zoilo Castrillo.8 Apparent from a
survey plan executed pursuant to an Order of the Bureau was the fact that the property
awarded to her covered both Lots 7 and 1855 with an aggregate area of 4.000 hectares.

One of her two children, Salvacion Gallanosa who was married to Abdon Gimpes, continued
possession of the property. Sometime in 1940, the couple constructed their house on the
southwestern portion thereof.

The other child of Frando, Paciencia Gallanosa-Fuellas, chose to settle in Manila. The Gimpes
spouses helped her in the administration of the land. Their children -- particularly Respondents
Rodolfo, Neri, Juan and Antonio -- were born on the property, where they also grew up. After
their parent’s death, they continued possession of the land; and harvested and received the
fruits of the improvements for themselves and on behalf of their grandmother, Juliana Frando,
even after her death in 1971.9

Purportedly unknown to private respondents, a cadastral survey of the Municipality of Sta.

Magdalena, Sorsogon, was conducted in 1958. According to the Bureau of Lands, during the
said survey, Lot No. 1855 became the subject of Case No. P1s-611-D, Sta. Magdalena Public
Land Subdivision; as a result, Free Patent No. 45950110dated July 24, 1969 was awarded to
Defendant Cerila Gamos on October 27, 1969. Allegedly, the free patent became the basis for
the issuance of OCT No. P-10548 in her name. Private respondents claimed to be unaware of
these developments, as neither she nor her heirs had taken possession of the disputed portion
until 1981. In that year, Ambrocio Guatno and the other petitioners, who had joined him later,
entered the property, gathered its produce and built their houses thereon.

On August 3, 1988, the heirs of Juliana Frando filed with the Regional Trial Court (RTC) a
Complaint against Cerila Gamos and the director of the Bureau of Lands. The complainants
challenged the validity of Free Patent No. 459501 and OCT No. P-10548. As the plaintiffs
therein, they alleged that the Bureau of Lands had no authority to award the patent covering an
area it had earlier awarded to Frando. They further alleged that fraud had attended the
issuance of the subject OCT when Miguel Fungo, an employee of the Office of the Provincial
Assessor of Sorsogon, purportedly forged the signature of Cerila Gamos in all the documents.
Those documents were used in the transfer of the Tax Declaration to her name, as well as in
the application for the issuance of Free Patent No. 459501 and OCT No. P-10548.

In their Answer, Cerila Gamos and her co-defendants alleged that they had been in actual and
open possession of the land as early as 1952; and that the Bureau of Lands’ October 27, 1969
issuance in their favor of a free patent title, which subsequently became the basis of OCT No.
P-10548, was valid and lawful. They pointed out that respondents’ suit to contest a title
nineteen years after its issuance was already barred by prescription.

In its Answer, the Bureau of Lands, represented by the Office of the Solicitor General (OSG),
admitted that Juliana Frando had filed an IGPS application for a parcel of land with an area of
2.4969 hectares located at Poblacion, Sta. Magdalena, Sorsogon, Sorsogon. Admittedly, she
won the public bidding and deposited the amount of P24 under OR No. 9654851 dated April
22, 1955, but allegedly failed to pay the balance price of P216. Thus, concluded the Bureau,
while the land had previously been awarded to her, the Complaint was rendered dismissible for
lack of merit, as a consequence of her failure to pay the balance price to assert her right to
perfect her title thereto, and to controvert the subsequent cadastral survey covering a portion
thereof. In its Answer, however, the Bureau made no mention of OCT No. P-10548.

On July 7, 1998, the Sorsogon RTC rendered the following judgment in favor of respondents
(the plaintiffs therein):

"WHEREFORE, the court renders judgment:

a. Finding the defendant Cerila Gamos of having fraudulently secured a free

patent title to that portion of the property in question described in paragraph 3 of
the complaint and indicated in Exhibit "X-1" as that portion shaded by red lines;

b. Ordering the defendant Cerila Gamos or her successors-in-interest to execute

a deed of reconveyance of that portion of Lot No. 1855 under Original Certificate
of Title No. 10548 as delineated and described in Exhibit "X-1", shaded by red
lines;

c. Ordering the defendants to surrender the possession of the same to the

plaintiffs and to remove whatever improvements said defendants had introduced
on said property;

d. Ordering the defendants to pay the plaintiffs the amount of P15,000.00 x x x as

damages representing attorneys’ fees and necessary litigation expenses, jointly
and severally and;

e. To pay the costs."

Aggrieved, petitioners appealed to the Court of Appeals.

Ruling of the Court of Appeals

Affirming the RTC, the appellate court noted that the trial court’s Decision was fully supported
by the evidence on record. The CA dismissed petitioners’ submission that, on the basis of the
Report of the Bureau of Lands, the claim of Juliana Frando had yet to be perfected, because
she had paid only 10 percent of the total value of the land covered by her application. The
appellate court pointed out that the foregoing argument was belied by the Bureau’s
Order/Award to her in 1956.

Further, the CA upheld the lower court’s award of attorney’s fees, because the appellees had
been compelled "to litigate or incur expenses to protect their interest by reason of the
unjustified act of the [appellants]." 11

Hence, this Petition.12

Issues

In their Memorandum, petitioners raise the following issues for our consideration:

"Whether or not the order award given to Juliana Frando has been perfected

II

"Whether or not Cerila Gamos’ free patent was secured through fraud

III

"Whether or not action of the heirs of Juliana Frando has already been barred by
laches/prescription"13

The Court’s Ruling

The Petition has no merit. However, the challenged judgment should be partly modified.

First Issue:

Perfection of Sales Patent

The Philippine Constitution provides that "all lands of the public domain x x x are owned by the
State."14 They "are classified into agricultural, forest or timber, mineral lands and national
parks. x x x. Alienable lands of the public domain shall be limited to agricultural lands." 15

The origin of the foregoing provisions can be traced to the Roman law concept
of dominium, the power of the State to own or acquire property. Under this concept, which
became the basis for the regalian theory predominant during the Spanish times, all lands
belonged to the Spanish Crown.16 In our present republican form of government, the concept
remains, albeit stripped of its colonial overtones. Now, ownership of all lands of the public
domain is vested in the State.17

As in ordinary ownership, dominium embraces the capacity to alienate the property owned.
The constitutional limitation on the State’s power to alienate agricultural lands of the public
domain is intended to prevent monopoly and foreign control of our natural resources, as well
as to enable the government to control the exploitation, development and utilization thereof for
the benefit of all.

Private persons gain title to agricultural lands of the public domain by virtue of a public
grant,18 adverse possession (or prescription), accretion and -- in certain cases -- reclamation.
One who seeks to register one’s title has the burden of proving that it has been acquired
through any of the foregoing modes, by virtue of which the land has effectively been
segregated from the public domain.

A perusal of the Complaint filed by private respondents before the trial court shows that their
asserted claim over the disputed portion ostensibly rested on the Order/Award issued to their
predecessor-in-interest, Juliana Frando, in 1956. The issue is now narrowed down to whether
this piece of evidence sufficiently vested private respondents with an uncontroverted and
indefeasible title over the disputed property.

Acquisition of Public Land

Through a Sales Patent

Disposal of public agricultural land through a sales patent, as in the instant case, is governed
by Commonwealth Act No. 141, the Public Land Act. Under this law, a sales patent may be
granted to a Filipino citizen who may or may not be of lawful age, provided that one who is
below the age of majority is the head of a family. The law provides that after winning the bid
and paying the purchase price, the applicant must comply with the necessary requirements --
specifically the cultivation, occupation and introduction of improvements over at least one fifth
of the land applied for.

After the applicant meets the legal requirements, the director of lands then orders the survey of
the land and the issuance of the sales patent in the applicant’s favor. Section 107 of
Commonwealth Act 141 further requires the registration of the patent under the Land
Registration Act by furnishing the registrar of deeds a certified copy thereof, after which the
corresponding certificate of title would accordingly be issued to the patentee.

In the present case, the Bureau of Lands did not issue the patent to Frando, because she had
allegedly failed to pay the P216 balance of the sale price. The Bureau’s assertion is, however,
soundly disproved by evidence. Clearly appearing on the Order/Award 19 issued to Frando in
1956 is the following proviso:

"That at the auction sale of the land held on April 22, 1955, the only bid received was
that of the applicant who offered P240.00 for the whole tract and deposited the amount
of P24.00 under O.R. No. 9654851 dated April 22, 1955 which is equivalent to 10% of
the bid. Subsequently, the applicant again paid the amount of P216.00 under O.R. No.
A-2675530 dated April 6, 1956 to complete the full purchase price of the
land." (Emphasis supplied)

Given the full payment of the purchase price as well as the compliance with all the
requirements for the grant of a sales patent, the Bureau had no reason to deny the issuance of
such patent to Frando. Her compliance with all the requirements effectively vested in her and
her successors-in-interest an equitable title to the property applied for. Applicable to the instant
case is our time-honored pronouncement in Balboa v. Farrales, which we quote:
 "A party who has complied with all the terms and conditions which entitle him to a patent
for a particular tract of public land, acquires a vested interest therein, and is to be
regarded as the equitable owner thereof.

"Where the right to a patent has once become vested in a purchaser of public
lands, it is equivalent, so far as the Government is concerned, to a patent actually
issued. The execution and delivery of the patent after the right to it has become
complete are the mere ministerial acts of the officers charged with that duty. x x
x. Even without a patent, a perfected homestead is a property right in the fullest
sense, unaffected by the fact that the paramount title to the land is still in the
Government. Such land may be conveyed or inherited."20 (Emphasis supplied)

Thus, when the cadastral survey was subsequently conducted in Sta. Magdalena in 1958, the
disputed property -- already held in private ownership -- was no longer part of the public
domain. The director of lands had no more authority to grant to a third person a patent
covering the same tract that had already passed to private ownership. 21 Thus, the issuance of
the free patent to Cerila Gamos, insofar as it encroached the portion already granted to
Frando, had no legal basis at all.

Open, Continuous, Exclusive and

Notorious Possession and Occupation
of Alienable and Disposable Lands

The denial of the sales patent notwithstanding, Juliana Frando is deemed to have acquired
equitable title to the property, because private respondents adequately proved during trial her
open, continuous, exclusive and notorious possession and occupation of alienable and
disposable land of the public domain.

Introduced in evidence was a Declaration of Real Property covering the same tract of land.
The Declaration had been issued to Basilio Frando, father of Juliana Frando, sometime in
1906.22 Witness accounts23 of long time residents of the adjoining properties confirmed her
possession for a period not later than 1925; and her introduction thereon of various trees and
other plants, including bananas, cacao, pili and coconuts.

They also attested to the continued possession of the property by Frando’s daughter,
Salvacion Gimpes; and subsequently by her children, herein private respondents. Aside from
showing the Order/Award, the children bolstered their claim by introducing in evidence several
Tax Declarations, sketch plans, survey returns and the reports of the court-appointed
commissioner.

While asserting possession of the property as early as 1952, petitioners have not presented
any document or witness to prove their bare claim. Moreover, Ambrosio Guatno -- one of
herein petitioners -- testified that he had entered the property upon the permission of Ricardo
Galag, an heir of Gamos; later, he admitted that its true owner was Juliana Frando.24

In line with Susi v. Razon,25 possession of a parcel of agricultural land of the public domain for
the prescribed period of 30 years ipso jure converts the lot into private property.26 In that case,
the application of Valentin Susi for a free patent was denied by the Bureau of Lands, despite
the fact that he had been in possession of the property for a far longer period than the grantee.
Still true to this day is this Court’s ruling on the matter, which we quote:
 "It clearly appears from the evidence that Valentin Susi has been in possession of the
land in question openly, continuously, adversely and publicly, personally and through
his predecessors, since the year 1880, that is, for about forty-five years. x x x. When on
August 15, 1914, Angela Razon applied for the purchase of the land, Valentin Susi had
already been in possession thereof personally and through his predecessors for thirty
four years. x x x In favor of Valentin Susi, there is, moreover, the presumption juris et de
jure x x x that all the necessary requirements for a grant by the Government were
complied with, for he has been in actual and physical possession personally and
through his predecessors, of an agricultural land of the public domain openly,
continuously, exclusively and publicly since July 26, 1894, with a right to a certificate of
title to said land under the provisions of Chapter VIII of said Act. So that when Angela
Razon applied for a grant in her favor, Valentin Susi had already acquired, by
operation of law, not only a right to a grant, but a grant of the government, for it is
not necessary that a certificate of title should be issued in order that a grant may
be sanctioned by the courts, an application therefore is sufficient, under the
provision of Section 47 of Act No. 2874. If by a legal fiction, Valentin Susi had
acquired the land in question by a grant of the State, it had already ceased to be
of the public domain and had become the private property, at least by
presumption of Valentin Susi, beyond the control of the Director of Lands.
Consequently, in selling the land in question to Angela Razon, the Director of
Lands disposed of a land over which he no longer had title or control, and the
sale thus made was void and of no effect and Angela Razon did not thereby
acquire any right." (Emphasis supplied)

Clearly, the mere application for a patent, coupled with the fact of exclusive, open, continuous
and notorious possession for the required period is sufficient to vest in the applicant the grant
applied for. In sum, the application by Juliana Frando for a sales patent, coupled with her
open, exclusive, uninterrupted and notorious possession of the land applied for is, for all
purposes, equivalent to a patent already perfected and granted.

The subsequent entry of petitioners and their occupation of the property in question was in bad
faith,27 given the prior possession thereof by private respondents. Thus, when the former were
ordered by the RTC to remove whatever improvements they might have introduced thereon,
the court committed no error.28

Evidentiary Matters and the

Attempt to Deceive this Court

The Complaint before the Sorsogon RTC prayed mainly for the cancellation of OCT No. P-
10548, which had allegedly been issued to Cerila Gamos by the Register of Deeds of
Sorsogon on October 27, 1969. An examination of the records shows that no copy of the said
OCT was ever presented in evidence at any stage of the proceedings. The complainants
(herein respondents) failed to present the document that was central to their action. That
omission was in no way alleviated by the ominous failure of the defendants themselves (herein
petitioners) to present the very evidence upon which they had based their claim of superior
title. In fact, the latter never presented any documentary evidence at all and merely adopted
that of the former.

Inasmuch as neither party had presented the subject OCT in evidence and, hence, the
Sorsogon RTC never had the opportunity to examine it, there was no basis for trial court’s
Decision (as affirmed by the appellate court) -- more particularly, the part ordering petitioners
to "execute a deed of reconveyance of that portion of Lot No. 1855 under Original Certificate of
Title No. 10548."

As worded, the RTC’s ruling may lead to mischievous consequences. For all we know, OCT
No. 10548 may be in the name of a third person who is not a party to the present proceedings,
or it may cover a property different from that in dispute. On these grounds, the foregoing
portion of the trial court’s Decision should be modified. The metes and bounds of the property
in dispute -- the title to and possession of which is confirmed to belong properly to private
respondents -- should in no way be defined by any reference to OCT No. 10548. Rather, such
definition should be based on the documentary evidence at hand; more particularly, the
technical description in the survey plan made -- pursuant to Frando’s application for a sales
patent -- as confirmed by the survey later conducted by the court-appointed commissioner.

By subsequently attaching Free Patent No. 459501 (which was in the name of Gamos) as
Annex "J" to their Petition, petitioners are resorting to a belated remedy to a fatal omission.
They should have offered the document before the trial court, not -- as they have done -- in the
last stretch of the proceedings, when such document can no longer be considered. Time and
time again, we have pronounced that this Court is not a trier of facts.

Assuming arguendo that the patent is still admissible, it is nonetheless bereft of any evidentiary
value. While it refers to Lot No. 1855, it is -- unlike the Order/Award issued to Frando --
accompanied neither by a survey sketch duly approved by the Bureau of Lands, nor by a
technical description that would enable us to determine whether the patent refers to the
property in dispute. We also note that the said document was admittedly issued to Gamos on
October 27, 1969, a mere seventeen years after she had allegedly entered into possession of
the property -- in 1952, according to herein petitioners. Clearly then, Free Patent No. 459501
was issued despite the applicant’s possession of the property for a period shorter than the 30
years required by law.29

Further compounding the procedural lapse committed by petitioners is their apparent attempt
to mislead this Court. Likewise attached to the Petition is a copy of an alleged Deed of Sale
executed between one Felipa Bongais and Cerila Gamos, as well as several copies of Tax
Declarations apparently showing that the Deed covers the contested property.

A perusal of the said documents shows that they involve a rice land situated in Adgao,
Poblacion, Sta. Magdalena, with an area of 11,300 square meters; not the property subject of
the present controversy, which covers 2.4969 to 4.0000 hectares. By introducing the alleged
Deed of Sale, petitioners obviously want to bolster their claim of ownership by impressing upon
this Court that they have purchased the property from Bongais. They are, however, thereby
contradicting their prior assertion of title on the basis of a free patent. These contradictory
assertions not only cast serious doubt on the veracity of their claim; they also constitute an
apparent attempt to mislead the Court.

Second Issue:

Fraud

Petitioners argue that the trial court erred in holding that the free patent issued to Cerila
Gamos had fraudulently been secured. Both parties failed, though, to present a copy of Free
Patent No. 459501. This lapse resulted in the trial court’s failure to examine the document and
to appreciate the circumstances under which it had allegedly been issued. Thus, any
determination of whether fraud indeed attended its issuance is not possible now.
 Third Issue:

Prescription and Laches

In their last assignment of error, petitioners argue that private respondents’ action to annul the
free patent issued to Cerila Gamos has already prescribed and is barred by laches. We do not
agree.

As testified to by the Gilda Bongais -- one of Juliana Frando’s heirs -- when petitioners first
invaded the property in 1979 by constructing a house thereon, her aunt (Paciencia Gallenosa)
filed an action contesting such intrusion. The action was later dropped due to the financial
burdens of the litigation, definitely not because of any concession of rights by private
respondents. Thus, the legal inaction on their part was due, not to their lack of vigilance, but
merely to their lack of resources to defend their property.

On the witness stand, Guatno himself recognized Juliana Frando and her heirs as the true
owners of the property, even as he admitted that it was Galag -- one of herein petitioners --
who had given him permission to erect a house on the land in 1980. Petitioners’ possession of
the disputed property, based as it was on mere tolerance, could neither ripen into ownership
nor operate to bar any action by private respondents to recover absolute possession thereof.30

WHEREFORE, the Petition is DENIED. However, paragraph (b) of the RTC decision
is MODIFIED to read as follows:

b. Ordering the successors-in-interest of Cerila Gamos to execute a deed of

reconveyance of that portion of Lot No. 1855 with an area of 1,626 square meters as
delineated and described in Exhibit "X-1", shaded by red lines.

Counsels for petitioners -- Attys. Arceli A. Rubin, Amelia C. Garchitorena, Marvin R. Osias and
Beatriz Teves de Guzman -- are hereby ordered to SHOW CAUSE, within ten days from
receipt hereof, why they should not be subjected to administrative sanction for their attempt to
deceive this Court through the introduction of misleading evidence.

Costs against petitioners.

SO ORDERED.
NM ROTHSCHILD & SONS G.R. No. 175799
(AUSTRALIA) LIMITED,
Petitioner, Present:

CORONA, C.J.,
Chairperson,
LEONARDO-DE CASTRO,
- versus - BERSAMIN,
DEL CASTILLO, and
VILLARAMA, JR., JJ.

Promulgated:
LEPANTO CONSOLIDATED MINING
COMPANY,
Respondent. November 28, 2011
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

LEONARDO-DE CASTRO, J.:

This is a Petition for Review on Certiorari assailing the Decision[1] of the Court of Appeals
dated September 8, 2006 in CA-G.R. SP No. 94382 and its Resolution[2] dated December 12,
2006, denying the Motion for Reconsideration.

On August 30, 2005, respondent Lepanto Consolidated Mining Company filed with the
Regional Trial Court (RTC) of Makati City a Complaint[3] against petitioner NM Rothschild &
Sons (Australia) Limited praying for a judgment declaring the loan and hedging contracts
between the parties void for being contrary to Article 2018[4] of the Civil Code of the Philippines
and for damages. The Complaint was docketed as Civil Case No. 05-782, and was raffled to
Branch 150. Upon respondents (plaintiffs) motion, the trial court authorized respondents
counsel to personally bring the summons and Complaint to the Philippine Consulate General in
Sydney, Australia for the latter office to effect service of summons on petitioner (defendant).

On October 20, 2005, petitioner filed a Special Appearance With Motion to Dismiss[5] praying
for the dismissal of the Complaint on the following grounds: (a) the court has not acquired
jurisdiction over the person of petitioner due to the defective and improper service of
summons; (b) the Complaint failed to state a cause of action and respondent does not have
any against petitioner; (c) the action is barred by estoppel; and (d) respondent did not come to
court with clean hands.

On November 29, 2005, petitioner filed two Motions: (1) a Motion for Leave to take the
deposition of Mr. Paul Murray (Director, Risk Management of petitioner) before the Philippine
Consul General; and (2) a Motion for Leave to Serve Interrogatories on respondent.

On December 9, 2005, the trial court issued an Order[6] denying the Motion to
Dismiss. According to the trial court, there was a proper service of summons through the
Department of Foreign Affairs (DFA) on account of the fact that the defendant has neither
applied for a license to do business in the Philippines, nor filed with the Securities and
Exchange Commission (SEC) a Written Power of Attorney designating some person on whom
summons and other legal processes maybe served. The trial court also held that the Complaint
sufficiently stated a cause of action. The other allegations in the Motion to Dismiss were
brushed aside as matters of defense which can best be ventilated during the trial.
On December 27, 2005, petitioner filed a Motion for Reconsideration. [7] On March 6, 2006, the
trial court issued an Order denying the December 27, 2005 Motion for Reconsideration and
disallowed the twin Motions for Leave to take deposition and serve written interrogatories. [8]

On April 3, 2006, petitioner sought redress via a Petition for Certiorari[9] with the Court of
Appeals, alleging that the trial court committed grave abuse of discretion in denying its Motion
to Dismiss. The Petition was docketed as CA-G.R. SP No. 94382.

On September 8, 2006, the Court of Appeals rendered the assailed Decision dismissing the
Petition for Certiorari. The Court of Appeals ruled that since the denial of a Motion to Dismiss is
an interlocutory order, it cannot be the subject of a Petition for Certiorari, and may only be
reviewed in the ordinary course of law by an appeal from the judgment after trial. On
December 12, 2006, the Court of Appeals rendered the assailed Resolution denying the
petitioners Motion for Reconsideration.

Meanwhile, on December 28, 2006, the trial court issued an Order directing respondent to
answer some of the questions in petitioners Interrogatories to Plaintiff dated September 7,
2006.

Notwithstanding the foregoing, petitioner filed the present petition assailing the September 8,
2006 Decision and the December 12, 2006 Resolution of the Court of Appeals. Arguing
against the ruling of the appellate court, petitioner insists that (a) an order denying a motion to
dismiss may be the proper subject of a petition forcertiorari; and (b) the trial court committed
grave abuse of discretion in not finding that it had not validly acquired jurisdiction over
petitioner and that the plaintiff had no cause of action.

Respondent, on the other hand, posits that: (a) the present Petition should be dismissed for
not being filed by a real party in interest and for lack of a proper verification and certificate of
non-forum shopping; (b) the Court of Appeals correctly ruled that certiorari was not the proper
remedy; and (c) the trial court correctly denied petitioners motion to dismiss.

Our discussion of the issues raised by the parties follows:

Whether petitioner is a real party in interest

Respondent argues that the present Petition should be dismissed on the ground that petitioner
no longer existed as a corporation at the time said Petition was filed on February 1,
2007. Respondent points out that as of the date of the filing of the Petition, there is no such
corporation that goes by the name NM Rothschild and Sons (Australia) Limited. Thus,
according to respondent, the present Petition was not filed by a real party in interest, citing our
ruling in Philips Export B.V. v. Court of Appeals,[10] wherein we held:

A name is peculiarly important as necessary to the very existence of a corporation (American

Steel Foundries vs. Robertson, 269 US 372, 70 L ed 317, 46 S Ct 160; Lauman vs. Lebanon
Valley R. Co., 30 Pa 42; First National Bank vs. Huntington Distilling Co., 40 W Va 530, 23 SE
792). Its name is one of its attributes, an element of its existence, and essential to its identity (6
Fletcher [Perm Ed], pp. 3-4). The general rule as to corporations is that each corporation must
have a name by which it is to sue and be sued and do all legal acts. The name of a corporation
in this respect designates the corporation in the same manner as the name of an individual
designates the person (Cincinnati Cooperage Co. vs. Bate, 96 Ky 356, 26 SW 538; Newport
Mechanics Mfg. Co. vs. Starbird, 10 NH 123); and the right to use its corporate name is as
much a part of the corporate franchise as any other privilege granted (Federal Secur. Co. vs.
Federal Secur. Corp., 129 Or 375, 276 P 1100, 66 ALR 934; Paulino vs. Portuguese Beneficial
Association, 18 RI 165, 26 A 36).[11]

In its Memorandum[12] before this Court, petitioner started to refer to itself as Investec Australia
Limited (formerly NM Rothschild & Sons [Australia] Limited)and captioned said Memorandum
accordingly. Petitioner claims that NM Rothschild and Sons (Australia) Limited still exists as a
corporation under the laws of Australia under said new name. It presented before us
documents evidencing the process in the Australian Securities & Investment Commission on
the change of petitioners company name from NM Rothschild and Sons (Australia) Limited to
Investec Australia Limited.[13]

We find the submissions of petitioner on the change of its corporate name satisfactory and
resolve not to dismiss the present Petition for Review on the ground of not being prosecuted
under the name of the real party in interest. While we stand by our pronouncement in Philips
Export on the importance of the corporate name to the very existence of corporations and the
significance thereof in the corporations right to sue, we shall not go so far as to dismiss a case
filed by the proper party using its former name when adequate identification is presented. 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.[14] There is no doubt in our minds that the
party who filed the present Petition, having presented sufficient evidence of its identity and
being represented by the same counsel as that of the defendant in the case sought to be
dismissed, is the entity that will be benefited if this Court grants the dismissal prayed for.

Since the main objection of respondent to the verification and certification against forum
shopping likewise depends on the supposed inexistence of the corporation named therein, we
give no credit to said objection in light of the foregoing discussion.

Propriety of the Resort to a Petition for Certiorari with the Court of Appeals

We have held time and again that an order denying a Motion to Dismiss is an interlocutory
order which neither terminates nor finally disposes of a case as it leaves something to be done
by the court before the case is finally decided on the merits. The general rule, therefore, is that
the denial of a Motion to Dismiss cannot be questioned in a special civil action
for Certiorari which is a remedy designed to correct errors of jurisdiction and not errors of
judgment.[15] However, we have likewise held that when the denial of the Motion to Dismiss is
tainted with grave abuse of discretion, the grant of the extraordinary remedy of Certiorari may
be justified. By grave abuse of discretion is meant:

[S]uch capricious and whimsical exercise of judgment that is equivalent to lack of

jurisdiction. The abuse of discretion must be grave as where the power is exercised in an
arbitrary or despotic manner by reason of passion or personal hostility, and must be so patent
and gross as to amount to an evasion of positive duty or to a virtual refusal to perform the duty
enjoined by or to act all in contemplation of law.[16]
The resolution of the present Petition therefore entails an inquiry into whether the Court of
Appeals correctly ruled that the trial court did not commit grave abuse of discretion in its denial
of petitioners Motion to Dismiss. A mere error in judgment on the part of the trial court would
undeniably be inadequate for us to reverse the disposition by the Court of Appeals.

Issues more properly ventilated during the trial of the case

As previously stated, petitioner seeks the dismissal of Civil Case No. 05-782 on the following
grounds: (a) lack of jurisdiction over the person of petitioner due to the defective and improper
service of summons; (b) failure of the Complaint to state a cause of action and absence of a
cause of action; (c) the action is barred by estoppel; and (d) respondent did not come to court
with clean hands.

As correctly ruled by both the trial court and the Court of Appeals, the alleged absence of a
cause of action (as opposed to the failure to state a cause of action), the alleged estoppel on
the part of petitioner, and the argument that respondent is in pari delicto in the execution of the
challenged contracts, are not grounds in a Motion to Dismiss as enumerated in Section 1, Rule
16[17] of the Rules of Court. Rather, such defenses raise evidentiary issues closely related to
the validity and/or existence of respondents alleged cause of action and should therefore be
threshed out during the trial.

As regards the allegation of failure to state a cause of action, while the same is usually
available as a ground in a Motion to Dismiss, said ground cannot be ruled upon in the present
Petition without going into the very merits of the main case.

It is basic that [a] cause of action is the act or omission by which a party violates a right of
another.[18] Its elements are the following: (1) a right existing in favor of the plaintiff, (2) a duty
on the part of the defendant to respect the plaintiff's right, and (3) an act or omission of the
defendant in violation of such right.[19] We have held that to sustain a Motion to Dismiss for lack
of cause of action, the complaint must show that the claim for relief does not exist and not only
that the claim was defectively stated or is ambiguous, indefinite or uncertain.[20]

The trial court held that the Complaint in the case at bar contains all the three elements of a
cause of action, i.e., it alleges that: (1) plaintiff has the right to ask for the declaration of nullity
of the Hedging Contracts for being null and void and contrary to Article 2018 of the Civil Code
of the Philippines; (2) defendant has the corresponding obligation not to enforce the Hedging
Contracts because they are in the nature of wagering or gambling agreements and therefore
the transactions implementing those contracts are null and void under Philippine laws; and (3)
defendant ignored the advice and intends to enforce the Hedging Contracts by demanding
financial payments due therefrom.[21]

The rule is that in a Motion to Dismiss, a defendant hypothetically admits the truth of the
material allegations of the ultimate facts contained in the plaintiff's complaint. [22] However, this
principle of hypothetical admission admits of exceptions. Thus, in Tan v. Court of
Appeals, [23] we held:

The flaw in this conclusion is that, while conveniently echoing the general rule that averments
in the complaint are deemed hypothetically admitted upon the filing of a motion to dismiss
grounded on the failure to state a cause of action, it did not take into account the equally
established limitations to such rule, i.e., that a motion to dismiss does not admit the truth of
mere epithets of fraud; nor allegations of legal conclusions; nor an erroneous statement of law;
nor mere inferences or conclusions from facts not stated; nor mere conclusions of law; nor
allegations of fact the falsity of which is subject to judicial notice; nor matters of evidence; nor
surplusage and irrelevant matter; nor scandalous matter inserted merely to insult the opposing
party; nor to legally impossible facts; nor to facts which appear unfounded by a record
incorporated in the pleading, or by a document referred to; and, nor to general averments
contradicted by more specific averments. A more judicious resolution of a motion to dismiss,
therefore, necessitates that the court be not restricted to the consideration of the facts alleged
in the complaint and inferences fairly deducible therefrom. Courts may consider other facts
within the range of judicial notice as well as relevant laws and jurisprudence which the courts
are bound to take into account, and they are also fairly entitled to examine records/documents
duly incorporated into the complaint by the pleader himself in ruling on the demurrer to the
complaint.[24] (Emphases supplied.)

In the case at bar, respondent asserts in the Complaint that the Hedging Contracts are void for
being contrary to Article 2018[25] of the Civil Code. Respondent claims that under the Hedging
Contracts, despite the express stipulation for deliveries of gold, the intention of the parties was
allegedly merely to compel each other to pay the difference between the value of the gold at
the forward price stated in the contract and its market price at the supposed time of delivery.

Whether such an agreement is void is a mere allegation of a conclusion of law, which therefore
cannot be hypothetically admitted. Quite properly, the relevant portions of the contracts sought
to be nullified, as well as a copy of the contract itself, are incorporated in the Complaint. The
determination of whether or not the Complaint stated a cause of action would therefore involve
an inquiry into whether or not the assailed contracts are void under Philippine laws. This is,
precisely, the very issue to be determined in Civil Case No. 05-782. Indeed, petitioners
defense against the charge of nullity of the Hedging Contracts is the purported intent of the
parties that actual deliveries of gold be made pursuant thereto. Such a defense requires the
presentation of evidence on the merits of the case. An issue that requires the contravention of
the allegations of the complaint, as well as the full ventilation, in effect, of the main merits of
the case, should not be within the province of a mere Motion to Dismiss.[26] The trial court,
therefore, correctly denied the Motion to Dismiss on this ground.

It is also settled in jurisprudence that allegations of estoppel and bad faith require proof. Thus,
in Paraaque Kings Enterprises, Inc. v. Court of Appeals,[27] we ruled:

Having come to the conclusion that the complaint states a valid cause of action for breach of
the right of first refusal and that the trial court should thus not have dismissed the complaint,
we find no more need to pass upon the question of whether the complaint states a cause of
action for damages or whether the complaint is barred by estoppel or laches. As these
mattersrequire presentation and/or determination of facts, they can be best resolved after trial
on the merits.[28] (Emphases supplied.)

On the proposition in the Motion to Dismiss that respondent has come to court with unclean
hands, suffice it to state that the determination of whether one acted in bad faith and whether
damages may be awarded is evidentiary in nature. Thus, we have previously held that [a]s a
matter of defense, it can be best passed upon after a full-blown trial on the merits.[29]

Jurisdiction over the person of petitioner

Petitioner alleges that the RTC has not acquired jurisdiction over its person on account of the
improper service of summons. Summons was served on petitioner through the DFA, with
respondents counsel personally bringing the summons and Complaint to the Philippine
Consulate General in Sydney, Australia.

In the pleadings filed by the parties before this Court, the parties entered into a lengthy debate
as to whether or not petitioner is doing business in the Philippines.However, such discussion is
completely irrelevant in the case at bar, for two reasons. Firstly, since the Complaint was filed
on August 30, 2005, the provisions of the 1997 Rules of Civil Procedure govern the service of
summons. Section 12, Rule 14 of said rules provides:

Sec. 12. Service upon foreign private juridical entity. When the defendant is a foreign private
juridical entity which has transacted business in the Philippines, service may be made on its
resident agent designated in accordance with law for that purpose, or, if there be no such
agent, on the government official designated by law to that effect, or on any of its officers or
agents within the Philippines. (Emphasis supplied.)

This is a significant amendment of the former Section 14 of said rule which previously
provided:

Sec. 14. Service upon private foreign corporations. If the defendant is a foreign corporation, or
a nonresident joint stock company or association, doing business in the Philippines, service
may be made on its resident agent designated in accordance with law for that purpose, or if
there be no such agent, on the government official designated by law to that effect, or on any
of its officers or agents within the Philippines. (Emphasis supplied.)

The coverage of the present rule is thus broader.[30] Secondly, the service of summons to
petitioner through the DFA by the conveyance of the summons to the Philippine Consulate
General in Sydney, Australia was clearly made not through the above-quoted Section 12, but
pursuant to Section 15 of the same rule which provides:

Sec. 15. Extraterritorial service. When the defendant does not reside and is not found in the
Philippines, and the action affects the personal status of the plaintiff or relates to, or the subject
of which is property within the Philippines, in which the defendant has or claims a lien or
interest, actual or contingent, or in which the relief demanded consists, wholly or in part, in
excluding the defendant from any interest therein, or the property of the defendant has been
attached within the Philippines, service may, by leave of court, be effected out of the
Philippines by personal service as under section 6; or by publication in a newspaper of general
circulation in such places and for such time as the court may order, in which case a copy of the
summons and order of the court shall be sent by registered mail to the last known address of
the defendant, or in any other manner the court may deem sufficient. Any order granting such
leave shall specify a reasonable time, which shall not be less than sixty (60) days after notice,
within which the defendant must answer.

Respondent argues[31] that extraterritorial service of summons upon foreign private juridical
entities is not proscribed under the Rules of Court, and is in fact within the authority of the trial
court to adopt, in accordance with Section 6, Rule 135:
Sec. 6. Means to carry jurisdiction into effect. When by law jurisdiction is conferred on a court
or judicial officer, all auxiliary writs, processes and other means necessary to carry it into effect
may be employed by such court or officer; and if the procedure to be followed in the exercise
of such jurisdiction is not specifically pointed out by law or by these rules, any suitable process
or mode of proceeding may be adopted which appears comformable to the spirit of said law or
rules.

Section 15, Rule 14, however, is the specific provision dealing precisely with the service of
summons on a defendant which does not reside and is not found in the Philippines, while Rule
135 (which is in Part V of the Rules of Court entitled Legal Ethics) concerns the general
powers and duties of courts and judicial officers.

Breaking down Section 15, Rule 14, it is apparent that there are only four instances wherein a
defendant who is a non-resident and is not found in the country may be served with summons
by extraterritorial service, to wit: (1) when the action affects the personal status of the plaintiffs;
(2) when the action relates to, or the subject of which is property, within the Philippines, in
which the defendant claims a lien or an interest, actual or contingent; (3) when the relief
demanded in such action consists, wholly or in part, in excluding the defendant from any
interest in property located in the Philippines; and (4) when the defendant non-resident's
property has been attached within the Philippines. In these instances, service of summons
may be effected by (a) personal service out of the country, with leave of court; (b) publication,
also with leave of court; or (c) any other manner the court may deem sufficient. [32]

Proceeding from this enumeration, we held in Perkin Elmer Singapore Pte Ltd. v. Dakila
Trading Corporation[33] that:

Undoubtedly, extraterritorial service of summons applies only where the action is in

rem or quasi in rem, but not if an action is in personam.

When the case instituted is an action in rem or quasi in rem, Philippine courts already have
jurisdiction to hear and decide the case because, in actions in rem and quasi in rem,
jurisdiction over the person of the defendant is not a prerequisite to confer jurisdiction on the
court, provided that the court acquires jurisdiction over the res. Thus, in such instance,
extraterritorial service of summons can be made upon the defendant. The said extraterritorial
service of summons is not for the purpose of vesting the court with jurisdiction, but for
complying with the requirements of fair play or due process, so that the defendant will be
informed of the pendency of the action against him and the possibility that property in the
Philippines belonging to him or in which he has an interest may be subjected to a judgment in
favor of the plaintiff, and he can thereby take steps to protect his interest if he is so minded. On
the other hand, when the defendant or respondent does not reside and is not found in the
Philippines, and the action involved is in personam, Philippine courts cannot try any case
against him because of the impossibility of acquiring jurisdiction over his person unless he
voluntarily appears in court.[34] (Emphases supplied.)

In Domagas v. Jensen,[35] we held that:

[T]he aim and object of an action determine its character. Whether a proceeding is in rem, or in
personam, or quasi in rem for that matter, is determined by its nature and purpose, and by
these only. A proceeding in personam is a proceeding to enforce personal rights and
obligations brought against the person and is based on the jurisdiction of the person, although
it may involve his right to, or the exercise of ownership of, specific property, or seek to compel
him to control or dispose of it in accordance with the mandate of the court. The purpose of a
proceeding in personam is to impose, through the judgment of a court, some responsibility or
liability directly upon the person of the defendant. Of this character are suits to compel a
defendant to specifically perform some act or actions to fasten a pecuniary liability on him. [36]

It is likewise settled that [a]n action in personam is lodged against a person based on personal
liability; an action in rem is directed against the thing itself instead of the person; while an
action quasi in rem names a person as defendant, but its object is to subject that persons
interest in a property to a corresponding lien or obligation.[37]

The Complaint in the case at bar is an action to declare the loan and Hedging Contracts
between the parties void with a prayer for damages. It is a suit in which the plaintiff seeks to be
freed from its obligations to the defendant under a contract and to hold said defendant
pecuniarily liable to the plaintiff for entering into such contract. It is therefore an action in
personam, unless and until the plaintiff attaches a property within the Philippines belonging to
the defendant, in which case the action will be converted to one quasi in rem.

Since the action involved in the case at bar is in personam and since the defendant, petitioner
Rothschild/Investec, does not reside and is not found in the Philippines, the Philippine courts
cannot try any case against it because of the impossibility of acquiring jurisdiction over its
person unless it voluntarily appears in court.[38]

In this regard, respondent vigorously argues that petitioner should be held to have voluntarily
appeared before the trial court when it prayed for, and was actually afforded, specific reliefs
from the trial court.[39] Respondent points out that while petitioners Motion to Dismiss was still
pending, petitioner prayed for and was able to avail of modes of discovery against respondent,
such as written interrogatories, requests for admission, deposition, and motions for production
of documents.[40]

Petitioner counters that under this Courts ruling in the leading case of La Naval Drug
Corporation v. Court of Appeals,[41] a party may file a Motion to Dismiss on the ground of lack
of jurisdiction over its person, and at the same time raise affirmative defenses and pray for
affirmative relief, without waiving its objection to the acquisition of jurisdiction over its
person.[42]

It appears, however, that petitioner misunderstood our ruling in La Naval. A close reading of La
Naval reveals that the Court intended a distinction between the raising of affirmative
defenses in an Answer (which would not amount to acceptance of the jurisdiction of the court)
and the prayer for affirmative reliefs (whichwould be considered acquiescence to the
jurisdiction of the court):

In the same manner that a plaintiff may assert two or more causes of action in a court suit, a
defendant is likewise expressly allowed, under Section 2, Rule 8, of the Rules of Court, to put
up his own defenses alternatively or even hypothetically. Indeed, under Section 2, Rule 9, of
the Rules of Court, defenses and objections not pleaded either in a motion to dismiss or in an
answer, except for the failure to state a cause of action, are deemed waived. We take this to
mean that a defendant may, in fact, feel enjoined to set up, along with his objection to the
court's jurisdiction over his person, all other possible defenses. It thus appears that it is not the
invocation of any of such defenses, but the failure to so raise them, that can result in waiver or
estoppel. By defenses, of course, we refer to the grounds provided for in Rule 16 of the Rules
of Court that must be asserted in a motion to dismiss or by way of affirmative defenses in an
answer.

Mindful of the foregoing, in Signetics Corporation vs. Court of Appeals and Freuhauf
Electronics Phils., Inc. (225 SCRA 737, 738), we lately ruled:

This is not to say, however, that the petitioner's right to question the jurisdiction of the court
over its person is now to be deemed a foreclosed matter. If it is true, as Signetics claims, that
its only involvement in the Philippines was through a passive investment in Sigfil, which it even
later disposed of, and that TEAM Pacific is not its agent, then it cannot really be said to be
doing business in the Philippines. It is a defense, however, that requires the contravention of
the allegations of the complaint, as well as a full ventilation, in effect, of the main merits of the
case, which should not thus be within the province of a mere motion to dismiss. So, also, the
issue posed by the petitioner as to whether a foreign corporation which has done business in
the country, but which has ceased to do business at the time of the filing of a complaint, can
still be made to answer for a cause of action which accrued while it was doing business, is
another matter that would yet have to await the reception and admission of evidence. Since
these points have seasonably been raised by the petitioner, there should be no real cause for
what may understandably be its apprehension, i.e., that by its participation during the trial on
the merits, it may, absent an invocation of separate or independent reliefs of its own, be
considered to have voluntarily submitted itself to the court's jurisdiction. [43] (Emphases
supplied.)

In order to conform to the ruling in La Naval, which was decided by this Court in 1994, the
former Section 23, Rule 14[44] concerning voluntary appearance was amended to include a
second sentence in its equivalent provision in the 1997 Rules of Civil Procedure:

SEC. 20. Voluntary appearance. The defendant's voluntary appearance in the action shall be
equivalent to service of summons. The inclusion in a motion to dismiss of other grounds aside
from lack of jurisdiction over the person of the defendant shall not be deemed a voluntary
appearance. (Emphasis supplied.)

The new second sentence, it can be observed, merely mentions other grounds in a Motion to
Dismiss aside from lack of jurisdiction over the person of the defendant. This clearly refers to
affirmative defenses, rather than affirmative reliefs.

Thus, while mindful of our ruling in La Naval and the new Section 20, Rule 20, this Court, in
several cases, ruled that seeking affirmative relief in a court is tantamount to voluntary
appearance therein.[45] Thus, in Philippine Commercial International Bank v. Dy Hong
Pi,[46] wherein defendants filed a Motion for Inhibition without submitting themselves to the
jurisdiction of this Honorable Court subsequent to their filing of a Motion to Dismiss (for Lack of
Jurisdiction), we held:

Besides, any lingering doubts on the issue of voluntary appearance dissipate when the
respondents' motion for inhibition is considered. This motion seeks a sole relief: inhibition of
Judge Napoleon Inoturan from further hearing the case. Evidently, by seeking affirmative relief
other than dismissal of the case, respondents manifested their voluntary submission to the
court's jurisdiction. It is well-settled that the active participation of a party in the proceedings is
tantamount to an invocation of the court's jurisdiction and a willingness to abide by the
resolution of the case, and will bar said party from later on impugning the court's
jurisdiction.[47] (Emphasis supplied.)

In view of the above, we therefore rule that petitioner, by seeking affirmative reliefs from the
trial court, is deemed to have voluntarily submitted to the jurisdiction of said court. A party
cannot invoke the jurisdiction of a court to secure affirmative relief against his opponent and
after obtaining or failing to obtain such relief, repudiate or question that same
jurisdiction.[48] Consequently, the trial court cannot be considered to have committed grave
abuse of discretion amounting to lack or excess of jurisdiction in the denial of the Motion to
Dismiss on account of failure to acquire jurisdiction over the person of the defendant.

WHEREFORE, the Petition for Review on Certiorari is DENIED. The Decision of the Court of
Appeals dated September 8, 2006 and its Resolution dated December 12, 2006 in CA-G.R. SP
No. 94382 are hereby AFFIRMED.

No pronouncement as to costs.

SO ORDERED.